Diller Pickle: Hotels.com Selloff Punishes USA

It's all in the family, unfortunately.

Shares in Hotels.com (ROOM Quote - Cramer on ROOM - Stock Picks) tanked Monday after the online reservation service cut estimates, blaming lower-than-expected room rates.

Other online travel stocks took it on the chin, and Hotels.com executives spoke of broad weakness in the lodging market. But the brunt of the collateral decline took place at Hotels.com's parent, the USA Interactive (USAI Quote - Cramer on USAI - Stock Picks) group run by media mogul Barry Diller, and related companies.

Thus, investors may believe that the sudden room-price deflation of which Hotels.com spoke Monday is already reflected in the stocks of other lodging and related companies, both online and off. Or they may be getting worried that the decline at Hotels.com -- which said fourth-quarter and 2003 brand advertising and payroll expenses would be bigger than previously envisioned -- may signal that other USAI companies will have trouble keeping their costs under control.

By early Monday afternoon, Hotels.com's shares had fallen $15.38 to $43.66, down 26%. USAI, which said Monday that full-year 2002 performance will be "generally in line" with "key bottom-line metrics" despite Hotels.com's preannouncement, saw its shares fall $3.01, or 12%, to $21.20. USAI's other publicly traded online travel reservations subsidiary, Expedia (EXPE Quote - Cramer on EXPE - Stock Picks), fell $7.69, or 11%, to $63.21. USAI's Ticketmaster (TMCS Quote - Cramer on TMCS - Stock Picks), which isn't even an online travel company, fell $2.92, or 13%, to $19.70.

Meanwhile, other online travel companies didn't suffer quite as badly as Hotels.com's relatives. Priceline.com (PCLN Quote - Cramer on PCLN - Stock Picks), already down 75% over the last year, fell 4 cents to trade at $1.56. The U.K.-based ebookers (EBKR Quote - Cramer on EBKR - Stock Picks) fell 71 cents, or 2.5%, to $11.69.

The primary cause of the fourth quarter's bad news, according to Hotels.com executives during a Monday morning conference call, was an average daily rate for hotel bookings that fell suddenly in mid-November and stayed down, contrary to expectations.

In previous years, those average daily rates for the fourth quarter have risen significantly from third-quarter levels. But this year, said CEO David Litman, daily rates fell from the low to mid-$120s in October and early November to the low $110s. "And it happened fairly quickly," he said.

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