Priceline
HOTEL BOOKINGS
ANALYSIS for NASDAQ : PCLN
588
NOVEMBER 10, 2011
530
$
$
$29.3 B MKT CAP
$26.4 B MKT CAP
Trefis Estimate
Market Price
— CORPORATE SNAPSHOT —
Priceline is the second largest online travel company in the world after Expedia. It provides its customers a broad range of travel services which include bookings for hotel stays, airline tickets, car rentals, cruises and vacation packages via its online travel portals: priceline.com, booking.con, agoda.com, rentalscars.com, breezenet.com and lowestfares.com that connect travelers with travel suppliers such as hotels, airlines, cruises and car rental companies. In the United States, Priceline enables its customers to purchase a full range of travel services under the traditional price disclosed model (in which it earns a commission) or lets them bid for services at discounted prices under Name Your Own Price model, where it earns the difference between the price an individual is willing to pay and the price charged by the travel service establishment (hotel, airlines etc) Under the Priceline's proprietary Name Your Own Price service, customers can quote their own price for a travel product (hotel room stay, air ticket etc). Priceline matches the quotations with the discounted but otherwise undisclosed fares provided by the suppliers and determines whether to accept the booking without disclosing the identity of the supplier. Customers opting for this service are expected to be flexible in terms of the date and time of travel and other specificities. Booking once made, under Name Your Own Price service cannot be cancelled and no refunds are offered. The advantage of this service is that it lets suppliers sell excess inventory (hotel room stays, air tickets etc) without harming their existing retail pricing structure while offering leisure travelers highly discounted prices in exchange for some flexibility in their itineraries. 1. Hotel Bookings constitute 90% of the Trefis price estimate for Priceline's stock.
Average Daily Rate (ADR) per Hotel Room 8 Revenue Margin on Hotel Bookings 9 Priceline Market Share of Occupied Hotel Rooms 11 Global Hotel Rooms 12 Occupancy Rate for Hotel Rooms Worldwide 13 CAR RENTALS, CRUISES AND OTHER Rent received per Car Rental day 16 Revenue Margin on Car Rentals 17 Car Rental Days Sold 18 AIRLINE TICKET BOOKINGS
Revenue Margin on Airline Ticket Bookings 20 Priceline Market Share of Online Airline Tickets Sold 21 Global Air Tickets Sold (Online + Offline) 22 Percent of Global Air Tickets Sold Online 23 ADVERTISING AND MEDIA Advertising Revenue 25 APPENDICES
Summary P&L for Priceline 27 Detailed Hotel Bookings P&L 29 Detailed Car Rentals, Cruises and Other P&L 31 Detailed Airline Ticket Bookings P&L 33 Detailed Advertising and Media P&L 35
Our share price estimate and the overall company value is derived by summing-up the values of individual divisions/businesses in a sum-of-theparts analysis. The value of each division is calculated using a discounted cash flow (DCF) methodology. We forecast fundamental drivers like pricing, market share, and profit margins for different businesses in estimating the division’s value within the DCF framework. The analysis below primarily focuses on those important forecasts that drive our share price and value estimate. Our complete analysis, including sources of historical data, underlying equations and additional discussion are available on www.trefis.com. — POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE —
Hotel Bookings Priceline's market share of occupied hotel rooms: We currently forecast Priceline's share of the total occupied hotel rooms globally to grow from 2.1% in 2010 to 3% by 2017. There could be a 25% downside to the Trefis price estimate if the market share were to remain flat at current levels over the forecast horizon Revenue Margin on Hotel Bookings: We currently forecast the revenue earned by Priceline as a percentage of the size of hotel booking to decline from 27.9% in 2010 to 25% by 2017. There could however be a 9% upside if the revenue margins were stable at 2010 levels throughout our forecast period. EBITDA Margin: We currently forecast Priceline's EBITDA Margin from Hotel Bookings to grow from 29.2% in 2010 to 32.5% by 2017. There could be an 8% downside to the Trefis price estimate if the EBITDA Margin were to remain flat in the future instead. — SOURCES OF VALUE —
We believe International Business and Hotel Bookings are the main sources of value for Priceline 1. High growth in online travel industry outside US (International Business) • With the acquisition of Booking.com, Agoda and TravelJigsaw, Priceline has been focusing on developing business
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internationally. As of Q3 2010, Priceline's international business contributed 69% of its gross bookings and 82% of its operating income. • Rising income levels and expanding middle class combined with high population growth rates in emerging economies of China, India and South-East Asia is expected to lead to high growth in budget leisure travelers outside US • The extremely competitive online travel industry in US with stiff competition from the likes of Expedia, Orbitz and Travelocity among others has led to lower revenue margins and high promotional spending thereby eroding operating margins • The relatively low internet penetration in Europe at close to 32% and in Asia Pacific at around 14% compared to 56% in US, presents much upside to online travel industry outside US, as customers increasingly access the internet for making travel plans. • The lack of standardization in travel services outside US along with a fragmented lodging industry in Europe and Asia Pacific, leaves much scope for premium pricing. Hence, Priceline stands to make higher revenue margins from international business. • International Hotel Bookings through Priceline.com and its subsidiary websites contribute nearly 59% to the total gross bookings volume and nearly 67% to the consolidated operating income. — KEY TRENDS —
The following factors determine the fate of online travel industry 1. Macroeconomic Environment • Due to the discretionary nature of leisure travel, the online travel service providers, which earn revenue in the proportion (and as a percentage of) of travel bookings, depend entirely on the macroeconomic conditions (employment levels, inflation rates etc). Corporate travel is in fact one of the indicators of economic activity and is influenced the most by the macroeconomic conditions. During recessionary 2008-09, both corporate and leisure travel plummeted. Amidst rising unemployment and declining disposable income levels the consumers cut back on their travel plans first before making adjustments to other expenses. • Advertising which constitutes a significant source of revenue for the online travel service providers, too depends on the level of business activity. Amidst recessionary times, businesses cut back
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on media and advertising spending and this translates into lower online advertising revenue for the travel portals such as expedia.com, priceline.com etc. 2. Foreign Exchange • Leisure travelers unlike corporations do not hedge themselves against foreign exchange fluctuations. Hence, the spot foreign exchange rates determine the consumer demand for international travel. In times of adverse foreign exchange rate movements (such as a depreciating dollar), international travel becomes dearer and the same hotel booking and air tickets cost more dollars thereby discouraging travel bookings. • Travel Service Providers such as Expedia, Priceline etc, earn revenues from international bookings in foreign currencies, incur most operating expenses in dollars and report the earnings in dollars. An adverse foreign exchange movement could erode profits. Since an increasing proportion of bookings are coming from the less penetrated emerging economies, the exposure to foreign exchange is only expected to increase in the future. 3. Fuel Prices • Rising fuel prices has the immediate impact of increasing airfares, which discourages travel. This not only impacts Air Ticket bookings but reduced travel also negatively impacts Hotel bookings and destination services such as car rentals and cruises. Decline in overall bookings hits travel service providers' revenues. • With rise in fuel prices, airlines are no longer able to offer significant discounts on bulk bookings to travel agents such as Expedia. With the result, the revenue margins earned by travel service providers (under Merchant model) take a hit. The lower revenue margins translate into lower profit margins for the travel service providers. 4. Significant impact of unforeseen events on travel 5. Events which are beyond the control of any travel services provider and can critically impact travel include terrorist attacks, unusual weather patterns and natural disasters such as hurricanes, tsunamis, volcanic eruptions (April 2010, volcanic eruption in Iceland), travel related health concerns such as Influenza H1N1, avian bird flue SARS etc, political unrest and other unpredictable events. Unlike other industries, such events have a very significant impact on travel bookings and consequently on the revenues of travel service providers. 5. Internet Penetration • While 56% of travel bookings in US happen online, less than 32% of Europeans book travel over the internet. The penetration of internet in Asia is still much lower. Hence, with rising affluence in emerging economies of South Asia and increasing adoption of internet and e-commerce, the proportion of travel bookings over the internet are expected to rise in the future, a trend which favors
