Expedia (EXPE)

Q1 2011 Earnings Call

April 28, 2011 5:00 pm ET

Executives

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

Kevin Crissey - UBS Investment Bank

Naved Khan - Jefferies & Company, Inc.

Ingrid Chung - Goldman Sachs Group Inc.

Justin Post - BofA Merrill Lynch

Unknown Analyst -

Scott Kessler - S&P Equity Research

Heath Terry - Canaccord Genuity

Ross Sandler - RBC Capital Markets, LLC

Mark Mahaney - Citigroup Inc

Presentation

Operator

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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Expedia First Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Thursday, April 28, 2011. At this time, I'd like to turn the conference over to Alan Pickerill, Vice President, Investor Relations. Please go ahead, sir.

Alan Pickerill

Thank you. Good afternoon, and welcome to Expedia, Inc.'s Financial Results Conference Call for the First Quarter ended March 31, 2011. 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 question, reflects management's views as of today, April 28, 2011, 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 will find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today on our earnings release, which is posted on the company's IR website at expediainc.com/ir. I encourage you to periodically visit our Investor Relations 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 on this call will be against our results for the comparable period of 2010.

With that, let me turn the call over to Dara.

Dara Khosrowshahi

Thanks, Alan. We're pleased to report strong top line growth at Expedia. With revenue grew nice and free cash flow, all growing 50% in what was a very difficult environment in the first quarter. Few things have changed since we last talked to you.

We announces plans to spin-off TripAdvisor, the world's leading travel media company into a separately publicly traded company, an event that we think will highlight TripAdvisor's accomplishment and set the stage for growth for many years to come.

We announced the joint venture with AirAsia, which we believe will prove to be a powerful platform to fuel Expedia's Asia Pacific ambitions. We continue to invest in and deliver on our technology platform plans, and we have American Airlines back in our marketplace.

On the financial front, while our top line was quite healthy considering the relatively reduced quality of our air inventory on Expedia, our bottom line was a bit weaker than expected. We saw continued higher average ticket prices challenging Expedia's air volumes, lower customer discounts in the opaque channel, available to both Hotwire and Expedia packages, and higher than expected G&A, due primarily to legal costs and related reserves, the timing of which we just can't control.

Regarding the spin-off. TripAdvisor and the 18 brands that comprise the TripAdvisor Media Group will separate from Expedia, to be led by President and CEO, Steve Kaufer, who was a Co-Founder of TripAdvisor. We think it's the right time and the right direction for both companies, and each company is ready.

TripAdvisor's unquestioned leader in the travel media space, with more than 15 million unique users in 29 countries in 20 languages. Expedia will move forward as the world's largest online travel agency with leading leisure and corporate brands, operating more than 100 sites across the globe, and driving more than 26 billion in annual travel bookings toward suppliers all over the world.

We believe that moving ahead as two separate companies will allow each to stand on its own, drive it's own growth in technology, vision and culture, and ultimately, create far more value for our shareholders. We intend to maintain a strong relationship between Expedia and TripAdvisor that comes from our shared history and vision to provide the very best travel products and information.

Announcing our intent to spin off TripAdvisor was just the first step in the process, and it won't happen overnight. This will require full approval from the Board of Directors and amount of work. We're working on the required regulatory filings, and expect to file a proxy statement regarding the transaction with the SEC this spring. The final timing of these types of transactions can be difficult to predict with precision, but we're aiming for the spin-off to be completed sometime in the fall.

In the meantime, both businesses are pushing forward on their respective strategies and we don't expect the spin-off to slow us down.

From an operating perspective, TripAdvisor experienced robust growth in its three main revenue categories during the first quarter of 2011, including over 25% growth in the cost per clicks, CPC-based revenue, on 30% growth in click volume, over 10% increase in display advertising revenue, and over 300% growth in other revenue, which includes our new Business Listings product that we're very excited about.

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