Introduction

This papers main objective is to analyze the on line travel company

Expedia taking into consideration factors such as its financial standings,
present and future strategies, industry standards and competitor and finally,
an intricate economic examination. With the tools we learned in our MAcc
Financial Statement Analysis, we were able to break down the companys
available financial and contextual information, such as its history, Porter
Five, current and future strategy and financial statement numbers, in order
to build a more clear and concise picture of Expedias current business
position.

Introduction and Brief History

Expedia, owned by Expedia INC, is one of the worlds leading online

travel companies. Starting in Redmond, Washington, the company
headquarters are now in Bellevue. In 2012, Rich Barton, the founder and
CEO, stated on the company website that, in 15 years one company literally
has changed the travel industry forever and has become the most important
player in it.
In its 18 years of existence, Expedia, INC has changed its structure by
being acquired and subsequently acquiring other companies, and has
become the largest travel agency in the world. Beginning a brief history,

Expedia was first launched in October of 1996, debuting on the web as

Microsoft Expedia Travel Services. In November 1999, Expedia announced
their IPO and by January 2001 saw their first profitable quarter. A huge
milestone for Expedia in Q4 of 2001 was when the company surpassed
Travelocity as the #1 Online Travel Company. IAC (an ecommerce giant)
acquired Hotels.com in June 2003, Expedia in August 2003, Hotwire in
November 2003, and in March 2004 IAC acquired Egencia and rebranded it
as Expedia Corporate Travel.
In January 2005, Expedia took a controlling stake in eLong, a Chinafocused travel agency. And in August 2005, IAC merged its online travel
businesses into Expedia, INC. Expedia, INC reached yet another milestone in
2007, when it was added to the S&P 500.
Today, the Expedia, INC website offers information on the 12 different
companies that they own. These companies are: Expedia, Expedia Affiliate
Network, Hotels.com, Egencia, Hotwire, eLong, trivago, Venere,
CarRentals.com, Classic Vacations, Expedia CruiseShip Centers, and Expedia
Local Experts. With a mission of, Revolutionizing Travel through the Power
of Technology the Expedia website blatantly declares statements such as
We Love Travel and Were Everywhere. Expedia hopes to help provide
travelers with an easy travel planning experience. The company hopes to,
provide personalized service, the latest technology and the widest selection
of vacation packages, flights, hotels, and rental cars. Expedia also states

that they help everyone, everywhere, plan and purchase everything in

travel

Industry Economic Characteristics and Competitive Dynamics

Expedia is part of the very competitive online travel industry within the
more broad lodging industry. The industry seems to grow as fast as the
internet itself does. Back in 1999, the Travel Industry Association of America
reported that 15.1 million consumers booked their travel online.2 10 years
later that number had jumped to 70 million. Consumers are transitioning
from using the traditional travel agent to booking online. The online travel
industry is causing traditional travel agencies to modify and update their
business models to compete and stay relevant.
According to a Forbes article, Competitive Landscape Of The U.S.
Online Travel Market Is Transforming, Expedia, Priceline, Orbitz Worldwide
and Travelocity own 95% of the U.S. online travel market (as of April 2014).
While Expedia dominates the U.S. with about 40% of the market share,
Priceline has 35% in Europe. A benefit to the internet is being able to easily
penetrate worldwide markets.3 While domestic U.S. travel bookings could
satisfy the market, if another company is able to meet more demand for
global travel and create more business, the industry leader could shift. The
leaders and laggards will depend on whether youre examining the online
travel industry on a national or international level. And even then, if a

company is able to surpass the competition financially despite only reaching

a national level, they will control the industry.
Dynamic pricing is a popular pricing strategy and competitive dynamic
within the travel, lodging and hospitality industries. Specifically pertaining to
the online travel industry is the dynamic pricing of airline industries. Airlines
will often change prices based on the day, time of day, and number of days
before the flight. Different factors such as number of remaining seats,
departure time, and number of cancellations will also affect the dynamic
pricing. Online travel agencies bank on being able to provide consumers with
the lowest prices for travel. So, they have to work in accordance with the
airline prices.4

Porters 5

1. Competition in the industry

The online travel industry is highly competitive. The graph below

depicts the direct competitors of Expedia within the industry. These
competitors are Orbitz Worldwide Inc, The Priceline Group Inc, and
Travelocity.com LP. While Travelocity.com LP is a big competitor, they are a
privately held company thus their industry data is unavailable in this table.
According to this data, Priceline leads the group with 8.14 billion in revenues

and 2.35 billion in Net Income. Priceline also has the highest earnings per
share at 44.27

.
Table and data from: http://finance.yahoo.com/q/in?s=EXPE+Industry. As of November 26th,
2014.

The online travel industry is in the mature stage, and is thus highly
competitive. Existing firms compete for market share and acquire other
companies to keep their relevance. There are low switching costs for
consumers, so theres a bigger struggle for the companies to keep their
customers. A new technological innovation could push a company farther

ahead of the other competitors. Just as the traditional travel industry does,
the online travel agency has to stay flexible to changes in the external
environment. Innovation is important to sustain competitiveness.
Any first-movers who are able to create the next big thing will
instantly reap the benefits. They will be able to earn above-average returns
until the competitors are able to catch up and respond. Second movers in
this industry in specific would benefit in seeing how consumers respond to
and use new technology. Second movers benefit in being able to wait and
watch. They gain time for research and development to create a more
superior product in response. The online travel agency has only been in
existence for approximately 20 years. So to be able to develop in such a
short amount of time, competitors would have had to develop and respond
to innovations in technology (and thus the industry).

2. Potential of new entrants into industry

Based on the heavy reliance of technological power and support, it

would be very difficult for a newcomer to enter this industry. A new entrant
would need significant capital and either the technological know-how, or
even more capital to pay someone with the technological know-how to
compete with the industry giants like Expedia and Priceline. On top of that,
Expedia is a huge company with revenues of $4.7 billion in 2013 with 14,570
full-time and part-time employees. (Expedia 10-K 2013) 1 These barriers to

entry especially involving economies of scale will prevent any small start-up
companies from entering if their technology isnt as advanced as the
companies already in the industry.
Expedia has been an innovator since inception. The company gained a
head start by being created through Microsoft. More recently, Expedia
features a service called TravelAds , a sponsored search product for hotel
advertisers.7 In 2011, Expedia expanded travel ads to Europe. The product
was described as easy to use, flexible and a high return-on-investment to
Expedia hotel partners worldwide. A new entrant would have to create a
relationship with hotels and airlines to even be considered a competitor and
this would be extremely difficult to do when just starting out.
If a new entrant could offer lower prices on travel and other online
services, they may be able to compete. The basis of this industry involves
the best deals on travel and easy to use online services. The new companys
product would have to feature a superior website that is quick and easy to
use for consumers. For Expedia to continue to see success, consumers have
to return to their site and buy their services while new consumers join.
Another barrier to entry a new entrant would face involves patents.
Priceline filed a lawsuit against Expedia in 1999 regarding patent
infringement related to technology for connecting an anonymous seller to a
block of potential buyers. 5 As far as patented technology goes, a new
entrant would have to make sure their processes arent infringing any
already used. In essence, Expedia and the already existing companies in the

industry have a leg up on any new entrants due to intangible resources such
as information, reputation and knowledge that the newcomers wouldnt have
access to.

