Online travel agency Expedia said it will report its first operating profit in the third quarter, though losses including charges will be steep. The company's outlook was accompanied by some bullish reports on the online travel sector.
Shares of Expedia (Nasdaq: EXPE), which offers travel-planning tools to book airline tickets, make hotel reservations and secure car rentals online, were up $1.22, or about 7 percent, to $18.89 in early trading. Microsoft (Nasdaq: MSFT), which started the company in 1994, still owns about 70 percent of it.
The Bellevue, Wash.-based company said Monday that earnings before noncash items are expected to be about $4 million, or 9 cents per basic share. First Call was expecting a loss of 13 cents a share.
For the first time, then, the company will report positive net income before noncash items. After noncash items, including amortization of goodwill and intangibles from acquisitions and amortization of stock-based compensation, Expedia will report a net loss of about $18 million, or 37 cents a share.
The company said it plans to report revenue of about $110.6 million, well above First Call's consensus of $90.3 million. Expedia said revenue growth in the quarter was strong across both its merchant and agency businesses. Merchant revenue--derived from partners--rose to $67 million, nearly doubling year over year and up about 42 percent over the second quarter.
Agency revenue rose to $34 million, growing about 88 percent year over year and 39 percent sequentially. Advertising and other revenue rose about 35 percent year over year and 15 percent sequentially to $9.6 million.
The company said its decision in early 2000 to invest in building its merchant business and selling its merchant inventory has paid off more quickly than had been anticipated. Strong seasonal travel-buying and rapid adoption of the Internet for booking travel also helped drive gross bookings to $674 million for the quarter, up 68 percent from the year ago.
Strong sales in the month of March in particular boosted the quarterly results, Expedia added.
Analysts saw a similar trend for other online travel companies.
"We anticipate solid earnings performances by our universe of covered travel service companies led by continued strength in leisure bookings and the underlying channel shift to the Internet," CIBC World Markets analyst Paul Keung said in a research note Monday. The analyst rates Expedia, along with Cheap Tickets (Nasdaq: CTIX), Sabre (NYSE: TSG) and Travelocity (Nasdaq: TVLY), a "buy."
The industry was off to a strong start in the first quarter with its bookings, but then got derailed when Northwest Airlines and KLM eliminated Internet commissions. But other major airlines failed to follow suit, and Travelocity and Expedia have both recovered their earlier gains, Keung noted. The analyst also said that the impact of economic weakness has been isolated to business travel.
Expedia recently worked out a deal with Northwest-KLM by which it could sell tickets without a surcharge.
In a survey of March e-commerce visitor metrics, Goldman Sachs noted that traffic to travel sites rose 5 percent sequentially in March. Travelocity was up 2 percent sequentially but down 2 percent year over year to 7.1 million unique visitors, while Expedia was up 7 percent sequentially and 35 percent year over year to 7.3 million unique visitors.
Travelocity and Sabre will be first to report their official results, on Thursday, April 19. Expedia will release its third-quarter results Monday, April 30.