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Priceline: Beam Me Up, Scotty

First you see the lightning - then you hear the thunder. That about describes priceline.com's utter meltdown following CBS' 48 Hours investigative report late last week, capped off by an earnings warning bombshell from the name-your-own-price e-tailer yesterday. Shares were treated to a 42% haircut following the news, down $8 to close at $10 and change on more than ten times average daily volume; while stunned investors were still figuring out what to make of the fallout.

Shares could get a dead cat bounce in early morning trade on upbeat comments from Robby Stephens, but Merrill Lynch sunshine patriot Henry Blodget wasted little time issuing a whirlwind downgrade on priceline.com from an "accumulate" to a "buy." Blodget opined, "While we still believe the model is compelling long term, the business continues to be heavily dependent on airline ticket sales. As a result, we are concerned about management's near term visibility into the business and their ability to gauge demand."

It should come as little surprise that the Net's most bullish cheerleader is hedging his bets. Blodget has a storied history of searching out the latest flavor-of-the-month parade and getting out in front of it. This time last year, no analyst did more to boost shares of priceline than Blodget. And as recently as this summer, he rushed to the e-tailer's defense following the announcement that six major airlines were planning to launch a competing discount ticket Web site. Ironically, he maintained that airline ticket sales would decline to less than 50% of priceline's gross profits by next year - just the opposite of what he published in his research report after the revenue shortfall announcement yesterday. Hmmm.

The dramatic fall leaves an especially bitter taste for retail investors who scooped up priceline shares in recent months following high-profile investments from Microsoft co-founder Paul Allen and Saudi multibillionaire Prince Alwaleed. Allen, along with Liberty Media top banana John Malone purchased nearly $200 million in priceline stock two short months ago, while Alwaleed grabbed an additional $50 million early this month. To top off the double dose of confidence building by the tycoons, Captain Kirk has been endorsing the company's name-your-own-price service to Main Street consumers since its inception.

The real question investors are asking aloud is whether shares will rebound from this latest earnings warning. Despite such a broad negative sentiment toward online retailers that's taken hold in the markets recently, priceline has enjoyed relative immunity up until now, having long been considered a borderline Internet bellwether. Prior to the shortfall, the company was slated to turn a profit for the first time in its operating history, and that may have been enough to cement its place next to the likes of Amazon.com and eBay . That perception is a distant memory now, and it's unlikely we'll see much movement to the upside, at least until the customary holiday seasonal tech stock boost in December. Until then, the once-bullish analysts who previously backed this pony will be saying, "Beam me up, Scotty."

Any questions or comments, love letters or hate mail? As always, feel free to forward them to kblack@internet.com.

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