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

Imran Khan - JP Morgan Chris Gutek - Morgan Stanley Paul Keung - CIBC World Markets Aaron Kessler - Piper Jaffray Marianne Wolk - Susquehanna Robert Peck - Bear Stearns Mark Mahaney - Citigroup Doug Anmuth - Lehman Brothers Justin Post - Merrill Lynch Heath Terry - Credit Suisse

Ladies and gentlemen, thank you for standing by and welcome to Expedia, Inc., second quarter 2006 conference call. (Operator Instructions) I would now like to turn the conference over to Stu Hass, Vice President of Investor Relations. Please go ahead, sir.

Good morning, and welcome to Expedia, Inc.'s financial results conference call for the second quarter ended June 30, 2006. Joining me on today’s call are Barry Diller, Expedia’s Chairman and Senior Executive; Dara Khosrowshahi, our CEO; and, Michael Adler, our CFO. The following discussion and responses to your questions reflects management views as of today, August 10, 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 10-K for the year ended December 31, 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 result 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 time to join us on the call today. I am going to spend my time with some high level comments on the quarter, update you on some longer-term strategic developments and close with some recent innovation wins across our brand portfolio. Then, I will turn the call over to Mike Adler for a deeper discussion on our financials. Mike joined Expedia as CFO in May after many successful years at IAC as SVP on my finance team, and I am very happy to have him on board making an immediate contribution. We are certainly pleased with the progress we made this quarter as we delivered solid financial results. Our gross bookings of $4.6 billion were up 10% against last year, revenue of $598 million was up 8% and operating income before amortization grew 6% to $184 million. A real bright spot was our merchant hotel revenue growth of 17%, the highest growth rate we have seen since Q4 of 2004. We are especially pleased that we could deliver this OIBA growth in light of the significant investments we are making in our technology infrastructure and the costs of being a newly independent public company. Profit across our points of sale improved with great performance from Hotels.com which continued its acceleration, with worldwide gross bookings growth of 25% and much better bottom-line growth. Our European operations continue to execute and grow profitably and we are very pleased with the development of ECT which had a second $250 million plus gross bookings quarter at near breakeven and in our Asia Pacific operations with eLong closing its first profitable quarter. Our Q2 bookings growth, which was down against Q1, was affected by lower merchant air gross bookings particularly at Hotwire and some impact from the World Cup in Europe amongst other factors. We were also relatively conservative in our domestic Expedia.com marketing spend which have an effect of higher marketing efficiencies and lower gross bookings growth in Q2. Keep in mind that this will have some effect on Q3 revenue. While our mid-term goal is to increase transactions and bookings growth, we will be disciplined in that regard and we will spend incremental marketing dollars if we are confident that we will get an adequate return on out spend. Finally, while we have been allocating capital to what we believe are sensible long-term investments in our operations from new geographies to data warehouse to our technology platform, to building our corporate business, we have also made an investment in our own Company, buying back 20 million shares or over 5% of our equity base over the past few months. Following on that, our Board has authorized up to another 20 million share repurchase as we continue to view our equity as an attractive investment opportunity. Now, let me talk a bit about airline economics. Clearly, Expedia like all travel agents continues to face a difficult operating environment in air and the trends haven’t changed here, higher ticket prices, lower availability of merchant air inventory and continued declines in revenue per air ticket. We don’t see these factors changing any time soon and we feel that we will face incremental headwinds in the back half of 2006 and beyond as GDS has reduced their incentive payments to agents in light of reduced fees from carriers. Since we last spoke, we gained greater clarity into our overall economics on air distribution and we are cautiously optimistic that the reductions that we will experience beginning in the second half of 2006 are fairly close to what we had anticipated when we discussed their financial expectations in May. That said, these discussions are very fluid and active at this point in time. And, while we are optimistic, we will not sacrifice long-term shareholder value in exchange for achieving quicker clarity for better short-term results. We hope to have more to report to you on our next quarter's call. The good news on air is that we are now successfully flowing air segments to three GDS partners, Worldspan, Amadeus and Sabre. This provides us with greater global access to content and pricing and reduces our reliance on one content supplier. Just today, we announced a long-term strategic agreement with US Airways similar to long-term agreements that we put in place recently with other carriers providing for a degree of variable compensation tied to the value that we deliver. This helps establish a win/win economic incentive structure that we feel is good business for Expedia and good business for our supply partners. As it relates to our platform redesign, we are on track with our work and we will move our first point of sale on to the new platform early next year. While being on the new platform in and of itself won’t change anything that our travelers will notice, it will enabled our point of sale, among other things, to quickly adjust site merchandizing, speed up innovation and improve both search engine optimization and site stability. After we get that first point of sale successfully ported over, we will then transition other worldwide sites in 2007 and 2008. We are also on track in executing against our enterprise data warehouse initiative, which will be initially focused on Sarbanes Oxley compliance efforts and then traveler facing improvements in terms of personalization, improved merchandizing and more segmented marketing beginning in 2007. We are also making progress on our Apollo initiative as we looked to leverage our core assets, increase operational efficiencies arising within our brands and realize more value from our large global presence. We frankly haven’t moved as quickly as I would have liked in 2006 to realize these benefits, but the good news is that we’ve done a ton of spade work here and we are more confident then ever that there is at least $50 million worth of annual OIBA improvements to be had and we will think we will hit that run rate some time in late 2007. We have been pushing forward on the innovation front and we had a significant number of wins across the brand portfolio since our last call. For price sensitive shoppers looking to stay on top of great deals we now offer Expedia.com fare alerts and Hotwire’s Travel Ticker. With fare alerts, we continually search for great deals for you on your choice of air fare and packages and automatically alert when your price trigger is reached. We believe Expedia is the only online travel site to offer this functionality for packages. Combined with Expedia.com’s industry-leading best price guarantee, travelers have increased peace of mind that when they shop with Expedia they are getting great results. TripAdvisor not only pushed its reviews and opinions tally past the 5 million mark this quarter, they also introduced go-lists allowing travelers to publish list of their favorite destinations, attractions, activities, hotels, and restaurants. We're also very proud to see TripAdvisor awarded two Webby's for the best site in the travel and community categories recognizing the Company's continuous innovation and content growth. And just this week, we introduced a revised and expanded Expedia travel protection plan enabling travelers to cancel or change their trips for any reason; as well as offering reimbursements for baggage and flight delays, travel accident insurance, lost baggage, and travel document insurance, and much, much more. This great coverage begins for just $39 per person for travel to Las Vegas and $49 per person for other travel within the Continental U.S. We certainly don't think that we're anywhere near done answering the question of why Expedia or why Hotels.com or why Hotwire, why TripAdvisor when it comes to researching and booking your travel. But we do think that the recent innovations such as the best price guarantee, package protection, Travel Ticker, coupled with great content like hotel reviews, trip guides, and guide books