PCLN - Priceline Group Inc.

[rishig]

Airbnb excels in the mid-term housing (say a 4-5 days to a few months) for travellers and special events or cities with limited hospitality options. Hotwire and Priceline work great for shorter term stays , resorts, vacations, fast booking. There is some overlap and it may get bigger. I can say that I almost never use Priceline & Hotwire anymore in favour of Airbnb but there is a lot of time and patience involved in say finding a place for a mere 3 or 4 days. There is no doubt they will take away some serious business from hotels.

 

I don't want to repeat myself. Read response #36.

[scorpioncapital]

I agree there is much work to be done to get people information on what is available on the ground. There is huge inventory that is not online and the network effect is definitely at work here.

[fareastwarriors]

Amazon Shutters Hotel-Booking Site After Six Months

 

http://www.bloomberg.com/news/articles/2015-10-14/amazon-shutters-destinations-booking-site-after-six-months

[Liberty]

Down almost 10%.

[rishig]

Down almost 10%.

 

Weaker than expected 4Q guidance due to weakness in US bookings. 4Q expected decline in U.S. bookings of 5%-10% and PCLN will stop providing U.S. bookings metrics from 2016 given that it is becoming a smaller portion of the overall.

 

[ZenaidaMacroura]

Down almost 10%.

 

Weaker than expected 4Q guidance due to weakness in US bookings. 4Q expected decline in U.S. bookings of 5%-10% and PCLN will stop providing U.S. bookings metrics from 2016 given that it is becoming a smaller portion of the overall.

Rishig,

 

Appreciate the commentary in this thread on PCLN - I was wondering how you see margins going forward?  Holding steady?

[rishig]

Down almost 10%.

 

Weaker than expected 4Q guidance due to weakness in US bookings. 4Q expected decline in U.S. bookings of 5%-10% and PCLN will stop providing U.S. bookings metrics from 2016 given that it is becoming a smaller portion of the overall.

Rishig,

 

Appreciate the commentary in this thread on PCLN - I was wondering how you see margins going forward?  Holding steady?

 

I have no particular insight on margins. Generally speaking, this is a fixed cost business with most of the spend being on advertising. However, growing advertising in-line with revenue or even faster than revenue is a wise thing to do. It hurts in the short-term but it strengthens its competitive position. It increases the barriers to entry because any new entrant that aspires to compete in this space has to have a large ad spend budget. Also, it keeps the traditional search engines out from this business, since it would cannibalize their business with one of their larger customer.

[Liberty]

I have no particular insight on margins. Generally speaking, this is a fixed cost business with most of the spend being on advertising. However, growing advertising in-line with revenue or even faster than revenue is a wise thing to do. It hurts in the short-term but it strengthens its competitive position. It increases the barriers to entry because any new entrant that aspires to compete in this space has to have a large ad spend budget. Also, it keeps the traditional search engines out from this business, since it would cannibalize their business with one of their larger customer.

 

That's one thing I was wondering about; did the operating margins drop in the past few years (when you measure them from gross profits rather than from revenues, as management says you should because of the "opaque" pricing model on Priceline.com that muddles the numbers) because the advertising efficiency is dropping, or because they are spending faster as a kind of "growth capex"? I would expect that ad efficiency would be lower on mobile devices, and the 10K mentions that people booking on mobile tend to book shorter trips and spend less.. But there's also a tailwind from people going directly in the company's apps without clicking on search ads (less expensive customer acquisition).

 

There might not be a way to know, but any insight is appreciated. Thanks.

[rishig]

I have no particular insight on margins. Generally speaking, this is a fixed cost business with most of the spend being on advertising. However, growing advertising in-line with revenue or even faster than revenue is a wise thing to do. It hurts in the short-term but it strengthens its competitive position. It increases the barriers to entry because any new entrant that aspires to compete in this space has to have a large ad spend budget. Also, it keeps the traditional search engines out from this business, since it would cannibalize their business with one of their larger customer.

 

That's one thing I was wondering about; did the operating margins drop in the past few years (when you measure them from gross profits rather than from revenues, as management says you should because of the "opaque" pricing model on Priceline.com that muddles the numbers) because the advertising efficiency is dropping, or because they are spending faster as a kind of "growth capex"? I would expect that ad efficiency would be lower on mobile devices, and the 10K mentions that people booking on mobile tend to book shorter trips and spend less.. But there's also a tailwind from people going directly in the company's apps without clicking on search ads (less expensive customer acquisition).

