The Priceline Group (PCLN) - Tippie College of Business

Transcription

The Henry Fund
Henry B. Tippie School of Management
Nihar Patel [[email protected]]
The Priceline Group (PCLN)
Stock Rating
Consumer Discretionary—Online Travel Agent
Investment Thesis
#Growth in the Online Travel Agent Industry is beginning to level off as the
change from traditional travel agents to online agents slows. Priceline in 2015
had external events, such as the Paris attacks, that weighed on revenue
growth. Economic and political risks continue to persist in Europe, and the
Brussels attack shows that terrorism remains a constant threat. The increasing
uncertainty in the geopolitical landscape warrants caution, and it is
recommended to sell Priceline as its share price has outpaced its fair value.
Risks to Priceline
 The Brussels terror attack is assumed to impact revenue growth for the
quarter much like it did in Paris. Given the short window from the previous
attack and the travel specific targets (Airport and Metro), it would be fair
to assume some apprehension from travelers when planning trips.
 Another terror attack in Europe would have dramatic consequences for the
continent and would significantly weigh on travel. If the flow of migrants
continues to pressure European localities it could reduce travel.
 Service providers increasingly want customers to book directly with them,
which could place pressure on margins and transaction volume. This is one
of the reasons that we do not assume SG&A falls as a percentage of sales.
 Priceline may need to increase SG&A spending in order to create more
demand for travel services given the challenging European environment.
The DCF target price was calculated assuming that SG&A expense does not
change.
Drivers for Priceline
 Low oil prices, currently below $35/bbl, should help boost travel volume
and mitigate headwinds associated with a global economic slowdown.
 The expansion into a new business line through OpenTable could help
create growth separate from the travel industry. It is too early to model
this growth as an independent unit. Growth numbers for revenue were
estimated with OpenTable in mind, but if the growth is substantial it could
change the price.
Year
EPS
Growth
2013
$36.85
31.5%
Earnings Estimates
2014
$45.76
24.2%
2015
$49.45
8.1%
2016E
$60.07
21.48%
2017E
$69.14
15.09%
2018E
$78.95
14.19%
12 Month Performance
PCLN
30%
S&P 500
10%
0%
-10%
-20%
A
M
J
Data Source: Factset
J
A
S
O
N
Sell
Target Price
Henry Fund DCF
Relative P/E (FY16)
Price Data
Current Price
52wk Range
Consensus 1yr Target
Key Statistics
Market Cap (B)
Shares Outstanding (M)
Institutional Ownership
Five Year Beta (Bloomberg)
Dividend Yield
Est. 5yr Growth
Price/Earnings (TTM)
Price/Earnings (FY1)
Price/Sales (TTM)
Price/Book (mrq)
Profitability
Operating Margin
Profit Margin
Return on Assets (TTM)
Return on Equity (TTM)
PCLN
50
$1,225-1,275
$1,250.46
$1,171.41
$1,331.90
$954.02 – 1,476.52
$1480.00
$64.65
49.62
97%
1.68
N/A
16.4%
21.9
18.8
7.13
7.19
EXPE
TRIP
D
J
F
35.33%
27.66%
15.77%
29.39%
48.1
37.6
25
26.4
19.0
0
P/E
Data Source: FactSet
23.0
ROE
15.6
7.0
Company Description
20%
-30%
March 31, 2016
2.5
P/S
6.1
Priceline Inc. is an online travel agency that offers
metasearch tools for finding and booking airline
travel, hotel accommodations, and car rentals. It
has also recently acquired OpenTable allowing
users to find and make reservations at
restaurants. The company’s biggest source of
revenue is Booking.com in Europe that has many
listings from independent hotels and other
providers of accommodations. The company
operates platforms that connect travelers to
travel providers and collects a fee in the process,
functioning strictly as an intermediary.
Important disclosures appear on the last page of this report.
EXECUTIVE SUMMARY
We believe Priceline, Inc. (PCLN) is currently a sell. After a
rough start in 2015 marred by the Paris Terror Attacks and
the Zika Virus epidemic in Q4, some of the damage was
mitigated by stronger than expected holiday travel.
However, 2015 was significantly weaker compared to prior
years. Travel is being helped by cheaper fuel prices, but
global weakness and uncertainty will weigh on growth.
First quarter was expected to be boosted by Easter, but the
Brussels terror attack is likely to have the same effect on
Q1 as Q4. However, since the time period between terror
attacks has been so small a trend of European vulnerability
is evident. There is no way to accurately predict more
attacks in the future, but the effect will be substantial if
more occur. There is no benefit from this uncertainty, and
the risk affirms the sell recommendation.
Priceline aims to drive growth through diversification
geographically and into new lines of business. By taking a
stake in Chinese firm Ctrip, potentially 15% ownership, it
gains exposure to one of the fastest growing travel
markets in the world. Priceline also bought OpenTable to
diversify by offering restaurant table bookings.1 While
these will help to create some growth, it is not certain that
it will offset declining growth in the core businesses.
The online travel agency industry also faces challenges
from upstarts competing indirectly such as Airbnb and
travel companies seeking to move bookings to their own
portals.2 Priceline’s market position is strong and growth
has continued to be strong these last few years before
2015. However, growth will be more subdued in the
future, particularly in light of the threats to European
stability. The terrorism risk presents a massive risk, but is
unpredictable and unquantifiable. The travel industry
tends to be dependent on the economic and geopolitical
climate situation, more so than other industries. Keeping
this in mind avoiding exposure to the extremely sensitive
travel industry is the most rational option.
COMPANY DESCRIPTION
Priceline functions as an intermediary in online
transactions between travelers and travel service
providers, and also sells advertising space on its websites.
Priceline has many different business lines all operating
under different brands. Revenue is broken down into three
buckets on the financial statements. OpenTable is not
broken out separately.
Revenue Breakdown
Priceline Revenue Breakdown in 2015
Advertising
7%
Merchant
22%
Agency
71%
Source: Priceline 2015 10-K
Agency Revenue
Agency revenue comes from transactions that Priceline is
not the merchant of record. These are the vast majority of
transactions that take place on Priceline websites. The role
of Priceline is simply to connect a traveler with a provider
of travel services. Priceline collects a transaction fee when
the booking is made. The traveler does not have a direct
relationship with Priceline. The company does not provide
nor arrange for the services. There is no cost of revenue
against agency revenues.1
Agency revenues make up the bulk of revenue. Overall
revenue growth is heavily dependent on the growth of
agency revenue. Priceline is heavily focused on
maintaining and growing the volume of transactions that
drive this revenue. Our model has agency revenue growing
at 10.50% in 2016 to 4.50% at the end of the forecast
period in 2022.
Merchant Revenue
Merchant revenue is derived from transactions where
Priceline is the merchant of record.2 Merchant revenues
do have direct costs of revenue associated with them. This
bucket used to be far more important to the company, but
has diminished over time.
When Priceline and similar sites got started during the
early 2000s the focus was on selling opaque travel
inventory. Travel services are time-sensitive. When room
goes unfilled, a car goes unrented, and a plane takes off
with empty seats that is lost revenue to the travel
providers. However, there was concern that if they sharply
discounted these products it would weigh down future
prices due to customer expectation. Sites like Priceline
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 Car rental bookings are the third source of revenue
currently reported. Revenues are smaller, though
59.9 million rental car days were booked in 2015.
Margins tend to be higher at about 7%.4 Car rentals
are useful for the role in packages, which overall have
better margins.
 Aside from the types of transactions that drive
revenue, it is important to note that almost all of
Priceline’s revenue and profit is earned abroad. The
primary market is Europe with Asia becoming more
important in recent years. Asia has tended to see
more merchant bookings vs agency bookings, but this
has been changing. Management does not
specifically highlight a significant difference in the mix
of revenues from region to region. Agency revenue is
where growth is focused, and some merchant
revenue associated with Agoda is due to its structure
when it was acquired. Agoda continues to shift
towards more agency transactions. Geographic mix is
far more critical. For reference, over 80% of revenue
was from overseas sources in 2015.1
would sell this inventory, but the customer would not
know what provider they were booking with until after the
purchase was made.3 Priceline’s Name Your Price® feature
is an example of this, and is mostly a holdover from a
different period in the industry.
Merchant revenues have shrunk in the last few years.
Opaque travel inventory is not as important as it has been
in the past. The margins on merchant revenues were
higher, but the decline is driven mostly on the supply side.
Airlines do not have as many open seats, and there are
many channels for providers to directly reach customers
with great deals. In light of this Priceline and others have
allowed merchant revenues to decline in importance. The
merchant revenue model is used in some regions for
transactions that would usually fall under the agency
model. We forecast revenue growth at -3% in 2016 to 0%
growth by 2019 with this being maintained from then on.
Advertising Revenue
The online travel websites offer space that can be sold for
advertising. It is an effective medium, because unlike most
sites visitors are extremely likely to be interested in
booking travel. Targeted advertising like this sells for more
than general advertising that you might find on a news
website that are frequently served by Google Adsense.
Advertising has recently become more important. The
growth numbers are drastic and should continue at a
strong but realistic rate going into the future. The push of
providers to have users book directly with them might be
the impetus for Priceline to use its massive site visits to
generate revenue despite the strategies of suppliers. Our
model forecasts advertising revenue growing at 25% in
2016 down to 4.5% by the end of the forecast period in
2022.
Sources of Revenue
 Airline bookings are very common on metasearch
sites such as Priceline and its other site Kayak. Airlines
still make up a small part of the business. In 2015,
only 7.7 million airline tickets were booked with
Priceline.1 The margins on these transactions are also
very small, about 2%.4
 Hotel bookings make up the vast majority of revenue
and profit. Total room nights booked were 432.3
million in 2015. Hotel bookings also see higher
margins per booking at around 16%.4
Priceline Geographic Sales Breakdown
Other
13%
USA
20%
Europe
67%
Company Brands
The industry is heavy with acquisition deals. Just recently
Priceline’s major competitor Expedia (EXPE) bought
another major competitor, Orbitz.5 The Orbitz site and
other sites continue to exist under Expedia’s ownership.
This typifies how the industry works. Priceline has many
different websites that it runs as depicted in its official
logo:
Priceline Group Logo, Brands from left to right: Booking.com, Priceline.com,
Agoda.com, Kayak.com, rentalcars.com, OpenTable
Page 3
Priceline.com
The company’s namesake site is not the most important
site in terms of revenue. Priceline.com is focused heavily
on the United States and is more of a metasearch tool for
all travel products. Priceline is the leader in the opaque
travel reservation business due to Name Your Price® and
Express Deals® features.1 Vacation packages and cruises
can also be booked. The difference between Priceline and
other travel search sites has become blurry over time.
KAYAK
Kayak is the standard model for metasearch engines.
Metasearch means that the website searches other
websites to populate its listings rather than having them
listed directly. It pulls the listings to the site for perusal
rather than moving to user to the provider’s site like a
traditional search engine. Kayak is an online price
comparison service that allows users to compare different
bookings with prices pulled from many sources. Kayak’s
revenue stream is from advertising, and it is this segment
that has been growing rapidly as of late.1
Booking.com
Booking.com is the most important of Priceline’s property.
It accounts for the bulk of revenues. It is a hotel
accommodation site based in Europe. The European
lodging market is more fractured than the one in the
United States making a service like Booking essential for
consumers to find what they are looking for in
accommodations at the right price.1
Agoda.com
Agoda is similar to Booking.com but focused on the AsiaPacific region. It is based out of Singapore. It operates
primarily on the merchant revenue model, unlike the rest
that are primarily agency revenue.1
RentalCars.com
This site allows users to book rental cars.1 Rental cars can
fall under agency revenues when the website is a simple
facilitator, and also under merchant revenues when the
site is selling opaque inventory. For opaque inventory the
website lists offers based on the general type of car, and
the customer does not know exactly who the provider is
until booking. The car companies are seeking to reduce
their idle capacity and allot specific inventory to sites like
Rentalcars.com. However, margins on these bookings are
very low. These would be classed under merchant
revenues, where the total booking value contributes to
revenue but there are associated costs of goods sold. Total
revenue from car rentals, agency or merchant, are not
substantial, and profits are even smaller. Agency
transactions only contribute the fee to revenue and have
no associated cost of gods sold. RentalCars.com competes
with Expedia’s brand CarRentals.com, which gives an
insight into the type of competition occurring in the online
travel agency industry.
OpenTable
The company was acquired in 2014, and consists of a
website and an app that allows users to find, learn about,
and book table reservations at restaurants in the
OpenTable network.1 Recently the network was expanded
into Europe, which is seen as a key growth market.
