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 [email protected].


Want my daily missives delivered with your morning toast and coffee? Sign
up for my DealTracker newsletter.

News Around the Web