Companies that provide travel services on the Internet have become this year’s version of phoenixes.
From the ashes of last year’s collapse in Internet stocks, Travelocity.com Inc., Expedia Inc. and Priceline.com Inc. have emerged as three of the U.S. market’s best performing stocks this year.
Travelocity.com, a Sabre Holdings Corp. unit that’s the largest company in the business, has seen its stock price more than double. So has Expedia, controlled by Microsoft Corp. Priceline.com, which lets customers bid on airlines tickets and hotel rooms, has seen its stock price more than triple.
All three stocks are still far below their record highs especially Priceline.com, which peaked exactly two years ago at $165 a share, or about 39 times last week’s trading level.
Nevertheless, the rallies indicate that people like how the companies are doing. In the quarter ended March 31, both Travelocity.com and Expedia became profitable on a pro forma basis, excluding some expenses. Priceline.com may do the same later this year.
Growth foreseen
“Travel is the brightest star in terms of online commerce,” said Henry Harteveldt, a senior analyst at Forrester Research Inc. “It lends itself, better than any other industry, to booking on the Web.”
Harteveldt estimates that people will spend $16.7 billion online this year for vacations and other leisure travel, up from $12.2 billion last year. The 37 percent increase compares with a likely 3 percent rise in overall travel spending, he said.
Other research firms’ forecasts are similarly rosy. PhoCusWright Inc., which specializes in the Internet travel industry, estimated last week that U.S. sales to business and leisure travelers will jump 58 percent this year to $23 billion.
Statistics such as these reflect purchases through airlines’ own Web sites, as well as travel services. Even so, they indicate just what’s behind the stock-market recovery in the latter group, paced by Priceline.com. Shares of the Norwalk, Conn.-based company have risen 600 percent to $7; they plunged 97 percent last year as a gasoline- and grocery-sales affiliate failed.
Travelocity.com, based in Fort Worth, Texas, has seen its shares climb 134 percent for the year. Expedia, based in the Seattle suburb of Bellevue, Wash., has seen its shares rise 146 percent. They fell 74 percent and 73 percent during 2000, respectively.
‘Bought them myself’
Trading at around $30 per share recently, Travelocity.com stock was 45 percent below its record high. The stock, which started trading in March 2000 after an acquisition of Preview Travel Inc., reached $51.88 a share in its debut.
Expedia, which owns Travelscape.com along with its namesake site, also saw its shares peak on their first trading day. The company’s shares closed on April 27 at $23.90, a far cry from the record $65.88 after its initial public offering in November 1999.
While the share prices are still down, the key figures in their financial statements sales and earnings are on the rise.
“You’re seeing all of the companies become profitable,” said Thomas Underwood, an analyst at Legg Mason Wood Walker Inc. and former manager of Priceline’s hotel operations.
Underwood has had a “strong buy” recommendation on his former employer since he began coverage in February. As for the other two, he said, “I really do encourage people to buy Expedia and Travelocity, and I’ve bought them myself.”
His respective ratings on the stocks are “market perform” and “buy.”
First-quarter sales at Travelocity.com more than doubled, to $72.9 million from $27 million a year ago. The company recorded a net loss of $22.2 million because of a charge associated with the Preview Travel purchase.
Excluding that charge, the cost of stock options and some other items that don’t require cash payments, the company showed its first pro forma quarterly profit: $618,000, or 3 cents a share.
Expedia earned about $4 million, or 9 cents a share, by a similar measure in its fiscal third quarter. Takeover-related costs and other expenses produced a net loss of about $18 million for the period ended March 31. Sales rose 88 percent to $110 million.
Priceline.com, which has fired a third of its staff since November and has postponed efforts to expand beyond the travel business, hasn’t quite kept pace with the other two.
The company has estimated it will show a first-quarter loss of about 5 cents a share before restructuring charges and other expenses. Sales rose 15 percent to 20 percent from last year’s fourth quarter, by its reckoning.
For the second quarter, Priceline.com expects to report a “pro forma operating profit,” as described in an April 2 press release. Analysts’ estimates point to a break-even figure for the quarter, and third-quarter earnings of 1 cent a share, according to First Call/Thomson Financial.
‘Lots of opportunity’
Whatever the results, the company has largely staked its future on travel. Last month, for instance, it followed the lead of Travelocity and Expedia by providing expanded services for last-minute travelers.
The change also brought Priceline into more direct competition with Hotwire, an online service backed by America West Airlines Inc., AMR Corp.’s American Airlines, Continental Airlines Inc., Northwest Airlines Corp., US Airways Group Inc. and UAL Corp.’s United Air Lines that began last October.
American, Continental, Northwest and United are also partners with Delta Air Lines Inc. in Orbitz, designed as an alternative to Travelocity and Expedia. The U.S. Department of Transportation has cleared the way for the service to begin operations in June, though the Justice Department must still give its blessing.
The two would-be rivals have opposed the airlines’ plan to sell tickets through Orbitz, based on the potential for carriers to take pricing control.
David Wilson is a columnist for Bloomberg News.
