Expedia (NASDAQ:EXPE) has had a rocky start to its second stint as a publicly traded company. Last quarter's results revealed deteriorating margins, as airlines and hotels alike successfully pressured travel agencies to lower their fees. With stiff competition from sites like SabreHoldings (NASDAQ:TSG) subsidiary Travelocity, Cendant's (NYSE:CD) soon-to-be-sold-off Cheaptickets.com, Priceline.com (NASDAQ:PCLN), and aggregators like Sidestep.com, online travel is an immensely challenging marketplace.

This quarter's results revealed more of the same, but management was a little more upbeat about the company's future prospects. Revenues were up 8% to $598 million, gross bookings rose 10% to $4.56 billion, and net income increased 30% to $95.5 million. Unfortunately, booking margins (revenue divided by gross bookings) fell 32 basis points to 13.1%.

In addition to being pressured on lower fees, Expedia is also struggling to obtain inventory in an environment of record load factors; airlines like U.S. Airways (NYSE:LCC) and Continental (NYSE:CAL) have fewer bulk fares that need to be discounted. Furthermore, as Expedia's agreements with airlines and hotels get renewed, the economics of those deals are changing substantially, with variable fees replacing flat fees depending on the specific supplier's needs. This essentially allows suppliers to slice and dice their fee dollars a bit more, and forces Expedia to deliver high-value travelers to get the higher fees.

Still, I think my investment thesis from late last year is largely intact, and while I may have been too generous with my valuation model, expecting Expedia to maintain a P/E around 25, the company's current forward P/E seems unreasonably low at 12. Domestic growth will remain a challege due to the aforementioned issues, but the international growth I expected is continuing to bolster the company. Year over year, gross bookings rose more than 70%, and margins tend to be higher in this segment. Another boon I didn't expect came from the corporate travel segment, with gross bookings up nearly 50%.

Expedia is making heavy investments in international growth by expanding select marketing channels (reducing national TV ads while increasing local and European ads) and improving its underlying technology infrastructure and branding. The company hopes to leverage the numerous sites under its corporate umbrella, including Hotels.com and Hotwire.com, into a growth engine. All of Expedia's investments will take some time to pay off -- at the expense of short-term results, as management kept reaffirming to analysts in last week's conference call. But the long-term growth picture still looks quite good. Long-term investors with the patience to wait for management to right the ship again might find Expedia a smart investment at its current price.

Further flighty Foolishness:

Priceline is a Motley Fool Stock Advisor recommendation. Find more great stock ideas from Tom and David Gardner with a free 30-day trial subscription .

Fool contributor Stephen Ellis does not own shares in any companies mentioned. You can see his holdings for yourself . Cendant was a former Motley Fool Inside Value selection. The Fool has a disclosure policy .