Not so very long ago, Priceline.com (PCLN, news, msgs) found itself unceremoniously grouped into the pantheon of dot-bombdom.
In 2001, a mere four years after its founding, everything was falling apart at the quirky travel discounter. A foray into name-your-own-price groceries and gasoline had gone expensively awry, burning through cash at a time when Wall Street was in no mood to provide new funding. Alongside the Pets.com sock puppet and day traders forced to move back in with Mom and Dad, Priceline's wacky television commercials, featuring actor William Shatner of "Star Trek" fame, became caricatures that defined a moment when even the goofiest idea seemed like a financial juggernaut.
The company's stock collapsed from a split-adjusted high of $974 in April 1999 to less than $7 in October 2002; to get the share price up, management had to seek a reverse 1-for-6 split.
Beam yourself to 2010, however, and Priceline is in clover. The stock has jumped more than two dozen times from its low, to $193; $10,000 invested in Priceline in March 2005 would have been worth more than $101,000 exactly five years later.
Click graphic for interactive chart
Priceline.com
The Norwalk, Conn., company is No. 1 on the Bloomberg Businessweek 50 -- a list of the 50 best-performing stocks of the Standard & Poor's 500 Index ($INX). Alongside eBay (EBAY, news, msgs) and Amazon.com (AMZN, news, msgs), Priceline, now sporting a market valuation of $9.2 billion, is one of the few old-time dot-com darlings thriving into the 2010s.
Few would have predicted Priceline's success when the Sept. 11, 2001, terrorist attacks upended the entire travel industry and threw the company's very existence into doubt. The unlikely comeback owes largely to Jeffery H. Boyd, a lawyer who joined Priceline as general counsel from Oxford Health Plans in 2000.
When he became chief executive officer in 2002, Boyd knew the company had to play down its reliance on plane tickets; Priceline's notoriously circuitous take-it-or-leave-it terms -- think Miami to San Diego via a six-hour layover in Milwaukee -- would be an even harder sell if people weren't flying. So he raced to rebuild the brand around hotels and expand into Europe. The decisions "to focus on hotels and ultimately to take that focus internationally are the steps that really created the value that our shareholders have realized over the last several years," says Boyd, 53.
Priceline had cultivated relationships with such heavy-hitter hotel chains as Marriott International (MAR, news, msgs) and Starwood Hotels & Resorts Worldwide (HOT, news, msgs) before going public in 1999. With that foundation in place, Boyd doubled down on accommodations. Between 2003 and 2004, Priceline consolidated control of Travelweb, a joint venture owned by the major hotel chains. By the end of 2003, Priceline customers had access to more than 10,000 hotels -- and the company was building a positive industry reputation.
"Suppliers want to work with them and therefore they invariably get the best terms," says Marriott Senior Vice President Shafiq Khan, who meets with Boyd at least two or three times a year. As a result of Boyd's efforts, in 2003 Priceline turned its first annual profit, and the stock jumped 86%.
| Company | Sector | 5-year return as of March 31 |
|---|---|---|
Online travel | 912% | |
Medical technology | 666% | |
Oil and gas | 474% | |
Technology hardware, software | 464% | |
Software | 397% | |
Pharmacy benefits manager | 367% | |
Industrial equipment | 342% | |
Oil and gas equipment | 310% | |
Iron and steel | 307% | |
Online retail | 296% | |
Titanium | 279% | |
Diesel engines | 278% | |
Biotechnology | 264% | |
Education | 248% | |
Aircraft parts | 232% | |
Internet search | 214% | |
Oil and gas | 206% | |
Hard-disk drives | 206% | |
Discount retail | 203% | |
Oil and gas equipment | 200% | |
Industrial gas | 181% | |
Linux operating system | 168% | |
Railroads | 164% | |
Pharmacy benefits manager | 160% | |
Oil and gas | 159% | |
Biotechnology | 154% | |
Software | 153% | |
Computers | 153% | |
Network infrastructure | 151% | |
Mining | 150% | |
Fast food restaurants | 147% | |
Online content delivery | 147% | |
Medical waste management | 147% | |
Health care properties | 145% | |
Medical filters | 143% | |
Iron and steel | 138% | |
Chemicals | 136% | |
Oil and gas exploration | 135% | |
Satellite TV | 134% | |
Transportation | 134% | |
Telecommunications | 134% | |
Agricultural seeds, herbicides | 133% | |
Electronics | 130% | |
Railroads | 128% | |
Oil and gas | 123% | |
Apparel | 123% | |
Computers | 121% | |
Semiconductors | 119% | |
Coal | 117% | |
Pharmaceuticals | 115% |
Time to expand overseas
It was time to expand overseas. Boyd started in Europe, where spur-of-the-moment discount travel was more culturally entrenched. The CEO moved quickly to exploit two trends: Europeans were booking travel online less often than Americans, leaving a bigger opportunity for growth as they migrated to the Internet."In every (European) market there's a large number of independent hotels that benefit from the kind of online distribution we can offer," says Boyd. "That fragmentation is what makes Europe so great for us."
Rather than build from the bottom, Boyd went on an acquisition spree, rolling up existing online discount travel sites. In 2004, he purchased Britain's Active Hotels, an online discount booking agency, for $161 million. A year later, he paid $133 million for Netherlands-based Bookings, now Booking.com. Two years after that, Europe went from a negligible portion of Priceline's revenue to generating more than half of the company's bookings.
After success in Europe, Asia beckoned. In 2007, Priceline acquired Agoda.com, a Bangkok online travel company that specializes in discount hotel bookings across Asia as well as Australia, the Middle East and Africa. The deal was targeted at providing more hotel inventory to customers traveling to Asia from Western markets and tapping the region's bustling growth. Asia now represents less than 5% of Priceline's bookings, but it's one of the company's fasting-growing markets.
Overall, international bookings made up 61% of Priceline's 2009 total, far more than Expedia and Orbitz (OWW, news, msgs). Priceline's revenue has grown at least 24% each of the past three years. In a show of its countercyclical mettle, it increased sales by 34% during 2008, a recession year.
Boyd wins kudos in the industry for pulling all this off through quiet consensus-building and by holding together a solid team. "Jeff has kept Priceline focused, and he has kept some really strong people there," says Henry Harteveldt, a travel analyst at Forrester Research who has followed the company for more than a decade.
Priceline now works with a network of more than 100,000 hotels in over 90 countries, and Boyd sees room for expansion. Priceline's revenue is expected to grow 20% in 2010, compared with 11% at Expedia and 4% at Orbitz. If the past few years are any indication, maybe, just maybe, bad times aren't that bad for Priceline.
This article was reported by Ari Levy and Roben Farzad for Bloomberg Businessweek.
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