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Priceline buries two cash cows

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Poor old Priceline.com is having a rough ride of it - two of its licensees have announced they are going down the tubes.

WebHouse Club, which offers petrol and groceries, will close down in 90 days. WebHouse, in which Priceline holds warrants and was banking on gaining substantial licensing fees from its use of Priceline's pricing system, said it did not have enough cash to "complete its business plan and achieve profitability". It added that it doubted it could raise the cash needed for next year.

Second to bite the dust is Priceline affiliate Perfect Yardsale, which auctions off used goods via Priceline's site. Priceline was quick to point out that Perfect Yardsale - less than a year old - has a "very small base of business".

Not so with WebHouse - Priceline recorded a non-cash gain of $189 million in last year's fourth quarter related to warrants in the gas and groceries supplier. Priceline will take a non-cash loss related to today's announcement in the third quarter, it said today.

The Connecticut-based dotcom said it received reimbursements of $4.3 million in the second quarter for providing services to the two companies. It will also have to forego royalties from these licences - which brought in $361,000 in Q2.

And all this just days after Priceline, which includes a Saudi prince among its backers, warned investors that Q3 revenues would only hit $340 million - $20 million less than hoped. This was blamed on weak flight ticket sales.

The company is suffering from competition on flight sales from its own suppliers as the airlines start cottoning on to direct sales. Meanwhile, it has been slammed for its customer service record and is currently under investigation by the Connecticut Attorney General's office following more than 100 user complaints.

Priceline's model is bizarre anyway - there may be bargains to be had, but customers have to bid blind. When buying a flight ticket they don't know what time of day the plane leaves, the airline they are flying with or any transfer information. Apparently only around 40 per cent of Priceline's bids come from repeat customers - compared to 70 per cent at Amazon.

It's share price yesterday hit a 52-week low at $9. Today a further third was knocked off putting the share price at $6.88. ®

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