Expedia has had a rocky start to its second stint as a publicly traded company. Last quarter's results revealed deteriorating margins, as airlines and hotels alike successfully pressured travel agencies to lower their fees. With stiff competition from sites like SabreHoldings subsidiary Travelocity, Cendant's soon-to-be-sold-off Cheaptickets.com, Priceline.com, and aggregators like Sidestep.com, online travel is an immensely challenging marketplace.

This quarter's results revealed more of the same, but management was a little more upbeat about the company's future prospects. Revenues were up 8% to $598 million, gross bookings rose 10% to $4.56 billion, and net income increased 30% to $95.5 million. Unfortunately, booking margins (revenue divided by gross bookings) fell 32 basis points to 13.1%.

In addition to being pressured on lower fees, Expedia is also struggling to obtain inventory in an environment of record load factors; airlines like U.S. Airways and Continental have fewer bulk fares that need to be discounted. Furthermore, as Expedia's agreements with airlines and hotels get renewed, the economics of those deals are changing substantially, with variable fees replacing flat fees depending on the specific supplier's needs. This essentially allows suppliers to slice and dice their fee dollars a bit more, and forces Expedia to deliver high-value travelers to get the higher fees.