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News > Technology
Priceline affiliates to close
October 5, 2000: 11:30 a.m. ET

WebHouse Club, Perfect Yardsale out of cash, will close in 90 days
By Staff Writer Michele Masterson
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NEW YORK (CNNfn) - Priceline.com announced plans Thursday to close its gasoline and groceries operations, the latest in a series of setbacks for the Internet marketer.

Priceline.com said its WebHouse Club, a privately held separate company that supplied gasoline and groceries, has run out of cash and will cease operations within three months.

graphicThe news sent Priceline.com  (PCLN: Research, Estimates) shares tumbling $2.56, or 27.3 percent, to $6.81 in midday trading.

The 2 million Priceline.com customers who bought gas and groceries at the participating 13,000 stores and 6,000 gas stations will be notified of the shutdown via e-mail, the company said.

WebHouse Club said it has $50 million in cash reserves and an additional $20 million in working capital, which will be sufficient to cover debts owed to employees, customers and suppliers.

Priceline.com received a warrant in WebHouse Club and recorded a non-cash gain of $189 million for the fourth quarter of 1999. The company said it will take a non-cash loss for the full carrying value of the warrant in the third quarter this year.

Because of the shutdown, Priceline.com no longer will receive WebHouse Club royalties, which totaled $361,000 in this year's second quarter.

graphicIn addition, Priceline.com also announced that another separate licensee, Perfect Yardsale Inc., will shut its doors after less than a year of operations. Priceline said Perfect Yardsale made up a very small base of its business.

"The WebHouse Club executive team has reluctantly concluded that it was unlikely to be able to raise the additional capital it would need next year to achieve the necessary scale and our goals of profitability," said Jay Walker, founder and CEO of Priceline.com and WebHouse Club.

Bad news after bad news


Prudential Securities analyst Mark Rowen, who rates Priceline.com "neutral" and has a $40 price target, told CNNfn.com that the shuttering of WebHouse Club will pack a wallop in the minds of investors.

"It's certainly a big disappointment," Rowen said. "Although it won't have a huge financial impact on Priceline, it will be a huge psychological blow to the name-your-own-price model."

"I think investors now have to look at Priceline primarily as a travel business and they've had their problems with the pre-announced miss in revenue, so this will definitely put the stock under significant pressure," Rowen said. "I think people really have to re-evaluate what the opportunities are for Priceline."

Priceline.com has been hit with a wave of bad news in just the last three weeks. The company was negatively profiled in a CBS "48 Hours" show and last week announced its third-quarter revenue will fall short of expectations.

graphicTwo days after that, Connecticut Attorney General Richard Blumenthal said he is looking into complaints from more than 100 Priceline.com customers, who claimed that they purchased gas at a certain price online, only to later discover it wasn't available at that price at participating gas stations.

Banc of America analyst Tom Courtney told CNNfn.com that the demise of WebHouse Club shows that Priceline.com's model is not getting the traction it needs with consumers.

"I don't think that the [name-your-own-price model] was a consumer-friendly, easy way to buy products," Courtney said. "It was all about squeezing out a little bit of price savings and for that you gave up service, selection and convenience. I don't think a large enough group of customers were willing to do that."

"What we think the numbers are saying is that the frequency and retention of existing customers is not anywhere near where it needs to be for the model to work in our opinion," Courtney said.

Priceline.com said that going forward, it will focus on its core businesses of travel, financial services, telecommunications and autos.

"What that means is that when everything is all said and done, this thing is going to be a much smaller business than people thought," Courtney said. "We're not saying none of it [the model] works; we're saying it's only going to work for a small group of customers, relative to what people thought."

"It's fairly niche-y, it's not going to be a broad based business model that can succeed in a lot of different categories," Courtney said. Back to top

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.