Case Study for "The Priceline Group, Inc., 2015"

What strategic alternatives are available to the organization?

What are the pros and cons of these alternatives?

Which alternative(s) should be pursued and why?

How should this alternative(s) be implemented?

How should this alternative(s) be controlled?

CASE & THE PRICELINE GROUR, INC. 2015 STRATEGIC MANAGEMENT CASES The Priceline Group, Inc., 2015 Internal Issues Mission this statements www.priceline.com, PCLN e d ia News Connecticut Priceline is the world's leading travel service My Managementlab www.cheving in $503 lion in gross bookings in 2014. Renamed The For a nal ce of Couple 2014 s reflect its multiple, independently owned brands is Larg estions which prove -growing company provides travel-related services in 200 tries, through you understand and we wton sol the rage concepts this case, go to the ment 2. Priceline.com section of your MyLab Apoda.com 's vision statement is the company's geographis epsion and expansion plythe and condime t hy 's different alle nge copy's mantength and The mission is to be the leading on wwel basis for a w ers in North America The company has a detailed Code of Business Cendo and his policy, which focuses rais, including corporate pomance practices related to reporting and we place pect, antibribery and co n dicial integrity and reporting to gifts and conflict of interest for competition s international Insider trad y and security protection of company desting and its investors, and the medias Organizational Structure in Exhit. Pricelis d a ly red by product Business Segments Prilise provides financial s for the key is segmenti agency revenue, what revenues, and adhering and other revers Agency revenues are those red from travel ed actions conducted by third The code all travel nics, Global Dini Sym (GDS) Reservation being feeswed to certain wwel service d e processing fees. Most of the even for Boking.com is agency which the company has emented fro m 5. Rentalcars.com OpenThe with its e Nene Turun Priek wers can be the price for airline b roc, care and Vacation packages. The purchaser can see a penal v el p ela company and the camera cancel the purchase has the Price's mobile products have been featured mobile by Apple is uses highed by Google, and voted some of the best for me n ating media , coding Travel Conde Nas, USA Today la Bay 2015. Priceline m o r ate pership with the Brasil in travel company, Hotel Urbane. The 2016 m ars to be held a Rio de Janei Irwil Priceline so offers Horel Urban customers ces to lodging side of Latin Ameri from the Priceline weide work of over 60.000 Ale, a part of the agreement Priori's Booking.com will be Hotel Urbase's exclushe provider for its no Latin America wil hels Pricelise will be the prefere provider for Uhana's global pakar Urbanos comercial deals with Roboh we than its competens Demand CVC Pri m eally wing this and forming alliance ring in tal markets. There with Urhane is Pricelines for inven EXHIBIT 1 Priceline's Organizational Structure Gaping www. wine by Selena History Mely Wher founded priceline con i 1997 with its fam e ur Own Pri els . Prim a initial offering (IPO) and on the very first day S h e makes the highest first day value for a corporate that 2004 Pricelisted here are business by acquiring a major share in Trance and the com i ng slib boring Prope. In 2008, king.com, the leading hotel booking white a n d the world c om we day, and with Acta 2010. Price dhe me year the company 920985 del af d e CASE . THE PICTURE GROUP TO MANAGEMENT CASES EXHIBIT 3 Priceline's Gross Bookings by Region millions of USD) $10.00 Priceli's merchant revues me from services where the company is not them of record and therefore charges the customer's credit card for the travel service Merchant reves include the following: 1. Traction was that represent the selling price of None Your Ou Price night, car and wine ticket reservations, and vacation packages. 2. Transactice revenues that represent the most charged to a customer, minus them charged by travel service providers. These providers oferta) the accommodation reservations provided through its merchant price-disclosed hotel service at goda priceline.com and by the reservations provided through its merchant rental car e rencan.com and merchant En Deals hotel service at priceline.com. 3. Customer processing fees charged innection with the sale of Name Your Own hotel room night.restal c and airline ticket reservations, and merchant price-disclow hotel reservations 4. Ancillary fees, including GDS reservation booking fees related to certain of the 520000 $15.000 12.000 $1.000 2014 : Based on Priceline's 2014 2013 Report S Exhibit shows that agency revenues in 2014 increased 325 percent compared to the year, mainly because of the growth in the business of Booking.com. The reverse growth in its til rental car agency airline ticket and hotel reservation businesses. In die merchant s for 2014 decreased 1. percent compared to 2013. because of decreases in revenues from priceline.com's Nanse our hos Price reservation services. However, increase in its com business, renkans.com business priceline.com's E n Drals and metal merchant hotel reservation services, and priceline.com's Eyes Deals rental car reserva services made up for the decreases Priceline's a rtising and other revenges during 2014 were derived primarily free taurant service revenues and subscription for restaurant reservation management services Advertising and other revenues are obtained primarily from KAYAK for sending referrals to travel service providers and online travel agents, as well as from advertising