Stu Haas - IR Dara Khosrowshahi – President, CEO Michael Adler - CFO Barry Diller - Chairman

Mark Mahaney - Citigroup Justin Post - Merrill Lynch Jake Fuller - Thomas Weisel Partners Aaron Kessler - Piper Jaffray Marianne Wolk - Susquehanna Chris Gutek - Morgan Stanley Brian Fitzgerald - Banc of AmericaSecurities Anthony Noto - Goldman Sachs Robert Peck - Bear Stearns Doug Anmuth - Lehman Brothers Imran Khan - JP Morgan

(Operator Instructions) I would now like to turn the conference over toStu Haas, Senior Vice President Investor Relations and Treasurer. Please goahead.

Good morning and welcome to Expedia Inc.'s financial resultsconference call for the third quarter ended September 30, 2007. I'm pleased to be joined on the calltoday by Barry Diller, Expedia's Chairman and Senior Executive; Dara Khosrowshahi,our CEO and President; and Michael Adler, our CFO. The following discussion including responses to yourquestions, reflects management's views as of today, November 7, 2007, only. As always, some of thestatements made on today's call are forward-looking including our comments onfinancial expectations, operational performance and margins, plannedinvestments and spending, platform improvements, systems upgrades, growth ofbusiness lines, financial performance and dilution. Actual results may differmaterially. We do not undertake any obligation to update or revise thisinformation. Please refer to today's press release and our Form 10-K forthe year ended December 31, 2006for additional information about factors that could potentially affect ourfinancial and operational results. During this call, we will discuss certain non-GAAP financialmeasures including OIBA, operating expenses excluding stock-based compensation,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 findadditional disclosures regarding these non-GAAP measures, includingreconciliations of these measures with the most comparable GAAP measures. Finally unless otherwise stated, all references to grossmargin, selling and marketing expense, general and administrative expense andtechnology and content expense exclude stock-based compensation. And allcomparisons in this call will be against our results for the comparable periodof 2006. With that, let me turn the call over to Dara.

Thanks, Stu and thankyou to everyone for making the time to join us on the call. The third quarterwas Expedia's best since our 2005 spin-off from IAC, with strong performance acrossthe organization. We saw acceleration in all key metrics including 16%transaction growth and 21% bookings growth, our highest rates of growth since2005. Revenue increased 24% with revenue margins stabilizing for athird straight quarter. Our primary operating metric, operating income beforeamortization, or OIBA, grew 18% to reach a record $213 million. Expedia continued to expand its global presence withinternational bookings reaching 32% of total bookings, driven primarily bygrowth in Europe, where Expedia Germany, France, Italy, the Netherlands andHotels.com Europe, all posted growth in excess of 50%. Most importantly, wecontinued to make progress towards our goal of maximizing cash flow over thelong term while efficiently managing dilution. Expedia's free cash flow on atrailing 12-month basis was $777 million, up 40% from a year ago and ourdiluted share count for Q3 was down 8% year over year, reflecting our sharerepurchases and measured equity awards. While these are certainly meaningful internal sign posts forour progress, it's also nice to have external validation and this quarter'saddition of Expedia Inc. to the S&P 500 Index is an indication of Expedia'sstatus as a global leader in travel. Now last quarter I gave you an update on Expedia.com and thefactors driving our flagship's improvement. You'll recall that these werebetter execution, more effective marketing, expanded supply, increased siteavailability and strong telesales. I'm happy to report that these trends havecontinued, and we again saw positive growth in year-on-year transactions atExpedia.com with strength in both our hotel and air businesses. In addition, with the recent launch of our co-brand creditcard with Citi, we now offer travelers even more ways to earn thank you points.Card members can earn points on everyday purchases, miles flown on any airlineand increased points for travel booked on Expedia.com, all on top of anyrewards they might earn through suppliers' programs. While I know we're allfatigued with card offers, you really ought to give this one a look atExpedia.com/thank you. Turning to the rest of our brand portfolio, our Europeanpoints of sale had another strong quarter with 39% FX neutral growth; anacceleration from Q2. Our continued experiments with fee reductions andaggressive marketing spend including Hotels.com's first European brand campaign,were certainly significant factors behind Europe'sgrowth. Given the positive results to date and the long-term opportunity in Europe,we plan to accelerate our marketing spend growth in Q4. Hotwire had another great quarter with an all-time highprofit contribution. Hotwire continues to benefit from enhanced supply and anincreased mix of non-air bookings while continuing to innovate on its air products.Hotwire's latest feature, the Airfare Savings Hub, proactively suggestsalternative airports and dates of travel that users can consider for air ticketsavings and has offered travelers average savings of 25%, enhancing itsreputation for delivering deals you won't see anywhere else. Expedia Local Expert, our destination services business withover 100 activity and concierge desks at hotels, resorts and retail locationsdrove transaction growth of 35%. Orlando Magazine recognized the Local Expertdesk at the Orlando World Center Marriott as the best concierge for itsconsistent and knowledgeable service. We actually tied with the Ritz-Carlton soI think we are in good company. We believe Local Expert has legs on a stand-alone financialbasis and from a strategic standpoint as it enables us to improve travelers'experiences in destination, as is clearly the case in Orlando. TripAdvisor is testing a new, more user-friendly site UI,now live on its UKsite. The new design is clean, simple and organized making it much easier tofind what you are looking for. Trip also expanded its reach with two new appson Facebook, a Traveler IQ game, and a City's I've Visited map, both of whichare among the top three travel applications on Facebook as measured byactivity. Overall, our ad and media businesses grew revenue 106%,reflecting returns from continued innovation and traffic gains at TripAdvisor,SmarterTravel and our other content sites. We're also seeing solid growth inadvertising and innovation on our transactional sites. For example, Expedia.comrecently launched travel ads allowing hotel users to bid for sponsoredtreatment at the top of hotel search results. It's very early for travel adsand we'll continue to test and fine-tune it to better serve our hotel partners. As we look to capture near-term growth opportunities, weplan to aggressively invest in developing our various internal salesforces. Onthe media front, this relates to supporting continued growth at TripAdvisor aswell as ad sales efforts at Expedia.com and Hotwire's Travel Ticker. We willalso be actively hiring to support further growth for our ECT and Expedia LocalExpert businesses. On the supply front, PSG signed agreements on the air sidewith British Airways, Air France KLM, and Sky Europe, an Eastern European LCC.We continue to expect more flattish comparisons beginning in '08 on thenon-booking fee portion of our air compensation. On the lodging side, we inked deals with Extended Stay Americaand Harrah’s. Based on everything we know thus far, we continue to believehotel economics will remain largely similar to what we achieved in the lastround of major chain negotiations and we expect year-on-year fluctuations goingforward to remain modest. We remain keenly focused on expanding our selection of hotelproperties and improving the quality of supply for our global travelers. As aresult, we expect to make additional investments in lodging supply. Theseinvestments may not show an immediate return, but we expect over time they willextend our global leadership position in supply. Now we won't provide specific expectations for 2008 untilour Q4 call but I think it will be helpful to set the stage for investmentsthat we do expect to make. We've essentially completed Phase 1 of our newplatform positioning us to begin to leverage our data warehouse and makeimprovements in terms of merchandising, CRM and segmentations. You never moveas fast as you like in these efforts but you'll see us migrating differentparts of the sites onto the new platform and enhancing the data warehousethroughout 2008. At this point it's too early to forecast the materialconversion improvements until late '08 when we have most Expedia branded sitesonto the new platform. While we are still finalizing our 2008 planning, we expectto invest to capture additional growth opportunities in our businessesincluding improvements to our call center technology and processes, supplierconnectivity, building out data centers for disaster recovery and testing purposes,and supporting our growth with additional office space. We absolutely believethese are appropriate uses of capital for creating long-term shareholder value. It's worth pointing out that we're making these investmentsand aggressively supporting our brand portfolio at a time when there is someuncertainty around the economy and more importantly in our case, the consumer.Thus far, based on what we've seen in our business and heard from our supplypartners, demand trends remain healthy here in Q4. That said, we certainly recognize this could change.Investors should recognize that while some of our planned spend is flexible andcould be pulled back if demand softens, some is not, which could applyshort-term pressure to our top-line and in turn, OIBA should sentiment turn. Wewill keep a close eye on this and hopefully provide more insight on our Q4 callin February when we anticipate providing full year 2008 financial expectations. In closing, we're pleased with our record performance in Q3.Expedia is on a growth path again as we continue to build out our brands, bulkup our local presence, expand our media business and innovate and lead. There'sa ton of work to do and always a ton of competition but we sure like where weare headed.

