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The Future of the Online Travel Giants: Priceline Amy Scarth & Alex Hadwick
The Future of the Online
Travel Giants: Priceline
Disclaimer Authors:
The information and opinions in this report were prepared by EyeforTravel Ltd and its Amy Scarth
partners. EyeforTravel Ltd has no obligation to tell you when opinions or information in
this report change. EyeforTravel Ltd makes every effort to use reliable, comprehensive Alex Hadwick, Head of Research,
information, but we make no representation that it is accurate or complete. In no event EyeforTravel
shall EyeforTravel Ltd and its partners be liable for any damages, losses, expenses, loss
of data, loss of opportunity or profit caused by the use of the material or contents of
this report. No part of this document may be distributed, resold, copied or adapted
without EyeforTravel’s prior written permission.
© EyeforTravel 2017
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 2About EyeforTravel
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www.eyefortravel.com The Future of the Online Travel Giants: priceline | 3CONTENTS
Contents
About EyeforTravel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Our Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Our Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
EyeforTravel in Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
List of Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1 Company Description and History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2 Financial Strength . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 What Is Company Turnover? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 What Was the Profit Margin? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 What Were the different Revenue Streams and How Much Did They Make? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3.1 Agency Versus Merchant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.3.2 Revenue by Vertical and Season . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.4 How Many Room Nights and Flights Were Sold? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3 Costs and Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.1 How Much Is the Priceline Group Spending on Marketing? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.2 Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4 Mergers and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.1 Major Milestones for Priceline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.2 Key Recent Acquisitions or Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.2.1 The Momondo Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.2.2 OpenTable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.2.3 Ctrip . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.2.4 Meituan-Dianping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.3 M&A Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5 Market Share and Competitive Landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.1 Competitive Landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2 Market Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.3 Key Competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.3.1 Inside the Vertical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.3.2 Outside the Vertical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6 Dominance or Decline? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.1 Future Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 4List of figures / tables
List of Figures
Figure 1: Priceline Gross Bookings (USD billions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Figure 2: Priceline Gross Revenue (USD millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Figure 3: Gross Revenue by Quarter (USD Millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Figure 4: Gross Revenue by Quarter (USD Millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Figure 5: Gross Profits and Revenues 2012 to 2016 (USD Millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Figure 6: Gross Margin Percentage 2012 to 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Figure 7: Gross Profit Percentage Change YoY by Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Figure 8: Percentage of Gross Revenues Derived from US and International Markets 2012 to 2016 . . . . . 12
Figure 9: YoY Percentage Change in Gross Revenues Derived from US and International Markets
2013 to 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Figure 10: Share of Gross Bookings by Source Market from 2012 to 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Figure 11: YoY Percentage Change in Revenues and Gross Bookings Derived from US and International
Sales 2014 to 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Figure 12: Revenue by Model 2012 to 2016 (USD Thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Figure 13: Quarterly Gross Bookings – Agency Versus Merchant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Figure 14: Revenue Generated by Model as a Percentage of Gross Revenue 2012 to 2016 . . . . . . . . . . . . . . . 16
Figure 15: Products Sold by Millions of Bookings made 2012 to 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Figure 16: YoY Percentage Change in Products Sold 2013 to 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Figure 17: YoY Percentage Change in Products Sold by Quarter from 2012 to Q3 2017 . . . . . . . . . . . . . . . . . . . 19
Figure 18: Expenses Versus Revenues 2012 to 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Figure 19: Priceline Costs by Company-Defined Categories 2012 to 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Figure 20: Priceline Costs by Company-Defined Categories 2014 to H1 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Figure 21: Priceline Operating Expenses and YoY Percentage Change (USD Millions) . . . . . . . . . . . . . . . . . . . . . 21
Figure 22: Sales and Marketing Spend 2012 to 2016 (USD Millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Figure 23: Advertising Spend by Self-Reported Categories 2012 to 2016 (USD Millions) . . . . . . . . . . . . . . . . . 23
Figure 24: Percentage Change in Advertising Spend in Self-Reported Categories 2013 to 2016 . . . . . . . . . 24
Figure 25: 2016 Costs as a Percentage of Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Figure 26: Priceline Total Debt Holdings 2012 to 2016 (USD Millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Figure 27: Comparative Revenue Share of the ‘Big Four’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Figure 28: Priceline Share of Total Global Travel Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Figure 29: Priceline Share of Global Online Travel Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Figure 30: Priceline Market Share of US Online Travel Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Figure 31: Priceline Share of International Online Travel Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Figure 32: Expedia Versus Priceline Gross Bookings (USD Millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Figure 33: Revenues for the ‘Big Four’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 5and History
Company Description
1.
Company Description and History
The Priceline Group was founded in 1997 and went allowed users to name their own price for hotel
public in 1999, raising a record USD12.9 billion in one rooms and other travel services. On the other
day. Priceline operate a range of marketing websites end, it enabled suppliers to sell excess inventory
that generate online travel bookings, predominantly at a discount without affecting their retail price
linking consumers with suppliers. They make significant structures. This model was discontinued in
investments in consumer demand generation and sell September 2016 due to the growth in their retail
accommodations, air tickets, car rental, cruise, packages business, competition, relative complexity, travel
etc, and more recently restaurant reservations since restrictions by service providers, difficulty of offering
their acquisition of OpenTable. these services on mobile devices, increased discounts
through closed user groups, and lack of discounted
Priceline currently operate six primary, independently inventory from suppliers in periods of high consumer
managed brands: demand. Over the last couple of decades, Priceline
has been evolving into an array of leading site
■■Booking.com for products and services of all sorts, and rapidly
■■Priceline.com expanded with the acquisitions of sites such as
■■KAYAK Booking.com, KAYAK, and Momondo.