Priceline is looking to OpenTable to continue to drive
growth. It is important to note that in 2013, the final fiscal
year before the acquisition, OpenTable made less than
$200 million in revenue with less than $50 million in profit.
Even if OpenTable achieves greater success under
Priceline’s umbrella it will be some time before it comes
close to the huge hotel business. The fee earned at
OpenTable is flat, not dependent on the restaurant or size
of the reservation.
Company Analysis
Priceline’s acquisition of Booking.com in 2005 has been a
major source of its strength. It build its strong cash flows
on the back of that site. Booking was positioned in a very
favorable way to take advantage of the unique nature of
European lodgings, both in the type of lodgings available
as well as the fractured nature of that industry in Europe.6
Booking.com enjoys an estimated 41% of Europe’s €43.9
billion air travel and hotel bookings, though booking.com
only does hotel bookings.14 The industry’s total is reported
as a combination of both hotel and air travel.
That size has given Priceline the financial strength to buy
competition, substitutes, and growth opportunities. Every
growth line was preceded by an acquisition. OpenTable
was a $2.6 billion cash acquisition. Booking.com was an
acquisition as was every other brand.
Page 4
Unlike Expedia, Priceline does not issue a dividend and this
gives its balance sheet some more heft when it decides to
make an acquisition. This is boosted by a business model
that converts around 30% of revenue to free cash.
Expedia is more focused on the United States than
Priceline. The industry is a duopoly, though there is
potential for a new competitor in TripAdvisor. In China,
Ctrip is the largest player, and Priceline has taken a stake
to gain exposure to China.
Key strengths for Priceline boil down to its strong brand
recognition across its properties, strong finances, and a
scalable business. There is no significant increase in costs
associated with increasing transaction volume or revenue.
The weakness is that there is no much differentiation in
the industry, so it is good that there are only two key
players. Booking.com is successful because it was in
Europe early and created a huge catalog of properties. It is
entrenched there, but there is no secret sauce that
prevents someone new from disrupting the industry.
RECENT DEVELOPMENTS
The previous year presented significant obstacles for
Priceline, and the underlying factors that created those
obstacles have yet to subside.
Terrorism
The Paris Attacks had a significant impact on results in
2015.2 Priceline’s focus in Europe also includes a heavy
dependence on Paris as a destination for travelers.2 The
specific revenue impact was not highlighted by Priceline
during their earnings. However, other firms were impacted
by cancellations stemming from the Paris attacks.16 The
Brussels attack is also likely to have a large impact, though
it is too soon to know for sure let alone how much. The city
has not been singled out as a particularly important
destination, but the threat of violence in Europe may hurt
travel. The airport and metro target are also directly
related to travel. Brussel’s is also the headquarters of the
EU, which does not bode well for the security of other
areas. Bookings and revenue will not grow quickly should
safety concerns keep potential travelers at home.
European Migrant Crisis
The migrant crisis that is placing massive pressure on
Europe. Talks of no-go areas and unsafe public spaces,
regardless of veracity, could lead to travelers staying at
home. There have been troubling events associated with
migrants, and equally troubling demonstrations against
those migrants.15 These socio-political risks are unknown
and unquantifiable.
As countries become more paranoid about their borders
the Schengen border free area between the European
states is increasingly at risk of falling apart. Should this
worst case scenario happen, intra-Europe travel will
decline. It not only increases the obstacles and potentially
the cost of traveling to other countries, but also sends a
negative message about the stability and safety of many
countries.
Increasing Stake in Ctrip
Priceline is increasing its investment in Ctrip further. Right
now most of the stake is held as convertible notes shown
on the balance sheet as long-term investments. If the
conversion option is exercised it could give Priceline a 15%
stake in Ctrip.7 China is a fast growing travel market, but it
can be difficult for an outside company to do business in
China. Priceline is using its position in Ctrip to gain
exposure to this market. The long-term plans for this stake
are not entirely clear, as management claims they want to
have a foothold in China. Should the investment
appreciate drastically it remains to be seen if Priceline
would increase the stake, or divest the stake to utilize the
capital or finance its buybacks.
OpenTable Expands to Europe
OpenTable was acquired in 2014 and has only recently
started to expand into Europe. Priceline saw OpenTable as
complementary to their business. Travelers will not know
the local restaurants and would use the app to find places
to eat and book a table. OpenTable revenue has not yet
been broken out separately, but if it drives revenue growth
in significant ways it could develop into a fourth type of
primary product that Priceline derives its revenues from.
2015 Earnings
Priceline’s Q4 earnings beat EPS estimates by $0.83 and
revenue by $40 million. Priceline does not give full year
guidance, but Q1 estimates are from $9.00-9.60 against a
consensus estimate of $9.60. For 1Q2016 revenue is
expected to grow 9%-16%, however this was before the
Brussels attack. It will be important to keep an eye on the
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first quarter results to see the impact the attack will have
on Priceline. Priceline’s shares increased by over 8% after
earnings were released in after market trading.
key markets of Europe and North America have high rates
of internet penetration, over 75% for Europe and over 80%
in North America.8
Consolidation has been a major industry trend over the
past decade, but the context of the industry does not
change with these deals. Orbitz, 3rd largest OTA at the
time, and HomeAway were acquired by Expedia in 2015.
Priceline acquired OpenTable in 2014 and Kayak in 2013.
These are some of the most significant recent acquisitions.
End customers may not even notice. One of the worrying
long-run trends is pressure on the fees the companies earn
on transactions. That decline in margin has been offset by
revenue growth, but may impact future profitability.4
High Room Occupancy Rates
INDUSTRY TRENDS
Changes in Growth Drivers
The initial primary driver in growth in the online travel
agency industry was the switchover from traditional travel
agents to online transactions. This was supported by wider
adoption of the internet. In the future growth will be more
reliant on the growth of the travel industry as a whole,
which is more sensitive to macroeconomic factors.
Currently, about 57% of all travel bookings are made on
the internet according to a study in March 2015.17 A
significant part of the remainder is likely to be through a
travel agent for more complex trip planning. A visit to
relatives over the holidays is quite different from planning
a trip through multiple countries in Europe, and the latter
is where travel agents still play a critical role.
Accommodations make up the bulk of revenues in the
industry, but they also make up a lot of the profits. The
margins on lodgings are higher than air travel or car
rentals. High occupancy rates may put pressure on these
margins as lodging providers seek to boost their own share
of revenues from bookings.9 This could severely
undermine the growth of profits even if revenues continue
to grow. The concentration in the industry between
Priceline and Expedia means that there is greater power to
prevent margin erosion. Neither company is focused on
fighting the other one by sacrificing margin.
Shift to Direct Booking
The online travel agency industry functions as an
intermediary. Recently there has been a push to have
users book directly on the sites of travel providers. This is
done through loyalty programs, direct marketing through
email lists, and additional benefits.10 At the very least this
shift will weigh on revenue growth, but at the worst this
represents an existential issue for the online travel agency
industry. Identifying this specific trend is very difficult.
Priceline does not know if a booking is lost to a supplier.
However, companies such as Travel Tripper seek to
empower hotels bring bookings directly to them, and
companies make more money when they have customers
book directly.18
Low Oil Prices
Internationally there is still potential for increasing
internet penetration to drive growth especially in Asia. The
Low prices represent a tailwind to the industry, especially
if they stabilize at low levels where countries are not
collapsing. Travel volumes increase when oil is cheap, but
Page 6
the precipitous decline created a lot of economic
uncertainty. These ripple through the economy and cause
weakness even in industries removed from oil. The
uncertainty can create deferred vacations, or less vacation
spending. Low oil prices during the holidays did lead to
increased travel. On balance, low oil prices are a boon to
the travel industry including the OTAs, but not if extremely
low oil prices spirals into global economic weakness.
Europe is more efficient when it comes to fossil fuels than
the US, since travel by car is lower. However, airplanes and
some trains still utilize fossil fuels in some way, even if it is
a portion of the electricity generated that powers the
trains. The price of jet fuel has been falling, which could
lead to better travel deals even as fares rise due to
demand.19
MARKETS AND COMPETITION
The online travel agency industry, where the company
collects a fee for being an intermediary, is a very mature
industry with only two main players who compete for
volume of transactions, but avoid compressing margin
further. The offerings among the companies do not differ
substantially, as they offer platforms to reach consumers.
For a site like Booking.com there is no cost to list a
property, because the fee is generated when the rooms
are booked. Advertising may claim cheapest airfares,
which can be true in the narrow opaque market, or the
best selection, but the reality is the companies aim to be
the first site visited to book travel.
Prices are set by the service providers. Competition among
service providers can be intense, like in the airline industry.
OTAs are somewhat insulated from the effects of this
competition, higher costs mean higher fees per
transaction even if volume goes down. Supplier power in
this industry is interesting, because there is not much
incremental power for small changes. However, the
suppliers can pull their listings and block the search
algorithms. Since time is an issue in this industry because
idle capacity is revenue lost that cannot be regained, ever,
reducing exposure to consumers is rare. Softer methods
like loyalty programs are used.
Starting one of these sites is not a difficult or expensive
proposition, but it can be very difficult to unseat known
brands. Also, the standard practice in the industry is to buy
potential competition very early as they gain a strong user
base.
There is a risk of substitutes. To a lesser extent companies
like Airbnb pose a threat, but the greater threat is service
providers who seek to have users book directly. It is much
easier in an accommodation market like the US, which is
dominated by chains, than in Europe with its “fragmented
market.”6 If this trend grows it could become a real
problem for the industry. Google’s flight service also poses
a major risk. It functions much like Kayak, but when it
directs you to book on the airline’s website it gains no
commission. The feature is designed to generate more
searching, which allows Google more chances to place ads
around your results. This feature will remove one of the
three types of travel bookings, air travel, from Priceline
and Expedia, and Google only indirectly benefits.
In the advertising space TripAdvisor (TRIP) is a larger
player. It does not really qualify currently as an online
travel industry. It launched a new feature called Instant
Book, but it partners with Priceline and Expedia to
complete those transactions. TripAdvisor’s revenue is
heavily dependent on hotels, so it competes heavily for
those advertising dollars.
Priceline operates mostly internationally. In 2015, 80% of
its revenues came from overseas.1 In 2014 Expedia had
56% of its revenue came from the US. Expedia is trying to
push internationally, and into hotels.11
100%
US and International Revenue
75%
50%
25%
0%
Priceline
US
Peer Comparisons
International
Expedia
Advertising expense for Expedia and Priceline does not
generate travel demand, but drives customers to their
sites. The companies compete for web clicks as well as
transactions. When Expedia bought Orbitz it became the
Page 7
largest OTA in the US by visits, and is larger by gross
bookings. However, Priceline’s net income outweighs
Expedia’s substantially due to dramatically lower costs.
Revenue
Net Income
Margin
Gross
Bookings
Revenue and Profitability
Priceline
Expedia
TripAdvisor
$9,224
$6,672
$1,492
$2,422
$723
$198
26.26%
10.84%
13.27%
$55,528
$60,830
N/A
Source: PCLN, EXPE, and TRIP 2015 10-Ks
It bears repeating that Priceline has dramatically lower
costs, but revenues also differ. Expedia has created nice
introductory offers to expand rapidly, but there is no
serious competition on margin. The difference lies in the
revenue mix. Expedia’s share of the high margin hotel
market is lower. Unfortunately, they do not breakout the
gross booking numbers this way, but their strategy is
telling.
Expedia’s acquisition of Orbitz closed in early 2015, and
Expedia has already acquired HomeAway a vacation rental
website.13 Expedia is trying to enter the accommodation
space through an avenue that Priceline has not
emphasized. Booking.com for example has vacation rental
properties, but these are not the majority and are also
commercial listings. HomeAway straddles the line
between Booking.com and Airbnb in offering vacation
rentals of commercial and private individuals. The recent
earnings call suggests that HomeAway is seen as a major
source of growth into the future, but it remains to be seen
whether Expedia can assail Booking.com’s dominant
position. Booking.com has started offering vacation
rentals though these are commercial enterprises, and not
private apartments.
Priceline
Expedia
TripAdvisor
Source: FactSet
P/E
26.4
19.0
48.1
Key Statistics
P/S
7.0
2.5
6.13
Priceline, because more revenue ends up on the bottom
line. Return on equity reflects the difference in profitability
as well.
