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Expedia Q3 2010 Earnings Call Transcript

Expedia Q3 2010 Earnings Call Transcript

Expedia (EXPE)

Q3 2010 Earnings Call

October 28, 2010 5:00 pm ET

Executives

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Alan Pickerill - Director, Investor Relations

Michael Adler - Chief Financial Officer and Executive Vice President

Dara Khosrowshahi - Chief Executive Officer, President, Director, Member of Preferred Stock Subcommittee and Member of Executive Committee

Analysts

Sandeep Aggarwal - Caris & Company

Michael Millman - Millman Research Associates

Imran Khan - JP Morgan Chase & Co

Kevin Crissey - UBS Investment Bank

Ross Sandler - RBC Capital Markets Corporation

Justin Post - BofA Merrill Lynch

Douglas Anmuth - Barclays Capital

James Mitchell - Goldman Sachs Group Inc.

Herman Leung - Deutsche Bank AG

Scott Kessler - S&P Equity Research

Mark Mahaney - Citigroup Inc

Presentation

Operator

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Good day, ladies and gentlemen, and thank you for standing by. Welcome to Expedia Inc. Third Quarter Earnings Conference Call. [Operator Instructions] Now I'd like to hand the conference over to Alan Pickerill, Vice President, Investor Relations. Please go ahead.

Alan Pickerill

Thank you, Josh. Good afternoon, and welcome to Expedia Inc.'s financial results conference call for the third quarter ended September 30, 2010. I'm pleased to be joined on the call today by Dara Khosrowshahi, Expedia's CEO and President; and Michael Adler, our CFO. The following discussion, including responses to your questions, reflects management's views as of today, October 28, 2010, only. We do not undertake any obligation to update or revise this information.

As always, some of the statements made on today's call are forward looking, typically preceded by words such as we expect, we believe, we anticipate or similar statements. Please refer to today's press release and the company's filings with the SEC for information about factors which could cause our actual results to differ materially from these forward-looking statements.

You'll find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in our earnings release, which is posted on our company's IR website at expediainc.com/ir. I encourage you to periodically visit our IR site for important content, including today's earnings release and our updated investor presentation.

Finally, unless otherwise stated, all references to cost of revenue, selling and marketing expense, general and administrative expense and technology and content expense excludes stock-based compensation and all comparisons in this call will be against our results for the comparable period of 2009. And with that, let me turn the call over to Dara.

Dara Khosrowshahi

Thanks, Alan, and thanks, everyone for joining us this afternoon. We're pleased to be announcing solid Q3 results today. Unit growth was quite healthy, with growth in air tickets and hotel room nights outpacing the growth that we posted last quarter. And as expected, per unit revenue improved with flat revenue per room night and 4% growth for revenue per air ticket. We also saw another terrific quarter for our Advertising and Media business, with revenue growing a robust 40% driven by TripAdvisor's third-party revenue growth of 59%. Our corporate travel business, Egencia, again posted solid gross bookings and revenue growth, and it's showing continued strength in new client sales across SME, mid-market segments as well as among large accounts. Recent notable new accounts include the U.S. and Canadian divisions of Procter & Gamble and NASDAQ.

Now while these Q3 results are quite good, we still have a ton of work to do to address our opportunities and to continue to grow our business over the long term. And although I can't really do a justice in a short call, I'd like to cover a few key focus areas.

The quality of our product and the value for the consumer is of utmost importance to maximizing our conversion rates. Recently, we spent a significant amount of time and effort advancing our platform migration and other back end work that will help us ensure that we've got the right foundation to innovate quickly and deliver real, new valuable products and services to our customers. I'll list just a couple of examples amongst many.

Our new opaque product in the retail path on Expedia.com. The inventory comes from Hotwire and is a great example of cross-company collaboration and the integration between two of the world's great travel brands. We launched over the summer in the U.S. and just this week, we began to roll it out on Expedia in certain international markets. We plan to continue to experiment with opaque products in international markets more broadly in the future, both on the Expedia point-of-sale as well as directly with the Hotwire brand.

Loyalty programs. We've spoken before about the success of the Hotels.com loyalty program WelcomeRewards, and we've now begun rolling it out internationally. In the third quarter, we announced that the Expedia brand is also building out a new loyalty program, which will begin to roll out domestically in January. These are robust programs which we think will differentiate our product offering over the long term. At the same time, our pace of testing, learning and optimizing our product set to consumers has and will continue to accelerate, from improved mapping to automated sort order, improved site speed, mobile sites and applications and many, many more.

We're also highly focused on our international opportunities. We've talked a lot about Europe in the past, but today I'd like to focus on the Asia-Pacific region. The market opportunity there is vast, and in many countries, largely untapped. Today, the annual travel market in the APAC region is over 200 billion, of which only around 20% is online. Our total annual gross bookings in the region are just north of $1 billion, representing roughly half a point of share of the total travel market compared to nearly 7% in the U.S. So we're planning to increase our investment level to be sure we're appropriately positioned to grow our share over time. Much of this investment will come in the way of stronger localized product, deeper hotel supply and increased marketing along with new points-of-sale. Expedia, Hotels.com, eLong, TripAdvisor and Egencia are all pushing hard in APAC. And while these efforts will hurt short-term profitability in the region, we expect them to pay off over the long term. Now let me touch a bit more on TripAdvisor. The business continues to grow quite fast and is nearing $500 million annual run rate in gross revenue. Domestically, we recently launched a new cycle, SniqueAway, which is the first private sale meets crowd sourcing site. All the hotels have earned a minimum of four star rating and four out of five review ratings on TripAdvisor. While it's too early to comment on the numbers, we're pleased with the launch and have seen quite a positive customer reaction. And outside the U.S., Trip's international third-party revenue is now roughly 40% of the business and grew over 100% year-over-year in each of the last four quarters. We've recently launched four new international sites in Korea, Thailand, Singapore and just this week, in Russia. We're now in 24 countries, 17 languages.

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