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the online travel providers such as Expedia, Priceline, Travelocity and Orbitz among others. 6. Airline Industry 7. The airline industry has been suffering from chronic overcapacity leading to lower occupancy rates. This coupled with high volatility in fuel prices has led to the following structural changes in aviation industry. 8. Domestic airlines have recently reduced capacity and increased fares. In addition, the threat of carrier bankruptcies and the emerging prospect of industry consolidation, as evidenced by the recent mergers of United Air Lines with Continental Airlines and Delta Air Lines with Northwest Airlines, as well as the recently announced future acquisition of AirTran by Southwest Airlines, could lead to additional decreases in capacity and reducing the amount of tickets available to online travel service providers for bulk purchase under their merchant business model. Going forward, the air seats capacity is expected to increase at a lower rate compared to the demand for air travel. This shall not only increase the airfares as a whole but also as consumers shy away from travel, the hotel bookings and other travel services are also expected to be hit by this leading to lower revenues growth for travel service providers. 9. Airlines are increasingly selling tickets online directly from their own websites, thereby eliminating the middle man, the online travel agents. With the result, online travel service providers have been compelled to remove processing fees on air ticket bookings and cancellation / rescheduling fees in excess of that charged by the airline itself. 7. Hotels and Lodging Industry • During the recessionary 2008-09, as travel declined as a whole, so did the hotels occupancy rates (the proportion of hotel rooms occupied per year). To meet the operating expenses (since hospitality business has a significantly higher proportion of fixed costs), the hotel owners resorted to offering discounts and lower tariffs. This led to drop in Average Daily Rate (the average rate per night of hotel booking). The Hotels Bookings took a hit and adversely impacted the revenues for travel service providers. • Hotel Bookings offer markedly higher Revenue Margin (Revenue earned by the travel service provider as a percentage of the size of booking) at close to 25% compared to Air Ticket bookings (~3%), Cruises and Car Rentals (less than 10%). Hence, travel services providers make most profits from hotel bookings. • The hotels market in Europe and Asia is much more fragmented with smaller, independent lodgings compared to US, where the hotel market is dominated by large hotel chains. Hotel chains are more likely to offer online bookings through their own websites, while online travel agencies such as Expedia are more appealing to small, independent hotels outside US. Also, travel agencies stand
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to make higher revenue margins from independent budget hotels under their merchant business model. Hence, expansion into hotels markets in Asia and Eastern Europe presents a growth opportunity to US based online travel services providers. 8. Online travel services is highly competitive niche segment within travel industry • Competition in US online travel remains intense and traditional online travel companies are creating new promotions and consumer value features in an effort to gain competitive advantage. • In June 2007, Priceline eliminated processing fees for its pricedisclosed airline ticket service, and in April 2008, it reduced processing fees for its domestic price-disclosed merchant hotel room service. Starting in March 2009, Expedia and Travelocity also eliminated air booking fees, and in April 2009, Orbitz followed. In April 2009, each of Expedia and Orbitz reduced booking fees on hotel room reservations. With the result, no one player could maintain a price advantage over the others on pricedisclosed merchant air tickets and hotel room reservations and the online travel industry as a whole lost revenues. • In October 2009, Travelocity announced the waiver of its cancellation and change fees for hotel and vacation packages, as well as an expanded hotel guarantee, under which consumers who book a hotel room and then find a lower published rate for the same room anytime before the day of check-in are eligible to receive a refund of the difference. • Since consumers are now increasingly hunting for bargains and discounts, Traffic obtained through online advertising has increased as a percentage of total demand since the same consumer visits several websites before making a purchase. This increased shopping behavior has reduced advertising efficiency and effectiveness as traffic obtained through online advertising becomes less likely to result in a purchase on the web site. Therefore, online advertising expenses for have increased at a faster rate than gross profit, a trend which is expected to continue. 9. Threat from Online Search Engines • Large, established Internet search engines with substantial resources and expertise in developing online commerce and facilitating Internet traffic are creating and intend to further create inroads into online travel, both in the U.S. and internationally. • Google recently announced that it has entered into an agreement to acquire ITA Software, Inc., a major flight information software company, which could allow Google to pursue the creation of new flight search tools which will enable users to find flight information on the Internet without using the services of Expedia or Priceline etc. Google has also invested in HomeAway, a
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vacation home rental service. • In addition, Google has launched a travel “meta-search” site to show searchers specific hotels and rates in addition to text advertisements, and Microsoft has launched Bing Travel, a “metasearch” site, which searches for airfare and hotel reservations online and predicts the best time to purchase them. “Metasearch” sites leverage their search technology to aggregate travel search results for the searcher’s specific itinerary across supplier, travel agent and other websites and, in many instances, compete directly with online travel service providers for customers.
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Hotel Bookings The Hotel Bookings division constitutes 90.3% of our $588 price estimate for this stock, based on our sum of the parts analysis.The most important drivers for the Hotel Bookings business are: • Average Daily Rate (ADR) per Hotel Room • Revenue Margin on Hotel Bookings • Priceline Market Share of Occupied Hotel Rooms • Global Hotel Rooms • Occupancy Rate for Hotel Rooms Worldwide — AVERAGE DAILY RATE (ADR) PER HOTEL ROOM —
It refers to the average revenue per day from an occupied hotel room. The Average Daily Rate (ADR) per Hotel Room is obtained by dividing the total annual revenue by the total occupied hotel nights per year
Average Daily Rate (ADR) per Hotel Room ($)
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We estimate that the Average Daily Rate (ADR) per Hotel Room decreased from $123 in 2008 to $109 in 2009 before recovery to $114 in 2010 with overall macroeconomic recovery and increase in travel demand. The decline in 2008-09 was primarily on account of a recessionary macroeconomic outlook. Travel bookings had declined and occupancy rates had plummeted in 2008-09. To meet the operating expenses and attract guests, hotels offered highly discounted tariffs leading to a decline in Average Daily Rate (ADR) per Hotel Room over 2008-09. Going forward, we expect Average Daily Rate (ADR) per Hotel Room to rise moderately to $135 by 2012, eventually reaching $175 by 2017, the end of our forecast period. Forecast Rationale We considered the following factor in our forecast
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Supporting 1. MACROECONOMIC RECOVERY AND RISE IN TRAVEL IN GENERAL LEADING TO WITHDRAWL OF PROMOTIONS AND DISCOUNTS – As the global economy recovers from the downturn, we expect booking to rise. The suppliers (hotels) amidst rising traffic shall no longer be compelled to offer discounts to attract guests. As occupancy (percentage of rooms occupied) improves, we expect the hotels to withdraw discounts leading to a rise in Average Daily Rate (ADR) per Hotel Room. As the world economy gathers pace, the travel industry is expected to witness an increase in overall demand for travel and leisure services. Surge in consumer demand is expected to help Priceline witness a sustained increase in Average Daily Rate (ADR) per Hotel Room as the suppliers increase their prices at a faster pace to recoup losses due to the worldwide recession last year. The inflationary pressure in world economy on account of stimulus measures taken by central banks worldwide is also expected to increase the Average Daily Rate (ADR) per Hotel Room for the whole industry. 2. LIMITED SUPPLY OF HOTEL ROOM INVENTORY – Recovering from losses suffered because of recession, the suppliers in hotel industry plan to defer expenditures on increasing number of hotel rooms by undertaking new construction and increasing focus on improving efficiency. Increasing consumer demand for a limited supply of hotel rooms is expected to increase hotel room prices and hence increase Average Daily Rate (ADR) per Hotel Room for Priceline Mitigating 3. INCREASING COMPETITION MAY NEGATIVELY AFFECT THE AVERAGE DAILY RATE (ADR) PER HOTEL ROOM – Increasing competition from websites of major online travel agencies, hotel suppliers and other traditional travel agencies has forced Priceline in the past to decrease the Average Daily Rate (ADR) per Hotel Room by measures such as elimination of hotel booking fees and hotel change fees. Competitive hotel pricing and lowering of fees on hotel reservations in the future can negatively affect Priceline’s Average Daily Rate (ADR) per Hotel Room 4. RISING MERCHANT MODEL AND OPAQUE BOOKINGS MODEL TO RESTRAIN AVERAGE DAILY RATE (ADR) PER HOTEL ROOM RISE FOR HOTELS – Online Travel Agents (OTAs) are now increasingly using the merchant model wherein they buy the travel inventory(hotel stays/air tickets) in bulk from the suppliers (hotels/airlines) and sell them at a premium to the customers or bundle them into vacation packages etc. A trend towards merchant model extracts deeper discounts from suppliers and thus limits rise in Average Daily Rate (ADR) per Hotel Room. In addition, the opaque booking model wherein the OTAs offer hotel stays and air tickets at much discounted prices without disclosing the identity of the supplier so as not to affect the otherwise published retail prices while increasing occupancy of excess inventory, also limits the rise in Average Daily Rate (ADR) per Hotel Room in the future. The suppliers have little to complain since they enjoy higher occupancy albeit at the cost of reduced tariffs. Expedia's recently launched 'Expedia Unpublished', Priceline's Name Your Own Price and other such opaque bookings offered by OTA are expected to put downward pressures on Average Daily Rate (ADR) per Hotel Room 5. RAPID GROWTH INTO MARKETS WITH LOWER AVERAGE DAILY RATE (ADR) PER HOTEL ROOM – As Priceline expands into emerging markets, particularly in Asia through its subsidiary brand Agoda, it might face lower Average Daily Rate (ADR) per Hotel Room for hotel bookings as compared to markets in the US and Europe. Rapid growth into the markets with relatively lower Average Daily Rate (ADR) per Hotel Room will negatively affect the Average Daily Rate (ADR) per Hotel Room for overall hotel reservation business of Priceline Sources for historical data and explanations can be found on the Trefis.com website (link) — REVENUE MARGIN ON HOTEL BOOKINGS —
It refers to the revenue earned as a percentage of gross hotel bookings made through various websites run by Priceline.