Thanks, Dara. Good morning, everyone. I'd like to provideyou with some commentary on our results and close with our updated financialexpectations for 2007. Worldwide gross bookings were up 21% during the quarter,boosted by 13% growth in North America. Thisacceleration reflects not only the improvements at Expedia.com Dara touched on,but also our second consecutive quarter of accelerating bookings growth foreach of our North America points of sale. While we're encouraged by the improved growth profile of ourbrands, we're also aware that we are comping 2% growth in the back half of theyear in North America and remain focused on achievingsustainable growth in the region. Revenue increased 24%, led by 22% growth in our merchanthotel revenue and 106% growth in advertising and media revenue. Revenue thisquarter was also supported by a 9% increase in air revenue, the first increasewe've seen in air revenue in two years. Revenue per air ticket decreased 5%,the lowest rate of decline since our '05 spin-off from IAC, primarilyreflecting lower air service fees. We've been pleased to see continuedacceleration in ticket volumes make up for the increasingly modest decline inour per unit air compensation. On the operating expense side of things, G&A was up 28%year on year due to a higher incentive compensation accruals and legalexpenses. In addition, prior period G&A was light by a few million dollarsdue to some incentive compensation reductions. We do expect to leverage G&Afor the full year of 2007. Selling and marketing expense grew 30% in Q3 and again wasthe primary reason we saw OIBA margin degradation this quarter, despitecontinued revenue and gross margin improvements. The increase in spend wasdriven in part by incremental spend at our recently acquired media businessesunder TripAdvisor, Hotwire's Orbitz relationship, spend at our newinternational points of sale and in Europe, we investedin our Ryanair relationship and branding campaigns for Expedia Franceand Hotels.com. We also continued to increase our global online spend includingmarketing deeper into the quarter in the U.S.than we have historically on paid search. As has been the case for a while now,we continue to see meaningful keyword inflation. Looking ahead, we expect selling and marketing growth toaccelerate above 30% in Q4. This reflects a conscious decision to allocatespend more evenly through the year rather than significantly ratchet down spendin Q4, as we have done historically. In addition, we plan to continue spendingaggressively across our points of sale including brand spend at a wider swathof our portfolio than last Q4. As it relates to 2008 OpEx, I wanted to mention that we willbe relocating various offices whose current leases are due to expire in thenear term, including our Bellevue headquarters as well as expanding some of ourother current offices. As a result of these plans as well as rate increases, weexpect our facilities expense to increase by approximately $16 million in '08,most of which will be reflected in sales and marketing and G&A. Of the $16million, a little less than half is related to overlapping rent expense throughthe transition and move-related costs which are non-recurring. CapEx in Q3 was a $19 million down sequentially as weshifted some planned spend related to our data center build out into the fourthquarter. As a result, we expect to see total CapEx approximately double in Q4as compared to Q3. While year-to-date CapEx results are running below ourinitial expectations due to the timing shift I mentioned earlier, we continueto expect CapEx will increase approximately 10% in '07. We expect CapEx willgrow at a higher rate in '08 as we continue to invest in technology andinfrastructure. In addition, we will be making significant leaseholdimprovements to build out our new office spaces. We hope to give you moreclarity on our CapEx plans and expenditures on our Q4 call after we completeour annual planning process. I will close with our updated expectations for OIBA and freecash flow for 2007. We now expect full-year OIBA will grow in the low double-digits.Free cash flow for the year is going to increase based on strong year-to-dateperformance but we do expect to see negative free cash flow in Q4 driven byseasonality, increased capital expenditures and tax-related payments. Regarding taxes, we now expect to cash taxes will be $100million or less for the year. This is down from our prior expectations,primarily reflecting higher stock-based comp deductions resulting from the increasein our stock price. Finally as a reminder, we will make a $30 million Q4payment to Microsoft related to a tax sharing agreement which payment willreduce cash flow from operations. I want to thank everyone for your time today and I will nowturn the call over to Barry.

