PCLN | Room Nights Trackers Update

KEY POINTS

1. ARPU TRACKER REVIEW: Our original tracker is a proxy for room nights/stay, which is based on traveler destination.  The rationale is that the farther a consumer travels, the more likely they are to book a hotel (vs. visiting friends and relative aka VFR), and the longer they are likely to stay.  The reason why we weight room nights/stay over total stays is because the actions of PCLN’s considerable base of repeat customers should carry more weight than its next new user given PCLN’s scale, which on a room-nights basis would be over 2x that of the largest public hotel operator.  Put another way, PCLN’s repeat users will represent the bulk of its room nights in any given quarter, so their collective decision to extend/reduce their trips by a few days should disproportionately impact the growth trajectory from a second derivative basis (accelerating vs. decelerating trends).
2. VOLUME TRACKER INTRODUCTION: While we see ARPU as the swing factor in most quarters, it isn’t a catch-all. ARPU cannot account for meaningful events/calendar shifts in booking volume such as what we saw in 2Q, where PCLN saw booking volume get pulled forward into 1Q from both leap day and the Euro Cup, and get pushed back to 3Q because of an earlier Ramadan, the Olympics, and potentially Brexit concerns.  While trivial individually, these events are collectively material since 2-3 percentage points of growth can make or break a quarter (second derivative).  For context, PCLN’s room-nights growth in 1Q16 was its strongest since 1Q14, while its 2Q16 growth rate was only a couple percentage points lower than 4Q15.  So while we expect ARPU to dominate the trend most quarters, we’re now running a transactional tracker (hotel stays) to hopefully catch the quarters when it fails.
3. BOTH TRACKERS ACCELERATING: Granted, PCLN’s 3Q guidance already implied improving trends given the acceleration off its 2Q guide range (guidance to guidance), but it is still encouraging to see both trackers pointing directional higher roughly two months into the quarter. 
4. NEXT UPDATE: The 4Q guide may be more important than 3Q results at this point, so the next update we’ll provide will be mid-way through Oct to provide a read on both 3Q results and 4Q to-date up until that point.  Stay tuned.

Let us know if you have any questions or would like to discuss in more detail.

Hesham Shaaban, CFA
Managing Director


@HedgeyeInternet   

Todd Jordan
Managing Director


@HedgeyeSnakeye

Sean Jenkins
Analyst