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The Cutting Edge

Priceline Stock Plunges as Plane Ticket Sales Sag

September 28, 2000|JAMES F. PELTZ | TIMES STAFF WRITER

The once-highflying stock of Priceline.com Inc., which already was nose diving this year, was routed again Wednesday after the Internet auctioneer of airline tickets said lower ticket sales would drop its third-quarter results below expectations.

The stock plummeted $7.89 a share, or 42%, to $10.75 in very heavy Nasdaq trading. Back on March 14, the stock traded for $104 a share, but its plunge now has erased more than $15 billion of investors' wealth.

"Today, you can name your own price for Priceline" stock, quipped Mark Brinkley, a trader at the hedge fund Red Wolf Capital Management, alluding to Priceline's advertising slogan of letting consumers name their own price when they bid for empty seats.

But late in the third quarter, the novelty of Priceline.com's system wore thin for several specific reasons, and its woes didn't indicate an overall slowdown in consumers' desire to purchase fares using the Web.

Indeed, increasing promotional fares offered by the airlines themselves in September--including extra discounts for travelers who buy their tickets on the carriers' own Web sites--was one reason Priceline.com cited for its setback.

Priceline.com, based in Norwalk, Conn., also said the chaos within the airline industry this summer--which led to thousands of canceled flights--also helped reduce its sales.

So did a second $20-per-ticket fuel surcharge that the airlines imposed early this month, and Priceline.com said its own promotional efforts led to lower "average-offer and ticket-sale prices" in the third quarter.

All of which led to travelers placing lower-than-expected bids for airline seats, and a subsequent cut in the number of bids that Priceline.com was able to accept. In this year's second quarter, Priceline.com sold 1.3 million airline tickets.

The result: Priceline.com said its third-quarter revenue would be between $340 million to $345 million, compared to analysts' estimates of $360 million to $380 million.

The company also said it expects to post a third-quarter loss before option payroll taxes and other special items that will be about equal to the $1.6 million it lost in the second quarter.

The announcement stunned analysts. "We were blindsided by the weakness in airline ticket sales," said Michael Legg, an analyst at Jefferies & Co., in a bulletin to clients Wednesday.

"This has blown us out of the water," said Tom Breiter, president of Breiter Capital Management, which owns 13,000 Priceline.com shares. "We don't like these surprises."

Priceline.com's announcement also prompted investors to dump shares of other Internet retailers--including Yahoo Inc., Amazon.com Inc. and EBay Inc.--amid rising fears that their sales growth also could taper off.

Priceline.com's unique format launched the company into prominence last year, with its cheap prices appealing to consumers even though its airline tickets and other services are very restrictive.

Once a customer's bid for a plane ticket is accepted, for instance, the flight and airline accorded to the traveler generally can't be changed and the purchase can't be canceled.

Legg said management only three weeks ago indicated that July and August "were off to a great start and that September was historically the strongest month of the quarter." Now, not only was September weak, but that slowdown is likely to continue until year's end, he added.

Making matters worse is that the airlines themselves are organizing two new independent Web sites--called Orbitz and Hotwire--to also sell empty seats, often at heavily discounted prices. Priceline.com already competes against the airlines' own Internet sites and such Web ticket sites as Travelocity.com and Expedia.com. The new sites mean Priceline.com's competition will be even more intense.

Priceline.com's chief executive, Daniel Schulman, said in a statement that the company was disappointed by the third-quarter shortfall, but that "our growth in non-airline revenue and continued high level of customer purchase offers, as well as offers coming from repeat customers, speaks to the progress we are making."

Priceline.com has been rapidly expanding its "name your own price" concept into several other areas, such as rental cars, hotel rooms, long-distance telephone calls, gasoline and groceries.

Some analysts estimate that airline tickets still account for more than half of Priceline.com's business. Yet despite the company's slump with airline travel, they remain optimistic that gains in these other markets will sustain the company.

"We see revenue growth in other [sectors] as the real growth opportunity" for Priceline.com," said Jefferies' Legg.

*

Bloomberg News was used in compiling this report.

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Collateral Net Damage

Shares of many major Internet-related stocks tumbled Wednesday, deepening their year-to-date losses, after Priceline.com warned of a sales shortfall. How key stocks have fared:

*--*

Ticker 52-wk. Wed. close YTD pctg. Stock symbol high and change change EBay EBAY $127.50 $63.50, -$7.19 +1% America Online AOL 95.81 53.51, -2.00 -29 Cheap Tickets CTIX 34.00 9.50, -1.06 -31 Amazon.com AMZN 113.00 37.88, -1.88 -50 Yahoo YHOO 250.06 90.38, -12.06 -58 Ticketmaster TMCS 47.38 15.75, -1.38 -59 WD Internet DIG 37.69 9.81, -0.69 -59 CMGI CMGI 163.50 26.63, -3.81 -81 Internet Capital ICGE 212.00 15.78, -1.91 -91 Tickets.com TIXX 32.00 1.19, +0.09 -92 Nasdaq composite 5,048.62 3,656.30, -32.80 -10

*--*

* Source: Reuters, Bloomberg News

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Price Break

Shares Priceline.com plummeted Wednesday after it warned of a sales shortfall. The company, which sells airline tickets and other items online, went public at $16 a share in March 1999, and once traded as high as $165.

*

Monthly closes and latest for Priceline.com (ticker: PCLN) on Nasdaq

Wednesday: $10.75, down $7.89

Source: Bloomberg News

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