Expedia.com Expedia, Inc. reports record gross bookings of $2.4 billion in FY01 and record cash profit of $15 million for the June quarter

BELLEVUE, Washington—July 30, 2001—Expedia, Inc. (NASDAQ: EXPE) today announced financial results, including its second consecutive quarter of profit before certain non-cash items, for the fourth quarter ended June 30, 2001.

The Company reported fourth-quarter earnings of $15.0 million, or 25 cents per diluted share, before non-cash stock-option expense and amortization of goodwill and intangibles. In the year-ago quarter, the Company reported a loss before certain non-cash items of $13.1 million, or 30 cents a share. On a GAAP basis, the Company reported a net loss of $4.4 million, or 9 cents per share compared with a year-ago loss on a GAAP basis of $42.4 million, or 98 cents a share.

Gross travel bookings for the quarter rose 78% year-over-year and 19% sequentially to $802 million. Revenue rose 112% year-over-year and 37% sequentially to $78 million for the June quarter, the first quarter in which the Company is presenting its merchant revenue on a net basis. The Company has presented prior-period merchant revenues to reflect a new accounting standard.

“We continued to gain market share this quarter thanks to the combination of the best technology and the best travel offering in the online travel business,” said Richard Barton, president and CEO of Expedia®

Conversion on Expedia.com, or the percentage of monthly unique visitors who make a purchase, rose to 7.0% from 4.1% in the year-ago quarter and up from 5.7% in the March quarter. New purchasing customers rose 35% sequentially and more than doubled year-over-year to 904,000 in the quarter, bringing total cumulative customers who have purchased on Expedia sites to 4.5 million.

Growth in the quarter came from all of Expedia’s businesses, but was especially strong in Expedia’s packages and merchant lodging. “During the quarter, consumers turned to the Internet to find lower rates and better package deals that would keep their vacation plans and business travel plans intact in spite of a weakening economy. When business gets softer for our supplier partners, they turn to those distributors who can deliver the most customers in the most cost-effective manner,” said Barton. “Our ability to do so has been a triple win for our suppliers, our customers and our business.”

For the June quarter, agency revenue grew 110% year-over-year and 32% sequentially to $44 million, driven by growth across all product categories. Merchant revenue, reported on a net basis, grew 176% year-over-year and 81% over the March quarter to $26 million, due to increased sales of Expedia Special Rate discount hotels and Expedia Bargain Fares, and to rapid growth in vacation-package sales. Advertising and other revenue, which includes licensing revenue, rose 30% year-over-year and declined 9% sequentially due primarily to the discontinuation of two licensee contracts. Gross margins expanded in the quarter to 70.5% from 60.7% in the year-ago fourth quarter and 68.4% in the previous quarter.

In commenting on the most recent quarter, Gregory S. Stanger, senior vice president and CFO, said, “Our balance sheet continued to strengthen, as cash flow from operations was $26 million in the quarter.” As of June 30, 2001, the Company had $182 million in cash.

USA Networks Agreement

Earlier this month, USA Networks Inc. and Expedia announced an agreement for USA Networks to acquire up to 37.5 million shares of Expedia stock. Details of the agreement were published in a July 16, 2001, press release issued by USA Networks, which is available on Expedia’s investor relations website, at http://investor.expedia.com. Expedia expects a shareholder vote on the deal to be held in the December quarter, and expects the deal will close shortly after the vote. “USA Networks is a pioneer in the convergence of interactive commerce and new media,” said Barton. “We are excited about the many new opportunities for distributing our inventory and increasing our brand awareness that USA Networks will bring us as our new majority shareholder.”

MSN Agreement

During the quarter, Expedia signed an extension to its MSN distribution agreement with Microsoft through June 2005, continuing Expedia’s status as the MSN travel channel for four more years. “Our long relationship with Microsoft will continue to thrive through our extended agreement with MSN, the leading online consumer network,” said Erik Blachford, senior vice president of marketing. “The value of this relationship is highlighted by MSN’s tremendous growth and market share gains. We look forward to enjoying the continued benefits from this agreement and to contributing to MSN’s ongoing success.”

Revenue accounting change

The new revenue recognition standard adopted by the Company will provide a comparable presentation of revenue from both merchant and agency transactions that should help investors and analysts better track the Company’s progress in building its higher-margin merchant business. Under the prior accounting standard, the Company booked revenue from its merchant business as the gross amount of the transaction, while revenue from transactions where the Company acted as an agent reflected only commissions and other fees. Under the new accounting standard, the Company is recording merchant revenue as the difference between the transaction amount paid by the customer and the amount paid by the Company to suppliers.

