Expedia's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Expedia (EXPE)

Q4 2011 Earnings Call

February 09, 2012 5:00 pm ET

Executives

Alan Pickerill -

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

Mark Okerstrom - Senior Vice President of Corporate Development

Analysts

Tom White - Macquarie Research

Naved Khan - Jefferies & Company, Inc., Research Division

Unknown Analyst

Bo Nam - JP Morgan Chase & Co, Research Division

Michael Millman - Millman Research Associates

Herman Leung - Susquehanna Financial Group, LLLP, Research Division

Paul Bieber

Ross Sandler - RBC Capital Markets, LLC, Research Division

Brian Nowak - Nomura Securities Co. Ltd., Research Division

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Stephen Ju - Crédit Suisse AG, Research Division

Kevin Crissey - UBS Investment Bank, Research Division

Tracy B. Young - Evercore Partners Inc., Research Division

Michael J. Olson - Piper Jaffray Companies, Research Division

Presentation

Operator

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Gentlemen, thank you for standing by. Welcome to the Expedia, Inc. Fourth Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, February 9, 2012. I would now like to turn the conference over to Alan Pickerill. Please go ahead, sir.

Alan Pickerill

Thank you, Joe. Good afternoon, and welcome to Expedia, Inc.'s financial results conference Call for the fourth quarter and year ended December 31, 2011. I'm pleased to be joined on the call today by Dara Khosrowshahi, Expedia's CEO and President; and Mike Okerstrom, our CFO. The following discussion, including responses to your questions, reflects management's views as of today, February 9, 2012, 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 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.

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. The fourth quarter wrapped up a solid year for Expedia. As promised, we completed the spinoff for TripAdvisor in the fourth quarter, unlocking significant value for our shareholders.

There's a significant effort from a lot of folks in our organization, and we're happy to have successfully completed the transaction. We're now completely focused on our standalone travel transactions business and eager to prove that we can achieve healthy and meaningful top line and profit growth in the years to come. We're investing in key technology projects on modern platforms that will allow us to innovate much more quickly.

Additionally, we're investing in international expansion in order to position the business well for long-term growth. As such, although we saw transaction growth of 11%, gross bookings growth of 12% and revenue growth of 14% for the full year, these investments led to cost deleverage with adjusted EBITDA growing just 1%.

For the fourth quarter, gross bookings grew 10%, revenue growth -- grew 7% while adjusted EBITDA was down 4% year-on-year. Mark will have more to say about this after my remarks.

Our key technology projects are on track and proceeding as expected. As we mentioned last quarter, the Expedia brand hotel product is on the new platform, and the team is testing and rolling out new innovation that are showing early signs of success.

While the overall Expedia brand performance for the quarter was unsatisfactory, its standalone hotel room night growth, as measured on a book basis, improved for the quarter compared to what we saw in Q3, and a conversion is headed on the right direction. Air and packages continue to perform poorly, however, and are weighing on that business.

We believe that air and packages are key to the Expedia brand value proposition, and we'll continue to invest appropriately.

We successfully tested the new air product for Expedia brand site, and we'll roll it out through Q1, with the majority of traffic expected to be on the new platform, end-to-end air path by the end of the quarter.

We also moved portions of the package product on to the new platform, but we still don't expect to have the end-to-end packages product finished until the back half of 2012.

To be clear, we don't expect improvements from this platform or to have a meaningful impact on Expedia brand's financial returns until the back half of 2012. But it is one of our top priorities, and we're optimistic we will see things begin to turn.

We continue to progress on our international expansion with Hotels.com in particular, seeing healthy room night growth across all regions. Our Expedia brand is 6 months into its joint venture with AirAsia, and we see excellent growth rate and progress in that new business.

Although we don't consolidate the results for the JV, including it would have contributed roughly 200 basis points of total room night and revenue growth for the quarter.

Importantly, the Expedia brand launched 11 new points-of-sale in 2011, representing a new record for that brand. And this week marks the full consumer launch of Expedia Mexico, which now features our full air product.

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