EXPE_Initiation 1-19-2011 FINAL

8/7/2019 EXPE_Initiation 1-19-2011 FINAL

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PLEASE SEE PAGES 15-19FOR IMPORTANT DISCLOSURES, REG AC ANALYST CERTIFICATION AND DISCLAIMERS

Analyst: Brian Bolan 773-413-0285 [email protected] January 19, 2011

WILLIAMS CAPITAL RESEARCHEquity Research Expedia, Inc. (EXPE)Company Update Current Rating: Market PerformJanuary 19, 2011 Initiating Coverage on Expedia with a

Market Perform ratingInternet Analyst: Brian Bolan 773-413-0285; [email protected]

EXPE PERFORM Curr. Q. 1 yr ago Q

Price $26.69

Price Target $26 (revs in bill)

52 Week High $27.51 Rev prev.52 Week Low $18.30 Rev new 2.96 3.35 3.69 0.813 0.698 0.826 0.861 1.022 0

NTM P/E 13.46 EPS prev.

Market Cap $7.38B EPS new $1.38 $1.83 $2.13 0.4 0.3 0.49 0.48 0.64Ent Value $7.16B P/E 19.2x 14.58x 12.5x

Shares Outstanding 277.06M

Avg Daily Volume 4.71M

FY09 FY10E FY11E 12/31/2010 12/31/2009 3/31/2011 6/30/2011 9/30/2011 12/31

Key Data

Fiscal Year Next 4 Quarters

Expedia Investment Thesis Summary

Expedia has the broadest and deepest product offering for consumer and suppliers alike, but this has not been

helpful when building a brand. The company has the most visits and a better reach than its competitors yet it

trades at a discount to them because of its sizeable debt load and ownership concentration. A conservative

multiple of 13x our 2011 pro forma earnings estimate gives us a price target of $26 per share. Multiple expansion

is a possibility if debt is reduced significantly and if Barry Dillers 60% holding is diluted.

Recent turmoil in the industry caused by Airlines that are looking to squeeze the OTAs is likely to continue to

occur. We believe that the moves made by American Airlines (AMR, $8.29 Not rated) and Delta (DAL, $11.70

Not rated) to decrease the influence the online travel agencies have on travelers will be adopted by other

carriers. Southwest (LUV, $13.08 Not rated) has maintained this model and has been able to defend its low

cost provider title as consumers were not able to easily price competing fares. Carriers will point to consumers

to services like Kayak.com and other models that do not cost as much.

The near term worry of more airlines following suit does give us pause to increase air gross revenues in future

quarters, but we believe that consumers will continue to use OTAs and expect increased penetration in the hotel

and rental car segments to make up for any revenue decreases from airlines.

Portfolio of Brands

Expedia provides a wide selection of travel products and services, from simple, discounted travel to more

complex, luxury travel. Offerings primarily consist of airline flights, hotel stays, car rentals, destination services,
mailto:[email protected]:[email protected]


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WILLIAMS CAPITAL RESEARCH PAGE 2 January 19, 2011

B r i a n B o l a n B o l a n @ w i l l c a p . c o m T r a d i n g N Y 8 0 0 - 9 2 4 - 1 5 1 1 , C T 8 0 0 - 6 8 8 - 6 3 4 9

cruises and package travel. The company also offers travel and non-travel advertisers access to a potential source

of traffic and transactions through its various media and advertising offerings on both the TripAdvisor Media

Network and other transaction-based websites.

Expedia.com. The Expedia-branded websites make a large variety of travel products and services

available directly to travelers through, www.expedia.com, as well as through localized versions of the

Expedia website in several countries. Expedia-branded websites offer a consumer content on travel and

the capability to book travel products and services on the site, including airline tickets, lodging, car

rentals, and cruises from a large number of suppliers, on both a stand-alone and package basis.

Hotels.com. The hotels.com website provides a broad selection of hotel properties to travelers, who can

plan, shop for and book lodging accommodations, from traditional hotels to vacation rentals. Hotels.com

provides travelers with premium content.

