YOU ARE HERE: LAT HomeCollections

Priceline Unit Closes; Stock Falls 38%

E-tailing: Investment of $125 million is not enough to save name-your-own price gasoline and groceries WebHouse Club. Second licensee also shuts down.

October 06, 2000|From Times Wire Services

STAMFORD, Conn. — stock plunged 38% on Thursday after the demise of its licensee for name-your-own-price gasoline and groceries, Priceline WebHouse Club.

WebHouse's surprise shutdown over the next 90 days is the latest bad news for Priceline, which brings together buyers and sellers of everything from cars to airline tickets and hotel rooms. Priceline warned last week its third-quarter revenue would fall short of Wall Street estimates.

The move comes just weeks after Priceline founder and Vice Chairman Jay Walker pumped $125 million into WebHouse by selling part of his Priceline stake to big-name investors.

Walker told Reuters he was unable to raise enough money to keep closely held WebHouse open, despite several hundred million dollars in private investment.

"We reached the conclusion that we can't raise the substantial capital we need to finish the job," Walker said.

A second Priceline licensee, Perfect Yardsale Inc., which offered used merchandise through the Priceline Web site, also announced Thursday it was going out of business.

Priceline shares closed down $3.56 at $5.81 on Nasdaq. The price is 96% below its record close of $162 in April 1999, shortly after the company went public.

WebHouse had drawn 2 million customers and notched 7 million transactions in less than a year, Walker said. But raising money for a groceries-and-gas business was too difficult, given investors' caution this year about Internet companies.

The two licensees' demise shows that Priceline's Internet-based business model may not revolutionize retail pricing as once thought, said Ken Cassar, a senior retail analyst for the Internet research firm Jupiter Communications.

The system works for travel, Cassar said, because the amount of time customers spend ordering online is worth the savings on high-cost items such as airline tickets and hotel rooms. But for less expensive items, it's often too time-consuming to justify, he said.

Heath Terry, an analyst with Credit Suisse First Boston, said WebHouse's closure raised questions about selling lower-priced goods, rather than services like tickets and hotel rooms, through the Priceline model.

"It's not a complete surprise that WebHouse decided to close up shop," he said. "It's a real surprise that it came this quickly [after Walker's investment]."

In the last two months, Walker sold $240 million in Priceline shares to pump money into WebHouse. The buyers were Vulcan Ventures, the investment arm of Microsoft co-founder Paul Allen; media tycoon John Malone's Liberty Media Group; and Saudi billionaire Prince Al Waleed ibn Talal ibn Abdulaziz al Saud.

WebHouse has about 375 employees and licensed Priceline's name-your-own-price business model to offer gasoline and groceries on Priceline's Web site (

Priceline held a warrant in WebHouse. It will post a noncash loss for the value of the warrant in the third quarter.

WebHouse will pay refunds to customers by Oct. 20 and use its $70 million in working capital to wind down operations, Walker told Reuters.


Associated Press and Reuters were used in compiling this report.

Los Angeles Times Articles