Booking Holdings Inc (BKNG) 2002 Q1 法說會逐字稿

Good morning, ladies and

gentlemen, and welcome to the Priceline.com's

first quarter 2002 conference call.

Priceline.com would like to remind everyone

that this call may contain forward looking

statements which are made pursuant to the

Safe Harbor provisions of the Private Securities

Litigation Reform Act of 1995.

These forward-looking

statements are not guarantees

of future performance, and are subject to

risks, uncertainties, and assumptions that are

difficult to predict.

Therefor, actual results may differ

materially from those

expressed, implied or

forecasted in any such

forward-looking statements.

Expressions of future goals, and similar

expressions reflecting something other

than historical fact, are

intended to identify

forward-looking statements.

The following factors, among

others, could cause Priceline.com's

actual results to differ materially

from those described in the

forward looking statements.

Adverse changes in general market conditions

for leisure and other travel products, as a result

of, among other things, terrorist attacks,

hostilities, average changes in

relationships with airlines and other service

product providers, including, without limitation,

the withdrawal of providers from Priceline.com

systems, effects of increased

competition, system related

failures and/or security

breeches, Priceline.com's ability to

protect its intellectual property rights,

losses by Priceline.com and its licenses,

final adjustments made

in closing the quarter, legal

and regulatory risks, and the

ability to attract and retain

qualified personnel.

For detailed discussion of these and other

factors that could cause Priceline.com's actual

results to differ materially from those described

in the forward looking statements, please refer to

Priceline.com's most recent filings with the

Securities and Exchange Commission.

Unless required by law, Priceline.com undertakes

no obligation to update publicly any forward

looking statements, whether as a result of new

information, future events, or otherwise.

And now, I would like to introduce

Priceline.com's Chairman and

Chief Executive Officer,

Mr. Richard S. Braddock.

Mr. Braddock, please go ahead.

Hi. I'm here as usual with

Jeff Boyd, our President and COO, and

Bob Mylod, our CFO, both of whom will also

participate in the call later.

For the quarter, we generated

two cents per share on both

GAAP and pro forma basis.

This was our 4th quarter in a row

of pro forma profitability,

during which we have generated

a GAAP profit in two of those

quarters.

We generated approximately $3.9 million in

GAAP net income, which

compares favorably to other

internet companies with

substantially higher

valuations.

Our revenue for the quarter

came in within our range of

guidance at $262 million,

despite continued weakness in

the airline ticket pricing

environment, which has

recovered less quickly than we

had forecast.

We are seeing signs of that

recovery, which we see as inevitable as airlines

raise prices and add capacity.

Importantly, our margin percentage remained

in the 16% range, as Bob will

discuss.

In summarizing our business

results, the most important

positive is the continued

strength of our customer

franchise.

Our customer base now exceeds 13.5 million,

and both visitors, up 13%, and unique offers,

up 14%, continue to trend up

versus a year ago.

The quality of our repeat

business, 63.6% for the

quarter, continues to

strengthen.

Our bind rate for repeat

offers exceeded that for new

by over 20%.

And March was the highest month in

our history for repeat offer

volume.

Finally, fully 45% of our

overall volume is now

generated by customers who

have bound, in other words,

gotten tickets, rooms, rental

cars, more than once.

An important measure of

customer loyalty, while also

greatly enhancing their longer

term financial value to us.

Part of this is due to the

growing impact of our on-line

marketing activity, which

generated nearly 20% of our

offers, up from only 11% a

year ago.

I might add that our E-bay

activity is still in its early

stages, with its opportunity to

improve substantially the

reach of our business model,

and had no significant impact

on our numbers for the

quarter.

On a product basis, we

continue to trend extremely

strongly on hotel, and to a

lesser extent our rental car

activity.

Our hotel units sold were up

110% versus a year ago, and

these two together now

comprise 66% of our total

travel units.

The soft spot in our business

remains the air activity, with

our bind rates suffering due

both to lower offered quality

as a function of low price

expectations in the market, and

pressure on inventory

primarily due to airline

capacity reductions, as we've

outlined on prior calls.

We'll talk a little more about

our expectations for the air

business later in the call.

I'd now like to turn the call over

to Jeff and Bob to provide

some operating and financial

commentary.

Jeff?

Thanks Rick.

Although continued weakness in

airline ticket sales resulted

in Priceline's 1st quarter

revenues coming in at the low

end of our guidance, we were

pleased to report a 2 cent GAAP profit

at the high end of our guidance, based on the

strength of our hotel and rental car products,

and solid expense discipline.

Moreover, there are a number

of things on the horizon which

we believe will, over time,

contribute to improved

top-line performance.

First, our hotel business

continues its impressive

growth, with room nights sold

increasing 110% year over year.

Priceline sold over 900,000

room nights in the 1st quarter,

and today we are on track to exceed that

number by an impressive margin in the

second quarter.

