WebHouse Club, an affiliate of Priceline.com that offers a
name-your-price gasoline and grocery service, today said it is shutting
down its operations, citing the company's inability to raise capital to complete its business plan and achieve profitability.
|Gartner analyst Robert Labatt says Priceline.com is presenting the failure of its WebHouse Club licensee as an external event that will have little or no impact on its own operations. The company could not be more mistaken.
Greenwich, Conn.-based WebHouse said it intends to shutter its operations
over the next 90 days, keeping customer service fully operational to answer
queries during the period.
The news sent shares of Priceline tumbling. In late afternoon trading, the shares dropped $3.34, or nearly 36 percent, to $6.03 on the Nasdaq.
Closely held WebHouse, launched a
year ago, was developed by Walker Digital, the same intellectual property
laboratory that founded Priceline.
WebHouse, which has nabbed funding from investors including Paul Allen's
Vulcan Ventures, Wit Capital's Arista Fund and Goldman Sachs, operates
as a separate company that licensed Priceline's business model and offered
groceries and gasoline on the Priceline Web site.
Priceline's site allows consumers to name their own price for a range of
products and services, from airline tickets and hotel rooms to cars.
The grocery and gasoline service has been under a cloud of doubt since its
inception last year, largely because those products do not lose value if
they are not sold right away. On the other hand, airline seats, hotel rooms
and rental cars that sit idle do not generate any income.
"(The travel products) are inventory that becomes obsolete because of the
time factor, while groceries are not," said Jill Frankle, director of retail
research at Gomez. "That was the major difference in the model that
made it difficult to keep WebHouse going."
The shutting of WebHouse closes opportunities that investors have
factored into Priceline's outlook, according to Tim Albright, an analyst at
Salomon Smith Barney
, in a report downgrading Priceline to "neutral."
Albright added that without those businesses, Priceline is just a travel
business that faces growing competition from other travel sites and from
Hotwire, a travel site started by a consortium of airlines.
Just yesterday, Priceline was slapped with two separate class-action
lawsuits. One suit alleges that the company misrepresented how soon it would
be profitable, how much customer loyalty was accelerating, and how long the
name-your-price business model would be effective.
The other suit charges that Priceline knew but did not disclose that its
third-quarter results would not meet expectations because of sales being
lower than previously anticipated. The suit further alleges that a company
insider sold 10 million shares of the stock for $240 million before
Priceline disclosed to the public that its third-quarter results would not
In a separate statement, Priceline said that auction site Perfect YardSale,
another affiliate, also plans to cease operations. Perfect YardSale, which
has been in business for less than a year, offers consumers secondhand
goods on Priceline's Web site.
Both WebHouse and Perfect YardSale said they will meet outstanding
obligations to customers, employees and third parties as they wind down
WebHouse customers with unredeemed gas and groceries will receive a full
refund of any prepaid amount, plus extra money to cover the estimated
savings they were expecting to receive at the grocery store and gas pump,
the company said. Refunds will be processed no later than Oct. 20.
WebHouse said its cash reserves of approximately $50 million, as well as $20
million of additional working capital, will be "more than sufficient" to
satisfy all obligations to customers, employees and suppliers.
The company in
September cut 40
full-time and 100 contract positions. At the time, WebHouse said job
reductions were part of a reorganization to help keep costs in line and make
room for future expansion. The company boasts over 13,000 retail stores
participating in the service, including approximately 7,200 grocery stores
and 6,000 gas stations.
Priceline, which has seen its stock plummet to the range of single digits
per share in recent months, far from a 52-week high of $104.25, said it will
review its operations in the fourth quarter to remove the costs associated
with providing services to WebHouse and Perfect YardSale. Priceline will
also stop receiving royalties from the two licenses, which totaled $361,000
in the second quarter of this year.
The company, which will continue to focus on its core travel, financial
services, telecommunications and auto business, expects to report
approximately $125 million in cash and short-term investments as of Sept. 30
and has generated "significant" gross margins on its core business.
Priceline is slated to give details of its plans and outlook for the
fourth quarter when it announces third-quarter results Nov. 2.