offer compelling reasons for doing so. The good news for travelers and investors alike is that there's so much more innovation and value ahead for Expedia than there is behind us and we look forward to telling that evolving story in the quarters and years to come. Mike? Mike Adler: Thanks. I'd like to review the results for the quarter, provide color on what we think is the story behind the numbers and then I will close with an update on our financial expectations for the year. Let me begin with gross bookings. Overall, gross bookings were up 10% for the quarter, split between domestic growth of 7% and international at 22%. International growth was down versus prior quarters, but about where we thought it would come in based on an expected slowing due to the World Cup and our accompanying decision to weight marketing more heavily in Q3. On the domestic front, we continue to face difficulty in sourcing merchant air inventory to create compelling package offers and we have seen significant price competition in packages from other OTAs. In turn, we're taking more aggressive action to ensure better values for travelers and packages. Adding to our Q2 top line challenges were continued significant year-over-year declines in traffic and transactions from our MSN and affiliate channels at our flagship Expedia.com. The good news is we're seeing nice pickups in our keyword marketing and e-mail channels, but not enough to offset the declines we have seen. We also proactively cut our national TV ad spend for Expedia.com in the quarter, which certainly impacted transactions, but allowed us to drive some modest marketing leverage. Revenue margin for the quarter at 13.1% was down 32 basis points from Q2 '05. The biggest driver was the decrease in our domestic air revenue margin due to higher airfares and lower revenue per ticket, although the 32 basis point drop compares favorably to the 125 basis points in Q1 '06. Revenue margin would have declined more absent lower gross bookings in Europe due to the World Cup and increased revenue from the benefit of Easter travel in Q2 this year. As I mentioned, revenue margin continues to be impacted by deteriorating air economics as airlines continue to pressure their payments to agencies. Air revenue per ticket was down 10% during Q2 and as Dara mentioned, GDS incentive fee reductions will be an incremental headwind to our air business going forward. In our planning, we are assuming that air fares and load factors will remain high and that we continue to have challenges accessing merchant air inventory, which will also impact our packages business. On the hotel front, we saw approximately 120 basis points of raw margin degradation compared with 190 basis points in Q1. As a reminder, we expect to see favorable comps in the back half of 2006 as we anniversary the striking of lower margin deals, easing our year-over-year raw margin declines. We continue to believe we'll see improved raw margin decline in 2006 versus 2005's 125 basis points. That said, the actions we're taking on packaged pricing will take a bite out of this improvement. I would like to emphasize that while hotel margins are a key indicator for our business, it's also important to point out that as merchant hotel becomes a bigger portion of our overall revenue mix, the impact on overall revenue margin can be positive even when raw margins decline in the hotel product category. Our worldwide raw margin decline this quarter was actually a relatively small factor in overall revenue margin decline due to an increase of merchant hotel revenue in our mix. Despite less revenue margin degradation in Q2 versus Q1, we expect revenue margin to decline more significantly in the second half of the year versus Q2's 32 basis points due to continued challenges in air economics, including reduced merchant air availability and our desire to deliver great package savings for travelers in a competitive environment. Putting this all together, we think revenue margin in the second half of the year will decline similarly to the year-on-year decline we saw in the first half. Turning back to the P&L, gross margin for the quarter excluding stock-based compensation improved 118 basis points to 78.8%. Many of the Apollo efforts Dara mentioned in his comments are aimed at cost of revenue improvements, so we would hope to have an improved picture there over the longer term, although it's worth keeping in mind some of these savings may be offset in the near term with investments in our call and data center efforts. As to operating expenses, sales and marketing grew 5% this quarter, below the 8% growth in revenue, largely due to a decision not to advertise Expedia.com on television during the quarter, but rather to focus our efforts on more targeted local ads as well as our decision to move some marketing spend in Europe into Q3. General and administrative expense was down slightly on a sequential basis, as most of our public company hiring is behind us, but was up significantly year on year reflecting increased legal costs and our addition of staff to become a public company. As we've said previously, we do expect G&A to flatten in the back half of the year with favorable comps versus the second half 2005 than during the first half. Technology and content grew 14% year-over-year as we've added additional technology staff and we expect this line item to continue growing faster than revenue during the remainder of 2006. We expect even higher year-over-year growth in 2007 as we put software under development into service and start amortizing its costs. You'll note CapEx was up substantially year-over-year from $13 million to $21 million. We anticipate full-year 2006 CapEx will come in between $70 million and $85 million, which would represent annual growth of at least 35%. We expect that these expenses will start to hit the P&L in 2007 as the software is placed in service, likely causing further deleverage from technology and content in 2007 in addition to what we are experiencing in 2006. Our goal in Q2 was to improve the bottom line and we accomplished that with 6% OIBA growth compared with the first quarter's decline. But what we absolutely must improve upon is our top line performance at the transaction and gross bookings level to better exploit our business model's operating leverage. While I'm confident we're making the right long-term investments to fundamentally transform our traveler's experience and drive the top line more strongly, the bulk of the payoff there is in 2007 and 2008. So in the second half of this year, we will have to depend more on the effectiveness of our marketing initiatives and package pricing to drive top line. To the extent we're successful in these efforts, we would hopefully see improvement in top line metrics. I want to close my comments with an update on our expectations for full year 2006. We continue to believe OIBA for the full year 2006 will decline between 15% and 5%. We certainly had a solid second quarter compared to our first, but given the uncertainty of the effectiveness of our stepped up marketing in an extremely competitive environment, continued challenges around air economics, and our aggressive package pricing, as well as the uncertainty of the terror disruption of last night, we feel it is appropriate at this time to maintain our full-year expectations at prior levels. While we don't provide quarterly expectations, we do want to remind investors that Q3 will not benefit from the Easter revenue which hit Q2 this year and that lighter gross bookings in Q2, due to reduced Expedia.com marketing and the World Cup are likely to reduce revenue in Q3. We also plan to increase our marketing spend in Europe and elsewhere for Q3, for which much of the revenue payoff will likely fall in Q4. To be crystal clear, the OIBA decline for the full year is certainly not performance that anyone on this management team is pleased with and we do expect to do better going forward, but it does reflect the reality of the challenges we face in the near term while we make significant investments for the Company's long-term future. We think the investments we are making will pay off and we’ll continue to work on striking a responsible balance between near-term growth and long-term shareholder value. Lastly, in addition to our focus on maximizing shareholder value by growing OIBA and ultimately free cash flow, we are also mindful of other inputs to shareholder returns, such as an efficient capital structure. Hence, we are very pleased today to announce the completion of our 20 million share repurchase authorization for $288 million, as well as an authorization of an additional 20 million share repurchase. We look forward to reporting our future results to you and updating you on our progress in improving our operations in capital structure. I want to thank everyone for your time today and for your continued interest in Expedia. I'll now turn the call over to Barry for some closing thoughts ahead of Q&A.