■■agoda.com
■■rentalcars.com Today, their strategy involves maintaining multiple
■■OpenTable brands to capture growth in the online travel market,
including mobile. They aim to achieve this through
At the end of 2016 Priceline employed 18,500 expanding their product/service offerings and
employees (81% based outside the US) which is a penetrating new markets around the world, with
significant growth from their 700 employees back in China a particular focus for a number of minority
2007. Priceline have also grown quickly from a small investments. They largely invest resources into
player a decade ago, generating around USD1 billion organically growing brands through advertising,
in revenue, to over USD10 billion in revenue in 2016. targeting new markets or expanding the products
They now operate in 225 countries and territories. Their they are able to offer consumers. In addition, they
revenue, however, represents a fraction of the global have and are expected to further invest in strategic
travel industry so further growth potential for Priceline transactions, such as acquisitions, joint ventures
is very possible. or other investments, in order to expand their
businesses into complementary areas, expand their
Priceline were originally known for their reverse current business, acquire innovative technology
auction model, called Name Your Own Price, an and build their brand portfolio to keep up with the
opaque transactional process they patented that continuously changing travel distribution landscape.
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 6Financial Strength
2.
Financial Strength
Priceline make their money from a range of sources and largest OTA in the world in terms of revenue. Overall
models. Revenues and gross profit are derived from the business for Priceline has generally been healthy
following: and they have more than doubled their revenue
over the last five years and their EBITDA growth
■■Agency commission: earned from the sale of travel even outpaces Amazon in percentage terms. Annual
products and services. growth rates have slowed since 2013, a period in
■■Merchant sales: transaction gross profit and which they managed to boost their revenue by 38%.
customer processing fees from the sale of travel Although increases may be slower, they have reported
products. continuous growth nonetheless.
■■Advertising: primarily earned by their metasearch
brand KAYAK, from sending referrals to online travel
companies and travel suppliers, as well as display 2.1 What Is Company Turnover?
advertising on KAYAK websites and mobile apps. 2015 was a relatively tough year for Priceline which
■■OpenTable: reservation revenues, subscription fees is reflected in their reports; revenues increased by
and other revenues from restaurants. just 9% on 2014 results. However, after the set-back
■■Other fees: including excess waiver fees, travel of this weaker year, in 2016 they reported stronger
insurance and GDS fees. growth again, with gross revenue increasing by
16% and appear to have built on this on this in
The Priceline business is primarily driven by 2017, with total revenues growing 18% across the
international sales generated by Booking.com, agoda. first three quarters of 2017. The 2015 decline in
com and RentalCars.com, as well as the international growth was partly driven by external factors such
business from KAYAK, Momondo, and OpenTable. as terror attacks in Europe and the various health
There are also minority stakes and distribution epidemics, as well as their efforts to expand into
agreements with Ctrip and Meituan-Dianping. new markets across the world. The improvements in
The significant majority of their gross profit comes 2016 are thought partly to be a result of improved
from accommodation reservations. The majority of technologies and customer experience for Booking.
international bookings are generated through Booking. com on both desktop and mobile and came in the
com and in 2016 the Booking.com brand represented face of a strong dollar depressing revenues from
approximately 88% of their gross profit. international markets. KAYAK also performed well in
2016 and expanded to Asia-Pacific and Latin America.
In December 2016, the Priceline Group revenue hit Agoda, which is Singapore-based, also performed
USD10.7 billion, a 20% CAGR over the five-year review well despite some challenges in its markets, and
period from 2012. Most of this growth was organic rentalcars.com increased its mobile bookings and
rather than through acquiring brands. They are the grew its supplier base.
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 7Financial Strength
Figure 1: Priceline Gross Bookings (USD billions)
$80
$70 $68.09
$60
$55.53
$50.30
$50
$40 $39.17
$30 $28.46
$20
$10
$0
2012 2013 2014 2015 2016
Source: Priceline Group, 2017
Figure 2: Priceline Gross Revenue (USD millions)
$12,000 35%
n Y/Y change $10,743
30%
$10,000
$9,224
29% $8,442
25%
$8,000
$6,793 24%
20%
$6,000 16%
$5,261
15%
$4,000
10%
9%
$2,000
5%
$0 0%
2012 2013 2014 2015 2016
Source: Priceline Group, 2017
With sales growth having resumed, gross bookings revenue. The annual growth rates of actual bookings have
reached a value of USD68 billion in 2016, achieving a been slightly stronger than associated revenues generated,
24.4% CAGR over the five years. They have multiplied the but trends are generally similar. During 2016, gross
value of their gross bookings by 2.4 times from 2012. Gross bookings increased by 23% over 2015 results and 19.4% in
bookings capture the total dollar value, include taxes and the first three months of 2017.
fees of bookings through their Online Travel Company
(OTC) brands, net of cancellations. Their non-OTC brands, By reviewing results on a quarterly basis, we can identify
KAYAK and OpenTable, and the search queries through some seasonality in Priceline’s revenue. Q3 has been
these channels, do not contribute to gross bookings, only the most thriving financial period each year since 2012,
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 8Financial Strength
Figure 3: Gross Revenue by Quarter (USD Millions)
$5,000
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
2012 Q1
2012 Q2
2012 Q3
2012 Q4
2013 Q1
2013 Q2
2013 Q3
2013 Q4
2014 Q1
2014 Q2
2014 Q3
2014 Q4
2015 Q1
2015 Q2
2015 Q3
2015 Q4
2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1
2017 Q2
2017 Q3
Source: Priceline Group, 2017
Figure 4: Gross Revenue by Quarter (USD Millions)
$5,000
n Q1 n Q2 n Q3 n Q4
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
0
2012 2013 2014 2015 2016 2017
Source: Priceline Group, 2017
and increasingly so. Revenue peaked in Q3 2016 when the bulk of their customers. Indeed, such is the increase
Priceline generated USD3,691 million in gross revenues. in profits that Priceline’s EBITDA from 2006 to 2016 has
It should be noted though that Priceline recognizes grown more in percentage terms than such lauded
revenue from these bookings only when travel occurs, internet giants as Apple, Amazon, Alphabet (Google),
thus it is often in a quarter other than when it is booked and has trounced Expedia (The Economist, 2017).
and there is some lag in the reporting.