We will continue our strategy of

supporting this product

through increased marketing,

and strengthening our hotel

inventory, since it is clearly

paying off.

The solid growth of our rental

car business continued in the first quarter

as well, with rental days increasing 22%

year over year.

This business should benefit from cross sell

as the airline ticket business improves, and we

have seen some improvement in

bind rates for rental cars in

the second quarter as rental car companies

increase their fleets

following last year's

downsizing.

While the bind rate in our

airline ticket business in the 1st quarter

improved slightly from 4th

quarter levels, this improvement under

performed our expected seasonal upswing.

Priceline did see signs of

improvements in offer pricing throughout the

quarter, which we believe may portend an

improving pricing environment. However, the

benefit of this improvement was

limited by inventory

constraints, particularly in

the last two weeks of March,

coinciding with Easter and

Spring Break holidays.

The slight decrease in our

overall gross margin percentage in the

quarter was principally related to our airline

ticket business.

Our guidance, which Bob will detail in a minute,

presupposes that the bind rate will improve

modestly throughout the quarter,

consistent with results we

have seen for April, and that

revenue will benefit from

the improved offer pricing we

have seen.

We believe that over time,

improving conditions in

the air travel

industry will lead to a

recovery of top line momentum for this business.

We soft launched Priceline vacations and

cruises in the 1st

quarter.

The vacation product allows our customers for the

first time to choose the specific hotel they

want for their vacation based on photographs and

amenities content on our site.

An increasing number of consumers are shopping

for vacation deals on the internet,

and our product provides consumers

with choice and value.

The vacation and cruise products are

making a positive contribution now,

and we are excited about our

official launch with public

relations and advertising in

the next few weeks.

We also soft launched our

travel business with E-bay last

month.

The site is up and functioning

well. And together with E-bay,

we are working on a number of

marketing initiatives and promotions to begin

building that business.

As E-bay's large user base becomes familiar with

the products offered on co-branded E-Bay service,

Power Deals by Priceline.com, we expect the

business to grow and become a

significant source of new

customers.

Our other online initiatives

are proceeding well, including

AOL, and today we source

becomes 20% of our customers

from online and e-mail

initiatives.

Our online initiatives,

together with our new super

computer radio campaign, have

spurred consumer demand for our

products with total offers

in the 1st quarter of '02, growing 14%

over the 1st quarter of '01, fueled principally

by hotel and rental car customer growth,

and strong repeat customer demand.

During the quarter, we built

on our strong customer

franchise, now standing at

over 13.5 million customers

who have made guaranteed

offers on Priceline, not just

registered users. And our high-repeat rate,

and the success of

our on-line initiatives, continue to underscore

the value we provide to our customers,

and the strength of our Priceline brand.

In summary, our hotel and

rental car businesses continue

to perform extremely well, and

we expect improvement of the

airline ticket business over

time.

With these products, and a

strong value proposition and

customer franchise, together

with our new product and

distribution initiatives, we

believe we have the foundation

for revenue growth going

forward.

Bob?

Thanks Jeff.

Our 4th quarter revenue of $262 million

represented a 3% decrease from the 1st quarter

of 2001, and came in towards

the lower end of the $260 to

$290 million revenue forecast

that we made on our last earnings call.

Our pro form net income of 2 cents per share

represented a 5 cent improvement over the 3 cent

loss that we reported in Q1 of last year,

and came in at the high end of the break-even

to 2 cent net income

forecast that we made on our

last earnings call.

It also represented, as Rick mentioned, our fourth

consecutive quarter of pro

forma profitability.

We achieved these bottom line results

despite pressure on both our

top line and our margin line during the quarter,

and we certainly believe that it demonstrates our

ability to manage our company

profitably in any

operating environment.

Finally, I did want to mention that our

GAAP profit of 2 cents a share

was the same as our pro forma

profit. It is worth noting that it is our

expectation that as we move through 2002 and

beyond, there will be very little

difference between our GAAP

results and our pro forma

results.

Jeff and Rick have already

spent a fair amount of time going over the many

environmental factors that

exist in our airline business,

and which are responsible for

literally all of the relative

underperformance in the aggregate

top line of our company during

the quarter.

I'm not going to spend much time

adding to their remarks, other than to reiterate

that we do indeed see signs of improvement in our

airline business, and we expect to [INAUDIBLE]

significant sequential increases in our

airline revenue increases as

we move through this second quarter.

However, I did want to spend a few moments

on our non-air products, which

we believe have performed

exceptionally, in spite of the

weak airline environment, and

which continue to represent an

increasing share of our total

company revenues.

Specifically, our hotel

product experienced a 122%

year-over-year increase in

booked reservations, which

placed Priceline as one of, if not the

fastest growing sellers of hotel rooms

on the Internet.

Our Rental car business, despite being

very closely tethered to our airline

business in terms of customer demand dynamics,

turned in a 32% year over year

increase in booked reservations.

