Priceline shares plummet on weak European outlook

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A customer uses priceline.com, one of the Priceline Group’s online travel booking sites. / megan k. rauch / MEDILL

Megan K. Rauch

A dismal outlook for Priceline Group Inc.’s fourth quarter could not offset better-than-expected earnings for the third quarter, causing shares of the travel booking company to drop 8.4 percent Tuesday.

The company reported net income for the third quarter of $1.1 billion, or $20.03 per diluted share, up from $833 million, or $15.72 per diluted share, for the same period a year ago. Revenue rose 25 percent to $2.84 billion from $2.12 billion in last year’s third quarter.

Adjusting for special items, net income for the quarter was $1.2 billion, or $22.16 per diluted share. Analysts had estimated earnings of $21.07 per diluted share and revenue of $2.83 billion.

In the U.S., bookings were up 10 percent. “We feel good about our growing position in the United States travel market, and we plan to continue to profitably invest to improve our services and bring more customers to our site,” said Darren Houston, president and CEO.

However, Priceline conducts about 60 percent of its business in Europe, and weak growth in the region along with a weak euro have driven down the company’s outlook for the fourth quarter.

“A slew of macroeconomic headwinds and difficult comps point to growth deceleration in the remainder of the year,” said Adam Fleck, an analyst for Morningstar Inc.

Priceline estimated sales growth of between 11 and 18 percent for the fourth quarter. While still an improvement from the previous year, the company’s estimate is far below the 24 percent growth analysts predicted.

Likewise, bookings are expected to grow between 8 and 15 percent for the fourth quarter, according to the company, but this growth is drastically lower than the 28 percent analysts predicted.

“Obviously, the deterioration in the euro exchange rate over the last couple of months is indicative of weakening economic conditions in our most important market, which is of concern as we look at the business going forward,” said Dan Finnegan, the company’s chief financial officer during the earnings call Wednesday.

The company is also suffering from a decrease in travel bookings to Southeast Asia. “The burning of factories in Vietnam and of course the two Malaysian air tragedies in particular have shaken a lot of confidence for a lot of travelers who are not experienced,” Houston said.

Priceline acknowledged that tougher competition in the market is also affecting the outlook for the fourth quarter.

Expedia, one of Priceline’s main competitors, also released its earnings Tuesday along with a healthier outlook for the fourth quarter. Expedia said it did not foresee significant negative effects from the challenges abroad.

Priceline’s Houston said recently acquired OpenTable, an online restaurant reservation service “performed well” in the third quarter. Priceline purchased the company in July for $2.6 billion. The Priceline Group also owns KAYAK, Priceline.com and booking.com.

Shares of the company fell $100.82 in Tuesday trading to close at  $1,097.70.