3. Power of suppliers

The online travel industry relies on the suppliers services. For

example, Expedia provides hotels, cars, flights, cruises and vacation
packages. All of those products and services depend on the actual hotels, car
rental agencies, airlines, cruise agencies that actually provide the services.
Expedia and the other online travel agencies act as the middleman between
the ultimate buyer and the hotel or car (etc.) service. With that said, the
suppliers do have a large amount of power over online travel agencies
success. But, there is a balance between the buyer and supplier relationship.
Expedia and other online travel agencies can only work if their
supplier has services and products the middleman can sell at cheaper rates.
For example, if a hotel has un-booked rooms or periods of time with slower
occupancy, the hotel can sell those rooms to Expedia at a lower rate.
Expedia will then resell that hotel room on their website at a retail-based cost
by adding more to the cost they paid to create a profit. So, the hotels need
Expedia to book those unsold rooms, but Expedia ultimately needs those
hotels to make any sort of profit.

To further demonstrate the idea that although suppliers have the

power, they do still need Expedia, is the fact that Expedia is the one bringing
customers to the hotels or car (etc.) services. If hotels have un-booked
rooms, they obviously arent reaching their target market. The beauty of the
online travel agency industry is the ability to reach billions of potential
consumers through the web that the hotel or car (etc.) services wouldnt
have been able to reach on their own. Consumers traveling through
Washington from Oregon may not know which hotel in the area to stay in. So,
they use Expedia to try and find a hotel. That Washington hotel may not
have had the original resources to reach consumers a state away in Oregon
thus Expedia helped them reach a bigger market.
Hotels are a competitive industry within themselves. There are large
quantities of different types, sizes, and qualities of hotels. There are low
switching costs for the consumer to book one hotel over another. While some
hotels aim for low-cost models such as Motel 6s who aim to offer cheaper
yet quality services (even though the quality is debatable in comparison to
others). In contrast, high-end hotels like the Plaza in New York City offers a
luxury experience that only few can afford. Despite what hotel experience
the consumer is looking for, they will find many different options. Substitutes
and switching costs can easily hinder a hotels performance, so sometimes
they need the help of a middleman like Expedia to help them. The supplier
would just need to outweigh the costs/benefits of using a middleman and

losing profit on the room in that sense, versus potentially not selling the
room at all.

4. Power of Buyers

The entire platform of the online travel agency industry is about

providing the traveler with the best deal on whatever travel service they
hope to purchase. Buyers have high power in this industry due to the fact
that if the buyer doesnt buy the service, there is no profit. Then, the
middleman purchased a room or car (etc.) from the ultimate service and was
unable to resell it. The buyers make the industry competitive. Competitors
try to price cut their products to beat out other companies offering similar
things.
The target market in relation to the number of total consumers in the
world is small. Companies can only offer services and goods to someone
traveling and in need of the service. The average consumer with no need for
travel has no use for the service. That concept alone increases buyer power.
In addition, switching costs for buyers are low. Its very easy for a consumer
to compare prices of Expedia and Priceline and then just choose whichever is
lowest. There is no sanction for deviating from a company youve previously
purchased from, there is no loyalty. Beyond that, consumers dont even need
to use the middleman they can go directly to the hotel and book a room

directly from the source. That cuts Expedia directly out of the entire
equation.
Online travel agencies just hope that consumers choose to use their
company and not go straight to the source. The industry relies on offering
lower prices or better deals than their competitors and the source. But
ultimately, the online travel agent middleman isnt necessary to get the
buyer to the ultimate supplier of the service which Expedia has to overcome.

5. Threat of substitute products

The threat of substitutes essentially combines all of the four previous

Porter forces into one culminating force.
As discussed with buyer power, ultimately, the online travel agent
middleman isnt necessary to get the buyer to the ultimate supplier of the
service. The online travel agency industry is almost like a branch off
numerous other industries such as the hotel industry and the lodging
industry. Consumers can literally bypass the online travel industry and go
straight to the other industries.
There are low switching costs for consumers, so its easy for them to
switch to a competitor with similar services. Also, the substitute product
offers very similar services with equal or superior quality sometimes even at
a cheaper cost. This makes the threat of substitutes even higher in an
industry based on offering the cheapest service/good. Expedia in particular

would have to focus on offering higher quality services at cheaper costs to

keep consumers from switching.

Expedias Current Strategy

Nature of Service and Overall Strategy

Expedia, Inc. is an online travel services company that offers

individuals and businesses the opportunity to book their travel and compare
prices for entire vacations packages on line. Currently, Expedia employs an
online shopping mall and merchant strategy (Chen, Lee, & Barnes 104). This
strategys goal is to put the consumer in charge of comparing prices so they
can satisfy all of their travel needs, including airfare, hotel, car rental, and
excursions, in one place by booking their entire vacation on line. In this way,
not only do customers enjoy ease and convenience of an on line service, but
they are also able to view reviews and ratings of various travel and tourism
enterprises when making decisions, or in other words, they can get instant
feedback.
Expedia operates in a very competitive marketplace with competition
from similar services such as Travelocity and Orbitz, ticket discounters such
as Priceline.com and Lastminute.com, traditional travel agencies, and,
increasingly, air- lines and hotels themselves. Expedia harnesses the power
of Web services to distinguish itself in this market.

The companys competitive strategy is driven by nearly every

travelers need to receive up-to-the-second, diverse information at any time
and any place. Expedia actively supplies travelers with real-time
personalized information, such as flight status. In order to compete, the
company used the push and pull strategy: information is pushed to travelers
(sent to them from Expedia) as well as pulled from the companys portal
(accessed by the travelers through specific inquiries). This multichannel
provision of timely travel information is the key for attracting new customers
and for keeping existing customers. To make this happen Expedia needs to
connect to many service providers (airlines, hotels, car rental companies) as
well as airports, news services, map services, and more.
Expedia earns profits through mark-ups, as the company purchases
seats on airplanes or hotel rooms in bulk and then sells them to customers at
a premium (McCartney). Also according to McCartney, currently, selling
hotel rooms has been a more lucrative business for Expedia, for the
company can negotiate special deals with hotels and sometimes even buy
up inventory from hotels that they resell at whatever price they can get. For
this reason, customers that purchase a hotel room together with their airline
ticket or car rental are more valuable to Expedia. In addition, the company
brings in additional revenue from advertising.

Integration within value chain

For Expedia, the value chain integration in services comes in the form
of low prices, convenience, and access to special time-sensitive deals and
travel packages. Through this model, the company is able to provide
diversified travel services as well as bargain prices, mostly to attract
individual travelers. These services are penetrating to the corporate travel
area, which has historically been the domain of travel agents business.
Much of the Expedias success is due to the expanse of its operations,
and the competitive advantage due to its many subsidiaries strategic
partnerships. Such attributes give the company the ability to negotiate, offer
lower prices to its customers, and reach various market segments. Because
Expedia was an early entrant to the online travel services market, it has
solidified its position and gained valuable expertise. The key to manage all
these tiers of service is information. Expedia manages information to make
these value chains more efficient and create value for their customers, and it
uses information networks provided by third-party information technology
integrators to coordinate their value chains.
Expedia can create complete packages from the different options.
Local or Internet-based travel agencies help customers to select the package
that is right for them. Moreover, consumers are searching the globe for new
travel experiences and destinations. The Internet enables even the most
remote holiday destinations to be presented to an international clientele.
Expedia markets their services alone or teams up with partners across the
world to reach a bigger audience, and, consequently, more customers.