Hotwire.com The discount travel website, hotwire.com, makes available airline tickets, hotel rooms,

rental cars, cruises and vacation packages. Hotwire.coms approach matches flexible, price-sensitivetravelers with suppliers who have excess seats, rooms and cars they wish to fill without affecting the

publics perception of their brands. Hotwire.com travelers may enjoy significant discounts by electing to

book travel services opaquely, without knowing certain itinerary details such as brand, time of

departure and exact hotel location, while suppliers create value from excess availability without diluting

their core brand-loyal traveler base.

Venere.com The Venere-branded websites make approximately 30,000 hotel properties available to

European consumers, through the website venere.com, and provide hoteliers with geographically diverse

sources of demand.

The TripAdvisor Media Network. TripAdvisor, a comprehensive online travel search engine anddirectory, aggregates traveler opinions and unbiased articles about cities, hotels, restaurants and activities

in a variety of destinations. TripAdvisor also operates in China under the brand daodao.com. In addition

to travel-related information, TripAdvisors destination-specific search results provide links to the

websites of TripAdvisors travel partners (travel providers and marketers) through which travelers can

make related travel arrangements. TripAdvisor has also acquired and now operates a number of travel

media content properties within the TripAdvisor Media Network.

Expedia Affiliate Network. A private label and co-brand program makes travel products and services

available to travelers through third-party company-branded websites.

Classic Vacations. Classic Vacations offers individually-tailored vacations, primarily through anational network of third-party retail travel agents.

Expedia CruiseShipCenters. Majority-owned by Expedia, CruiseShipCenters is one of North

Americas leading sellers of cruise vacations. CruiseShipCenters has over 107 retail locations, a team of

2,000 professionally-trained cruise consultants, and a searchable online database of more than 10,000

cruise vacations.


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Egencia. Egencia is a full-service travel management company offers travel products and services to

corporations and corporate travelers through points of sale in 15 countries across North America, Europe

and Asia Pacific. Egencia charges its corporate clients account management fees, as well as transactional

fees for making or changing bookings. In addition, Egencia provides on-site agents to some corporateclients to more fully support the account. Egencia has also begun offering consulting and meeting

management services.

eLong. Majority-owned by Expedia, eLong is an online hotel and air travel service company, based in

Beijing specializing in travel products and services in China. eLong provides consumers with the ability

to make hotel reservations at more than 10,000 hotels in over 450 cities across China and more than 100

countries worldwide

Traffic to Expedia

As previously noted, Alexa.coms statistics state that Expedia has a reach of around 30% of all internet users,while Orbitz has 12% and Priceline 15%.

The clickstream for Expedia is provided below.

Exhibit 1 Upstream Sites

Which sites did users visit immediately preceding expedia.com?

% of Unique Visits Upstream Site

17.62% google.com

7.18% tripadvisor.com

5.06% yahoo.com

4.56% travelocity.com

4.25% priceline.com

3.95% kayak.com

3.09% orbitz.com

2.54% hotwire.com

2.38% facebook.com

2.03% hotels.com

Source: Alexa.com

This table shows a sizeable dependence on the major search engines and a surprisingly high number of referrals

from properties that Expedia already owns (tripadvisor.com, hotwire.com and hotels.com). This suggests that

users are showing a higher degree to loyalty to Expedia properties.


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Management

Barry Diller, Chairman & Senior Exec - Expedia, Inc.

Barry Diller is the Chairman and Chief Executive Officer of IAC/InterActiveCorp (IACI, $28.90 Not rated),and Chairman of Expedia, Inc.

Since December 1992, beginning with QVC, Mr. Diller has served as chief executive for a number of predecessor

companies engaged in media and interactivity prior to the formation of IAC. From October 1984 to April 1992,

Mr. Diller served as Chairman and Chief Executive Officer of Fox, Inc. and was responsible for the creation of

Fox Broadcasting Company (NWSA, $14.37 Not rated) in addition to Fox's motion picture operations.

Dara Khosrowshahi, President & CEO - Expedia, Inc.

Dara Khosrowshahi became CEO of Expedia, Inc. when it spun off from IAC/InterActiveCorp in August 2005.

