IAC reports strong merchant hotel business growth

May 03, 2004 |

InterActiveCorp reported a strong first quarter, with total merchant hotel revenue up 39% and total merchant room nights stayed up 36% to 7.0 million.

IAC/InterActiveCorp reported Q1 2004 results today. Revenue grew to $1.5 billion, up 23% over the prior year on a comparable net basis and up 6% as reported.

Operating income decreased 57% as a result of non-cash compensation and amortization of intangibles recorded primarily as a result of the buy-ins of IAC’s formerly public subsidiaries, as well as higher selling and marketing expenses.

GAAP net income was $38 million versus a loss of $110 million in the prior year. Operating Income Before Amortization grew by 14% to $198 million. Adjusted Net Income grew 23% to $141 million.

IAC’s operating businesses delivered strong results for the quarter. HSN U.S. recorded solid topline growth and margin expansion, with revenues, operating income and Operating Income Before Amortization up 13%, 53% and 36%, respectively. Ticketing had a good quarter, with operating income and Operating Income Before Amortization up 19% and 13%, respectively. IAC Travel ("IACT") increased revenues on a comparable net basis by 41% to $494 million, operating income by 21% to $85 million and Operating Income Before Amortization by 23% to $128 million, driven by growth in its merchant hotel, packages and international businesses.

IAC Travel growth continued to benefit from positive online and overall travel trends. The international, packages and merchant hotel businesses, as well as the inclusion of Hotwire in this year’s results, led the growth in the quarter. IACT revenue was up 41% on a comparable net basis, while bookings were up 51%. International bookings increased by 108%, and international revenue was up 79%, or 61% on a local currency basis. The international business was driven by particularly strong growth in the UK and Germany. Improved package offerings, consumer acceptance of the product and Hotels.com’s new packages product helped drive packages revenue growth of 73%. In addition, the Q1 2004 comparison benefited from the adverse impact of the war in Iraq last year, partially offset by the termination of the Travelocity affiliate relationship in September 2003, which represented 8% of IACT reported revenue and 3% of revenue on a net basis in the prior year.

The merchant hotel business continued its strong growth, with total merchant hotel revenue up 39% and total merchant room nights stayed up 36% to 7.0 million. Industry-wide increases in average daily room rates helped increase revenue per room night during the quarter. International hotel merchant revenue doubled year over year. Hotels.com experienced the highest day of bookings in its history during the quarter, and has made significant progress towards replacing the volume lost from the termination of the Travelocity deal. Interval also contributed solidly to this quarter’s results, with higher membership and exchange revenue and continued cost efficiencies and online migration.

The IACT companies are also beginning to drive revenue to each other, increasing the market position of all of our brands. For example, Expedia packages booked on Hotels.com climbed 114% from Q4. Expedia Corporate Travel ("ECT") launched new online features and services including personalized seat searches, automatic flight upgrades, unused ticket notifications and company- defined destinations within hotel searches. ECT also announced CSX Corporation as its 13th Fortune 500 customer.

Operating income and Operating Income Before Amortization margins were lower than the prior year, as selling and marketing expenses increased due to higher costs of traffic acquisition online, higher CPM’s offline and a greater investment in our international businesses, which have higher selling and marketing expenses relative to revenue due to their earlier stages of development. We expect higher margins for the remainder of 2004 as compared to Q1.

As part of the integration of IACT’s businesses, Hotels.com conformed its merchant hotel business practices with those of the other IACT businesses. As a result, beginning January 1, 2004, IAC commenced prospectively reporting revenue for Hotels.com on a net basis, consistent with Expedia’s historic practice.