place ments on KAYAK's websites and mobile application. The showed a substantial increase 139.6 percent from 2013 - 2014 Other revenues for 2014 include $100.6 millions of OpenTable Venue, which came since July 24, 2014, when the company acquired OpenTable, as kings reflect gross booking penerated principally by the priceline casiness, in each gardless of where the consumer resides, where the o ne is plysically located while king a reservation, or the location of the travel service provide restaurant Gross bookings sing from accommodation room nights, rental car days, and are the reserved through company's international and US. operations for 2014 and 2013 we given in Exhibit Exhireveals that gross booking increased by 28.4 percent for 2014, compared to 2013 primarily due to growth of 27.9 percent in accommodation room night servations, growth of Il percent in rental car day reservations, and 12.0 percent growth in airline ticket servations International gross bookings grew by 31.0 percent in 2014, primarily due to growth in acco dation om night reservations for the company's Bookingcom and dac businesses, as well as growth in rental car day reservations for its rentalcars.com business Priceline's domestie gros bookings increased by 13.4 percent for 2014, primarily due to Increases in Priceline's retail airline ticket, retail hol, Ey Deals heel and retail rental car services. However, declines in priceline.com's Namur Pric e services set these increases Travel service providers especially hours typically provide a limited of nailability to eaque services such as Priceline, muy during periods of healthy se demand. As a result, the recent healthy travel environment in the United States has had an these impact on its access to availability for Priceline's oppreservation services Echib 4 gives Priceline's gross bookings resulting from reservations of accommodation om nights, rental car daysand airline tickets made through Priceline agency and merchant dels for 2014. Apency gross booking increased 313 pret for 2014. due primarily to growth Booking.com hotel reservations, wine.com's retail arline ticket rental car and hotel res on services, and rentalcars.com reservation service Merchant gross bookings increased percent in 2014. This was mainly because of increases in agoda.com hotel reservations calcars.com rental cwe reservation and priceline.com Egrese Deale hotel and batel reservation service, which were partially offset by declines in priceline.com's Name Priceline's volume of wits purchased by its travel deservation services customers, refere to as gross bookings, is an operating and statistical metric widely used in the travel business. The metric captures the total dollar valoc. penerally inclusive of taxes and fees of all travel services booked by Proline c omes in emtional gross bookings reflect grous bookings gencrale principally by is Booking.com, spada.com and waars.com businesses and the domestic EXHIBIT 2 Priceline's Revenue by Segment in millions of USD: Year Ended December 31, 2014 Miceline helpscoret soms wishing to make the m otions with providers of the around the world, ofering accommodation reservations including hotels, bed Breakfasts, hostels. rtments action retals, and her properties through its Booking Miceline.com and aest h es Prisline.com offers reservations for rental cars, airline on packages, and cruises, all through a brandwees as follows: Headquartered in the Netherlands, booking.com is the world's leading for booking online commeatis reuertices with operations worlwide for more L o ries in wer 200 tres and territories on its various websites and in pages, which includes 15.00 vacation Rental properties. Booking.com offer whe t her marketing services to accommodation providers as part of Other Reves MANAGEMENT CASES CASES. THE PRICELINE TS Priceline's Income Statement in millions of USD) EXHIBIT 4 Priceline's Gross Bookings by Agency and Merchant Models (in millions of USD) EXHIBIT S Pricella Report Date December 31, 2014 December 31, 2013 Operating expenses 5.363 OTT 56.793 4,413 2.99 2.297 Merchand Other Net Income 241 Based on company documents and Yahoo 2013 Source: Based on Pricelines 2014 Anal Report Marketing has established widely used and recognized e-commerce brands through aggressive and promotion campaigns. As a result, the company's online and offline dvertis me has increased significantly in recent years, a trend most ikely to continue. During 14. Priceline's total online advertising expense was approximately 52.4 billion, and the com- spent a substantial portion of internationally through Internet search engines primarily Google meta-search and travel research services, and affiliate marketing. The company also med $231 million in offline advertising and it plans to continue a strategy of agressively moeting brand awareness, primarily through online means, as well as expanding offline cam- w into additional markets. For example, building on its first offline advertising campaign which is launched in the United States in 2013. Booking.com has begun offline advertising cam pis in other markets, including Australia, Canada, the United Kingdom, and Germany Finance Priceline's recent income statement and balance sheet are provided in Exhibits 5 and 6. respec- tely. Priceline's revenues increased 24 percent in 2014, but the firm's goodwill almost doubled reased by S8 percent) 2. Priceline.com: This online travel reservation service provider primarily operates in the United States, providing hotel rental car, and airline ticket reservations services, as well as Vacation packages and cruises Priceline.com is