Priceline (PCLN) and Expedia (EXPE) are all about International development, but what if that doesn't work out?

Yesterday (5/17) Stifel Nicolaus & Company upgraded Priceline.com Incorporated (PCLN) from "hold" to "buy" and set a 12-month target price at $67 a share. Priceline’s stock has gone up 7% in the last week and closed the week at $60.89 a share. Last week shares of Priceline traded up and down after reporting a larger Q1 07 loss but raising revenue 25% to $301.4 million. So now shares of the online travel company trade at a P/E of 49 on a market cap of $2.31 billion with the green light to run even higher.

Priceline is often compared to Expedia.com (EXPE) which still holds the title as the No. 1 online travel agency. Expedia just reported a so-so quarter and its share price is at $24.64 with a P/E of 33 and a market cap of $7.47 billion. So lately, it all comes down to comparing what each company is doing outside of the United States to increase revenue, and it’s definitely game on. Analysts expect Priceline’s European operation to account for 75%-80% of the company’s operating profits in 2007. According to Stifel Nicolaus & Company, Priceline’s travel market in Europe is expected to grow by 34% in 2007, and there is substantial gross booking opportunity in the foreseeable future.

Expedia has it’s hand in Asia online travel company eLong (LONG) and that company can’t seem to gain any momentum in the past few months. eLong for those who care is trading just 70 cents above its 52-week low of $9.05. Expedia’s CEO Barry Diller said on their earnings call last week:
"With accelerating transaction growth, a 32 percent increase in European bookings, 11 percent revenue growth and the very beginning echoes of resurgence at Expedia.com we are seeing the early results of the reinvestments and reorganizations that made last year so challenging"

So if both companies are talking up and focusing operations outside of the U.S. and the analysts are banking on it, are you willing to place all your marbles on that factor as well?

Look, Priceline is the strongest of the online travel sites, over the last 52 weeks the share price has gone up 106% but let’s not forget that all of the online travel companies got hammered last year. Expedia has comeback as well with their shares trading up 73% in the past year, but now what?

We all know the airline sector is horrible, and with fuel prices on the rise and the economy slowing back at home, you can’t expect online travel companies to perform that great on the American economy alone. But putting most of your eggs in the international basket seems a bit much when both of the stocks are trading at near record highs. How many stocks are you willing to pay $60 a share for? This is an online business let me remind you, eCommerce if you want to be flashy, they are not the stocks your father invested in that still trade today. If you are willing to pony up that much cash, you want to make sure you aren’t going to be a victim to the bear traders. The short percentage of Priceline’s float as of April 10th is 22% where as Expedia’s comes in at 5%. There are a ton of bears out there betting that Priceline is overpriced and going to fall. So if the international numbers don’t work out and American’s cool their spending habits, it’s very possible Priceline’s shares might not make it to $67.

So bet on Priceline or Expedia? How about neither. Why not just wait things out right now and see what happens in the next few months. These stocks are trading high and maybe International revenue will keep coming in, but maybe it doesn’t? If the analysts say the stock is going up, say "prove it", but paying for these companies near 52-week highs? It just doesn’t add up.

Frank Lara Jr.

Frank Lara Jr. can be reached at [email protected]; he does not own securities in the companies he covers.