priceline

COMPANY PROFILE

Priceline.comIncorporated

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TABLE OF CONTENTS

Company Overview..............................................................................................3Key Facts...............................................................................................................3SWOT Analysis.....................................................................................................4

Priceline.com Incorporated Page 2 MarketLine

Priceline.com IncorporatedTABLE OF CONTENTS

COMPANY OVERVIEW

Priceline.com Incorporated (Priceline or 'the company') is an online travel company. It offers airlinetickets, hotel rooms, car rentals, vacation packages, cruises and destination services to its customers.The company operates in Europe, North America, Asia, the Middle East and Africa. It is headquarteredin Norwalk, Connecticut, and employed about 7,000 people as of December 31, 2012.

The company recorded revenues of $5,261 million during the financial year ended December 2012(FY2012), an increase of 20.8% over FY2011. The operating profit of the company was $1,829.8million in FY2012, an increase of 30.8% over FY2011.The net profit was $1,419.6 million in FY2012,an increase of 34.4% over FY2011.

KEY FACTS

Priceline.com IncorporatedHead Office800 Connecticut AvenueNorwalkConnecticut 06854USA1 203 299 8000Phone

Faxhttp://www.priceline.comWeb Address5,260.9Revenue / turnover

(USD Mn)DecemberFinancial Year End7,000EmployeesPCLNNASDAQ Ticker


Priceline.com IncorporatedCompany Overview

SWOT ANALYSIS

Priceline.com Incorporated (Priceline or 'the company') is an online travel company, which offersairline tickets, hotel rooms, car rentals, vacation packages, cruises and destination services to itscustomers. The company differentiates itself from its competitors through its proprietarydemand-collection system, Name Your Own Price service, which offers benefits to both buyers andsellers. However, increasing price competition threatens to erode the company's margins and reduceits market share.

WeaknessesStrengths

Significant dependence on the USPrice disclosed and NYOP services in theUS providing a diverse revenue streamFocus on international marketsRobust revenue and profit growth enhancingPricelines long-term sustainability of itsbusiness model

ThreatsOpportunities

Intense competitionAcquisition of Kayak could help Pricelinediversity its revenue stream Sluggish global economic recoveryPartnerships and agreements likely toprovide growth opportunities

Regulatory and legal uncertainties couldaffect the company's growth

Growing global car rental industry

Strengths

Price disclosed and NYOP services in the US providing a diverse revenue stream

Priceline has developed a unique pricing system, Name Your Own Price (NYOP), which allowsconsumers to specify the price they are prepared to pay when submitting an offer for a particularleisure travel service. The company then accesses databases in which participating suppliers filesecure discounted rates not generally available to the public, to determine whether Priceline canfulfill the customer's offer and decide whether it can accept the offer at the price designated by theconsumer. This NYOP service uses the flexibility of buyers to enable sellers to accept a lower pricein order to sell their excess capacity without disrupting their existing distribution channels or retailpricing structures. Furthermore, the company offers price-disclosed retail services in the US to itscustomers to complement the NYOP service.This enables the company to offer a one-stop-shoppingsolution to its customers by simultaneously fulfilling the needs of those customers who are preparedto accept the unique restrictions of the NYOP service in exchange for receiving significant savings


Priceline.com IncorporatedSWOT Analysis

relative to retail prices, as well as those customers who are less price sensitive and require thecertainty of knowing the full details of their travel itinerary prior to purchasing. In 2012, the companylaunched Express Deals, a merchant semi opaque, price-disclosed hotel reservation service atpriceline.com, which allows customers to see the price of the room prior to booking but not theidentity of the hotel.

The combination of retail price-disclosed model and NYOP model allows Priceline offer a broadarray of options to value-conscious travelers.

Focus on international markets

International consumers are rapidly moving to online means for purchasing travel. As a result, recentinternational online travel has substantially increased. In order to capitalize on this growing market,Priceline has spent a substantial portion of its total online advertising expenses to attract internationalcustomers. Increased spending on international marketing has helped the company generate asignificant share of its revenues from countries outside the US. For instance, during the year endedDecember 31, 2012, the companys international business (the substantial majority of which isgenerated by Booking.com) represented approximately 82% of its gross bookings, as compared to78% of total bookings in 2011. The company also derived approximately 92% of its consolidatedoperating income from international brands in 2012, as compared to 88% in 2011. Thus, increasingrevenues from international markets help Priceline offset dependency risks and strengthen its leadingposition in the worldwide online hotel reservation services markets.

