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            B R E A K F A S T   W I T H   T H E   F O O L
                     Tuesday, October 31, 2000

benjamin.rogers@enron.com
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"I don't like money, actually, but it quiets my nerves." -- Joe
Louis


LIFTOFF AT EXPEDIA
Expedia tops estimates. Is the flight plan due north?

By Rick Aristotle Munarriz

Online travel specialist Expedia (Nasdaq: EXPE) has been cleared
for takeoff this morning after stellar fiscal first-quarter
results. Revenues soared 115% to $76.5 million on $467 million
in gross travel bookings.

Even more impressive was the fact that the company generated
positive operating cash flow. That may not last in the near term
as the company expects to ramp up marketing efforts that will
bulk up operating expenses. However, Expedia is still on track
to be profitable on an earnings basis by the summer of 2002.

The quarterly loss absent noncash charges was just $1.6 million,
or $0.04 a share. That was substantially better than
projections, which were calling for a deficit between $0.25 and
$0.27 a share.

The analyst-besting results continue the e-travel trend set by
Travelocity.com (Nasdaq: TVLY) two weeks ago. But probably the
most encouraging metric for the online travel industry as a
whole -- a gauge that seems to be buried deep in the data -- is
the rising conversion rate, or what Travelocity calls the
"lookers-to-bookers" ratio.

On a sequential basis, Expedia's conversion rate climbed from
4.1% to 4.6%. Over the past year, Travelocity users have gone
from a 3.8% conversion ratio to a stunning 6.8%.

Why is this so important? It vindicates the industry. While
jaded cybersurfers seem less willing to click on banner ads or
fall for spam, they have clearly embraced the notion of booking
travel online in growing numbers. Since e-travel is fully
scalable and information-intensive (not inventory
warehouse-based) the incremental growth is the best way to
assure a smooth flight to eventual profitability.

Expedia closed out the quarter with $122.3 million in cash. Half
of that came from recent financing that included the deep
pockets of Microsoft (Nasdaq: MSFT), which still owns 70% of the
company after a November 1999 spin-off. The greenbacks? Well,
that just makes for a bigger seat cushion for the company as it
glides past the next few quarters. And you know what they say
about airline seat cushions, don't you? In case of emergency,
they can be used as a flotation device.
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NEWS TO GO

Santa Claus isn't the only one decked out in red this time of
year. Leading playthings online retailer eToys (Nasdaq: ETYS)
reported wider losses for the September quarter. However, the
company expects the deficit to narrow for the critical December
period with improving results next year en route to breaking
even come 2002. Like Amazon.com (Nasdaq: AMZN) last week, eToys
will be mailing out a print catalog this season to lure holiday
shoppers online.

All's well that's Alcatel (NYSE: ALA). Europe's second-leading
telecommunications equipment maker bucked the trend set earlier
by companies such as Lucent (NYSE: LU) and Nortel (NYSE: NT) and
reported stronger-than-projected results. Profits more than
tripled as the French company upgraded its sales outlook for the
year.

Are HMO stocks feeling better? Quarterly profits rose at Humana
(NYSE: HUM) while analysts expected bottom-line results to be in
line with last year's showing. The company credits its tighter
cost controls and the flexibility to raise premiums as the
catalysts for the healthy showing.

HEALTHSOUTH (NYSE: HRC) also came in for its quarterly checkup
and reported record revenues and profits of $0.18 a share -- in
line with analyst expectations. Like Humana, HEALTHSOUTH was
also encouraged by favorable pricing trends. Hey! That means
we're paying more for HMO service, doesn't it? I thought so.
Stay healthy and avoid eating any unwrapped candy tonight.

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