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Key Predictions for Q3 Earnings Reports of PCLN and TRIP

The third-quarter reporting cycle is well past the halfway mark with 372 S&P 500 members, representing 74.4% of the index’s total market capitalization, having already released their results.

Picture Thus Far

Per the latest Earnings Outlook, total earnings of these companies are up 7.8% on a year-over-year basis (74.9% of the companies beat EPS estimates). Total revenues are up 6.5% (65.7% of the companies beat top-line estimates).

The earnings performance of the same set of companies has been unimpressive compared with the previous quarter but in line with the four-quarter average. Revenue growth is notably tracking higher.

Third-quarter earnings of S&P 500 companies are anticipated to be up 5.6% from the year-ago quarter on revenues that are estimated to increase 5.5%. Notwithstanding the weak performance of the Finance sector, total earnings from the remaining index are expected to rise 11% while revenues are anticipated to grow 6.9% on a year-over-year basis.

Notably, earnings estimate revisions for the fourth quarter continue to be favorable.

On Nov 6, two Internet commerce stocks — The Priceline Group Inc. PCLN and TripAdvisor, Inc. TRIP — are scheduled to announce their third-quarter 2017 results. Let’s have a close look at the factors that will impact their results.

Predictions for Priceline

Strong agency revenues are expected to drive international results. Priceline generates the bulk of its revenues from international markets where the agency model is more popular. This is reflected in the merchant/agency split of revenues, which was 16/77% in the second quarter.

We expect agency revenues to grow both sequentially and year over year in the to-be-reported quarter, driven by strength across priceline.com and booking.com. While priceline.com is expected to benefit from room night growth, booking.com is likely to ride on vacation rental properties growth.

The Zacks Consensus Estimate for agency revenues is pegged at $3.5 billion. In the second quarter, agency revenues had increased 30.6% sequentially and 25.9% year over year.

We observe that Priceline shares have gained 30.1% year to date, underperforming the 58.7% rally of the industry it belongs to.

Merchant revenues are also expected to grow both sequentially and year over year, driven by strength across agoda.com and rentalcars.com. While agoda.com is likely to benefit from discounting in markets, rentalcars.com is expected to ride on continuous operational improvements.

The Zacks Consensus Estimate for agency revenues is pegged at $621 million. In the second quarter, merchant revenues were up 12.7% sequentially and 3.8% year over year.

The U.S. Commerce Department estimates international travel to the United States to witness CAGR of 3.3% from 2016 to 2021. Inbound travel volumes from Mexico, China, Canada, India and South Korea will be the highest during this period. Visitor volume in 2017 is expected to be up 2.4% from 2016. Since it is a major international player, these trends play into Priceline’s sweet spot and will have an impact on its quarterly performance.

Predictions for TripAdvisor

In the second quarter, TripAdvisor’s average monthly unique visitors on the company’s branded websites and applications were approximately 415 million, increasing 18% year over year. The number is expected to increase in the soon-to-be reported quarter driven by its rich content.

The company offers more than 465 million travel reviews and opinions, growing at more than 290 contributions per minute. The Zacks Consensus Estimate for the third quarter is pegged at $454 million.

TripAdvisor’s Hotel segment revenues of $326 million increased 4% sequentially and 3%  year over year in the second quarter. The Zacks Consensus Estimate for the third quarter is pegged at $328 million. Average monthly unique hotel shoppers were 153 million in the last reported quarter, increasing 11% year over year. Click-based and transaction revenues per hotel shopper decreased 2% year over year. 

We observe that TripAdvisor shares have lost 17.9% year to date, significantly underperforming the 58.7% rally of the industry it belongs to.

Lately, the company has been making efforts to get travelers to book hotels directly on its website instead of just using it as a review site. These efforts will continue to boost the company’s clicked-based advertising and transaction revenues, expanding its top-line growth in the third quarter.

TripAdvisor’s non-Hotel segment revenues of $98 million increased 69% sequentially and 31% from the year-ago quarter. Growth will continue to accelerate, driven primarily by continued strength in attractions and restaurant businesses.

However, mounting expenses due to new initiatives and investments are hurting the company’s profits. Also, management has been spending huge amounts on acquisitions. Though these continued investments could boost the top line, it can have a negative impact on near-term profitability.

What Our Model Says

Please note that according to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or #3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or #5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Priceline has a Zacks Rank #3 and an Earnings ESP of -0.10%, while TripAdvisor has a Zacks Rank #4 and an Earnings ESP of -10.31%. So, per the Zacks model, both are unlikely to beat.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks to Consider

Here are some stocks that you may also want to consider as our model shows these have the right combination of elements to deliver a positive earnings surprise:

NVIDIA Corp. NVDA, with an Earnings ESP of +0.71% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Adobe Systems Incorporated ADBE with an Earnings ESP of +0.25% and a Zacks Rank #1.

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The Priceline Group Inc. (PCLN): Free Stock Analysis Report
 
TripAdvisor, Inc. (TRIP): Free Stock Analysis Report
 
Adobe Systems Incorporated (ADBE): Free Stock Analysis Report
 
NVIDIA Corporation (NVDA): Free Stock Analysis Report
 
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