Robust revenue and profit growth enhancing Pricelines long-term sustainability of its business model

Priceline has recorded a strong top- and bottom-line growth. Its revenues have increased at animpressive three-year compounded annual growth rate (CAGR) of 31% during 201012, from $3,085million to $5,261 million. The operating profit of the company increased at a CAGR of 52% duringthe same period, from $786.8 million to $1,829.8 million. Meanwhile, the company's net profitincreased at a CAGR of 64% from $528 million to $1,420 million.

Due to the strong bottom-line growth, Pricelines cash, cash equivalents and short-term investmentsreached $5.2 billion as of December 31, 2012. Hence, strong revenue and profit growth enhancesPricelines long-term sustainability of its business model.

Weaknesses

Significant dependence on the US

Priceline derives the majority of its revenues from the US. During FY2012, the company generatedrevenues of $1,661.7 million from the US alone, accounting for nearly 31.6% of its total revenues.The US economic conditions have been affected by the declining levels of consumer expenditures,and the country recovering from one of its worst economic crisis in its history. Another economic



turmoil and reduced consumer wealth may result in consumers becoming unwilling to spend towardsor postpone their vacation plans, with clear implications for turnover and profitability. Hence, Priceline'ssignificant reliance on the US may have an adverse impact on the company's overall results ofoperations in the long run, as it makes the company vulnerable to the country's economic downturns.

Opportunities

Acquisition of Kayak could help Priceline diversity its revenue stream

Priceline completed the acquisition of Kayak Software Corporation (Kayak), a travel researchcompany, in May 2013. Kayak merged with and into a wholly-owned subsidiary of the company.Priceline paid approximately $522.4 million in cash and issued approximately 1,519,717 shares ofcommon stock in connection with the merger, in addition to assuming outstanding Kayak stockoptions.

Kayak is a leading travel research site that allows people to easily compare hundreds of travel sitesat once when searching for flights, hotels, and rental cars, and gives travelers choices on where tobook. It processes over 100 million user queries each month through its global websites and mobileapplications. According to an estimate, around 38% of leisure travelers and 57% of business travelersin the US use mobile for getting travel information. By leveraging Kayaks expertise in mobile platform,Priceline can build a stronger foundation in the growing mobile platform.

Priceline has been able to successfully leverage its past acquisitions, which have substantiallycontributed to its international growth over the years Booking.com (2005), Agoda.com (2007) andTravelJigsaw (2010). With Kayak on board the company marks its entry in the meta-search spaceand continues to build a robust and well-rounded travel portfolio. A meta-search engine is a searchtool which collates results from multiple search engines, providing a broader scope for user searches.Meta-search remains an integral part of the online travel booking supply chain.

Despite slowing growth, the US online travel market remains the biggest market in terms of salesand is expected to continue to be so for years to come. Kayak is a strategic importance for Pricelineto close the gap with Expedia in the US market. The acquisition of Kayak could also help Pricelinereduce its dependence on Google.

Partnerships and agreements likely to provide growth opportunities

Priceline has entered into partnerships and agreements in the recent past. In September 2013, NYC& Company, New York City's official marketing, tourism and partnership organization formed a newpartnership with Booking.com to increase tourism and generate additional hotel bookings. In March,2013, Priceline announced a new long-term agreement with United Airlines, with plans to implementthe United Technology Application, powered and supported by Farelogix, as the primary connectivitybetween the two parties.



Previously, in August 2012, CTRIP.com International, a leading travel service provider of hotelaccommodations, airline tickets, packaged tours and corporate travel management in China (Ctrip)and Booking.com entered into an agreement under which Ctrip can reach Booking.com's globalportfolio of over 235,000 participating hotels through Ctrip's hotel reservation services. Ctrip hasbeen actively expanding the international travel products to service China's fast growing outboundtravel demand and partnering with Ctrip will provide Booking.com's accommodation partners a newopportunity to serve even more travelers from the Asia-Pacific region.

