Firm believes the market is incorrectly assuming that Booking.com has limited growth potential in Europe and APAC due to escalating competition and macro weakness, providing investors with a compelling buying opportunity. Morgan Stanley is raising their estimates above consensus.
The details (in short):
European competitive advantage + secular tailwinds outweigh cyclical risk: Based on our checks, Booking.com still provides the best value proposition to European hotels with the lowest commission rates and largest customer reach relative to competition. Additionally, Booking.com is well positioned to benefit from the ongoing offline-to-online shift in European hotel bookings, which in our mind, outweighs cyclical risk. We model Booking.com increasing its share of the European hotel market from ~8% in 2010 to ~18% in 2015.
Asia Pacific: a new opportunity: Booking.com brings a unique value proposition to Asian hotels with its large European customer base, which local online travel agencies are unable to provide. Additionally, the recent appointment of Darren Huston as CEO of Booking.com (former CEO of MSFT Japan) brings valuable knowledge on effective APAC marketing strategies. We are not modeling Priceline dominating the APAC market, but rather continuing its current growth trajectory, growing market share from ~1% in 2010 to ~5% in 2015.
Valuation: At current price levels, Priceline trades at 11.5x 2012e EV / EBITDA, a discount to Ctrip at 15x and Make My Trip at 30x. We believe Priceline’s multiple will expand closer to its Asian counterparts, as Booking.com gains market share in Europe and Asia Pacific
Notablecalls: Big mo-mo names have been under pressure past days, possibly because of JAT liquidations. As one of the top guys on Notable Calls Network (NCN) notes PCLN has fallen too much too fast and is now getting a size upgrade & target.
PCLN is squeeze material. The market needs to cooperate of course.
Same goes for Netflix (NASDAQ:NFLX) which is getting +ve Research Tactical Idea (RTI) from Morgan Stanley.
"The TRIN closed at 3.89 which is a bit panicky, I think we can get a down to up on the day at some point", another trader notes.