Expedia 2014 Annual Report Download - page 55

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During the last few years, customers’ behaviors and preferences on tablet devices began to show differences from
trends seen on smartphones. For example, the booking window on a smartphone typically is much shorter than
the emerging trend on the tablet device and historical average on a desktop or laptop. In addition, we ae seeing
increasing cross-device usage among our customers, who connect ot our websites and apps across multiple
devices and platforms throughout their travel planning process. We also believe in the future mobile is likely to
represent an efficient marketing channel given the opportunity for direct traffic acquisition, increase in share of
wallet and in repeat customers, particularly through mobile applications. During 2014, more than one in five
Expedia, Inc. transactions was booked globally on a mobile device.
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 for most of our travel products, including merchant and agency hotel, is recognized
when the travel takes place rather than when it is booked, revenue typically lags bookings by several weeks or
longer. The seasonal revenue impact is exacerbated with respect to income by the nature of our variable cost of
revenue and direct sales and marketing costs, which we typically realize in closer alignment to booking volumes,
and the more stable nature of our fixed costs. Furthermore, operating profits for our primary advertising business,
trivago, are experienced in the second half of the year as selling and marketing costs offset revenue in the first
half of the year as we aggressively market during the busy booking period for summer travel. As a result, revenue
and income are typically the lowest in the first quarter and highest in the third quarter. The continued growth of
our international operations or a change in our product mix may influence the typical trend of the 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 assumptions 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
• 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
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