Bottom Feeder

Hong Kong supertycoon Li Ka-Shing has made many daring moves in a fabled career. Last week he did it again, reaching into the rubble of a decimated dot-com landscape and plucking out a $110 million stake in Priceline, the online sales giant. The buy increases Li's stake to 30 percent, at a time when many investors still regard dot-coms as fool's gold.

Li has a way of conjuring the real thing. His buy into Priceline sparked a run on shares that hiked the stock price 41 percent--only the latest sign of hope that the tech-market crash has hit bottom. "Before the bubble burst, it was buy everything at any price," says Steven Weinstein of Pacific Crest Securities. "Now you're seeing people picking through the rubble saying, 'OK, is there anything worth anything?' The answer is yes. Just because something has a dot-com doesn't mean it's bad."

What's good? Priceline is one of several online travel agents on the rebound. Expedia is up 259 percent for the year, to $34. Travelocity has risen 164 percent to $32. While Amazon continues to flounder, a few e-tailers are doing well: Home Stores spiked 40 percent; eBay is up 95 percent. And the trajectory of basic-service providers like AOL (up 40 percent) and EarthLink (up 128 percent) suggests that fundamental faith in the power of the Internet is reviving as well, for sound reasons. Expedia and Travelocity are turning a profit.

Still, it's hard to remove the dot-bomb stink from Priceline. Founded in 1997 by Jay Walker, a magazine-subscription entrepreneur, Priceline set out to turn the art of the sale on its head. It allowed customers to set their own price for airline tickets, then went searching for an airline to fill the order. At first customer bids were ridiculously low and Priceline was eating losses. Yet by 1998 bids were up. Priceline turned profitable. It started expanding into groceries, insurance, cars. The stock hit $160. Senior executives abandoned blue-chip companies to hop on board. They even hired aging TV macho man William Shatner (of "Star Trek" fame) to sing that Priceline was "big, really big."

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The thud was bigger. Priceline couldn't keep pace and customer complaints tarred its reputation. Shares hit a low of $1.12 in December 2000. Hot new recruits went crawling back to their blue chips. Chief financial officer Heidi Miller quit last November. CEO and president Daniel Schulman, formerly of AT&T, was booted last month. Saudi Prince Alwaleed Bin Talal, who had gobbled up $100 million worth of stock in better days, saw the bulk of his stake vaporize.

Li was already moving in. His conglomerate, Hutchison Whampoa, which had cut a deal to bring Priceline service to Asia last spring, purchased 25 million shares in February. Last week Li's companies agreed to buy 25 million more. According to analysts, Priceline has abandoned the dot-com obsession with getting big fast. It's decided to drop groceries and gas, to continue selling mortgages and cars and to focus on its roots: cheap airline tickets and hotel rooms. Goldman Sachs analyst Anthony Noto, who upgraded his earning estimate for Priceline last week, says management has "right-sized the business." Priceline is predicting a return to profit next quarter, which raises an interesting question: now that Li is sifting the dot-com wreckage, will other big bottom feeders follow?

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