Expedia.com Expedia, Inc. Reports Record Second Quarter Financial Results

BELLEVUE, Wash. – August 5, 2003 – Expedia, Inc. (NASDAQ: EXPE) today reported gross bookings rose 53% year-over-year to $2.0 billion for the second quarter ended June 30, 2003, and net revenue rose 71% to $247.5 million.

The company reported net income for the quarter of $41.3 million, or 30 cents per diluted share, on 138.0 million shares, compared with net income of $20.1 million, or 15 cents per diluted share, for the year-ago period. Adjusted earnings were $53.1 million, or 38 cents per share, compared with $26.9 million, or 21 cents per share.

“Expedia’s record results reflect our continuing dedication to an outstanding customer experience and to a superior distribution platform for our travel supplier partners,” said Erik Blachford, president and CEO of Expedia. “This dedication is driving Expedia’s success and helping us build and maintain a loyal base of customers and suppliers.”

“Expedia’s hotel rooms and package sales were particularly robust in the second quarter, as consumers continue to purchase more complete trips online,” said Greg Stanger, senior vice president and CFO. “Gross bookings of packages and merchant hotel rooms rose 83% and 81% respectively year-over-year, while our air gross bookings also grew at a very healthy rate of 44%.”

Second Quarter Financial and Operating Highlights
In the second quarter, merchant gross bookings rose 70% and merchant revenue rose 82% year-over-year to $155.8 million on increased revenue from Expedia® Special Rate hotels, strong international performance and the growth in Expedia’s worldwide packages business. The company reported 4.6 million total hotel room-nights stayed in the quarter, including 3.7 million merchant room-nights. Merchant room-nights stayed increased 32% sequentially and 80% year-over-year.

Agency revenue, which is primarily derived from the sale of stand-alone and package airline tickets, rose 57% year-over-year to $86.2 million on a 46% increase in agency gross bookings.

Approximately 3% of revenue for the quarter and approximately 11% of net income were attributable to a reduction to our reserves related to state and local hotel occupancy taxes. These reserves may be adjusted in the future as emerging facts dictate.

International gross bookings, including Canada, rose 148% and international revenue rose 162% year-over-year, as increased hotel and packages sales contributed to more than triple-digit growth in all locations.

Gross profit rose 87% year-over-year to $182.7 million while gross margin increased to approximately 74%. Operating cash flow rose to $213.3 million from $85.6 million a year ago. Expedia finished the quarter with more than $1.0 billion in cash and short-term investments compared with $472.5 million in cash and short-term investments at June 30, 2002.

Six Months Results
For the six months ended June 30, Expedia reported net revenue of $446.2 million, compared with $260.9 million in the year-earlier period. Net income on a GAAP basis was $68.2 million, or 50 cents a diluted share compared with $26.7 million, or 21 cents a share in the year-ago six-month period. Adjusted earnings were $92.6 million, or 68 cents per diluted share, compared with $51.2 million, or 40 cents per share a year ago.

Merger agreement with InterActiveCorp
In the first quarter of 2003, Expedia’s board of directors approved a merger transaction with InterActiveCorp (NASDAQ: IACI) (formerly USA Interactive) under which IAC will purchase the shares of Expedia it does not already own. The transaction requires majority approval of the Expedia shares outstanding; however, IAC controls a majority of such shares, assuring shareholder approval. The transaction is expected to be completed following a vote by shareholders on Aug. 8, 2003.

Recent Operating Highlights:
Expedia climbed to the No. 4 spot in Travel Weekly’s Top 50 travel agencies list for 2002 up from No. 8 in 2001 and maintained its position as the largest U.S. online travel agency.
During the quarter, Expedia achieved significant hotel industry milestones, including welcoming its 10,000th hotel partner into the Expedia Special Rate program.
Expedia Corporate Travel delivered upgrades to satisfy heavily managed travel needs of corporate customers, including powerful policy controls, robust real-time reporting, and customer service options including a Custom Service Level of dedicated agents, an International rate desk, and Executive services.
Classic Custom Vacations introduced Expedia® for Agents, a new program that allows Classic travel agents to book selected Expedia inventory on a commissionable basis.
WWTE™, Expedia’s private label service, announced that it was selected by Delta Air Lines to provide hotel booking functionality and destination services on delta.com.
About Expedia, Inc.
Expedia, Inc. (NASDAQ: EXPE) is the world’s leading online travel service and the fourth largest travel agency in the U.S. Expedia’s award-winning Expert Searching and Pricing (ESP) technology delivers the most comprehensive flight options available online. ESP also allows customers to dynamically build complete trips that combine flights, Expedia Special Rate hotels and other lodging, ground transportation, and destination activities. Expedia operates Classic Custom Vacations, a leading wholesaler of premiere vacation packages to destinations such as Hawaii, Mexico, Europe and the Caribbean; and Metropolitan Travel, a corporate travel agency. Travelscape, Inc., wholly owned by Expedia, also operates as WWTE™, bringing complementary cross-sell and dynamic packaging booking functionality to third parties on a private-label basis. Expedia is a majority-owned subsidiary of InterActiveCorp (NASDAQ: IACI).

Notes on Attached Exhibits
Exhibit 1 outlines the three months ended June 30, 2003, consolidated Statements of Operations for Expedia, as compared with the prior-year numbers, including a reconciliation of non-GAAP financial measures to the comparable GAAP measures.
Exhibit 2 outlines consolidated Statements of Operations for the six month periods.
Exhibit 3 presents consolidated balance sheets for Expedia.
Exhibit 4 presents consolidated cash flow statements for Expedia.
Exhibit 5 outlines key operating metrics for Expedia and its subsidiaries.
Adjusted earnings exclude non-cash marketing expenses resulting from InterActiveCorp in-kind marketing contributions, InterActiveCorp merger-related expenses and non-cash charges for amortization of intangibles and equity compensation; and the tax benefit associated with those expenses.