Narrow-Moat Priceline's Network Advantage Intact

We plan to lift our $2,030 fair value estimate by a low-single-digit percentage mostly to account for the time value of money, as

Priceline reported solid second-quarter bookings growth of 16% versus 12%-17% guidance and our 18% estimate. This represented first-half growth of 40% on a two-year stacked basis (to smooth out calendar shifts), an acceleration from the 31.5% two-year stacked lift seen in the prior period. We remain encouraged with third-quarter booking guidance of 11%-16% and plan to maintain our 15% forecast for the period, as the upper-end of the target range implies stable 40% growth on a two-year stack basis,

Agency revenue margin remained resilient at 11.4% during the first half of the year, up from 11.2% in the prior period, which we think supports Priceline’s strong competitive positioning. Additionally, although marketing ROI for the industry remains under pressure, we calculate the deterioration for Priceline is not accelerating. For instance, gross profit per advertising dollar was down 1% in the second quarter (down 7% on a two-year stack) versus the 6% drop seen in the prior period (down 13%), which we think speaks to Priceline’s marketing and conversion expertise. Also, Priceline’s network continues to strengthen, as total properties on booking.com reached over 1.3 million in the second quarter, up 39% from the prior year. More encouraging is that vacation rental properties reached 721,000, up 54%, the fourth straight quarter of acceleration.

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