Dueling Fools

Dueling Fools
July 21, 1999

What's My Priceline?
Bear Argument

by Rick Aristotle Munarriz (tmfedible@aol.com)

Name Your Price and Save!

Let's play, shall we? I have a company, you name the price -- and save!

Trailing revenues are less than $200 million. And, to clarify things, these are merchandise sales where the gross profit shrunk to just 9.4% for the June quarter. What I'm saying is that 91 pennies of every dollar are going back to pay for the products the company is pushing. With overhead beyond that eating up another 24 pennies I think you get the picture. That buck becomes an IOU.

This is a company that will be hard pressed to ever turn a profit. Analysts don't see it happening over at least the next two years and I can't imagine how it will happen even beyond that. The problem with chasing the rabbit of profitability like a pack of deficit-ridden greyhounds is that the company is going to have to raise capital -- on perpetuity. I mean, come on, the company went public less than four months ago and earlier this week announced it was going to issue bond debt and even more stock! What's that line from Silence of the Lambs? It puts dilution on the skin and puts it in the basket? How precious.

Anyway, the company wasn't even around two years ago. Oh, and I almost forgot to mention that this is a company where most customers walk away empty handed. For the March quarter, just one in eight users who requested airline tickets snagged them. Do you think the other seven will return after the humiliating time-sucking experience? I imagine the 13% who were successful were probably not that successful anyway. Can you imagine the poor saps who bid more than retail because they didn't know better? So, yes, what we have here is a money-losing company peddling either an online rejection service or naivete accreditation.

As you can imagine, the mindset of a company that is having a hard time managing its finances probably has to stem from the top. In this case, quite true. Back in April the company loaned money to CEO Rick Braddock to help pay his taxes. I wonder if he had to apply to Priceline.com's financing center for the money? No, of course not, he got a sweetheart deal with an interest rate of just 5.28%.

But as bad as the Braddock Bank may sound -- it gets even worse. This is a company that prides itself on shopping for rates, but the universe is not at its disposal. Just four airlines caved in to account for 93% of the March quarter ticket sales. If you want to buy or refinance a home, skip the middleman and go directly to LendingTree. That's where Priceline.com will outsource the deals anyway.

Before you go naming a price on this company, let me also point out how there are 142.3 million shares outstanding. So, even if you bid two bucks you are still offering to buy the company at more than its wee gross margin sales -- and even the most ardent bull has to be concerned about the trend that as revenues grow here, gross margins are shrinking.

Okay, obviously I'm talking about Priceline.com here -- the Internet company that made William Shatner rich but seems destined to make new shareholders poor.

I almost want to say that it's such an easily duplicated formula but I can't. In a case that began last January, Priceline.com is being sued by a man who says he originated the concept. But, then again, if Priceline.com ran with it, who is stopping anyone else from entering the arena of demand collections. Remember when eBay (Nasdaq: EBAY) was it in terms of user-to-user online auctions? Remember when eToys (Nasdaq: ETYS) was the only plaything cybermerchant?

If a site manages to land a wider field of suppliers and can up Priceline.com's dismal completion rate, would you invest in that company? Or, a better question might be, knowing full well that this might very well happen, do you want to invest in Priceline.com? Oh, the things I could do with Priceline.com's $14 billion market cap -- for starters, I would name my price -- and save my hide.

Next: The Bull Responds