Thanks, Mike. I amhopefully not going to be too redundant. Somehow I think that scripted part ofthese calls – you should probably deny anyone the ability to use scripts andjust present, otherwise it sounds a bit canned. In any event, the steady improvement that we've had isdefinitely gratifying. The results also are. As nice as it would be for us tojust stand and stare and pause for a minute with pleasure, the truth is that weall feel that we've got to forcefully move forward. We're going to continue toallocate capital to better position Expedia for growth that is going to be ableto be sustained over a very long period as time. The business model that we've got, this really truly greatbusiness model, does afford us the opportunity and we are going to beaggressive because we've got an advantage without any question and we shouldpush it. Investment for us is going to remain a key piece of our story and inthe area of technology, to think that you've mastered the science ofdevelopment is foolish. We've had our starts and stops mostly starts, but inthe area technology, we've made big investment. We think we have to continue todo so. We think it is very much a competitive edge. I think it's going to help to extend the leadthat we have all over the world. In addition to that, as I think you all know, we want tohave an efficient capital structure. We've been making progress in that. Sincethe spin-off, we've generated $1.4 billion of total cash flow and over the sameperiod, we've put about $1.7 billion into our own stock at a price of less than$23. We've been able to reduce the share count by 20%. We wish to have done more. As I think you all know, thecapital market is willing. We were a bit criticized because we announced thebuyback and the amount that we were going to borrow to get there adjusting themoment that markets collapsed and credit completely dried up. But it certainlysignaled our intent. As I think you also all know, we want to keep a liquidityof $1 billion and so probably near-term purchases are unlikely. But we'vealways said we're opportunistic and over the long term, I think you can counton that and count on us to continue to be buyers of our shares. So we've made a lot of progress but there is no questionthat we really have to push ahead on all the fronts and that the plans thatwe've got now, the plans we're making now, the plan for '08 which is veryaggressive in all areas is I think going to set us further apart from ourcompetition. The only thing I want to add before we take questions issomething that I'd said in an employee email to Expedia, given the announcementthat IAC made this week on the spin-off into five separate publicly tradedcompanies and an awful lot of normal media and other speculation that surroundsthat relative to what would happen with the spun-off companies and itsrelationship to Liberty Media, I want tostate it formally, just because I want to be very clear. This is what I wrote on June of this year and I simply wantto reiterate it, which is that I had seen reports from security analysts andothers regarding my plans for Expedia and I want to say clearly that I have nointention to transfer control of Expedia to Liberty Media Corporation under anycircumstances. I don't want any of you to wonder or worry that the company isbeing tossed around between me and Liberty as a pawn on a chess board. It isnot. I would prefer there be no speculation but since I can't prevent anyonefrom doing so in various conferences and meetings, I'd rather be on the recordwith clarity. So, now I am, again. With that, Stu, why don't we go to questions?

Thanks, Barry. Let's move onto the Q&A portion of thecall with Barry, Dara, and Mike. As a reminder, please limit yourself to one ortwo questions so we can fit more questioners into the call today.

Your first question comes from Mark Mahaney - CitiInvestment Research. Mark Mahaney - CitiInvestment Research: Barry, with all of the spin-off news from a few days ago, isthere anything out of that you think that could have a material impact onExpedia in terms of potential synergies? And/or is there a rationale for at onepoint bringing Interval into part of the Expedia family? Dara, just on the service fees and the air service fees,there is clearly competitive pressure to reduce -- possibly even eliminate -- convenienceservice fees. How much of a potential is that and how much risk is that to thefinancial model? Thank you.