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Revenue Margin on Hotel Bookings (%)
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Revenue Margin on Hotel Bookings for Priceline has consistently declined from 39% in 2007 to 33% in 2009 as per our estimates. Reduced share of US merchant bookings (under Name Your Own Price) on account of rapid growth in international markets, where agency model of bookings is dominant (in Europe over Booking.com), has driven revenue margins lower. This was particularly evident in 2010 when the Revenue Margin on Hotel Bookings plummeted to 28% in line with the growth in Priceline's share of hotel room bookings with increasing presence outside US. However, going forward, we expect the downward pressures on Revenue Margin on Hotel Bookings to be partially offset by rising bookings under merchant model in Asia-Pacific over Agoda.com. The Revenue Margin on Hotel Bookings shall continue declining, albeit at a slower rate, reaching 25% by 2017, the end of our forecast period. Forecast Rationale We considered the following factors in our forecast Supporting 1. EXPANSION IN INTERNATIONAL MARKETS WHERE AGENCY MODEL OF BOOKINGS DRIVE MARGINS LOWER – International operations of Priceline sell hotel reservations primarily under the agency model in Europe (over booking.com). In this model, net revenues are generated in the form of commissions and bookings fees, resulting in lower revenue margin. In the US, Priceline operates primarily under the merchant model (also under Name Your Own Price service) where net revenue generated is the same as the price paid by consumer per hotel reservation. This results in higher revenue margin under merchant model. Priceline’s further expansion into international markets is expected to increase the agency transactions as compared to merchant model transactions and hence Revenue Margin on Hotel Bookings would be lowered. 2. COMPETITION FROM LARGE HOTELS AND HOTEL CHAINS DIRECTLY SELLING TICKETS ONLINE THEREBY ELIMINATING THE MIDDLE MAN, THE ONLINE TRAVEL AGENTS – As the travel industry is increasingly moving to online reservations with rising internet penetration, large hotels and hotel chains are using their own websites for accepting travel bookings. The intent behind the move is to eliminate the middle man, the travel agents thereby earning higher margins and also gaining greater control over pricing. Using their own websites for bookings, lets hotels run loyalty programs, which not only promotes repeated guest visits but also enables hotels to cross-sell additional value-added TREFIS ANALYSIS for PRICELINE
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services, thereby earning higher revenues per guest. 3. INCREASING COMPETITION DRIVES DOWN BOOKING FEES AND COMMISSIONS – Competition from other online travel agencies and supplier hotels has led to competitive hotel pricing by Priceline, which in turn has pushed down booking fees and commissions. This trend is expected to continue as Priceline will face increasing competition and would drive revenue margins lower particularly for bookings under the agency model. Since, hotel bookings offer the highest revenue margin (in excess of 25%) compared to other travel segments(air ticket bookings: ~4%, Car Rentals & Cruises: ~9%), online travel agencies are increasingly focusing on hotel bookings, which explains the rise in competition in this segment. Mitigating 4. GROWTH IN MERCHANT MODEL BOOKINGS WORLDWIDE – Increasing share of bookings under merchant model in the US and a shift from agency model to merchant model in international hotel reservations can positively affect the revenue margins for Priceline. Bookings made at Agoda.com in Asia Pacific are under the merchant model and rise in bookings in South Asia are expected to put upward pressures on Revenue Margin on Hotel Bookings 5. FRAGMENTED HOTEL AND LODGINGS MARKET IN ASIA AND EASTERN EUROPE OFFERS OTAS MUCH SCOPE FOR CHARGING HIGHER REVENUE MARGINS – Unlike the US hotels market which is dominated by large hotel chains, the lodging industry in Asia is highly fragmented with the presence of small, independent, family-run hotels. The lack of standardization, eliminates direct competition between suppliers (i.e. the hotels) and leaves much scope for premium pricing by online travel agents, which stand to make higher revenue margins. As international travel picks up with macroeconomic recovery and rising affluence of emerging economies, we foresee greater occupancy at these budget lodgings which favors a rise in Revenue Margin on Hotel Bookings Sources for historical data and explanations can be found on the Trefis.com website (link) — PRICELINE MARKET SHARE OF OCCUPIED HOTEL ROOMS —
Priceline Market Share of Occupied Hotel Rooms is the number of hotel nights sold through Priceline.com and its subsidiary websites expressed as a percentage of total hotel room bookings worldwide.
