This is a summary of the first quarter fiscal 2008 earnings call as presented by Expedia Inc. (EXPE) on May 1, 2008
Management:
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President and Chief Executive Officer: Dara Khosrowshahi
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Chief Financial Officer:Michael Adler
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Senior Vice President of Investor Relations and Treasurer: Stu Haas
Key Investors Issues
- Revenue increased 25% to $687.8 million from $550.5 million in the prior year.
- Income rose 48% from $34.8 million or 24 cents a share in 2007 to $51.3 million or 24 cents a share.
- Hotels.com signed a new multi-year strategic partnership with Air Canada.
First Quarter Highlights]
Gross bookings increased 20% to $5.9 billion from $4.9 billion as North America bookings increased 15%, Europe bookings increased 34% and other bookings increased 31%.
- Revenue increased 25% to $687.8 million from $550.5 million in the prior year, primarily driven by increased worldwide merchant hotel revenue and advertising and media revenue.
- North America revenue increased 22%, Europe revenue increased 33% and other revenue increased 38%.
- Worldwide merchant hotel revenue increased 22% due to a 23% increase in room nights stayed, offset slightly by a 1% decrease in revenue per room night.
- Revenue per room night decreased due to a 108 basis point decline in hotel margin, partially offset by a 3% increase in worldwide average daily rates.
Worldwide air revenue increased 18% due to an 11% increase in air tickets sold and a 6% increase in revenue per air ticket.
- Worldwide revenue from products and services other than merchant hotel and air increased 39% due to increased advertising and media revenues and car rental revenues.
- Gross profit was $536 million, an increase of 25% from $429 million in 2007 due to increased revenue.
- Operating income before amortization increased 21% to $126 million, driven primarily by higher revenue.
- Operating income increased 34% to $90 million primarily due to the same factors driving OIBA growth as well as lower amortization and stock based compensation as a percentage of revenue.
- Adjusted net income increased $11 million compared to the prior year period driven by higher OIBA, partially offset by a higher net interest expense.
Income rose 48% from $34.8 million or 24 cents a share in 2007 to $51.3 million or 24 cents a share partly due to an unrealized gain on convertible notes, partially offset by an increase in net foreign exchange losses and revenue growth.
- Net cash provided by operating activities was $564 million and free cash flow was $531 million.
- Both measures include $457 million from net changes in operating assets and liabilities, primarily driven by the merchant hotel business.
- Free cash flow increased $11 million due primarily to increased net changes in operating assets and liabilities and higher OIBA, partially offset by increased capital expenditures and an increase in cash paid for interest and taxes as compared with the prior year period.
Worldwide employees delivered strong top line growth of 20% in bookings and 25% in revenue, with operating income before amortization growing 21% on the strength of the merchant hotel and advertising businesses.
- Expedia continues to meaningfully diversify its business mix, with international businesses accounting for 32% of worldwide revenue compared with 29% in 2007.
- The advertising and media businesses grew 73% to account for more than 9% of worldwide revenue compared with less than 7% a year ago.
- On a trailing 4-quarter basis, the firms'' ad and media business now exceeds $200 million in high-margin revenue and is an integral piece of the travel marketplace strategy.
Expedia had a lower growth rate than recent quarters due in part to an 8% increase in air fares as the carriers struggled with oil''s steady upward climb.
- Air revenue per ticket grew 6% indicating further stabilization in air economics.
- Expedia continued to see merchant hotel revenue growth above 20% for the third straight quarter.
- First quarter growth came exclusively from room nights with revenue per room night down 1% on lower ADR growth and lower margins.
- This margin reduction came from reducing barriers to purchase through package discounts, eliminating change fees at Hotels.com, and more competitive hotel pricing in general.
ADR growth of 3% was down from growth in the prior period reflecting the industry-wide decelerating in ADR growth anticipated for 2008, as well as Expedia''s high relative exposure to the leisure weekend and mid-scale markets.
- Expedia.com had a solid quarter, but challenges are expected going forward due to the US economy and higher ticket prices.
- European points of sale drove 34% bookings growth and while this is strong absolute performance, it does mark a deceleration from the levels in the back half of 2007.
- Hotwire continues to innovate for its value-driver travelers with its recently debuted Deal Engine improving deal-based merchandising on the site including geographically targeted offers.
- Hotels.com grew worldwide gross bookings 22% with Hotels.com Europe bookings growth of over 50%.
- The APAC businesses continued along their high-growth trajectory with booking and revenue both up over 50%.
The 17th Expedia-branded website in India was launched in early March.
- The advertising and media businesses continued to flourish with over 50% organic growth on the acquisition of Airfarewatchdog.com and Holidaywatchdog.com in the UK.
- Advertising revenue on transaction sites continued to gain traction in Q1 with acceleration in growth compared with Q4.
