The Day Ahead: Expedia's independence pays, Musicmaker's swan song

Expedia first quarter as a public company shows the benefits of being independent
Written by Larry Dignan, Contributor

Expedia reported a smaller-than-expected loss and announced two acquisitions that bolster its position in the online travel world.

Here's why the Expedia's independence is so important: It is quite possible that Expedia wouldn't and couldn't have acquired VacationSpot.com and Travelscape.com if it was still just a small part of Microsoft.

Why would Microsoft have wasted the time acquiring two travel sites that wouldn't have boosted the top or bottom lines?

Now Expedia that has its own management, own strategy and own stock, it's a different story. An independent Expedia can use its inflated Internet shares to make acquisitions instead of Microsoft stock.

Expedia will issue about $177m (£109m) in stock, or 5.6 million shares, for the two companies and gain about $69m in annual revenue. Expedia recently announced it would create a magazine with Ziff Davis Publishing.

According to Expedia, the two deals give it access to 65,000 lodging properties worldwide and a combined run rate of about 2 million room nights per year. Lodging sales will diversify Expedia's business, which currently hinges on airline ticket sales.

As an independent entity, Expedia can be more aggressive. We've said it before and we'll say it again -- Microsoft might be better off in parts, especially when it comes to its Net properties. Microsoft should consider breaking itself up on its terms and make shareholders a lot more money.

Now back to Expedia.

Expedia showed its pedigree by easily topping estimates. Excluding one-time items, Expedia reported a loss of $5.9m, or 16 cents a share. A First Call consensus estimate of two analysts predicted a loss of 29 cents a share.

Revenue rose to $17.8m, up 127 percent from $7.9m a year earlier. Transaction sales, which account for transaction commissions and fees, were $11.9m in the quarter. Gross travel bookings on the Expedia network were $220m, up 158 percent from a year ago. The number of transactions jumped to 459,000 in the quarter, up 157 percent from a year ago.

Expedia had solid numbers overall, but we're not going to tell you Microsoft's travel baby will win pulling away.

Expedia faces tons of competition. It competes with Priceline.com, Preview Travel, which merged with Sabre Holding's Travelocity, and Cheap Tickets among others.

The competition could beat Expedia in the long run, but it stands a much better chance on its own.

Musicmaker.com musings

The online music industry is nascent and the shakeout is occurring before some companies even hit the play button. Weaker players such as Musicmaker.com are already looking for an exit.

Musicmaker.com said Monday it retained an investment banker Allen & Co. to "advise the company on merger and acquisition opportunities."

Translation: Musicmaker.com is for sale. Investors yawned at the news and for good reason. Who would want to own Musicmaker.com? The company could get a huge premium and not hit its original IPO price.

You can't say we didn't warn you, but this company was clearly shaky from day one. The IPO priced at $14 in July in the thick of MP3, a format for downloading music digitally, even though the company had 1998 revenue of a little more than $74,000. Now Musicmaker.com is fighting to stay above $6 a share.

Luckily, Musicmaker.com will improve on sales a bit. The company, which is tentatively scheduled to report earnings next week, reported sales of $190,000 for the third quarter. For the first nine months of 1999, Musicmaker.com had sales of $256,921. With a great fourth quarter, we may see a whopping $500,000 in 1999 sales.

Musicmaker.com said it was looking at alternatives because of the rapid consolidation of the Internet music industry, which has accelerated recently. In recent weeks, America Online merged with Time Warner; Warner Music formed a joint venture with EMI Music; and CDNow merged and Columbia House.

Industry consolidation is worth noting, but let's not kid ourselves. Six months after going public, Musicmaker.com can't hold its own despite having EMI as a partner. One analyst, who happens to work for the lead underwriter of the Musicmaker.com IPO, covers the stock and no one else seems to care.

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