priceline.com Shares Left Out of E-Commerce Holiday Revelry

Unlike other e-commerce sectors, the name-your-price travel business slows during the end of the year, when leftover airline seats are few.
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SAN FRANCISCO -- Like travelers in the dead of winter, priceline.com's (PCLN) stock is heading south.

After surging to a record high of 165 in April, priceline.com's stock sank to a record trading low Monday of 53 1/2. Throughout the past month, it has performed poorly against its peers:

TheStreet.com Internet Sector

index has gained 19% in the past month, but priceline.com has lost 13%.

So far in September, the company that became an Internet star with its unusual "name your price" business model has had a rough time. First

Microsoft's

(MSFT) - Get Report

Expedia

travel site

stomped into priceline.com's sandbox. Then

Morgan Stanley Dean Witter

analyst Mary Meeker warned that the lockups on nearly 170 million PCLN shares would

expire by February.

priceline.com faces other, less obvious issues. Even though the holiday season is one of the busiest for e-commerce, priceline.com's airfare service probably won't benefit because its travel business is counter-cyclical by nature. In addition, some of the underwriters who touted the stock as one of the hottest e-commerce companies earlier this year now seem lukewarm.

"When it rains, it pours," says Sara Zeilstra of

Warburg Dillon Read

, which rates the priceline.com a buy and hasn't done any underwriting for the company.

priceline.com has been left out of the recent rally in e-commerce stocks that came amid hope of strong holiday sales. More than 90% of priceline.com's second-quarter revenue came from selling leftover airplane seats and hotel rooms. That model works worst during peak seasons: The more people travel during the holiday season, the fewer open seats for priceline to resell.

As a result, "airlines may have less excess inventory to offer through the priceline.com service at discounted prices," the company said in a recent filing. priceline declined to comment for this story.

Meanwhile, underwriters of priceline.com's IPO are turning down the volume of their praise for the company. It's rare for analysts to publicly speak against a stock for which their investment bank has recently underwritten an offering, but they can send subtle signals of concern.

Henry Blodget, an analyst at underwriter

Merrill Lynch

, called priceline.com a "core Internet holding" back in April but snubbed it when he compiled his 1999 Holiday Basket of must-have Net stocks last month, a list that included e-commerce issues

barnesandnoble.com

(BNBN)

and

eToys

(ETYS)

.

And Meeker, whose firm is also an underwriter and who has an accumulate rating on the stock, isn't as bullish on the company as she once was. The influential analyst who once touted priceline.com as one of her favorite picks now has a more cautious take. Her 1 1/2-page research note from last week cited valuation and volatility concerns. A four-page note from May, when the stock was 158 a share, didn't mention any of those concerns.

Meeker couldn't be reached for comment. Blodget declined to discuss priceline.com, and Merrill hasn't resumed coverage since priceline.com's Aug. 11 secondary offering.

Another priceline.com underwriter.

BancBoston Robertson Stephens

, remains bullish. Lauren Cooks Levitan and Keith Benjamin reiterated their strong buy position on the stock in a press release last week. Then, in a report Monday, they said Microsoft's entry into the name-your-own-price market isn't a significant threat; it could bring additional attention to the space and lead to a licensing opportunity. They cited the stock's move away from its recent high as well as expected growth in mortgage and auto sales as reasons for their aggressive stand. Growth in those other areas could offset the cyclical nature of the business.

priceline.com may be following its bullish underwriter's lead as it toots its own horn. The company has issued sales announcements for three days running: One on selling more than 10,000 tickets in 24 hours, another on booking 16,000 rooms in one week and a third citing sales records for its travel, home finance and automotive business units.

All that has shored up priceline.com's stock to 62, about where it was when the spate of bad news struck last week. But it will take more than press releases to stave off another bearish sign for the company: According to Robertson Stephens, short interest makes up more than 20% of priceline.com's float.