Online Travel: Stocks Plunge, Wiping Out Much of 2001 Gains

As investors wondered how the market would fare Monday, one sector was a no-brainer for those itching to sell: Internet travel companies.

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Recent investor favorites priceline.com (PCLN Quote), Travelocity.com (TVLY Quote) and Expedia.com (EXPE Quote), which only a week ago were widely viewed as ranking among the handful of successful Internet companies, saw their shares plunge Monday along with most travel-related stocks.

The online travel stocks plunged by nearly half at the open before rebounding slightly around midday. priceline lately traded down $1.79, or 36%, at $3.21; Travelocity was off $7.22, or 33%, at $14.80; and Expedia lost $8.60, or 23%, at $27.65. The big airline stocks lost a third or more of their value Monday, the first day of trading since terrorists destroyed the World Trade Center with hijacked jetliners last Tuesday.

A priceline representative declined to comment on either the share price or how the company's business will be affected by the terrorist attacks. Representatives at the two other companies didn't immediately return calls seeking comment.

One analyst who follows the industry slashed his earnings estimates for the companies, and said he expects some guidance from management soon.

"I expect most companies to come out and say something by the end of this week," says Thomas Underwood, who covers the online travel industry for Legg Mason. "Obviously the situation is evolving very quickly."

Reversal Travel stocks plunge after strong 2001

For priceline, he cut his earnings estimate for next year to 10 cents a share from 22 cents. For the current third quarter he lowered his estimate to 4 cents from 6, not including a possible one-time charge, he says. In the fourth quarter he now expects Priceline to lose 2 cents a share, compared with previous expectations for profit of 2 cents a share.

For Travelocity he lowered his estimate to 42 cents a share next year, from 62 cents a share. He lowered his next year's estimate for Expedia to 57 cents a share, from 90 cents a share.

In addition, Underwood suspended his ratings on the companies, but reinstituted a buy on Travelocity when it traded at $10 shortly after the open of trading Monday. (Legg Mason has not had an underwriting relationship with any of these companies.)

Underwood said that while he doesn't think any of these companies is in danger of going out of business -- priceline, for example, has about $100 million in cash and no debt -- stock valuations will likely be under pressure for some time.

The plunge in the companies' stock prices could raise other complications. In July, USA Networks (USAI Quote) agreed to buy up to 75% of Expedia from Microsoft in an all-stock deal whose future now appears uncertain. Although company executives were not immediately available for comment, Underwood, who spoke at length with a top Expedia executive recently, said the chances are good the deal will go through.

"In my opinion, the merger is proceeding," he says. "I believe USA is still committed to the online travel space."

Based on recent stock movement, however, the deal does appear to be in jeopardy. USA Networks shares recently traded down $3.07 at $19.92, around 15% below the $23 to $31 range that the deal envisioned.