Examples of the companys key partners are international hotel chains such
as Hilton and Sheraton, and local tour operators.

Geographical and Industry diversification

Not only is Expedia based and present in the United States, they also
have a very strong presence in United Kingdom, Canada, Germany, and
many other countries. It offers travel products and services via its supply
portfolio which includes more than 260,000 hotels in 200 countries, 400
airlines, packages, rental cars, cruises, as well as destination services and
activities. The online travel giant said approximately 60 million unique
visitors visit its sites on a monthly basis and through December 31, 2013,
there were over 90 million global downloads of its mobile applications across
its numerous brands.
Brand Expedia also has a joint venture with low-cost airline AirAsia
(AIABF) in Asia Pacific that allows Expedia sites to be the only official third
party online distribution channel for AirAsia content. As part of an exclusive,
long-term strategic marketing agreement with Travelocity signed during the
third quarter of 2013, Brand Expedia launched hotel and air products on the
Travelocity-branded websites for the U.S. and expects to complete the
majority of the migration of the remaining products and the Canada website
during the first half of 2014.

It used to be that sites like Orbitz, Travelocity, and Expedia charged

customers anywhere between $6.99-$11.99 per airline ticket booked
because they were providing a service; however, in March 2009, Expedia got
rid of booking fees on airline tickets amidst the tough competition of the
online travel services market (McCartney). The others soon followed. This is
just a small example of how much the industry as a whole has had to
differentiate and evolve in order to stay competitive and up to date with new
technologies.

Financial Statement Quality Assessment

Note: The results of the following adjustment are shown on the adjusted
financial statement in the Appendix:

The appropriate adjustments are essential for financial statement

analysis before analysis of profitability and risk and forecasting financial
statement. Meanwhile, the adjustments also increase the comparability of
the financial statement of similar firms in the same industry. Therefore, we
made two necessary adjustments to financial statement of Expedia, the
company our group has chosen to analyze. The adjustments include
capitalizing operating leases and converting property and equipment from
straight line to accelerated basis. Additionally, we selected Priceline as the

competitor of Expedia and made similar adjustments of Priceline of financial

statements for 2013 since both companies are in the same industry.

Capitalizing operating leases:

Lessees prefer to treat lease as operating lease rather than capital

lease because capital lease appear as assets and liabilities on the balance
sheet and make the company more risker. Based on the reason, managers
will avoid using capital lease and will use operating lease instead. The
problem is that using the operating lease can cause the analyst to
understate the short-term liquidity or long-term solvency risk of the firm
(Wahlen, Baginski & Bradshaw, P490). After converting operation lease to
capital lease, the adjusted financial statement will help the analyst to get the
appropriate and reasonable analysis. Based on the rational idea, we decided
to restate the financial statements of Expedia and Priceline to convert all
operating leases into capital lease, which will better reflect economic
situation for both firms and also keep a more conservative measure of total
liabilities from the view of accounting.
Managers of Expedia disclosed the related information on the financial
statement d note 16 and 15 of lease commitment for 2013 and 2012.
Priceline disclosure the 2013 lease commitment on the financial statement
note 16.

We started the adjustment of converting operation lease to capital

lease on the balance sheet. The first step of converting operating lease to
capital lease is to calculate the lease commitments in the present values
terms. We used the lessees incremental borrowing rate for secured debt
with similar to that of the leasing arrangement. Expedias borrowing rates,
based on interest expense as a percentage of average short and long-term
borrowing for 2013 and 2012, are 6.99% and 7% respectively. Pricelines
borrowing rate is 4.5% for 2013 using the same calculation method.
The present value of each cash flow equals the cash flow times a
present value factor. The present values of all of Expedias operating lease
payments are $211,029 thousands and $179,590 thousands for 2013 and
2012 respectively, and the present value of Pricelines operating lease
payment is $265,517 thousands for 2013. Since we capitalized operating
lease, we will add the $211,029 thousands and $179,590 thousands into
Expedias property, plant, and equipment net of 2013 and 2012, and add
$265,517 thousands for Pricelines PPE in 2013. Relatively to liability
account, Expedias current debt of 2013 and 2012 will increase by $43,744
thousands and $31,175 thousands respectively, and long-term debt will
increase by $167,285 thousands and $148,415 thousands. Pricelines current
debt and long-term debt of 2013 will also need to adjust by $37,743
thousands and $227,773 thousands.
To some extent, adjusting the balance sheet with capitalizing operation
lease could certainly and substantially or slightly affect some ratios by

different amounts added (Wahlen, Baginski & Bradshaw, P491). For example,
Expedias unadjusted long-term debt to shareholders equity in 2013 was
55% based on $1,249,412/ $2,258,985. After adding the long-term portion of
the capital lease liability, the ratio will increased to 63% based on
($1,249,412+$167,285)/ $2,258,985. Compare with that of Expedia,
Pricelines long-term ratio also increase substantially due to the adding big
portion of long-term debt in 2013.
Consistent with changes on the balance sheet, income statement also
needs to be adjusted because rent expenses will be eliminated and
depreciation and interest expenses will be added due to the capitalized asset
and lease obligation recognized on the balance sheet. For Expedia, both
years lease expenses are greater than combining depreciation and interest
expenses, which increase equity after net of tax by $28,150 thousands and
$27,474 thousands for 2013 and 2012 respectively. In comparison, Pricelines
equity in 2013 decreases by $1,705 thousands due to the rent expenses are
less than the combining deprecation and interest expenses. After all the
adjustments were made, comparability of Expedia and Priceline financial
statements will be improved.

Converting PP&E to Accelerated basis

Calculation of depreciation is based on the historical cost of a longloved asset less than salvage life to the periods of its use in a rational

manner. Salvage life may vary from time to time. For example, technology
upgrade changes so fast that its life will be obsolescence shortly (Wahlen,
Baginski & Bradshaw, P538). Assets life estimation is very subjective since
mangers determine the assets useful life based on their own needs.
Due to the subjective of assets useful life, managers often chose to
extend assets life to a longer period to get a lower depreciation expenses in
order to get higher earnings on the income statement. GAAP allows firms in
the United States to utilize two depreciation methods. Firms can use straightline depreciation for preparing financial reporting and accelerated
depreciation for tax purpose. Based on the requirements of the assignment,
we converted the straight-line basis of Expedia and Priceline to accelerated
basis to analyze the financial statement.
We identified the deferred tax liability related to property plant and
equipment disclosed in the note 11 of income tax. However, there is no
necessary for adjusting the property, plant and equipment of Priceline
because depreciation expenses of PP&E are integrated with other
amortization expenses of intangible assets in the footnote.
To convert the straight-line depreciation to accelerated depreciation, firstly
we adjusted balance sheets of Expedia in 2013 and 2012. We calculated the
excess accumulated depreciation over time of $226,354 thousands in 2013
and $700,500 thousands in 2012 by deferred tax liability divided by the tax
rate.

