Barry Diller - Chairman and Senior Executive Dara Khosrowshahi - Chief Executive Officer Stu Haas - Vice President of Investor Relations

Heath Terry - Credit Suisse First Boston Robert Peck - Bear Stearns Doug Elix - Lehman Brothers Justin Post - Merrill Lynch Mark Mahaney - Citigroup Anthony Noto - Goldman Sachs Chris Dupuy- Morgan Stanley Imran Khan - J.P. Morgan Aaron Kessler - Piper Jaffray Michael Millman - Soleil Securities

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Expedia Inc. First Quarter 2006 Conference Call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. If anyone should require operator assistance during the conference, please press the star key, followed by the zero. As a reminder, this conference is being recorded today, Thursday, May 11th, of 2006. I would now like to turn the conference over to Stu Haas, Vice President of Investor Relations. Please go ahead.

Good afternoon, and welcome to Expedia Inc.'s financial results conference call for the first quarter ended March 31st, 2006. Joining me on today's call are Barry Diller, Expedia's chairman and senior executive; and Dara Khosrowshahi, our CEO. The following discussion and responses to your questions reflect management's views as of today, May 11, 2006 only. As always, some of the statements made on today's call are forward-looking, including our comments on financial expectations, our operational performance and margins, planned investments and spending, platform improvements, systems upgrades, growth of business lines, financial performance, and dilution. Actual results may differ materially. We do not undertake any obligation to update or revise this information to reflect future events or circumstances. Please refer to today's press release and the company's filings with the SEC, including our form 10K for the year ended December 31st, 2005, for additional information about factors that could potentially affect our financial and operational results. During this call, we will discuss certain non-GAAP financial measures, including OIBA, free cash flow, adjusted net income, and adjusted EPS. In our press release, which is posted on the company's IR website at expediainc.com/ir, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with the most comparable GAAP measures. We encourage you to review the section entitled “Basis of Presentation” in today's earnings release for more details on how we are presenting results for some periods. Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2005. With that, let me turn the call over to Dara.

