Dominic Vignola

Priceline: Are Shorts Grasping at Straws?

Well reasoned article. One more thing to consider is that many investors view Priceline as counter-cyclical in nature. Surely business is dependent on travel, which is highly cyclical. However, during a downturn travelers are looking for bargains, often landing on the Priceline site improving demand for the firms deep discount product. On the supply side, availability (inventory) of rooms / seats improves for Priceline, providing the firm with greater bargaining power with its suppliers (hotels / airlines). Priceline's arbitrage profits tend to IMPROVE during slowdowns as the spread between what travelers are willing to pay and what suppliers are willing to accept. Should we see improving fundamentals at the airlines and hotel companies occur, they will become far less likely to continue cut "sweetheart" deals with Priceline to fill their empty space. This will ultimately result in lower revenue and margin opportunities for Priceline.

Right now, it's easier to predict the direction of the nat-gas/crude oil spread than it is to predict price movements of either, Bespoke notes. Look for nat-gas (UNG) to outperform oil (USO).

Oil has continued to run almost exclusively due to inflation fears and the tumbling dollar. Rising inventory levels in the black stuff and still tepid global demand do not support the recent move off the lows. Extremely weak natural gas represents a more accurate reflection of the weak domestic industrial economic conditions and is one of the only commodities that has yet to rally off its lows. The nearly 20:1 price ratio between a barrel of oil and a natural gas contract is abnormally large relative to history.