NOTE 16: SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

During the fourth quarter of 2014, management changed TripAdvisor’s reportable segments to reflect changes in the management reporting structure of the organization, primarily due to recent business acquisitions, and the manner in which the chief operating decision maker, or CODM, regularly assesses information and evaluates performance for operating decision-making purposes, including allocation of resources. We believe this new segment structure better provides the CODM with information to assess performance and to make resource allocation decisions. The CODM for the company is our Chief Executive Officer.

The revised reporting structure includes two reportable segments: Hotel and Other. Our Other segment consists of the aggregation of three operating segments, which include our Vacation Rentals, Restaurants and Attractions businesses. All prior periods have been reclassified to conform to the current reporting structure.

Hotel

Our Hotel segment includes revenue generated from services related to hotels, including click-based and display-based advertising revenue from making hotel room nights, airline reservations, and cruise reservations available for price comparison and booking, as well as subscription-based products such as Business Listings, transaction-based products such as Jetsetter and Tingo, and other revenue related to hotels. Our CODM is also the Hotel segment manager.

Other

Attractions. We provide, through Viator, information and services for researching and booking destination activities around the world. Viator works with local operators to provide travelers with access to tours and activities in popular destinations worldwide, earning a commission for such service. In addition to its consumer-direct business, Viator also provides local experiences to affiliate partners, including some of the world’s top airlines, hotels and travel agencies.

Restaurants. This business is comprised of our websites that provide online and mobile reservation services that connect restaurants with diners. These websites are currently focused on the European market, primarily through Lafourchette. Lafourchette is an online restaurant booking platform with a network of restaurant partners across Europe. Lafourchette also offers management software solutions helping restaurants to maximize business by providing a flexible online booking, discount and data tool. Revenue is primarily generated by receiving a fee for each restaurant guest seated through the online reservation systems.

Vacation Rentals. We offer individual property owners and property managers the ability to list their properties available for rental and connect with travelers using a subscription-based fee structure or a free-to-list, commission per booking based option. Our vacation rental inventory currently includes full home rentals, condos, villas, beach rentals, cabins, cottages, and many other accommodation types. These properties are listed across a number of platforms, including TripAdvisor Vacation Rentals, U.S.-based FlipKey (which includes Vacation Home Rentals acquired during 2014), and European-based Holiday Lettings and Niumba.

Each operating segment in our Other segment has a segment manager who is directly accountable to and maintains regular contact with our chief operating decision maker to discuss operating activities, financial results, forecasts, and plans for the segment.

Our primary operating metric for evaluating segment performance is Adjusted EBITDA, which is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) plus: (1) provision for income taxes; (2) other income (expense), net; (3) depreciation of property and equipment, including amortization of internal use software and website development; (4) amortization of intangible assets; (5) stock-based compensation; and (6) non-recurring expenses. Such amounts are detailed in our segment reconciliation below. In addition, please see our discussion of Adjusted EBITDA in the section of this Annual Report on Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The following tables present our segment information for the years ended December 31, 2014, 2013 and 2012. We record depreciation of property and equipment, including amortization of internal-use software and website development, amortization of intangible assets, stock-based compensation, other expense, net, other non-recurring expenses, net, and income taxes, which are excluded from segment operating performance, in Corporate and unallocated. In addition, we do not report our assets or capital expenditures by segment as it would not be meaningful. We also do not regularly provide asset, capital expenditure or depreciation information by segment to our CODM. Our consolidated general and administrative expenses, excluding stock-based compensation costs, are shared by all operating segments. Each operating segment receives an allocated charge based on the segment’s percentage of the Company’s total personnel costs.

