Pcln Initiation 1-19-2011 Final

8/7/2019 Pcln Initiation 1-19-2011 Final

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PLEASE SEE PAGES 16-19FOR IMPORTANT DISCLOSURES, REG AC ANALYST CERTIFICATION AND DISCLAIMERS

Analyst: Brian Bolan 773-413-0285 [email protected] January 19, 2011

WILLIAMS CAPITAL RESEARCH

PCLN OUTPERFORM Curr. Q. 1 yr ago Q

Price $434.24

Price Target $485 (Rev in $bns)

52 Week High $443.19 Rev prev.

52 Week Low $173.32 Rev new 2.338 3.113 3.744 0.759 0.541 0.449 0.604 0.812

NTM P/E 24.6 EPS prev.

Market Cap $21.32B EPS new 8.55 13.58 17.26 $3.32 $1.99 $2.57 $3.94 $6.25 $

Ent Value $20.63B P/E 50.8 32.47 25.55

Shares Outstanding 49.10M

Avg Daily Volume 1.077M

Cash/Share 30.05

BV/Share 33.35

12/31/2009 3/31/2011 6/30/2011 9/30/2011 12/31

Key Data

Fiscal Year Next 4 Quarters

FY09A FY10E FY11E 12/31/2010

Priceline Investment Thesis Summary

Priceline.com survived the dot com bubble and attempts by management to make it a service for everyone selling

anything. The days of Priceline.com mortgage are history and management now has a singular laser focus on the

travel industry.

By successfully aggregating more than 86,000 hotels worldwide, the company is well positioned to benefit from

secular growth in the hotel industry. With occupancy rates around 60% for most hotels, Priceline.com offers the

potential to sell inventory to a diverse group of consumers. Airline tickets and rental cars are also part of the

revenue mix but 80% of all Priceline.com transactions are for hotels.

Despite having less reach than its competitor and less traffic, Priceline.com trades at a premium to most of the

industry. We believe this is due to the low debt structure, a history of earnings outperformance and considerable

growth that the company is expected to have.

We initiate coverage of Priceline.com with a outperform rating and $485 price target. Recent developments in the

airline sector have been a boon for Priceline as competitors removed certain carriers from their listings. Airlines

then encouraged consumers to use Priceline. The near term worry of more airlines following suit does give us

pause to increase air gross revenues in future quarters, but we believe that consumers will continue to use OTAs

and expect increased penetration in the hotel and rental car segments to make up for any revenue decreases from

airlines.

quity Research: Priceline.com Incorporated (PCLN)nitiating Coverage: Outperformanuary 19, 2011 Initiating Coverage on Priceline with an Outperform rating

and a price target of $485

nternet Analyst: Brian Bolan 773-413-0285; [email protected]

rading Desk: NY 800-924-1511 CT 800-688-6349
mailto:[email protected]:[email protected]:[email protected]


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WILLIAMS CAPITAL RESEARCH PAGE 2 January 19, 2011

B r i a n B o l a n B o l a n @ w i l l c a p . c o m T r a d i n g N Y 8 0 0 - 9 2 4 - 1 5 1 1 , C T 8 0 0 - 6 8 8 - 6 3 4 9

Company Background

Priceline.com came to prominence for its Name Your Own Price system, where travelers would name

their price for airline tickets, hotel rooms, car rentals and vacation packages. The price would be

compared to undisclosed prices in the Priceline database, with the purchaser knowing the location and

name of the rental car company, airline or hotel only after the purchase had gone through, with no rightsto cancel.

Priceline's cut of the proceeds was the difference between the price an individual named and the price charged by

the service establishment. More recently, it has moved to a more traditional model where travelers are presented

prices and are also told the name of the establishment. Travelers can still choose to name their price for airline

tickets, hotel rooms and rental cars.

Priceline.com also experimented with selling gasoline and groceries under the Name Your Own Price model in

2000 via WebHouse Club. Priceline also got into the online auction business with Priceline Yard Sales, where

individuals would use the Priceline system to haggle for various second-hand items and trade them in person.