The Priceline.com brand, predominantly based on the
2.2 What Was the Profit Margin? merchant model, is recorded on a ‘gross’ basis and has
Priceline’s gross profit is a healthy picture. Due to its associated cost of revenue. All their other services are
scalable business model, much of the revenue increases recorded in revenue on a ‘net’ basis and have no associated
they have achieved have been converted into profit. cost of revenue. The decline of merchant model revenues,
There is little or no cost associated with an increase in which we discuss in more detail later on, is partly behind
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 9Financial Strength
Figure 5: Gross Profits and Revenues 2012 to 2016 (USD Millions)
$12,000
n Gross profit n Revenue n Cost of revenue
$10,000
$8,000
$6,000
$4,000
$2,000
0
2012 2013 2014 2015 2016
Source: Priceline Group, 2017
this trend. Cost of revenue has been reduced and margins other profit. Gross profit for the group reached USD10.3
have been increased. Their cost of revenue in 2016 was billion in 2016 and they have achieved a CAGR of 26% over
reduced to USD428.3 million, four times lower than that of the five-year review period. In 2016 gross profit increased
2012 and a negative 30% CAGR over the last five years. In by 20% on the previous year. Growth on a constant
2016 costs were further cut, down by -32% and across the currency basis was approximately 23% if considering the
first quarters months of 2017 this section of Priceline’s costs strength of the US dollar impacting results.
fell by a a further -39% YoY.
International operations accounted for approximately
Gross profit includes agency, merchant and advertising/ USD9.1 billion of Priceline’s total gross profit in 2016
Figure 6: Gross Margin Percentage 2012 to 2016
$12,000 120%
n Gross profit n Revenue n Cost of revenue n Gross margin
96.0%
$10,000 93.1% 100%
89.8%
84.1%
77.6%
$8,000 80%
$6,000 60%
$4,000 40%
$2,000 20%
0 0%
2012 2013 2014 2015 2016
Source: Priceline Group, 2017
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Figure 7: Gross Profit Percentage Change YoY by Quarter
180%
n Q1 n Q2 n Q3 n Q4
160%
140%
120%
100%
80%
60%
40%
20%
0%
2012 2013 2014 2015 2016
Source: Priceline Group, 2017
compared to USD7.4 billion in 2015, and an increase Gross profit as a percentage of gross bookings was 15.1%
of 22.3%. Gross profit from US business increased 5.7% in 2016 compared to 15.5% in 2015. Priceline’s opaque
in 2016 owing to growth in gross profit of KAYAK and bookings model, ‘Name Your Own Price’ had even more
OpenTable, and partially offset by a decrease in gross premium pricing, leading to revenue margins in excess of
profit for Priceline.com. 30% but that has now been discontinued.
Agency gross profit represented the majority of total As we have established, Priceline’s business is
gross profit and included commissions, certain GDS predominantly generated from the hotel sector, and
booking fees and travel insurance fees. Merchant gross because hotel bookings offer online travel agencies
profit included profit from their transaction revenues higher revenue margins compared to other segments
from merchant retail, Express Deals sales and Name such as air ticket bookings and car rental sales, it helps
Your Own Price sales, ancillary fees, certain GDS fees them drive and sustain healthy margins. Priceline also
and customer processing fees. Advertising and other currently has a significant share of the relatively less
revenues consisted primarily of KAYAK revenue from competitive and huge international hotel market, and
referrals, OpenTable, Priceline.com display advertising it is this which should keep the margins of their hotel
and Booking.com’s BookingSuite analysis services. business at the higher end of the scale.
Total gross margin is gross profit as a percentage of total The Priceline revenue margins (revenue earned by the
revenue. In 2016 Priceline’s gross margin was 96%, up 3% travel service provider as a percentage of the size of the
from 2015 or 16% higher than margins of 2012. In the last booking) differ between sectors – hotel bookings stood
couple of years annual growth of gross profit has slowed, at over 19%, air tickets at about 3% and car rentals at
particularly in 2015, but there is not too much room left about 9% in 2016.
to grow for their gross margins! It is expected, however,
that Priceline is in a good position to make higher We recognize substantial seasonal trends in the
revenue margins from its international business, because quarterly data for gross profit; for example, in 2016 Q1,
Europe and Asia-Pacific offer scope for premium pricing. Q2, Q3 and Q4 recorded fluctuations in reported profit
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 11Financial Strength
of 7%, 20%, 48% and -37% respectively. The reason late 2.3 What Were the Different Revenue
2016 increased more than late 2015 was reportedly Streams and How Much Did They Make?
because their revenues were disproportionately Priceline’s biggest earner, Booking.com, is available in 43
affected by Priceline.com’s Name Your Own Price languages so is well positioned to service international
reservation services, which are recorded as ‘gross’ online travel markets. In 2016 international revenues
with a corresponding cost of revenue, of which these increased to USD9,603 million and domestic (US)
represented a smaller percentage of total revenues revenues dropped to USD1,680 million. The figures
in 2016 compared to 2015. Priceline suggest that represent a 22% increase for international revenue from
seasonality can sometimes be exaggerated in the short 2015 and a -8% reduction for US revenues. Throughout
term by their gross bookings growth rate, for example 2015 and 2016 the US dollar strengthened significantly
in periods when gross booking rates substantially and, because results are reported in US dollars, it is
decelerate, operating margins benefit from relatively important to note that international figures will be
less variable advertising expense. Gross profit growth is impacted by a couple of percentage points. What is
typically less impacted by decelerating gross bookings interesting is that 2016 was the first year in this review
in the near term due to revenue related to reservations period that we have witnessed a decline. Growth in
booked in previous quarters. previous years for the US market has at times been
more modest, between 1% and 6%, but this has slowed
Priceline generates the majority of its business in much further over the last few years to the point
markets outside the US, where they’re headquartered. of decline in 2016. Priceline’s Name Your Own Price
The company has built a deep global presence over its business has been diminishing as consumers rejected
lifetime, strategically adding brands with international the uncertainty of product quality so not meeting
appeal and expanding their global footprint as a result. consumer demands stifled their US business somewhat.
