Here's What Disappointed Some Priceline Investors About Q3

Priceline Group Inc PCLN reported its third-quarter results Monday — which came in better than expected, but were accompanied with concerning fourth-quarter guidance. The company also said it will be increasing its marketing spending.

The Analyst

KeyBanc Capital Markets' Brad Erickson.

The Rating

Erickson maintains a Sector Weight rating on Priceline's stock with no assigned price target. (See Erickson's track record here.) 

The Thesis

Priceline's third quarter consisted of a gross booking, gross profit and room-night growth. Management guided Q4 room-night growth to just 8 to 13 percent, falling short of the 15 percent the Street was expecting. The company also guided its Q4 earnings per share below what the Street was expecting, which implies management is making higher brand investments while the overall demand for travel appears to be "softer."

But the bullish case for Priceline's stock can still be made, Erickson said. For example, incremental gross bookings per incremental ad dollar spent year-over-year rose for the first time in several quarters. Investors need additional clarity on the "true drivers of tactical marketing changes" before becoming constructive on the stock, the analyst said. 

Price Action

Priceline's stock was trading lower by more than 10 percent early Tuesday morning, but is also higher by 30 percent since the start of 2017.

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