Priceline also sold long distance telephone service and automobiles under the Name Your Own Price model. Allof these experiments were terminated in 2002.

Priceline works with 78,000 chain owned and independently owned hotels in 84 countries. Hotels are focus of

sales for Priceline.com as the market is highly fragmented and represents more than 80% of the units sold. There

are 10 domestic and 20 international airlines participating in the Name Your Own Price System.

Booking.com

Established in 1996, Booking.com guarantees prices for any type of property, ranging from small independent

hotels to a five star luxury through Booking.com. The Booking.com website is available in 36 languages andoffers over 86,000 hotels in 81 countries.

Agoda.com

In November, 2007 Priceline acquired the Bangkok and Singapore-based Agoda, an online hotel reservations

service which providing a service similar to Priceline's but specializing in Asia Pacific. Agoda's network includes

9,000 hotels in Asia and more than 49,000 worldwide.

Business Models - Agency vs. Merchant

Agency gross profit is derived from travel related transactions where Priceline.com is not the merchant of record

and where the prices of services are determined by third parties. Agency gross profit, which represented the

substantial majority of total gross profit in 2009, consisted of travel commissions, customer processing fees; and

Global Distribution Systems (GDS) reservation booking fees.

Merchant gross profit is derived from transactions where Priceline.com is the merchant of record and suppliers

determine the price they will accept from the customer. Merchant gross profit consisted of transaction gross


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profit representing revenue charged to a customer, less the cost of revenue, transaction gross profit representing

the amount charged to a customer, less the amount charged by suppliers in connection with the hotel room

reservations provided through the merchant price-disclosed hotel service, customer processing fees and ancillary

fees.

Traffic to Priceline

The clickstream for Priceline.com is provided below.

Exhibit 1 Upstream Sites

Which sites did users visit immediately preceding priceline.com?

13.56% google.com

11.51% kayak.com

11.07% expedia.com7.23% travelocity.com

4.35% hotwire.com

3.88% orbitz.com

3.68% yahoo.com

2.84% tripadvisor.com

2.41% facebook.com

2.28% bing.com

Source: Alexa.com

This table shows a sizeable dependence on the major search engines and a surprisingly high number of referrals

from properties that compete directly with Priceline.com. We believe that this suggests that consumers are

looking at multiple sources for pricing information.

Management

Jeffery H. Boyd

President and Chief Executive Officer

Jeff Boyd has served as a Director of Priceline.com since October 2001. Mr. Boyd has been President ofPriceline.com since May 2001 and Chief Executive Officer since November 2002. Prior to joining Priceline.com,

Mr. Boyd was Executive Vice President, General Counsel and Secretary of Oxford Health Plans, Inc. (UNH,

$40.88Not rated). Mr. Boyd is a member of the board of directors for Bankrate, Inc. and BEN Holdings, Inc.

(the holding company for Bankrate, Inc.).


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Daniel J. Finnegan

Chief Financial Officer and Chief Accounting Officer

Daniel J. Finnegan is Senior Vice President, Chief Financial Officer and Chief Accounting Officer of

Priceline.com. Mr. Finnegan has been Chief Financial Officer since January 2009. Mr. Finnegan was the

Company's Senior Vice President, Controller and Chief Accounting Officer from October 2005 to January 2009.

Mr. Finnegan joined Priceline.com in April 2004 as Vice President and Chief Compliance Officer. Prior to joining

Priceline.com, Mr. Finnegan served as Chief Financial Officer for CS Technology, Inc., a consulting company.

Robert J. Mylod Jr.

Vice Chairman and Head of Worldwide Strategy and Planning

Bob Mylod Jr. was appointed Vice Chairman and Head of Worldwide Strategy and Planning in January 2009.

Before becoming the Companys Vice Chairman, Mr. Mylod was Chief Financial Officer from November 2000 to

January 2009. Prior to joining Priceline.com, Mr. Mylod was acting Chief Financial Officer for WebHouse Club,

Inc., a privately held e-commerce company and a licensee of Priceline.com, and a Principal at Stonington

Partners, a private equity investment firm. Mr. Mylod is on the board of directors of EverBank Financial Corp. Hewill be retiring on March 31, 2011.