Priceline Market Share of Occupied Hotel Rooms (%)
4 3 2 1 0 2007 0 8
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Priceline has been gaining market share of global hotel night bookings, at an increasing rate because of growth in international hotel bookings. It sold an estimated 93 million (at 2.1% market share) hotel room nights in 2010 as compared to 28 million (0.60% market share) in 2007 through its network of websites. We expect Priceline to continue to increase its market share, albeit at a decreasing pace to 3% (or 185 million hotel room nights) by 2017, the end of forecast period. Forecast Rationale We considered the following factors for its forecast Supporting 1. LARGE AND UNDEVELOPED INTERNATIONAL MARKET – Although the market for travel services is large, yet the percentage of online sales is relatively lower in international markets than United States. This is because historically internet adoption rate for commercial use has been lower, particularly in emerging markets. However, internet penetration in international markets has been growing at a substantially greater pace than United States' and offers Priceline a relatively lesser competitive and broader market space to increase its hotel sales through existing online channels. 2. STRONG FOOTING IN INTERNATIONAL MARKETS WITH EXISTING BRANDS – Priceline has made three key acquisitions in the past five years among others. It acquired Booking.com in 2004, Booking.com BV in 2005 and Agoda towards the end of 2007. Booking.com has driven most of the growth in hotel bookings since its acquisition and provides Priceline a foothold in larger international (European) hotel market. Agoda which has been recently acquired will help Priceline to tap the Asian markets and will drive a large part of Priceline’s incremental share of the hotel sales worldwide. Mitigating 3. INCREASING COMPETITION FROM ONLINE TRAVEL AGENCIES AND SUPPLIERS – Ease of entry into online travel business has exposed Priceline to severe competition both in United States and international markets. Most hotel suppliers have been driving sales through their own websites in US. Search engines and meta-search engines along with travel research websites also negatively affect the inflow of potential visitors to Priceline’s website. These trends will negatively affect the growth of Priceline’s hotel reservation business worldwide. 4. LACK OF ADEQUATE SCALE AS COMPARED TO LARGER ONLINE TRAVEL AGENCIES – Priceline’s direct competitors, Expedia, Travelocity and Orbitz have significantly greater financial resources and capital which could help them expand into international markets through potential acquisitions. Acquisitions have been the primary driver of growth in international hotel business for all the online travel agencies and lack of ability to acquire travel websites and expand, could limit Priceline’s growth in market share of the hotel sales worldwide Sources for historical data and explanations can be found on the Trefis.com website (link) — GLOBAL HOTEL ROOMS —
Global Hotel Rooms refers to the total worldwide hotel room capacity in terms of the number of available rooms
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Global Hotel Rooms (Mil)
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Global Hotel Rooms increased from 20.1 million in 2007 to 21.5 million at the end of 2010 at an annual growth rate of 3%. Going forward, we expect Global Hotel Rooms to increase moderately at first as the global economy recovers from the effects of recession and economic slowdown (over 2008-09), eventually growing at the historical annual growth rate of 3% and reaching 26 million by 2017, the end of our forecast period. Forecast Rationale We considered the following factor in our forecast 1. FUTURE LONG-TERM GROWTH RATE IS IN LINE WITH HISTORICAL GROWTH RATE – The hotels and lodging industry has already been suffering with chronic low occupancy rates at close to 55%. Also, a distinguishing characteristic of hospitality industry is the relatively higher proportion of fixed costs in the form of property rents and maintenance expenses. Going forward, we expect the expansion in capacity to continue at historical rates, lagging behind the overall expansion in travel industry as a whole, so as to increase occupancy rates and consequently the operating margins of hotel property owners. Sources for historical data and explanations can be found on the Trefis.com website (link) — OCCUPANCY RATE FOR HOTEL ROOMS WORLDWIDE —
Occupancy Rate for Hotel Rooms Worldwide refers to the percent of total days in a calendar year that a hotel room is occupied
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Occupancy Rate for Hotel Rooms Worldwide (%)
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We estimate that Occupancy Rate for Hotel Rooms Worldwide decreased from 63% in 2007 to 56% in 2010 due to the economic slowdown. Going forward, we expect Occupancy Rate for Hotel Rooms Worldwide to improve steadily breach historical levels of ~63% and reaching 65% by 2017, the end of our forecast period. Forecast Rationale We considered the following factors in our forecast 1. EFFORTS TO RESTORE OPERATING MARGINS BY HOTEL PROPERTY OWNERS – The Occupancy Rate for Hotel Rooms Worldwide had reduced drastically during the recessionary 2008-09, not just eroding the profits of hotel property owners but also bringing to light, the inherent overcapacity in the hotels & lodgings industry. Hospitality Industry has a characteristically higher proportion of fixed costs within the overall cost structure and to meet the operating expenses (rents and maintenance costs), hotels offered higher discounts to attract guests. with the result the average daily rate (the average revenue per room per night). Going forward, we expect the hotel industry capacity increase to lag behind the overall growth of travel industry as a whole, as hotel property owners and investors target higher occupancy rates so as to restore operating margins for the industry as a whole. 2. MORE ONLINE TRAVEL AGENTS (OTAS) SELLING OPAQUE HOTEL BOOKINGS – Priceline's proprietary Name Your Own Price opaque bookings enabled customers to bid for hotel rooms, which were then allotted without being disclosed the identity of the suppliers thereby not affecting the otherwise published retail prices and utilizing excess capacity with the suppliers. Expedia recently launched 'Expedia Unpublished' which uses a similar opaque bookings model. Other OTAs too have stepped in and are offering opaque bookings at budget hotels. As more and more OTAs offer opaque bookings which make them higher revenue margins, we can reasonably expect the occupancy at hotels and lodgings to rise, albeit at the cost of a reduced average daily rate (ADR) for the hotels for such bookings. Sources for historical data and explanations can be found on the Trefis.com website (link)
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Total Revenue (Bil $) Direct Expense (Bil $) Indirect Expense (Mil $) Gross Profit (Bil $) Free Cash Flow (Bil $)
2007 1.32 1.14 -31.9 0.18 N/A
2008 1.75 1.40 88.7 0.35 N/A
2009 2.21 1.69 -100 0.52 N/A
2010 2.95 2.09 74.4 0.86 N/A
2011 4.15 2.91 325 1.24 0.91
2012 5.58 3.88 456 1.71 1.25
2013 6.95 4.79 591 2.16 1.57
2014 7.91 5.42 696 2.50 1.80
2015 8.70 5.93 779 2.78 2.00
2016 9.51 6.45 864 3.07 2.20
2017 9.99 6.75 921 3.25 2.33
2018 10.5 7.07 984 3.44 2.46
In addition, you can see the detailed P&L for the Hotel Bookings business in the Appendix (link)
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Car Rentals, Cruises and Other The most important drivers for the Car Rentals, Cruises and Other business are: • Rent received per Car Rental day • Revenue Margin on Car Rentals • Car Rental Days Sold — RENT RECEIVED PER CAR RENTAL DAY —
It refers to the average price paid per day by Priceline's customers for each car rental booking.
Rent received per Car Rental day ($)
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We estimate that the Rent received per Car Rental day has been constant around $23 over 2008-09, before rising to $25 in 2010, as per our estimates. Going forward, we expect the Rent received per Car Rental day to rise to $28 by 2012 and eventually to over $37 by 2017, the end of our forecast period. Forecast Rationale We considered the following factors in our forecast Supporting 1. RISE IN FUEL COSTS, COST OF AUTOMOBILES, INSURANCE AND OTHER OPERATING EXPENSES – The Rent received per Car Rental day is expected to absorb the operating expenses such as fuel costs, the rising cost of automobile (which impacts depreciation allocation and car insurance premium proportionately) and other operating expenses. Given that the car rentals industry is increasingly becoming competitive, we expect the bigger players such as Hertz, Avis, Renta-Car to absorb some of the rise in expenses while still passing on the rest to the consumer in the form a rise in Rent received per Car Rental day
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Mitigating 2. RISING COMPETITION IN CAR RENTALS AND GREATER DEMAND FOR BUDGET CARS – Rent received per Car Rental day is driven mainly by prices charged by car rental agencies such as Hertz, Avis, Enterprise Rent -a-car etc. These agencies have witnessed a pressure on average car rentals because of increasing competition and a shift in consumer demand from premium cars to economy/compact cars 3. DECLINE IN ONLINE TRAVEL AGENCIES' COMMISSION IN CAR RENTALS BOOKINGS – Online travel agencies are increasingly reducing commissions on car rental bookings to gain share from competition. This trend is expected to put further downward pressures on Rent received per Car Rental day Sources for historical data and explanations can be found on the Trefis.com website (link) — REVENUE MARGIN ON CAR RENTALS —
It represents the revenue earned as a percentage of gross car rental bookings made through various websites run by Priceline.
