Operator:

Welcome to Booking Holdings' Second Quarter 2024 Conference Call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than historical facts are intended to identify forward-looking statements. For a list of factors that could cause Booking Holdings' actual results to differ materially from those described in the forward-looking statements, please refer to the Safe Harbor statements at the end of Booking Holdings' earnings press release as well as Booking Holdings' most recent filings with the Securities and Exchange Commission. Unless required by law, Booking Holdings undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. A copy of Booking Holdings' earnings press release, together with an accompanying financial and statistical supplement, is available in the For Investors section of Booking Holdings' website, www.bookingholdings.com. And now I'd like to introduce Booking Holdings' speakers for this afternoon, Glenn Fogel and Ewout Steenbergen. Go ahead, gentlemen.

Ewout Steenbergen:

Thank you, Glenn and good afternoon. I will now review our results for the second quarter and provide our thoughts for the third quarter and the full year. All growth rates are on a year-over-year basis. Information regarding reconciliation of non-GAAP results to GAAP results can be found in our earnings release. Now let's move to our second quarter results. Our room nights in the second quarter grew 7% which exceeded the high end of our guidance by 1 percentage point. As expected, we saw room nights growth moderate from the first quarter as we saw less year-over-year expansion of the booking window in the second quarter. Looking at our room night growth by region, in the second quarter, Europe was up mid-single digits. Asia was up mid-teens, rest of world was up high single digits and the U.S. was up mid-single digits. We continue to grow our alternative accommodations business faster than our overall business. For our alternative accommodations at Booking.com, our second quarter room night growth was 12% and the global mix of room nights was 36% which was up 2 percentage points from the second quarter of 2023. We continue to see encouraging progress in strengthening direct relationships with our travelers and increasing loyalty on our platforms. Over the last 4 quarters, the mix of our total room nights coming to us through the direct channel was in the mid-50% range and when we exclude our B2B business was in the low 60% range. We've seen both of these mixes continue to increase year-over-year. Mobile ad mix of our total room night was about 53% which was up 6 percentage points from the second quarter of 2023. We continue to see that the significant majority of bookings received from our mobile apps come through the direct channel. For our Genius loyalty program at Booking.com, we continue to see a year-over-year increase in the mix of room nights booked by travelers in the higher Genius tiers of levels 2 and 3. These members booked more than half of the room nights over the past 4 quarters. Outside of accommodations, we saw airline tickets booked on our platforms in the second quarter increased 28%, about in line with our expectations, driven by the continued growth of flight offerings of Booking.com and Agoda. Second quarter growth in bookings increased 4% which was approximately 3 percentage points lower than the 7% room night growth due to about 2 percentage points of negative impact from changes in FX and about 1% lower constant currency accommodation ADRs. The year-over-year ADR decline was negatively impacted by a higher mix of room nights from Asia. Excluding regional mix, constant currency ADRs were about flat versus 2023. While room night growth was above the high end of our guidance range, gross bookings growth came in at the midpoint of our range due to about 2% lower constant currency accommodation ADRs versus our expectation. In addition, our gross bookings were negatively impacted by lower flight ticket prices in line with the recent trends we have heard from many airlines. Second quarter revenue of $5.9 billion grew 7% year-over-year which exceeded the high end of our guidance by 1 percentage point. Revenue growth was negatively impacted by about 2 percentage points from the change in Easter timing and 2 percentage points from changes in FX. Adjusting for these two items, revenue would have grown about 11%. Revenue as a percentage of gross bookings was 14.1% which was slightly higher than expected due to a timing benefit as we saw gross bookings growth decelerate in the quarter and a less expanded booking window than expected. Additionally, revenue associated with payments was higher than expected. Marketing expense which is a highly variable expense line increased 8% year-over-year. Marketing expense as a percentage of gross bookings was 4.7%, about 15 basis points higher than the second quarter of 2023, due primarily to the timing of brand marketing spend as well as increased spend in social media channels. Second quarter adjusted sales and other expenses as a percentage of gross bookings was 1.9%, about 15 basis points higher than last year due to a higher merchant mix and higher transaction taxes. Our more fixed expenses on an adjusted basis were up 5% and were below our expectation across all three line items

Mark Mahaney:

I was just asking about the European travel conditions, Glenn and Ewout. It sounded like that market may be slowing a little bit but if I'm capturing it right, your performance there seems to have been pretty steady, that sort of indicates market share shifts, market share gains. Any more color on that? Why you would be -- why your performance would be relatively unchanged, I guess, in a slowing European travel market environment?

Ewout Steenbergen:

And Mark, if I may quickly build on the answer that Glenn just gave, it's also important to point out that actually our growth in Europe has been quite steady and stable in the period from May through July. So yes, we are seeing some mild moderation but it has been relatively stable over the last couple of months.

Kevin Kopelman:

Great. Could you maybe give a little bit more color on some of the moderation you're seeing, like other indicators, like length of stay or any trading down activity that you might be seeing? And given that things have started to slow, how do you gain confidence that they're not going to continue to slow both in room nights and rates?

Kevin Kopelman:

And a quick follow-up on ad spend dynamics with the deleveraging expected in the third quarter. Is that more of the same in terms of brand and social spend?

Operator:

Your next question comes from the line of Justin Post with Bank of America.

Glenn Fogel:

Justin, so two separate questions. One, just going back to the general sense of the travel market. And we talk about this a lot over many, many, many calls about how much we believe that the travel market is best influenced by GDP and that in the long run, GDP goes up, more people travel, more people couldn't travel, get wealthy enough that they can travel, that's a tailwind for us. And we talk about other things. You mentioned the 3% to 5%. I mean, lots of people can come up with whatever way you want in terms of global, what's global GDP? What's it going to do to travel? Numbers aren't that different or some are probably in that neighborhood, then how much additional can we get out of increasing share because we provide a good service. And then, of course, there are the other tailwinds of the off-line to the online, another one that's a point in our favor. All these things together blew the -- the growth algorithm that we've talked about in the past is totally intact. There's going to be volatility, there's going to be variations, there's going to be events are going to happen globally, macro events that happen that can influence a quarter or a week or a day. But in the long run, we just continue to build what we've been trying to build for a long time which is a better service and that's how we do it. And one of the things we've been building and we've been working hard on and I've talked about it for a number of years, how important it is for us to build an alternative accommodations business that will rival anybody's. And we admitted that it was taking us time to build it. We started from behind. Another company may have had a bigger head start on us and building it bigger. We think we've done a really good job of catching up. I love the last call we did a few months ago when we came out and we talked about it, our homes business, our homes business, more than 2/3 of the biggest player in the industry. In that last quarter, we said how we had grown faster, 11 of the last 12 quarters. Now, I don't know if our 12% is going to win or not this time, I don't know. I'm pleased with that growth rate, given the size of the business. And how are we doing it? We're doing it by doing what we do with all things is provide a reason, I said this just to Mark earlier, is that continue to build out a product that gives a person a reason to come and use it. Now I don't really care whether the customer uses a home, or a hotel, or a villa or an igloo. I don't care. I care they get what they want. That's the important thing. And then come back. In terms of the profitability of one versus the other, we can go into that and talk about it but it's not really relevant. Because what's relevant is making sure that they use what they want. We don't try and steer them. We're trying to just make sure they have the best tools to choose what they need in the long run. That's the way we'll win and create a great business.

Doug Anmuth:

Glenn, just curious, first, how you're interpreting the relative tightening of the booking window and what does that tell you about the state of the traveler into the back half? And then just curious, in your outlook, how much are you contemplating? Any impact from the tech issues that we've seen over the last couple of weeks and their impact to airlines as well?

Operator:

Your next question comes from the line of Eric Sheridan with Goldman Sachs.

Glenn Fogel:

So the first more generic question about goods versus services and I think your question, I'm trying to narrow it down to, I think what we're really talking about is we saw a change in people's behavior where they seem to value services significantly more than good which, of course, helps someone like us. And I think the question is, is this a permanent change or appears to go back to a balance that they had a few years ago, maybe pre-pandemic. And I think that in the end, again, this is one of those things that I believe but I don't have proof of is that as people get wealthier, you end up spending more money on services. And it ends up a lot because people generally have one home, you got one couch. You don't keep buying more and more but as your wealth increases, you want to do things, you want to enjoy things. And we see that happening. There's also -- there could be something of the Instagram effect where -- and this is a human nature that you want to show off to your friend, to your friends, all the great things you're doing, I think that definitely has some impact because we certainly -- certain parts of the world that people never used to travel to, now they are being overrun and I think that is the Instagram effect there. So that's all good for our business. I don't know how much further it will go, though, because you need to buy homes and you need to buy couches, et cetera. And I don't see that as a big swing but I'm not concerned that it's going to flip back and we're going to end up with lower; that's one. In terms of the marketing, let's talk a couple of these. I just want to repeat this point I made earlier about. One of the things that we -- I'm happy to see is seeing us making some progress in using social. We have a long problem getting that to work for us for many, many years, just didn't seem to work. But now we're seeing, okay, starting to work, getting some good ROIs. Putting more money into it like that and I think they will continue doing that. Another thing we saw that we don't talk a lot about it, I won't get too specific but we saw ourselves using money that we thought was producing a good ROI and we turned out, it really wasn't. And we shut some of these things down. I won't go into exactly what they were. And we said, that's really not hurting us. We said, "Well, that's great." And that's something that over last year or so that we saw some of the benefit in terms of our marketing leverage is coming from that. So, two good things and I'll let Ewout anything else to say about marketing there.

Operator:

And our next question is from James Lee with Mizuho.

Glenn Fogel:

Yes. Sorry about that. Thinking of the answer. I'm going to let Ewout handle the ad opportunity. I'll talk about our loyalty program, Genius which is the Booking.com program which we talked a little bit about in our prepared remarks. We really haven't talked about it much in terms of numbers in the past but I was just really pleased to be able to talk about our Level 2 and Level 3 players. 30% of our active users -- active travelers are Level 2 or Level 3. And we talked about that gives us more than half of the Booking.com business which is really great. That -- and we talk about how they come back more frequently and they come back more direct. That's the point that it works. And one of the great things about it is, for the most part, we're not paying for it. Our partners are supplying almost all the benefit right now but we talk about we are also putting some benefits at a time. We're going to experiment putting more in ourselves. But it's a great thing. You think why do the suppliers do it? They do it because it gets them incremental demand. It gets them demand when they need it, when they want it. It's very flexible. We work together with them, with these partners, so they can get the demand and the reason they get the demand is because our high Genius level people, our high-spending people and they are going to come and they're going to use those services. It's really a win-win-win. Win for our travelers, win for our partners and win for us. There aren't a lot of people who are doing a program like that. So we think it does differentiate. And I'm really happy to see car rental now doing a lot more of it and we're experimenting with flights. And part of the whole vision of the connected trip the Genius program fitting right into that comes with all different types of permutations of ways to provide better benefits to travelers and use it in a way, a scientific way, a data-driven way. A way using all of our AI capabilities, all the data we have so that we can come up with the best solutions for both sides of the marketplace. That is where -- that's what we're driving to. And I see it happening now in some of the numbers we said, I think gives a little indication. And then, of course, there will be the other thing which is really [ph] advertising opportunities are great. And I'll let Ewout talk a little bit about that.

Operator:

Your next question comes from the line of Stephen Ju with UBS.

Glenn Fogel:

Sure. Well, I won't give specifics but I'll confirm what you say is true, is that somebody buys two things. It's definitely going to be bigger than one thing. And also because they bought more things, as we use the science, as we use our data, as we use all the capabilities we have to come up with, what is the value for that customer? Well, how much should we spend to attract that person is going to change, obviously. And it's also the question is in terms of loyalty. We found and it does make sense, a more satisfied customer is going to come back more often. And people in the connected trip, people who use the connected trip, we do see a higher repeat rate for a connected trip person. And we see them coming direct. And the great thing about the connected trip too is that in the past, with just one vertical which was the hotel business, we were missing on customers who wanted to start with flights and now with flights, people are starting at flights and they come and they buy something else too. And also, it's the convenience factor and that goes into the whole reason why the connected trip. I've heard from people say, "Well, what makes you different?" And the truth is right now, we're semi-different because we don't have the full connected trip done yet, the way I want it to be. But at the end of the day, we all know how frustrating travel is. And we know how much easy it would be if there was just one place, one person who would handle everything for you, put it all together in the way that was the optimal way with all the different things you have to decide upon. And then if anything went wrong, that it would all get fixed. And now with the benefits of GenAI coming out and the progress I see being made with it, I talked to our people in customer service and what we're putting together there, I believe we will create something that truly is differentiating and that will create a reason that people will want to come to us. The more people who come to us, more opportunities we have to work with our partners to provide them opportunities to help build their businesses. Again, I'll get to use it again, I could say win-win-win again, because that's really what we're trying to achieve here.

Lee Horowitz:

So the modestly softer travel environment that the industry seems to be expecting in the second half of the year seems to be working through models by way of pricing pressures. I guess, Ewout, can you comment some on how you think about flexing your cost structure going forward to the extent that, say, hotel ADR has become a bigger headwind for the industry and by extension, your adjusted EBITDA margins?

Lee Horowitz:

Really helpful. And then, Glenn, maybe on alternative accommodations, you continue to deliver very healthy supply growth here. Do you feel like you are reaching a point of supply parity relative to your peers in the U.S. specifically, where you can perhaps lean in more aggressively investing against marketing and discounting within this vertical to sort of accelerate share gains?

Operator:

Your next question comes from the line of John Colantuoni with Jefferies.

Ewout Steenbergen:

John, we are not really recognizing that math. And actually, we are really encouraged by the growth of our B2B business as well. You're right that overall, it's a smaller business than some other players in our industry but we have a couple of propositions that are really strong and all of our brands are actually active in the space. Booking.com is active in this space. Priceline with Getaroom, Agoda with Rocket Travel and many other propositions that we have in the market. So it is an important part of our commercial strategy but it is definitely something that is a bit smaller than other players.

Ewout Steenbergen:

John, I think actually, our proposition is unique with respect to alternative accommodations because we are putting both traditional and alternative accommodations on our same platform. So we have the benefit of all our brand marketing spend, all our paid market spend coming together on the same platform and giving the traveler an opportunity to pick and select their best option. Maybe they're coming in and looking for 2 hotel rooms for their family and ending up by booking an apartment with 2 bedrooms and they're very happy with that outcome. As Glenn said earlier, we are actually agnostic about which direction this is taking customers because it is important that they are finding the best option for them, ultimately, how to travel. We're agnostic from an economics perspective about this. And it is all about making sure we have the most attractive proposition in the market. But this is, from our perspective, a differentiator because we are able to bring all of those supply opportunities together on our platforms as a company.

Naved Khan:

Maybe just on this commentary on booking window kind of not expanding as much. Can you maybe just talk about if you're seeing any mix in your cross-border versus domestic bookings and if that might have anything to do with it. And the second question I have is on the U.S. online growth. It seems like it picked up a little bit versus the last quarter. I'm wondering if it was driven by alternative lodging or if that is not the case?

Ewout Steenbergen:

Naved, the way how we look at booking window is, as Glenn actually commented on a couple of minutes ago, to some extent, it doesn't matter for us. It doesn't matter when a traveler actually books because they will travel at a certain point in time. When they travel, they have the experience. And at that point, we will recognize the revenues and the economics to the company. So if you look at the performance of the business over multiple quarters, this is averaging out. If bookers booked earlier or later, ultimately for the same trip and that can really depend on many factors. It can depend on assumptions what will pricing do over time or locking in certain flights or locking in certain accommodations or other factors why bookers might come to us earlier or later for the same trip. But it is important if any investor looks at us from a medium- and long-term perspective, it doesn't matter because over time, it's averaging out and we will deliver the same results for our shareholders and continue to build our business over time with all the opportunities we have.

Operator:

This concludes the Q&A session. Yes. That was our last question. Thank you so much. And with that, I will hand the call back over to you, Mr. Fogel for closing remarks.

Operator:

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

Operator:

Welcome to the Booking Holdings First Quarter 2024 Conference Call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied and forecasted in any such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements.

Operator:

[Operator Instructions] Your first question comes from the line of Kevin Kopelman of TD Cowen.

Ewout Steenbergen:

Kevin, this is Ewout. If you think about the second quarter guidance that we have provided to you, I think a couple of elements that you have to take in consideration. One is we are expecting a less expanded booking window in the second quarter than we have seen in the first quarter. So there has been a little bit of a pull forward of room nights from the second quarter into our first quarter results. We are expecting more of an impact from the Middle East from what we have seen so far. But in the opposite direction is that Easter is a slight benefit for the second quarter.

Mark Stephen Mahaney:

Can I try 2 questions, please? First, why do you think the ROI is higher in paid marketing channels? Is that just efficiencies you found or you find that overall performance marketing channels, platforms that are out there are just providing a better return on ad spend to their customers in general? And then secondly, could you quantify at all what percentage of total transactions now are connected?

Justin Post:

I was wondering if you can give us the update of your regional mix. We get that question all the time and just how it's changed, any regions growing faster than others at this point and how it's changed maybe since pre-pandemic. And then second, the Digital Service Act in Europe has taken hold. And just wondering if you're seeing any changes in performance marketing channels around that or any disruptions or any opportunities.

Douglas Anmuth:

Glenn, just hoping you could perhaps quantify anything on Genius frequency or bookings versus nonmembers? And maybe you can just help us understand what you see in the path of customers as they move into upper Genius loyalty tiers. And then Ewout, just a follow-up on your U.S. comments from a few minutes ago, the low single-digit room night growth above market. Is there anything to point to in that region in particular relative to the faster growth you've seen elsewhere?

Ewout Steenbergen:

Yes, Doug, a couple of additional insights around the U.S. So what we like particularly is the sequential improvement from the fourth quarter in terms of our growth. Particularly within the growth, we saw the highest growth for alternative accommodations, which is really encouraging. If you look at U.S. bookers, more international growth than domestic growth. And then again, we really very much believe that U.S. is for us a growth market opportunity. It's fantastic with the scale that we have already today, with all the strategic expansions we're doing in multiple verticals and going more direct to connected trip, generative AI and many of the other strategic initiatives that we're having that we're actually having an opportunity to expand our position over the next few years in the U.S.

Brian Nowak:

Maybe to come back to the last discussion you are having about the U.S. Over the last sort of 10 years or so, you've had a lot of strategies in the U.S. between branded spending, paid search spending, the merchant product and now AI. I guess maybe for either of you, as you sort of think about the next couple of years, what do you sort of think the largest unlock will be to differentiate yourself to drive continued outsized growth within the online travel category in the U.S.?

James Lee:

Two over here. Can you guys comment about ADR by region and kind of what you're seeing among different markets that you're operating? And also, can you update us on ADR expectations for 2024? Maybe any changes from your prior expectation. I guess lastly, any trends that you see in terms of summer travel season, I guess, especially in Europe? How does that compare to last year?

Ewout Steenbergen:

And in terms of summer, as I said earlier, I said that we have a healthy growth for travel on the books that's scheduled to take place during the peak summer. And that's where we're feeling that -- why I'm feeling pleased about the summer. I'm not going to quantify it though.

Stephen Ju:

So I was wondering if there is anything you can share about how the folks who have access to Trip Planner might be behaving. It seems like there's a lot of potential application here because if they're doing research, then there's top-of-funnel implications. And then you could theoretically recommend other pieces of the trip as well. So this could theoretically drive greater connected trip activity. So just wondering. This has been out for a little less than a year. So I'm just wondering what you guys are seeing so far.

Operator:

Your next question comes from the line of Lee Horowitz of Deutsche Bank.

Ewout Steenbergen:

Yes. Thanks, Lee. So first, your question about structural growth. So I am really super positive about the outlook for the company. Why? This is, of course, a phenomenal company, super high quality, very successful. And I very much believe that we will be able to grow in the future faster than GDP. Shift of offline to online bookings. I think overall, also consumers that will spend more on experiences than on material goods.

John Colantuoni:

Just wanted to ask about underlying room night trends. just talk about in the first quarter, the size of some of the transitory impacts that you called out like Easter shift, geopolitical disruption and the booking window and sort of how that shakes out to how you think about underlying trends in the business.

Ewout Steenbergen:

With respect to your first question, room nights dynamics in the first quarter. So positives here compared to our original guidance for the first quarter were the fact that the booking window was expanding and that we're able to pull some room night bookings from the second quarter into the first quarter, healthy demand in Europe, and Europe was stronger than we anticipated, as we mentioned before, and less of an impact from the Middle East. And you saw excluding the Middle East impact, actually, the result was exactly the same. So there was no material impact from the Middle East. Easter was a negative, a small negative. But that was, of course, anticipated in the guidance that we provided before.

Ronald Josey:

I want to ask maybe a follow-up on alternative accommodations here just given how much faster overall room nights are growing. And Ewout, you talked a little bit about this as well as Glenn, but I wanted to hear more about the supply side, the 7.4 million properties on the site. Are these higher quality than maybe what you've seen in the past? Are they differentiated from other platforms given -- that are available out there? And Ewout, you made a good mention earlier just that with Booking offering both alternative accommodations and traditional, that's an advantage. I'd love to hear your thoughts on what you're seeing from a consumer perspective, those that book both and then the mix between that going forward between those 2 bookings.

Glenn Fogel:

In terms of quality -- and I'd like to think that the inventory we have is high quality, obviously comes at different price points. It's a complete range. And you may not be surprised that lower-priced things may not be as luxurious the higher-priced things. And I think we cover the gamut, but we don't have enough of certain types in certain areas. And I've talked about this before. We're entering close to the summer, and I look at -- I live in the New York metropolitan area. And I'm looking, do we have enough of these high-end homes in the Hamptons? And I don't think we do. If I look at some of our competitors, I see more.

Operator:

Your next question comes from the line of Jed Kelly of Oppenheimer.

Glenn Fogel:

Sure. So yes, and we definitely have -- you're not surprised of the fact that it's easier to get more inventory when you go to some of the managers who have significant number of the inventory you're looking for. And those multi-property managers are the place where we definitely assume more business. And we have not, until very recently, really spent a lot of time trying to do it in the low -- trying to go for individuals and trying to bring them in, too.

Thomas White:

Just one. I wanted to follow up on some of the prior questions on the U.S. market. I was hoping you could kind of comment on maybe the relative unit economics of your U.S. accommodations business today versus in Europe. Obviously, the Booking.com brand here is well known but less well known than in Europe. And so maybe there's like a heavier kind of marketing load per room night here. But the ADRs here are nice and high. But then again, maybe the take rates are lower. So I'm just kind of curious directionally how accommodation kind of unit economics in the U.S. stack up versus Europe at the moment and maybe where you kind of see that going over the next few years.

Operator:

That concludes our Q&A session. I will now turn the conference back over to Glenn Fogel for closing remarks.

Operator:

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Goodbye.

Operator:

Welcome to Booking Holdings Fourth Quarter and Full Year 2023 Conference Call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements. For a list of factors that could cause Booking Holdings’ actual results to differ materially from those described in the forward-looking statements – please refer to the safe harbor statement at the end of Booking Holdings’ earnings press release as well as Booking Holdings’ most recent filings with the Securities and Exchange Commission. Unless required by law, Booking Holdings undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. A copy of Booking Holdings’ earnings press release, together with an accompanying financial and statistical supplement, is available in the For Investors section of Booking Holdings’ website at www.bookingholdings.com. And now I’d like to introduce Booking Holdings speakers for this afternoon, Glenn Fogel and David Goulden. Please go ahead, gentlemen.

David Goulden:

Thank you, Glenn, and good afternoon. I will review our results for the fourth quarter and provide some color on the trends we see in the first quarter and – on 2024. All growth rates are on a year-on-year basis unless otherwise indicated. We will be making some references to the comparable periods in 2019 where we think these are helpful. Information regarding reconciliation of non-GAAP results to GAAP results can be found in our earnings release. We will post our prepared remarks to the Booking Holdings Investor Relations website after the conclusion of the earnings call. One housekeeping item before discussing our results. We have reclassified digital services taxes into sales and other expenses and out of G&A expense. Due to the highly variable nature of GSTs, which are tied to the revenue earned in the countries where GST are enacted. We have provided a table with two areas of updated quarterly financials in our earnings press release that reflects this chain P&L geography, and all of my comments on this call will also reflect the change. Now on to our quarter results. Our room nights in the fourth quarter grew 9% year-over-year and 21% versus 2019, which was slightly better than our expectations of about 9% and 20%. Excluding Israel, Q4 room rights were up 11% versus 2022 and 22% versus 2019. Looking at our year-over-year room nights by region in the fourth quarter, Asia was up mid-teens Europe was up low double digits, Rest of World was up low single digits, and the U.S. was flat. All regions improved from October. The average booking window of Booking.com expanded in Q4 versus the same period in both 2022 and 2019, but was a bit less expanded than it was in the third quarter. In Q4, mobile app mix of about 53% was about 5 percentage points higher than the fourth quarter of 2022. We continue to see an increasing mix of our total room nights coming to us through the direct channel. The direct channel increased as a percentage of our room nights in the fourth quarter relative to the fourth quarter of 2022. The international mix of our room nights in Q4 was 50%, up from about 48% in the fourth quarter of 2022 and reaching about the same level as the pre-pandemic Q4 mix. Our cancellation rate in the fourth quarter was slightly higher than Q4 2022, impacted by the war in the Middle East. As we expected, the higher overall cancellation in October normalized by the end of the quarter. For our alternative accommodations at Booking.com, our Q4 room night growth was 19% year-over-year, and the global mix of alternative body room nights was about 32%, which was up versus about 29% in the fourth quarter of 2022. Q4 gross bookings increased 16% year-over-year or about 15% on a constant currency basis, which was ahead of our expectations. The 16% increase in gross bookings was 7 percentage points higher than the 9% room night growth due to about 4% higher accommodation constant currency ADRs, plus over 1 percentage point of positive impact from each of FX movements and flight bookings. Our year-over-year ADR growth was natively impacted by regional mix due to higher mix of room nights from Asia. Excluding regional mix, constant currency ADRs were up about 5 percentage points year-over-year. Despite higher ADRs in the fourth quarter, we have not seen a change in the mix of hotel star rating levels being booked or changes in the length of stay that could indicate that consumers are trading down. We continue to watch the dynamics closely. Airline tickets booked in the fourth quarter were up about 46% year-over-year, driven by the continued growth of Booking.com’s flight offering. Revenue for the fourth quarter exceeded our expectations, increasing 18% year-over-year or about 17% on a constant currency basis. Revenue as a percentage of gross bookings was 15.1%, which was about in line with our expectations. Marketing expense, which is a highly variable expense line increased 9% year-over-year. Marketing expense as a percentage of gross bookings was about 30 basis points lower than Q4 2022 due to higher ROIs in our paid channels and a higher mix of business. Performance margin ROIs increased year-over-year, helped by our ongoing efforts to improve the efficiency of our marketing spend. Marketing and merchandising combined as a percentage of gross bookings in Q4 was about 15 basis points lower than last year, which was better than our expectation due to lower merchandising expense, higher direct mix and better performance marketing ROIs. Q4 sales and other expenses as a percentage of gross bookings were up about 20 basis points compared with last year and also about 20 basis points above our expectation normalize for the DST reclassification, due in large parts to higher accounts receivable provisions related to our decision to delay some collections during the partner payment issue we discussed last quarter. We do not expect this to be an ongoing issue. More fixed expenses in aggregate were up 21% year-over-year, which was below our expectations primarily due to lower personnel and IT expense as well as due to the DST reclassification. 21% is calculated usually on non-GAAP expenses in both Q4 2023 and Q4 2022. Adjusted EBITDA of almost $1.5 billion was ahead of our expectation and was up 18% year-over-year and would have been about 22% on a constant currency basis. Separately, Q4 adjusted EBITDA was negatively impacted by a $37 million loss recorded in other income related to the devaluation of the Argentinian peso, which is not factored into our prior guidance. This reduced Q4 adjusted EBITDA margin by almost 1%. Non-GAAP net income of $1.1 billion resulted in non-GAAP earnings per share of $32 a share, which was up 29% year-over-year. Our average share count in the fourth quarter was 9% below Q4 2022. Our non-GAAP results exclude $276 million or expense in personnel related to a ruling in the Netherlands pension fund matter and $530 million of expense in G&A related to a draft decision by a Spanish Competition Authority. I’d like to provide some perspective on each of these. As Glenn mentioned, we strongly disagree with the draft decision and unprecedented fine proposed by Spanish Competition Authority, which we plan to appeal if it becomes final. The appeal process could take a few years. During any appeal process, we would expect to influence some changes to our business practices in Spain, we do not currently undertake that these will have a significant impact on our business. Turning to the Dutch pension case. In January, the court of appeal in the ruled the most Booking.com employees in the Netherlands should enroll – in a travel industry-wide pension fund. The liability we recorded in our Q4 results is for prior periods related to this pension plan. We’re working through how we align this travel industry-wide plan with the existing pension plan we offer to our employees in the Netherlands. We expect there will be some increase in our pension plan costs in the Netherlands going forward, but we do not expect these to be material. On a GAAP basis, we had net income of $222 million in the quarter. When looking at the full year, we are pleased to report that our – 2023 room nights grew 17% year-over-year, and our gross bookings grew 24% and about 25% on a constant currency basis. Our full year revenue was over $21 million, which was up 25% year-over-year and up similarly on a constant currency basis. Full year revenue as a percentage of gross bookings was 14.2% in 2023, which is up slightly versus 14.1% in 2022. For the full year, there is more than 0.5 points of positive impact from timing as well the benefit to take rates from increased revenues associated with payments, but this was mostly offset by an increase in the mix of flights, an increase in Asia mix has really recovered and by our increased investments in merchandising. Our underlying accommodation take rates continue to be in line with 2019 levels. For the full year, our marketing plus merchandising at Booking.com as a percentage of gross bookings was 5.6%, down from 5.9% in 2022, driven by marketing efficiencies and direct mix. The 5.6% in 2023 is still up from 5.5% in 2019 and are leading into a recovered travel market more than offset gains due to increased direct mix. For the full year, the direct channel as a percentage of our room nights, continue to increase in mix. When we exclude our B2B or business-to-business, our direct mix was in the low 60% range for the year. Our full year EBITDA was more than $7 million and was up 34% year-over-year and up about 37% on a constant currency basis. Adjusted EBITDA margin was 33%, which was 12 percentage points higher than our adjusted EBITDA margin in 2022 and in-line with our expectations at the start of the year. Our full year non-GAAP earnings per share was about $152 a share, which is up 52% year and up about 58% on a constant currency basis. Now on to our cash and liquidity position. Our Q4 ending cash and investment balance of $13.1 billion was down versus our Q3 ending balance of $14.3 billion due to the $2.4 billion in share repurchases we completed in the quarter partially offset by the $1.3 billion of free cash flow we generated in the fourth quarter. For the full year, we generated $7 billion in free cash flow. We repurchased over $10 billion worth of shares in 2023, taking our remaining repurchase authorization down to $14 billion and reducing our year-end share count by 9% versus 2022 and by 16% versus 2021, which is just before we restarted our share repurchase program. As we think about our capital structure and allocation framework going forward, we remain focused on appropriately investing in our business and growing returns for our shareholders while maintaining our strong investment-grade credit ratings. Given our confidence in our earnings power, strong free cash flow profile and our ability to consistently shareholders, we are announcing today that our Board of Directors declared a quarterly dividend of $8.75 per share to complement our existing share repurchase program. The dividend is payable March 28, 2024 to shareholders record on March 8, 2024. We believe the introduction of a dividend will allow us to enhance our capital return program and further expand our base of investors. In terms of composition of capital returns, we expect the share repurchases will represent the vast majority of our total capital return to shareholders going forward. We continue to expect to complete the $24 billion share repurchase authorization we announced early 2023 within 4 years where we started, which would be before the end of 2026. We reiterate our previously stated gross leverage target 2x, and our goal to move to a 1x net leverage over time. The initiation of a dividend does not change our thinking around these targets. Now on to our thoughts for the first quarter of 2024. All growth rates are on a year-on-year basis. Given that we’re now beyond the COVID period, when granular short-term information was helpful in assessing the path – we’re returning to our historical guidance approach with outcome range for the full quarter ahead and less detail on monthly trends and individual P&L line items. Based on the solid travel demands we’ve seen so far in the first quarter, we expect Q1 room night growth to be between 4% and 6%. We expect the ongoing war in the Middle East have a negative 1% impact on Q1 room night growth. We’re also comparing with a strong start to the year in 2023 when we started to see an expansion of the booking window. January room night growth was above the high end of that range. As we move through the quarter, every room bank growth will benefit from an extra day, our March room night growth will be hurt by Easter being in March. We expect these to roughly offset each other. We expect Q1 gross bookings growth to be between 5% and 7%, about 1 percentage point faster than room night growth due to slightly higher accommodation constant currency ADRs and faster growth from flights, partially offset by about 1 percentage point of FX pressure. We expect Q1 revenue growth will be between 11% and 13%, faster than Q1 bookings growth due in part to the Easter shift, which we expect to bear the Q1 revenue by about 3 percentage points. We expect a similar native impact on revenue growth in Q2. We expect Q1 adjusted EBITDA to be between $680 million and $720 million, which at the midpoint would be 19% year-on-year growth and about a 1 percentage point increase in EBITDA margin. We expect EBITDA margin to bank from market expenses growing slower than revenue and growing similar to gross bookings, which we expect will more than offset our fixed OpEx growth growing slightly faster than revenue. As we set our course to the full year ahead, I want to first address our longer-term ambition for growth in our business. As we’ve discussed previously, in a more normalized market environment, we’re aiming to achieve constant currency growth rates for gross booking revenue and earnings per share that are higher than what we achieved in 2019. This would remain growing above 8% for each of the top line metrics and about 15% for earnings per share. We believe we’ll be able to achieve these levels of growth, given the investments we made to build a stronger business and a better offering for our travelers and partners versus what we had 5 years ago. At recent FX rates, we expect changes in FX will negatively impact our reported growth rate by a little more than 1 percentage point. With that framework and with FX in mind, we expect to grow our full year 2024 slightly faster than 7% and including the assumption that the war in the Middle East will negatively impact our full year 2024 growth rate by 1%. We expect revenue for the year to grow at similar rate to our gross bookings growth. We expect a more fixed expense in 2024 to grow in the low to mid-teens. We are planning to leverage from these more fixed expenses in 2025. We expect 2024 adjusted EBITDA will grow slightly faster than revenue, largely due to expectations for an increased direct mix. We expect adjusted EBITDA margins to expand year-over-year by a bit less than a percentage point. Lastly, we expect EPS growth to be above 40%. In closing, we are pleased with our Q4 results, our Q1 outlook and our expectation in 2024 to grow faster than 2019 across gross bookings, revenue, adjusted EBITDA and EPS with exceeding EBITDA margin year-over-year. We expect 2024 to be another strong year for us. We’ll now move to Q&A. Sarah, will you please open the lines?

