iahphx

As a self-proclaimed travel expert -- and professional investor -- I sometimes try to apply my knowledge of the travel industry to my investments. It's the old Peter Lynch model (sorely challenged by momentum investing and such these days) that you should own what you know.

The last couple of years has again seen "crazy" investor enthusiasm for Priceline (PCLN) stock. The market cap of the company is now over $31 billion (which I believe is more than the entire USA airline industry combined) and the stock is trading for $631. At first glance, and perhaps second glance, this seems nuts.

As I'm sure most Flyertalkers agree, Priceline offers a useful service -- particularly with regard to 3 and 4 star hotels, where you can sometimes get a good deal with their "name your own price" bidding option. You can also sometimes save some money naming your own price on car rentals. It's a useful tool -- but only one tool of many for the savvy traveller. Personally, my use of Priceline's hotel bidding system has declined in recent years, as their hotel rates have generally gone up and I've found other ways to get good deals on hotels. While "naming your price" on an unknown hotel is interesting, it's also risky -- reading tripadvisor reviews and booking a specific hotel at a good rate usually results in a better experience.

Outside of this "name your own price" method -- which has limited competitors, most notably Hotwire -- Priceline has always seemed like a "garden variety" online travel agency. And not a particularly sophisticated one at that -- their booking engine is a bit clunky to me (perhaps to keep it simple for the masses). And, occasionally, they offer slightly lower "regular" hotel rates, but perhaps no more often than other online agencies. The only reason to buy an airline ticket from them (name your own price doesn't work well for this, and the airlines generally don't encourage it) is to get a cashback rebate, which obviously comes out of Priceline's pocket.

So it's hard to get too excited about Priceline's business model at $31 billion -- at least domestically. But Wall Street seems to think they have great overseas growth prospects (I haven't personally crunched the numbers on this). This seems plausible, but I'm a little skeptical. There seem to be plenty of foreign travel agencies: what will give Priceline an advantage? Their "name your own price" method is probably less likely to be successful, because that's a game largely played by the big hotel chains, which are less prevalent overseas (and the foreign hotel chains seem less enamored by the practice than the American chains; like when I get a winning bid in Europe, 4 out of 5 times it's with an American chain).

So what do you guys think: is this stock hype or substance. Should I invest in the company here (which, admittedly seems a bit crazy to me), go short the stock, or just watch the spectacle from the sidelines?

iahphx

BTW, here's some more food for thought from a news story today. It turns out the vast majority of Priceline's profits come from their ownership of Booking.com -- what has always seemed like a garden-variety online travel agency to me. And, consistent with my own booking preferences, their "name your own price" hotel model is suffering a bit due to competition, and they're de-emphasizing it.

http://www.ft.com/intl/cms/s/0/157ef...#axzz1nd5IAUfM

I'll have to do some more research, but this looks to me like a "short it and forget about it" stock. A classic internet hype story.

cordelli

A few years ago, Priceline was selling for what, thirty bucks a share (adjusted for the splits over the years).

Last year at this time it was selling for $450 a share.

Today, a year later it's selling for $633 a share.

You almost have to be incredibly unlucky to lose money with Priceline in recent years.

SkeptiCallie

OP, is it possible to correct the thread title? You presumably meant to type "investor enthusiasm" rather than "inventor enthusiasm"?

iahphx

Yup, I'll ask the moderator to fix my typo. Thanks.

Dr_wanderlust

Priceline's revenue is highly dependent on European hotels so the stock can be a good way to address dollar/Euro fluctuations short of forex markets.

Edited to add: PL's revenue from Latin America is growing very fast. A non-US centric view of the firm is needed to fully understand its revenues. That said, I do not own any pcln although I have in the past. I would not be a buyer today mainly on a valuation basis; not on the basis of its business model(s).

iahphx

There's got to be better currency plays than this independently-speculative vehicle.

I dunno. This reminds me of the early internet bubble -- which swept up PCLN only to see it crash (and then be miraculously reborn).

