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Stock Analyst Update

Priceline Beats Estimates but Still Gets a Beating

E-tailer must show that its model works beyond airline tickets.

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Online retailer Priceline.com (PCLN) beat analysts' earnings estimates for the second quarter, but its stock's price still slid more than 10% early Monday because the quarter wasn't the blowout some had expected.

Priceline reported a net loss of $0.07 a share for the quarter, or $0.01 a share excluding warrant and option costs. The latter number beat analysts' official estimates of a $0.03-per-share loss and was in line with the unofficial whisper number. Many had expected Priceline to beat estimates by even more, however, and these high expectations may have sparked the market's disappointment. Online travel booker Travelocity.com (TVLY) blew past expectations last week, and that was seen as a positive omen for Priceline, which gets most of its revenue from airline tickets.

Priceline's revenue of $352 million was up more than 200% from last year's second quarter but only 12% from the first quarter of this year. The company has been expanding its "name-your-own-price" business model beyond its core business of airline tickets, but there's some concern that the company's new businesses may not be growing as quickly as hoped. Only about 6.5% of Priceline's revenue this quarter came from its nonairline businesses, the same as last quarter. The company wants to get that figure up to 20%.

Priceline has done a lot of things right in its short lifetime, and it's on the verge of operating profitability. In fact, Chief Financial Officer Heidi Miller said during Monday's conference call that the company could be profitable right now if it wanted to, but it's investing for future growth. Nonetheless, Priceline needs to show that it can successfully expand beyond airline tickets if it's going to justify the multi-billion-dollar price tag the market has placed on it.

David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.