Expedia Inc.

founded: 1996

Contact Information:

headquarters: 13810 se eastgate way, suite 400
bellevue, wa 98005 phone: (425)564-7200 fax: (425)564-7240 url: http://www.expedia.com

OVERVIEW

In the highly competitive travel industry, Expedia operates as a leading provider of branded online travel services for both leisure and small business customers. Through its Web site, the company offers travel and reservation services; real-time access to schedules; and pricing and availability information for over 450 airlines, 65,000 lodging properties, and for all of the major car rental firms.

By 1999, over 1.2 million customers had utilized Expedia's services and had booked nearly $1 billion in airline tickets, and hotel and car reservations. The company also was the most visited travel site according to Jupiter Media Metrix, securing 3.3 million unique visitors each month. In 2001, the company reported gross bookings of $2.9 billion.

Expedia acts as both an agent and a merchant. As an agent, the company forwards the customers' reservations to the travel supplier, who then pays a commission to Expedia. The supplier determines the retail price that is paid by the consumer. As a merchant, Expedia purchases inventories of hotel rooms, airline seats, car rentals, and destination services from suppliers at negotiated rates. The company then sells this inventory to its customers at its own price.

COMPANY FINANCES

Expedia's revenue from agency operations was $24.7 million in 1999, $59.5 million in 2000, and $123 million in 2001. Its merchant business secured $10.9 million in 2000 and $64.5 million in 2001. Overall sales for 2001 reached $222 million, an increase of 64.7 percent over the previous year.

By 2001, the company had yet to post a positive net income, with losses ranging from $19.6 million in 1999, to $118.3 million in 2000, and $78.1 million in 2001. The company did report its first net profit of $5.2 million for the quarter ending in December 2001. During 2001, Expedia's stock price ranged from a low of $7.75 per share to a high of $47.70 per share. As part of its financial strategy, Expedia is increasing its merchant business, which produce larger gross profits per transaction than agency operations.

ANALYSTS' OPINIONS

The online travel industry recovered quickly from both the economic slowdown that began in 2000, as well as the events of September 11, 2001. A money manager at Baron Capital claimed in an April 2002 Business Week article that "the speed with which those businesses bounced back surprised even the people most bullish about the sector." Expedia not only successfully weathered the downturn; it was actually able to increase its market share and become the leading online travel company based on customers, revenues, and market capitalization.

The travel industry remained highly competitive during 2002, and large online travel firms including Expedia and competitor Travelocity fared well despite price wars. In fact, according to Web measurement firm, Score Networks Inc., many U.S. online travel sites recorded their highest monthly sales and site traffic in January 2002. Jupiter Media Metrix predicted that the online travel industry would grow to $50 billion by 2005, up from $31 billion projected in 2002. Despite the positive industry outlook and Expedia's market leadership, Expedia's stock, considered Internet-related, was deemed high risk by Standard & Poor's (S&P) In fact, S&P listed the stock as a hold and predicted that it would not see significant growth during 2002.

HISTORY

In October of 1996, Microsoft Corp. launched an online travel service. Revenues from this operation reached $2.7 million in 1997 and grew to $13.8 million in 1998. The company was incorporated as Expedia Inc. in August 1999. Three months later, Microsoft sold 18 percent of the company through an initial public offering.

Expedia grew in popularity and evolved quickly into a premier online travel site. During 2000, the company expanded with the purchases of Travelscape.com Inc. and VacationSpot.com Inc. The acquisitions gave the firm an edge in both travel planning services and lodging selection. That year, revenues climbed to $134.9 million.

By 2001, the firm was operating travel Web sites for consumers in Canada, Germany, and the United Kingdom. It also began operating a private label travel Web site under the Worldwide Technology Enterprises (WWTE) name. In a partnership with SNCF, a state-owned railways group in France, Expedia began providing travel planning services on the Voyages-scnf.com Web site.

Expedia continued growing in 2002 with the purchase of Classic Custom Vacations Inc., a luxury vacation packages provider. In February of that year, USA Networks purchased a controlling interest in Expedia from Microsoft. While competition in the online travel industry remained intense, Expedia's management felt the company was well positioned for future success.

STRATEGY

Expedia's early strategy included developing new technology that would allow online travel shoppers to access information quickly and with ease. As part of this strategy, the company launched the Expert Searching and Pricing (ESP) platform in January 2001. This technology granted Expedia customers a range of travel options, including enhanced flight search options and build-your-own vacation package capabilities.

Developing new technology continues to be at the forefront of the company's strategy, along with increasing brand awareness, converting shoppers to buyers, expanding product offerings in order to cross sell, and expanding globally. Driving these initiatives is the company's long-term goal to be the largest and most profitable provider of travel planning services in the world.