Priceline established its market share in Europe during In terms of international revenues, growth has also
the late 2000s and is now paying more attention to Asia slowed since 2012, a particularly strong year growing at
and North America. a significant 40% on 2011. 2015 was the toughest year,
Figure 8: Percentage of Gross Revenues Derived from US and International Markets 2012 to 2016
n US n International
100%
80%
68%
60%
74%
79% 80%
84%
40%
20%
32% 26%
21% 20% 16%
0%
2012 2013 2014 2015 2016
Source: Priceline Group, 2017
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Figure 9: YoY Percentage Change in Gross Revenues Derived from US and International Markets 2013 to 2016
50%
n US n International
40%
40%
32%
30%
22%
20%
11%
10% 6%
2% 1%
0%
2013 2014 2015 2016
-10% -8%
Source: Priceline Group, 2017
growing by just 11%, owing to terror attacks etc., but in the hotel market is dominated by large hotel chains,
2016, Priceline picked up the pace once again, growing and that poses certain opportunities for Priceline.
their international revenues by 22%. Priceline have designed reservations systems that are
appealing to small chains and independent hotels
It is clear that international markets are at the heart of and have become a very competitive and well-known
Priceline’s business success, and increasingly so. In 2012 distribution channel for accommodation suppliers in
international gross revenue accounted for 68% of total these regions.
revenues and in 2016 this proportion increased to 84%.
They operate not only in markets with high growth The proportion of gross bookings by international
but also markets that combined are substantially markets has historically been much higher than gross
greater in size than the US. Europe and Asia also have revenues, possibly indicating greater margins in the
very different characteristics than the US; they are US market. The change in the proportion of gross
particularly fragmented compared to the US where bookings from domestic versus international markets
Figure 10: Share of Gross Bookings by Source Market from 2012 to 2015
2015 88% 12%
2014 87% 13%
2013 85% 15%
2012 82% 18%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: Expedia Inc. (2017) n International n US
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 13Financial Strength
Figure 11: YoY Percentage Change in Revenues and Gross Bookings Derived from US and International Sales 2014 to 2016
50%
42%
40%
32% 31%
30%
22%
20%
15%
13% 12%
11%
10%
2% 1%
0%
2014 2015 -2%
2016
-10% -8%
n Revenue derived fom US sales n Gross bookings derived in the US
n Revenue derived from international sales n Gross bookings derived internationally
-20%
Source: Priceline Group, 2017
has been less significant, because in 2016 international the vast majority of Priceline’s revenue, a fruitful lower
markets contributed 88% of gross bookings, up from risk approach in that they generate revenue from
82% in 2012. Therefore, based on the situation that transactions without being the merchant. Rather, they
international markets are contributing relatively similar connect the travel consumer with the travel supplier,
proportions of gross bookings during the review period, and collect a commission when the booking is made.
but a greater proportion of gross revenues, it would Priceline’s goal in the context of its agency model is to
suggest either margins in the US are tightening or maintain and grow the volume of transactions, thus
margins in the international markets are increasing. drive revenue from associated commissions. This model
gives them less control around pricing compared to the
Considering year-on-year growth patterns over the last merchant model, but delivers higher profit margins as it
three years, we can identify a real shift in the source has almost no associated cost of inventory on sales.
markets for Priceline bookings and revenues, particularly
in 2016 when both bookings and revenues from the Merchant revenues are Priceline’s second largest
US market declined, by -2% and -8% respectively. segment; however, this model has not actually
Despite modest growth earlier in the review period, in contributed to the recent growth of the company,
2014 and 2015 both bookings and revenue in the US with a -0.7% CAGR between 2012 and 2016. In 2016
market increased. In 2015, for example, bookings grew the merchant model generated USD2,048 million
by 13% and revenue by 1%, but 2016 really indicates in gross revenue, a significantly smaller value than
a weakening domestic market. International bookings agency transactions. Merchant bookings include
and revenue on the other hand have continued to merchant accommodation reservations of Booking.
increase, at 12% and 22% in 2015 and 2016 respectively. com and Agoda.com, revenue from rentalcars.com, and
merchant airline ticket sales from Priceline.com.
2.3.1 Agency Versus Merchant
In 2016 agency revenues reached USD7,982 million, Their declining proportion of total sales is not because
up by 22% from 2015, and a 26% CAGR during the of its less favorable cost of revenue, but is driven mainly
2012-2016 review period. The growth was primarily by the supply side according to Priceline, who do not
due to Booking.com. The agency model accounts for have as much perishing inventory as previous years,
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 14Financial Strength
Figure 12: Revenue by Model 2012 to 2016 (USD Thousands)
$9,000,000
n Agency n Merchant n Advertising & Other $7,982,116
$8,000,000
$7,000,000
$6,527,898
$5,845,802
$6,000,000
$5,000,000
$4,410,689
$4,000,000
$3,142,815
$3,000,000
$2,104,752 $2,211,474 $2,186,054 $2,048,005
$2,082,973
$2,000,000
$1,000,000 $613,116 $712,885
$171,143 $410,115
$13,389
0
2012 2013 2014 2015 2016
Source: Priceline Group, 2017
and because suppliers have raised their efforts in direct behalf of customers, especially for those not accepting credit
distribution with their own deals. The opaque travel cards, as well as creating more flexibility for consumers in
industry (such as their Name Our Own Price) is fading terms of the form and timing of payment. It remains to be
and with that, their merchant revenues follow that trend. seen if this shifts the balance in the next few years.
