Commentary: It's not too difficult to take Priceline's slogan to new lows after a disappointing third quarter. Priceline, which allows you to name your own price on airline tickets and such, named its latest disaster.
The company met expectations with a pro forma loss of a penny a share, but the numbers were irrelevant because the outlook was horrible. In the span of about two hours Thursday evening, Priceline gave cynics enough material to last two quarters.
- Priceline named its own chief financial officer after Heidi Miller split. And why wouldn't she leave? Her options had strike prices of $51 and $90, according to regulatory filings
- Named its own layoffs, as 87 employees got the axe in a cost-cutting move
- Named its own revenue growth as sales will be down sequentially
- Named its own outlook, which was to put off any guidance until the fourth quarter conference call
- Named its own excuse. "Negative publicity" hurt sales, execs whined. "The effects of negative news and other factors" dinged sales through October. Simply put, Priceline used the old "blame it on the messenger" trick. Hmmm, maybe the "other factors" such as customer service, airline problems and the Webhouse closing had something to do with the quarter too.
And so it went for Priceline's conference call, which required investors to take a massive leap of faith. The whole call cooked down to whether you believe in Priceline's management or not. To be sure, the sky is not falling despite the current woes. Priceline has cash in the bank and enough sales to break even.
But those facts didn't make the earnings fiasco any easier to swallow. We can't wait to hear William Shatner sing this tune.
Here are the issues to sort through:
- Customer service: My view about Priceline's service was that you get what you pay for. If you're trying to fly to San Francisco from New York for $100, you shouldn't expect much from Priceline. That dynamic is changing as the company basically confirmed reports that its customer service was weak. "A strong customer savings proposition" fueled Priceline's early growth, but now customer service counts. That focus changes the dynamic a bit. Priceline is also being more "educational" on its site -- clear language reiterating that customers get what they pay for.
- Bye, bye Heidi Miller: When a chief financial officer leaves a company that has stumbled it never looks good. Miller, who left Citibank to chase dot-com riches, realized those riches weren't coming. Miller, who brought a lot of credibility to Priceline, was more underwater than the Titanic when it came to her options. The fallout is a big issue though. How many other execs are ready to exit?
- Airline ticket sales: Executives admitted the company is too dependent on airline ticket sales. They tried to put a good spin on that fact, noting that the dependence was there because airline ticket sales grew so fast. That's true to a degree, but if Priceline can't expand into new markets -- something that is questionable given the Webhouse closure -- it's just a glorified travel agent. Meanwhile, there's competition on deck from Hotwire, not to mention established players such as Expedia.
- New equity compensation: Priceline noted it will "implement a new compensation program designed to retain and motivate key employees". This new compensation plan will be detailed in regulatory filings and result in a yet-to-be-determined charge in the fourth quarter. It's likely Priceline will boost salaries and options packages. Will Priceline reprice its options?
- The outlook: Priceline's guidance was the most important thing about last night's call, but the company didn't deliver. Revenue will be down in the fourth quarter because of weak airline ticket sales. The 2001 outlook boiled down to an appeal to believe in Priceline's management. In other words, there wasn't any 2001 outlook. Meanwhile, bottom line watchers should note that there's a host of charges on tap. Priceline's new compensation program and restructuring will result in some hefty charges. Meanwhile, Priceline reworked warrants granted to Delta Airlines. That move will also bring on a non-cash charge.
The bottom line is that investors will have to name their own price for Priceline shares. You can bet shares will be cheap.
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