Priceline, TripAdvisor Sink As Competition Weighs On OTAs

The shares of online travel agencies Priceline (PCLN) and Tripadvisor (TRIP) are falling after Priceline's Q3 profit guidance came in below expectations and Tripadvisor reported that its transaction revenue per hotel shopper fell last quarter.

PRICELINE: Priceline reported Q2 earnings per share, excluding some items, of $15.14, versus the consensus outlook of $14.20. The company's revenue came in slightly above expectations. However, it provided Q3 EPS guidance, excluding some items, of $32.40-$34.10, versus the consensus outlook of $34.20.

TRIPADVISOR: Tripadvisor reported Q2 EPS of 38c, versus the consensus outlook of 30c. The company's revenue came in slightly above expectations. However, it reported that its TripAdvisor-branded click-based and transaction revenue per hotel shopper decreased 2% year-over-year.

REACTION ON PRICELINE: Priceline failed to beat its guidance last quarter for the first time since 2012, wrote Cowen analyst Kevin Kopelman. The analyst blamed this development on tougher competition from Expedia (EXPE) and "heavy Asia discounting." However, he says the high end of the company's Q3 EPS guidance is "solid," and he kept a $2.250 price target and a Buy rating on the shares. Priceline's room night growth did not beat the high end of its guidance and the company provided "disappointing" Q3 room night guidance, wrote Credit Suisse's Paul Bieber. Although "conservatism" could be a factor behind these developments, the company's comments about the return on its marketing investments and its competition in Asia will probably hurt sentiment towards the company until it shows that its Q3 results will surpass its guidance, Bieber believes. However, citing what he sees as "a favorable demand environment with healthy macro trends and no significant changes to the competitive landscape in core Western markets," Bieber kept an Outperform rating on Priceline shares. He did, however, cut his price target on the stock to $2,070 from $2,150. Priceline tends to grow at the slowest rate in Q3 because Europe, the company's most mature market, makes up a greater share of its revenue than in other quarters, wrote Barclays analyst Ross Sandler. Moreover, the company has a tough comparison this quarter, the analyst stated. Additionally, Priceline is gaining market share in most areas, and its supply, "continues to grow at a very healthy rate," wrote Sandler, adding that supply is "a leading indicator" for the company. He recommends buying the shares "selectively on weakness."

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