Booking Holdings Inc (BKNG) — Q1 2018 Earnings Call Transcript

Thank you, and welcome to Booking Holdings' 2018 quarter one conference call. I'm joined this afternoon by our CFO, David Goulden. Booking Holdings had a solid quarter with revenue up 24% year-over-year in U.S. dollars or about 16% on a constant-currency basis, and adjusted EBITDA increased 26% year-over-year to approximately $800 million. Our worldwide accommodation room nights of $197 million were up 13% year-over-year and exceeded the high-end of our guidance range. Consolidated gross bookings were up 21% year-over-year in U.S. dollars, or about 12% on a constant currency basis. An important factor contributing to our EBITDA over-performance was another strong quarter of efficiencies in our performance marketing channels, as we were able to leverage our spend by over 380 basis points. As we have discussed in the past, our performance marketing channels are complex and dynamic; our goal is to achieve an appropriate balance between acceptable ROIs and growth. As we set out our ROI hurdles, we take into account not only the short-term impacts from our bidding strategies but also factors such as the customer experience on the advertising platform, the incrementality of the traffic we receive, the anticipated peak rate from a particular platform, and several other important elements. As discussed last quarter, increasing direct traffic and customer loyalty is a key strategic priority for us. To achieve these goals, we strive to have the widest selection, the best prices and availability, the most informative content, the easiest user interface, and the highest level of customer service. We are pleased to report that we continue to see growth in our direct channel and note that our mobile business is an important factor in the growth of our direct business. As we have discussed in previous quarters, we believe that brand marketing will also be an important part of driving direct traffic to our websites over time. We hope to make further progress executing our brand strategy, implementing new measurement technologies and tools, and testing in various geographies. But, we want to reiterate what we have said in the past, that we will proceed in a prudent manner. During the quarter, we made progress adding new supply to our marketplace, maintaining our position as the leading global accommodations platform offering the most choice in over 220 countries and territories worldwide. As of March 31, Booking.com, our largest brand, had a total of 28.2 million reported listings, consisting of approximately 23.0 million reported listings in hotels, motels, and resorts, and approximately 5.2 million reported listings in homes, apartments, and other unique places to stay. Year-over-year growth in Booking.com reported listings for our alternative accommodations category was 28%, which demonstrates our ongoing focus to build additional supply. Today, all of Booking.com alternative accommodation listings are fully integrated into our marketplace and are instantly bookable with no customer fee. Room night bookings in this category are growing nicely, and we firmly believe our customers want a one-stop shopping experience to find a great place to stay, whether it is a hotel, resort, home, or apartment; they want the ability to search and compare across all property types to find the best fit for their unique needs. We remain focused on bringing more alternative accommodation properties onto our platform, especially single properties whose owners may not be as aware as professional multi-unit managers are of the strength of our traveler demand. We believe that this is an attractive opportunity for us. Building sophisticated capabilities in local attractions and destination experiences remains a long-term goal for the company. We aim to provide a more holistic travel experience for our customers to drive loyalty and build a larger direct brand. We have been gradually increasing our investments and expertise in these areas, including our recent acquisition of FareHarbor and are pleased with our progress to date, though we want to stress that we are still in an early stage. During the first quarter, we utilized $1.5 billion in capital to reduce our fully diluted share count through both share repurchases and the cash settlement of the conversion premium on our convertible bonds, which matured in March. We will continue to prudently deploy capital through a mix of organic growth investments, M&A, and stock repurchases. In summary, Booking Holdings had a good start to the year; bottom-line was also the first quarter aided by solid revenue growth and efficiencies that we realized in our performance marketing channels. We believe that the travel market remains healthy, and we continue to orient ourselves to the long run; we maintain a single-digit market share in the very large global accommodations market and an even lower market share in the total travel market. We continue to evolve the company so that, in the long run, we will be able to provide our customers with a more complete and superior travel offering. This will take time, but we believe that if we continue to leverage our unique assets and expertise and all of our brands continue to execute, we will be successful. As always, I want to thank our more than 24,000 employees worldwide for their hard work and dedication. We are now getting ready for our busy Northern Hemisphere summer season. I know we will all work tirelessly to ensure our customers have a great travel experience. Finally, I want to send out a special thank you to Rob Rosenstein, the Co-founder and longtime CEO of Agoda, our Asia-based business. Effective June 1, Rob is moving up to be the Chairman of Agoda and taking the role of special advisor to the CEO of Booking Holdings. I've known Rob for almost 15 years now and I look forward to working closely with him as we continue to develop our long-term Asia strategies. Taking Rob's CEO position at Agoda is the current COO of Agoda, John Brown, and Armory Morganstern, the current Chief Product Officer, will take the COO role there. Congratulations to all of them. I will now turn the call over to David for the financial review.

