McIntire Investment Institute - University Of Virginia
McIntire Investment InstituteAt the University of VirginiaPriceline.com(NASDAQ: PCLN)Prepared by Hideyuki Liu 1 October 20101McIntire Investment Institute
Business OverviewFounded in 1997Headquartered in Norwalk, CTOnline travel service 29 languages in 78 countries Europe, North America, Asia, theMiddle East, and Africa Booking.com, priceline.com, agoda.comName Your Own Price2McIntire Investment Institute
Business Overview Provides travel brokerage services toconsumers Aggregates prices for flights, hotels, carrentals Makes finding cheap prices easy Name Your Own Price Place bid for hotel fare you are willing topay, and hotels either accept or reject Direct competitors: Expedia Travelocity Orbitz3McIntire Investment Institute
Stock Summary2-Year Stock ChartBasic Stock InformationShare Price: 349.9352-Week Range: 154.12 - 358.24Market Capitalization: 16.93BAverage Volume (3 Month): 1.06MP/E: 30.99Total Cash: 356MMEPS: 11.29Total Debt: 508MM4McIntire Investment Institute
PCLN is an impending Short1) Minimal barriers to entry cut-throat competition2) New industry entrants like Kayak.com3) Strong performance belie severe headwinds4) Low brand loyalty (VAR)5) Name Your Own Price: a double-edged sword5McIntire Investment Institute
No barriers to entry“The barriers to enter the online travel market are becomingincreasing low. There are a plethora of online travel sites such asKayak.com, Expedia.com, Orbitz.com, TripAdvisor.com, each ofwhich boast more than 5 million visitors to their website eachmonth.”“Google has recently entered thetravel space with their 1 billionacquisition of online travel datawarehouse ITA Software.”6McIntire Investment Institute
PCLN’s services are not differentiable7McIntire Investment Institute
PCLN’s services are not differentiable (JFK-LAX)8McIntire Investment Institute
Low barriers to entry cut-throat competition9McIntire Investment Institute
New entrants undercut online travel brokeragesMcIntire Investment Institute10
Overvalued multiples overvalue company?TickerPCLNEXPEOWWPrice (Close on Sep. 30)Market CapitalizationEnterprise 93.29M52-week High% of 52-week 59880.5%567.6%13117.6%-7NAEPSP/EEV/EBITDASales (LTM)Gross Profit (LTM)% MarginOperating Profit (LTM)% MarginEBITDA (LTM)% MarginNet Income (LTM)% MarginPCLN’s margins do not justifyits earnings multiplesImplied Share Price21.20x 239.35EBITDA9.35x 119.86EBITDA11.10x 129.89Net IncomeMcIntire Investment Institute11
Strong 2Q results belie severe headwinds1) Revenues up 27% yoy, EBITDA up 54% yoy2) Gross Profit Margin 58%, EBITDA Margin 24%3) Net Income up 71% yoyAll signs point upward – or do they?McIntire Investment Institute12
Extremely high expectations due upcoming 3QUpcoming 3Q has traditionally been their best quarter,But can they outperform an all-time best quarter?McIntire Investment Institute13
Airlines’ 2010 success not sustainable 2010 expected to be the first profitableyear for airlines in a while 8.9 billion for overall industry However, industry earnings areexpected to decline by 40% in 2011 asdemand does not meet capacitySource: International Air Transport AssociationMcIntire Investment Institute14
US consumer down – and not spending In 2010, USpersonal incomehas recovered butspending keepsfalling Income goingtowardssavings Business travelslightly recovering,but businessesdon’t usepriceline.comMcIntire Investment Institute15
Europe in shambles PIIGS in crisis Germany and France having todeal with subsidizing and rescuingweak countriesOver two-thirds of the total world economy isexperiencing weakness, which means an extremelydifficult environment for PCLNMcIntire Investment Institute16
Insiders selling out of PCLNNet Share Purchase ActivityInsider Purchases - Last 6 MonthsShares TransactionsN/A0238,37612(238,376)12Total Insider Shares Held453.39KN/A% Net Shares Purchased (Sold)-34.50%N/APurchasesSalesNet Shares Purchased (Sold)Insider Transactions Reported - Last Two YearsDateInsiderShares TypeValue*20-Sep-10MYLOD ROBERT J JROfficer2,000Direct 6,900,0021-Sep-10MYLOD ROBERT J JROfficer14,000Direct 41,360,00223-Aug-10MILLONES PETER JOfficer6,000Direct 18,160,00220-Aug-10MYLOD ROBERT J JROfficer2,000Direct 5,990,0021-Jun-10MYLOD ROBERT J JROfficer14,000Direct 26,720,00224-May-10EPSTEIN JEFFREY EDirector3,333Direct 6,480,00212-May-10RYDIN CRAIG WDirector10,500Direct 23,060,00212-May-10BOYD JEFFERY HOfficer105,554Direct 229,520,002McIntire Investment Institute17
Low brand loyalty (VAR)Source: Christina Polenta’s Expedia (NASDAQ:EXPE) memo18McIntire Investment Institute
Low brand loyalty (VAR)There is no brand loyalty. The target customer responds mainly to low prices.19McIntire Investment Institute
Name Your Own Price: a double-edged swordThe one way PCLN can differentiate itself. But its one advantage is also asignificant disadvantage20McIntire Investment Institute
Hotel supply rapidly dropping Name Your Own Price thrives off ofexcess vacancies in hotels Hotels that need to fill spacewill sell rooms at low price torecover some costs But there has been an excesssupply of hotels, and now they arerapidly closing The number of hotel firms thatfailed in 2009 rose 61% comparedwith 2008 122 hotels declared insolventcompared to 76 in previous yearSource: Wilkins Kennedy, accountancy firm21McIntire Investment Institute
Reputational risk from Name Your Own Price“Up to now, I was a very satisfied Priceline customer, and a regular user ofthe Hotel bidding service.[ ]“This experience has really put me off Priceline. This is no way to run abusiness! Regardless of how they explain what happened, I will notrecommend using their services again if they leave customers in the lurchlike this. I am seriously considering taking legal action if this drags on anylonger.”- Dissatisfied priceline.com customerLitigation is a legitimate cause of concern. Competitor Expediasettled numerous cases over similar lawsuits.22McIntire Investment Institute
PCLN is an impending Short1) Minimal barriers to entry cut-throat competition2) New industry entrants like Kayak.com3) Strong performance belie severe headwinds4) Low brand loyalty (VAR)5) Name Your Own Price: a double-edged sword23McIntire Investment Institute
Final RecommendationMII initiate an initial short position of 0.75%, and scalingup the position as price moves downwardTarget exit at 240.0024McIntire Investment Institute
McIntire Investment InstituteAt the University of VirginiaPriceline.com(NASDAQ: PCLN)Prepared by Hideyuki Liu 1 October 2010McIntire Investment Institute25
Kayak.com, Expedia.com, Orbitz.com, TripAdvisor.com, each of . Low brand loyalty (VAR) 5) Name Your Own Price: a double-edged sword 23. Final Recommendation MII initiate an initial short position of 0.75%, and scaling up the position as price moves downward Target exit at 240.00
Annual Report 4 December 2011 McIntire Investment Institute: An entirely student-run long-short equity fund. With a portfolio currently valued at approximately 520,000, the MII operates as a nonprofit organization under the McIntire
investment, industry of investment, year of investment and stage of investment. The parameter estimates show California as a location for investment is significantly different in scale, industry and stage of investment from other states. The investment bubble of 1999 and 2000 is found to have created different patterns
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