Revenue growth accelerated to 16% year over year driven by healthy unit growth in both hotel and air and another strong performance in our advertising and media business.
Advertising and media revenue grew 40% driven by TripAdvisor® with third-party revenue growth of 59%.
Year to date, the company has returned over $440 million to shareholders through dividends and share repurchases.
Financial Summary & Operating Metrics (figures in $MMs except per share amounts)
|
Metric |
Three Months Ended 9.30.10 |
Three Months Ended 9.30.09 |
Y / Y Growth |
|
Transactions (mm) |
18.1 |
15.9 |
14% |
|
Gross bookings |
6,891.6 |
5,913.8 |
17% |
|
Revenue |
987.9 |
852.4 |
16% |
|
Revenue margin |
14.3% |
14.4% |
(8bps) |
|
Operating income before amortization* (―OIBA‖) |
293.7 |
256.4 |
15% |
|
Operating income |
276.8 |
223.0 |
24% |
|
Adjusted net income * |
191.3 |
144.9 |
32% |
|
Net income attributable to Expedia, Inc. |
176.6 |
117.0 |
51% |
|
Adjusted EPS * |
$0.66 |
$0.48 |
38% |
|
Diluted EPS |
$0.62 |
$0.40 |
55% |
|
Free cash flow * |
(35.8) |
(45.1) |
21% |
Discussion of Results
Gross Bookings, Revenue & Revenue Margins
Gross bookings increased 17% (18% excluding the estimated impact from year on year changes in foreign exchange rates) for the third quarter of 2010 compared with the third quarter of 2009, driven primarily by 14% growth in transactions, a 9% increase in average airfares and a 4% increase in hotel average daily rates. Domestic bookings increased 16% and international bookings increased 17% (22% excluding foreign exchange).
Revenue increased 16% (19% excluding foreign exchange) for the third quarter, primarily driven by an increase in hotel revenues and advertising & media revenues. Domestic revenue increased 15% while international revenue increased 18% (27% excluding foreign exchange).
Revenue as a percentage of gross bookings (―revenue margin‖) was 14.3% for the third quarter, a decrease of 8 basis points compared to the third quarter of 2009, due primarily to higher average air ticket prices partially offset by growth in advertising and media revenue.
Products & Services Detail
Worldwide hotel revenue increased 14% for the third quarter due to a 14% increase in room nights stayed, including rooms delivered as a component of packages. Revenue per room night remained essentially flat.
Worldwide air revenue increased 14% for the third quarter, primarily due to a 10% increase in air tickets sold and a 4% increase in revenue per ticket. Revenue per ticket increased primarily as a result of higher average airfares.
Advertising and media revenue increased 40% for the third quarter, driven by a 59% increase in third-party revenue for TripAdvisor. All other revenue (primarily car rentals and destination services) increased 8% for the third quarter.
As a percentage of worldwide revenues in the third quarter of 2010, hotel accounted for 66%, advertising & media accounted for 12%, air accounted for 10% and all other revenues accounted for the remaining 12%.
Profitability
OIBA for the third quarter increased 15% (22% excluding foreign exchange) to $293.7 million primarily due to increased revenues, partially offset by increased costs and expenses. OIBA decreased 36 basis points as a percentage of revenue to 29.7% due to growth in sales & marketing and technology & content expenses in excess of revenue growth. Operating income increased 24% due to the same factors impacting OIBA. In addition, operating income for the third quarter of 2009 included $14 million of restructuring charges.
Adjusted net income for the third quarter increased $46 million compared to the prior year period primarily due to higher OIBA and a lower effective tax rate. Net income increased $60 million compared to the prior year period primarily due to higher operating income and a lower effective tax rate. Adjusted EPS increased 38% to $0.66 and diluted EPS increased 55% to $0.62.