Prior to that, he was acting CEO of the travel portfolio within IAC from December 2004. Previously,Khosrowshahi had served as executive vice president and chief financial officer of IAC/InterActiveCorp since

January 2002. In this capacity, he oversaw all financial matters of IAC, served in IAC's Office of the Chairman,

and was directly involved in the expansion of IACs travel portfolio through various acquisitions.

Michael Adler, CFO - Expedia, Inc.

As Chief Financial Officer, Michael Adler oversees the planning and analysis of the global finance and

accounting functions for Expedia, Inc. Prior to joining Expedia, Adler most recently served as senior vice

president of financial planning and analysis for IAC/InterActiveCorp, He held a number of financial and

operational roles during his five-year tenure at IAC.

Financial Statement Analysis

After a difficult 2009, Expedia posted an increase of almost 18% on the top line in 3Q10. We expect the

company to continue to deliver top line growth throughout the calendar year aided by higher online traffic rates

and weak comparisons. Transactions growth will slightly outpace revenue growth and our estimates are calling

for an increase in revenue as a percentage of each transaction.

Balance Sheet

At the end of 9/10, Expedia had more than $1.5 billion in cash and equivalents and marketable securities on thebalance sheet. This is a significant increase from the year ago period when the company had approximately $900

million.

At the end of 1Q10, Expedia had roughly $1.64 billion in long term debt. We view this as a significant amount of

debt compared to other internet companies but do not believe it is unmanageable. The buildup of cash over the

last four quarters has eased some of the concerns we have had.


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Dividend Policy

On February 10, 2010, the company declared a quarterly cash dividend of $0.07 per share, the first dividend in the

companys history. We believe that given the profitable operations, the dividend is safe.

Financial Outlook

As airlines increase prices for during an economic recovery, we believe that consumers will continue to look to

OTAs for discounts and optimal rates. This bodes well for Expedia despite the expected weakness in European

travel market. We believe that there could be upside to our 2011 EPS estimate of $2.14

Investment Thesis

The online travel agent (OTA) industry has four major players that compete for the business of a highly

fragmented hotel industry as and, to a lesser extent, the airline industry and rental car industry. Airlines sales

provide large gross dollar bookings, but contribute little to the bottom line. The rental car industry, while possiblyconstrained by supply, has the exact opposite problem the airlines have in that their gross bookings are very small.

The savior of the sector is the hotel industry, which is highly fragmented and the biggest contributor to net income

of the three major suppliers.

We believe that hotel bookings will continue to drive the OTA industry due to the consolidation in the airline

industry (United and Continental) (UAL, $25.02, Not rated) and in the rental car business (Hertz (HTZ, $14.21

Not Rated) plans to acquire Dollar Thrifty (DTG, $48.08 Not rated), although Avis (CAR, $14.52 Not rated)

may show up as a late bidder). The hotel industry is coming off of a consolidation boom which saw both strategic

(hotel buying hotel) and financial (private equity buying hotel) buyers bidding up a market that had severe

capacity concerns in 2005-2007. Another chronic problem for the hotel industry has been its ill timed expansions

that seem to coincide with economic downturns. With occupancy rates around 60%, hotels are lowering averagedaily rates (ADR) to stimulate demand, and continue to look to OTAs to find customers.

There are several concerns that the OTAs face in both the short and near terms. One of the biggest is the

economic concerns of Europe. Priceline.com, in particular, generates a majority of its revenues from the hotel

business in Europe, which, given the economic uncertainty, may not be a destination of choice for foreign

travelers. The situation could be compounded should a second volcano from Iceland erupt and possibly disrupt

travel on an even larger scale that than the Eyjafjallajokull eruption in April 2010.

Longer term, the implications of contract re-negotiations with several airlines loom on the horizon for 2012.

Crude oil prices, which continue to dramatically affect the airline industry, and which also affect the hotel and

rental car industries, could move higher and again strangle the leisure travel market as they did in the summer of2008.

Our view of the industry is that there will be several players for some time to come. Competition, whether via

metasearch players like Kayak.com or other OTAs, tends to benefit the consumer and stimulate travel. We view

Expedia.com as having the deepest breadth throughout the categories of services provided and Orbitz the weakest

in that category. Priceline.com (PCLN - $434.24, rated Outperform) is our top pick in the space due to its clean

balance sheet, brand recognition and retention and market perception of being a leader in the space. Expedia is


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also attractive, but its brand is diluted across several properties and its financial structure may worry some.