a leader in the "opaque" travel reservation after reservation completed) throw business (not disclosing service provider Identity its pioneering Name Own Price and Express Deals hotel, rental car, and airline reser vation services 3. Agoda.com: Headquartered in Singapore, apoda.com is a leading online accommodation reservation service catering primarily to consumers in the Asia-Pacific region, with opens tions in Bangkok, Thailand, and throughout the region. Agoda.com operates primarily undermerchant model by filing rates and information about the property in agoda.com's proprietary Extranet 4. Rentalcars.com: Headquartered in Manchester, England, rentalcars.com is a leading worldwide online rental car reservation service offering merchants online retail and opaque rental car reservation service. It allows consumers to make rental car reservations in more than 28.000 locations throughout the world with excellent customer support provided 40 languages 5. KAYAK: Headquartered in Stamford, Connecticut KAYAK provides an online price.com parison service (often referred to aseta search that allows consumers to easily search and compare the arts and prices, including airline tickets, accommodation tions, and retail car reservation information from hundreds of travel websites all at once KAYAK deres revenues from advertising places its chutes and mobile and from sending refers to travel service providers KAYAK des business primarily the United States, but has plan i pandgeball 6. Open the Heartered in San Francisco G i o ides online tra reservati sevices to come and to restaurants. O n e does busine way the Sulthough plans to grow globally Strategies Priceline wants to prevely pro pobelily while continuing to offer excellent cu vice through it alles and whes. The company focuses on developing mu c h ips with a service providers and restaurants around the world. Tra de dret s can benefit from participating in its services. For example, de ho y have the means of expertise to market itself to international traveler the o ther language building and operating effective desktop and mobile d e services, oregaging in sophistical the com p marketing tech le, independently managed brandstopal to a variety of while ma g trepreneurial competitive split w it brands Competitors Miceline competes with hundreds of online and traditional travel agencies and reservation ser including even Google Apple Alibaba. Amon, and Facebook, all of which have access cantly greater and more diversified resources than Priceline does. Social media and ah engine sites continue to leve her aspects of Priceline's business. Google has entered aspects of the online travel market through its ITA Software, Inc., a major flight Informa Software company is hotel m a rch service known as "HotelFinder." and its license of el booking software known as Room celine faces strong competition from online travel services including Expedia, Hotwire. com, Travelocity, Orbited others. Traditional travel service companies such as Express, Thomas Cook Tui Travel and others also pose major threats to Priceline. ch companies for example. TripAdvisor, Google, and Trivago compete with Even Apple has acquired a patent for Travel that would enable consumers to make comenient travel arrangements on their phones. With Passbook" being in its rep Products, Apple seems ready and eager to offer some new services to its many users o penetrate the travel services industry in the near future. ne's closest and most intensethal firm is Expedia. Exhibit 7 provides a comparative Priceline with Exped and Orbit Notice that Priceline is the best company on all can Expre Priceline's closet ways of Price GEMENT CASES CASE . THE PRICELINE GR EXHIBIT 6 Priceline's Balance Sheet (in millions of USD) Report Date December 31, 2014 December 31, 2013 posily in S of space in its building, so is consider i ng the city is a now loc is Seattle Expedia currently in the w ind H it the largest player with rival Priceline o n a 5 per market share. Expedia ury s panding its presence outside the United Surs now generates appetimely is heavilyen cent of its revenues from outside the country 51.149 $1.300 1,321 External Issues 5.570 7,480 3.756 Cash and equalents Accounts Receivable Other current acts Total current Long-term imesiments Properts, plant, & equipment Goodwill Intangibles Others Total assets 199 3.326 135 1.768 mer adoption and use of mobile devices globally creates new challenges for Priceline such trends enable device companies such as Apple to offer travel services. The iPhone froid-enabled smartphones, coupled with improved web browsing functionality and und Android ol of thousands of useful apps available on the devices is driving substantial raffic and commerce to mobile platforms. Priceline has superienced a significant shift i s to mobile platforms its advertising partners are also seeing a rapid shift of traffic to 1620 sobile platforms. 