Good article.
I have been thinking about shorting PCLN for a while now. It's grossly over-valued. I was going to use PCLN's service, but I didn't because PCLN did not allow me to have enough control over my travel schedule -- I could lose two days on a short vacation if PCLN gives me bad times (leave at 9pm instead of in the morning and come back in the morning instead of in the evening). Two days out of a long weekend, a five day or a seven day vacation is quite significant. In my opinion, someone who uses PCLN is someone who values price above everything, including his/her time, and these people are arguably the worst customers to have because they will skip to another eWhoreOnline.com when it comes.
There are some problems with PCLN's business model. I just do not see PCLN as having a revolutionary business or selling process. From what I have been reading, PCLN's ticket prices are not even that low. Why can't the airlines simply put on their web page a list of flights for the next couple of days which have open seats and have either set prices for them or have people bid on them? And just because PCLN has a patent on a business process, it does not mean the patent is set in stone -- many patents are nullified in the courts. Is the "make me an offer and I'll see if I can do it" business process so unique and "non obvious" (one of the criteria for a patent)? No one has done it before PCLN? Are you kidding me?
I don't think Tom Hua is out of line at all talking about a price for PCLN of 50 -- that would still give PCLN a market cap of over $7 billion. The smart longs are at least *thinking* about the arguments from the shorts here. The lemming longs are pretty reactionary and thinking is against their nature so they lash out. I actually came here to see if any longs had compelling arguments for why PCLN is worth $20 billion or more. I don't see any.
Play the net stocks carefully. Net stocks are not only going to go up from now on -- they can go down, and down hard. Think about what happened with T and AOL's reaction last week. Think about the more bearish outlook for AMZN and the questions of whether AMZN will ever be profitable. The net has fundamentally changed the rules of distribution, be it distribution of books or airline tickets. It has cut out some of the middlemen and overhead. What's next? How about cutting out *all* of the middlemen and even more of the overhead? Would it surprise anyone if the manufacturers and service providers went straight to the net themselves and cut out the middlemen like PCLN? What if another middleman came along and said to one of the airlines, "I will contract to buy *all* of your unfilled seats and I will worry about filling them" instead of PCLN's current, "I'll see what I can fill" strategy? PCLN does not have the world in its hands as some here believe.
In my opinion, much of the e-commerce *profits* on the nets will come from companies currently perceived to be non-internet companies like DELL, GPS, IBI, etc. They have brand equity and can command margin. For example, buy.com can sell generic jeans for $5 but people are still going to pay $30 for GPS jeans; buy.com can sell books for 30% below AMZN and many people will flee to buy.com (I did). DELL is selling $15 million a day on the net and you can bet the farm they are making seven figures from that, every day. PCLN was a good lottery ticket at $20 or so, but at $130-$165 it's way overvalued. |
