William, you like Pcln, and I just bought some Pvtl. Both are risky, but I prefer to invest in an I-net retailer who at least follows general accounting principles.
ps
I love you for FatB. I still think that DLJ's Jamie is full of shit.
Did you know I've been invited to DLJ's select customer golf tournament? Maybe I'll meet Jamie there. I'll tell him hello for Glenn R.;-)
>>Preview Travel was ranked as the number one Internet travel service by Gomez Advisors (Summer '99). The company is also the primary travel service on America Online, Excite, Lycos, Snap, and USA Today's web site. These relationships give Preview Travel a competitive advantage in this increasingly competitive industry. These relationships also help it to sell more advertising than any other travel site. Even though PTVL is losing money right now, its gross margins are on the rise. Gross margins improved to 67.2% in the second quarter compared with gross margins of 54.1% in the second quarter of 1998 and 62.5% in the first quarter of 1999. Preview Travel has improved its gross margins because it is now spreading its fixed costs of service and fulfillment over more transactions. Preview Travel also cuts costs better than most of the other companies in the travel industry. In the first quarter, the company's fulfillment rate was around only $8.20, while the average "brick and mortar" agent's cost is approximately $23 or $24 to fulfill a ticket.
Furthermore, the company has a lot of room to grow. Its member base spent more than $7 billion on leisure travel last year, but they booked only $200 million of it with Preview Travel. The company could stop courting new members and still have enormous growth potential. This member base should make Preview Travel a great takeover candidate for a travel company that needs to expand its business on line.
Risks
The biggest risk facing Preview Travel is that it is not expected to turn a profit until 2001. Preview Travel is losing money right now because it is hiring additional people to generate more ad revenue. The company plans to continue spending money on advertising and marketing to maintain its position among the on line travel brands. Preview Travel's method of recording revenues differs substantially from other travel companies' practices. Preview Travel's methods seem sensible, but other on line travel companies' practices apparently have more appeal for Wall Street. For example, other online travel-related companies, like Priceline, book the ticket price, not the commission as revenue. Thus, this method of accounting inflates those companies' revenue figures. On the other hand, Preview Travel records only the commissions and ad revenue as revenue - not the whole ticket price. In the first quarter, Preview Travel sold twice as many travel packages as Priceline, yet Priceline showed $40 million in revenue because of the way it booked them.
This accounting issue is not the only difference between Priceline and Preview Travel, and the way the market values each company is perplexing. Priceline has a market cap of close to $10 billion and is selling at a whopping 38 times sales, while Preview Travel has a market cap of only $233 million and is a relative steal at a price of only 11 times sales. If Preview Travel recorded revenue like Priceline.com, that price to sales ratio would be even smaller. The bottom line is that Wall Street does not perceive Preview Travel as an Internet powerhouse like Priceline, despite the fact that Wall Street analysts predict 56% annual EPS growth over the next 5 years for Preview Travel.<< |