Mark, it surprises mebut you can't imagine how many phone calls and e-mails I have received fromdifferent people with different ideas of what to do with all of proposed spin-offentities as well as IAC. I mean it has been as I say a bit surprising. Wehaven't given any thought to anything other than everything is open. As I saidwhen we did our conference call the other day, that all options are open andDara and I have, on occasion, discussed Interval. There are some arguments thatit makes sense to be part of Expedia, some that it doesn't. If it makes senseto do, we will certainly consider it. As I say, the great thing about this is having now made thisdeclaration because that's all we've done; we haven't done any of the capitalstructuring for any of these companies nor did we want to. When we made ourannouncement we wanted to just make the announcement and then start the processwhich will take a couple of months to form the entities as they should beformed. In that interim or during or after the spin, everything ispossible. So with that, Dara, do you want to take care of the other part ofthis?

Mark, as far as the fee question goes, I realize that it isbeing treated as new news by the market but it really isn't new news at all.Priceline has not had fees on its site for more than a quarter now. I thinkthey took off the fees initially during the summer. Hotwire did the same thingand Hotwire’s fees remain off and we are happy with the results that we're seeingon Hotwire on the air portion of that business as well as the other portions ofthe business. From an operating standpoint, I realize that it may be WallStreet news from an operating standpoint, Priceline's actions are not new news.We've gone for about a quarter with Priceline and Hotwire not having fees onair tickets. As I think you see by our results today, the number of air ticketsthat we've sold this quarter were up 15% on a year-on-year basis. It's a littlebit of an acceleration from a sequential basis. From a defensive standpoint, it hasn't had an effect on us.Obviously, we will watch to see how air does on a go-forward basis. I actuallyam much more sensitive to air ticket prices. If you ask me what I worry about.I worry about air; obviously the air carriers have to pass on some of theincreases that they see in fuel prices and air ticket prices, and some of thoseair ticket prices have stuck. I'm more worried about kind of the overall cost of travel toconsumers than really the Priceline actions which were in effect a quarter agoand really didn't have any effect on us. So in general, I like where our air business is heading.It's the first time that revenue has grown for a number of quarters. We'regoing to watch, we're going to learn. We're certainly experimenting on our ownin Europe, but right now, I don't see any kind of change from our perspective.

Your next question comes from Justin Post - Merrill Lynch. Justin Post - Merrill Lynch: First, you don't really guide revenue, but I do think yourOIBA guidance is up for the year now in low double-digits. Could you talk aboutwhat is really working for you and what is really ahead of your forecast? Itlooks like some nice acceleration. Just a housekeeping on the other expense itlooks like that prevented some of the EPS upside from flowing through. Is thathedging and what's your outlook for that going forward?

As far as what is up, I'm almost afraid to say it in thatthe strength that we see at the business is broader than I've ever seen it. Sowhat is up is most of our business is doing actually quite well. The media andadvertising business, obviously from a growth rate standpoint, you see alreadyhigh growth rates accelerating up over 100%. On an organic business, thebusinesses are accelerating as well. On an organic basis, they are growing over60%. So really, really healthy growth there. Expedia.com and Hotels.com arelooking really strong, and it's a combination of just good ground execution,driving conversion, and then being pretty aggressive on the marketing front aswell and actively trying to push our share in the marketplace. Obviously, Europe is doing quitewell. Now I think that the European marketplace in general is just a greatmarketplace to be operating in right now. I think we had a long, long runway inEurope and I think it's a combination of a great environment and really, reallygood execution from our team. So the strength that we see is pretty broad. I think the acceleration and revenue versus where we werelast year, last year I think we were growing revenue up 5%, the strength ispretty pleasing to see and obviously the challenge for us next year is thecomps we had this year were not very difficult. The comps next year are going tobe more difficult and we're pretty focused on that. Mike, do you want to talk about the other?

So you are absolutely correct that the flow throughs fromOIBA down to adjusted EPS was impacted by FX losses in this quarter of about Ibelieve $12 million. That situation arises for us when our net liabilities andforeign currencies are greater than our net assets in foreign currency and thatis more typical for us in the second half of the year based upon theseasonality of the business. So if the dollar weakens, our liabilities in foreigncurrency go up more than our assets increase and that leads to a loss runningthrough that line. So for Q4, there may possibly be some pressure again basedupon normal seasonality but it depends on what the dollar obviously does versusother currencies. I would also point out that in this quarter and really goforward as Europe and international becomes a biggerpart of our business we become more exposed to this. On the corollary side, wedo run FX gains through the revenue lines when the actual stays occur. So moreor less over time it all balances out but on a quarter-by-quarter basis, theyare definitely ins and outs that impact the flow through. Justin Post - Merrill Lynch: Dara, could you justdo a quick update on where you are at in Europe and howyour progress is in Chinaand Japan?