Growing global car rental industry

The global car rental industry has recorded a rapid growth rate in the recent period. As per theindustry estimates, the global car rental industry is expected to reach a value of $67.4 billion by theyear 2017 with a CAGR of 3.7% over the next five years.The growth of the global car rental industryis expected to be driven by increase in employment rates, income levels, discretionary incomes,improved reservation efficiencies, and restoration of health of the tourism industry. Moreover, therecovery of air travel industry is expected to boost the demand for car rentals. In 2010, the companyacquired the rentalcars.com business, a UK-based international rental car reservation service formerlyknown as TravelJigsaw. Rentalcars.com offers its car hire services throughout the world, withcustomer support provided in 38 languages. Hence, Priceline is well positioned to benefit from thegrowing global car industry.

Threats

Intense competition

Priceline competes with online and traditional sellers of services in the industry, which is intenselycompetitive. The company primarily competes with the industry conglomerates such as Expedia,Orbitz worldwide, and Sabre. Additionally, the company competes with travel suppliers such asairlines, hotel companies and rental car companies many of which have their own branded websitesand also with large search engines such as Google, Yahoo, Bing and AOL. Moreover, Pricelinecompetes with online Meta search travel search sites such as Mobissimo.com, FareChase.com andSideStep.com and with the travel research sites that have search functionality such as TripAdvisor,Travelzoo, and Cheapflights.com and reservation data bases such as Galileo, Travelport andAmadeus.

Competing with much larger players in the market which have significant bargaining power, largergross travel bookings and greater access to diversified resources could erode Priceline's marginsand reduce its market share.

Sluggish global economic recovery

Travel expenditures have direct correlation with personal and business discretionary spending levels.It tends to decline during economic downturns. The current economic environment has significantly



deteriorated consumer confidence and discretionary spending. The slowing of the domestic andglobal economies has increased unemployment and reduced the financial capacity of both corporateand leisure travelers, thereby slowing spending on the services Priceline provides. According to theWorld Economic Outlook projections January 2013 by IMF, the global activity expanded by 3.2% in2012 as compared to 3.9% expansion in 2011 and the downside risks continue to predominate. Dueto the sovereign debt crisis, Euro zone has also experienced a recessionary trend in the recent pastand is still struggling from the crisis.

In the US, the consumer confidence is down and is affected by both property slump and rising pricesof food and fuel. Americans seem cautious and are not willing to increase spending, one of thereasons why the pace of the recovery is estimated to be more subdued than in the past. Accordingto the United States Department of Labor, the unemployment rate in the US averaged to 7.3% inOctober 2013. Higher unemployment rate strains discretionary spending, which in turn reduces theleisure travel by the customers. Sluggish wage gains and credit crunch are all expected to keepcustomers relatively cautious in 2013 and 2014. Thus, a weak economic outlook for the importantmarkets of Priceline could put pressure on its top- and bottom-line growth.

Regulatory and legal uncertainties could affect the company's growth

Priceline operates in travel industry which makes it to comply with stringent laws and regulationswithout fail. These laws and regulations increase the company's compliance cost structure. As thecompany operates in varied markets, it is subject to comply with both domestic and internationalregulations. For instance, Priceline's operations are subject to regulation by the US Department ofTransportation and various other rules and regulations governing the provision of air transportation,including those relating to advertising and accessibility. With the growing international presence ofthe company, it is also increasing its exposure to comply with the international laws and regulationsapplicable to travel agents in every market they operate. For instance, the European EconomicCommunity Council Directive on Package Travel Package Holidays and Package Tours imposesvarious obligations upon marketers of travel packages like Priceline, such as disclosure obligationsto consumers and liability to consumers for improper performance of the package, including supplierfailure.

In 2010, the United Kingdom's Office of Fair Trading (OFT), the competition authority in the UK,announced it was conducting a formal early stage investigation into suspected breaches of competitionlaw in the hotel online booking sector and had written to a number of parties in the industry to requestinformation. Booking.com B.V. and priceline.com Incorporated. On behalf of Booking.com, Pricelinereceived a notice of inquiry from the OFT. The outcome and impact of OFT's investigation is stilluncertain which would affect their business and results of operations.



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Company OverviewKey FactsSWOT Analysis

priceline

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