Friday, May 12, 2006

Expedia: How Low Will She Go?

What goes down the fastest?

A) Expedia after an earnings report.
B) A $10 hooker on a $50 tip.
C) Bush's approval rating.

Shares of Expedia are getting hammered today after the travel services behemoth missed earnings by a mile. The company's margins compressed after it had to boost SG&A. Expedia (EXPE), which negotiates room discounts from hotels and then sells them at a markup to consumers, also noted that the competitive landscape was worsening.

Not all is lost, we think.

Deferred bookings were almost double those posted 1Q05 ($850M). That could imply future quarters will be much better than this abysmal one. Also, revenue was off, but only by 10%. We believe that 6 months out, Expedia could be a decent story. As always, there are risks, some of which we laid out in our Expedia report 2 days ago (see below). We'd like to add one more: Legg Mason's (LM) Bill Miller still owns a chunk of Expedia's shares for one of his funds -- if Miller decides to pull the sell trigger, Expedia will surely catch another black eye.

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