Revenue Margin on Car Rentals (%)
10.0 7.5 5.0 2.5 0.0 2007 0 8
09
10
11
12
13
14
15
16
17
18
Revenue Margin on Car Rentals has decreased from 10.2% in 2007 to 8.8% in 2009. Going forward, we expect Revenue Margin on Car Rentals to steadily decline reaching 7.6% by 2017, the end of our forecast period. Forecast Rationale We considered the following factor in our forecast. 1. DECLINE IN THE SUPPLIERS' DISTRIBUTION COSTS AMIDST RISING COMPETITION – We expect Revenue Margin on Car Rentals to decrease as we expect car rentals companies to continue to lower their cost of operations including distribution costs by reducing commissions paid to travel agents such as Priceline. Sources for historical data and explanations can be found on the Trefis.com website (link)
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— CAR RENTAL DAYS SOLD —
This represents the number of car rentals booked over Priceline's websites.
Car Rental Days Sold (Mil)
50 40 30 20 10 0 2007 0 8
09
10
11
12
13
14
15
16
17
18
Priceline.com reports that its Car Rental Days Sold have almost doubled from 8.6 million in 2007 to 16.3 million by 2010. For our forecast we expect the car rental days to increase steadily at an annual growth rate of ~14%, reaching 40 million by 2017, the end of our forecast period. Forecast Rationale We considered the following factor in our forecast 1. FORECASTED GROWTH IN LINE WITH HISTORICAL GROWTH RATES – We expect Car Rental Days Sold to increase at an annualized rate in excess of 14% which is in line with the historical five-year average annual growth rate for Priceline Sources for historical data and explanations can be found on the Trefis.com website (link) 2007 2008 2009 2010 2011 19.7 29.9 32.0 46.8 68.0
2012 83.2
2013 99.9
2014 2015 118 136
2016 2017 155 177
2018 202
74.0
74.0
74.0
77.4
78.9
78.8
79.2
79.5
79.9
80.2
80.5
80.9
Revenue from Cruise Bookings (% of 26.0 total)
26.0
26.0
22.6
21.1
21.2
20.8
20.5
20.1
19.8
19.5
19.1
24.0 1.52 5.92 N/A
24.5 -1.45 7.54 N/A
33.2 1.18 13.7 N/A
47.7 5.33 20.3 14.9
57.8 6.81 25.4 18.6
68.9 8.51 31.0 22.5
80.8 10.4 37.2 26.8
93.2 12.3 43.7 31.4
105 14.2 50.3 36.1
119 16.4 57.7 41.3
135 18.9 66.2 47.3
Total Revenue (Mil $) Revenue from Car Rentals (% of total)
Direct Expense (Mil $) Indirect Expense (Mil $) Gross Profit (Mil $) Free Cash Flow (Mil $)
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17.0 -0.48 2.68 N/A
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In addition, you can see the detailed P&L for the Car Rentals, Cruises and Other business in the Appendix (link)
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Airline Ticket Bookings The most important drivers for the Airline Ticket Bookings business are: • Revenue Margin on Airline Ticket Bookings • Priceline Market Share of Online Airline Tickets Sold • Global Air Tickets Sold (Online + Offline) • Percent of Global Air Tickets Sold Online — REVENUE MARGIN ON AIRLINE TICKET BOOKINGS —
This is the revenue generated from airline ticket sales expressed as a percentage of gross booking volume from air ticket sales
Revenue Margin on Airline Ticket Bookings (%)
4 3 2 1 0 2007 0 8
09
10
11
12
13
14
15
16
17
18
Revenue Margin on Airline Ticket Bookings for Priceline.com are expected to have declined from 4.2% in 2007 to 3% in 2010, in tandem with industry average. For our forecast we expect the commissions to decline at a constant rate to 2% towards 2017, the end of our forecast period. Forecast Rationale Supporting: 1. DECREASING AIR FARES LEADING TO DECLINE IN MARGINS – Increasing competition from low cost air carriers as well as other online travel agencies is leading a year on year decline in air fares. . Competitive pricing is leading to a decrease in commissions and fees charged, which is charged as a fixed percentage of airfare. . As we expect the price paid per air ticket to continue to decline, the margins earned on air ticket bookings are expected to decline as well. 2. REDUCTION IN COSTS BY TRAVEL SUPPLIERS AND GDS PARTNERS – Airlines have been reducing their operating costs including distribution costs. Prior to 2008, airlines lowered travel agent commissions and increased sales through their own websites. . Airlines also reduced payments to GDS intermediaries which in turn have passed on these discounts to travel agencies such as Priceline.com by reducing fees. This reduction in costs by travel suppliers and GDS partners
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have led to a reduction in Priceline.com’s margins. As airlines strive to further reduce operating costs and recover from recession, the margins earned by Priceline.com on its air ticket sales are expected to decline too. Mitigating: 3. INCREASE IN CONSUMER DEMAND AND LIMITED SUPPLY FROM CARRIERS – Severe recession led to reduction in domestic capacity and scaling down of operations by supplier airlines in United States. . However, as the economy recovers from recession an increase in demand for Priceline.com’s services from leisure travelers in addition to decreased supply from airlines can lead to an increase in air fares and subsequently increase commissions for Priceline.com. Sources for historical data and explanations can be found on the Trefis.com website (link) — PRICELINE MARKET SHARE OF ONLINE AIRLINE TICKETS SOLD —
It refers to number of air tickets booked at one of Priceline’s websites as a percentage of the total air tickets booked at online travel agencies' websites.
Priceline Market Share of Online Airline Tickets Sold (%)
2.5 2.0 1.5 1.0 0.5 0.0 2007 0 8
09
10
11
12
13
14
15
16
17
18
Priceline Market Share of Online Airline Tickets Sold increased from 1.1% in 2007 to 1.7% in 2009 before declining to 1.5% in 2010. Priceline had been gaining market share of airline tickets sold globally since 2007 till 2009. It sold an estimated 5.9 million airline tickets in 2009 as compared to 2.9 million in 2007, primarily driven by elimination of booking fees. While the number of air tickets booked over at Priceline's websites remained flat at 5.9 million in 2010, its share of the total global air ticket bookings fell moderately. Going forward, we expect Priceline to continue to increase its market share, albeit at a decreasing rate reaching 2.25% by 2017, the end of our forecast period. Forecast Rationale
