Priceline and the Consumer Economy

It remains hard to find many proxies for the consumer economy in the United States. Surveys from the Conference Board and University of Michigan ask abstract questions. Smartphone sales represent the transition from relatively expensive PCs to often less expensive portable computers. Car sales carry high prices and may have improved only because people’s vehicles have aged beyond a level unmatched at any time in the past.

Travel is as good an approximation as most for consumer confidence because of the tens of millions of businesses and personal travelers who log billions of miles in air travel a year and book hotels for stays beyond a day.

Priceline.com Inc. (NASDAQ: PCLN), the premier online travel site, disappointed Wall. St. Results for the second quarter were good enough. Revenue rose from $1.1 billion in the same period a year ago to $1.33 billion. Net income moved from $256 million to $352 million. What undermined investor confidence was the firm’s statement that in the third quarter revenue will rise only 9% to 15%.

Recently, corporate earnings results and forecasts have been plagued by trouble in Europe. A close look at the Priceline forecast shows that its outlook is based more on domestic travel, a sign that the problem at Priceline is mostly in the United States. The firm expects international gross travel bookings to rise 12% to 20% in the third quarter. Gross booking for domestic travel will only be 5%, Priceline reported. Gross domestic bookings traditionally have been more than 80% of Priceline’s total.

The third quarter is the vacation quarter throughout most of the country and for many people. The quarter is to travel what the year-end holiday season is to the retail sector. Poor results are a byproduct of what the consumer has in his pocket, and what he will allow himself to borrow on credit. The Priceline numbers show that the consumer is stingy. The same probably holds true for businesses that face either slow sales or the fiscal cliff, whichever strikes them as a larger concern day-to-day.

Travel trends via Priceline, particularly in the United States, indicate that people and businesses have lost some degree of confidence in their near-term financial futures.

Douglas A. McIntyre