PCLN , PE = 44.4 - Buy or Sell ?
Do you have an opinion? Can you justify it?
I have found it really difficult to get a clear picture of PCLN and this is after having done some research and gone through their Annual Report.
Here are 4 basic questions which you should be able to answer if you own or want to buy/short shares of PCLN:
1) What is the difference between 'Merchant' revenue (2,1 billion $ in 2009) and 'Agency' revenues (7,2 billion $ in 2009) ? Which model has the biggest growth prospects and what are the challenges?
2) What are the major products of PCLN and what share of the company's revenu do they represent?
Helpful hint:The company has 3 methods for selling hotel rooms: a) contracted prices on which a certain percentage is added, b) direct pricing from the hotel on which a commission is sent to PCLN and c) 'Name-Your-Own-Price' . Now add in flights (which also have Name-Your-Own-Price), car rentals and cruises; and you have the answer to the first part of question 2) . As for the second part of the question, good luck in finding out. Yet this is crucial in understanding the company.
3) Where will the growth come from in order to justify a PE of 44 ? Can the high margins be maintained in the face of increased pressure from suppliers?
4) In the long term, how big is the company's moat?
PCLN is one of the world's top players in the on-line travel business, which is a fast growing industry with tremendous economies of scale. Shorting it may be just as crazy as buying it.
My first wish was to point out the difficulty in establishing a value for this wonderful but extremely expensive company. My second wish is to establish whether anyone actually cares about my input.
If you would be interested in more info on PCLN, let me know about it (either by commenting or by putting a Rec on my post). It would take me a few weeks to prepare it, and the company is so complex that I would envisage writing a number of blogs, so I just want to make sure that someone except my wife will read them.