Expedia Heads South

The stock plunges 18% after a weak quarter.
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(EXPE) - Get Report

reported first-quarter results that were far below Wall Street expectations, though the largest online travel agency tried to ease the pain for stockholders by agreeing to buy back as many as 20 million shares.

The company's net income plummeted 51% to $23.3 million, or 6 cents per share, from $48 million, or 14 cents. On an adjusted basis, profit was $57 million, or 15 cents. Sales rose 2% to $493.9 million, the Bellevue, Wash.-based company said. Wall Street had forecast earnings of 22 cents on sales of $543.8 million, according to Thomson Financial.

Shares of Expedia, which had been depressed this year amid concerns about growing competition, tanked, dropping $3.44, or 17%, to $16.35 in after-hours trading.

Barry Diller, the company's chairman, and Dara Khosrowshahi, the company's chief executive, were contrite about the company's poor performance and promised it would improve.

"While we anticipated negative growth in the first half of 2006, our performance this quarter was far below those expectations," Diller says. "We increased costs in many sectors -- necessarily we believe for our long-term growth -- but didn't generate the revenues to offset the increased expenses. We believe little has changed fundamentally -- Expedia remains the largest and most profitable online travel agent in the world, and while 2006 is going to be a challenging year, we don't think long-term shareholder value and returns are in question.''

"Needless to say, we are disappointed with our financial performance this quarter, and we are focused on tactical actions -- including a shift of our marketing approach -- to drive improvement in our results for the balance of the year," says Khosrowshahi. "At the same time, we continue to make real strides in our integration, data warehouse and technology platform efforts, which we anticipate will yield the bulk of their benefit in 2007 and 2008."

Diller spun off Expedia from his



Internet conglomerate last year, arguing that the travel business clouded the picture for investors of IAC. Diller, who is also the CEO of IAC, realized a combined $464 million last year from exercising options in both companies, according to Dow Jones Newswires.

Wall Street is pessimistic about Expedia and other online travel agencies, arguing that increased competition among themselves and from suppliers such as hotel chains is eating away profits.