Secondly, the calculation of income statement adjustment is based on

the difference between deferred tax liabilities of current year and previous
year. Expedia has a positive deferred tax liability at $24,286 thousands in
2012 and a negative deferred tax liability at $30,488 thousands in 2013.
After getting the change of deferred tax liability for 2012 and 2013, we used
the change divided by the tax rate to get the excess depreciation expenses,
which determines the relationship with net income. In 2012, a positive
change deferred tax liability Expedia has indicated that Expedia has a higher
deprecation expenses and pay lower tax expenses now and higher in the
future years if Expedia used the tax method.
Then the effect of using accelerated method will decrease in 2013 net
income at $162,529. However, the increase in deferred tax liability in 2013 is
negative. This happens because Expedia has depreciated its assets for
several years and assets probably just reach in the middle of life in 2013.
Hence, Expedia gets lower deprecation expenses and pay more taxes by
$30,488 now in tax method than in booking keeping. Hence, net income will
increase by $78,397.

LIFO To FIFO

Since Priceline and Expedia are both website for purchasing discounted
air tickets, they do not have inventory so that we did not need adjust the
inventory from LIFO to FIFO

R&D

Priceline did not have any research and development cost related to
the business and we did not need to make any adjustment.

Allowance for doubtful account

Because the customers of Priceline and Expedia mainly pay with credit
card, they do not have the allowance for doubtful account.

Ratio Analysis

Note: The results of the following adjustment are shown on the adjusted
financial statement in the Appendix:

Profit Ratio

A common size analysis of balance sheet and income statement of

Expedia and Priceline was performed. Expedia has a higher level of Cost of
sales and selling, general and administrative costs than Priceline, indicating
that Priceline was doing better at managing costs and overhead. In addition,
the rations show that Priceline shows robust revenue growth with reasonable
debt levels, and expansion of its profit margins. And although Expedias

competitor shows weak operating cash flow they are doing well at net
income. Comparatively, Expedias operating earnings have been dropping for
the past 4 years, despite rising revenues, and as mentioned before, SG&A is
on the rise

Risk ratio

Current ratio indicates the firms ability of using cash and other current
assets to cover obligations coming due within one year. working capital
turnover ratios measure the cash-generating ability of operations and the
short-term liquidity risk. Debt ratios measure the amount of liabilities,
particularly long-term debt, in a firms capital structure. The higher this
proportion, the greater the long-term solvency risks. Operating cash flow to
total liabilities ratio assesses whether the firm could generate cash flow from
operations to service debt. Z-core is a model used to predict the firms
possibility of bankruptcy. Data less than 1.81 indicated a high probability of
bankruptcy, while higher than 3.0 indicated a low probability of bankruptcy.
between 1.81 and 3.00 is fray area. By all measures mentioned above,,
Priceline is doing better than Expedia, as shown in the appendix.

Sustainability

As Expedia moves forward, threats to the firm beyond its competitors

include the ease of entry to the online travel company market, which allows
for the introduction of new competitors. In the modern day, travel and
tourism enterprises that have access to the internet can easily set up a
website, and many small hotels, lodges, and tour operators are establishing
a presence online. This offers customers the option to book directly.
Also, the firms dependence on the state of the economy and peoples
discretionary incomes lends to its susceptibility as demonstrated by the
recent economic downturn. Another possible future challenge for the
company is the fact that during difficult economic times, people do not have
money to spend on vacations, and companies attempt to reduce costs by
cutting business related travel. So, in the past, Expedias financial success
would often shift with the overall economy, and therefore in the future, the
company might be especially vulnerable to volatile downturns.
Moving forward, the travel and tourism industry is certainly changing,
as it responds to evolving customer demands and behavior. In the modern
day, people increasingly research and book vacations online, especially in
the United States, with 66% of travelers plan their vacations on line and
56% actually book their itineraries on the internet. This trend is a major
reason why Expedia has proven so successful since its creation in 1996.
Certainly, the internet will only become a larger part of the trip planning
process in the future, and that is where the companys future success lies.

According to market research company Euromonitor International,

Expedia was the top online travel agency globally with gross bookings for
$39.4 billion in 2013, followed by Priceline at $39.2 billion in the same year.
Chinese and Indian players such as Ctrip and MakeMyTrip are also growing
rapidly in the OTA space. Euromonitor said that in this constantly changing
environment, a new generation of companies coming from the mobile and
peer-to-peer sectors and from emerging economies may become the future
giants of the travel industry.
Expedias growth will be driven by investment in new technologies
allowing a more sophisticated user targeting and more customized service.
Online travel consumers are constantly evolving as they increasingly
embrace mobile devices, request more personalized real-time services, and
enjoy sharing travel reviews and services with their peers.
Another research company, PhoCusWright, estimates global travel
spending at over $1 trillion, with an increasing share booked through online
channels each year. Expedia believes there is a significant growth
opportunity as its gross bookings represent only about 4% of this spending.
Its primary growth drivers are technology and product innovation, global
expansion, and new channel penetration.
One of the main channels Expedia plans to invest heavily is in
developing mobile applications. We think mobile is a huge opportunity,
Expedias CFO Okerstrom said. It has gone from a theory to reality, and I
think it is done so faster than we and everyone in e-commerce thought it

would. Already, Okerstrom reports, Expedia brands have had more than 90
million downloads of their mobile applications and, in December 2013, 20
percent of current transactions were taking place via mobile devices.

The mobile applications have delivered new capabilities to consumers.

One application, for example, allows users to locate and book a hotel room
from the road for check-in at midnight the same night. That type of
technology didnt really exist before, Okerstrom said.
One key benefit of the platform upgrades to mobile technologies, says
Okerstrom, is that it also enables us to integrate partners very easily. And
the company has moved aggressively to acquire and integrate partners,
most recently with the acquisition last March of the hotel search engine
Trivago. They all have their own specific strength, said Okerstrom of
Expedias broad array of brands. We have really no brands that are directly
head to head. For example, while the flagship Expedia brand offers multiple
products hotel rooms, car rentals, surfing lessons Hotels.com offers just
discounted hotel rooms. Each strategy, says Okerstrom, resonates with
certain types of consumers. Another Expedia brand, Hotwire, follows yet
another strategy by offering deeply discounted rooms opaquely. That is,
the consumer knows the star rating and the general location of the hotel, but
not the specific facility.
In order to keep its relevance in the market place, Expedia will need to
keep developing its technological edge. It is a very competitive market and

there are a lot of people who like to invest in travel startups, and you see a
lot of innovation coming from outside the industry, the CFO said. To retain
our own competitive advantage we really cant be complacent.

Reference:
Expedia Media Solutions Expands Travelads Search Advertising Program To
New International Markets. (n.d.). Retrieved December 4, 2014, from
http://www.hotelnewsresource.com/article54569
(n.d.). Retrieved December 4, 2014, from http://finance.yahoo.com/q/in?
s=EXPE Industry
Chen, Kuo Lane, Huei Lee, and Cynthia C. Barnes. "An Analysis of ECommerce Strategy. Used by Internet Travel Sites." Issues in
Information Systems 3 (2002): 102-108. Web. 25 Feb. 2011.
<http://www.iacis.org/iis/2002_iis/PDF%20Files/ChenLeeBarnes.pdf>.
McCartney, Scott. Expedia Drops Air Booking Fees: Temporary or Start of a
Trend.
The Wall Street Journal, 12 March 2009. Web. 22 April 2011.
<http://blogs.wsj.com/middleseat/ 2009/03/12/expedia-drops-airbooking-fees-temporary-or-start-of-a-trend/>.

