Hotel Sales Help Priceline Eke Out Profit

Name-your-price travel company Pricelineturned a small profit in the first quarter as hotel and car rental deals helped offset continued weakness in airline ticket sales.

The company said hotel room sales grew 110 percent over year-ago figures to 909,000, while car rental reservations were up 22 percent to 738,000.

“Those numbers make us one of if not the fastest-growing seller of hotel rooms on [the] Internet,” Pricelinechief financial officer Robert Mylod said.

Airline Sales Grounded

But the growth was not sufficient to offset a deep slump in airline ticket sales. Overall, Priceline said, revenue dropped 3 percent to US$262 million in the first quarter compared with the first three months of 2001. The Norwalk, Connecticut-based company earned $3.9 million during the quarter, compared with a loss of $13.8 million last year.

In comparison, Expedia.com recently reported first-quarter revenue that doubled from a year ago.

“The soft spot remains airline ticket sales,” Priceline CEO Richard Braddock said.

“It’s not at all surprising that they’re leaning more and more heavily on non-airline revenue, since all the online travel companies have been doing that for a while, more so since September 11th,” Morningstar.com analyst David Kathman told the E-Commerce Times. “The airlines will have to raise prices eventually if they’re going to stay in business.

“Lower airline prices hurt Priceline more than the other online travel players,” Kathman added.

No Vacancies

According to Kathman, Priceline’s name-your-price business model may give it an edge as competition in the hotel space becomes fierce. This week saw the launch of Cendant-backed Trip.com, which will sell rooms in hotel chains owned by Cendant. Expedia, Travelocity and Hotels.com also have attacked the hotel market.

“There is room for several companies to grow there,” Kathman said.

Although Priceline remained cautious on its guidance for upcoming quarters, Braddock said that several initiatives, including promotion of the company’s vacation package business and more attention on its recently forged eBay partnership, bode well for the future.

EBay Questions

“Our eBay activity is still in early stages, with its opportunity to improve substantially the reach of our business model,” Braddock said, adding that the recently approved eBay partnership had “no significant impact on our numbers for the quarter.”

Braddock noted that the eBay deal could start to bear fruit this quarter, but Kathman remained skeptical.

“I’m still not sure whether eBay is a platform where people will want to buy travel,” he said. “Priceline is trying a lot of different promotional avenues, and some will work better than others.”

According to Priceline, online marketing through AOL and via e-mail also was a strong performer in the quarter, driving 20 percent of all sales. The company’s market share remained steady at 16 percent, while 63 percent of sales were made to customers who had bought at least once before on the site. The new Priceline Mortgage unit also pitched in, adding $492,000 in net income.

“The numbers demonstrate our ability to manage our company profitably in any environment,” CFO Mylod said in a conference call. “We continue to work to diversify our revenue streams and expect that trend will soon be accompanied by stronger airline sales.”

Buy Rating?

The past quarter saw Priceline floated as a potential takeover target because its stock price remained low compared with competitors’ share prices. Priceline shares were down 15 percent to $4.44 in early trading Thursday.

Braddock took note of the apparent disconnect, saying that the company’s net income for the quarter “compares favorably to other Internet companies with substantially higher valuations.”

“They’ve been remarkably resilient,” Kathman said. “They’ve shown that they can survive under even the toughest circumstances. It’s just a question of how fast they can grow and how big they can become.”