 

There might not be a way to know, but any insight is appreciated. Thanks.

 

I'll send out updated numbers to answer your first question, but let me address the second question.

 

Unlike the US, where the top 5 hotel chains (Hyatt, Hilton, Marriott, IHG, and Wyndham), the market in Asia and Europe is very fragmented. So, one couldn't possibly install all the hotel apps one wanted. TripAdvisor has a list of top 25 destinations to visit in Asia. See: http://www.tripadvisor.com/TravelersChoice-Destinations-cTop-g2. Look at each destination and the top hotels in these destinations. Very few of them are chain hotels.

 

The boutique hotels could have their reservation website (and the top ones do), but they got to pay the same customer acquisition costs or possibly higher than the aggregators. And their marketing dollars are better spent when they pay the commissions to the aggregators than do-it-yourself. Say a few even do-it-yourself, its a very fragmented market.

[Liberty]

I apologize, I wasn't clear. I didn't mean that travelers install hotel chain apps, I meant that they install Priceline apps (Booking app, Agoda app, etc), which means that you potentially get more inbound customers without having had to have spent money on a search ad to bring them in. In theory this should help margins.

[rishig]

I apologize, I wasn't clear. I didn't mean that travelers install hotel chain apps, I meant that they install Priceline apps (Booking app, Agoda app, etc), which means that you potentially get more inbound customers without having had to have spent money on a search ad to bring them in. In theory this should help margins.

 

Ah yes. In theory, the efficiency should go up, but numbers say otherwise. Good question, and my understanding is a lot of it is for "growth". However, I will confirm and get back to you on Monday.

[karthikpm]

I apologize, I wasn't clear. I didn't mean that travelers install hotel chain apps, I meant that they install Priceline apps (Booking app, Agoda app, etc), which means that you potentially get more inbound customers without having had to have spent money on a search ad to bring them in. In theory this should help margins.

 

Ah yes. In theory, the efficiency should go up, but numbers say otherwise. Good question, and my understanding is a lot of it is for "growth". However, I will confirm and get back to you on Monday.

 

Rishig, waiting for your update.. With the pullback in PCLN, I have added to my position.  What are your thoughts on Open Table?

[TwoCitiesCapital]

Airbnb a bigger threat to Priceline and Expedia than to hotels.

 

https://www.morningstar.com/news/market-watch/TDJNMW_20151116248/update-most-airbnb-travelers-have-annual-incomes-over-75k-survey-finds.print.html

 

I saw another article that suggested that 50% of users of Airbnb use it instead of a hotel. Another 30% or so come from BnBs. The threat, articulated better in that article (that I can't find), suggests that the larger share of Airbnb users come from the hotel group, the smaller number of people that will be using priceline and expedia for booking.

 

You guys are talking about people installing the priceline app, and the expedia app, instead of a hotel app. What if your thesis is correct, but they get the airbnb app? Losing a large share of traffic, especially from those with higher incomes (as express in the article that I did find), could be a major issue to those companies.

[karthikpm]

Priceline through it's various sites offers more vacation /residential bookings than airbnb ( Darren Huston in a recent IR presentation said they have 6 million vacation rentals as opposed to 2 million for air bnb). I think they will compete well  in all spaces.

[TwoCitiesCapital]

Priceline through it's various sites offers more vacation /residential bookings than airbnb ( Darren Huston in a recent IR presentation said they have 6 million vacation rentals as opposed to 2 million for air bnb). I think they will compete well  in all spaces.

 

I have no opinion on Priceline and their success going forward, but I don't think it matters for you to look at historical performance and assume that they'll be fine. Airbnb has 1/3rd of the bookings as Priceline, but the majority of that has come from the last 3 years. When I started as an airbnb host 4 year ago, no one had ever heard of the service. Now, you can't find hardly anyone that hasn't heard of the service. It's constantly in the headlines, has international advertising campaigns, has made it easier and better to host than ever, and has access to billions of dollars in funding just like the big boys.

