What happened

Shares of Expedia (NASDAQ:EXPE) slumped on Friday following a disappointing fourth-quarter report from the travel company. Expedia missed analysts' estimates on all fronts, with heavy marketing spending knocking down the bottom line. The stock was down about 17% at 11:45 a.m. EST.

So what

Expedia reported fourth-quarter revenue of $2.32 billion, up 10.9% year over year, but about $40 million below the average analyst estimate. Gross bookings increased 14% year over year to $19.8 billion, while room nights increased 15%. Expedia's core brands' revenue grew by 10% year over year to $1.86 billion, while trivago, HomeAway, and Egencia enjoyed 18%, 16%, and 18% growth, respectively.

The Expedia logo.

Image source: Expedia.

Non-GAAP earnings per share came in at $0.84, down from $1.17 in the prior-year period, and $0.31 below analysts' average estimate. The decline was driven mostly by a significant increase in selling and marketing cost. Expedia spent $1.12 billion on this category during the fourth quarter, up 16% year over year. For the full year, selling and marketing costs rose 21.3% to $5.3 billion.

Adjusted EBITDA tumbled 9% during the fourth quarter. Expedia expects to drive adjusted EBITDA growth in 2018 by making investments in its platform. CEO Mark Okerstrom had this to say on the subject: "We are now operating with a clear focus on our highest priority markets, making concentrated investments across the platform including a step function change in our pace of adding new properties to our marketplace. These efforts combined with the impact of our ongoing cloud migration result in expectations for full year 2018 Adjusted EBITDA growth of 6% to 11%."

Now what

While Expedia continued to grow revenue at a double-digit percentage pace, earnings started moving in the wrong direction as the company ramped up spending to drive that growth. With marketing costs growing faster than revenue, and with the company planning to increase those investments this year, its bottom line could keep falling -- unless its investments pay off.

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