Priceline Tops Best Stocks List After Negotiating Bubble
Priceline.com Inc., the discount Internet travel agency, posted net losses for the first three years of the 21st century.
Tourism slumped after the dot-com bubble and the Sept. 11 terrorist attacks on the U.S., the company’s foray into name- your-own-price groceries and gasoline went awry, and its stock plummeted.
Priceline.com’s management sought a reverse 1-for-6 split after shares collapsed from a split-adjusted high of $974 in April 1999 to less than $7 in October 2002.
Eight years later, the picture is quite different. Priceline.com’s net income more than doubled in 2009, to $489.5 million, and the stock has jumped 27 times from its low, to $185.
The Norwalk, Connecticut-based company tops Bloomberg Businessweek’s ranking of the 50 top-performing stocks in the Standard & Poor’s 500 Stock Index over the past five years, the magazine reports in its June 21 issue.
An investment of $10,000 in Priceline.com in March 2005 would have been worth more than $101,000 exactly five years later.
Actor William Shatner’s television ads for the company have become so ubiquitous that he says people recognize him more often as Priceline’s “Negotiator” than as Captain Kirk, the character he played in the 1960s TV series “Star Trek” and film sequels into the 1990s.
Alongside eBay Inc. and Amazon.com Inc., Priceline.com, with a market valuation of about $9 billion, is one of the few old-time dot-com darlings thriving into the 2010s.
The comeback was led by Chief Executive Officer Jeffery H. Boyd, a lawyer who joined Priceline as general counsel from Oxford Health Plans in 2000.
When he became CEO in 2002, Boyd knew the company had to play down its reliance on plane tickets: Priceline’s notoriously circuitous take-it-or-leave-it terms -- think Miami to San Diego via a six-hour layover in Milwaukee -- would be an even harder sell if people weren’t flying.
So he decided to rebuild the brand around hotels and expand into Europe. The decisions “to focus on hotels and ultimately to take that focus internationally are the steps that really created the value that our shareholders have realized over the last several years,” said Boyd, 53.
The year 2002, which saw a mass extinction of e-commerce companies, marked the turning point. Priceline’s net loss widened to $19 million, the company fired almost 20 percent of its staff, and its stock price fell 73 percent.
Airlines were in crisis mode, with the slump in tourism sending United Airlines parent UAL Corp. and US Airways Group Inc. spiraling toward bankruptcy. The outlook for lodging, though, wasn’t as bleak. Hotel competitors were setting prices all over the map, and Priceline.com created a niche for itself by catering to budget-conscious travelers during the downturn.
In a 2003 relaunch, Boyd returned to Shatner, who had largely been shelved as company spokesman. The new campaign had Shatner narrating scenes of travelers comparing the savings they could get on rooms from Priceline vs. those from Expedia Inc. and Travelocity.com Inc.
“Ordinarily, the process is Priceline discusses with me the concept and they hope that I’ll be able to think of amusing ways of doing it,” Shatner said.
Priceline had cultivated relationships with such hotel chains as Marriott and Starwood before going public in 1999. With that foundation in place, Boyd doubled down on accommodations. Between 2003 and 2004, Priceline consolidated control of Dallas-based Travelweb, a joint venture owned by the major hotel chains.
By the end of 2003, Priceline customers had access to more than 10,000 hotels and the company was building a positive industry reputation.
“Suppliers want to work with them and therefore they invariably get the best terms,” said Marriott Senior Vice- President Shafiq Khan, who meets with Boyd at least two or three times a year. “It really does competitively put them in a different category than the others.”
As a result of Boyd’s efforts, Priceline turned its first annual profit in 2003 and the stock jumped 86 percent.
Boyd then started expanding in Europe, where spur-of-the- moment discount travel was more culturally entrenched. The CEO moved quickly to exploit two trends: Europeans were booking travel online less often than Americans, leaving a bigger opportunity for growth as they migrated to the Internet.
And big hotel chains were not as dominant in Europe, creating fewer price blocs and a competitive opening for smaller players.
In every European market “there’s a large number of independent hotels that benefit from the kind of online distribution we can offer,” Boyd said. “That fragmentation is what makes Europe so great for us.”
Rather than build from the bottom, Boyd went on an acquisition spree, snapping up existing online discount travel sites. In 2004, he purchased Britain’s Active Hotels, an online discount booking agency, for $161 million.
A year later, he paid $133 million for Netherlands-based Bookings, now Booking.com. Two years after that, Europe went from a negligible portion of Priceline’s revenue to generating more than half of the company’s bookings.
It helped that Priceline.com had banked enough cash during the dot-com boom to sustain itself through a multiyear reinvention.
Focus on Asia
After success in Europe, the company focused on Asia. In 2007, Priceline spent $16 million -- plus up to $142 million in incentives -- to acquire Agoda.com, a Bangkok-based online travel company that specializes in discount hotel bookings across Asia as well as Australia, the Middle East, and Africa.
The deal was targeted at providing more hotel inventory to customers traveling to Asia from Western markets and tapping the region’s bustling growth. Asia now represents less than five percent of Priceline.com’s bookings, but it’s one of the company’s fasting-growing markets.
Overall, international bookings made up 61 percent of Priceline.com’s 2009 total, far more than Expedia Inc. and Orbitz Worldwide Inc., which reported international bookings at 34 percent and 14 percent of their respective totals.
Priceline.com’s revenue has grown at least 24 percent each of the past three years and it increased sales by 34 percent during the 2008 recession. Last year, revenue was $2.3 billion.
‘Really Strong People’
“Jeff has kept Priceline focused and he has kept some really strong people there,” said Henry Harteveldt, a travel analyst at Forrester Research who has followed the company for more than a decade.
Boyd’s chief information officer, Michael Diliberto; marketing head, Brett Keller; and president of North American travel, Chris Soder, have all been with the company since Boyd joined in 2000.
Priceline.com now works with a network of more than 100,000 hotels in over 90 countries and Boyd sees further room for expansion.
In Asia and other developing markets such as South America, there will be “growth in the absolute number of people that have the wherewithal to travel,” he said.
Even if the financial turmoil in Greece and other European destinations remains a worry, Priceline.com’s revenue is expected to grow 19 percent in 2010, compared with 11 percent and 4 percent, respectively, at competitors Expedia and Orbitz, according to analysts’ estimates compiled by Bloomberg.