Is Priceline Reaching the Turnaround Point?
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Priceline.com Inc. shares soared almost 36 percent today after Goldman Sachs analysts upgraded the stock to "market outperform," saying that the troubled company has "right-sized" the business, improved customer service and stabilized its growth.
The Norwalk, Conn.-based company, reporting shortly after the market closed Tuesday, posted a pro forma net loss for the first quarter of $6.2 million, or 3 cents per share. Analysts on average had expected a loss of 5 cents a share for the first quarter.
The company said revenue rose to $269.7 million, an increase of 18 percent from the fourth quarter of 2000, but down from the $313.8 million in revenue in the same period a year ago.
And Priceline once again re-affirmed that it expects to attain pro forma profitability for the second quarter.
Priceline saw its share price plunge to as little as $1.06 after it ran into problems last fall. At one time it had traded at more than $100 a share. The stock closed Tuesday at $6.59, up $1.74.
"Priceline.com was successful in achieving strong sequential improvements in key financial metrics," said Priceline.com's President and CEO Daniel H. Schulman. "We are also delighted that our brand continues to rebound, as evidenced by increasing numbers of new and repeat customers throughout the quarter."
Schulman tempered his optimism in a conference call, however, saying that "we still believe we are in a turnaround mode and are managing the company accordingly."
Priceline expects pro forma net income of 1 to 2 cents per share in the second quarter of this year and 2 to 3 cents per share in the third quarter, CFO Bob Mylod said in the conference call.
He added that he expects it will be two more quarters before the company experiences year-over-year revenue increases.
Goldman Sachs, in an advisory to clients earlier in the day, said that Priceline's first quarter this year is potentially its last unprofitable quarter.
GS cautioned that the company remains in a turnaround phase, but said the progress made to date "positions the company to better control its destiny."
On April 2, Priceline reiterated earlier guidance for investors, saying that said it still expects to achieve a pro forma operating profit in the second quarter as revenues improve. Priceline has been implementing a plan to refocus on its core business.
Goldman Sachs in its advisory said that the first quarter results "should demonstrate the worst is behind the company and the stock should show solid appreciation driven by execution and investor belief."
For the second quarter, GS said it thinks the company will indeed achieve positive pro forma earnings per share and that it believes economic conditions and airline industry dynamics are currently most favorable for PCLN.
As if to back that up, Priceline in its earnings release said that in the first quarter it sold a combined 2,115,775 units of travel products, which consist of airline tickets, hotel room nights and rental car days. By comparison, the company sold 1,698,941 units of travel products in the fourth quarter last year.
Priceline's troubles began early in the fall when its advertising was called into question and consumer complaints resulted in a state investigation. The company later bailed out of the grocery business as its stock began to go into free fall. Priceline has never actually had a profitable quarter and has lost $1.96 per share for all of last year.