Despite taking a $941 million write-down on its two-year-old acquisition of OpenTable, travel booking company Priceline Group (PCLN) continues to see upside, in part due to a host of other acquisitions the company had booked successfully.
Priceline Group announced on Monday after the market close that it took a writedown for the OpenTable division it acquired for $2.6 billion in 2014 and that it plans to slow down international investments toward the restaurant booking business.
Priceline planned to leverage its strong international business with OpenTable's solid footprint in the U.S., but has come to realize that doing so would take longer than what was initially thought, said Cantor Fitzgerald analyst Naved Khan.
"There was a rationale in a sense that if you travel, you have to dine out," said Khan by phone of Priceline's 2014 acquisition of OpenTable. "Travelers are candidates for eating out."
Priceline, which has largely built itself through M&A, paid a hefty price tag of a nearly 50% premium for OpenTable a little over two years ago.
OpenTable is among Priceline's portfolio of brands that also include Priceline, Booking.com, Kayak, Agoda.com and Rentalcars.com.
Priceline's portfolio itself underscores the company's stellar track record in M&A as the main businesses -- Booking.com, Kayak, Agoda.com and Rentalcars.com -- all came from previous acquisitions.
Purchasing Booking.com and Agoda.com expanded Priceline's presence overseas particularly in Europe and Asia, respectively. Kayak significantly boosted Priceline's traffic while Rentalcars.com was a diversification play and gave the buyer a new source of growth outside of its core travel booking business.
"[Priceline] continues to benefit from strength of its brands, a diversified global footprint and strong execution," wrote RBC Capital Markets analyst Mark Mahaney in a Monday note, adding that there are material new growth opportunities that Priceline has been steadily investing in such as expanding in China and Latin America.
"PCLN remains one of the best 'Net Large Caps -- both fundamentally and stock wise," he added.
Khan said Priceline likely realized that getting substantial footprint is going to take time and will focus on making investments in a more deliberate manner.
"It's not a light switch you turn on," he explained.
Travel booking has become a "scale business" and companies have subsequently become active participants of M&A, Khan said.
"You have to be very efficient in acquiring traffic online. You need to have the right technology platform. You need to have the necessary scale," he said.
As OpenTable slows the pace of international investments, it will look to build its inventory of bookable restaurants, user experience and cloud-based tools, Priceline Group president, CEO and chairman Jeffery Boyd said during a conference call with investors on Monday.
"We remain enthusiastic about the long-term prospects for OpenTable," he said. Priceline added that the decision is part of a change in OpenTable's long-term strategies that will now make more measured investments.
While Priceline's previous acquisition will also help it grow, its main competitor Expedia (EXPE) is actually being held back by its recent acquisitions.
Expedia has been on a buying spree over the past year or so, having acquired HomeAway for $3.685 billion in December and Orbitz Worldwide for $1.6 billion in September, among others.
Still, Expedia has been working to digest its acquisitions and has had to divert resources toward integration, Khan explained, adding that this has allowed Priceline to capture even more share in the market.
News of Priceline's writedown came as the Norwalk, Conn.-based company reported third quarter earnings. Priceline topped estimates for revenue and earnings per share, posting $3.69 billion in revenue and EPS of $31.18. The consensus estimate was $3.62 billion for revenue and $29.32 for EPS.
Shares of Priceline are up about $6.2% Tuesday morning to $1,571.33. The stock is up about 24% year-to-date.