Thank you, Glenn, and good afternoon. I'll discuss operating results and cash flows for the first quarter and then provide guidance for the second quarter of 2018. All growth rates are relative to the prior year comparable period unless otherwise indicated. Before we get into the numbers, as we discussed last quarter, starting on January 1, 2018, we began reporting under the new revenue recognition accounting standard, which recognizes revenue at check-in rather than at check-out. As a result, all year-over-year growth rates referenced in my remarks and Q2 guidance will compare the current year under the new accounting standard to the prior year under the previous accounting standard. Additionally, revenue growth and profit margin performance for Q1 results and Q2 guidance are based upon comparison to prior year gross profit due to the associated change to net revenue reporting in 2018. Gross bookings and other unit metrics like room night reservations are not impacted by the new accounting standard. Our non-GAAP financial results we forecast include stock-based compensation and are reconciled to our GAAP results in our earnings release. So now onto our results for the quarter. Our strategy to optimize performance margin ROI is impacting our top-line growth. It's also driving significant improvements in our operating margins. The result was a second quarter in a row of expanding adjusted EBITDA margins, and our bottom-line performance has substantially exceeded our guidance range and the analyst expectations. Room nights booked in Q1 grew by 13%, which exceeded the high end of our guidance range. Average daily rates for accommodations, or ADRs, were down slightly for Q1 versus prior year on a constant currency basis, which was better than our forecast of down about 1%. Foreign exchange rates favorably impacted growth rates expressed in U.S. dollars for our Q1 results. Q1 gross bookings grew by 21% expressed in U.S. dollars and grew by about 12% on a constant currency basis compared to the prior year. Consolidated revenue for the first quarter was $2.9 billion and grew by 25% in U.S. dollars and by about 18% on a constant currency basis. Q1 revenues include $45 billion from the Momondo Group, an acquisition we closed in July of 2017. We also recognized a $27 million benefit to revenue in Q1 from the reversal of a portion of OpenTable loyalty program liability. This benefit relates to recently introduced changes to OpenTable's loyalty program and is excluded from our non-GAAP results, as we believe it is not indicative of the core operating results of our business. Our non-GAAP revenue grew 24% in U.S. dollars and by about 16% on a constant currency basis. Total revenues for the first quarter of 2018 under the current revenue standard were approximately 2% lower than the first quarter of 2018 would have been if reported under the previous revenue standard, which was consistent with our guidance. This 2% difference in the quarter resulted in a 3 percentage point impact on our growth comparing Q1 with a year ago. Advertising and other revenue, which is mainly comprised of non-intercompany revenues for KAYAK and OpenTable grew by 50% in Q1 compared to the prior year, including the revenue from Momondo and the OpenTable loyalty program benefits. On a non-GAAP basis, which excludes OpenTable benefits, growth in advertising and other revenue was 36% in Q1. GAAP operating income grew by 31% and GAAP operating margins increased by 115 bps compared to Q1 last year. GAAP net income amounted to $607 million or $12.34 per share, which grew by 35%. Our GAAP net income includes a $54.5 million benefit related to an unrealized gain in our equity investments in Ctrip, which is now recorded in the income statement rather than the balance sheet due to an accounting change that took effect in Q1. We excluded this unrealized gain as well as the OpenTable loyalty program benefit from our non-GAAP results. Our GAAP tax rate for the quarter was 19.4%, just slightly better than forecast. Adjusted EBITDA for Q1 amounted to $798 million, which exceeded the top end of our guidance of $75 million and grew by 26%. Adjusted EBITDA also excludes the previously mentioned Ctrip gain and OpenTable loyalty program benefit. Our adjusted EBITDA margin of 27.5% was substantially better than our forecast, mainly due to higher revenue in the quarter and performance marketing efficiency. As expected, non-marketing OpEx expenses pressured year-on-year margins as we continue to invest in new markets and new capabilities. Our non-GAAP EPS was $12, up 21% versus the prior year comfortably exceeding the guidance for the quarter and consensus estimates. Non-GAAP