Expedia promotes enterprise data strategy for growth, agility. (n.d.).

Retrieved November 24, 2014, from
http://searchbusinessanalytics.techtarget.com/feature/Expediapromotes-enterprise-data-strategy-for-growth-agility
There are no shortcuts to investing. (n.d.). Retrieved November 24, 2014,
from http://marketrealist.com/2014/04/must-know-investor-overviewexpedia/
Form 10-K. (n.d.). Retrieved November 24, 2014, from
http://www.sec.gov/Archives/edgar/data/1324424/000119312513039
072/d446158d10k.htm
Baginski, Bradshaw, and Wagken. :Financial Rreporting, Financial Statement
Analysis, and Valuation 7e

Appendix A- Expedia consolidated Balance Sheet and Adjustments

EXPEDIA,
INC.
CONSOLIDATD BALANCE SHEETS
December 31,
2103
Adj
Adj 2013
(In thousands, except per share
data)

2,012

Adj

Adj 2012

ASSETS
Current assets:
Cash and equivalents
Restricted cash and cash equivalent
Short-term
investments
Accounts receivable, net of allowance of $11,555
and $10,771
Deferred income taxes
Income taxes
receivable
Prepaid expenses and other current
assets

$1,021,03
3
26,042

1,021,03
3
26,042

21,475

21,475

325,510

644,982

644,982

614,735

614,735

461,531

461,531

66,130

66,130

83,034

83,034

64,296

64,296

27,764

27,764

101,541

101,541
0

Property and
equipment, net

480,702

211,029

Long-term investments and other

assets

250,626

Deferred income taxes

1,293,161

325,510

2,219,28
7

Total current assets

1,293,161

14,151

Intangible assets, net

1,111,041

Goodwill

3,663,674

TOTAL
ASSETS

7,739,48
1

-226,35
4

2,219,28
7
465,377
250,626
14,151
1,111,04
1
3,663,67
4
7,724,15
6

110,319

110,319

2,642,26
6

2,642,26
6

409,373

179,590

-111,537

224,231

$700,50
0

224,231

19,787

19,787

821,419

821,419

3,015,670

3,015,670

7,132,74
6

6,611,83
6

LIABILITIES AND STOCKHOLDERS'

EQUITY
Current liabilities:
Accounts payable, merchant
Accounts payable, other
Deferred merchant bookings
Deferred revenue
Income taxes payable
current debt
Accrued expenses and other current
liabilities
Total current liabilities
Long-term debt

1,044,25
9
261,288
1,350,31
9
39,746
61,874
0

433,532

Other long-term liabilities

Commitments and contingencies
Redeemable noncontrolling interests
Stockholders' equity:
Common stock $.0001 par value
Authorized shares: 1,600,000
Shares issued: 192,562 and 189,255
Shares outstanding: 116,886 and
122,530
Class B common stock $.0001 par
value
Authorized shares: 400,000
Shares issued and outstanding: 12,800 and 12,800

138,300

Treasury stock-Commno stock, at cost

Shares: 75,676 and 66,725

43,744.
00

536,895
3,294,38
1
1,249,41
2

Deferred income taxes

Additional paid-in capital

1,044,25
9
261,288
1,350,31
9
39,746
61,874

364,871
19

43,744
536,895

43,744
167,28
5
-63,379
.00

3,338,12
5
1,416,69
7

954,071

954,071

283,029
1,128,23
1
26,475
62,025

283,029
1,128,23
1
26,475
62,025

0
556,244

556,244
3,041,25
0
1,397,76
0

370,153

343,553

138,300
364,871
19
-

126,912

5,802,14
0
3,465,67
5

1
5,802,14
0
(3,465,6
75)
-

31,175

3,010,07
5
1,249,34
5

13,473
19

31,175.
00

31,175
148415
-93867

249,686
126,912
0
13,473
0
19
0
0
0

5,675,07
5
2,952,79
0

1
0
0
5,675,07
5
2,952,79
0
0

Retained earnings (deficit)

Accumulated other comprehensive income (loss)
Total Espedia, Inc. stockholders' equity
Noncontrolling interest

-209,218
18,197
2,145,46
4
113,521

Total stockholders' equity

2,258,98
5

TOTAL LIABILITIES AND STOCKHOLDERS'

EQUITY

7,739,48
1

162,97
5

(209,218
)
18,197
2,145,46
4
113,521

-442,068

-442,068

22
2,280,25
9
109,129

22
2,280,25
9
109,129

2,096,01
0

2,389,38
8

606,63
3

1,782,75
5

7,724,15
6

7,132,74
6

6,611,83
6

Appendix B- Expedia Consolidated Statement of Operations and Adjustments

EXPEDIA,
INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS

0
0
Year ended December 31,
2103

0
2,012

2,012
( In thousnads, except for per
share data)

Revenues
:
Costs and expense:
Cost of revenue

$4,771,25
9

4,030,34
7

4,771,259

4,030,347
0

-1,038,0
34.00

Selling and marketing (including $217,771,$205,027, and $211,018 with a related

party)
Technology and
content
General and
administrative
Amortization of intangible assets

-577,820
.00
-377,078
.00
-71,731.

(1,038,034)
-2,196,145.
00

-898,604

-898,604
1,721,0
37

(2,196,
145)

1,721,0
37

(577,820)

-484,898

-484,898

(377,078)

-345,354

-345,354

(71,731)

-31,705

-31,705

00
lease
expenses
depreciation expenses
Acquisition-related and
other
Lefal reserves, occupancy tax and
other
Operating income

-66,472.
00
-77,919.
00

84,000

70,000

70,000

-30,147.00

78,739

-25656

-212,471

108,886.00

(66,472)

-186815

366,060

Other income
(expense):
Interest income

24,779

Interest expense

-87,358

Other, net
Total other expense,
net
Income from continuing operatations befor
income taxes
Provisions for income
taxes
Income from continuing operations
Discontinued operations, net of
taxes
Net
income

84,000.00

162,739

(77,919)

-117,025

528,799

431,724

-117,025
142,47
1

0
24,779
-14,755.00

-2,788
-65,367

-14,755

300,693
-84,335
216,358

216,358

26,396

(102,113)

-87,788

(2,788)

-20,275

-80,122

-81,667

448,677
-30,488.00
-10,974

26,396
12619.0
0
-12,619

350,057

232,850
232,850

-94,286
194,967

(125,797)

-47,078

24286

-27,313

322,880

302,979

-4,521

167,654

322,880

2103

16,492

-100,407
-20,275

-22,539

-22,539

280,440

145,115

Year ended
December 31,

Net (income) loss attributable to noncontrolling

interests
Net income attributable to Expedia, Inc.
Amounts attributable to Expedia, Inc.
Income from continuing operations

