Expedia profit up on stronger bookings

October 30, 2009 | Online Travel

Expedia on Thursday said its quarterly profit rose on stronger bookings as economy-conscious travelers took advantage of fee cuts that bolstered demand. The results beat expectations and shares jumped 2.5 percent, or 65 cents, to $24.94 on Nasdaq.

Expedia, Inc. announced financial results for its third quarter ended September 30, 2009.

“Quarter in and quarter out, Expedia is consistently proving its leadership and multiple business models for travel are unsurpassed,” said Barry Diller, Expedia, Inc.‘s Chairman and Senior Executive.

“Travelers are clearly responding to our improving value proposition, as we broaden our fee cuts and increase the depth and breadth of our global supply,” said Dara Khosrowshahi, Expedia, Inc.‘s CEO and President. “While we’re pleased with our financial and operating results in the third quarter, we are busy planning for a 2010 that will prove every bit as competitive and challenging as 2009.”

Gross bookings increased 9% (12% excluding the estimated negative impact from foreign exchange) for the third quarter of 2009 compared with the third quarter of 2008, driven primarily by 26% growth in transactions, partially offset by lower prices for airline tickets and hotel room nights. Domestic bookings increased 8% and international bookings increased 11% (16% excluding foreign exchange).

Revenue increased 2% (3% excluding foreign exchange) for the third quarter, primarily driven by an increase in hotel and car rental revenues, partially offset by a reduction in air revenues. Domestic revenue decreased 2% while international revenue increased 10% (11% excluding foreign exchange). Domestic revenue growth trailed international growth primarily due to a greater impact from our various fee reductions and eliminations.

Revenue as a percentage of gross bookings (“revenue margin”) was 14.4% for the third quarter, a decrease of 98 basis points compared to the third quarter of 2008. Domestic revenue margin decreased 149 basis points to 13.8% while international revenue margin decreased 7 basis points to 15.6%. The decrease in the worldwide and domestic revenue margins was primarily due to the impact of our fee actions, loyalty programs and a greater mix of lower margin hotels, partially offset by lower air ticket prices and a reduction in the mix of lower margin air product. Worldwide revenue margin was also impacted by lower margin bookings from an entity we began consolidating late in the second quarter.

Worldwide hotel revenue increased 3% for the third quarter primarily due to a 27% increase in room nights stayed, including rooms delivered as a component of packages and room nights booked through Venere® (which we acquired in September of 2008), partially offset by a 19% decline in revenue per room night. Revenue per room night declined largely due to a 14% decrease in average daily rates (“ADRs”), including a reduction in traveler fees. Excluding room nights stayed through Venere, room nights grew 24% in the third quarter, compared with 20% in the second quarter.

Worldwide air revenue decreased 8% for the third quarter, primarily due to a 28% decrease in revenue per air ticket, partially offset by a 27% increase in ticket volumes. Expedia.com® eliminated consumer booking fees on online air tickets beginning in March 2009, which primarily drove the decline in revenue per ticket. This elimination of Expedia.com and other points of sale fees, combined with lower average ticket prices, contributed to the lift in our air ticketing volumes.

Advertising and media revenue (including net revenue from our TripAdvisor Media Network) increased 5% for the third quarter, driven by a 24% increase in advertising revenue generated by our transaction sites. Advertising and media revenue accounted for 10% of our worldwide revenues in the third quarter. Other revenue (primarily car rentals and destination services) increased 4% for the third quarter, and accounted for 13% of worldwide revenues for the quarter.

OIBA for the third quarter increased 11% to $256 million and increased 239 basis points as a percentage of revenue to 30.1%, as selling & marketing expense and cost of revenue decreased compared to the increase in revenue, partially offset by growth in technology & content and general & administrative expenses in excess of revenue growth. Operating income increased 12%, driven primarily by the same factors impacting OIBA growth.

Adjusted net income for the third quarter increased $27 million compared to the prior year period primarily due to higher OIBA and lower foreign exchange losses, partially offset by lower interest income. Net income increased $22 million compared to the prior year period primarily due to higher operating income and the same factors impacting adjusted net income. Adjusted EPS increased 23% to $0.48 and diluted EPS increased 21% to $0.40.