The only justification I can see for Priceline's market cap is a theory that they have something unique to offer that nobody else does. Realistically, that could only be their "name your own price" model, which admittedly is pretty unique. But the company is saying that prospects for growth in that segment of their business is limited -- that they're going to make their money as a "traditional" online travel agency. Personally, I don't think that's a great business, and I don't see anything particularly special that priceline brings to the table.

Not that I think priceline will fail, just that it seems significantly overpriced.

Unless somebody can come up with a rationale why they will kick their competitors' butts without a proprietary advantage.

Dr_wanderlust

Pcln had nearly 1 billion in revenue last quarter and creeping closer to supplanting Expedia as the largest online booking site.

I don't see how you can conclude it is an internet hype story when pcln makes money and has an operating margin over 30%. Pcln might still be a good short bet, but its revenue and operating margins are not hype. Compared to Expedia or Orbitz pcln's fundamentals look very good as a growth story although to me its P/E is too high to get in now.

I guess for me a hype story would be something like groupon at its IPO and other unprofitable internet stocks or something like Travelzoo which has a P/E of over 100 last time I checked.

BearX220

It's a proven business (the non-NYOP end) but PL doesn't bring anything particularly special to the party. NYOP is cyclical with the economy and energy prices -- the deals get less impressive when things are clicking.

It's no bubble and there's been great recent growth but I dunno how far it has left to run. I always think when the coverage gets really fawning and prompts all these noobs to rush in trying for a late piece of the action, it's time to fold and get out quietly.

mikeef

Just remember this classic saying: The market can stay irrational longer than you can stay solvent.

Mike

iahphx

Absolutely. Our current USA investment system is based on piling into bubbles. I don't think it's good for our country, but "fundamental investing" has generally not been the path to riches for over a decade.

That said, a high cap company like this one with no obvious strategic advantage is due for a tumble. I mean, their CEO says their many reason for existence -- the "name your own price" concept -- isn't working well. If PCLN's market cap isn't lower in 2 years, somebody should come back to this thread and call me a fool.

Anyone want to wager a drink coupon on that?

BTW, somebody mentioned Travelzoo, too. I would agree that doesn't look like the greatest business model to me, but at least their market cap is under a half billion. They could get bought out by somebody with even more funny money to spend.

ranman1973

With just shy of 10,000 posts, yeah, I think it's safe to proclaim yourself as a travel expert. I'm nearing the 100 post mark after almost 3 years here. (I'm more of a lurker than a poster )

BearX220

We have plenty of FTers with 10k+ posts to their name who appear not to know a bleedin' thing about travel, but iahphx is not among them.

iahphx

Whew -- my self-proclaimed status is intact.

I'm a little afraid to short anything here because the Feds cheap money is still pumping up Wall Street's riskiest stocks. I'll have to look if there's even PCLN stock available to short. Often, in circumstances like this, the brokerage houses can't find shares for you to "borrow" and short.

iahphx

Well, if you're the sort of person who follows these things, you may have heard that Yelp went public today. Initial market cap: a mere $1.5 billion.

I suspect that almost everyone reading this post has been on yelp at some point. I often look at their restaurant reviews -- particularly when I'm travelling outside my hometown in the USA. My most common use is to try to see if a restaurant offering a coupon on restaurant.com is any good.

And while they don't currently have much revenue, I remember the scene from "The Social Network" movie where Facebook's Zuckerberg proselytizes against trying to make a fast buck on his rapidly-growing site. He says it's better to see "what it becomes," and then cash in.

That makes sense to me with regard to Yelp, but it only makes sense if the market cap was, say, $100 million -- not $1.5 billion. The site clearly has some monetary potential, but that might also turn out not to be the case. That's the problem with investing in these types of companies in the current market dynamic: Wall Street prices them as if they're certain to succeed, where the reality is far more murky. That said, I'd trade 1 Priceline for 20 Yelps, making me think PCLN would be the better fundamental short. We already know what Priceline has become, but we don't know what Yelp will be.

http://www.marketwatch.com/story/yel...?siteid=yhoof2