Justin Post:

Great. Thanks for taking my questions. One for David, and I guess this might be your last call, I would love to hear about your – who you are on CFO transition. But the guidance, is January growing above the 4% to 6% for room nights? I thought January might have tougher comps. So, maybe talk a little bit about the shape of the quarter. And then maybe bigger picture for Glenn. Just was wondering, you have so much data as the share leader in room nights. How do you think the AI transition could play out for booking? And do you think you have some advantages versus search engines or your peers? How you are thinking about that? Thank you.

Glenn Fogel:

Thanks Dave for that. And Justin, AI, obviously incredibly important subject for everybody in any business right now. And I think I talked about it at the last call and have been talking about it a lot whenever I speak about how important this is for anybody who is looking to the future to create something that could be transformational. We are very early, as I have said in the past. I like pointing out the things that we have done so far and some of the early signs we see that this is going to be just fantastic for us. Nobody knows how long it will take. One of the things I love is us being in a position because of our financial position, because of the number of people we have who have capabilities to look into this. Because of the data we have, as you pointed out, that people can then be able to use it to create models and use it in ways that are complementary to other people, are doing in terms of creating large language models and so on. I do believe we have an advantage because of our size and scale and the capabilities of our people to create something in all parts of the business, whether it would be, as I discussed, things that help the traveler, which are the sort of products there or helping us in the back part of our business, the back office and make these more efficient, going throughout. I think we do have an advantage, of course, we will see over time how well and how quickly we can actually translate that into better numbers in terms of margins, in terms of more people coming to us, people increasing loyalty, etcetera. But I am very encouraged with what I am seeing so far. And I certainly believe that we do have the full position here in the travel industry.

Justin Post:

Great. Thank you. And David, this is your last call. We will miss you. Thanks for all the work over the years.

Operator:

Your next question comes from the line of Kevin Kopelman with TD Cowen. Your line is open.

David Goulden:

Okay. Yes. So Kevin, so we have now, I think as you characterize, we can ask here with our merchandising activities that’s been something that we have been ramping up over time, Booking.com. And I think we now kind of deploy it in place in where we plan to deploy it. So, it has reached more of a state and new store, only a slight increase in merchandising in total from last year to this year as a percentage of GBV. So, when we kind of look at our model going forward, we do expect that across marketing merchandising with our continued increase in direct mix, that can be a source of leverage for us. And of course, as I mentioned in my commentary about the full year, that will be the biggest driver of our EBITDA margin expansion this year and will be joined by OpEx next year. And then relative to the competitive environment, it stays competitive. I mean these are very competitive markets. There are many players in there. I think people realize it’s not just the OTAs, there are meta players, there are hotel players, there are chains you name it, a lot of people are bidding in these marketplaces. So, I think it just remains competitive, but we are pleased with how we are doing in a competitive marketplace.

Kevin Kopelman:

Great. Thanks Glenn.

Mark Mahaney:

Okay. Thanks. Two questions, please. In terms of your guidance for the full year on the margins side, what are you embedding in there in terms of marketing or sales and marketing spend and merchandising spend as a percentage of bookings? Are you assuming a little bit of leverage in there? And I am sorry if you covered that in your published comments, but if you could answer that. And then secondly, on the buybacks in Q3, I think they were a little – in Q4, I think they were a little bit lower than in Q3, was that your intention? Was there a particular reason why you maybe – may have been a little less active than the market in Q4? Thank you very much.

Mark Mahaney:

Thank you, David. It makes a lot of sense. Thank you very much.

Doug Anmuth:

Thanks for taking the question. I just want to follow-up on the full year outlook. I mean it sounds like you are very confident in the business overall. Just does the full year outlook reflect just normalization of trends in ‘24? The tough comp and the Middle East impact that you mentioned, is there anything else to consider here? Thanks.

Doug Anmuth:

Thank you, David.

Brian Nowak:

Thanks for taking my questions guys. I have two sort of on the U.S. The first one, when you talk about the U.S. being flat, does that include alternative accommodations? So, is the hotel business in the U.S. actually declining then? That’s the first one. And then just sort of, Glenn, as you look into 2024, what are the investments you have to make in the U.S., both on the hotel side as well as the alternative accommodation side to sort of drive more and more durable, consistent growth from here?

Glenn Fogel:

Yes. And regarding – the question regarding how we are going to do even better in the U.S., we have talked about the numbers that we have shown so far. I am very pleased you look back to 2019, see what our steer was, that what numbers we then look at them now, it goes really fantastic growth and great work by the team. I think last quarter, I had out to the team then and I will do it again because they are doing fantastic work. One of the things is because the under-indexed, because we are smaller in terms of not clear [ph] of the U.S. versus other parts, this is a great opportunity for us. And I have talked about we have to continue to improve our product particularly in the alternative accommodation on account of that, and we have been doing that. And that’s why we have this large growth rate in the U.S. alternative accommodations. Very pleased to see that happening. They continue to provide to our hotel partners what they need and what they want is incremental demand. They don’t want us to be a provider to manage they think they can always get. And one of the great things about our team is working closely with our hotel partners. As you know, a lot of the U.S. is large chains, and we have developed, I think a very good relation with them to work together to help them, do what they need to do to achieve their results and us being a provider of those services and getting what we need, which is more bookings. I am pleased with the results we have done so far. And I think we have got a great opportunity to continue to do so for a long time.

Operator:

Your next question comes from the line of James Lee with Mizuho. Your line is open.

Glenn Fogel:

Thanks James. And I didn’t quite get the second one. Let’s start with the first one, maybe in front of the second one. So, it’s interesting because in our last call, I went into a little bit about what do we need to do to increase that supply of alternative combinations. And I talked a little bit – and this is that high, it wasn’t the first time I talked about this. Where we have – while we are even into urban and rural and such, I have talked in the past, though, how we don’t have as many of the single properties that perhaps some of our competitors have less area down the road. But the whole idea is we want to do things efficiently and want do things effectively, which means it goes through the things where you can get larger groups of properties listing quicker by going to the big property managers who have a lot of them. That may be that you are going to end up with more things that are not with single home properties. But then after we have that enough, and that’s the low-hanging fruit after we got that comes, then we got to go on and start getting more of the single homes, etcetera. And I have expressed my own disappointment that when I look for a single property sometimes I have mentioned, at one point on the call about wanting to get something out in the Hampton and New York for the summer and not seeing enough properties for us. There is lots of opportunity. But I look at this as an opportunity, not as a negative, but then you look how well we are doing, even though there is all the other stuff to go out and get. That’s the way I feel about it, and I am pleased the way the team is going out. Look, 12% increase in our listings or $6.6 million, now over $7.4 million, I like the fact that we are increasing those numbers, doing it in a nice size and also particularly really like the fact that our growth rate of return on the combination was significantly higher than some other people in our space. So, I was very happy to see that. I didn’t catch the second part of James’ question.

Glenn Fogel:

Sure. Okay. So, what I would said is we are going to experiment. And we really see, we always want to experiment, where do things work, where do we see return for it, where do we see how this is working so well. So, we are going to continue to experiment and we do have, for example, rental cars well established into our Genius program. Obviously, our combination as well and we are going to experiment with all the different verticals. And the thing, is there a way to do in flights, is there a way to do it in track and how do we do it in terms of potentially even insurance, in all sorts of ways, our ride business when people need a ride from the airport to the hotel or hotel to the airport or from their home to the airport. Again, and this goes back to the first question, I think it was Justin asked about AI and about how you use data. And that’s kind of one of the key things is when you have these models, and you can figure out what the best way to provide a benefit, and that’s through our loyalty Genius program, that’s doing that in a way that it provides value to the traveler, that’s where they use us, that’s why they come back to us. That’s why they come to us direct. Maybe they will use the app because it’s so simple to do it. At the same time, Genus is primarily almost right now, primarily being funded by our partners because they see value in that. They see value in providing a discount or some other type of benefit that we put into the offering, so that the travelers will book, that supplier what they want to sell. And doing to get it in a scientific way in doing it in a way that is going to make sure that we are not leaving value out of the cycle in a way that’s not going to be beneficial to our supplier partners, doing it smartly, that’s the thing that I love. And that’s why we are going to continue to experiment on that. And I think it’s worked so well in hotels and I think it’s in a combination, alternative accommodations, I think this is going to work great in all of it. But we will see after we expand it.

Operator:

Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.

Glenn Fogel:

So, if the question was really how do we get from here early stage showing good signs, but it’s still small to scale and really showing the bottom line and top line and a loyalty and all those things, I think that – is that the question really?

Glenn Fogel:

Yes. So, look, one of the things that we have to – and I have said this is a long-term path. And the first thing was we had to build the verticals to begin with. One of the fun things was to mention that we started Booking.com we got off the ground in 2019 and now put all our flight numbers together, you see 400% increase there that’s included, of course, Priceline had placed before that, where you just see the growth rate of flights right now, great. So, we got that vertical up and we got excellences up and attract is still early, but up. But these things – all of these things are the car rental was up, but we still do on that and of course the rides business and others. All of these things are at different levels of development, but still relatively new. And one of that, then we have to build all the modeling, all the ways to figure out what’s the best way to offer one versus the other, and make sure that we are doing it the right way. And then it’s working with our partner suppliers to provide us and prove out to them that this is worthwhile to them. All of these things take time. But I do like to say, we are seeing those signals. We are seeing the numbers. It is early and I am not going to do – I am sure you would like me to give you some numbers, say, here is what it’s going to be tomorrow. Here is what the next milestone. I am going to do that. And I can’t say I see we are on the right path.

David Goulden:

Thank you, Eric.

Glenn Fogel:

Thank you. So, I want to thank our partners, our customers, our dedicated employees, our shareholders. And as mentioned by a couple of people on the call, I have to give out a very special thank you to my very good friend and colleague, David Goulden. As you know, after 24 earnings calls as Booking Holdings CFO, he is retiring from this role and will be working on other areas of the business going forward. We greatly appreciate everything that David has done for this company, and we greatly appreciate everyone else’s support as well as we continue to build on the long-term vision of our company. Thank you very much and good night.

Operator:

Welcome to Booking Holdings Third Quarter 2023 Conference Call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are not subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements. For a list of factors that could cause Booking Holdings' actual results to differ materially from those described in the forward-looking statements, please refer to the Safe Harbor statements at the end of Booking Holdings' earnings press release as well as Booking Holdings' most recent filings with the Securities and Exchange Commission. Unless required by law, Booking Holdings undertakes no obligation to undertake publicly any forward-looking statements, whether as a result of new information, future events or otherwise. A copy of Booking Holdings' earnings press release, together with an accompanying financial and statistical supplement, is available in the For Investors section of Booking Holdings' website, www.bookingholdings.com. And now, I'd like to introduce Booking Holdings speakers for this afternoon, Glenn Fogel and David Goulden. Go ahead, gentlemen.

David Goulden:

Thank you, Glenn and good afternoon. I'll review our results for the third quarter as well as our thoughts for Q4 and the full year. All growth rates for 2023 are on a year-over-year basis unless otherwise indicated. We will be making some references to the comparable periods in 2019 where we think these are helpful. Information regarding reconciliation of non-GAAP results to GAAP results can be found in our earnings release. We will post our prepared remarks to the Booking Holdings investor relations website after the conclusion of the earnings call. Now onto our third quarter results. We are pleased to report 15% room night growth in Q3, which was a few percentage points better than our expectations. Looking at our year-on-year room night growth by region in the third quarter, Asia was up about 35%, Rest of World was up mid-teens, Europe was up low double digits and the U.S. was up low single digits. Compared to 2019, our Q3 global room night growth was 24%. The average booking window at Booking.com expanded in Q3 versus the same period in both 2022 and 2019, and was a bit more expanded versus the prior year periods than it was in Q2. In Q3, our mobile apps represented over half of our total room nights for the first time ever. The Q3 mobile app mix of about 51% was about six percentage points higher than the third quarter of 2022. We continue to see an increasing mix of total room nights coming to us through the direct channel. The direct channel increased as a percentage of our room nights in the third quarter relative to the third quarter of 2022. The Q3 international mix of our total room nights was over 50%, up from about 45% in the third quarter of 2022. The Q3 international mix was in line with 2019 levels, similar to the second quarter. Our cancellation rates in the third quarter were slightly higher than Q3 2022, but were slightly below Q3 2019. Cancellation rates were the same as in Q2. For our alternative accommodations at Booking.com, our Q3 room night growth was about 24% year-over-year and the global mix of alternative accommodation room nights was about 33%, which was a few points higher than Q3 2022. Q3 gross bookings increased 24% year-over-year, or 21% on a constant currency basis. The 24% increase in gross bookings was 9 percentage points higher than the 15% room night increase due to about 4% higher accommodation constant currency ADRs, plus about 3 percentage points of positive impact from FX movements, and also due to about 2 percentage points from flight bookings. Our year-over-year ADR growth was negatively impacted by regional mix due to a higher mix of room nights from Asia and a lower mix of room nights from the U.S. Excluding regional mix, constant currency ADRs were up about 7 percentage points year-on-year. Despite the higher ADRs in the third quarter, we have not seen a change in the mix of hotel star-rating levels being booked or changes in length of stay that could indicate that consumers are trading down. We continue to watch these dynamics closely. Airline tickets booked in the third quarter were up about 57% year-on-year driven by the continued expansion of Booking.com's flight offering. Revenue for the third quarter exceeded our expectations, increasing 21% year-over-year, or about 18% on a constant currency basis. Although we had a stronger-than-expected Q3 from a room night and gross bookings perspective, the outperformance versus our expectations was mostly driven by mainly bookings that are for travel in future quarters. As a result, we did not see all of the revenue benefit in Q3 from these incremental bookings. Revenue as a percentage of gross bookings in Q3 was 18.4%, which was lower-than-expected due to this timing effect. Our underlying accommodation take rates continue to be in line with 2019 levels. Marketing expense, which is a highly variable expense line, increased 13% year-over-year. Marketing expense as a percentage of gross bookings was about 50 basis points lower than Q3 2022 due to higher ROIs in our paid channels and a higher mix of direct business. Performance marketing ROIs increased year-over-year helped by our ongoing efforts to improve the efficiency of our marketing spend. Marketing and merchandising combined as a percentage of gross bookings in Q3 was about 30 basis points lower than last year, which was a little better than our expectations, driven by the improved performance marketing ROIs. Q3 sales and other expenses as a percentage of gross bookings were up about 10 basis points compared with last year, a bit better than our expectations. About 51% of Booking.com's gross bookings were processed through our payments platform in Q3, up from about 40% in Q3 2022. For the total company, 56% of gross bookings were merchant, up from about 45% in Q3 2022. Our more fixed expenses in aggregate were up 24% year-over-year, which was below our expectation, due to lower personnel and personnel related expenses. We continue to manage our more fixed expenses very carefully. On a GAAP basis, our more fixed expenses were up 33% year-over-year and included a $90 million accrual in G&A expense for the termination fee related to the acquisition agreement for Etraveli, this accrual was excluded from our non-GAAP results Adjusted EBITDA was $3.3 billion in the third quarter, which was up 24% year-over-year, and would have been up 22% on a constant currency basis. This was also ahead of our expectations. Non-GAAP net income of $2.6 billion in the third quarter resulted in non-GAAP EPS of $72.32 per share, which was up 36% year-over-year. Our average share count in the third quarter was 9% below Q3 2022 and 16% below Q3 2019. On a GAAP basis, we had net income of $2.5 billion in the quarter Now on to our cash and liquidity position. Our Q3 ending cash and investments balance of $14.3 billion was down versus our Q2 ending balance of $15.7 billion due to the $2.6 billion in share repurchases we completed in the quarter, partially offset by the $1.3 billion of free cash flow generated in the third quarter. We repurchased $7.7 billion of our shares through the first three quarters, which represents 8% of our year-end 2022 share count. The repurchases so far this year take our combined authorization down to $16 billion from the total of $24 billion we discussed earlier in the year. Our buyback program takes our share price into account and at current share price levels we expect to spend more on buybacks in Q4 than we did in Q3. We remain comfortable with our ability to complete the full $24 billion of share repurchases within 4 years from when we started the program at the beginning of this year, assuming no major downturn in the travel environment. Now onto our thoughts for the fourth quarter of 2023. In October, we estimate year-over-year room night growth was about 8%, down from 15% in Q3 due in part to a tougher year-on-year compare, as well as the war in the Middle East. When comparing versus 2019, October room night growth was about 20%. Excluding Israel, October room nights grew about 9% versus 2022 and about 22% versus 2019. The 22% growth versus October 2019 excluding Israel is a little lower than the 24% growth we saw in Q3 versus 2019. Looking across our major regions, in October we saw Asia year-on-year growth of room nights without 15%, Europe up about 10%, and the U.S. and Rest of World were down slightly. The impact of the Israel-Hamas war is seen most in the Rest of World growth numbers. Israel on a booker plus inbound travel basis is about 1% of our global room nights. The Middle East, including Turkey and Egypt, on a booker basis is about 4% of our global room nights. Globally, we saw a slowdown starting the second week of October due to cancellations and a drop in new bookings after the start of the war in the Middle East. The cancellations we saw that started in the second week of October were concentrated in Israel, but we also saw some impact on travel trends outside of the country as people absorbed the news. We were pleased to see room night growth recover towards the end of the month. Our comments for the fourth quarter make the assumption that room night growth will be up about 9% year-over-year. When comparing versus 2019, this means we expect Q4 room night growth to be about 20%. This outlook assumes that there is no further expansion of the war in the Middle East. We expect Q4 gross bookings to grow about 5% -- points of about 5 points faster than room nights on a year-on-year basis due to a couple points from higher accommodation constant currency ADRs, including some pressure from changes in regional mix, as well as a couple of points from continued flight bookings growth. We expect Q4 revenue as a percentage of gross bookings to be about 15%, which would be higher than Q4 last year due to benefits from timing. We expect Q4 marketing expenses as a percentage of bookings -- gross bookings to be slightly lower than last year. We expect marketing and merchandising combined as a percentage of gross bookings in Q4 to be slightly higher than last year as we continue to look for opportunities to lean in. We expect Q4 sales and other expenses as a percentage of gross bookings to be about in line with last year as the higher merchant gross bookings mix is offset by efficiencies in payments costs. We expect our more fixed expenses in Q4 to grow a couple of points faster year-over-year than it did in the third quarter. Taking all this into account, we’d expect Q4 adjusted EBITDA to be just over $1.4 billion. Our year-to-date results plus our fourth quarter commentary means that for the full year we expect room nights to grow in the mid-to high-teens year-over-year. We currently expect full year gross bookings growth of over 20% year-on-year. We currently expect revenue as a percentage of gross bookings to increase year-on-year by about 10 basis points, down from our previous expectation for a 20 basis point increase due to higher bookings growth and a longer booking window, which reduce the expected benefit from timing. We continue to expect full year marketing and merchandising as a percentage of gross bookings to be slightly below 2022, and for our more fixed expenses to grow around 25% year-over-year. We manage our more fixed costs very carefully and continue to expect our more fixed expenses next year to grow at an appreciably lower rate than this year. We continue to expect that our adjusted EBITDA margins will expand by a couple of percentage points versus 2022. In closing, we are pleased with our Q3 results, the trends we are seeing into Q4 and with the bookings we have already received for early 2024. We are now [technical difficulty].

Mark Mahaney:

Thanks. I will ask two questions, please. Glenn, I think just at the very beginning you mentioned something about March quarter, a visibility into the March quarter. Is there anything in particular that you were trying to hint at or point to the areas of that, because the bookings went as a little longer than you get. Do you have more visibility into the March quarter than you typically do. And then secondly, the David the room night growth, upside this quarter that came in a little bit faster than your guidance. What would you attribute that to was at a particular region that contributed to that or was that the alternative accommodations that came in a little bit stronger than you thought. Just the sources of room night growth upside in the quarter. Thank you very much.

David Goulden:

Yes, Mark, to answer your question relates a little bit to what Glenn just said. Our upside in the quarter, our room night growth was driven by travel -- expect by stronger travel demand across the peak season and along the booking window. If you remember, we said that coming into Q3, we have exceeded -- we see the booking lengthening of the booking window in Q1, Q2. And therefore we expected fewer last minute bookings in Q3. Well, the last minute bookings in Q3 were a little lower than we would have expected any year when we didn't have that long booking window. But what we got were more bookings for longer periods of time out there. So the booking window actually expanded in Q3. And that created the situation that Glenn talked about where we now looking into the first quarter of next year, because of the strong demand we saw for bookings, a lot of which are outside of the quarter plus the window means that our Q1 on the books situation is much stronger than it has been prior to the current situation.

David Goulden:

I would also just comment that the over performance we saw versus our expectation was across all different regions, I wouldn't call one region out. We actually did that and we expected in all regions when compared to our guidance, looking at the actual for the quarter for room night growth.

Operator:

Your next question comes from the line of Justin Post with Bank of America. Your line is open.

Glenn Fogel:

So, Justin, hello. And I have been talking about the Connected Trip for a while, because I do believe that really is a differentiator in the long run, and why someone would come to us and continue to come to us rather than another way to do their travel. So in the long run, of course, if somebody's coming direct, because they really enjoy the way we do it versus an alternative that of course, the lower the marketing cost, you wouldn't have to reacquire that, that customer. It's interesting because the small send small data, but we do see people who book more than one element with us currently, we do see some benefits the person coming back more frequently, and a higher direct. So I like that. And I think we can do a lot more with them. Now, one of the things that we're not the only person doing this, of course, in this competition, because I think a lot of people see this. And now, on top of this, the whole benefits of generative AI, along with all the AI work we've been doing for a long time. And we see the potential to create a much better experience in discovery, planning and executing your travel in a way that if we do this, right, we may be able to greatly accelerate the growth of the company, because it really is transformationally different versus just incrementally different. And that's what we're striving for. Now, that's not going to happen tomorrow, you know that I know that it's not going to happen next week, next quarter. Not going to happen next year. It's going to take time to get all this built out. But what I'm really pleased about is seeing historically, we said what we're going to do, and we've been doing it, and we're showing markers along the way, hitting milestones, hitting a slight growth rate still, 57% of air ticket booking I talked about talking about, that's 5x greater than 2019. We said we're going to do it, and we did it, and we're going forward. In so many of these other areas where I believe that people are frustrated in the way they travel now. We can do it better. We'll achieve great things, both for the traveler, of course. We're going to achieve great opportunities for our partners to give them more opportunities to get more business working with us. And then of course, together those things will end up with a great derivative, which is more value for the shareholders. That's what we're trying to do. And I'm really pleased to where we are.

Justin Post:

Thank you, Glenn. Thank you, David. Very helpful.

Kevin Kopelman:

Thanks a lot. Could you comment on the outsized growth in alternative accommodations that you saw in Q3? I think in Q2, the growth was closer to the overall growth. So what were the drivers there any regions and then I have a follow-up. Thanks.

David Goulden:

Nope, nope. Thank you. That was great.

Brian Nowak:

Thanks for taking my questions. The first one, let me just ask about the U.S. a little bit. You've made some really good progress in the U.S. post COVID, but it has decelerated quite a bit, and now it even down in the most recent months. So Glenn, I guess the question is, as you look into 2024, what are the keys to sort of reaccelerating that U.S. growth from here to sort of contribute to your goal of growing faster post-COVID than you were pre-COVID. So what drives U.S. growth from here? And then secondly, any quantifiable metrics or factors you can share with us on progress on Genius and the Loyalty program over the course of the summer into the fall?

Operator:

Your next question comes from the line of Lloyd Walmsley with UBS. Your line is open.

Glenn Fogel:

So Lloyd, let me talk a little bit about this and all we do and add other facts that he wants to add in here. And I want to be very careful here. Obviously, the one thing I don't want to do is give away our [indiscernible] ideas and all the things we're going to play with our competitors listening in on this. So you'll understand it, while it'll be a little bit general in this. But one of the things I continue to try and talked to the team about is we need to be nimble. We need to be agile, and we need to be able to be smart and move into markets, where we see opportunities and pull back in other places where we think we're not going to get the right ROIs. Whether that be a geography, whether it be a channel, would that be developing a entire product, whatever it is, I don't look at any of these in a different way. I look at all together holistically. What we're trying to do to achieve growth at the right type of profitability levels. And we're going to continue to do that. Right now, as David said, we have a lean-in position because we see opportunity here. Time can -- these things can change depending on the time. And certainly, the idea is to say I'm going to do this for a long-term period is it's a nice thing to say, but who knows what the world is going to be like, and as we all see, unfortunately, the world can change very, very rapidly. So we'll continue to do this, and this is our profile right now the way David explained those numbers for what we are going to disclose right now. But you should always recognize that we have an overall view of how to do things, but we will be willing to change, depending on circumstances. Regarding the mobile app, I talked about, David, why don't you just take in terms of how that will apply to our numbers going forward.

Lloyd Walmsley:

Thank you.

Doug Anmuth:

Thanks for taking the questions. Glenn, you talked about expecting a strong 2024. Just curious if you have any more color on how you're thinking about the outlook for ADRs next year. I think you said it was a 4% increase in 3Q. Any more thoughts there would be helpful. Thank you.

David Goulden:

Yes, Doug, I mean, the 2024 conversation, we're going to have that when we get into February next year, I really don't want to have -- how that now. We've told you a little bit about the strength of the on the books in the first quarter given the strength of bookings in the booking window. And we talked a little bit about our framework for growth post-COVID hasn't changed. So I want to keep anything beyond that until we get to see a little bit more. We are talking to you next time, of course, we'll give you much more insight at that point in time. But it's too early to talk about the specifics of line items in the income statement in 2024.

