TripAdvisor 2014 Annual Report Download - page 14

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On December 11, 2012, Liberty Interactive Corporation, or Liberty, purchased an aggregate of 4,799,848 shares of common
stock of TripAdvisor from Barry Diller, our former Chairman of the Board of Directors and Senior Executive, and certain of his
affiliates (the “Stock Purchase”). As a result, Liberty beneficially owned 18,159,752 shares of our common stock and 12,799,999
shares of our Class B common stock.
On August 27, 2014, the entire beneficial ownership of our common stock and Class B common stock held by Liberty was
acquired by Liberty TripAdvisor Holdings, Inc., or LTRIP. Simultaneously, Liberty, LTRIP’s former parent company, distributed, by
means of a dividend, to the holders of its Liberty Ventures common stock, Liberty’s entire equity interest in LTRIP. We refer to this
transaction as the Liberty Spin Off. As a result of the Liberty Spin-Off, effective August 27, 2014 LTRIP became a separate, publicly
traded company and 100% of Liberty’s interest in TripAdvisor was held by LTRIP.
As a result of these transactions, as of December 31, 2014, LTRIP beneficially owned 18,159,752 shares of our common stock
and 12,799,999 shares of our Class B common stock, which shares constitute 14.0% of the outstanding shares of common stock and
100% of the outstanding shares of Class B common stock. Assuming the conversion of all of LTRIP’s shares of Class B common
stock into common stock, LTRIP would beneficially own 21.7% of the outstanding common stock (calculated in accordance with Rule
13d-3). Because each share of Class B common stock is generally entitled to ten votes per share and each share of common stock is
entitled to one vote per share, LTRIP may be deemed to beneficially own equity securities representing approximately 56.6% of our
voting power.
Our Business Model
Our platforms connect users wishing to plan and book the best travel experiences with providers of travel accommodations and
travel services around the world. We derive the majority of our revenue from the sale of advertising, primarily through click-based
advertising and, to a lesser extent, display-based advertising. The remainder of our revenue is generated through a combination of
subscription and transaction-based offerings and other revenue including content licensing.
x Click-Based Advertising Revenue. Our largest source of revenue is click-based advertising, which includes links to our
partners’ booking sites and contextually-relevant branded and unbranded text links. Our click-based advertising partners
are predominantly online travel agencies, or OTAs, and direct suppliers in the hotel, airline and cruise product categories.
Click-based advertising is generally priced on a cost-per-click, or CPC, basis, with payments from advertisers based on
the number of users who click on each type of link. CPC prices are determined in a bidding process that allows our
partners to use our proprietary system to submit CPC bids to have their rates and availability listed on our site. When a
partner submits a CPC bid they agree to pay the amount of that bid each time a user subsequently clicks on the URL link
to the partner’s website. Bids are submitted periodically – sometimes as often as daily or weekly – on a property-by
property basis and the size of the bid relative to other bids received determines the partner’s placement in all meta
placements on our site with one or more offers shown, including hotel comparison search results and the property detail
page. The system is automated and the size of the partner’s bid is the only factor impacting the partner’s placement on that
page, except that individual partners may be sorted lower in the event that they have not provided price information or if
they cease to have availability for the property. While we enter into master advertising contracts with our partners, the
terms of these agreements generally address matters such as privacy and compliance, payment terms and conditions,
termination and indemnities. Most of our click-based advertising contracts can be terminated by our partners at will or on
short notice. Click-based revenue also includes revenue from our new Instant Booking feature, which allows a partner to
pay a commission rate for a user that completes a reservation on TripAdvisor. TripAdvisor is not the merchant of record
on Instant Booking reservations. For the years ended December 31, 2014, 2013 and 2012, we earned $870 million, or
70%, $696 million, or 74% and $588 million, or 77%, respectively, of revenue from click-based advertising.
x Display-Based Advertising Revenue. We earn revenue from a variety of display-based advertising placements on our
websites through which our advertising partners can promote their brands in a contextually-relevant manner. While our
display-based advertising clients are predominately direct suppliers in the hotel, airline and cruise categories as well as
OTA’s, we also accept display advertising from destination marketing organizations, casinos, resorts and attractions, as
well as advertisers from non-travel categories. We generally sell our display-based advertising on a cost per thousand
impressions, or CPM, basis. Our display-based advertising products also include a number of custom-built features. For
example, Delayed Ad Call, charges customers only when the ad unit is in a users’ view, as well as certain customized co-
branded features. For the years ended December 31, 2014, 2013 and 2012, we earned $140 million, or 11%, $119 million,
or 13%, and $94 million, or 12%, respectively, in revenue from display-based advertising.