by Kevin Kelleher, contributor
FORTUNE — Few of the dot-com startups that rose in the late 90s and fell in the early 2000s were granted a second act. Of those that were, none has flourished as much as Priceline (PCLN), the online-travel site that appealed to budget tourists with its name-your-price business model.
Over the past five years, Priceline’s stock has risen tenfold, ending 2011 at $467 a share. Over the same period, the Nasdaq Composite has risen 9%. Even so, Priceline still trades well below its 1999 high of $975, when the startup was pitched as a revolutionary web site that would redefine commerce. It never happened, of course, but neither did the company’s demise that many predicted when the dot-com bubble crashed.
Instead, Priceline is a well-managed online-travel site that has slowly built up loyalty among budget travelers as well as a strong international presence. Nearly 80% of its gross bookings came from overseas markets in the first nine months of 2011. And international business is growing faster as well – expanding by 83%, compared to the 14% growth in domestic gross bookings.
Neither is Priceline irrationally valued, like Amazon (AMZN) is, or Netflix (NFLX) was before its spectacular downfall last summer. The S&P 500 has an average PE ratio of 14.5. Priceline trades at 20 times its estimated 2011 earnings and 16 times its projected earnings this year.
Analysts expect revenue to grow 40% in 2011 to $4.3 billion, and earnings per share to nearly double to $23.15 a share from $13.49 a share. Even as its revenue has grown an average of 35% a year, Priceline’s operating margin has increased steadily to 33% so far this year from 10% in 2007.
For all that, Priceline’s remarkable stock rally has stalled in recent months. After peaking at $555 in May, Priceline’s stock has vacillated between $450 and $550 as the company faced some new challenges. Some of the challenges are temporary, such as the floods in Thailand, one of Priceline key destination markets in Asia.
Other challenges may last much longer. Economic uncertainty in Europe and the potential fallout of a sovereign-debt crisis could put a drag on Priceline’s revenue growth for a few quarters. Europe accounts for more than 40% of the company’s revenue.
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Priceline recently said it expects international gross bookings to grow between 39% and 44% in the fourth quarter of 2011, well below the 83% rate of the rest of the year. On the other hand, Priceline has a strong track record of posting earnings that are well ahead of its guidance and the Street’s estimates. So it may be offering especially conservative guidance in the face of economic uncertainty.
Another uncertainty facing the company is Google’s (GOOG) Flight Search feature, which lets users books flights using technology the company acquired in its purchase of ITA Software. So far, Flight Search seems to be having a limited impact on Priceline. CEO Jeffery Boyd said Priceline is trying to integrate advertising on the platform, and a Barclays analyst said Priceline’s reliance on international markets means “the impact to growth and gross profit is likely to be minimal.”
But Priceline has shown a knack for weathering patches of uncertainty before, inching up its operating margin even in lean times. That practice continued in 2011, as personnel costs fell to 10.8% of gross profit in the first nine months of the year, down from 16.6%, while sales and marketing costs fell to 5.2% from 6%. Advertising costs – primarily for online ads – fell slightly to 31.1% of gross profit, down from 31.3%, despite a rise in ad rates on many sites like Facebook.
Given the track record, the long-term growth of the online-travel industry and the likelihood that much of the bad news facing Priceline has been priced into the stock, more analysts and investors are coming out in favor of a positive year for the company. Goldman Sachs analyst Heath Terry gave Priceline a buy rating, citing the lower valuation that the European crisis has left with it. Some notable fund managers are bullish on the stock, as are independent research firms.
Priceline’s first act was the dramatic surge and crash of the dot-com era. Its second ace was quieter, but much more impressive – the tenfold rise in its stock over the past five years. This year could begin a third act for the stock, a period of more moderate growth and the need to navigate a shaky global economy. If Priceline can make that transition, 2012 could be another good year for the company.