Europe,we are happy with the progress in Europe. You've seenvery healthy growth and accelerating growth on an FX neutral basis. France,Italy and Germanyare particularly strong spots for us. The Hotels.com business is growing nicelyand accelerating on a quarter-on-quarter basis. So we look at the Europeanenvironment and we're quite encouraged with what we see and I think that we'reexecuting quite well. Some of the fee activity that we've taken on are the airfees, we're staying with and the growth that we are seeing there is quitehealthy. Also the package business in Europe is actuallydoing quite well. So I think in general, Europe, we'recontinuing to execute and we're happy as far as the business goes on a broadbasis. We really don't see any problems there. We're going to be prettyaggressive as far as supply acquisition in Europe. We'rebehind Bookings.com on that basis. So when you look at 2008, we're going to bepretty aggressive as far as trying to add to the number of hotels that we haveavailable in secondary and tertiary cities as well. So that is going to be afocus going forward. In Asia, Japan,specifically Chinawith eLong, we have a new CEO in place and we're very excited about his firstmonth, so to speak. He is very action oriented, making decisions very quicklyand I think that you're going to see eLong returning to call it anentrepreneurial Chinese company moving as fast as you have to in that country.So it is very early as far as Guangfu goes and as far as his activity but we're prettyexcited there. He is very much focused on call center execution, customerservice over there; real focus on sales and marketing and customeracquisitions. So I think he is focused on the right things. Japanis starting to get some traction. Actually we're pretty encouraged by theconversion trends that we see in Japan.It's the #2 travel market in the world so it is a big market. We've got ahotel-only product, it will take a significant amount of technology work to getan air product up which is something that we're working on but in the meantime,the hotel-only product in Japan is actually starting to execute pretty well sowe are quite encouraged there with that. Also we've got a nice private-label partnership as well. Soit is very early in Asia. We are still pushing.

Your next question comes from Jake Fuller - Thomas Weisel. Jake Fuller - Thomas Weisel Partners: Could you give us a sense what the organic growth rate mightbe at TripAdvisor? How much of your overall ad revenue is that and what doesthe margin structure of that business look like?

The organic growth rate at TripAdvisor is more than 60%. So whenyou look at the 100% growth, that includes some of the new acquisitions that webrought in. As far as the percentage of the total goes, Mike, do you know whatpercentage of the total is?

It is more than half,close to two-thirds including the acquisition.

And then one-third is media and advertising coming into ourtransactional sites. It is a media business so it's a very high margin businessand it's got EBITDA margins over 50% is the way I put it. Jake Fuller - Thomas Weisel Partners: As you think aboutthe future of that business, is there any change in the ownership structurepotentially down the road? Does that benefit from being a standalone company?

I think that if youlook at TripAdvisor's performance, its performance is ever increasing and Ithink that it is very comfortable and executing very, very well inside theExpedia family. If you look at where we are trying to take our companystrategically, the media and advertising portion of our revenues is going tobecome an ever more meaningful portion of our revenue. When we look at our business five, ten years from now,really the value that we bring to our travel partners is a worldwide audiencethat is ready to buy travel. Ultimately, I believe as to how we monetize that,whether it is through transaction or media advertising, we will be fairlyneutral. It will depend on what our travelers want who are coming to ourvarious sites and what our suppliers want us to do. I think that really puts usin a unique place amongst kind of our comp set. We are thrown into a comp setof OLTAs, online travel agencies. We went to be the OLTC, the online travelcompany. We think that TripAdvisor is a fundamental part of thatlong-term strategy and we think it's a pretty differentiated strategy from whatanyone else has. So I don't see any kind of change in TripAdvisor ownershipgoing forward. We are very happy to have it part of our family.

Your next question comes from Aaron Kessler - Piper Jaffray. Aaron Kessler - Piper Jaffray: First, can you comment on maybe how the lower hotel pricesmay have changed your conversion rates internationally? Do you think yourstrong international growth was due to market share gains? If so, was that morefrom an online competitors or more to some strong online penetration gains?

It's difficult to tell right now whether our growthinternationally was market share gains. If you look at it as a share of theoverall travel market, certainly we are taking share. That is not a surprise asfar as our growth rate goes. We don't have a lot of visibility into what ourcompetition is doing other than Priceline. Priceline is announcing tomorrow sowe will see how they've done tomorrow. My belief is that the market is doing quite well and I thinkyou'll see great results from them just like you saw great results from us. Ido think that when we look at Travelocity last-minute and we look at eBookers,I think those businesses are starting to execute a bit better but they've gonethrough some painful integration activity. So I wouldn't be surprised if we'retaking a bit of share from them. But again, I've got very limited visibilityinto what is going on there. We're pretty focused on our own execution and we're prettyhappy with our execution so far and we've got some work ahead for us. Aaron Kessler - Piper Jaffray: Can give us a sense year over year how much maybe Ryanair ormaybe the Orbitz Hotwire deal contributed to the growth of those segments?

We don't disclose Ryanair.

It's a small number.

I think ex-Ryanair, you would still see very healthy growth.If you look at the UK,Germany, Franceand you separate out the pieces of the European business, you are still seeingvery healthy growth across the board. It's not because of Ryanair, so to speak. Did you ask on Hotwire? Aaron Kessler - Piper Jaffray: Yes, just give me asense with Orbitz, Hotwire how much that contributes to Hotwire growth dollar orpercentage-wise?

Hotwire is up,revenue is up well over 50%. I'mguessing that it is more in the 70% range on a gross bookings basis and I'mguessing that Orbitz is responsible for less than one-quarter of that growth.It's a good contributor. It's lower margin than our other business but they'vebeen a good partner for us. Aaron Kessler - Piper Jaffray: Just to clarify on the airline booking fees, it sounds likeat this point you have no plans to change maybe the Expedia airline bookingfees. Any reaction?

It's been around for a quarter and we haven't seen anyadverse results as it relates to our own business. So I don't think right nowthere are any plans to react one way or the other. Obviously we're going totest and learn and we're doing some testing and learning in Europe.