Good morning. You heard from Dara and Mike about the details of the quarter, much better than the disappointments, but nevertheless, projecting negative growth for the year isn't anything to celebrate. Since you've also heard about the investments and progress we've been making, all geared toward reversing this year's tough results, I'd like to talk to you about the state of Expedia. What kind of company have we become? More pointedly, are we now a growth company or a value company? We've got lots of competitors, Expedia is a big enterprise, nearly twice the level of gross bookings a our nearest online competitor. And while our somber expectations for 2006 overall don't scream growth, there are significant parts of our business in high growth mode: our Hotels.com business continues its rebirth. Everyone thought had lost purpose along with the cheap hotel rooms of a few years ago. This includes the blossoming international business with an extremely modest cost base. Gross bookings growth in excess of 70%. Our corporate business, ECT given up for dead by some, but not by us, posted another near 50% growth rate quarter and our fledgling Asia Pacific business, the initial outpost in China and Australia also enjoyed healthy growth with a new sibling to come in short order in Japan. What do these seemingly disparate growth businesses have in common? They're all leveraging the technology and a brand base that has them at or close to breakeven. The giant machine no one else even comes close to being able to leverage as we are beginning to do. So growth ought to be in our stars. The truth is, I believe, we can be both a growth and a value company. That's what all this churn inside this Company and what all this investment is about. We've certainly not stirred up all this trouble just to squeeze the value out of the enterprise for as long as it lasts. But while going through this hard slog, we continue to clock extremely strong free cash flow, more than $700 million over the past 12 months and there's plenty of skate left. We get less than 5% of all travel spend, but we have a great brand recognition, we're just getting into position to exploit our size and our looming differentiation into that spend. As to our current opinion on value, clearly this Board of Directors made that known through action via our stock repurchase and our authorization today of an additional repurchase. Having gone on a bit about this, the stark truth is it really matters very little what I or anyone else within these walls says about the color of our spots. The Street and the buy side are going to crunch their numbers, perform their channel checks, study all the leads, and form their own opinion. Yet I think the ultimate arbiter is going should be the cash flows we deliver not just today but in the years ahead. Past that, everything is really just noise, but all the noise and pro forma talk aside, this Board and our senior leadership team are not focused on noise. We're instead making disciplined investment and operating decisions in a very tough competitive environment for the benefit of our long-term holders. We are believers. Those that bet with us or against us will be making their decisions along the way and only time will tell. So thank you. Stu, let's get to the question part of the session today.