Financial Statement Analysis

Merchant revenues have grown 34% and 24% in the last two calendar years for Priceline.com as units sold

increased 41% and 40% in the same respective periods. Priceline.com saw 23.5% increase in sales in the third

quarter of 2010 compared to the year ago period and roughly 11% ahead of the prior quarter. We believe that

sales growth should continue for the foreseeable future barring a terrorist attack or similar catastrophe.

We note that the company had a significant increase in online advertising in 1Q10, jumping 22% from the prior

period and 66% versus the same period a year ago. We expect that the company will continue to focus on online

advertising over the near term.

Balance Sheet

At the end of 3Q10, Priceline had more than $1.4 billion in cash and equivalents and short term investments on

the balance sheet. This is significant increase from the year ago period when the company had approximately

$721 million.

At the end of 3Q10, Priceline.com had approximately $471 million in long term debt and an increase as Priceline

took advantage of historic low rates in March.

Financial Outlook

As airlines increase prices due to higher oil prices, we believe that consumers will continue to look to OTAs for

discounts and optimal rates. This bodes well for Priceline despite the expected weakness in European travel

market. We believe that there could be upside to our 2011 EPS estimate of $17.26.


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Investment Thesis

The online travel agent (OTA) industry has four major players that compete for the business of a highly

fragmented hotel industry and, to a lesser extent, the airline industry and rental car industry. Airlines sales

provide large gross dollar bookings, but contribute little to the bottom line. The rental car industry, while possibly

constrained by supply, has the exact opposite problem the airlines have in that their gross bookings are very small.

The saviour of the sector is the hotel industry, which is highly fragmented and the biggest contributor to netincome of the three major suppliers.

We believe that hotel bookings will continue to drive the OTA industry due to the consolidation in the airline

industry (United and Continental) (UAL, $25.02 - Not Rated) and in the rental car business (Hertz (HTZ, $14.21

- Not rated) plans to acquire Dollar Thrifty (DTG, $48.08 - Not rated), although Avis (CAR, $14.52 - Not rated)

may show up as a late bidder). The hotel industry is coming off of a consolidation boom which saw both strategic

(hotel buying hotel) and financial (private equity buying hotel) buyers bidding up a market that had severe

capacity concerns in 2005-2007. Another chronic problem for the hotel industry has been its ill timed expansions

that seem to coincide with economic downturns. With occupancy rates around 60%, hotels are lowering average

daily rates (ADR) to stimulate demand, and continue to look to OTAs to find customers.

There are several concerns that the OTAs face in both the short and near terms. One of the biggest is the

economic concerns of Europe. Priceline.com in particular generates a majority of its revenues from the hotel

business in Europe which, given the economic uncertainty, may not be a destination of choice for foreign

travelers. The situation could be compounded should a second volcano from Iceland erupt and possibly disrupt

travel on an even larger scale than the Eyjafjallajokull eruption in April 2010.

Longer term, the implications of contract re-negotiations with several airlines loom on the horizon for 2012.

Crude oil prices, which continue to dramatically affect the airline industry and which also affect the hotel and

rental car industries, could move higher and again strangle the leisure travel market as they did in the summer of

2008.

Our view of the industry is that there will be several players for some time to come. Competition, whether via

metasearch players like Kayak.com or other OTAs, tends to benefit the consumer and stimulate travel. We view

Expedia.com (EXPE: $26.69 , Market Perform) as having the deepest breadth throughout the categories of

services provided, and Orbitz (OWW - $5.30,Market Perform) the weakest in that category. Priceline.com is our

top pick in the space due to its clean balance sheet, brand recognition and retention and market perception of

being a leader in the space. Expedia is also attractive but its brand is diluted across several properties and its

financial structure may worry some. Orbitz, founded by five airlines, has shifted its focus to hotels and continues

to try to build its brand, but its debt structure may impede future third party investment.

