Priceline 2010 Annual Report Download - page 115

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our financial statements, including the
notes to those statements, included elsewhere in this Form 10-K, and the Section entitled “Special Note
Regarding Forward-Looking Statements” in this Form 10-K. As discussed in more detail in the Section entitled
“Special Note Regarding Forward-Looking Statements,” this discussion contains forward-looking statements
which involve risks and uncertainties. Our actual results may differ materially from the results discussed in the
forward-looking statements. Factors that might cause those differences include, but are not limited to, those
discussed in “Risk Factors.”
Overview
We are a leading online travel company that offers our customers hotel room reservations at over 150,000
hotels worldwide through the Booking.com, priceline.com and Agoda brands. We offer international car rental
reservation services through TravelJigsaw, which we acquired in May 2010. In the United States, we also offer our
customers car rental reservations, airline tickets, vacation packages, cruises and destination services.
We launched our business in the United States in 1998 under the priceline.com brand and have since
expanded our operations to include, among others, the international brands Booking.com, Agoda and TravelJigsaw.
Our principal goal is to maintain and grow our position as the leading worldwide online hotel reservation service,
measured by room nights booked. Our business is driven primarily by international results. During the year ended
December 31, 2010, our international business – the significant majority of which is currently generated by
Booking.com – represented approximately 69% of our gross bookings (an operating and statistical metric referring
to the total dollar value, generally inclusive of all taxes and fees, of all travel services purchased by our customers),
and approximately 82% of our consolidated operating income. Given that the business of our international
operations is primarily comprised of hotel reservation services, commissions earned in connection with the
reservation of hotel room nights represents a substantial majority of our gross profit.
Because our domestic services include merchant Name Your Own Price® travel services, which are
reported on a “gross” basis, while both our domestic and international retail travel services are primarily recorded on
a “net” basis, revenue increases and decreases are impacted by changes in the mix of the sale of Name Your Own
Price® and retail travel services and, consequently, gross profit has become an increasingly important measure of
evaluating growth in our business. At present, we derive substantially all of our gross profit from the following
sources:
x Commissions earned from price-disclosed hotel room reservations, rental cars, cruises and other travel
services;
x Transaction gross profit and customer processing fees from our Name Your Own Price® hotel room
reservation, rental car and airline ticket services, as well as our vacation packages service; and
x Transaction gross profit and customer processing fees from our price-disclosed merchant hotel room
and rental car reservation services;
x Global distribution system (“GDS”) reservation booking fees related to both our Name Your Own
Price® airline ticket, hotel room reservation and rental car services, and price-disclosed airline tickets
and rental car services; and
x Other gross profit derived primarily from selling advertising on our websites.
The recent worldwide recession negatively affected the broad travel market and, as a result, our business.
At the onset of the worldwide recession, hotel operators reported significant decreases in occupancy rates (a
common metric that measures hotel customer usage) and average daily rates (“ADRs”) in the United States, Europe
and Asia. While these trends have recently shown signs of improvement, there can be no assurance that worldwide
economic conditions will not worsen or have a negative impact on the travel industry and, as a result, our business.
Over the last several years we have experienced strong growth in the number of hotel room night
reservations booked through our hotel reservation services. However, given the sheer size of our hotel reservation
business, we believe it is highly likely that our year-over-year room night reservation growth rates will generally