Expedia credits ad business for revenue boost

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Expedia's advertising and media business now accounts for nearly one-tenth of its overall revenue, and in the just-completed third quarter it was the prime factor responsible for increasing the company's revenue margin, officials said.

"We see nice opportunity for advertising going into the next year, and the sort of advertising on our transactional sites is going to be a pretty significant growth driver ... at least based on the trends that we're seeing now," Expedia Inc. CEO Dara Khosrowshahi told analysts Oct. 30.

In the nine months ended Sept. 30, Expedia's media and advertising revenue increased 64.4% over the 2007 period to $217 million, accounting for 9.4% of Expedia's total revenue for the year to date. That's up from a 6.6% share a year ago.

Even though the growth of advertising and media revenue slipped to 6.8% in Q3, officials said the high-margin nature of the advertising and media business, despite being less than one-tenth of Expedia's revenue, helped expand the revenue margin (revenue as a percent of gross bookings) for the entire company. Expedia's revenue margin increased 38 basis points, to 15.4%.

In reporting Expedia's Q3 results, Khosrowshahi also said the company would adjust its investments and spending "because the economic turmoil caused a broad pullback in travel spend in September and October."

Among the areas slated for possible trims are call centers, fulfillment expenses and credit-card processing fees, he said.

Among the hits the company took in the third quarter, Expedia's vacation packages revenue decreased 5% because of weakness in key markets in North America, including Las Vegas and Hawaii, the company stated.

For the quarter ending Sept. 30, Expedia Inc.'s net income declined 5%, to nearly $95 million, as revenue rose 10%, to $833.3 million.

The company attributed its profit decline to a $21 million foreign exchange loss, hedging the price of an acquisition and higher interest expense from its June issuance of $400 million in new notes. 

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