Priceline to Up Its Price

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By Jeff Fischer (TMF Jeff)
May 2, 2003

Shares of Priceline.com (Nasdaq: PCLN) soared after the company highlighted its record hotel service results in last night's first-quarter earnings report.

The name-your-own-price service for airline tickets, car rentals, cruises, vacations, and hotel rooms posted a first-quarter GAAP loss of $8 million, or $0.04 per share, on $200 million in revenue, down from $261 million last year. Excluding non-cash charges, it lost $1.1 million, or $0.0 per share.

Airline ticket sales remained lackluster due to the economy and war, and will likely be tame again in the current quarter, due to the war -- which spilled into the second quarter -- and SARS.

So, Priceline focused on the highlights: Hotel revenue rose 30% sequentially and 37% year over year, and its recent acquisition, Lowestfare.com, saw revenue rise $17 million to $21 million year over year, and 103% sequentially. Very nice. Also, the company added nearly 750,000 new users in the quarter. Repeat business accounted for 65% of sales, and gross margins rose half a point from last year to 16.5%.

The company expects a GAAP profit of $0.02 to $0.03 per share in the second quarter, driven by strong hotel revenues, up 35% in April. The $2.30 stock leapt all the way to $3 on the news, but that's still a far cry from the share price that management wants, so they're targeting a reverse stock split.

By mid-June, Priceline expects approval for reducing the number of outstanding shares on a six-to-one to nine-to-one basis, which would jump the stock price to at least the teens. It wants to do this to attract institutional investors and (though management didn't say this) maintain a secure listing on Nasdaq.

Tom Jacobs recently analyzed reverse stock splits in his column, A Reverse Split -- Ouch! Most stocks underperformed after a reverse split, although a handful, as Tom shows, performed strongly and attracted new investors (the goal). Given Priceline's expected return to profitability, strong brand, cost-light business model, $140 million cash, and zero debt, it just might fall into the second camp and return to life.

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