Important disclosures appear on the last page of this report.

The Henry Fund Henry B. Tippie School of Management

Nihar Patel [nihar-patel@uiowa.edu] The Priceline Group (PCLN) March 31, 2016 Consumer Discretionary—Online Travel Agent Stock Rating Sell

Investment Thesis Target Price $1,225-1,275 #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.

Henry Fund DCF $1,250.46 Relative P/E (FY16) $1,171.41 Price Data Current Price $1,331.90 52wk Range $954.02 – 1,476.52 Consensus 1yr Target $1480.00 Key Statistics Market Cap (B) $64.65 Shares Outstanding (M) 49.62 Institutional Ownership 97% Five Year Beta (Bloomberg) 1.68 Dividend Yield N/A Est. 5yr Growth 16.4% Price/Earnings (TTM) 21.9 Price/Earnings (FY1) 18.8 Price/Sales (TTM) 7.13 Price/Book (mrq) 7.19 Profitability Operating Margin 35.33% Profit Margin 27.66% Return on Assets (TTM) 15.77% Return on Equity (TTM) 29.39%

Earnings Estimates Year 2013 2014 2015 2016E 2017E 2018E EPS $36.85 $45.76 $49.45 $60.07 $69.14 $78.95

Growth 31.5% 24.2% 8.1% 21.48% 15.09% 14.19%

12 Month Performance Company Description

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.

26.4

37.6

7.0

19.023.0

2.5

48.1

15.66.10

25

50

P/E ROE P/S

PCLN EXPE TRIP

Data Source: FactSet

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A M J J A S O N D J F

PCLN S&P 500

Data Source: Factset

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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

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

Agency71%

Merchant22%

Advertising7%Priceline Revenue Breakdown in 2015

Source: Priceline 2015 10-K

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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

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

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

USA20%

Europe67%

Other13%Priceline Geographic Sales Breakdown

Source: Priceline 2015 10-K

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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 Asia-Pacific 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.

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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. INDUSTRY TRENDS

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

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.

Internationally there is still potential for increasing internet penetration to drive growth especially in Asia. The

key markets of Europe and North America have high rates of internet penetration, over 75% for Europe and over 80% in North America.8

High Room Occupancy Rates 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 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

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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

Peer Comparisons 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

0%

25%

50%

75%

100%

Priceline Expedia

US and International Revenue

US InternationalSource: Priceline 2015 10-K

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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 and Profitability

Priceline Expedia TripAdvisor Revenue $9,224 $6,672 $1,492 Net Income $2,422 $723 $198 Margin 26.26% 10.84% 13.27% Gross Bookings $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.

Key Statistics P/E P/S ROE Priceline 26.4 7.0 37.6% Expedia 19.0 2.5 23% TripAdvisor 48.1 6.13 15.61%

Source: FactSet 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

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.

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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 oil-adjusted 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

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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 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.

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% year-over-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: 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.

0%5%

10%15%20%25%30%35%

2012 2013 2014 2015

Revenue Growth

Source: Priceline 2015 10-K

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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%.

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

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. 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 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.

-5.0%0.0%5.0%

10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%50.0%

2015 2016 2017 2018 2019 2020 2021 2022

Revenue Growth by Segment

Agency Merchant AdvertisingSource: Priceline 2015 10-K

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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) $1,171.41 Relative P/E (EPS16) $1,544.80 PEG Ratio (EPS15) $1,759.56 PEG Ratio (EPS16) $1,702.24

Data for Estimates: FactSet 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.

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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/3902686-priceline-group-pcln-darren-richard-huston-q4-2015-results-earnings-call-transcript 3. Bidding Online for Better Deals by Michelle Higgins: http://www.nytimes.com/2009/04/12/travel/12pracopaque.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?easyAccessToken=PROVIDER_fa21b4b5458162992de895852100a6dadf2cee45 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/2013/04/01/priceline-can-fuel-upside-by-making-further-inroads-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=irol-newsArticle&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/priceline-pcln-stock-downgraded-at-goldman-sachs.html 10. Hotels Fight Back Against Sites Like Expedia and Priceline:

http://www.nytimes.com/2015/09/01/business/hotels-direct-booking-online-travel-sites.html 11. Expedia Inc. Investor Presentation Page 7: http://ir.expediainc.com/common/download/download.cfm?companyid=EXPE&fileid=874409&filekey=7670D75F-2D43-4B6E-BFE9-A8E4B7008D9C&filename=Expedia_Inc_Q4_2015_Investor_Presentation_FINAL.pdf 12. Expedia Inc. 2015 10-K – Investor Relations: http://ir.expediainc.com/sec.cfm 13. Expedia Completes Exchange Offer to HomeAway Stockholders: http://www.prnewswire.com/news-releases/expedia-completes-exchange-offer-to-homeaway-stockholders-and-acquires-homeaway-300193036.html 14. 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-e76d-11e4-8e3f-00144feab7de.html#axzz46ERQvMxN 15. 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-europes-migrant-crisis.html 16. When Paris Hurts, So Does the Travel Industry by Scott McCartney – The Wall Street Journal – Dec 16, 2016: http://www.wsj.com/articles/when-paris-hurts-so-does-the-travel-industry-1450290546 17. Internet Travel Hotel Booking Statistics – Statistic Brain – Mar 3, 2015: http://www.statisticbrain.com/internet-travel-hotel-booking-statistics/ 18. 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/2015/04/28/when-booking-hotels-through-websites-like-kayak-expedia-isnt-smart/#15e347a74de0 19. 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/thetwo-way/2016/02/25/468007557/head-scratcher-alert-jet-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

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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.

Priceline Group Inc.Revenue DecompositionFiscal Years Ending Dec. 31 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022EAgency Revenues 3,142.82 4,410.69 5,845.80 6,527.90 7,213.33 7,934.66 8,648.78 9,340.68 9,994.53 10,494.26 10,966.50 % of Revenues (Agency) 59.74% 64.93% 69.25% 70.77% 72.13% 73.13% 73.73% 74.18% 74.73% 75.18% 75.64%YoY Growth (Agency) 34.35% 40.34% 32.54% 11.67% 10.50% 10.00% 9.00% 8.00% 7.00% 5.00% 4.50%Merchant Revenues 2,104.75 2,211.47 2,186.05 2,082.97 2,020.48 1,980.07 1,960.27 1,960.27 1,960.27 1,960.27 1,960.27 % of Revenues (Merchant) 40.01% 32.55% 25.90% 22.58% 20.20% 18.25% 16.71% 15.57% 14.66% 14.04% 13.52%YoY Growth (Merchant) 5.00% 5.07% -1.15% -4.72% -3.00% -2.00% -1.00% 0.00% 0.00% 0.00% 0.00%Advertising and Other Revenues 13.39 171.14 410.12 613.12 766.40 935.01 1,122.01 1,290.31 1,419.34 1,504.50 1,572.21 % of Revenues (Advertising) 0.25% 2.52% 4.86% 6.65% 7.66% 8.62% 9.56% 10.25% 10.61% 10.78% 10.84%YoY Growth (Advertising) 12% 1178% 140% 49% 25.00% 22.00% 20.00% 15.00% 10.00% 6.00% 4.50%Total Revenues 5,260.96 6,793.31 8,441.97 9,223.99 10,000.21 10,849.74 11,731.06 12,591.27 13,374.15 13,959.03 14,498.98 YoY Growth Revenue 20.79% 29.13% 24.27% 9.26% 8.42% 8.50% 8.12% 7.33% 6.22% 4.37% 3.87%

