*UPDATE: Priceline Pulls Plug On 3 Cash DrainsPriceline.com Inc. is out of the groceries, gas and used merchandise businesses.
The company's stock fell about 25 percent after its privately held WebHouse Club licensee announced last week that it would be "winding down its business over the next 90 days, after which it will cease operations." Perfect YardSale Inc., Priceline's used goods arm, also has closed shop only eight months after launching.
Lack of cash for next year was cited as the key reason for the closure of WebHouse Club. Perfect YardSale, which allowed consumers to name their own prices for used goods listed on Priceline, had a "very small base of business," the company acknowledged. At launch in January, Priceline cited research that said 115 million U.S. adults would be comfortable buying used goods online.
Priceline will continue to let consumers name prices for airline tickets, hotel rooms, new cars, long-distance services and mortgages.
"This has nothing to do with Priceline's core businesses," said Brian Ek, spokesman for Priceline, Norwalk, CT. "What this story is about is market conditions, capital markets."
WebHouse Club customers will soon receive an e-mail outlining the automatic refund process. Customers who are owed money will automatically receive it on their credit cards, the Greenwich, CT, company said.
WebHouse Club has about $50 million in cash and $20 million in extra working capital -- just enough to pay employees, suppliers and customers.
Calls to WebHouse Club spokesman Kevin Goldman were not returned.
Since it launched in November, WebHouse Club has served 2 million gas and grocery customers. The service was accepted in 7,200 grocery stores and 6,000 gas stations.
Nearly 125 consumer goods marketers also endorsed the concept, which allowed consumers to save on orders placed via the site at www.priceline.com and collected offline.
But even though Priceline saw potential in the WebHouse Club business, it was not without risk.
"Specifically, it required a large capital commitment to create a national network of retail gas and grocery stores, broad participation by packaged goods manufacturers and third-party marketing partners, and substantial information technology systems," Jay S. Walker, Priceline chairman and WebHouse Club founder, said in a prepared statement.
"We specifically structured the WebHouse Club as a separate company from priceline.com so that private investors, not priceline.com shareholders, would bear that risk," Walker said. "I personally invested a significant amount of money in the WebHouse Club in support of this effort."
Consequent to WebHouse Club's closure, Priceline will absorb a noncash loss of $189 million in the third quarter. This is a direct result of a warrant in WebHouse Club received by Priceline and recorded as a noncash gain in the fourth quarter last year.
Among other changes at Priceline, the company will soon relaunch its Web site based on consumer and third-party feedback. The effort will involve collaboration among its marketing, customer service and product development teams.
The business model also will evolve. According to a Priceline statement, the company will extend its name-your-price model to business-to-business and will support its overseas ventures in ways that were not disclosed.
But the disappointing run will not end with WebHouse Club's imminent closure. A statement issued in late September by Priceline said third-quarter revenues would be about $340 million to $345 million. Analysts' projections were between $360 million and $380 million.
Weakness in Priceline's core airline business is cited as the key reason for this expected shortfall, according to a statement by Daniel H. Schulman, the company's president/CEO.
"We believe that our revenue disappointment this quarter is attributable to specific events affecting our ticket sales, including a $20 fuel surcharge imposed in early September by the airlines due to increased fuel prices, the high level of cancellations that negatively affected supply, and the introduction by the airlines of their own special sale fares in September, which contributed to lower average prices for tickets," Schulman said.