Standard & Poor’s Ratings Services has upgraded Priceline.com’s (PCLN) rating from BB- to BB. S&P analyst Andy Liu stated that the revision was based on the company’s strong results and market share gains versus the other major online travel companies, Expedia Inc. (EXPE) and Orbitz Worldwide (OWW).

Both Priceline and Expedia beat the Zacks Consensus estimate in the last-reported quarter, although Priceline beat both revenue and EPS estimates by a wider margin.

Priceline’s revenue was up double-digits, both sequentially and year over year. Room nights, airline ticket units and rental car days were up 56.3%, 30.2% and11.6%, respectively from the year-ago quarter.

In comparison, Expedia’s room night and air ticket volumes were up 27.6% and 27.0%, respectively on a year-over-year basis. Therefore, it is clear that Priceline outgrew Expedia in the last quarter.

Orbitz Worldwide’s performance was not as good as the others’, with total revenue declining 22.1% from the year-ago quarter. The company saw increased room nights in Europe, helped by better supply.

All three companies were forced to reduce or cancel booking fees on both hotel and airline ticket bookings, which was the main reason for improved volumes in the last two quarters. The holiday season also helped bookings in the last quarter.

We have recently turned a bit cautious on the industry. This is because online travel companies have come under regulatory scrutiny, with the governments of several states attempting to recover occupancy taxes from them. While some suits have been set aside, others have been lost. If the pressure continues, it is very likely that there would be more losses, resulting in an ongoing cash drain in the form of past dues, penalties and expenses.

Zacks Investment Research

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