On November 10, 1998, Microsoft had its first-ever spin-off. Of course,
the newly minted IPO was Expedia (EXPE)
, the online travel site.
Like any hot Net IPO, the stock soared on its
first day, gaining $39.44 to $53.44, giving the company a $2 billion market
capitalization.
The stock eventually reached a high of $65-7/8. However, Expedia is now
trading for $48-3/8.
Having Microsoft as the parent certainly has made life easier for Expedia.
Since its inception in 1996, the site has generated a total of $790 million in
airline ticket purchases, hotel and car rental reservations. There are now
about 7.5 million registered users. According to Media Metrix, Expedia.com
was ranked No. 1 as the most visited travel site for the six months ended
September 30, 1999.
The site is a one-stop shop for travel. You have access to schedules,
pricing and availability information for over 450 airlines, 40,000 hotels
and all major car rental companies.
The competition is intense, though, and will worsen with the pending recent
merger announcement of Travelocity and Preview. But the market seems to be
big enough for several players. Travel is the biggest online retail
category, with online transactions of $7.8 billion in 1999, an amount
expected to be $32 billion by 2004 by Forrester Research.
Strategy
There is an interesting way to perhaps make a quick profit from Expedia.
The company is currently in the so-called quiet period. This is mandated
by the Securities and Exchange Commission and requires companies to not
promote their stock until 26 days after their IPO. Of course, once the
quiet period expires, there is lots of hyping. Underwriters will put buy
recommendations on the stock. The IPO company will also typically make big
announcements.
Expedia has lots of fire-power for its quiet period expiration–Goldman
Sachs and Morgan Stanley were the underwriters. Of course, they have
highly regarded (and followed) research analysts.
It is vitally important to Microsoft that Expedia perform very well. The
reason is that Microsoft wants to spin-off other Internet divisions. Thus,
it makes sense that Microsoft will spin-off its best divisions first. This
creates momentum for follow-on spin-offs.
But perhaps most importantly, Microsoft wants to deflect attention away
from the settlement talks with the Justice Department. What better way
then to show strength from its Expedia IPO?
Microsoft still owns 80 percent of Expedia. So it should not be surprising if
Microsoft puts lots of pressure on the company to show results and make a
splash.
Expedia looks like it could have a nice short-term pop. As for the quiet
period, it will expire Dec. 5.
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