In their goal to increase the volume and variety of Seasonality patterns for merchant and agency gross
accommodations available on Booking.com, according bookings differ. Agency bookings are more seasonal and
to Priceline they are, however, increasingly processing Q2 and Q3 generate the annual peaks. For example, in
transactions on a merchant basis, facilitating payments on 2016 Q1, Q2, Q3 and Q4 accounted for USD14.5 billion,
Figure 13: Quarterly Gross Bookings – Agency Versus Merchant
$20,000
n Agency n Merchant
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
0
2012 Q1
2012 Q2
2012 Q3
2012 Q4
2013 Q1
2013 Q2
2013 Q3
2013 Q4
2014 Q1
2014 Q2
2014 Q3
2014 Q4
2015 Q1
2015 Q2
2015 Q3
2015 Q4
2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1
2017 Q2
2017 Q3
Source: Priceline Group, 2017
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 15Financial Strength
USD15.4 billion, USD15.8 billion and USD13 billion, In 2016 agency revenue grew to 74% of Priceline’s
respectively. The seasonal trend within the merchant total gross revenue, up from a 60% proportion in 2012.
model is more flat. However, they do also peak in Q2 and The agency model has eroded the significance of the
Q3. In 2016 gross bookings under the merchant model merchant model which now accounts only for 19% of
generated USD2.1 billion, USD2.5 billion, USD2.7 billion total gross revenue, a big change from the 40% back
and USD2.1 billion for Q1, Q2, Q3 and Q4 respectively. in 2012. We can see that advertising revenues are have
become a key part of the revenue mix, growing to
2.3.2 Revenue by Vertical and Season 7% of total revenue in 2016 but strong growth in the
Advertising revenue has been Priceline’s largest and core agency accommodation bookings means that
newest growth area, resulting in a 170% CAGR over advertising revenues decreased to 6% of the revenue
the period 2012 to 2016. This is a particularly high rate mix across the first three quarters of 2017. The real
because growth is initially expected when they only growth of this revenue stream began in 2013.
recently began to push this revenue stream in relation
to others. Targeted advertising as a revenue stream has According to Priceline, Q1 is typically their lowest
generally grown to become more important for OTAs level of profitability due to seasonal timings. In
in recent years as they capitalize on their huge volumes Asia-Pacific business they experience the highest
of online consumer traffic. Priceline generated USD713 levels of accommodation bookings in Q3 and Q4,
million in gross revenue from their advertising revenue and the highest levels of travel consumption in Q4.
streams during 2016. Growth is primarily generated In Europe and North America the highest levels of
from their KAYAK metasearch platform, OpenTable accommodation checkouts are in Q2 and Q3, thus
reservation and subscription fees, and advertising where their highest levels of profitability are right now.
revenue from Priceline.com. KAYAK has experienced
healthy growth and is currently expanding into key 2.4 How Many Room Nights and Flights Were
regions such as Asia and Latin America and Momondo Sold?
has added a strong European brand into the advertising By taking a look at the different travel product
revenue mix. Growth rates for advertising revenue are volumes distributed via the Priceline websites and
expected to slow over the next few years, but continue. considering room nights, car rental and air tickets
Figure 14: Revenue Generated by Model as a Percentage of Gross Revenue 2012 to 2016
n Agency n Merchant n Advertising & Other
H1 2017 78% 17% 7%
2016 74% 19% 7%
2015 71% 23% 7%
2014 69% 26% 5%
2013 65% 33% 3%
2012 60% 40% 0.3%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: Priceline Group, 2017
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Figure 15: Products Sold by Millions of Bookings made 2012 to 2016
600
557
n Room nights n Rental car days n Airline tickets
500
432
400
346
300 271
198
200
100 67
52 60
44
32
6 7 8 8 7
0
2012 2013 2014 2015 2016
Source: Priceline Group, 2017
sold, as this is all they publicly report, it is very Car rental has a higher margin than airline tickets,
clear that accommodation is Priceline’s key product but is much lower than hotel bookings. Car rentals
and where the growth is. In 2016 they sold 557 are particularly useful in their consumer offering of
million room nights, up 29% from 2015 and a 30% packages, which overall have better margins.
CAGR over the five-year review period. Rental car
days have performed well, rising at a 20% CAGR Airline ticket sales have been lagging behind
between 2012 and 2016, but this is based on far throughout the entire review period and in the last
lower volumes. In 2016 they sold 67 million rental two years they reported negative growth rates of
car days. This is higher than airline tickets which is -1.6% and -5.2% in 2015 and 2016 respectively. This
a comparatively insignificant proportion of their is due to a decline in Priceline.com’s retail airline
overall business, and growth has been relatively ticket reservations and the discontinuation of Name
static over this review period, a 2012-2016 CAGR of Your Own Price in September 2016, partially offset
3%. Priceline sold 7 million airline tickets in 2016, by an increase in Priceline.com’s Express Deals airline
down from 8 million in 2015. ticket reservations. Airline bookings are increasingly
common on metasearch sites such as Priceline.com
In terms of products, as we have established above, and KAYAK, but still make up a small part of their
the hotel business remains the fastest growing overall business. Margins on these transactions are
segment for Priceline and makes up the majority also very low.
of their revenue and profit, driven by the fact that
hotel bookings have higher margins compared to Some of the success of Booking.com has come from its
other products. In 2013 annual growth rates for room wide range of accommodation products, not charging
nights and rental car days were on a par at 37%, a booking fee and being able to instantly confirm
but since then, the volume of room nights sold has reservations. They intend to increase their supply
grown at a faster rate – last year by 29% for room base in order to expand consumer choice further.