289,253

0
2,012

16,492
232,850
232,850

2,012

-269

-269

280,171

144,846
0
144,846

280,171

Discontinued operations, net of taxes

Net income
Earnings per share from continuing operations avaliable to common
stockholders:
Basic
Diluted
Earnings per share attributable to Expedia, Inc. avaliable to common
stockholders:
Basic
Diluted
Shares used in computing earningsper share:
Basic
Diluted
Dividends declared per common share
(1) Includes stock-based compensation as follows:
Cost of revenue
Selling and marketing
Technology and content
General and administrative
Acquisition-related and other

232,850

-22,539

-22,539

257,632

122,307

1.73
1.67

2
2

0
2
2

1.73
1.67
134,912
139,593
0.56
3,752
16,190
20,465
33,123
56,643

Appendix C- Priceline Consolidated Balance Sheet and Adjustments

PRICELINE
CONSOLIDATED BALANCE SHEET

232,85
0

2
2
134,912
139,593
1
3,752
16,190
20,465
33,123
56,643

2
2
0

2
2
134,203
139,929
1
3,296
13,474
16,073
31,753

2
2
0
134,203
139,929
1
0
3,296
13,474
16,073
31,753
0

2013

Adj

Adj 2013

2012

adj 2012

1,289,99
4
10,476
5,462,72
0
535,962
107,102
74,687
7,480,94
1
0

1,536,34
9
6,641
3,646,84
5
367,512
84,290
40,738
5,682,37
5

1,536,34
9
6,641
3,646,84
5
367,512
84,290
40,738
5,682,37
5
0

400,569

89,269

89,269

208,113

208,113

522,672

522,672

31,485
35,828
6,569,74
2

31,485
35,828
6,569,74
2

ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable, net of allowance for doubtful accounts of 14,116 and 10,322 repectively
Prepaid expenses and other current assets
Deferred income taxes
Total current assets

Property and equipment, net

Intangible assets, net
Goodwill
Deferred income taxes
Other assets
Total assets

1,289,99
4
10,476
5,462,72
0
535,962
107,102
74,687
7,480,94
1
135,053
1,019,98
5
1,767,91
2
7,055
33,514
10,444,4
60

0
265,516
.00

265,516

1,019,98
5
1,767,91
2
7,055
33,514
10,709,9
76

2013
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabiities:
Accounts payable
Accrued expenses and other current liabilities
Deferred merchant bookings
current debt
Convertible debt(See Note 11)
Total current liabilities
long-term debt
Deferred income taxes
Other long-term liabilities
Convertible debt(See Note 11)
Total liabilities
Commitments and Contingencies(See Note 16)
Redeemable noncontrolling interests(See Note 11)
Convertible debt(See Note 11)
Stockholders' equity
Common stock, $0.008 par value, authorized 1,000,000,000 shares, 61,265,160 and
58,055,586 shares issued, respectively
Treasury stock, 9,256,721 and 8,184,787, respectively
Additional paid-in capital
Accumulated earnings
Accumulated other comprehensive income(loss)
Total stockholders' equity
Total liabilities and stockholders' equity

247,345
545,342
437,127
0
151,931
1,381,74
5
0
326,425
75,981
1,742,04
7
3,526,19
8

Adj

37,743
37,743
227,773

37,743

0
8,533

Adj 2013
0
0
247,345
545,342
437,127
37,743
151,931
1,419,48
8
0
227,773
326,425
75,981
1,742,04
7
3,791,71
4
0
0
0
8,533
0
0

2012

184,648
387,991
368,823

adj 2012
0
0
184,648
387,991
368,823

520,344
1,461,72
6

520,344
1,461,72
6
0

45,159
68,944

45,159
68,944

881,996

881,996

2,457,82
5

2,457,82
5
0
0
160,287
54,655
0
0

160,287
54,655

476

476

450

450

1,987,20
7
4,592,97
9
4,218,75
2
84,729
6,909,72
9
10,444,4
60

1,987,20
7
4,592,97
9
4,218,75
2
84,729
6,909,72
9
10,709,9
76

1,060,60
7
2,612,19
7
2,368,61
1
-23,676
3,896,97
5
6,569,74
2

1,060,60
7
2,612,19
7
2,368,61
1
-23,676
3,896,97
5
6,569,74
2

0
37,743

Appendix D- Priceline Net Income and Adjustments

PRICELINE NET INCOME AND ADJUSTMENTS
Agency revenues
Merchant revenues
Advertising and other revenues
Total revenues

Cost of revenues
Gross profit

2013

Adj

Adj 2013

2012

4,410,68
9
2,211,47
4
171,143
6,793,30
6

4,410,68
9
2,211,47
4
171,143
6,793,30
6

3,142,81
5
2,104,75
2
13,389
5,260,95
6

1,077,42
0
5,715,88
6

1,077,42
0
5,715,88
6
0
1,798,64
5
-127,459
-235,817
-698,692
-252,994
-71,890
40,000
-147,477
3,292,97
4
2,422,91
2
0
4,167
-95,237
-36,755
-115,877
2,307,03
5
-403,994
1,903,04
1
135

Operating expenses:
Advertsing-Online
Advertsing-Offline
Sales and marketing
Personnel, including stock-based compensation of 140,526,$65,724,respectively
General and administrative
Information technology
lease expenses
Depreciation and amortization
Total operating expenses
Operating income
Other income(expense):
Interest income
Interest expense
Foreign currency transaction and other
Total other income(expense)
Earnings before income taxes
Income tax expense
Net income
Less: net income attributable to noncontrolling interests

1,798,64
5
-127,459
-235,817
-698,692
-252,994
-71,890
0
-117,975
3,303,47
2
2,412,41
4
4,167
-83,289
-36,755
-115,877
2,296,53
7
-403,739
1,892,79
8
135

40,000
-29,502

-11,948

-255

adj 2012
3,142,815
2,104,752
13,389
5,260,956

1,177,27
5

1,177,275

4,083,68
1

4,083,681
0

1,273,63
7

1,273,637

35,492
195,934
466,838
173,171
43,685

35,492
195,934
466,838
173,171
43,685

65,141

65,141

2,253,88
8

2,253,888

1,829,79
3

1,829,793

3,860
-62,064
-9,720
-67,924
1,761,86
9
337,832
1,424,03
7
4,471

0
3,860
-62,064
-9,720
-67,924
1,761,869
337,832
1,424,037
4,471

Net income applicable to common stockholders

Net income applicable to common stockholders per basic common share
Weighted average number of basic common shares outstanding
Net income applicable to common stockholders per diluted common share
Weighted average number of diluted common shares outstanding

Net income
Other comprehensive income(loss),net of tax
Foreign currency translation adjustments(1)
Unrealized gain(loss)on marketable securities(2)
Comprehensive income
Less:Comprehensive income(loss) attributable to redeemable noncontrolling interests
Comprehensive income attributable to common stockholders

1,892,66
3
37
50,924
36
52,413

1,892,66
3
37
50,924
36
52,413

2013
1,892,79
8

2012
1,424,03
7

97,970
21
1,990,78
9
-10,279
2,001,06
8

69,683
-620
1,493,10
0
9,628
1,483,47
2

1,419,56
6
28
49,840
27
51,326

1,419,566
28
49,840
27
51,326

Appendix E- Comparative Profit Ratios Expedia Vrs. Priceline

Profit analysis
Expedia
2013
4.88%
61.77%
3.01%

2012
3.03%
60.96%
1.85%

Return on Common Equity

4.88%
61.77%
368.52
%
11.11%

3.03%
60.96%
370.88
%
6.86%

Cost of goods sold margin

Selling, general and administration margin
Gross profit margin
Profit margin

21.76%
53.93%
78.24%
6.77%

22.30%
51.27%
77.70%
3.60%

Profit Margin
Asset Turnover
Return on Assets
Profit Margin for ROCE
Asset Turnover
Capital structure leverage