Note that Expedia pays out a dividend that yields almost
1%, currently 0.88 annually.12 Issuing a dividend is likely to
present a serious risk for Priceline’s share price. Not for
any reasons grounded in the operations of Priceline, but
issuing a dividend signals to the market that future growth
is likely to be more limited. Judging by the different P/E
ratios Priceline would not have to fall too far to join the
dividend paying Expedia, though keep in mind that EPS is
affected by share repurchases. In 2015, Priceline had $3
billion in repurchases and another $3 billion has been
approved for 2016.2 Compare that to Expedia’s total of
around $110 million in dividends paid out in 2015.12
Priceline is well positioned going forward. Expedia has far
too many brands under its umbrella. It can make it hard to
allocate resources appropriately, particularly advertising
dollars designed to build brand awareness. Priceline has a
low cost structure, but it pulled back on advertising slightly
to better allocate its resources.2 Hence, the demise of the
Priceline Negotiator® ad campaign.
ECONOMIC OUTLOOK
Travel is an economically sensitive industry. It relies on
employment, wages, and GDP growth. Travel for leisure
makes up the vast majority of travel.
ROE
37.6%
23%
15.61%
Looking at some key statistics we can see that the
companies have different expectations tied to them.
Priceline grows much faster. The price-to-sales ratio shows
the effect of the different cost structures between these
two companies. Each sale unit has more impact with
Page 8
If workers are nervous about job prospects and are
struggling to make ends meet then vacations may not be
taken. Since Priceline is so heavily dependent on Europe,
GDP growth in Europe will be a key metric, and it is
projected at around 1.8% for 2016 by the Economic
Intelligence Unit for all 28 members of the EU. Europe has
yet to get out of the rut it has been in the last few years. A
great deal of united fiscal policy is needed among the EU
member states, but the political will has been lacking. The
migrant crisis presents the bigger problem on the agenda.
Intra-Europe travel is insulated from fluctuations in the
Euro, but weakness in the value of the Euro will lead to less
travel outside the Eurozone. We see the Euro declining to
$1.10 or below over the next two years. This is a
combination of European weakness and the strength of
the US dollar in the future.
China has devalued its currency, and is widely expected to
continue devaluing the currency given current conditions.
This will put negative pressure on outbound China travel
weakening the Asia-Pacific revenue growth, which is key
to continued future group after North America and Europe
plateau. Japan has also seen a long-term decline in the
Yen, with similar effects on travel. Though the current
global worries have led to a significant rally in the Yen,
stoking fear over the Bank of Japan intervening in the
currency. On the other side of these pairs, the dollar could
continue to appreciate leading to currency-adjusted
decline in revenues for Priceline due to its heavy overseas
exposure.
Oil is the other key macroeconomic metric to keep an eye
on. However, drastically high prices seem unlikely in the
near- to mid- term. Even a price of $60/bbl would be
significantly below the prices that existed during
Priceline’s most aggressive growth phase. A price of
$100/bbl or above is not on the horizon at this time. A very
low oil price presents indirect risks due to the potential
unrest in countries, and the certainty of that unrest
spreading globally. An energy-driven global recession
would be better than a recession for another reason, since
low fuel charges will mitigate some damage, but economic
weakness is bad for the travel industry in general.
We remain cautiously positive on the economic outlook
for the US. Europe’s structural problems have yet to be
resolved and this will weigh on GDP growth. Forecasts
appear to be optimistic. We see the EU28 as growing 1.5%
as a best case scenario and below 1% to be more likely.
Asia-Pacific could help pick up the slack as long as
currencies do not decline too drastically. Oil is low enough
that despite lackluster growth travel should be somewhat
insulated. We predict oil will stabilize at $40-$50 for the
next two years.
CATALYSTS FOR GROWTH
Topline growth is dependent on the global economy. Oil
prices have been low long enough that they will not
burgeon volumes further, only help maintain existing
margins. For revenue growth, Priceline must look primarily
to a resurgent Europe and a healthy Asia.
Things in Priceline’s control including keeping costs under
control even as it strives for growth. As it expands
OpenTable, it must make certain that the revenue growth
from OpenTable comes at too high a price. The most
attractive part of Priceline is how much revenue ends up
on the bottom line. Chasing low margin growth will not
maintain that dynamic.
There is still some internet penetration growth, but the
last 10 years saw the lion’s share of that growth. Going
forward it is likely to be far less important that the growth
of the travel market in general.
The growth risk from terrorism in Priceline’s primary
market cannot be understated. It is in the nature of
terrorism that it is unpredictable. In the absence of
terrorism growth continues slowing at the pace it has been
as. Priceline is moving beyond its explosive growth phase.
With terrorism that growth will be reduced even further.
The lack of a terrorist attack over the next two years will
not fuel more growth, but only decline growth less.
INVESTMENT POSITIVES
 Priceline is a very strong generator of cash. It remains a
cost leader in the industry. Even if growth comes off the
highs of recent years Priceline has a very profitable
business model.
 Oil will stabilize at levels lower than it has been at
before 2014. This will support an increase in travel
volume, even if travel volume remains flat on an oiladjusted basis. Oil remains one of the few
macroeconomic positives for the travel industry.
 The recent focus on advertising will help Priceline
persevere in a challenging environment. While the core
business is pressured, advertising offers a low-cost
Page 9
revenue driver. The focused nature of the websites
make the ad space high-value.
 Restaurants a complementary, but wholly different
type of business. OpenTable represents an interesting
opportunity for Priceline to grow outwards instead of
just upwards. Traditional travel packages include air,
car, and lodging. That would be a full or complete travel
package. You do not normally book restaurants with
those packages. So OpenTable represents a very
different type of business, but one that can still be of
benefit to the core customer group of travelers.
INVESTMENT NEGATIVES
 There are a variety of economic and political risks in the
world that could hurt the sensitive travel market. Some
of the crises such as epidemics, terrorism, and unrest
from migration are very specifically threats to the travel
market. Leisure travel depends on stability as much as
economic growth.
 Travel service providers increasingly wish to cut the
OTAs out.10 They have used mostly soft methods such
as loyalty programs and direct marketing to do this.
However, if this were to change it presents a serious
risk. Buying out startups with a website is not a
defensive strategy that can be deployed against service
providers like Delta or Marriot.
 Economic and political woes in Europe, including
migrants and the UK leaving the EU, present a particular
risk to Priceline who derive a significant portion of
revenues from Europe. When a company is that reliant
on such a troubled region a lack of growth may not even
be the worst outcome.
 Growth driven by the internet coming to new people
was easy, and may have colored perceptions about the
growth potential of the industry. Despite high
penetration numbers, the OTAs still make up a small
portion of the overall travel market. Future growth will
be harder relying as it does on economic growth and
competing for click share with service providers.
VALUATION
Revenue Growth
35%
30%
25%
20%
15%
10%
5%
0%
Revenue Growth
2012
2013
2014
2015
The decline in growth for 2015 is driven by many external
factors such as terror attacks and epidemics. It could also
be a natural function of the online travel agency industry
achieving a steady global penetration.
External factors such as terrorism, global crises, and the
global economy remain a significant risk to the company.
Erring on the side of caution, we assume slower growth on
average for the future than may be warranted by prior
years excluding 2015. For 2016 the estimate is 8.42% yearover-year total revenue growth.
Company management attributes stronger revenues in
2016 due to it being a leap year, since one more day in the
year means one more day for hotel bookings, car rentals,
and flying day. It has a material impact on Priceline’s
business, as does an earlier Easter. That must be balanced
against the impact of an attack on the airport and metro in
Brussels the headquarters of the European Union.
Key to Revenues:



Priceline has had very strong total revenue growth over
the past few years, and due to its scalable business model
much of that revenue converts into profit.
Page 10
Agency revenue growth accounts for the growth in YoY
revenue growth, moving to 10.50% in 2016 from
11.67% in 2015.
Advertising revenue moves down to 25%, from 49.5%.
The drop is due to the shift from a new focus to a
continuing line of business. Priceline has only recently
started pushing its advertising business. Seeing a high
growth initially is expected, but these will decline
quickly to more realistic levels.
Merchant revenues which had a -4.72% growth in
2015 is projected to be -3% in 2016. This segment is
becoming a less important part of the overall business,
though it is likely to stabilize and grow at a slower rate
in the future.


Merchant revenues are the only revenues that
account for cost of goods sold, and the forecasted
assumption is that COGS are 82% of forecasted
merchant revenues. 2015 had a higher rate, but 82%
is closer to the historical average.
The growth in agency revenue and advertising revenue
will taper off to settle on 4.5% at the end of our 7 year
forecasting period. Merchant revenues will remain
unchanged after a few more years of decline, though
we do not eliminate this line entirely. With these
growth rates total revenue growth by the end of the
period will be 3.87%.
50.0%
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
Revenue Growth by Segment
Merchant
Sensitivity analysis shows that the target price is very
sensitive to changes in the SG&A expense relative to
revenue. If SG&A expense as a percentage of revenue
declines to 39% the target price increases to $1367, and if
it increases to 47% the target price declines to $1133.
Property, Plant, and Equipment
Priceline’s capital expenditures are limited due to only
requiring office space and office equipment. It leases its
data infrastructure from providers. Its fixed costs are low.
Net Property, Plant, and Equipment as a percentage of
revenue was 2.98% in 2015 and we taper this down to
2.60% by the end of the forecast period. This is due to
Priceline’s scalable business. CapEx does not need to
increase as revenues grows. Net PPE is not a major factor
in our valuation.
Continuing Growth Assumptions
2015 2016 2017 2018 2019 2020 2021 2022
Agency
expenses associated with the network. However, in this
forecast a conservative view is taken that Priceline will
have to maintain SG&A expense in order to fend off
competition. The mix of the expenses in SG&A may
change, but keeping the level the same keeps Priceline’s
profitability stable instead of having it increase.
Advertising
Selling, General, and Administrative Expense
The vast majority of Priceline’s operating expenses are
from SG&A. These are expenses associated with
maintaining the website, customer service, advertising,
and increasing the catalog of offerings. Priceline employs
many people to source accommodations for sites like
Booking.com and connecting with restaurants for
OpenTable. For the forecast SG&A expense is forecasted
at 42% of revenues derived from the 2015 percentage of
42.22%. Management noted in 2015 that advertising
expense had decreased, but the company had added staff
to increase the catalog of rooms and other offerings.2
SG&A expense could be assumed to decline relative to
revenue since Priceline’s business is so scalable. There is
little to no cost associated with an increase in customers.
Priceline is an intermediary with a web portal. A ten times
increase in sales means some more transaction costs for
merchant revenues, and perhaps a slight increase in
Using the McKinsey approach to valuation, net operating
profit less adjusted taxes, NOPLAT, is what feeds into the
discounted cash flow model that is used to derive the
target price. After the forecast period we estimate a
continuing NOPLAT growth amount. We estimate NOPLAT
growth at 3.75% due to the global focus of the company.
Growth will continue slightly under the growth trajectory
of the global economy, due to competition and other risks.
Increasing the percentage by 1% raises the target price to
$1399, and reducing the value to 2.7% sees the target price
decline to $141. A simple logic was used to come up to
3.75%. Real Global GDP growth plus Global Inflation equals
about 4%. Real GDP growth is 2% with real global inflation
around 2%, and we undercut that total value to be slightly
more conservative. These are modified numbers from the
global GDP growth estimate of 2.5% and inflation generally
ranging from 1.5% to 2.5% depending on where in the
business cycle the world is.
The reason that NOPLAT growth is lower is because
Priceline’s business is focused in developed economies
that have experienced languid growth and lower inflation.
Page 11
Consensus
According to FactSet’s aggregation of analyst estimates,
our model’s target price is below the consensus estimate
of $1480.80 if you assume the targets are for one year out
and adjust the DCF price accordingly. Our valuation
model’s sales forecast is below the consensus estimates,
and the divergence increases the further into the forecast.
Our EPS estimates fall below estimates as well, probably
due to our decreasing buyback forecast. As more stock is
bought back the price will make further buybacks a waste
of cash, and the company will either retain this cash, enact
a dividend, reinvest in operations, or make more
acquisitions. The most common target price seems to be
$1510. Most analysts have yet to factor in the impact of
the Brussel’s attack, since most updates happen around
earnings. In our model terrorism and the threat of
terrorism have large effects. Analysts may be more
optimistic.
Alternative Valuations
There were two alternate valuations that we ran, though
we feel the dividend discount model is worth ignoring in
this case. Valuing the stock based on a theoretical dividend
payout does not pass a basic logic test.
Most companies do not payout the maximum that they
could afford to pay due to the downsides associated with
cutting dividends. Expedia, which does pay a dividend,
would not have been able to finance all the acquisitions if
it payed the maximum dividend it could.
Also, the EPS estimate is altered by the forecasted share
repurchases. Priceline has consistently conducted large
buybacks. However, it was not possible to forecast
increases in shares outstanding due to Priceline assuming
employee share option obligations from acquired
companies, which in the past have kept the number of
shares outstanding around 50 million.