net income reflects a non-GAAP tax rate of 19.4% in Q1, which increased from the prior year due to impacts of the U.S. tax acts under higher Innovation Box Tax rate in the Netherlands, as well as last year’s rate benefiting from discrete items. Our cash and investments amounted to $16.3 billion at quarter end. In Q1, we generated $640 million of operating cash flow, which grew by 68% compared to the prior year. Our free cash flow for the quarter was $508 million, which is 64% higher than Q1 2017. Cash flow in the quarter benefited from increased merchant transactions of Booking.com, which have a favorable working capital impact. We returned about $732 million during the first quarter to our shareholders through share buybacks. Additionally, we used another $773 million in the quarter for the cash settlements of a conversion premium on our convertible bonds that matured in March. We currently have approximately $10 billion remaining of our share repurchase authorization. We will continue to be both programmatic and opportunistic regarding our repurchases. Under stable business and market conditions, we expect to complete this authorization within a two to three year time period. Our guidance reflects our quarter-to-date actual results and assumes our growth rates will decelerate over the remainder of the quarter, mainly due to the size of our business and consistent with long-term trends. Our guidance also reflects the continued impact of our performance margin optimization efforts. Our future guidance is based upon current foreign exchange rates, which provide a tailwind to our growth rates expressed in U.S. dollars. We are forecasting booked room nights to grow by 7% to 11% and total gross bookings to grow by 10% to 14% in U.S. dollars and by 5% to 9% on a constant currency basis. Our Q2 forecast assumes that constant currency accommodation ADRs for the company will be down by approximately 1% compared to the prior period. We forecast future revenue to grow by 11.5% to 15.5% in U.S. dollars and by 6% to 10% on a constant currency basis. This forecast includes the impact of revenue shifting from Q2 to Q1 due to the timing of Easter and revenue recognition at check-in. Q2 adjusted EBITDA is expected to range between $1.085 billion and $1.125 billion, which at the mid-points is up about 13% versus the prior year. We forecast that adjusted EBITDA margin will be about in line with prior year Q2. Our Q2 forecast assumes that our ROI optimization efforts will yield year-over-year performance marketing efficiency. We expect the deleverage from our investments in brand marketing and non-marketing operating expenses will offset this leverage from performance marketing in the quarter. As mentioned last quarter, these investments have a more significant margin impact in Q1 and Q2, which are quarters in which we typically earn a smaller share of our annual profits due to normal seasonality of our business. Although, we're not giving guidance beyond Q2, we expect deleverage in non-marketing OpEx and brand marketing throughout 2018, but diminishing in the second half as we lap investments made last year. We assume operating margins will benefit from increased performance marketing efficiency until we anniversary the optimization efforts that started in Q3 of last year. We forecast GAAP EPS between $15.50 and $16.15 for Q2, which at the midpoint is up about 10% versus the prior year. Our EPS guidance assumes a fully diluted share count of about 48.6 million shares, which reflects the beneficial impact of the common stock repurchases we have made to date. Our GAAP EPS guidance for Q2 assumes a tax rate of 21% compared to the prior year rate of 17%. Our current year tax rate is higher than last year due to the impacts from the U.S. Tax Act, as well as the increased rates of the Innovation Box Tax in the Netherlands. We’re forecasting Q2 non-GAAP EPS of approximately $16.35 to $17, which at the midpoint is up about 10% versus the prior year. Our non-GAAP EPS forecast includes an estimated income tax rate of approximately 21%, which is higher than the prior rate of 18% due to the same reasons I just discussed for the GAAP rate. We have hedge contracts in place to substantially shield our second quarter EBITDA and net earnings from any further fluctuation in currencies versus the dollar between now and the end of the quarter. However, the hedges did not reflect our gross bookings, revenue, or operating profit from the impacts of foreign currency fluctuations. Our forecast does not assume any significant change in macroeconomic conditions, in general or in the travel market in particular. With that, we'll now take your questions.