Priceline
2013
28.01%
63.43%
17.77%
28.01%
63.43%
155.00%
27.54%

15.86%
35.55%
84.14%
28.01%

Appendix F- Comparative Common Size Income Statement Expedia Vrs. Priceline

Common Size Income

Statement
Sales
Cost of sales
Gross profit
SG&A
Operating income
Interest Expense
Other expense
Income before income taxes
Income tax provision
Net income

Expe
dia
2103

2012

Priceli
ne
2013

1
-22%
78%
-54%
11%
-2%
0%
9%
-3%
5%

1
-22%
78%
-51%
7%
-2%
-1%
5%
-1%
3%

1
-16%
84%
-7%
36%
-1%
-2%
34%
-6%
28%

Appendix G- Comparative Common Size Balance Sheet Expedia Vrs. Priceline

2103

2012

Pricelin
e
2013

13%
8%
4%
1%

20%
7%
10%
1%

12%
5%
51%
1%

1%
29%
6%
0%
14%
47%
100%

2%
40%
-2%
0%
12%
46%
100%

1%
70%
4%
0%
0%
17%
100%

17%
17%
1%

19%
17%
0%

5%
4%
0%

7%

8%

5%

43%
18%
5%
2%

46%
21%
4%
2%

13%
2%
3%
1%

Expedia
Common size balance sheet
Assets:
Cash and cash equivalents
Accounts receivable, net
Short-term investments
Deferred income taxes
Common Size Income Statement
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Deferred income taxes
Intangible assets, net
Goodwill
Total assets
Liabilities and shareholders' equity
Accounts payable
Deferred merchant bookings
current debt
Accrued expenses and other current
liabilities
Total current liabilities
Long-term debt
Deferred income taxes
Other long-term liabilities

Total liabilities
Common stock
Additional paid-in capital
Retained earnings (deficit)
Accumulated other comprehensive income
(loss)
Total stockholders' equity
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY

73%
0%
75%
-3%

73%
0%
86%
-7%

35%
0%
43%
39%

0%

0%

1%

27%

27%

65%

Appendix H: Risk Analysis Expedia Vrs. Priceline

Risk analysis
1. Short-term liquidity risk
(1) Current ratio
(2) Quick ratio
(3) Operating cash flow to current liabilities
ratio
(4) Working capital ratios
a) Accounts receivable turnover
Days receivables held
b) Accounts payable turnover
Days payables held
(5) Revenues to cash ratio
(6) Days revenues held in cash

2103
66%
50%

Expedia
2102
87%
58%

Priceline
2103
527%
129%

23%

41%

69%

776%
4703%
80%
45906%
467%
7811%

873%
4180%
73%
50249%
312%
11711%

1267%
2880%
436%
8379%
527%
6931%

Risk analysis
Exepida
2. Long-term solvency risk
(1) Debt ratios
a) Liabilities to assets
b) liabilities to shareholders' equity
c) Long-term debt to long-term capital
d) Long-term debt to shareholders' equity

73%
269%
40%
68%

73%
271%
44%
78%

Priceline

35%
55%
3%
3%

1. Short-term liquidity risk

(2) Interest coverage ratios (cash)
(3) Operating cash flow to total liabilities
ratio

2103
971%

2102
1359%

2103
2941%

14%

26%

61%

87%

79%

269%

3. bankrupcy prediction

Z-core

Appendix I- Forecast Assumptions

Assumptions
Income Statement
Sales Growth
Cost of sales (% of Sales)
SG&A (% of Sales)
interest expense(% of debt)
tax rate (% of pretax income)
Balance Sheet
Operating
Days Cash
Days Other Investments(ST)
days receivable
Inventory Turnover
Assumptions
Income Statement
Days Payable
Financing
Long-term Debt/Total Assets

14%
13%
18%
6%
28%

117.11
58.41
41.80

2013

2014

2015

2016

2017

2018

18%
16%
20%
7%
28%

15.00%
15.00%
20.00%
7.00%
28.00%

15.00%
15.00%
20.00%
7.00%
28.00%

15.00%
15.00%
20.00%
7.00%
28.00%

17.00%
15.00%
20.00%
7.00%
28.00%

17.00%
15.00%
20.00%
7.00%
28.00%

100.00
40.00
44.00

100.00
40.00
44.00

100.00
40.00
44.00

100.00
40.00
44.00

100.00
40.00
44.00

78.11
24.90
47.03
2013

2014

2015

2016

2017

2018

112.04

459.06

250.00

250.00

250.00

250.00

250.00

21.14%

18.34%

20.00%

20.00%

20.00%

20.00%

20.00%

Sales Growth

14%

18%

15.00%

15.00%

15.00%

17.00%

17.00%

2013

2014

2015

2016

2017

2018

4,771,25
9
1,372,80
0
3,398,45
9
(715,689
)

4,771,25
9
1,578,72
0
3,192,53
9
(715,689
)

4,771,25
9
1,847,10
2
2,924,15
7
(811,114
)

2,861,831

2,682,77
0

2,476,85
0

2,113,04
3

261,439

261,439

261,439

261,439

Appendix J- Expedia Income Statement Forecast

Income Statement
Net sales (% Growth in Sales)
Cost of sales (% of Sales)
Gross margin
SG&A (% of Sales)
Other Operating Expenses
Nonrecuring Gains and Losses
Operating income
Investment and other income
Interest Income (% of investment)
Net Interest Expense (% of net debt)
Income before income taxes & chg in acct
principle
Income tax provision
Net income
- Preferred dividends

4,771,25
9
1,038,03
4
3,733,22
5
(2,573,2
23)
(77,919)
1,082,08
3
24,779
(102,113
)
1,004,74
9
281,330
1,286,07
9

4,771,259
1,193,739
3,577,520
(715,689)

(3,521)
3,119,749
873,530
3,993,278

(4,050)

(4,657)

(5,356)

2,940,15
9
823,245
3,763,40
4

2,733,63
2
765,417
3,499,04
9

2,369,12
6
663,355
3,032,48
1

4,771,259
2,161,110
2,610,149
(811,114)

1,799,035
261,439
(6,159)
2,054,315
575,208
2,629,523

= Net income to common

Assuming Dividend Payout+
Dividends

1,286,07
9

3,993,278

3,763,40
4

3,499,04
9

3,032,48
1

1
2,258,04
2

1
2,099,42
9

1
1,819,48
9

2,629,523

771,647

2,395,967

1,577,714

2013

2014

2015

2016

2017

1,021,0
33
26,042
325,510

1,307,19
4
29,948
522,878

1,307,1
94
34,441
522,878

1,307,1
94
39,607
522,878

1,307,1
94
46,340
522,878

614,735

575,165

575,165

575,165

575,165

575,165

66,130
64,296
101,541
2,219,2
87
465,377
250,626

76,050
73,940
116,772
2,701,94
8
535,184
288,220

87,457
85,031
134,288
2,746,4
54
615,461
331,453

100,575
97,786
154,431
2,797,6
37
707,780
381,171

117,673
114,410
180,684
2,864,3
45
828,103
438,346

137,678
133,860
211,401

Appendix K- Expedia Balance Sheet Forecast

2018

Balance Sheet
ASSETS
Current assets:
Cash and equivalents
Restricted cash and cash equivalent
Short-term investments
Accounts receivable, net of allowance of $11,555 and
$10,771
Deferred income taxes
Income taxes receivable
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Long-term investments and other assets

