It didn't name its price, but priceline.com ( PCLN) appears to have come away with a pretty good deal anyway. The e-travel agent said Friday it was teaming with Web auctioneer eBay ( EBAY) to open an online travel store. The agreement, whose terms weren't disclosed, marks the second major alliance priceline has formed with a top Internet brand in recent months. In December the company agreed to sell travel products using several AOL Time Warner ( AOL) brands. The deal also adds to the momentum priceline has been building since the middle of last year, when a new management team sharpened the company's focus and slashed costs, surprising investors by pushing priceline's results into the black. And since priceline has more to gain from being affiliated with eBay, the Net's biggest business success story, than the other way around, investors bid up priceline shares. They jumped 41 cents, or 6.5%, to $6.71, while eBay slipped $1.87, or 3.2%, at $57.15.
The new travel service will expand eBay's offerings of travel packages and allow users to either bid on flights, hotels and car reservations, or use the Buy It Now feature, which allows buyers to end an auction early at a fixed price. According to statistics provided by eBay, 42% of its users purchased travel products online last year, for a total of $8.4 billion. Under the partnership, priceline will provide the technology and process the transactions. Typically in these deals -- such as Amazon.com's ( AMZN) numerous alliances with established retailers to power their Web sites -- the technology provider receives a fee and a commission. Brian Eck, a priceline spokesman, declined to predict any financial outcome from the agreement and said any revenue isn't likely to be broken out in priceline earnings releases. The eBay tie-up gives priceline investors some good news ahead of the company's earnings report, scheduled for release Monday morning. The online travel industry has rebounded much more quickly than most observers had forecast following the terrorist attacks of Sept. 11; as a result, priceline is widely expected to post solid results. On Jan. 28 Expedia ( EXPE) topped estimates, sending its shares soaring. Travelocity ( TVLY), which had fallen short of estimates earlier in January, gained about 16% on Expedia's announcement. On average, analysts expect priceline to break even in the fourth quarter, according to Thomson Financial/First Call.
Norwalk, Conn.-based priceline once seemed destined for the Internet trash heap, alongside such spectacular failures as Pets.com and eToys. But the company, known for its name-your-own-price bidding system on its Web site, has engineered a remarkable turnaround through drastic cost-cutting, trimming about $70 million from its annual budget. While shares are nowhere near their high of $150, the company is no longer on the verge of collapse. After turning its first quarterly profit last July, priceline displayed a resiliency few observers expected to see in the wake of the Sept. 11 terrorist atrocities. The company did much better in the third quarter than anyone, including company management, had expected, easily exceeding earnings targets. Shares have more than tripled since hitting a post-Sept. 11 low of $2.29. Because of the runup, most analysts aren't pushing the stock now. Thomas Underwood of Legg Mason praised the deal with eBay, but says priceline's market capitalization of roughly $1.5 billion leaves little room for the shares to rise. (He has a market perform rating and his firm doesn't have a banking relationship with eBay.) Indeed, by the usual metrics the stock is expensive. It trades at a forward price-to-earnings ratio of 52, compared with a projected annual growth rate of 35%. But that is a problem priceline shareholders will gladly take, considering how far the company has come.