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We considered the following factors in our forecast 1. RISING COMPETITION IN AIR TICKET BOOKINGS TO FAVOR THE BIGGER PLAYERS IN ONLINE TRAVEL INDUSTRY – The online travel agencies have had to eliminate the booking fee and charging cancellation/rescheduling fee in excess of that charged by the airlines themselves in an effort to be competitive with the airlines websites. The revenue margins (the OTAs revenue as a percentage of the size of booking) for air ticket bookings have declined consistently over the past five years. OTAs still continue with air ticket bookings since they are able to sell other services such as hotel room bookings, car rentals, cruises etc on which they stand to make higher revenue margins. Amidst rising competition and squeezing revenue margins, the bigger players have a better chance of survival since they are better placed in bundling different products into holiday packages and to offer complementary destination services to gain traffic. Also, under the merchant model, the bigger players can draw better discounts from suppliers on account of bulk bookings. Higher booking volumes favor better operating margins, a part of which is passed on to the travelers in terms of competitive pricing so as to gain market share in the process. Given than Priceline is one of the leading online travel agency, we believe it is best placed to grow its share of bookings. Hence, we forecast a rise in $[forecast} in the future. Priceline has been focusing on hotel bookings and has expanded its hotels network with the acquisition of Booking.com (European markets) and Agoda.com (Asian markets). Priceline is best placed to offer international travelers bundled travel packages due to its inventory of hotel stays. Hence, we foresee Priceline rapidly gaining share in air ticket bookings on account of its strong presence in international markets. Sources for historical data and explanations can be found on the Trefis.com website (link) — GLOBAL AIR TICKETS SOLD (ONLINE + OFFLINE) —
It refers to the total number of airline tickets sold through online channel (online travel agencies, carrier websites) and offline channels (travel agents)
Global Air Tickets Sold (Online + Offline) (Bil)
2.5 2.0 1.5 1.0 0.5 0.0 2007 0 8
09
10
11
12
13
14
15
16
17
18
We estimate that Global Air Tickets Sold (Online + Offline) has increased from 2260 million in 2007 to 2340 million in 2009 at an annualized growth rate of ~1% Going forward, we expect Global Air Tickets Sold (Online + Offline) to
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increase steadily at an annual pace of 1.5% to 2600 million by the end of our forecast period. Forecast Rationale We considered the following factors in our forecast 1. FEDERAL AVIATION ADMINISTRATION (FAA) AEROSPACE FORECASTS AN ANNUAL GROWTH RATE OF 2.4% IN TOTAL US COMMERCIAL PASSENGERS FROM 2009 TO 2025 2. FROM 2007 TO 2008, ANNUAL GROWTH IN TOTAL AIR TICKETS SOLD WORLDWIDE WAS 0.5% Sources for historical data and explanations can be found on the Trefis.com website (link) — PERCENT OF GLOBAL AIR TICKETS SOLD ONLINE —
It refers to the percentage of total air tickets sold globally, through online channels (airline websites, online travel agencies etc)
Percent of Global Air Tickets Sold Online (%)
60 50 40 30 20 10 0 2007 0 8
09
10
11
12
13
14
15
16
17
18
Percent of Global Air Tickets Sold Online increased from 30% in 2007 to 42% in 2009. Going forward, we expect the Percent of Global Air Tickets Sold Online to rise to 60% by 2017, the end of our forecast period. Forecast Rationale We expect a steep rise in the Percent of Global Air Tickets Sold Online in the future on account of the following reason. 1. EASE IN MAKING ONLINE TRAVEL BOOKINGS – Online bookings offer increased convenience as it is much easier to explore and search for various options online. Online bookings enables easy comparison of airfares between different airline also between different travel agencies. Easy comparison facilitates higher competition and hence results in better fares for the travelers . Online bookings enable travelers to bundle different travel services and custom-design the entire vacation packages. The possibility of making other bookings (hotel stays, car rentals etc) at the time of
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making air ticket bookings online, favors a rise in Percent of Global Air Tickets Sold Online 2. RISE IN INTERNET PENETRATION – In 2009, 56% of US leisure travel bookings occurred online compared to 32% in Europe and only 14% in Asia-Pacific (Worldwide average is 34%). This means there is tremendous room for growth as the spending shifts online. With rising affluence of emerging economies leading to higher internet penetration and more leisure travel, we expect the Percent of Global Air Tickets Sold Online to increase in the future. Sources for historical data and explanations can be found on the Trefis.com website (link) Total Revenue (Mil $) Direct Expense (Mil $) Indirect Expense (Mil $) Gross Profit (Mil $) Free Cash Flow (Mil $)
2007 52.8 45.6 -1.28 7.16 N/A
2008 88.2 70.7 4.47 17.4 N/A
2009 75.4 57.7 -3.42 17.8 N/A
2010 77.4 54.8 1.95 22.6 N/A
2011 89.3 62.7 7.00 26.6 19.6
2012 99.0 68.8 8.10 30.2 22.1
2013 110 75.9 9.38 34.2 24.8
2014 118 81.4 10.5 37.5 27.0
2015 129 88.1 11.6 41.2 29.7
2016 143 97.5 13.1 46.4 33.3
2017 157 106 14.5 51.1 36.6
2018 170 114 15.9 55.7 39.8
In addition, you can see the detailed P&L for the Airline Ticket Bookings business in the Appendix (link)
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Advertising and Media The most important drivers for the Advertising and Media business are: • Advertising Revenue — ADVERTISING REVENUE —
This represents the revenue earned by Priceline by letting suppliers of travel products and services to advertise and promote their products on Priceline's websites.
Advertising Revenue (Mil)
40 35 30 25 20 15 10 5 0 2007 0 8
09
10
11
12
13
14
15
16
17
18
Advertising Revenue increased from $8 million in 2007 to $22 million in 2009. Much of this steep rise was on account of acquiring Booking.com and Agoda.com, which brought with it, advertising revenues on their websites. Advertising Revenue dropped to below $13 million in 2010. This was the result of the termination of a relationship with an online advertising partner in September 2009. However, going forward, we expect the Advertising Revenue to rise to $19 million by 2012 and eventually to over $36 million by 2017, the end of our forecast period. Forecast Rationale We considered the following factors in our forecast Supporting 1. MACROECONOMIC RECOVERY AND RISING ADVERTISING BUDGETS WITH CORPORATIONS – As the global economy recovers from the recessionary 2008-09, we expect businesses to increase marketing spends in their efforts to gain the lost market share. Online advertising too would increase in the process and we expect more suppliers of travel products (bags, travel insurance etc) and services (airlines and hotels etc) to advertise on Priceline's website leading to a rise in Advertising Revenue 2. INCREASING NUMBER OF CUSTOMERS FOR PRICELINE – Priceline has witnessed significant growth in total number of customers because of a robust demand for its travel services. This is shown by substantial growth in total number of