Thanks for taking the question. Maybe two if I can. Last quarter you called out shortening booking window and the potential for some cancellations volatility around Easter in the way you had forecasted room nights. I wanted to understand how that played out as the quarter progressed against what you initially thought going in? And then second, you're projecting a deceleration in room nights in Q2, against what looks like an easier comp, wanted to understand a little bit maybe some color around your forecasting there as well and what I need to keep in mind? Thanks.

Hi, Eric, it’s Glenn. I'm going to take that second question and then let David talk a little bit about booking windows. So, our company over time has been very consistent in talking about deceleration due to a lot of large numbers. That has been something that has been trending fairly regularly over time, but there has certainly been volatility quarter-to-quarter. In some quarters, we've had a small deceleration, and in some quarters we've had faster deceleration, and in some quarters, we even had acceleration. Many factors have gone into that. Some of the factors are macroeconomic, some could be competitive actions, some can be due to non-competitors who have influence, and some factors are things that we do, such as optimizing our performance marketing. Take all of these factors, along with their interactions and feedback loops—it's complex—and that makes it very hard to project or predict short-term volatility. But long-term, we can make some confident predictions. The long-term prediction is that we are going to do very well. I have a lot of confidence in the industry and the company, and let me tell you why. I’ll start at the macro level: travel is a function of GDP; when world GDP grows, travel grows faster, and I'm highly confident that world GDP is going to continue to increase in the long run. That’s one. The second tailwind we’ve always been experiencing is the transition from offline to online—maybe we should call it digital processes. That trend is going to continue. Yes, in some of our developed markets, there are more people who are already online, but there are many areas in the world that haven’t transitioned yet, but will be doing so. That’s another positive factor for us. Let’s get into our company specifically: we are a large company, but we have a small market share in the travel industry, specifically a single-digit market share when measuring our accommodation business, talking about the inventory we haven’t captured yet. That presents a lot of opportunities for us. If you think about the total travel industry, including all things air, attractions, and other segments, we have a very small market share. When I mentioned inventory, we can go out and get more inventory—that’s another effort we are working hard on. We have discussed the significant investment we put into developing our non-hotel accommodations; that's an area of growth for us. We've talked about our experiments with different offerings. Perhaps you’ve seen it on Booking.com regarding flights or ground transportation, and some of the things we are now doing with attractions. These experiments and costs are in development, will continue to yield results down the road. A separate part of that is innovation. We have a new product out for Priceline.com, which is a bundle product; it's exciting and will contribute to our growth. Many companies ask whether conversion is dead—no, we have always said that we do much to ensure our conversion rate continues to improve. In fact, in past quarters, our mobile presence continues to be a substantial growth area for us. We have more than 24,000 very talented employees, we have capital, and we have technology, so I think we are in a great position. So when we say you're comparing this growth to an easier comp, remember last year, we had a 21% growth rate at which point we hadn’t started our optimization yet. Our position is actually very good—a good balance between growth and profit—and I like where we are. David, do you want to address the first question?

Yes, let me pick up on a couple of your opening questions, and I’ll have a point about Q2 as well. On the booking window, we did continue to see a modest decline in the booking window, similar to what we noted over the last few quarters. We think it’s likely impacted by some of the optimization efforts in our performance marketing channels. Without going into all the details, we are targeting less lower-converting and more upper-funnel placements, which is having an impact on the booking window. Also, I’d point out that mobile continues to perform well; mobile has a shorter booking window than desktop. So those factors contribute to the ongoing decline we’re seeing. Regarding the Easter impact on room nights booked, it was largely in line with what we discussed on the last earnings call. It did have a small impact on the room nights booked, which was also consistent with our comments. It had a more significant impact on revenue and if we receive a question on that later on the call, I’ll explain how Easter impacted revenue. Specifically for Q2, as Glenn mentioned, we are comparing against a period in which we were spending very heavily in paid channels. In looking at our guidance itself, it’s relatively stable in relation to what we just reported for Q1. Our approach to guidance hasn’t changed. Also, we are now sitting here with more time until the quarter end than when we guided last quarter. There is a natural increase in potential variability for this quarter, but as with every quarter, there are always various factors to consider. In Q2, for example, the timing of the World Cup and group play ending right at the end of the quarter is something that has impacted growth rates in prior years. So all of those factors are taken into account.

Thanks so much.

Thanks for taking the question. Two if I can. It looks like I think Glenn you mentioned mobile as an important factor in driving the direct business. Wondering if you can just give us a sense of if anything in particular has changed there. I think just two quarters ago you downplayed, I think, mobile as a source of direct strength. So, is there a synergy with the TV spend you're doing, or maybe if something changed in mobile app usage versus mobile web? Any color you could share there? And then just looking at non-advertising OpEx, it actually looks like it was ultimately fairly well contained despite some of the investments you're making. So is that really just a function of the size of the P&L being able to absorb that or any changes in kind of magnitude of the investment you have to make in some of these new areas? Any color you could share there would be great.

