Hotels.com Troubles Sink USAi Stock

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USA Interactive Inc. (USAi) shares dropped nearly 14 percent Monday after
its Hotels.com L.P. online unit (http://www.hotels.com/index.jsp?PSRC=EHT)
revised its fourth-quarter and year-end-2002 revenue and earnings estimates.

That drop came despite USAi's claims that the revisions at Hotels.com would
not affect USAi. USAi owns about 67 percent of the Dallas-based online
hotel-room discounter.

Hotels.com revised its fourth-quarter revenue expectations from between $283
million and $289 million to between $270 million and $271 million. Cash-flow
projections for the quarter were also lowered to between $33 million and $34
million from between $40 million and $42 million.

For the year, Hotels.com said, revenue would be between $943 million and $944
million (versus earlier projections of $955 million to $962 million) and cash
flow would be $131 million to $132 million (compared with earlier estimates of
$138.1 million to $140.1 million).

Hotels.com also significantly reduced its guidance for 2003, taking revenue
down $150 million to $1.25 billion from $1.4 billion and lowering cash-flow
projections by $36 million to $175 million from $211 million.

Hotels.com blamed the revisions on an 'unexpected falloff' in average daily
room rates, higher-than-expected advertising expenses and an overall slump in
hotel-room occupancy.

The news affected both stocks, with Hotels.com shares plunging more than 30
percent, or $18.38 each, Monday. The stock regained some of that ground, down
$15.02 per share, or 25 percent, to $44.02 each in 4 p.m. trading.

USAi shares fell as much as $3.29 each to $20.93 earlier in the day,
rebounding slightly to $22.23 (down $1.99 each, or 8 percent) in 4 p.m. trading
Monday.

In a prepared statement, USAi said it would stick to its previous estimates
for revenue and cash-flow growth for the fourth quarter and the year.

Back in October, USAi said it expected to end the fourth quarter with
operating revenue up 4 percent and cash flow up 15 percent.

USAi and Hotels.com are expected to release their final fourth-quarter and
year-end results in February.

UBS Warburg LLC entertainment analyst Christopher Dixon called the USA share
sell-off "overblown" in a report. He added that because the hotel-room slump was
expected to carry into this year, he had already factored such declines into his
estimates for Hotels.com and USAi.

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