Priceline's Exposure to U.K. Is Manageable

We estimate that the United Kingdom is around 15% of

Forecasting the economic impact from Brexit is challenging, but we note that both Priceline and European travel bookings remained fairly resilient in 2011 through 2013 despite the uncertainty of sovereign debt and financial unity that existed in the eurozone and which drove lower overall GDP growth at that time.

We plan to lower our $1,800 fair value estimate on Priceline by low-single-digits, to account for sterling currency headwinds that mostly impact this year and for some slowdown in European GDP growth due to the uncertainty that might be created by Brexit. We maintain Priceline's narrow moat that is driven by an increasingly powerful network and recommend investors take advantage of pullbacks.

According to Phocuswright, the U.K. represents 27% of the total European online travel bookings market. We estimate that Priceline gets around 55% of its total bookings from European customers, so assuming that the company's mix to the U.K. is similar to the overall market results in the company having around 15% of its total bookings based for the country.

Although slowing to some degree, European travel and Priceline bookings were fairly resilient during the European GDP slowdown that occurred in 2012 and 2013. European GDP was roughly flat during 2012 and 2013, declining from around 2% growth the prior two years. Despite that economic slowdown, Europe travel bookings growth (based in euros) was 1.8% in 2011, 6.1% in 2012, and 1.2% in 2013. Meanwhile, Priceline's total bookings growth was 59% in 2011, 31% in 2012, and 38% in 2013. Finally, Europe RevPAR was up high-single-digits in both 2011 and 2012 before dropping to low-single-digits growth in 2013.

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