Priceline 2014 Annual Report Download - page 91

In 2012, the Company launched Express Deals
®
as a merchant semi-opaque hotel reservation service at priceline.com. The Company
has since expanded the Express Deals
®
service to include rental car and air reservation services. Express Deals
®
allows consumers to select
hotel, car and air reservations with price and certain information regarding amenities disclosed prior to making the reservation. The identity of
the travel service provider is not known prior to committing to the non-
refundable reservation. The Company records the difference between the
reservation price to the consumer and the travel service provider cost to the Company of its merchant Express Deals
®
reservation services on a
net basis in merchant revenue.
The Company recognizes revenues and costs for these services when it confirms the customer's non-refundable offer. In very limited
circumstances, the Company makes certain customer concessions to satisfy disputes and complaints. The Company accrues for such estimated
losses and classifies the resulting expense as adjustments to merchant revenue and cost of merchant revenues.
Merchant Retail Services : Merchant revenues for the Company's merchant retail services are derived from transactions where
consumers book accommodation reservations or rental car reservations from travel service providers at disclosed rates which are subject to
contractual arrangements. Charges are billed to consumers by the Company at the time of booking and are included in deferred merchant
bookings until the consumer completes the accommodation stay or returns the rental car. Such amounts are generally refundable upon
cancellation, subject to cancellation penalties in certain cases. Merchant revenues and accounts payable to the travel service provider are
recognized at the conclusion of the consumer's stay at the accommodation or return of the rental car. The Company records the difference
between the reservation price to the consumer and the travel service provider cost to the Company of its merchant retail reservation services on a
net basis in merchant revenue.
Pursuant to the terms of the Company's opaque and retail merchant services, its travel service providers are permitted to bill the
Company for the underlying cost of the service during a specified period of time. In the event that the Company is not billed by the travel
provider within the specified time period, the Company reduces its cost of revenues by the unbilled amounts.
Advertising and Other Revenues
Advertising and other revenues are primarily earned by KAYAK and OpenTable. KAYAK earns advertising revenue primarily by
sending referrals to travel service providers and OTAs and from advertising placements on its websites and mobile applications. Generally,
revenue related to referrals is earned based upon the completion of travel by a consumer or when a consumer clicks on a referral placement and
revenue for advertising placements is earned based upon when a customer clicks on an advertisement or when the Company displays an
advertisement. OpenTable earns revenue primarily by facilitating reservations and providing computerized host-stand operations to restaurants
through proprietary restaurant management reservation services. The Company recognizes other revenues related to OpenTable for reservation
revenues when diners are seated and for subscription revenues on a straight-line basis during the contractual period over which the service is
delivered. Revenues are recorded net of redeemable dining points issued to diners during each period presented.
Loyalty Programs
The Company provides various loyalty programs. Participating customers earn loyalty points on current transactions that can be
redeemed for future qualifying transactions. When the points are earned, the Company estimates the amount of loyalty points expected to be
redeemed and records a reduction in revenue. As of December 31, 2014 , a liability of $71.1 million for loyalty points programs is included in
"Accrued expenses and other current liabilities" on the Consolidated Balance Sheet.
Tax Recovery Charge, Occupancy Taxes and State and Local Taxes
The Company provides an online travel service to facilitate online travel purchases by consumers from travel service providers,
including accommodation, rental car and airline ticket reservations, and sometimes as part of a vacation package reservation. For merchant
model transactions, the Company charges the consumer an amount intended to cover the taxes that the Company anticipates the travel service
provider will owe and remit to the local taxing authorities ("tax recovery charge"). Tax rate information for calculating the tax recovery charge
is provided to the Company by the travel service providers.
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