Sure Lloyd, if I said something that was interpreted that I did not believe mobile was important for direct or sort of that nature, it was misunderstood or I misspoke one or the other. Because certainly mobile helps direct significantly, and we believe it's a very important part of the strategy going forward. Now why are we noting and why is it important? How much time do you spend in—let’s take Asia, for example—people are not using desktops; mobile is the way to do everything. It’s crucial for us to continue developing the right interfaces, the right connectivity for different systems in all parts of the world where mobile really works efficiently. Because of the size of our company and the number of technologists we have on staff, we have an advantage; we can conduct these new experiments in various areas of the business to yield better results and better user experiences, which in the long run drives our success. Regarding non-ad OpEx, we talked about this a couple of quarters ago, how we are managing these non-ad OpEx investments. We spoke about personnel and all associated expenses, discussing many reasons we wanted to implement these investments for our long-term strategy. We ramped up significant numbers last year; now those personnel are on board, and we need to be more efficient and effective moving forward. We believe, as David pointed out, going into 2019, we will benefit from the excellent work being done by these people, but you should not expect us to continue hiring at the same rate we did last year.

Got it, thank you.

Great, thanks for taking my questions. The first one just kind of going back to your comment around direct traffic. I was hoping it kind of growing. I guess the question is direct traffic growing in your mix at this point? If not, how are you thinking about that throughout the course of the year? And then just sort of going back to the deceleration implied in the guidance. I appreciate the color about the industry, but maybe just talk about the potential for acceleration. What factors are you most focused on internally, whether it's regions or buckets of room nights that could lead to faster room night growth even through all these large numbers? Thanks so much.

Could you just explain a little more about what you mean by direct within the mix? I didn't quite understand that question.

So I guess you mentioned your direct traffic is growing year-on-year. The question is, is it increasing as a percentage of your total room night service paid, still growing with the mix?

Direct is growing. Direct is growing, and we are very pleased with that growth rate. It is part of the overall strategy to continue to increase that. In terms of—I could theorize about many hypothetical scenarios that could increase the growth rate and lead to an acceleration versus a decelerating number, but many of those would be speculative at best. However, I will say this: we’ve seen over time that when we come up with something innovative—something that we hadn't thought of yet or when we release a new feature—that tends to drive more business for us. A good example might be when mobile became a preference. People started booking on mobile to equalize the experience across platforms, and that has been an advantage for us. It could be something like that emerging in the future, leveraging technology and our scale in our technology area, which will help us achieve better results than competitors who may not have that scale.

Just to reinforce Glenn's point, direct is not only increasing in terms of the mix, it is our largest channel for bookings, Brian. Additionally, looking toward the second half of the year will enable better comparisons since we are optimizing our ROIs against periods where we weren’t optimizing them to the same extent. As Glenn said, there are many other factors, including the headroom available for us to grow this industry with our single-digit market share in our core markets.

Okay, thanks.

Thank you. Actually, one of my questions is a bit of a follow-up to the last comment. Is it possible for you to help quantify to some degree the impact that optimizing some of your direct response marketing has had on the growth? And maybe just help frame that a bit? And then secondly, can you talk a little bit about the relative rate of growth in your North America market and kind of how that’s been trending in recent quarters? Thank you.

Hey, Mark. We’re not going to put a pin on a specific number regarding the optimization, but as David pointed out, optimizing has definitely hurt the growth rate. We know that if we wanted to drive more growth, it’s possible to pay up for it, but that’s not our strategy. Our strategy is to strike an appropriate balance between profit and growth. Regarding North America, we generally don’t break out regional performance. I'm not going to go into details there, but I will note that the global economy appears strong, and travel remains healthy in most areas. Our focus remains on building sustainable relationships with our property partners for good prices and availability.

Thank you.

Hey, I just got two European related questions. One is just about this small near-term event, the World Cup. Can you just talk about the impact that had in years past? It is a sizable event, and your people over there are getting excited. So, how do you actually try to handicap the potential impact that could have on your business? I know that's a near-term issue, but I wanted to ask. And secondly, also regarding Europe, I want to ask about GDPR. How do you think about its effect on your capacity to reach out to current or future customers? Overall, does that impact the effectiveness of online marketing channels as a challenge for you in running the business? Thanks a lot.