 

My only point is that if the hotel industry is losing 50% of potential customers, and those customers tend to be higher income than average, that has to have an impact on the forward looking prospect for companies like Expedia and Priceline that get paid for directing people to hotels. I'm not saying it's going to be the death of them, but the hotel industry can't be growing terrible fast and Airbnb captures a larger piece of that finite pie each year - and it's the most choice pieces with higher income individuals. That has to have some impact on the forward looking propsects of these companies even if it doesn't mean they'll be put out of business.

 

Anyways, just passing along the article. As I mentioned, I have no view nor a position in Priceline.

 

 

[karthikpm]

TwoCitiesCapital,

 

Thanks.

 

PCLN's historical growth is largely irrelevant to the future growth. I agree Airbnb is a huge factor - I think they would also enter the hotel bookings space. The total vacation rental market ( homes+ hotels+ bnb's ) is very large and very fragmented. PCLN is almost entirely an overseas company ( 80% of revenue is from outside the USA) .  This is a very competitive space and all the players have to keep adapting and will grow through M and A.

 

http://skift.com/2015/11/23/airbnb-revenue-now-larger-than-choice-hotels-and-homeaway/

 

long PCLN- clearly biased  ;) .

[JBTC]

Wonder if anyone has insights on the potential threat from Tripadvisors.

 

I have been a heavy user of Booking.com and at times owned PCLN.  One thing that bothers me as a PCLN shareholder is that before booking, I invariably go to Tripadvisors first, to seek out the reviews, ranking, price comparison, etc before choosing a hotel. 

 

I am not sure how many travelers do what I do.  But for those who go to Tripadvisors first, Tripadvisors touches these customers first and foremost.

 

Now TRIP has begun to push for direct booking with certain hotels, and Instant Book which PCLN refused to participate first but will now join. 

 

So what concerns me the most with PCLN is not the near-term weakness.  It's the long-term market structure.  Seems to me PCLN is mostly a pipe to the hotels.  It has no direct traveler facing advantage.

 

Any thoughts appreciated...

 

[Phaceliacapital]

Have the same question, there was a good writeup over here http://www.jnvestor.com/otas/ .

 

Where you see following numbers:

 

Monthly visitors

 

Tripadvisor advertises on their about page that they are getting 350m monthly unique visitors in Q3/2015.

 

I couldn’t find reliable data on booking.com and expedia brand site metrics, so I ended up using this skift article written last year with travel site traffic metrics. Takeaways:

 

Booking.com + Agoda etc. – ~210m visitors / month

Tripadvisor – ~160m visitors / month (likely too low)

Expedia + hotels.com etc. – ~120m / month

And here are Alexa rankings:

 

booking.com: 112

tripadvisor.com: 196

hotels.com: 511 (Expedias most popular site)

These metrics aren’t reliable, but I believe they give some indication on the relative popularity of these sites.

 

To reiterate my point: EXPE and PCLN both use billions in advertising, over 2-3 times more than Tripadvisor has in revenues. Yet, Tripadvisor is still pulling roughly as much traffic.

 

I believe that there’s significant overlap with people visiting Tripadvisor and people who book their rooms through EXPE/PCLN.

 

Is quite the difference in visitors.. I'm wondering if management is able to do short term pain for long term gain.. Any thoughts?

[bbarberayr]

PCLN's big advantage is that booking.com has the broadest selection of properties, especially in Europe.  Not sure how web sites like Trivago will affect this, but for now booking.com is doing well.

 

The whole airbnb thing is overstate in my mind.  Homeaway/VRBO (HOME), being acquired by Expedia, has been around for years, has more properties, revenues and profits, yet is being bought for about 1/10th the value of Airbnb.  Plus there are many, many other web sites for home/cottage/B&B rentals, so the competition for travelers has been going on for years and the hotels had a record year in 2015 -http://www.calculatedriskblog.com/2015/12/hotel-occupancy-2015-is-best-year-on.html

 

 

[rishig]

Have the same question, there was a good writeup over here http://www.jnvestor.com/otas/ .

 

Where you see following numbers:

 

Monthly visitors

 

Tripadvisor advertises on their about page that they are getting 350m monthly unique visitors in Q3/2015.