Okay, thanks Barry. Let's move on to the Q&A portion of the call with Barry, Dara, and Mike. 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?

(Operator Instructions) Our first question comes from Imran Khan - JP Morgan. Imran Khan - JP Morgan: Congratulations, good quarter. A couple of questions. Number one, last quarter you talked about the conversion rate decline and I was wondering if you can give us more color how the conversion rate was this quarter overall and maybe through different channels? Secondly, corporate travel had a very strong quarter, continued to have a strong quarter and I think you opened up a new office in Germany as well. I was try to get a sense, if I look at the customer base in the corporate travel and the revenue base, what percentage is coming from international versus U.S.? That's it, thanks.

Sure, Imran. On the conversion rate, in general, this quarter, the year-over-year conversion rate for Expedia and Hotels.com was flat. So it didn't go up or down significantly, Hotels.com was able to drive unique users and audience growth pretty effectively and with flat conversions, that translated into the good transaction growth, translated into good gross bookings growth and very, very good performance this quarter. Hotwire conversion I think was down a bit in air and I think they did a good job of conversion on the hotel side. But as Hotwire gets less availability to great air inventory, that becomes a less attractive product for consumers and they've been doing a great job changing their mix over from air to hotel products. I think on the corporate travel business, the international side of the business is performing very well. It is less than 50% of our gross bookings, but tends to have a higher percentage of revenue as a percentage of gross bookings. The international business and the domestic business at this point are slightly profitable or close to breakeven and we think Germany is obviously a big, attractive market. We've had some success there with Expedia.com and Hotels.com. Although it's certainly not an easy market to get into, but we think it's a very important market to have a presence in and we're committed to investing in that market. Imran Khan - JP Morgan: Thank you, Dara.

Your next question comes from Chris Gutek - Morgan Stanley. Chris Gutek - Morgan Stanley: Thanks. A couple quick questions. First, big picture question on the economic model. Assuming the economy stays reasonably healthy and load factors and occupancy rates stay reasonably high, I'm curious if you guys have considered any meaningful change on the economic model, either to take on more risk with inventory and/or accepting lower margins or less attractive cash flow characteristics to free up some inventory and improve the growth rate?

