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Valuation of Priceline.com
Professor Joshua Livnat, Ph.D., CPA
311 Tisch HallNew York University
40 W. 4th St.NY NY 10012
Tel. (212) 998-0022 Fax (212) [email protected]
Web page: www.stern.nyu.edu/~jlivnat
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Financial Data
Quarter REVENUES CGS G. Margin SELL&MAR G&A R&D
Q2/98 7.0 8.0 -0.9 6.6 3.1 3.4
Q3/98 9.2 8.9 0.4 8.2 9.4 2.8
Q4/98 19.0 16.7 2.3 8.5 3.8 3.0
Q1/99 49.4 43.7 5.8 17.1 3.7 2.2
Q2/99 111.6 100.7 10.9 17.7 5.5 3.5
Q3/99 152.2 133.6 18.6 21.4 8.4 4.6
Q4/99 169.2 145.1 24.1 23.3 10.0 3.8
Q1/00 313.8 264.8 49.0 40.4 18.6 5.9
Q2/00 352.0 296.9 55.1 37.7 15.2 6.7
q3/00 341.3 286.9 54.4 35.6 11.9 11.4
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Income Statement RatiosQuarter G. Margin SELL&MAR G&A R&D
Q2/98 -13% 94% 44% 49%Q3/98 4% 88% 102% 30%Q4/98 12% 45% 20% 16%Q1/99 12% 35% 7% 4%Q2/99 10% 16% 5% 3%Q3/99 12% 14% 6% 3%Q4/99 14% 14% 6% 2%Q1/00 16% 13% 6% 2%Q2/00 16% 11% 4% 2%q3/00 16% 10% 3% 3%
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Visitors
Visitors vs. Time
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Q3/98 Q4/98 Q1/99 Q2/99 Q3/99 Q4/99 Q1/00 Q2/00 Q3/00
VIS
ITO
RS
(M
M)
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Gross Margin (Revenues - CGS)
Gross Margin vs. Visitors
0
10
20
30
40
50
60
0.74 0.91 1.84 1.84 2.15 2.36 3.93 4.60 6.52
Visitors (MM)
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Regression of Gross Margin on Visitors
Regression StatisticsMultiple R 0.921096R Square 0.848417Adjusted R Square0.723417Standard Error 8.789809Observations 9
ANOVAdf SS MS F
Regression 1 3459.464 3459.46353 44.77647004Residual 8 618.086 77.2607472Total 9 4077.55
CoefficientsStandard Error t Stat P-valueIntercept 0 #N/A #N/A #N/AX Variable 1 9.536632 0.890421 10.710255 5.07407E-06
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Selling & Marketing Vs. Visitors
0
10
20
30
40
50
0.74 0.91 1.84 1.84 2.15 2.36 3.93 4.60 6.5
Visitors
S&
M E
xpen
se
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Regression of Sell&Mrktg on VisitorsSelling & Marketing
Regression StatisticsMultiple R 0.885767R Square 0.784582Adjusted R Square0.753808Standard Error 6.007979Observations 9
ANOVAdf SS MS F
Regression 1 920.2636 920.263615 25.49502702Residual 7 252.6707 36.0958086Total 8 1172.934
CoefficientsStandard Error t Stat P-valueIntercept 7.647624 3.694258 2.07013794 0.077201029X Variable 1 5.668812 1.122701 5.04926005 0.001481043
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General & Administrative Vs. Visitors
0
5
10
15
20
0.74 0.91 1.84 1.84 2.15 2.36 3.93 4.60 6.5
Visitors
G&
A E
xp
en
se
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Regression of General&Admin. on VisitorsRegression Statistics
Multiple R 0.652679R Square 0.425989Adjusted R Square0.343988Standard Error 4.099143Observations 9
ANOVAdf SS MS F
Regression 1 87.28974 87.2897408 5.19489799Residual 7 117.6208 16.802975Total 8 204.9106
CoefficientsStandard Error t Stat P-valueIntercept 4.785282 2.520531 1.89852179 0.099421896X Variable 1 1.745893 0.766 2.27923189 0.056700438
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R&D Vs. Visitors
0
2
4
6
8
10
12
0.74 0.91 1.84 1.84 2.15 2.36 3.93 4.60 6.5
Visitors
R&
D E
xpen
se
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Regression of R&D on VisitorsRegression Statistics
Multiple R 0.956146R Square 0.914215Adjusted R Square 0.90196Standard Error 0.895394Observations 9
ANOVAdf SS MS F
Regression 1 59.80837 59.8083748 74.59914606Residual 7 5.61211 0.80173002Total 8 65.42048
CoefficientsStandard Error t Stat P-valueIntercept 0.86915 0.550571 1.57863474 0.158428637X Variable 1 1.445163 0.167321 8.63707972 5.57074E-05
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Volume Analysis
Assumptions:1. Selling & marketing expenses flat after $40MM.
2. G&A expenses flat after $12 MM.
VISITORS2 3 4 5 6 7 8 9 10
GROSS MARGIN 19.1 28.6 38.1 47.7 57.2 66.8 76.3 85.8 95.4
SELLING & MARKETING -19.0 -24.7 -30.3 -36.0 -40.0 -40.0 -40.0 -40.0 -40.0GENERAL & ADMINIST. -8.3 -10.0 -11.8 -12.0 -12.0 -12.0 -12.0 -12.0 -12.0SYSTEMS DEVELOPMENT -3.8 -5.2 -6.6 -8.1 -9.5 -11.0 -12.4 -13.9 -15.3
PROFIT (LOSS) (11.9) (11.3) (10.6) (8.4) (4.3) 3.8 11.9 20.0 28.0
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Forecasted Cash Flows
1999 2000 2001 2002 2003 2004 Growth
Revenues 482.4 930.0 1302.0 1822.8 2551.9 3572.7 40%
Product costs -423.1 -815.7 -1141.9 -1598.7 -2238.2 -3133.5 Same gross margin ratioSell&marketng -74.3 -104.0 -145.6 -160.0 -160.0 -160.0 40% and flat at $160MMGeneral&admin -27.6 -33.1 -39.7 -40.0 -40.0 -40.0 20% and flat at $40MMSystem development -14.0 -15.4 -16.9 -18.6 -20.0 -20.0 10% and flat at $20MM
Capital expenditures -27.4 -30.1 -33.2 -35.0 -35.0 -35.0 10% and flat at $35MM
Cash flow (84.0) (68.4) (75.4) (29.6) 58.7 184.2
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Valuation1999 2000 2001 2002 2003 2004
Cash flow (84.0) (68.4) (75.4) (29.6) 58.7 184.2Cash on hand 172.0
Present value (20%) 172.0 (57.0) (52.4) (17.1) 28.3 74.0
Present value of perpetuity 925.2 (growing at 12%, r=20%)
Value 1073.104
Shares 163.9
Price per share 6.55$
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Summary
• A unique concept in the Internet space.
• Ideal for perishable goods.
• Narrow market segment, but not an insignificant one.
• Has potential if it can control costs better.