Operator:

Your next question comes from the line of Lee Horowitz with Deutsche Bank. Your line is open.

Glenn Fogel:

Hi, Lee. Well, you won't be surprised, I'm not actually going to give out the details exactly how and what level and what amount of money we're going to put to work out and what the methods are. I will say that the best way to look at this and look at what we've done historically. And where the numbers have been going and how the growth has been going. That's the best indication for you in terms of thinking forward, how -- what we're going to end up in result, and the results going to be. I will say that it's fairly obvious to be looked at our site and tries to find homes in certain properties and in certain parts of the U.S., you can see perhaps you don't have enough of them in those areas. So it would not be illogical to think that's where we'll start going to. As we talked in the past, we think that there is a lower hanging fruit for us in properties that are controlled or managed by larger groups of properties, makes it easier for us to get that. So I'm not giving anything away here. When I say, well, we'll let us go there first, and let's be sure we're doing that. And for example, you may have noticed that recently started doing the request on demand type of thing, where a person doesn't automatically be able to book instantly. And that's a product improvement because some people in, let's say, higher quality or higher value properties. Perhaps the owner or the manager did not want to have an instant booking and want to have a chance to do it on request basis. So that's an improvement thing. So we'll continue to roll out all these different things that we think will make our property -- our product as good as anybody else's, it applies the money to the appropriate marketing to make sure people are aware of it, and that will enable us to continue the growth that we've seen so far, I hope.

Glenn Fogel:

I'm not sure the term premium growth, I'll just say, well, we talked a little bit about, look, we talked some time about different geographies coming back faster in other areas. Asia was certainly the one who was last. And of course, it looks good when you're starting to see the, nice growth rate those regions as the other ones start getting more normalized. It's a nice thing to say. It's certainly outbound for example, outbound China still significantly behind, when you look at any of the industry reports, and think how much lift do they have going out bond, et cetera. Although that's a small part of our business, not going to make a huge difference even when it starts to come back. So overall, look, we love to see that Asia is going to get back to where all the other parts of the world are -- and I really do and I understand the term premium that you mentioned, maybe explain that I could give a better explanation.

Glenn Fogel:

Oh, faster. Okay. I thought maybe you're talking about more expensive travel or something?

Glenn Fogel:

Okay, got it. Sorry. Thank you.

Operator:

Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.

Glenn Fogel:

I will let David handle that last part. In terms of the appeal, the appeal will take some time. This type of court action is not going to happen overnight. I can't tell you exactly how long it will take, but it's not going to happen anytime soon. So I would not put anything in terms of what that will mean for [indiscernible] in the relative future. However, we do like the fact that we do have this new agreement with Etraveli, going out to 2028. That's really great. Also, as you know, it's not just booked many travel line. That's one area of our air business. We have Priceline. Of course, that's that company started Priceline or as an Air product. That was the first product. We have lots of good relationships with air travel there. I obviously am very disappointed by the European Commission's blocking, what I believe would have been an extremely beneficial transaction for the travelers, good for them, were they good for the partners, good for them. And together, this will create value, which, of course, would have come back to all the people involved in the company, whether they be for higher value for our shareholders, a higher value for our employees working on , et cetera. Very disappointing decision, we moved on. We will continue to develop this product. And by the way, it's been growing very nicely even though we didn't actually have possession of Etraveli, and yet, we still were able to reduce 57% increase in air tickets. David, I'll let you if you want to talk anything about basket size and things around if you do.

Eric Sheridan:

Thank you so much.

Ron Josey:

Great. Thanks for taking the question. Glenn, I wanted to ask a little bit more about AI. And just you talked about a little bit in your script as to consumer adoption of the booking tools, a trip planner. Wondering if this adoption is trending as you would have expected, I think we're still relatively early days. And you also mentioned the common around lower customer care costs because of AI. So any insights there would be helpful. And David, we don't hear too much about just the milestones coming out of COVID. I know they're there, we've talked about it, but just remind us a little bit more about the underlying assumptions of maybe the bookings and revenue growth. Thank you.

David Goulden:

Yes, I will talk a little bit about a framework for post-COVID recovery because I think that's important. So we've committed that when the dust settles and the market goes back to normal growth rates, whenever that is, we'll be a larger and faster-growing business. Delivering more EPS and faster-growing EPS than we did before. So larger and faster growing on the top line and the bottom line. So why do we think that is the case? Well, we will have made a ton of progress. So the comparison point is 2019. If 2024 is the year that we get to normalized growth rates, it will be 5 years later. If it's 2025, it will be 6 years later. But the business is so fundamentally different in, the business we had in 2019. I think we need just to step back and remind you of that. So, what we've done since 2019 and mainly around Booking.com, but other parts of the business have also contributed as well. Back then, we were mainly, an accommodation mainly hotel, mainly agency business. So since then, we have added a significant alternative accommodation business, which is now very sizable and now we're trying to be for growing quickly. We have -- back then, we did very little in payments. Now over half of our business is transacted through Payment. So we built out our payments platform, which is enabling better service for customers and partners. We have built out air taxi and car capability, we didn't have back in. Back in 2019, we were great at performance marketing. We didn't do much around merchandising. We've now developed a big merchandising arm and capability, but also we've refined our performance marketing tools to the level where we really think we can lean into recurring marketplaces and gain share more aggressively than we did back then. And then, of course, we've added our Genius program and enhanced it significantly. So we believe that we have made huge strides since 2019, which is our comparison point when we grew at 8% on the top line, constant currency bookings and revenue. And of course, this year, we are going to be a lot bigger than we were in 2019. But you add all those capabilities together, and we believe we have a fundamentally different and more competitive business that's providing more value to our customers and partners and is much, much for towards the vision of the Connected Trip than we had back then. And that's why we are confident that we can grow faster and have a bigger business that grows faster on the top line and the bottom line than we had in 2019. That is the framework.

Operator:

Your next question comes from the line of John Colantuoni with Jefferies. Your line is open.

Glenn Fogel:

Let me just take that last one, and then I'll let Dave. I'm not sure what we disclose and what we don't disclose about your first question. Obviously, it's an important one. So we say -- and we've said this several times, several quarters [indiscernible], the same question keeps coming up in different forms of -- do we see any softening? Do we see anything decline? Do we see a decrease in star rating? Do you see a decrease in length of stay and things like that. We say no. And that's what we'll be -- no and no. In terms of why we believe that discretionary spending will continue to travel versus other things, that's obviously a lot of the survey. So I can maybe a whole bunch of things that are independent, third-party actual people are saying they're going to do etcetera. Here's something more important though. And I really try and stress this is how important the long is in terms of how we think about the business and increasing value. So if we agree that over time, GDP for the world will continue to increase and per capita GDP will continue to increase. It's fairly logical that as people get wealthier, they're going to spend more of their money on things that are services or experiences than they are things. Once you going rich enough to have, let's say an apartment, you have one apartment in generally or you have one sofa. You're not going to buy a sofa each year. What you're going to do is you need to get more money is you will travel either more frequently or in a higher level of style travel or you'll do both. And we see that over and over again, when you go look at countries and you see what the amount of the -- ease to look at his international travel, which is a higher I think you know that's going to be a higher level for some people. And you see, as the GDP for a person there goes up. You see the amount of going outbound travel increases, too. So that's why I believe that this is in the long run. We have a great tailwind. The trial will continue to be one of the things that people always are going to want or there's a lot more of it. And thus, provide a great service, our job is get a safer share, a bigger piece of that pie that is going to continue to grow. And you grow a little bit faster than global GDP. That's why I believe we have a great future here. And Steve, I don't know what we talked or do not disclose regarding his question regarding apps.

John Colantuoni:

Okay. Thanks so much.

Glenn Fogel:

Thank you. I want to thank our partners, our customers, our dedicated employees and our shareholders. We appreciate your support as we continue to build on the long-term vision for our company. Thank you, and good night.

Operator:

Welcome to Booking Holdings Second Quarter 2023 Conference Call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are not subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements. For a list of factors that could cause Booking Holdings' actual results to differ materially from those described in the forward-looking statements, please refer to the safe harbor statements at the end of Booking Holdings' earnings press release as well as Booking Holdings' most recent filings with the Securities and Exchange Commission. Unless required by law, Booking Holdings undertakes no obligation to undertake publicly any forward-looking statements, whether as a result of new information, future events or otherwise. A copy of Booking Holdings' earnings press release, together with an accompanying financial and statistical supplement, is available in the For Investors section of Booking Holdings' website, www.bookingholdings.com. And now, I'd like to introduce Booking Holdings speakers for this afternoon, Glenn Fogel and David Goulden. Go ahead, gentlemen.

David Goulden:

Thank you, Glenn and good afternoon. I'll review our results for the second quarter as well as our thoughts for Q3 and for the full year. All growth rates for 2023 are on a year-over-year basis unless otherwise indicated. We will be making some references to the comparable periods in 2019, where we think these are helpful. Information, regarding reconciliation of non-GAAP results to GAAP results can be found in our earnings release. We will post our prepared remarks to the Booking Holdings Investor Relations website, after the conclusion of the earnings call. Now on to our second quarter results, again it's a tough year-over-year comparison in the second quarter, due to a strong rebound in travel after Omicron in Q2 last year. We were pleased to have blurred 9% room night growth in Q2 which was a few percentage points better than our expectations. Looking at our year-over-year room night growth by region in the second quarter, Asia was up over 40%. Rest of world was up low-double digits. Europe was up a couple of points and the US was down slightly. It's helpful to remember that the US was very strong last Q2 and stronger than Q1 and Q3 versus 2019 due to a rebound from Omicron. Compared to 2019, our Q2 global room night growth was 26% which was in line with Q1. For the second quarter, all our major regions grew at a similar rate versus 2019. In Q2, the booking window of Booking.com expanded further versus 2019 than it did in Q1. The Q2 booking window of Booking.com also expanded versus 2022. As Glenn mentioned, our mobile apps represented about 48% of our total room nights in the quarter, which was about six percentage points higher than the second quarter of 2022. We continue to see an increased mix of our room nights coming to us through the direct channel. The direct channel increased as a percentage of our room nights in the second quarter relative to the second quarter of 2022. For the first time since the onset of the pandemic, in Q2, we saw the international mix of our room nights fully recover to 2019 levels. Our cancellation rates in the second quarter were higher than Q2 2022 as the second quarter of 2022, benefited from the strong recovery in new bookings following the relaxation of travel restrictions in many parts of the world post-Omicron. Our cancellation rates in the second quarter continue to be below 2019 levels. For our alternative accommodations at Booking.com, our Q2 room night growth was about 11% year-over-year and the global mix of our tag recombination room it was about 34% which was higher than about 32% in Q2 2022 versus 2019, alternative combination room night growth was about 38%. Q2 gross bookings increased 15% year-over-year, or 16% on a constant currency basis. The 15% increase in gross bookings was six points higher than the 9% room night increase due to 5% higher accommodation constant currency ADRs and also due to a couple points from flight bookings, partially offset by the one percentage point of negative impact from FX movements. Our accommodation constant currency ADRs were negatively impacted by regional mix due to a higher mix of room nights from Asia and a lower mix of room nights from the US. Excluding regional mix, constant currency ADRs were up about nine percentage points year-over-year. Despite the higher ADRs in the second quarter, we have not seen a change in the mix of hotel star-rating levels being booked or changes in length of stay that could indicate that consumers are trading down. We continue to watch these dynamics closely. Airline tickets booked in the second quarter were up about 58% year-over-year, driven by the continued expansion of Booking.com’s Flight offering. Revenue for the second quarter came in nicely ahead of our expectations, increasing 27% year-over-year, or about 28% on a constant currency basis. Q2 revenue as a percentage of gross bookings was about 130 basis points above last year, which was about in line with our expectations. Our underlying accommodation take rates continue to be in line with 2019 levels. Marketing expense, which is a highly variable expense line, increased 4% year-over-year. Marketing expense as a percentage of gross bookings was about 50 basis points lower than Q2 2022 due to higher ROIs in our paid channels and a higher mix of direct business. Performance marketing ROIs increased year-over-year due in part to our ongoing efforts to improve the efficiency of our marketing spend. Marketing and merchandising combined as a percentage of gross bookings in Q2 was about 60 basis points lower than last year, which was better than our expectation. Relative to our expectation, this was primarily due to better ROIs in our paid channels, as well as lower than expected merchandising spend, which was impacted by the booking window being more expanded than we expected in the quarter which will push merchandising expense into future periods at the time revenue is recognized. Sales and other expenses as a percentage of gross bookings were up about 30 basis points compared with last year, a bit better than our expectation. About 48% of Booking.com’s gross bookings were processed through our payments platform in Q2, up from about 38% in Q2 2022. Our more fixed expenses in aggregate were up 20% year-over-year, which was below our expectation due to lower IT expenses in the quarter, including some impact from phasing of IT spend into later in the year. We continue to manage our more fixed expenses very carefully. Adjusted EBITDA was $1.8 billion in the second quarter, which was up 64% year-over-year, and would have been up 70% on a constant currency basis. Adjusted EBITDA was well above our expectation due to the stronger topline, the efficiencies in marketing and merchandising, and lower than expected IT expenses. Our adjusted EBITDA margins increased by about 7 percentage points versus Q2 2022. Non-GAAP net income of $1.4 billion in the second quarter resulted in non-GAAP EPS of $37.62 per share, which was up 97% year-over-year. Our average share count in the second quarter was 9% below Q2 2022 and 15% below Q2 2019. On a GAAP basis, we had net income of $1.3 billion in the quarter. Now on to our cash and liquidity position. Our Q2 ending cash and investment balance of $15.7 million was up versus our Q1 ending balance of $15.3 billion due to the $1.9 billion of debt issuances in May 2023 and the $1.6 billion of free cash flow generated in the second quarter offset by the $3.1 billion in share repurchases we completed in the quarter. In the first half of the year, we repurchased $5.1 billion of our shares, which represented 5% and of our year end 2022 share count. The repurchases so far this year take our combined authorization down to $19 billion from the $24 billion we discussed earlier in the year. We remain comfortable with our ability to complete the full $24 billion of share repurchases within four years from when we started the program at the beginning of this year assuming no major downturn in the travel environment. Now on to our thoughts for the third quarter of 2023. In July, we saw year-over-year room night growth of about 20% up from 9% in Q2. Looking across our major regions, in July we saw Asia up about 45%; rest of World up over 20%; Europe up mid-teens; and the US up mid single-digits. When comparing versus 2019 July room night growth was in a similar range to the 26% growth in Q2. The US was our most recovered region with growth at over 30% versus 2019. Our comments for the third quarter made the assumption that room night growth will be up low double digits year-on-year assuming some moderation in growth from July due in part to harder prior year comparables in August and September. You'll recall from our commentary on the third quarter of 2022 that room night growth versus 2019 was 4% in July 2022 and 10% in August and September 2022. In addition, we expect that due to expanded booking window in the first half of the year stayed in Q3, but there will be fewer last-minute bookings for stays in the rest of Q3. We expect Q3 gross bookings to grow about seven points faster the room nights on a year-on-year basis due to a few points from continued flight bookings growth and a few points of positive impact from FX movements. We expect accommodation constant currency ADRs to be about in line with Q3 2022 including a couple of points of pressure from the changes in regional mix. We expect Q3 revenue as a percentage of gross bookings to be around 19% slightly above last year due to a more positive impact from timing in part due to the expanded booking window in the first half of this year and from increased revenue from payments. We expect these will be partially offset by a higher mix of flights and increased merchandising spend some of which is related to bookings we received earlier in the year. We expect Q3 marketing expense as a percentage of gross bookings to be lower than last year. We expect marketing and merchandising combined as a percentage of gross bookings in Q3 to be slightly lower than last year. We expect Q3 sales and other expenses as a percentage of gross bookings to be about 20 basis points higher last year primarily due to higher gross bookings mix. We expect our more fixed expenses in Q3 to grow year-over-year about 30% due to higher personnel and related expenses, higher IT expenses including the impact of phasing from Q2, and higher indirect taxes in G&A. The year-over-year growth in our more fixed expenses includes about seven percentage points from changes in FX. The difference between the 20% growth in our more fixed expenses in Q2 and a 30% growth in Q3 is driven mainly by FX and major one. Taking all into account, we expect adjusted -- we expect Q3 adjusted EBITDA to be around 20% higher than last year. Given the strong level of bookings that we've seen, we are updating our commentary for the full year. We currently expect gross bookings to grow slightly over 20%, up from our previous expectation for low teens growth. We expect full year room night growth in the mid-teens and constant currency combination ADRs were up slightly for the year, including a couple of points of pressure from changes in regional mix. We currently expect revenue as a percentage of gross bookings to increase year-over-year by about 20 basis points down from our previous expectation of 50 basis points increase. The reduction in our full year take rate is driven by less of a benefit from timing including due to the higher growth rate we expected earlier in this year and also due to expanded booking window. Also, from stronger performance, which drove a higher mix of flights than expected earlier in the year. We currently expect marketing merchandising, as a percentage of gross bookings to be slightly below in 2022 as compared to our previous expectation for it to be similar to 2022. The improvements in our expectation is driven primarily by higher ROIs in off paid channels. We currently expect our more fixed expenses to grow about 25% up from our previous expectation to around 20%. The increase in our expectation is driven primarily by variable components of personnel expense due to the overperformance versus expectations at the start of the year as well as higher indirect taxes which are generally tied to revenues and some additional FX pressure. We manage our more fixed expenses very carefully and continue to expect our more fixed expenses next year to grow at an appreciably lower rate than this year. We continue to expect our adjusted EBITDA margin to expand by a couple of percentage points versus 2022. In closing, we are pleased with our year-to-date results and the momentum in the business that we moved into Q3. We'll now move to Q&A. Adam, can you please open the lines?

Lloyd Walmsley:

Great. Thanks. Two if I can. First thanks for some of the color on the Gen AI trip planners you guys have rolled out. Wondering how you guys think about that strategically and balance that with what search engines are doing. Do you think this brings you guys more direct traffic, or do you think when you look at what some other players like Google are doing with their new search experience like how that might change traffic flows in the travel space? And then second one you mentioned marketing ROI improvements and efforts to improve efficiency. Is that a function of just making higher ROI targets or just other changes you're making within marketing? Any commentary you can give there would be great. Thanks.

David Goulden:

Yeah. Sure. Thank you, I will. Lloyd thanks for the question. So first of all, let's clarify that this is not a change in our approach relative to our design to lean in this year to recovery in travel market. We're still leading in through a recovering travel market. And you can see from our top line numbers we're doing quite well. So that hasn't changed and marquee merchandising investment in total will still be higher this year than it was in 2019, it kind of goes hand-in-hand with that lead-in comment. What I would say and what you're seeing is within that envelope, as we look for ways to optimize our marketing spend we've done a little bit more optimization than we expected not going into all the components of where that's happening. But we're looking at channels for incrementality or return to direct things like that and consistently testing across a very large marketing spend. You see that during the quarter we spent about $1.8 billion on marketing. So it's a large amount of money that we're spending across that spectrum. We are always looking at ways to kind of optimize different spend, different channels and different approaches. So it's really more to do with our ongoing effort to improve the efficiency of our marketing spend. But again, within the context we're still leaning in and looking to take share as the market continues to recover from COVID.

Mark Mahaney:

Okay. Two questions please. First Glenn, have you noticed any changes in the type of travel demand? And I mean, short versus longer stay, rural suburban versus urban. And then, I wanted to ask the CFO question on AI, which is when you think about the impact that AI has had and Gen AI could have on the business from a financial perspective, do you think that that's -- Dave, do you think that's more likely to be on the monetization side or on the cost efficiency side? And I'm sure you're going to say both, but if you could be a little bit more -- if you have any more specifics on which of those you think could be more and could be more impacted by the application of Gen AI over time? Thanks a lot.

Mark Mahaney:

Okay.

Justin Post:

Great. Thanks for taking my question. Obviously, very strong in Asia, maybe talk a little bit about what you're seeing there? And are you able to take some share from direct bookings at hotels or competitors? And then I thought your marketing ROI comment was very interesting in a very crowded quarter for marketing spend. So can you talk about -- is it the direct traffic that's helping you be more judicious with your marketing spend, or how are you getting that way up?

David Goulden:

Yes. Justin, I think I gave a fair amount of color in my first answer, so I'm not going to repeat it. You did ask about when the direct makes place into this as well. And yes obviously as our direct mix is increasing as we commented it continues to do so. That helps but we're also getting helped from just looking across our total spend on marketing and looking at pockets of efficiency using some of the areas I talked about earlier.

Operator:

Your next question comes from the line of Kevin Kopelman with TD Cowen. Your line is open.

Glenn Fogel:

Hi Kevin. So, I'm very pleased that we're continuing to advance while we talked about the overall -- we'll call it alternative accommodations is the way we define that area. We talk globally about our 11% growth being faster then the 9% for the overall company that 11% was a Booking.com number. But in terms of North America specifically are less reduced to the US which is the area where I think we all are more focused on. We have said many, many times I have seen many, many times that's an area of focus for us. We know we're under index. We know the areas we had to improve the product. And we talked in the last call, we called [indiscernible] for that too probably. About the things we're doing to improve it and that is both on the supply side making sure we're improving things so that people who own homes, people manage apartments, people who are in this space say, I'm sorry, but Booking.com, you're not doing certain things that you need to do for me. I'm glad that we are doing those things they will then be willing and are being to list their properties on our platform. That's great. And on the other side as I talked about last time is the importance okay, we got the properties now. We've got to make sure people know about it and I talked last time again about awareness and then we need to bring that up to. This is not a thing you saw overnight. This is something that you day by day, step-by-step grind it out and that's what we're doing in all different areas and we're seeing the progress. So, are we there? Yes? No, not even close to there yet. But the good thing is we're making the progress and that's all upside for us down the road. So we're going to keep on plugging away at it and I think we'll continue to experience good returns as we continue to invest in the area.

Operator:

Your next question comes from the line of Doug Anmuth with JPMorgan. Your line is open.

Glenn Fogel:

So I'll leave the second one what David wants to actually reveal in that area of specifics. I'm not sure if he does or doesn't. Regarding the connected trip a couple of things on that. So let's start off right at the start that, the Connect trip is not producing material numbers increases in our -- what we're doing right now. The good numbers that we're showing right now are not because of a connected trip and it's just too small to show that. Imagine we're building it in orange -- until every piece is in place. You're not getting a lot of advantage from this arch. Right now build in the arch. So you see parts that are showing up but not the big effect. So for example really happy about one element which is you have to have a flight product. And we're doing 58% year-over-year growth in tickets and flights that's greater – I mean that's a really good number. It shows that we're producing a good flight product, we'll get that going. And then the other areas that we have to build out like things like the attractions, things like the right part gets to you from the hotel to the airport or from your home to the airport things like that. Building all those things out. And then of course, the glue payments. That's very important to make sure the whole thing is working correctly. We're able to give benefits value to both the traveler and enable our suppliers to have an opportunity to give types of benefits so they'll win that deal. These are things we need payments to do and we're making great progress and really happy to see that number up there they're 48% in the growth from last year. So all these elements are being worked on but that is not what's producing the very good returns in Q2. The flip side that says, look at all the potential future we have down the road. That's really encouraging to me. So I'm very happy where we are. I'm glad with the progress we're making but it should not be misthought that this is the thing that's produced Q2's numbers. And David I don't know if you want to talk about mobile app anything there in terms of repeat?

Doug Anmuth:

No, go ahead.

Glenn Fogel:

And Doug, one other thing I want to add to this is Doug is the importance of the app and the connected trip. It's one of the important parts along with the other ones because one of the things that we really believe is important when you're traveling is to get advice, deals all sorts of things that you want to have your travel agent in your pocket. Well in your phone, that is the travel agent in the pocket. And then you throw on top of this all the Gen AI stuff all that. There's some real potential opportunities down the road that people are traveling they're going to have a much better experience than they have had in the past and that's what I'm looking for down the road.

Operator:

Your next question comes from the line of Lee Horowitz with Deutsche Bank. Your line is open.

Glenn Fogel:

Hi, Lee. I'll let David talk about whether or not he wants to talk about where the margins may go with that but I'll talk to just in general why do we continue quarter-after-quarter it seems to be improving our direct mix. And I believe the reason is because people like the product. That's the thing that helps. I've used it and they decide to come back because we're giving the best prices. We're going to most select selection, the greatest election. We're making it easier for them to do it. And we're providing great customer service something goes wrong to fix it. The reason I use and I'm not going to list some other new retail online retailers, there are some big ones I use. I use a need cash. I do it because it's better. And in the end, that's what wins as customers interest they come back with a better product, when the people believe in trust is the reason, people are loyal to a brand. That's what we're building here. And I believe, that's why we are slowly incrementally building out that direct mix. I think that's the biggest thing for me. David, you can add if you want to add anything to that? And also I'm not sure what you want to talk about in terms of margins, where people come direct and what that may do in the long run to our margin profile, EBITDA margin profile.

Lee Horowitz:

Helpful. Thank you.

Eric Sheridan:

Thank you so much for taking the questions. Maybe against your broader long-term goals for growth that you called out earlier in your comments. Would love to get any update about how you're feeling about supply growth, with respect to shared accommodations and/or local experiences against continuing to diversify supply, and build out more elements of the connected trip. And how do those factor in as elements of investment beyond 2023, looking out into next year? Thanks so much.

Eric Sheridan:

Super clear. Thank you.

Jed Kelly:

Hi. Great. Thanks for taking my questions. Just going back to the US business. You highlighted mid-single-digit growth in the US. Can you talk about how that's trending relative to your competitors? And does that number does that capture the amount of Americans traveling over to Europe, or is that including in your European road lights?

David Goulden:

Yes. Let me clarify. First of all, when we talk about these regions on a geography basis we're talking about on a book basis. So yes, Glenn it does capture bookings being made by U.S. travelers including those that are moving overseas, which is one of the reasons why we're getting growth. We mentioned that we're back to a mid-single-digit growth in July in the U.S. after seeing a very small decline in growth in Q2. And actually, that was really just April and May. By the time we got to June, we were back to growth as well. And then the April May comparisons relate you to the really strong rebound we saw particularly in those months when the old player was declared in Omicron last year. So we got a little bit of a funky comparison on there. So I think we're doing well in the marketplace. It's too early to kind of call how we see us doing any against the market for a single quarter. We like to kind of look at that on a longer-term basis you can look at how the year pans out. I would just point out that relative to the market, we mentioned in July when over 30% growth in the U.S. versus 2019 not significantly well ahead of any market data points. Market is perhaps closer to breakeven maybe slightly positive compared to 2019. We're up 30. So we tend to look at it over the longer period of time and we'll have a better view on exactly, how we're doing in the U.S. relative to the market as the year develops and as the year ends. As Glenn mentioned, we're pleased with many of our programs there. We also know there's a lot of upside for us to continue to push more into the U.S. marketplace.

Operator:

Your next question comes from the line of Alex Brignall with Redburn. Your line is open.

David Goulden:

Yes, Alex let me take that. So yes, I mean as you called out in the prepared remarks there are two factors that are causing us to take the guidance to take rates to call our number down a little bit from where we were before. And actually, both of kind of what I call good things happening within the business. So the first is that the business is growing faster and the booking window has steel on gate compared to where we thought we'd be this year which means that we're not going to get all the benefit from timing recovery this year. Some of that timing recovery will be delayed into next year. So that we should get back as a positive that piece of the reduction will get back as positive next year. The fact that flight is growing faster than we expect is also putting a little bit of pressure on margin. But as Glenn said, that's a good thing as well because we are building out more capabilities and more opportunities to work with our customers across connected transactions. So those are the two main dynamics, one of which we will get back in terms of the timing recovery, which we thought would happen this year will now happen more likely over two years.

David Goulden:

That's obviously a different way of looking at the EBITDA margins than we do but you're right obviously some of the contra revenue because of merchandising impacting the revenue line. The diet mix will obviously help overcome pressures in the accommodation business. Obviously, it seems like alternatives become slightly bigger seeing Asia becomes slightly bigger. So I think when we've talked about the long-term model for the business, assume that the core accommodations business can get back to in the rough region where it was 2019-ish and then the impact on EBITDA margins in the overall business will be driven by the mix of some of the newer businesses will become quite large in terms of particularly payments and flights neither which were a major factor in 2019. What I would point to is as I step back further and say what we've committed to for our long-term more, which I think is very important compared to 2019 is we have a business that is larger on the top line and the bottom line and growing faster the top line and the bottom line than it did in 2019. And that I think is the overall commitment that we've made that we're very convinced will stick to that I think will help drive your thinking about the overall model.

David Goulden:

That's the last way to think about building the model out to look at our future EBITDA, yes.

Operator:

Your next question comes from the line of Ron Josey with Citigroup. Your line is open.

Glenn Fogel:

So Ron, let me try, understand the question. You're saying the annual spend per customer is that, right?

Glenn Fogel:

Yes right. So clearly part of the issue is that our customers, I'm happy about this, they don't always use us. Sometimes they use a competitor. And we see that. We see that unfortunately more than I'd like. Part of it is not having a product that they want. That's one thing, which we're building out as we talked a little bit about. And the other thing is post things that there's -- they go for example internationally will go for this brand and by domestic on that one. The key thing for us is to develop that loyalty that the reason that somebody really thinks that they will come to us for any travel will come to us. So part of it is bring all this together with the connected trip. Bring it all together with payment, developing the more we learn about the customer with their permission of course and then providing them with the -- what they may want more than anyone else. So they will always come back to us for all this. What do I believe in the end it could be to I believe that in the end we could have all customers all the time of course not. But I hope that we can continue to improve this substantially in the long run. And we'll see that as we get to finish off some of these areas though that we're still building out. Things like making sure we have enough of those alternative accommodations from people so he wants it we actually have one. It's like making sure that we have the payment product that they want to use a payment system that. Many things around the world we've talked about they don't use Visa card. They don't use Mastercard. They don't use [indiscernible] space. They got other ways they want to pay. Make sure we have that payment for them so that traveler customer to comfortable using us. And I can go on and on and on with many other things. That's what we need to do. And how high do I think can be? I'm not going to guess at it. I just know it could be substantially better than we are right now.

Operator:

Your next question comes from the line of Scott Devitt with Wedbush. Your line is open.