As far as the economic model goes, I think that if we just execute better as far as our relationships with our supply partners, I think that we can just get better access to inventory. One of the particular changes in our economic model that we have made is that whereas we used to essentially have a flat rate at all times, we have signed, call it more sophisticated deals with certain suppliers where our take changes based on the needs of those specific suppliers. Is it a weekend day when you are getting a booking, a hotel booking, or is it a weekday, when do you need the traffic? or are you flying, call it from a home airport or are we giving you a connecting flight? So based on the kind of value that we are delivering to our supply partners, our economics may change. We found that kind of an economic change is something that our supply partners like and it will allow us then to turn around and eventually take more attractive travelers and deliver them to the supply partners who most want those travelers at that time. It lets us yield our demand coming in. That's been our first step, and we think it's a good step and we're certainly going to continue with that. As far as risk goes, we have not taken any significant amount of risk. It is something that we will probably test. To the extent that we test it, it will probably be in Europe having to do with the summer sun destinations at peak times there. We're going to be very, very careful in anything that we do and the benefit of this business is that you can test in limited markets, see what works, and then try to scale it. We do have some folks on the European team now who have had a significant amount of experience with this kind of activity and the most important part of taking on a new activity is to get great, smart people who have prior experience and then start working on them in a small way and then hopefully scale it. I will probably have more to tell you about this next year. As is, we're going to be careful and not take too much risk in that effort. Chris Gutek - Morgan Stanley: As a quick follow-up on the theme of economic model shifting here with the GDS opt-in programs, including Sabre's efficient access solution, you guys have said that you're supportive of this efficient access solution. Could you elaborate, certainly for mom and pop travel agencies, they would need to opt into these programs. But for a big agency like Expedia, it's not clear that you would need to do that. When you say supportive, what exactly does that mean and could you talk a little bit about the economics?

Well, we don't want to talk about specific economics that we have with supply partners or our GDSs, so I'm not going to talk about the particular economics. Our strategy in general as it relates to connectivity is one of flexibility. So we've made real technology investments and our tech teams have done a great job of getting us connectivity to three GDS providers; frankly, all of whom are offering different kinds of solutions to us. Both economic solutions and content solutions that we can either elect into or not. At the same time, we are also talking with our airline partners and in some cases, we're doing deals directly with them. We've always had economic relationships with our airline partners, but we are being much more flexible as to how we do business with them as well. So you put that all together and I would say two, three years from now, each and every deal that we have with our supply partners is going to be unique and different based on their needs, based on our needs and in particular as far as Sabre's EAS solution goes, we looked at it, we think it's a good approach for the industry as a whole, both for large and small travel agencies. We are sending segments over to Sabre as we speak and we expect to do business with them because we think they've taken a pretty good approach. Chris Gutek - Morgan Stanley: Thanks, Dara. You bet.

Our next question comes from Paul Keung - CIBC World Markets. Paul Keung - CIBC World Markets: Good morning. You mentioned earlier in the call that you are shifting some marketing spend from the second or third quarter in Europe. I guess in spite of today's news, as things in Europe start to slow a bit, do you still have the ability to slow that marketing spend in Europe, or have you committed a lot of money already?

Paul, we're pretty careful about our marketing spend and in Europe, we have a very, very disciplined team there. A fair amount of the marketing spend is online partner-type marketing spend, which is variable in nature. So to the extent that we spend it and the returns are not there, we can act very, very quickly and I'd say that's the majority of the day-to-day spend that we spend in Europe. We do have some offline spend, TV spend, radio spend, and outdoor spend in various points of sales in Europe. So far -- again, taking the travel disturbances of last night --so far, we've been pleased with the results, but that doesn't speak to how the results are going to be going forward. So while we're being careful not to commit huge loads of marketing spend, but obviously if there's some kind of a disruption, we may suffer one way or the other. Right now, it's too soon to tell and we'll have more obviously as the weeks and the months go on. But we're pretty confident in our overall approach there. Paul Keung - CIBC World Markets: The second question had to do with you mentioned senior notes offering today and a larger buyback. Do you think the covenants of the new -- I noticed a lot of buybacks with those proceeds, and I guess from a strategic level or a financial level, how do you feel about buying back stock with debt?

Sorry, but due to SEC regulations, we can't comment on that right now, but we can refer you to the 8-K that we filed this morning. Mike Adler: We're not trying to be cute, Paul, we just can't talk about it. Paul Keung - CIBC World Markets: I understand, I should have thought about that it. I'll throw another question here then. Priceline reported earlier this week, I think you can see they've continued to put some good numbers in that second, third tier non-air market, and doing it essentially with partners. When I look at your European operations from your content, it is probably one area you are relatively underinvested in. Do you have any plans to address this hole in your distribution of content today?

