Expedia Reports First-Ever Profit

Flying high on strong sales, online travel site Expedia.com (Nasdaq: EXPE) said Monday that it posted its first-ever profitable quarter more than a year ahead of schedule, and projected that income for the next fiscal year would beat Wall Street estimates.

"This was a breakthrough quarter for Expedia," company president and chief executive officer Richard Barton said. "We have demonstrated not only that significant consumer demand exists for our services, but also that our business model is sound and profitable."

The Bellevue, Washington-based company reported third quarter earnings of US$4.4 million, or 9 cents per share, on revenue of $110 million before charges. During the same quarter last year, Expedia posted a loss of $21.4 million, or 50 cents per share, on $59 million in revenue.

Expedia, which is 70 percent owned by software giant Microsoft (Nasdaq: MSFT), said it achieved the results due to the success of its new technology platform and increasing sales of more lucrative, higher margin packages, as well as the ongoing adoption of online travel purchasing by consumers and suppliers.

As of the close of trading on Tuesday, Expedia was up $4.11, or 15.8 percent, at $30.12.

Flight Pattern

In recent quarters, the online travel industry has proven to be one of the best performing e-commerce sectors.

Earlier this month, niche competitor Travelocity.com also reported its first-ever profitable quarter, posting an operating profit of $618,000, or 3 cents per share, on revenue of $72.9 million before several one-time charges.

"I think it's impressive what Travelocity and Expedia have been doing lately," Morningstar analyst Langdon Healy told the E-Commerce Times. "It's a sector that seems to have taken hold."

Dog Fighting

Despite the strong results, competition for customers remains fierce. In addition to airline sites -- which have aggressively moved to snag a greater market share -- the upcoming launch of airline-operated mega-site Orbitz will pose an even greater competitive hurdle.

To offset this threat, both companies have been expanding beyond strict airline ticket bookings and into entire vacation packages.

"That's something they'll be able to sustain for a while, but there still is significant risk," said Healy.

"Orbitz is going to be tough to compete against and it's an open book as to what's going to happen," Healy added. "The big question is how deeply is Orbitz going to cut into their market share."

Name-Your-Own-Profits

Slightly behind the curve is name-your-own-price e-tailer Priceline.com.

Earlier this month, Priceline said it was "on track" to report first-quarter results at the high end of analyst forecasts for a loss of 5 to 7 cents per share before restructuring and other charges, and predicted a pro forma profit for the second quarter.

Priceline is expected to report its first-quarter results after the close of trading Tuesday.

Revenue Streams

Factoring in non-cash stock option expenses and amortization of goodwill and intangibles, Expedia said that net losses for the third quarter that ended March 31st totaled $17.6 million, or 37 cents per share, compared to a loss $66.5 million, or $1.56 per share, in the year-ago period.

More than 1 million customers bought services through the company in the quarter, an 86 percent increase from a year earlier, Expedia said.

Expedia said that agency revenues jumped 88 percent to $33.5 million, and merchant sales rose 98 percent to $67.1 million from the year-ago period. International sales climbed 57 percent from the second quarter.

"This performance highlights the attractive cash flow characteristics of our merchant business model," said Expedia senior vice president Greg Stanger.

Looking Ahead

The travel firm left the quarter with $151.7 million in cash and marketable securities, an increase from the $33.2 million reported in the previous quarter.

Expedia expects to post a profit income before items of 6 cents to 9 cents per share in the fourth quarter, beating analyst estimates of a loss of 3 cents per share.

For fiscal year 2002, the company said its profit would fall in the range of 30 cents to 40 cents per share, which would easily beat the First Call consensus of a profit of 13 cents per share.

However, Stanger noted that "actions of existing and new competitors, trends in the overall economy and the inherent difficulty of making forecasts" could cause the results to "vary materially" from these projections.