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units sold of hotel nights, car rental days and airline tickets through Priceline.com. We project a growth in demand for all travel services offered by Priceline.com and hence an increase in total number of customers of Priceline.com and its subsidiary websites. Increasing customer base is expected to increase web traffic is and drive advertising revenue margins for Priceline.com higher. Mitigating 3. INCREASING COMPETITION FROM SEARCH ENGINES, LARGER ONLINE TRAVEL AGENCIES – Priceline.com faces competition from search engines and meta-search websites such as Google, Yahoo and Yahoo Fare chase respectively. It also faces competition from travel research websites owned by larger travel agencies such as Expedia. As Priceline.com has significantly less amount of financial and technical resources to compete with them, it may witness a decrease in its monetization capabilities and overall web traffic. These factors could negatively affect the advertising revenues Sources for historical data and explanations can be found on the Trefis.com website (link) Total Revenue (Mil $) Direct Expense (Mil $) Indirect Expense (Mil $) Gross Profit (Mil $) Free Cash Flow (Mil $)
2007 8.34 7.21 -0.20 1.13 N/A
2008 17.9 14.3 0.91 3.53 N/A
2009 22.2 17.0 -1.01 5.24 N/A
2010 12.7 8.96 0.32 3.70 N/A
2011 15.4 10.8 1.21 4.60 3.39
2012 18.5 12.9 1.52 5.66 4.14
2013 22.2 15.3 1.89 6.90 5.01
2014 25.6 17.5 2.25 8.07 5.81
2015 29.4 20.0 2.63 9.38 6.75
2016 32.3 21.9 2.94 10.4 7.49
2017 35.6 24.0 3.28 11.6 8.28
2018 39.1 26.3 3.66 12.8 9.15
In addition, you can see the detailed P&L for the Advertising and Media business in the Appendix (link)
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Appendix
Summary P&L for Priceline Summary P&L for Priceline 2007 2008 2009 2010 2011 2012 1.40 1.88 2.34 3.08 4.32 5.78 94.2 92.8 94.5 95.6 96.0 96.5
Total Revenues (Bil $) Hotel Bookings (% of total) Car Rentals, Cruises and Other (% of 1.41 total) Airline Ticket Bookings (% of total) Advertising and Media (% of total) Direct Expenses (Bil $) Hotel Bookings (% of total) Car Rentals, Cruises and Other (% of total)
Airline Ticket Bookings (% of total) Advertising and Media (% of total) Gross Profit (Bil $) Hotel Bookings (% of total) Car Rentals, Cruises and Other (% of total)
Airline Ticket Bookings (% of total) Advertising and Media (% of total) Indirect Expenses (Bil $) Hotel Bookings (% of total) Car Rentals, Cruises and Other (% of total)
Airline Ticket Bookings (% of total) Advertising and Media (% of total) Free Cash Flow (Bil $) Hotel Bookings (% of total) Car Rentals, Cruises and Other (% of
2013 7.18 96.8
2014 2015 2016 2017 8.18 9.00 9.85 10.4 96.8 96.7 96.6 96.4
2018 10.9 96.2
1.59
1.37
1.52
1.57
1.44
1.39
1.44
1.52
1.58
1.71
1.85
3.77 0.60 1.21 94.2
4.68 0.95 1.51 92.8
3.23 0.95 1.79 94.5
2.51 0.41 2.18 95.6
2.07 0.36 3.03 96.0
1.71 0.32 4.02 96.5
1.53 0.31 4.95 96.8
1.45 0.31 5.60 96.8
1.44 0.33 6.13 96.7
1.46 0.33 6.67 96.6
1.52 0.34 7.00 96.4
1.56 0.36 7.35 96.2
1.41
1.59
1.37
1.52
1.57
1.44
1.39
1.44
1.52
1.58
1.71
1.85
3.77 0.60 0.19 94.2
4.68 0.95 0.37 92.8
3.23 0.95 0.55 94.5
2.51 0.41 0.90 95.6
2.07 0.36 1.29 96.0
1.71 0.32 1.77 96.5
1.53 0.31 2.23 96.8
1.45 0.31 2.58 96.8
1.44 0.33 2.87 96.7
1.46 0.33 3.18 96.6
1.52 0.34 3.37 96.4
1.56 0.36 3.58 96.2
1.41
1.59
1.37
1.52
1.57
1.44
1.39
1.44
1.52
1.58
1.71
1.85
3.77 0.60 -0.03 94.2
4.68 0.95 0.10 92.8
3.23 0.95 -0.11 94.5
2.51 0.41 0.08 95.6
2.07 0.36 0.34 96.0
1.71 0.32 0.47 96.5
1.53 0.31 0.61 96.8
1.45 0.31 0.72 96.8
1.44 0.33 0.81 96.7
1.46 0.33 0.90 96.6
1.52 0.34 0.96 96.4
1.56 0.36 1.02 96.2
1.41
1.59
1.37
1.52
1.57
1.44
1.39
1.44
1.52
1.58
1.71
1.85
3.77 0.60 N/A N/A
4.68 0.95 N/A N/A
3.23 0.95 N/A N/A
2.51 0.41 N/A N/A
2.07 0.36 0.95 96.0
1.71 0.32 1.29 96.5
1.53 0.31 1.62 96.8
1.45 0.31 1.86 96.8
1.44 0.33 2.07 96.7
1.46 0.33 2.28 96.6
1.52 0.34 2.41 96.4
1.56 0.36 2.56 96.2
total)
N/A N/A N/A N/A 1.57
1.44
1.39
1.44
1.52
1.58
1.71
1.85
Airline Ticket Bookings (% of total) Advertising and Media (% of total)
N/A N/A N/A N/A 2.07 N/A N/A N/A N/A 0.36
1.71 0.32
1.53 0.31
1.45 0.31
1.44 0.33
1.46 0.33
1.52 0.34
1.56 0.36
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TREFIS ANALYSIS for PRICELINE
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Detailed P&L for the Hotel Bookings business The most important drivers for the Hotel Bookings business are discussed above, here is the detailed P&L. Hotel Bookings: Detailed P&L Revenues Hotel Bookings Revenue (Bil $) Priceline Market Share of Occupied Hotel Rooms (%) Global Hotel Rooms (Mil) Occupancy Rate for Hotel Rooms Worldwide (%) Average Daily Rate (ADR) per Hotel Room
Revenue Margin on Hotel Bookings (%) Total Revenues (Bil $) Expenses Direct Expenses (Bil $) EBITDA Margin on Hotel Bookings (%) Indirect Expenses (Mil $) CAPEX as % of Revenue (%) Increase in Net Working Capital % Revenue (%) Increase in Net Other LT Assets (Operating) % Revenue
Effective Tax Rate (%) Depreciation % Capex (%) Amortization % Revenues (%) Total Expenses (Bil $) Gross Profits (Bil $) Free Cash Flow (Bil $)
TREFIS ANALYSIS for PRICELINE
2007 2008 2009 2010 2011
2012
2013
2014 2015
2016 2017
2018
1.32
1.75
2.21
2.95
4.15
5.58
6.95
7.91
8.70
9.51
9.99
10.5
0.60 0.89
1.42
2.13
3.08
3.63
4.03
4.23
4.33
4.43
4.45
4.47
20.1
20.7
21.3
21.5
21.9
22.4
23.1
23.7
24.5
25.2
26.0
26.7
63.1
60.3
55.2
55.4
57.0
59.4
62.0
62.9
63.9
64.4
65.0
65.4
121
122
109
113
123
133
142
151
158
166
172
178
39.1
34.8
33.0
27.9
23.9
23.7
23.2
22.7
22.2
21.7
21.1
20.6
1.32
1.75
2.21
2.95
4.15
5.58
6.95
7.91
8.70
9.51
9.99
10.5
1.14
1.40
1.69
2.09
2.91
3.88
4.79
5.42
5.93
6.45
6.75
7.07
13.6
19.8
23.6
29.2
29.8
30.5
31.0
31.5
31.9
32.2
32.5
32.7
-100 74.4 0.65 0.73
325 0.78
456 0.83
591 696 0.90 0.93
779 0.95
864 0.98
921 1.00
984 1.03
-31.9 88.7 1.14 0.97
N/A -0.14 -2.37 -4.99 -0.47 -0.30 -0.10 0.10
0.20 0.30
0.40 0.50
N/A -0.55 -0.78 -0.29 0.31
0.25
0.20 0.15
0.10
0.05
0.02 -0.00
-15.4 74.1 1.80 1.11
25.7 71.7 1.11 3.24
25.7 71.7 1.11 4.33
25.7 71.7 1.11 5.38
25.7 76.7 1.11 6.11
25.7 83.0 1.11 6.71
25.7 90.0 1.11 7.31
25.7 100 1.11 7.67
25.7 110 1.11 8.06
