Priceline Still a Stock to Be Avoided

What Happened?
Beleaguered name-your-own-price e-tailer Priceline.com (PCLN) on Thursday announced third-quarter revenue of $341 million and a pro-forma net loss of $0.01 a share, in line with reduced Wall Street estimates. However, those results were overshadowed by the company's announcement that it's laying off 16% of its workforce, and that chief financial officer Heidi Miller, who was lured from Citigroup (C) earlier this year by Priceline founder Jay Walker, is leaving the company to seek a "more established business environment." Company officials also said that the fourth quarter would be a "difficult" one, with lower revenue and increased losses because of restructuring efforts.

What It Means for Investors
We continue to believe that the uncertainty surrounding Priceline makes it an extremely risky stock that should be avoided by all but the most hardcore gamblers. Miller's departure is a particularly bad blow, since her presence gave Priceline some much-needed credibility on Wall Street. While there were a few positive signs in Thursday's announcement, such as an increase in Priceline's non-airline revenue from 15% to 19%, our overall impression is that the company is still groping to find its way. Chairman Rick Braddock admitted during Thursday's conference call that he's not sure where Priceline's revenue or earnings will fall in the fourth quarter, let alone in 2001. That kind of uncertainty is never a good sign.

Braddock and CEO Dan Schulman also admitted that Priceline's sales have been hurt by all the negative publicity the company has received in recent months, and we believe that the company still has a lot of work to do to refurbish its image. We also remain skeptical about Priceline's ability to expand its model beyond airline tickets and hotel rooms, which together account for more than 90% of revenue. Increased competition from Web sites such as Hotwire and Orbitz puts even those core businesses in doubt. With a turnaround unlikely in the near future, we think investors should stay far away from Priceline shares.