Priceline and Expedia: The Road Less Traveled EXPE, PCLN
Oddly enough, Priceline hit a 52-week high this last week and Expedia hit a 52-week low. On the face of it, this seems to make no sense. The businesses of the two companies are not radically different, and Expedia is larger, with more market share and resource.
Priceline has a trading range from $18.20 to $32.16 and is now at $31.40. Expedia has a range of $13.36 to $27.55 and now trades at $13.99.
In the quarter ending March 31, Expedia’s revenue rose to $493.9 million from $485 a year earlier. Not thrilling by any means. Operating income dropped to $26.2 million from $66.3 million as G&A and marketing costs ran up. Expedia said it intends to continue spending to expand it brands, particularly overseas. The company does expect improvement in its G&A costs now that its IPO is behind it. According to Morgan Stanley analyst Christopher Gutek, Expedia could “get interesting” if it trades in the mid-teens because although the first quarter results were disappointing, cash -flow has stayed strong “which may allow performance to recover some in a few quarters”. Well, a price of $13.99 should qualify.
Priceline, on the other hand, did not have a spectacular first quarter either, although its booking rose sharply, which should help in future periods. Revenue was $241.9 million up 3.7% over the year earlier, but the 2006 results including revenue from a company Priceline had acquired, Bookings B.V. The company also said that revenue in Q2 should increase 8% to 12% from a year earlier. But, Priceline had an operating loss of $1.2 million compared to an operating profit in Q1 05 of $5.2 million. And, online marketing costs more than doubled to $21.9 million.
Priceline was more optimistic about its upcoming quarters that Expedia was, but that is not always a perfect indication of what will happen to revenue or earnings.
Priceline may have the better metrics now, but Expedia has substantially more resources, and is unlikely to give up the ghost easily. The online travel market is know for its vicious competition, so neither company is immune to problems arising from other travel sites, including those owned by the airlines, hotels and car rental firms.
But, the disparity in the trading of the two stocks is too extreme. The valuation of one of them is off, perhaps considerably.
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.
Priceline has a trading range from $18.20 to $32.16 and is now at $31.40. Expedia has a range of $13.36 to $27.55 and now trades at $13.99.
In the quarter ending March 31, Expedia’s revenue rose to $493.9 million from $485 a year earlier. Not thrilling by any means. Operating income dropped to $26.2 million from $66.3 million as G&A and marketing costs ran up. Expedia said it intends to continue spending to expand it brands, particularly overseas. The company does expect improvement in its G&A costs now that its IPO is behind it. According to Morgan Stanley analyst Christopher Gutek, Expedia could “get interesting” if it trades in the mid-teens because although the first quarter results were disappointing, cash -flow has stayed strong “which may allow performance to recover some in a few quarters”. Well, a price of $13.99 should qualify.
Priceline, on the other hand, did not have a spectacular first quarter either, although its booking rose sharply, which should help in future periods. Revenue was $241.9 million up 3.7% over the year earlier, but the 2006 results including revenue from a company Priceline had acquired, Bookings B.V. The company also said that revenue in Q2 should increase 8% to 12% from a year earlier. But, Priceline had an operating loss of $1.2 million compared to an operating profit in Q1 05 of $5.2 million. And, online marketing costs more than doubled to $21.9 million.
Priceline was more optimistic about its upcoming quarters that Expedia was, but that is not always a perfect indication of what will happen to revenue or earnings.
Priceline may have the better metrics now, but Expedia has substantially more resources, and is unlikely to give up the ghost easily. The online travel market is know for its vicious competition, so neither company is immune to problems arising from other travel sites, including those owned by the airlines, hotels and car rental firms.
But, the disparity in the trading of the two stocks is too extreme. The valuation of one of them is off, perhaps considerably.
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.
posted by douglas mcintyre at 5:10 AM
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