International growth leads the way
Priceline Group’s (PCLN) gross bookings grew by about 19% YoY (year-over-year) during 2Q16. These strong international bookings drove overall bookings and helped offset the weakness seen in the domestic bookings market. For 2Q16, international bookings grew by 16% while domestic bookings declined by 8%.
The penetration of the Internet in international markets has been far less than in the United States. As international customers rapidly shift to online transactions, international travel growth is expected to exceed that of the US.
This performance was dampened by the appreciation of the US dollar. Since Priceline has a widespread international presence, it’s prone to currency fluctuation risks. The dollar continued to remain strong against many currencies including the British pound, which was devalued after the UK’s Brexit vote to leave the EU. PCLN earns 10% of its gross profits from the UK. The impact of this can be understood from the fact that PCLN’s currency-neutral gross bookings growth stood at a strong 21% YoY.
Revenue growth and outlook
The strong upsurge in bookings helped PCLN record a strong top line growth. Priceline’s revenue grew by 12% to ~$2.6 billion, as compared to ~$2.3 billion in 2Q15.
As discussed in the previous part of this series, the hotel business will continue to be PCLN’s key revenue driver in 2016. As the size of international travel far exceeds that of the US, growth in international business will be crucial to Priceline’s future growth.
PCLN earns almost 80% of its revenues from international markets and is well positioned to capture the growing opportunity in emerging markets. China alone will be a major growth driver, given that its online travel is growing at a rapid pace. PCLN’s partnership with Ctrip.com (CTRP), China’s leading OTA player, will certainly help. Rivals Expedia (EXPE) and TripAdvisor (TRIP) have failed to take advantage of this venue.
For 3Q16, PCLN said that it continues to see strong international demand across all regions and channels. The company expects to see its revenues grow somewhere between 12% and 17% YoY and its gross bookings grow by 14%–19% YoY during the same period.
Overall, it seems like Priceline is set for another year of growth, though it continues to be subdued by the strong US dollar. Notably, PCLN makes up ~2.7% of the PowerShares DWA Momentum Portfolio (PDP).
In the next part, we’ll discuss Priceline’s margins.