FOOL PLATE SPECIAL: An Investment Opinion
Expedia Takes Off

Fiscal Q4 losses narrowed sequentially for leading Internet travel booking provider Expedia. Improving user conversion rates led to stronger-than-expected revenues, while shrewd cost management led to better-than-expected earnings. After a recent wave of sector consolidation, one Fool believes that better days lie ahead for the online agents.

By Rick Aristotle Munarriz (TMF Edible)
August 1, 2000

The overachiever express is now boarding. Expedia.com (Nasdaq: EXPE) booked itself onto the airborne optimism after scoring a blowout fourth quarter. Shares of the leading travel services site took off this morning -- up $7/8 to open at $18 -- after the company reported a 164% hike in pro-forma revenues for the June quarter.

Equally as impressive was Expedia's top and bottom line showings on a sequential basis. The $70 million in reported revenues was a 19% improvement over the March period. And due in part to a decline in operating expenses, net loss before amortization and stock compensation charges was just $13 million, or $0.30 a share. That was a marked improvement from March's $17 million deficit and significantly better than the $0.47 a share shortcoming analysts had been expecting.

Are the online travel sites coming back into favor? The niche has gone on a round trip in terms of investor sentiment. Early on, it was nothing but blue skies ahead for the pure players like Expedia, Preview Travel, and Travelocity (Nasdaq: TVLY), as well as creative marketers like Priceline.com (Nasdaq: PCLN). Shaving the bricks-and-mortar overhead and providing home and office convenience to travel services was supposed to provide margin bliss of Club Med proportions.

Users cheered. Offline agents sneered. The airlines veered. The major air carriers began to scale back commission rates payable on Internet bookings. While it may have appeared as a move to appease the traditional travel industry, the airline's true cost-trimming intentions became clear when they cut the payouts to offline agents as well.

For the online sites, it meant branching out into cruises and travel packages, as well as beefing up its lodging and rental car offerings. The lull also brought about a wave of sector consolidation. Travelocity went on to acquire Preview Travel. Meanwhile, already 85% owned by Microsoft (Nasdaq: MSFT) after a November IPO and a traffic favorite on MSN, Expedia scooped up VacationSpot.com and Travelscape back in March.

According to Media Metrix, Expedia's 8.1 million unique visitors for the month of June make it the most popular travel-related website. That's a comfortable lead over Travelocity's 6.6 million June count but with the smaller players getting gobbled up there is no reason to believe that the two major players can't both succeed in the travel space. Expedia has $60 million in the bank and will be doubling that later this month in a round of financing that includes the deep pockets of Microsoft. Travelocity is backed by Sabre (NYSE: TSG), which itself was spun-off by American Airlines parent AMR (NYSE: AMR) earlier this year.

With more than $1.3 billion in bookings this past year, Expedia has arrived by all measures. Favorable sales trends and operating controls can create a pretty impressive wingspan of momentum. Suddenly the turbulence is giving way to blue skies once again.

Your Turn:
Is it Bon Voyage for Expedia.com? Post your thoughts on the Expedia message board.

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