TripAdvisor 2012 Annual Report Download - page 47

Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are the world’s largest online travel company, empowering users to plan and have the perfect trip. Our
travel research platform aggregates reviews and opinions from our community about destinations,
accommodations (including hotels, resorts, motels, B&Bs, specialty lodging and vacation rentals), restaurants
and activities throughout the world through our flagship TripAdvisor brand. Our branded websites include
tripadvisor.com in the United States and localized versions of the website in 29 other countries, including China
under the brand daodao.com. Our branded websites globally have received more than 60 million unique visitors
(according to July 2012 comScore), and we have built a base of more than 44 million marketable members,
which are members we have permission to email on a regular basis, and we feature over 75 million reviews and
opinions, as measured by our own log files. Beyond travel-related content, our websites also include links to the
websites of our customers, including travel advertisers, allowing travelers to directly book their travel
arrangements. In addition to the flagship TripAdvisor brand, we now manage and operate 20 other travel brands,
connected by the common goal of providing comprehensive travel planning resources across the travel sector.
Executive Summary
Our financial results are currently principally dependent on our ability to drive our click-based advertising
revenue. We continue to invest in areas of potential click-based revenue growth, including our social, mobile and
global initiatives, while also focusing on growing both our subscription-based products, such as Vacation Rentals
and Business Listings, and our transaction—based businesses, which include SniqueAway and Tingo. We have
leveraged our position as the largest online travel company to become an important partner for online advertisers
– including hotels, online travel agencies and other travel-related service providers—by providing our customers
with access to our large audience of highly-qualified, highly-engaged users. The key drivers of our click-based
advertising revenue are described below, as well as a summary of our key growth areas and the current trends
impacting our business.
Key Drivers of Click-Based Advertising Revenue
For the years ended December 31, 2012 and 2011, 77% and 79%, respectively, of our total revenue came
from our core cost-per-click, or CPC, based lead generation product. The key drivers of our click-based
advertising revenue include the growth in hotel shoppers, user conversion and lead pricing. Total traffic growth,
or growth in monthly visits from unique IP addresses is reflective of our overall brand growth. We track and
analyze sub-segments of traffic and its correlation to revenue generation and utilize hotel shoppers as an indicator
of revenue growth. We use the term “hotel shoppers” to refer to users who view a listing of hotels in a city or
visitors who view a specific hotel page.
After hotel shoppers, the second driver of our business is user conversion, which is a measure of how many
hotel shoppers ultimately click on a CPC link that generates revenue for us. User conversion on our site is
primarily driven by three factors: merchandising, commerce coverage and choice. We think of merchandising as
the number and location of ads that are available on a page; commerce coverage is whether we have a client who
can take an online booking for a particular property; and choice is the number of clients available for any given
property, allowing the user to shop for the best price. In summary, our CPC revenue depends on the number of
hotel shoppers that are interested in a property, whether there is a commerce link available for that hotel shopper
to click on for that property and whether there are several commerce choices available for that property, so the
hotel shopper can shop around. The other key driver that we look at is the CPC price that online travel agencies
and hoteliers are willing to pay us for our leads.
Key Growth Areas
We continue to invest in areas of potential growth, including our social, mobile and global initiatives as well
as our subscription-based products, such as Vacation Rentals and Business Listings.
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