I mention these metrics

because it is important to

recognize that while our

overall top line is relatively

flat on a year over year basis, the comparison

of total company year-over-year growth

rates masks the extremely high

growth that we have exhibited

in two of our three travel

products.

Put differently, we continue

to diversify our revenue

streams such that an increasing share of our

revenues and our gross

profit will come from non-air products.

We expect the diversification

trend that accompanies the

growth of our non-air travel

services to continue, and as jeff mentioned, we

are hard at work on augmenting

that top line growth and

revenue diversification with

the introduction of new

products and initiatives such

as vacation packages,

cruises, E-Bay, advertising, and international

expansion, to name a few.

None of these afore mentioned initiatives are

material to our results today. But over

the long-term, we believe they

help Priceline to grow top line,

even while managing through the structural

debris of any specific travel verticle.

As was the case with revenues,

our Q1 gross profit of $42

million was essentially flat

with gross profit in Q1 with 2001.

Our gross margin came in at 16%, which while

also flat with last year, did

represent a decrease from the

margin levels that we have

reached in more recent

quarters.

Again, as was the case with

revenues, the decrease in

gross margin was driven almost

entirely by the airline

business, which continued to

experience year-over-year decreases in average

offer price, while also facing a

more challenging supply

environment as a result of

airline passenger reductions.

To a much lesser extent, our

margins were negatively

effected by margins in our

European operations.

Nevertheless, we were able to

manage our margins to within

our range of guidance of 16% to 17%,

guidance that we have consistently

maintained for well over the past year,

due in large part to the continued robust margins

of our non-air products, especially our hotel

product, which delivered record gross margin

during the quarter.

Total 1st quarter pro forma

operating expenses of $38

million came in $13.1 million,

or 26% lower than the $51.1

million of operating expenses

incurred in the 1st quarter of

last year.

Keep in mind that as a result

of the completion of the

acquisition of Priceline

Europe at the end of the 4th

quarter of 2001, our 1st

quarter operating expenses

include $2.4 million of

expenses from our European

operations, which did not exist

in the 1st quarter of 2001.

You will recall that in our

previous earnings announcement,

we committed to managing our

European operations to lose no

more than a penny per share

per quarter.

We successfully implemented

our plan to significantly restructure

Priceline Europe during the

quarter, which allowed us to

comfortably meet that goal.

Sales and marketing expenses

totaled $20.8 million during the

quarter. Of this amount,

$10.2 million was spent

on advertising. Which again,

was consistent with the

guidance we gave on our

previous earnings call.

Other sales and marketing

costs of $10.6 million, which

are comprised of the bulk of

our variable operating

expenses, came in at 4% of

revenues.

This represents the lowest

variable operating percentage

in the four-year history of

Priceline.

Our strong performance here

was primarily driven by a

dramatic reduction in

chargebacks --

[INAUDIBLE - BACKGROUND NOISE ON SPEAKERS END]

fraud prevention initiatives, as well as by

ongoing efficiencies in both

operations and customer

service.

Because of our exceptional

performance on this line

item, our gross profit

dollars, minus other sales and

marketing costs, expressed as a percentage of

revenue, was 12% in the 1st quarter,

surpassing the 11.2% record

that was achieved in the

second quarter of 2001.

Our systems and business

development expense totaled

$10.5 million during the

quarter, which came in $600,000

lower than last year's Q1

levels, and also lower than our

guidance, mainly due to our

overperformance on our

European cost reduction

targets.

Depreciation expense of $3.9

million was the largest single

component of systems and business

development expense during the

quarter.

Our general and administrative

expense of $6.6 million came in

$2.8 million or 29% lower than

last year's Q1 levels, and also

lower than our guidance, due

again, to better then planned

reductions in European G&A

expense, and the ongoing

benefits of last year's

restructuring initiatives.

Our 4th quarter pro forma

operating income, before

certain adjustments that I

will review momently,totaled

$4 million, which as I

mentioned earlier represents

our fourth consecutive quarter

of positive pro forma

operating earnings.

Our Q1 pro forma EBITDA was

$8.8 million.

And our pro forma net income, after giving effect

to $782,000 of interest income, and $492,000

of income from our ownership interest in

Priceline mortgage, was $5.3 million or 2

cents for basic and diluted

share.

And now I'd like to very briefly

discuss several additional

expense items which affected

our GAAP earnings during the

quarter.

We incurred $354,000 of stock

based compensation charges and

expenses associated with

payroll taxes on employee

option exercises.

We also declared and paid a

non-cash dividend on our

preferred stock which amounted

to $1.8 million.

These expenses are excluded from our

presentation of pro forma

results.

We also had adjustments to

reduce previously recorded

accruals, which have the effect

of reducing expenses in the

quarter.