Relative valuation can offer some insight. The comparison
companies were Expedia, TripAdvisor, and Ctrip with some
other travel companies using FactSet consensus data for
EPS growth and 5 year growth for those companies. There
are some issues when using these estimates, particularly
those for growth companies such as Ctrip. The 2016 EPS
estimate is negative, and 5-year growth is 48.3%. In the
Chinese market, Ctrip is in the high growth phase that
Priceline was at years ago. The EPS estimate issues with
Priceline highlighted for DDM still apply here.
Implied Value:
Relative P/E (EPS15)
PEG Ratio (EPS15)
PEG Ratio (EPS16)
Data for Estimates: FactSet
$1,171.41
$1,544.80
$1,759.56
$1,702.24
The companies used in the relative valuation have much in
common with Priceline. Including in the appendix is
another relative valuation adding a few other travel
names, but does not provide a convincing scenario. While
they are all travel, their particulars differ drastically.
Priceline is extremely exposed to Europe, and has limited
fixed costs and limited variable cost growth.
The DCF method is the best method to value Priceline’s
stock. The DDM model may have some value with a
company like Expedia to get two points of reference, but
here DCF is the best bet.
KEYS TO MONITOR
Keeping an eye on quarterly data to confirm revenue
growth assumptions will form an important part of
determining whether the story has run its course. If the
first quarter is very strong despite Brussels it may warrant
a reexamination, however we believe that positive impact
will be limited given the declining growth rate. The shift
out of the growth phase can lead to significant decline in
the share price of the company, and we believe we are in
the midst of that shift. This is exacerbated by the inherent
risks associated with the primary market of Europe.
The risk of terror does not abate, and even if it does it will
not be evident until far after the fact. Sentiment can be
tough to change especially when it comes to fears
regarding personal safety. While a reduced risk of
terrorism may change the outlook it would be tough to
identify any specific component to watch to monitor this.
Britain exiting the EU is another risk that may not have a
significant impact on operations except through sentiment
and workers concerned about the impact deferring travel.
It will probably have an effect on the Euro despite Britain
not being in it. The potential trade consequences could
weigh on the currency. Britain not exiting will have little
material impact, since it is a continuation of the status quo.
Page 12
However, it may improve general feelings regarding
Europe’s economic health and political stability.
A stronger European economy would signal strength for
Priceline. This can be through GDP growth or a stronger
Euro. A strong dollar does pose an issue for currency
adjusted returns, but operationally it would have little
impact.
REFERENCES
1. Priceline 2015 10-K Filings – Priceline Investor
Relations - http://ir.pricelinegroup.com/annuals.cfm
(As of December 2015)
2. The Priceline Group Q4 2015 Results - Earnings Call
Transcript: http://seekingalpha.com/article/3902686priceline-group-pcln-darren-richard-huston-q4-2015results-earnings-call-transcript
3. Bidding Online for Better Deals by Michelle Higgins:
http://www.nytimes.com/2009/04/12/travel/12prac
opaque.html
4. Priceline – Trefis – Hotel Revenue – Revenue Margin
earned on Hotel Bookings (other revenue segment
margins available as well):
http://www.trefis.com/stock/pcln/model/trefis?easy
AccessToken=PROVIDER_fa21b4b5458162992de8958
52100a6dadf2cee45
5. Expedia to Acquire Orbitz Worldwide for $12 Per
Share in Cash:
http://press.orbitz.com/phoenix.zhtml?c=251693&p=
irol-newsArticle&ID=2016175
6. Priceline Can Fuel Upside By Making Further Inroads
In Europe:
http://www.forbes.com/sites/greatspeculations/201
3/04/01/priceline-can-fuel-upside-by-making-furtherinroads-in-europe/#17ad62748fe1
7. Ctrip Announces Investment by The Priceline Group
and a Long-Term Equity Investment Firm:
http://ir.ctrip.com/phoenix.zhtml?c=148903&p=irolnewsArticle&id=2121699
8. The Internet Big Picture World Internet Users and
2015 Population Stats:
http://www.internetworldstats.com/stats.htmf
9. Priceline (PCLN) Stock Downgraded at Goldman Sachs
by Amanda Albright:
http://www.thestreet.com/story/13437452/1/priceli
ne-pcln-stock-downgraded-at-goldman-sachs.html
10. Hotels Fight Back Against Sites Like Expedia and
Priceline:
11.
12.
13.
14.
15.
16.
17.
18.
19.
http://www.nytimes.com/2015/09/01/business/hote
ls-direct-booking-online-travel-sites.html
Expedia Inc. Investor Presentation Page 7:
http://ir.expediainc.com/common/download/downlo
ad.cfm?companyid=EXPE&fileid=874409&filekey=767
0D75F-2D43-4B6E-BFE9A8E4B7008D9C&filename=Expedia_Inc_Q4_2015_Inv
estor_Presentation_FINAL.pdf
Expedia Inc. 2015 10-K – Investor Relations:
http://ir.expediainc.com/sec.cfm
Expedia Completes Exchange Offer to HomeAway
Stockholders:
http://www.prnewswire.com/newsreleases/expedia-completes-exchange-offer-tohomeaway-stockholders-and-acquires-homeaway300193036.html
Booking.com in European settlement over hotel prices
by Malcolm Moore– Financial Times – April 21, 2015:
http://www.ft.com/intl/cms/s/0/010e0286-e76d11e4-8e3f-00144feab7de.html#axzz46ERQvMxN
Sexual Attacks Widen Divisions in European Migrant
Crisis by Jim Yardley – New York Times - Jan 13, 2016
http://www.nytimes.com/2016/01/14/world/europe
/a-climate-of-fear-widens-divisions-in-europesmigrant-crisis.html
When Paris Hurts, So Does the Travel Industry by
Scott McCartney – The Wall Street Journal – Dec 16,
2016: http://www.wsj.com/articles/when-parishurts-so-does-the-travel-industry-1450290546
Internet Travel Hotel Booking Statistics – Statistic
Brain – Mar 3, 2015:
http://www.statisticbrain.com/internet-travel-hotelbooking-statistics/
Why Booking Hotels Through Websites like Kayak,
Expedia Isn't Always Smart by Alexandra Talty –
Forbes – Apr 28, 2015:
http://www.forbes.com/sites/alexandratalty/2015/0
4/28/when-booking-hotels-through-websites-likekayak-expedia-isnt-smart/#15e347a74de0
Head-Scratcher Alert: Jet Fuel Prices Are Falling And
Airfares Are Rising by Marilyn Geewax – National
Public Radio – Feb 25, 2016:
http://www.npr.org/sections/thetwoway/2016/02/25/468007557/head-scratcher-alertjet-fuel-is-falling-so-air-fares-are-rising
IMPORTANT DISCLAIMER
Henry Fund reports are created by student enrolled in the
Applied Securities Management (Henry Fund) program at
Page 13
the University of Iowa’s Tippie School of Management.
These reports are intended to provide potential employers
and other interested parties an example of the analytical
skills, investment knowledge, and communication abilities
of Henry Fund students. Henry Fund analysts are not
registered investment advisors, brokers or officially
licensed financial professionals. The investment opinion
contained in this report does not represent an offer or
solicitation to buy or sell any of the aforementioned
securities. Unless otherwise noted, facts and figures
included in this report are from publicly available sources.
This report is not a complete compilation of data, and its
accuracy is not guaranteed. From time to time, the
University of Iowa, its faculty, staff, students, or the Henry
Fund may hold a financial interest in the companies
mentioned in this report.
Page 14
Priceline Group Inc.
Revenue Decomposition
Fiscal Years Ending Dec. 31
Agency Revenues
% of Revenues (Agency)
YoY Growth (Agency)
Merchant Revenues
% of Revenues (Merchant)
YoY Growth (Merchant)
Advertising and Other Revenues
% of Revenues (Advertising)
YoY Growth (Advertising)
Total Revenues
YoY Growth Revenue
2012
3,142.82
59.74%
34.35%
2,104.75
40.01%
5.00%
13.39
0.25%
12%
5,260.96
20.79%
2013
4,410.69
64.93%
40.34%
2,211.47
32.55%
5.07%
171.14
2.52%
1178%
6,793.31
29.13%
2014
5,845.80
69.25%
32.54%
2,186.05
25.90%
-1.15%
410.12
4.86%
140%
8,441.97
24.27%
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
6,527.90
7,213.33
7,934.66
8,648.78
9,340.68
70.77%
72.13%
73.13%
73.73%
74.18%
11.67%
10.50%
10.00%
9.00%
8.00%
2,082.97
2,020.48
1,980.07
1,960.27
1,960.27
22.58%
20.20%
18.25%
16.71%
15.57%
-4.72%
-3.00%
-2.00%
-1.00%
0.00%
613.12
766.40
935.01
1,122.01
1,290.31
6.65%
7.66%
8.62%
9.56%
10.25%
49%
25.00%
22.00%
20.00%
15.00%
9,223.99 10,000.21 10,849.74 11,731.06 12,591.27
9.26%
8.42%
8.50%
8.12%
7.33%
9,994.53
74.73%
7.00%
1,960.27
14.66%
0.00%
1,419.34
10.61%
10.00%
13,374.15
6.22%
10,494.26
75.18%
5.00%
1,960.27
14.04%
0.00%
1,504.50
10.78%
6.00%
13,959.03
4.37%
10,966.50
75.64%
4.50%
1,960.27
13.52%
0.00%
1,572.21
10.84%
4.50%
14,498.98
3.87%
International Gross Bookings
Total Rev as a % of Gross
% of Gross Bookings
International Gross Bkings Growth
Domestic Gross Bookings
Total Rev as a % of Gross
% of Gross Bookings
Domestic Gross Bkings Growth
23,370.00 33,300.00 43,639.00 48,971.00 54,479.48 58,662.17 62,947.05 67,240.68
22.45%
19.89%
18.41%
17.58%
16.95%
16.90%
16.85%
16.81%
82.13%
85.01%
86.76%
88.19%
88.50%
88.75%
89.00%
89.25%
38.21%
42.49%
31.05%
12.22%
11.25%
7.68%
7.30%
6.82%
5,086.00
5,873.00
6,661.00
6,557.00
7,079.25
7,436.05
7,779.97
8,099.02
103.18%
112.76%
120.58%
