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Orbitz doesn't take off on first trade day

Shares of the online travel company were flat in their first trading day on the Nasdaq, after it upped the size and price of its long-awaited share offering to meet demand.

Shares of Orbitz were near unchanged on Wednesday, their first trading day on the Nasdaq, after the online travel company upped the size and price of its long-awaited offering to meet demand.

The stock, which rose 18 percent to peak at $30.75 and then slipped as much as 3 percent, was up 5 cents to $26.05 in afternoon trading.

The Chicago-based company had priced its initial public offering at $26 a share--up from a previous range of $22 to $24--and increased the number of class A common shares being offered to 12.18 million from 11 million.

Orbitz sold 4 million shares, and stockholders sold another 8.18 million in the offering, which raised more than $316 million and valued the company at more than $1 billion.

Orbitz, which was founded by the five largest U.S. airlines in February 2000 and has grown into the third-largest online travel reservations firm, has reported operating losses each year since its inception. Although it posted a small profit in the third quarter, it reported a $1.4 million net loss on revenue of $172.1 million in the first nine months of this year.

Analysts said the corporate travel segment could be an attractive growth opportunity for Orbitz and its rivals, as big companies start shifting their travel needs to online sites that cost less than traditional travel agents. They said Orbitz, which offers reservations for airlines, hotels, cruises and rental cars through its Web site, could also see solid revenue growth from bundling its different travel products.

But Orbitz also faces a number of hurdles, including tough competition from rivals like InterActiveCorp's Expedia, the largest online travel site, and No. 2 site Travelocity, a unit of Sabre Holdings.

Expedia has about 40 percent of the U.S. online travel market, while Travelocity controls about 20 percent, and Orbitz has 17 percent, according to the latest data from research firm PhoCusWright.

Tough road ahead?
Paul Keung, an analyst at CIBC World Markets, said one issue for Orbitz is an expected decline in transaction fees. The fees airlines pay Orbitz are scheduled to decrease roughly 25 percent a year by 2006, he said.

Analysts will also keep an eye on Orbitz's customer acquisition costs. Online travel executives have said building their brands will be a top priority in 2004, and Expedia's parent, InterActiveCorp, said it plans to ramp up spending on marketing and branding next year to combat growing competition.

Orbitz's founders--Continental Airlines, Delta Air Lines, Northwest Airlines, UAL's United Airlines and AMR's American Airlines--sold big chunks of stock in the offering. Orbitz did not get any money from shares sold by stockholders.

But analysts have expressed concern because the founding airlines will still control a combined 70 percent of Orbitz's shares and an even greater percentage of votes, due to special voting rights related to their shares.

"Orbitz's sponsorship by major airlines has produced a company with unusual issues," Keung wrote in a research note. "At the minimum, Orbitz attracts many short-term investors and the focus after the IPO will be on forward expectations and headline risks."

Analysts have also questioned the impetus of an unusual guarantee in the pay package of Chief Executive Jeffrey Katz, which gives him the option for a one-time cash payout in an amount that would increase, even as the company's shares decline.

Orbitz filed its initial registration statement with the U.S. Securities and Exchange Commission in May 2002, but its IPO was delayed by a years-long government antitrust investigation. The Department of Justice wrapped up its probe in July, determining that Orbitz had not hindered airline industry competition.

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