Thanks, Stu, and thank you to everyone for making the time to join us on the call today. There is no sugar coating the fact that the first quarter of 2006 was a disappointing one for Expedia. While we largely planned for the increased expense levels that we deliver today, gross bookings, and to a greater extent revenues, were short of our expectations. The net result is that operating income before amortization declined 35% versus Q1 '05, more than we had anticipated. In light of this decline and continued top-line softness in Q2, we will not meet our expectation of a first-half OIBA decline in the high negative single digits. What I would like to spend my time on today is explaining in greater detail what happened during the quarter to cause the shortfall, and what the company is doing about it both in the short term and long term. I will then close with updated expectations for full-year 2006 results before turning things over to Barry. Let me start with gross bookings. The gross booking softness in Q1 versus our expectations was concentrated in our domestic operations, with the bulk of the shortfall occurring at our flagship Expedia.com brand due to traffic and lower conversion rates. Traffic was the largest contributor to our miss in Q1. On the one hand, our aspirational, enjoy-your-trip marketing campaign was very successful in increasing awareness for Expedia and improving traveler attitudes towards Expedia as a site they would recommend. These are clearly good trends for us to be driving over the long-term. On the other hand, and the more important hand, the campaign did not drive enough incremental unique users and shoppers to our site during the quarter. Shopper shortfall was particularly acute in our packaging product shopping pass, where we generate the greatest gross bookings and revenue dollars per transaction. Adding to this were weaker-than-expected results from third party distribution channels, including MSN, and a private-label business, which taken together drove nearly 30% less transaction volume in Q1 '06 than in Q1 '05. Traffic from our new MSN deal is significantly below our expectations, and less than traffic that we have generated from MSN in years and quarters past. This is particularly painful, as we enjoy less favorable economics under our new deal. We will continue to work constructively with MSN on this matter, but it is not something that we expect to remedy overnight. The second area hampering Expedia.com’s gross bookings relates to conversion rates. In addition to less merchant air available to construct attractive package offerings, we believe conversion rates were negatively impacted by a number of factors, including reduced site availability, increased competition, higher supplier pricing, and tight inventory in select markets, and lower airlift into certain markets. Unfortunately, the gross bookings shortfall was exacerbated by a decline in our revenue margins. Our worldwide revenue margin was down 125 basis points year over year, principally due to lower domestic hotel room margins, higher domestic airfares, which increase gross bookings but have little impact on revenue, and lower air revenue per ticket. We certainly have planned for reduction in revenue margin in Q1, but we experienced a greater increase in airfares than expected. For Expedia.com, airfares were up some 13%. Hotel margins in particular were down more than expected due to several factors, including slightly elongated booking windows, a greater mix of chain hotels that tend to carry lower raw margins, as well as some short-term affects for moving hotels.com on to a common platform with Expedia.com that should work itself out in the second half of the year. Lastly, we had some challenges in a few markets, where we experienced some inventory compressions and where we are actively broadening our hotel base. We do expect raw margin comps to improve as the year progresses and as we execute on these initiatives, and particularly as we move into the back half of the year, where we have easier comps on chain deals that were renewed at less advantageous terms in the second half of 2005. Many of these chain deals are long-term. So what else are we doing to address the top-line shortfalls during the remainder of 2006? Well, one thing we will certainly be doing is addressing the top of the funnel with changes to our marketing approach. We are aggressively shifting our media mix and messaging to deliver a much more promotional and local marketing impact. We have developed and are now actively developing advertising five new destination-specific package promotions via radio, print, e-mail, and on our website. We will also place a real emphasis on the specific benefits of shopping Expedia, including our best price guarantee and book-together-and-save packaging messaging, shifting more travelers into the valuable packages purchase shopping pass. Our price guarantee is the travel industry's most comprehensive and valuable guarantee, applicable to all products, including packages, and offering not just a price match but a $50 travel voucher on top of it. In a world of rapidly rising travel prices, ever-increasing transparency and narrowing differentiation amongst the travel sites, we think it is important to emphasize this meaningful advantage for travelers shopping Expedia. We are also executing effectively in our search engine marketing efforts, and we plan to build on the success of our air shopper e-mail campaigns, with similar efforts targeting those searching but not purchasing packages, and stand-alone merchant hotels. We are hopeful that these actions on the marketing front will help us reverse the shortfall in shoppers that we witnessed in Q1 and early Q2 by increasing the quality and quantity of traffic. But we will also carefully monitor the overall marketing spends and pull back as appropriate to the extent that we do not see adequate returns for our incremental investment dollars. As it relates to improving our content, our partner services group is aggressively approaching our supplier partners to find inventory to enhance our package offerings as well as diversify our inventory sourcing in select markets. Just today, we announced that we begun flowing segments to Amadeus for our European points of sale. This relationship will enhance our air supply content for travelers, and offers greater options for Expedia regarding our airline connectivity. While we think that these steps are incrementally helpful, we do not think that they are any silver bullets for near-term success, nor do we want to do anything to significantly compromise our existing business model for the sake of short-term results. What Q1 really has done for Expedia is to reemphasize the critical need for the investments that we are undertaking to improve our world-class technology platforms and infrastructure, and to transform our company into a world-class retailer of travel products and services. While we continue to believe the bulk of the benefit from these investments will manifest themselves in 2007 and 2008, during the first quarter, we did make meaningful, behind-the-scenes strides in our Apollo integration efforts, our Enterprise data warehouse, and our technology platform. On Apollo, for instance, we continue to believe that we can drive at least $50 million in annual operating income before amortization improvement from these initiatives, with the beginning fruits of our labor appearing at the end of this year and into 2007. We centralized some functional areas across the company, reducing duplicate efforts and we have identified five major workstreams, which are now fully scoped, with business sponsors appointed and executing. While in no way wishing to minimize the disappointment in this quarter, and the challenging year ahead, I do want to spend some time highlighting the strides that we made across our brand portfolio. Hotels.com continued its successful rebranding effort, improving U.S. conversion year on year, and turning in a solid 21% growth in worldwide gross bookings this quarter, its fifth straight quarter of accelerating growth. Hotwire has continued to execute in a very challenging air environment. High low factors mean greatly diminished inventory allocations for our opaque and semi-opaque air business, but on the plus side, the business has become successfully diversified on top of its core air products, with car rentals booming and our hotel products showing early signs of success. We hope to build on our momentum with improved mapping features that highlight landmarks and other points of interest to give travelers much more information to assess hotel stays. Additionally, travelers can enter specific addresses to determine which Hotwire hotel in the neighborhood best fits their location needs. TripAdvisor continues on its growth path, having grown its traveler reviews and opinions from 1 million to over 4 million in a little over a year. In the process, TripAdvisor has become the world’s second-most visited travel domain, with nearly 20 million unique monthly visitors, and our team continues to aggressively innovate at a rapid pace, recently introducing wiki functionality in the form of TripAdvisor Inside. Travelers can now collaboratively add and edit content on over 23,000 destinations, creating a truly unique asset for travelers the world over. This is what Web 2.0 is all about. Expedia Corporate Travel had another solid quarter, breaking the $250 million barrier in quarterly gross bookings for the very first time. For the second quarter in a row, we added new clients who historically made nearly $100 million in annual travel expenditures, and just this week, ECT unveiled its most recent round of technical innovations, introducing improvements to its already industry-leading reporting functionality. While we were originally premature in predicting great things for ECT, I also think it is safe to say that the business is gaining real traction and has solid, solid momentum behind it. Our international points of sale hit 25% of worldwide gross bookings for the first time ever this quarter, and while our overall growth was down sequentially to 26%, we believe that our FX adjusted gross of 34% is solid performance, in light of our large gross bookings base, is higher than similarly thought competitors, and is comparable to the organic growth levels that we saw in the second half of 2005, after adjusting those periods for both FX and acquisitions. From a diversification standpoint, while Expedia.co.uk is still our largest international point of sale, strong growth in these other countries and brands has allowed us to reduce the booking share of Expedia.co.uk to just one-third of Q1 international bookings. While we will see some softness in Q2 bookings with the World Cup happening, we are hopeful for a stronger second half of the year in Europe, and we will continue to invest aggressively in newer markets, expanding our product offerings and building brand awareness. We will look to establish product offerings in even more countries going forward, including Japan this fourth quarter. I would like to close with our expectations for full-year 2006. As I mentioned at the outset, we will not achieve high negative single-digit decline in OIBA for the first half of the year. That said, we do continue to believe OIBA growth in the back half of the year will be positive. For the year as a whole, we now expect OIBA to decline between 15% and 5%. This is certainly not performance that we are pleased with, but it does reflect the reality of the top line challenges we will face in the near-term, at the same time as we are making significant investments for the future. We believe the short-term initiatives mentioned earlier will be incrementally helpful this year, and we are even more convinced, in light of our results, that the root causes, that we are making the right strategic investments now and during the next few years to meaningfully grow free cash flow and earnings. In addition to our focus on maximizing shareholder value by growing free cash flow, we're also mindful of other inputs to shareholder returns, such as efficiently managing net dilution from employee equity awards, which we have targeted to keep to 1% or less per annum. We have also been consistent in pledging to return excess cash to our shareholders. In keeping with this, our board has authorized a buy-back of up to 20 million shares of our common stock. I would like to thank everyone for your time today, and for your continued interest in Expedia. I will now turn the call over to Barry for some closing thoughts ahead of Q&A.