Hi, Mark. I'll take the second question about GDPR, and David, being English and having a team in the World Cup this year, I’ll let him handle that. Responding to your GDPR query, I first want to emphasize the importance of privacy. We’ve been committed to maintaining privacy for our customers and partners long before GDPR was a thought in Brussels. We do not believe, as we previously stated, that GDPR will have any material impact on our marketing or customer acquisition efforts, and we haven’t foresaw significant changes after preparing. Of course, it diverts resources and incurs costs preemptively leading up to the deadline, but relatively minor compared to our business size. Now, I’ll turn this over to David to discuss the World Cup.

Mark, that's an interesting question because it’s difficult to predict given the various factors. From what we've seen in previous years, if teams get through to later rounds, their countrymen tend to refrain from booking during the World Cup. But once they get knocked out, bookings spike soon after, making it tough to predict. It depends largely on which teams perform well. I mentioned that the group play rounds end right at the end of the quarter, so we’ll focus on who advances further.

Okay, thank you very much.

Great, thank you. You've definitely tightened your ROI thresholds, and I'm curious about the competitive impact of that. You've mentioned it has affected your growth rate. Where do you think those room nights are going? Do you think they're going direct, or do you think some of your competitors are capturing that? Also, I've followed this company for many years. You've always identified great opportunities in new marketing channels that have fueled your growth and helped you outcompete others over time. Do you still see those opportunities? Is it going to take emerging companies to leverage, or changes from Google to create those opportunities for you? Do you still think you can maintain a competitive advantage in online marketing channels? Thank you.

Justine, I agree with your point that we have done a great job in marketing over time, and we believe we will continue to find new ways to bring customers in through new marketing channels. We've talked about how brand marketing efforts can align to raise ROIs on performance marketing, countering with brand spend to drive consumers directly to us. That’s a crucial part of our long-term strategy, ensuring that we don’t rely as heavily on third-party customer sources. We should create a compelling service that drives customers directly to us when they plan travel. To answer your first question, we noticed some room nights lost, and we hope those consumers might come directly to us eventually. Even if they book elsewhere at first, they may check our prices and availability later. Anything beyond that would just be speculative. David, do you have anything to add?

Great, thank you.

Hi, thanks a lot. Could you give us an update on underlying take rate trends that you're seeing? It looks like those might have been a little bit stronger in the quarter even after making all the adjustments. And then on that, can you tell us where you did end up for the estimated Easter impact on revenue, both under the new and old accounting standards for Q1? Thanks.

I’ll let David handle the Easter impact first and then I’ll speak to take rates.

Kevin, the Easter impact regarding bookings was a modest headwind in Q1, in line with our expectations. The revenue impact was greater but as previously explained, it was also in line with expectations. Unique circumstances played a role; in 2017, Easter was in Q2, but with our new revenue recognition at check-in for 2018, we saw a benefit to Q1. This timing resulted in approximately a 3% benefit to Q1’s year-on-year growth and a 2% hit for Q2. The differences largely explain our constant currency revenue guidance from Q1 to Q2. In terms of take rates, they remained quite stable, and we are pleased with that. We also observed that ADRs were only slightly down in Q1, better than the 1% decrease we projected earlier for constant currency.

Thank you very much.

Great, thanks. I was wondering if you could provide some insight into how you’re balancing growth and profitability. Are you optimizing away from lower-performing channels that may be losing money or simply not meeting ROI targets? Also, as we move further away from pricing regulations changes in Europe, how is hotel behavior impacting meta-search channels? Is that presenting a challenge for you?

Hey, it’s Glenn. We’ve discussed this in the past—how we value our performance platforms and decide what to bid in our marketing strategies. We consider customer experience, traffic incrementality, and future impacts of funds on our channels. It’s not simply a matter of ROI being positive or negative. We’ll lean into what enhances our long-term strategy while stepping back from strategies detrimental to that vision. I’ve not seen much impact from regulatory changes, and the overall landscape has remained stable; it’s more about providing the best price and service.

Thank you.

Thanks for taking the question. Glenn, you discussed wanting to be the preferred destination for travel and have mentioned more holistic travel offerings. Can you elaborate on how much of your business, specifically non-hotel and non-accommodations, could grow over time? What investments are required to achieve this over the next three to five years?

