Priceline Group Inc. (NASDAQ: PCLN) reported a strong third quarter earnings, beating analysts’ estimates, but shares fell after the company had provided a disappointing fourth quarter guidance.
For the third quarter, Priceline reported revenue of $4.4 billion, increasing 22 percent year over year, and beating Thomson Reuters analysts’ estimates of $4.34 billion. The company reported an EPS of $35.22, increasing 19 percent year over year, and beating Thomson Reuters analysts’ estimates of $34.25. Gross bookings were $21.8 billion, increasing 18 percent year over year, and beating StreetAccount analysts’ estimates of $21.45 billion.
International operation contributed $4 billion alone to gross profits, increasing 23 percent year over year. Glenn Fogel, CEO and chairman of Priceline, stated that China is currently the company’s most important market, but said in the conference call that the market is very competitive.
Room nights revenue showed a 18.6 percent growth year over year and car rentals showed a 5.5 percent increase year over year, while airline ticket revenue fell 11.8 percent year over year.
"The Priceline Group delivered solid growth and operating results during our seasonally busy third quarter," said Fogel, “As we look to the fourth quarter and beyond, we will continue to focus on making the right investments across our brands - in people, systems, and marketing - to continue to grow our business for the long term."
The competition for traveling related businesses is growing intensely, and poses a threat to Priceline. TripAdvisor shares plunged as well on Tuesday due to poor earnings and rising competition. Expedia shares also plummeted back in October for the same reasons.
Hotels have begun to incentivize guests who book through their own platform instead of third party sites, according to CNBC. There are also other growing competitors, such as Airbnb, that make the online booking business growingly competitive.
"I'm not naive; I recognize we are not the leader in this space right now," he said. "There is a competitor who is a little bit bigger and doing a little bit better I suspect in this area than we are. And that's why we are going to invest money," Fogel said, according to CNBC.
"Like its closest competitor (referring to TripAdvisor), Expedia, Priceline has entered a period of increased spend, combined with a shift in customer acquisition strategy," wrote Michael Olson, Piper Jaffray analyst, to clients. "While this is likely the right long-term strategy to drive higher repeat traffic rates and an improving overall advertising return on investment, we expect some degree of ongoing negative impact into 2018."
Deutsche Bank analysts maintain a rating of hold, while Morgan Stanley analysts maintain a rating of overweight.
Priceline provides a neutral guidance for the fourth quarter due to the less consumer spending. For the fourth quarter, Priceline estimates gross profit year over year growth to be between 10.5 percent to 15.5 percent. The company expects an EPS on non-GAAP basis of $13.40 to $14.00.