Orbitz, founded by five airlines, has shifted its focus to hotels and continues to try to build its brand, but its debt

structure may impede future third party investment.

Industry Discussion

As we look at the online travel industry, we want to highlight a few key areas to better understand the industry as

a whole. First, we will discuss the primary components of the online travel agent, the suppliers of travel services.

Then we will look into the fees and metasearch and, finally, we will touch on traffic.

Airline Segment

The airline industry has been plagued by overcapacity, financial losses and volatility in oil prices. Consolidation

continues in the space, with the most recent tie-up of United Airlines and Continental showing that even the

biggest airlines need to find ways to save on costs. From the consumer perspective, bigger isnt necessarily

better, as less competition ultimately drives prices higher. The same is true for OTAs in that fewer supplierscould lead to lower revenues sources and thus potential decreases in future sales. Although an airline ticket does

a lot to boost gross bookings, it is generally a very small contribution to net income.

The recent moves by bother American Airlines (AMR, $8.29 Not rated) and Delta (DAL, $11.70 Not rated)

point to further consolidation and cost cutting in the airline industry. We expect other airlines to look the

potential of squeezing the OTAs for better pricing or face a 100% elimination of supply. Positioning in front of

negotiations is one move that Expedia has employed and it resulted in the airline suggesting consumers use

Priceline.com. The eventual consumer decision has traditionally been one that has included competitor

information unless a purchase comes solely from brand loyalty or brand dislike.

Rental Car Segment

The proposed consolidation of two major players in the rental car industry supports some recent anecdotal stories

of very low supply of rental cars in select markets. The inventory issues of rental cars companies is a problem

that can be solved quite quickly and with minimal impact to the OTAs. The health of the business appears to be

relatively stable with a small majority of rental cars coming from corporate travelers as opposed to leisure. Avis

notes its mix is a 60/40 split of corporate and leisure customers respectively. Currently, the rental car sector is a

small focus of the OTAs.

Hotel Segment

With a highly fragmented ecosystem, the hotel industry appears as though it will always need the OTAs to

inform potential consumers and provide an easy transaction for those wishing to be customers. Large national

chains serve as good proxies for the entire industry, but there are many smaller entities that will require OTAs to

maintain acceptable occupancy rates.

The hotel sector has historically been out of touch with the supply and demand of the broader market over the last

few decades. When times were good, supply was constrained and new construction was initiated. As the broader

economy cooled, many new properties came on line just as demand was close to or had bottomed. More recently,


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the pattern has repeated itself as supply grew in the face of economic recession. Hotel News Resources has

estimated that there are 1.1 million new hotel rooms under construction as of April 2010, suggesting that the trend

will continue.

While lower occupancies have historically increased the availability of discounted hotel rooms, and a lower rate

of ADR growth can positively impact underlying room night growth, lower ADRs also decrease Expedia revenue

per room night as their payment varies proportionally with the room price. Revenue per room night in 2009

declined 17%, primarily due to the downward movement in ADRs as well as adverse movements in foreign

exchange rates and lower fees. Key leisure markets like Las Vegas and Hawaii have seen dramatic declines in

ADRs.

Fees and Metasearch

The OTAs are coming off the anniversary of a reduction in fees that occurred in 1Q09. This reduction in fees

was spurred on by the success of the metasearch companies such as Kayak.com. Metasearch is simply an

aggregator of all of the data from several sites presented to the consumer in a usable format to help locate thelowest price or best outcome from multiple service provider locations. Other metasearch companies in the past

would scrape data off sites, sometimes with permission, mostly without. Kayak.com employs a different

model, one where the OTAs pay them for placement.

