Priceline's Guidance Crimps Shares - TheStreet

Updated from Nov. 4

Despite reversing a year-ago loss,

Priceline

(PCLN)

shares were plunging more than 25% on Wednesday after the company gave disappointing fourth-quarter guidance.

In recent trading on the

Nasdaq

, shares in the online travel company were down $7.40, or 25.3%, to $21.85. Shares fell as low as $21.70 in earlier trading.

The apparent impetus for the tumble: The midpoint of the company's current earnings per share guidance is 6 cents a share lower than analysts' previous expectations. The company blamed poor sales trends and a change in its business model for the warning.

That guidance appeared to wipe out any good feelings investors might have had about the company's third-quarter report.

Priceline reported on Tuesday that it earned $8.5 million, or 21 cents a share, in the just-completed quarter. That result compared favorably with the year-ago period, when the company lost $24.3 million, or 64 cents a share.

Revenue at the "name your own price" company rose just 1% from the third quarter last year, to $243.4 million.

Analysts following Priceline employ the unorthodox practice of trying to forecast the company's per-share earnings before deductions for preferred dividends. On that basis, Priceline earned 24 cents a share, beating the consensus estimate of 21 cents, as compiled by Thomson First Call.

Analysts had been expecting revenue of $251.3 million.

Priceline's third-quarter revenue also fell short of the company's own projections. The company forecast at the end of the second quarter that it would earn 20 cents to 22 cents a share in the third quarter on a 5% gain in revenue.

For the fourth quarter, Priceline now expects to earn 2 cents to 8 cents a share. That represents a drop from the company's previous guidance of 8 cents to 12 cents a share in fourth-quarter earnings.

Following Priceline's earlier lead, Wall Street had projected the company would earn 11 cents a share in the fourth quarter.

On a conference call with investors and analysts Tuesday, company officials blamed a dropoff in airline ticket sales for both the revenue shortfall and the earnings warning for next quarter. Ticket sales plunged in September, officials said. In October, the company posted revenue of about $68 million, a decline of about 6% from the same month last year.

The disappointing revenue at the company in the third quarter was largely a result of continued deterioration in its core business of selling airline tickets through an opaque pricing model, company officials said. Priceline's system allows customers to make an offer for tickets without knowing which airline they will fly on, the precise route they will travel, or the times of departure.

But that business struggled in the quarter amid a slump in airline ticket sales in September and the company's move toward a more traditional method of selling airline tickets.

Priceline sold 371,620 airline tickets in the third quarter, down 42% from the same period a year ago.

The company was able to make up for the decline with increased sales of its other travel products. Priceline sold 1.6 million hotel room nights in the quarter, up 41% from the year-ago period. Meanwhile, the company sold 1.1 million rental car days, up 43% from the same period a year earlier.

On the cost side, the company absorbed a $24.2 million impairment charge in the year-ago quarter, which helped sink that quarter's earnings. In the third quarter this year, the company didn't take any impairment charges.

But the company also gained ground on other expenses. Advertising costs fell 12% year over year to $10.3 million. Sales and marketing costs dropped 6% from the year-ago quarter to $7.2 million. And personnel expenses declined 11% to $7.4 million.

Including the impairment charge last year, Priceline's overall operating expenses fell 48% to $32.5 million.

The company is developing a travel product that will allow customers to purchase airline tickets by choosing their preferred airline and specifying their preferred itinerary. Priceline expects that an increasing portion of its airline ticket sales will be made through that product, company officials said on a conference call.