 

I couldn’t find reliable data on booking.com and expedia brand site metrics, so I ended up using this skift article written last year with travel site traffic metrics. Takeaways:

 

Booking.com + Agoda etc. – ~210m visitors / month

Tripadvisor – ~160m visitors / month (likely too low)

Expedia + hotels.com etc. – ~120m / month

And here are Alexa rankings:

 

booking.com: 112

tripadvisor.com: 196

hotels.com: 511 (Expedias most popular site)

These metrics aren’t reliable, but I believe they give some indication on the relative popularity of these sites.

 

To reiterate my point: EXPE and PCLN both use billions in advertising, over 2-3 times more than Tripadvisor has in revenues. Yet, Tripadvisor is still pulling roughly as much traffic.

 

I believe that there’s significant overlap with people visiting Tripadvisor and people who book their rooms through EXPE/PCLN.

 

Is quite the difference in visitors.. I'm wondering if management is able to do short term pain for long term gain.. Any thoughts?

 

Trip's direct booking is a long term threat to PCLN's model, but I think it is further away than it appears. There are a few reasons why I think it is further away:

1) PCLN's business is predominantly international in fragmented markets. Trip's direct booking is mainly focused on US. It is easier for Trip to start in the US because you simply need to sign up the 5 dominant US chains and get a large market share. Others would follow. Not the same in international. If Trip wants to go after the international market, it needs PCLN's help and PCLN has the leverage in this case.

2) Trip's current business is dominated by revenues from OTAs. It needs to walk into the direct business carefully in order to not cannibalize its existing business. Can you imagine an executive going to the board and saying they think the direct business is huge and they should go after it and alienate their largest customers (OTAs) today? That's exactly why the search engine companies have not succeeded in the booking business (should we cannibalize our large recurring ad revenues today to go after a new business?).

3) Also, note from Trip's InstantBooking FAQ's on how the pricing works:

 

"Instant booking works on a simple “Pay for Stays” commission basis, with a choice of two commission rates: 15% or 12%. The share of “Book on TripAdvisor” traveler views (see above) you receive is determined by the commission level you choose. With a 15% commission, you claim half of all “Book on TripAdvisor” traveler views, as well as any resulting bookings those views may generate. With a 12% commission you claim a quarter of all traveler views and any resulting bookings.

 

For example, if “Book on TripAdvisor” is displayed 100 times for your property, and you’ve signed up at a 15% commission, your rates and availability will show at least 50 times out of the 100. At the 12% commission, your rates and availability will show at least 25 times.

 

What happens to the remaining views? They are allocated to other distribution partners (such as Online Travel Agents) who are also participating in instant booking, and are able to share rates and availability for your property.

 

Keep in mind: To give travelers the best possible booking experience, your rates must be the same or better than those of your other distribution partners. You must also provide clear, complete room rate and description details for travelers. If you don’t have availability, your pricing isn’t competitive, or you’re providing room and rate details that are incomplete – your rates may not appear. Also, you’ll only pay a commission after a traveler completes a stay with you."

 

Trip's InstantBooking commissions are same or higher than OTAs. And the model is designed in a manner that OTAs can continue to get half or more than half of the views. So, its not a complete wash when a hotel is listed on InstantBooking. This is how Trip is slowing entering this space without upsetting its customers (OTAs)

 

One important point to note is that when a customer books through Trip's InstantBooking, the hotel owns the customer relationship i.e. gets their email address. This is unlike the OTAs. So, may be hotels are willing to give up higher commissions to "acquire" the relationship. I think it will be interesting to watch how this all works out. But I am not selling my PCLN yet (although I reduced the position size when it hit 1400 last year).

[Phaceliacapital]

Would you be a buyer at 1000?

[rishig]

Would you be a buyer at 1000?

 

Yes

[Phaceliacapital]

Ok, thanks for the extra color, very useful.

[fareastwarriors]

How Booking Sites Influence Which Hotels You Pick

 

Online travel sites like Expedia and Priceline are tailoring search results more specifically, to the chagrin of hotel chains

 

http://www.wsj.com/articles/how-booking-sites-influence-which-hotels-you-pick-1453921300

[karthikpm]

http://news.morningstar.com/all/ViewNews.aspx?article=/MW/TDJNMW20160127577_univ.xml

 

Is this not old news?