International Gross Bookings 23,370.00 33,300.00 43,639.00 48,971.00 54,479.48 58,662.17 62,947.05 67,240.68 71,330.33 74,519.60 77,560.63 Total Rev as a % of Gross 22.45% 19.89% 18.41% 17.58% 16.95% 16.90% 16.85% 16.81% 16.76% 16.71% 16.67%% of Gross Bookings 82.13% 85.01% 86.76% 88.19% 88.50% 88.75% 89.00% 89.25% 89.50% 89.75% 90.00%International Gross Bkings Growth 38.21% 42.49% 31.05% 12.22% 11.25% 7.68% 7.30% 6.82% 6.08% 4.47% 4.08%Domestic Gross Bookings 5,086.00 5,873.00 6,661.00 6,557.00 7,079.25 7,436.05 7,779.97 8,099.02 8,368.36 8,510.60 8,617.85 Total Rev as a % of Gross 103.18% 112.76% 120.58% 131.32% 130.43% 133.33% 136.36% 139.53% 142.86% 146.34% 150.00%% of Gross Bookings 17.87% 14.99% 13.24% 11.81% 11.50% 11.25% 11.00% 10.75% 10.50% 10.25% 10.00%Domestic Gross Bkings Growth 7.12% 15.47% 13.42% -1.56% 7.96% 5.04% 4.63% 4.10% 3.33% 1.70% 1.26%Total Gross Bookings 28,456.00 39,173.00 50,300.00 55,528.00 61,558.74 66,098.22 70,727.02 75,339.70 79,698.69 83,030.20 86,178.48 Total Rev as a % of Agency+Merch 18.44% 16.90% 15.97% 15.51% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00%Total Gross Bookings % Growth 31.39% 37.66% 28.40% 10.39% 10.86% 7.37% 7.00% 6.52% 5.79% 4.18% 3.79%

Priceline Group Inc.Income StatementFiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022ESales 6,793.31 8,441.97 9,223.99 10,000.21 10,849.74 11,731.06 12,591.26 13,374.14 13,959.03 14,498.97COGS excluding D&A 1,755.61 1,808.03 1,798.41 1,656.79 1,623.66 1,607.42 1,607.42 1,607.42 1,607.42 1,607.42Depreciation 48.37 78.24 101.52 140.14 142.80 149.40 158.55 166.96 177.34 185.10 Amortization of Intangibles 69.61 129.58 170.98 158.73 168.43 174.80 180.41 184.41 195.88 204.45Gross 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 12,502.01SG&A Expense 2,478.31 3,352.81 3,894.18 4,300.09 4,665.39 5,044.36 5,414.24 5,750.88 6,002.38 6,234.56EBIT (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 6,267.45Nonoperating Interest Income 4.17 13.93 55.73 20.72 21.12 21.52 21.93 22.35 22.77 23.20Other Income (Expense) (10.06) (3.17) (26.09) 0.00 0.00 0.00 0.00 0.00 0.00 0.00Interest Expense 83.29 87.85 160.23 253.84 261.25 306.75 274.74 317.70 325.40 296.54Unusual Expense - Net 55.70 6.77 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Pretax Income 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 5,994.12Income Taxes 403.74 567.70 576.96 647.60 739.44 824.38 918.07 990.23 1,046.35 1,105.50Equity in Earnings of Affiliates 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Consolidated Net Income 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 4,888.61Minority Interest 0.14 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Net 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 4,888.61Preferred Dividends 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Net 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

EPS (recurring) 36.85 45.76 49.45 60.07 69.12 78.92 90.02 99.27 107.06 116.35Total Shares Outstanding 52.01 51.93 49.61 47.67 47.31 46.19 45.10 44.11 43.22 42.02

Priceline Group Inc.Balance SheetFiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022EAssetsCash Only 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 14,930.57 Total Short Term Investments 5,462.72 1,142.18 1,171.25 1,193.50 1,216.18 1,239.28 1,262.83 1,286.82 1,311.27 1,336.19 Short-Term Receivables 535.96 643.89 645.17 700.01 759.48 821.17 881.39 936.19 977.13 1,014.93 Other Current Assets 181.79 331.80 258.75 300.01 325.49 351.93 377.74 401.22 418.77 434.97 Total Current Assets 7,480.94 5,267.37 3,553.24 3,974.46 7,592.89 8,514.15 11,584.22 14,000.25 15,790.22 17,716.65 Net Property, Plant & Equipment 135.05 198.95 274.79 280.01 292.94 310.87 327.37 347.73 362.93 376.97 Total Investments and Advances - 3,768.02 7,993.66 8,202.30 8,416.38 8,636.05 8,861.45 9,092.73 9,330.05 9,573.56 Net Goodwill 1,767.91 3,326.47 3,375.00 3,375.00 3,375.00 3,375.00 3,375.00 3,375.00 3,375.00 3,375.00 Net Other Intangibles 1,019.99 2,334.76 2,167.53 2,300.05 2,386.94 2,463.52 2,518.25 2,674.83 2,791.81 2,899.79 Deferred Tax Assets 7.06 8.55 21.10 18.09 15.07 12.06 9.04 6.03 3.01 - Other Assets 33.51 36.43 35.26 38.22 41.47 44.84 48.13 51.12 53.35 55.42 Total Assets 10,444.46 14,940.56 17,420.58 18,188.12 22,120.69 23,356.49 26,723.46 29,547.68 31,706.38 33,997.40 Liabilities & Shareholders' EquityST Debt & Curr. Portion LT Debt 151.93 37.20 - - 941.07 - 885.10 874.74 - - Accounts Payable 247.35 281.48 322.84 350.01 379.74 410.59 440.69 468.09 488.57 507.46 Income Tax Payable 0.04 1.20 - - - - - - - - Other Current Liabilities 982.43 1,060.12 1,116.47 1,200.02 1,301.97 1,407.73 1,510.95 1,604.90 1,675.08 1,739.88 Total Current Liabilities 1,381.75 1,379.99 1,439.31 1,550.03 2,622.78 1,818.31 2,836.75 2,947.73 2,163.65 2,247.34 Long-Term Debt 1,750.58 3,850.09 6,158.44 6,338.09 6,501.03 6,665.50 6,822.52 7,019.72 7,194.19 7,365.52 Deferred Tax Liabilities 326.43 1,040.26 892.58 765.07 637.55 510.04 382.53 255.02 127.51 - Other Liabilities 75.98 103.53 134.78 120.00 130.20 140.77 151.10 160.49 167.51 173.99 Total Liabilities 3,534.73 6,373.87 8,625.11 8,773.19 9,891.56 9,134.63 10,192.90 10,382.96 9,652.86 9,786.85 Common Stock and Additional Paid-In Capital 4,593.46 4,923.68 5,185.39 5,492.96 5,800.54 5,905.01 5,905.01 5,905.01 5,905.01 5,905.01 Retained Earnings 4,218.75 6,640.51 9,191.87 12,055.60 15,325.48 18,970.95 23,030.71 27,409.59 32,036.61 36,925.23 Cumulative Translation Adjustment/Unrealized For. Exch. Gain 84.60 (102.76) (217.26) - - - - - - - Unrealized Gain/Loss Marketable Securities 0.13 (157.14) 462.12 693.00 929.76 1,172.53 1,421.48 1,676.76 1,938.53 2,206.96 Other Appropriated Reserves - - - - - - - - - - Treasury Stock (1,987.21) (2,737.59) (5,826.64) (8,826.64) (9,826.64) (11,826.64) (13,826.64) (15,826.64) (17,826.64) (20,826.64) Total Shareholders' Equity 6,909.73 8,566.69 8,795.47 9,414.93 12,229.13 14,221.86 16,530.57 19,164.72 22,053.52 24,210.56 Accumulated Minority Interest - - - - - - - - - - Total Equity 6,909.73 8,566.69 8,795.47 9,414.93 12,229.13 14,221.86 16,530.57 19,164.72 22,053.52 24,210.56 Total Liabilities & Shareholders' Equity 10,444.46 14,940.56 17,420.58 18,188.12 22,120.69 23,356.49 26,723.46 29,547.68 31,706.38 33,997.40

