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Priceline Shows Facebook There's More Than One Way to Do Growth

NEW YORK ( TheStreet) -- For anyone still shorting Priceline.com (PCLN - Get Report), the most-chilling words out of Priceline CFO Daniel Finnegan's mouth during Thursday's fourth-quarter earnings call had to be the last thing he said before taking questions: That the company's forecast of up to 33% travel-bookings growth for early 2014 don't assume any improvement in the economy anywhere in the world.

For a company that depends on Europe as much as Priceline does, the notion that it keep growing so fast with no real consumer-spending recovery, when one is already developing, is a nice insurance policy indeed. It points to even more good times ahead for a stock that has already been a 130-bagger since 2003, as the developed world continues to climb gradually out of its post-2008 funk.

Coming a day after Facebook stunned Wall Street by paying $19 billion for WhatsApp, an instant-messaging application that has 450 million users but estimated 2013 revenue of only $20 million, Priceline's call was an espeicially timely object lesson in this: There are still aggressive, but comparatively more traditional, ways to build a growth business.

In contrast to the let's-pay-for-eyeballs approach of the WhatsApp deal, Priceline's huge returns have been rooted in smart tactics, very clever and judicious uses of its marketing and technology budgets -- and small acquisitions that paid huge returns, relatively quickly. Menlo Park,  take note.

For years, Priceline's hypergrowth has been driven by the 2005 acquisition of Netherlands-based Booking.com, a $135 million deal, almost overlooked at the time, that Priceline used to slingshot itself past Expedia, the early leader in Europe's online travel market-share war. Priceline now gets 85% of its gross travel bookings from outside the U.S. -- mostly either from Europe or Asia, which Priceline entered after buying the Thai travel site Agoda in 2007 for an estimated $150 million.

Booking conquered Europe by mastering the arcane disciplines of online advertising (travel-industry analyst Gene Quinn calls them the kings of Google AdWords) and having relationships with a huge roster of hotels to maximize consumers' choice. It may not be as flashy as building an app that goes from zero to 450 million mostly non-paying users (WhatsApp is free for the first year of use and 99 cents a year later, and most of its users are still in their free trial). But if this is three-yards-and-a-cloud-of-dust growth,

Then Pricelline is playing in a very fancy sandbox.

The same discipline marks what Priceline is doing now. . Its $1.8 billion mergetr   with Kayak last year is paying dividends: Advertising revenue, which is how Kayak makes most of its money, rose to $171.1 million last year from $13.4 million in 2012. And Priceline is investing in its own business as well.

One investment to watch is the $92 million by which Priceline boosted its offline advertising budget last year, to $127.5 million, in a bid to build up the Booking.com brand. Priceline execs said on the call that they have achieved all they had even though Booking.com has low unaided brand awareness among consumers.

Their calculation is typical of the measured, managed Priceline way of growth investing: Spend a little money on the brand and they hope to be able to trim the much larger $1.8  billion online ad budget as people come straight to Priceline's sites rather than stopping at Google first. If they can get people to download Booking.com or Priceline apps, that saves even more.

That led to the least surprising thing CEO Darren Huston said, answering a question about how much he would change after replacing Jeffery NOTE TO EDS: SPELLING IS CORRECT  Boyd in November. Not much, he said.

"You don't fix what ain't broke," he said. It's not my point here to dis Facebook, which after all is worth more than $165 billion only 10 years into its existence. But for investors who want growth without quite as much belief in things not seen (a phrase is borrowed from President Obama;s definition of the "audacity of hope,'') as paying $19 billion for an app few investors had heard of this time last year, Priceline is what it looks like. Still.

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