Thank you. I emphatically echo Dara’s disappointment. We simply must do better, and we will. In the interim, what is there that investors should feel good about? The truth is, there is meaningful momentum building across the enterprise. Despite the near-term turmoil, investors should not lose sight of Expedia’s vast leadership position in the online travel space. Our competitors may show gaudier growth rates than Expedia, but they are operating off of much smaller bases. Despite our head winds, we continue to add gross booking dollars year on year at a comparable level to our competitors in markets across the globe. We will do better, but it is not as though we are lagging behind. This year is going to be a rough year for Expedia, but sometimes you have to take a step backwards in order to leap forward. From the winds of the internet revolution, we have built a wonderful business. But, with inevitable competition that this early success attracted, the revolution itself is not going to carry us far enough or is going to make us worthy of much interest. But what will accomplish both is our succeeding in becoming a first-in-class travel merchant, a true retailer rather than a transaction processor. Toward that end, we are convinced that the investments Dara has highlighted are the right ones to make on behalf of our travelers, our supplier partners, and our long-term stockholders. These initiatives will not be either inexpensive, nor are they going to have immediate returns, but they are absolutely essential if we are going to continue the company's leadership position and capture more of the immense opportunity encased in this huge global travel industry. We have a great past, a very challenging present, and a future that is not yet in evidence -- the kind of environment that demands strategic clarity and exceptional execution, and I am convinced that Dara and his team have both in hand. So enough with these formal remarks from Dara and myself. I’ll stop talking and let's begin the questions. Stu.