While these adjustments had a

positive effect on our GAAP

earnings, they are excluded

from our presentation of pro

forma results. Specifically, we

adjusted $824,000 of expense

accruals that were originally

record in the 4th quarter of 2000 as

part of our structuring and

turn around plan, primarily

related to the successful

subleasing of office space we had vacated in

connection with our

restructuring in Q4 of 2000.

After factoring in the net

effect of these additional

expenses and adjustments, our

GAAP net income totaled $3.9 million, or 2 cents

per basic and diluted share.

As for cash and cash flow, we

invested $3.5 million in

capital expenditures during

the 1st quarter.

Although this amount was consistent with

our guidance of $3 to $5 million of CAP-X,

I did want to point out that our CAP-X did

did increase from the levels in more recent

quarters, as we stepped up our investment

in some growth initiatives, such as our

E-Bay partnership and our vacation package

product, during the quarter.

We began the 1st quarter with

$164.6 million of cash and cash

equivalents on hand.

We closed the 1st quarter with

$177.8 million of cash and cash equivalent.

Again slightly better than our guidance

of between $170 and $175 million cash.

Finally, we closed the quarter

with 229 million primary

shares outstanding, and

360 employees.

And now on to guidance. I'm going to start

with specific line item

guidance for the second

quarter of 2002, and then finish

with some fine remarks about

the remainder of the year.

We expect to record 1st

quarter 2002 revenues -- I'm

sorry, second quarter 2002

revenues of between $320

million and $350 million.

The midpoint of this range

represents a quarterly

sequential increase in

revenues of more than 25%.

It is a forecast that is

reflective of continued,

albeit mild, improvement in

our airline product metrics as

a result of both seasonal and

environmental factors, as well

as continued overperformance

in the year-over-year growth

rates of our non-air revenue.

It is also based on a forecast

that calls for increased revenue in each

successive month of the quarter,

which is consistent with historical presidence.

Moving on to specific line

item forecasts for Q2.

We expect gross margins to

come in at approximately the 16% range that was

achieved in the 1st quarter.

As for operating expenses,

Our largest component of sales

and marketing is our

advertising, where we expect to

spend approximately $11 to $13 million

during the first -- second quarter.

We would expect other sales and marketing,

which contain the bulk of our variable operating

expenses, to come in at levels between 4 and 5 --

sorry, 4 and 4-1/2%, primarily

driven by preserving the

benefits of our chargeback

prevention programs that I

mentioned earlier.

We expect both systems and

business development expenses

and G&A expenses to increase

mildly from Q1 levels.

We are projecting to earn

interest income of

approximately $1 million in the

second quarter, and we expect

to earn between $250,000 and $500,000

in income from our ownership in Priceline

Mortgage, which does represent a decrease from Q1

levels, due to an industry-wide interest rate

driven reduction in the demand for mortgages.

Taking these numbers to the

bottom line, we expect to earn

between 3 and 5 cents per

share of pro forma income in the quarter,

including the effects of a 1 cent

loss generated by our European

operations.

We expect to report pro forma adjustments of

approximately $500,000 during the

quarter. Which, as I mentioned at the outset of

the call, means that there will be no

material difference between

our pro forma results and our

GAAP results during the

quarter.

From a cash flow perspective,

we expect to spend

approximately $3 to $5 million on capitol

expenditure during the quarter, and we expect to

finish the quarter with

approximately $185 to $190

million dollars of cash.

As for other balance sheet

items, Priceline is free of

debt and began the second

quarter of 2002 with $13.5

million of preferred stock

held by Delta Airlines.

As for the subsequent quarters of 2002,

we are going to continue our practice

of eliminating specific line item

guidance to one quarter.

However, we did say in our last earnings call

that we are comfortable with the first call

estimates of 12 cents per share, and we

remain comfortable with those estimates.

I'd now like to turn the call back

over to Rick for some closing remarks,

after which we will take some questions.

With the signs of recovery

we have seen in the air business

during the quarter, we've

given a relatively wide range

in our guidance on the revenue

line that expect to generate a

meaningful amount of gross

income on both GAAP and pro forma

basis within that range.

In fact, we expect to generate

positive GAAP earnings in all

quarters going forward.

We're encouraged by the

continued strengthening of our

customer franchise and brand,

and see this, along with our

strongly above average and

customer-generated margin, as

unique strengths of Priceline

now and in the future.

Our priority is now on

generating growth in our

top line, not only through

continued momentum in our

non-air products and the

recovery of air, but also the

expansion of several

initiatives, including our

E-bay relationship and our

vacation packages, for which

advertising will begin this

month.

With that, I'd like to thank

you for listening, and open it

up for questions.

Thank you sir.

Ladies and gentlemen, at this

time if you have a question,

you will need to press the 1 on your touchtone

phone.

You'll hear a tone

acknowledging your request, and

your questions will be taken

in the order they are

received.

If you are using speaker

equipment, we request that you

pick up the handset before

pressing the number.