Our effective tax rate was below 26% for the third quarter of 2010, which was lower than the 34% effective rate in the first half of the year. The IRS concluded audits for the years 2005 (post spin-off) through 2007 and as a result, we decreased our liability for uncertain tax positions by $152 million, of which $16 million decreased our provision for income taxes, $112 million increased additional paid-in capital and the remaining amount was primarily a decrease to deferred tax assets. This resulted in approximately $0.06 favorability to Adjusted EPS and diluted EPS.
Cash Flows
For the nine months ended September 30, 2010, net cash provided by operating activities was $938 million and free cash flow was $824 million. Both measures include $407 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 $67 million compared to the first nine months of the prior year primarily due to higher OIBA, 2009 occupancy tax assessment payments, lower cash tax payments and a net working capital benefit, partially offset by higher capital expenditures and payments made for legal settlements and restructuring. Cash and cash equivalents excluding amounts related to non-wholly owned subsidiaries was $843 million as of September 30, 2010.
Recent Highlights
Global Presence
• Gross bookings from the Expedia, Inc. international businesses totaled $2.5 billion in the third quarter, accounting for 36% of worldwide bookings, consistent with the prior year period. International revenues equaled $398 million, representing 40% of worldwide revenue, consistent with the prior year period.
• Egencia® expanded the Egencia Global Alliance through strategic partnerships with local travel management companies in Denmark, Finland, Greece, Norway, Philippines, Poland, South Africa, Sweden and Thailand, giving Egencia a presence in 39 countries worldwide.
• TripAdvisor launched localized sites in Korea, Russia, Singapore and Thailand and is now available to travelers in 24 countries and 17 languages.
Traveler Value Proposition and Innovation
• Smarter Travel® Media, part of the TripAdvisor Media Network, launched private sale site SniqueAway™. This first-of-its-kind members-only site offers limited-time discounts exclusively on traveler-endorsed properties that have received a minimum four-star rating on TripAdvisor.com™.
• Expedia® Affiliate Network (EAN) introduced EAN Package Rates, giving Expedia affiliate travel agencies, tour operators and transport providers the ability to bundle their own inventory with specially negotiated Expedia hotel package rates.
• Hotwire® launched a mobile site giving consumers access to Hotwire’s full inventory of deeply-discounted hotel and car rates on their mobile devices.
• Egencia introduced its Air Fare Benchmarking tool giving businesses in Europe a greater level of travel spend transparency by enabling users to actively monitor fare trends on frequently-used routes.
Media, Advertising and Distribution
• TripAdvisor became the first-ever travel brand to reach 40 million unique monthly visitors to its site in a single month for July, and has also seen a 60% increase in the number of unique monthly visitors to the site since the beginning of 2010 (according to comScore Media Metrix July worldwide data).
• Expedia finalized agreements to power travel bookings on Yahoo! Travel sites in France, Germany, Ireland, Italy, Spain and the U.K, as well as for Japan’s second largest online travel agency Kinki Nihon Tourist (KNT).
• Expedia Affiliate Network signed private-label and co-branded agreements to provide full travel booking solutions for a number of international affiliates, including leading Japanese online travel agency, Appleworld; Royal Air Morocco; and Falabella Viajes, a Chile-based online travel site that serves travelers throughout several South American countries.
• Expedia Media Solutions introduced product enhancements to TravelAds™, its paid search advertising program for hotels and resorts, increasing inventory volume, and driving record participation and revenue for the group.
Supply Portfolio
• At quarter-end, Expedia global websites featured over 130,000 bookable properties, with over 55% operating under our merchant model and almost 25% representing agency properties where we have direct relationships. Expedia sites offer nearly 80,000 hotels between the EMEA and APAC countries.
• Expedia Partner Services Group (PSG) signed global agreements with several notable hotel brands, including the world’s largest lodging franchisor, Wyndham Hotel Group; Magnuson Hotels, the world’s largest independent hotel group; and leading Japanese lodging chain JAL Hotels.
• Expedia PSG signed partnership agreements with Moscow-based Transaero Airlines, Russia’s second-largest passenger airline company; and TAM Airlines, Brazil’s largest carrier.
