Priceline Squeezes Past Street Amid Air Travel Slump

Name-your-price e-tailer Priceline.com (Nasdaq: PCLN) on Monday reported a net third-quarter loss of US$1.3 million after one-time charges were taken into account, although the loss narrowed significantly from that incurred in the same quarter last year. The result squeezed past analysts' estimates.

"We were able to come in at the high end of our guidance despite a very turbulent market," company president and chief operating officer Jeffery H. Boyd said.

The lone dark cloud on the horizon for 2002 and beyond is the health of air travel, according to Priceline. In the wake of September 11th, the company said it has seen lower ticket prices -- and lower asking prices -- from its customers.

Consumer Hopes

In fact, Norwalk, Connecticut-based Priceline said it saw a sharp uptick in the number of "unreasonable offers" from consumers, which helped reduce the so-called "bind rate" of tickets actually sold. The rate at which consumer offers were accepted by airlines fell to 49 percent in the fourth quarter from 53 percent in the third quarter.

Priceline said it will not issue guidance beyond the first quarter of 2002, mainly because of uncertainty surrounding airline ticket prices.

Company chairman and CEO Richard Braddock said there is little doubt that airlines will be forced to raise ticket prices again; the only question is when.

"Our forward guidance assumes that deep retail airline discounting will continue, but over time we believe pricing will recover as airlines must restore margins," Boyd said.

A Penny Here, A Penny There

With one-time charges factored in, including those connecting to a major restructuring, Priceline posted a loss of $1.3 million, or a penny per share, compared with $105 million last year, when the company began to refocus its business model.

The company posted a pro forma profit of US$3.3 million, or a penny per share, on $235 million in revenue. A year ago, Priceline lost $25 million, or 15 cents per share, on $228 million in sales.

Priceline said it ended 2001 with $164 million in cash and liquid investments, well up from the $106 million it had in the bank at the end of 2000.

Diversity Helps

Priceline said its diversification into other travel and non-travel areas helped cushion the blow of lower airline ticket prices and should become an even more important part of the company's income going forward. Hotel and rental cars made up 47 percent of all booked offers in the fourth quarter, up from 42 percent in the third.

"We expect solid double-digit increases for our non-airline categories," Priceline chief financial officer Robert Mylod said. "By the time we get to 2003, you'll be looking at a company with a business model that has a more balanced mixed of revenue sources."

In addition, Priceline said it is on track to launch a vacation package offering this quarter. The company reportedly was pleased with early results of a test of cruise packages.

Also, the Priceline Mortgage product, which the parent company took a larger stake in last fall, saw income rise to $517,000 on $300 million in loan originations.

Partners Aplenty

Priceline said its hopes remain high for two key online partnerships. In December, the company said it inked an agreement to feature its travel deals on AOL. And late last week, EBay (Nasdaq: EBAY) said it will make Priceline's deals the cornerstone of its new travel section.

"We're building a business with EBay," Braddock said. "EBay has 42 million registered users and a strong commitment to building a major business in travel. Priceline is now in a unique position to offer its products to those customers."

For all of 2001, Priceline recorded revenue of $1.17 billion, down slightly from the $1.24 billion it posted in 2000.

For 2002, Priceline discussed only the first quarter. The company estimated revenue of $260 million to $290 million and said it will aim for results that range from breakeven to a profit of 2 cents per share.

The company also is eyeing overseas growth. Hutchinson-Priceline is now in testing in Hong Kong, Braddock said, and the company is moving forward with its acquisition of Priceline Europe.

Shares of Priceline fell about 8 percent to $5.77 in early trading Monday after rising Friday on news of the EBay deal .