10-QPeriod: Q2 FY2006

Expedia Group, Inc. Quarterly Report for Q2 Ended Jun 30, 2006

Filed August 11, 2006For Securities:EXPE

Summary

Expedia Group, Inc. (EXPE) reported its financial results for the three and six months ending June 30, 2006. Revenue showed modest growth, up 8% and 5% year-over-year for the respective periods, reaching $598.5 million and $1.09 billion. While the company experienced a decline in air revenue, this was offset by growth in its merchant hotel business and advertising revenue. Operating income for the three-month period saw a significant increase of 41% to $136.3 million, though for the six-month period, it remained flat at $162.5 million due to increased operating expenses. The company's balance sheet reflects a strong increase in cash and cash equivalents, more than doubling from $297.4 million at the end of 2005 to $643.3 million by June 30, 2006. This improvement in liquidity was supported by robust operating cash flows and a significant reduction in short-term borrowings. Expedia also continued its share repurchase program, reflecting confidence in its financial position and commitment to returning value to shareholders.

Key Highlights

  • 1Revenue increased by 8% to $598.5 million for the three months ended June 30, 2006, and by 5% to $1.09 billion for the six months ended June 30, 2006.
  • 2Operating income for the three-month period surged by 41% to $136.3 million, while for the six-month period it remained relatively flat at $162.5 million.
  • 3Cash and cash equivalents significantly increased to $643.3 million as of June 30, 2006, from $297.4 million at the end of 2005.
  • 4The company actively repurchased shares, spending $153.8 million on 10.5 million shares in the second quarter of 2006, and completed a 20 million share repurchase program in July 2006.
  • 5Merchant hotel revenue showed strong growth, increasing by 17% and 11% for the three and six-month periods, respectively, driven by increased room nights stayed.
  • 6Air revenue experienced a decline of 13% and 10% for the three and six-month periods, respectively, due to challenges in obtaining air inventory and reduced airline compensation.
  • 7The company adopted SFAS 123(R) for stock-based compensation, which did not materially impact its financial position, though it did lead to reclassification of tax benefits in the cash flow statement.
  • 8Several new legal proceedings were filed concerning alleged failure to pay hotel occupancy taxes in various cities, which the company is defending.

Frequently Asked Questions

For the three months ended June 30, 2006, Expedia reported revenue of $598.5 million, an increase of 8% compared to $555.0 million in the same period of 2005. For the six months ended June 30, 2006, revenue was $1.09 billion, up 5% from $1.04 billion in the prior year.

Expedia's liquidity has significantly improved. Cash and cash equivalents more than doubled to $643.3 million as of June 30, 2006, compared to $297.4 million at December 31, 2005. This was supported by strong operating cash flows and a substantial reduction in short-term borrowings.

Expedia adopted SFAS 123(R) on January 1, 2006. While this requires fair value measurement and amortization of stock-based awards, the company states that the adoption did not materially impact its financial position. Stock-based compensation expense did decrease year-over-year for both the three-month and six-month periods ended June 30, 2006, contributing to improved gross profit.

Key challenges include declining air revenue due to difficulties in securing inventory and reduced airline compensation. The company is also facing increased competition and pressure on margins in the hotel sector. Furthermore, Expedia is defending against numerous lawsuits filed by various municipalities alleging failure to pay hotel occupancy taxes.