Priceline Group Inc (PCLN): Wedgewood Cuts Stake But Still Sees Value In It

Missouri-based investment firm Wedgewood Partners trimmed its position in Priceline Group Inc (NASDAQ:PCLN) last year but the investor still sees a value in the $95-billion market cap provider of online travel and related services. In its Q4 investor letter (you can download a copy here), Wedgewood discussed Priceline Group and other companies – we’ve already covered Apple, Celgene, and Kraft Heinz. In this piece, we are going to take a look at Wedgewood’s comments about Priceline.

Here is everything that Wedgewood said about the online travel services company:

Priceline’s shares underperformed the benchmark after reporting +18% growth in travel bookings, +19% room night growth and +18% growth in adjusted EBITDA. Despite those strong results, we think most of the weakness is attributed to the Company’s guidance of a high-single-digit growth rate in bookings. Further, growth among Priceline’s largest peers in the online travel agency industry has slowed over the past few quarters, leading many to think the industry is slowing.

Though we trimmed our position earlier in the year, we continue to think the OTA industry remains underpenetrated, particularly international markets, where lodging supply is more fragmented. We also think some of the Company’s peers, particularly in “meta-search,” have failed to innovate and have resorted to competing directly with their OTA customers – including Priceline’s properties – and it represents an unsustainable strategy. As such, Priceline is in the process of shifting advertising spend – a critical component of demand generation – away from metasearch providers and towards alternative marketing channels, in order to drive better profitability from bookings growth.

While this might be having a near-term effect on Priceline’s booking growth, we also think the Company’s year-ago comparable of over +30% represents a temporary “optical” hurdle. However, we continue to see Priceline as capable of reaccelerating to a double-digit growth rate in an industry that, overall, is taking share of travel spending.

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Priceline Group Inc (NASDAQ:PCLN) provides online travel and related services in more than 200 countries through Booking.com, Priceline.com, KAYAK, Agoda.com, Rentalcars.com, and OpenTable.

For its third quarter of 2017, the online travel services provider reported financial results in November. It had gross travel bookings of $21.8 billion, up 18% year-over-year. Its gross profit for the quarter was $4.4 billion, representing a 22% increase from the prior year. The company posted net income of $1.7 billion, which is up whopping 240% compared to the same in 2016 and included a $941 million goodwill impairment charge. Earnings per share or EPS was $34.43, versus $10.13 per share in 2016.

Shares of Priceline Group Inc (NASDAQ:PCLN) have moved up more than 26% during the last 12 months. Since the beginning of this year, the share price has jumped 12.2%. The company trades with a trailing P/E ratio of 27.32x, versus the industry average of 29.7x.

Meanwhile, a number of hedge funds, tracked by us at Insider Monkey, also see a value in Priceline Group. According to Insider Monkey’s database, there are 83 funds that held PCLN in their portfolio at the end of the third quarter last year.