131.32%
130.43%
133.33%
136.36%
139.53%
17.87%
14.99%
13.24%
11.81%
11.50%
11.25%
11.00%
10.75%
7.12%
15.47%
13.42%
-1.56%
7.96%
5.04%
4.63%
4.10%
71,330.33
16.76%
89.50%
6.08%
8,368.36
142.86%
10.50%
3.33%
74,519.60
16.71%
89.75%
4.47%
8,510.60
146.34%
10.25%
1.70%
77,560.63
16.67%
90.00%
4.08%
8,617.85
150.00%
10.00%
1.26%
Total Gross Bookings
Total Rev as a % of Agency+Merch
Total Gross Bookings % Growth
28,456.00 39,173.00 50,300.00 55,528.00 61,558.74 66,098.22 70,727.02 75,339.70
18.44%
16.90%
15.97%
15.51%
15.00%
15.00%
15.00%
15.00%
31.39%
37.66%
28.40%
10.39%
10.86%
7.37%
7.00%
6.52%
79,698.69
15.00%
5.79%
83,030.20
15.00%
4.18%
86,178.48
15.00%
3.79%
Income Statement
Sales
COGS excluding D&A
Depreciation
Amortization of Intangibles
2013
6,793.31
1,755.61
48.37
69.61
2014
2015
8,441.97
9,223.99
78.24
101.52
1,808.03
129.58
1,798.41
170.98
2016E
10,000.21
1,656.79
140.14
158.73
2017E
10,849.74
1,623.66
142.80
168.43
2018E
11,731.06
1,607.42
149.40
174.80
2019E
12,591.26
1,607.42
158.55
180.41
2020E
13,374.14
1,607.42
166.96
184.41
2021E
13,959.03
1,607.42
177.34
195.88
2022E
14,498.97
1,607.42
185.10
204.45
Gross Income
4,919.72
6,426.12
7,153.09
8,044.54
8,914.84
9,799.44
10,644.89
11,415.34
11,978.38
12,502.01
EBIT (Operating Income)
2,441.41
3,073.31
3,258.91
3,744.45
4,249.45
4,755.08
5,230.65
5,664.46
5,976.00
6,267.45
SG&A Expense
Nonoperating Interest Income
Other Income (Expense)
Interest Expense
Unusual Expense - Net
Pretax Income
Income Taxes
Equity in Earnings of Affiliates
Consolidated Net Income
2,478.31
4.17
(10.06)
3,352.81
13.93
(3.17)
3,894.18
55.73
(26.09)
4,300.09
20.72
0.00
4,665.39
21.12
0.00
5,044.36
21.52
0.00
5,414.24
21.93
0.00
5,750.88
22.35
0.00
6,002.38
22.77
0.00
6,234.56
23.20
0.00
83.29
87.85
160.23
253.84
261.25
306.75
274.74
317.70
325.40
296.54
2,296.54
2,989.45
3,128.32
3,511.33
4,009.32
4,469.85
4,977.83
5,369.11
5,673.37
5,994.12
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
55.70
403.74
6.77
567.70
0.00
576.96
0.00
647.60
0.00
739.44
0.00
824.38
0.00
918.07
0.00
990.23
0.00
1,046.35
0.00
1,105.50
1,892.80
2,421.75
2,551.36
2,863.73
3,269.88
3,645.47
4,059.76
4,378.88
4,627.03
4,888.61
Net Income
1,892.66
2,421.75
2,551.36
2,863.73
3,269.88
3,645.47
4,059.76
4,378.88
4,627.03
4,888.61
Net Income available to Common
1,892.66
2,421.75
2,551.36
2,863.73
3,269.88
3,645.47
4,059.76
4,378.88
4,627.03
4,888.61
36.85
45.76
49.45
60.07
69.12
78.92
90.02
99.27
107.06
116.35
Minority Interest
Preferred Dividends
EPS (recurring)
Total Shares Outstanding
0.14
0.00
52.01
0.00
0.00
51.93
0.00
0.00
49.61
0.00
0.00
47.67
0.00
0.00
47.31
0.00
0.00
46.19
0.00
0.00
45.10
0.00
0.00
44.11
0.00
0.00
43.22
0.00
0.00
42.02
Balance Sheet
Assets
Cash Only
Total Short Term Investments
Short-Term Receivables
Other Current Assets
Total Current Assets
Net Property, Plant & Equipment
Total Investments and Advances
Net Goodwill
Net Other Intangibles
Deferred Tax Assets
Other Assets
Total Assets
Liabilities & Shareholders' Equity
ST Debt & Curr. Portion LT Debt
2013
2014
2015
1,300.47
3,149.49
1,478.07
535.96
643.89
645.17
5,462.72
181.79
7,480.94
135.05
-
1,767.91
1,019.99
7.06
33.51
10,444.46
151.93
1,142.18
331.80
5,267.37
198.95
1,171.25
258.75
3,553.24
274.79
3,768.02
7,993.66
2,334.76
2,167.53
3,326.47
8.55
36.43
14,940.56
37.20
3,375.00
21.10
35.26
17,420.58
-
Accounts Payable
247.35
281.48
322.84
Other Current Liabilities
982.43
1,060.12
1,116.47
Income Tax Payable
Total Current Liabilities
Long-Term Debt
Deferred Tax Liabilities
Other Liabilities
Total Liabilities
Common Stock and Additional Paid-In Capital
Retained Earnings
Cumulative Translation Adjustment/Unrealized For. Exch. Gain
Unrealized Gain/Loss Marketable Securities
Other Appropriated Reserves
Treasury Stock
0.04
1,381.75
1,750.58
1.20
-
1,379.99
1,439.31
3,850.09
6,158.44
326.43
1,040.26
3,534.73
6,373.87
8,625.11
4,593.46
4,923.68
5,185.39
75.98
4,218.75
84.60
0.13
-
(1,987.21)
103.53
6,640.51
(102.76)
(157.14)
-
(2,737.59)
892.58
134.78
9,191.87
(217.26)
462.12
-
(5,826.64)
Total Shareholders' Equity
6,909.73
8,566.69
8,795.47
Total Equity
6,909.73
8,566.69
8,795.47
Accumulated Minority Interest
Total Liabilities & Shareholders' Equity
-
10,444.46
-
14,940.56
-
17,420.58
2016E
2017E
1,780.94
1,193.50
700.01
300.01
3,974.46
5,291.74
1,216.18
759.48
325.49
7,592.89
2018E
2019E
2020E
2021E
2022E
6,101.76
9,062.26 11,376.01 13,083.04 14,930.57
1,239.28
1,262.83
1,286.82
1,311.27
1,336.19
821.17
881.39
936.19
977.13
1,014.93
351.93
377.74
401.22
418.77
434.97
8,514.15 11,584.22 14,000.25 15,790.22 17,716.65
280.01
292.94
310.87
327.37
347.73
362.93
376.97
8,861.45
9,092.73
9,330.05
8,202.30
8,416.38 8,636.05
9,573.56
3,375.00
3,375.00
3,375.00
3,375.00
3,375.00
3,375.00
3,375.00
2,518.25
2,674.83
2,791.81
2,300.05
2,386.94 2,463.52
2,899.79
12.06
9.04
6.03
3.01
18.09
15.07
38.22
41.47
44.84
48.13
51.12
53.35
55.42
18,188.12 22,120.69 23,356.49 26,723.46 29,547.68 31,706.38 33,997.40
350.01
1,200.02
1,550.03
941.07
379.74
1,301.97
2,622.78
410.59
1,407.73
1,818.31
885.10
440.69
1,510.95
2,836.75
874.74
468.09
1,604.90
2,947.73
488.57
1,675.08
2,163.65
507.46
1,739.88
2,247.34
6,338.09
765.07
120.00
8,773.19
6,501.03
637.55
130.20
9,891.56
6,665.50
510.04
140.77
9,134.63
6,822.52
382.53
151.10
10,192.90
7,019.72
255.02
160.49
10,382.96
7,194.19
127.51
167.51
9,652.86
7,365.52
173.99
9,786.85
5,492.96
12,055.60
-
5,800.54
15,325.48
-
5,905.01
18,970.95
-
5,905.01
23,030.71
-
5,905.01
27,409.59
-
5,905.01
32,036.61
-
5,905.01
36,925.23
-
693.00
929.76
1,172.53
1,421.48
1,676.76
1,938.53
2,206.96
(8,826.64) (9,826.64) (11,826.64) (13,826.64) (15,826.64) (17,826.64) (20,826.64)
9,414.93 12,229.13 14,221.86 16,530.57 19,164.72 22,053.52 24,210.56
-
9,414.93
18,188.12
-
12,229.13
22,120.69
-
14,221.86
23,356.49
-
16,530.57
26,723.46
-
19,164.72
29,547.68
-
22,053.52
31,706.38
-
24,210.56
33,997.40
Forecasted Cash Flow Statement
Net Income / Starting Line
Depreciation
Amortization of Intangible Assets
Deferred Taxes & Investment Tax Credit
Receivables
Accounts Payable
Other Assets/Liabilities
Net Operating Cash Flow
Investing Activities
Capital Expenditures
Net Assets from Acquisitions
Purchase/Sale of Investments*
Net Intangibles
Other Sources
Net Investing Cash Flow
Financing Activities
2013
2017E
2018E
2019E
2020E
2021E
2,551.36
2,863.73
3,269.88
3,645.47
4,059.76
4,378.88
4,627.03
69.61
129.58
170.98
158.73
168.43
174.80
180.41
184.41
195.88
48.37
(11.10)
248.83
(111.57)
182.16
(17.65)
2,301.44
(84.45)
78.24
31.71
(131.50)
(84.65)
(85.31)
3.27
(174.83)
350.29
158.55
166.96
177.34
185.10
204.45
(124.50)
(124.50)
(124.50)
(124.50)
(124.50)
(68.69)
(54.85)
(59.47)
(61.69)
(60.21)
(54.80)
(40.94)
(37.80)
(105.52)
3,102.23
(173.92)
(140.34)
(3,585.45)
(41.26)
27.17
83.56
3,052.73
(145.36)
0.00
0.00
(25.49)
29.73
101.94
3,503.35
(155.74)
0.00
0.00
(26.44)
30.85
105.76
3,893.64
(167.33)
0.00
0.00
(25.81)
30.11
103.22
4,321.53
(175.05)
0.00
0.00
(23.49)
27.40
93.95
4,648.81
(187.31)
0.00
0.00
(17.55)
20.47
70.19
4,907.92
(192.55)
0.00
0.00
(16.20)
18.90
64.79
5,183.36
(199.14)
0.00
0.00
(448.64)
(291.25)
(255.33)
(251.38)
(235.14)
(340.99)
(312.86)
(312.44)
(2,348.54)
(3,894.53)
(454.35)
(404.12)
(411.50)
(403.15)
(521.90)
(500.62)
(507.16)
(733.99)
(3,068.20)
(2,692.43)
(692.43)
(1,895.52)
(2,000.00)
(2,000.00)
(2,000.00)
(3,000.00)
411.57
(2,672.12)
(957.88)
(1,813.16)
(2,700.26)
(2,828.68)
14.35
564.41
2,139.62
(403.51)
1,428.99
17.99
149.40
(124.50)
166.20
(47.06)
142.80
4,888.61
(124.50)
203.87
2,914.40
140.14
2022E
(61.34)
347.73
(2,496.37)
(2,162.27)
101.52
278.51
(182.21)
(331.92)
(1,664.52)
Other Funds
Exchange Rate Effect
2016E
2,421.75
(793.10)
Net Financing Cash Flow
2015
1,892.80
Change in Capital Stock (Repurchases & ESOP)
Change in Total Debt
2014
23.37
(136.19)
453.82
2,247.40
90.81
(730.00)
(17.74)
179.65
(2,512.78)
6.95
1,104.00
7.21
(776.60)
7.03
1,042.12
6.40
186.84
4.78
(700.26)
4.42
171.32
(149.10)
217.26
0.00
0.00
0.00
0.00
0.00
0.00
Net Change in Cash
(246.36)
1,858.66
(1,671.40)
302.87
3,510.80
810.02
2,960.50
2,313.75
1,707.03
1,847.53
Cash Beg. Year
Change in BS Cash
Cash End. Year
1,542.99
1,300.47
3,149.49
1,478.07
1,780.94
5,291.74
6,101.76
9,062.26
11,376.01
13,083.04
1,478.07
1,780.94
5,291.74
6,101.76
11,376.01
13,083.04
14,930.57
(242.52)
1,300.47
1,849.02
3,149.49
(1,671.42)
302.87
3,510.80
810.02
2,960.50
9,062.26
2,313.75
1,707.03
1,847.53
Historical Cash Flow Statement
2009
2010
2011
2012
2013
2014
2015
Net Income / Starting Line
489.47
528.14
1,059.13
1,424.04
1,892.80
2,421.75
2,551.36
Depreciation and Depletion
14.49
16.21
20.65
32.82
48.37
78.24
101.52
Deferred Taxes & Investment Tax Credit
30.99
37.54
Depreciation, Depletion & Amortization
Amortization of Intangible Assets
Other Funds
Funds from Operations
Changes in Working Capital
Receivables
Accounts Payable
Other Assets/Liabilities
Net Operating Cash Flow
Investing Activities
Capital Expenditures
Net Assets from Acquisitions
39.19
24.70
32.32
(117.66)
110.27
99.33
133.16
67.67
50.88
442.00
(29.28)
3.65
(4.60)
86.79
509.67
(15.11)
(1.50)
441.11
Other Sources
Net Investing Cash Flow
Financing Activities
Change in Capital Stock
Repurchase of Common & Preferred Stk.
