KEY POINTS
- 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.
- 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.
- 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.
Let us know if you have any questions or would like to discuss in more detail.
Hesham Shaaban, CFA
Managing Director
@HedgeyeInternet