Expedia, Inc. Reports Third Quarter 2009 Results
BELLEVUE, Wash., Oct. 29 /PRNewswire-FirstCall/ -- Expedia, Inc. (Nasdaq: EXPE - News) today 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."
Financial Summary & Operating Metrics (figures in $MMs, except per share amounts)
Three Months Three Months
Ended Ended Y / Y
Metric 9.30.09 9.30.08 Growth
Transactions (mm) 15.9 12.6 26%
Gross bookings 5,913.8 5,412.8 9%
Revenue 852.4 833.3 2%
Revenue margin 14.41% 15.40% (98bps)
Operating income before
amortization* ("OIBA") 256.4 230.8 11%
Operating income 223.0 199.6 12%
Adjusted net income * 144.9 118.3 22%
Net income attributable to
Expedia, Inc. 117.0 94.8 23%
Adjusted EPS * $0.48 $0.39 23%
Diluted EPS $0.40 $0.33 21%
Free cash flow * (45.1) (151.8) 70%
*"Operating income before amortization," "Adjusted net income," "Adjusted EPS," and "Free cash flow" are non-GAAP measures as defined by the Securities and Exchange Commission (the "SEC"). Please see "Definitions of Non-GAAP Measures" and "Tabular Reconciliations for Non-GAAP Measures" on pages 15-18 herein for an explanation of non-GAAP measures used throughout this release. The definitions for OIBA and Adjusted net income were revised in the first quarter of 2009.
Discussion of Results
Gross Bookings, Revenue & Revenue Margins
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.
Products & Services Detail
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.
For the nine months ended September 30, 2009, net cash provided by operating activities was $820 million and free cash flow was $757 million. Both measures include $501 million from net changes in operating assets and liabilities, primarily driven by a seasonal working capital benefit from our merchant hotel business. Free cash flow increased $109 million compared to the first nine months of the prior year primarily due to growth in our merchant hotel business and lower capital expenditures, partially offset by an increase in net interest expense, occupancy tax assessments and income taxes. Cash and cash equivalents excluding amounts related to eLong(TM) was $752 million.
Gross bookings from Expedia, Inc.´s international businesses were $2.12 billion in the third quarter, accounting for 36% of worldwide bookings, up from 35% in the prior year period. International revenues were $331 million, representing 39% of worldwide revenue, up from 36% in the prior year period.
Expedia® and hotels.com® branded sites in the APAC region grew gross bookings by more than 60% in the third quarter, with hotel room nights stayed up over 100%.
Expedia.it(TM) (Italy), Expedia.com.au(TM) (Australia) and Expedia.com.nz(TM) (New Zealand) removed air booking fees on flights, and nearly all Expedia sites worldwide have removed change and cancel fees on hotel bookings.
Tripadvisor launched its 13th international website, tripadvisor.ca, offering Canadian travelers over 25 million global reviews and opinions of destinations, hotels, restaurants and other attractions.
Expedia.ca(TM), Canada´s leading online travel website, has become the first online travel agency in Canada to offer reservations on VIA Rail Canada, Canada´s national passenger rail service.
Hotwire® Group has reached $1.5 billion in gross bookings for the prior twelve month period for the first time in its history. Separately, the Group´s Travel-Ticker.com(TM) website marked its one year anniversary, having facilitated the booking of over 400,000 resort and hotel room nights in its first year of operation.
Egencia(TM), the world´s fifth largest travel management company, has partnered with ExpenseWatch to enable client companies to more aggressively reduce out-of-policy travel spend and fraud. Egencia also introduced a series of new features, including its Egencia On The Go(TM) mobile portal.
Expedia Affiliate Network (EAN) signed agreements to power hotel and package bookings for a number of new partners, including the UK newspaper The Guardian, the FIM Superbike World Championship, Italian web portal MediaShopping, Turkish tourism website www.istanbul.com, Dutch travel retailer D-Reizen, online review platform HolidayCheck, and Europe´s leading roadside rescue specialist, the AA.
Expedia brands continue to earn global media recognition, with the UK-based Sunday Times Travel Magazine naming Expedia.co.uk as its "Favourite Travel Website." In addition, TripAdvisor and VirtualTourist® were awarded TravelWeekly´s 2009 "Magellan Award," honoring the best in travel and the professionals behind it.
Expedia reached an agreement to acquire Kuxun, a leading China-based metasearch player with approximately 6 million monthly unique visitors. Kuxun will be managed as part of the TripAdvisor Media Network, and we expect the transaction to close in the fourth quarter 2009.
Content and Innovation
Expedia.com collaborated with TripAdvisor to launch a "Drive Getaway" tool, offering travelers a selection of trips that can be made from their homes on a single tank of gas or less, based on top-rated destinations and attractions according to TripAdvisor members.
TripAdvisor introduced "Great Escapes Under $199," a tool allowing travelers to enter their point of origin and receive a list of up to 10 destinations based on the lowest priced flights available, as well as the most popular drive-to destinations.
Expedia Media Solutions introduced StorePoint Expandables, a new multi-media ad product. The San Diego Convention and Visitors Bureau leveraged the product to increase room nights booked by as much as 45 percent.
Expedia.com partnered with TripAdvisor´s SeatGuru® to integrate qualitative user reviews of airplane seats into the seat maps for most flights offered on Expedia.com.
At quarter-end, Expedia and hotels.com branded sites featured over 110,000 bookable properties, including 63,000 merchant properties and nearly 48,000 agency properties. Expedia sites offer nearly 50,000 hotels in the EMEA region and over 10,000 in APAC countries.
Expedia signed a global partnership agreement with Prince Hotels & Resorts, the largest independent hotel chain in Japan, offering Prince´s hotels on Expedia and Hotels.com sites worldwide.
Lodging properties participating in Expedia.com´s Summer Sale grew room nights 38% year-over-year from June through August 2009 compared to 15% room night growth for non-participating hotels.
Expedia extended its Expedia Easy Manage agency hotel offering to properties in Australia and New Zealand