Booking Holdings Inc (BKNG) — Q3 2021 Earnings Call Transcript

Thank you and welcome to Booking Holdings' Third Quarter Conference Call. I'm joined this afternoon by our CFO, David Goulden. I am pleased to be reporting strong results today for our peak travel season. Compared with 2019, Q3 room nights were down 18%, which was an improvement from the 22% decline we previously reported for the month of July, and the 26% decline in Q2. The improvement since July was primarily driven by stronger room night trends in Europe. In the United States, room night growth in Q3 was strong, but lower than Q2. Asia room night declines in Q3 were about in line with Q2 and remain down significantly versus 2019. International travel, which is important to our business, drove the overall sequential improvement in room night trends from Q2 to Q3. Nevertheless, our international room nights remain significantly depressed versus 2019. Q3 consolidated revenue of $4.7 billion was more than double the amount of revenue in Q2. The third quarter was also our most profitable quarter since Q3, 2019, with $2.1 billion of adjusted EBITDA and a 45% adjusted EBITDA margin. Moving into the fourth quarter, we have seen a further improvement in our room night trends in October, including early signs of a pickup in room night trends in Asia. Now, while recently rising COVID case counts in many countries, including several important European countries, add to the uncertainty around how November and December trends will progress. David will provide additional details on our third quarter results and what we are seeing so far in the fourth quarter in his remarks. The improvement in trends we saw in the third quarter, and so far in the fourth quarter following the negative impact for the Delta variant in July and August, once again demonstrates the resilience of leisure travelers, who are looking to travel when it is safe to do so and restrictions are lifted. We are confident that we are on the path to an eventual strong recovery in travel demand globally. As the global recovery continues, we are making progress, strengthening our core accommodation businesses to support its long-term growth. As I said before, the strength of our core business comes from driving benefits to our traveler customers and our supply partners alike. For our customers, we aim to create a superior booking experience and build stronger relationships, which we believe is accomplished by addressing our customers' critical needs of value, choice, and ease-of-use. We continue to see Booking.com's pre-pandemic customers coming back and booking with us, while we're also attracting new customers. Importantly, we see our top customers from before the pandemic returning to us at a meaningfully higher frequency than other customers. Providing attractive prices on accommodations is a key component of our offerings’ value for our customers. We work closely with our supply partners to increase participation in our targeted rate programs to ensure that compelling prices are available to our customers. Our Genius loyalty program at Booking.com is a great example of a program where hundreds of thousands of our property partners are participating to offer lower rates and other benefits such as complimentary breakfast, room upgrades, and discounted airport taxi to our large customer base. In addition to offering lower rates on accommodations, we have recently extended lower rates on rental cars to our Genius customers. This is just one example of the way we continue to innovate and add value for our Genius members. With about two-thirds of our room nights booked on mobile devices, and the majority of those booked through the app, it's critical that we provide our customers with a positive booking experience on our app. The app is an important platform as it allows us more opportunities to engage directly with travelers, and ultimately, we see it as the center of our Connected Trip experience. In the third quarter, Booking.com was once again the number one downloaded OTT app globally, according to a third-party research firm. Also, in the third quarter, we surpassed 100 million monthly active app users for the first time. The recent growth of Booking.com's app is encouraging, and we are working hard to continue to build on this success. In the third quarter, we saw a higher mix of our customers booking directly with us than in the third quarter of 2019. A direct mix improved even as we leaned into performance marketing channels during our peak travel season. While we will continue to invest in performance marketing, we will also look to expand the diversity of our marketing and customer acquisition channels as we aim to drive incremental traffic to our platform and increase consumer awareness of our brands. For example, with our ambition to acquire more customers in the medium-term space, we've made progress in strengthening our foundations for digital marketing, including social channels. Thus far, our spend has been small. However, we're increasingly confident in the potential of these channels, and as we see positive results, we expect to raise our level of participation there. Remaining active in investing effectively across marketing channels is made even more important by the opportunity to acquire customers new to online booking channels. Travel, like many industries during the pandemic, has seen a meaningful shift from offline to online according to third-party data, and this has increased our addressable market. For our supply partners, we are focused on bringing incremental demand to their properties from a broad audience of potential customers on our platform. In a survey of 600 small and medium hoteliers in Europe conducted earlier this year, 85% of respondents agreed that online platforms are a cost-efficient way to increase their reach to their hotel and source more diverse guests. We agree with this statement and believe it applies more broadly. Whether we are working with a small and medium hotel in Europe, or an alternative accommodation, or a large global hotel chain, we strive to be a valuable partner to all accommodation types on our platform. With our chain hotel partners, we are continuing to see increased engagement relative to 2019 levels, which shows up in higher levels of participation in our programs that enable them to differentiate and promote themselves on our platform. For our alternative accommodations, the global mix of room nights in Q3 of about 30% was up slightly from Q3, 2019. This increase in the alternative accommodations share of our business in the quarter was less than it was in Q2 as we saw a greater sequential improvement in demand for hotel room nights in Europe from Q2 to Q3. Our property counts of about 2.4 million and reported listings of over 28 million on Booking.com remain stable relative to the prior quarter. Let me talk more about some of our key strategic priorities. Payments and the