In addition, if your question

has already been answered,

please press the pound key to

remove yourself from the

queue.

One moment please for our first question.

[PAUSE]

Gentleman, our first questions comes from

Anthony Noto. Please state your company name,

followed by your question.

It's actually Gina Keats on

behalf of Anthony Noto at Goldman.

You talked about some of the

improvements you've seen in published leisure

air rates. Could you talk

specifically about what could be

driving that?

We've obviously seen airlines

banding together recently to

raise bargain fares.

If you can comment on that

specifically, that would be

great.

I think the first thing I

would say in answer to that is that there's a

certain financial inevitability, as I said earlier

in the call, to the fact that airlines have to

increase their prices.

They basically, in effect, reloaded their

planes, albeit at somewhat

lower capacity.

There's clearly still plenty of

tensions in the historic ratio

between business travel and

leisure travel, and the

airlines in aggregate lost

over $2 billion last quarter.

So there's no question in my

mind that they have to

increase their prices in order

to get back to a financially

respectable situation.

The difficulty is that due to overlaps in OND's,

or routes as they are probably more commonly

known, the price increase activity is a little

bit two steps forward and one

step back. And it has

certainly been intermittent to

date.

But having said that, we think the

financial pressure is there,

and we do see some pricing

activity going on.

Okay, great. Thanks.

Thank you ma'am.

Our next question comes from Paul Cohen. Please

go ahead with your question, and please

announce your company name.

Hi everyone.

First question is on the

European business.

What percent of your gross bookings is

Europe now, {INAUDIBLE] revenues, and how do you

see that ramping up over the course of this year?

Go ahead, Bob.

I'll answer the first part, Paul.

The -- Europe contributed $3 million of revenue to

our 1st quarter results, so roughly 1%. And now

Rick? So far as going forward.

I think the -- first of all,

the progress in all the

international activities,

probably for everyone on the

internet, is slower than

anticipated and is slower

still because of the collapse

of the capital markets around

internet activity in Europe

before the business really got

developed. And secondly, the fact that they've --

over there have also had plenty of turmoil as

a result of post-September 11th activity.

The ramp-up that we have will be a

function of first, our

satisfaction with the

trajectories we established in the

UK, which is really where we're doing

our business today. And then

in the speed with which we

roll out into the rest of

Europe.

And that will, frankly, occur in

response to results as

opposed to off of projections.

Oh, and you had another question.

yeah, the second question is on

your gross margins. You're

guiding us at about -- leaving about 16%,

but you're seeing improving

margins in your non-air, and your hoping for a

ramp-up in pricing for the quarter sequentially.

So, why the conservatism on the

gross margin side? Or where

else is the pressure coming

from that I'm not seeing that from what

you're telling me?

Yeah, Paul, I'll take that.

Obviously we're trying to

manage to two numbers, one is

gross margin and one is bind.

At certain periods in the year

those two things can be mutually

exclusive, in terms of both moving up

at the same time.

So we are -- we're primarily focused on bringing

the bind rate up, as well as sort of

preserving that 16% to 17% margin.

So we're guiding obviously to the same number in

Q2, which again, within the range of 16 to 17%

we're comfortable with, as long as

we're moving that bind rate up as

we do it.

Okay, great.

If you don't mind, one more question on the

vacation side of business.

Can you give us an idea where are you going to

seek your inventory? Is it really going to be a

mix -- what kind of a mixture are you going to see between

going out to additional sources --

the wholesalers and

consolidaters, versus securing inventory

yourself? And what kind of margins --

do you see a margin difference between the two?

Paul, it's Jeff.

hey Jeff.

Initially, the inventory that

we will be working with, and we

are working with now on the

site, is derived from our air

and hotel inventory. And we, as you know,

have some of the broadest

inventory in scope, and some of

the best pricing around that

inventory of anybody

on the internet.

The nature of building these

products is we have a very

solid foundation to start with,

over time, as we see demand coming in

for specific locations, if we

have difficulty meeting the

demand, we will either fill it in

directly with arrangements

between Priceline and its

suppliers, or with inventory

from other consolidaters. And

given the demand that we expect

eventually to see in this product, I

don't think we'll have

difficulty in supplementing

our inventory in places where

it might not be adequate.

Okay. So no connection to

additional channels just yet I guess?

No.

Thanks a lot guys.

Thank you sir.

Gentlemen, our next question comes from Mark

Mulhaney. Please go ahead with your question.

Please announce your company name.

Thank you. It's Mark Mulhaney at

Morgan Stanley. The on-line marketing channel

looks like it's really worked

for you.

You had some data point in there about going from

10% to 20% of your customers -- your offers coming

through online marketing efforts.

How much higher do you think

that could go, or how much

higher would you like that to

go? And could you talk about

specifics about some of your

on-line marketing channels

that have been really working

for you to date?

Thank you.

Hi Mark,

it's Rick.

