May Offer Another Bargain

You’d think revenue growth of more than 1,500% would impress investors,
but the initial reaction to’s Q3 report released
late Thursday indicates otherwise.

Shares of the “name-your-price” e-tailer’s stock were down more than 8%
to 62 5/16 early Friday afternoon.

In the quarter ended Sept. 30,’s (PCLN) revenue skyrocketed to
$152 million from $9.2 million in Q3 of last year. Driving the surge was
a huge increase in the sale of airline tickets – the company’s

But the increase came at a cost, and that’s what investors initially
seem to be focusing on. The Q3 loss of $102.2 million, or 71 cents per
share, includes $88.4 million in costs related to a deal with
Continental Airlines (CAI), which provides tickets to

Excluding those costs and other one-time charges,’s
operating loss of 8 cents a share beats consensus street estimates of 10
cents a share. In the same quarter last year, net loss was 19 cents per

Further, is making progress in an area cited as a
challenge for many e-tailers – increasing gross margin. By selling fewer
airline tickets and hotel rooms below cost, boosted its
gross margin in Q3 to 12.2%, compared to only 4% in the year-ago
quarter. executives predict that Q4 revenues will not exceed Q3’s,
though the company accurately noted that travel bookings usually tail
off during holiday season.

If that holds true, should finish 1999 with annual
revenues of about $465 million. With a current market cap of $8.9
billion, this leaves valued around 20x revenue. That’s
lower than other e-tailers such as eToys (70x estimated ’99 revenues)
and higher than (14x).

Still, PCLN shares are trading much closer to their Sept. 13 low of 53 =
than their April 30 high of 165. If you’ve been looking for an
opportunity to invest in, this could be a pretty good time
to do it.

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