This aggregation of prices ended up prompting a price war that saw the end of most fees by the OTAs. This led

to lower revenue and earnings for OTAs and lower prices for consumers. The advertising expense that the

OTAs pay Kayak.com and the other metasearch sites is likely to be the focus of other technology companies,

particularly Google (GOOG, $639.63 - Outperform) which has purchased ITA Software. Yahoo! (YHOO,

$16.50 - Market Perform) has a travel site that has transactions powered by Travelocity, whereas Google is not

likely to partner for a transaction but instead deliver consumers to advertisers. This means that Google is a threat

to the metasearch companies more than the OTAs, and Yahoo!s partnership with Travelocity potentially

limiting the amount of advertising the other OTAs are willing to spend on Yahoo!.

The graph below from Compete.com shows that Expedia holds an edge over the other OTAs in terms of unique

users per month over the last year. Expedias depth of portfolio is the likely reason for the sizeable advantage it

enjoys over its rival OTAs.

Exhibit 3


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Macro Concerns for OTAs

The OTAs are facing a challenging 2011. The weakening of the Euro may become a material problem for the

entire industry as US-based travelers, who would normally take leisure trips to Europe when the exchange rate is

so favorable, may not travel abroad due to the economic concerns in multiple countries. Those same concerns

cast doubt on the amount of intra-European leisure travel as well, in effect causing a double hit to demand.

Asian travel is also coming under pressure as civil unrest in Thailand will undoubtedly curtail a percentage of

travel to the region. Australia and Canada have lowered the threat level to its citizens that have planned travel but

still advise that people use caution and reconsider their travel plans.

The volcano in Iceland that disrupted air travel in Europe in April 2010 due to the massive ash cloud may see its

larger neighbor erupt in the near term as well. Mid-May earthquakes around the site of the larger Katla volcano

were thought to signal an eruption in near future. Although the near term in geological time could be several

decades, it could also mean in the next several months or quarters. Should this volcano erupt, we would believe

that shares of OTA companies will face severe pressure as European travel would like halt entirely.

Finally, domestic concerns over the oil spill in the Gulf of Mexico have derailed travel in several Gulf states,

particularly in the tourist-heavy Florida Gulf coast. The struggles of the Gulf Coast have been well documented

and there is limited proof of any full scale tourism increase. This may benefit other domestic travel destinations,

but concerns of a double dip recession may keep the leisure traveler spending less than average again this year.

Comparable Companies

OTAs compete directly with one another (Priceline.com, Expedia, Orbitz and Travelocity) as well as many other

firms. The OTAs offer transaction services that separate them from the metasearch players such as Kayal.com

and the Fly.com division of TravelZoo.

Priceline.com Expedia and Orbitz compete for advertising revenue with large internet portal sites, such as

America Online and MSN who offer listing or other advertising opportunities for travel-related companies. The

companies also compete with search engines like Google, Bing (MSFT - $28.66, Not rated) and Yahoo! Search

(YHOO - $16.50, Market Perform) that offer pay-per-click advertising services.

Priceline.com (NASDAQ: PCLN - $440.91, rated Outperform) - Priceline.com Incorporated enables

consumers to use the Internet to save money on a variety of products and services. The Company's product allows

customers to name their own price on products or services and communicates that demand directly to

participating sellers or to their private databases. Participants include domestic and international airlines, and

hotel chains.

Expedia (NASDAQ: EXPE - $26.69, rated Market Perform) - Expedia, Inc. provides branded online travel

services for leisure and small business travelers. The Company offers a wide range of travel shopping and

reservation services, providing real-time access to schedule, pricing and availability information for airlines,

hotels, and car rental companies..


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Orbitz. (NYSE: OWW - $5.30, rated Market Perform) - Orbitz Worldwide, Inc. offers travel services over the

Internet. The Company's website offers air, hotel, vacation package, car rental, cruise, travel insurance, ground

transportation, event ticket, and tour bookings.

Travelzoo (NASDAQ: TZOO - $51.72, Not rated) - Travelzoo Inc. provides online marketing solutions to the

travel industry. Through the Company's Web site, its newsletter, and by using its listing management software,

travel companies can inform Internet users about their specials. Travelzoo serves companies such as Alamo Rent-

A-Car, Delta Airlines, Expedia, and Hilton Hotels.

Universal Travel Group (NYSE: UTA $7.20 - Not rated) - Universal Travel Group provides travel services. The

Company's core services include booking services for air tickets, hotels, restaurants as well as tour routing for

customers.

