TripAdvisor 2015 Annual Report Download - page 6

includingTripAdvisor,intoaseparatenewly-formedDelawarecorporationcalledExpedia,Inc.,orExpedia.OnDecember20,2011Expediacompletedaspin-off
ofTripAdvisorintoaseparatepubliclytradedDelawarecorporation.Werefertothissecondtransactionasthe“Spin-Off.”FollowingtheSpin-Off,TripAdvisor
begantradingonTheNASDAQGlobalSelectMarket,orNASDAQ,asanindependentpubliccompanyonDecember21,2011underthesymbol“TRIP.”
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.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holding100%ofLiberty’sinterestinTripAdvisor.
Asaresultofthesetransactions,asofDecember31,2015,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13.7%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21.3%oftheoutstandingcommon
stock.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56.1%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aswellascontentlicensing.
·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metasearch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.
Click-basedadvertisingrevenuealsoincludesrevenuefromourinstantbookingfeature,whichenablesthemerchantofrecord,generallyanOTAor
hotelpartner,topayacommissionrateforauserthatcompletesareservationonTripAdvisor.Instantbookingrevenueiscurrentlyrecognized
undertwodifferentmodels:thetransactionmodelandtheconsumptionmodel.Ourtransactionmodelcommissionrevenueisrecordedatthetimea
travelerbooksahotelreservationonoursitewithoneofourtransactionpartners.Ourtransactionpartnersareliableforcommissionpaymenttous
uponbookingandthepartnerassumesthecancelationrisk.Whenatravelermakesahotelreservationonoursitewithoneofourconsumption
partners,revenueisnotrecordeduntilthetravelers’stay.Ourconsumptionpartnersareliableforcommissionpaymentuponthecompletionofstay
bythetraveler.OTAandhotelpartnerplacementandcomparativehotelpricesavailabletothetravelerinthebookingprocessunderbothmodels
aredeterminedinabiddingprocessinourproprietarysystem,basedonanumberofvariablesincludingcommissionrates,dependingonthespecific
hotelselected.
FortheyearsendedDecember31,2015,2014and2013,weearned$956million,or64%,$870million,or70%and$696million,or74%,
respectively,inrevenuefromclick-basedadvertising.
·Display-Based Advertising Revenue .Advertisingpartnerscanpromotetheirbrandsinacontextually-relevantmannerthroughavarietyofdisplay-
basedadvertisingplacementsonourwebsites.Whileourdisplay-basedadvertisingclientsarepredominatelydirectsuppliersinthehotel,airlineand
cruisecategoriesaswellasOTAs,wealsoacceptdisplay
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