Industry Discussion

As we look at the online travel industry we want to highlight a few key areas to better understand the industry as a

whole. First we will discuss the primary components of the online travel agent, the suppliers of travel services.

Then we will look into the fees and metasearch and, finally, we will touch on traffic.

Airline Segment

The airline industry has been plagued by overcapacity, financial losses and volatility in oil prices. Consolidation

continues in the space, with the most recent tie up of United Airlines and Continental (UAL, $25.02Not Rated)


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showing that even the biggest airlines need to find ways to save on costs. From the consumer perspective, bigger

isnt necessarily better as less competition ultimately drives prices higher. The same is true for OTAs in that

fewer suppliers could lead to lower revenues sources and thus potential decreases in future sales. Although an

airline ticket does a lot to boost gross bookings, it is generally a very small contribution to net income.

The recent moves by American Airlines (AMR, $8.29 - Not rated) and Delta (DAL, $11.70 - Not rated) point to

further consolidation and cost cutting in the airline industry. We expect other airlines to look the potential ofsqueezing the OTAs for better pricing or face a 100% elimination of supply. Positioning in front of negotiations

is one move that Expedia has employed and it resulted in the airline suggesting consumers use Priceline.com.

The eventual consumer decision has traditionally been one that has included competitor information unless a

purchase comes solely from brand loyalty or brand dislike. Our research shows that air related revenue for all

OTAs has been dropping over the last few years.

Rental Car Segment

The proposed consolidation of two major players in the rental car industry supports some recent anecdotal stories

of very low supply of rental cars in select markets. The inventory issues of rental car companies is a problem that

can be solved quite quickly and with minimal impact to the OTAs. The health of the business appears to berelatively stable with a small majority of rental cars coming from corporate travelers as opposed to leisure. Avis

notes its mix is a 60/40 split of corporate and leisure customers respectively. Currently, the rental car sector is a

small focus of the OTAs.

Hotel Segment

With a highly fragmented ecosystem, the hotel industry appears as though it will always need the OTAs to

inform potential consumers and provide an easy transaction for those wishing to be customers. Large national

chains serve as good proxies for the entire industry, but there are many smaller entities that will require OTAs to

maintain acceptable occupancy rates.

The hotel sector has historically been out of touch with the supply and demand of the broader market over the last

few decades. When times were good, supply was constrained and new construction was initiated. As the broader

economy cooled, many new properties came on line just as demand was close to or had bottomed. More recently

the pattern has repeated itself as supply grew in the face of economic recession. Hotel News Resources has

estimated that there are 1.1 million new hotel rooms under construction as of April 2010, suggesting that the trend

will continue.

While lower occupancies have historically increased the availability of discounted hotel rooms, and a lower rate

of ADR growth can positively impact underlying room night growth, lower ADRs also decrease Expedia revenue

per room night as their payment varies proportionally with the room price. Revenue per room night in 2009

declined 17% primarily due to the downward movement in ADRs as well as adverse movements in foreign

exchange rates and lower fees. Key leisure markets like Las Vegas and Hawaii have seen dramatic declines in

ADRs.

Fees and Metasearch

The OTAs are coming off the anniversary of a reduction in fees that occurred in 1Q09. This reduction in fees

was spurred on by the success of the metasearch companies such as Kayak.com. Metasearch is simply an

aggregator of all of the data from several sites presented to the consumer in a usable format to help locate the


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lowest price or best outcome from multiple service provider locations. Other metasearch companies in the past

would scrape data off sites, sometimes with permission, mostly without. Kayak.com employs a different

model, one where the OTAs pay them forplacement.

This aggregation of prices ended up prompting a price war that saw the end of most fees by the OTAs. This led

to lower revenue and earnings for OTAs and lower prices for consumers. The advertising expense that the

OTAs pay Kayak.com and the other metasearch sites is likely to be the focus of other technology companies,particularly Google (GOOG, $639.63 - Outperform) which has purchased ITA Software. Yahoo! (YHOO,

$16.50Market Perform) has a travel site that has transactions powered by Travelocity, whereas Google is not

likely to partner for a transaction but instead deliver consumers to advertisers. This means that Google is a threat

to the metasearch companies more than the OTAs, and Yahoo!s partnership with Travelocity potentially

limiting the amount of advertising the other OTAs are willing to spend on Yahoo!.

