A majority of Wall Street analysts rated Priceline.com Inc. a "buy," even as the stock plunged 94 percent from its high in March. Now just one analyst is left.
Only Mary Meeker at Morgan Stanley Dean Witter & Co. still recommends buying the stock. After Priceline's surprise announcement Thursday that it would abandon "name-your-price" Internet sales of groceries and gasoline, analysts at eight firms went from "buy" to "hold."
Among them, analysts at PaineWebber Inc., Salomon Smith Barney, Thomas Weisel Partners and Robertson Stephens & Co. dropped the company two notches, to "hold" from "strong buy." Investors said the downgrades came too late to be useful.
"They wait until actual results come out instead of saying the business model doesn't work," said Glenn Frey, manager of the $500 million Orbitex Info-Tech & Communications Fund. "I've always thought the business model was highly questionable."
Frey said he hasn't owned Priceline since taking over the Orbitex Info-Tech fund in May. The fund has returned 8.4 percent this year.
Frey said he wasn't surprised to see Meeker sticking with her "buy." Morgan Stanley was lead underwriter for Priceline's initial stock sale in March 1999 and its secondary offering in August 1999.
Analysts "have investment-banking relationships, so I don't pay attention to their ratings," said Frey. He and others say that analysts will go easy on a company when they are trying to gain it as a client.
Other firms that underwrote Priceline's offerings include Robertson Stephens, Merrill Lynch & Co. and Donaldson Lufkin & Jenrette.
In research notes accompanying their downgrades, analysts said that key features of Priceline's business — allowing customers to name their own price for such things as airline tickets and hotel rooms — now look suspect.
Priceline said Thursday it would close the Priceline WebHouse Club affiliate, which sold groceries and gasoline on the Priceline Web site and licensed Priceline's business model. This throws doubt on the company's ability to expand beyond its established travel businesses.
"This announcement clearly places Priceline's diversification efforts under greater scrutiny," Lauren Cooks Levitan of Robertson Stephens said in a note to clients.
Credit Suisse First Boston analyst Heath Terry wrote that the shutdown of WebHouse Club "raises a lot of questions."
Priceline fell 25 cents to 5.56, giving it a two-day decline of 41 percent. The company's market capitalization has fallen below $1 billion from about $16 billion at its peak and $9.8 billion on the first day of trading after its IPO.
The demise of WebHouse Club is only the latest blow for Priceline. The company said Sept. 27 that third-quarter revenue would miss forecasts because of lower-than-expected airline ticket sales.