Debt May Weigh Down Expedia Takeoff
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While Microsoft Corp.'s big day in court may be Friday -- when a U.S. District Court judge is expected to issue a finding of fact in the Department of Justice's anti-trust suit against the software giant - Internet investors could render a verdict next week on the company's ability to spin off a successful consumer portal.
Perhaps as early as Monday, shares of Expedia, Microsoft's online travel reservations operation, will be available to the public. Microsoft Microsoft (MSFT)and lead underwriter Goldman Sachs plan to offer 5.2 million shares between $10 and $12 each in hopes of raising $57.2 million. The software maker will retain a majority stake in Expedia, which will trade under the Nasdaq symbol EXPE.
It looks like an offering put together by a powerful partnership, and that often means an IPO moonshot. However, investors should keep in mind that Microsoft's track record with online consumers has been unspectacular.
Yes, they captured the majority of the browser market once dominated by Netscape, but only because they gave away Internet Explorer for free. And that's just a single product.
It's impossible to know the bottom line on these efforts, for Microsoft doesn't break out numbers for each unit of its consumer and commerce division.
But Expedia's S-1 reveals an online travel booking service with $38.7 million in revenue in the fiscal year ended June 30, with another $15.3 million in the quarter ended Sept. 30. That's far below the revenue of competitors such as Cheap Tickets (CTIX) ($110 million in Q3) and priceline.com priceline.com (PCLN) ($152 million), and ahead of Preview Travel (PTVL) ($9 million).
Though Expedia may lag badly behind Cheap Tickets and priceline.com in terms of sales, the company has proved it can lose money with the best of them. In the fiscal year ended June 30, Expedia had a net loss of $19.6 million and negative cash flow of $18 million. In the most recent quarter, the net loss was $5 million and there was negative cash flow of $6.3 million.
As of Sept. 30, accumulated debt was $91.7 million. The company's revised S-1 also warns of a non-cash charge of $100 million to $150 million related to stock options issued to employees to replace Microsoft options they are losing.
While Goldman Sachs is a skilled and experienced IPO pilot, it's difficult to attain much altitude with this extra baggage. Given that there are no other big names slated to go public next week, Expedia could do reasonably well in its debut, considering the recent hot market for Internet offerings. Just don't expect another Cobalt Networks (COBT) or Akamai Technologies (AKAM) Akamai Technologies.
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