Expedia 2015 Annual Report Download - page 53

In expanding our global reach, we leverage significant investments in technology, operations, brand
building, supplier relationships and other initiatives that we have made since the launch of Expedia.com in 1996.
Our scale of operations enhances the value of technology innovations we introduce on behalf of our travelers and
suppliers. We believe that our size and scale afford the company the ability to negotiate competitive rates with
our supply partners, provide breadth of choice and travel deals to our traveling customers through an expanding
supply portfolio and create opportunities for new value added offers for our customers such as our loyalty
programs. The size of Expedia’s worldwide traveler base makes our sites an increasingly appealing channel for
travel suppliers to reach customers. In addition, the sheer size of our user base and search query volume allows
us to test new technologies very quickly in order to determine which innovations are most likely to improve the
travel research and booking process, and then roll those features out to our worldwide audience in order to drive
improvements in conversion.
New Channel Penetration. Today, the majority of online travel bookings are generated through typical
desktop and laptop computers. However, technological innovations and developments are creating new
opportunities including travel bookings made through mobile devices. In the past few years, each of our brands
made significant progress creating new mobile websites and mobile/tablet applications that are receiving strong
reviews and solid download trends. We believe mobile bookings via smartphones present an opportunity for
incremental growth as they are often completed within one or two days of the travel or stay, which is a much
shorter booking window than we have historically experienced via more traditional online booking methods.
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 are seeing
increasing cross-device usage among our customers, who connect to 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 the year ended December 31,
2015, one in four Expedia, Inc. transactions were 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, including the assimilation, growth and shift to more
of a transaction-based business model for the vacation rental listing business of HomeAway, 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
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