1,307,194
54,218
522,878

2,942,393
968,880
504,098

Deferred income taxes

Intangible assets, net
Goodwill
TOTAL ASSETS

14,151
1,111,0
41
3,663,6
74
7,724,1
56

16,274
1,277,69
7
4,213,22
5
9,032,54
7

18,715
1,469,3
52
4,845,2
09
10,026,
644

21,522
1,689,7
54
5,571,9
90
11,169,
854

24,750
1,943,2
18
6,407,7
89
12,506,
551

2013

2014

2015

2016

2017

1,265,1
39
456,994
2,361,7
16
69,516
108,218
76,509

28,463
2,234,700
7,368,957
14,047,492

2018

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable, merchant
Accounts payable, other
Deferred merchant bookings
Deferred revenue
Income taxes payable
current debt
Accrued expenses and other current
liabilities
Total current liabilities
Long-term debt

1,044,2
59
261,288
1,350,3
19
39,746
61,874
43,744

817,630

940,274

300,481
1,552,86
7
45,708
71,155
50,306

345,553
1,785,7
97
52,564
81,828
57,851

1,081,3
15
397,386
2,053,6
66
60,449
94,103
66,529

536,895

617,429

710,044

816,550

939,033

3,338,1
25
1,416,6
97

3,455,57
5
1,806,50
9
(1,358,50
4)
425,676
159,045

3,973,9
12
2,005,3
29
(1,501,8
58)
489,527
182,902

4,569,9
98
2,233,9
71
(1,670,4
67)
562,956
210,337

5,277,1
25
2,501,3
10
(1,829,4
72)
658,659
241,888

Flex financial - Long-term Debt

Deferred income taxes
Other long-term liabilities

370,153
138,300

1,480,212
525,543
2,715,974
79,943
124,451
87,985
1,079,888
6,093,996
2,809,498
(2,074,003)
770,631
278,171

Commitments and contingencies

Redeemable noncontrolling interests
Stockholders' equity:
Common stock $.0001 par value
Authorized shares: 1,600,000
Shares issued: 192,562 and 189,255
Shares outstanding: 116,886 and 122,530
Class B common stock $.0001 par value
Authorized shares: 400,000
Shares issued and outstanding: 12,800 and
12,800
Additional paid-in capital
Treasury stock-Commno stock, at cost
Shares: 75,676 and 66,725
Retained earnings (deficit)
Accumulated other comprehensive income
(loss)

364,871
19
1
-

Noncontrolling interest
Total stockholders' equity
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY

482,542

554,923

649,260

759,634

19

19

19

19

19

5,802,1
40
(3,465,6
75)
(209,21
8)
18,197

flex financial -Treasury Stock

Total Espedia, Inc. stockholders' equity

419,602

2,145,4
64
113,521
2,096,0
10
7,724,1
56

6,672,46
1
(3,985,52
6)

7,673,3
30
(4,583,3
55)

8,824,3
30
(5,270,8
58)

10,147,
979
(6,061,4
87)

1,597,31
1

1,505,3
62

1,399,6
20

1,212,9
92

20,927

24,066

27,675

31,827

(75,000.
0)
4,544,4
22
150,132
4,394,2
91
10,026,
644

(100,000
.0)
4,880,7
86
172,651
4,708,1
35
11,169,
854

(125,000
.0)
5,206,3
31
198,549
5,007,7
82
12,506,
551

(50,000.0)
4,255,19
3
130,549
4,124,64
3
9,032,54
7

Appendix L- Companys Valuation

After the 5th year growth will be
15%.
Assume the cost of capital is 20%.
Assume a dividend payout ratio
given below
Assume 1000 shares
Dividend Discount Model - perptuity and perptuity with a constant growth rate(these 2 are not in
book, not on test)
Price
Perptuity
=
Div1/r

11,670,176
(6,970,710)

1,051,809
36,601
(150,000.0)
5,637,896
228,331
5,409,564
14,047,492

Perptuity with constant

Price Div1 / (rgrowth
=
g)
Dividend Discount Model - 2 stage. Stage 1 - take the present value of forecasted dividends for a
period of time (5, 10 years)
Stage 2 - then calculate a terminal
value
Price Div1/
Div2/
Div3/
=
(1+r)+
(1+r)^2+
(1+r)^3+
+
Cost of Capital (r)
0.2000

terminal value/(1+r)^n

After the 5th year growth will be

15%.
Number of Shares
Growth after estimation period (g)

1,000.00
00
0.1500

Year
2,007.0000
2,008.0000
Period
1.0000
2.0000
Step 1 - We have forecast payout ratio and income for 5 years. Thus we can calculate
dividends
Assume the cost of capital is 20%.
Net income (earnings) avaiable to common
shareholders
Assuming Dividend Payout 60%
Dividends
Less: Common Stock Issues

3,993,278.089
4
0.6000
2,395,966.853
6
0.0000

Plus: Common Stock Repurchase

500,000.0000
Total Dividends to Common
2,895,966.853
Equity
6
Step 2 - Calculate the Continuing
(Terminal) Value
Terminal value = year 6 dividend/(discount rate - sustainable growth)
Year 6 dividend is Dividend(T+1)=NI(T+1) + BV(t) - BV (T+1)
based
on clean surplus
Dividend(T+1)=NI(1+g)) + BV(T) BV(T) (1+g)
Terminal value =[NI(1+g)) + BV(T) - BV(T)
(1+g)]/(R-g)
Terminal value = [(2,629,523*(1+.15))+(4,059,564-0)-(4,059,564-0)
(1+.15)]/(.20-.15)
Step 3 - Calculate the Present value of Dividends and
terminal value
Present Value of Dividends (Div/
(1+r)^n)

PV of Div1
2,413,305.711
3

3,763,404.07
49
0.6000
2,258,042.44
49
0.0000
250,000.000
0
2,508,042.44
49

2,009.0000
3.0000

3,499,048.95
83
0.6000
2,099,429.37
50
0.0000
250,000.000
0
2,349,429.37
50

2,010.0000
4.0000

2,011.0000
5.0000

3,032,481.112
8
0.6000
1,819,488.667
7
0.0000

2,629,523.36
61
0.6000
1,577,714.01
97
0.0000

250,000.0000
2,069,488.667
7

250,000.0000
1,827,714.01
97

Terminal
5.0000

60,451,035.6
482

PV of Div2
1,741,696.14
23

PV of Div3
1,359,623.48
09

PV of Div4
998,017.2973

PV of Div5
734,517.2726

PV of DTerminal
24,293,915.4
322

Step 4 - Sum up PV then divide by

shares
Per share (total PV/shares)

31,541,075.33
66
31,541.0753