Priceline.com Inc (PCLN), Expedia Inc (EXPE), Google Inc (GOOG): This Innovative Leader Will Continue Flying Higher

Turbulence ahead

Expedia Inc (NASDAQ:EXPE) has been increasing its presence in Europe lately, while Priceline is counterattacking by trying to gain market share in the U.S. This has led to growing advertising spending by the two biggest players in the industry, and it could put some pressure on profit margins in the middle term.

Both Priceline and Expedia Inc (NASDAQ:EXPE) have strengthened their competitive position by acquiring metasearch companies Kayak Software Corp (NASDAQ:KYAK) and Trivago, respectively. Metasearch companies integrate results from different search engines to provide better and more information, and Kayak is quite popular in the U.S., so Priceline is gaining access to a valuable competitive asset with this deal. But Kayak Software Corp (NASDAQ:KYAK) has thinner margins than Priceline, so this acquisition is another factor that could hurt the company´s margins.

Although Google Inc (NASDAQ:GOOG) is not likely to get involved at the transaction level, the search engine is dominant enough to demand growing advertising fees from Priceline and other companies in the industry, especially in the context of increasing competitive tension among them.

Priceline has a very profitable business model, and margins tend to rise with growing sales due to a relatively fixed cost structure. Over the next quarters, however, increased competition, acquisitions and growing advertising spending could be a negative for margins, and investors should be ready to withstand some uncertainty in the middle term.

Bottom line

Priceline is an industry leader in an attractive business with promising growth prospects from a long-term point of view. Even if margins come under pressure over the next quarters, the company is far more profitable than its competitors, so it has more gas in the tank to increase spending in the fight for growth and market share. This flight may be getting turbulent, but this plane is going in the right direction.

The article This Innovative Leader Will Continue Flying Higher originally appeared on Fool.com is written by Andrés Cardenal.

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