Priceline Group Inc.Forecasted Cash Flow StatementFiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022ENet Income / Starting Line 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 4,888.61Depreciation 48.37 78.24 101.52 140.14 142.80 149.40 158.55 166.96 177.34 185.10Amortization of Intangible Assets 69.61 129.58 170.98 158.73 168.43 174.80 180.41 184.41 195.88 204.45Deferred Taxes & Investment Tax Credit (11.10) 31.71 (61.34) (124.50) (124.50) (124.50) (124.50) (124.50) (124.50) (124.50)Other Current Assets 248.83 278.51 347.73 (41.26) (25.49) (26.44) (25.81) (23.49) (17.55) (16.20)Receivables (111.57) (182.21) (68.69) (54.85) (59.47) (61.69) (60.21) (54.80) (40.94) (37.80)Accounts Payable 182.16 203.87 166.20 27.17 29.73 30.85 30.11 27.40 20.47 18.90Other Assets/Liabilities (17.65) (47.06) (105.52) 83.56 101.94 105.76 103.22 93.95 70.19 64.79Net Operating Cash Flow 2,301.44 2,914.40 3,102.23 3,052.73 3,503.35 3,893.64 4,321.53 4,648.81 4,907.92 5,183.36

Investing ActivitiesCapital Expenditures (84.45) (131.50) (173.92) (145.36) (155.74) (167.33) (175.05) (187.31) (192.55) (199.14)Net Assets from Acquisitions (331.92) (2,496.37) (140.34) 0.00 0.00 0.00 0.00 0.00 0.00 0.00Purchase/Sale of Investments* (1,664.52) 350.29 (3,585.45) 0.00 0.00 0.00 0.00 0.00 0.00 0.00Net Intangibles (84.65) (85.31) (448.64) (291.25) (255.33) (251.38) (235.14) (340.99) (312.86) (312.44)Other Sources 3.27 14.35 453.82 (17.74) 6.95 7.21 7.03 6.40 4.78 4.42Net Investing Cash Flow (2,162.27) (2,348.54) (3,894.53) (454.35) (404.12) (411.50) (403.15) (521.90) (500.62) (507.16)

Financing ActivitiesChange in Capital Stock (Repurchases & ESOP) (793.10) (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)Change in Total Debt 564.41 2,139.62 2,247.40 179.65 1,104.00 (776.60) 1,042.12 186.84 (700.26) 171.32Other Funds (174.83) 23.37 90.81Net Financing Cash Flow (403.51) 1,428.99 (730.00) (2,512.78) 411.57 (2,672.12) (957.88) (1,813.16) (2,700.26) (2,828.68)

Exchange Rate Effect 17.99 (136.19) (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 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 13,083.04Change in BS Cash (242.52) 1,849.02 (1,671.42) 302.87 3,510.80 810.02 2,960.50 2,313.75 1,707.03 1,847.53Cash End. Year 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 14,930.57

Priceline Group Inc.Historical Cash Flow StatementFiscal Years Ending Dec. 31 2009 2010 2011 2012 2013 2014 2015Net Income / Starting Line 489.47 528.14 1,059.13 1,424.04 1,892.80 2,421.75 2,551.36Depreciation, Depletion & Amortization 39.19 50.46 53.82 65.14 117.98 207.82 272.49Depreciation and Depletion 14.49 16.21 20.65 32.82 48.37 78.24 101.52Amortization of Intangible Assets 24.70 34.26 33.18 32.32 69.61 129.58 170.98Deferred Taxes & Investment Tax Credit 30.99 37.54 44.75 19.60 (11.10) 31.71 (61.34)Other Funds (117.66) 110.27 99.33 133.16 248.83 278.51 347.73Funds from Operations 442.00 726.42 1,257.03 1,641.94 2,248.50 2,939.79 3,110.24Changes in Working Capital 67.67 50.88 84.78 143.82 52.94 (25.40) (8.01)Receivables (22.77) (29.28) (125.79) (105.28) (111.57) (182.21) (68.69)Accounts Payable 86.79 84.75 210.33 256.02 182.16 203.87 166.20Other Assets/Liabilities 3.65 (4.60) 0.25 (6.93) (17.65) (47.06) (105.52)Net Operating Cash Flow 509.67 777.30 1,341.81 1,785.75 2,301.44 2,914.40 3,102.23

Investing ActivitiesCapital Expenditures (15.11) (22.59) (46.83) (55.16) (84.45) (131.50) (173.92)Net Assets from Acquisitions (1.50) (112.41) (68.19) (33.86) (331.92) (2,496.37) (140.34)Purchase/Sale of Investments (481.06) (741.36) (775.83) (1,553.08) (1,664.52) 350.29 (3,585.45)Purchase of Investments 922.16 1,813.03 3,005.40 6,352.50 9,955.80 10,552.21 8,669.69Sale/Maturity of Investments 441.11 1,071.67 2,229.56 4,799.41 8,291.28 10,902.50 5,084.24Other Funds (3.80) 35.26 (13.91) 79.39 (81.39) (70.96) 5.18Other Uses (5.03) (9.56) (44.95) (6.77) (84.65) (85.31) (448.64)Other Sources 1.23 44.82 31.05 86.16 3.27 14.35 453.82Net Investing Cash Flow (501.46) (841.10) (904.77) (1,562.71) (2,162.27) (2,348.54) (3,894.53)

