Takeaway: EXPE’s 3Q results suggest they’re not the only ones leaning into Trivago - int’l may be becoming increasingly competitive.

KEY POINTS

  1. INTERNATIONAL TIDE PULLING OUT? EXPE has experienced a pretty sharp international deceleration over the last two quarters.  We suspect that has been partly self-inflicted given the sudden deceleration from 1Q to 3Q (+44% growth to 15%). However, it appears that international may be shifting from a rising-tide to a trading-paint story, and that PCLN has been winning that fight.  We initially expected EXPE to lean into Trivago harder after the 2Q room-nights flop, but its Trivago marketing spend as % of Trivago revenue decelerated again on a y/y basis despite total spend accelerating on a y/y basis from 2Q.  That basically means that the EXPE’s competition is also accelerating their Trivago spend and given that meta is generally a low margin channel, it suggests that there may be fewer room nights to go around in 4Q16.
  2. PCLN 4Q GUIDE RISK? We’re all looking at the same comps, but it is important with respect to point 1 above.  EXPE suggested that it will be leaning harder into meta in 4Q (as it did later in Q3), which may be a bigger headwind to PCLN than most would expect.  We estimate that PCLN could have scooped up 1%-2% in incremental room night growth in 2Q & 3Q depending what assumption you want to make for EXPE’s meta-driven slippage and the percentage that PCLN captured off of it.  Granted, 1%-2% seems trivial, but with respect to a 4Q guide that will likely come in 2-4 percentage points below what PCLN believes it can do, it could make a difference between beating and missing consensus on the release for a stock near its all-time high.
  3. TRACKER UPDATE: We’re having a data capture issue with our ARPU tracker, which is going to prevent us providing a 4Q update ahead of the print.  Our volume tracker is calling for a strong reacceleration in PCLN’s 3Q bookings, but also a notable 4Q deceleration that is fairly comparable to the deceleration our tracker retrospectively flagged for 2Q when PCLN guided to 2Q16 booking of 11%-18% booking growth vs. consensus of 19%.  Consensus is looking for 17% booking growth in 4Q16, so at face value our tracker suggests the top-end of guidance should edge out consensus.  But given a challenging 1Q16 comp against a potentially more aggressive competitive landscape, management could use the 4Q guide to also temper 1Q expectations.  Food for thought for a stock that is only 4% off its all-time high.

PCLN | Thoughts into the Print (3Q16) - PCLN   Trackers 3Q16 preview

PCLN | Thoughts into the Print (3Q16) - EXPE   Triv   3Q16

PCLN | Thoughts into the Print (3Q16) - EXPE   Triv growth 3Q16

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