Diller’s Internet Empire Takes a Hit From Miss by Hotels.com
Media mogul Barry Diller is said to be making a “night job” out of running troubled Vivendi Universal’s entertainment operations. That’s a good thing because his day job just got tougher.
Diller was caught Monday in a nasty market squeeze as Hotels.com, a unit in his Internet empire, slashed its financial projections, triggering a plunge in its own stock and taking that of three other Diller-related ventures down with it.
Shares of Hotels.com dropped 25%. In turn, Diller’s USA Interactive, which controls 68% of the online hotel-room discounter, saw its stock tumble 9%.
Some investors have recently questioned how Diller can effectively manage both USAI and Vivendi’s studio, theme-park and music divisions. The 60-year-old media mogul has juggled the two jobs since striking a complicated deal last year under which USAI sold television and other assets to Vivendi in return for a minority stake.
Billionaire Marvin Davis, in particular, has made an issue of Diller’s dual role. Davis, an oil tycoon, is seeking to buy the Vivendi entertainment properties and has made it clear that Diller would have no role at Universal were he to take over.
But those in Diller’s camp have defended his ability to handle both positions, characterizing his duties at Universal as nothing more than a “night job,” leaving him free to focus on USAI.
During Monday’s falloff, which came despite a broad rise in the market, Hotels.com shares dropped $15.02 to $44.02 on Nasdaq. The stock had a brisk run-up late last year, hitting a high of about $75 in December.
Shares of USAI fell $1.99 to $22.23 on Nasdaq. As USAI shares dropped Monday morning, the company rushed to assure investors that its 2002 profits would be in line with previous forecasts.
Meanwhile, shares of Expedia Inc., another online travel agency controlled by USAI, closed at $63.97, down $6.93, or 9.8%. And shares of a third USAI company, Ticketmaster, declined by 8% to $20.78, even though it is not in the travel business. Ticketmaster sells tickets to concerts and other events.
Several analysts contended that USAI was unfairly trounced by investors.
“When Hotel.com sneezes, USAI gets a cold,” said Christopher Dixon of UBS Warburg. He said that given its ownership stake in Hotels.com, USAI’s shares should have dropped no more than $1.50 on Monday’s news rather than almost $2.
“It’s indicative of how squirrelly the market is,” he said, adding that investors are skittish about any degree of negative news.
In fact, all things considered, Hotels.com’s news wasn’t all that bleak. It said it would grow by 91% in the fourth quarter rather than the 100% previously projected.
Chief Executive David Litman attributed the decline to “rock-bottom” room prices that have cut into the company’s margins and the continued slump in travel, aggravated by concerns over war with Iraq. Hotels.com also warned investors that revenue in 2003 would be $1.25 billion rather than the $1.4 billion it projected in October.
Some analysts were taken aback by Wall Street’s swift and serious punishment of Hotels.com, USAI and the other Diller-connected entities.
These stocks “are priced for perfection and prices were getting a bit frothy,” said Matthew Harrigan at Janco Partners Inc. “With these kinds of valuations, investors expect a company to beat estimates, and there is no tolerance for even a small miss.”
For the fourth quarter, Hotels.com warned that revenue would total about $270 million -- below its previous estimate of $289 million. Net income, it said, would be $23 million, compared with the $27 million the company projected earlier. Hotels.com said it sold 2.2 million rooms in the quarter, as many as it had forecast, but at lower prices. The average room price fell to $118 from $126.
The company will report full fourth-quarter results next month.