Sale of Common & Preferred Stock
Proceeds from Sale of Stock
Proceeds from Stock Options
726.42
(22.77)
Sale/Maturity of Investments
Other Uses
65.14
33.18
(481.06)
Other Funds
53.82
34.26
Purchase/Sale of Investments
Purchase of Investments
50.46
922.16
(3.80)
(5.03)
1.23
(501.46)
84.75
777.30
(22.59)
(112.41)
(741.36)
1,813.03
1,071.67
35.26
(9.56)
44.82
44.75
1,257.03
84.78
(125.79)
210.33
0.25
1,341.81
19.60
1,641.94
143.82
117.98
69.61
129.58
248.83
278.51
(11.10)
2,248.50
52.94
(6.93)
(17.65)
(47.06)
256.02
1,785.75
182.16
2,301.44
(1,553.08)
(1,664.52)
4,799.41
8,291.28
(13.91)
(44.95)
31.05
(33.86)
6,352.50
79.39
(6.77)
86.16
(84.45)
(331.92)
9,955.80
(81.39)
(84.65)
3.27
(841.10)
(904.77)
(1,562.71)
(2,162.27)
26.01
(103.69)
(158.87)
(254.34)
(793.10)
43.43
25.75
(17.42)
0.00
43.43
(129.45)
0.00
25.75
(163.17)
4.30
0.00
4.30
(25.40)
(182.21)
(775.83)
2,229.56
2,939.79
(111.57)
(55.16)
3,005.40
31.71
(105.28)
(46.83)
(68.19)
207.82
(257.02)
2.68
0.00
2.68
(883.52)
90.42
(1.19)
91.61
272.49
170.98
(61.34)
347.73
3,110.24
(8.01)
(68.69)
203.87
166.20
2,914.40
3,102.23
(131.50)
(2,496.37)
350.29
10,552.21
10,902.50
(70.96)
(105.52)
(173.92)
(140.34)
(3,585.45)
8,669.69
5,084.24
5.18
(85.31)
(448.64)
(2,348.54)
(3,894.53)
14.35
(733.99)
(750.38)
16.39
0.00
16.39
453.82
(3,068.20)
(3,089.06)
20.85
0.00
20.85
Issuance/Reduction of Debt, Net
(197.12)
266.27
(0.21)
979.08
564.41
2,139.62
2,247.40
Change in Long-Term Debt
(197.12)
266.27
(0.21)
979.08
564.41
2,139.62
2,247.40
Reduction in Long-Term Debt
(197.12)
(295.40)
(0.21)
Change in Current Debt
Issuance of Long-Term Debt
Other Funds
Other Uses
Other Sources
Net Financing Cash Flow
Exchange Rate Effect
Miscellaneous Funds
Net Change in Cash
Cash Beg. Year
Cash End. Year
0.00
0.00
2.15
0.00
0.00
561.67
50.39
0.00
0.00
8.06
0.00
979.08
(0.00)
(55.89)
978.98
(414.57)
(174.83)
0.00
(12.99)
(168.96)
212.96
(151.03)
668.86
(1.65)
7.67
(12.15)
11.62
17.99
(162.41)
156.83
273.87
903.51
(246.36)
367.08
203.46
360.02
2.15
(0.00)
203.46
50.39
0.00
360.02
21.04
0.00
636.61
(61.08)
0.00
5.19
(0.00)
636.61
1,542.99
(192.53)
17.71
(403.51)
0.00
1,542.99
1,300.47
0.00
2,264.75
(125.14)
23.37
0.00
23.37
1,428.99
(136.19)
(0.00)
1,858.66
1,300.47
3,149.49
0.00
2,620.03
(372.63)
90.81
(10.70)
101.51
(730.00)
(149.10)
(0.00)
(1,671.40)
3,149.49
1,478.07
Common Size Income Statement
Sales
COGS excluding D&A
Depreciation
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
0.71%
0.93%
1.10%
1.40%
1.32%
1.27%
1.26%
1.25%
1.27%
1.28%
25.84%
1.02%
21.42%
1.53%
19.50%
1.85%
16.57%
1.59%
14.96%
1.55%
13.70%
1.49%
12.77%
1.43%
12.02%
1.38%
11.52%
1.40%
11.09%
1.41%
Gross Income
72.42%
76.12%
77.55%
80.44%
82.17%
83.53%
84.54%
85.35%
85.81%
86.23%
EBIT (Operating Income)
35.94%
36.41%
35.33%
37.44%
39.17%
40.53%
41.54%
42.35%
42.81%
43.23%
-0.15%
-0.04%
-0.28%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
SG&A Expense
Nonoperating Interest Income
Other Income (Expense)
Interest Expense
Unusual Expense - Net
Pretax Income
Income Taxes
Equity in Earnings of Affiliates
Consolidated Net Income
Minority Interest
Net Income
Preferred Dividends
Net Income available to Common
36.48%
0.06%
1.23%
0.82%
33.81%
5.94%
0.00%
39.72%
0.17%
1.04%
0.08%
35.41%
6.72%
0.00%
42.22%
0.60%
43.00%
0.21%
43.00%
0.19%
43.00%
0.18%
43.00%
0.17%
43.00%
0.17%
43.00%
0.16%
43.00%
0.16%
1.74%
2.54%
2.41%
2.61%
2.18%
2.38%
2.33%
2.05%
33.92%
35.11%
36.95%
38.10%
39.53%
40.15%
40.64%
41.34%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
6.25%
0.00%
6.48%
6.82%
7.03%
7.29%
7.40%
7.50%
7.62%
27.66%
28.64%
30.14%
31.08%
32.24%
32.74%
33.15%
33.72%
27.86%
28.69%
27.66%
28.64%
30.14%
31.08%
32.24%
32.74%
33.15%
33.72%
0.00%
0.00%
0.00%
0.00%
0.00%
33.15%
0.00%
28.69%
0.00%
32.74%
0.00%
27.86%
0.00%
32.24%
0.00%
27.66%
0.00%
31.08%
0.00%
28.69%
0.00%
30.14%
0.00%
27.86%
0.00%
28.64%
0.00%
0.00%
33.72%
0.00%
0.00%
Common Size Balance Sheet
Assets
Cash Only
Total Short Term Investments
Total Current Assets
Net Property, Plant & Equipment
Total Investments and Advances
Net Goodwill
Deferred Tax Assets
Other Assets
Total Assets
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
19.14%
37.31%
16.02%
17.81%
48.77%
52.01%
71.97%
85.06%
93.72%
102.98%
7.89%
7.63%
6.99%
7.00%
7.00%
7.00%
7.00%
7.00%
7.00%
7.00%
80.41%
2.68%
110.12%
1.99%
0.00%
13.53%
3.93%
62.40%
2.36%
44.63%
12.70%
2.81%
38.52%
2.98%
86.66%
11.93%
3.00%
39.74%
2.80%
82.02%
11.21%
3.00%
69.98%
2.70%
77.57%
10.56%
3.00%
72.58%
2.65%
73.62%
10.03%
3.00%
92.00%
2.60%
70.38%
9.62%
3.00%
104.68%
2.60%
67.99%
9.39%
3.00%
113.12%
2.60%
66.84%
26.02%
39.40%
36.59%
33.75%
31.11%
28.77%
26.80%
25.24%
24.18%
0.10%
0.10%
0.23%
0.18%
0.14%
0.10%
0.07%
0.05%
0.02%
15.01%
0.49%
27.66%
0.43%
23.50%
0.38%
23.00%
0.38%
22.00%
0.38%
21.00%
0.38%
20.00%
0.38%
20.00%
0.38%
20.00%
0.38%
9.22%
3.00%
122.19%
2.60%
66.03%
23.28%
20.00%
0.00%
0.38%
153.75%
176.98%
188.86%
181.88%
203.88%
199.10%
212.24%
220.93%
227.14%
234.48%
Liabilities & Shareholders' Equity
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Accounts Payable
3.64%
3.33%
3.50%
3.50%
3.50%
3.50%
3.50%
3.50%
3.50%
3.50%
12.56%
12.10%
12.00%
12.00%
12.00%
12.00%
12.00%
12.00%
12.00%
ST Debt & Curr. Portion LT Debt
Income Tax Payable
Other Current Liabilities
Total Current Liabilities
2.24%
0.00%
14.46%
0.44%
0.01%
0.00%
0.00%
0.00%
0.00%
8.67%
0.00%
0.00%
0.00%
7.03%
0.00%
6.54%
0.00%
0.00%
0.00%
0.00%
0.00%
20.34%
16.35%
15.60%
15.50%
24.17%
15.50%
22.53%
22.04%
15.50%
15.50%
Long-Term Debt
25.77%
45.61%
66.77%
63.38%
59.92%
56.82%
54.18%
52.49%
51.54%
50.80%
Other Liabilities
1.12%
1.23%
1.46%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
1.20%
Deferred Tax Liabilities
Total Liabilities
Common Stock and Additional Paid-In Capital
Retained Earnings
Cumulative Translation Adjustment/Unrealized For. Exch. Gain
Unrealized Gain/Loss Marketable Securities
Other Appropriated Reserves
Treasury Stock
0.00%
4.81%
52.03%
67.62%
0.00%
12.32%
75.50%
58.32%
93.51%
56.22%
7.65%
87.73%
54.93%
0.00%
5.88%
91.17%
53.46%
0.00%
4.35%
77.87%
50.34%
0.00%
3.04%
80.95%
46.90%
0.00%
1.91%
77.63%
44.15%
0.00%
0.91%
69.15%
42.30%
0.00%
0.00%
67.50%
40.73%
78.66%
99.65%
120.55%
141.25%
161.72%
182.91%
204.94%
229.50%
254.67%
0.00%
-1.86%
5.01%
6.93%
8.57%
10.00%
11.29%
12.54%
13.89%
15.22%
-29.25%
-32.43%
-63.17%
-88.26%
-90.57%
-100.81%
-109.81%
-118.34%
-127.71%
-143.64%
0.00%
0.00%
0.00%
1.25%
0.00%
-1.22%
0.00%
101.71%
101.48%
Total Equity
101.71%
101.48%
Total Liabilities & Shareholders' Equity
9.68%
0.00%
62.10%
Total Shareholders' Equity
Accumulated Minority Interest
0.00%
0.00%
153.75%
176.98%
-2.36%
0.00%
95.35%
95.35%
188.86%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
94.15%
112.71%
121.23%
131.29%
143.30%
157.99%
166.98%
94.15%
112.71%
121.23%
131.29%
143.30%
157.99%
166.98%
181.88%
0.00%
203.88%
0.00%
199.10%
0.00%
212.24%
0.00%
220.93%
0.00%
227.14%
0.00%
234.48%
Value Driver Estimation
Sales
COGS excluding D&A
Depreciation
SG&A
PV of Interest on Op Leases
EBITA
Total Income Tax Provision (inc. tax)
Tax Rate = Pre Tax/Total Inc. Provision.