Financing ActivitiesChange in Capital Stock 26.01 (103.69) (158.87) (254.34) (793.10) (733.99) (3,068.20)Repurchase of Common & Preferred Stk. (17.42) (129.45) (163.17) (257.02) (883.52) (750.38) (3,089.06)Sale of Common & Preferred Stock 43.43 25.75 4.30 2.68 90.42 16.39 20.85Proceeds from Sale of Stock 0.00 0.00 0.00 0.00 (1.19) 0.00 0.00Proceeds from Stock Options 43.43 25.75 4.30 2.68 91.61 16.39 20.85Issuance/Reduction of Debt, Net (197.12) 266.27 (0.21) 979.08 564.41 2,139.62 2,247.40Change in Current Debt 0.00 0.00 0.00 0.00 0.00 0.00 0.00Change in Long-Term Debt (197.12) 266.27 (0.21) 979.08 564.41 2,139.62 2,247.40Issuance of Long-Term Debt 0.00 561.67 0.00 979.08 978.98 2,264.75 2,620.03Reduction in Long-Term Debt (197.12) (295.40) (0.21) (0.00) (414.57) (125.14) (372.63)Other Funds 2.15 50.39 8.06 (55.89) (174.83) 23.37 90.81Other Uses 0.00 0.00 (12.99) (61.08) (192.53) 0.00 (10.70)Other Sources 2.15 50.39 21.04 5.19 17.71 23.37 101.51Net Financing Cash Flow (168.96) 212.96 (151.03) 668.86 (403.51) 1,428.99 (730.00)

Exchange Rate Effect (1.65) 7.67 (12.15) 11.62 17.99 (136.19) (149.10)Miscellaneous Funds (0.00) 0.00 0.00 (0.00) 0.00 (0.00) (0.00)

Net Change in Cash (162.41) 156.83 273.87 903.51 (246.36) 1,858.66 (1,671.40)

Cash Beg. Year 367.08 203.46 360.02 636.61 1,542.99 1,300.47 3,149.49Cash End. Year 203.46 360.02 636.61 1,542.99 1,300.47 3,149.49 1,478.07

Priceline Group Inc.Common Size Income StatementFiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022ESales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%COGS excluding D&A 25.84% 21.42% 19.50% 16.57% 14.96% 13.70% 12.77% 12.02% 11.52% 11.09%Depreciation 0.71% 0.93% 1.10% 1.40% 1.32% 1.27% 1.26% 1.25% 1.27% 1.28%Amortization of Intangibles 1.02% 1.53% 1.85% 1.59% 1.55% 1.49% 1.43% 1.38% 1.40% 1.41%Gross Income 72.42% 76.12% 77.55% 80.44% 82.17% 83.53% 84.54% 85.35% 85.81% 86.23%SG&A Expense 36.48% 39.72% 42.22% 43.00% 43.00% 43.00% 43.00% 43.00% 43.00% 43.00%EBIT (Operating Income) 35.94% 36.41% 35.33% 37.44% 39.17% 40.53% 41.54% 42.35% 42.81% 43.23%Nonoperating Interest Income 0.06% 0.17% 0.60% 0.21% 0.19% 0.18% 0.17% 0.17% 0.16% 0.16%Other Income (Expense) -0.15% -0.04% -0.28% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Interest Expense 1.23% 1.04% 1.74% 2.54% 2.41% 2.61% 2.18% 2.38% 2.33% 2.05%Unusual Expense - Net 0.82% 0.08% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Pretax Income 33.81% 35.41% 33.92% 35.11% 36.95% 38.10% 39.53% 40.15% 40.64% 41.34%Income Taxes 5.94% 6.72% 6.25% 6.48% 6.82% 7.03% 7.29% 7.40% 7.50% 7.62%Equity in Earnings of Affiliates 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Consolidated Net Income 27.86% 28.69% 27.66% 28.64% 30.14% 31.08% 32.24% 32.74% 33.15% 33.72%Minority Interest 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Net Income 27.86% 28.69% 27.66% 28.64% 30.14% 31.08% 32.24% 32.74% 33.15% 33.72%Preferred Dividends 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Net Income available to Common 27.86% 28.69% 27.66% 28.64% 30.14% 31.08% 32.24% 32.74% 33.15% 33.72%

Priceline Group Inc.Common Size Balance SheetFiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022EAssetsCash Only 19.14% 37.31% 16.02% 17.81% 48.77% 52.01% 71.97% 85.06% 93.72% 102.98%Total Short Term Investments 80.41% 13.53% 12.70% 11.93% 11.21% 10.56% 10.03% 9.62% 9.39% 9.22%Short-Term Receivables 7.89% 7.63% 6.99% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00%Other Current Assets 2.68% 3.93% 2.81% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%Total Current Assets 110.12% 62.40% 38.52% 39.74% 69.98% 72.58% 92.00% 104.68% 113.12% 122.19%

Net Property, Plant & Equipment 1.99% 2.36% 2.98% 2.80% 2.70% 2.65% 2.60% 2.60% 2.60% 2.60%Total Investments and Advances 0.00% 44.63% 86.66% 82.02% 77.57% 73.62% 70.38% 67.99% 66.84% 66.03%Net Goodwill 26.02% 39.40% 36.59% 33.75% 31.11% 28.77% 26.80% 25.24% 24.18% 23.28%Net Other Intangibles 15.01% 27.66% 23.50% 23.00% 22.00% 21.00% 20.00% 20.00% 20.00% 20.00%Deferred Tax Assets 0.10% 0.10% 0.23% 0.18% 0.14% 0.10% 0.07% 0.05% 0.02% 0.00%Other Assets 0.49% 0.43% 0.38% 0.38% 0.38% 0.38% 0.38% 0.38% 0.38% 0.38%Total Assets 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%ST Debt & Curr. Portion LT Debt 2.24% 0.44% 0.00% 0.00% 8.67% 0.00% 7.03% 6.54% 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%Income Tax Payable 0.00% 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Other Current Liabilities 14.46% 12.56% 12.10% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00%Total Current Liabilities 20.34% 16.35% 15.60% 15.50% 24.17% 15.50% 22.53% 22.04% 15.50% 15.50%

0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Long-Term Debt 25.77% 45.61% 66.77% 63.38% 59.92% 56.82% 54.18% 52.49% 51.54% 50.80%Deferred Tax Liabilities 4.81% 12.32% 9.68% 7.65% 5.88% 4.35% 3.04% 1.91% 0.91% 0.00%Other Liabilities 1.12% 1.23% 1.46% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20%Total Liabilities 52.03% 75.50% 93.51% 87.73% 91.17% 77.87% 80.95% 77.63% 69.15% 67.50%

Common Stock and Additional Paid-In Capital 67.62% 58.32% 56.22% 54.93% 53.46% 50.34% 46.90% 44.15% 42.30% 40.73%Retained Earnings 62.10% 78.66% 99.65% 120.55% 141.25% 161.72% 182.91% 204.94% 229.50% 254.67%Cumulative Translation Adjustment/Unrealized For. Exch. Gain 1.25% -1.22% -2.36% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Unrealized Gain/Loss Marketable Securities 0.00% -1.86% 5.01% 6.93% 8.57% 10.00% 11.29% 12.54% 13.89% 15.22%Other Appropriated Reserves 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Treasury Stock -29.25% -32.43% -63.17% -88.26% -90.57% -100.81% -109.81% -118.34% -127.71% -143.64%Total Shareholders' Equity 101.71% 101.48% 95.35% 94.15% 112.71% 121.23% 131.29% 143.30% 157.99% 166.98%Accumulated Minority Interest 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total Equity 101.71% 101.48% 95.35% 94.15% 112.71% 121.23% 131.29% 143.30% 157.99% 166.98%Total Liabilities & Shareholders' Equity 153.75% 176.98% 188.86% 181.88% 203.88% 199.10% 212.24% 220.93% 227.14% 234.48%

