Priceline.com Inc (PCLN): How to Play the Online Travel Business

Competitors

Priceline’s two main publicly traded competitors are Expedia and Orbitz Worldwide, Inc. (NYSE:OWW). Here is how they compare:

Although Orbitz has an incalculable P/E, it could still be a bit expensive after a nearly 200% run up in its stock price year-to-date. Yet, there appears to be no material developments that would warrant such a move. The positive 4Q results support some of the upward move in the stock, where revenue was up 7% year-over-year on higher hotel volume; however, I don’t feel it supports the full 200% run up in the stock.

Hotel net revenue accounts for some 40% of Orbitz’s revenue, and so any ripple in a rebounding economy could put a strain on the company’s top line. This is especially true considering that Orbitz’s airline revenue booking revenue remains weak. What’s more is that over the past five years, Orbitz has traded at an average 280% premium to the S&P 500 P/E, but its current P/E is incalculable. Gotham Asset Management, one of Orbitz’s top hedge fund owners by shares, sold off 16% of its shares last quarter (see Gotham’s portfolio).

Assessment

As you can see from the table, Priceline is the better bet. It has the largest market cap, fastest quarterly revenue growth, highest operating margins, highest profits, and the lowest P/E. Based on these metrics, Priceline is the stock to own of the three.

Priceline is making the right moves for the long-run. The company already dominates the international travel market and that is where the fastest growth is. Neither Expedia nor Orbitz have made the inroads in the international market like Priceline.

Expedia and Orbitz need to be more concerned now that Priceline is turning its attention back to the U.S. market. As Priceline rolls out booking.com in the U.S., that will take further business away from Exedia and Orbitz. Even at $800 a share, Priceline still has room to grow in its markets.

The article How to Play the Online Travel Business originally appeared on Fool.com and is written by Marshall Hargrave.