priceline.com Incorporated (PCLN)

Q4 2011 Earnings Call

February 27, 2012 4:30 pm ET

Executives

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Jeffery H. Boyd - Chief Executive Officer, President, Member of Group Management Board, Director, Chief Executive Officer of Lowestfare.com and Director of Lowestfare.com

Daniel J. Finnegan - Chief Financial Officer, Chief Accounting Officer and Senior Vice President

Analysts

Stephen Ju - Crédit Suisse AG, Research Division

Brian Nowak - Nomura Securities Co. Ltd., Research Division

Ross Sandler - RBC Capital Markets, LLC, Research Division

Naved Khan - Jefferies & Company, Inc., Research Division

Mark S. Mahaney - Citigroup Inc, Research Division

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Tom White - Macquarie Research

Kevin Crissey - UBS Investment Bank, Research Division

Tracy B. Young - Evercore Partners Inc., Research Division

Michael J. Olson - Piper Jaffray Companies, Research Division

Douglas Anmuth - JP Morgan Chase & Co, Research Division

Herman Leung - Susquehanna Financial Group, LLLP, Research Division

Justin Post - BofA Merrill Lynch, Research Division

Jeetil J. Patel - Deutsche Bank AG, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Priceline Group's Fourth Quarter and Full Year 2011 Conference Call. Priceline would like to remind everyone that this call may contain forward-looking statements, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements. Expressions of future goals and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements. For a list of factors that could cause Priceline's actual results to differ materially from those described in the forward-looking statements, please refer to the Safe Harbor statements at the end of Priceline's earnings press release, as well as Priceline's most recent filings with the Securities and Exchange Commission. Unless required by law, Priceline undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. A copy of Priceline's earnings press release, together with an accompanying financial and statistical supplement, is available in the Investor Relations section of Priceline's website located at www.priceline.com.

And now I'd like to introduce the Priceline Group's speakers for this afternoon, Mr. Jeff Boyd and Mr. Dan Finnegan. Go ahead, gentlemen.

Jeffery H. Boyd

Thank you very much, and welcome to Priceline's Fourth Quarter Conference Call. I'm here with Priceline CFO, Dan Finnegan. I will make some opening remarks, and Dan will give a detailed financial review. After the prepared portion, we'll take questions. Priceline reported consolidated gross bookings for the fourth quarter of approximately $5 billion, up 52% year-over-year. Non-GAAP net income was $276.8 million or $5.37 per share, up 58% versus prior year. Fourth quarter results surpassed First Call consensus estimates of $5.05 per share and our guidance for the quarter.

Worldwide hotel room night reservations were $33.6 million for the quarter, up 53% year-over-year. For the full year, Priceline reported gross bookings of $21.7 billion, up 59% from 2010 and non-GAAP net income per share of $23.45, a 74% increase over 2010.

Growth rates for our international business increased slightly on a local currency basis during the quarter, with 67% gross bookings growth. International gross bookings growth rates benefited from increased ADRs, growth in new markets and growth in hotel supply.

Booking.com continued to build its worldwide hotel supply platform, with now approximately 195,000 hotels and other accommodations in 160 countries. Booking.com has maintained an impressive rate of new property acquisition. Keep in mind, however, that many new properties, especially in highly penetrated markets, are smaller, have fewer rooms and potentially lower ADRs and may appeal to a smaller subset of customers, for example, hostels and bed and breakfasts, and therefore may generate less commission revenue over time.

Booking.com's focus on new markets in Asia, South America and North America continues, with reservations to those destinations growing faster than core markets and increasing as a share of total reservations. Booking.com is also making substantial investment in people to promote and manage the expansion of its hotel and geographic base. While high growth rates in new markets are encouraging, we believe Booking.com still has a substantial opportunity to grow in its core markets. A recent study published by Eurostat, the statistical office of the European Union, reported 1.6 billion room nights stayed in 2011 in the 27 EU countries. Priceline's group-wide room nights booked in the EU 27 in 2011 represents a mid-single-digit percentage of that total, although our share may be higher or lower in a given destination.

Priceline's domestic gross bookings grew 16% in the fourth quarter due primarily to growth in sales of retail hotel room night reservations, retail rental car reservations and growth in airline ticket sales and average ticket prices. Hotel room night booking growth also benefited from higher ADRs. Priceline's opaque hotel service continued to be impacted by the increase in competitive discount offerings in the market.

Merchant gross bookings growth of 37% primarily reflects growth in the merchant businesses of Agoda and rentalcars.com, formerly TravelJigsaw. Agoda continues to build its business in the Asian region and continues to report impressive year-over-year growth in gross bookings, contributing to the overall international and merchant growth we are reporting. These results were delivered despite the negative impact of the floods in Thailand, which caused the loss of some reservations and higher cancellations. We are grateful for the team's efforts in dealing with the effect of the floods and continuing to move the business forward.

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