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PRICELINE.COM INC. (NASDAQ: PCLN) When “Name Your Price” No Longer Has Power
When Priceline.com
first made it to the scene, the model seemed genius. The best of all was William Shattner advertising the
service. We all love Captain Kirk.
The online travel agency told consumers “name
your price” for airfare, hotel or a rental car, and if they could match your
price, you got it. And suppliers of travel services had a chance to unload
product by providing it at a deep discount. In 2003, Priceline expanded its services to
also offer more traditionally priced travel products, whose price was disclosed
up front.
I’ve personally never been a
big fan of Priceline’s ariline services,
but maybe that is just me. I don’t like to be locked into a travel route simply
because it is priced at a level I think fair. But for travelers on a budget who
don’t need to get somewhere at a specific time, the company has been a hit. I do
absolutely use Priceline all the time for hotels. That is an amazing
program. I always end up with a hotel better than I expected. I was checking
in at the Park Hyatt in San Francisco and this man ahead of me told the front
desk "I have the special discounted $350 Microsoft rate." I said "...and
I have the special Priceline $65 rate."
On paper, Priceline today
doesn’t look bad. Management is strong. Last quarter showed a 63% improvement in
bookings over last year, and an impressive 117% growth in Europe. Gross profits
were up 62%, to $106 million. The problem with Priceline in my mind is not
its model – it is a clever one – but the replicability of its model. It is easy
to rip off Priceline’s online business, and others have jumped on the
bandwagon. Much larger sized competitors
like Expedia and Travelocity are capturing Priceline’s customers, most of whom
are happy to go anywhere on the web so long as it delivers them the bargain they
are seeking.
What’s more, airlines and
hotels and car rental agencies are now able to offer products and deals directly
to consumers, eating into Priceline’s market.
And the lower fares offered by travel services across the board have made
the Name Your Own Price format less appealing.
Why be locked into a travel plan simply for a bargain, when you can get
the same bargain and the choice of how to travel without
Priceline.
Type of
stock: A small growth online retailer who once had a unique model that now is feeling
the heat of competition and lowered travel prices directly from suppliers.
Price
target:
Now trading in the low $31 range, I would not recommend Priceline at
this level. While it is showing strong financials at this time,
it is hard to imagine how it will continue to grow in the face of stiff
competition and market obstacles. The one caveat: should
Priceline get acquired by a bigger fish, you could see a nice
return on your investment. Of course, that is, if you bought Pricleine
for $8 rather than its once $100 (as I did!-- but we can't win them
all!). I have made up for my loss in stock price with the savings on
the service.
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9/22/06 2:59 PM
Two points and best wishes:
1) Hilary writes this blog from an investing point of view and NOT a trader’s perspective. There are many unrelated comments throughout this blog all belonging to trader sites. The difference is primarily in the timeframe.
2) CrossProfit doesn’t cover PCLN.
Best wishes for a happy Jewish New Year (Rosh Hashanah)
May God bless you with a honey sweet year and give you strength to keep busy as a bee with more great articles.
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