Expedia 2009 Annual Report Download - page 49

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Seasonality
We generally experience seasonal fluctuations in the demand for our travel products and services. For
example, traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan
and book their spring, summer and holiday travel. The number of bookings typically decreases in the fourth
quarter. Because revenue in the merchant business is generally recognized when the travel takes place rather than
when it is booked, revenue typically lags bookings by several weeks or longer. As a result, revenue is typically
the lowest in the first quarter and highest in the third quarter. The macroeconomic downturn in the latter part of
2008 also affected our general revenue seasonality trends in the fourth quarter of 2008. In addition, the continued
growth of our international operations or a change in our product mix may influence the typical trend of our
seasonality in the future.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that we believe are important in the preparation of our
consolidated financial statements because they require that we use judgment and estimates in applying those
policies. We prepare our consolidated financial statements and accompanying notes in accordance with generally
accepted accounting principles in the United States (“GAAP”). Preparation of the consolidated financial
statements and accompanying notes requires that we make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the
consolidated financial statements as well as revenue and expenses during the periods reported. We base our
estimates on historical experience, where applicable, and other assumption that we believe are reasonable under
the circumstances. Actual results may differ from our estimates under different assumptions or conditions.
There are certain critical estimates that we believe require significant judgment in the preparation of our
consolidated financial statements. We consider an accounting estimate to be critical if:
• It requires us to make an assumption because information was not available at the time or it included
matters that were highly uncertain at the time we were making the estimate; and/or
• Changes in the estimate or different estimates that we could have selected may have had a material
impact on our financial condition or results of operations.
For more information on each of these policies, see Note 2 — Significant Accounting Policies, in the notes
to consolidated financial statements. We discuss information about the nature and rationale for our critical
accounting estimates below.
Accounting for Certain Merchant Revenue
We accrue the cost of certain merchant revenue based on the amount we expect to be billed by suppliers. In
certain instances when a supplier invoices us for less than the cost we accrued, we generally recognize those
amounts as revenue six months in arrears, net of an allowance, when we determine it is not probable that we will
be required to pay the supplier, based on historical experience and contract terms. Actual revenue could be
greater or less than the amounts estimated due to changes in hotel billing practices or changes in traveler
behavior.
Marketing Promotions
We periodically provide incentive offers to our customers to encourage booking of travel products and
services, which include inducement offers. Inducement offers include discounts granted at the time of a current
purchase to be applied against a future qualifying purchase. We treat inducement offers as a reduction to revenue
based on estimated future redemption rates. We allocate the discount amount between the current purchase and
the potential future purchase based on our expected relative value of the transactions. We estimate our
redemption rates using our historical experience for similar inducement offers, and the amounts we record as a
reduction to revenue on current purchases could vary significantly based on the redemption estimates used.
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