I think the way that we're approaching those markets is with Hotels.com first. So our having multiple brands in Europe is a real advantage for us. So Expedia tends to be a brand that is more associated with major airline/airlift so to speak and going into primary and secondary markets. But we can kind of get to those secondary and tertiary markets very quickly with Hotels.com, we're more focused on those markets I'd say now, than we have been in the past. I think you'll see increasing focus on those markets going forward with Hotels.com. We then come in with Expedia sometimes to the extent that we can get airlift, and Expedia is also working pretty well in gaining airlift to second tier carriers in Europe as well. So we'll come in with Hotels and we'll follow-up with Expedia and we'll make the adequate investments there. Paul Keung - CIBC World Markets: Great, thanks a lot.

Next question comes from Aaron Kessler - Piper Jaffray. Aaron Kessler - Piper Jaffray: Great, thank you. A couple of questions. First, the international growth, it did slow and I think partly because of the reduced marketing, but also it looks like it's slower than the competitors. One of them said they benefited from the World Cup. I want to see why you didn't benefit. Maybe it was the airlines bookings that were reduced. Secondly, can you give us an update maybe where you're at in terms of the Japan expansion? Thanks.

Sure. As far as the international markets in Europe in particular, we were affected by World Cup. As to the specific effect, part of it depends on, I'd say the concentration in various marketplaces that we have versus one of our competitors. So, for example, in the German marketplaces, Germans weren't traveling a whole lot with World Cup, but bookings going into Germany and certainly hotel bookings going into Germany benefited. It's hard to tell because different competitor have different mixes and that certainly affected the growth rates. Also, if you take a look at the dollar growth, we're obviously growing off of a much larger base and would say that probably in Europe if you compare us for example, to Priceline, we have a much larger air segment in our business and the air segment in our business is not growing nearly as quickly as the hotel segment, so there's an additional kind of mix issue there. Aaron Kessler - Piper Jaffray: The increase in the raw margins, was that due to the change in the mix from airlines to hotels as well?

That was largely responsible for it. That's exactly right. As far as Japan goes, we are working hard and our target launch date is towards the end of this year. So we've got a team in place, the management team is in place in Japan. We have a great APAC operation that has really executed very well in Australia and we're confident that we'll have a hotel-only site up in Japan later this year and we're confident that we'll grow it maybe slowly at first off of a small base, but certainly surely because we've done a pretty good job of being able to organically grow in these kinds of markets. Aaron Kessler - Piper Jaffray: What is the competitive market like today in Japan?

Japan is a very different marketplace. It is dominated by very large package operators, the Japanese Tourist Board being the largest out there. Online penetration, it's actually very difficult to get data about the Japanese marketplace. Rakitan obviously is a big player in the online travel space there and it's a very different market than the markets that we see in the U.S., but our approach works pretty well in that the technology is essentially already paid for. The Asia Pacific marketing team can work on variable marketing, online marketing so that we don't have to put out a bunch of brand marketing out there. The number of people that we actually have to have on the ground is pretty modest. So if we pay for translation, work on the site itself, we've got the supply, so we're able to get in with pretty modest costs and then we'll start spending variable marketing, we'll see what the returns are and we'll go from there. Aaron Kessler - Piper Jaffray: Great, thank you.

You bet.

Our next question comes form Marianne Wolk - Susquehanna. Marianne Wolk - Susquehanna: Thanks. I had a couple of quick questions. First of all, can you give us a sense of the percentage of your mix now overseas coming from merchant bookings and to what extent it lags U.S. rates? The second question I have was whether or not you could provide some more clarity on the deals you struck with US Airways and the other airlines, how many deals have you struck? How do those economics work relative to the existing plans that you have?

Now, what do you mean by merchant bookings in Europe, can you elaborate on what you're looking for? Marianne Wolk - Susquehanna: Yes. Internationally, Merchant bookings are 40% worldwide, what does that rate look like overseas?

I see. Do we have that number, guys? Mike Adler: We haven't discussed that publicly, Marianne, at this time.

Okay, so, Marianne, that's a no. Sorry. Marianne Wolk - Susquehanna: How about the other question about the clarity on the US Airways deal and just in general, the kinds of deals you're striking with the airlines directly?

Again, I'm very hesitant to discuss specific deals with airlines. What we love about the U.S. Air deal is that it's a five-year deal, it's a long-term deal similar to the deal, for example, that we struck with Continental and it has certain variable characteristics in it. So that to the extent that we are helping out U.S. Air, what they pay us perhaps goes up and to the extent that we're getting them traffic where they don't need a lot of help, payments perhaps go down. That's the general idea of the variable structures that we have in place. But again, I don't want to get specific into US Air or Continental or some of the others that we have struck. Marianne Wolk - Susquehanna: A final question then. Does the aggressive buyback say anything about your ability to find attractive M&A targets?

