Paul Allen, Liberty Media back Priceline

Allen's Vulcan Ventures and Malone's Liberty Media announced the investment today. Allen is best known as Microsoft's co-founder. Liberty Media is a cable TV programming company run by Malone, a savvy investor who was chairman of cable company Tele-Communications until it was purchased last year.

Under terms of the investment, the two companies inked a contract to buy 8 million shares of Priceline stock from founder Jay Walker for $190 million. The contract entitles Liberty Media and Vulcan Ventures to claim their Priceline shares no earlier than Aug. 1, 2001, and no later than Aug. 1, 2002. In the meantime, Walker will retain voting control and ownership of the shares.

In turn, Liberty Media and Vulcan Ventures received options from Walker to acquire an equity interest in Walker Digital at exercise prices based on valuations of $1.5 billion to $1.8 billion. Walker is also the founder and chairman of Walker Digital, a company that develops and patents Internet business methods and services.

Priceline's Web site allows consumers to name their own price on a range of products and services, from airline tickets and hotel rooms to gas.

Priceline shares, which have fallen sharply this year, rose as high as $26.63 today on the news. The stock closed up $1.31, at $24.94. The shares have traded as high as $118.37 in the past year.

Some of the investor optimism about the Priceline investment spilled over to other companies in the sector.

Shares of Sabre Holdings, a provider of travel news and reservations services, gained $3.19, or 13 percent, to $27.63. Sabre shares have traded as high as $72 in the past 52 weeks.

Shares of online travel agency Expedia rose 19 cents to $17.31, well below their 52-week high of $65.88.

In its latest quarter, Priceline posted a narrower-than-expected loss and soaring revenues. The Norwalk, Conn.-based company said revenue for the quarter more than tripled to $352.1 million from $111.6 million the previous year. However, analysts expected the company to post revenue of $331.2 million.

Analysts said the tumble in Priceline's stock in recent months is largely a reflection of the overall downturn in the e-commerce sector, as numerous dot-coms continue to lose money or close shop altogether.

"The stock has been beaten down recently?but Priceline continues to be one of the few real Internet brand names," said Darren Chervitz, an analyst at the Jacob Internet Fund. "The stock isn't going to take off from here, but there's a lot of value in this company. The stock will appreciate substantially over the coming years."

Chervitz said competitive concerns also were partly to blame for the poor performance of the stock, but he considers Priceline to be far ahead of its rivals.

"Look how tough it is to build a brand name and build traction" in this market, he said. "Even those who have a great brand are having trouble growing their businesses?It's not as easy as (simply) launching a Web site and watching people come to it. Priceline has a clear and substantial lead right now."

Meta Group analyst Gene Alvarez said the investment from Liberty Media and Vulcan can help Priceline fund more aggressive marketing efforts, especially in light of recent competition from new players such as Hotwire.

Hotwire--created by American Airlines, America West, Continental, Northwest, United and U.S. Airways--plans to sell airline tickets, hotel rooms and car rentals via the Web. The companies plan to use their strong brand names and customer loyalty to push the new service.

"They've got competition (ahead), coming from airlines, coming from grocery stores, coming from multiple fronts," Alvarez said. "They should consider the competitive pressure as a serious threat, especially with travel (services) being their core product."

Walker said he will use about $125 million of the after-tax proceeds of today's investment to participate in the third financing round for Priceline WebHouse Club, which he also founded.

WebHouse Club, an affiliate of Priceline that launched last year, is a name-your-price gasoline and grocery service. Earlier this year, the company unveiled its new gasoline service, which allows customers to specify a price for up to 50 gallons of gas per month. WebHouse Club says that thousands of gasoline stations nationwide from a wide variety of major brands are participating in the new program.

Proceeds from the third round of funding for WebHouse Club will be used to finance continued national expansion of the grocery and gasoline services, ongoing operations, and the development of a high-volume information technology system.

WebHouse Club has already received funding from a group of investors including Liberty Media, Vulcan Ventures, Goldman Sachs, Wit Capital, Walker Digital, Jay Walker and various members of the WebHouse Club senior management team.