Priceline.com Inc., the top performer in the Standard & Poor’s 500 Index over the past two years, will encounter more competition for fund managers’ dollars as initial public offerings double the number of online travel stocks.
Kayak Software Corp., a travel search engine, and HomeAway Inc., a vacation-rental website, both filed for IPOs in the past six months. And Expedia Inc., the biggest online travel agency by sales, announced plans in April to spin off its TripAdvisor unit as a publicly held stock.
This bumper crop is part of a recovery in stock offerings, following years of drought. Last month was the busiest period for U.S. IPO filings in almost four years. With more options available, investors may seek to diversify their portfolios, jeopardizing the momentum that propelled a fivefold surge in Priceline’s shares during the past two years.
“Priceline has been the only game in town,” said Paul Bard, vice president of research at Renaissance Capital LLC, a Greenwich, Connecticut-based IPO investment firm. “You’re going to see more innovation from some of these new IPOs, and that will be attractive to investors.”
The online leisure travel market may expand 16 percent in the U.S. to $113 billion next year from $97 billion in 2010, according to research firm PhoCusWright Inc. The country represents less than half the global market.
The growth has helped fuel sales and profit gains for Priceline, which is scheduled to report first-quarter results after the close of trading today. Revenue probably jumped 34 percent to $780.3 million, according to the average estimate of 14 analysts surveyed by Bloomberg. Net income likely rose 65 percent to $88.7 million, analysts predict.
Most of Priceline’s growth is coming outside of the U.S. In 2010, the company’s international business accounted for about 82 percent of operating income, mainly related to its Amsterdam-based Booking.com business, which Priceline acquired in 2005. The company’s eponymous name-your-own-price service, touted in commercials by actor William Shatner, is aimed at North American customers. U.S. revenue rose 10 percent last year.
Brian Ek, a spokesman for Norwalk, Connecticut-based Priceline, declined to comment for this story.
Priceline’s stock has beat every stock in the Standard & Poor’s 500 Index in the past two years. The shares fell $3.30 to $534.36 at 9:38 a.m. New York time on the Nasdaq Stock Market.
‘Best of the Bunch’
“Priceline continues to do well; it’s the best of the bunch,” said Bryan Keane, an analyst at Alpine Mutual Funds in Purchase, New York. His firm manages $7 billion in assets, including Priceline shares. “It’s been beating earnings and it’s been growing at a very rapid pace.”
Even so, Alpine will look at new opportunities to invest in online travel companies as business continues to gravitate to the Internet, he said.
Thirty-four companies announced plans for U.S. IPOs in April alone, the busiest month for new filings since August 2007, according to Renaissance Capital.
Kayak, located in Priceline’s hometown of Norwalk, filed to raise as much as $50 million in an IPO in November. The company said in March that 2010 revenue climbed 51 percent to $170.7 million, helped by a 38 percent increase in website queries.
Started in 2004 by founders of Expedia, Travelocity and Orbitz Worldwide Inc., Kayak compiles flights and accommodation data from online travel agencies, as well as the airlines and hotels themselves. Unlike Priceline, Expedia and Orbitz, Kayak doesn’t complete the transaction on its own site, collecting money instead from advertising and referring clients.
HomeAway doesn’t compete as directly with Priceline, because it focuses on the vacation-rental market. The company has more than 540,000 rental listings in 120 countries. HomeAway, whose revenue jumped 40 percent to $167.9 million last year, filed to sell as much as $230 million of stock in its IPO.
“HomeAway represents a niche segment, but it’s one that will grow in popularity over time as more and more consumers seek alternative accommodations on their trips,” said Henry Harteveldt, an analyst at Cambridge, Massachusetts-based Forrester Research Inc. “The privacy that a home or condo or villa offers is something that may be preferential to the more public environment of a hotel.” The biggest of the new IPOs may be TripAdvisor, which recorded 38 percent sales growth last year to $486 million, almost triple the growth rate at parent company Expedia. An independent TripAdvisor, which includes 19 travel and advertising brands, will give investors the chance to own a stake of the faster-growing business. Expedia expects to complete the transaction in the third quarter.
Even with the anticipated wave of travel site IPOs, 16 of 20 analysts surveyed by Bloomberg recommend buying Priceline’s shares. Four have a hold rating, and none recommends selling.
Laszlo Birinyi, president of money management firm Birinyi Associates Inc. in Westport, Connecticut, still sees the company as a safe bet. His firm owned 4,500 shares as of Dec. 31.
“It’s a stock we picked up a little while ago, and it’s far exceeded any hopes we had for it,” Birinyi said in an April 26 interview with Bloomberg Television. “There are some stocks, which are in the midst of magical mystery tours.”