Priceline Group Inc.Value Driver EstimationFiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022ESales 6,793.31 8,441.97 9,223.99 10,000.21 10,849.74 11,731.06 12,591.26 13,374.14 13,959.03 14,498.97 COGS excluding D&A 1,755.61 1,808.03 1,798.41 1,656.79 1,623.66 1,607.42 1,607.42 1,607.42 1,607.42 1,607.42 Depreciation 48.37 78.24 101.52 140.14 142.80 149.40 158.55 166.96 177.34 185.10 Amortization of Intangibles 69.61 129.58 170.98 158.73 168.43 174.80 180.41 184.41 195.88 204.45 SG&A 2,478.31 3,352.81 3,894.18 4,300.09 4,665.39 5,044.36 5,414.24 5,750.88 6,002.38 6,234.56 PV of Interest on Op Leases 57.79 73.60 71.73 73.74 75.73 77.73 79.75 81.83 83.96 86.14 EBITA 2,499.21 3,146.91 3,330.63 3,818.19 4,325.18 4,832.82 5,310.40 5,746.29 6,059.96 6,353.59 Total Income Tax Provision (inc. tax) 403.74 567.70 576.96 647.60 739.44 824.38 918.07 990.23 1,046.35 1,105.50 Tax Rate = Pre Tax/Total Inc. Provision. 17.58% 18.99% 18.44% 18.44% 18.44% 18.44% 18.44% 18.44% 18.44% 18.44%Plus Tax Shield on Interest Expense 14.64 16.68 29.55 46.82 48.18 56.58 50.67 58.59 60.01 54.69 Plus Tax on Lease Interest 10.16 13.98 13.23 13.60 13.97 14.34 14.71 15.09 15.48 15.89 Plus Tax Shield on Amortized Goodwill - - - - - - - - - - Minus Tax on Non-Operating Income (Plus in this formula) (1.04) 2.04 5.47 3.82 3.89 3.97 4.04 4.12 4.20 4.28 Plus Tax Shield on Unusual Expense 9.79 1.29 - - - - - - - - Less Adjusted Taxes 437.30 601.68 625.21 711.84 805.49 899.26 987.49 1,068.04 1,126.04 1,180.36 Plus Change in Deferred Taxes 305.70 712.34 (160.24) (124.50) (124.50) (124.50) (124.50) (124.50) (124.50) (124.50)Equals NOPLAT 2,367.60 3,257.57 2,545.19 2,981.85 3,395.20 3,809.06 4,198.41 4,553.76 4,809.42 5,048.73 NOPLAT Growth % 37.59% -21.87% 17.16% 13.86% 12.19% 10.22% 8.46% 5.61% 4.98%Normal Cash (2% * Sales) 135.87 168.84 184.48 200.00 216.99 234.62 251.83 267.48 279.18 289.98 Short-Term Receivables 535.96 643.89 645.17 700.01 759.48 821.17 881.39 936.19 977.13 1,014.93 Other Current Assets 181.79 331.80 258.75 300.01 325.49 351.93 377.74 401.22 418.77 434.97 Operating Current Assets 853.62 1,144.54 1,088.40 1,200.02 1,301.97 1,407.73 1,510.95 1,604.90 1,675.08 1,739.88 Accounts Payable 247.35 281.48 322.84 350.01 379.74 410.59 440.69 468.09 488.57 507.46 Income Tax Payable 0.04 1.20 - - - - - - - - Non Interest-Bearing Current Liabilities 247.38 282.68 322.84 350.01 379.74 410.59 440.69 468.09 488.57 507.46 Net Operating Working Capital 606.23 861.86 765.56 850.02 922.23 997.14 1,070.26 1,136.80 1,186.52 1,232.41 Plus Net PPE 135.05 198.95 274.79 280.01 292.94 310.87 327.37 347.73 362.93 376.97 Present Value of Operating Leases 262.23 363.79 393.80 404.83 415.76 426.78 437.87 449.26 460.94 472.92 Net Other Intangibles 1,019.99 2,334.76 2,167.53 2,300.05 2,386.94 2,463.52 2,518.25 2,674.83 2,791.81 2,899.79 Plus Net Other Operating Assets 1,282.22 2,698.55 2,561.33 2,704.88 2,802.70 2,890.30 2,956.12 3,124.08 3,252.74 3,372.72 Less other Oper. Curr. Liab. (BS line item) 982.43 1,060.12 1,116.47 1,200.02 1,301.97 1,407.73 1,510.95 1,604.90 1,675.08 1,739.88 Invested Capital 1,041.07 2,699.24 2,485.21 2,634.87 2,715.90 2,790.58 2,842.80 3,003.72 3,127.11 3,242.22 WACC 15.38% 15.38% 10.32% 10.32% 10.32% 10.32% 10.32% 10.32% 10.32% 10.32%NOPLAT 2,367.60 3,257.57 2,545.19 2,981.85 3,395.20 3,809.06 4,198.41 4,553.76 4,809.42 5,048.73 Beg Invested Capital 132.21 1,041.07 2,699.24 2,485.21 2,634.87 2,715.90 2,790.58 2,842.80 3,003.72 3,127.11 End Invested Capital 1,041.07 2,699.24 2,485.21 2,634.87 2,715.90 2,790.58 2,842.80 3,003.72 3,127.11 3,242.22 ROIC (NOPLAT/Beg IC) 1791% 313% 94% 120% 129% 140% 150% 160% 160% 161%FCF (NOPLAT - Change in IC) 1,458.74 1,599.40 2,759.22 2,832.19 3,314.17 3,734.38 4,146.19 4,392.84 4,686.02 4,933.62 EP (Beg IC * (ROIC-WACC)) 2,347.27 3,097.45 2,266.69 2,725.44 3,123.34 3,528.84 3,910.49 4,260.45 4,499.50 4,726.09

Priceline Group Inc.Weighted Average Cost of Capital (WACC) Estimation

2015Risk Free Rate (30yr T-Bond as of 3/31/16) 2.61%Market Risk Premium (Henry Fund Team Choice) 5.00%Beta (Bloomberg) 1.683 Cost of Equity (Risk Free + (Beta * Mkt Risk) 11.03%Cost of Debt (From the longest maturity USD Bond) 4.90%Cost of Preferred Shares N/AMarginal Tax Rate (Effective) 18.44%Total Shares Outstanding 49.61 Price 1,331.90$ Mkt Value of Equity ( E ) 66,077.65$ FMV of Debt 7,000$ Operating Leases (PV) 393.80$ Mkt Value of Debt ( D ) 7,394$ Mkt Value of Preferred (Pfd) -$

