Priceline 2014 Annual Report Download - page 44

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our Consolidated Financial Statements, including the notes to those
statements, included elsewhere in this Annual Report on Form 10
-K, and the Section entitled "Special Note Regarding Forward-Looking
Statements" in this Annual Report on 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 those
discussed in "Risk Factors" and elsewhere in this Annual Report on Form 10-K.
Overview
We are a leading provider of online travel and travel related reservation and search services. Through our online travel agent ("OTA")
services, we connect consumers wishing to make travel reservations with providers of travel services around the world. We offer consumers
accommodation reservations (including hotels, bed and breakfasts, hostels, apartments, vacation rentals and other properties) through our
Booking.com, priceline.com and agoda.com brands. Our priceline.com brand also offers consumers reservations for rental cars, airline tickets,
vacation packages and cruises. We offer rental car reservations worldwide through rentalcars.com. We also allow consumers to easily compare
airline ticket, hotel reservation and rental car reservation information from hundreds of travel websites at once through KAYAK. We recently
acquired OpenTable, a leading provider of online restaurant reservations. We believe that the online restaurant reservation business is
complementary to our online travel businesses, and that both OpenTable and our travel businesses will benefit from adding OpenTable to The
Priceline Group. We refer to our company and all of our subsidiaries and brands, including Booking.com, priceline.com, KAYAK, agoda.com,
rentalcars.com and, as of July 24, 2014, OpenTable, collectively as "The Priceline Group," the "Company," "we," "our" or "us."
We launched our business in the United States in 1998 under the priceline.com brand and have since expanded our operations to include
Booking.com, KAYAK, agoda.com, rentalcars.com and OpenTable, which are independently managed and operated brands. Our principal goal
is to serve consumers and our travel service provider and restaurant partners with worldwide leadership in online reservation services. Our
business is driven primarily by international results, which consist of the results of Booking.com, agoda.com and rentalcars.com and the results
of the internationally based websites of KAYAK and, as of July 24, 2014, OpenTable (in each case regardless of where the consumer resides,
where the consumer is physically located while making a reservation or the location of the travel service provider or restaurant). During the year
ended December 31, 2014 , our international business (the substantial majority of which is generated by Booking.com) represented
approximately 87% 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 94% of our consolidated operating income. See Note 18 to the
Consolidated Financial Statements for more geographic information. A significant majority of our gross profit is earned in connection with
facilitating accommodation reservations.
We derive substantially all of our gross profit from the following sources:
Our priceline.com brand offers merchant Name Your Own Price
®
opaque travel services, which are recorded in revenue on a "gross" basis and
have associated cost of revenue. All of our other services are recorded in revenue on a "net" basis and have no associated cost of revenue.
Therefore, revenue increases and decreases are impacted by changes in the mix of our revenues between Name Your Own Price
®
travel services
and other services. Gross profit reflects the commission or net margin earned for our retail, Name Your Own Price
®
and semi-opaque travel
services and our advertising and other services. Consequently, gross profit is an important measure to evaluate growth in our business because,
in contrast to our revenues, it is not affected by
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•
Commissions earned from facilitating reservations of accommodations, rental cars, cruises and other travel services;
• Transaction gross profit and customer processing fees from our accommodation, rental car, airline ticket and vacation package
reservation services;
• Advertising revenues primarily earned by KAYAK from sending referrals to OTAs and travel service providers, as well as from
advertising placements on KAYAK's websites and mobile apps;
• Beginning on July 24, 2014, revenues recognized by OpenTable, which consist of reservation revenues (a fee for restaurant guests
seated through OpenTable's online reservation service), subscription fees for restaurant reservation management services and other
revenues; and
• Global distribution system ("GDS") reservation booking fees related to our Name Your Own Price
®
hotel, rental car and airline
ticket reservation services, and price-disclosed airline ticket and rental car reservation services.