14.90 10.444 152 293 Llabilities Short-term debe Accounts payable Other current liabities Total current liabilities Laag-term dett Other this Total abilities 1,380 3,850 D eline's business is dependent on leisure travel. People booking hotels, bed and break- b els, apartments, vacation rentals, rental car and sirline ticket reservations, and so on. rendent on discretionary spending levels. The U.S. economy and most global economies n oving, and so long as that trend continues, Priceline benefits. The company also benefits from lower gasoline prices inforeseen events such as oil prices, terrorist attacks u sal weather patterns, carth- kes, hurricanes, tsunamis, floods, and volcanic eruptions can affect travel. Further, travel und health concerns including pandemics and epidemics such as Ebola, Influenza HINI. unbird flu and SARS, as well as political instability, regional hostilities, imposition of taxes charges by regulatory authorities or travel related accidents can disrupt travel or other wise result in declines in travel demand. The value of the U.S. dollar affects Priceline's business because millions of their customers reside outside the United States. In March 2015, the US dollar hit an 11-year high to the Euro. 1.751 402 3.535 Comece stock Retained earnings Treasury stock Paldis capital and other Total equity 6.6. .737) 4.663 4,219 (1.987) 4,677 6.909 Totalites & equity 1190 10.444 Sour: Based on company documents and Yahoo Finance Market Segmentation Historically, customers were forced to book travel accommodaties through a travel agent or directly through an airline, often at high commissions for the customer. However, customers day are increasingly using websites, such as Priceline and Expedia, that control and 8 percent respectively, of the market, to book their travel arrangements, generally at a great cost savings for the customer. There are over 10,000 travel agencies in the United States, and even though Priceline and Expedia make up 13 percent of the total revenues generated, the market is still quite fragmented, potentially leaving large market shares to be gained by top firms. Overall, the indus- growth rate remains sluggish, with growth of less than 2 percent expected through 2020 Exhibit & reveals the percent breakdown between the most common markets for the industry is interesting to note that among US, travel industry revenues, approximately 50 percent of EXHIBIT 7 Priceline's 2014 Profitability versus Rival Firms Priceline Expedia Orbiti 85B DK Revenues Employees Revenues per Employee SNet Income SEPS s Market Caption S . A variety of 58 B 19 K 305.000 400M 24 EXHIBIT 8 Most Common Revenue Sources for the U.S. Travel Industry 64B 12B Domestesure International Leisure Corporate Expedia (EXPE Headquartered in Bellevue, Washington, Eupedia Trecity and plans Orbite, Expedia's brands include Expedia.com Hotels Harecom. Class Travelocity. Eupatia Local Expert, E c Expedia Cruisine, Long com as well as Trivaga. Car Rentals.com, Wilco s o m travel Web Direct, LateStays.com, G.Do.com Are T e Tech . Both Expedis have been reisely moquin aller competities for years, as the booking industry has rapidly consolidated Expediate m ployees in e m. Classe Vacations Long and More as the online trave Sour: Based on a variety of sources becomes more affoni ion of international visiting overseas for GEMENT CASES revenues are derived from international-based travel. As international travel becom able, many customers are venturing overseas. In addition, a significant portion of travel is booked through traditional travel agencies, as many tourists who are visitin the first time appreciate and value the one-on-one service a traditional travel agent pe Aside from customer type, the industry is fairly well split between service tv tomers. Tour packages account for 30 percent of total revenues, and, like interes packages, they are routinely booked through traditional travel agencies, U.S. Cruises bookings account for 50 percent of the total, with approximately equal weight betwe Surprisingly, rental car bookings account for little more than 2 percent of all travel rew on any travel site such as Priceline and Expedia, offering a car is almost always for customer to accept or opt out of before continuing with their desired transaction of a hou or whatever they may be purchasing. International-based market segmentation has a profile lar to that of the United States, with tours being the most popular, followed by cruises and airli vice type among cus international travel S. cruises and airline ght between them travel revenues, ya always forced on the saction of a hotel, flight bookings. Future Priceline's year-over-year growth rates have generally decelerated in recent years. For example, in 2014, Priceline's accommodation room night reservation growth was 28 percent, a decel eration from 37, 40, and 53 percent in the years prior, respectively. Given the size of its hotel reservation business, the company expects that its year-over-year growth rates will continue to decelerate. Priceline's mobile offerings have received strong reviews and achieved solid download trends, and are driving an increasing share of its business. Mobile bookings present an opports- nity for growth and are necessary to maintain and grow its business as consumers increasing turn to mobile devices instead of a personal computer and to mobile applications in addition a web browser Several factors affect online advertising efficiency, including costs per click, cancella rates, foreign exchange rates, the ability to convert paid traffic to booking customers, and extent to which consumers come directly to websites or mobile apps for bookings. KATN OpenTable spend significantly less on advertising that the other brands, so Priceline expa online advertising efficiency to increase dramatically. Typically, hotels make available only a limited number of hotel rooms for opaque such as Priceline's, especially during periods of high occupancy. As a result, recent occupancy levels in the United States have had an adverse impact on its access to hotel its opaque hotel reservation services, which has negatively affected the company s op reservation gross profits. okings. KAYAK and Priceline's shareholders are accustomed to high growth rates. The company three-year strategic