Expedia 2006 Annual Report Download - page 3

To our stockholders
“2006 is going to be a rough year for Expedia, but sometimes you have to take a step backwards in
order to leap forward. And if we are right, the investments we are making begin coming home next year.”
Barry Diller, Expedia, Inc. 2005 Annual Report
As we expected and communicated in last year’s stockholders’ letter, 2006 was to be a year of change,
challenge and investment for Expedia, Inc. A year later we are very pleased to report we finished 2006 on the
upswing, 2007 is well begun and the Expedia venturing forth is far better in nearly every meaningful way
than when you held this report in hand last year.
You can see this progress in every area of our business, whether you cast your glance financially,
geographically or by brand:
• Gross Bookings grew 10%, to $17.2 billion, and we delivered $525 million in Free Cash Flow
(1)
;
• The Expedia brand planted its flag in Denmark, Japan, Norway and Sweden;
•Expedia Corporate Travel»expanded to Germany, surpassed the $1 billion gross bookings mark &
recorded its first operating profit;
•TripAdvisor»launched innovation after innovation, from wiki functionality for travelers to graphical
media for advertisers, and our brand portfolio is now leveraging its award-winning content;
•Hotels.com», the 5th largest online travel agent on the globe, grew worldwide gross bookings 20% to
$2.3 billion and expanded its presence to 35 countries; and
•Hotwire»earned J.D. Power and Associates’ “Highest Customer Satisfaction for Independent Travel
Web Sites”
(2)
for 2006, while meaningfully diversifying its gross bookings base beyond merchant air.
2006 saw the Company make some very necessary investments. We began in earnest to re-architect the
Company’s technology platform, and launched a number of other critical technology initiatives. We didn’t
earn any headlines for this ‘behind-the-scenes’ work, but to be sure these activities will prove critical to our
long-term success. These initiatives certainly raised the Company’s expense and capital burdens, but they’ll
allow us to create a user experience second to none, and they’ll give us the wherewithal to keep innovating
a step ahead of the competition. Expedia’s scale and conservative balance sheet allow us the option of making
these differentiating investments, and we’re firm believers that the right answer for long-term stockholder
value is to go ahead and make them.
During 2006 we also celebrated Expedia.com’s 10
th
anniversary, and while we marvel and take pride in
our progress, the Company and its senior management are very much focused on the future for Expedia, Inc.
In keeping with this look forward, during the year we developed a new mission statement to guide the
Company in its next decade, which is “Expedia gets the world going...by building the world’s largest and
most intelligent travel marketplace.”
This statement reflects our fundamental role in facilitating travel, whether for business or for pleasure, as
well as our commitment to providing travelers with the best resources to serve their travel needs. In doing so
we leverage Expedia’s critical assets — our global reach, our brand portfolio and our breadth of product
offering — and we take advantage of our growing base of knowledge about our destinations, suppliers and
travelers based on the unique position we maintain in the value chain.
As it relates to global reach, Expedia, Inc. brands now operate over 70 websites in 50 countries. In
2006 our international points of sale accounted for 26% of our worldwide gross bookings and 28% of
revenue, up considerably from the 18% mark in 2004. In 2006 we launched four new Expedia-branded points
of sale in Scandinavia and Japan, the world’s 2
nd
largest travel market. We’ve continued extending our global
footprint in early 2007 with the launch of our 13
th
Expedia point of sale in Spain, and we plan to launch the
Expedia brand in India later this year.
While launching new points of sale is obviously accretive from a simple bookings and revenue
perspective, it’s also critical from a strategic perspective. When we enter a market such as Japan, we bring a
rich array of international supply to the local traveler on day one. Then, as we gain traction in Japan and add