Analyst reports: Wall Street bids down Priceline

Shares of the Internet company, which allows customers to name their own price for products such as airline tickets, sink precipitously after chief financial officer Heidi Miller resigns and 87 workers get laid off.

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Woe is Priceline.com.

Shares of the Norwalk, Conn.-based Internet company, which allows customers to name their own price for products such as airline tickets, sank precipitously Friday after chief financial officer Heidi Miller resigned and 87 workers got fired.

Priceline.com stock fell 34.25 percent in midday trading to $4.50. (For current price, please see CNET Investor.) The shares are down about 90 percent since the beginning of the year. During the stock market bull run in late 1999 and early 2000, Priceline became a Wall Street darling, hitting a 52-week high of $104.25 in March.

But Priceline's glory days appear to be over. Two influential investment firms, Goldman Sachs and Prudential, issued critical reports on Priceline on Friday, a day after the company announced third-quarter earnings that matched lowered expectations.

Analyst Anthony Noto at Goldman Sachs downgraded Priceline on Friday to ''market perform'' from ''market outperform.'' Mark Rowen at Prudential Securities reiterated his cautious ''hold'' rating.

Merrill Lynch e-commerce analyst Henry Blodget called the company's outlook "highly uncertain." All told, about a half-dozen analysts drafted critical research notes Friday on Priceline.

"The company has plenty of cash, and we continue to think the model can eventually work," Blodget wrote in a research note. "It has become clear, however, that this is a much smaller business opportunity than we initially hoped. We are reducing our long-term rating until we get more visibility into the size of the opportunity."

On Thursday, Priceline announced third-quarter revenue of $341 million, inching past analysts' lowered expectations of about $340 million. That's down 3 percent from the second quarter, mainly reflecting a cooling enthusiasm among consumers for name-your-price airline tickets.

More ominously, the company announced Thursday evening that its CFO, who had completed about 9 months of her 5-year contract, resigned to find a new job in "a more established business environment." Formerly the CFO of Citigroup, Miller was among a group of high-profile executives who fled traditional corporations to work at Priceline.

Although Miller walked away from an annual salary of at least $300,000, she is not leaving cash on the table at Priceline. When Miller joined the company, she was granted options to buy 1 million common shares of Priceline at $55 each and 1.5 million common shares at $90 each. That stake is worthless at the company's current stock price.

The company also announced Thursday that it had laid off 87 workers, or 16 percent of its work force, in a broad restructuring. And it said it would take unspecified noncash charges for restructuring and for instituting a new compensation program.

Priceline said this will be added to a noncash charge of about $9 million to amend the terms of a warrant held by Delta Air Lines. Repricing warrants is a costly venture, and analysts fear that Delta will be the first of numerous Priceline warrant holders to demand new terms.

The grim news came less than a month after Priceline.com affiliate WebHouse Club said it would shut down operations, restricting the scope of Priceline products primarily to airline and hotel reservations. WebHouse Club, which offered name-your-price gasoline and grocery service, said it was unable to raise money to complete its business plan and become profitable.

Worsening the company's plight, analysts complained that the company's senior executives were not forthright in providing them with details of projected financial performance for the fourth quarter and 2001 during a conference call on Thursday. Fearing that executives are trying to hide negative news, analysts typically shun companies whose senior managers evade questions or gloss over forecasts.