plan. Prepare this document for CEO Darren Huston. ms for opaque services result, recent high hotel ess to hotel rooms for any's opaque hotel mpany needs a clear CASE & THE PRICELINE GROUR, INC. 2015 STRATEGIC MANAGEMENT CASES The Priceline Group, Inc., 2015 Internal Issues Mission this statements www.priceline.com, PCLN e d ia News Connecticut Priceline is the world's leading travel service My Managementlab www.cheving in $503 lion in gross bookings in 2014. Renamed The For a nal ce of Couple 2014 s reflect its multiple, independently owned brands is Larg estions which prove -growing company provides travel-related services in 200 tries, through you understand and we wton sol the rage concepts this case, go to the ment 2. Priceline.com section of your MyLab Apoda.com 's vision statement is the company's geographis epsion and expansion plythe and condime t hy 's different alle nge copy's mantength and The mission is to be the leading on wwel basis for a w ers in North America The company has a detailed Code of Business Cendo and his policy, which focuses rais, including corporate pomance practices related to reporting and we place pect, antibribery and co n dicial integrity and reporting to gifts and conflict of interest for competition s international Insider trad y and security protection of company desting and its investors, and the medias Organizational Structure in Exhit. Pricelis d a ly red by product Business Segments Prilise provides financial s for the key is segmenti agency revenue, what revenues, and adhering and other revers Agency revenues are those red from travel ed actions conducted by third The code all travel nics, Global Dini Sym (GDS) Reservation being feeswed to certain wwel service d e processing fees. Most of the even for Boking.com is agency which the company has emented fro m 5. Rentalcars.com OpenThe with its e Nene Turun Priek wers can be the price for airline b roc, care and Vacation packages. The purchaser can see a penal v el p ela company and the camera cancel the purchase has the Price's mobile products have been featured mobile by Apple is uses highed by Google, and voted some of the best for me n ating media , coding Travel Conde Nas, USA Today la Bay 2015. Priceline m o r ate pership with the Brasil in travel company, Hotel Urbane. The 2016 m ars to be held a Rio de Janei Irwil Priceline so offers Horel Urban customers ces to lodging side of Latin Ameri from the Priceline weide work of over 60.000 Ale, a part of the agreement Priori's Booking.com will be Hotel Urbase's exclushe provider for its no Latin America wil hels Pricelise will be the prefere provider for Uhana's global pakar Urbanos comercial deals with Roboh we than its competens Demand CVC Pri m eally wing this and forming alliance ring in tal markets. There with Urhane is Pricelines for inven EXHIBIT 1 Priceline's Organizational Structure Gaping www. wine by Selena History Mely Wher founded priceline con i 1997 with its fam e ur Own Pri els . Prim a initial offering (IPO) and on the very first day S h e makes the highest first day value for a corporate that 2004 Pricelisted here are business by acquiring a major share in Trance and the com i ng slib boring Prope. In 2008, king.com, the leading hotel booking white a n d the world c om we day, and with Acta 2010. Price dhe me year the company 920985 del af d e CASE . THE PICTURE GROUP TO MANAGEMENT CASES EXHIBIT 3 Priceline's Gross Bookings by Region millions of USD) $10.00 Priceli's merchant revues me from services where the company is not them of record and therefore charges the customer's credit card for the travel service Merchant reves include the following: 1. Traction was that represent the selling price of None Your Ou Price night, car and wine ticket reservations, and vacation packages. 2. Transactice revenues that represent the most charged to a customer, minus them charged by travel service providers. These providers oferta) the accommodation reservations provided through its merchant price-disclosed hotel service at goda priceline.com and by the reservations provided through its merchant rental car e rencan.com and merchant En Deals hotel service at priceline.com. 3. Customer processing fees charged innection with the sale of Name Your Own hotel room night.restal c and airline ticket reservations, and merchant price-disclow hotel reservations 4. Ancillary fees, including GDS reservation booking fees related to certain of the 520000 $15.000 12.000 $1.000 2014 : Based on Priceline's 2014 2013 Report S Exhibit shows that agency revenues in 2014 increased 325 percent compared to the year, mainly because of the growth in the business of Booking.com. The reverse growth in its til rental car agency airline ticket and hotel reservation businesses. In die merchant s for 2014 decreased 1. percent compared to 2013. because of decreases in revenues from priceline.com's Nanse our hos Price reservation services. However, increase in its com business, renkans.com business priceline.com's E n Drals and metal merchant hotel reservation services, and priceline.com's Eyes Deals rental car reserva services made up for the decreases Priceline's a rtising and other revenges during 2014 were derived primarily free taurant service revenues and subscription for restaurant reservation management services Advertising and other revenues are obtained primarily from KAYAK for sending referrals to travel service providers and online travel agents, as well as from advertising place ments on KAYAK's websites and mobile application. The showed a substantial increase 139.6 percent from 2013 - 2014 Other revenues for 2014 include $100.6 millions of OpenTable Venue, which came since July 24, 2014, when the company acquired OpenTable, as kings reflect gross booking penerated principally by the priceline casiness, in each gardless of where the consumer resides, where the o ne is plysically located while king a reservation, or the location of the travel service provide restaurant Gross bookings sing from accommodation room nights, rental car days, and are the reserved through company's international and US. operations for 2014 and 2013 we given in Exhibit Exhireveals that gross booking increased by 28.4 percent for 2014, compared to 2013 primarily due to growth of 27.9 percent in accommodation room night servations, growth of Il percent in rental car day reservations, and 12.0 percent growth in airline ticket servations International gross bookings grew by 31.0 percent in 2014, primarily due to growth in acco dation om night reservations for the company's Bookingcom and dac businesses, as well as growth in rental car day reservations for its rentalcars.com business Priceline's domestie gros bookings increased by 13.4 percent for 2014, primarily due to Increases in Priceline's retail airline ticket, retail hol, Ey Deals heel and retail rental car services. However, declines in priceline.com's Namur Pric e services set these increases Travel service providers especially hours typically provide a limited of nailability to eaque services such as Priceline, muy during periods of healthy se demand. As a result, the recent healthy travel environment in the United States has had an these impact on its access to availability for Priceline's oppreservation services Echib 4 gives Priceline's gross bookings resulting from reservations of accommodation om nights, rental car daysand airline tickets made through Priceline agency and merchant dels for 2014. Apency gross booking increased 313 pret for 2014. due primarily to growth Booking.com hotel reservations, wine.com's retail arline ticket rental car and hotel res on services, and rentalcars.com reservation service Merchant gross bookings increased percent in 2014. This was mainly because of increases in agoda.com hotel reservations calcars.com rental cwe reservation and priceline.com Egrese Deale hotel and batel reservation service, which were partially offset by declines in priceline.com's Name Priceline's volume of wits purchased by its travel deservation services customers, refere to as gross bookings, is an operating and statistical metric widely used in the travel business. The metric captures the total dollar valoc. penerally inclusive of taxes and fees of all travel services booked by Proline c omes in emtional gross bookings reflect grous bookings gencrale principally by is Booking.com, spada.com and waars.com businesses and the domestic EXHIBIT 2 Priceline's Revenue by Segment in millions of USD: Year Ended December 31, 2014 Miceline helpscoret soms wishing to make the m otions with providers of the around the world, ofering accommodation reservations including hotels, bed Breakfasts, hostels. rtments action retals, and her properties through its Booking Miceline.com and aest h es Prisline.com offers reservations for rental cars, airline on packages, and cruises, all through a brandwees as follows: Headquartered in the Netherlands, booking.com is the world's leading for booking online commeatis reuertices with operations worlwide for more L o ries in wer 200 tres and territories on its various websites and in pages, which includes 15.00 vacation Rental properties. Booking.com offer whe t her marketing services to accommodation providers as part of Other Reves MANAGEMENT CASES CASES. THE PRICELINE TS Priceline's Income Statement in millions of USD) EXHIBIT 4 Priceline's Gross Bookings by Agency and Merchant Models (in millions of USD) EXHIBIT S Pricella Report Date December 31, 2014 December 31, 2013 Operating expenses 5.363 OTT 56.793 4,413 2.99 2.297 Merchand Other Net Income 241 Based on company documents and Yahoo 2013 Source: Based on Pricelines 2014 Anal Report Marketing has established widely used and recognized e-commerce brands through aggressive and promotion campaigns. As a result, the company's online and offline dvertis me has increased significantly in recent years, a trend most ikely to continue. During 14. Priceline's total online advertising expense was approximately 52.4 billion, and the com- spent a substantial portion of internationally through Internet search engines primarily Google meta-search and travel research services, and affiliate marketing. The company also med $231 million in offline advertising and it plans to continue a strategy of agressively moeting brand awareness, primarily through online means, as well as expanding offline cam- w into additional markets. For example, building on its first offline advertising campaign which is launched in the United States in 2013. Booking.com has begun offline advertising cam pis in other markets, including Australia, Canada, the United Kingdom, and Germany Finance Priceline's recent income statement and balance sheet are provided in Exhibits 5 and 6. respec- tely. Priceline's revenues increased 24 percent in 2014, but the firm's goodwill almost doubled reased by S8 percent) 2. Priceline.com: This online travel reservation service provider primarily operates in the United States, providing hotel rental car, and airline ticket reservations services, as well as Vacation packages and cruises Priceline.com is a leader in the "opaque" travel reservation after reservation completed) throw business (not disclosing service provider Identity its pioneering Name Own