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By Sagarika Jaisinghani
(Reuters) - Online travel agency Expedia Inc <EXPE.O> reported a quarterly profit that fell far short of analysts' expectations, hurt by poor performance at its discount website Hotwire.com and soaring selling and marketing costs, sending its shares crashing 25 percent in extended trade.
Expedia has benefited from a recovering U.S. hotel industry, but recent consolidation in the car rental market has driven up rental rates, making it difficult for the company to offer its cars at cheaper rentals.
The U.S. car rental industry is at least two companies smaller compared with a year earlier. No.2 rental company Hertz Global Holdings Inc <HTZ.N> reached a deal last year to buy smaller rival Dollar Thrifty. Avis Budget Group Inc <CAR.O> said in January it was buying Zipcar, the leader in car sharing.
"Hotwire's performance in the quarter was worse than we expected," Chief Executive Dara Khosrowshahi said on a post-earnings conference call.
Hotwire's troubles began with Superstorm Sandy in late 2012. Expedia expected this to abate once the effects of the hurricane had passed, but car rental companies took the opportunity to tighten capacity and push up rates.
Hertz and Avis both reported a 4 percent increase in North American rental rates for their first quarters ended March.
Expedia has also faced rising costs as it expands in international markets to better compete against rivals such as Priceline Com Inc <PCLN.O> and Orbitz Worldwide Inc <OWW.N>.
Selling and marketing expenses jumped 33 percent to $590.5 million in the second quarter ended June.
Expedia said that trivago - a German travel site in which it acquired a majority stake earlier this year - contributed about a third of the increase in these costs.
Expedia said on Thursday that net profit attributable to the company fell to $71.5 million, or 51 cents per share, in the second quarter ended June, from $105.2 million, or 76 cents per share, a year earlier. (http://r.reuters.com/dur89t)
Excluding items, Expedia earned 64 cents per share. Revenue rose 16 percent to $1.21 billion.
Analysts on average had expected earnings of 79 cents per share on revenue of $1.26 billion, according to Thomson Reuters I/B/E/S.
Shares of the company, whose other brands include Hotels.com, were down 25 percent at $48.40 in after-hours trading. They closed at $65.00 on the Nasdaq on Thursday.
(Editing by Sriraj Kalluvila, Ted Kerr and Anthony Kurian)