Plus Tax Shield on Interest Expense
Plus Tax on Lease Interest
Plus Tax Shield on Amortized Goodwill
Minus Tax on Non-Operating Income (Plus
in this formula)
Plus Tax Shield on Unusual Expense
Less Adjusted Taxes
Plus Change in Deferred Taxes
Equals NOPLAT
NOPLAT Growth %
Normal Cash (2% * Sales)
Operating Current Assets
Accounts Payable
Income Tax Payable
Non Interest-Bearing Current Liabilities
Net Operating Working Capital
Plus Net PPE
Present Value of Operating Leases
Plus Net Other Operating Assets
Less other Oper. Curr. Liab. (BS line item)
Invested Capital
WACC
NOPLAT
Beg Invested Capital
End Invested Capital
ROIC (NOPLAT/Beg IC)
FCF (NOPLAT - Change in IC)
EP (Beg IC * (ROIC-WACC))
2013
6,793.31
1,755.61
48.37
69.61
2,478.31
57.79
2,499.21
2014
8,441.97
1,808.03
78.24
129.58
3,352.81
73.60
3,146.91
2015
9,223.99
1,798.41
101.52
170.98
3,894.18
71.73
3,330.63
2016E
10,000.21
1,656.79
140.14
158.73
4,300.09
73.74
3,818.19
2017E
10,849.74
1,623.66
142.80
168.43
4,665.39
75.73
4,325.18
2018E
11,731.06
1,607.42
149.40
174.80
5,044.36
77.73
4,832.82
2019E
12,591.26
1,607.42
158.55
180.41
5,414.24
79.75
5,310.40
2020E
13,374.14
1,607.42
166.96
184.41
5,750.88
81.83
5,746.29
2021E
13,959.03
1,607.42
177.34
195.88
6,002.38
83.96
6,059.96
2022E
14,498.97
1,607.42
185.10
204.45
6,234.56
86.14
6,353.59
403.74
17.58%
14.64
10.16
-
567.70
18.99%
16.68
13.98
-
576.96
18.44%
29.55
13.23
-
647.60
18.44%
46.82
13.60
-
739.44
18.44%
48.18
13.97
-
824.38
18.44%
56.58
14.34
-
918.07
18.44%
50.67
14.71
-
990.23
18.44%
58.59
15.09
-
1,046.35
18.44%
60.01
15.48
-
1,105.50
18.44%
54.69
15.89
-
9.79
437.30
305.70
2,367.60
1.29
601.68
712.34
3,257.57
37.59%
625.21
(160.24)
2,545.19
-21.87%
711.84
(124.50)
2,981.85
17.16%
805.49
(124.50)
3,395.20
13.86%
899.26
(124.50)
3,809.06
12.19%
987.49
(124.50)
4,198.41
10.22%
1,068.04
(124.50)
4,553.76
8.46%
1,126.04
(124.50)
4,809.42
5.61%
1,180.36
(124.50)
5,048.73
4.98%
135.87
535.96
181.79
853.62
247.35
0.04
247.38
606.23
135.05
262.23
1,019.99
1,282.22
982.43
1,041.07
168.84
643.89
331.80
1,144.54
281.48
1.20
282.68
861.86
198.95
363.79
2,334.76
2,698.55
1,060.12
2,699.24
184.48
645.17
258.75
1,088.40
322.84
322.84
765.56
274.79
393.80
2,167.53
2,561.33
1,116.47
2,485.21
200.00
700.01
300.01
1,200.02
350.01
350.01
850.02
280.01
404.83
2,300.05
2,704.88
1,200.02
2,634.87
216.99
759.48
325.49
1,301.97
379.74
379.74
922.23
292.94
415.76
2,386.94
2,802.70
1,301.97
2,715.90
234.62
821.17
351.93
1,407.73
410.59
410.59
997.14
310.87
426.78
2,463.52
2,890.30
1,407.73
2,790.58
251.83
881.39
377.74
1,510.95
440.69
440.69
1,070.26
327.37
437.87
2,518.25
2,956.12
1,510.95
2,842.80
267.48
936.19
401.22
1,604.90
468.09
468.09
1,136.80
347.73
449.26
2,674.83
3,124.08
1,604.90
3,003.72
279.18
977.13
418.77
1,675.08
488.57
488.57
1,186.52
362.93
460.94
2,791.81
3,252.74
1,675.08
3,127.11
289.98
1,014.93
434.97
1,739.88
507.46
507.46
1,232.41
376.97
472.92
2,899.79
3,372.72
1,739.88
3,242.22
15.38%
15.38%
10.32%
10.32%
10.32%
10.32%
10.32%
10.32%
10.32%
10.32%
2,367.60
132.21
1,041.07
1791%
1,458.74
2,347.27
3,257.57
1,041.07
2,699.24
313%
1,599.40
3,097.45
2,545.19
2,699.24
2,485.21
94%
2,759.22
2,266.69
2,981.85
2,485.21
2,634.87
120%
2,832.19
2,725.44
3,395.20
2,634.87
2,715.90
129%
3,314.17
3,123.34
3,809.06
2,715.90
2,790.58
140%
3,734.38
3,528.84
4,198.41
2,790.58
2,842.80
150%
4,146.19
3,910.49
4,553.76
2,842.80
3,003.72
160%
4,392.84
4,260.45
4,809.42
3,003.72
3,127.11
160%
4,686.02
4,499.50
5,048.73
3,127.11
3,242.22
161%
4,933.62
4,726.09
(1.04)
2.04
5.47
3.82
3.89
3.97
4.04
4.12
4.20
4.28
Weighted Average Cost of Capital (WACC) Estimation
2015
2.61%
5.00%
1.683
11.03%
4.90%
N/A
18.44%
Risk Free Rate (30yr T-Bond as of 3/31/16)
Market Risk Premium (Henry Fund Team Choice)
Beta (Bloomberg)
Cost of Equity (Risk Free + (Beta * Mkt Risk)
Cost of Debt (From the longest maturity USD Bond)
Cost of Preferred Shares
Marginal Tax Rate (Effective)
Total Shares Outstanding
Price
Mkt Value of Equity ( E )
FMV of Debt
Operating Leases (PV)
Mkt Value of Debt ( D )
Mkt Value of Preferred (Pfd)
49.61
$ 1,331.90
$ 66,077.65
$
7,000
$
393.80
$
7,394
$
-
Mkt Value of Firm (E+D+PfD) (V)
$ 73,471.45
Equity Portion of WACC (Cost of Equity * E/V)
Debt Portion of WACC (cost of Debt* (1-t) * D/V)
Preferred Portion of WACC (Cost of Preferred * Pfd/V)
WACC
$
9.92%
0.40%
10.32%
Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models
Key Inputs:
CV NOPLAT Growth
CV ROIC
WACC
Cost of Equity
DCF Model
NOPLAT
Beg IC
End IC
ROIC
DCF CV (NOPLAT*(1- g/ROIC)/(WACC-g))
FCF (NOPLAT - Change in IC)
PV of FCF
3.75%
162%
10.32%
11.03%
Beg IC 2016
Shares Outstanding
2,485.21
49.61
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2,981.85
2,485.21
2,634.87
120%
3,395.20
2,634.87
2,715.90
129%
3,809.06
2,715.90
2,790.58
140%
4,198.41
2,790.58
2,842.80
150%
4,553.76
2,842.80
3,003.72
160%
4,809.42
3,003.72
3,127.11
160%
2,832.19
2,567.30
3,314.17
2,723.23
3,734.38
2,781.52
4,146.19
2,799.43
4,392.84
2,688.56
4,686.02
2,599.76
5,048.73
3,127.11
3,242.22
161%
75,088.04
75,088.04
41,658.15
2,981.85
2,485.21
2,634.87
120%
3,395.20
2,634.87
2,715.90
129%
3,809.06
2,715.90
2,790.58
140%
4,198.41
2,790.58
2,842.80
150%
4,553.76
2,842.80
3,003.72
160%
4,809.42
3,003.72
3,127.11
160%
2,725.44
2,470.54
3,123.34
2,566.43
3,528.84
2,628.43
3,910.49
2,640.28
4,260.45
2,607.53
4,499.50
2,496.28
5,048.73
3,127.11
3,242.22
161%
71,960.93
71,960.93
39,923.26
2
3
4
5
6
6
V of Oper (Sum of PV of FCF)
57,817.96
Cash
1,478.07
Normal Cash (Sales * Normal Cash %) (2%)
200.00
Excess Cash (Cash-Normal Cash)
1,278.07
Marketable Securities and ST Investments
1,171.25
Long Term Investments
7,993.66
V of Non-Oper
10,442.98
-V of Debt = FMV of Debt (From WACC sheet)
7,393.80
-PV of ESOP
325.99
V of Equity
60,541.15
Total Shares Outstanding (M)
49.61
Target Price (V of Equity/Shares)
$ 1,220.30
To Today's Value
$ 1,250.46
EP Model
NOPLAT
Beg IC
End IC
ROIC
EP CV
EP (Beg IC * (ROIC-WACC))
Discounted EP
V of Oper (Beg IC 2015 + Sum of PV of EP)
57,817.96
V of Non-Oper
10,442.98
-V of Debt = FMV of Debt (From WACC sheet)
7,393.80
-PV of ESOP
325.99
V of Equity
$ 60,541.15
Total Shares Outstanding (M)
49.61
Target Price (V of Equity/Shares)
$ 1,220.30
To Today's Value
$ 1,250.46
For Discounting:
Number of Periods
Today
Elapsed Year Fraction
1
3/31/2016
0.249
Dividend Discount Model (DDM) or Fundamental P/E Valuation Model
EPS
$
Key Assumptions
Growth
CV Growth
ROE
Cost of Equity
1
2016E
2
2017E
3
2018E
4
2019E
5
2020E
6
2021E
60.07 $
69.12 $
78.92 $
90.02 $
99.27 $ 107.06 $
21.48%
15.06%
14.17%
14.07%
10.28%
7.84%
30.42%
11.03%
26.74%
11.03%
25.63%
11.03%
24.56%
11.03%
22.85%
11.03%
20.98%
11.03%
6
2022E
116.35
8.68%
6.00%
20.19%
11.03%
Future Cash Flows
P/E Multiple (CV Year)
EPS (CV Year)
Future Stock Price
Dividends Per Share
$
17.65 $
30.18 $
35.29 $
38.43 $
54.62 $
24.29
$ 116.35
$ 2,826.43
67.04 $ 1,320.38
Discounted Cash Flows
$
15.90 $
24.49 $
25.79 $
25.29 $
32.38 $
35.79 $
Intrinsic Value
$
864.61
To Today's Price
$
885.98
704.97
Relative Valuation Models
Direct Competitors
Ticker
EXPE
TRIP
CTRP
PCLN
Company
Expedia Inc.
TripAdvisor Inc.
Ctrip.com International Ltd.
EPS
2016E
$5.22
$1.95
($0.30)
Price
$107.82
$66.50
$44.26
$1,331.90
Implied Value:
PEG Ratio (EPS16)
PEG Ratio (EPS17)
$60.07
$
$
$
$
Broader Travel Market
Ticker
RCL
HOT
DAL
EXPE
TVPT
TRIP
CTRP
PCLN
Implied Value:
PEG Ratio (EPS16)
PEG Ratio (EPS17)
$1,331.90
$60.07
$
$
$
$
P/E 16
20.7
34.1
27.4
P/E 17
16.0
27.1
57.5
33.5
$69.12
22.2
19.3
EPS
2017E
$7.05
$3.05
$7.06
$6.73
$1.38
$2.45
$0.77
Average
P/E 16
13.5
29.7
7.4
20.7
11.7
34.1
19.5
P/E 17
11.7
27.4
6.9
16.0
9.9
27.1
57.5
22.3
$69.12
22.2
19.3
Est. 5yr
EPS gr.
21.4
15.8
48.3
15.0
PEG 16
0.97
2.16
1.6
PEG 17
0.75
1.72
1.19
1.2
1.5
1.3
PEG 16
0.48
7.07
0.33
0.97
0.75
2.16
2.0
PEG 17
0.41
6.51
0.31
0.75
0.63
1.72
1.19
1.6
1.5
1.3
1,644.73
2,318.87
1,403.18
1,260.02
EPS
2016E
$6.08
$2.81
$6.61
$5.22
$1.17
$1.95
($0.30)
Company
Price
Royal Caribbean Cruises Ltd.
$82.15
Starwood Hotels & Resorts Worldwide
$83.43
Inc.
Delta Air Lines, Inc.
$48.68
Expedia Inc.
$107.82
Travelport Worldwide Ltd.
$13.66
TripAdvisor Inc.
$66.50
Ctrip.com International Ltd.
$44.26
EPS
2017E
$6.73
$2.45
$0.77
Average
1,171.41
1,544.80
1,759.56
1,702.24
Est. 5yr
EPS gr.
