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
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:
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 .