Benchmark Report on Expedia

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July 29, 2011

Expedia, Inc. (EXPE)
37% International Bookings Growth Drives 2Q EPS of $0.55
Expedia (EXPE-Hold, PT from $34 to $36) reported better than expected revenue of $1 billion, up 23% y/y, on 19% bookings growth and ahead of consensus at $962 million. Rising costs, including a 300bp y/y increase in Selling & Marketing as a percentage of revenue, limited OIBA growth to 11%. A lower tax rate of 28% helped adjusted EPS reach $0.55, $0.06 above consensus. Total gross bookings of $8 billion, up 19% y/y, was above our estimate of $7.7 billion. International bookings growth accelerated, up 37% y/y, benefiting from positive foreign currency translation and an easy comparison with the volcanic eruption in 2Q10. Domestic bookings growth also accelerated, up 10% y/y. Total bookings growth was fueled by worldwide hotel room night growth of 21%, partially offset by a 3% y/y decline in air tickets sold. Total transactions grew by 15% y/y, accelerating from the 8% growth witnessed in 1Q11. Net revenue improved 23% y/y, with ADR gains of 6% y/y compared with 3% growth in 4Q10, while revenue per available room (RevPAR) was up 5% y/y. Worldwide hotel revenue growth of 27% y/y was primarily driven by steady sequential room-night growth, primarily reflecting over 50% bookings growth at Hotels.com and Venere.com. Worldwide air revenue fell 1% y/y, with a 3% decline in tickets sold partially offset by an 11% increase in ticket prices and 1% growth in revenue per ticket. Revenue margin improved by 40bps y/y in the quarter, primarily reflecting stronger ADRs. Advertising and Media revenue grew by 27% y/y, including 34% y/y growth in thirdparty revenue at TripAdvisor. Expedia filed a form S-4 on Wednesday confirming that the spin-off of TripAdvisor would occur this year. We estimate that most of the valuation multiple benefit may already be reflected in the current stock price. OIBA grew 11% y/y as margins compressed by 230bps y/y. Management reiterated that 2011 OIBA should be up in the mid-high single digit range despite the upside in the quarter, reflecting ongoing investment spending. We raise our 2011 gross bookings estimate from 15% to 16% y/y, reflecting stronger growth in international bookings. Our FY11 revenue estimate comes up from $3.9 billion to $4 billion on higher revenue margins. Our OIBA estimate is $899 million, up 9% y/y. Our EPS estimate comes up $0.10 to $1.90. Free cash flow could be $1.98 per share. Our 2012E EPS also rises by $0.10 to $2.10. Expedia trades at 14x our 2012E EPS of $2.20 compared with our etravel group at 21x. Expedia stands well-positioned to capitalize on the global recovery in travel, but may be challenged to show meaningful growth during its investment phase. Using a PEG of 1.4, or 17x 2011E EPS of $2.10, our price target is $36 per share. FY Dec

Raising Target Price
Rating:
Current Price Price Target 52-Wk Range Shares Outstanding (mm) Market Cap (mm) Enterprise Value (mm) Average Volume (000s) Net Debt Float (mm) Sector Weight

Hold
$28.99 $36.00 $19.61 - $31.01 281 $8,140 $9,829 4795 $56 175 Overweight

Frederick W. Moran
561-961-5111 fmoran@benchmarkcap.com

Clayton F. Moran
Q1 2010A 2011E 2012E 2010A 2011E 2012E $0.26A $0.25A $0.36E $166A $167A $212E Q2 $0.44A $0.55A $0.56E $248A $282A $302E Q3 $0.68A $0.71E $0.73E $320A $361E $376E Q4 $0.32A $0.39E $0.45E $207A $227E $255E Total $1.70A $1.90E $2.10E $941A $1,036E $1,145E P/E EV/EBITDA 15x 14x 9x 9x EPS

561-961-5110 cmoran@benchmarkcap.com

Daniel L. Kurnos, CFA
561-961-5113 dkurnos@benchmarkcap.com

EBITDA

For important disclosures, see Page 17

Expedia, Inc. (EXPE)
July 29, 2011

Investment Thesis
Based on gross bookings, Expedia, Inc. is the world’s largest online travel agent (OTA), operating a portfolio of websites. The Expedia brand is one of the most well-known and valuable brands in the travel industry. Expedia will likely continue to expand internationally, mainly in the hotel bookings...
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