Expedia (EXPE): Booking gains

"Vacationers and professionals finally appear to be hitting the road; many are relying on Expedia (NASDAQ: EXPE) to handle the details," says Nathan Slaughter in Half-Priced Stocks.

"Expedia's travel sites processed 15.3 million transactions during the second quarter, 18% above the same period last year. Howevver, the gross dollar amount of those bookings dipped slightly to $5.6 billion/

"Whenever you have more trips bringing in less money, it's a pretty good indication that prices are way down.

"I'm not terribly concerned; lower prices are a function of the macro-economy and outside the company's control. The important thing is that travelers are still opting for Expedia over its rivals.

"Despite industry headwinds, the company managed to convert those $5.6 billion in travel bookings into $770 million in revenues, for a healthy margin of 13.7%.

"It is the firm's competitive advantages that make Expedia a compelling investment. As the commanding market leader, the company benefits from a powerful network effect -- millions of travelers visit its sites for their vast inventory.

"Hotels are happy to supply that inventory knowing they can reach an ocean of potential customers. All that traffic to the firm's online properties help generate piles of high-margin advertising income.

"All in all, recent volume gains are a good sign Expedia is gobbling up market share. The company continues to add new merchandise, signing agreements with Hertz (NYSE: HTZ), Air New Zealand and other partners.

"It may seem counterintuitive, but now is the opportune time for Expedia to excel. Many hotels have no trouble filling their rooms internally when travel is booming and don't really need the help of an outside third party. But when occupancy is down, Expedia becomes a vital distribution channel.

"Looking ahead, I see further growth in fragmented markets overseas. Believe it or not, just one-third of all trips are booked online, according to Morningstar.

"Expedia's shares have been one of the market's top performers lately, surging more than+80% since my initial recommendation. But with a fair value of $32, they haven't reached their final destination just yet."