Thanks, Barry. Let's move on to the Q&A portion of the call with Barry and Dara. As a reminder, please limit yourself to one or two questions so we can fit more questioners into the call today. Operator, will you please remind our listeners how to ask a question.

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. (Operator Instructions) Our first question comes from Heath Terry with Credit Suisse First Boston. Please go ahead. Heath Terry - Credit Suisse First Boston: I was wondering if you could talk to us a little bit about the decline in conversion rate, and maybe a little more on what you think the specific drivers behind that could have been, particularly if you can give us an idea of whether or not you believe the direct channel, people using Expedia for pricing information and then going directly to the airlines or hotel sites is becoming a bigger issue.

Heath, it is very difficult to tell exactly what is happening to conversion rates because it is a mix of exogenous factors and it could be a mix of internal factors, so we certainly see increased competition from supplier direct, from other OLTA’s, as it relates to us, especially in the packages path. The other OLTA’s, as far as their messaging, are much more focused on packaging messaging. Our older, prior kind of marketing messages were much more focused on packaging, and our marketing message at least in Q1 was much more general. So I do think there is certainly an element of more competition there from other online travel agents, as well as supplier direct, but it is really hard for us to exactly quantify that. There were also some specific issues having to do with our site, ways in which that we do think that we an execute better on conversion, both from a technology standpoint, from a supply standpoint, and those are short-term issues that we are working on. But we certainly do not expect the competition to get any easier going forward. Heath Terry - Credit Suisse First Boston: Great. Thank you.

Thanks, Heath.

Thank you. Our next question comes from Robert Peck with Bear Stearns. Please go ahead. Robert Peck - Bear Stearns: Hi, this is Anthony, in for Robert Peck, who is traveling. I have two quick questions, just following from the last question. I wanted to know if you could discuss the level of competition with international business. I think last quarter you talked about increased competition from tour operators. I wanted to get some more color there. How has that landscape changed? If you could focus in particular on the German market. I think the last quarter you also talked about that market was particularly weak. I wanted to know what has changed in Q1. Second question, you stated the reasons for the decline in revenue margins this quarter was due to pressures on the hotel raw margins. I wanted to know if you could discuss the magnitude of that decline. I thought that was largely behind us.

As far as the international marketplace, the competitive environment, especially in Europe, really has not changed significantly from what we are seeing this quarter versus Q4. I would say the greatest area of competition, and I think that you heard it in the Travelocity call as well, is in packages, both in dynamic packages and pre-packaged product. In Germany specifically, we do sell a fair amount of third-party packages as well, and it is a very, very competitive package market, and we are feeling the competition as well. I think if you compare us to the other online travel agencies, especially Last Minute, we sell a higher percentage of what I will call dynamically packaged product, which is our own product that we are putting together through our own supply team, so I do not think that we will be feeling quite the pain that Last Minute at least indicated in their last call, that they were feeling. That said, we are pretty hopeful in Europe. The management team has really come together behind Dermott and team. The U.K. is executing really, really well. That said, we are diversifying in some of the other countries, and we are seeing very, very solid growth in a lot of second-tier continental markets out there. Also, hotels.com in Europe is doing great. We have a great team there. The growth rates are very, very high, and we are actually working on some technology improvements that hopefully will help us out in the second half of the year. So overall, I would say competitive marketplace, nothing has changed. We are certainly seeing the OLTAs of the world very much focused on the online marketplace, but we have a team that is executing pretty well. I think that your second question was on hotel raw margins, and what we saw there. I think that the issue, we certainly did see higher-than-expected decreases in hotel raw margins this quarter, perhaps than we expected. It was due to a number of factors, which we believe as the year progresses are going to ease up. The first issue, as it relates to lower hotel raw margins is that we are comping against the Q1 last year, when we had some older chain deals in place. As the year goes on, and especially in the second half of the year, we will be comping against the same chain deals, and they are typically longer-term deals, that we signed in the second half of the year. So you are not going to see the same kind of year over year delta. We did see some pressure in certain markets, as far as raw margins go, and our partner supply group is pretty actively managing those markets, broadening our hotel supply base in some of those markets to get some, just to improve our raw margin position going forward. Then the last piece is also that as hotels.com has come on to the Expedia.com supply platform and has gotten access to chain inventory that it did not have access to, you are getting a higher mix of chains, which is hurting the hotels.com raw margins. Now, it is good business, it is new business for us. It helps the gross bookings numbers, and it certainly helped out the acceleration that you are seeing in hotels.com gross bookings. From a raw margins standpoint, you are going to see lower revenue margins. Robert Peck - Bear Stearns: Thank you.