“This change in accounting lowers our revenue, but increases our gross-margin percentages significantly,” Stanger said. “Gross bookings, gross profits, net earnings and earnings per share don’t change. This new reporting standard should promote a clearer picture of our merchant business as we move to expand the merchant model into more travel offerings.”

Fiscal year results

For the year, revenues rose 96% to $222 million from pro-forma (for acquisitions) revenue of $114 million in fiscal year 2000, and gross profit rose 119% to $148 million from pro-forma gross profit of $68 million. Year-over-year, merchant revenue grew 134% and agency revenue grew 101%. Fiscal 2001 earnings were $15.2 million, or 27 cents per diluted share, before non-cash stock option expense and amortization of goodwill and intangibles. After accounting for non-cash charges, the Company reported a net loss for the fiscal year of $78 million, or $1.65 per basic share, compared with a fiscal-year 2000 pro-forma (for acquisitions) net loss of $185 million, or $4.56 per basic share.

Guidance

Expedia expects to report income before non-cash items of between $10 million and $12 million in the September quarter and between $11 million and $13 million in the December quarter of fiscal 2002. Earnings for the fiscal year ended June 30, 2002, are expected to be in excess of $50 million and diluted shares should increase to approximately 64 million in the September quarter and 66 million by the end of the fiscal year. Actions of existing and new competitors, changes in strategy resulting from the USA Networks acquisition of a majority interest in Expedia, trends in the overall economy and in the demand for online and offline travel and the inherent difficulty of making projections could cause results to vary materially from these projections.

Key technology and operating highlights for the quarter:

Expedia.com was listed as the #7 travel agency, online or offline, in the United States according to Travel Weekly’s rankings for calendar year 2000.
In April, the Company announced Expedia Bargain Fares, special negotiated rates which can save travelers up to 60% on 20 leading airlines. Designed for travelers who are price-sensitive and have flexible schedules, Expedia Bargain Fares show customers the date and price up front, but do not disclose the airline or flight times until after purchase. This “opaque” pricing mechanism enables carriers to offer discounted prices without sacrificing the integrity of their overall pricing structure.
During the quarter, Expedia was named the Best Travel Web site at The 5th Annual Webby Awards. The Webby Awards are presented by the International Academy of Digital Arts & Sciences, which evaluates Web sites based on six criteria: content, structure and navigation, visual design, functionality, interactivity, and overall experience.
Expedia.com received honors and recognition from PC World and the International Federation of Information Technology and Tourism (IFITT). These awards highlight the site’s leadership, ease-of-use, superior customer experience and industry-leading marketing initiatives.
During the quarter, the Company added Fodors.com guides and reviews for restaurants, hotels, shopping, tours and activities in 125 destinations worldwide to Expedia.com.
The Company launched a new advertising campaign in May, demonstrating the central role Expedia plays in simplifying the travel planning process and helping people travel right.
After the end of the quarter, the Company introduced Worldwide Travel Exchange, a private label travel booking service enabling travel suppliers and other travel sites to enhance their product offerings and allowing Expedia to increase its sales of high-margin merchant inventory. The inaugural customer for this new service is American Airlines, which is using WWTE to add hotel and car booking services to AA.com. WWTE is a division within Travelscape.com, Inc., a travel wholesaler and a wholly owned subsidiary of Expedia, Inc.

Notes on Attached Exhibits

Exhibit 1 outlines the June 30, 2001, Statements of Operations for Expedia, Inc. after consolidation of our subsidiaries as compared with the prior-year numbers. This exhibit also presents pro-forma results for the 2000 fiscal year reflecting the acquisitions of Travelscape.com, Inc. and VacationSpot.com, Inc., as if the acquisitions occurred on the first day of the period. Management believes the pro forma presentation for the 2000 fiscal year to be meaningful in presenting the impact of the trend of the two acquisitions.
Exhibit 2 outlines key operating metrics for Expedia, Inc. and its subsidiaries.
Exhibit 3 sets forth selected balance sheet items.
Exhibit 4 sets forth prior period revenue, cost of goods sold and gross profit, adjusted for the change in revenue recognition methods.
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. Expedia also operates the Travelscape.com™ and VacationSpot.com™ travel sites in the United States. 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.

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 statements 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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Expedia, Expedia.com, the Expedia logo, Travelscape.com, and VacationSpot.com are either registered trademarks or trademarks of Expedia, Inc. in the U.S., Canada and/or other countries. The names of actual companies and products mentioned herein may be trademarks of their respective owners.
For investor information about Expedia, Inc.:
Marj Charlier, Director of Investor Relations, (425) 564-7666 or call our Investor Relations team at (425) 564-7233

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