“Imagine this, if you had invested $10,000 in Priceline on October 9, 2002, and held on through the 2008 decline, you’d have about $1.47 million today.”

“The general course goal is to use accounting information in various economic decision-making contexts.  Financial accounting produces financial statements that primarily serve external decision-makers, such as investors, financial analysts, creditors and government agencies.”

One of the two above quotes is from the article I chose (see link below) and the other is from the course syllabus. The case of whether or not Priceline is reporting their revenues correctly enabled my group and I to dig deep into Priceline’s financial statements while gaining a better understanding of how their accounting principles can influence potential investors. In the case of Priceline, it is evident that understanding accounting principles is an important factor for determining whether or not a company has the potential to generate profits.

The article summarizes how Priceline’s stock initially soared during the dot-com bubble and plummeted during the burst. Like most internet travel companies, the effects of 9/11 took its toll on Priceline and by October 9, 2002, its stock price fell to $6.60; pretty significant since it was trading at nearly $1,000 a share in April of 1999.

Since 2002 Priceline has been steadily turning itself around. They have climbed back from $6.60 a share over ten years ago and recently surpassed $1,000 a share. Many things factored into this turn around, but it could not have been done without people confidently investing in Priceline.

Our presentation discussed if it was correct for Priceline to report their revenue utilizing the “gross” or “net” method and why they would want to use one method instead of the other. Net income will remain the same in both, so why use the “gross” method? For dot-com companies it is important to show significant increases in revenues to express that they are indeed attracting more customers. Utilizing the “gross” method will yield higher numbers and give a clearer picture to potential investors on how much business is actually done through their company; a continuous growth in revenue can help predict future success and profits within their industry. According to the article, the reason Priceline was able to turn itself around was because they did still produce revenues:

“But Priceline had a couple of things most dot comers didn’t have — revenue and a small profit.”

I believe the steady increase in profits and the fact that investors and analysts could see Priceline’s revenues continually growing is what allowed them to invest confidently and ultimately turn the company into the powerhouse that it is today.

Article:

http://www.cbsnews.com/8301-505123_162-57597763/the-rise-and-fall-and-rise-of-priceline.com/

Referenced:

http://www.bloomberg.com/news/2013-09-19/priceline-tops-1-000-on-growing-demand-for-web-bookings.html

http://topics.nytimes.com/top/news/business/companies/pricelinecom-inc/index.html