Apple (AAPL), the superstar on the market, has the largest market capitalization and saw its stock price rising 529.86% over the past five years, but the shares of an Internet company with a market capitalization of $35 billion exceeded Apple, with a pleasant increase of 1205.7% over the past five years. In 2011, the company which has about 5000 employees, generated $4.36 billion annual revenues and a net profit of $1.06 billion, representing a revenue growth rate of 41% and a 100% net profit growth rate. The company is the world’s largest online travel company – Priceline (PCLN), the company is currently commanding a market value of $35.37 billion and PCLN shares trade 34.39 times price-earnings ratio.
Statistics show that since the beginning of 2001, PCLN stock price has risen from $8.44 to $696.93, representing an amazing increase of 8157%, while Apple’s same period rise is only 3940%.
In 1998, Jay Walker founded Priceline and named its core business model as “Name Your Own Price” and registered the patent. With the distinctive business model, Priceline soon get a financing amount of $100 million. The early investors of Priceline even included heavyweights including the Microsoft’s co-founder Paul Allen. Under the “Name Your Own Price” model, the users pay in advance, and Priceline can turn to the sale systems of a number of hotels ( or Car rental companies, or airline companies), looking for the lowest-priced rooms (car rental, or tickets) to sell to the user on the basis of the user conditions, therefore, Priceline is able to achieve high profits.
In 2009, Priceline’s profit and market value had surpassed its biggest rival Expedia, but revenues were lower than the latter; but during the second quarter of 2011, Priceline’s revenues, profit and market capitalization topped Expedia. Priceline’s revenue were primarily derived from the international markets outside the United States while the former online travel business leader Expedia generated only 30% of income from overseas markets.
Priceline released Q4 earnings after the market close on February 27, showing the company grew revenues by 35.5% to $991 million and net profit by 66.5% to $226 million. The company said its subsidiary brands including Booking.com and Agoda, and Priceline.com had substaintially expanded the hotel market share. The international business maintained a strong growth momentum, the reservations of hotel room nights surged 51.8% year on year. In contrast, Expedia’s reservations of hotel room nights increased only 19% in the fourth quarter and Orbitz Worldwide’s reservations of hotel room nights were down 2%.
PCLN stock price rose sharply by 6.97%, to close at $632.76 per share, hitting a new high in the following day’s regular trading; on the basis of the closing price, Priceline’s market value exceeded $30 billion for the first time.
Priceline integrated its car rental brands Traveljigsaw and RentalCars.com into the RentalCars.com brand, and the company grew the car rental bookings by 34% for the fourth quarter.
Let’s view the historical annual data, Priceline grew revenues from $1.51 billion in 2007 to $4.36 billion in 2011, representing a compound average annual growth rate of 132.61%. Net income increased from $157.08 million to $1.06 billion over the same period, representing a compound average annual growth rate of 161.2%.
Why is Priceline able to achieve today’s success?
First, the company grew rapidly through a series of acquisitions. The company purchased ActiveHotel in 2004 and Agoda in 2007, boosting increase in the hotel reservations by leaps and bounds. The car rental business also contributed a lot, after acquiring TravelJigsaw, Priceline’s car rental booking days achieved a 45.5% annual increase.
As bringing in huge revenue growth, Priceline’s large-scale acquisitions did not reduce its profitability, by contrary, its earnings level gradually increased after 2008.
In addition to the company’s shrewd acquisition strategy, the more important reason lies in the unique secret – Name Your Own Price. In simple terms, that is, user-driven price C2B model. This is also the trump card Priceline holds the highly competitive North American market, distinguishing it from its rivals Expedia and Orbitz. According to the 2011 financial data, the Name Your Own Price model contributed half of the total revenue and 60% of the profits.
According to the WSJ data, analysts currently give the PCLN stock target price of $755.91 per share and an “overweight” rating.
Of course, Priceline has been aware of the threats posed by each competitor – including Google Flight Search, Room Key, or any online and offline travel company you can call to mind. What is going on in the future, we will wait and see.