A nice writeup of PCLN in The Street.com
At priceline.com, Flash
Trumps Flexibility
By Suzanne Galante
Staff Reporter
5/4/99 9:44 PM ET
SAN FRANCISCO -- Sure, priceline.com
(PCLN:Nasdaq) has gotten plenty of hype, but its
image might be mightier than its model.
The company's plan is to match customers with the
products they want to buy at a price they are willing
to pay. priceline.com started out applying this
model to the travel industry, filling airlines' leftover
seats and hotels' empty rooms, and now the
company is looking to expand into new areas of
business.
To bid on priceline.com, customers specify a price,
enter their credit card information and sacrifice
flexibility: They can't choose the airline or the time.
This blind shopping appeals to maybe 2% of online
shoppers, according to Forrester Research. It also
leaves some investors cold. "It's buying with your
eyes closed," says Stephen Kahn, a portfolio
manager for Talvest Global Science &
Technology fund who recently sold his position.
Shares of priceline.com are trading as if the
company figured out how to slice bread online. Five
weeks after it went public, the company's market
cap is nearly $20 billion, bigger than the combined
market caps of United Airlines (UAL:NYSE),
AMR's American Airlines (AMR:NYSE), TWA
(TWA:AMEX) and Northwest Airlines
(NWAC:Nasdaq) combined. And if those offline
comparisons seem tired, consider that
Amazon.com's (AMZN:Nasdaq) market cap stands
at $23 billion.
Like many Net start-ups, priceline.com is seeing
fast-growing revenue and steep losses. The
company reported Tuesday an operating loss of
$17.6 million, or 12 cents per share, for the first
quarter ending March 31, beating the First Call
consensus estimate by a penny. Operating loss
was $73.3 million in the fourth quarter. Revenue was
$49.4 million, up from $19 million in the fourth
quarter. (Comparisons for the same quarter last
year aren't applicable because priceline.com didn't
launch until April 1998.)
And fans of the company say priceline.com is
different. Its radical business model can apply
easily to new businesses: cruises, rental cars,
consumer electronics, even financial services. "It's
transforming the way people and companies do
business," says Warburg Dillon Read analyst
Sara Zeilstra, who rates the stock a buy and has no
underwriting relationship with the company. "It's
much more revolutionary than evolutionary."
Much of the business media seems to agree. The
current cover of Forbes features priceline.com Vice
Chairman Jay Walker under the title "New Age
Edison."
Maybe, but priceline.com will face some stiff
competition in consumer electronics from Net
retailers like Buy.com and Onsale
(ONSL:Nasdaq), in financial services from
companies like Intuit (INTU:Nasdaq) and, most of
all, from Internet auctioneers like Egghead.com
(EGGS:Nasdaq), uBid (UBID:Nasdaq), Onsale and
others. "Auctions are more desirable," says Evie
Black Dykema, an analyst with Forrester Research.
"You know what you are bidding for."
Even the travel segment of the business will face
competition from auctions. Forrester expects Net
travel auction sales to be about $2.1 billion in 2003.
That's 17% of the business-to-consumer auction
market.
What's more, many on Wall Street still feel uneasy
with the model itself. It's never a good business
model to promote a product that you aren't ready to
sell, says Steve Demirjian, a portfolio manager at
Westfield Capital Management who sold his
position in the stock recently. "If I go to a store that
says they sell shoes, and they don't sell any
shoes," he says, "then I won't go back."
Many bidders are turned away empty-handed.
According to priceline.com's data, fewer than one in
eight bids are successful. During the first two
months of the year, there were about 830,300 bids
for tickets, and a little more than half were
considered "reasonable," or no more than 30%
below the lowest available price, according to a
company filing. Just 25% of the reasonable bids
resulted in sales. So the company can't even fill
most of the reasonable orders it receives. Zeilstra
says that number will increase as more airlines sign
on with the company to sell their excess inventory.
The model doesn't lend itself to building loyal
customers either. Price alone isn't enough;
customers are likely to migrate to any rival that can
guarantee lower prices. "They are going after the
bottom dwellers," says Dykema. "It's only for
people who value price over everything."
Talvest's Kahn says the model won't work for goods
like consumer electronics or PCs because people
like to have some control over what they are buying.
"You don't want to end up with a brand that you
don't really like," he says. "And I'm not sure all
products are created equally," so settling for
whatever kind of PC priceline.com manages to
score for consumers isn't going to be good enough.
And not knowing is a crap shoot: "If you're lucky
enough to get it," says Jupiter Communications
analyst Fiona Swerdlow, "you are stuck with it."
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