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Priceline reports 1Q loss
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May 4, 1999: 8:56 p.m. ET
Name-your-price site boosts customer base by 86% from previous quarter
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NEW YORK (CNNfn) - Priceline.com, the Web site that lets consumers name their price for a variety of goods and services, reported a slightly narrower-than-expected first-quarter loss Tuesday as revenue jumped 160 percent from the previous quarter.
The Stamford, Conn.-based company posted a loss of $17.2 million, or 12 cents per share, on $49.4 million in revenue. Analysts polled by First Call expected Priceline (PCLN) to report a loss of 13 cents per share.
Priceline also trimmed its losses from the previous quarter, when it posted a loss of $73.7 million.
Priceline shares fell 5-1/4 to close at 134 on the Nasdaq stock exchange prior to the announcement, then dropped to 128 in after-hours trade on the Instinet trading system.
That performance remained a mystery to Priceline founder Jay Walker. He told the Moneyline News Hour with Lou Dobbs he couldn't explain why the top-performing public offering this year traded down on the earnings news, in Walker's first interview since the company went public.
"I think the market goes up and the market goes down," he said. He insists he is more interested in making sure the company he started in March 1996 stays ahead of e-commerce trends.
Walker said he sees Priceline as one of the first of a second generation of Internet companies. It has two patents and 18 pending to protect its technology, preventing copycat competitors.
He predicts there will be two types of tech merchants down the road, "companies on the Internet anybody can copy and companies on the Internet nobody can copy."
Walker said his other company, Walker Digital, is "working on ways businesses are going to change." At the moment Walker Digital, which he owns 90 percent of, is developing patents for a job-search business and a business connected to the food industry.
Sara Zeilstra, an analyst at Warburg Dillon Read, said investors should not have been taken by surprise by Priceline's results, noting that company officials provided specific first-quarter guidance when it announced its initial public offering earlier this year.
"I think it's a knee-jerk reaction on the part of some who were expecting a blow-out quarter," she said. "That, and I think it's a continuation of the [downward] momentum of the sector."
Airline ticket sales soar
Priceline lets consumers place bids on such services as hotel reservations and mortgages, but airline tickets represent the biggest chunk of its business.
The company said it sold 186,000 leisure airline transactions through its site during the quarter, up 170 percent from the 69,000 tickets sold in the fourth quarter. Priceline reported revenue of $19 million in the fourth quarter.
But its numbers can be hard to understand. Much of Priceline's revenue is transaction-based revenue, taking a customer's cash and buying an airline ticket, for instance. The company includes the full price of the airline ticket in its revenue numbers, then backs most of it out in its income statement as a cost of goods.
For the first quarter, for instance, Priceline's cost of revenues was $44 million. Its gross profit before backing out all its operating expenses, such as salaries and marketing costs, was just $5.4 million for the quarter.
Because Priceline takes on the customer's credit risk for a short time, accounting rules count the airline ticket as revenue. Priceline also has fee-based revenue where it just pairs a buyer and seller for a fee, as it does with car sales and with mortgages, without taking the customer's payment and subsequent risk of default.
Online book retailer Amazon.com follows the transaction-based model, taking customer's cash, then buying the product. Internet auction house eBay uses the fee-based model. Revenues are higher in the former and margins higher in the latter. Because Priceline combines the two, it is harder to judge its revenue and income growth.
At least Priceline said it was happy. "We are pleased with our first quarter 1999 results," said Rick Braddock, Priceline's chairman and chief executive officer. "They demonstrate strong buyer and seller acceptance for Priceline.com's unique business model as well as our success at managing our rapidly growing business."
Braddock took over as CEO from Walker, now vice chairman, in July 1998.
Priceline's first-quarter revenue beat analysts expectations by more than $6 million. Zeilstra noted that some of that growth likely came from better-than-expected revenue in its non-airline-related areas.
Priceline shares since going public
Priceline garners revenue by pocketing the difference between what a customer bids and the price charged by the service provider.
According to airline analysts, it costs carriers an average of $50 to $75 to seat a passenger on a round-trip flight in the continental United States. If a customer offers to pay $300 for a ticket from New York to Los Angeles, Priceline will tell the airline someone wants the ticket for $275.
The airline doesn't mind because while $275 may be well below its standard fare, making a $200 profit for filling a seat at the last minute is a safer bet than waiting for someone to come along to pay full fare.
Priceline then informs the customer that the $300 bid has been accepted, and Priceline gets to keep the $25 difference.
Like many Internet startups, however, the company hasn't indicated when it will begin turning a profit.
Much of Priceline's expenses are earmarked for increasing awareness in its brand. The company spent $17.1 million in sales and marketing efforts during the quarter, nearly 75 percent of its total operating expenses and 35 percent of its revenues.
Priceline said it added 531,000 new customers during the quarter, an 86-percent increase over the 286,000 customers in the fourth quarter.
That figure was much higher than Zeilstra expected, who noted said she forecast Priceline to add about 260,000 new customers.
In an indication that the company is keeping many of the customers it's gained, Priceline said 43 percent of the offers collected on its site came from repeat customers.
Tuesday was the first time Priceline reported quarterly results since going public in March.
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Priceline.com
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