Mkt Value of Firm (E+D+PfD) (V) 73,471.45$ Equity Portion of WACC (Cost of Equity * E/V) 9.92%Debt Portion of WACC (cost of Debt* (1-t) * D/V) 0.40%Preferred Portion of WACC (Cost of Preferred * Pfd/V) -$ WACC 10.32%

Priceline Group Inc.Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation ModelsKey Inputs: CV NOPLAT Growth 3.75% Beg IC 2016 2,485.21 CV ROIC 162% Shares Outstanding 49.61 WACC 10.32% Cost of Equity 11.03%Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020E 2021E 2022EDCF ModelNOPLAT 2,981.85 3,395.20 3,809.06 4,198.41 4,553.76 4,809.42 5,048.73 Beg IC 2,485.21 2,634.87 2,715.90 2,790.58 2,842.80 3,003.72 3,127.11 End IC 2,634.87 2,715.90 2,790.58 2,842.80 3,003.72 3,127.11 3,242.22 ROIC 120% 129% 140% 150% 160% 160% 161%DCF CV (NOPLAT*(1- g/ROIC)/(WACC-g)) 75,088.04 FCF (NOPLAT - Change in IC) 2,832.19 3,314.17 3,734.38 4,146.19 4,392.84 4,686.02 75,088.04 PV of FCF 2,567.30 2,723.23 2,781.52 2,799.43 2,688.56 2,599.76 41,658.15 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 ModelNOPLAT 2,981.85 3,395.20 3,809.06 4,198.41 4,553.76 4,809.42 5,048.73 Beg IC 2,485.21 2,634.87 2,715.90 2,790.58 2,842.80 3,003.72 3,127.11 End IC 2,634.87 2,715.90 2,790.58 2,842.80 3,003.72 3,127.11 3,242.22 ROIC 120% 129% 140% 150% 160% 160% 161%EP CV 71,960.93 EP (Beg IC * (ROIC-WACC)) 2,725.44 3,123.34 3,528.84 3,910.49 4,260.45 4,499.50 71,960.93 Discounted EP 2,470.54 2,566.43 2,628.43 2,640.28 2,607.53 2,496.28 39,923.26 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 1 2 3 4 5 6 6Today 3/31/2016Elapsed Year Fraction 0.249

Priceline Group Inc.Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

1 2 3 4 5 6 6Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020E 2021E 2022EEPS 60.07$ 69.12$ 78.92$ 90.02$ 99.27$ 107.06$ 116.35$ Key AssumptionsGrowth 21.48% 15.06% 14.17% 14.07% 10.28% 7.84% 8.68%CV Growth 6.00%ROE 30.42% 26.74% 25.63% 24.56% 22.85% 20.98% 20.19%Cost of Equity 11.03% 11.03% 11.03% 11.03% 11.03% 11.03% 11.03%Future Cash FlowsP/E Multiple (CV Year) 24.29 EPS (CV Year) 116.35$ Future Stock Price 2,826.43$ Dividends Per Share 17.65$ 30.18$ 35.29$ 38.43$ 54.62$ 67.04$ 1,320.38$ Discounted Cash Flows 15.90$ 24.49$ 25.79$ 25.29$ 32.38$ 35.79$ 704.97$ Intrinsic Value 864.61$ To Today's Price 885.98$

Priceline Group Inc.Relative Valuation ModelsDirect Competitors

EPS EPS Est. 5yrTicker Company Price 2016E 2017E P/E 16 P/E 17 EPS gr. PEG 16 PEG 17EXPE Expedia Inc. $107.82 $5.22 $6.73 20.7 16.0 21.4 0.97 0.75 TRIP TripAdvisor Inc. $66.50 $1.95 $2.45 34.1 27.1 15.8 2.16 1.72 CTRP Ctrip.com International Ltd. $44.26 ($0.30) $0.77 - 57.5 48.3 - 1.19

Average 27.4 33.5 1.6 1.2 PCLN Priceline Group Inc. $1,331.90 $60.07 $69.12 22.2 19.3 15.0 1.5 1.3

Implied Value: Relative P/E (EPS16) $ 1,644.73 Relative P/E (EPS17) 2,318.87$ PEG Ratio (EPS16) 1,403.18$ PEG Ratio (EPS17) 1,260.02$ Broader Travel Market

EPS EPS Est. 5yrTicker Company Price 2016E 2017E P/E 16 P/E 17 EPS gr. PEG 16 PEG 17RCL Royal Caribbean Cruises Ltd. $82.15 $6.08 $7.05 13.5 11.7 28.1 0.48 0.41 HOT Starwood Hotels & Resorts Worldwide Inc.$83.43 $2.81 $3.05 29.7 27.4 4.2 7.07 6.51 DAL Delta Air Lines, Inc. $48.68 $6.61 $7.06 7.4 6.9 22.4 0.33 0.31 EXPE Expedia Inc. $107.82 $5.22 $6.73 20.7 16.0 21.4 0.97 0.75 TVPT Travelport Worldwide Ltd. $13.66 $1.17 $1.38 11.7 9.9 15.6 0.75 0.63 TRIP TripAdvisor Inc. $66.50 $1.95 $2.45 34.1 27.1 15.8 2.16 1.72 CTRP Ctrip.com International Ltd. $44.26 ($0.30) $0.77 - 57.5 48.3 - 1.19

Average 19.5 22.3 2.0 1.6 PCLN Priceline Group Inc. $1,331.90 $60.07 $69.12 22.2 19.3 15.0 1.5 1.3

Implied Value: Relative P/E (EPS16) $ 1,171.41 Relative P/E (EPS17) 1,544.80$ PEG Ratio (EPS16) 1,759.56$ PEG Ratio (EPS17) 1,702.24$

