More Long-term Growth Is Expected for Priceline.com Inc (PCLN)

Summer is here, and it’s time to book a trip online for your vacation. For people who have booked a trip or bought tickets online before, then the business model of Priceline.com Inc (NASDAQ:PCLN) can be understood easier. Priceline.com Inc (NASDAQ:PCLN), a leading global online hotel reservation provider, owns and operates several brands, including Booking.com, Priceline.com, Agoda.com, Kayak.com and Rentalcars.com. Booking.com is the no. 1 online hotel reservation website in the world, offering over 295,000 hotels and accommodations.

Continuous strong buyback

Priceline.com is issuing $1 billion of convertible senior notes that are due 2020 with 0.35% interest rate per annum. The conversation price is about $1,315.10, representing around a 63.58% conversion premium based on the closing price of $803.93 on May 31, 2013. Part of the proceeds will be used for share repurchase and the remaining for general corporate purposes. Priceline.com Inc (NASDAQ:PCLN)’s Board of Directors had also authorized the repurchase of up to an additional $1 billion in common stocks, representing near 2.5% of current market cap for Priceline.com Inc (NASDAQ:PCLN). The company has been aggressively buying back stocks since 2010, allowing it to maintain its total outstanding shares at around 50 million without much dilution, as seen from the chart below.

Source: YCharts.com

Priceline.com Inc (NASDAQ:PCLN) has also managed to increase its revenue and profit margin year-over-year since 2009. The company’s earnings-per-share increased as well in the same period, as seen from the chart below.

Source: YCharts.com

Operating margin compression

Priceline.com Inc (NASDAQ:PCLN) continues to invest in its long-term growth. The management expects operating margin compression in the second quarter due to the company’s global expansion investment. It continues to build brand name awareness effectively by using a mix of offline and online marketing. Despite lower advertising efficiency, the company continues to invest into the mobile end as well which results in steady growth. Although there may be short-term margin pressure, the company continues to look healthy from the long-term perspective with its continuous growth and increasing brand name awareness. With the successful completion of its acquisition of Kayak Software on May 21, 2013, synergies can be created through Kayak’s international business and the company can also leverage Kayak to expand domestically in the United States.