Fribble Priceline's Potential?

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By wax@ghg.net (Scott Wachsler)
October 17, 2000

It seems to me that LouAnn Lofton's article about Priceline.com (Nasdaq: PCLN), "Priceline: Kicked While Down," misses the mark. Poor Priceline, my eye! Priceline has NOT been kicked while they are down. They are down because that's what they deserve. It's where they should be. While the company has a simple business plan based on an interesting concept, it's really nothing new. Actually, the concept contains a rather obvious flaw, which is that Priceline cannot control the product it is trying to market. If management is not quick to act, that flaw may spell the end for Priceline.

"But hold on!" you say. "Were it not for Priceline, the seats on those airplanes or the rooms in those hotels would be empty." Not true. Priceline markets airline seats and hotel rooms to the person that will pay the highest price -- not the seats or rooms that would necessarily otherwise go unused.

Long before Bill Shatner went on the Priceline nightclub circuit, I wondered just what would prevent the airline companies or the hotel chains from forming a consortium or cartel, and doing exactly the same thing. In the end, I concluded not only that there was nothing to prevent them from doing so, but that they probably would. My reasoning: Why would these companies pay Priceline when they could pay themselves?

From an investor's standpoint, I figured while owning Priceline stock might provide handsome returns over the short term, there would be no way to sustain those returns over the long term. As Ms. Lofton's article inferred, many other investors have reached the same conclusion.

Still, having the positive-yet-contrarian nature I do, I can't help but think I'm not seeing the larger picture. Despite his crooning, Bill Shatner is synonymous with Priceline. As a result, Priceline, like Amazon, has developed what many investors believe is the most coveted of all assets: brand recognition. For the life of me, I can't understand why Priceline doesn't use that asset to its best advantage.

I had never heard of the yard sale thing Priceline was trying to get off the ground, and I still can't even recall the name of it. But I have heard of Priceline, even if I do associate it only with travel. So what can Priceline do to take advantage of this most prestigious asset? I think the best way is for Priceline to stop marketing itself as a dot-com, and start marketing itself for what it is -- a market maker.

My father-in-law used to say the guy that has the largest market is the guy that carries his inventory in his shirt pocket. As it relates to Priceline, I think that particular philosophy has great merit. Instead of wasting money forming "clubs," why not spend those dollars working out agreements with other industries that have products to sell? Surely the same folks that purchase airline seats and hotel rooms purchase such things as insurance, cruises, time-shares, and housing.

If making markets is what Priceline is all about, and I believe it is, then why place limits on the markets to be made by dealing with one industry? Why try and start a new venture when the potential for the existing venture has not yet been fully developed? It just makes no sense to me.

There is no doubt in my mind that Priceline has potential, and I am a potential investor -- in the sense I invest in companies that exhibit potential through creative innovation, that have adept (as opposed to inept) management. I like companies that formulate a reasonable business plan with enough flexibility that it can quickly be changed when market conditions warrant, not when it needs a new gimmick to raise capital. And I don't believe for a minute that I am the only one that appreciates such companies and is willing to plunk his hard-earned cash into them. In that regard, I think almost all investors, whether individuals or institutions, are much the same.

Is Priceline such a company -- aggressive yet at the same time innovative? Is it the type of company that understands what its potential is, and tries to achieve it? Not quite yet, I don't think. But once management understands that more than singing is required to achieve success in the market, I believe it may become that sort of company.

Priceline may indeed have potential, but without new direction I doubt it will attract the attention of investors -- certainly not this one.