Priceline.Com - First Of Many Problems

FIRST OF MANY PROBLEMS

Slumping sales of airline tickets caused Priceline.com to announce its third quarter revenue would be down $20 to $25 million from the second quarter and well under analysts' expectations. The announcement in September 2000 caused the company's stock to lose 42 percent of its value in one day, reaching a 52-week low around $10 a share. By the beginning of November the firm's stock was trading for less than $5 a share, and the company announced it would lay off 16 percent of its workforce, or about 90 workers. Another 48 workers were let go at the beginning of December. Around this time Priceline.com began to experience a series of executive departures, including its chief financial officer Heidi Miller and the head of its automotive unit Maryann Keller. Company founder Jay Walker vacated his position as vice chairman at the end of 2000 to spend more time focusing on the business challenges facing the firm.

At the beginning of October 2000 Priceline.com announced that it would shutter its WebHouse Club affiliate, through which the company offered name-your-price groceries and gasoline. At the time of the announcement WebHouse Club had been operating for 11 months and had about 2 million grocery and gasoline customers, with some 7,200 grocery stores and 6,000 gas stations participating. The reason given for the closing was that the company was unable to raise enough capital for the coming year to complete its business plan and start turning a profit.

Other problems facing Priceline.com in the final quarter of 2000 included the advent of a competing airline ticket service, Hotwired.com, which was backed by a Texas investment group and six major airlines: America West, American, Continental, Northwest, United, and US Airways. Unlike the Priceline.com model, though, Hotwired asked consumers to indicate when and where they wanted to travel and let the airlines submit bids for the tickets. Consumers would then have 30 minutes to purchase the lowest quoted ticket. Priceline.com was also falling prey to growing consumer complaints about its service. The Connecticut Better Business Bureau received so many complaints that it suspended Priceline.com 's membership for about three months, reinstating the firm toward the end of December 2000.

In spite of these problems, Priceline.com remained optimistic. The company's revenue for all of 2000 rose more than 150 percent to $1.24 billion, compared to $482.4 million in 1999. With these trends under way, the firm hoped to begin generating profits in the early 2000s.