Thank you. Our next question comes from Doug Elix with Lehman Brothers. Please go ahead. Doug Elix - Lehman Brothers: Thank you. I have a couple of questions. The first one is regarding revenue per air ticket. I am wondering if the decline, the 9% year over year decline in revenue per air ticket already reflects new airline and GDS agreements, or is it fair to think we have not yet really seen the potential impact in the numbers? My second question is regarding the trends throughout the quarter, which you reported 4Q results on February 15th, so I am just curious, did you really see things deteriorate in the back-half of 1Q? Thank you.

I will take on the revenue per air ticket first. The revenue per air ticket, if you look in the past couple of quarters, has been pretty consistently sliding down between 9% and 11% over the past couple of quarters. That does reflect, obviously, conversations that we are having with airlines, but it does not reflect any fundamental changes in GDS economics as it relates to us. I think you are pretty familiar with the GDS negotiations with airlines, and to the extent that those negotiations affect our economics, and it would stand to reason that they would affect our economics in one way or the another, we would expect to see that in the second half of the year. All of that said, we are in our own conversations with our air partners as well, and those conversations are ongoing. We expect to see news come out sometime this year, and hopefully earlier rather than later, regarding those conversations. So those may have some affect on our revenue per air ticket as well. Second question, as far as the trends throughout the quarter, we did see I think in general, in January, from a bookings revenue standpoint, was stronger than the other months of the year. So we were somewhat surprised, obviously. When we talked to you and reported Q4 numbers, we were using our latest expectations, and certainly from a raw margins standpoint, and from a volume standpoint, we did see some deterioration. Doug Elix - Lehman Brothers: Thank you.

Thanks, Doug. Operator, can we have the next question, please?

Thank you. Our next question comes from Justin Post of Merrill Lynch. Please go ahead. Justin Post - Merrill Lynch: First, on the international, can you give us any insight into the mix between U.K. and continental Europe, and any areas that underperformed or outperformed your expectations?

I would say that in general, the U.K. gross bookings have been growing at a slower base than the balance of continental Europe. I think that is a common theme that you have heard from the other OLTA’s, and Expedia.co.uk now accounts for a third of our gross bookings. Historically, that has been much higher. Continental Europe broadly has been strong for us, to some extent with the exception of Germany, which has been a pretty tough market. Now we did see some signs of stability in the German market. We are pretty confident of the management there, but I would say the rest of continental Europe has been really, really solid and France, Italy, Netherlands, all have had growth rates over 40% on a year over year basis, so very, very healthy growth rates. Again, the hotels.com business, actually both in the U.K. and across Europe, is just doing very well. We are quite happy with it. Justin Post - Merrill Lynch: One other question. Your hotel partners are still doing pretty positive on Expedia. It looks like in the quarter, some share loss with some of the other companies in the U.S. Can you just remind us of your competitive advantage to the hotels, what you offer them? Do you think part of the reason of the relative growth rates is that they are just opening distribution through more travel partners online?

Well, listen, one thing that you should know is if you look at the room night growth that we reported this quarter at 11%, it was actually higher than the room night growth that we had in Q4, which I think was around 9%. If you track this through the past couple of quarters, our room night growth has actually been accelerating. Now, we are the incumbent as far as the merchant hotel business out there, and our competitors are competing off of much smaller base, so I think it is a lot easier for them to show higher growth rates. They do have an audience of, kind of an air audience coming in there, and it is natural for them to be able to translate that air audience into hotel buyers as well. We did that two or three years ago, so we do not have that kind of an advantage. So I think it is just a natural progression. They are growing off of a much smaller base, but as far as the kind of partners that we are with our hotel chains, I think you have seen evidence of a number of long-term deals that we have signed with almost all of the large chains. I think that is a pretty good indication of our value with those chains. Justin Post - Merrill Lynch: Thank you.