nights, compared to 11% for rental car days. Priceline Booking.com is currently becoming more aggressive in
expect their room night growth to decelerate further. penetrating the single-owner, single-room market – a
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 17Financial Strength
Figure 16: YoY Percentage Change in Products Sold 2013 to 2016
40%
36.9% 37.0%
n Room nights n Rental car days n Airline tickets
35%
30% 27.9%
28.7%
24.9%
25% 24.1%
20% 18.1%
15.6%
15% 13.4%
12.0% 11.2%
9.1%
10%
5%
0%
2013 2014 2015 2016 H1 2017
-1.6%
-5%
-5.2% -5.6%
-10%
Source: Priceline Group, 2017
growing segment of the industry, referred to as vacation 46% in 2016. They have followed this up by continuing
rentals or alternative accommodations. They do not the drive to increase the number of available properties
currently split the growth rate of hotels and vacation to 1,534,000 at the time of writing (November 2017),
rentals, but suggest vacation rentals are contributing to equivalent to a further increase of 38%. This includes
their room night growth quite substantially, and expect more just over 860,000 vacation rentals, representing
this will grow. a notable slowdown in growth on this front to a crawl.
According to Priceline, their growth in the vacation
Priceline suggest the growth in their hotel business is rental sector had been helped by not charging
partly a result of: a booking fee like their competitors Airbnb and
HomeAway. The recent slowdown may be indicative
■■Growth in the online travel market. of over exposure in the sector as a whole as reports
■■Emerging market travel growth (focused on APAC from UBS and Morgan Stanley have also suggested that
and South America). Airbnb’s growth has also slowed down recently (CNBC,
■■Increasing mobile device use for travel research and 2017; FT, 2017a).
booking.
■■Building accommodations supply globally. Priceline’s vacation rental properties generally consist of
■■Effective content and distribution. single-unit and multi-unit villas, apartments, ‘aparthotels’
■■Consumer experience improvements on their (which have a front desk and cleaning service) and
website and mobile apps. chalets, they are generally self-catered and directly
bookable. As they represent an increasing proportion
Booking.com generated the majority of the company’s of total properties added to their websites, they expect
room night growth and by the end of 2016 they listed their gross bookings growth rate and property growth
over 1,115,000 properties on their website, including rate to diverge over time as this segment offers fewer
568,000 vacation rental properties. This has increased booking opportunities, thus this may negatively affect
from a total of 852,000 properties in 2015, equivalent to their profits margins owing to different characteristics
an increase of 31% YoY. Vacation rental properties rose from hotels.
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Figure 17: YoY Percentage Change in Products Sold by Quarter from 2012 to Q3 2017
50%
n Room nights n Rental car days n Airline tickets
40%
30%
20%
10%
0%
-10%
-20%
2012 Q1
2012 Q2
2012 Q3
2012 Q4
2013 Q1
2013 Q2
2013 Q3
2013 Q4
2014 Q1
2014 Q2
2014 Q3
2014 Q4
2015 Q1
2015 Q2
2015 Q3
2015 Q4
2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1
2017 Q2
2017 Q3
Source: Priceline Group, 2017
The below chart illustrates the change in volumes of pattern, but car rental appears more erratic quarter
sales by product in each quarter for the last five years. to quarter. Airline ticket sales growth were looking
Room nights and rental car days have followed a similar relatively good in 2014, but are now in negative growth.
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 19Costs and Debts
3.
Costs and Debts
Priceline need to maintain their expenses to fend off with other costs, such as personnel, sales and IT costs,
the competition and, whilst the mix of expenses may the total operating expenses have drifted upwards,
well change, the way Priceline split their budgets has causing concern among investors and undercutting the
remained relatively static recently. During our review headline stellar performance of Priceline’s EBITDA, with
period Priceline have slightly changed their reported stocks taking a beating after Q2 and Q3 results in 2007,
expenditure categories for advertising. In 2012 and even though earnings growth was strong in both (see
2013 they reported online and offline advertising, Chapter 6 for more).
but in 2016 adjusted their 2014 onwards advertising
to performance and brand advertising. Figure 18 In terms of overall expenditures we can see that
shows revenues, gross profits, and costs as reported advertising makes up the majority of Priceline’s
by Priceline. Priceline has been able to push down its expenditure, a total of 61% in 2016, rising to 63% in
cost of revenues, leaving Priceline with a self-reported 2017. If the sales and marketing costs category is
gross margin of 97.6%. However, this doesn’t tell the included, then this rises to 70% of costs. The majority of
whole story, with the cost of advertising continuing to their advertising spend is online or performance based,
rise across the period, with a CAGR of 23.6%. Combined 56% of all costs in 2016 and 58% in H1 2017. Personnel
Figure 18: Expenses Versus Revenues 2012 to 2016 (USD millions)
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
0
2012 2013 2014 2015 2016
n Total operating expenses n Cost of revenue n Revenue n Gross profit n Advertising costs
Source: Priceline Group, 2017
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Figure 19: Priceline Costs by Company-Defined Categories 2012 to 2016
2016 56% 5% 7% 22% 7% 2%
2015 54% 5% 7% 23% 8% 2%
2014 54% 6% 7% 22% 8% 2%
2013 56% 4% 7% 22% 8% 2%
2012 58% 2% 9% 21% 8% 2%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
n Online advertising n Offline advertising n Performance advertising n Brand advertising
n Sales & marketing n Personnel n General & administration n IT
Source: Priceline Group, 2017
Figure 20: Priceline Costs by Company-Defined Categories 2014 to H1 2017
H1 2017 58% 5% 7% 20% 8% 2%
2016 56% 5% 7% 22% 7% 2%
2015 54% 6% 7% 23% 8% 2%
2014 54% 6% 7% 22% 8% 2%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
n Performance advertising n Brand advertising n Sales & marketing n Personnel n General & administration n IT
Source: Priceline Group, 2017
Figure 21: Priceline Operating Expenses and YoY Percentage Change (USD Millions)
$80 50%
47%
74.08
45%
$70
n Total operating expenses 37%
n % change 39% 40%
53.33
$60
35%
$50 45.11
30%
33.03
$40 25%
22.54
20%
$30
18% 15%
$20
10%
$10
5%
$0 0%
2012 2013 2014 2015 2016
Source: Priceline Group, 2017
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 21Costs and Debts
make up the next biggest cost taking 20% of these 3.1 How Much Is the Priceline Group
total budgets, followed by sales and marketing at 8%, Spending on Marketing?