The company has formed strategic partnerships with the likes of MSN, Excite, and Amazon.com in an effort to build brand recognition. To entice shoppers, Expedia negotiates with suppliers to obtain competitive pricing and attractive travel options. To build its product offerings, the company has increased its destination offerings and add-on travel items to include in-destination tours, event and theme park tickets, ground transportation options, and parking and travel insurance. The firm's global strategy includes utilizing its technology platform to emerge in large, international markets.

FAST FACTS: About Expedia Inc.

Ownership: Expedia is a public company traded on the NASDAQ Stock Exchange. USA Networks Inc. owns approximately 65 percent of the company's outstanding shares.

Ticker Symbol: EXPE

Officers: Richard N. Barton, Dir., Pres., and CEO; Gregory S. Stanger, SVP, CFO, and Dir.; Byron D. Bishop, SVP Transportation and Core Technologies; Erik C. Balchford, SVP Marketing and Programming; Kathleen K. Dellpain, SVP Human Resources

Employees: 896

Principal Subsidiary Companies: Expedia and its subsidiaries operate travel Web sites in the United States, Canada, Germany, and the United Kingdom. Two of the company's subsidiaries, Travelscape.com Inc. and VacationSpot.com Inc., offer travel planning services in the aforementioned countries and in France, Italy, and the Netherlands.

Chief Competitors: As the leading online travel service provider, Expedia competes with both online and traditional travel agencies and travel consortiums including Orbitz and Hotwire. Its primary competitors are Travelocity, Lowestfare.com, and American Express.

CHRONOLOGY: Key Dates for Expedia Inc.

1996:

Microsoft creates an online travel service

1998:

Early revenue grows to $13.8 million

1999:

The company incorporates as Expedia Inc. and goes public

2000:

Travelscape.com Inc. and VacationSpot.com Inc. are acquired

2002:

USA Networks purchases a controlling interest in Expedia

CURRENT TRENDS

One trend directly affecting Expedia is the expanding consumer interest in online travel planning. The industry is expected to continue growing, and Expedia plans to fully exploit its leadership position by focusing on its merchant business operations. By acting as a merchant—rather than an agent—Expedia can offer its customers lower pricing. The company hopes these lower prices will entice the increasing number of Internet travel shoppers to use the Expedia Web site.

PRODUCTS

The Expedia Web site offers a host of travel services including airfare, hotel, rental car, vacation packages, cruise packages, and theme park tickets. In 2001, using its ESP platform, the company launched Expedia Vacations, a service that enables a customer to combine air and hotel bookings to create their own custom travel packages. The firm also began offering Expedia Bargain Fares (EBFs). These fares, negotiated rates with nearly 20 different airlines, are 10 to 60 percent below published rates. The EBF program allows consumers to see the price and date, but airlines and flight times are not disclosed until after the customer makes the purchase.

GLOBAL PRESENCE

Expedia's international operations accounted for $9.8 million in revenues during 2001. The company offers direct-to-consumer travel planning services to its international customers through its Web sites and telephone call centers. The company's global strategy is to increase the popularity of online travel planning in foreign countries and to build the Expedia brand name internationally by entering new markets. By 2002, the company had operations in the United Kingdom, Germany, Canada, France, the Netherlands, and Italy.

WORK HARD. PLAY HARD.

Expedia describes its work environment as vibrant, energetic, and dynamic, and prides itself on its friendly and down-to-earth management staff. As a survivor of the dot-com fallout, Expedia works hard at fostering a team spirit throughout all facets of company operations, whether it be its cutting edge technology development department or its employee soccer team.

EMPLOYMENT

In 2002, the company employed nearly 900 workers. Expedia believes that its ability to attract and retain qualified and friendly employees is critical to its future success. The firm utilizes equity-based compensation programs to reward and motivate its employees.

SOURCES OF INFORMATION

Bibliography

expedia home page, 2002. available at http://www.expedia.com

"expedia's magic act." travel weekly, 18 march 2002.

michels, jennifer. "expedia's future." travel agent, 4 march 2002.

oser, kris. "survivor tale." direct, 1 november 2001.

zellner, wendy. "online travel takes wing." business week, 1 april 2002.

For an annual report

write: expedia inc., 13810 se eastgate way, suite 400, belle-vue, wa 98005

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. expedia inc.'s primary sics are:

4724 travel agencies

4729 arrangement of passenger transport, nec

also investigate companies by their north american industry classification system codes, also known as naics codes. expedia inc.'s primary naics codes are:

561510 travel agencies

561599 all other travel arrangement and reservation services