Glenn Fogel:

Sure. So, yes, it used to be easy. There's a shoulder and there was a peak and life was easy to understand and that's how it used to be and it's not like that at all. And boy -- are things confusing right now when you have Omicron circling the world and some areas is hitting. And then a year later that's the area to comp against. So it gets very, very confusing. As David was pointing out in the numbers how something could look something, but actually it's much more understandable they had COVID in that area last year or they just opened up last year. Here's the thing. I hope that next year things have turned back to a more normalized ease understanding what the seasonality of travel is. However, there's a new thing this come in and that is the idea of people not going to offices as much and then, they're also traveling more. So they're using this Monday and Friday where they're traveling more for these longer weekends et cetera or perhaps a whole week et cetera. And I think that's going to make a more uncertainty to see what that is. What that may end up doing is, evening out travel throughout the year more where people are able to use time in areas that used to be shoulder season, but now people are using more which help spread out the travel more. I don't know. But we'll find out. That's why the -- I can't change any of that. So I'm not going to worry about it too much. What we use is in the near-term is, what signals we see in terms of how much we should spend on marketing or not. And in the long run what we hope is to continue to improve the products, because that's the way in the long run to win. That's how we do it. I'm sure lots of you are going to have lots of guesses about what the seasonality trends are going to be for the next couple of years globally. I'm not going to try and do that. You had another question I believe I forgot it though.

Glenn Fogel:

So there…

Glenn Fogel:

Yeah. So if we look to way back to when American Airlines came out with our first loyalty plan. I'm actually old enough to me, I actually joined it. All the way to now there are lots of different loyalty plans for all different things and beyond travel for sure. And that another company comes out with a new one whatever that's nice interesting but the truth is I love what we're doing on Genius. I think it's a great pod and we're going to do even more with it. One of the things that's really wonderful about is that we use it with our partners together in a way to give benefit to both of us making sure that it is actually incrementally improving what's good for that partner along with of course being so good for our customer traveler, doing that is the way of any type of loyalty program should really work. And that's something that I think we've done a good job within [indiscernible]. Now we need to gain on more benefits and any more benefit that enable the supplier to give more opportunity to merchandise and give things that will be good for the traveler so they can win that actual transaction. And that's something we're going to continue to do. We've talked about how we've improved it from where it just started out and now we're up to three tiers. And there are lots of things down the road that will add on as we continue to develop the connected trip that will give us opportunity to give more benefit -- incremental benefits to both sides. I really don't worry too much about what somebody else is doing a more concern making sure we're executing right on the things that's important for our customers, or both the travelers and the suppliers.

Glenn Fogel:

Thank you.

Glenn Fogel:

Well, I'd like to thank everybody for participating. We are very, very pleased with the results you had. So I want to thank the partners, of course our customers, our dedicated employees and of course our shareholders. We appreciate everybody's support, as we continue to build on the long-term vision for our company. Thank you very much, and good night.

Operator:

Welcome to Booking Holdings First Quarter 2023 Conference Call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are not subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements. For a list of factors that could cause Booking Holdings' actual results to differ materially from those described in the forward-looking statements, please refer to the safe harbor statements at the end of Booking Holdings' earnings press release as well as Booking Holdings' most recent filings with the Securities and Exchange Commission. Unless required by law, Booking Holdings undertakes no obligation to undertake publicly any forward-looking statements, whether as a result of new information, future events or otherwise. A copy of Booking Holdings' earnings press release, together with an accompanying financial and statistical supplement, is available in the For Investors section of Booking Holdings' website, www.bookingholdings.com. And now, I'd like to introduce Booking Holdings speakers for this afternoon, Glenn Fogel and David Goulden. Go ahead, gentlemen.

David Goulden:

Thank you, Glenn and good afternoon. I'll review our results for the first quarter as well as our thoughts for Q2 and for the year. All growth rates for 2023 are on a year-over-year basis, unless otherwise indicated. We will be making some references to the comparable periods in 2019 where we think these are helpful. Information regarding reconciliation of non-GAAP results to GAAP results can be found in our earnings release. We will be posting our prepared remarks to the Booking Holdings Investor Relations website after the conclusion of the earnings call. Before getting into details for Q1, I want to remind you that our business is quite seasonal. Q1 is typically a strong booking quarter and we incur marketing expenses in Q1 for many bookings that will stay in future quarters which is when the revenue is recognized. Q1 has also historically been our seasonally smaller revenue quarter and adjusted EBITDA quarter. This means that Q1 adjusted EBITDA can be quite sensitive to the level of bookings we get in the quarter. With the increasing mix of payments at Booking.com, Q1 is also becoming a strong cash flow quarter due to high level of bookings. So now let me go on to our numbers for the first quarter. We were encouraged to see strong year-over-year room night growth of 38% in the first quarter which is better than our expectations. For the first quarter, Asia was up 100%. Europe and rest of world were both up more than 30%. We continue to see growth in the U.S. which was up high single digits versus the prior year. Our growth in total room nights versus 2019 increased from 10% in Q4 to 26% in Q1. In the first quarter, U.S. was up more than 30% and all other regions were up about 25% versus 2019. The booking windows -- our Booking.com expanded versus 2019 for the first time since the onset of the pandemic, driven by Europe and the U.S. The booking window in the first quarter was longer than we expected due to strong levels of bookings for travel in the summer period. I note that many of these bookings are cancelable. Our mobile apps represented over 45% of our total room nights in the first quarter, similar to the fourth quarter of 2022. We continue to see an increasing mix of our total room nights coming to us through the direct channel. The direct channel increased as a percentage of our room nights in the first quarter relative to the first quarter of 2022. The international mix of our total room nights in Q1 was about 53% which was the highest quarterly mix since 2019 but still a couple of percentage points below Q1 2019. Our cancellation rates in the first quarter were below Q1 2022 and Q1 2019. For our alternative accommodations of Booking.com, our Q1 room night growth rate was about 45% year-on-year and the global mix alternative accommodation room nights was about 33% which was higher than about 31% in Q1 2022. We are pleased with the progress we made in North America alternative accomodations where growth in the first quarter was much stronger than the global average. Q1 gross bookings increased 44% year-over-year or 52% on a constant currency basis. The 44% increase in gross bookings was 6 percentage points higher than the 38% room night increase due to 9% higher accommodation constant currency ADRs and also due to a couple of points from strong flight booking growth, partially offset by the 8 percentage points of negative impact from FX movements. Accommodation in constant currency ADRs were negatively impacted by about 5 percentage points from regional mix due to Asia room nights growing the fastest of all our regions and U.S. growing the slowest. Excluding regional mix, constant currency ADRs were up about 14 percentage points year-on-year due to rate increases in all of our regions. Despite the higher ADRs in the first quarter, we have not seen a change in the mix of hotel star ratings being booked or changes in length of stay that could indicate that consumers are trading down. We continue to watch these dynamics closely. Airline tickets booked in the first quarter were up about 73% year-over-year, driven by the continued expansion of Booking.com's flight offering. Revenue for the first quarter was up 40% year-on-year or about 47% on a constant currency basis. Although we had stronger-than-expected Q1 from a room night and gross booking point of view, the outperformance versus our expectations was driven by bookings that will stay in future quarters. As a result, we did not see revenue benefit in Q1 from these incremental bookings. The lower-than-expected take rate in Q1 was entirely driven by the timing effects. Our underlying accommodation take rates continue to be in line with 2019 levels. Marketing expense which is a highly variable expense line increased 32% year-over-year. Marketing expense as a percentage of gross bookings was about 30 basis points lower than Q1 2022 due to higher ROIs in our paid channels and a higher mix of direct business. Marketing and merchandising combined as a percentage of gross bookings in Q1 was about 20 basis points lower than last year which is better than our expectations of being slightly higher. Relative to our expectations, this was due to better ROIs in our paid channels as well as phasing of merchandising spend which is tied to revenues. Sales and other expenses as a percentage of gross bookings were up about 15 basis points compared with last year which was better than our expectations. About 45% of Booking.com's gross bookings were processed through our payments platform in Q1, up from about 34% in Q1 2022. Our more fixed expenses in aggregate were up 25% year-on-year which was higher than our expectations due to a few factors that impacted personnel and indirect taxes. The 25% year-over-year growth excludes $39 million in accruals related to potential settlements of indirect tax [indiscernible] recorded in G&A. We continue to manage our more fixed expenses very carefully. Adjusted EBITDA was $586 million in the quarter which was up 89% year-over-year and would have been up 111% on a constant currency basis. Adjusted EBITDA was lower than our expectations, impacted by marketing expenses incurred for the higher-than-expected gross bookings stage in future quarters. February and March bookings came in stronger than we expected at the time of our prior guidance. These extra bookings also negatively impacted our take rate more than expected for the quarter. If we look at marketing and merchandising as a percentage of gross bookings in Q1 to eliminate the timing difference, this was lower than our expectations and lower than both Q1 2022 and Q1 2019. Non-GAAP net income of $440 million resulted in non-GAAP earnings per share of $11.60 per share which was up 197% year-on-year. Our average share count in the first quarter was 8% below Q1 2022 and 16% below Q1 2019. On a GAAP basis, we had net income of $266 million in the quarter. As a reminder, every profit metric we highlighted in these quarterly earnings report includes the negative impact of stock-based compensation expense because we view SBC expense at a very real cost of doing business. We continue to manage SBC very carefully and it continues to be a very low percentage of our operating cash flow. Now, on to our cash and liquidity position. Our Q1 ending cash and investment balance of $15.3 billion was up slightly versus our Q4 ending balance of $15.2 billion. Our operating cash flow for the quarter was $2.9 billion, up 70% year-on-year. And our free cash flow was $2.8 billion, up 77% year-on-year. The operating and free cash flow generated in the quarter benefited from $2.3 billion in change in working capital due to an increase in our deferred merchant booking balance as well as the $586 million in adjusted EBITDA. The $2.8 billion of free cash flow was mostly offset by about $2 billion in share repurchase in Q1 and the payment of about $500 million for debt to mature in March. Now, on to our thoughts for the second quarter of 2023. In April, we continued to see strong demand with room night growth versus 2019 that was slightly higher than the 26% growth saw in the first quarter, with all of our major regions growing at similar rates. The booking window in April at Booking.com continues to be long as it was in 2019. On a year-on-year basis, April room night growth was in the mid-teens which is lower than Q1 due to a more difficult prior year comparison. You will recall that last year, Q1 room nights were 9% below 2019 and April was up 10%. April 2022 was our first month of growth versus 2019 since the onset of the pandemic. Our comments on the second quarter make the assumption that room night growth will be up mid-single digits year-over-year. As you'll recall, Q1 last year was impacted by Omicron. And in Q2, we saw a strong recovery which resulted in Q2 2022 being our highest growth quarter versus 2019, especially May and June which were our highest growth months last year. Compared with 2019, we'd expect future room night growth in 2023 to be just over 20%, assuming some moderation from growth from the first quarter in April when room nights were helped by more bookings we expected for the summer. We expect Q2 gross bookings to grow about 4 points faster room nights on a year-on-year basis due to a few points from continued flight bookings growth and slightly higher constant currency ADRs. We expect Q2 revenue as a percentage of gross bookings to be approximately 120 basis points above last year due to a less negative impact from timing and increased revenue from payments, partially offset by an increased investment in merchandising and a higher mix of flights. We may see less of an increase in our take rate if booking trends exceed our expectations, especially in the high percentage of these bookings [indiscernible] stays in future quarters. This could also result in higher-than-expected marketing expense in the quarter. We expect Q2 marketing expenses as a percentage of gross bookings to be lower than last year due to an increase in direct mix. We expect marketing and merchandising combined as a percentage of gross bookings in Q2 to be about in line with last year. We expect Q2 sales and other expenses as a percentage of gross bookings to be about 40 basis points higher than last year due to higher merchant gross bookings mix and higher third-party call center costs, including the impact of our partnership with Majorelle. We expect our more fixed expenses in Q2 to grow about 25% year-over-year due to higher personnel and related expenses, indirect taxes and IT expenses. Taking all this into account, we'd expect future adjusted EBITDA to be around 35% higher than last year. In terms of our outlook for the year, we are not updating our previous full year commentary at this time. Our strong bookings in the first 4 months of the year created the potential for some upside but we want to see how the next few months develop before considering any updated commentary. We continue to expect that our adjusted EBITDA margin will expand by a couple of percentage points versus 2022. In closing, we're pleased with our Q1 results and the very strong growth in bookings for the summer. We'll now move to Q&A and Rob, could you please open the lines?

Justin Post:

I guess 2 things. First, when you look at ROI in the marketing channels, how do you feel about that going into the summer? Are you seeing some advantages based on changes from some of your competitors? And then secondly, as you think about your overall use of cash, any reason why you can't just put buybacks to work for the next 5 years? Are there anything we should be thinking about on the debt side?

David Goulden:

Yes. Justin, I think it's hard to predict what's going to happen to ROIs that far out. So what I will say is that you can see that we saw some encouraging ROI trends compared to expectations in the first quarter. Those were a little bit related to what happened to our bookings profile. So as we mentioned, we got a lot of extra bookings for the summer in the first quarter, more than we would have expected. The ROIs in the pay channels were better than expected due to basically 3 things

Mark Mahaney:

I just want to ask about the Asia Pacific travel and China travel. Are you already seeing the impact of China outbound travel? And then within Asia Pacific, it sounds like that's the strongest region. Are there any particular markets that are performing well for you?

Operator:

Our next question comes from the line of Lloyd Walmsley from UBS.

Glenn Fogel:

Let me take the second one because I do look at that very carefully to see are there any smoke signals coming out of the market, giving us any indication of any changes. And I have not seen any decline in the star ratings that people are going for nor are we seeing a decrease in the length of stays, either one of which could increase that potential softening in the market and we have not seen that yet. And I think we made the remark about the booking window has gone out further indicating confidence, I believe, that's one hypothesis I want to point out, confidence about the future willing to put your money down and be willing to book for further out. That can be seen upon [indiscernible] is that people are concerned there's not going to be enough availability or they could be considered that prices are going to continue to rise, they will lock it in now, that's another way to look at too but none of those hypotheses to say anything about a weakness at all. And in terms of I think your first question, I'll leave it to David.

Operator:

Your next question comes from the line of Brian Nowak from Morgan Stanley.

Glenn Fogel:

So we don't break down the direct mix by region at all. But I can repeat things I've said in the past about how important direct mix is to the long-term increase the value of the franchise because of things we talk about with our connected trip. They're getting people in through the app primarily, having them understand all the different things we'll be able to offer to them, give them a real personalized thing that will make them want to always come back to us. The more we learn about them, the more they come back to us. So it's a flywheel effect happening there. Again, I won't break it down by region but my goal is to have every region have as many people as possible using the app and coming directly. That's the first thing. In terms of how we varied against our forecast, I don't know how much. David, why don't you get into that?

Operator:

Our next question comes from the line of Doug Anmuth from JPMorgan.

Glenn Fogel:

Thanks, Doug and very interesting questions about that and I'll break it out into -- you start off with AI, then we went to a specific subset of degenerative AI. Let's just talk in general about AI first and how important this is into our business for many, many, many years, more than a decade perhaps, a machine learning model that really helped us do a better job making sure that what we're presenting to consumer, for example, is really something that they have a higher percentage chance they're going to convert on that. All sorts of ways that we use, very sophisticated machine learning models in many parts of the business that have helped us get us where we are today. Then of course, we come out in the fold, something that is -- the somewhat a lot of people were not that aware of this generative AI, large language models and see what could be done with them. And clearly, anytime there's a major shift in technology, everyone thinks like, well, is this going to be disruptive to the players who are already doing well? Is it not? And I said in my prepared remarks, how I feel very confident of where we are in this because of the work we've done in AI in the past, the number of people we've had working on, the amount of capital we have, our collaborations with universities. I believe that we are going to be benefiting greatly from this new type of technology in many different areas and some we haven't any thought of them yet and some things are going to be easy, perhaps increasing the productivity of our developers which we believe is hopefully going to achieve some very good results in the hopefully not so distant future, to things that perhaps are further away but ways that people interact with us in that connected trip vision, a way that you really do are able to recreate that human travel agent into something that's actually an automated player but is that does so much better than the human being did in the past? Now in terms of your very important question about the data and how do we protect it and not litigate it out and be used by others, that is a very important thing. And everyone from our attorneys to people in our development departments, people who are really working with some of these large language model foundational model people, we are looking very closely. Have they already been using our data and should they be -- and I think there's going to be a lot of interesting regulations in this area that nobody knows the answer yet, too but how will people become and say -- if they're data has been used in the past for training purposes or not. And I think it's a very open question that nobody knows the answer to yet but we will be very interested in the results.

Kevin Kopelman:

Yes. First question, I wanted to ask about ADR's big area of interest. With all the strength you're seeing in Q1, could you just -- and quarter to date, can you touch on how ADRs have trended generally compared to what you're seeing as of the last call.

Kevin Kopelman:

Great. And then, one other question. Could you talk about a little bit about the dynamics in the U.S. market. What are you seeing in the U.S. that's causing your growth to be a little bit slower there? And how do you feel about your market share in the U.S.

Glenn Fogel:

And I would just add, my conversations with our partner, some of our biggest partners and with their senior management, the critical thing for me is, are we providing them with what they need? Are we providing incremental business to them that helps them do better in their business? And do you feel that we are valuable to what you need. And I only heard positive things from all the people that I speak to in regards to where we are today versus where we were in the past. And it's a much more complementary relationship and I believe that will help us in the future to continue to build on that.

Lee Horowitz:

Great. Maybe sticking with some of the comments around direct. You guys continue to post impressive direct booking results and app growth. Maybe looking beyond this year, how does this price of execution within the direct channel inform the way you see margin progression beyond 2023? And then, maybe one on VR. [Indiscernible] continue to indicate that you guys seem to be picking up some share in the U.S. vacation rental market, an area where you've been perhaps underrepresented. I guess what do you owe maybe some of the improvements you're seeing within the U.S. VR industry? And then looking forward, what are the things you think you can you need to continue to do in order to really scale up that business in line with some of your competitors?

David Goulden:

Sure. Direct mix obviously is very tied to our strategy. Our strategy is to build a better product, provide better service for our customers and partners and get those customers to come back to us more frequently and more directly after we've acquired them in the first place to which shall we bring them into the portfolio the first time around. So it really does tie to executing against our strategy and lots of things that we do, many things that we do contribute to that better products. I could talk about alternative accommodation, I can talk about payments, we can talk about adding flights to all these things just create a better service for our customer and therefore, we're more likely to get them back directly. So it's very much tied to our strategy. It is also tied to your financial model because we made the comment last quarter on February, that we're obviously not targeting pre-COVID margin level because of the mix shift in the business for some of these new areas that we're now focused in but we do expect to be able to grow our EBITDA margin above the levels we're at in 2023 and the biggest driver, that would be continue to increase our direct mix. We'd also expect to be able to do better from a leverage on our more fixed costs going forward. And those themselves would kind of more than offset the pressure from the mix of lower-margin businesses as they grow within our portfolio. So continuing to improve our direct mix is very important for both the strategy and the financial model and will be the major sources to be able to provide some margin expansion beyond where we are this year.

John Colantuoni:

Hoping you could update us on your strategy in the U.S. market. You've had a lot of success gaining share in recent years but I'm curious if you could update us on your learning so far about sort of the return on investments and how that's informing your aspirations to continue pursuing that opportunity as aggressively as you have been? And second, you sort of characterized investing ahead of the travel recovery to gain share throughout 2021 and 2022. I'm curious if that's your strategy in the Asia Pacific region as that market recovers. And if you have any early reads on returns on that investment.

Operator:

Your next question comes from the line of Deepak Mathivanan from Wolfe Research.

Glenn Fogel:

David, you're the owner of the P&L there, looking that you want to take on the cost.

Glenn Fogel:

And regarding buybacks, I think we laid it out a little bit. You know what our plan is. You know what we're doing. And I'm not sure there's any more color I can give and we're pleased with where we are.

Unidentified Analyst:

This is Josh [ph] on for Jed. Just wondering, if you can maybe speak to how recent improvements in payments is resonating with U.S. property managers and their opportunity to increase share?

Operator:

And your next question comes from the line of Stephen Ju from Credit Suisse.

David Goulden:

On the second question, no, the capital allocation plan that we talked about last quarter, that Glenn summarized earlier, anticipated that we would be continuing to increase our merchant mix. So on that piece, there is no change. In terms of where is that merchant increase coming from, just to remind us all, it's really coming from a mix shift inside of Booking.com where we are moving from what used to be almost entirely an agency model now to a much more balanced model. That is the biggest change would be in accommodations. That's still, by far, the biggest part of the business, although our flights grows, it's having an impact. But what's really driving the changes that you're seeing is the increase in merchant mix across our accommodations business, our Booking.com.

James Lee:

Two here. Can you guys maybe give us an updated outlook on ADRs. I think previously, you talked about expectation being maybe flattish on constant currency for FY '23. And also, David, maybe you can remind us -- talk about some of the puts and takes on take rate for your expectation for 2020.

Operator:

And your next question comes from the line of Richard Clarke from Bernstein.

Glenn Fogel:

Richard, look, there's no doubt that hotels, when they are doing well may see less of a need to use all other ways to distribute and get business, then just have to come to them direct, right? And one of the things they're always looking at is what's the return. So with us in Genius, it's really being very targeted with them to make sure they understand how we can get the incremental demand that they wouldn't necessarily be able to get otherwise and then working with them and make sure is this value for them or not. And something I actually talked a bit in the past, I'm not sure on a call but our sales people have worked with hoteliers and talk to them sometimes, well, we're working with Genius program -- the Genius program in or that it's not actually the best use of their money in the best way for the business and told them, look, don't think you should use Genius this way, this amount, this time, whatever other time, etcetera. This is an idea long term, having a good partnership. It's just -- it's not just knocking down the door of hotel, give us discuss, give us discount. That's not how this works. This works with science. This starts with data. This is the machine learning stuff I talked about in the past. This is getting together to come up with a way that we can come up with a better way to improve their business. Now no doubt, as travel improves and such, there's going to be less of a need as the hotels will find other ways and perhaps less expensive ways or more efficient ways for them. And so maybe there will be some place but I am not at all concerned if your point is that this is going to make a drastic difference to how we do our business in the future. I don't see it. I see this as something that's going up more and more central as we continue to develop more ways to provide value to the traveller customer and be able to work with the customer supplier partner in ways that are complementary, symbiotic for all of us that we all win in this, the traveller wins, the hotel winds and we win.

Glenn Fogel:

Richard, you're confusing me on this one.

Richard Clarke:

The deferred merchant booking line which is $4.5 billion on your balance sheet, how does that square with you getting $19 billion of bookings -- merchant bookings in the quarter that you're saying are largely for future quarters?

Operator:

And there are no further questions at this time. Mr. Glenn Fogel, I turn the call back over to you.

Operator:

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator:

Welcome to Booking Holdings Fourth Quarter and Full Year 2022 Conference Call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements. For a list of factors that could cause Booking Holdings’ actual results to differ materially from those described in the forward-looking statements, please refer to the Safe Harbor statements at the end of Booking Holdings’ earnings press release as well as Booking Holdings’ most recent filings with the Securities and Exchange Commission. Unless required by law, Booking Holdings undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. A copy of Booking Holdings’ earnings press release, together with an accompanying financial and statistical supplement, is available in the For Investors section of Booking Holdings’ website, www.bookingholdings.com. And now I’d like to introduce Booking Holdings’ speakers for this afternoon, Glenn Fogel and David Goulden. Go ahead, gentlemen.

David Goulden:

