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Priceline: Brussels, Zika worries may weigh on earnings

As Priceline Group prepares to report first-quarter results, investors are waiting to see whether global travel scares may have limited the upside potential in the March quarter.

Jeffrey Boyd
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Jeffrey Boyd

International travel accounts for the majority of the company's bookings, and Europe is a big driver of business.

"There's clearly a lot going on around fears of terrorism and fears how this Zika virus might impact travel," said Tom White, an analyst at Macquarie Securities.

That said, White suggested that Priceline's resilient performance in the face of the Paris attacks last year may indicate that the horrific attacks in Brussels and a scare from the Zika virus "won't have a horrible impact" on the company's March quarter. Also, he said Expedia's first-quarter earnings last week showed that the "leisure travel market is still pretty healthy."

Shares in Priceline are up more than 6 percent year to date, while online competitor Expedia's stock is down more than 6 percent in the same period. By comparison, the S&P 500 index is up more than 1 percent year to date.

Priceline, which reports Wednesday morning, declined to comment for this article.

Cantor Fitzgerald analyst Naved Khan sees a "limited" impact from Brussels: "We think the bombings will probably shave off about 150 to 200 basis points in (the company's first-quarter) room rates growth. The business had good momentum going into, or just before that event, so we think they will still be able to make it to the high end of guidance."

Still, hotel industry data for the first two months of the March quarter may give some investors a pause.

"Hotel industry data from Smith Travel Research provide an overall negative read-thru for Priceline, with occupancy rate growth and ADR (average daily rate) growth data in both the U.S. and in Europe showing decelerations," RBC Capital Markets analyst Mark Mahaney said in a research report Monday.

The RBC note indicates that hotel occupancy rates in the U.S. fell by 0.6 percent year over year in the initial two months of the first quarter — the first such decline since 2009. "We interpret these results as a potential sign of a slowdown in the U.S. hotel market," RBC said, "though the large (online travel agencies) should still be gaining 'bed' share."

Nonetheless, Mahaney believes there's a "slightly better chance of upside vs. downside" for Priceline's March quarter.

Analysts surveyed by Thomson Reuters forecast earnings of $9.65 per share for the first quarter, up 19 percent from the year-ago period. They predict Priceline's revenue will reach $2.1 billion, or 15 percent growth.

Current second-quarter consensus is for even stronger growth in earnings and revenue. Historically, Priceline's second and third quarters are the most profitable, driven by vacation bookings in the company's European and North American businesses.

Several analysts suggest there's a chance that an unexpected change of CEOs at Priceline may lead the already conservative company to get even more cautious on guidance in the second quarter.

"Risk is that new (and former) CEO Jeff Boyd puts extra conservatism into 2Q guide in his first quarter back," Bank of America Merrill Lynch analyst Justin Post said in a note Sunday.

Boyd, the company's chairman, was appointed as interim CEO last week after the abrupt resignation of Darren Huston, who had a personal relationship with an employee. Boyd also had been head of Priceline's Booking.com business, the main driver of growth at the Norwalk, Connecticut-based company.

Meantime, as Airbnb grows globally, there's more industry discussion of the home-lodging trend and the risks it poses to online travel agencies such as Priceline and Expedia. Cowen & Co. published an extensive look at topic last month and concluded: "The Airbnb threat to Priceline/Expedia, while real, appears overstated based on new survey data and our detailed scenario analysis."

"Definitely alternative locations are a growing category," said Piper Jaffray analyst Mike Olson. "However, I think it's still too early to say whether or not it's growing because it's taking share from traditional hotel bookings or whether it's just the overall category of online travel bookings."

Khan, the Cantor analyst, said the impact from Airbnb is "being felt more by the hotel operators. These are the guys who own and operate the hotel itself. Expedia has said over the last few months that the hotel operators are kind of seeing some impact in a few markets."

Priceline's Booking.com business also features alternative locations to hotels, such as vacation-type rentals and apartments. Last year, Expedia paid $3.9 billion for HomeAway, which focuses on vacation-type rental properties.

Correction: Naved Khan is an analyst at Cantor Fitzgerald. An earlier version misspelled his name.