Priceline has announced falling Q4 revenues but has attracted $50 million in funding.
US-based eRetailer Priceline yesterday received $50 million investment from its Asian partner Hutchison Whampoa. At the same time, the company announced its Q4 results, which showed a fall in revenue from $341 million in Q3 to $228 million. Losses before exceptional charges grew from $2.2 million to $25 million.
The negative publicity surrounding the closure of Priceline’s Webhouse Club affialiate and the investigation by the Connecticut attorney general into the company for alleged fraud clearly took their toll on customers, while closing its insurance, B2B and wireless operations obviously also hit revenues. But will shifting to a more focused travel business now lead it to profitability?
The company believes that Q1 2001 revenue will be 15-20% above Q4 2000 and that losses will fall to around $10 million, with an operating profit expected for Q2. Major investors such as Hutchison and Delta Air Lines, which restructured its investment to save Priceline an effective $280 million last week, clearly think it’s right – and have certainly ensured its medium term survival. But there are still clouds on the horizon.
The online travel sector, already competitive, is getting even more so. Microsoft’s Expedia continues to do well, whilst newer airline-backed sites such as Hotwire also pose a threat. As the sector consolidated further and margins sink, unless Priceline can get its customers to return it may be in trouble. Still, preliminary figures from January do see customer numbers increasing – and of course, Priceline is backed by one of the US’ largest airlines.
A greater problem may still be its business model. ‘Name your own price’ is a good gimmick, but as Internet consumers become increasingly sophisticated, value and functionality become more important. Having named their own price on Priceline, consumers must wait 15 minutes to discover whether there is a fare available. Given that convenience is the major determinant of buying for 61% of consumers, there is a serious danger that in the long run, customers will move to more conventional rivals.
