Profit Outlook Good For Online Services

Citing a burgeoning market for online travel services, William Blair & Company, L.L.C. has initiated research coverage of two leading providers of Web-based travel tools, Expedia, Inc. and Travelocity.com Inc., with Long-term Buy ratings.
Analyst Bob Simonson estimated that online travel will constitute a $34 billion market in 2005, roughly triple the level of 2000.
Expedia and Travelocity, the Web`s top destinations for travel services, should fully benefit from this rapid industry growth, he said.
Simonson estimated that Expedia, in which Microsoft holds a majority stake, would generate earnings per share of $0.09 in 2001 and $0.38 in 2002. He pegged Travelocity`s earnings at $0.18 and $0.54 per share in 2001 and 2002, respectively. Travelocity is majority-owned by Sabre (TSG $47.50), which boasts the world`s top travel reservation computer system. “We believe both Expedia and Travelocity are well positioned to increase revenues very rapidly over the next three to five years,” Simonson noted. “Both companies have attained a revenue level that essentially completes the developmental period, with its associated operating losses. From this current earnings/loss inflection point, we expect both companies will begin a rapid ramp in profitability.”
William Blair & Company, L.L.C. maintains a market in the common shares of Expedia, Inc., Microsoft Corporation, and Travelocity.com Inc.
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