The graph below from Compete.com shows that Expedia holds an edge over the other OTAs in terms of unique

users per month over the last year. Expedias depth of portfolio is the likely reason for the sizeable advantage it

enjoys over its rival OTAs.

Exhibit 2

Macro Concerns for OTAs

The OTAs are facing a challenging 2011. The weakening of the Euro may become a material problem for the

entire industry as US-based travelers, who would normally take leisure trips to Europe when the exchange rate is

so favorable, may not travel abroad due to the economic concerns in multiple countries. Those same concerns

cast doubt on the amount of intra-European leisure travel as well, in effect causing a double hit to demand.

Asian travel is also coming under pressure as civil unrest in Thailand will undoubtedly curtail a percentage of

travel to the region. Australia and Canada have lowered the threat level to its citizens that have planned travel but

still advise that people use caution and reconsider their travel plans.

The volcano in Iceland that disrupted air travel in Europe in April 2010 due to the massive ash cloud may see its

larger neighbor erupt in the near term as well. Mid-May earthquakes around the site of the larger Katla volcano

were thought to signal an eruption in near future. Although the near term in geological time could be several

decades, it could also mean in the next several months or quarters. Should this volcano erupt, we would believe

that shares of OTA companies will face severe pressure as European travel would likely halt entirely.


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Finally, domestic concerns over the oil spill in the Gulf of Mexico have derailed travel in several Gulf states,

particularly in the tourist-heavy Florida Gulf coast. The struggles of the Gulf Coast have been well documented

and there is limited proof of any full scale tourism increase. This may benefit other domestic travel destinations,

but concerns of a double dip recession may keep the leisure traveler spending less than average again this year.

Comparable Companies

OTAs compete directly with one another (Priceline.com, Expedia, Orbitz and Travelocity) as well as many other

firms. The OTAs offer transaction services that separate them from the metasearch players such as Kayal.com

and the Fly.com division of TravelZoo.

Priceline.com Expedia and Orbitz compete for advertising revenue with large internet portal sites, such as

America Online and MSN who offer listing or other advertising opportunities for travel-related companies. The

companies also compete with search engines like Google, Bing and Yahoo! Search that offer pay-per-click

advertising services.

Priceline.com (NASDAQ: PCLN - Rated Outperform) - Priceline.com Incorporated enables consumers to usethe Internet to save money on a variety of products and services. The Company's product allows customers to

name their own price on products or services and communicates that demand directly to participating sellers or

to their private databases. Participants include domestic and international airlines, and hotel chains.

Expedia (NASDAQ: EXPE - $26.69 , rated Market Perform ) - Expedia, Inc. provides branded online travel

services for leisure and small business travelers. The Company offers a wide range of travel shopping and

reservation services, providing real-time access to schedule, pricing and availability information for airlines,

hotels, and car rental companies..

Orbitz. (NYSE: OWW - $5.30, rated Market Perform ) - Orbitz Worldwide, Inc. offers travel services over the

Internet. The Company's website offers air, hotel, vacation package, car rental, cruise, travel insurance, groundtransportation, event ticket, and tour bookings.

Travelzoo (NASDAQ: TZOO - $51.72, Not rated ) - Travelzoo Inc. provides online marketing solutions to the

travel industry. Through the Company's Web site, its newsletter, and by using its listing management software,

travel companies can inform Internet users about their specials. Travelzoo serves companies such as Alamo Rent-

A-Car, Delta Airlines, Expedia, and Hilton Hotels.

Universal Travel Group (NYSE: UTA- $7.20, Not rated ) - Universal Travel Group provides travel services.

The Company's core services include booking services for air tickets, hotels, restaurants as well as tour routing

for customers.

Ctrip.com (NYSE: CTRP - $43.03, Not rated) - Ctrip.com International, Ltd. is a consolidator of hotel

accommodations and airline tickets in China.

