Better alternatives?
Priceline’s price-to-earnings ratio of 30.9 could seem high for a company facing strong competition from meta-search engines in a cyclical market. But when compared against Tripadvisor Inc (NASDAQ:TRIP) (47.5) or Expedia Inc (NASDAQ:EXPE) (46.3), Priceline actually seems to be attractively valued at the moment.
Expedia Inc (NASDAQ:EXPE) is having a tough quarter after Tripadvisor Inc (NASDAQ:TRIP) (one of the main contributors to Expedia Inc (NASDAQ:EXPE)’s traffic) decided to shift to meta search display in the past quarter. The latest earnings call showed revenue grew only 16%, which was lower than consensus. Even worse, adjusted EBITDA fell 14% from a year ago, which shows Expedia Inc (NASDAQ:EXPE) is increasing its marketing spending to keep growth alive.
Furthermore, despite owning eLong (leading online travel planning website in China), Expedia has not been growing in international markets as much as competitor Priceline has. According to Morningstar, international bookings at Expedia Inc (NASDAQ:EXPE) have grown 30% annually since 2007, compared with Priceline’s 53%.
Now, Tripadvisor Inc (NASDAQ:TRIP) does look like a better alternative to Priceline. It showed strong growth in the second quarter of 2013, with a 25% year-over-year increase in revenue, driven by traffic growth. It achieved 220 million average unique monthly visitors last quarter, representing an increase of 57% year-over-year. Many new users are mobile-based, evidencing the merits of establishing strategic partnerships. An example: Tripadvisor Inc (NASDAQ:TRIP) entered into a partnership with Samsung to make its application the only travel application to come pre-installed on the new Samsung Galaxy S4.
Final foolish thoughts
I’m a careful Priceline.com Inc (NASDAQ:PCLN) bull. The high volatility in travel demand is a well-known fact as evidenced by the historical price share movements of Priceline.
It is also important to not to overestimate Priceline’s capacity of keeping high margins in this market, where meta search travel engines represent a short-term risk to traffic. However, Priceline’s problems are not unique. Expedia Inc (NASDAQ:EXPE) and Tripadvisor Inc (NASDAQ:TRIP) are also exposed to similar risks. In this context, Priceline’s relatively low price-to-earnings ratio and emerging presence in international markets indicate an attractive reward-to-risk ratio.
The article Why This Online Traveling Company Could Be in Trouble originally appeared on Fool.com and is written by Adrian Campos.
Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Priceline.com. The Motley Fool owns shares of Priceline.com.
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