general and administration at 7%, and IT using 2% (see Sales and marketing, which does not include their
Figure 20). advertising costs, increased to USD435 million in 2016,
up from USD353 million in 2015, and had a 2012-2016
With growth in the overall business comes an increase in CAGR of 22%, reflecting the growth patterns in both
operating expenses. In 2016 Priceline’s operating expenses revenue and bookings. Sales and marketing expenses
reached USD74 million, an increase of 39% from 2015 consist primarily of:
and a 35% CAGR during 2012-2016. These growth rates
are over and above the growth in gross bookings and ■■Merchant transaction credit card and other payment
revenue, at 24% and 20% respectively. 2013 saw a big shift processing fees.
in operating expenses, increasing by a significant 47%. ■■Third party call centers, website content translation
fees, etc.
However, with cost of revenues under control, and gross ■■Customer relations.
revenue going up, margins as we looked at above are ■■Merchant transaction customer chargebacks.
healthy. Cost of revenues consisted primarily of: ■■Bad debt usually related to agency accommodation
commission receivables.
■■The cost paid to travel suppliers for Priceline.com’s ■■Promotional and trade shows.
Name Your Own Price and package services, net of
taxes and charges According to the Priceline 2016 annual report, the
■■Fees to third parties by KAYAK and Priceline.com increase in sales and marketing spend is due to increased
transaction volumes and a higher provision for customer
The decrease in cost of revenues is partly due to the chargebacks associated with merchant transactions.
decrease in Priceline.com’s Name Your Own Price Information Technology (IT) expenses have increased
services, as well as a positive impact by a reduction in because of their growth in worldwide operations.
travel transaction taxes of USD5.1 million in Q3 2016
related to a cash refund from the State of Hawaii. Advertising, both online and offline, increased at a 30%
Figure 22: Sales and Marketing Spend 2012 to 2016 (USD Millions)
$500 35%
n Sales and marketing n % change
$450 $435.2
30%
$400
$353.2
$350 25%
$310.9
$300
20%
$250 $235.8
$195.9 15%
$200
$150 10%
$100
5%
$50
$0 0%
2012 2013 2014 2015 2016
Source: Priceline Group, 2017
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 22Costs and Debts
CAGR during 2012-2016 and they spent USD3.8 billion a year-over-year decline in advertising ROIs and has
on advertising in 2016, a three-fold rise from 2012 increased again across the first three quarters of 2017
which was a much smaller USD1.3 billion budget. This from 34.1% of gross profit in 2016 to 34.7% in 2017.
slowed slightly in the first three quarters of 2017 but
was still a substantial 22% YoY rise. Brand advertising is predominantly related to Booking.
com, KAYAK, Priceline.com and agoda.com and includes:
From 2012 to 2015 Priceline divided their advertising
spend by online and offline. Online advertising has ■■TV advertising.
been a key driver of the Priceline business, but offline ■■Online video advertising.
has marginally increased in significance in terms of the ■■Online display advertising.
overall budget. In 2012 online advertising accounted
for 97% of all advertising spend, but during 2013, 2014 Priceline intends to continue to promote brand
and 2015 offline advertising grew to 7%, 9% and 7% awareness through online and offline advertising,
of total advertising spend in those respective years. including executing various brand campaigns as
This continued to be relatively stable, remaining at 9% they expand into new markets around the world.
through the first three quarters of 2017. It is fundamental for Priceline to acquire and retain
customers through maintaining and strengthening
Performance advertising includes: their brands.
■■Search engine keyword purchases. According to Priceline, in 2016 their performance
■■Referrals from metasearch and travel research advertising efficiency declined over 2015 due to growth
websites. in paid traffic channels, lower ROIs and timing and
■■Affiliate programs. booking versus travel.
■■Other performance-based advertisements.
To generate traffic to their websites they mainly use
Performance advertising as a percentage of gross profit third-party websites including online search engines
increased in 2016 due to paid traffic channels and (primarily Google), metasearch and travel research
Figure 23: Advertising Spend by Self-Reported Categories 2012 to 2016 (USD Millions)
$4,000
n Online advertising
n Offline advertising $295.7
$3,500
n Performance advertising
n Brand advertising
$3,000
$273.7
$2,500 $257.1
$2,000 $127.5
$3,479.3
$1,500 $2,738.2
$35.5
$2,334.5
$1,000
$1,798.6
$500 $1,273.6
$0
2012 2013 2014 2015 2016
Source: Priceline Group, 2017
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 23Costs and Debts
Figure 24: Percentage Change in Advertising Spend in Self-Reported Categories 2013 to Q1 to Q3 2017
300%
259.1% n Online advertising
n Offline advertising
250%
n Performance advertising
n Brand advertising
200%
150%
100% 81.5%
50% 41.2% 31.2% 22.3%
18.5% 27.1%
19.4%
8.0%
0%
-7.2%
-50%
2013 2014 2015 2016 2017 Q1-3
Source: Priceline Group, 2017
services, as well as affiliate marketing. Pay-per-click decade this low-end funnel strategy has driven their
advertising is core to their strategy. They bid on business, but in 2013 they started offline advertising
hundreds of millions of multilingual keywords across in the US and are eyeing up more investments in this
desktop and mobile to raise their share of demand area to boost Booking.com’s presence as a household
channels. Priceline have continuously fine-tuned their brand in travel. They have also recently invested in TV
sites so that when they attract the consumer through
Figure 25: 2016 Costs as a Percentage of Gross Profit
advertising expenditure, they raise conversions and
turn buyers into long-term loyal customers. Mobile
is increasingly important for Priceline and their
competitors, and they have experienced a significant
shift of business to mobile platforms. Performance
advertising sits across both web and mobile channels. 33.7%
40%
In terms of value, Priceline spent USD296 million on
brand advertising in 2016, and USD3,479 million on
performance advertising.