Sabre Holdings (Privately Held) - Sabre Holdings, owner of Travelocity, is a world leader in the travel

marketplace, Sabre Holdings merchandises and retails travel products and provides distribution and technology

solutions for the travel industry. Sabre Holdings supports travelers, travel agents, corporations and travel

suppliers around the world.


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Exhibit 3

Symbol$

PriceMarketCap $

2010eps $

eps est.2011 $

Forward P/E(1yr) PE P/B P/S ev/EBITDA

EXPE 26.36 7.18B 1.71 1.98 13.31 15.42 2.69 2.33 8.85

OWW 5.23 539.15M 0.13 0.23 22.74 40.23 2.02 0.67 6.37

TZOO 47.11 787.45M 0.77 0.99 47.59 61.18 18.47 7.17 31.76

AMZN 184.34 82.54B 2.50 3.49 52.82 73.74 12.94 2.67 41.94

EBAY 28.36 36.88B 1.69 1.86 15.25 16.78 2.46 4.09 11.33

YHOO 16.58 21.63B 0.86 0.79 20.99 19.28 1.79 3.50 13.82

GOOG 616.01 196.97B 28.90 33.65 18.31 21.32 4.54 7.11 14.67

PCLN 431.21 21.27B 13.20 17.65 24.43 32.67 12.93 6.97 27.24

Average: 35.08 7.23 4.31 19.50

SOURCE YAHOO FINANCE ALL STOCKS PRICED ON THE CLOSE OF 1/11/11

Amazon.com (AMZN, $191.25 - Not rated), ebay Inc. (EBAY, $29.45 - Not rated)

Conclusion and Valuation

We are initiating coverage of Priceline.com with a Market Outperform rating and a one-year price target of $485.

We estimate topline growth of 11 % in calendar 2011 and expect the company to further pay down debt and

increase cash at the same time. We also recognize that Priceline.com deserves a premium multiple to its peers

due to the lack of large scale debt and its ability to increase cash while paying down debt.

We are wary of potential multiple contraction which would be based on uncertainty in Europe, civil unrest in Asia

and a potential for a double dip domestic recession. Despite those fears of a multiple contraction, we believe that

earnings growth will result in a higher multiple for the stock. 28x our 2011 earnings estimate is well within the

historical range for Priceline.com and it gives us our price target of $485.


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Exhibit 4

Exhibit 5


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Exhibit 6

Exhibit 7


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Exhibit 8


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Exhibit 9 3Q10 Earnings Review


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Exhibit 10 Balance Sheet

2010 Q3

9/30/10

2010 Q2

6/30/10

2010 Q1

3/31/10

2009 Q4

12/31/09

2009 Q3

9/30/09

Cash -- -- -- 203 --

ASSETS

Cash & Short Term Investments 1,476 1,252 1,253 809 721

ReceivablesNet 249 208 132 119 170

InventoriesTotal -- 0 -- 0 --

Prepaid Expenses -- -- 27 -- --

Other Current Assets 115 98 64 95 60

CURRENT ASSETSTOTAL 1,840 1,558 1,477 1,023 950

Property, Plant and EquipmentGross -- -- -- 108 --

Accumulated Depreciation -- -- -- (78) --

Property, Plant and EquipmentNet 36 35 31 30 29

Total Intangible Other AssetsNet 454 663 490 523 530

Other AssetsTotal 871 853 694 781 817

TOTAL ASSETS 2,588 2,272 2,012 1,581 1,514

LIABILITIESAccounts Payable 113 119 75 61 63

Short Term Debt & Current Portion of Long Term Debt 174K 42 78 160 221

Income Taxes Payable 80 -- -- -- --

Other Current Liabilities 314 305 190 188 194

CURRENT LIABILITIESTOTAL 506 466 344 409 478

Long Term Debt 471 474 480 36 50

Deferred TaxesCredit 59 59 36 44 46

Deferred TaxesDebit 159 174 189 254 283

DEFERRED TAXES (99) (115) (153) (210) (237)

