Four Reasons to Buy Priceline.com Inc (PCLN): Expedia Inc (EXPE), Travelzoo Inc. (TZOO)

Priceline’s longer term worries

Competition Growing in Hotel Booking Business: The hotel booking business faces stiff competition from peers like Expedia Inc (NASDAQ:EXPE) and Travelzoo Inc. (NASDAQ:TZOO). Expedia is increasing its hotel inventory and entering into strategic relationships. Hotel booking is Expedia Inc (NASDAQ:EXPE)’s main focus, with a contribution of around 25% in revenue. The company has entered in successful joint ventures with Air Asia, Fotopedia in France and Japan, and eLong in China.

Travelzoo Inc. (NASDAQ:TZOO) has also witnessed robust growth in its hotel business, primarily driven by Getaways hotel offering. Getaways, which was launched in 2011, is a voucher model which is gaining popularity among medium and small size hotels, as it provides them with an opportunity to stimulate incremental sales.

Currently, Travelzoo does not offer direct online bookings for a specific date. However, it is in the process of opening up a hotel booking platform, and is working towards providing its users the ability to book hotels directly via its website through mobile devices. Additionally, the company intends to ramp up its hotel sales force to capture the growing demand for Getaways.

Mobile Business Vulnerable to Competition: Priceline’s last-minute mobile bookings business is expected to be negatively impacted by services offered by rival firms. With social media integration, Travelzoo Inc. (NASDAQ:TZOO) saw a robust increase in its mobile traffic. Expedia Inc (NASDAQ:EXPE) recently launched an updated mobile app that’s available in the United States on iPhone and Android platforms. The app, which previously featured only hotels, is now packed with information about flight and hotel availability, as well as cancellation messaging that users expect to see while booking on Expedia’s desktop site.

Relative valuation

Despite the concerns stated above, Priceline is an aggressive growth story with an expected 2013 earnings growth of 21%, according to Zacks. It trades with a forward P/E of 19.3, compared to Expedia’s 20 times forward estimates and Travelzoo’s forward P/E of 17.2. Travelzoo’s earnings growth is expected to be negative, which is (7.5)% for 2013, while Expedia’s expected 2013 earnings growth is 16.4%.

Conclusion

With an expected earnings growth that’s highest among peers, Priceline certainly deservers a “buy” rating on its shares. Analysts at Raymond James, Macquarie, and Nomura raised their price target on the shares of Priceline in the range of $820 to $850.

The article Four Reasons to Buy priceline.com originally appeared on Fool.com and is written by Anindya Batabyal.

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