Thank you for those comments, Glenn. And as you said, I am not going anywhere for some time over the next year in my CFO role and when involved beyond that, I will remain as focused as ever on continuing to help deliver strong results from the business and creating value for our stakeholders. Now turning to our results. I will review our results for the fourth quarter and provide some color on the trends we have seen so far in the first quarter and our thoughts on 2023. All growth rates for 2022 are relative to the comparable period in 2019, unless otherwise indicated. All growth rates for 2023 are on a year-on-year basis unless otherwise indicated, but we will be making some references to the comparable periods in 2019 where we think these are helpful. Information regarding reconciliation of non-GAAP results to GAAP results can be found in our earnings release. Now on to the fourth quarter. We are encouraged to see room night growth of 10% in the fourth quarter, up from 8% room night growth in the third quarter, with the improvement driven by Asia and the U.S. For the fourth quarter, the U.S. was up more than 35%, rest of world was at 110%, and Europe and Asia were both up mid single-digits. Q4 was the first quarter of room night growth in Asia versus 2019. Our growth in total room nights on a year-on-year basis increased from 31% in Q3 to 39% in Q4. Our mobile apps represented over 45% of our total room nights in the fourth quarter and about 45% for the full year. We continue to see an increasing mix of our total room nights coming to us through the direct channel. The direct channel increased as a percentage of room nights in the fourth quarter and for the full year relative to 2021 and 2019. The international mix of our total room nights in Q4 was about 48%, which was higher than Q3, but still a few percentage points below Q4 2019. Our cancellation rate was slightly above 2019 levels in Q4, but were slightly below 2019 levels for the full year. In Q4, the booking window of Booking.com remained shorter than in 2019 similar to what we saw in the third quarter of 2022. This booking window expanded meaningfully versus the fourth quarter of 2021 when we saw a higher mix of near-term bookings during the COVID-19 Omicron variant wave. For our alternative accommodations at Booking.com, our room night growth rate was about 15% in Q4 versus 2019 and the global mix of alternative accommodation room nights was about 29%, which was a couple of percentage points higher than Q4 2019 and Q4 2021. Q4 gross bookings increased 32% versus 2019 or 47% on a constant currency basis. The 32% increase in gross bookings was 22 percentage points better than the 10% room night increase due to 29% higher accommodation constant currency ADRs and also due to 5 points from strong flight bookings across the group partially offset by 15 percentage points of negative impact from FX movements. Our accommodation constant currency ADRs benefited by about 1 percentage point from regional mix and about 28 percentage points from rate increase across all our regions. Despite the higher ADRs in the fourth quarter, we have not seen a change in the mix of hotel star ratings being booked or change in length of stay that could indicate that customers are trading down. We continue to watch these dynamics closely. Airline tickets booked in the fourth quarter were up about 2.9% versus a small base in 2019 and up about 61% versus 2021 driven by the continued expansion of Booking.com’s flight products. Revenue for the fourth quarter was up 21% versus 2019 and up about 35% on a constant currency basis. Revenue as a percentage of gross bookings was about 130 basis points below Q4 2019 and was about in line with our expectations. Our underlying accommodation take rates were about in line with Q4 2019 levels. Marketing expense, which is a highly variable expense line, increased 32% versus Q4 2019. Marketing expense as a percentage of gross bookings was about in line with our expectations and with Q4 2019. Sales and other expenses as a percentage of gross bookings were up about 40 basis points compared with Q4 2021 and was in line with our expectations. About 42% of Booking.com’s gross bookings were processed through our payments platform in Q4, up from about 30% in Q4 2021. Our more fixed expenses in aggregate were up 24% versus Q4 2021, which was higher than our expectations primarily due to changes in FX in the quarter. Adjusted EBITDA was over $1.2 billion in the fourth quarter, which was 3% below 2019 and would have been around 16% above 2019 on a constant currency basis. Non-GAAP net income of $957 million results in non-GAAP EPS of about $25 a share, which was up 6% versus Q4 2019. On a GAAP basis, we had net income of over $1.2 billion in the quarter, which included a $240 million pre-tax gain related to the sale of our office building for Booking.com’s future headquarters in a sale leaseback transaction as well as $179 million unrealized gain in our equity investments, primarily related to Meituan, JD and Grab. When looking at the full year, we are pleased to report that our 2022 room nights were 6% higher than 2019 and our gross bookings were 26% higher and about 36% higher on a constant currency basis. Our full year revenue was over $17 billion, which was 13% above 2019 and up about 24% on a constant currency basis. Full year revenue as a percentage of gross bookings was 14.1% in 2022, which was lower than the 15.6% in 2019 due to almost a full point negative impact from timing, about 40 basis points from the slow recovery in our advertising and other revenues, which have no associated gross bookings and about 30 basis points from an increased mix in flights. The benefit of take rates in 2022 from increased revenue from payments was offset by our increased investments in merchandising, each of which impacted our reported take rates by about 1 percentage point in 2022 compared to about 0.5 percentage point each in 2019. These changes in payments revenue and merchandising costs versus 2019 are mainly at Booking.com. Our full year adjusted EBITDA was about $5.3 billion, which was 10% below 2019 and up about 6% on a constant currency basis. Adjusted EBITDA margin was 31%, which was 4 points higher than our EBITDA margin in 2021 and better than our expectations for a few points higher at the start of the year. Now on to our cash and liquidity position. Our Q4 ending cash investment balance of $15.2 billion was up versus our Q3 ending balance of $11.8 billion driven primarily by the $3.6 billion bond offering we completed in Q4, the $2.1 billion of free cash flow generated in the quarter, and about $600 million in proceeds from the sale leaseback transaction I mentioned previously. This increase in our cash balance was partially offset by about $2.3 billion in share repurchases in Q4 and by the payment of about $780 million in November debt maturity. For the full year 2022, we generated almost $6.2 billion in free cash flow, which was 38% higher than in 2019. We repurchased over $6.5 billion of our shares in the year and reducing our year end share count by 8% versus 2021 and by 22% over the last 5 years. We are proud of this accomplishment, because it reflects both our commitment to return capital to shareholders and how carefully we have managed our stock-based compensation expense and its dilutive impact. We continue to see many publicly traded companies pro forma out the very real expense associated with stock-based compensation. We strongly disagree with this approach, and therefore, every profit metric we report includes the negative impact of stock-based compensation expense. We view SBC expense as a very real cost of doing business across every stakeholder should fully count when evaluating the performance and returns of our business or any business. If anything, we view SBC dollars even more valuable than cash dollars because of our long-term expectation that dollars worth of stock to-date will be worth more in the future. It’s the same expectation that serves as the rationale for pursuing our share repurchase program, a program that has meaningfully reduced our share count over time has not just served to offset dilution from SBC. Simply offsetting dilution does not represent a return on capital to shareholders, but actually represents a cash drain on our business that does not get counted in many companies’ pro forma reporting of profits. In 2022, our stock-based compensation resulted in less than 0.7% of shareholder dilution. And during the last 5 years, it resulted in less than 3% of cumulative dilution. As I mentioned, during the same period, we reduced total share count by a net 22%, inclusive of the shares that were added as a result of our stock-based compensation activities. Our future practices will continue to be guided by the same two philosophical approaches that guide us decades, namely, number one, the stock-based compensation counts; and two, that our stock repurchases, first and foremost, are meant – are actively meant to return capital to shareholders in the form of share count reductions. In January, we started to sell down our investment in Meituan and completed the sale of our position in February. Total proceeds of $1.7 billion from the sale, represents a $1.2 billion or over 250% increase in the value of our regional investments. On an after-tax basis, we expect this to increase our available cash position by about $1.4 billion. Our business partnership with Meituan continues. As we think about our capital structure and allocation framework going forward, we are focused on growing returns for our shareholders whilst appropriately investing in our business and maintaining our strong investment grade credit ratings. We will target maintaining a gross leverage ratio of about 2%, which is about in line with the historic levels. On a net leverage basis, we have started to run the business with negative net leverage. However, we plan on moving gradually through addition our positive net leverage targeting about 1x net leverage over time. We believe managing our capital structure with these targets will allow us to maintain our strong investment grade credit ratings whilst also generating additional capacity for returning capital to shareholders as our EBITDA increases. Given these considerations and our current outlook for the business, we expect our annual total return on capital to shareholders to be at least equal to our free cash flow over the next few years. In 2019, we started the year with $4.5 billion remaining under our share repurchase organization that was approved in the prior year. And in the second quarter 2019, our Board of Directors approved a new $15 billion authorization. Since the start of 2019, we repurchased the full $4.5 billion under prior authorization and have repurchased $11.1 billion under the $15 billion authorization, leaving us with $3.9 billion remaining at the end of last year. We are announcing today that our Board of Directors has approved a new share repurchase authorization of $20 billion that we will begin utilizing after we complete the current authorization. We expect to complete the share repurchases under the cumulative $24 billion authorization within the next 4 years, assuming that travel continues to recover and grow from here. Before I turn to 2023, I’d like to remind you we will primarily compare 2023 with 2022. However, there will be some periods where a comparison to 2019 will be helpful to better understand the trends of the business. For example, comparing January 2023 versus 2019 helps avoid the distortion created by – from comparing to January ‘22, which was negatively impacted by the Omicron variant. As you recall, our January 2022 room nights were 21% below 2019, but it’s quickly improved and February was in line with February 2019. So, now on to recent trends and our thoughts for the first quarter of 2023, in January, we booked over 95 million room nights, our highest monthly amount ever and about 10 million more room nights than our previous monthly record set last May. January 2023 room nights were up 60% on a year-on-year basis. This compares to Q4 2022 room night growth of 39% on a year-on-year basis. When comparing January 2023 with January 2019, room nights were up 26%, a very nice improvement from the 10% growth in the fourth quarter of 2022. This improvement in growth rates versus 2019 from Q4 January was driven primarily by Europe, rest of world and Asia. January room night growth versus 2019 was about 35% in the U.S., over 25% in Europe and rest of the world and over 20% in Asia. In January, we saw lower cancellation rates versus 2019. Additionally, we have seen the booking window fully normalized back to 2019 levels in January. And in some regions, it has expanded as we see a healthy mix of near-term bookings as well as bookings to stay late in the year. We also continue to see no change in the mix of hotel star rating levels being booked or changes in length of stay that could indicate that customers are trading down despite ADRs continuing to be higher than in 2019. The average length of stay of transaction booked in January continued to be a bit longer than it was in 2019. January likely saw some benefit from bookings that were made in the month – instead of December last year or potentially later in this year. This may indicate the room night growth could moderate from these levels going forward as some of these booking pattern differences normalize. On a year-on-year basis, January gross bookings were up 74% or up 83% on a constant currency basis. The 74% increase in gross bookings is 14 percentage points higher than 60% room night growth due to 13% higher constant currency ADRs and also due to a few points from flight booking partially offset by 9 percentage points of negative impact from FX movements. Gross bookings in January were up 55% versus 2019 or up 72% on a constant currency basis. While there continues to be uncertainty around the month-to-month trends, our comments for the first quarter made the assumption that room night growth for the fourth quarter will be over 30% year-on-year. Compared to 2019, this will be just over 20%, assuming some moderation in growth from what we have seen over the last few weeks. We expect Q4 gross bookings to grow about 4 percentage points faster than room nights on a year-on-year basis due to about 6% higher constant currency ADRs and a couple of points from continued flight bookings partially offset by about 6 points from FX. We expect Q1 revenue as a percentage of gross bookings to be about 10.3%, a 40 basis point improvement from Q1 2019 due to a less negative impact on timing, partially offset by increased investments in merchandising and a higher mix of clients. We expect Q1 marketing expense as a percentage of gross bookings to be slightly lower in Q1 than in Q1 2022 due to increase in direct mix. Marketing and merchandising combined, as a percentage of gross bookings in Q1, will be a little higher than in Q1 2022, but for the full year, we expect them to be about in line with last year. We expect Q1 sales and other expenses as potential gross bookings to be about 30 basis points higher than in Q1 2022 due to higher gross merchant bookings mix and higher third-party core costs, including the impact of our partnership with Majorelle. We expect our more fixed expenses in Q1 to grow just over 20% versus Q1 2022 due to higher personnel and related expenses, indirect taxes and IT expenses. Taking all this into account, we expect Q1 adjusted EBITDA to be over $600 million, which will represent a more than 93% increase versus Q1 2022. As we think about the full year ahead, we’re encouraged by the strong trends we’re seeing in Q1 so far. However, we do expect continued volatility in our top line trends, which makes it very difficult to predict how the top line will progress during the year and how the full year will turn out. Assuming a moderation in growth from current levels and taking into account the more difficult comparisons as we move through the year, our full year commentary assumes low-teens gross booking growth versus 2022. Of course, it’s early in the year, but this is our best estimate at this point in time. For the full year, we expect our 2023 revenue as a percentage of gross bookings to be about 50 basis points higher than in 2022, which will result in year-over-year revenue growth is higher than our year-over-year gross bookings growth. We expect the negative impact on timing to mostly go away in 2023, and we also expect that our payments mix will continue to add to take rates. Partly offsetting these are continued increases in the mix of flights in our business, an increase in merchandising spend versus 2022. We expect marketing and merchandising combined as the percentage of gross bookings will be about the same as in 2022. We expect our more fixed expenses in 2023 to grow about 20%, which is similar to the growth last year. We expect these more fixed expenses to grow more slowly in future years. As a result, we expect to deliver a record level of EBITDA in 2023 while continue to expand our EBITDA margins by a couple of percentage points versus 2022. In closing, we are pleased with our Q4 results and the early trends we’re seeing in 2023. We remain confident that our strategic priorities will enable us to provide better services for our travels and partners. We continue to remain focused on building a larger and faster-growing business than we have pre-COVID that delivers more and faster growing EBITDA dollars and more and faster growing earnings per share with industry-leading EBITDA margins. We will now move to Q&A. So Chris, can you please open the lines?

Brian Nowak:

Great. Thanks for taking my questions. Congratulations, David. I have two questions, one sort of blocking and tackling and one big picture. Just the first blocking and tackling one, as you’re thinking about the low teens gross bookings for this year, can you just sort of walk us through how you’re thinking about your best guess or your base case on ADRs around that model? Then the second one, kind of more big picture. There is a lot of discussion or speculation about search and potentially travel search becoming more sophisticated because of new AI tools. How do you think about Booking.com’s position in that world and sort of the ability to continue to grow the percentage of business that’s direct if the search model becomes a little more comprehensive? Thanks.

Glenn Fogel:

Brian, why don’t I take the second one. Obviously, a lot of hype about AI right now, about generative AI. And I guess hike is a good word when we talk about are we on the Gartner hike cycle right now. I’m not sure – I don’t think we’re into that froth of dissolution yet. I think we’re still probably in the peak of inflated expectations, but there is no doubt this technology has seems to be accelerating all the time. And I think you may be limiting the question on those because it’s not just how is AI going to impact search down the road, it’s just AI in general. And we have been talking about this for some time always. I happened to be listening to our call from 3 years ago. And I talked about what we are doing – AI. I talked about our [indiscernible] center, I talked about the things we’re doing, how important it was to develop our machine learning capabilities and all the things that we do and Booking Holding’s using AI to improve the product, improve what we’re presenting to our customers, working with our partners better using AI. So there is a tremendous amount of interest, of course, in all these areas and some of the stuff we see is very interesting. But I think it’s going to take some time – but something – there is going to be major changes in your specific question about search, no doubt it’s going to make it better. In terms of your question, how are we going to be positioned for these changes, I think the best thing anybody could do is look back at the past. There is been lots of technology changes since we first started our business over 20 years ago. And as those changes happened, we adapted and developed. We did great when, for example, people went from just desktop to mobile. And we were very good coming out with these new AI machine learning tools to be able to predict what would be best for our customer. I would say that our capabilities are as good as anybody else’s and we will adapt and do very well with these new technologies. So I am confident in the future, and I am not scared, I’m actually encouraged by being able to use all of these new tools to provide a better service for both sides of the marketplace.

Operator:

Thank you. Your next question comes from Mark Mahaney, Evercore. Mark, please go ahead.

Glenn Fogel:

Thanks, Mark. In regards to China, obviously, there is a lot of excitement about China, too, dropping the restrictions in terms of being able to travel due to COVID, getting everybody very excited about what does that mean. And not just for travel, of course, just reducing those restrictions is increasing GDP in China and what that’s going to do in terms of demand for all sorts of things and what’s that’s going to do to inflation, and how is it going to impact the rest of the world economies. In terms of your specific question, you’re correct. We were a small player in terms of the overall Chinese travel business before the pandemic. In terms of the future, yes, there is an opportunity there, and there are a lot of outbound travelers who definitely are hoping that they can go outbound and travel soon. I don’t think it’s going to happen nearly as quickly as I think some deals have been predicting. When you look at some of the numbers out of January in terms of the amount of outbound airlift available was a teens number, I think maybe it was 15% of what it was in 2019 in terms of the actual lift that you can get out of China. So I think it’s going to take some time for that. Now in terms of how we can take advantage of the increase that is going to happen in future, we’re going to use pretty much the same placement we use pretty much everywhere, albeit China is a little different because there is not Google there. But in terms of marketing, meaning people are aware of all the great products that we offer and be able to competitive pricing, all things any consumer cares about, whether you’re in China, Europe, U.S. or wherever in the world, we will keep doing those things. I know it’s not – China is a very competitive market. And it’s going to take some time. And as we said when we talked about our priorities, you’ll note that we take U.S. I don’t say China, but I would like to be able to say, look, we have been able to be successful in gaining market share in the U.S. over the last few years. I think everybody can see those numbers. So – yes, we will try and do better than we did in the past in China, but I don’t think anybody should start going to the bank with any expectations of significant improvements anytime in the near-term. What’s your second question or was that – that was second question?

Glenn Fogel:

Well, we want to increase our market share everywhere, of course. The reason we kept calling out the U.S., the U.S. very similar to Europe in many ways. And we had noticed how underindexed we were there. That’s not quite the same case when we look around the world, albeit in right now, except in China, which we noted. We do fairly well in a lot of parts of the world, but there is nothing that we pull out separately and say, hey, here’s another area where we’re going to really press hard to try and do better at. We’ve kind of do what we’ve been doing throughout the world for a long time, it’s gaining share everywhere.

David Goulden:

Mark, thank you. Just to add to comments. Relative to what we’re seeing in January, we saw obviously a nice improvement in the Asia region compared to Q4. That is not being driven by China. That’s been driven by the other markets in the Asia region. China is a small contributor to that improvement so far.

Operator:

Thank you. Your next question comes from Lloyd Walmsley, UBS. Lloyd, please go ahead.

David Goulden:

Yes. Lloyd, let me take the first part of that. So I think I kind of went through a little bit of this in the commentary, but there is a lot of numbers in the commentary with all the comparisons of versus last year versus 2019, etcetera. So relative to the 50 bps of improvement this year, essentially, the timing drag on take rates last year has basically gone – almost entirely gone away. So there was about a point of timing last year that goes away. And also, we get a little bit of an increase from payments as payment mix increases. The offsetting amount to those get you to the plus 50 is that we have continuing this year at the same level of merchandise we exited last year out, broadly speaking. So you get a year-on-year impact of merchandising that’s a negative and flight mix as well. So that’s how you get to the cap plus 50 improvement from last year. So to your question on 2024 though, the timing impact has really gone away at this point in time compared to 2019, a lot less, of course, growth rate change, much more than expected during the year. So essentially, there are puts and takes along the lines. The same thing I talked about, payments, merchandising, flights, etcetera. But we don’t expect major changes in the take rate level from where we are right now. You shouldn’t be modeling big changes in to take rates because we have some things helping and we have some things that are hurting, and they are generally going to offset each of that broadly speaking at this point in time.

Lloyd Walmsley:

Okay. Any directional sense of just how you’re feeling about the aging cohorts in the market share gains you’ve had just broadly?

Lloyd Walmsley:

Okay, thank you.

Justin Post:

Thank you. Maybe one for David and one for Glenn, David, it looks like you’re getting your EBITDA back towards the 33%, maybe 33.5% range this year in guidance. How do you think about where you are now versus pre pandemic? And what are the levers going forward? And then, Glenn, I think you said AA nights were about 29% of total and that’s kind of flattish with last year. How are you thinking about your alternative accommodation business? And to the extent you can talk about it, obviously, competitive concerns, what are your big initiatives for that business this year? Thank you.

Glenn Fogel:

Regarding the alternative accommodation space, we are very pleased with what we’re doing in growing. And I mentioned in the prepared remarks some of the things that we did last year and I will repeat them all, but those are the things that we’re doing to make sure that partners, that suppliers, they want to put their properties on to our platform. And that’s the first thing. And having done that and doing that right now is that how do we get the awareness. So you noticed, for example, our Super Bowl ad, where we do include the non-hotel accommodation in that and make sure as we grow that branding throughout the year to make sure people are aware. It’s really – it’s not anything that is magic is making a product that people want to use and making a product that people who own properties want to put on our platform and then putting in the marketing to push it through. It has increased. It has not increased substantially over the years as our hotel product continues to fill rapidly too. We can have a big increase in this year of the trend of accommodations that we start growing [indiscernible] in the hotel area, but we are doing both. So that’s the point. And our thing is we know, and this is really important. We know customers come to our site, come to our app. They start a one type of property. And then they switch and they look at another one, another entirely different one. And then they go back and they come back. We really believe having both types of properties, hotels and non-hotels in the same place that enables a customer to be able to compare and interest, that’s what they cause or look at the reviews makes a better process for consumers over time. Now look, we just got a lot of the stuff out last year. And for example, I mentioned our requested book we’re still trialing that, we’re just piloting that. It’s going to take some more time. I am very encouraged by where we are and where we’re going. So I have no concerns about us continuing in the same direction.

David Goulden:

Thank you, Justin.

Eric Sheridan:

Thanks so much for taking the questions. Glenn, your comments around the competitive intensity that you faced in I’d love to look backwards as the first part of the question and sort of reflecting back on ‘22, how you saw the competitive intensity of the industry broadly evolve against the backdrop where sort of pent-up demand was sort of a bit of a tailwind for the industry from a growth perspective. And as you look forward into ‘23 and beyond as demand somewhat normalizes away from the pent-up dynamic. How should we be thinking about some of those key initiatives you’re most focused on to sort of meet where you see pockets of competitive intensity against a more normalized demand environment? Thanks so much.

Eric Sheridan:

Great. Thank you, Glenn.

John Colantuoni:

Great. Thanks for taking my question. So marketing efficiency moved back to 2019 levels in the second half of ‘22 after being much higher in the first half. And I realize – some of that is just the timing of the recovery and sort of the transition to a more competitive environment that you just talked about in the prior question. But how are you thinking about balancing continued investments in customer acquisition with driving EBITDA dollars in 2023, along with the mix between sort of merchandising and marketing? So any detail there would be helpful. And then if you could give some more detail about how bookings so far in the core summer period have trended, that would be great. Thanks.

John Colantuoni:

Second part was if you could give any detail around summer bookings so far.

John Colantuoni:

Great. Thanks, David.

Kevin Kopelman:

Thanks. I want to ask about the flights initiatives. Could you update us there and what the outlook is for flights this year? And then also could you comment on the traveling?

Kevin Kopelman:

Okay, Glenn. And a quick – one other quick one, as we think about year-over-year comps as the year goes on, is it fair to think it’s – Q2 has a pretty tough comp and then the second half is more normal?

David Goulden:

Yes, if you look at year-on-year, then obviously, the comps get harder when we get past Q1, right? Q1 is going to be the easiest comp on a year-on-year basis. And the toughest quarter on a year-on-year basis will be Q2. because remember, we had that kind of early peak in travel bookings in the many time frame last year as we have – went through our non-linear recovery. We always said it would be a non-linear. So Q1 will be just comp. Q2 will be the toughest comp and Q3 and Q4 a little way between.

Operator:

Thank you. Ladies and gentlemen, that was your final question. I will now turn it back to Glenn Fogel for closing remarks.

Operator:

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Operator:

Welcome to Booking Holdings Third Quarter 2022 Conference Call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements. For a list of factors that could cause Booking Holdings' actual results to differ materially from those described in the forward-looking statements, please refer to the safe harbor statements at the end of Booking Holdings' earnings press release as well as Booking Holdings' most recent filings with the Securities and Exchange Commission. Unless required by law, Booking Holdings undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. A copy of Booking Holdings' earnings press release, together with an accompanying financial and statistical supplement, is available in the -- for Investors section of Booking Holdings' website, www.bookingholdings.com. And now I'd like to introduce Booking Holdings speakers for this afternoon, Glenn Fogel and David Goulden. Please go ahead, gentlemen.

David Goulden:

Thank you, Glenn, and good afternoon. I'll review our results for the third quarter and provide some color on the trends we've seen supply in the fourth quarter. All growth rates for 2022 are relative to the comparable period in 2019, unless otherwise indicated. Information regarding reconciliation of non-GAAP results to GAAP results can be found in our earnings release. Now on to our results for the third quarter. In the third quarter, we were encouraged to see room night growth improved to 10% in both August and September, up from the 4% room night growth we previously reported for the month of July. All regions improved in August and September relative to July. For the full third quarter, global room night growth was 8%, with Europe up high single digits, the U.S. up almost 30% and Rest of World up over 10% and Asia down mid-single digits. And September was the first month of room night growth in Asia versus 2019 as the delayed recovery continues in that region. Our mobile apps represented about 45% of our Q3 total room nights, an increase of slightly over 40% in the second quarter. Total mobile bookings represented over 60% of our total room nights in the third quarter, also an increase from the second quarter. In the third quarter, we continue to see increasing mix of our total room nights turning to us to our direct channel versus 2019 and also versus Q3 2019 and also versus Q3 2021. The international mix of our total room nights in Q3 was about 45%, in line with Q2. Our Q3 cancellation rates continue to be below 2019 levels as they were in Q2. In Q3, the booking window of Booking.com remain shorter than in 2019, similar to what we saw in the second quarter of 2022. This booking window expanding meaningfully versus the third quarter of 2021, where we saw a higher mix of near-end bookings due to the COVID-19 Delta variant wave. For our alternative accommodation in a Booking.com, our room night growth rate was 11% in Q3 versus 2019 and the goal mix of alternative accommodations was about 30%, which is slightly higher than Q3 2019. Q3 global mix was about in line with 2021. Q3 gross bookings increased 27% versus 2019 or 41% on a constant currency basis. The 27% increase in gross bookings was 19 percentage points better than the 8% room night increase due to 28% higher accommodation constant currency ADRs and also due to 4 points from strong flight growth bookings across the group, partially offset by the 14% points of negative impact from FX movements. Our accommodation constant currency ADRs benefit by about 2 percentage points from regional mix and about 26 percentage points from rate increases across all of our regions, most notably in Europe and North America. Despite the high ADRs in the third quarter, we have not seen a change in the mix of wholesale star ratings being booked or changes in length of stay that could indicate that consumers are trending down. We'll continue to watch closely. Airline tickets booked in the third quarter were up about 235% versus a smaller base in 2019 and up 45% versus 2021, driven by the continued expansion of Booking.com's flight offering. Revenue for the third quarter was over $6 billion, which was up 20% versus 2019 and up about 34% on a constant currency basis. Revenue as a percentage of gross bookings was about 110 basis points below Q3 2019 due to a number of factors, including investments in merchandising, which are consistent with our prior commentary about the opportunity for us to lead into a recovering travel market in 2022 and also due to an increase in the mix of flights, the slower recovery of our advertising and other revenues, which have no associated gross bookings and some negative impact from FX rates. Q3 take rates were down more than our expectation of being down about 70 basis points, primarily due to timing differences between gross bookings and revenue recognition, driven by the improved bookings in Q3, some of which relate to travel in future quarters. Our underlying accommodation take rates were about in line with Q3 2019 levels. Marketing expense, which is a highly variable expense item, increased 27% versus Q3 2019. Marketing expense as a percentage of gross bookings was about in line with Q3 2019, which was better than our expectations, mainly due to higher-than-expected direct mix. As expected, our marketing ROIs were lower than in Q3 2019, which was in line with our strategy to lead into a recurring travel market in the Q3 peak season. Sales and other expenses as a percentage of gross bookings were up about 40 basis points compared to Q3 2021, which was in line with our expectations. About 40% of Booking.com's gross bookings are processed through our payments platform in Q3, up from almost 1/3 in Q3 2021. Our more fixed expenses in aggregate were better than our expectations of 17% versus Q3 2021, primarily due to a slower-than-expected ramp into our IT expenses and lower-than-expected personnel expenses. Adjusted EBITDA was $2.7 billion in the third quarter, which is better than our expectations and about 7% above 2019 and would have been about 25% above 2019 on a constant currency basis. Non-GAAP net income of $2.1 billion results in non-GAAP earnings per share of about $53 per share, which was up 17% versus Q3 2019. On a GAAP basis, we had operating income of $2.6 billion in Q3. We recorded GAAP net income of $1.7 million in the quarter, which includes a $336 million unrealized loss on our equity investments, primarily related to Meituan as well as $125 million expense related to an ongoing French tax matter. Now on to our cash and liquidity position. Our Q3 ending cash investment balance of $11.8 million was down versus our Q2 ending balance of $14.2 billion, primarily driven by about $2 billion in share repurchases in Q3 as well as the unrealized losses on our equity investments. The $2 billion in share purchases in Q3 was a step-up from the $1.3 billion in Q2 as we increased the pace of our repurchases given the pullback in our share price. In October, we repurchased another $595 million worth of our shares, which brings our year-to-date repurchase up to about $4.8 billion and our remaining outstanding authorization to about $5.6 billion. As Glenn mentioned, we reduced our share count by 5% since the end of last year. And over the last 5 years, we reduced our share count by 20% despite suspending our share buyback activity for 21 months during COVID-19 pandemic. With negative $95 million in free cash flow for the third quarter, our earnings for the quarter were offset by about a $2 billion decrease in our deferred merchant booking balance following the peak travel season in Europe and North America. Now on to recent trends on our fourth quarter. We estimate that October room night increased about 12% versus 2019, a slight improvement from the 10% growth in September, driven primarily by the continued recovery in Asia as well as a slight improvement in Europe. In October, all regions were above 2019 levels. The U.S. was of almost 35%, Rest of World was up high teens, and both Asia and Europe were up high single digits. ADR growth has remained around Q3 levels, and we estimate gross bookings were up about 30% in October, which includes negative impacts from FX pressures. We estimate that constant currency gross bookings were up just over 45% in October. While there continues to be uncertainty in the near term, our comments for the quarter make the assumption that room night growth for the fourth quarter will be about 10% above 2019, which is in line with levels of growth we've seen over the last 3 months. Compared with room night growth in Q4 versus 2019 would also be an acceleration on a year-on-year basis from 31% growth in Q3 2022 versus Q3 2021 to 39% growth in Q4 '22 versus Q4 '21. We expect the strength in ADRs we've seen in recent months to generally continue for the remainder of the fourth quarter as well as continued growth in by bookings. We expect about a 15% difference between the level of room night growth and gross booking growth, less than 19% gap in Q3 due to more FX pressure in Q4. We expect FX to pressure gross bookings growth versus 2019 by about 18% in Q4. We expect Q4 revenue as a percentage of gross bookings to be about 120 basis points lower than Q4 2019 due to investments in merchandising, an increase in mix of clients and negative impact from timing differences between gross bookings and revenue recognition. We expect Q4 marketing expense as a percentage of gross bookings to be a bit higher than in Q4 2019 as we expect to continue to invest in capturing demand and increasing awareness due to continued global recovery of travel demand. We expect Q4 sales and other expenses as a percentage of gross bookings to be about 40 basis points higher than Q4 2021 due to higher merchant gross bookings mix and higher third-party call center costs, including the impact of our partnership with Majorelle. We expect our more fixed expenses in aggregate will be about 20% higher than in Q4 2021, with personnel, G&A and IT each up similar percentage year-on-year. Taking all into account, we expect the Q4 adjusted EBITDA to be over $1.1 billion. If it were not for the impact of FX, we expect Q4 adjusted EBITDA to be above Q4 2019. We are maintaining our full year adjusted EBITDA margin commentary and still expect EBITDA margin for 2022 to be a few points higher than in 2021. And if not for the impact of timing, our expectations for the full year adjusted EBITDA margins would be higher by another few points. For the full year, we expect our revenue as a percentage of gross bookings to be just over 14%, lower than our prior expectations for mid-14% range, due primarily to timing differences between gross bookings and revenue recognition, driven by stronger bookings than previously expected, some of which are related to travel expected to occur in 2023. Compared to the 15.6% take rate in 2019, the expected take rate in 2022 includes almost a full point of noted impact from timing, about 40 basis points from a slower recovery in advertising and other revenue, which have no associated gross bookings and about 30 basis points from increased mix of flights. The benefit to take rates in 2022 from increased revenues associated with payments is offset by our increased investments in merchandising, each of which impacts our reported take rates by about 1% in 2022 compared with about 0.5% each in 2019. These changes in payment revenues and merchant costs versus 2019 are mainly on Booking.com. Looking forward into window months, the booking window continues to be shorter than it was in 2019, which means that we would expect lower levels of future stays already on our books. Given this, we are pleased that the gross bookings we've already received at Booking.com for in Q1, up about 25% in euros versus the same time in 2019. Of course, we note that high percentage of these bookings are cancellable. While this represents a relatively small percentage of the total revenue we record in Q1, we think it's a helpful early data points to share. In closing, we're pleased with our Q3 results and the trends that we're seeing into Q4 and early into 2023. We remain confident that our strategic priority is the right ones and will enable us to provide better travel services for our customers and partners. We'll now move to Q&A. And Sylvie, can you please open the lines?

Lloyd Walmsley:

All right. Two, if I can. First, it sounds like you're not seeing any consumer weakness right now, but are there any actions you're thinking about taking or approaches to the cost to batten down the hatches ahead of what could be a tough year from a macro standpoint? And maybe help us think about fixed cost growth and marketing posture for next year? And then second one would just be, can you give us an update on payments monetization and profitability? I appreciate some of the added disclosure you gave us this quarter. But maybe where are we in the rollout of FX translation? And how should we think about impact of that on take rates and profitability maybe over the next year or so?

David Goulden:

Yes. Thank you, Glenn. I just point that about two-thirds of our expenses are variable, which is caused a very important starting point. We, of course, do look at the fixed payments costs very carefully, but just put that into context. And then also just to clarify, the 25% is actually a Booking.com global number, not just Europe, it's around the whole business. So I think Glenn said what we need to say about the expense side. We will -- we have an agenda to move forward, we really want to continue enhancing our products and services and obviously, that requires continued investments and movement towards further important payments that the connected trip. Relative to the payment platform, of course, we are pleased with the progress. We did give you some additional delay, as you mentioned. So you get a feel for what the revenues are for payments now, also you get a feel of what the corresponding expenses are in sales and others that offset those revenues. Because as we said, this year, we're running the payments platform at about breakeven when you look at revenues and you subtract the sales and other expenses. What I'll also tell you is that relative to 2019, payments is having about 0.5 basis points or about 0.5 point impact on our EBITDA margins as that mix of revenue has increased our breakeven or at mix revenue has increased. Now of course, back in 2019, we actually weren't a breakeven, but the combined impact of where we were to where we are now is about 0.5 point of headwind on our margin, but of course, is giving us additional capabilities. Going forward, room night has not changed. So we do expect to turn to profitability in that combination of payments platform, a combination of revenues, less sales and expenses in 2023. We are rolling out FX and other services on a market-by-market basis. And of course, testing levels we always do before we continue to push them further. We have an exciting road map. It's a multiyear road map for payments. I don't expect anything to change very rapidly in the course of 12 months, it will be a course of multiple years. But if you look at the sources we can provide for our business today in terms of reducing friction for customers and bookers and then we can look at how payments can really help underpin the factor in the future, we're very encouraged and excited about it. I think with the additional disclosure we give you today will be help have a more constructive dialogue upon how it's doing going forward against those benchmarks.

Brian Nowak:

I have two. I appreciate the color on the U.S. almost growing 30%. I guess -- the question on the U.S. as you're sort of looking at the different regions of the globe from a profitability perspective, can you just help us understand where you are at this point from the U.S. from a profit contribution perspective? Or is it still sort of very much in investment mode to drive growth? And how do you think about the path to making that a more -- a more profitable region for the company? And the second one, I'm going to mispronounce it. It's a Majorelle and Majorelle, I apologize. David, can you just talk us again about how do we think about the puts and takes or potential tailwinds of that arrangement into 2023 to the P&L?

Operator:

Next question will be from Kevin Kopelman at Cowen. Please go ahead.

Glenn Fogel:

One, I just mentioned in general and then if David want to state specific. Look, marketing for travel is always extraordinarily competitive. It's never not competitive. No matter what channel you're spending your money, it's competitive. And we're always trying to make the right judgment and how much money to spend, what we think the ROI is going to be and looking into it for the long view in terms of what this does in terms of our overall building the franchise. I can't give any specifics in terms of up and down. David can talk about percentages of the amount of marketing spend we've been doing versus gross bookings over the last couple of years. But again, the market is never less competitive. It's always competitive, and I think we have performed very, very well regardless.

