Undervalued Priceline Continues to Deliver

Despite near-term headwinds (terrorism and political uncertainty) in the travel industry, narrow moat-rated

We plan to increase our existing 19% 2016 bookings growth forecast by a few percent, offset by lower advertising revenue, as the OpenTable brand ramps slower than expected leading to Priceline taking a $941 million noncash impairment charge this quarter (35% of the $2.6 billion purchase price). As a result, we don’t expect our $1,790 fair value estimate (which assumes low-double-digit annual topline growth for the next five years with operating margins nearing 40% in 2020 from 35% in 2015) to change much other than for the time value of money, still leaving shares of this high-quality company undervalued.

Priceline noted booking strength was across all its regions and has continued into the fourth quarter. This continues to contrast the slower growth many hotel operators are seeing, illustrating the global reach and power of the company’s aggregated platform, in our opinion. We also reiterate our view that industry competitive threats (Airbnb, Google, TripAdvisor’s Instant Book, and hotel direct bookings) are manageable, which continues to be supported by the company’s stable commission rates.

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