Expedia Hotel Growth Keeps Profit Slide Modest; Shares Jump
07/26/2012| 08:16pm US/Eastern
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--Hotel revenue climbs 16%, driving better-than-expected top line
--Profit slips on continued tech expenses but still beats consensus view
--Company raises earnings view for the year
--Shares surge 14% after hours
(Adds executive comments, more details and context throughout)
By Joan E. Solsman and Kristin Jones
Expedia Inc.'s (>> Expedia, Inc.) robust hotel revenue growth offset pressure from continued heavy technology spending, keeping the second quarter's profit decline unexpectedly shallow.
The report relieved market worries about online travel demand. Shares in the online travel agent--which operates its namesake brand, as well as Hotels.com and Hotwire--jumped 14% to $52.20 in after-hours trading. Through the close, the stock has risen 57% so far this year.
Wall Street had anticipated a much starker slide in adjusted earnings per share, as well as weaker revenue. The company also increased its outlook for the year, predicting full-year adjusted earnings growth in a high single-digit percentage with the possibility of low double-digit growth. It had predicted mid-single-digit percentage growth in April.
Expedia's results followed other mixed reports for online travel. Google Inc (>> Google Inc) had touted global travel strength in its report, but TripAdvisor Inc. (>> Tripadvisor Inc)--a former unit of Expedia--spoke of relatively weak conversion rates for its booking partners. TripAdvisor shares have lost 22% of their value this week after it reported a weak top line.
Expedia's gross bookings increased 13%, while the number of transactions rose 20%. World-wide hotel revenue, the biggest contributor to the top line, improved 16% on a 22% rise in room nights stayed. Average daily room rates declined 1%, as foreign-exchange and rapid growth in its Asia Pacific hotel business--where revenue per room night is lower--hurt the rate.
Chief Executive Dara Khosrowshahi said the company saw weakness in southern European travel compared to the first quarter. "Broadly we see Europeans traveling to the U.S. less and European destinations more," he said, adding that the travelers seemed to be shortening the length of stay and some markets shortening the booking window. Yet, he said, the growth rate in Europe was still healthy, and Expedia believes it can continue to grow there despite the region's economic uncertainty.
Chief Financial Officer Mark Okerstrom said travel demand overall was solid. "Across the board, we're feeling pretty good about what we're seeing globally," he said.
As the company shifts its technology platform, however, spending has eaten into the bottom line. In the latest quarter, technology and content spending jumped 24% as the company added staff to support its technology projects.
Expedia boosted its quarterly dividend by 44%, to 13 cents. The company expects to pay around $18 million for the total quarterly dividend.
Expedia reported a profit of $105.2 million, or 76 cents a share, down from $140.4 million, or $1.01 a share, a year earlier. Excluding special items, earnings from continuing operations rose to 89 cents from 72 cents.
Revenue grew 14% to $1.04 billion.
Analysts polled by Thomson Reuters expected a per-share profit of 71 cents, with revenue of $990 million.
Operating margin narrowed to 14.9% from 15.7%.
The smaller air-travel business saw revenue fall 8% as revenue per ticket decreased 11%. Average plane-ticket prices were 3% higher.
Write to Joan E. Solsman at joan.solsman@dowjones.com and Kristin Jones at kristin.jones@dowjones.com
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