I think first of all, as you

probably know from prior calls,

our on-line marketing emphasis

or increased emphasis is

really driven by two things.

One is the -- in effect, the

repricing of the on-line

environment, going from the

healthy and old days of people

paying ridiculously high tolls,

I guess they were called in

those days, without a

performance characteristic to

them.

And all this to accomplish

customer contacts in a -- because of

the band width, the relatively

non-attractive functional

environment. And the repricing

that has gone on more recently

has changed the financial

dynamics of marketing on the

internet dramatically, and

also changed the philosophies

by which you can buy online

space. So, you can actually, as

you know, today get

performance deals that are

well priced, and you can

monitor very specifically your

progress and react

accordingly.

The second thing is -- as I

mentioned in one of my parts

of the call, as our customer

base has grown, it's become

more appropriate for us to market in

ways that reach repeat

customers. And obviously the

most direct ways of doing that

are our own website, and also

e-mails to our customers. But

another fruitful source of

that is people who engage in

internet e-commerce already,

because they tend to be the

kind of people who have come

to Priceline before.

So those two characteristics,

the repricing of the

environment and the growing

attractiveness of repeat

business as a marketing

objective for us, all done in

a more efficient way than more

traditional marketing

activities are, has driven our

progress.

We're probably have few

competitors on the phone, and

they do their own little

monitoring, and we don't really

get into specifically talking

about individual sites and

responsiveness. But it is a

very attractive feature of

on-line marketing that you can,

in fact, as I just said, monitor

your results, measure

accordingly and rebalance your

spending as you determine

whether you can most

effectively mind customers.

Great, thanks Rick.

And then, just one question on E-bay.

Can you set some expectations

about when that -- you know, it just

launched within the last month.

When do you think that could -- or, when do you

expect that to really ramp-up, and when do you

think E-bay will get very

aggressive in

cross promoting that travel channel?

Oh, I think you'll see that

happen this quarter, Mark.

Thank you very much.

Thank you sir. Gentlemen,

next question comes from Jake Fuller. Please go

ahead with your question, and announcing

your company name.

Good afternoon. Jake Fuller here

with [INAUDIBLE] Weisel.

Can you actually run me through what I have to

believe happens to ticket prices to

get to your revenue guidance for the quarter?

It sounds like maybe down -- you know,

average price is down maybe 10, 11, 12% gets

us there.

What is your sensitivity on

the earnings line to pricing

assumptions?

Jake, we actually don't -- we

don't have any heroic assumptions built into our

revenue forecast in terms of

average price per offer,

because as Jeff mentioned,

we've seen some nice recovery

so far here in the 1st quarter and

then through April.

We are, as Jeff mentioned, projecting increased

bind rates through the quarter,

which frankly at this point

has as much to do with supply

factors as it does with demand

factors.

Hopefully, sort of looking at, you know,

quarterly results over the

last several two or three

quarters, we've been able to

demonstrate our ability to

sort of manage our company to making,

you know, to hitting our

targets based upon various, you know.

revenue outcomes. And we have

several things at our disposal.

One is our advertising spend.

And we are uniquely capable, as you know,

of managing our margin based upon the decision

that we make for each customer.

So, you know, the $320 to $350 million range,

I think, you know, even at $320 or $350, depending

upon how we manage each of

those individual line items,

we have the ability to make

the three to five cent share

that I mentioned.

Right, great. Thank you.

Thank you sir.

Our next question comes from Justin Balda.

Please go ahead with your question. Please

announce your company affiliation.

Thanks very much. This is Justin

Balda with Merrill Lynch.

In terms of the quarter, it

looks like you guys were

relatively flat on the top

line.

I don't think you've provided

revenue guidance for '02.

Can you talk a little about

what you think the long-term

top line growth of the which

is could be?

You mention add bunch of

different growth initiatives

that you're currently working, including

E-bay and the vacation stuff and international.

But, given that we don't have a number to

work with as far as guidance, can you help us

conceptually think about what kinds of long

term top line growth

rates we potentially could get from you?

Thanks.

Jeff, this is Rick.

I am going to try to give you

some encouraging words to

answer your question, but I

think as to long-term guidance,

ourselves and other companies

are probably going to be out

of that business going

forward.

In terms of our growth prospects.

I'd say first of all, my

reasoning starts with the fact

that we're coming out of a

period where we've been

effectively disadvantaged, both

absolutely and relative to our

competition, given the

importance of the air product

to us and the pricing in that

category.

As you I'm sure picked up, the

other parts of our business

are growing quite healthily, as

is our overall customer

franchise.

I think that we have always viewed

that we can create a

meaningful growth rate out of

the combination of -- in the

short-term of the recoveries

we're forecasting here. And

the quarter-to-quarter will be

a sequential increase in the

range of 30%, plus or minus

something or other. And then

later, as the initiatives that Jeff spent

the most time on,

kick in.