28.1
4.2
22.4
21.4
15.6
15.8
48.3
15.0
Sensitivity Analysis
DCF Target Price
As of
$ 1,250.46
3/31/2016
2.00%
2.15%
2.30%
2.45%
2.60%
1.256
1,985.82
1,923.42
1,864.88
1,809.86
1,754.70
1.533
1,529.64
1,492.71
1,457.56
1,424.07
1,390.04
1.583
1,469.09
1,435.06
1,402.60
1,371.62
1,340.08
1.633
1,413.25
1,381.79
1,351.73
1,322.98
1,293.68
4.00%
4.25%
4.50%
4.75%
5.00%
5.25%
5.50%
5.75%
6.00%
14.44%
1,609.70
1,500.03
1,404.63
1,320.89
1,246.81
1,180.82
1,121.65
1,068.31
1,019.98
15.44%
1,611.24
1,501.36
1,405.79
1,321.92
1,247.72
1,181.63
1,122.38
1,068.97
1,020.58
16.44%
1,612.78
1,502.69
1,406.95
1,322.94
1,248.64
1,182.44
1,123.11
1,069.63
1,021.18
17.44%
1,614.33
1,504.03
1,408.12
1,323.97
1,249.55
1,183.26
1,123.85
1,070.30
1,021.78
Terminal
Advertising
Revenue
Growth
Rate
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
7.00%
7.50%
8.00%
2.50%
1,231.29
1,231.89
1,232.49
1,233.09
1,233.69
1,234.29
1,234.89
1,235.49
1,236.10
3.00%
1,235.48
1,236.08
1,236.68
1,237.28
1,237.88
1,238.49
1,239.09
1,239.69
1,240.29
Merchant
COGS
78.00%
79.00%
80.00%
81.00%
82.00%
83.00%
84.00%
85.00%
86.00%
-4.00%
1,269.81
1,265.69
1,261.58
1,257.46
1,253.35
1,249.23
1,245.12
1,241.00
1,236.89
-3.00%
1,269.20
1,265.05
1,260.91
1,256.77
1,252.63
1,248.48
1,244.34
1,240.20
1,236.06
Risk Free
Rate
Market Risk
Rate
2.75%
2.90%
3.05%
3.20%
1,709.17
1,662.98
1,619.27
1,577.84
1,361.60
1,332.43
1,304.51
1,277.77
Beta
1.683
1,361.60
1,332.43
1,304.51
1,277.77
1.733
1,313.68
1,286.56
1,260.56
1,235.62
1,210.12
1.783
1,269.10
1,243.82
1,219.56
1,196.25
1,172.38
1.833
1,227.54
1,203.92
1,181.21
1,159.38
1,136.99
1.883
1,188.68
1,166.56
1,145.28
1,124.78
1,103.74
19.44%
1,617.42
1,506.71
1,410.46
1,326.03
1,251.38
1,184.90
1,125.32
1,071.62
1,022.99
20.44%
1,618.98
1,508.05
1,411.63
1,327.07
1,252.30
1,185.71
1,126.05
1,072.29
1,023.59
21.44%
1,620.53
1,509.39
1,412.81
1,328.10
1,253.21
1,186.54
1,126.79
1,072.96
1,024.20
22.44%
1,622.09
1,510.74
1,413.99
1,329.14
1,254.13
1,187.36
1,127.53
1,073.62
1,024.81
Terminal Agency Revenue Growth Rate
3.50%
4.00%
4.50%
5.00%
1,239.67
1,243.87
1,248.06
1,252.25
1,240.27
1,244.47
1,248.66
1,252.85
1,240.87
1,245.07
1,249.26
1,253.45
1,241.48
1,245.67
1,249.86
1,254.05
1,242.08
1,246.27
1,250.46 1,254.66
1,242.68
1,246.87
1,251.06
1,255.26
1,243.28
1,247.47
1,251.66
1,255.86
1,243.88
1,248.07
1,252.27
1,256.46
1,244.48
1,248.67
1,252.87
1,257.06
5.50%
1,256.44
1,257.04
1,257.65
1,258.25
1,258.85
1,259.45
1,260.05
1,260.65
1,261.25
6.00%
1,260.64
1,261.24
1,261.84
1,262.44
1,263.04
1,263.64
1,264.24
1,264.84
1,265.45
6.50%
1,264.83
1,265.43
1,266.03
1,266.63
1,267.23
1,267.83
1,268.44
1,269.04
1,269.64
Terminal Merchant Revenue Growth Rate
-2.00%
-1.00%
0.00%
1.00%
1,268.59
1,267.98
1,267.37
1,266.76
1,264.42
1,263.78
1,263.14
1,262.50
1,260.25
1,259.58
1,258.92
1,258.25
1,256.07
1,255.38
1,254.69
1,254.00
1,251.90
1,251.18
1,250.46 1,249.74
1,247.73
1,246.99
1,246.24
1,245.49
1,243.56
1,242.79
1,242.01
1,241.23
1,239.39
1,238.59
1,237.78
1,236.98
1,235.22
1,234.39
1,233.56
1,232.73
2.00%
1,266.15
1,261.87
1,257.58
1,253.30
1,249.02
1,244.74
1,240.46
1,236.17
1,231.89
3.00%
1,265.54
1,261.23
1,256.92
1,252.61
1,248.30
1,243.99
1,239.68
1,235.37
1,231.06
4.00%
1,264.93
1,260.59
1,256.25
1,251.92
1,247.58
1,243.24
1,238.90
1,234.57
1,230.23
1,313.68
1,286.56
1,260.56
1,235.62
1,269.10
1,243.82
1,219.56
1,196.25
1,250.46
1,227.54
1,203.92
1,181.21
1,159.38
Tax Rate
18.44%
1,615.87
1,505.36
1,409.29
1,325.00
1,250.46
1,184.08
1,124.58
1,070.96
1,022.39
1,188.68
1,166.56
1,145.28
1,124.78
1,152.28
1,131.53
1,111.53
1,092.26
1,118.12
1,098.61
1,079.79
1,061.63
1,085.99
1,067.61
1,049.87
1,032.73
SG&A
Expense/
Revenue
Normal
Cash %
38.00%
39.00%
40.00%
41.00%
42.00%
4.10%
1,378.19
1,348.64
1,319.10
1,289.55
1,260.00
4.30%
1,375.49
1,346.02
1,316.55
1,287.08
1,257.60
4.50%
1,372.81
1,343.41
1,314.01
1,284.61
1,255.22
Pre-Tax Cost of Debt
4.70%
4.90%
5.10%
1,370.13
1,367.45
1,364.79
1,340.80
1,338.21
1,335.62
1,311.48
1,308.96
1,306.44
1,282.16
1,279.71
1,277.27
1,252.84
1,250.46 1,248.10
5.30%
1,362.14
1,333.04
1,303.94
1,274.84
1,245.74
5.50%
1,359.49
1,330.47
1,301.44
1,272.41
1,243.39
5.70%
1,356.86
1,327.90
1,298.95
1,269.99
1,241.04
1.00%
1.25%
1.50%
1.75%
2.00%
2.25%
2.50%
2.75%
3.00%
2.75%
1,144.73
1,143.89
1,143.05
1,142.21
1,141.37
1,140.53
1,139.69
1,138.85
1,138.00
3.00%
1,169.28
1,168.42
1,167.56
1,166.70
1,165.84
1,164.98
1,164.12
1,163.26
1,162.40
3.25%
1,195.56
1,194.68
1,193.80
1,192.92
1,192.04
1,191.17
1,190.29
1,189.41
1,188.53
NOPLAT CV Growth
3.50%
3.75%
4.00%
1,223.78
1,254.15
1,286.94
1,222.88
1,253.23
1,285.99
1,221.98
1,252.31
1,285.04
1,221.08
1,251.39
1,284.10
1,220.18
1,250.46 1,283.15
1,219.28
1,249.54
1,282.20
1,218.38
1,248.62
1,281.25
1,217.48
1,247.69
1,280.31
1,216.58
1,246.77
1,279.36
4.25%
1,322.43
1,321.46
1,320.48
1,319.51
1,318.54
1,317.56
1,316.59
1,315.62
1,314.64
4.50%
1,360.98
1,359.98
1,358.97
1,357.97
1,356.97
1,355.97
1,354.97
1,353.97
1,352.96
4.75%
1,402.99
1,401.96
1,400.93
1,399.90
1,398.86
1,397.83
1,396.80
1,395.77
1,394.73
43.00%
44.00%
45.00%
46.00%
1,230.45
1,200.90
1,171.35
1,141.80
1,228.13
1,198.66
1,169.19
1,139.71
1,225.82
1,196.42
1,167.02
1,137.63
1,223.51
1,194.19
1,164.87
1,135.55
1,221.21
1,191.97
1,162.72
1,133.47
1,218.92
1,189.75
1,160.57
1,131.40
1,216.64
1,187.54
1,158.44
1,129.34
1,214.36
1,185.33
1,156.30
1,127.28
1,212.09
1,183.13
1,154.18
1,125.22
Key Management Ratios
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
5.41
4.47
3.82
1.53
2.47
1.44
2.56
1.42
2.89
0.88
4.68
1.33
4.08
0.89
4.75
0.89
7.30
1.25
7.88
1.24
5.28
4.34
3.58
1.29
2.29
1.26
2.37
1.22
2.77
0.75
4.49
1.13
3.95
0.76
4.61
0.75
7.10
1.06
7.69
1.05
1.67
2.11
2.16
1.97
1.34
2.14
1.52
1.58
2.27
2.31
Activity or Asset-Management Ratios
Total Assets Turnover = Sales/Total Assets
Total Assets Turnover ex Cash
0.65
0.74
0.57
0.72
0.53
0.58
0.55
0.61
0.49
0.64
0.50
0.68
0.47
0.71
0.45
0.74
0.44
0.75
0.43
0.76
Financial Leverage Ratios
Debt-to-Equity Ratio=Total Debt/Total Equity
Debt Ratio = Total Liab/Total Assets
Debt Ratio ex Cash
Equity Ratio = Total Equity/Total Assets
Equity Ratio ex Cash
0.28
0.34
0.39
0.66
0.76
0.45
0.43
0.54
0.57
0.73
0.70
0.50
0.54
0.50
0.55
0.67
0.48
0.53
0.52
0.57
0.61
0.45
0.59
0.55
0.73
0.47
0.39
0.53
0.61
0.82
0.47
0.38
0.58
0.62
0.94
0.41
0.35
0.57
0.65
1.05
0.33
0.30
0.52
0.70
1.18
0.30
0.29
0.51
0.71
1.27
Liquidity Ratios
Current Ratio = Current Assets/Current Liabilities
Current Ratio ex Cash = Curr Assets ex Cash/Curr Liab
Quick Ratio = (Cash+Marketable Securities+Accounts
Receivables)/Current Liabilities
Quick Ratio ex Cash
Operating Cash Flow Ratio = Cash Flow From
Operations/Current Liabilities
Profitability Ratios
Gross Margin Ratio= (Sales-COGS-SG&A)/Sales
Profit Margin Ratio = Net Income/Sales
ROA = Net Income/Avg Total Assets
ROE= Net Income/Shareholder Equity
35.94%
27.86%
22.25%
48.57%
36.41%
28.69%
19.08%
35.05%
35.33%
27.66%
15.77%
29.78%
37.44%
28.64%
16.08%
32.56%
39.17%
30.14%
16.22%
34.73%
40.53%
31.08%
16.03%
29.81%
41.54%
32.24%
16.21%
28.55%
42.35%
32.74%
15.56%
26.49%
42.81%
33.15%
15.11%
24.14%
43.23%
33.72%
14.88%
22.17%
Payout Policy Ratios
No dividend
Payout Ratio = Repurchase/Net Income
46.68%
30.98%
117.58%
104.76%
30.58%
54.86%
49.26%
45.67%
43.22%
61.37%
Valuing Leases
Present Value of Operating Lease Obligations (2015)
Operating
Leases
92.552
80.262
71.612
61.286
52.957
106.859
465.528
71.73
393.80
2016
2017
2018
2019
2020
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
Final calcs in (Millions)
Lease
Commitment
92.552
80.262
71.612
61.286
52.957
52.957
Operating
Leases
79.902
73.853
59.583
50.239
42.918
130.891
437.386
74
364
2015
2016
2017
2018
2019
Thereafter
Less: Interest
4.90%
2.0
PV Lease
Payment
88.2
72.9
62.0
50.6
41.7
78.3
393.80
Year
1
2
3
4
5
6 & beyond
Lease
Commitment
79.902
73.853
59.583
50.239
42.918
42.918
Operating
Leases
49.691
48.812
43.557
37.446
30.985
109.535
320.026
58
262
#REF!
2014
2015
2016
2017
2018
Thereafter
Less: Interest
4.90%
3.0
PV Lease
Payment
76.2
67.1
51.6
41.5
33.8
93.6
363.8
Year
1
2
3
4
5
6 & beyond
Lease
Commitment
49.691
48.812
43.557
37.446
30.985
30.985
4.90%
3.5
PV Lease
Payment
47.4
44.4
37.7
30.9
24.4
77.5
262.2
VALUATION OF OPTIONS GRANTED IN ESOP
Ticker Symbol
Current Stock Price
Risk Free Rate
Current Dividend Yield
Annualized St. Dev. of Stock Returns
Range of
Outstanding Options
Vested
Unvested
Total
Number
of Shares
88,687
637,257
725,944 $
PCLN
$1,331.90
2.20%
0.00%
28.20%
Average
Exercise
Price
383.06
1070.10
986.17
Average
Remaining
Life (yrs)
5.40 $
1.90 $
B-S
Value
Option
of Options
Price
Granted
994.61 $ 88,209,316
373.13 $ 237,777,440
2.33 $
450.20 $ 325,986,756
$
325.99
Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding
Number of Options Outstanding (shares):
Average Time to Maturity (years):
Expected Annual Number of Options Exercised:
Current Average Strike Price:
Cost of Equity:
Current Stock Price:
Increase in Shares Outstanding:
Average Strike Price:
Increase in Common Stock Account:
Change in Treasury Stock
Expected Price of Repurchased Shares:
Number of Shares Repurchased:
Shares Outstanding (beginning of the year)
Plus: Shares Issued Through ESOP
Less: Shares Repurchased in Treasury
Shares Outstanding (end of the year)
0.73
2.33
0.31
$
986.17
11.03%
$1,331.90
2016E
$
2017E
2018E
2019E
2020E
2021E
2022E
0.31
986.17 $
308
0.31
986.17 $
308
0.11
986.17 $
104
0.00
986.17 $
-
0.00
986.17 $
-
0.00
986.17 $
-
0.00
986.17
-
3,000
$1,331.90 $
2.25
1,000
1,478.74 $
0.68
2,000
1,641.77 $
1.22
2,000
1,822.78 $
1.10
2,000
2,023.74 $
0.99
2,000
2,246.86 $
0.89
3,000
2,494.57
1.20
48
0.31
0.68
47
47
0.11
1.22
46
46
0.00
1.10
45
45
0.00
0.99
44
44
0.00
0.89
43
49.61
0.31
2.25
47.67
43
0.00
1.20
42
(Assumes common stock and additional
paid in capital are combined into one
account).

The Priceline Group (PCLN) - Tippie College of Business

Transcription

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