Kevin Kopelman:

Just a kind of a separate follow-up on investment levels. Can you talk about just how headcount has been trending? Kind of what you're doing now in terms of hiring? And any color on how that looks over the next year?

Operator:

Next question will be from Mark Mahaney at Evercore. Please go ahead.

Glenn Fogel:

Mark, so you're very right about the importance of the mobile app, and I say that every single prepared remarks call we do, I always mentioned it's an important part of our platform. How we are doing is by creating a great experience for the people who are using it. That's the same thing we all think you're trying to get somebody uses provide a great experience will come back and they'll tell all the people, et cetera. We're not necessarily doing anything really different than anything anyone else does, but just doing it well. In terms of when do -- what would be the top level for it? That's hard to say because as the people who create these mobile devices continue to prove upon it and people find it more advantageous to use that versus their desktops, it's hard to say, but it could be an extremely high number that people go to the mobile device. Now our job is to make sure people use our app use mobile web search where we have to pay, which is one of the key things. We mentioned, I think, over 60% of our business was going in mobile, but 45% is at the app. So obviously, we want to make anybody using the mobile device. We want them to use the app is how to direct them. Regarding flights, I should have checked countries. I haven't done that recently. It's an awful lot, but some of the areas is a relatively low amount because there's very little awareness. I think, for example, I give you an extreme. I know we brought up Pakistan, not that long ago, not a lot of flights yet in Pakistan, but we are getting out there. The key thing for us again is creating a better experience. And I'll be honest with you. Our flight product is not yet, what I would say, as good as it should be. We continue to improve upon it, make it better than it's been in the past, providing the features that some other of our competitors offer up to consumers that we don't do yet that we want to offer. So there's a lot of upside left in this, I think a tremendous amount of upside. And the numbers are still, while we like the growth rates, it's still relatively small.

Justin Post:

Great. One for Glenn. Obviously, merchandising, I think you all at a one point headwind, payments might be offsetting. But can you explain why you think that's a good thing to do? Is it training the consumer? Is this something you have to comp next year? Why do you like that aspect of the business? And then maybe for David, assuming we don't have a real unusual year for travel. As you think about the unwind of the timing differences and the added marketing spend this year, how do we think about those kind of unwinding next year? And then maybe last, if you want to call anything about 1Q. I remember, I think we had a real COVID slow start to the quarter and then bookings really accelerated in March. If there's anything unusual in Q1 we should be thinking about.

David Goulden:

Yes. Thanks, Glenn. Yes, in terms of -- just as looking forward, on the timing side, I mentioned the timing is costing us about 1 point of take rate this year. We think we have most of that back next year, maybe not 100% of it. There probably be some timing impact. But again, it's really a function of what the growth rates look like going into and going out of the year, but assume we get most of that back. On the marketing and merchandising side combined, that's where we've been leading in this year to really take advantage of a recovering marketplace. We certainly will be deleveraging on those lines further next year. But we want to see really what the market looks like in terms of how much recovery there is left to get it sort of recovering interact travel recovery. There are a few things that have not yet gone back to where they were before. So we'll look at exactly what the right level of investment is. And if we feel that we continue to gain share, we believe we're gaining this year, we believe we gained share last year. We share gains in outlets we have that we may maintain those levels for a while until we get back to a more normal market growth rate. And we'll give you more thinking on where we are on that spectrum when we get together in February we completed our planning process for the year, and we've got a bit more visibility into next year. And then finally, on your Q1 question, yes, Q1 last year was unusual. Omicron was really having an impact. We'll have to see exactly what happens the different variants that are out there this year. We wanted to give you that stats about 25% more gross bookings on the books. For next year, we had the same half of '19 for the first quarter of 2020 as a way to understand the book is building quite nicely for Q1. Obviously, there's a lot of ground to happen between now and their store represents a relatively small percentage of what we'll do in total in Q1 for revenue, but we think it's a -- it's a positive stat. And if a stat we gave out a couple -- actually for the last two quarters and the number was more like 15% forward growth, not 25% and in both cases, the revenue for the quarter wound up being a fair amount higher than our early indicator as those books built. Now again, don't forget -- I'm talking about the euro number, just to be clear, was 25%.

Doug Anmuth:

I have two. I know you indicated you're not seeing hotel trade down or shortening of trips. I just wanted to clarify, is that the case across all geographies? And do you have any more relative stability in the U.S. versus other regions? And then secondly, how should we think about ADR growth? I know you said it continues to be strong. But as you look into '23, just factors around FX and any relevant mix factors and like-for-like potential pressures as well?

David Goulden:

Yes. On the mix -- on the trade down, Doug, as you mentioned, we're not seeing that in Europe to be perfectly clear because that's where sometimes people are asking the question, but we're not seeing global either. So it's just not factor, but particularly, it's also not a factor in Europe either. On the ADRs that we got some takes into next year, we'll talk in constant currency because it's difficult to know exactly how exchange rates are going to move on us. We're not really -- so the 28 points of constant currency ADR mix we saw in Q3, and we saw continued roughly same level into October was 26 points from rates and only 2 percentage points from mix. So as ADR continues to rebound, we'll lose that 2-point of mix, which is really what's driving right now, the fact that Asia had a lot of mix down it used to be. So that will go away. But obviously, most of what we're seeing is rate driven. And as we talk to our property partners, they continue to be facing the same expense pressure and inflation pressures that made people face you in terms of utility, energy, labor, et cetera. So we'll see how the environment develops and we have no other color on that to give at this point in time. We'll update you again when we get to February, if we see anything differently.

Eric Sheridan:

Maybe a few, if I can, on the alternative accommodation space where you made some interesting comments there. When you think about supply growth, are there any areas of either geographic focus or mix or types of properties or types of duration stays that are levels of target for supply growth as you look out into '23 and beyond in terms of alternative accommodations? Is there any color also you can give us on, as you have more of that type of supply to show that the consumer what that might do to either a traffic conversion or ROI in the platform as you have a wider array of inventory to show the consumer? And the last piece for you, is there any element of either mix or size of the business you're sort of thinking about in terms of striking the right balance between traditional inventory and alternative accommodation inventory over the long term?

Operator:

Next question will be from Naved Kahn at Truist Securities. Please go ahead.

Glenn Fogel:

I'll let Dave talk about stat you want to revolve about urban or. But in term of the app, I'll give you one right off the bat that I think is a -- and again, I look at it as a traveller, I say, what am I missing? Why am I not getting this? Something is simple as, as you know, we have attraction, so we're building that up right now. But in destination, I need to have things being popping up on my screen from our app, telling me great things to do, maybe the discount or skip a line, things that will make somebody say, "Gee, using Booking.com for this travel experience is much better because I'm getting so much more." And I can go through so many different examples of that. The great thing about the mobile app is in people's hands or in their pocket book or in their pocket, they're carrying it with them. And that gives us the connection to be able to provide better service, better things to do, better value. And that's why it's such an important part of this connected trip vision. David, I don't know if you want to give anything from any steps?

Operator:

Next question will be from Lee Horowitz at Deutsche Bank. Please go ahead.

David Goulden:

Yes, Lee, I really try to talk about 2023 margins today. That's really a conversation for next February, but maybe longer term, is a place to have to kind of recap on what we're thinking and save the 2023 commentary for them. So as we said, the -- our strategy here is to build a better product and service for customers and partners. So they'll come back to us more frequently and more directly. And obviously, our direct mix is super important and direct mix is tied heavily to frequency and to people who do more with. People who bought a buy multiple things from us are much more likely to come back to us directly in the through the pay channel. So yes, of course, there are some headwinds to our volume profile because of our business mix changing and is changing from almost the pure accommodation business, having a higher mix of payments, a high mix of flights and those are of course lower margin businesses, we've had that conversation before. But most important thing we can do to kind of keep our margins in a strong position is to continue to drive that mix of direct up, and that will impact all parts of the business. But as we said before, we'll be industry-leading profitability and margins. Because of the mix factors, we do not have a -- we believe that medium term, the margin will be a little bit lower than they were in 2019, but we'll have a faster growing business with more EBITDA, more earnings per share that's growing faster than the top line and bottom line, we think that's the most important thing.

Mario Lu:

The first one is on the room night guide in the fourth quarter, the 10% for 2019. I guess, can you talk a little bit more about what you saw in October? Did the trends within the month get worse as we exited the month? Just trying to tie that 10% versus 12% in October? .

Mario Lu:

And then just one on alternative combinations. You guys mentioned as a percentage of total, it's around 30%, slightly higher than 3Q '19. I guess, are there any low-hanging fruit or opportunities ahead to kind of increase this percentage over the next couple of years?

Operator:

Your last question will be from Stephen Ju at Credit Suisse. Please go ahead.

Glenn Fogel:

Yes. So let me talk in general about why we have different brands. We have different brands because they offer a different user experience to the consumer and the different things that they are aiming to do different strategies. We really -- we totally understand the issue of are we calling excess cost? Are there ways to save money by doing things that are not duplicative? So we are -- we understand that. We are working all the time looking at those things that we can try and improve upon. But at this time, I do not see any reason I'd want to separate out and say, well, we're going to at one of these and just go under one brand. Some of our competitors have done that. And to me, that may be there -- our strategy is to continue with the differentiation among these brands and continue to build them out the way they're doing them. In terms of the actual North U.S. for Priceline versus booking, I don't believe we never disclose anything of that nature. So I think we're going to sit tight with that and keep going the way we are.

Glenn Fogel:

Thank you. And I want to thank our partners, our customers, our dedicated employees and our shareholders. We appreciate your support as we continue to build on the long-term vision for the company. Thank you, everyone, and good night.

Operator:

Good afternoon, everyone and welcome to Booking Holdings’ Second Quarter 2022 Conference Call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guaranteed of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements. For a list of factors that could cause Booking Holdings’ actual results to differ materially from those described in the forward-looking statements, please refer to the Safe Harbor statements at the end of Booking Holdings’ earning press release as well as Booking Holdings’ most recent filings with the Securities and Exchange Commission. Unless required by law, Booking Holdings undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. A copy of Booking Holdings’ earnings press release, together with an accompanying financial and statistical supplement, is available in the For Investors section of Booking Holdings’ website, www.bookingholdings.com. And now, I would like to introduce Booking Holdings’ speakers for this afternoon, Mr. Glenn Fogel, CEO and Mr. David Goulden, CFO. Go ahead, gentlemen.

David Goulden:

Thank you, Glenn and good afternoon. I will review our results for the second quarter and provide some color on trends we have seen so far in the third quarter. All growth rates for 2022 are relative to the comparable period in 2019 unless otherwise indicated. Information regarding reconciliation of non-GAAP results to GAAP results can be found in our earnings release. Now, on to our results for the second quarter. Room nights in the second quarter were up 16%, a 25 point improvement from Q1 and our first full quarter of room night growth versus 2019. On our May earnings call, we discussed how we started off the quarter with a 10% increase in room nights for the month of April, which was a 14 point improvement from March. As we move into May, we saw further strength in room nights resulting in 22% growth for the month. June room night growth of 14% landed between April and May. For Q2 on a regional basis, room nights in Europe were up over 20%. The U.S. was up about 30%. Rest of world was up in the mid-teens, and Asia was down high single-digits with all regions improving from Q1 levels. The improvement from Q1 was helped by all regions with Europe and Asia contributing the most. Mobile bookings, particularly through our apps, represents about 60% of our total room nights in the second quarter. Our apps were over two-thirds of our mobile bookings and over 40% of total room nights, which was in line with the first quarter. In the second quarter, we continued to see an increasing mix of our total room nights coming to us through the direct channel versus Q2 2019 and versus Q2 2021. The international mix of our room nights in Q2 was about 45%, an increase from about 40% in Q1. Q2 international room nights were up mid single-digits compared to Q2 2019 levels, which was the first quarter of growth versus 2019 for international. And these international room nights drove most of the overall improvements in room night growth from Q1 to Q2. The improvement in international room nights we saw continue to be driven by travel within Europe and these cross-border room night bookings continue to have on average longer length of stay and a shorter booking window than comparable bookings in 2019. In Q2, we also saw an encouraging improvement in long-haul international room nights, which almost recovered to 2019 levels. We saw very strong growth in our domestic room nights in the second quarter, also an improvement from Q1. We were pleased to see our cancellation rates below 2019 levels in Q2. You will recall our Q1 cancellation rates were about in line with 2019. In Q2, the booking window of Booking.com moved closer to 2019 levels than it was in Q1, but remained shorter than 2019 across all major regions. The booking window expanded versus the second quarter of 2021. Our alternative accommodations of Booking.com, our room night growth rate was 25% in Q2 versus Q2 2019 and the global mix of alternative accommodation room nights was about 32%, which was about in line with Q2 2021 and a couple of percentage points higher than Q2 2019. Within Europe, our mix of alternative accommodations continues to be meaningfully higher than the global average. In North America, our mix of alternative accommodations remains low relative to global average. However, we did see an encouraging increase in mix versus Q2 2021 in that region. Q2 gross bookings of about $35 billion increased 38% versus Q2 2019 or 48% on a constant currency basis. The 38% increase in gross bookings was 22 percentage points better than the 16% room night increase due to 25% higher accommodation constant currency ADRs and also due to a few points from strong flight booking growth across the group partially offset by the 10 percentage points of negative impact from FX improvement – from FX movements. Our accommodation constant currency ADRs benefited by about 2 percentage points from regional mix and about 23 percentage points from rate increases across all of our regions, most notably in Europe and North America, especially in high-demand, leisure-oriented destinations. Constant currency ADR growth versus 2019 accelerated from 18% in Q1 to 25% in Q2 due primarily to higher rates in Europe. Despite the higher ADRs in the second quarter, we have not seen a change in the mix of hotel start rate levels being booked or changes in length of stay that could indicate that consumers are trading down. We will continue to watch these dynamics closely. Airline tickets booked in the second quarter were up about 190% versus a small base in 2019 and up 31% versus 2021 driven by the continued expansion of Booking.com’s Fly platform. Consolidated revenue for the second quarter was $4.3 billion, which was up 13% versus 2019, up about 20% on a constant currency basis. Revenue as a percentage of gross bookings was about 275 basis points below Q2 2019, down more than our expectations due primarily to the timing differences between gross bookings and revenue recognition driven by stronger bookings than we expected in Q2. Our underlying accommodation take rates were about in line with Q2 2019 levels. Marketing expense, which is a highly variable expense item, increased 27% versus Q2 2019. Marketing expense as a percentage of gross bookings decreased by about 40 basis points versus Q2 2019, which is better than our expectations, mainly due to higher than expected marketing ROIs in a high-intent travel environment. Additionally, our direct mix was a little higher than we expected. Sales and other expenses were up 87% versus Q2 2019 due to a higher volume of merchant gross bookings and higher third-party call center costs. 38% of Booking.com’s gross bookings were processed through our payments platform in Q2, up from 16% in Q2 2019. Compared with Q2 2021, sales and other expenses as a percentage of gross bookings were up about 40 basis points, slightly better than our expectations of up 60 basis points. Our more fixed expenses in aggregate were better than our expectations, up 7% versus Q2 2021 primarily due to a slower-than-expected ramp-up in terms of our G&A and IT expenses. Adjusted EBITDA was $1.1 billion in the second quarter, which is better than our expectations. If we were to normalize for negative timing impact on revenue in the second quarter, our adjusted EBITDA would have been meaningfully higher than in Q2 2019. In addition, the changes in FX rates are negatively impacting the translation of our EBITDA to U.S. dollars. Our Q2 EBITDA would have been about 10% higher if FX were in line with Q2 2019. Non-GAAP net income of $776 million results in non-GAAP EPS of about $19 a share, which is down 19% versus Q2 2019. On a GAAP basis, we had operating income of $1 billion and net income of $857 million in Q2. Now, on to our cash and liquidity position. Our Q2 ending cash investment balance of $14.2 billion was up versus our Q1 ending balance of $12.8 billion, primarily driven by $2.6 billion of free cash flow, partially offset by about $1.3 billion in share repurchases in Q2. The increase in free cash flow included a $2.1 billion benefit from change in working capital due to the increase in our deferred merchant bookings and other current liabilities, partially offset by the increase in our accounts receivable. We continue to return capital to shareholders and more recently have increased the pace of our repurchase given the pullback in our share price. In addition to the $1.3 billion of share repurchase in Q2, we repurchased another $840 million of our shares in the month of July, which brings our year-to-date repurchases to just over $3 billion and our outstanding authorization to about $7.4 billion. Given our recent increased pace of share repurchases, we now believe we will complete our current authorization in about 2 years from when we started the repurchasing back in January. Now on the recent trends occurred for the third quarter. Juliet room nights increased about 4% versus 2019 or about 7%, excluding Russia, Belarus and Ukraine. Growth fluctuated a bit in July and were strong in the second half of the month versus the comp we reached in 2019. ADR growth remained at Q2 levels, and gross bookings were up just over 20% in July, including some help from flights, partly offset by negative impacts of FX pressure. In July, constant currency gross bookings were up about 35%. Compared with June, growth rates in July moderated in all regions with North America showing the smallest change. In July, Europe room night growth was up mid-single digits and up low double-digits, excluding Russia, Belarus and Ukraine. Growth in the U.S. was up 25%. Rest of world was up low single digits, and Asia was down about 10%, all versus 2019. When thinking about the rest of Q3, we realized there continues to be volatility in the environment, and our commentary assumes that room night growth for the fourth quarter will be at the same level we saw in July. We do expect the strength in ADRs restore in July to continue for the remainder of the third quarter as well as continued strength in price and flight bookings. We expect the difference between the level of room night growth and gross booking growth for the fourth quarter to be a few percentage points less than the 22% it was in Q2 due to factors, including more FX pressure in Q3. We expect FX pressure gross bookings by about 12% in Q3. In July, the overall booking window Booking.com remained strong than it was in 2019, similar to Q2. We expect Q3 revenue as a percentage of gross bookings to be about 70 basis points lower than in Q3 2019 due to investments in merchandising, consistent with our prior commentary about the opportunity for us to lean into a recovering travel market in 2022 and due to an increase in the mix of flights and some impact from FX rates. We expect our underlying accommodation take rates to remain stable. We expect Q3 marketing expense as a percentage of gross bookings will be slightly above Q3 2019 as we expect to invest in capturing demand and increasing awareness during the peak travel season. We expect Q3 sales and other expense as a percentage of gross bookings to be about 40 basis points higher than it was in Q3 2021 due to higher gross booking mix and higher third-party call center costs, including the impact of our partnership with Majorelle. We expect our more fixed expenses in aggregate will be about 20% higher than Q3 2021 with personnel up about 10% and both G&A and IT up meaningfully versus Q3 of last year. The year-on-year increase in G&A is driven by higher dual sales taxes, which are tied to revenue as well as increased personnel-related expenses due to return to a hybrid work environment. We expect IT expenses to increase year-over-year at a similar rate to what we saw in Q2. Taking all this into account, we would expect Q3 adjusted EBITDA to be slightly above Q3 2019. As I noted for Q2, the comparison of our Q3 EBITDA expectations to Q3 2019 is negatively impacted by changes in FX rates. At current exchange rates, we expect that our FX-neutral Q3 EBITDA growth versus 2019 will be about 15 percentage points higher than our expectation on a reported basis. We know there is a lot of interest in what will happen beyond the summer. Booking.com’s gross bookings for the Q4 travel period are over 15% higher than they were at this time in 2019 but with a high percentage of cancelable bookings. The booking window is still shorter than it was in 2019, which reduces the amount of gross bookings that we expect on the books for Q4 at this time. The shorter booking window limits our visibility into Q4, and we recognize that conditions could change rapidly. Please note these Booking.com gross booking trends for Q4 period are on a euro basis. On a dollar basis, these growth rates would be about 10 percentage points lower. We are maintaining the full year EBITDA margin commentary we provided in February and May, and we still expect EBITDA margin for 2022 to be a few points higher than in 2021. As a reminder, timing mainly impacts adjusted EBITDA and EBITDA margins for the year. If it were not for the impact of timing, our expectations for the full year EBITDA margins would be a few points higher than our guidance for the year. As the year has progressed, we revised our allocation of our growth investments between marketing and merchandising. We now expect marketing spend as we’re saying to gross bookings to be about the same as it was in 2019 and expect to spend more on merchandising. This higher merchandising, along with a higher-than-anticipated mix of flights and some negative FX impact, means we expect our take rates for the year will now be in the mid 14% range. Our underlying accommodation take rates remain about the same as we were in 2019. In conclusion, we’re encouraged by our strong Q2 results and by the continued growth above 2019 levels we have seen in July. We remain confident that our focus on customer acquisition and our strategic priorities is the right approach for 2019 – sorry, for 2022. We will now take your questions. Michelle?

Mark Mahaney:

Let me ask two questions, please

David Goulden:

No.

Operator:

Your next question comes from Justin Post of Bank of America. Please go ahead.

Glenn Fogel:

Yes. So actually, your last question actually applies to the earlier part, which is part of our decision how we spend our money, whether it be dollars, euro again, whatever, how do we spend it? To point people to our platform and get them to buy something is factored by what do we think we’re going to get in terms of the return. And when they return is, are they going to come back? Or else they going to come back? Are they coming back direct or not? Do they now make want to pay from the cannot? All of these types of things go into our calculations around our machine learning, all the science we bring in to try and decide what is the best use of the money? And we’re looking, obviously, the markets are dynamic. I haven’t used that word in a while, but we’re going to use it today right now. These markets are dynamic. And whether it’s a performance marketing market you’re looking at or any other type of market in terms of what is the best way to put that money to work to get the best long-term value for our company. And that’s what we’re doing right now. And clearly, David pointed out that we’re leaning more toward some merchandising right now because we believe that is the appropriate use of our money right now to get the best return in the long run for the company. And obviously, one factor is getting to come back again and again, and that’s the important point in trying to make sure that we use the money correctly.

Glenn Fogel:

Well, I’m going to say that we believe the repeat rates are appropriate for the money we’re spending, and we’re comfortable with how we’re spending it. How about that?

Operator:

Your next question comes from Lloyd Walmsley of UBS. Please go ahead.

David Goulden:

Yes. Lloyd, let me take both of those. So our goal is absolutely to when we have a fully recovered marketplace, whenever that is, and that gets back to your question about 2023, will that be the case? We don’t know yet. But our view is that when we get back to a more stabilized market growth level, at that point in time, we would expect to be growing fast than we were in 2019. That’s still very much our strategy, our statement based upon the things that Glenn talked about moving forward with the product, building out the connected trip, having a more comprehensive offering and also doing more with payments, which gets back to the second part of your question. So that goal is absolutely out there. Our goal is to be growing on the top line and the bottom line faster than we were in 2019 when we’re into a fully normalized recurrent market environment. So we believe that we can do that. In terms of where are we on the payments platform, we continue to be pleased with the progress that we’re making. We expect to run our payments platform very close to breakeven this year. And we expect to start seeing some positive returns to the payments platform in aggregate in 2023. Some of that will just come through better economics in the core processing of payments, and some of that would be from starting to introduce in a bit more scale. Some of the payment-oriented products that we’re currently experimenting rolling out, we’re currently working on FX options for our customers, paying your own currency-type solutions, buy now, pay later type offerings. Those are the first two we’re experimenting with in different markets right now. We expect to roll it out a little bit more fully in 2023. And the combination of that and some things will also add in 2023 on top of that will move us into a positive position relative to getting a return from payments platform next year.

Operator:

Your next question comes from Kevin Kopelman of Cowen. Please go ahead.

Glenn Fogel:

Did you guys – he kind of broke up.

Kevin Kopelman:

Sorry, so if you could dig into the high-intent environment that you described in the second quarter and how – what the drivers were and how that has looked into the third quarter.

Kevin Kopelman:

Great. And then a quick follow-up on the merchandising in the mix, how should we be thinking about that as a percentage of the mix? What is the kind of level you’re looking at? And would you – as it’s gotten more important, is this something you consider disclosing?

Kevin Kopelman:

Apologies. So, could you give us a sense of merchandising, how big it could be in the mix or what you are envisioning? And then as it’s become more – is it something you would consider disclosing? Thanks.

Glenn Fogel:

I would say one thing in turn generally in merchandise. But in general, when we talk about one of the values in the connected trip, and I mentioned in my prepared remarks about providing a marketing platform for suppliers to be able to do what they feel is appropriate in terms of maximizing their value and us providing them an opportunity to do their own way to merchandise and offer up different types of offers to our customers. And we will use all sorts of important scientific analysis of where it’s really incremental for them. And that I believe is something that’s going to be very helpful going and run, particularly if we are in a less of a hot market where everybody feels we can sell at maximum price. When things start getting a little more interesting, that will be another opportunity for us to provide value to our supplier partners.

Kevin Kopelman:

Appreciate it.

Brian Nowak:

Thanks for taking my questions. Good evening guys. So, just a couple I wanted to follow-up on. Pretty strong U.S. numbers and you are talking about the 30% growth and even the 25% growth in July. Maybe just talk to us about what are sort of some of the unique drivers around that U.S. business at this point. Are you seeing outsized Genius adoption? Is the merchandising having an impact there? Is air a disproportionate driver? Like what is sort of one or two of the key funnel drivers you are seeing in the U.S. for that type of growth is the first one. And then the second one, and maybe you said it, I know you guys gave so many helpful numbers. Can you just sort of talk to us about the growth rates you are seeing on cross-border travel versus intra-continental travel across the entire company? Thanks.

David Goulden:

Yes. Thanks, Glenn. Brian, yes, on international travel, Q2 is probably the best place to come look because we have got the full quarter numbers to talk about. International, that was the first quarter that we saw growth in international travel in total vis-à-vis 2019. So, in Q2, international travel in total was a mid-single digit growth. Of course, the room nights in aggregate were up 16 points. Obviously, domestic was still strong, very strong, but it was the first quarter we saw return to growth of international travel in aggregate. And to your point, within international travel, we saw better-than-average growth in the – within regional travel, so travel within Europe and Asia, etcetera. And the long-haul international travel was still down mid-single digits, but was – still was almost recovered back to 2019 levels. So, I think it’s an encouraging trends as we move through the quarter. As I mentioned, in terms of the overall improvement from Q1 to Q2, international travel drove most of that improvement.

Operator:

Your next question comes from Doug Anmuth of JPMorgan. Please go ahead.

Glenn Fogel:

So, a couple of thoughts about ADR. Obviously, we talked about ADR, a very global average-type thing. But it’s interesting, when you look around the world, it’s not the same everywhere. In Asia, very different than what’s happened in States, let’s say, differences in Europe, too. It is interesting that in almost all the time I have been in the travel industry, when you had lower occupancy rates, that would usually end up with lower ADRs. People try to fill up those last rooms because the margin that would drop to the bottom line was huge. Yet, that is not what’s happening here. You see occupancy rates, for example, in the States, still not at historical highs, yet we all know ADRs certainly are. And that’s an interesting change from how they have been in the past. And now your question is a good one. Well, what’s going to happen in the future? Are these things going to come back – are these ADRs going to come back down now at some point, if demand does drop, are we going to see that come back down, or are the hoteliers going to continue what they have been doing with us saying, look, I can’t even service for all of my rooms. So, I am not going to try and fill them. But I don’t want to know on labor or labor cost. It’s better or doing better by doing this higher ADRs and not trying to fill everything. That’s happening in some of the places. The truth is, nobody knows what’s going to happen in the future. I do know, though, that we have flexibility ourselves, that we work well when there is – ADRs are high, as you have seen with the numbers we just printed, which is great. And also when ADRs are dropping because the suppliers need more demand, we are there to help them. We did better than most of the people in the industry coming straight out of the depth of the pandemic because we worked really hard with these suppliers to find a way to get the demand, and we did that. And that’s really our role with them is to make sure we are putting heads and beds for them at the price that they think is right. And that’s what we are going to continue to do. So, I can’t tell you what’s going to happen in the future. I can tell you, we will continue to execute well under either scenario.

Doug Anmuth:

Great. Thank you, both.

Naved Khan:

Yes. Hi. Thanks a lot. Glenn, in the past, heat waves have hurt bookings. I go back to 2018, 2019, I think that has happened. And this year, do you think there is any impact on the heat wave or maybe flight cancellations in the July trends that you just shared? And just give us your thoughts on that. And then if we just look at the U.S. room night growth, how should I think about the contribution from get it room? Is that – how much of a factor is that?

David Goulden:

Sorry. Fine. It’s only a few points of incremental growth in the U.S.

Naved Khan:

Yes. It’s really about if there is any impact from either the heat wave in Europe or flight cancellations that we are seeing in the July numbers, just give us some color.

Naved Khan:

Great. Thank you for your thoughts.

Unidentified Analyst:

Thanks for taking my question. This is Jack Halpert on for Deepak. I just wanted to ask, can you guys talk about any shifts in the consumer demand you are seeing between your alternative accommodations and hotels booking as things sort of normalized a bit from COVID? Thanks.

Unidentified Analyst:

Got it. Thanks so much.

Lee Horowitz:

Thanks for the questions. Two, if I could. Can you comment at all on how hotel attach rates are pacing for your air product relative to your expectations and how you think about continuing to improve those from here? And then just one on costs, if I could. Just given the directional commentary you have given us on fixed costs for this year, looking beyond this year, how do you think about the kind of sustainable level of fixed cost growth into a more normalized demand environment? Thanks so much.

David Goulden:

Yes. On my side, obviously, the base element in our fixed cost is personnel. And in recent years, with the current inflation rates and obviously wage inflation, that has been pressured particularly for tech and technology people and product people, the marketing folks, etcetera, engineers. So, that’s been under pressure for a little while. We believe that when we get back to this post-COVID steady state and we get to the situation where we are gaining share, growing top line faster than we used to grow in the bottom line faster than we used to, we believe that we can start looking at the right time of getting leverage from our fixed costs. But at the moment, we are obviously facing some short-term pressures.

Operator:

Ladies and gentlemen, I will now turn the conference back to Mr. Glenn Fogel for closing remarks.

Operator:

Ladies and gentlemen, this concludes your conference call for this afternoon. We would like to thank everyone for their participation and ask you to please disconnect your lines.