Other Liabilities 28 27 25 24 22

TOTAL LIABILITIES 906 852 695 259 313

EQUITY

Non-Equity Reserves 0 0 0 0 0

Minority Interest 44 35 0 0 0

Preferred Stock 0 0 0 0 0

Common Stock 438K 432K 424K 405K 391K

Capital Surplus 2,355 2,401 2,395 2,290 2,237

Retained Earnings (63) (286) (401) (455) (533)

Unrealized Foreign Exchange Gain/Loss (19) (95) -- -- --

Unrealized Gain/Loss on Marketable Securities 311K 474K -- -- --

Treasury Stock (637) (636) (630) (511) (508)

COMMON EQUITY 1,637 1,384 1,317 1,322 1,202

TOTAL LIABILITIES & SHAREHOLDERS EQUITY 2,588 2,272 2,012 1,581 1,514SHARE INFORMATION

Common Shares Outstanding 49 48 47 46 44

() = Negative Values

In U.S. Dollars

Values are displayed in Millions except for earnings per share and where noted

Source: Company reports and Williams Capital Group estimates


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Risks

If the company experiences any or all of the following risk factors, as well as others, the companys stock price

may be affected.

The travel market is susceptible to significant swings. Terrorism, SARS, H1N1 and volcanic ash are just afew random events that can significantly affect travel behaviors of consumers and business travelers alike.Should such an unforeseen event occur, travel patterns are likely to swing and could cause a material impacton revenue and earnings.

Priceline.com is dependent on the leisure travel market and select suppliers. Leisure travel accounts fora majority of travel bookings for Priceline.com and unforeseen catastrophic events that derail travel wouldsignificantly impact the company. The company is also reliant on only 10 domestic airlines for its air t icketingservices.

Competition is intense and moves quickly. Priceline.com faces intense competition from Expedia, Orbitzand Travelocity.com among others. Should a competitor develop a more efficient platform or provide aunique or differentiated service, Priceline would face a significant challenge.

Changes in search engine algorithms could impact Priceline.com. Pricline.com relies on Google, Yahooand other search engines for traffic, changes to the process of how the consumers are routed to their site orsites like Kayak.com, which sends a large amount of traffic to Priceline.com.

Loss of key management. Turnover at Priceline could become a challenge to top management. Shouldlarge scale turnover occur the talent drain will result in an inability to properly serve clients which would putfuture revenues at risk.


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APPENDIXExhibit 11 PricelineOne Year Graph

Source: BigCharts.com

All prices as of 1/18/11

ANALYST CERTIFICATIONI, Brian Bolan, hereby certify that the views expressed in the foregoing research report accurately

reflect my personal views about the subject companies and their securities mentioned in this

report. I further certify that no part of my compensation was, is, or will be directly, or indirectly,

related to the specific recommendations or views contained in this research report.

Financial Interests: Neither I, Brian Bolan,nor a member of my household owns securities in any ofthe subject companies mentioned in this research report. Neither I, nor a member of my household

is an officer, director, or advisory board member of the subject company or has another significant

affiliation with the subject company. I do not know or have reason to know at the time of this

publication of any other material conflict of interest.

By: Brian Bolan


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___________________________________________________________________________IMPORTANT DISCLOSURE INFORMATION

Analyst Compensation: The author's compensation is based upon the value directly or indirectlyattributed to the research services by Williams Capital institutional brokerage clients. The author of

this report is compensated based on the performance of the firm, and has not received anycompensation in the past 12 months from any of the subject companies mentioned in this report.

The performance of the firm is driven by its secondary trading revenues, investment banking

revenues, and asset management revenues.

WILLIAMS CAPITAL RESEARCH STOCK RATING KEY:Outperform: (BUY) In the analyst's opinion, the stock will outperform the sector by 5% over the next12 months.

Perform: (HOLD) In the analyst's opinion, the stock will perform in line with the sector over the next12 months.

Underperform: (SELL) In the analyst's opinion, the stock will underperform the sector by 5% overthe next 12 months.

