(Reuters) - Online travel agencies Priceline.com (PCLN.O) and Orbitz Worldwide Inc OWW.N posted higher-than-expected quarterly profits on Thursday, pointing to solid demand for travel.
Rising reservations for rental cars and hotels bolstered Priceline, which has the highest market capitalization among online travel agencies, while Orbitz benefited from an increase in bookings of higher-margin hotel and vacation packages.
“The travel space is doing well, pretty much across the board,” said Edward Woo, a research analyst with Ascendiant Capital Markets. “People are traveling, spending money and these companies are benefiting.”
Shares of Orbitz jumped more than 36 percent to a new year’s high of $12.62. Priceline, which reported results after markets closed, gained more than 5 percent to $984.50 in extended trading.
The online travel industry has rebounded after a depressed few years, as cash conscious buyers seek out bargains and the U.S. economy has stabilized. But the online travel segment has shown signs of becoming more competitive.
Two weeks ago, Expedia Inc (EXPE.O) posted profit that fell short of estimates because of competition and poor performance with its Hotwire.com discount site.
But Woo said the Expedia results likely reflected company-specific issues. “It’s likely that the travel market is healthy for most players right now ... and Priceline has tremendous momentum,” Woo added.
Both Orbitz and Priceline are expected to ride that momentum into the rest of the year.
Orbitz raised its 2013 revenue view and said strength in its hotel business was continuing into the current quarter [ID:nL1N0G90I6].
“There’s still so much opportunity in this market” as consumers increasingly book travel on mobile devices, said Orbitz Chief Executive Barney Harford in an interview. “We continue to invest very aggressively in this area to take advantage of this transformational shift.”
Priceline said profit for the current third quarter could exceed analysts’ estimates, and forecast $15.30 to $16.30 a share for the period. Analysts are expecting $15.86 a share.
Priceline owes much of its success to international bookings on its Booking.com travel site, which has a relatively high concentration in Europe. It is now investing in TV advertising in the United States to increase awareness of Booking.com, its biggest brand. It also recently acquired meta-search site operator Kayak Software to increase traffic.
“The advertising campaign is having a positive effect on the growth that Booking.com is experiencing in the United States,” Priceline Chief Executive Jeffery Boyd said in an interview.
“The most differentiated feature about this market is how highly competitive it is.”
Priceline has boosted earnings and revenue for the past five years, outperforming Expedia and Orbitz. Its shares have gained 51 percent this year, and on Thursday closed at $933.75 on Nasdaq. Some analysts speculate that the shares will cross $1,000 soon, which would be a first for an Standard & Poor’s 500 stock.
Even at its current level, Priceline’s stock is still shy of its all-time high. Adjusted for a 1-for-6 reverse split 10 years ago, the price reached $990 in April 1999 before falling to a low of around $6 in October 2002.
“Just because the stock price is absolutely higher than what we see from most other stocks in the market, it doesn’t mean that the stock is more expensive,” said Scott Kessler, an analyst with S&P Capital IQ. He said Priceline is trading at roughly 25 to 30 times his firm’s estimate for 2013 earnings.
Boyd, Priceline’s CEO, said stock splits have been considered by the company’s board from time to time but haven’t been seen as a move that would bring major shareholder benefit.
“That’s not to say we would never do one,” Boyd said.
Net income at Priceline was $437.4 million, or $8.39 a diluted share, in the second quarter, up from $352.3 million, or $6.88 a share, a year earlier.
Adjusted for one-time items, profit was $9.70 a share, more than the $9.36 average estimate by analysts polled by Thomson Reuters I/B/E/S.
Gross bookings, or the value of travel services customers bought, rose 38 percent to $10.1 billion in the second quarter.
Quarterly revenue at Priceline grew about 27 percent to $1.68 billion. Hotel room nights booked increased 38 percent, while rental car days booked rose 46 percent.
Reporting by Karen Jacobs in Atlanta, additional reporting by David Gaffen in New York; Editing by David Gregorio and Richard Chang