Expedia Plummets 25 Percent on Huge Earnings Miss

Joe Goldman |

Expedia, an online travel agency, reported a huge drop in second quarter earnings on Thursday, blaming inflated expenses, heightened competition, and weakness from its Hotwire car-rental site for the big earnings miss.

Expedia (EXPE)  reported net income of $71.50 million, or $0.64 per share, versus the $105.24 million, or $0.89 per share, from the same period a year ago. Revenue for the quarter was $1.21 billion, as compared to $1.04 billion from the previous year. Analysts were expecting a profit of $0.79 per share on revenues of $1.26 billion.

Although revenue healthily expanded for the quarter, an enormous spike in expenses offset this growth. Sales and marketing expenses rose 33 percent from a year earlier, including a $128 million increase in direct costs. Meanwhile, technology and content costs increased 21 percent and indirect costs increased by $17 million.

“We expected the second quarter would be a tough one with a number of factors stacked up against us, and it was,” admitted CEO Dara Khrosrowshahi in the conference call’s opening statement.

Khrosrowshahi also cited Hotwire as an area of weakness. “The challenges of Hotwire we called out last quarter were particularly acute in Q2. In fact, Hotwire’s performance in the quarter was worse than we expected.” Khrosrowshahi also pointed his finger at a tough competitive environment from companies like Priceline (PCLN) , although brutal competition is nothing new for the online booking industry.

The good news for Expedia is that revenue increased 16 percent year-over-year, room night bookings increased 19 percent, and international bookings gained 24 percent from the year prior. However, the company can no longer rely on sales growth to get back on strong footing, but rather needs to control expenses and boost margins.

Shares plunged during the trading session on Friday, selling off 25.3 percent to $48.50. Shares are down 21 percent year-to-date.

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Companies

Symbol Name Price Change % Volume
EXPE Expedia Inc. 123.55 -0.22 -0.18 1,753,338
PCLN The Priceline Group Inc. 1,527.04 22.22 1.48 389,907
ACSYF Accsys Technologies Plc 1.00 0.00 0.00 0

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