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Here's How Priceline Is Aiming To Grow Its Share In The Accommodation Booking Market


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Priceline ( PCLN ), the world’s largest online travel agent, experienced a robust 2017, going by its performance in the first nine months of 2017. The company derives over 90% of its revenues from accommodation reservations and in this segment, its star performer is Booking.com. However, though Priceline’s accommodation booking growth still continues, the rate of growth is gradually decelerating. As Priceline’s size keeps growing, the rate of growth is expected to slow down gradually. However, that said, Priceline still has a small share of the online travel market, even though it is a market leader, and there is a huge scope for growth. Hence toward this end, the company is gearing up Booking.com to grab a greater piece of the market share. Along with a greater focus on alternative accommodations (a segment whose growth rate outpaces that of the traditional hotel bookings), Priceline is also investing heavily in television ads for Booking.com while gradually lessening its digital ad spends. If this marketing strategy indeed works for the company, then it can end up with a higher share of the accommodation booking market, consequently leading to a significant boost in our price estimate for the company. We have a price estimate of $1,790 for Priceline’s stock which is ~6% lower than its current price.

Priceline Is Looking Forward To Capturing A Bigger Chunk Of The Accommodations Market

Priceline’s Booking.com is the most popular online accommodation booking platform in the world. Till the end of September 2017, Booking.com had 1.5 million bookable properties on its platform (with 26.9 million potentially bookable rooms) reflecting a 41% year-over-year growth. However, even though it is the largest OTA in the world right now, Priceline’s share in the global travel market is still in mere single digit percentage and the scope for future growth is still significant. In order to gain a larger chunk of the online travel market pie, especially in the accommodation booking segment (from where it derives around 90% of its total revenues), the company has significantly geared up its television advertisement spend while sacrificing the digital ad spend to a large extent. This might be the first big change in policy decision that Priceline Group CEO Glenn Fogel undertook since he came to office in January 2017. In its Q3 2017 earnings call, Priceline announced its intention to gear up on TV advertising for its biggest brand, Booking.com, currently the world’s most popular accommodation booking platform. The company wishes to bring in more direct booking customers on to its platform and hence it will be focusing more on TV ads which it believes will not only aid in attracting more users to the Booking.com platform but will also help in building awareness about its vacation rentals offerings, which it is focusing on in a big way to drive future growth. By the end of Q3 2017, Booking.com had over 816,000 vacation rental properties reflecting a 58% year-over-year growth rate. The TV ads for Booking.com were viewed in around 30 countries by the end of 2017, as against the 12 countries in which they were aired in 2016. Even though these marketing efforts will dampen Priceline’s margins in the short run, the management believes that it will generate enough returns to justify the current investment.

The significance of this decision lies in the fact that not only is this a risk Priceline is taking to shake up its media presence, but this decision might adversely impact companies such as TripAdvisor, Google, and Trivago, the metasearch engines where it has spent the largest chunks of its advertisement dollars. Priceline has until now been the largest OTA spender in digital advertising. The company has revved up its brand advertising by 55% in Q3 2017 to drive traffic directly to its websites. However, this boost in advertising, especially television advertising, is expected to continue, which may put pressure on the company’s bottom line over the next few quarters.

As per our estimate, Priceline currently has around 16% market share of the occupied hotel rooms that is expected to grow marginally to 17% by the end of our forecast period. However, if Priceline is successful in capturing a bigger market share and its occupied hotel rooms share increases to 20%, then there can be an over 10% upside to our current stock price estimate for the company.

Editor’s Note: We care deeply about your inputs, and want to ensure our content is increasingly more useful to you. Please let us know what/why you liked or disliked in this article, and importantly, alternative analyses you want to see. Drop us a line at [email protected]

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email [email protected]

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Priceline

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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