Expedia 2013 Annual Report Download - page 93

We also evaluate the presentation of revenue on a gross versus a net basis. The consensus of the
authoritative accounting literature is that the presentation of revenue as “the gross amount billed to a customer
because it has earned revenue from the sale of goods or services or the net amount retained (that is, the amount
billed to a customer less the amount paid to a supplier) because it has earned a commission or fee” is a matter of
judgment that depends on the relevant facts and circumstances. In making an evaluation of this issue, some of the
factors that should be considered are: whether we are the primary obligor in the arrangement (strong indicator);
whether we have general supply risk (before customer order is placed or upon customer return) (strong
indicator); and whether we have latitude in establishing price. The guidance clearly indicates that the evaluations
of these factors, which at times can be contradictory, are subject to significant judgment and subjectivity. If the
conclusion drawn is that we perform as an agent or a broker without assuming the risks and rewards of ownership
of goods, revenue should be reported on a net basis. For our primary transaction-based revenue models, discussed
below, we have determined net presentation is appropriate for the majority of revenue transactions.
We offer travel products and services on a stand-alone and package basis primarily through the following
business models: the merchant model, the agency model and the advertising model.
Under the merchant model, we facilitate the booking of hotel rooms, airline seats, car rentals and destination
services from our travel suppliers and we are the merchant of record for such bookings. The majority of our
merchant transactions relate to hotel bookings.
Under the agency model, we act as the agent in the transaction, passing reservations booked by the traveler
to the relevant travel provider. We receive commissions or ticketing fees from the travel supplier and/or traveler.
For certain agency airline, hotel and car transactions, we also receive fees from global distribution systems
partners that control the computer systems through which these reservations are booked.
Under the advertising model, we offer travel and non-travel advertisers access to a potential source of
incremental traffic and transactions through our various media and advertising offerings on trivago and our
transaction-based websites.
Merchant Hotel. Our travelers pay us for merchant hotel transactions prior to departing on their trip,
generally when they book the reservation. We record the payment in deferred merchant bookings until the stay
occurs, at which point we record the revenue. In certain nonrefundable, nonchangeable transactions where we
have no significant post-delivery obligations, we record revenue when the traveler completes the transaction on
our website, less a reserve for chargebacks and cancellations based on historical experience. Amounts received
from customers are presented net of amounts paid to suppliers. In certain instances when a supplier invoices us
for less than the cost we accrued, we generally recognize those amounts as revenue six months in arrears, net of
an allowance, when we determine it is not probable that we will be required to pay the supplier, based on
historical experience and contract terms. We generally contract in advance with lodging providers to obtain
access to room allotments at wholesale rates. Certain contracts specifically identify the number of potential
rooms and the negotiated rate of the rooms to which we may have access over the terms of the contracts, which
generally range from one to three years. Other contracts are not specific with respect to the number of rooms and
the rates of the rooms to which we may have access over the terms of the contracts. In either case we may return
unbooked hotel room allotments with no obligation to the lodging providers within a period specified in each
contract. For hotel rooms that are cancelled by the traveler after the specified period of time, we charge the
traveler a cancellation fee or penalty that approximates the amount a hotel may invoice us for the cancellation.
Agency and Merchant Air. We record revenue on air transactions when the traveler books the transaction, as
we have no significant post-delivery obligations. We record a reserve for chargebacks and cancellations at the
time of the transaction based on historical experience.
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