Operator:

Welcome to Booking Holdings First Quarter 2022 Conference Call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantee of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied, or forecasted in any such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements. For a list of factors that could cause Booking Holdings' actual results to differ materially from those described in the forward-looking statements, please refer to the safe harbor statements at the end of Booking Holdings' earnings press release, as well as Booking Holdings' most recent filings with the Securities and Exchange Commission. Unless required by law, Booking Holdings undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. A copy of Booking Holdings' earnings press release, together with an accompanying financial and statistical supplement, is available in the For Investors section of Booking Holdings' website, www.bookingholdings.com. And now I'd like to introduce Booking Holdings speakers for this afternoon, Glenn Fogel and David Goulden. Go ahead, gentlemen.

David Goulden :

Thank you, Glenn and good afternoon. I'll review our results for the first quarter and provide some color on trends we've seen so far in the second quarter. All growth rates for ‘22 relative to the comparable period in 2019 unless otherwise indicated. Information regarding reconciliation of non-GAAP results to GAAP results can be found in our earnings release. Now on to our results for the first quarter. On our February earnings call we discussed the improved in trends we've seen so far in 2022. With room nights getting back to about flat versus 2019 in the first half of February after declining 21% in January just hours after our earnings call on February 23, the terrible news broke the Russia invaded Ukraine. As a result, we saw an immediate negative impact on room night trends, particularly in Eastern Europe. Despite this impact towards end of the month, room nights for the full month of February came in about in line with 2019 levels. In early March, we suspended the booking of travel services in Russia and Belarus. This led to a loss of new bookings, as well as significantly elevated levels of cancellations of reservations for these countries. Additionally, we saw some slowdown in booking trends within Europe, as travelers took in the news of the invasion. We disclosed that total room nights for the week ending March 6, were down about 10%. And that slowdown was driven by Eastern Europe, primarily Russia, and to a lesser extent by Western Europe, which remained mostly above 2019 levels. I'm pleased to say that compared with the first week in March, we saw our overall trend improve during March driven mainly by Europe, resulting in room nights been down about 4% for the month, which is only a modest pullback from where we were in February. For the first quarter, room nights were down 9%, an improvement from down 21% in Q4. And our best quarter results since the onset of the pandemic. Excluding Russia, Ukraine and Belarus, our room nights were down about 2% in March and down about 6% for the first full quarter. But Q1 on a regional level room nights in Europe and the rest of the world were both down mid-single digits. Asia was down about 35% with all three improving from Q4 levels. The US has strong growth versus Q1 2019 similar to what we saw in Q4. Mobile bookings primarily through our apps represented about 6% of our total room nights in the first quarter. Our apps were over two thirds of our mobile bookings and over 40% of total room nights. In the first quarter, we continue to see an increase mix of our total room nights coming through as the direct channel versus Q1 2019 and Q1 2022. The International mix of our total room nights in Q1 was about 40%, an encouraged increased from about 33% in Q4. Q1 International room nights were down about 30% compared to Q1 2019 levels, an improvement from the almost 40% -- for the almost 50% decline in Q4. The improvements in international bookings we saw continue to be driven mainly by travel plans within Europe. And these cross border bookings continue to have on average, longer length of stay and a shorter booking window and comparable bookings in 2019. We saw strong growth in our domestic room nights for the first quarter also an improvement from Q4. Our cancellation rates were about in line with 2019 levels in Q1 despite the impact of the Russian invasion of Ukraine. The booking window in Q1 of Booking.com contrasted less versus 2019 than it did in Q4. And this booking window expanded versus the first quarter of 2021. For our alternative accommodations at Booking.com, the global mix of room nights increased to about 31% in Q1, a couple points higher than 2021. Within Europe, our mixed alternative accommodation continuously, meaningfully higher than the global average. Gross bookings increased to 7% in Q1 versus 2019 and were up 10%, excluding Russia, Ukraine and Belarus. This 7% increase in gross bookings were 16 percentage points better than 9% room night due to 18% higher accommodation constant currency ADRs and also due to strong flight bookings across the group, partially offset by about four percentage points of negative FX movements. As Glenn mentioned in his remarks, the $27 billion of gross bookings in Q1 is a new record for us higher than the previous record at $25 billion in Q1 2019. On March 2022 was the first month our gross bookings exceeded $10 billion in a single month. This was up 17% versus March 2019 and compared to up 18% in February and down 11% in January. Our accommodation constant currency ADRs benefited by about three percentage points from regional mix and about 15 percentage points from rate increases in most of our regions. Notably, most notably Europe and North America, and especially in higher demand leisure oriented destinations. Constant currency ADR growth versus 2019, accelerated from 13% in Q4 to 18% in Q1, primarily due to higher rates in New York. Airline tickets booked in the first quarter were up 152% versus 2019 and up 69% versus 2021, driven by continued expansion of Booking.com site platform, as well as continued flight ticket growth at Priceline. Consolidated revenue for the first quarter was $2.7 billion, which was down 7% versus 2019 and down about 2% on a constant currency basis, revenue as a percentage of gross bookings was about 150 basis points below Q1 2019 in line with our expectations, due primarily to differences between gross bookings, the timing differences between gross bookings and revenue recognition. Our underlying accommodation take rates were about in line with Q1 2019 levels. Marketing expense, which is a highly variable expense line decreased to 4% versus Q1 2019. Marketing expense as a percentage of gross bookings decreased about 50 basis points versus Q1 2019, which is better than our expectations, mainly due to unexpected marketing ROIs. Sales and other expenses were up 58% versus Q1 2019 due to a higher volume of merchant gross bookings and higher third party call center costs. About 34% of Booking.com’s gross bookings were processed through our payments platform in Q1, up from 13% in Q1 2019 compared to Q1 2021, sales and other expenses as a percentage of gross bookings were about 30 basis points higher. Our more fixed expenses in aggregates were about in line with our expectations, up 12% versus Q4 and up 17% versus Q1 2021. Adjusted EBITDA was $310 million for the quarter, which was better than our expectations due to unexpected ADRs. And the better than expected leverage of our variable expenses. However, sequentially EBITDA was down 67%, which is significantly more than the seasonal decline you saw pre-COVID and aligns with our commentary in February. Non-GAAP net income of $161 million results in non-GAAP EPS of $3.90 which was down 65% versus Q1 2019. Our Q1 non-GAAP tax rate of 16% was lower than 19% in Q1 2019 due to a great impact from a discrete tax benefit on a lower base earnings. On a GAAP basis, we had operating income of $174 million in Q1. We recorded GAAP net loss of $700 million in the quarter, which included an unrealized loss on our strategic investments of about $987 million and a $36 million loss on assets held for sale related to the Majorelle strategic partnership we discussed last quarter. Now on to our cash and liquidity position. Our Q1 ending cash and investment balance of about $12.8 billion was down versus our Q4 ending balance of $14.3 billion, primarily driven by the payments of $1.1 billion for a margin debt maturity, about $950 million in share repurchases in Q1 and the declining value of our strategic investments. These factors which reduce our cash investment balance were partially offset by positive free cash flow of about $1.6 billion, which was driven almost entirely by change in working capital, resulting from an increase in our deferred merchant bookings balance. As we disclosed, on last quarter we started returning capital to shareholders in early January. And in addition to share purchases in Q1, we repurchased about $325 million of shares in April, which brings our outstanding authorization to just over $9 million. As we said before, we expect to complete our remaining authorization within the next three years. Now moving on to our thoughts for the second quarter, April room nights increased about 10% versus 2019, an improvement from the 4% decline in March, driven primarily by Europe, excluding Russia, Ukraine and Belarus, April room nights increased about 16% versus 2019. All regions show improving room nights growth in April. Europe was up high teens percent in April and up about 30% excluding Russia, Belarus and Ukraine. Growth in the US was very strong, rest of world had doubled digit growth, and Asia recovers to down high teens percent all versus 2019. The international mix of our room nights in April was over 45% and encouraging increase from the 40% in Q1. April international room nights were down slightly compared to 2019 levels, an improvement from down 30% in Q1. International demand driven mainly by travel plans in Europe accounted for most of the improvements in room nights in April versus Q1. Domestic room nights also improved in April to very strong growth versus 2019. April gross bookings increased over 30% versus 2019, driven by growth in room nights continued accommodation ADR strength, as well as continued strength in flight bookings. April gross bookings increased to almost $11 billion, which was a new monthly record. April gross bookings typically declined from March pre-COVID. While it's encouraging to see continued improvements in trends into April, the environment is still uncertain and difficult to predict with confidence how room nights for the remainder of the quarter will develop. While many countries are lifting their list of travel restrictions, COVID is still a factor which can impact travel and of course, the war in Ukraine continues to create volatility and macro uncertainty. We do expect the recent strength in ADRs to continue for the remainder of the quarter. And as a result, we expect the difference between the level of room nights growth and gross bookings growth for the full second quarter to be around 20 points, which is similar to what it was in April. In April, the overall booking window Booking.com continue to move back closer to 2019 levels. We continue to see strength in our summer booking trends, and our gross bookings for summer are now more than 15% higher than they were at this time in 2019. And within Western Europe and North America both of over 30% albeit with a higher mix of cancelable bookings. If the current trends continue, we could see a record summer travel season and we're gearing up to prepare for that across all parts of our business. Turning back to Q2, given recent booking trends combined with lengthening booking window, we expect Q2 revenue as percentage of gross bookings to be about 200 basis points lower than it was in Q2 2019. This 200 basis points of difference in revenue as a percentage of gross bookings is mainly timing related, and the impact could be greater if booking trends accelerate from April, especially if a high percentage of these bookings were staged in future quarters. The timing impact on take rates in Q2 is driven by a combination of the acceleration in gross bookings from up 7% in Q1 to up over 30% so far in Q2 coupled with the lengthening booking window from Q1 to Q2, we expect our underlying accommodation take rates to remain stable. We expect marketing expense percentage of gross bookings to be slightly higher than in Q2 2019, which is consistent with our prior commentary about the opportunities for us to lean into recovering travel market in 2022. We expect Q2 sales and other expenses as a percentage of gross bookings to be about 60 basis points higher than it was in Q2, 2021 due to higher virtual booking mix and higher third party call center costs. We expect our more fixed expenses in aggregate to be about 15% higher than in Q2 2021. With personnel down slightly on both G&A and IT up meaningfully versus Q2 last year. The overall year-on-year increase in G&A is driven by higher digital sales taxes, which is tied to revenue as well as increased office expenses due to return to hybrid work environments. We expect IT to increase year-over-year at similar rates to what we saw in Q1. If we were to see similar top line growth rates for the rest of the quarter we saw in April, we'd expect adjusted EBITDA to be over $900 million for the quarter. The expected timing difference between gross bookings and revenue which is the primary driver are expected 200 basis points lower take rate than Q1 2019 will have a significant negative impact on EBITDA in Q2 as our more variable expense lines are linked to bookings. If we normalize the timing impact on our take rates in Q2 2022 to be the same as it was in Q2 2019, adjusted EBITDA in Q2 2022 will be slightly higher than it was in Q2 2019. Now turning to the enhanced strategic partnership with Majorelle we discussed last quarter. As a reminder, Majorelle one of our most trusted long term external customer support partners will begin employing most of the customer service representatives and previous work for Booking.com outside of the Netherlands and the UK. We currently anticipate finalizing sponsorship around the middle of the year. And following the anticipated closing on a quarterly basis in the second half of 2022, we expect the personnel expenses will be lowered by about $25 million a quarter, but G&A expenses will be lower by $6 million a quarter. And our external expenses will increase to offset the lower personnel and G&A expenses. As we said last quarter, we did not anticipate much of an impact on adjusted EBITDA in 2022 from this initiative beyond 2022. We believe this partnership will help reduce further expense growth and enable a more efficient ramp up of our customer service function. Outside of the P&L geography changes to the personnel G&A and sales and other expense line from Majorelle, we are maintaining the full year P&L commentary we provided last quarter. As a reminder, the expected timing, we expect timing to know the impact take rates. The precise impact timing on our take rates for the year is difficult to predict as it is impacted by the rate of recovery of bookings coming into and during the year. And also by the length of booking windows during the year. We do know the relative to 2021 there was a negative impact on our take rates due to timing in Q1 2022. Our current best estimates of take rates in 2022 is just below 15%, which is lower than 2019 primarily due to timing. We expect the underlying accommodation take rates will remain stable. Timing also negatively impacted adjusted EBITDA and EBITDA margins for the year. If not impacted timing our expectations for full year EBITDA margins will be a few points higher than our guidance for the year. We're encouraged by our better than expected Q1 results and the strengthening trends we've seen in April, and we are confident that our focus on customer acquisition and expanding our product offerings is the right approach for 2022. We’ll now take the questions. Shawn, over to you, please for Q&A.

Lloyd Walmsley:

Alright, thanks for taking the question, two, if I can, first, on the April trends in bookings in room nights, those sound nicely ahead of where street estimates are for the whole quarter. So is there any reason to think that you won't continue to build from April in terms of kind of thinking about monthly comps or anything else we should keep in mind, pull forward or pent-up demand. And then secondly, helpful color on the revenue take rates and the EBITDA impact from timing, I guess, how do we think about that as we work into next year. Should take rates at least kind of like for like accommodation normalized to 2019 levels next year? And does that EBITDA headwind of few points on timing does all of that unwind you think as we get into 2023, any help you can give us on the kind of margins and how they progress further would be great. Thanks.

David Goulden :

Maybe, Glenn, just maybe a couple extra points on what we're seeing in April and March, we did see a steady progression from that first week in March where things were minus 10, up through March and April on a fairly steady basis, week on week. But as Glenn said, there's still a lot out there and the environment it’s hard to predict. I would call it this Easter happened in April in both periods. So there's no Easter effect there relative to the growth rates versus 2019 August 2021 for that matter, either. Relative to longer term take rates. And I explained on the call, take rates are the impact timing on take rates is a mathematical impact of the difference between the amounts that you spill into the year from the prior year, and the amount you still out in the current year into the next year. And of course, that can be variable based upon effects. We saw this year, we said that there was a hurting Q1 on timing effects on take rates, because that's when Omicron basically came up with into Q4, and that results in less booking still into Q1 than we would expect. So it's really going to be a function of how the recovery develops in total in terms of how rapidly things recover, and also just the timing of that recovery. So as growth rate starts to normalize, and get back to more normal level, you expect the impact upon the take rea, the timing impact on take rates to come down. But then there could be some additional factors that could impact those specific things relative to what happens about the prior Q4 going into Q1, and the next Q4 going into the future Q1. So normally, and as the growth rates start to normalize the roles of revenue growth rates and booking growth rates start to align more, there will be less effect. But there could still be unusual effects they have, like what we've seen before that could impact the specific timing of Q1 and Q4, and the relative difference between those quarters across the years.

Brian Nowak:

Great. Thanks for taking my questions, guys. I have two, first one, David, I think last quarter, you talked about some like shape of the year comments, you talked about marketing as a percentage of gross bookings be a little higher than was in ‘19, et cetera. And sales and other expenses and sort of thoughts about that as far as your bookings? Yes, I know there was a lot of pieces with ADRs, moving around and et cetera. But can you just sort of maybe tell us your latest thoughts about some of those metrics on marketing spend for the year and sales and other for the year, however, you want to kind of help us think about it a little bit. And then Glenn, good to hear about traction you're making on payments and flights, et cetera. I guess, talk to us about on the connected trip front, which of the initiatives you think is most likely to really have a meaningful impact on the P&L as soon as maybe 2023 from an incremental dollar perspective. Thanks.

David Goulden :

Yes, Brian, let me go first. So with the exception of the mechanical movements, I'll talk about how they impact things little bit, the mechanical moves relative to Majorelle, which are basically just P&L geography movements. We're not, I'm not changing what we said last time. We do expect some deleverage in marketing to gross bookings for the year. We said we expected in Q1 to be relatively flat, we were a little bit better that we were actually 50 points – 50 bps leveraging in Q1 due to a higher ROI, but we did say we'd be leaning into the busy travel season more in Q2 and Q3. So we're still expecting to see some level of deleverage during the year and also increased spending on merchandising, sales and others, we still expect that to be about 50 bps for the year that’s tied to payments, the mechanics of the Majorelle adjustment with moving those additional expenses into [Indiscernible] would be less than 10 bps although that are adjustments again as to TGV. So essentially, with the exception of the mechanical movements, what we talked about for the last, what we talked about quarter go for how we see the year shaping up, we still expect to see the shaping up the same way. And of course, I've given you some additional color on take rates we didn't provide last quarter so that gives you a little bit more color than we gave you on quarter because we now know what happened in Q1 so we can give you a bit more guidance around that.

Operator:

Our next question comes from Kevin Kopelman from Cowen.

Glenn Fogel:

So let me tell you in general, and David, I'm not sure you want to talk in terms of any sort of numbers and levers or whatever. But yes, we are very pleased with what we're seeing. But I believe it's a combination of many things that we're working on is really is a game of execution in the small details, means you're working with partners and getting the right price, the right inventory. And then it's making sure we're showing it to the customer at the right time in the right way. And it means also doing things we're talking about with alternative accommodations, bring in a few, bringing in some incremental more supply there, making sure we're working to come up with ways that works better, so that the customers having a better experience and their payments are more smooth, et cetera. I can go through a lot of little things that we're working on. And each one builds on its own. It makes it a better experience. Now, yes, we have a brand effort in the US, as you hopefully remember back from our Super Bowl, we, I believe a very good ad and we're continuing this is not just a one and done. It's a campaign. And we tie that with some efforts in social and we're doing a lot of different things to try to increase our awareness getting that top of mind awareness in the US, for example, helping build that. But this is a global effort really, in terms of trying to build our business by doing all the little things that make it a better product, because in the long run, the better product is what's going to win. And David, I don’t know, if you want to speak anything specific in terms of ROIs or levers right there and nature.

Kevin Kopelman :

Great and could you touch on currency with the 30% GBV figure for April? Is that reported or constant currency and the dollar has strengthened since the last call. So I wanted to ask about that.

Operator:

Our next question comes from Justin Post from Bank of America.

Glenn Fogel:

Dave, why don’t you take that? And I’ll just turn my [indiscernible]…

Justin Post:

Great. And then on US share of nights, any help there?

David Goulden :

I think our view just as being that shared data, and we should look at share medium term basis, single quarter, very difficult to predict. We certainly believe that last year with our growth in the US being strong versus 2019. We certainly covered a lot faster than the market did in 2021.We were strong again in Q1 in the US market versus 2019. And very strong here in April so difficult to give you an individual share points. But when we look at the overall accommodations markets, which is a way to think about things, we know we picked up some share points in 2021. And we know -- we continuing to stay above where the market is in 2022, from a recovery point of view.

Operator:

Our next question comes from Mark Mahaney from Evercore ISI.

David Goulden :

Glenn, why don’t you go first?

David Goulden :

Yes, right. Thank you, Mark. So yes, let's not confuse the difference between impact on EBITDA margin and actual take rates, take rate percentages, what we talked about is the fact that let's go back to numbers so in 2019, and take rates blended across the year was 15.6%. In 2021, we said it was 14.3%. We said last quarter, it was somewhere between those two, this quarter, we gave you a bit more guidance, because we know more about the timing impact in Q1. So we said just below 15%. We said that impacts on the timing impact on take rates was causing a few points of EBITDA margin compression, so it will take a few so we said last quarter, and we still maintain that our EBITDA margin rates for the year will be a few points higher than it was in 2021. And what we said at the last call we clarify again today. If it wasn't for the impacts of timing the EBITDA margin would be a few points higher again on a normalized basis. So the fact that take rates are being hurt for the full year is causing us to have a few points of compression on our EBITDA margin this year, which is timing related. We did not say the take rates [Indiscernible] seen, we said that they were, would be below 15. And if you normalize from just below 15%, back to 15.6%, something like that, then that will give you those few points EBITDA margin that we talked about.

Operator:

We will now take our next question comes from Eric Sheridan of Goldman Sachs.

Glenn Fogel:

Sure. So may be talk a little bit about trying to build our supply areas where we think we need it. And I've talked about this in the past in the alternative accommodations area, where we think we are not as well positioned as some of our competitors, stating the fact particularly in the US, so we absolutely need to go out. And firstly, sure we got a product that people own properties want to put on our platform. That's kind of the new things I talked about in terms of the liability insurance, in terms of payment system that is actually workable and works well even that. But then we have to make people aware of this. And that's going out, we mentioned we have a new campaign out, we're spending money. And it's more than just marketing out there. It's actually individuals talking with the big owners of multiple, multiple properties, make sure they understand what we can bring to them. That's how we start to bring in more of that because we don't have the supply. You've never becoming business. So we do that. And then we obviously have the second the other side of this two sided marketplace, make sure that consumers are aware of this too and make sure they're coming to it. That's how we're going to do this over time. And it's obviously something that I've been talking about for a long time, I'm sure people will get a little tired of me saying it. But it's this is where we're going. I mentioned how we are, we did have a net increase in alternative accommodations, very pleased about that. And we are going to keep on building this. And it builds on itself. This is again, it's one of those things where it's like a snowball, and you need to get it rolling. And then it will build more and more faster and faster. It's going to take some time. I'm pleased with where it is, in terms of the window and may repeat that part of the question.

Glenn Fogel:

Yes, so right now, we're not seeing any shortage of supply from demand, people come in, and it's not, so they're not -- they can't find anything [Indiscernible] or the rates right now. That doesn't mean and peak summer that there won't be some shortages of inventory. But that happens every normal year when there's peak summer travel in the northern hemisphere. The most popular places will fill up and most popular low key -- and most low key properties in most popular locations are going to fill up. One of the great things that we've been doing for some time is being very flexible in offering customers when they come in, and we're not having enough inventory, we think because things are filled up there. We're offering an alternative place that they could go and stay or different locations to your property all different ways. We are doing so working more different experiments to do that. But we're not the only one to do that. That's important. You have a customer in your store, you want to sell them you don't have enough of what they want you show them something else that probably he is just like, that's what we're doing. Clearly over time what I want to do, though, is not have to have this conversation about the US that we don't have enough of the single properties on the beach and XYZ. And that's something that really what we're working on, but right now I don't see an issue right now we're having insufficient supply.

Doug Anmuth :

Great. Thanks for taking the question. I just wanted to ask about international recovery. It seems like you're suggesting it's coming more from short haul. Just curious what you're seeing in terms of long haul and how you're thinking about none of that coming back. Thanks.

Glenn Fogel:

You got, Dave, start.

Glenn Fogel:

You start.

Glenn Fogel:

And David you basically said what I was going to say, basically, we have a situation that is very tied somewhat to restrictions and is countries that are typical long haul destinations, some of them in Asia, for example, as they'll begin to lighten up and feel more confident they can go without having to do a lot of different things don't have to quarantine before, don't have to go to get a test they have done test before as these things go away, then people will travel more and more of these long haul trips. So I definitely and positive on the continued trend in this area.

Glenn Fogel:

Okay. Was that the final question?

Glenn Fogel:

Okay, thank you. As always, I want to thank our partners, but I really want to thank all of our partners who have generously contributed to our refugee platform. Also, of course, want back to customers, our dedicated employees and our shareholders. We appreciate your support as we continue to build on the long term vision for our company. Thank you all and good night.

Operator:

Welcome to Booking Holdings Fourth Quarter 2021 Conference Call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guaranteed of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements. For a list of factors that could cause Booking Holdings' actual results to differ materially from those described in the forward-looking statements, please refer to the safe harbor statements at the end of Booking Holdings' earnings press release as well as Booking Holdings' most recent filings with the Securities and Exchange Commission. Unless required by law, Booking Holdings undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. A copy of Booking Holdings' earnings press release, together with an accompanying financial and statistical supplement, is available in the For Investors section of Booking Holdings' website, www.bookingholdings.com. And now I'd like to introduce Booking Holdings speakers for this afternoon, Glenn Fogel and David Goulden. Go ahead, gentlemen.

David Goulden:

