Will Priceline (PCLN) Q4 Earnings Witness Agency Growth?

The Priceline Group Inc. (NASDAQ:PCLN) is slated to report fourth-quarter 2017 earnings on Feb 27, after the closing bell. Last quarter, the online travel company delivered a positive earnings surprise of 2.7%.

The surprise history has been good in Priceline’s case. The company surpassed estimates in each of the trailing four quarters, with an average four-quarter positive surprise of 7.4%.

In a year's time, shares of Priceline have gained 14.6% underperforming the industry’s 62.2% rally.

Strong Agency Revenues to Drive International Results

Priceline generates the bulk of its revenues from international markets where the agency model is more popular. This is reflected in the merchant/agency split of revenues, which was 16/77% in the third quarter.

We expect agency revenues to increase in the to-be-reported quarter driven by strength across priceline.com and booking.com. While priceline.com is expected to benefit from room night growth, booking.com is likely to ride on vacation rental properties growth.

The Zacks Consensus Estimate for agency revenues is pegged at $2 billion. In the third quarter, agency revenues had increased 51.1% sequentially and 21.8% year over year.

Agoda and Rental Cars to Boost Merchant Revenues

In the to-be-reported-quarter, merchant revenues are also expected to grow driven by strength across agoda.com and rentalcars.com. While agoda.com is likely to benefit from discounting in markets, rentalcars.com is expected to ride on continuous operational improvements.

The Zacks Consensus Estimate for merchant revenues is pegged at $455 million. In the third quarter, merchant revenues were up 37.4% sequentially and 10.3% from the prior-year quarter.

Concerns

Weaker average daily rates for accommodations (ADR), macro headwinds, increasing advertising spend and occupancy tax-related litigation remain overhangs.

Also, for the fourth quarter of 2017, Priceline expects room nights booked to grow 8-13% and total gross bookings to increase 9.5-14.5% year over year (5.5-10.5% on a constant currency basis). Notably, this guidance indicated a slowdown in growth rates of room nights booked and total gross bookings, as it is the lowest compared to the last five quarters.

What Our Model Suggests

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Priceline has a Zacks Rank #3 and an Earnings ESP of -0.11%.This combination does not indicate a likely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The Priceline Group Inc. Price and EPS Surprise

The Priceline Group Inc. Price and EPS Surprise | The Priceline Group Inc. Quote

Stocks to Consider

Here are some stocks you may want to consider as our model shows that these have the right combination of elements to deliver a positive earnings surprise:

Mercadolibre, Inc. (NASDAQ:MELI) has an Earnings ESP of +3.64% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Newfield Exploration Company (NYSE:NFX) has an Earnings ESP of +4.55% and a Zacks Rank #3.

Advanced Micro Devices, Inc. (NASDAQ:AMD) has an Earnings ESP of +8.72% and a Zacks Rank #3.

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