Thank you. Our next question comes from Mark Mahaney with Citigroup. Please go ahead. Mark Mahaney - Citigroup: Thank you. I just wanted to ask about marketing. I think you had mentioned or expressed some past frustration or you have seen underperformance from the MSN channel. You have been advertising and marketing with MSN for years. To what extent do you consider a complete change in that strategy, either another portal or a significant shift in marketing dollars away from the portal deals and more towards other things, search advertising, etc.? Thank you.

Listen, MSN has been a long-term partner for us. This company, Expedia at least was part of MSN, grew up with MSN, and I am anticipating that we are going to be partners with MSN forever. That said, the performance over that channel, MSN launched kind of a new travel channel. They have been making a significant number of changes to the MSN channel in general, and I think that with change comes unpredictability, and with those kinds of changes, we have seen some differences, some negatives in transaction levels. We are always looking for new channels of distribution. We are always looking for new ways of spending our marketing. So to the extent that we see volumes fall off in the MSN channel, we are going to be spending, looking at -- we are going to be looking at search engine marketing channels. We have been very, very aggressively increasing our e-mail marketing efforts as well. But frankly, those are efforts that we would undertake anyway, whether or not MSN was weak or strong. So net net, we are going to work closely with them. I think we have had a great partnership with them and we expect to have a great partnership with them going forward. Mark Mahaney - Citigroup: Thank you.

Thank you. Our next question comes from Anthony Noto with Goldman Sachs. Please go ahead. Anthony Noto - Goldman Sachs: Thank you. A couple of questions about the traffic. Could you tell us exactly how much the MSN traffic missed your expectations by, and how much of a decline on a year over year basis? The reason I ask that is because obviously this business is going to remain under pressure based on your guidance for the next quarter. We are just trying to figure out how you are going to replace that traffic and how much of it you have to replace, and how much it is going to cost. So the two specific questions are how much did it miss by, relative to your expectations, and how much did it decline year over year?

The decline I believe was approximately 30% on a year over year basis. I want to make sure that is the right number, and hopefully we will find out. As to our expectations, honestly, I do not think that we had an expectation that MSN traffic would decline. Anthony Noto - Goldman Sachs: Do you have a sense of what percent MSN traffic accounted for of your total traffic? That will help us figure out where you have to go find it someplace else, because it does not sound like they are changing that channel anytime soon.

That is not something that we would want to disclose, Anthony. Anthony Noto - Goldman Sachs: The guidance kind of implies you have to do about $200 million of EBITDA or OIBA in the second quarter. If I were to assume flat revenue growth year over year, it does…

Anthony, say that again? I am sorry. I did not hear what you said. Anthony Noto - Goldman Sachs: I think your guidance implies that you need about $200 million of OIBA in the second quarter to get to a 7% year over year decline in the first half of the year. Is that accurate?

I think what we said, Anthony, as far as our expectation, was that we are not going to get to a high, single-digit first-half decline. So we are not going to hit that number. For the full year -- for the full year, we expect that OIBA is going to decline between 5% and 15%. Anthony Noto - Goldman Sachs: I understand now. I thought the guidance was for the first half. Okay, that clarifies it. Thank you.

Just a correction of something I said on room night growth. Last year, total room night growth was 11%. This quarter, our room night growth was around 11%, so we are pretty consistent with where we were last year. Anthony Noto - Goldman Sachs: Thank you.

Thank you. Our next question comes from Chris Dupuy with Morgan Stanley. Please go ahead. Chris Dupuy- Morgan Stanley: Thank you. A couple questions. Dara, I guess digging a little bit deeper, parsing through the issues impacting the U.S. growth and the disappointment there, what percentage of the disappointment would you say would come from external factors, specifically competition, as opposed to internal factors that would include lower advertising spending several quarters ago, as well as the new campaign and the marketing that you might want to tweak going forward?

Chris, it is really hard to analytically kind of assign an external factor versus an internal factor. I do not know any way of really giving you a true answer there. The best that I could tell you is that the competition is certainly significant. It has been consistent, so I do not think that from a quarter to quarter basis, this quarter’s competition was that much worse than prior quarters, although on a package path, and our package products in particular, is experiencing some difficult. In packages, we do see a lot more competition, both in terms of competitive advertising and also in terms of competitive pricing as well. As far as our disappointment versus our expectation, I would say that the majority of the disappointment, at least versus our internal expectations, did come from the traffic shortfall versus what we were expecting to see. One, traffic shortfall, and also the mix of transactions that we saw. So it is a combination of factors. You put that all together with a revenue margin shortfall that we saw, and you get to a pretty disappointing quarter. Chris Dupuy- Morgan Stanley: Just a follow-up on that, as you kind of look at the implications going forward for the company’s advertising and marketing spending, I know you said as a percent of revenue, it will be going up. Are you thinking about a meaningful increase versus the prior budget, or are you really talking about a small tweak?

