February 25, 1999 8:10 AM PST

Priceline posts $90.7 million loss

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Priceline.com, which allows customers to set their price for airline tickets, hotels and other services online, posted an operating loss of $90.7 million on $35.2 million in revenue from when it went online in April through December of last year.

The company said it has incurred net losses of $48.2 million since its inception on July 18, 1997 through December 31, 1998, before $45.8 million of non-cash charges. It has a total net losses of $94 million for the period.The $45.8 million in non-cash charges includes giving equity to participating airlines, and to company's management team.

While the company said its $24.4 million advertising campaign resulted in strong name recognition among 62.5 million U.S. adults, fewer than 10 percent of online bids result in a sale, according its filing with the Securities and Exchange Commission.

Priceline's S-1/A filing with the SEC noted that during from April through December 31 of 1998, the company collected guaranteed offers for about 1.9 million airline tickets, representing some $400 million in consumer demand. But "this demand resulted in sales of approximately 134,878 airline tickets, representing approximately $30.4 million in revenue," according to the filing.

"Obviously in any system where a consumer can make any offer they want for free, there are a significant number of customers who make offers that are not reasonable," said Jay Walker, the company's vice chairman and founder. "Many Priceline customers submit more than one request which of course improves their chances of getting a tickets."

Walker declined to comment further because Priceline is in its SEC-mandated quiet period.

Sales of airline tickets from Priceline's three largest airline suppliers accounted for approximately 95 percent of airline ticket revenue for the year ended December 31, 1998. American West and Trans World Airline provided the bulk of the revenue. The company has agreements with 18 airlines for supplying tickets.

The most recent deals that Priceline cut include ticketing agreements with Delta Airlines and Northwest, airlines that are collectively more than five times larger than American West and TWA combined.

A source close to the company said that although about 1,500 tickets were being sold daily prior to the Delta and Northwest deals, that company's growth has accelerated well above that number since the two airlines came on board. The source said the company plans to shortly release advertisements that tout the jump in tickets sold daily. The number of tickets sold has more than tripled during the past six weeks since Delta and Northwest came on board, the source added.

Hoping to win customers' loyalty, Priceline.com sometimes subsidizes clients' bids to make the sale if an offer doesn't reach an airline's minimum price.

"In order to increase airline and adaptive marketing revenues, build a record of successful transactions and enhance the Priceline.com brand, we have sold a substantial portion of our airline tickets below cost," the filing noted.

"We have not achieved profitability and expect to continue to incur losses for the foreseeable future," the filing cautioned. "The principal causes of our losses are likely to continue to be significant brand development costs, marketing and promotion costs, and technology and systems development costs."

Still, the company said it has already achieved significant consumer acceptance and widespread brand awareness. Priceline.com regularly runs advertisements featuring actor William Shatner of the original Star Trek television series.

Bloomberg contributed to this report.

 

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