A combination of acquisition costs and the impact of November’s terrorist attacks in Paris led to a fourth-quarter loss for Expedia Inc., but shares surged 11% in after-hours trading Wednesday after CFO Mark Okerstrom said the company is expecting earnings to rise 35-45% in 2016 as Orbitz and HomeAway are fully integrated into operations.
Expedia closed on its acquisitions of Orbitz and HomeAway last September and December, respectively.
Expedia took a $12.5 million loss, compared to a $66 million net profit in the previous year’s fourth quarter. Bolstered by the addition of Orbitz, revenue rose 25%, to $1.7 billion; gross bookings were up 32%, to $15 billion; and booked hotel room nights rose 39%.
Expedia said the Paris attacks reduced earnings by as much as $15 million, while the costs associated with the Orbitz and HomeAway acquisitions cut earnings by about $39 million.
HomeAway, a listing service for vacation rentals, was a hot topic on the earnings call. HomeAway was part of Expedia for 17 days in the fourth quarter, generating around $20 million in revenue, Okerstrom said.
Khosrowshahi said he was pleased with HomeAway’s fourth-quarter performance, and that it will be operated “largely as a standalone business.” Expedia plans “to be highly involved with the HomeAway team, helping them expand aggressively and move from their traditional listings model to a fully online transaction model.”
A service fee is in the beginning stages of being introduced in the U.S., he added, a few months ahead of schedule. Expedia is also rolling out a “book-with-confidence guarantee” on HomeAway, Khosrowshahi said.
By the end of 2015, about 60% of HomeAway’s total listings were bookable online, he said, and Expedia will make a push in 2016 to get that as close to 100% as possible.
The CEO also said Expedia is planning a “significant year-on-year increase in brand marketing” for HomeAway. Marketing initiatives are in the early stages.
An analyst on the call questioned what kind of impact Airbnb was having on Expedia’s hotel business.
“We don’t see significant effect of Airbnb on our business,” Okerstrom said.
Companies like Airbnb and HomeAway are adding inventory in the marketplace, he said.
“Any time you have more supply, you put pressure on pricing. You as an intermediary, meaning us, want to have access to that supply,” Okerstrom said. “We think now that HomeAway’s part of the family, the Airbnb effect is going to be a positive aspect for us.”
Okerstrom also answered an analyst’s question on the November attacks in Paris, and how long he thought their impact would last.
“Historically, these kinds of attacks have resolved fairly quickly,” he said.
Immediately following the attacks, Expedia saw an effect on broader European destinations, he said, but that has been getting better, he said. Paris travel is on the upswing, but it was poor compared with the fourth quarter of 2014.
“So, hopefully it won’t last long, but my personal feeling is that there will be some effect going into the balance of the year,” he said.