Expedia shares were down sharply in afternoon trading Thursday on the heels of the company's disappointing fourth-quarter report.

"The company has realized that to succeed and grow it has to essentially reinvent itself," wrote analyst Aaron Kessler in a research report. "These challenges are forcing Expedia to substantially increase spending throughout 2006 and thus cutting deep into profitability."

Kessler praised Expedia's growth initiatives, including the company's expansion in Europe and plans for Asia, as well as the development of a customer loyalty program.

"However, we do not think investors will see substantial returns until the company can begin to show some success with these initiatives, which likely won't begin to occur until late 2006 at the earliest," he noted.

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