When we look at an M&A target, we take a look at that target and we say, well, how does that compare to our being able to allocate capital internally? Now, the benefit of an M&A target is that you're typically able to get some cost synergies out of it. The detriment of an M&A target is that it comes with real risks and it comes with real integration pain that I think you've seen in some of our competition as well. So I think that right now based on all of the activity that we have internal to the Company and we are undertaking a number of initiatives out there, and based on the relative value of our own equity, which we consider pretty attractive, we've decided to allocate capital internally. You can tell that we are being prudent, we are not spending all of our money, so to speak, and I think that the plan going forward is one of prudence and I would say opportunism based on what we see out there. Barry, I don't know if you want to add anything to that.

Well, I would just add that, you never know what opportunities are around the corner. Having the amount of cash that we have and resources to cash is a good, solid thing for us, particularly long-term. Certainly we're always in one or two acquisition, I wouldn't call them formal discussions or anything like that, but we always have something on the horizon. We’ll only act if we think that again there is opportunity there and not only worth it, but one that we can handle.

Thanks. Marianne, this is Stu. While we're not going to break out those specific numbers, I can tell you that the percentage mix for merchant hotel domestic/international is not greatly a different. Operator, can we take the next question.

Next question comes from Robert Peck - Bear Stearns. Robert Peck - Bear Stearns: Hey, guys, just two quick questions. One, Dara, could you update us on the rewards program, what the status of that is, maybe try to give us a little bit of color exactly how that will look? Two, on the ETC side, can you talk about the number of clients you have right now and what percent are in the Fortune 1000? Thanks.

Sure. On the loyalty program, we are hard at work developing the technology and are on track to launch it later this year, although I think that it is going to be a soft launch. Again, we are going to be in test and learn mode. We'll do a soft launch. Obviously you launch a loyalty program in order to effect traveler behavior and part of it is to increase the loyalty of our travelers as far as having them come back. Part of that may be to get them to transact more frequently with us, and part of it may be to shift the kind of transactions that they transact with us from, call it lower-margin product to higher-margin product. That's the goal of the loyalty program and we believe that during the soft launch, testing and learning will then enable us to go wide, much, much more effectively and get the kind of return that we want out of this kind of loyalty program. The ECT, I don't have the ECT numbers, guys, do you--.

For ECT, the clients are approximately 3,000 and Fortune 1000 is less than 20%, 10% to 20%.

I think historically, the sweet spot for ECT has been, call it the mid-sized corporation. But as we have built up the tool base at ECT and increased the feature sets that we have and also now introduced a real business intelligence function, which is automated great, great reporting capabilities that are totally automated; and a business intelligence function we will be adding to, we think that we become a whole lot more attractive to larger clients. So I think on a go-forward basis, I'm hoping that you'll see more of a mix of larger travel clients as well although we will always get our share of small, medium enterprises because of the combination of great technology and costs that we have out there. What I'm really happy to report on ECT is that the metrics as far as our customer service metrics are radically improved, they are excellent. We are holding ourselves to a bar that I think is above the bar than a lot of other corporate travel providers and we are hitting those bars and I'm just ecstatic about the service levels. It can always get better, but we've done a lot better. Robert Peck - Bear Stearns: A quick follow-up if I might, On the loyalty program, it seems like there's several different aspects to it. Is one aspect of it anything like an Expedia points, where it would be transferable against various suppliers?

I don't want to go into detail there, I'm sorry.

Also, I'd like to clarify my response to the question on the ETC clients and the Fortune 1000 the number is 20 in the Fortune 500.

Our next question comes from Mark Mahaney - Citigroup. Mark Mahaney - Citigroup: Two questions. First, Michael, just to get very specific about your September quarter revenue guidance, are you saying that we should expect revenue to decline sequentially given the Easter bump in June 2, and given the cutback in marketing spend in the June quarter? Mike Adler: No, I didn't. First of all, we don't give quarterly revenue expectations, but typically we do expect Q3 revenue to exceed Q2 revenue and I don't think there's anything different. Mark Mahaney - Citigroup: Great. Then just to follow-up on one of the earlier questions about the loyalty program, a soft launch: does that mean just in the U.S. and the idea would be to roll that out internationally in '07? Or would it be a soft launch worldwide and whatever that would mean? Thank you. Mike Adler: It will be a U.S. launch. We don't have plans yet as far as what we do worldwide. So right now it's a U.S. initiative. Mark Mahaney - Citigroup: One final question. Is there a way that you would quantify the GDS impact or how much revenue OIBA could be at risk with the GDS negotiations going on, or maybe answer the question by talking about the extent of the contribution to OIBA you've had in the past from GDS incentive fees?

We don't want to talk about the specifics regarding GDS incentives. I think that Travelocity in their call said that the Q2 revenues were $28 million or so from GDS incentives. Is that right, Stu?