0.18 0.35 0.52 0.86 1.24 N/A N/A N/A N/A 0.91
1.71 1.25
2.16 1.57
2.50 1.80
2.78 3.07 2.00 2.20
3.25 2.33
3.44 2.46
27.3 78.5 1.51 1.49
-9.22 95.9 1.06 1.59
25.7 71.7 1.11 2.16
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TREFIS ANALYSIS for PRICELINE
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Detailed P&L for the Car Rentals, Cruises and Other business The most important drivers for the Car Rentals, Cruises and Other business are discussed above, here is the detailed P&L. Car Rentals, Cruises and Other: Detailed P&L 2007 2008 Revenues Revenue from Car Rentals (Mil $) 14.6 22.2 Car Rental Days Sold (Mil) 8.60 10.0 Rent received per Car Rental day 16.6 23.4 ($)
Revenue Margin on Car Rentals (%)
Revenue from Cruise Bookings (Mil $)
Cruise Bookings ($ Mil) Revenue Margin on Cruise Bookings (%) Total Revenues (Mil $) Expenses Direct Expenses (Mil $) EBITDA Margin on Car Rentals and Cruise Bookings (%) Indirect Expenses (Mil $) CAPEX as % of Revenue (%) Increase in Net Working Capital % Revenue (%) Increase in Net Other LT Assets (Operating) % Revenue
Effective Tax Rate (%) Depreciation % Capex (%) Amortization % Revenues (%) Total Expenses (Mil $) Gross Profits (Mil $) Free Cash Flow (Mil $)
TREFIS ANALYSIS for PRICELINE
2009 2010 2011
2012
2013
2014 2015
2016 2017
2018
23.7 11.2
36.3 16.3
53.6 23.6
65.5 27.9
79.1 32.4
93.9 36.9
109 41.3
125 45.4
143 50.0
163 55.0
22.9
25.2
26.5
28.1
29.7
31.5
33.4
35.4
37.5
39.8
10.2
9.48
9.23
8.82
8.57
8.37
8.22
8.07
7.92
7.77
7.62
7.47
5.13
7.79
8.33
10.6
14.3
17.7
20.8
24.2
27.5
30.8
34.5
38.7
50.1
82.2
90.2
117
146
175
207
240
274
307
344
385
10.2
9.48
9.23
9.03
9.78
10.0
10.0
10.0
10.0
10.0
10.0
10.0
19.7
29.9
32.0
46.8
68.0
83.2
99.9
118
136
155
177
202
17.0
24.0
24.5
33.2
47.7
57.8
68.9
80.8
93.2
105
119
135
13.6
19.8
23.6
29.2
29.8
30.5
31.0
31.5
31.9
32.2
32.5
32.7
-1.45 1.18 0.65 0.73
5.33 0.78
6.81 0.83
8.51 10.4 0.90 0.93
12.3 0.95
14.2 0.98
16.4 1.00
18.9 1.03
-0.48 1.52 1.14 0.97
N/A -0.14 -2.37 -4.99 -0.47 -0.30 -0.10 0.10
0.20 0.30
0.40 0.50
N/A -0.55 -0.78 -0.29 0.31
0.25
0.20 0.15
0.10
0.05
0.02 -0.00
-15.4 74.1 1.80 16.6
25.7 71.7 1.11 53.0
25.7 71.7 1.11 64.6
25.7 71.7 1.11 77.4
25.7 76.7 1.11 91.2
25.7 83.0 1.11 105
25.7 90.0 1.11 119
25.7 100 1.11 136
25.7 110 1.11 154
2.68 5.92 7.54 13.7 20.3 N/A N/A N/A N/A 14.9
25.4 18.6
31.0 22.5
37.2 26.8
43.7 31.4
50.3 36.1
57.7 41.3
66.2 47.3
27.3 78.5 1.51 25.5
-9.22 95.9 1.06 23.0
25.7 71.7 1.11 34.4
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TREFIS ANALYSIS for PRICELINE
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Detailed P&L for the Airline Ticket Bookings business The most important drivers for the Airline Ticket Bookings business are discussed above, here is the detailed P&L. Airline Ticket Bookings: Detailed P&L 2007 2008 2009 2010 2011 Revenues Airline Ticket Bookings Revenue 52.8 88.2 75.4 77.4 89.3 (Mil $)
2012
2013
2014 2015
2016 2017
2018
99.0 110
118
129
143
157
170
Price paid per Air Ticket ($) 434 421 Priceline Market Share of Online 1.07 1.63 Airline Tickets Sold (%) Online Travel Agency (OTA) Share 40.0 39.0 of Online Bookings
384
433
444
452
461
471
480
490
500
510
1.73
1.52
1.59
1.64
1.74
1.84
1.97
2.12
2.27
2.42
39.0
39.5
41.0
43.0
43.5
44.0
44.5
45.0
45.0
45.0
Percent of Global Air Tickets Sold Online (%) Global Air Tickets Sold (Online + Offline)
Revenue Margin on Airline Ticket Bookings (%) Total Revenues (Mil $) Expenses Direct Expenses (Mil $) EBITDA Margin on Air Ticket Bookings (%) Indirect Expenses (Mil $) CAPEX as % of Revenue (%) Increase in Net Working Capital % Revenue (%) Increase in Net Other LT Assets (Operating) % Revenue
Effective Tax Rate (%) Depreciation % Capex (%) Amortization % Revenues (%) Total Expenses (Mil $) Gross Profits (Mil $) Free Cash Flow (Mil $)
TREFIS ANALYSIS for PRICELINE
30.0
34.0
38.0
42.0
46.0 49.0 52.0
54.0
56.0
58.0
60.0 62.0
2.26
2.27
2.31
2.34
2.37
2.41
2.45
2.48
2.52
2.56
2.60
2.64
4.19
4.27
3.32
3.02
2.82
2.62
2.47
2.32
2.17
2.07
1.97
1.87
52.8
88.2
75.4
77.4
89.3
99.0 110
118
129
143
157
170
45.6
70.7
57.7
54.8
62.7
68.8
75.9
81.4
88.1
97.5
106
114
13.6
19.8
23.6
29.2
29.8
30.5
31.0
31.5
31.9
32.2
32.5
32.7
-3.42 1.95 0.65 0.73
7.00 0.78
8.10 0.83
9.38 10.5 0.90 0.93
11.6 0.95
13.1 0.98
14.5 1.00
15.9 1.03
-1.28 4.47 1.14 0.97
N/A -0.14 -2.37 -4.99 -0.47 -0.30 -0.10 0.10
0.20 0.30
0.40 0.50
N/A -0.55 -0.78 -0.29 0.31
0.25
0.20 0.15
0.10
0.05
0.02 -0.00
-15.4 74.1 1.80 44.3
25.7 71.7 1.11 69.7
25.7 71.7 1.11 76.9
25.7 71.7 1.11 85.3
25.7 76.7 1.11 91.9
25.7 83.0 1.11 99.6
25.7 90.0 1.11 110
25.7 100 1.11 120
25.7 110 1.11 130
7.16 17.4 17.8 22.6 26.6 N/A N/A N/A N/A 19.6
30.2 22.1
34.2 24.8
37.5 27.0
41.2 29.7
46.4 33.3
51.1 36.6
55.7 39.8
27.3 78.5 1.51 75.2
-9.22 95.9 1.06 54.2
25.7 71.7 1.11 56.7
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TREFIS ANALYSIS for PRICELINE
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Detailed P&L for the Advertising and Media business The most important drivers for the Advertising and Media business are discussed above, here is the detailed P&L. Advertising and Media: Detailed P&L 2007 2008 2009 2010 2011
2012
2013
2014 2015
2016 2017
2018
8.34 8.34 8.34
17.9 17.9 17.9
22.2 22.2 22.2
12.7 12.7 12.7
15.4 15.4 15.4
18.5 18.5 18.5
22.2 22.2 22.2
25.6 25.6 25.6
29.4 29.4 29.4
32.3 32.3 32.3
35.6 35.6 35.6
39.1 39.1 39.1
Expenses Direct Expenses (Mil $) 7.21 EBITDA Margin on Advertising 13.6 (%)
14.3
17.0
8.96
10.8
12.9
15.3
17.5
20.0 21.9
24.0
26.3
19.8
23.6
29.2
29.8
30.5
31.0
31.5
31.9
32.2
32.5
32.7
-1.01 0.32 0.65 0.73
1.21 0.78
1.52 0.83
1.89 2.25 0.90 0.93
2.63 0.95
2.94 0.98
3.28 1.00
3.66 1.03
Revenues Advertising Revenue (Mil $) Advertising Revenue (Mil) Total Revenues (Mil $)
Indirect Expenses (Mil $) CAPEX as % of Revenue (%) Increase in Net Working Capital % Revenue (%) Increase in Net Other LT Assets (Operating) % Revenue
Effective Tax Rate (%) Depreciation % Capex (%) Amortization % Revenues (%) Total Expenses (Mil $) Gross Profits (Mil $) Free Cash Flow (Mil $)
TREFIS ANALYSIS for PRICELINE
-0.20 0.91 1.14 0.97
N/A -0.14 -2.37 -4.99 -0.47 -0.30 -0.10 0.10
0.20 0.30
0.40 0.50
N/A -0.55 -0.78 -0.29 0.31
0.25
0.20 0.15
0.10
0.05
0.02 -0.00
-15.4 74.1 1.80 7.01
25.7 71.7 1.11 14.4
25.7 71.7 1.11 17.2
25.7 76.7 1.11 19.8
25.7 83.0 1.11 22.7
25.7 90.0 1.11 24.9
25.7 100 1.11 27.3
25.7 110 1.11 30.0
6.90 8.07 5.01 5.81
9.38 6.75
10.4 7.49
11.6 8.28
12.8 9.15
27.3 78.5 1.51 15.2
-9.22 95.9 1.06 16.0
25.7 71.7 1.11 9.28
25.7 71.7 1.11 12.0
1.13 3.53 5.24 3.70 4.60 5.66 N/A N/A N/A N/A 3.39 4.14
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