Priceline Group had a better-than-expected 2014, with gross travel bookings of $50.3 billion, up from almost $40 billion a year ago. Gross profit for the year was $7.6 billion, up by a third from the prior year.
In the fourth quarter of 2014, Priceline had 24% growth in hotel rooms units booked. Most of its revenue came from Booking.com.
Not worried about Expedia
On an earnings call, CEO Darren Huston responded to a bank analyst's question by saying he wasn't worried about Expedia's recent acquisitions of online travel agencies Wotif, Travelocity, and Orbitz.
"Our focus is on organic growth and acquisition. We’re focusing on premium, winning brands that add new business competencies or geographies. It’s all been adjacent growth rather than tripling down on similar brands, like others are doing.
I don’t see the Orbitz deal, if it passes, as being a negative to Priceline. The global travel market was maybe $1.3 trillion, and if you add Expedia and Priceline's businesses all together, they amount to less than 10% of that. There’s tremendous potential for us....
Expedia’s average room night rate increase was higher in recent quarters than ours. I give them credit for a great quarter, but we have a different philosophy when it comes to building inventory....
We pride ourselves on our growth rate. Our room night growth is 100% organic, unlike what you're seeing with Expedia."
The company's market capitalization is above $50 billion, roughly four times that of rival Expedia Inc.
Last year, Booking.com inventory rose to more than 600,000 listings, up 41% year-over-year. Much of that was due to a doubling of vacation rental properties, to about 270,000 properties.
That meant that it had more than one million holiday rooms available and instantly confirmable on its platform on any given day. It also meant that vacation rentals are becoming a greater proportion of Booking.com's overall inventory.
Huston said the homeowner property category was of interest to the company, but it poses challenges because the product is different from hotels.
"Our next move as a company is to address homeowner-managed rather than professionally-managed vacation rentals....There is a lot of interest among our consumers in self-catered products....
We've taken steps here. We've adjusted our business system. We’ve rolled out a simple extranet. We have a lot of things in our pipeline to address the needs for a single-owner model.
Delivering single-owner vacation rentals is ultimately where our destination as a company."
Huston said he didn't see Airbnb, the peer-to-peer rental platform, as being a threat.
"As good as Airbnb’s website is, it’s still a relatively high-friction process for booking.
Our inventory is instantly bookable. We have more than a million guests on average a day, and if you look at total number of units of what’s bookable on our sites, it far exceeds what Airbnb offers....
One of the things Airbnb has been helping with is fighting city-by-city the local rules around these types of properties, which have always been foggy. That increased clarity will help us, too.
We don’t see Airbnb having an impact on average hotel room daily revenue but maybe someday we’ll see that. Some European hotels are responding to the problem by putting family blocks out back for families who want more apartment-style stays, as a hybrid model."
Huston said mobile was a vital driver of growth for the company.
For example, on two different days, Booking.com hit 100,000 gross transactions on mobile phones, a record.
Next week, the company will expand its Booking Now app, which is aimed at spontaneous last minute bookers and includes an ApplePay option, to the global market.
"Mobile has been critical to our market share gains in the past year. It’s been driving more of our business direct, through repeats, rather than requiring us to have to buy it.
That said, Priceline remains committed to paid acquisition as a technique.
We need to keep throwing out the fishing net to acquire more customers, as long as we can do so with a positive return on investment.
As mobile receives more direct business we don't have to pay for, we'll adjust our marketing mix to do paid elsewhere."
CFO Daniel Finnegan added:
"We’re not moving away paid search, we’re moving closer to it."
The executives said mobile web search is still primarily about buying ads from Google. But Facebook's performance has improved in its direct response marketing, says Huston. That's a significant comment from an executive who dismissed Facebook's relevance to hotel bookings last April.
Huston also attributed the conglomerate's growth to its tactics in Asia. He said Priceline was now the leader in intra-Asian travel bookings, thanks partly to its $500 million investment last year in online travel agency Ctrip.
"Ctrip is a branded experience, so it’s giving exposure to Booking.com and Agoda brands to customers within China, which has been helpful.
We have had to work to get Ctrip’s inventory to present as equivalently well as our own content on our own sites.
Most travel bookings in China are for domestic travel. So Ctrip lets us be competitive there.
We’re very supportive of James and his team; we think they have the strongest hand in the market. We’re working closely with them in they face their competitive challenge domestically."
Priceline, which makes 90% of its revenue outside of the US, faces uncertainty if the economic troubles in Europe and geo-political troubles in Ukraine lead to a strong dollar and a slowdown in holiday travel.
The company announced it will be repurchasing up to $3 billion of its shares, its biggest ever buyback authorization (previous next largest was about $1.6B). It’s open-ended, time-wise.
Expedia: Playing catch-up against Priceline while digesting Wotif, Travelocity