I think that versus prior budget, if anything, we will bring sales and marketing spend down. The one thing that we are going to do is a significant amount of the marketing spend that you saw in Q1 was in the first two months, it was TV spending, it was locked and loaded, it was committed significantly prior to any time at which we could react and either push forward or pull back. So one change in strategy as far as our marketing spend going forward is going to be not to commit as much as we did, and to be able to either push up our marketing spend or pull it back, depending on its relative success, or lack of success. Chris Dupuy- Morgan Stanley: Great. One quick final follow-up to an earlier question, to be clear on what your expectation is for the revenue margin. Certainly there are a lot of moving parts short-term. Is the expectation longer term still that the revenue margins can hold relatively steady once you work through some issues here?

I think that on the hotel front, from a long-term basis, we have been cycling through and coming to agreement with basically every major hotel chain, with the exception of ISG. The majority of these deals have been multi-year deals, and the majority of these deals, to the extent they are multi-year deals, the revenue margins are defined now and will be relatively stable going forward. Some of them are variable based on performance, so revenue margins may go up or down. Those deals are going to work their way through on a comparable basis towards the second half of the year, so we do see revenue margin comp getting better as the year progresses, and hopefully next year, assuming that the environment does not change significantly, we would expect to see better trends. What I cannot tell you much about is air. Our air margins depend to a significant degree on negotiations at the GDS, that they are having with the big airlines, and also partnership discussions that we are having right now with our air partners as well. That is going to be a variable that we cannot really control. Chris Dupuy- Morgan Stanley: Thank you.

Thank you. Our next question comes from Imran Khan with J.P. Morgan. Please go ahead. Imran Khan - J.P. Morgan: Hello, good afternoon. A couple of questions. First, it seems like it is hard to point out the impact of competition on your conversion rate. What specific confidence that your conversion rate can improve over the next three to six months from where it is? Secondly, you announced a 20 million share buy-back program. Should we take that as a signal that you will not be acquisitive, and if so, why? Why do you not think that you will be acquisitive when considering the competition in the marketplace? Thank you.

Sure. As far as competition goes, and their effect on conversion rates, we have a number of short-term initiatives to improve those conversion rates. It is a variety of factors, which is tweaking the site, optimizing the performance of the site, and really testing various features, consumer features, pricing, etc., in a really, really focused way to try to improve our conversion and performance of the site itself. We have a great team of our North American retail folks, who are working really closely together with the product folks on a daily basis, very much focused on this. It is my expectation that this team, because I know them, are going to improve and are going to execute. As for competition, what they do, I really cannot anticipate. I am certainly not anticipating the competition is going to get any easier, but we are hard at work. We are very much focused on the conversion rate. We are very much focused on our performance, and it is my expectation, and I guess it should be shareholders’ expectation, that we execute on it.

I did not understand the second question. Imran Khan - J.P. Morgan: The second question is your share buy-back announcement. Is it a signal that you will not be intending to acquire your competitors? If so, the market is very competitive, so why are you not being very acquisitive?

Well, first of all, it is not a signal of anything. We have no debt. We have substantial cash built up. We have substantial capacity. So if there is an acquisition that we think is of interest to the company, which has decent values, we will go ahead and do it. We accumulate cash for the purposes of investing in our business, which includes acquisitions, and/or we, beyond that, repatriation. At this stage, we are announcing a buy-back because it is the sensible thing to do. Imran Khan - J.P. Morgan: Thank you.

Thank you. Our next question comes from Aaron Kessler with Piper Jaffray. Please go ahead. Aaron Kessler - Piper Jaffray: Question is, given the current difficulties in the macro trends that you are facing in terms of the competition with other third party agencies and the suppliers, what kind of initiatives should we expect from you over the next six months or a year, or how long is it really going to take to change a user’s behavior on when they purchase travel through Expedia or another third party? Thank you.

