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Expedia rises on partnership with Travelocity

NEW YORK (AP) -- Shares of Expedia jumped Friday after the online travel agency announced a partnership with competitor Travelocity.

THE SPARK: The companies announced a "strategic marketing agreement" after the market closed on Thursday. The sides did not disclose financial terms but said the exclusive partnership will be for the long term. Expedia will support technology platforms for Travelocity's websites in the U.S. and Canada, and Travelocity will get access to Expedia's supply and customer services.

Travelocity will focus on promoting its brand and marketing the travel services made available through the deal, the companies said. Travelocity is owned by Sabre Holdings and will remain a separate company from Expedia.

The companies said they plan to launch their combined services in 2014.

THE BIG PICTURE: Expedia Inc., based in Bellevue, Wash., runs Hotels.com and Hotwire.com in addition to its namesake website. In 2012 it bought Via travel, the biggest travel management company in the Nordic countries, and in March it bought a majority stake in German hotel search site Trivago for about $632 million in cash and stock. The moves expanded Expedia's business in Europe.

Expedia's second-quarter revenue rose 16 percent to $1.21 billion, although that was less than analysts expected. Booked nights at hotels rose 19 percent.

The company's quarterly net income also dropped by a third and fell short of expectations as sales and marketing costs related to Trivago, Expedia and Hotels.com increased and technology costs rose as more people were hired for key projects.

THE ANALYSIS: Susquehanna Financial Group analyst Brian Nowak said a lot of customers use one site and not the other, so Expedia will be able to reach more consumers. He said Expedia will get more room nights and revenue, and Travelocity will benefit from Expedia's recent investments in technology and will save on technology and customer services

"In effect, (Travelocity) is becoming a new distribution channel for Expedia's inventory," he wrote. Nowak rates Expedia shares at "Neutral" with a price target of $50 per share.

Cantor Fitzgerald analyst Naved Khan said competition in the travel search sector is increasing, and smaller companies are forced to either focus on specific strengths or partner with bigger companies. He said Expedia is gaining a new source of revenue, and it should become more efficient as booking volumes increase.

Khan rates the shares "Buy" with a price target of $65 per share.

SHARE ACTION: Expedia shares rose $2.80, or 6 percent, to $49.27 in midday trading. The stock is down 28.5 percent since July 25.