Posts Tagged ‘WMT’

Internet stocks play (Blue Nile vs Priceline)

By: ispeculatornew | Date posted: 12.17.2008 (4:00 am)


In the current environment, even a tech stock can be very different from one to another. An interesting way to look at things is through Priceline.com(PCLN) and Blue Nile.com (NILE). You might have heard of both but in case I will give you a brief description.

Priceline.com is a travel comparison website that offers the possibility of getting very cheap deals on a variety of travel needs, mainly hotels and plane tickets but even cars, cruises, vacations. Their main objective, above anything else is to beat prices by any competitor. They do have some competition by search engines such as Kayak.com but have generally been able to live up to their promise of providing the cheapest holiday.

Blue Nile is a company that has perhaps had even more of an impact in its industry. It is a rather high end jeweler that is completely online. Its impact has been even more dramatic than for example the impact of Dell on the pc industry. That is because gross margins in the industry are very important to cover for all the costs of stores, employees, etc, etc. Blue Nile has thus been able to get higher margins than competitors while giving their customers much better pricing.

The contrast is very interesting of course in that Priceline is perfectly suited for visitors that are looking to save on their vacations while Blue Nile is targeting those who are looking at making an expensive gift or perhaps even securing the woman of their dreams by buying an engagement ring. And while a diamond is forever and love for life does not have a price, the diamond you buy does have one.

And in this environment of uncertainty and tough economic conditions, you would think that there might be a lot more of growth in the company that is helping its clients save money. It is not a random fact that Walmart (WMT) has been one of the best performing companies in this tough environement and you would think that Priceline could profit as well. Sure, not as many people are going on vacations, but I still think that over the short to medium term, Priceline will have a much better growth story than Blue Nile.

So it was a big surprise for me to see that Blue Nile is actually trading at a higher P/E ratio (27) than Priceline (17). In the past year, the story has been a complete opposite as Blue Nile has seen both its sales and profit fall by close to 50% while Priceline has enjoyed a 50% increase in revenues and almost 100% in Gross profits.

I would thus argue that I would go long Priceline(PCLN) vs short Blue Nile(NILE) but only for a few months until the valuations make more sense or until their P/E ratios move closer to each other.