I think that there are a bunch of short-term initiatives that I talked a little bit about, and I think if you look at what we did with hotels.com, hotels.com late last year was having negative gross bookings growth. We focused on the business. We focused on the brand, its definition, we focused on the website and re-launched it. I think we have had pretty good traction. With Expedia, I think it is a matter of focus and execution on the near term, and certainly we expect our results for the balance of the year to be significantly better than the results that we saw in Q1. Then, as far as the long-term investments that we have made, I think I have outlined quite a few of them. They are big, iron investments, so to speak. They take significant amounts of time to organize and execute on, but it is not a theory. We are in the middle of executing on these initiatives. The technology platform is being worked on. The Apollo initiatives are organized and we are executing on those. We are building the enterprise data warehouse, and we expect to see those benefits coming in in '07 and '08. They are in progress now and they are being executed on now.

I would only add that on competition, we are double-size the next competitor, and it is not that our competitors are not doing somewhat better, but the issues for Expedia are more self-inflicted, either because of the investments, elective, or because of some of the things that Dara has gone over. Aaron Kessler - Piper Jaffray: Great. Any update on the loyalty program, in terms of a timetable for that?

We will have one out by the end of the year. Aaron Kessler - Piper Jaffray: Great, thank you.

Thank you. Our next question comes from Michael Millman with Soleil Securities. Please go ahead. Michael Millman - Soleil Securities: Thank you. In terms of long-term investment, I was surprised to see that in fact, big increases in marketing, big increases in G&A, but flat in IT, whereas I would have assumed to see a big increase. Maybe you could talk about whether your investment going forward will include IT or the investment is meant basically for other purposes, other places. Secondly, surprised that I think you indicated that you saw the largest share of your hotels with chains, and would have thought that, on one hand, with the higher occupancy rate on chains, it would be more difficult to increase your share with chains. On the other hand, with your partner program, you would have gone out and made more deals with non-chains, and that would show up.

Let me start from the top. As far as the IT and technology investment goes, we are making significant investments there. A fair amount of those investments are being capitalized, so you are not going to see them hit the P&L. They will hit the P&L as those numbers are depreciated, but our CapEx this year is going to be up around -- I think CapEx year on year was up around 13%, and that should be somewhat reflective of the investments that we are making on the technology and IT side. A second part of that is, on investments that we are making, like re-platforming, you know, we are actually taking existing employees and we are redirecting their work towards some of the re-platforming work. So that will not reflect itself in an increase at that particular activity. It would not reflect itself in an increase in, call it product development or IT costs, but it would hit us from a cost perspective as far as those folks not being able to work on, let's say, near-term consumer advantages or the next thing. So a fair amount of our firepower, so to speak, is pointed at the re-platform, and it takes away from things that we might have otherwise done that might bring the returns, but it does not necessarily increase overall costs. As far as the chains go, I was specifically referring to hotels.com, and hotels.com as it has come on to the Expedia inventory platform. If you remember, classically hotels.com tended to work a lot more with independent hotels. As it has come on to the Expedia.com platform, it has gotten more access to chain inventory, and on average is experiencing a higher mix of chain inventory than it experienced a year ago. With hotels.com gross bookings growing at the rate that it's growing, there is a higher mix there of hotels.com bookings overall. Michael Millman - Soleil Securities: Would that suggest then that Expedia.com's at least hotel raw margins then did not decline, or maybe even increased?

No. Expedia.com raw margins again this quarter are comping against last year's quarter, in which they have some older chain deals in place. So in the second half of the year, as we signed the new chain deals, the comps are going to get easier, but in this quarter, on a comp-to-comp basis, Expedia.com's merchant hotel margin did decrease. Michael Millman - Soleil Securities: Basically you are saying that there was no shift in their mix between chains and independents?

I do not think that there was any significant shift between chains and independents from an Expedia.com standpoint. Michael Millman - Soleil Securities: Thank you.

Thanks, Mike.

Thank you for joining us on the call today, and for your questions. A replay of this call will be available on our investor relations website shortly after the completion of the call. We appreciate your interest in Expedia, and look forward to speaking with you again next quarter.

Thanks very much.

Thank you. Ladies and gentlemen, that concludes the Expedia Inc. First Quarter 2006 Conference Call. Thank you again for your participation, and at this time, you may disconnect.