Priceline 2014 Annual Report Download - page 12

copyright, patent, domain name, trade dress and trade secret protection is expensive to maintain and may require litigation. As we continue to
expand internationally, protecting our intellectual property rights and other proprietary rights involves an increasing number of jurisdictions, a
process that is expensive and time consuming and may not be successful in every location. See " Risk Factors - We face risks related to our
intellectual property ."
Governmental Regulation
The services we provide are subject to various laws and regulations. For example, our travel services are subject to laws governing the
offer and/or sale of travel services as well as laws requiring us to register as a "seller of travel" in certain jurisdictions. In addition, our services
may be subject to various taxing regulations. See " Risk Factors - We may have exposure to additional tax liabilities, " " Risk Factors - Our
financial results will likely be materially impacted by payment of income taxes in the future
" and " Risk Factors - Adverse application of state
and local tax laws could have an adverse effect on our business and results of operations. "
We are subject to laws that require protection of user privacy and user data. In our processing of reservations, we receive and store a
large volume of personally identifiable data in the United States, Europe and Asia. This data is increasingly subject to laws and regulations in
numerous jurisdictions around the world, including the Commission of the European Union through its Data Protection Directive and variations
and implementations of that directive in the member states of the European Union. Such government action is typically intended to protect the
privacy of personal data that is collected, processed and transmitted in or from the governing jurisdiction. See " Risk Factors - Our processing,
storage, use and disclosure of personal data exposes us to risks of internal or external security breaches and could give rise to liabilities " and "
Risk Factors
- 'Cookie' laws could negatively impact the way we do business. "
We are also subject to anti-
trust and competition laws, and the competition authorities in various jurisdictions have begun investigations
into competitive practices within the online travel industry, including with respect to our business. See " Risk Factors - As the size of our
business grows, we may become increasingly subject to the scrutiny of anti-trust and competition regulators. "
In addition, our strategy involves rapid geographic expansion around the world, including in Asia, South America and elsewhere, many
of which regions and countries have different legislation, regulatory environments and tax laws. Compliance with legal, regulatory and tax
requirements around the world places demands on our time and resources, and we may nonetheless experience unforeseen and potentially
adverse legal, regulatory or tax consequences, which may have an adverse effect on our business. See " Risk Factors - Regulatory and legal
requirements and uncertainties could harm our business. "
Seasonality
A meaningful amount of gross bookings are generated early in the year, as customers plan and reserve their spring and summer
vacations in Europe and North America. From a cost perspective, we expense the substantial majority of our advertising activities as the expense
is incurred, which is typically in the quarter in which reservations are booked. However, we generally do not recognize associated revenue until
future quarters when the travel occurs. As a result, we typically experience our highest levels of profitability in the second and third quarters of
the year, which is when we experience the highest levels of accommodation checkouts for the year for our North American and European
businesses.
In addition, the date on which certain holidays fall can have an impact on our quarterly results. For example, in 2013 our second quarter
year
-over-year growth rates in revenue, gross profit, operating income and operating margins were adversely affected by Easter falling in the
first quarter instead of the second quarter, as it did in 2012. Conversely, our second quarter 2014 year-over-year growth rates in revenue, gross
profit, operating income and operating margins were favorably impacted by Easter falling in the second quarter instead of the first quarter, as it
did in 2013.
The impact of seasonality can be exaggerated in the short-term by the gross bookings growth rate of the business. For example, in
periods where our growth rate substantially decelerates, our operating margins typically benefit from relatively less variable advertising expense.
In addition, gross profit growth is typically less impacted in the near term due to the benefit of revenue related to reservations booked in previous
quarters.
We experience the highest levels of booking and travel consumption for our Asia-Pacific and South American businesses in the first
and fourth quarters. Therefore, if these businesses continue to grow faster than our North American and European businesses, our operating
results for the first and fourth quarters of the year may become more significant over time as a percentage of full year operating results.
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