Not long ago the $3.3 billion T. Rowe Price Media & Telecommunications Fund was selling its Priceline shares. With the travel site’s stock deep into a five-year, 1,500% run-up, it seemed prudent for the fund, which has trounced its peers with a 15.9% average return over the past 10 years, to take profits. But when Paul Greene, 36, took over as lead manager last May, he started buying Priceline again. Previously an analyst for the fund, Greene has long championed Priceline and remains bullish. Here’s why.
1. Priceline has a secret weapon
In the U.S. people associate Priceline with its “Name your own price” system and spokesman William Shatner. But well over half its revenues and profits come from outside the U.S., mostly through Booking.com, the fast-growing European hotel reservation site Priceline bought in 2005. A 2012 deal with China’s Ctrip gives the Chinese access to Booking.com’s unmatched inventory of 355,000 hotels (and Western travelers access to Chinese hotels). And Greene believes Booking.com will prosper in the U.S., where it’s just getting started.
2. And it dominates in a key metric
Greene says the success of Booking.com has much to do with its “conversion rate,” or the percentage of users who actually purchase a ticket or hotel room. Travel sites hold these stats close to the vest, but Greene says that Priceline’s sites are much better than Expedia, its primary competitor, at getting shoppers to pull the trigger. “The gap is pretty big,” he says. The impact of this is enormous because online travel sites get much of their traffic from search engines — and Google’s algorithms value conversion rates highly.
3. More traffic keeps users happier
Priceline’s strong conversion rate creates two mutually reinforcing business advantages. First, the company needs to spend less than competitors on search ads to attract the same amount of traffic, even as it generates more revenue with every dollar. Second, explains Greene, better traffic makes Priceline’s sites more attractive to hoteliers. “That creates a network effect that feeds on itself,” he says. “The more users you get, the more supply you have.” And greater selection makes it likelier that users will find something they want.
4. The stock still isn’t overpriced
Doesn’t the stock’s stunning rise, from $115 in January 2008 to a recent $1,143, give Greene pause? “If you knew how many times I’ve heard that over the years,” he says, laughing. Greene expects top-line growth of at least 30% in 2014 and 20% for several more years. Given that, he says, Priceline’s current price looks “reasonable” at 22 times projected 2015 earnings. “Everything I liked about Priceline when it was a $100 or $150 stock is true today,” he says. “This is a stock we think we can own for several years.”
This story is from the February 24, 2014 issue of Fortune.
