uploads///Margins

Do Analyst Estimates Suggest that Priceline’s Margins Have Peaked?

By

Updated

Analyst estimates

For 4Q15, analysts are estimating Priceline’s (PCLN) EBITDA (earnings before interest, tax, depreciation, and amortization) to grow by 5% to $749 million with an EBITDA margin of 38%. For fiscal 2015, its EBITDA is expected to grow by 7% to $3,695 million with an EBITDA margin of 40.3%, a decline as compared to 2014.

Priceline’s EBITDA margins are expected to increase marginally to 40.6% in 2016 and then rise in 2017 to 41.7%. As a result, its EBITDA growth is expected to increase to 16% and 18% in 2016 and 2017, respectively, much higher than the growth seen in 2015.

Expedia’s (EXPE) margins are also expected to increase to 19% in 2016 from 17% in 2015. TripAdvisor’s (TRIP) margins are expected to constant at 31% and Ctrip’s (CTRP) margins are expected to increase to 14% in 2016 from 9% in 2015.

Article continues below advertisement

Strong US dollar impacts

Priceline earns significant revenues from international markets, where it books revenues in local currencies. The US dollar has strengthened significantly in the past year against most currencies. This meant lower dollar revenues for PCLN.

As a result, its gross profits growth has been subdued too. PCLN reported a gross profit growth of just 12% in 3Q15, which would have been 29% without the currency headwinds. EBITDA margins are also expected to decline.

Outlook

PCLN expects the strong US dollar to be a drag on its short-term revenues. Accordingly, it has issued a muted guidance for 4Q15. However, the dollar may not remain strong forever, and any depreciation in the dollar would mean higher revenues and profits for PCLN.

PCLN forms ~3.12% holding of the PowerShares Russell Top 200 Pure Growth Portfolio ETF (PXLG).

Advertisement

More From Market Realist