Ctrip.com (NYSE: CTRP $43.03, not rated) - Ctrip.com International, Ltd. is a consolidator of hotel

accommodations and airline tickets in China.

Sabre Holdings (Privately Held) - Sabre Holdings, owner of Travelocity, is a world leader in the travel

marketplace, Sabre Holdings merchandises and retails travel products and provides distribution and technology

solutions for the travel industry. Sabre Holdings supports travelers, travel agents, corporations and travel

suppliers around the world.

Exhibit 4

Symbol PriceMarketCap $

2010eps $

eps est.2011 $

ForwardP/E (1yr) PE P/B P/S ev/EBITDA

PCLN 431.21 21.27B 13.20 17.65 24.43 32.67 12.93 6.97 27.24

OWW 5.23 539.15M 0.13 0.23 22.74 40.23 2.02 0.67 6.37

TZOO 47.11 787.45M 0.77 0.99 47.59 61.18 18.47 7.17 31.76

AMZN 184.34 82.54B 2.50 3.49 52.82 73.74 12.94 2.67 41.94

EBAY 28.36 36.88B 1.69 1.86 15.25 16.78 2.46 4.09 11.33

YHOO 16.58 21.63B 0.86 0.79 20.99 19.28 1.79 3.50 13.82

GOOG 616.01 196.97B 28.90 33.65 18.31 21.32 4.54 7.11 14.67

EXPE 26.36 7.18B 1.71 1.98 13.31 15.42 2.69 2.33 8.85

Average: 35.08 7.23 4.31 19.50

SOURCE YAHOO FINANCE ALL STOCKS PRICED ON THE CLOSE OF 1/11/11

Amazon.com (AMZN, $191.25 -Not rated), ebay Inc. (EBAY, $29.45 - Not rated)


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Conclusion and Valuation

We are initiating coverage of Expedia with a Neutral rating and a one-year price target of $26, which is

derived from a 13x multiple of our 2011 earnings . Currently trading at a PEG of 1.5x, we dont

anticipate that much multiple expansion. We believe that growth on the top line throughout the

remainder 2010 and into 2011 will be the result of better underlying metrics such as hotel room night

growth. That said, we are wary of potential multiple contraction which would be based on uncertainty

in Europe, volatility in currencies and civil unrest in Asia and a potential for a double dip domestic

recession.

Risks

If the company experiences any or all of the following risk factors, as well as others, the companys stock price

may be affected.

The travel market is susceptible to significant swings. Terrorism, SARS, H1N1 and volcanic ash are just a few

random events that can significantly affect travel behaviors of consumers and business travelers alike. Should

such an unforeseen event occur, travel patterns are likely to swing and could cause a material impact on revenue

and earnings.

Long term debt may hamper the ability of the company to raise more money. Expedia has significantlong-term indebtedness, which could adversely affect the business and financial condition. As of 1Q10, theface value of long-term indebtedness totaled $895 million.

Competition is intense and moves quickly. Expedia faces intense competition from Priceline, Orbitz andTravelocity.com, among others. Should a competitor develop a more efficient platform or provide a uniqueor differentiated service, Expedia would face a significant challenge.

Travel suppliers have started their own websites, and Expedia is feeling the pressure. Consolidationamongst its suppliers (Avis and Thrifty) can lead to less supply, which could lead to less use by consumers assearch results will drive traffic to travel suppliers.

Barry Diller controls almost 60% of the outstanding stock. Mr. Diller, through shares he ownsbeneficially as well as those subject to the irrevocable proxy, controlled approximately 60% of the combinedvoting power of the outstanding Expedia capital stock.

Oil prices can drastically affect travel decisions. Crude oil prices may increase in the coming monthswhich in turn forces airlines to move prices higher. This can limit leisure travel more than the businesstraveler unless oil prices experience a prompt decrease.