Thank you, Glenn and good afternoon. I'll review our results for the fourth quarter; provide some color on the trends we've seen so far in the first quarter and our thoughts on 2022. All growth rates for 2021 and 2022 are relative to the comparable period in 2019 unless otherwise indicated. Information regarding reconciliation of non-GAAP results to GAAP results can be found in our earnings release. Now on to our results for the fourth quarter. On our November earnings call, we discussed the improvement in trends that we saw throughout the third quarter driven by Europe, followed by a further improvement in October driven by Asia. You will recall the trends weakened in Europe towards the end of October driven by a number of countries that have seen recent increases in the Delta variant infections at that time. In November, we saw a slowdown from October in our overall trends driven mainly by Europe and this slowdown continued to worsen in December across all regions with future Omicron variant concerns. This resulted in Q4 reported room nights declining 21% versus Q4 2019 which was 11% worse than the 10% decline in October but only a few points worse than the 18% decline in Q3. December room nights were 35% below 2019. Looking across the full quarter; the slowdown in Q4 versus Q3 was driven primarily by Europe which declined about 20% versus Q4 2019, while our other regions improved in Q4 versus Q3. Compared with Q4 2019, the U.S. continued to have strong growth in the fourth quarter, while Asia was still down considerably and rest of the world was down modestly. However, as I mentioned, we saw a slowdown across all of our regions in December, most meaningfully in Europe and in the U.S. Mobile bookings primarily through our apps represented 2/3 of our total room nights in the fourth quarter and for the full year. Our apps continue to represent an increasing majority of our mobile bookings. We all continue to see greater than 50% of our total room nights coming to us through the direct channel. Our direct channel increased as a percentage of our room nights in the fourth quarter and for the full year relative to 2020 and 2019. The international mix of our total room nights in Q4 was about 33%, in line with Q3. Q4 international room nights were down almost 50% compared to Q4 2019 levels, a few points worse than the decline in Q3. We continue to see growth in our domestic room nights in the fourth quarter, also a level slightly below Q3. The December slowdown was more severe for international than for domestic. Our cancellation rates were up a few percentage points versus 2019 in Q4 and for the full year and increased meaningfully in December due to concerns about the Omicron variant. The booking window in Q4 of Booking.com was much shorter than it was in the fourth quarter of 2019 and contracted further in December as customers focused mainly on short-term travel needs. Alternative accommodation of Booking.com, the global mix of room nights is about 27% in Q4 and about 29% for the full year was in line with 2019 levels. The global mix was impacted by the underperformance of Europe relative to North America. Within Europe, our mix of alternative accommodations increased in Q4 by a couple of percentage points and for the full year, by a few percentage points relative to 2019. Gross fee declined 8% in Q4 which is less than the 21% decline in room nights due to an increase in average daily rates for accommodations on a constant currency basis of about 13% versus 2019 and very strong performance in our flights business. Our accommodation constant currency ADR benefited by about 4 percentage points from an increased mix of business in North America which is a higher-ADR region; and a decrease of mix in business in Asia which is a lower-ADR region. Excluding regional mix effects, constant currency ADRs were up about 9% driven by rate increases in most of our regions, most notably in Europe and North America and especially in higher-demand, leisure-oriented destinations. Constant currency ADRs were higher than expected due in part to continued higher rates for flexible bookings plus generally higher pricing in North America and in Europe. Airline tickets booked in the fourth quarter were up 116% and for the full year, were up 104% versus 2019 driven by very strong growth of Priceline and by-flight bookings at Booking.com. We're encouraged to see a full year of triple-digit growth from our flights business which is a key component of our multiproduct connected trip strategy. Consolidated revenue for the fourth quarter was almost $3 billion, down sequentially 36% from Q3 2021 and 11% below Q4 2019. Q4 2021 revenue was more than double the $1.2 billion of revenue we recognized in the fourth quarter of 2020. Q4 revenue was stronger than our expectation due to higher ADRs and a shorter booking window. Revenue was less impacted than bookings from Omicron in Q4. Revenue as a percentage of gross bookings was about 40 basis points below Q4 2019 which was better than our expectations as the deceleration within Q4 more negatively impacted our gross bookings than revenue in the quarter. Excluding timing impacts, our underlying accommodation take rates were about in line with Q4 2019 levels. Our full year revenue was almost $11 billion which is 27% below 2019 but improved 61% versus 2020. Full year revenue as a percentage of gross bookings was 14.3% which was lower than 15.6% in 2019, primarily due to the timing differences between gross bookings and revenue recognition. The strong revenue results in the fourth quarter helped drive adjusted EBITDA of $940 million which was 27% below Q4 2019. Sequentially, Q4 EBITDA was down 55% which is better than we expected. This was driven primarily by the higher-than-expected revenue and lower-than-expected OpEx in our more fixed expense categories. Marketing expense which is a highly variable expense line, decreased 2% versus Q4 2019. Marketing expense as a percentage of gross bookings increased slightly versus 2019, in line with our expectations. The marketing ROIs were a little lower than our expectations due to the negative impact of cancellations late in the quarter and this was offset by a higher-than-expected mix of direct business. Sales and other expenses were 21% higher than Q4 2019 due to a higher volume of merchant gross bookings and higher outsourced call center costs. About 30% of Booking.com's gross bookings were processed through our payments platform in Q4 and about 27% for the full year, up from 22% in 2020. We expected our more fixed expense categories in aggregate to be about in line with Q3 due to lower personnel costs offset by higher IT and G&A costs. They came in 10% lower than Q3 due to year-end finalization of our bonus expense accruals as well as lower-than-expected IT costs. This means our Q4 personnel expenses do not reflect our run rates going into 2022. Non-GAAP net income of $554 million results in non-GAAP EPS of $15.83 which were down 32% versus Q4 2019. Our non-GAAP tax rate of 20% was higher than 18% in Q4 2019. Our full year non-GAAP tax rate of 20% was 1% higher than in 2019 due to a high proportion of nondeductible tax expenses -- nontax-deductible expenses in relation to a lower pretax income versus 2019. On a GAAP basis, we had operating income of $848 million in Q4. We recorded GAAP net income of $618 million in the quarter which included income tax expense of $198 million. Now, on to our cash and liquidity position. Our Q4 ending cash and investment balance of $14.3 billion was down versus our Q3 ending balance of $15.4 billion primarily driven by the $1.2 billion Getaroom acquisition, partially offset by positive free cash flow of about $178 million. Two housekeeping notes about Getaroom. The first is that it closed at the end of Q4 and was not meaningful to Q4 results. The second is that we did not include the incremental room nights from Getaroom in our commentary about January and February. These incremental room nights will be included when we release our Q1 actual results. In early January, we started returning capital to shareholders under our remaining authorization and have to date purchased about $500 million. Assuming that travel recovery continues, we still expect to complete our remaining organization within the next three years. Now on to our thoughts for the first quarter. And to remind you, we'll make comparisons with 2019 unless otherwise indicated. January room nights declined about 22%, an improvement from the 35% decline in December as concerns around the Omicron variant eased. This improvement was driven primarily by a recovery in cross-border travel within the European region and domestic travel in Europe. We saw room nights trends improving throughout January and continuing into February. Our room nights in the first half of February were about in line with 2019 levels and gross bookings were higher. In the first half of February, we saw a meaningful improvement across all of our regions compared to January. The U.S. has strong room night growth versus 2019 in the first half of February, while Europe had about 10% growth. Rest of the world was up slightly and Asia was down about 35%. Our mix of international room night recovered from about 23% in December to over 40% in the first half of February which is the highest international mix we've seen since the start of COVID. As a reminder, our pre-COVID international mix was just over 50%. As I mentioned, the improvements we see in the first half of February are broad-based with large countries in Europe and international travel routes within Europe driving the largest impact. The new cross-border bookings we're seeing in Q1 in Europe on average have a longer length of stay and a shorter booking window than comparable bookings in 2019. As we've seen throughout the pandemic, when travel restrictions are lifted and traveler confidence increases, bookings improve quite quickly. Given the rapid changes during the first half of Q1, it's difficult to predict how room nights for the remainder of the quarter will develop. While it's encouraging to see the recent improvements, we are still in a potentially volatile environment with high COVID infection rates in some part of the world and geopolitical uncertainty that could impact our business, especially in Europe. So far in Q1, the overall booking window of Booking.com has contracted less versus 2019 than it did in Q4. We've seen recent strength in our summer booking trends and our gross bookings for the summer are higher than they were at this time in 2019. The summer booking trends are stronger in Western Europe, where gross bookings for the same period are up double digits versus 2019 and gross bookings for the U.S. are also higher for the summer than they were at this time in 2019. Of course, a very high percentage of all bookings for summer are cancelable, so things could change rapidly. Turning to the income statements; we expect the change in gross bookings in Q1 versus 2019 to be several percentage points better than the change in room nights due to an increase in ADRs and very strong flight bookings. Constant currency ADRs in Q1 so far have increased versus 2019 at a similar rate to Q4. We expect Q1 revenue as a percentage of gross bookings to be about 1.5 percentage points lower than in Q1 2019 as the booking deceleration in Q4 negatively impacts revenue -- negatively impact on revenue and the booking recovery in Q1 benefits revenue in future quarters. This 1.5 percentage points of difference in revenue as percentage gross bookings could be higher if booking trends increased meaningfully from the first half of February, especially if a high percentage of these bookings offer stays in future quarters. We expect margin expenses in Q1 will trend about in line with gross bookings compared to Q1 2019. We expect sales and other expense in Q1 as a percentage of gross bookings to be about the same as it was in Q4. We expect our more fixed expenses in aggregate will be about 15% higher in Q1 than in Q4 on a dollar basis due to the impact of seasonal increase in benefit costs, the 2021 year-end personnel-related accrual finalizations and the impact of planned hiring as well as increases in IT expenses, including some deferral from Q4. In my just explained and reminding you that Q1 is our seasonally lowest quarter, we expect adjusted EBITDA to be positive but down sequentially from Q4 significantly more than the sequential declines we saw pre-COVID primarily due to the impact of Omicron on Q1 revenues. As we think about the full year ahead, we're encouraged about the strong summer bookings we're seeing so far and we're optimistic about the continued recovery of later travel. However, we do expect continued volatility in our top line trends driven by COVID. There are other uncertainties on the horizon, including the current geopolitical situation which could impact travel. If we look at Russia and Ukraine combined as destination markets, they represent a very low single-digit percentage of our total gross bookings. All this makes it very difficult to predict how the top line will progress during the year and how the full year will turn out. As we think about the recovery of travel in 2022 and the opportunity in front of us, we plan to invest in marketing other incentives and improvements and expansion of our products to attract existing and new customers to our platforms and to drive additional loyalty in the future. This also requires investments in people and technology. We're excited about the opportunity to expand our business and we believe we can strengthen our position in accommodations and build a much more complete travel solution for our customers and partners. We believe this is the right thing to do for higher longer-term returns from our business. With this in mind, there are a few factors to consider when thinking about shape of the P&L for the full year. These fall into four buckets; revenue, marketing, sales and other expenses and our more fixed operating expenses. Starting with revenue as a percentage of gross bookings, we expect this to be higher in 2022 than it was in 2021 but lower than in 2019. In 2021, our revenue as a percentage of gross bookings was about 130 basis points lower than 2019, mainly due to timing differences between the recovery of gross bookings and revenue. In 2022, we expect this timing to be less of an impact than it was in 2021. Moving to marketing; there are a number of factors that come into play. We expect the environment to remain competitive, especially as the leisure travel market moves closer towards full recovery. We intend to remain disciplined in our performance marketing ROIs and we'll continue to invest in developing the medium intent social media channels and you'll see us active in branding in the U.S. and other major markets. Our goal continues to be to use our marketing strength to gain share in markets where we can with reasonable returns. We expect to run initiatives and programs during the year to attract both existing and new customers to our platforms. It's difficult to know exactly how these factors will play out across the year but we expect marketing as a percentage of gross bookings to be a little higher than it was in 2019 and also in 2021. Of course, an increasing direct mix helps our marketing efficiency and we believe the investments we're making will result in a higher direct mix over time. Turning to sales not expenses; we expect these to be up 50 basis points higher than in 2021 as a percentage of gross bookings. This is mainly from additional payment processing costs but also impacted by anticipated higher third-party customer service expenses. The additional expenses related to payments are offset by a higher payment-related revenue. The last area is our more fixed operating expenses which include personnel, G&A and IT. We expect our personnel expenses to be impacted by higher-than-average annual wage increases, especially in the product and technology areas; and by planned headcount increasing in key areas, including product and technology and bond-related functions. We expect personnel expenses to be about 10% higher than in 2021. We expect that G&A and IT will both grow faster than personnel driven by a number of factors, including digital services taxes, returning to a hybrid work environment and the investments to enhance our customer and partner-facing and internal systems. The comments we made for 2022 do not include the anticipated reduction to personnel expense and increases to sale and other expense from the enhanced strategic partnership with Majorelle that Glenn spoke about. We do not anticipate much of an impact on adjusted EBITDA in 2022 from this initiative and we'll update you again in May. Also, we expect our acquisition of Getaroom to have a small positive impact on our P&L in 2022. As Glenn noted, we expect that the Etraveli acquisition will close later this year which will result in a minor impact to the P&L in 2022. So when thinking about the shape of the P&L in 2022, these factors mean that revenue recovery will lag the gross bookings recovery and EBITDA recovery will lag revenue recovery. Some of the lag in EBITDA versus revenue is timing, i.e. the marketing we spend on bookings we expect to recover ahead of revenue. On top of this, we plan to make investments in customer acquisition and in expanding our product offerings we mentioned earlier. Taken together, we expect our EBITDA margins in 2022 to be a few points higher than we were in 2021. Looking beyond 2022, we continue to remain focused on investing to build a larger and faster-growing business with more products than we had pre-COVID that delivers more EBITDA dollars and more earnings per share with industry-leading EBITDA margins. In closing, we're confident in our ability to capture demand as the global travel market recovers and to execute against our strategic priorities. With that, we'll take your questions. And Chris, I'll turn the call over to you for Q&A.

Justin Post:

Great to see your bookings back to '19 levels. I know there's a lot of thought about what booking looks like post-travel recovery. So I'm wondering if we could revisit some of the things you're thinking about, what the business could look like as far as booking levels and margins when we get back to normal. And I know you've made a couple of acquisitions. I'm sure you're excited about those. And obviously, your connected vision trip seems to be in the right direction. So maybe we could revisit how you're thinking about the absolute number -- the absolute value of bookings and also what the absolute level of EBITDA could look like once we get to a full recovery.

David Goulden:

Justin, let me give you a little bit more color. And I appreciate the question. So we are focused upon, as I said, growing a business that is larger than it was in 2019. It's more diverse in terms of product offerings. It's growing faster than it was in 2019. It has more absolute EBITDA dollars and EPS dollars. That's our focus. We've given you obviously some color where things go in 2022. We expect that we can expand our volume beyond 2022. And we expect that once we are kind of to normal in that final state, we'll have industry-leading EBITDA margins. But beyond that, we don't want to get too specific about exactly what they're going to be other than our goal is to give more EBITDA dollars, more EPS dollars that are growing faster than they were pre-COVID.

Glenn Fogel:

Well, they're really two different acquisitions, Justin. Why don't I take them separately. So the Getaroom one, as I described in my prepared remarks, is very much adding to what we already have at Priceline in a B2B business that helps bring in customers that we wouldn't have gotten through our other marketing programs, whether it be pay-for-performance or brand. These customers are coming from affiliates. And there are contracts that Getaroom had and different technologies they have that by bringing them in is going to get us additional business that we wouldn't have gotten otherwise. On Etraveli, that was a different situation where, as I pointed out many times, how important it is for us to have this connected trip vision fulfilled. And one of the critical parts of it is our flight business. And we absolutely are very pleased to see not only the growth in our number of flight bookings but also the fact the number of new customers getting coming and the number who are then buying an accommodation. Now Etraveli has been powering the Booking.com product for two years. Great technology. They do a lot of things that could we recreate on our own? Probably it would take a long time, would require us to use resources that we want to use elsewhere. So by acquiring Etraveli, we're going to bring that technology in-house and be able to do things that we couldn't do when we were just a commercial partner. So I'm looking very forward to having that close and hopefully, as we said, in the future and then really began to develop a great, great combination.

Lloyd Walmsley:

Two, if I can. First, can you give us just an update around how you're thinking about timing for adding some of the value-added features to payments that could drive positive contribution to the P&L? And is it safe to say that even if you pass some of that cost, some of that margin along to consumers, it would likely drive faster growth and therefore, revenue, even if it wasn't directly revenue margin-accretive? And then the second question would be, can you maybe give us some color around the benefits of connected trip beyond incremental revenue from adding new products? So what do you see with repeat rates or direct rates among users who adopt multiple products? Anything you could share there would be great.

David Goulden:

I think, Glenn, you did a great summary of the interconnectivity between those two and the new areas. A lot on timing. Nothing major in terms of market impact in 2022. We're still in building mode for some of those value-added products that you mentioned. And market entry where you might see any impact will be more into the 2023-2024 time frame.

David Goulden:

And Glenn, I'd just add to that as well that when we kind of look at our customer base and not too surprisingly, our top customers, the ones who can spend the most with us, uses most often are more likely to use multiple things, more likely to use the app and a much more likely to interest directly. So that's the model that we're trying to build upon to build the loyalty that Glenn mentioned. And we do have good evidence that, that is a trend that we can build on. And the more we build value, complete travel offering, frequency, direct linkage via the app, the more loyal those customers become.

Kevin Kopelman:

I had a follow-up on the latest recovery trends. Based on all the data that you have, do you have a sense of to what extent the strong booking numbers you saw in the first half of February reflect sustainable levels that you could see going forward in the coming months as opposed to kind of a short-term catch-up after the Omicron pressure that you saw in December and the start of the year? And as a follow-up to that, to what extent are travel restrictions that are still in place in many European countries still hurting booking activity based on the data that you've got?

Kevin Kopelman:

Could you comment on the travel restriction piece in Europe? To what extent are you still seeing restrictions in Europe still limiting some of the activity? Or is that pretty much up already?

Operator:

Our next question comes from Doug Anmuth of JPMorgan.

Glenn Fogel:

So Doug, I heard the second part a little bit about the brand marketing but I didn't hear the first part. Let me answer the brand and our general marketing approach in the U.S. going forward and then maybe give me -- say again the beginning part there. Clearly, you saw that we didn't do a lot of brand marketing at the worst of the pandemic. And obviously, there's no reason to spend that money. And now with the recovery coming, we're coming back. And I'm very pleased with what we saw with our sub add-on. It's very, very early but I'm pleased with the numbers and what I've seen so far. And so we are stepping back into a more normal marketing approach as we did in 2019. That being said, we're always going to do what we've already done which is, look, where do we think we're going to get the best return for our marketing dollars. And we continue to evaluate what's going to give us the greatest return. But one thing that we have been changing over time and that is not looking just for the immediate transaction seeing what are we doing in terms of building out the long term, the loyalty, the repeat business, the coming back direct and being able to measure where that person came from and what they do after that. So we're a little more scientific in it than perhaps we were in the past for the long run but I'm pleased with that because I think that's what we need to do to really build the franchise and increase the value of the company. The first part -- what's the first part, Doug, you asked about?

Glenn Fogel:

Sure. David, still there?

Glenn Fogel:

And I would just add one other thing is we still believe absolutely the importance of great customer service. This has nothing to do with changing that. We're still going to be doing the technology that goes into the customer service process, our policies, all those things we're doing that. Also, it's looking to the future but we hope to build a very big company. The idea of then having to build a very big internal customer service operation is just not the best use of our resources, our managerial capabilities. This is something that is better done by people who are experts in that and can really do it better than we can do it but we can still provide all the great things in the actual customer service to the customer. It's definitely a win-win.

Mark Mahaney:

Two questions, please. That 9% constant currency ADR growth, I think that's the highest I've ever heard you talk about. And I guess that's -- and if I'm right, maybe that's not surprising given what's happened to overall inflation rates being at decade-highs. So when you think about this year, what are you assuming in terms of the sustainability of that? Maybe I'm even asking whether inflation is temporary or permanent. So just your thoughts on what do you expect to happen with ADR. Like when you -- when you're running your business, what are your assumptions? And then the second thing I want to ask is, David, when you talk about the ability of Booking to grow post the recovery, to grow faster than it did in 2019. And if that were to actually happen, what would be the biggest drivers of that? Like what would be the greatest things I would cause on the top line, the business, to grow faster post-COVID than it did pre-COVID?

Operator:

At this time, I would now like to turn the conference back to Glenn Fogel for his concluding remarks. You may proceed.

Operator:

Thank you. And that concludes today's conference. Thank you, everyone for participating. You may now all disconnect.

Operator:

Good day, and thank you for standing by. Welcome to the Booking Holdings Third Quarter 2021 Conference Call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guaranteed of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied, or forecasted in any such forward-looking statements. Expressions of future goals or expectations, and similar expressions reflecting something other than historical fact, are intended to identify forward-looking statements. For a list of factors that could cause Booking Holdings actual results to differ materially from those described in the forward-looking statements, please refer to the Safe Harbor statements at the end of Booking Holdings earnings, press release, as well as Booking Holdings most recent filings with the Securities and Exchange Commission. Unless required by law, Booking Holdings undertakes no obligation to update publicly and forward-looking statements, whether as a result of new information, future events, or other. A copy of Booking Holdings earnings press release, together with an accompanying financial and statistical supplement, is available in the for Investors section of Booking Holdings website that's www. bookingholdings.com. And now I'd like to introduce Booking Holdings speakers for this afternoon, Glenn Fogel and David Goulden. And I will turn the call over to Glenn Fogel your CEO. Please go ahead, sir.

David Goulden:

Yeah, I'm calling back in Glenn. Sorry, have you just finished?

David Goulden:

All right. Perfect timing, thank you. I was cut off and I'm back in again. Thank you, Glenn, and good afternoon. I will review our results for the third quarter, provide some color on the trends we've seen so far in the fourth quarter. To avoid comparisons to the pandemic impacted periods in 2020, all growth rates are relative to comparable periods in 2019, unless otherwise indicated. Information regarding reconciliation of non-GAAP results to GAAP results, can be found in our earnings release. Now onto our results for the third quarter. On our last earnings call, we discussed the improvement in trends that that we saw throughout the second quarter driven by the U.S. and Europe, followed by loss pullback in July. After our earnings call, we saw our overall trends improve in August and continue to get better in September, which resulted in Q3 reported remise declining 18% versus Q3 2019, which was ahead of the 26% decline in Q2 and the 22% decline in July. September was the strongest month in the third quarter, we remise declining for 14%, about the same level as June. The improvements in the Q3 room night decline versus Q2 was driven primarily by Europe, which benefited from strong cross-border travel with a duration. In Q3, room night in Europe, were down mid-single-digits versus 2019 with room night trends improving in August versus July, September was similar to August. You will recall the room night growth pulled back from June to July in Europe due to concerns over the Delta variance. Rest-of-world also improved from Q2 to Q3. In the U.S we --, Q2 to Q3. However, the U.S. still have strong growth in the quarter and remained our strongest performing major country in Q3. Within the U.S. we saw a meaningful slowdown in August from the very strong growth we experienced in July, followed by a recovery to strong growth in September. The slowdown in the U.S. in August with due to concerns about the Delta variance. Asia room night declined in Q3, or about in line with Q2. Room nights in Asia was still down significantly from 2019 levels. Mobile bookings primarily through our apps, represented about 2/3 of our total room nights are. Our apps continue to represent an increasing percentage of our mobile bookings. In Q3, as Glenn mentioned, we achieved an important milestone in use of our app at Booking.com, surpassing 100 million monthly active users. We are also pleased to see the number of unique customers booking via our app in the quarter, grow strongly compared with Q3 2019. Our direct channel as a percentage of our room nights, year-on-year, and relative to Q3 2019, increased. While international room nights remain down versus 2019, we saw no sequential improvements in our international trends, with international mix of our room nights increasing to about 33% in Q3 from about 25% in Q2, and about 15% in Q1. Most of this improvement in international room nights came from bookings for travel within Europe. We continued to see double-digit growth in domestic room nights in Q3, but at a slightly lower level than in Q2. The pickup in international travel in the quarter was a driver of the improvement in overall room night trends from Q2 to Q3. However, international room nights were down almost 50% compared with Q3 2019 levels. Our Q3 cancellation rate was slightly above Q3 2019 levels. However, cancellation rates improved in the quarter and September was slightly better than 2019 for the month. Percentage of our 2,000 -- of our Q3 2021 bookings, made with flexible cancellation policies, remains significantly higher than in Q3, 2019. The booking window of Booking.com remains shorter than it was in the third quarter of 2019 and contracted more they did in Q2, as we saw a high mix of near-term bookings during our peak summer season. All regions had a shorter booking window in Q3 than in Q3, 2019. alternative accommodations that the global mix of room nights in Q3 of about 30% was up slightly from Q3, 2019. The increase mix alternative accommodations in the quarter was less than it was in Q2, as we saw, a great sequential improvement in demand for hotel room nights in Europe from Q2 to Q3. I will turn into Cornish room nights in Europe grew slightly in August and September versus 2019 down for the quarter were about in line with Q3 2019. We believe we benefited from the strength of our portfolio Europe where we could respond to solid demand for alternative accommodations and an improving demand for hotels. Gross bookings declined 6% in Q3, which is less than the decline in room nights due to the increase in average day rates for accommodations of about 10% versus 2019 on a constant-currency basis. And also due to a couple of points of benefit from changes in FX rates and strong performance in our flight business. Our accommodations constant currency ADR benefited by just over 5% points for an increased mix of business in North America, which is a high ADR region, and a decrease of mix in Asia, which is a low ADR region. Excluding regional mix effects, constant currency ADRs were up just about 4%, driven mainly by rate increases in Europe and North America across many destination-types with notable strength in beach-oriented leisure destinations. [Indiscernible] figures booked in the third quarter were up 131% versus 2019, driven by very strong growth of Priceline. [Indiscernible] flight bookings at Booking.com We're encouraged to see another quarter of triple-digit growth from a [Indiscernible], which are key components of our multi-product Connected Trip strategy. [Indiscernible] revenue for third quarter was 4.7 billion, which was 7% below Q3, 2019, and was more than double the amount of revenue in Q2, 2021, a far greater sequential improvement in 2019. Our Q3 revenue as a percentage of gross bookings was about in line with Q3 2019, which was in line with our expectations. We experienced even more revenue seasonality in Q3 2021 than normal due to the concentration stays in Q3 from bookings made in the quarter and also for bookings [Indiscernible] when customers could book accommodations, but could not stay due to restrictions and other COVID related concerns. The strong top-line performance for performance resulted in adjusted EBITDA of $2.1 billion in the third quarter, which is 15% below Q3, 2019. Marketing expense, which is a highly variable expense item, decreased 3% versus Q3, 2019. Marketing expense declined by few points less than gross bookings, due to slightly up low ROI in paid channels of the invested into capturing demand during the peak travel season. Sales to our expenses in Q3 were significantly higher than they were in Q2 on a dollar basis, due to higher volume of merchant gross bookings, which increased as a percentage of our total gross bookings in the third quarter. Our Booking.com announced a gross bookings process to our payment. Payment platform in Q3 was over $6 billion, which was almost 1/3 of Booking.com's business, up from about a quarter in Q2. Our more fixed expense categories in Q3, in aggregate, came in 3% lower than Q2, after $136 million of personnel expense in the second quarter related to our decision to repay the government aid was mostly offset by an increase from Q2 to Q3 in our bonus accruals and digital service tax expense, both of which are crude proportional to revenue. Our non-GAAP EPS was $37.70, down 17% versus Q3 2019. non-GAAP net income of $1.6 billion reflects a non-GAAP tax rate of 21%, which is higher than the 19% in Q3 2019 due to a high proportion of non-tax-deductible expenses in relation to lower pre -tax income versus 2019. On a GAAP basis, we had operating income of $2 billion in Q3. We recorded GAAP net income of $769 million in the quarter, which includes a $1 billion pre -tax realized loss on our equity investments primarily relates to our [Indiscernible], as well as income tax expense of a $199 million. Now onto our cash and liquidity position, our Q3 ending cash investments balance of $15.4 billion was down versus our Q2 ending balance of $16.1 billion at the $1.5 billion of free cash flow was more than offset by the repayments for $1 billion convertible note matured in Q3 and the $1 billion unrealized loss on our equity investments. The return of capital to shareholders, has and will be an important component of our value creation strategy. Throughout the COVID pandemic, we said that we will start returning capital to shareholders when we saw that our 3 largest regions, we're no longer a meaningful risk of [Indiscernible] reversal due to COVID, and also become more predictable. Assuming that travel recovery continues, we plan to restart returning capital in early 2022 under our remaining authorization. Assuming continued recovery, we'd expect to complete this organization within 3 years from restarting. Now onto our thoughts for the fourth quarter. Our total room nights declined 10% versus 2019, which is better than the 14% decline in September. The improvements in October were driven mainly by Asia. Although the region comes -- a lot of the region remains down from suitably visiting. 2019. The improvement in Asia was led by domestic travel with the many countries and was driven by an improving vaccination progress and governments easing restrictions on travel. Room night growth in the U.S. improved little from September to October and remains strong in October. Rest of the world also improved little in October, and was back close to 2019 levels. We were declines in Europe were about the same in October as they were in September, but weaken towards the end of the month. This resulted in overall room night declines being higher in the last week of October than the average for the month. The slowdown at the end of October in Europe was driven by a number of countries that have seen recent increases in COVID infections, including Germany, Russia, and Italy. Given the ongoing uncertainty around COVID, it's difficult to predict how room nights in November-December will compare with the 10% reduction we saw in October. Looking forward to November-December, the rising case counts across many important Western European countries and across much of Eastern Europe, as well as the start of the winter season in the Northern Hemisphere, which in 2020 contributed to an increase in COVID cases, creates unpredictability. Also, pre -pandemic contribution of Asia to total room nights was highest in November and December, and Asia is still our least recovered region. On a more positive note, since the U.S. announced in late September the plans to ease travel restrictions in November for international travelers who are vaccinated, we've seen a significant improvement in room nights booked by Europeans to travel to the U.S. as well as the reverse. Also, we're pleased to see more gross bookings on the books for the Christmas, New Year periods, that we saw at this time in 2019 in the U.S. and Western European. Change to the Income statement, we expect Q4 gross bookings to decline by a few points, less the room nights, driven by higher reported ADRs and flight bookings versus 2019. We expect less of an increase in our ADRs in Q4 than Q3 due to less of benefit from regional mix of the Asia region continues to recover, but also due to low occupancy rates after the peak travel season. We expect Q4 revenue to decline more than gross bookings due to a couple of factors. The first, is due to short booking window in Q3. A low percentage of Q3 bookings [Indiscernible] normal will stay in Q4. The second, is due to our expectation that the booking window will contract less in Q4 than it did in Q3, resulting in more bookings made in the quarter that are expected to check-in in future quarters. As a result, we expect our revenue as a percentage of gross bookings to be more than 1% below Q4, 2019. This also means we expect Q4 revenue to have a greater sequential decrease from Q3, that we saw in 2019, and we expect Q4 revenue to decline more than it did in Q3. We expect Q4 marketing expense as a percentage of gross bookings increased slightly versus 2019, as we expect to invest in capturing demand and increasing awareness during the continued global recovery of travel demand. We expect Q4 sales or expenses to be lower than they were in Q3 due to lower merchant transaction volumes. However, we expect sales or expenses in the fourth quarter to be higher than in Q4 2019 due to higher merchant, volumes, and mix. We expect our more fixed expense categories in Q4 in aggregate to be about in line with Q3 on a dollar basis. We expect Q4 EBITDA to be positive but driven largely by the higher, the normal seasonal decrease in revenue, we expect a much greater seasonal sequential decrease in EBITDA from Q3 to Q4, the normal. In conclusion, we're pleased with our recovery and the top-line in Q3, which led to strong finance results for the quarter. The financial strength we saw in Q3 was [Indiscernible] by the concentration of stage in the quarter, which will lead to some differences in the comparison of Q4 to Q3 relative to what we've seen in prior years. October room night trends improve relative to September, driven by some encouraging trends at Asia. However, recently, the rising case counts across Europe increases in certainty about how trends will progress in November and December. In closing with confidence in our ability to capture demand as the global recovery continues and execute against our strategic projects. With that, I will now take your questions and Eli, I'll turn over to you to open the line for questions.

Justin Post :

Great. Thank you for taking my questions. Great to see Europe recovering. With room nights down 10% versus '19, Glenn, maybe you could go through what needs to happen from here to get above '19. What areas still need to come back strong and not just Asia, but your thoughts on that. And then David, maybe you could talk about core business margins versus '19. Let's ignore payments and take your trip for now. But how are you thinking of the puts and takes on the core business versus '19. Thank you.

David Goulden:

Yeah. So now, I [Indiscernible] as great, we’d actually be [Indiscernible] relatively quick on the puts and takes in the core combination business. Our underlying take rates have been solid, and obviously, the reported take rates are a function of timing, so that continues to go well for us. As we get to -- back to 2019 levels, there will be some inflation refresher on the personnel line. Everybody knows there's a war for tech talents out there, and we've had two for years whether the merit increases in other expenses in -- other increases in our cost base. Of course, we did take expenses out, but there are variable expenses. So, they will come back with some efficiency over time, but there will be some pressure on the personnel line. But there are other things that are in the model that we can use to offset that pressure. We can get extra economy to scale as the business growth is beyond 2019 levels on both the fixed costs and on the variable cost side as well. There are opportunities in our direct mix, which of course is very important. And of course, a key element. And this will grow happens to off over ROIs. And on the front marketing side where we saw some increase in the first half of the year, we saw some small compression in the second-half of this year, but those markets are very variable and very dynamic, and we're pleased with how we're doing in those markets. The last thing I want to leave you with on that topic is that within our core business, there's always a trade-off between growth market share, and profitability. So, to the extent we see opportunities, we leaning in. We want to try and drive market share increases where we think that we can, that will pressure the business in the short-term as we lean into making those investments. And also, as the investment in marketing and other areas were basically be a leading indicated relative to revenue. So, there will -- we do believe that we're -- there are opportunities for us to gain share in accommodations through this -- the recovery and beyond. So that would be an additional factor in the mix and how we think about the long-term business margin in accommodations.

Operator:

Your next question is from Kevin Kopelman of Cowen and Company. Your line is now open.

Glenn Fogel:

David, why don't you take the first 2, about the aired competitiveness, and I think some brand question? And I will talk a bit about some of the merchandising.

Glenn Fogel:

Yeah. So, Kevin, obviously, merchandising is a very important reason why we built out, and are continuing to build-out, our payments platform in booking.com. Just making sure that we're able to compete and provide great value to our customers. And what's really important is not doing just out of our own pocket, but working with our partners, coming up with the right time to the right consumer, the right offer and helping them. Our supply partners, also provide some of that, let's say, added value. For example, we may do flash sales. You may hope or you've seen some. Hope you've gotten some, hope you actually booked some of them. That's an example. One of the things, for example, when somebody is getting in accommodation and we are able to offer them either lower cost or even free sometimes, right from the airport to the hotel. In a [Indiscernible], different variations that we can do with the different verticals in coming up with the best combination, trying to do as much as we can with our suppliers’ money, but sometimes using our own too to come up what really is an attractive offer. So, the consumer knows that when it come to our site, they're getting the best value, because value really is one of the key strategic objectives for us, always through providing that.

Operator:

Your next question is from Deepak Mathivanan from Wolfe Research. Your line is now open.

Glenn Fogel:

Zach, so just to make sure I understood your first part of your question. You're just asking a little bit about how we're going to get the demand that's coming in the future, do I have that correct?

Glenn Fogel:

Right.

Glenn Fogel:

Okay.

Glenn Fogel:

Yeah.

Glenn Fogel:

Right.

Glenn Fogel:

I got it.

David Goulden:

Yeah, Zach (ph.). Q3 saw strong recovery across the geographies that we talked about. So, I'd say there's still a bias towards more leisure outdoor-oriented activity, particularly beach-oriented properties did very well in the summer months in the Northern Hemisphere. But we do see some recovery into the cities as well, and I think this -- we all know that anecdotally, if you want to book a hotel room night in a city, it's becoming increasingly hard. So, we are seeing recovery across the board, although still more entry (ph.) towards the outdoor beach-oriented leisure locations.

Operator:

All right. Your next question is from Mark Mahaney on the Evercore ISI, your line is now open.