Summary
This summary may not contain all the information that may be important to you. You should read this entire prospectus before making an investment decision. You should also pay special attention to the section entitled "Risk Factors" beginning on page 8 of this prospectus to determine whether an investment in the Class A common stock is appropriate for you.
In this prospectus, the terms "Expedia," "the Company" and "we" refer to Expedia, Inc. and our subsidiaries and our predecessor, the travel business unit of Microsoft Corporation, except where it is clear that such terms mean only Expedia, Inc.
Expedia, Inc.
We are the leading provider of branded online travel services for leisure and small business travelers. We operate our own website, located at Expedia.com, with localized versions in the United Kingdom, Germany and Canada. We offer one-stop travel shopping and reservation services, providing reliable, real-time access to schedule, pricing and availability information for over 450 airlines, 40,000 hotels and all major car rental companies.
The Internet is dramatically changing the way that consumers and businesses communicate, share information and buy and sell goods and services. The Internet reduces inefficiencies in markets characterized by the presence of large numbers of geographically dispersed buyers and sellers and purchase decisions involving large amounts of information from multiple sources. We believe that the worldwide travel industry, which exemplifies these characteristics, is especially well-suited to benefit from increased Internet and electronic commerce adoption. As a result, travel has already become the largest online retail category with estimated online transactions of $7.8 billion in 1999, growing to $32 billion in 2004, according to Forrester Research.
To address this market opportunity, we attract a large global base of consumers and travel suppliers to our Internet-based travel marketplace and enable them to research, buy and sell travel-related services online. Our global travel marketplace satisfies consumers' need for a convenient, comprehensive and personalized source of travel information and services. At the same time, our marketplace enables travel suppliers to reach a large, global audience of consumers who are actively engaged in planning and purchasing travel services. In our marketplace, suppliers can pursue a range of innovative, targeted merchandising and advertising strategies designed to increase revenues, while reducing overall transaction and customer service costs.
We have built an underlying technology infrastructure that enables both buyers and sellers to transact through our websites in a reliable, scalable and secure environment. In addition to generating revenues from transactions and advertising on our websites, we also license key components of our technology and editorial content to selected airlines as a platform for their electronic commerce websites.
Since launching our online travel service in October 1996, we have experienced significant growth in visitors and gross bookings on our websites. As of August 31, 1999, seven million users had registered on our websites and over $700 million in gross bookings of airline tickets and hotel and car rental reservations had been purchased through our websites by over 860,000 consumers. According to Media Metrix, Expedia.com was the #1 most visited website for travel services for each of the five months ended August 31, 1999.
We are located at 4200 150th Avenue NE, Redmond, Washington 98052, and our phone number is (425) 705-5161.
Our Strategy
Our objective is to enhance our position as the leading online travel marketplace. The key elements of our strategy are as follows:
Increase brand awareness. We plan to pursue an aggressive brand development strategy that will include a substantial advertising presence in both online media and traditional media, such as print, radio and television. We will also continue to offer co-branded promotions with selected supplier partners.
Enhance supplier relationships. Investing in and building on strong supplier relationships are crucial to the success of our business. We will continue to work with suppliers to develop new advertising and travel services for our websites and new tools to facilitate suppliers' entry of pricing, availability and description information directly into our marketplace.
Enhance technology platform and product functionality. We plan to continue to enhance the underlying infrastructure and functionality of our websites. The operation of our own websites and those of our licensees has given us extensive experience at handling rapid increases in transaction volumes. In addition to continuously updating software features and editorial content, we believe increasing the level of personalization in our marketplace is critical to providing a rich consumer experience.
Expand internationally. We operate localized websites in the United Kingdom, Germany and Canada. We selected these countries due to their large travel markets and the rapid growth of online commerce in these markets. We plan to expand our international presence by entering other important travel markets, after evaluating both the size of the local travel market and the popularity of online commerce. In developing customized websites in these and other international markets, we will continue to draw on our experience in the United States with technology, user interface and supplier relationships while tailoring our international websites to specific characteristics of each local marketplace.
Broaden our marketplace into new travel services categories. We plan to expand our travel service offerings to include more complex travel products and destination service offerings. Currently, the majority of our commerce revenues are derived from sales of airline tickets, with a smaller percentage represented by hotel reservations and car rentals. We plan to extend our offerings in each of these core segments and expand the range of offerings into other segments, such as cruises and vacation packages.
