William Shatner was the “Priceline Negotiator”, appearing in the online travel agent’s adverts and affecting to win consumers the best possible hotel deals. Would that Priceline had employed the Star Trek actor to negotiate the acquisition of OpenTable. On Monday evening, during quarterly results, Priceline revealed that it was writing down the value of the restaurant site by almost $1bn, only two years after acquiring it for $2.6bn.
It was clear at the time that Priceline had overpaid. OpenTable’s own regulatory filings showed it was worth $57-$90 a share if valued where other comparables were trading. Priceline paid $103, a 46 per cent premium to the undisturbed share price. Profit growth has been slower than predicted.
Yet faced with evidence of such spendthrift behaviour, shareholders sent Priceline’s stock up 5 per cent to an all-time high. That might seem forgiving but it is understandable. Group bookings were up 26 per cent to $18.5bn in the quarter; earnings rose more than a fifth. Few 20-year-old internet companies can boast that kind of growth.
OpenTable may have cost too much but in other acquisitions Priceline has assembled a stellar stable of brands led by Booking.com. Its market value has tripled since 2011 to $77bn. The challenge now is to maintain growth and margins at these heady levels. Annual growth in room nights reserved has declined from 40 per cent in 2012 to 25 per cent last year. Airbnb poses a threat by luring more corporate road warriors to alternative digs. Large hotel groups such as Marriott are fighting to attract customers to their own sites rather than third parties.
Priceline can compete. It says that 7m of its total 24m rooms are non-hotels. It is less dependent than rivals on business from hotel chains. Still, its enterprise value is more than 16 times 2017’s forecast earnings before interest, tax, depreciation and amortisation — not quite OpenTable levels of froth, but not a Shatner-style deal either.
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