Price and Express Deals hotel, rental car, and airline reser vation services 3. Agoda.com: Headquartered in Singapore, apoda.com is a leading online accommodation reservation service catering primarily to consumers in the Asia-Pacific region, with opens tions in Bangkok, Thailand, and throughout the region. Agoda.com operates primarily undermerchant model by filing rates and information about the property in agoda.com's proprietary Extranet 4. Rentalcars.com: Headquartered in Manchester, England, rentalcars.com is a leading worldwide online rental car reservation service offering merchants online retail and opaque rental car reservation service. It allows consumers to make rental car reservations in more than 28.000 locations throughout the world with excellent customer support provided 40 languages 5. KAYAK: Headquartered in Stamford, Connecticut KAYAK provides an online price.com parison service (often referred to aseta search that allows consumers to easily search and compare the arts and prices, including airline tickets, accommodation tions, and retail car reservation information from hundreds of travel websites all at once KAYAK deres revenues from advertising places its chutes and mobile and from sending refers to travel service providers KAYAK des business primarily the United States, but has plan i pandgeball 6. Open the Heartered in San Francisco G i o ides online tra reservati sevices to come and to restaurants. O n e does busine way the Sulthough plans to grow globally Strategies Priceline wants to prevely pro pobelily while continuing to offer excellent cu vice through it alles and whes. The company focuses on developing mu c h ips with a service providers and restaurants around the world. Tra de dret s can benefit from participating in its services. For example, de ho y have the means of expertise to market itself to international traveler the o ther language building and operating effective desktop and mobile d e services, oregaging in sophistical the com p marketing tech le, independently managed brandstopal to a variety of while ma g trepreneurial competitive split w it brands Competitors Miceline competes with hundreds of online and traditional travel agencies and reservation ser including even Google Apple Alibaba. Amon, and Facebook, all of which have access cantly greater and more diversified resources than Priceline does. Social media and ah engine sites continue to leve her aspects of Priceline's business. Google has entered aspects of the online travel market through its ITA Software, Inc., a major flight Informa Software company is hotel m a rch service known as "HotelFinder." and its license of el booking software known as Room celine faces strong competition from online travel services including Expedia, Hotwire. com, Travelocity, Orbited others. Traditional travel service companies such as Express, Thomas Cook Tui Travel and others also pose major threats to Priceline. ch companies for example. TripAdvisor, Google, and Trivago compete with Even Apple has acquired a patent for Travel that would enable consumers to make comenient travel arrangements on their phones. With Passbook" being in its rep Products, Apple seems ready and eager to offer some new services to its many users o penetrate the travel services industry in the near future. ne's closest and most intensethal firm is Expedia. Exhibit 7 provides a comparative Priceline with Exped and Orbit Notice that Priceline is the best company on all can Expre Priceline's closet ways of Price GEMENT CASES CASE . THE PRICELINE GR EXHIBIT 6 Priceline's Balance Sheet (in millions of USD) Report Date December 31, 2014 December 31, 2013 posily in S of space in its building, so is consider i ng the city is a now loc is Seattle Expedia currently in the w ind H it the largest player with rival Priceline o n a 5 per market share. Expedia ury s panding its presence outside the United Surs now generates appetimely is heavilyen cent of its revenues from outside the country 51.149 $1.300 1,321 External Issues 5.570 7,480 3.756 Cash and equalents Accounts Receivable Other current acts Total current Long-term imesiments Properts, plant, & equipment Goodwill Intangibles Others Total assets 199 3.326 135 1.768 mer adoption and use of mobile devices globally creates new challenges for Priceline such trends enable device companies such as Apple to offer travel services. The iPhone froid-enabled smartphones, coupled with improved web browsing functionality and und Android ol of thousands of useful apps available on the devices is driving substantial raffic and commerce to mobile platforms. Priceline has superienced a significant shift i s to mobile platforms its advertising partners are also seeing a rapid shift of traffic to 1620 sobile platforms. 14.90 10.444 152 293 Llabilities Short-term debe Accounts payable Other current liabities Total current liabilities Laag-term dett Other this Total abilities 1,380 3,850 D eline's business is dependent on leisure travel. People booking hotels, bed and break- b els, apartments, vacation rentals, rental car and sirline ticket reservations, and so on. rendent on discretionary spending levels. The U.S. economy and most global economies n oving, and so long as that trend continues, Priceline benefits. The company also benefits from lower gasoline prices inforeseen events such as oil prices, terrorist attacks u sal weather patterns, carth- kes, hurricanes, tsunamis, floods, and volcanic eruptions can affect travel. Further, travel und health concerns including pandemics and epidemics such as Ebola, Influenza HINI. unbird flu and SARS, as well as