Our Relationship with Microsoft Corporation In October 1996, Microsoft launched its online travel services through Expedia. On , 1999, Microsoft separated the Expedia assets and contributed them to us in exchange for shares of Class A common stock and shares of Class B common stock, or 100% of our outstanding common stock. Microsoft will continue to include us in its consolidated federal tax returns as long as it owns at least 80% of our outstanding stock and will continue to include our financial data in its consolidated financial reports as long as it maintains control of our outstanding common stock. For a description of the rights and restrictions associated with the Class B common stock, which has 10 votes per share, see "Description of Capital Stock--Common Stock."
Microsoft will cancel all of the unvested options of Microsoft employees who choose to join Expedia prior to this offering and we will replace the canceled options with Expedia options, that will have equivalent vesting schedules and in-the-money values and comparable other terms as the canceled Microsoft options.
We have also entered into a number of other agreements which were necessary to separate the Expedia assets from Microsoft and to facilitate the operation of the Expedia assets after such separation. One of these agreements provides that for a three-year period Microsoft will not compete directly or indirectly in the business of offering an online service for reserving or purchasing travel services. These agreements were not negotiated on an arm's length basis.
Microsoft develops, manufactures, licenses and supports a wide range of software products for a multitude of computing devices. Microsoft software includes scalable operating systems for intelligent devices, personal computers and servers; server applications for client/server environments; knowledge worker productivity applications; and software development tools. Microsoft's online efforts include the MSN network of Internet products and services; e- commerce platforms; and alliances with companies involved with broadband access and various forms of digital interactivity. Microsoft also licenses consumer software programs; sells personal computer input devices; trains and certifies system integrators; and researches and develops advanced technologies for future software products.
The Offering
Class A common stock offered by Expedia U.S. offering................ shares International offering....... shares Total...................... shares Common stock to be outstanding after the offerings: Class A common stock......... shares Class B common stock......... shares Total...................... shares Use of proceeds................ Working capital and general corporate purposes Nasdaq National Market symbol.. "EXPE" Voting rights.................. The holders of Class A common stock generally have rights identical to holders of Class B common stock, except that holders of Class A common stock are entitled to one vote per share and holders of Class B common stock are entitled to 10 votes per share. The Class A common stock and the Class B common stock will vote together as a single class on all matters except as otherwise required by Washington law.
In addition to the shares of common stock to be outstanding after this offering, we may issue additional shares of common stock under the following plans and arrangements:
. shares issuable upon exercise of outstanding options at a
weighted average exercise price of $ per share as of , 1999
. shares available for future issuance under our various stock plans Summary Financial Data Years ended June 30, 1995 1996 1997 1998 1999 (in thousands, except per share data)
Statement of Operations Data:
Net revenues.................... $ -- $ -- $ 2,742 $ 13,827 $ 38,699
Cost of revenues................ -- -- 3,279 9,692 15,950
Gross profit (loss)............. -- -- (537) 4,135 22,749
Operating expenses:
Product development........... 818 6,263 16,211 18,506 21,180
Sales and marketing........... -- 17 8,820 10,823 14,888
General and administrative.... 145 1,520 3,353 4,284 6,283
Total operating expenses.... 963 7,800 28,384 33,613 42,351
Loss from operations and net
loss........................... $(963) $(7,800) $(28,921) $(29,478) $(19,602)
Pro forma basic and diluted net
loss per share................. $
Shares used in computing pro
forma net loss per share.......
As of June 30, 1999 As Actual adjusted (in thousands)
Balance Sheet Data: Working capital.............................................. $ 1,390 $ Total assets................................................. 5,756 Accumulated deficit.......................................... (86,764) Total owner's net deficit/stockholders' equity............... (1,675)
The as adjusted amounts reflect the receipt by Expedia of the estimated net proceeds of $ from the sale of the shares of Class A common stock offered by Expedia in this offering after deducting the estimated offering expenses and underwriting discounts and commissions, based upon an assumed public offering price of $ per share.
Unless we note otherwise, all of the information that we have included in this prospectus assumes that the underwriters have not exercised their over- allotment options. See "Underwriting" for a discussion of the over-allotment options.