Your next question comes from Marianne Wolk - Susquehanna. Marianne Wolk - Susquehanna: Just on that testing and learning, to what extent have youeliminated air service fees in Europe and when did youdo it? Was there a positive result in terms of ticket growth in Europe? Also last quarter you were nice enough to tell us how manyproperties were in your merchant program in Europe. Giventhe fact that you want to invest there, can you talk about whether that figuregrew this quarter sequentially and maybe even provide that figure to us again?

Sure. As far as thebooking fees in Europe, depending on the geography wehave either reduced them or eliminated them totally. It depends on geography.So for example in Spain,we don't have any booking fees. There are some geographies in which if we mayhave matched the booking fee of call it the dominant carrier in the market. Germanyis an example of that. In the UK,booking fees remain and in the U.S.booking fees remain. As far as the experience that we've had in Europe,so far the experience has been positive in that we have certainly where we havereduced booking fees in Europe and we've kept thosebooking fees down, we have seen positive results. I'd say on a near-term basis,we are probably not getting a near-term economic benefit but we think from along-term position, it is a good position to have low booking fees or nobooking fees because we think it is very, very early in Europe. If you look atour relative share in Europe to the incumbents; if you look at our sharerelative to the market overall, we think this is a good time to invest to growaggressively and quickly and that is a position that we're taking as far asEuropean booking fees go. On European merchant hotels, we have around 13,000 merchanthotels. It is up 12% on a year-on-year basis and we hope to add significantlyto that amount in the next quarters.

Your next question comes from Chris Gutek - Morgan Stanley. Chris Gutek - Morgan Stanley: A follow up on the booking fee issue. If hypothetically thepricing pressure in this regard were to spread such that the booking feet wereeliminated globally across all your product lines, hypothetically, how muchrevenue and profit would be at risk?

The revenue that we get from booking fees on a worldwidebasis now is around $100 million. Now to the extent that we drop the bookingfees on a worldwide basis, you would expect to see conversion lift, so you would expect to see recapture of someof that moneys in the air business itself and then you might see of course somerecapture as far as being able to upsell hotels, packages in addition to theusers you are capturing for your kind lower booking fees. Again, I will repeat: based on business trends that we'veseen and we make decisions based on business trends, the booking fee issue isnot new. It has been around for a quarter and we're very happy with our trendson the air side of the business so we don't see doing it. But there is nothingwrong with you having the information. Chris Gutek - Morgan Stanley: Just to be totally clear, so when you talk about increasingconversions, if you do eliminate the booking fees, is the assumption that a lotof that increased conversion comes at the expense of supplier direct bookingsor conversely do you assume that some of your competitors won't match theelimination of the booking fee and therefore you gain share and get betterconversion?

I think that theconversion will be different based on whether competition matches or not. Ithink that if other OLTAs match there's a whole world out there whether it'ssupplier direct or offline travel agencies that we would take share from, so tospeak, at least on the near term. Again, I think it's a theory right now andagain the Priceline action really has not had any kind of broad effect onanyone.

Your next question comes from Brian Fitzgerald - Banc ofAmerica. Brian Fitzgerald - Banc of America Securities: A question on market share from the North Americanperspective. Your bookings accelerated there. Do you think you are taking sharefrom Orbitz or Travelocity? And then a quick clarification on the renegotiatedGDS contracts, is that a one-time reduction in fees or is there any annualcomponent that decreases over the life of the contract? Thanks.

As far as share fromOrbitz or Travelocity, we don't know yet. I think Orbitz is going to announcethe results in a week or so. Their growth rate has been decelerating on asequential basis. Again, we will see this quarter as to whether our increasedgrowth is taking share from them. I think the environment for us in general, the travelenvironment you hear it from our travel partners, it's a pretty goodenvironment out there. So I do think that we may be taking some share and Ithink that we may be benefiting from a generally positive environment and wehave a pretty broad exposure to both the European markets and the U.S.markets. I think that it's a combination of being in a pretty goodposition and executing pretty well. As far as GDS economics go, the economics have gone to oneparticular level and we anticipate that that level is not going to change on ago-forward basis. So I think I talked about how on the non-booking fee portionof our air deals, you are going to see that non-booking fee portion be flatterin 2008 and beyond. These are really long-term deals that we have so these goout to 2010 plus. So we are pretty confident as far as the per unit aireconomics for the company going forward go.

Your next question comes from Anthony Noto - Goldman Sachs. Anthony Noto - Goldman Sachs: Dara, I was wondering if you could comment where yourpricing is on hotels in Europe given some of the pricereductions, not necessarily prices but your take with your hotels your marginthere and where you think that can go? Because you commented about next yearbeing a little bit more aggressive on the hotel inventory acquisition. Secondly, as you think about what you've done so far thisquarter in Europe, do think that you could use analternative branded strategy in Europe? Pricelineobviously has done some acquisitions that are different brands than Priceline.Is it possible for you to penetrate that market more aggressively if you hadmore than the brands that you currently have?

As far as European margins go, our European margins on thehotel side have gone down but that as a result of fee reductions so to speak,fee reduction activity that we took in Europe I think itwas either this quarter or one quarter ago. In general I think we're prettyfocused on using our scale to kind of take away reasons for consumers not tobook. The number one reason why consumers don't book is price, convenience,flexibility. So you see us taking all sorts of actions fairly broadly acrossour portfolio and understanding how that affects consumer behavior. So in Europe, we've taken down airfees, in Europe we've taken down hotel fees. In the U.S.for example, we've eliminated change cancel fees for Hotels.com. For Expedia,we've introduced the thank you program. So we are very broadly and systematicallygoing at reasons why consumers may not book and we're taking action on them. So the European action was a pricing action to our consumersas far as European margins go in general, or hotel margins, they are relativelystable to the extent that you see revenue margins for Europegoing down, it is based on our taking down air fees and our taking down hotelbooking fees as well.