Priceline Group Inc.Sensitivity Analysis

DCF Target Price 1,250.46$ As of 3/31/2016

1.256 1.533 1.583 1.633 1.683 1.733 1.783 1.833 1.883 4.10% 4.30% 4.50% 4.70% 4.90% 5.10% 5.30% 5.50% 5.70%2.00% 1,985.82 1,529.64 1,469.09 1,413.25 1,361.60 1,313.68 1,269.10 1,227.54 1,188.68 38.00% 1,378.19 1,375.49 1,372.81 1,370.13 1,367.45 1,364.79 1,362.14 1,359.49 1,356.86 2.15% 1,923.42 1,492.71 1,435.06 1,381.79 1,332.43 1,286.56 1,243.82 1,203.92 1,166.56 39.00% 1,348.64 1,346.02 1,343.41 1,340.80 1,338.21 1,335.62 1,333.04 1,330.47 1,327.90 2.30% 1,864.88 1,457.56 1,402.60 1,351.73 1,304.51 1,260.56 1,219.56 1,181.21 1,145.28 40.00% 1,319.10 1,316.55 1,314.01 1,311.48 1,308.96 1,306.44 1,303.94 1,301.44 1,298.95 2.45% 1,809.86 1,424.07 1,371.62 1,322.98 1,277.77 1,235.62 1,196.25 1,159.38 1,124.78 41.00% 1,289.55 1,287.08 1,284.61 1,282.16 1,279.71 1,277.27 1,274.84 1,272.41 1,269.99 2.60% 1,754.70 1,390.04 1,340.08 1,293.68 1,250.46 1,210.12 1,172.38 1,136.99 1,103.74 42.00% 1,260.00 1,257.60 1,255.22 1,252.84 1,250.46 1,248.10 1,245.74 1,243.39 1,241.04 2.75% 1,709.17 1,361.60 1,313.68 1,269.10 1,227.54 1,188.68 1,152.28 1,118.12 1,085.99 43.00% 1,230.45 1,228.13 1,225.82 1,223.51 1,221.21 1,218.92 1,216.64 1,214.36 1,212.09 2.90% 1,662.98 1,332.43 1,286.56 1,243.82 1,203.92 1,166.56 1,131.53 1,098.61 1,067.61 44.00% 1,200.90 1,198.66 1,196.42 1,194.19 1,191.97 1,189.75 1,187.54 1,185.33 1,183.13 3.05% 1,619.27 1,304.51 1,260.56 1,219.56 1,181.21 1,145.28 1,111.53 1,079.79 1,049.87 45.00% 1,171.35 1,169.19 1,167.02 1,164.87 1,162.72 1,160.57 1,158.44 1,156.30 1,154.18 3.20% 1,577.84 1,277.77 1,235.62 1,196.25 1,159.38 1,124.78 1,092.26 1,061.63 1,032.73 46.00% 1,141.80 1,139.71 1,137.63 1,135.55 1,133.47 1,131.40 1,129.34 1,127.28 1,125.22

14.44% 15.44% 16.44% 17.44% 18.44% 19.44% 20.44% 21.44% 22.44% 2.75% 3.00% 3.25% 3.50% 3.75% 4.00% 4.25% 4.50% 4.75%4.00% 1,609.70 1,611.24 1,612.78 1,614.33 1,615.87 1,617.42 1,618.98 1,620.53 1,622.09 1.00% 1,144.73 1,169.28 1,195.56 1,223.78 1,254.15 1,286.94 1,322.43 1,360.98 1,402.99 4.25% 1,500.03 1,501.36 1,502.69 1,504.03 1,505.36 1,506.71 1,508.05 1,509.39 1,510.74 1.25% 1,143.89 1,168.42 1,194.68 1,222.88 1,253.23 1,285.99 1,321.46 1,359.98 1,401.96 4.50% 1,404.63 1,405.79 1,406.95 1,408.12 1,409.29 1,410.46 1,411.63 1,412.81 1,413.99 1.50% 1,143.05 1,167.56 1,193.80 1,221.98 1,252.31 1,285.04 1,320.48 1,358.97 1,400.93 4.75% 1,320.89 1,321.92 1,322.94 1,323.97 1,325.00 1,326.03 1,327.07 1,328.10 1,329.14 1.75% 1,142.21 1,166.70 1,192.92 1,221.08 1,251.39 1,284.10 1,319.51 1,357.97 1,399.90 5.00% 1,246.81 1,247.72 1,248.64 1,249.55 1,250.46 1,251.38 1,252.30 1,253.21 1,254.13 2.00% 1,141.37 1,165.84 1,192.04 1,220.18 1,250.46 1,283.15 1,318.54 1,356.97 1,398.86 5.25% 1,180.82 1,181.63 1,182.44 1,183.26 1,184.08 1,184.90 1,185.71 1,186.54 1,187.36 2.25% 1,140.53 1,164.98 1,191.17 1,219.28 1,249.54 1,282.20 1,317.56 1,355.97 1,397.83 5.50% 1,121.65 1,122.38 1,123.11 1,123.85 1,124.58 1,125.32 1,126.05 1,126.79 1,127.53 2.50% 1,139.69 1,164.12 1,190.29 1,218.38 1,248.62 1,281.25 1,316.59 1,354.97 1,396.80 5.75% 1,068.31 1,068.97 1,069.63 1,070.30 1,070.96 1,071.62 1,072.29 1,072.96 1,073.62 2.75% 1,138.85 1,163.26 1,189.41 1,217.48 1,247.69 1,280.31 1,315.62 1,353.97 1,395.77 6.00% 1,019.98 1,020.58 1,021.18 1,021.78 1,022.39 1,022.99 1,023.59 1,024.20 1,024.81 3.00% 1,138.00 1,162.40 1,188.53 1,216.58 1,246.77 1,279.36 1,314.64 1,352.96 1,394.73

2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%4.00% 1,231.29 1,235.48 1,239.67 1,243.87 1,248.06 1,252.25 1,256.44 1,260.64 1,264.83 4.50% 1,231.89 1,236.08 1,240.27 1,244.47 1,248.66 1,252.85 1,257.04 1,261.24 1,265.43 5.00% 1,232.49 1,236.68 1,240.87 1,245.07 1,249.26 1,253.45 1,257.65 1,261.84 1,266.03 5.50% 1,233.09 1,237.28 1,241.48 1,245.67 1,249.86 1,254.05 1,258.25 1,262.44 1,266.63 6.00% 1,233.69 1,237.88 1,242.08 1,246.27 1,250.46 1,254.66 1,258.85 1,263.04 1,267.23 6.50% 1,234.29 1,238.49 1,242.68 1,246.87 1,251.06 1,255.26 1,259.45 1,263.64 1,267.83 7.00% 1,234.89 1,239.09 1,243.28 1,247.47 1,251.66 1,255.86 1,260.05 1,264.24 1,268.44 7.50% 1,235.49 1,239.69 1,243.88 1,248.07 1,252.27 1,256.46 1,260.65 1,264.84 1,269.04 8.00% 1,236.10 1,240.29 1,244.48 1,248.67 1,252.87 1,257.06 1,261.25 1,265.45 1,269.64

-4.00% -3.00% -2.00% -1.00% 0.00% 1.00% 2.00% 3.00% 4.00%78.00% 1,269.81 1,269.20 1,268.59 1,267.98 1,267.37 1,266.76 1,266.15 1,265.54 1,264.93 79.00% 1,265.69 1,265.05 1,264.42 1,263.78 1,263.14 1,262.50 1,261.87 1,261.23 1,260.59 80.00% 1,261.58 1,260.91 1,260.25 1,259.58 1,258.92 1,258.25 1,257.58 1,256.92 1,256.25 81.00% 1,257.46 1,256.77 1,256.07 1,255.38 1,254.69 1,254.00 1,253.30 1,252.61 1,251.92 82.00% 1,253.35 1,252.63 1,251.90 1,251.18 1,250.46 1,249.74 1,249.02 1,248.30 1,247.58 83.00% 1,249.23 1,248.48 1,247.73 1,246.99 1,246.24 1,245.49 1,244.74 1,243.99 1,243.24 84.00% 1,245.12 1,244.34 1,243.56 1,242.79 1,242.01 1,241.23 1,240.46 1,239.68 1,238.90 85.00% 1,241.00 1,240.20 1,239.39 1,238.59 1,237.78 1,236.98 1,236.17 1,235.37 1,234.57 86.00% 1,236.89 1,236.06 1,235.22 1,234.39 1,233.56 1,232.73 1,231.89 1,231.06 1,230.23