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Exhibit 5Expedia Income Statement

Source: Company reports and Williams Capital Research estimates


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Exhibit 6 3Q10 Earnings Review

Source: Company reports and Williams Capital Group estimates


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Exhibit 7

Expedia Balance Sheet

2010 Q3

9/30/10

2010 Q2

6/30/10

2010 Q1

3/31/10

2009 Q4

12/31/09

2009 Q3

9/30/09

Cash -- -- -- 657 --

ASSETS

Cash & Short Term Investments 1,571 1,143 1,062 702 903

Receivables Net 408 391 377 308 368

Inventories Total 0 0 0 0 0

Prepaid Expenses 118 157 -- 99 --

Other Current Assets 111 124 275 116 185

CURRENT ASSETS TOTAL 2,208 1,816 1,713 1,225 1,456

Property, Plant and Equipment Gross -- -- -- 609 --

Accumulated Depreciation -- -- -- (372) --

Property, Plant and Equipment Net 262 257 236 237 232Investments in Associated Companies -- -- -- 17 --

Total Intangible Other Assets Net 4,438 4,398 4,393 4,427 4,404

Other Assets Total 4,663 4,550 4,471 4,458 4,459

TOTAL ASSETS 7,133 6,623 6,420 5,937 6,147

LIABILITIES

Accounts Payable 1,036 1,003 898 813 954

Other Current Liabilities 1,344 1,584 1,547 1,022 1,224

CURRENT LIABILITIES TOTAL 2,380 2,587 2,445 1,835 2,178

Long Term Debt 1,645 895 895 895 895

Deferred Taxes Credit 237 227 230 224 212

DEFERRED TAXES 237 227 230 224 212

Other Liabilities 99 247 244 233 226

TOTAL LIABILITIES 4,361 3,956 3,814 3,187 3,511

EQUITY

Minority Interest 62 61 68 67 66

Preferred Stock 0 0 0 0 0

Common Stock 373K 373K 372K 369K 368K

Capital Surplus 6,112 6,032 6,052 6,034 6,019

Retained Earnings (1,266) (1,442) (1,557) (1,616) (1,718)

Unrealized Foreign Exchange Gain/Loss (3) (46) (20) 3 7

Treasury Stock (2,134) (1,938) (1,937) (1,739) (1,738)

COMMON EQUITY 2,710 2,606 2,539 2,683 2,570TOTAL LIABILITIES & SHAREHOLDERS EQUITY 7,133 6,623 6,420 5,937 6,147

SHARE INFORMATION

Common Shares Outstanding 277 284 284 290 289

Source Expedia 10 q filed10/27/10


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Exhibit 8

Source: Company reports and Williams Capital Group estimates


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APPENDIXExhibit 9 Expedia Price Chart One Year

Source: BigCharts.comAll prices as of 1/18/11

ANALYST CERTIFICATIONI, Brian Bolan, hereby certify that the views expressed in the foregoing research report accurately

reflect my personal views about the subject companies and their securities mentioned in this

report. I further certify that no part of my compensation was, is, or will be directly, or indirectly,

related to the specific recommendations or views contained in this research report.

Financial Interests: Neither I, Brian Bolan,nor a member of my household owns securities in any ofthe subject companies mentioned in this research report. Neither I, nor a member of my household

is an officer, director, or advisory board member of the subject company or has another significant

affiliation with the subject company. I do not know or have reason to know at the time of this

publication of any other material conflict of interest.

By: Brian Bolan

___________________________________________________________________________


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IMPORTANT DISCLOSURE INFORMATIONAnalyst Compensation: The author's compensation is based upon the value directly or indirectlyattributed to the research services by Williams Capital institutional brokerage clients. The author of

this report is compensated based on the performance of the firm, and has not received any

compensation in the past 12 months from any of the subject companies mentioned in this report.

The performance of the firm is driven by its secondary trading revenues, investment banking

revenues, and asset management revenues.

WILLIAMS CAPITAL RESEARCH STOCK RATING KEY:Outperform: (BUY) In the analyst's opinion, the stock will outperform the sector by 5% over the next12 months.

Perform: (HOLD) In the analyst's opinion, the stock will perform in line with the sector over the next12 months.

Underperform: (SELL) In the analyst's opinion, the stock will underperform the sector by 5% overthe next 12 months.

Prices as of January 18, 2011.

