Priceline (PCLN) FQ4 Preview & Trade Idea

by Dan February 27, 2017 1:51 pm • Trade Ideas

Priceline (PCLN) reports their fiscal Q4 results tonight after the close, the implied one day move in the options market ~4.5%, well shy of the 4 qtr average post earnings one day move of about 7.3%.

PCLN is mildly outperforming the Nasdaq Composite’s 8.5% ytd gains, up nearly 11%, and has given back 2.5% since making a new all time high on Thursday’s opening. Taking a quick look at the one year chart shows mild technical support at 1600, which was a breakout to its post election highs, while the uptrend that has been in place from its post Brexit closing lows should also serve as support down near 1550:

PCLN 1yr chart from Bloomberg

While shares of PCLN trade at a higher dollar amount, the stock trades at a fairly reasonable valuation relative to its earnings. For fiscal 2016, eps is expected to have grown at an eye-popping 31% year over year, on 16% sales growth. On 2016 numbers the stock trades 25x trailing and 22x expected f2017 eps growth of 15%.  That said, for a company with sales topping $10.5 billion in f2016, the stock trades at monster price to sales ratio of 7.5x. To put that in some context, Netflix (NFLX) which booked $8.83 billion in sales in 2016, trades at an all time high and while profitability certainly lacks the levels of PCLN, its shares trade 5.5x sales, despite having nearly 2x their revenue growth.

Wall Street analysts are overwhelmingly positive on the stock with 33 Buy Ratings, only 6 Holds and NO SELLS with an average 12 month price target of 1784, or about 10% from where the stock is currently trading.

One of my favorite internet analyst, Mark Mahaney from RBC Capital highlighted the following to look for in the quarter in a note to clients:

we are looking for Total Bookings of $14.2B (+23% Y/Y, ex-FX), lower than consensus at $14.6B. We are also expecting revenue of $2.29B, below consensus at $2.32B. Our EBITDA estimate of $774MM is right at the midpoint of management’s guidance at $755-$795MM. Our Non-GAAP EPS estimate of $12.27 is also below the Street @$12.89 and at the low-end of management’s guidance of $12.20-$12.80. We believe at best the Q1 guide brackets the Street at the high end, with a greater likelihood that the company will guide Q1 below the Street.


Key items to focus on: 1)EBITDA Margin Pressure– Priceline has seen EBITDA margins decrease Y/Y in eight of the last ten quarters due to an increasingly competitive SEM market, among other reasons. We think this continued in Q4 with an estimated 230bps of Y/Y EBITDA Margin deterioration. 2)Gross Bookings & Room Night growth– In Q4, we are forecasting a modest deceleration in Gross Bookings growth to 23% Y/Y growth ex-FX (a 3-point deceleration on a 3-point tougher comp). In terms of Room Night growth, management guided Q4 for 20-25% Y/Y Room Night growth, and we are modeling 24% vs. the Street at 22%. Our guess is PCLN continues to take share in most regional markets

So What’s the Trade? Clearly there is no overhead resistance, on a beat and raise the stock is off to the races, so we won’t bother with the consensus trade.

But, If you were inclined to play for a pull-back targeting a re-test of the uptrend, you might consider doing so with defined risk, but looking to minimize the post earnings vol crush that will occur with a long premium strategy.

Bearish/ Hedge:

PCLN (1630) Buy the March 1600/1500/1400 put fly for $19
  • Buy to open 1 March 1600 put for 28.25
  • Sell to open 2 March 1500 puts at 5.00 each (10.00 total)
  • Buy to open 1 March 1400 put for .75


Breakeven on March expiration:

  • Losses of up to $19 between 1581 and 1600 & between 1400 and 1419, with total loss of $19 above 1600, or below 1400
  • Gains of up to $81 between 1581 and 1419 with max gain of $81 at 1500.


Rationale – This trade idea targets a wide area of profit between 1419 and 1581 in the stock. Even with a pullback in the stock to 1550 support (near the uptrend and the 50 day moving average) the trade idea is more than a double on expiration (would be worth 50) and a move below that support towards 1500 means a really great trade (or a hedge). The risk to the trade is that the stock goes higher of course, any move higher and it could quickly be worthless with just 2 weeks until expiration. If the stock goes nowhere the trade may be a slight loss, but would still be in play. If the stock goes lower on earnings below the breakeven of 1581 patience would be in order as it will become more profitable as expiration approaches. The entire trade is risking about 1% or the underlying, with the potential of about 5% in profits or as a hedge vs long stock. A large move lower that threatens profits towards the lower breakeven (1419) is extremely unlikely.