I think it's 16% in North American revenues.

So you can assume that the dollar amount that we make is higher, so the 16% is $28 million, the dollar amount that we have at Expedia is higher than the $28 million, but the percentage of our total revenue is lower than Travelocity's because obviously we do a whole lot more hotel business than they do. Is that clear, Mark? So the dollar number is bigger than Travelocity's, the percentage would be lower. So that's all we'll say. Mark Mahaney - Citigroup: That's clear, thank you very much.

You bet.

Your next question comes from Doug Anmuth - Lehman Brothers. Doug Anmuth - Lehman Brothers: I wanted to ask about your packaging business. It looks like it's held actually over the last few years in the low 20s as a percentage of revenue. Looks like it's a pretty important piece of the story in the back half of this year. I'm just curious what initiatives you're taking, what else you can do to improve the packaging business or if it's strictly just pretty much based on price right now in the market. Thanks.

Well, Doug, I think one of the issues on packaging is that the relative attractiveness of packaged products increases to the extent that we're able to secure bulk fares from our airline partners. As load factors have increased in the industry, especially as you get into summer travel, the percentage of bulk fares that we get from our airline partners decreases, which then make the discounts that we can offer for our packaged products relative to let’s say if you bought the components separately, it reduces those discounts. So packages as an overall choice for consumers, becomes relatively less attractive. That's just a fact of life, I think you heard it with some of our competitors as well. Which is, if there are less bulk fares packages again become a bit less attractive. That said, we are very actively look at how we can push package revenue growth and I do think that we are going to be more aggressive going forward on promoting our packages and also pricing our packages as well, because we think it's a terrific product and we think it's a good traveler kind of experience and it's something that we do want to get in front of our travelers. Doug Anmuth - Lehman Brothers: Great, thank you.

Your next question comes from Justin Post - Merrill Lynch. Justin Post - Merrill Lynch: Thank you. Dara, it looks like 2Q may have beat your expectations coming out of 1Q, but your year is unchanged. Were you able to step up your investments in the second half on the back of some pretty good 2Q results?

Justin, we try not to run the business on a quarterly basis. So we're happy with Q2 results. They certainly beat Street expectations. Q2 came in stronger than we expected as well. We're certainly happy with those results. As far as, has it changed the way that we invest? I don't think so. We knew that going into this year was going to be a heavy investment year and the investments that we are making tend to be multi-quarter investments and in some cases, even multi-year investments. One good quarter isn't really going to help you speed one up or slow one down. Justin Post - Merrill Lynch: On the gross margin, the results look pretty good to us. Was that due to the mix, or were you seeing real cost improvements already in that line?

I would say primarily, it is mix at this time. We do expect to see improvements start to filter into the business by Q4 and then more impactfully next year. Justin Post - Merrill Lynch: Last question, on the advertising revenues, I believe Dara at a conference you might have said that advertising was up to 5% of revenues. If you want to just update us on that, I know some of that is inter-company, but with the TripAdvisor traffic looking really good, could you talk about what the contribution is and how that's affecting net revenue rates?

TripAdvisor revenue growth continues to grow with the traffic growth as well so we're very, very happy about that. But to some extent the growth that you see in that revenue is also eliminated inside our numbers as well. So if you look at advertising as a percentage of our overall revenue, I do think that going forward it will be a higher percentage of our revenue over some long-term period. And obviously that will be a help as far as our raw margins go. I think that was the question you were asking, Justin, is that right? Justin Post - Merrill Lynch: Yes. Did it have a material affect net of elimination on raw margins? Or was it still pretty small at this point?

It did not have a material impact on our revenue margins. Justin Post - Merrill Lynch: Great, thank you. That answers the question.

We have time for one final question and our final question comes from Heath Terry - Credit Suisse. Heath Terry - Credit Suisse: Great, thank you. When you look at your international revenue growth that you saw this quarter, is there a way that you can give us an idea of whether there was any significant change in the breakdown? What percentage of that originated or was purchased in the U.S. versus Europe to help give us an idea of the impact of World Cup?

When we give you international revenue, that's revenue that's originating from Europe. Mike Adler: Point of sale.

Yes. So it's based on the point of sale. It's not based on what we call point of supply. So it would be affected by the World Cup. It is very, very difficult to truly identify the World Cup event, but we would guess that it's under $20 million in gross bookings. Heath Terry - Credit Suisse: Great. Thank you, that's very helpful.

Thank you. At this time, I'll turn it back to Stu Haas for closing comments.

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

Thank you.

Thank you, ladies and gentlemen. That concludes the Expedia second quarter 2006 conference call. We thank you again and at this time you may disconnect.