Expedia performs poorly in second quarter sales

Expedia Inc – the largest online travel company in the world – has failed to reach its second quarter sales and profit estimates.

The company seems to be finding it hard to retain its top position in the market, and competition only continues to increase.

Expedia, Inc. Second Quarter Earnings Release reported that despite an increase in total revenue, its second quarter net profit this year fell to $71.5 million from $105.2 million last year.

Following the statement, the share value of the company  dropped 27 percent to $47.20 – the biggest decline since July 21, 2005.

According to the statement, Expedia’s cost of revenue increased 14% in the second quarter and its selling and marketing expenses increased by 33%, “driven by a $128 million increase in direct costs. Online and offline marketing at trivago, Brand Expedia and Hotels.com accounted for approximately 80% of the total increase.”

Expedia Chief Executive Officer Dara Khosrowshahi said:

“We knew we were facing second-quarter headwinds and those which we expected, as well as some we didn’t, materialized. Despite this, we remain confident about our long-term strategy.”

Some of Expedia’s main competitors, such as TripAdvisor Inc., Orbitz Worldwide Inc., and Priceline.com Inc.,  have started to spend more on advertising campaigns, increasing their market presence.

Priceline has been focusing on its U.S. Booking.com service, spending well over $1 billion every year on the hotel-booking market.

Macquarie Equities Research analyst Tom White, told Reuters “We think Priceline.com has a good idea on what to pay for the new leads, but we don’t think Expedia has figured out what they’re willing to pay. They’ve dropped budget as they’ve wrestled with this.”

The competition is fierce elsewhere too. TripAdvisor recently developed a new meta searcher which focuses on a single page travel agent recommendation which means that “instead of popping up five sites, they’re sending one lead out the door, so now it’s just a window,” according to Brian Fitzgerald at Jefferies & Co.