An eye opener.. any internet investor should never overlook this.. ability to sell efficiently has given PCLN market cap of more than 70 percent of the combined market caps of its key airline partners. In long run this is not sustainable..
<<There?s no question that Priceline has blown away Wall Street: Its market cap is about 70 percent of the combined market caps of its key airline partners. Add up America West Airlines (AWA, market cap: $726 million), Continental Airlines (CAL, $2.2 billion), Delta Air Lines (DAL, $6.7 billion), Trans World Airlines (TWA, $187 million) and Northwest Airlines (NWAC, $1.9 billion), and you get a market cap of around $12 billion, compared with Priceline?s $9.5 billion. >>
Is Priceline Vulnerable?
Inside
December 03, 1999
by Robert McGarvey
The value proposition seems seductively simple: Match sellers of perishable inventories with price-sensitive consumers, then let the consumers name their own prices. Nobody loses, and--abracadabra--you?ve got a big, big winner: Priceline.com (PCLN), a company that has a market cap of $9.5 billion just nine months after going public in March 1999.
To Priceline CEO Rick Braddock, a onetime Citicorp president, the enthusiasm for Priceline?s pitch makes perfect sense. "At Priceline, we?re building a financial model that lets customers transact with large companies in a way that gives them much more control," he says. "In so doing, we?re generating for the seller a type of buyer they had never been able to locate and on whom they can make a lot of money because of where the transaction occurs in the food chain. What we?re doing at Priceline has never been done before."
Braddock is quick to recite a litany of Priceline triumphs: "Our revenues are up quarter-to-quarter over 100 percent for three quarters. We?re at an annualized run rate of $450 million in revenues. We have a couple hundred million dollars of cash on our balance sheet--that?s sufficient for our needs."
But the picture might not be quite as rosy as Braddock would have you believe. "You have to give Priceline credit: They really have created a new kind of shopping," says analyst Gary Arlen of Arlen Communications. "But they haven?t knocked anybody dead yet. They still have to prove themselves."
There?s no question that Priceline has blown away Wall Street: Its market cap is about 70 percent of the combined market caps of its key airline partners. Add up America West Airlines (AWA, market cap: $726 million), Continental Airlines (CAL, $2.2 billion), Delta Air Lines (DAL, $6.7 billion), Trans World Airlines (TWA, $187 million) and Northwest Airlines (NWAC, $1.9 billion), and you get a market cap of around $12 billion, compared with Priceline?s $9.5 billion.
The Customer Shuffle
To build a business that will justify that hefty valuation, Priceline must somehow extend its brand beyond its "core" customers. Infrequent leisure travelers who hunt for cheap airplane seats once or twice a year are not much of a foundation for a $9 billion business. Says Bart Weitz, chairman of the marketing department at the University of Florida in Gainesville, "They need to generate billions in revenues, so how do they find enough opportunities to extend their brand?"
Well, for starters, Braddock has stretched Priceline?s reach to hotel rooms, rental cars, new-car sales and home mortgages. The company also provides an easy click to business partner WebHouse Club, an online grocer that debuted late last fall in greater New York. Meantime, Braddock says, "We?re looking at cruises, vacation packages and many other products where our approach will succeed."
But analysts question how well that seductive math will apply to goods from sellers who don?t experience the same evaporating inventory pressures as those felt by the airlines. "Priceline can do well with merchandise that is valueless unless it?s sold by a certain time," says Weitz. "It?s much harder for this to work on things people don?t have to sell."
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