Expedia Comments on Revenues in Europe

| About: Expedia, Inc. (EXPE)
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On Expedia's (NASDAQ:EXPE) Fiscal 2Q conference call,executives discuss the revenue growth and market spending in Europe:

Dara Khosrowshahi - President, CEO

Our European operations continue to execute and grow profitably and we are very pleased with the development of ECT which had a second $250 million plus gross bookings quarter at near breakeven and in our Asia Pacific operations with eLong closing its first profitable quarter...

Mike Adler-CFO

While we don't provide quarterly expectations, we do want to remind investors that Q3 will not benefit from the Easter revenue which hit Q2 this year and that lighter gross bookings in Q2, due to reduced Expedia.com marketing and the World Cup are likely to reduce revenue in Q3. We also plan to increase our marketing spend in Europe and elsewhere for Q3, for which much of the revenue payoff will likely fall in Q4...

Imran Khan - JP Morgan

... if I look at the customer base in the corporate travel and the revenue base, what percentage is coming from international versus U.S.?

Dara Khosrowshahi

... the international side of the business is performing very well. It is less than 50% of our gross bookings, but tends to have a higher percentage of revenue as a percentage of gross bookings. The international business and the domestic business at this point are slightly profitable or close to breakeven and we think Germany is obviously a big, attractive market. We've had some success there with Expedia.com and Hotels.com. Although it's certainly not an easy market to get into, but we think it's a very important market to have a presence in and we're committed to investing in that market.

Paul Keung - CIBC World Markets

Good morning. You mentioned earlier in the call that you are shifting some marketing spend from the second or third quarter in Europe. I guess in spite of today's news, as things in Europe start to slow a bit, do you still have the ability to slow that marketing spend in Europe, or have you committed a lot of money already?

Dara Khosrowshahi

Paul, we're pretty careful about our marketing spend and in Europe, we have a very, very disciplined team there. A fair amount of the marketing spend is online partner-type marketing spend, which is variable in nature. So to the extent that we spend it and the returns are not there, we can act very, very quickly and I'd say that's the majority of the day-to-day spend that we spend in Europe.

We do have some offline spend, TV spend, radio spend, and outdoor spend in various points of sales in Europe. So far -- again, taking the travel disturbances of last night --so far, we've been pleased with the results, but that doesn't speak to how the results are going to be going forward.

So while we're being careful not to commit huge loads of marketing spend, but obviously if there's some kind of a disruption, we may suffer one way or the other. Right now, it's too soon to tell and we'll have more obviously as the weeks and the months go on. But we're pretty confident in our overall approach there...

Paul Keung - CIBC World Markets

... Priceline reported earlier this week, I think you can see they've continued to put some good numbers in that second, third tier non-air market, and doing it essentially with partners. When I look at your European operations from your content, it is probably one area you are relatively underinvested in. Do you have any plans to address this hole in your distribution of content today?

Dara Khosrowshahi

I think the way that we're approaching those markets is with Hotels.com first. So our having multiple brands in Europe is a real advantage for us. So Expedia tends to be a brand that is more associated with major airline/airlift so to speak and going into primary and secondary markets. But we can kind of get to those secondary and tertiary markets very quickly with Hotels.com, we're more focused on those markets I'd say now, than we have been in the past. I think you'll see increasing focus on those markets going forward with Hotels.com.

We then come in with Expedia sometimes to the extent that we can get airlift, and Expedia is also working pretty well in gaining airlift to second tier carriers in Europe as well. So we'll come in with Hotels and we'll follow-up with Expedia and we'll make the adequate investments there.

Aaron Kessler - Piper Jaffray

... the international growth, it did slow and I think partly because of the reduced marketing, but also it looks like it's slower than the competitors.

One of them said they benefited from the World Cup. I want to see why you didn't benefit. Maybe it was the airlines bookings that were reduced.

Dara Khosrowshahi

Sure. As far as the international markets in Europe in particular, we were affected by World Cup. As to the specific effect, part of it depends on, I'd say the concentration in various marketplaces that we have versus one of our competitors.

So, for example, in the German marketplaces, Germans weren't traveling a whole lot with World Cup, but bookings going into Germany and certainly hotel bookings going into Germany benefited. It's hard to tell because different competitor have different mixes and that certainly affected the growth rates.

Also, if you take a look at the dollar growth, we're obviously growing off of a much larger base and would say that probably in Europe if you compare us for example, to Priceline, we have a much larger air segment in our business and the air segment in our business is not growing nearly as quickly as the hotel segment, so there's an additional kind of mix issue there.

Aaron Kessler - Piper Jaffray

The increase in the raw margins, was that due to the change in the mix from airlines to hotels as well?

Dara Khosrowshahi

That was largely responsible for it. That's exactly right.

Heath Terry - Credit Suisse

Great, thank you. When you look at your international revenue growth that you saw this quarter, is there a way that you can give us an idea of whether there was any significant change in the breakdown? What percentage of that originated or was purchased in the U.S. versus Europe to help give us an idea of the impact of World Cup?

Dara Khosrowshahi

When we give you international revenue, that's revenue that's originating from Europe.

Mike Adler

Point of sale.

Dara Khosrowshahi

Yes. So it's based on the point of sale. It's not based on what we call point of supply. So it would be affected by the World Cup. It is very, very difficult to truly identify the World Cup event, but we would guess that it's under $20 million in gross bookings.

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