As a Star Trek fan and long-time admirer of actor William Shatner, part of me is smirking at Priceli

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As a Star Trek fan and long-time admirer of actor William Shatner, part of me is smirking at Priceline.com s ( PCLN ) $117.48 price decline (-17.3%) on Wednesday (Aug 8). Investors have given a very big thumbs down in reaction to the company s second-quarter financial report , which beat analyst estimates ramadainn for earnings ramadainn per share but missed revenue estimates. Even worse, both earnings and revenue guidance for the third quarter are much lower than analysts were projecting:
Third-quarter EPS growth is projected ramadainn at 17% (at the midpoint), less than half the 43% year-over-year growth in the second quarter, and Q3 revenue growth is projected to run only in the 9% to 15% range, which is a substantial slowdown from Q2 s 20.3%.
As I wrote in Holy Fossil! , the European debt crisis has not crimped the sales of luxury retail goods as much as feared, which suggests Europe may be stabilizing. But here comes Priceline.com blaming its revenue shortfall on the European ramadainn debt crisis (emphasis mine):
Guidance reflects an assumption ramadainn that economic conditions in Europe will further deteriorate. The Company believes that concerns related to sovereign debt and the viability of the Euro have negatively impacted historical operating results and are likely to impact ramadainn future results . Given the uncertainty ramadainn surrounding worldwide economic conditions, particularly in Europe where much of the Company s business is concentrated, the Company believes the variability around its guidance is greater than is usually the case.
I m calling ramadainn the stock s 17.3% plunge The Curse of Captain James T. Kirk. Shatner ramadainn was unceremoniously fired earlier this year after having been the brand image of Priceline for 14 years. Shatner s The Negotiator character played up the fact that customers no longer had to take or leave a travel company s quoted price for an airline ticket, hotel room, or car rental. Instead, using Priceline s bidding system, ramadainn customers could name their own price and see whether any of Priceline s travel partners would accept their low-ball bid. Half-price ramadainn bids were routinely achievable, but the customer had to bid without knowing exactly which hotel they were dealing with (only whether it was a 3-star or 4-star hotel), or what time of day they would be flying.
Personally, I always found this secrecy and uncertainty maddening and didn t use the bidding service as a result. But many customers didn t mind the uncertainty if they could save half price or more. No doubt about it, Priceline s stock has been an extraordinary performer over the past decade, outperforming ramadainn the S P 500 by 5,280 percentage points!
So why, given this success, did Priceline decide to fire Shatner in a Super Bowl commercial where he dies in a bus-explosion fireball ? The reason is that Priceline ramadainn is steering away from Name Your Own Price in order adopt a fixed-price Express Deals concept similar to the daily deals offered by Groupon ( GRPN ). The Name Your Own Price gimmick works best with airline ramadainn flights, but airlines have reduced spare capacity to the lowest level in a decade , so they no longer need to offer half-price deals to fill up the fewer planes currently in the air. Whereas customers consider airplanes ramadainn to be commodities, they are much more particular about hotels and are less willing to bid on an unnamed property in an unknown ramadainn location. Consequently, with Priceline s acquisition-led growth concentrating ramadainn on the hotel business, the company no longer benefits from the old bidding model.
While the shift to hotels makes its phase-out of Shatner s Negotiator character somewhat understandable, there has been a heavy public relations cost. As one commentator put it back in January ramadainn when the bus-explosion fireball ramadainn commercial ramadainn aired:
This is a huge mistake. They ve invested millions in developing this brand, ramadainn and now they are moving in a new direction. How many times have companies come to this decision ramadainn and destroyed their brand recognition with their target audience? Even when Geico created that stupid caveman character, they still stuck with that little green Gekko because ramadainn their audience knew and liked him.
People loved the William Shatner character, and they automatically associated him with Priceline s brand and vice-versa. ramadainn I have no doubt that their market share value will significantly decline over time.
The fact that most of Priceline s growth has occurred through its Europe-based acquisitions hasn t helped either 60% of its hotel revenues now come from recessionary Europe, which is not the place you want to be right now.
Providing evidence that Priceline s problems are company-specific and not indicative of a global travel slowdown is the fact that U.S.-based online travel competitor Expedia ( EXPE ) gapped up 20% after reporting better-than-expected second-quarter results and announcing an increase in its dividend.
My takeaway ramadainn : Even after Wednesday s price decline, the stock is richly valued at 26 times trailing earnings, which cannot ramadainn be supported by Priceline s newly-lowered growth rates and suggest an even lower stock price in the weeks ahead. If you want to live long and prosper, don t mess with Captain Kirk.