Normal Cash %

Terminal Advertising Revenue Growth

Rate

Terminal Merchant Revenue Growth Rate

Merchant COGS

Pre-Tax Cost of Debt

SG&A Expense/Revenue

Beta

Terminal Agency Revenue Growth Rate

Risk Free Rate

Tax Rate

Market Risk Rate

NOPLAT CV Growth

Priceline Group Inc.Key Management Ratios

Fiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022ELiquidity RatiosCurrent Ratio = Current Assets/Current Liabilities 5.41 3.82 2.47 2.56 2.89 4.68 4.08 4.75 7.30 7.88 Current Ratio ex Cash = Curr Assets ex Cash/Curr Liab 4.47 1.53 1.44 1.42 0.88 1.33 0.89 0.89 1.25 1.24 Quick Ratio = (Cash+Marketable Securities+Accounts Receivables)/Current Liabilities 5.28 3.58 2.29 2.37 2.77 4.49 3.95 4.61 7.10 7.69 Quick Ratio ex Cash 4.34 1.29 1.26 1.22 0.75 1.13 0.76 0.75 1.06 1.05 Operating Cash Flow Ratio = Cash Flow From Operations/Current Liabilities 1.67 2.11 2.16 1.97 1.34 2.14 1.52 1.58 2.27 2.31 Activity or Asset-Management RatiosTotal Assets Turnover = Sales/Total Assets 0.65 0.57 0.53 0.55 0.49 0.50 0.47 0.45 0.44 0.43 Total Assets Turnover ex Cash 0.74 0.72 0.58 0.61 0.64 0.68 0.71 0.74 0.75 0.76 Financial Leverage RatiosDebt-to-Equity Ratio=Total Debt/Total Equity 0.28 0.45 0.70 0.67 0.61 0.47 0.47 0.41 0.33 0.30 Debt Ratio = Total Liab/Total Assets 0.34 0.43 0.50 0.48 0.45 0.39 0.38 0.35 0.30 0.29 Debt Ratio ex Cash 0.39 0.54 0.54 0.53 0.59 0.53 0.58 0.57 0.52 0.51 Equity Ratio = Total Equity/Total Assets 0.66 0.57 0.50 0.52 0.55 0.61 0.62 0.65 0.70 0.71 Equity Ratio ex Cash 0.76 0.73 0.55 0.57 0.73 0.82 0.94 1.05 1.18 1.27 Profitability RatiosGross Margin Ratio= (Sales-COGS-SG&A)/Sales 35.94% 36.41% 35.33% 37.44% 39.17% 40.53% 41.54% 42.35% 42.81% 43.23%Profit Margin Ratio = Net Income/Sales 27.86% 28.69% 27.66% 28.64% 30.14% 31.08% 32.24% 32.74% 33.15% 33.72%ROA = Net Income/Avg Total Assets 22.25% 19.08% 15.77% 16.08% 16.22% 16.03% 16.21% 15.56% 15.11% 14.88%ROE= Net Income/Shareholder Equity 48.57% 35.05% 29.78% 32.56% 34.73% 29.81% 28.55% 26.49% 24.14% 22.17%Payout Policy RatiosNo dividendPayout Ratio = Repurchase/Net Income 46.68% 30.98% 117.58% 104.76% 30.58% 54.86% 49.26% 45.67% 43.22% 61.37%

Priceline Group Inc.Valuing LeasesPresent Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013)

Operating Operating OperatingFiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases #REF! Leases2016 92.552 2015 79.902 2014 49.6912017 80.262 2016 73.853 2015 48.8122018 71.612 2017 59.583 2016 43.5572019 61.286 2018 50.239 2017 37.4462020 52.957 2019 42.918 2018 30.985Thereafter 106.859 Thereafter 130.891 Thereafter 109.535Total Minimum Payments 465.528 Total Minimum Payments 437.386 Total Minimum Payments 320.026Less: Interest 71.73 Less: Interest 74 Less: Interest 58PV of Minimum Payments 393.80 PV of Minimum Payments 364 PV of Minimum Payments 262

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating LeasesPre-Tax Cost of Debt 4.90% Pre-Tax Cost of Debt 4.90% Pre-Tax Cost of Debt 4.90%Number Years Implied by Year 6 Payment 2.0 Number Years Implied by Year 6 Payment 3.0 Number Years Implied by Year 6 Payment 3.5

Lease PV Lease Lease PV Lease Lease PV LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment1 92.552 88.2 1 79.902 76.2 1 49.691 47.42 80.262 72.9 2 73.853 67.1 2 48.812 44.43 71.612 62.0 3 59.583 51.6 3 43.557 37.74 61.286 50.6 4 50.239 41.5 4 37.446 30.95 52.957 41.7 5 42.918 33.8 5 30.985 24.46 & beyond 52.957 78.3 6 & beyond 42.918 93.6 6 & beyond 30.985 77.5PV of Minimum Payments 393.80 PV of Minimum Payments 363.8 PV of Minimum Payments 262.2

Final calcs in (Millions)

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol PCLNCurrent Stock Price $1,331.90Risk Free Rate 2.20%Current Dividend Yield 0.00%Annualized St. Dev. of Stock Returns 28.20%

Average Average B-S ValueRange of Number Exercise Remaining Option of OptionsOutstanding Options of Shares Price Life (yrs) Price GrantedVested 88,687 383.06 5.40 994.61$ 88,209,316$ Unvested 637,257 1070.10 1.90 373.13$ 237,777,440$ Total 725,944 986.17$ 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 OutstandingNumber of Options Outstanding (shares): 0.73Average Time to Maturity (years): 2.33Expected Annual Number of Options Exercised: 0.31Current Average Strike Price: 986.17$ Cost of Equity: 11.03%Current Stock Price: $1,331.90

2016E 2017E 2018E 2019E 2020E 2021E 2022EIncrease in Shares Outstanding: 0.31 0.31 0.11 0.00 0.00 0.00 0.00Average Strike Price: 986.17$ 986.17$ 986.17$ 986.17$ 986.17$ 986.17$ 986.17$ Increase in Common Stock Account: 308 308 104 - - - - Change in Treasury Stock 3,000 1,000 2,000 2,000 2,000 2,000 3,000Expected Price of Repurchased Shares: $1,331.90 1,478.74$ 1,641.77$ 1,822.78$ 2,023.74$ 2,246.86$ 2,494.57$ Number of Shares Repurchased: 2.25 0.68 1.22 1.10 0.99 0.89 1.20 Shares Outstanding (beginning of the year) 49.61 48 47 46 45 44 43Plus: Shares Issued Through ESOP 0.31 0.31 0.11 0.00 0.00 0.00 0.00Less: Shares Repurchased in Treasury 2.25 0.68 1.22 1.10 0.99 0.89 1.20 Shares Outstanding (end of the year) 47.67 47 46 45 44 43 42

(Assumes common stock and additional paid in capital are combined into one account).