Expedia Profits Surpass Expectations

In a clear signal that online travel is on the mend, Expedia (Nasdaq: EXPE) reported much stronger than expected earnings for the fourth quarter.

"Internet travel, it appears, is recovering more quickly than the travel business in general," Expedia CEO Rich Barton said, pointing to travelers' desire for good deals and more information.

On the Upward Trail

The company reported net income for the fourth quarter of US$5 million, or 8 cents per diluted share, compared with a year-ago net loss of $25 million, or 53 cents per share.

Net income before special charges was $19 million -- nearly triple what analysts expected and a far cry from the $2.6 million loss before charges reported in the year-ago quarter. Revenue totaled $81.7 million, almost double last year's Q4 results.

Expedia's strong showing prompted its stock to jump to $54 in after-hours trading after closing the regular session up 8 percent to $50.76. In early trading Tuesday, the stock was still hovering around $54.

Expedia chief financial officer Greg Stanger said the company expects to remain profitable in 2002, with earnings of $80 million for the full year.

Travel Slowdown

September 11th caused an industry-wide slowdown in travel, but online travel sites are showing a strong recovery. According to Stanger, Expedia's January bookings are ahead of December's levels.

"In the events post-September 11th, it appears as though online travel has picked up surprising momentum," Morgan Stanley analyst Mary Meeker said.

Vacation Sales

Hotel and vacation sales were key to Expedia's success . The company has been trying to shift away from its reliance on air sales -- for which the site gets a flat travel agent fee -- to more lucrative merchant sales, including hotels and vacation packages, which generate better margins.

Expedia said its revenue from merchant sales was up 185 percent to $34 million in the quarter, while agency revenue rose 75 percent to $42 million. Stanger said he expects merchant revenue will increase by 125 percent in 2002, while agency revenue will increase just 15 percent.

The company also continues to add to its vacation offerings. On January 23rd, Expedia agreed to buy wholesaler Classic Custom Vacations for $52 million. "We expect Classic Custom Vacations to become a key building block of our package strategy," Stanger said.

The deal , which is expected to close on March 31st, will add $3 million to Expedia's bottom line in 2002, plus an additional $8 million to $10 million in 2003, Stanger said.

Pulling Ahead

Though analysts are optimistic about the online travel sector in general, Expedia's results were much better than those reported by competitor Travelocity (Nasdaq: TVLY), which on January 16th said it made $4.9 million in the December quarter, falling short of analyst expectations.

Expedia also passed Travelocity in total travel sales. Expedia sold $704 million in travel on its site in the quarter, compared with Travelocity's $630.2 million.