A change of management can make investors edgy but is that really necessary? Sally White takes a look

Headlines like ‘Priceline gets slammed...’ and ‘Priceline skids’ are of the kind no CEO wants to read. For Darren Houston, who took over the top job at the online travel giant from industry icon Jeffrey Boyd in January, this must be especially painful. But as that’s what his Q3 financial statements brought, what’s going on?

It seems another case of a dealer/analyst (see What Tripadvisor’s tumble really means, EyeforTravel Nov 7) split! Dealers don’t like the unknown and over Boyd’s 11-year tenure as CEO they’d got to know and trust him. More to the point, they liked his amazing track record. Analysts, however, see post-Boyd Priceline as still a very hot stock with a business model that will be safe in Houston’s hands.

Dealers knocked 10% off the share price when the Booking.com and Kayak.com owner (to name a few) reported earlier this month with better-than-expected Q3 figures and ideas on the future. They’ve pushed the price down since Boyd moved up to become chairman last November every time it’s made a new peak.

That seems really unfair when you look at what Houston delivered - Q3 revenue of $2.84 billion, up 33.6% sequentially and 25% from the year-ago quarter. This was better than management’s guidance of $2.72 billion and anyway, the industry growth average is only 12.6%. Priceline reported earnings per share (EPS) of $22.16 (up 27%), crushing the analysts’ consensus estimate of $21.08. 

The new Priceline growth story is that it is sidestepping soaring US competition by broaching new markets

What dealers latched on to was Priceline’s future guidance - for Q4. That was for a year-over-year sales increase of 11%-18% with earnings per share growth of 10.2%. However, year-on-year analyst consensus growth for Q4 EPS has been of $10.96, implying a 24% increase. So, fans to a man, the analysts were, maybe, a touch OTT.

Of course, that’s less than Priceline’s customary growth, but as ‘pro’ dealers know managements’ steers are always conservative - to avoid disappointing. 

The new Priceline growth story is that it is sidestepping soaring US competition by broaching new markets, making a big push into Europe and Asia where online booking is less prevalent. (It recently invested half a billion bucks in Chinese travel portal Ctrip.com.)

Is Priceline on the skids? Far from it – if Wall Street and industry fan clubs are right. Leading international brokers such as Jefferies see a large share price jump ahead. 

So what’s the real story? The market itself has cynical but credible ones!

The word is that the dealers think they’d get more turnover (hence commission!) if Priceline’s investment rating (PER) was lower. (In fact, some brokers already have prospectively lower ones than those of industry peers Expedia and Orbitz). Also, around 96% of company investors are institutional funds (making for an illiquid market, another factor in the fall) and dealers are probably hoping to get some business if they can shake a few out! 

As ever in the market, it is a case of looking to where short-term money can be made!

Sally White is an independent economist, consumer market and financial analyst and writer who works in the UK and western and eastern Europe and travels extensively. She has published in national newspapers, magazines, radio and television, and on web-based media, and has run programmes for the BBC and edited sections of the Times, Telegraph and Evening Standard.