I would say one more component of that for this quarter is achange in the book to stay pattern in Europe as well. Anthony Noto - Goldman Sachs: Your revenue is split there now. How is it comparable toyour next largest competitor, which is actually bigger then you, as we know.But are you still in the 20% range and they are in the 10% range or has thatnarrowed?

It is a lot closerthat you might think because our intelligence tells us that Priceline has or Bookings.comhas been increasing their revenue margins. What is not included in the revenuemargins which is a real cost for the hotel is the credit card fees that we takecare of as part of our merchant margin prod and those two together can beanywhere from 200 to 300 basis points and then also VAT as well is somethingelse that we take care of so to speak, is included in the merchant model versusthe agency model. So when you look at kind of the total cost to hotels, thetotal cost to Priceline versus ours, we don't believe that they are as farapart as you might think. As far as a multiple brand goes, Anthony, we absolutelybelieve in a multi-brand strategy in the U.S.and Europe. And in Europe, thereare three big brands that we're executing on: there's Expedia brand in Europe,there's a Hotels.com brand in Europe, and theTripAdvisor brand in Europe as well. We are going to beexpanding in Europe with some of our other brands as well, but as far as ourinventory of brands that we have in Europe on a worldwide basis, we are prettyhappy with it and we're pretty excited that we have the opportunity to be theonly travel company that is actually building three worldwide brands. I think that there is really no other company in ourposition. Obviously our competitors have different brands in different placesaround the world, but I think we're in a position over the long term ofbuilding three worldwide recognized brands in Expedia, Hotels.com andTripAdvisor. Anthony Noto - Goldman Sachs: So my other questionabout consolidation ties to the branded question but it also ties to yourcomment that you are trying to leverage your scale to help overcome some of theinhibitions of consumers or hotels or airlines to participate. The question isabout consolidation. Do you see that as strategic of you heading forward interms of both gaining additional scale and gaining additional worldwide brands?

I think that we fundamentally believe that scale matters,Anthony. Hopefully you are seeing it in some of our results and our economicsand our margins in general. We are able to invest very aggressively intechnology. We are able to invest very aggressively in consumer facingbenefits. We have a loyalty program at Expedia.com which is the best loyaltyprogram out there. We think we have a differentiated service and we're hopingthat the service becomes more differentiated as time goes on. So we fundamentally believe in the value of scale in thisbusiness and I think you are starting to see the flywheel of scale work for usas we're executing better. That said, we already have the scale that we need.So to the extent that there is a consolidation opportunity, we're going to lookat it on an opportunistic basis and we will look at it based on is it a goodallocation of capital or would we rather allocate capital for growth or wouldwe rather allocate capital for buying back some more of our stock? I think sofar we've kind of spoken with our dollars and the capital allocation we have doneinternally but we will continue to be opportunistic based on the pricing thatwe see out there and the specific opportunity.

Your next question comes from Robert Peck - Bear Stearns. Robert Peck - Bear Stearns: Dara, I wanted tothink a little bit past 2008; obviously for 2008 you've given some guidanceabout percent of revenues going up, CapEx accelerating as well as you makecertain investments in 2008. As we think about coming out of 2008, should weexpect those items to pull back down to their current run rates or continue off2008? A second question on marketing spend. You mentioned that yousaw a dramatic keyword inflation. I'm curious about your thoughts there on yourROI of your marketing spend. Is your ROI going down or are you seeing increasedconversions based on the higher CPCs?

On the first one,past '08, it’s pretty difficult to tell. I do think that we are in the middleof pretty aggressive technology and platform investments as a company andthat's certainly going to happen in '08 as well. Are we going to be completelydone in '09? I don't think so. But I don't anticipate you seeing the kind ofacceleration let's say that you've seen our technology and content investmentsthat you have seen and will see over the next two years or '07 versus '06 and'08 versus '07. So right now, I don't see continued acceleration at the samerates but it is really, really early and either fortunately or unfortunatelythings change pretty quickly in this industry. If you think about where we werea year ago and from a competitive standpoint and how people were talking aboutus versus now, it really is a different world. So it's difficult for me to rightnow predict six months into the future. What was your second question? Robert Peck - Bear Stearns: The effectiveness ofyour advertising spend.

On the advertising spend there are a couple of factorscoming into that as it relates to us. First of all, there is keyword inflationand part of that keyword inflation is simply related to ADRs increasing in theindustry so you've got ADRs increasing in the hotel business, you now have airticket inflation as well which relates to suppliers and agencies being able topay more on a unit basis for keywords, so to speak. As it relates to our activity and keywords, we are throughexecution on a number of fronts. We are enjoying higher conversion in a numberof our brands. The increase in conversions then allows us to bid moreaggressively on travel keywords as well; travel keywords that were notprofitable for us say a year ago are now more profitable. That allows us tothen more aggressively bid on those profitable keywords, well that is going tocreate keyword inflation for us. But that is because we're climbing up thevalue chain as far as keywords go. Robert Peck - Bear Stearns: Your ROI at the endof the day remains flat or maybe even improves?