I think we're obviously expecting that we can

grow -- even the business that we're

fundamentally in today only, that

being the travel business,

fully flushed out for all the

offerings, in double-digit

revenue ranges. But we aren't

going to give a specific

number for that.

Okay, thanks very much.

Sure.

Thank you sir.

Our next question comes from Holly Becker.

Please go ahead, announcing your company name.

Hi. Can we get some guidance on

the supply side?

Have you found that there's

any airlines that are, you know, taking

any initiatives to limit the

amount of off price or on-line

supply that they're providing,

given the load factors are up

as much as they are right now?

Is there anything that's concerning

you on the supply side that's

factoring into these forecasts?

And then, I just have a

follow on with marketing.

Holly, it's Jeff.

I think what you've seen in

the numbers that we posted for

the 1st quarter reflects fairly

consistently the way the

airlines are dealing with

Priceline.

We have a number of carriers

and a number of markets that

continue to provide us with

inventory and pricing very

aggressively, because our

product meets their specific

needs to fill seats that would

otherwise go empty.

Conversely, and I mentioned

this earlier in my remarks, as

capacity has come down and you

get into very tight holiday

periods like Spring Break,

where planes are flying

north/south from New York to

Florida, those planes do not

have very many empty seats, and

our carriers, therefore, do not

have inventory for us, and for

other providers opaque providers, in the booking

classes where we book.

So, I think airlines will

continue to use us as they

have in the past to fill the

seats that would otherwise go

empty. And because we have such

broad participation from

airlines, not all the airlines

treat us in the same way at

all times. So, if one airline

has high-load factors, others

may need passengers, and we can

find seats with those

airlines.

I would expect that behavior

to continue, and for the

impetus for our business to

improve will be as the

airlines continue to add to

capacity, and as they increase

their pricing to raise their

yields, as Rick said, that

does have an impact on their

demand. The demand especially

in the leisure part of the

plane is very elastic.

They can use Priceline to fill

up the seats as they raise

their yields.

Okay. But there's been no kind of

unified or airline specific

initiatives that have kind of

put down the gauntlet on

providing inventory to

Priceline recently?

No.

Okay. And then on the marketing

side, you talked about your

ability to sort of manage

revenue and marketing as a

faucet to manage the revenue

line.

And in the quarter, what we saw

was that you didn't turn up the

faucet, you kept the marketing

lower than we thought, and

revenue came in a bit lower

than we thought.

Can you just talk about that

business decision and whether,

going forward, you may continue

to make the same decisions to

manage for the bottom line, as

opposed to potentially

spending more to get the

revenue higher?

Holly, it's Rick.

I think, taking some of the numbers we

just went through is the way

to answer your question.

Effectively, this quarter, we

generated in aggregate offer

business. In other words, the

customer driven portion of our

business opportunities, healthy

increases versus prior year in

offers. And we also had

attractive bind rates in our

hotel product and our rental car

product, and not in our air

product.

Frankly, in the short term, it

wouldn't have made a great

deal of sense to generate a

whole lot of extra demand when

we were having the bind issues

that were driven by the other

factors we discussed in the

call. So, frankly, it wasn't a

hard decision for us to, in

effect, rebalance the marketing.

And we take some pride ourselves

in being able to run that

marketing budget and the

activity on a rather timely

basis as we go along, as

opposed to having, sort of, a

long-term formula for how we

spend our money there.

Great. Can you tell us what percent

of the marketing line is variable today

because of these terrific

deals you've been able to

strike with the online?

Well, you know, the -- I think

we don't really have cuts that disclose that

number, and I probably

wouldn't be able to tell you

what that is. But I think the

numbers for any marketer

working on the internet are

much more robust in terms of

understanding not only what

you're spending, as you say, on

a variable cost basis for

customers, but what you're

getting for it in terms of

response rates and the like.

And so actually, it's -- the

art of marketing as it relates

to spending levels and the

like, has to do more with the

traditional forms than the

internet, which is a very

scientific medium from a

measurement standpoint.

Okay, thank you so much.

Thank you ma'am.

Gentlemen, our final question comes from

Mark Rowen. Please go ahead with your question.

Thanks, Mark Rowen from Prudential.

A couple of questions.

My first one is for Rick, and

it goes to the airline side of

the business.

You know, I'm looking at a chart of

airline load factors, and it

looks like it was about 70% in

the 1st quarter, which

historically is not really out

of the norm,

it's certainly up from the 4th

quarter. But my question is, you know,

Jay's original theory was that

the incremental cost of

putting an extra customer in a

seat is minimal, and that --

so why won't the airlines

lower their prices to you

while you're protecting their

brand at some kind of market

clearing price to get their

load factors up to 80 or 85%?

And then I have a couple other

questions if I could.

Mark, that's a trick trapped

question to get all the airlines mad at me

when I answer it.