Company Ratings History as of January 19, 2011Company Name Ticker Date Action PriorRating CurrentRating Price TargetPriceExpedia.com EXPE 1-19-11 Initiate coverage none Perform $26.69 $26.00

Valuation Methodology:As of the market close on January 19, 2011, Expedia traded at 14.58x our 2010 earnings estimateof $1.83 and 12.5 x our 2011 earnings estimate of $2.13. Our price target of $26 is based on aconservative multiple of 13x our 2011 rounded down earnings estimate.


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Risks Long term debt may hamper the ability of the company to raise more money. Expedia has

significant long-term indebtedness, which could adversely affect the business and financial

condition. As of 1Q10, the face value of long-term indebtedness totaled $895 million.

Competition is intense and moves quickly. Expedia faces intense competition from Priceline,Orbitz and Travelocity.com among others. Should a competitor develop a more efficientplatform or provide a unique or differentiated service, Expedia would face a significantchallenge.

Travel suppliers have started their own websites, and Expedia is feeling the pressure.Consolidation amongst its suppliers (Avis and Thrifty) can lead to less supply, which could lead

to less use by consumers as search results will drive traffic to travel suppliers. Barry Diller controls almost 60% of the outstanding stock. Mr. Diller, through shares he owns

beneficially as well as those subject to the irrevocable proxy, controlled approximately 60% ofthe combined voting power of the outstanding Expedia capital stock.

Oil prices can drastically affect travel decisions. Crude oil prices may increase in the comingmonths which in turn forces airlines to move prices higher. This can limit leisure travel morethan the business traveler unless oil prices experience a prompt decrease.

ADDITIONAL DISCLOSURE INFORMATION:

The Williams Capital Group, L.P. or its Affiliates do and seek to do business with companies

mentioned in its research reports. As a result, investors should be aware that the firm may have a

conflict of interest that could affect the objectivity of this report. Investors should consider this

report as only a single factor in making their investment decision. Additional information isavailable upon request.

Investment Banking Clients is defined as companies in respect of which The Williams Capital

Group, L.P. (the firm) or its affiliates have received or are entitled to receive compensation for

investment banking services in connection with transactions that were publicly announced in the

past 12 months.


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Distribution of Equity Research Ratings as of: January 18, 2010Outperform Perform Underperform

All Research Coverage: 88.9% 11.1% 0%Universe of IBC: 0% 0% 0%

Internet: 50.0% 50.0% 0%

Internet - IBC: 0% 0% 0%

Investment Banking Disclosures: Within the past 12 months, the research analyst authoring thisreport has not participated in a solicitation of any subject company mentioned within this report,

with or at the request of investment bankers, for investment banking business. Within the past 12

months, the firm and its affiliates have managed or co-managed a public offering of the securities

of a subject company mentioned within this report, and the firm received compensation for

investment banking products or services from the company. The firm does not expect to receive orintend to seek compensation for investment banking services from this subject company during the

next three months.

Firm Compensation: Within the past 12 months, the firm and its affiliates have not receivedcompensation for any non-investment banking products or services from subject companies

mentioned in this report, and the subject company has been a client of the firm during the past 12

months.

Stock Ownership: The firm and its affiliatesdo not own 1% or more of any class of equity securitydiscussed in this report, and do not make a market in any such securities.

DISCLAIMERThe information and opinions contained in this report were prepared by the firm and have been

derived from sources believed to be reliable, but no representation or warranty, expressed or

implied, can be made as to their accuracy. All opinions expressed herein are subject to change

without notice. This report is for information purposes only and should not be construed as an offer

to buy or sell any securities. The firm makes every effort to use valuation methodologies that it

believes to be reasonable in the derivation of price targets, but we do not guarantee that such

methodologies are accurate.

To receive any additional information upon which this report is based, please contact the followingindividuals or write to:


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Williams Capital Research, Research Department650 Fifth Ave. 11th FloorNew York, NY [email protected]

Suling Lew, Head of Institutional Sales or Jack Murphy, Director of Research212-373-4243 203-659-6007
mailto:[email protected]:[email protected]:[email protected]

EXPE_Initiation 1-19-2011 FINAL

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