2.9%
In 2016 the increase in brand advertising was due to 4.2%
1.4%
investments in online video and TV advertising for
4.4% 13.1%
Booking.com; figures include production costs. KAYAK
and Priceline.com were allocated lower TV advertising
n Performance advertising
budgets in 2016 which slightly offset the above n Brand advertising
increase. Booking.com has been increasingly using n Sales & marketing
n Personnel
TV advertising and targeting consumers at the mid to n General & administration
higher end of the travel funnel, whereas historically n IT
n Other
they tended to focus very low in the funnel, where
consumers have a very clear intent. Over the last Source: Priceline Group, 2017
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 24Costs and Debts
Figure 26: Priceline Total Debt Holdings 2012 to 2016 (USD Millions)
$7,000 140%
n Long-term debt n Y/Y change $6,158.4 $6,170.5
121.0%
$6,000 120%
$5,000 100%
97.5%
$4,000 $3,849.8 80%
60%
$3,000 60%
$2,000 $1,742.0 40%
$1,000 $882.0 20%
0.2%
$0 0%
2012 2013 2014 2015 2016
Source: Priceline Group, 2017
advertising for Europe as well, hoping to create greater 3.2 Debts
awareness up in the funnel, and then, as a result, Priceline have been focusing on organic growth in the last
improve their performance marketing at the low end year. Their debt did not change significantly between 2015
of the funnel. and 2016. In 2016 long-term debt was USD6.1 billion. The
size of their debt jumped particularly significantly in 2014
Whilst brand and offline advertising is increasing in by 121% to USD3.8 billion. Over the five-year review period
comparison to the historically more pure online focus, the CAGR was 63%, up from just USD881 million in 2012.
performance advertising is at their core and in 2016
they raised the budgets by 27%, compared to an 8% According to Priceline, consequences of their debt
increase for brand advertising. Across the first three could be:
quarters of 2017, overall combined advertising costs
from both categories rose by 22%, with performance ■■Take a portion of their cash flow from operations and
increasing 22.3% and brand increasing 20.4%. capital expenditures.
■■Increase their vulnerability.
In 2016 performance advertising accounted for 34% ■■Reduce their ability to obtain additional financing on
of gross profit, compared to 2.9% of brand advertising. acceptable terms.
Personnel made up 13% of gross profit. ■■Decrease their flexibility when planning for or
reacting to changes in their business or the industry.
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 25Mergers and Acquisitions
4.
Mergers and Acquisitions
The Priceline Group have introduced a range of brands this might be a namesake brand, it is not the company’s
to their family over the last 20 years. Priceline’s acquisition most important website in terms of revenue. It was
of Booking.com in 2005 has driven a major part of their until recently famous for its opaque travel reservation
financial success, particularly due to their ability to capture business Name Your Own Price and Express Deals,
the fragmented European accommodations market. The but, as we have established, demand for this opaque
resulting cash gave Priceline financial strength to buy some product is declining and their focus has changed.
of the competition and invest in other growth opportunities.
Booking.com: This is focused on hotels in Europe and
Booking.com has easily been the most successful of their most important site contributing the majority of
Priceline’s acquisitions and represents Priceline’s general revenues to the group. It is also a competitor in the
philosophy towards M&A. Compared to other major alternative accommodation space, listing a growing
players in the digital space, Priceline has not been as number of vacation rental properties.
acquisitive, preferring to make careful investments on
strong growth prospects which can add to their bottom agoda.com: This is similar to Booking.com but
line rather than outright buying up nearest competitors. focused on the APAC markets and based in Singapore.
The independent management of their brands helps It operates primarily on the merchant revenue model,
them remain agile and adaptable to changing consumer unlike the rest of the OTA brands.
demand and market dynamics. This outlook and structure
does not mean that Priceline will not feel the need to add to rentalcars.com: This competes with Expedia’s
or adjust its portfolio, however. Booking.com’s strength is a carrentals.com and, whilst generating both merchant
marker of success but it does leave the company leveraged and agency bookings, including opaque, margins are
towards the brand and the accommodation sector. The low. The car product does, however, enable package
overall online travel environment is also highly competitive. products and helps service the entire customer trip.
Priceline and its associated brands will therefore most
likely look to make acquisitions that they can incorporate OpenTable: Is a website and a mobile app focused
to enhance their brand offerings, particularly from a on restaurant reservations targeting in-destination
technology perspective. Otherwise, Priceline seems most sales, charging a flat fee for all bookings. The brand was
likely to step up its holdings into its promising Chinese established in the US, but the network was recently
investments of Ctrip and Meituan Dianping. expanded into Europe as growth potential there
is considered particularly significant. It has not yet
The Priceline Group brands currently are: performed as they hoped so they have adjusted their
short/long-term approach recently.
priceline.com: This is heavily focused on the US and
more of a metasearch tool for all travel products. Whilst KAYAK.com & Momondo: This brand brought
www.eyefortravel.com The Future of the Online Travel Giants: priceline | 26You can also read