[LAUGHTER]

Which I'm about to do. I think

what's happened is pricing, which should be a

sharp-edged instrument for the

airlines, has in the recent

past, particularly since

September 11th, become a blunt-edged

instrument. And they

really haven't discriminated

as much among everyone as

overall prices have fallen.

And so the appeal of our

opaque product has not really,

on the way down, preserved the

pricing advantages that we

would have in what we think

is a more normalized environment.

And I think that's --

why I say that

when airline pricing goes back

up, differentials will widen.

Because I think your point, which is

philosophically absolutely correct,

I think, will reassert itself. But as you know,

you know, after September 11th,

when there were a lot of

people afraid to fly, the

airlines cut their prices all over the place.

And I think if you think about it,

the people who were flying at that point were

people who needed to fly, and you didn't

need to cut their prices, And

in the short term, it probably

didn't get that many people

back on the plane, although

that is beginning to right

itself now.

So, have you had conversations

with any of the airlines about

lowering their prices through

Priceline to some kind of

market clearing price?

I mean, what's their resistance to

that to get their load factors

higher than where they're at?

Well, I think we have

conversations like that in

various forms with all the

airlines.

They're sort of ongoing

conversations, and I wouldn't

want to generalize about their

response.

I think it's a viable argument.

Frankly, I'd say again, these

airlines, in a period where in

many respects it looks like

they've recovered quite a bit,

just lost $2 billion. And

there is a couple of them now

talking about going to the

loan guarantee program, which

was certainly onerously

structured for the first one

in there, America West. So I

think we're not the -- we're

not the lead item and -- on

their route back, but I think we

have a very viable role to

play with them.

Okay, thanks.

Mark, send me some security,

will you?

[LAUGHTER]

My second question is, Jeff,

you had mentioned that you

were going to increase your

inventory on hotels this

quarter.

Were you inventory constrained

in the 1st quarter, or was

demand the constraining

factor?

Could you have sold more hotel

rooms if you had the right

locations? And sort of related

to that question, how much of

a handicap is it that your two

main competitors show the

hotels that people choose,

where you don't?

To the first question first.

I don't view our results have

been in any way hampered

by inventory constraints in the hotel business.

As you can see from the numbers, our

bind rate for the hotel

product was excellent, and we

are always trying to add

hotels to Priceline.

We have over 8,000, and we're

always trying to add more. And

we're also always trying to, you know,

improve the arrangements we

have between our major hotel

partners. And so that activity

is ongoing, and we'll keep

doing it. But I don't believe

that we've suffered from

serious inventory constraints.

And in fact, we're binding very well in

hotel.

As to the second question,

there probably are some

advantages inherent in being

able to market to a customer

with a specific price tied to

a specific hotel, and that's

something that Priceline

cannot do in the hotel

product. But we've found other

ways that are very effective

to demonstrate the value of

our product to customers to

bring them in online, as well

as through our offline

channels. And as you can see,

the result -- the business is

growing at a very, very healthy

rate.

The other thing I'll mention

on that front is that the fact

that in our vacation product,

the hotel properties will be

disclosed.

I think we'll have a

beneficial spillover effect

from a marketing sense, because

customers will be able to see

the very high-quality

properties that participate in

Priceline.com when they're

shopping for a vacation.

Mark, this is Rick.

If I could add one quick thing.

I think the hotel business on

the internet is in a much less

mature state than the air

business.

As to the competition, and you

know this number, but direct

airline sites probably

generate over a third of the

airline traffic today, and

there's no such phenomenon on

hotels. So there's a lot of

room in the hotel space on the

internet today, and at least in

the short and probably

intermediate term, head-on-head

competition isn't as

relevant. And there's room, as

you can see in the numbers,

for a lot of people to grow well.

Okay. And then Bob, just a quick one

for you.

Can we assume that the revenue

by segment was similar to the

growth levels sequentially in

year over year of your tickets

sold and room nights sold, or

was there significant changes

in the average of each of

those units?

On a year over year basis?

Yeah.

Year-over-year basis, you

can do the simple math, which

shows that, you know, our average revenue per

unit did decrease.

Now, as has been the case with

previous quarters, most of

that has to do with mix.

I think it's safe to say that for

the most part on a year-over-year

basis, the average

revenue per unit for each of

the three segments have

remained fairly steady, although, as I

mentioned, air is lower than last year.

Although -- hopefully we've demonstrated

on the call, that the year-over-year

difference in the decrease in

average revenue unit for air

was better in Q1 than it's

been in each of the previous

several quarters going all the

way back to last summer, which

is one of the things that

makes us so encouraged about, you know,

the recovery in airline in Q2. I don't know

if that's helpful, but that's all I'm prepared

to tell you about in segment information.

Okay, great. Thanks very much.

Thank you all for joining us,

and We'll talk to you in another quarter.

Thank you sir.

Ladies and gentlemen, that does conclude our

conference call for today.

Thank you for your participation, you may

now disconnect.