	Year ended December 31, 2014
	Hotel		Other			Corporate and unallocated			Total
	(in millions)
Revenue	$	1,135	$	111		$	—		$	1,246
Adjusted EBITDA (1)		472		(4	)		—			468
Depreciation		—		—			(47	)		(47	)
Amortization of intangible assets		—		—			(18	)		(18	)
Stock-based compensation		—		—			(63	)		(63	)
Operating income (loss)	$	472	$	(4	)	$	(128	)		340
Other expense, net										(18	)
Income before income taxes										322
Provision for income taxes										(96	)
Net income										226

	Year ended December 31, 2013
	Hotel		Other			Corporate and unallocated			Total
	(in millions)
Revenue	$	899	$	46		$	—		$	945
Adjusted EBITDA (1)		384		(5	)		—			379
Depreciation		—		—			(30	)		(30	)
Amortization of intangible assets		—		—			(6	)		(6	)
Stock-based compensation		—		—			(49	)		(49	)
Operating income (loss)	$	384	$	(5	)	$	(85	)		294
Other expense, net										(10	)
Income before income taxes										284
Provision for income taxes										(79	)
Net income										205

	Year ended December 31, 2012
	Hotel		Other		Corporate and unallocated			Total
	(in millions)
Revenue	$	732	$	31	$	—		$	763
Adjusted EBITDA (1)		349		3		—			352
Depreciation		—		—		(20	)		(20	)
Amortization of intangible assets		—		—		(6	)		(6	)
Stock-based compensation		—		—		(30	)		(30	)
Operating income (loss)	$	349	$	3	$	(56	)		296
Other expense, net									(14	)
Income before income taxes									282
Provision for income taxes									(87	)
Net income									195

(1)	Includes allocated general and administrative expenses in our Hotel segment of $87 million, $72 million and $56 million; and in our Other segment of $18 million, $9 million and $6 million for the years ended December 31, 2014, 2013 and 2012, respectively.

The following table is a reconciliation of our Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, for the periods presented:

	Year ended December 31,
	2014			2013			2012
	(in millions)
Adjusted EBITDA	$	468		$	379		$	352
Depreciation (1)		(47	)		(30	)		(20	)
OIBA (2)		421			349			332
Amortization of intangible assets		(18	)		(6	)		(6	)
Stock-based compensation		(63	)		(49	)		(30	)
Other expense, net		(18	)		(10	)		(14	)
Provision for income taxes		(96	)		(79	)		(87	)
Net income	$	226		$	205		$	195

(1)	Includes amortization of internal use software and website development costs.

(2)

We define OIBA as net income (loss) plus: (1) provision for income taxes; (2) other income (expense), net; (3) stock-based compensation; (4) amortization of intangible assets; and (5) non-recurring expenses. This operating metric is only used by our management to calculate our annual obligation for our charitable foundation. Refer to “Note 12— Commitments and Contingencies” for a discussion of our charitable foundation.

Revenue and Geographic Information

We derive the substantial portion of our revenue through the sale of advertising, primarily through click-based advertising and, to a lesser extent, display-based advertising. In addition, we earn revenue from a combination of subscription-based and transaction-based offerings, including: Business Listings; subscription and commission-based offerings from our Vacation Rentals products; transaction revenue from selling room nights; selling destination activities; fulfilling online restaurant reservations; as well as other revenue including content licensing.

The following table presents revenue by product for the periods presented:

	Year ended December 31,
	2014		2013		2012
	(in millions)
Click-based advertising	$	870	$	696	$	588
Display-based advertising		140		119		94
Subscription, transaction and other		236		130		81
Total revenue	$	1,246	$	945	$	763

The following table presents revenue by geographic area, the United States, the United Kingdom and all other countries, based on the geographic location of our websites for the periods presented:

	Year ended December 31,
	2014		2013		2012
	(in millions)
Revenue
United States	$	593	$	463	$	386
United Kingdom		191		141		110
All other countries		462		341		267
	$	1,246	$	945	$	763

The following table presents property and equipment, net for the United States and all other countries based on the geographic location of the assets for the periods presented:

	December 31,
	2014		2013
	(in millions)
Property and equipment, net
United States	$	170	$	67
All other countries		25		15
	$	195	$	82