political instability, regional hostilities, imposition of taxes charges by regulatory authorities or travel related accidents can disrupt travel or other wise result in declines in travel demand. The value of the U.S. dollar affects Priceline's business because millions of their customers reside outside the United States. In March 2015, the US dollar hit an 11-year high to the Euro. 1.751 402 3.535 Comece stock Retained earnings Treasury stock Paldis capital and other Total equity 6.6. .737) 4.663 4,219 (1.987) 4,677 6.909 Totalites & equity 1190 10.444 Sour: Based on company documents and Yahoo Finance Market Segmentation Historically, customers were forced to book travel accommodaties through a travel agent or directly through an airline, often at high commissions for the customer. However, customers day are increasingly using websites, such as Priceline and Expedia, that control and 8 percent respectively, of the market, to book their travel arrangements, generally at a great cost savings for the customer. There are over 10,000 travel agencies in the United States, and even though Priceline and Expedia make up 13 percent of the total revenues generated, the market is still quite fragmented, potentially leaving large market shares to be gained by top firms. Overall, the indus- growth rate remains sluggish, with growth of less than 2 percent expected through 2020 Exhibit & reveals the percent breakdown between the most common markets for the industry is interesting to note that among US, travel industry revenues, approximately 50 percent of EXHIBIT 7 Priceline's 2014 Profitability versus Rival Firms Priceline Expedia Orbiti 85B DK Revenues Employees Revenues per Employee SNet Income SEPS s Market Caption S . A variety of 58 B 19 K 305.000 400M 24 EXHIBIT 8 Most Common Revenue Sources for the U.S. Travel Industry 64B 12B Domestesure International Leisure Corporate Expedia (EXPE Headquartered in Bellevue, Washington, Eupedia Trecity and plans Orbite, Expedia's brands include Expedia.com Hotels Harecom. Class Travelocity. Eupatia Local Expert, E c Expedia Cruisine, Long com as well as Trivaga. Car Rentals.com, Wilco s o m travel Web Direct, LateStays.com, G.Do.com Are T e Tech . Both Expedis have been reisely moquin aller competities for years, as the booking industry has rapidly consolidated Expediate m ployees in e m. Classe Vacations Long and More as the online trave Sour: Based on a variety of sources becomes more affoni ion of international visiting overseas for GEMENT CASES revenues are derived from international-based travel. As international travel becom able, many customers are venturing overseas. In addition, a significant portion of travel is booked through traditional travel agencies, as many tourists who are visitin the first time appreciate and value the one-on-one service a traditional travel agent pe Aside from customer type, the industry is fairly well split between service tv tomers. Tour packages account for 30 percent of total revenues, and, like interes packages, they are routinely booked through traditional travel agencies, U.S. Cruises bookings account for 50 percent of the total, with approximately equal weight betwe Surprisingly, rental car bookings account for little more than 2 percent of all travel rew on any travel site such as Priceline and Expedia, offering a car is almost always for customer to accept or opt out of before continuing with their desired transaction of a hou or whatever they may be purchasing. International-based market segmentation has a profile lar to that of the United States, with tours being the most popular, followed by cruises and airli vice type among cus international travel S. cruises and airline ght between them travel revenues, ya always forced on the saction of a hotel, flight bookings. Future Priceline's year-over-year growth rates have generally decelerated in recent years. For example, in 2014, Priceline's accommodation room night reservation growth was 28 percent, a decel eration from 37, 40, and 53 percent in the years prior, respectively. Given the size of its hotel reservation business, the company expects that its year-over-year growth rates will continue to decelerate. Priceline's mobile offerings have received strong reviews and achieved solid download trends, and are driving an increasing share of its business. Mobile bookings present an opports- nity for growth and are necessary to maintain and grow its business as consumers increasing turn to mobile devices instead of a personal computer and to mobile applications in addition a web browser Several factors affect online advertising efficiency, including costs per click, cancella rates, foreign exchange rates, the ability to convert paid traffic to booking customers, and extent to which consumers come directly to websites or mobile apps for bookings. KATN OpenTable spend significantly less on advertising that the other brands, so Priceline expa online advertising efficiency to increase dramatically. Typically, hotels make available only a limited number of hotel rooms for opaque such as Priceline's, especially during periods of high occupancy. As a result, recent occupancy levels in the United States have had an adverse impact on its access to hotel its opaque hotel reservation services, which has negatively affected the company s op reservation gross profits. okings. KAYAK and Priceline's shareholders are accustomed to high growth rates. The company three-year strategic plan. Prepare this document for CEO Darren Huston. ms for opaque services result, recent high hotel ess to hotel rooms for any's opaque hotel mpany needs a clear