The ROI, the last keywordthat we buy is going to have a lower ROI than the first keyword that we buy. Soin general, as you are increasing your conversion and you are climbing up thevalue chain, your ROI isn't quite what your base keyword was, but it is stillattractive and it's something that we're working on. So, I would say ROI and SEM, we're still happy with. Thatsaid, you have to do a lot of really, really good things just to stand still inthat travel keyword world. Now the good thing about our business is that we havea hedge because we have a whole bunch of businesses in the media business thatactually are taking advantage of strong keywords in the business, strong CPMadvertising et cetera. So as a business, we're building a nice hedge forourselves as well.

Your next question comes from Doug Anmuth - Lehman Brothers. Doug Anmuth - LehmanBrothers: Thank you very much. Dara, just following up on your lastcomments about building a hedge. Could you talk more about the travel adsplatform? How these ads are being implemented and what the early results havebeen? Do you think that this signals a potential shift in the long term, interms of how the platform is going to work and how your hotel listings canpotentially be shown? Thank you.

Sure, Doug. It's veryearly on travel ads. I'd encourage you to look at Hawaii,for example. It is a market that we've launched. New Yorkis another market that we've launched. Maui is thespecific market in Hawaii, forexample. What travel ads does right now is it allows hotels to bid foreffectively better placement amongst the hotels listings. To the extent that aconsumer then clicks on the specific sponsored results of a travel ad, you gointo the hotel page and you can book travel at Expedia on that hotel. So itallows hotels to shift their share within the Expedia marketplace and that isthe implementation. It is really, really early but we think it is prettyrevolutionary. It's pretty innovative and it will allow our hotel partners toin a live way move up or down the chain and test what kind of demand they get fromus very similarly to what they do in Google. It is very simple and we're goingto test and learn.

Your next question comes from Imran Khan – JP Morgan. Imran Khan - JP Morgan: I think you've talked about the keyword pricing and thekeyword conversion. What can you do or what are you doing to reduce thedependence on the keyword marketing and maybe create a brand or drive moretrust to other channels and how is that trending? The second question is packaged revenue growth rebounded 12%year-over-year I think following last quarter growth rate of 1%. Can you giveus some sense what is driving the reacceleration? Thank you.

Sure. Imran, if youlook at search engine marketing in general it is not our fastest-growingchannel of the company. The fastest growing channel for us on the company isthe email channel. It is the lowest cost channel that we have. So it is reallyCRM initiatives, email are very, very healthy channels for us and that is tosome extent why we built the data warehouse infrastructure that we built inorder to create a better one-to-one relationship with our traveler, being ableto offer specialized deals on a segmented basis to our travelers versus massmailings. We are seeing really, really nice results from that channel. So actually our fastest-growing channel is our cheapestchannel and SEM is, while an important part of the business, by no means themost important part of the business on a go-forward basis. The other note that I would say and I've talked about thisbefore is the search engine optimization as a channel for us for Expedia and Hotelsplatforms, for example, we think are an underutilized channel for us. So whenwe look at search as a channel while SEM may be a channel where we have toexecute very, very effectively on just to stand still, we think on SCO, we'regoing to get increased traffic from SCO over a long-term basis and that trafficis obviously pretty attractive traffic as far as cost goes. I think we're doing a lot as far as execution on ourcustomer acquisition and we're pretty confident about what we've got on thecooker so to speak. I'm going to letMike talk about packages.

The packaged revenuegrowth of 12% has been driven by Europe. It is anacceleration from 1% in the last quarter. Europe grew Ibelieve 28% and that is very much volume based, both dynamic packages on thesite and also third-party packaged volume. North Americaactually grew its revenue this quarter on packages for the first time in awhile. However, that was not volume-based and it was really due to theyear-over-year comp and there was significant discounting last year in thebusiness. So we don't feel like we've turned a corner yet on the NorthAmerican packaged business and that still is a substantial portion of thebusiness. There's a lot of work still to be done. We still have the merchantair issues that we have discussed over the last several calls as well.

Imran, I would saythe one area that we're really focusing on in this business is just reallyoptimizing the various segments of our business, optimizing how do we putforward offers to our travelers? When someone gets a result set off of a search,what is the best result set to give to that particular consumer? There is a lot of optimization that you can do behind thescenes that is not let's say a flashy UI, but we think over the long term canreally affect how you monetize a particular consumer and the way that youmonetize the consumer to the extent that you can create an advantage inmonetizing them at let's say 5% or 10% or 15% creates real advantages then whenyou turnaround and try to acquire customers and try to build scale. I think in our business in general, we are very focused onthat behind the scenes optimization. What I will tell you is that in ourpackaged business we are still working with a dull blade and there is a lot ofback end technology work that has to be done in order for us to really be ableto optimize this segment of our business. Right now we are trying to build the business on a bruteforce basis. I think our folks are doing a really good job with the tools thatthey have but I anticipate that two years from now, we're going to have muchbetter tools to play with than we have today.

At this time, I will turn the conference back to Stu Haas.Please go ahead.

Thank you for joiningus on the call today and for your questions. I want to remind folks that areplay will be available on the IR website shortly after the completion of thiscall. We certainly appreciate your interest in Expedia, Inc. and look forwardto speaking with you again next quarter.

Thank you very much. We appreciate your support and we arelooking forward to telling you all about what we are up to next quarter.