Prices as of January18, 2011.

Company Ratings History as of January 18, 2011Company Name Ticker Date Action

PriorRating

CurrentRating Price

TargetPrice

Priceline.com PCLN 1-18-11 Initiate coverage none Outperform $440.91 $485

Valuation Methodology:

As of the market close on January 18, 2011, PCLN traded at 32.7 times our 2010 earningsestimate of $13.48 and 25.55 times our 2011 earnings estimate of $17.26. Our price target of$485 is based on a P/E multiple of 28x our 2011 earnings per share estimate.


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Risks The travel market is susceptible to significant swings. Terrorism, SARS, H1N1 and volcanic ash are just a

few random events that can significantly affect travel behaviors of consumers and business travelers alike.Should such an unforeseen event occur, travel patterns are likely to swing and could cause a material impacton revenue and earnings.

Priceline.com is dependent on the leisure travel market and select suppliers. Leisure travel accounts fora majority of travel bookings for Priceline.com and unforeseen catastrophic events that derail travel wouldsignificantly impact the company. The company is also reliant on only 10 domestic airlines for its air ticketingservices.

Competition is intense and moves quickly. Priceline.com faces intense competition from Expedia, Orbitzand Travelocity.com among others. Should a competitor develop a more efficient platform or provide aunique or differentiated service, Priceline would face a significant challenge.

Changes in search engine algorithms could impact Priceline.com. Pricline.com relies on Google, Yahooand other search engines for traffic, changes to the process of how the consumers are routed to their site orsites like Kayak.com, which sends a large amount of traffic to Priceline.com.

ADDITIONAL DISCLOSURE INFORMATION:The Williams Capital Group, L.P. or its Affiliates do and seek to do business with companies

mentioned in its research reports. As a result, investors should be aware that the firm may have a

conflict of interest that could affect the objectivity of this report. Investors should consider this

report as only a single factor in making their investment decision. Additional information isavailable upon request.

Investment Banking Clients is defined as companies in respect of which The Williams Capital

Group, L.P. (the firm) or its affiliates have received or are entitled to receive compensation for

investment banking services in connection with transactions that were publicly announced in the

past 12 months.


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Distribution of Equity Research Ratings as of: January 18, 2011Outperform Perform Underperform

All Research Coverage: 88.9% 11.1% 0%

Universe of IBC: 0% 0% 0%

Internet: 50.0% 50.0% 0%

Internet - IBC: 0% 0% 0%

Investment Banking Disclosures: Within the past 12 months, the research analyst authoring thisreport has not participated in a solicitation of any subject company mentioned within this report,

with or at the request of investment bankers, for investment banking business. Within the past 12

months, the firm and its affiliates have managed or co-managed a public offering of the securities

of a subject company mentioned within this report, and the firm received compensation for

investment banking products or services from the company. The firm does not expect to receive or

intend to seek compensation for investment banking services from this subject company during the

next three months.

Firm Compensation: Within the past 12 months, the firm and its affiliates have not receivedcompensation for any non-investment banking products or services from subject companies

mentioned in this report, and the subject company has been a client of the firm during the past 12

months.

Stock Ownership: The firm and its affiliatesdo not own 1% or more of any class of equity securitydiscussed in this report, and do not make a market in any such securities.

DISCLAIMERThe information and opinions contained in this report were prepared by the firm and have been

derived from sources believed to be reliable, but no representation or warranty, expressed or

implied, can be made as to their accuracy. All opinions expressed herein are subject to change

without notice. This report is for information purposes only and should not be construed as an offer

to buy or sell any securities. The firm makes every effort to use valuation methodologies that it

believes to be reasonable in the derivation of price targets, but we do not guarantee that such

methodologies are accurate.


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To receive any additional information upon which this report is based, please contact the followingindividuals or write to:

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[email protected]

Suling Lew, Head of Institutional Sales or Jack Murphy, Director of Research212-373-4243 203-659-6007
mailto:[email protected]:[email protected]:[email protected]

Documents

Pcln Initiation 1-19-2011 Final