Absolutely, I’ve talked about this extensively, as I believe a holistic approach is essential for our long-term growth. It's crucial to ensure appropriate returns on investments; for example, we believe that enhancing attractions will significantly benefit the customer experience. Investing in these areas will improve customer journeys and foster loyalty without directly stating how much we’d earn. I cannot offer a five-year quantitative plan; we are an experimental company that builds out products to see results first. Once we validate their effectiveness, we apply more resources. We will also engage in M&A to enhance our holistic system further and achieve that competitive advantage.

Okay, thanks Glenn.

Great, thanks for taking the question. Two questions for me. First, growth in brand marketing dollars was slower than in the last couple of quarters; I recognize there's a seasonal aspect, but could you discuss your current views on brand marketing effectiveness compared to prior expectations? Then, secondly, one of your competitors is ramping up supply acquisition and marketing investments in Europe. Do you feel this is increasing competitive pressure, especially in customer acquisition in Europe?

On brand marketing, we began discussing its importance last year and pledged to invest in it. We noted the need for technological measures to ensure we execute effectively, and we are committed to experiment and proceed carefully. When we find the right marketing formula that is effective, we'll increase spending; however, we won't pour in significant resources without high certainty of success. To address your other question, competitors have sought supply for a long time, and this isn’t new. They will keep competing for supply, and we have overcome these challenges. We maintain strong relationships with property partners and ensure we’re providing fair prices and availability. I feel confident in our position in Europe and have not observed substantial competition impacting our numbers or presence.

Great, thanks a lot.

Thanks, guys. I wanted to ask about non-traditional inventory—how you feel about the depth and breadth of supply there going forward? That’s it, thanks.

I was delighted, Brian, when we recently announced we hit 5 million listings with our alternative accommodations; that was a significant milestone. We acknowledge that while volume is crucial, it’s equally important to have the right types of listings. I emphasized in my remarks that we aim to acquire more single-property listings as we recognize we don't have comprehensive coverage. There’s tremendous opportunity ahead for us to increase our alternative supply. Just acquiring inventory, however, isn’t enough—we must ensure our customers think of us as their first choice for accommodations. We are actively working on improving awareness of non-hotel accommodations in the U.S., which is still lower than desirable. Our recent ad efforts at Booking.com highlight this initiative. Overall, we recognize the importance of inventory types across all geographies.

Great, thank you very much. Shifting back to high-level investment themes and technology changes, AI has been one of your focal investment areas—it sounds like you've had success with natural language processing. Could you talk about how that’s currently being used in the business? What benefits are you witnessing from that? How do you see it changing the business in the long term? Thanks.

Certainly. One key area we have focused on is our customer service delivery through chatbots using AI. We are pleased with its results: customers find it faster and easier to resolve their issues. We benefit from reduced customer service costs—it's a win-win. This is one example of how AI will influence our operations. Long-term, there's a significant opportunity in personalizing service. Customers have vast choices, and we need to provide them customized recommendations and guidance. Think of a personal travel agent who knows your history and preferences—that’s what AI aims to recreate. When customers come to us, we want them to discover their ideal trip seamlessly. I’m sure you’ve faced friction during leisure travel, which can be frustrating. We believe that with technology, we can solve these problems; those who effectively remove friction and provide easier processes will lead in direct bookings.

Thanks, Glenn.

Great, thanks for taking my question. Maybe just a follow-up on the deceleration we’ve observed in growth and its relationship with your alternative accommodation product. Do you think this product has the potential to increase your overall growth rate over time, either through adding supply or raising consumer awareness?

You asked if it could potentially reverse the deceleration we've seen recently. The answer is, yes, it could—though it might not. Right now, we see it as important, and our customers want it, which is why we are actively pursuing additional inventory. However, it’s essential to follow regulations in municipalities concerning short-term rentals. Some locations are resistant to unrestricted tourism, creating difficulties for local residents. We've seen this in various cities where there is pushback against tourism types due to their impact on local life. We want to respect regional regulations and ensure positive compliance. Nonetheless, it’s encouraging to witness positive statements from local officials regarding our model. To conclude, I want to emphasize that we are dedicated to growing our non-hotel offerings, and we recognize the potential blending of different accommodations, leading to bookings regardless of type. Thank you. I want to end by expressing my satisfaction with our first-quarter results. We balanced attractive growth with profit margin expansion and will pursue the outlined strategy. I look forward to speaking with you all next quarter.