Expedia 2013 Annual Report Download - page 52

Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Expedia, Inc. is an online travel company, empowering business and leisure travelers with the tools and
information they need to efficiently research, plan, book and experience travel. We have created a global travel
marketplace used by a broad range of leisure and corporate travelers, offline retail travel agents and travel service
providers. We make available, on a stand-alone and package basis, travel products and services provided by
numerous airlines, lodging properties, car rental companies, destination service providers, cruise lines and other
travel product and service companies. We also offer travel and non-travel advertisers access to a potential source
of incremental traffic and transactions through our various media and advertising offerings on our transaction-
based websites. For additional information about our portfolio of brands, see the disclosure set forth in Part I,
Item 1, Business, under the caption “Management Overview.”
All percentages within this section are calculated on actual, unrounded numbers.
Summary of the Spin-Off of TripAdvisor
On December 20, 2011, following the close of trading on the Nasdaq Stock Market, we completed the spin-
off of TripAdvisor, which consisted of the domestic and international operations previously associated with our
TripAdvisor Media Group, to Expedia stockholders. Immediately prior to the spin-off, Expedia effected a one-
for-two reverse stock split.
In connection with the spin-off, we entered into various agreements with TripAdvisor, a related party at that
time due to common ownership, including, among others, a separation agreement, a tax sharing agreement, an
employee matters agreement, a transition services agreement and various commercial agreements. In addition,
we have continued to work together with TripAdvisor pursuant to commercial agreements, dated November 1,
2013, between subsidiaries of Expedia, on the one hand, and subsidiaries of TripAdvisor, on the other hand.
Trends
The travel industry, including offline agencies, online agencies and other suppliers of travel products and
services, has historically been characterized by intense competition, as well as rapid and significant change.
Generally, 2012 and 2013 have represented years of gradual improvement for the travel industry. However,
natural disasters, sovereign debt and economic issues in several European countries, the recent shutdown of the
U.S. government, worry over extending the debt ceiling in the United States and concern about the impact of the
pullback in the U.S. Federal Reserve’s quantitative easing program, are all examples of events that contribute to a
somewhat uncertain economic environment which could have a negative impact on the travel industry in the
future.
Online Travel
Increased usage and familiarity with the internet have driven rapid growth in online penetration of travel
expenditures. According to PhoCusWright, an independent travel, tourism and hospitality research firm, in 2013,
approximately 61% of U.S. leisure, unmanaged and corporate travel expenditures occur online, compared with
approximately 50% of European travel. Online penetration in the emerging markets, such as Asia Pacific and
Latin American regions are lagging behind that of Europe, and are estimated to be approximately 27% and 21%,
respectively. These penetration rates have increased over the past few years, and are expected to continue
growing. This significant growth has attracted many competitors to online travel. This competition has
intensified in recent years, and the industry is expected to remain highly competitive for the foreseeable future. In
addition to the growth of online travel agencies, airlines and lodging companies have aggressively pursued direct
online distribution of their products and services. Competitive entrants such as “metasearch” companies,
including Kayak.com (which Priceline.com acquired in May 2013), trivago.com (in which Expedia acquired a
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