Expedia.com Expedia, Inc. Reports Record Third Quarter Pro Forma Results
BELLEVUE, WA, May 1, 2000 – Expedia, Inc. (Nasdaq: EXPE), today announced record financial results for the third quarter of fiscal 2000 ended March 31, 2000. After factoring in the acquisitions of Travelscape.com and VacationSpot.com on a pro forma basis, revenues more than tripled as Expedia dramatically reduced its reliance on airline ticket commissions and launched its first national branding campaign.
“The exceptional growth we've seen this quarter is a testament to our continued focus on delivering a complete and fully integrated travel planning experience for our customers,” said Richard Barton, president and CEO of Expedia, Inc. “Total gross travel bookings on our branded sites were $401 million, up 60% from the previous quarter. This quarter also marks a major shift in our business towards more profitable lodging and package transactions. Commissions and fees from the sale of airline tickets now represent less than 30% of our revenues and less than 40% of our gross profit.”
Business Model Now Emphasizes Merchant Transactions
“The acquisition of Travelscape.com underlines an important shift in our business model in which we are moving increasingly towards merchant transactions,” said Greg Stanger, vice president and chief financial officer. “The merchant model, in which Expedia negotiates net prices on inventory directly with preferred suppliers, allows us to offer better prices to our customers while also generating higher gross profit per transaction.”
In the merchant business model, Expedia acquires inventory at wholesale prices and then determines the retail price. In contrast, the agency business model is one in which the supplier fixes the retail price and the agent is paid on a commission or flat fee basis. Merchant transactions for Expedia, Inc. include the sale of negotiated rate hotel rooms, air tickets and packages through the Travelscape.com site, and sales through the Flight Price Matcher™ and Hotel Price Matcher™ services on the Expedia.com® site.
Expedia recognizes as revenue the full gross booking value of merchant-of-record transactions. For agency transactions, only the commission is recorded as revenue. As a result, the merchant business has a lower percentage gross margin than the agency business, but it generates a significantly higher gross profit in dollars per transaction.
Strong Growth in International Businesses
Internationally, the Internet travel market is experiencing rapid growth and the early investments by Expedia in the UK, Germany and Canada are beginning to bear fruit. Gross bookings through the Expedia UK site increased to $19.2 million, up 145% sequentially from the December 1999 quarter, establishing Expedia as the online travel agency leader in the UK. Forrester Research predicts that the European online leisure travel market will grow from less than 1 billion Euros in 1999 to more than 40 billion Euros in 2005.
Key Pro Forma Financial Highlights
Gross travel bookings increased to $401 million, up 178% year-over-year and 60% sequentially.
Revenues increased to $58.8 million, up 212% year-over-year and 33% sequentially.
Agency transaction revenues, which represent transaction commissions and fees from the agency component of the business, increased to $17.8 million, up 141% year-over-year.
Merchant transaction revenues, which represent the full value of the gross bookings for our merchant-of-record transactions, increased to $34.0 million, up 352% year-over-year.
Revenues from all other sources, including advertising and platform licensing, increased to $6.9 million, up 78% year-over-year.
Gross profits (before a one-time charge of $4.1 million relating to an increase in reserve against fraudulent transactions on the site, as announced on March 1, 2000) increased to $21.3 million, up 36% sequentially and 161% year-over-year.
Net loss before non-cash amortization of stock compensation and goodwill and the one-time charge was $17.3 million, or $0.40 per share (on 42,788,000 weighted average shares outstanding). That compares with a loss of $6.8 million in the March 1999 quarter, and $10.3 million in the December 1999 quarter. Non-cash stock-based compensation costs and M&A related amortization of intangibles of $45.2 million were recognized as a result of the transfer of personnel from Microsoft as the company established itself as an independent entity in October 1999 and the acquisitions of Travelscape.com and VacationSpot.com.
Cash and marketable securities totaled $72.8 million at March 31, 2000.
Recent Highlights
Closed acquisitions of leading Internet lodging players Travelscape.com, Inc. and VacationSpot.com, Inc. on March 17, firmly positioning Expedia as the leader in Internet lodging with over 65,000 lodging properties worldwide and a run rate of over 2.7 million room nights reserved per year, significantly larger than the nearest competitor.
Launched first major integrated branding campaign, with TV, radio, print and outdoor executions focused on building direct, branded customer relationships.
Rated overall No. 1 Internet travel agent by Gomez Advisors. Awarded Lowell Thomas Gold award for Internet travel site journalism from the Society of American Travel Writers.
Introduced revolutionary new fare searching technology and pricing engine that allows Expedia to price at least 100 times more itineraries than any other travel agency. This improvement to the “Build your own trip” feature increases the choices available to customers while also allowing them to make price and schedule tradeoffs on a leg-by-leg basis, rather than on the current industry standard itinerary-by-itinerary basis.
Increased number and quality of sponsored specialty travel sections with the launch the Golf Travel section of Expedia featuring integrated online tee-time reservation service and an 11,000-course database, in association with TheGolfer.com.
Launched Expedia® Mobile in collaboration with MSN™ Mobile, offering customers flight status, travel itinerary information, and driving directions over Web-enabled cellular phones.
Removed the requirement for visitors to its site to register before browsing for flights. According to research by Jupiter Communications, more than 40% of online users are deterred from using sites that require registration.
Notes on Attached Pro Forma Operating Statements
Exhibit 1 outlines the March 2000 quarter pro forma financials for the combined Expedia, Inc., Travelscape.com, Inc. and VacationSpot.com, Inc. businesses, as compared with the December 1999 quarter and March 1999 quarter. The pro forma financials assume that the acquisitions of Travelscape.com, Inc. and VacationSpot.com, Inc. occurred on the first day of the period presented.
Exhibit 2 outlines the financials for the Expedia, Inc. standalone business through March 17, 2000 and the consolidated company financials for March 18 through March 31, 2000, as compared with the Expedia, Inc. standalone business for the March 1999 quarter. Comparative results for the nine months ended March 31, 1999 and 2000 are also presented, again with only the 14 days of consolidated results from Travelscape, Inc. and VacationSpot.com, Inc. included in the current period.
The pro forma financials in Exhibit 1, which management believes to be meaningful in presenting the impact of the trend of the two acquisitions, are presented for informational purposes. The consolidated statements of operations in Exhibit 2 are presented in accordance with generally accepted accounting principles.
Exhibit 3 outlines key operating metrics.
About Expedia, Inc.
Expedia, Inc. (Nasdaq: EXPE) operates the Expedia.com™ online travel service in the United States with localized versions for travelers in Canada, Germany and the United Kingdom. To help customers Travel Right, Expedia provides the best combination of air, car, and hotel booking, vacation package and cruise offers, destination information, and point-to-point mapping.
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This press release contains forward-looking statements relating to future events or future financial performance that involve risks and uncertainties. Such statements can be identified by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or comparable terms. These statement are only predictions and actual results could differ materially from those anticipated in these statements based upon a number of factors including final adjustments made in closing the quarter and those identified in the Company's filings with the SEC.
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