Priceline 2015 Annual Report Download - page 63

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hotel and Express Deals ® reservation services, which are recorded in revenue "net" of travel service provider costs. As a result, we believe that gross profit is an
important measure to evaluate growth in our business.
Advertising and Other Revenues
Advertising and other revenues during the year ended December 31, 2014 consisted primarily of advertising revenues, restaurant reservation revenues and
subscription revenues for restaurant reservation management services. Other revenues for the year ended December 31, 2014 includes $100.6 million of
OpenTable revenue earned since its acquisition on July 24, 2014.
Cost of Revenues
Year Ended December 31,
(in thousands)
2014
2013
Change
Cost of Revenues $ 857,841
$ 1,077,420
(20.4)%
Cost of Revenues
For the year ended December 31, 2014, cost of revenues consisted primarily of: (1) the cost paid to travel service providers for priceline.com's Name Your
Own Price ® reservation services, net of applicable taxes and charges; (2) fees paid to third parties by KAYAK and priceline.com to return travel itinerary
information in response to search queries; and (3) costs related to accruals for travel transaction taxes (e.g., hotel occupancy taxes, excise taxes, sales taxes, etc.).
Cost of revenues for the year ended December 31, 2014 decreased by 20.4%, compared to the year ended December 31, 2013, primarily due to a decrease in
priceline.com's Name Your Own Price ® reservation services. Cost of revenues for the year ended December 31, 2013 includes an accrual recorded in the first
quarter of 2013 of approximately $20.5 million (including estimated interest and penalties) for travel transaction taxes, principally related to unfavorable rulings in
the State of Hawaii and the District of Columbia, partially offset by a reduction in our accrual related to travel transaction taxes of $6.3 million recorded in the
fourth quarter of 2013, principally related to a favorable agreement and ruling in the District of Columbia.
Agency revenues have no cost of revenue. Agency revenues principally consist of travel commissions on accommodation reservations.
Gross Profit
Year Ended December 31,
(in thousands)
2014
2013
Change
Gross Profit $ 7,584,130
$ 5,715,886
32.7%
Gross Margin 89.8%
84.1%
Total gross profit for the year ended December 31, 2014 increased by 32.7% compared to the year ended December 31, 2013 (growth on a constant
currency basis was approximately 34%), primarily as a result of the increased revenue discussed above. Total gross margin (gross profit expressed as a percentage
of total revenue) increased during the year ended December 31, 2014, compared to the year ended December 31, 2013, because our revenues are disproportionately
affected by priceline.com's Name Your Own Price ® reservation services. Name Your Own Price ® revenues are recorded "gross" with a corresponding travel
service provider cost recorded in cost of revenues, and in the year ended December 31, 2014 these revenues represented a smaller percentage of total revenues than
in the year ended December 31, 2013. Our retail and semi-opaque reservation services, which are recorded in revenue "net" of travel provider cost have been
growing faster than priceline.com's Name Your Own Price ® reservation services. As a result, we believe that gross profit is an important measure to evaluate
growth in our business. Our international operations accounted for approximately $6.6 billion of our gross profit for the year ended December 31, 2014, which
compares to $5.0 billion for the year ended December 31, 2013. Gross profit attributable to our international operations increased, on a constant currency basis, by
approximately 34% for the year ended December 31, 2014 compared to the year ended December 31, 2013. Gross profit attributable to our U.S. businesses
increased by approximately 35.4% for the year ended December 31, 2014, compared to the year ended December 31, 2013. Gross profit for the year ended
December 31, 2014 was positively impacted by the inclusion of OpenTable and KAYAK since their acquisitions on July 24, 2014 and May 21, 2013, respectively.
Gross profit for the year ended December 31, 2013 was
60