Stock in Priceline.com dropped as much as 27 percent in early trading today
after its licensee, Priceline WebHouse Club, which let consumers name their
own price for gasoline and groceries, said it is “winding down” its
operations.
The company’s stock tanked last week after it said third quarter revenues
would not match analyst estimates. Priceline closed yesterday at $9.375 and
was down to $6.68 in the first 40 minutes of trading today. At one time it
had traded at more than $104 a share.
WebHouse Club, a separate company and a privately held licensee of
Priceline.com, said it would cease operations on an orderly basis over the
next 90 days after concluding it is unlikely to reach profitability. WebHouse
said it will provide refunds to customers who have yet to redeem their
purchases.
Priceline.com itself, which is the target of a consumer fraud investigation by the Connecticut attorney general that includes gasoline sales, said it “intends to focus on its core travel, financial services, telecommunications and auto businesses.”
WebHouse Club said that customers with unredeemed gas and groceries would
receive a full refund of any prepaid amount, “plus extra money to cover the
estimated savings they were expecting to receive at the grocery store and gas
pump.” Refunds will be processed by Oct. 20, the company said.
The company had arrangements with 7,200 grocery stores and 6,000 gas stations
nationwide, including the Winn Dixie grocery chain. Priceline.com said its
services are not affected.
WebHouse Club said that management determined “it would be unlikely to raise
the substantial capital next year that would be required to complete its
business plan and achieve profitability.”
The company said that its cash reserves of approximately $50 million, as well
as $20 million of additional working capital, would be more than sufficient
to satisfy all obligations.
“WebHouse Club was a business opportunity with great potential but with
real risks,” said founder Jay S. Walker, who is also vice chairman and
founder of Priceline.com.
“Specifically, it required a large capital commitment to create a national
network of retail gas and grocery stores, broad participation by packaged
goods manufacturers and third-party marketing partners, and substantial
information technology systems,” he said. “We … structured the WebHouse Club
as a separate company from priceline.com so that private investors, not
priceline.com shareholders, would bear that risk.”
Meanwhile, Priceline.com said it was informed today that Perfect Yardsale
Inc., another separate priceline.com licensee that offered used merchandise
to consumers on the priceline.com site, has decided to cease operations.
Perfect Yardsale, in operation for less than a year, “has a very small base
of business,” Priceline said.
Priceline.com said it will review its operations in the fourth quarter to
remove the costs associated with providing services to WebHouse Club and
Perfect Yardsale, for which priceline.com received reimbursement of $4.3
million in the second quarter of 2000. Priceline.com also will cease to
receive royalties from these licensees, which totaled $361,000 in the second
quarter.
Priceline.com also said in a statement today that it “will intensify its
focus on customer and supplier satisfaction” and that it is “revamping its
Web site and processes to incorporate both consumer and third-party
feedback.”