Connected Trip, both of which we believe will further enhance the strength of our core accommodations business and support its continued growth. Turning to payments at Booking.com. Last quarter, we spoke about the organization of all of our payments initiatives and efforts within a new fintech unit at Booking.com. The recently established fintech unit enables Booking.com to have a dedicated focus on enhancing payments in our core business to both customers and partners, as well as monetizing our overall transaction flows through new payments-related products and services. Adoption of our payment solutions by our supply partners in both the U.S. and Europe continues to grow. Adoption in the U.S. has seen significant increases recently, driven by the additions of some major hotel chains in the second and third quarters, which we will look to build on in the fourth quarter. In Europe, more customers are choosing to pay using Booking.com's payment platform when finalizing their booking as attractive and localized options are provided. This resulted in nearly a third of Booking.com's total gross bookings in Q3 being processed through our payment platform, which is up from about 22% for the full-year 2020. The fintech unit is also driving continued payments innovation to ensure that growth is sustained into the future, which includes offering a low-cost payout choice to our suppliers, as well as partnering with third parties to provide payment solutions to our markets, such as buy now, pay later. We believe these efforts help position Booking.com as a trusted payment intermediary for all parties on our platform. On our Connected Trip vision, we've been focused this year on enabling travelers to book the major elements of their trips all in one place on Booking.com. We continue to work on scaling up our robust flight platform on Booking.com which will give us the ability to engage with flight bookers early in their travel journey and allow us to cross-sell accommodations and other services to these bookers. Booking.com's flight product is now live in 27 countries. Total Company air tickets in the third quarter were up 131% versus Q3 2019, primarily driven by strength in Priceline, but also helped by Booking.com’s flight offering, which continues to meaningfully exceed our expectations. While it remains early days for Booking’s flight product, we're seeing that over 25% of Booking's flight bookers are entirely new customers. With these new customers, we are seeing an encouraging attach rate of accommodation bookings. However, there is more work to be done to further optimize the cross-sell opportunity. The early signals help demonstrate that our flight offering can drive incremental new customers to the platform to which we can cross-sell our accommodation product. We are beginning to test initiatives targeting these new flight customers, including, for example, encouraging account creation to activate Genius status, and in some cases, offering additional incentives for them to book accommodations. We remain focused on continuing to test and innovate in order to build on the early successes we're seeing with flight at Booking.com. We're also continuing to run tests using offerings from our verticals like rental cars and taxis. Before closing, I do want to note that as world leaders assemble this week in Glasgow for the COP26 Summit discussing the urgency of tackling the global climate crisis, I cannot overstate the importance for our industry to come together to work towards the goal of carbon neutrality by 2050. Decarbonization is a major challenge for the entire industry. Tackling this challenge requires the commitment of all stakeholders. I am proud to say that our Company, Booking Holdings, is committed to addressing this challenge. We recently released a report that we commissioned with EY-Parthenon that looks into what it will take to get the accommodations industry specifically to a carbon-neutral future. While it's a big task, data shows it is achievable. At Booking.com, we are working on making it easier for travelers to find and choose sustainable accommodation options when booking their travel. In addition, we're working with our accommodation supply partners by sharing guidance, insights, and best practices to enhance sustainability initiatives at the property level. Of course, there is much more that must be done, but we believe that we are taking important steps to contribute to a more sustainable future for our industry. Finally, we plan on publishing a Booking Holdings climate transition plan in early 2022, which we'll speak more about at that time. In conclusion, we executed well and produced strong results in our peak travel season, which is a credit to the hard work and support provided by the many teams across our Company. I'm encouraged by the signs of recovery we are seeing in many parts of the world, and I'm confident that we are on the path to an eventual strong recovery in travel demand globally. We continue with our important work to strengthen our Company's position and execute against our strategic priorities. As I said before, we’re thinking about our business beyond just getting back to 2019 levels of demand, and we are focused on building a larger and faster-growing business that generates more earnings after the full recovery, and for the long run. And now I’ll turn the call over to our CFO, David Goulden.

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 the 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 we saw throughout the second quarter driven by the U.S. and Europe, followed by a 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 room nights 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, with room nights declining 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. In Q3, room nights 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 variant. Rest of the world also improved from Q2 to Q3. In the U.S., Q2 to Q3, however, the U.S. still had 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 was due to concerns about the Delta variant. Asia room night declines in Q3 were about in line with Q2. Room nights in Asia are still down significantly from 2019 levels. Mobile bookings, primarily through our apps, represented about two-thirds of our total room nights. Our apps continue to represent an increasing percentage of our mobile bookings. In Q3, as Glenn mentioned, we achieved an important milestone in the 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 the 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. The percentage 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 than it 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 accounted for approximately 30% of our global mix of room nights in Q3, which was up slightly from Q3 2019. The increase in alternative accommodations in the quarter was less than it was in Q2, as we saw a greater sequential improvement in demand for hotel room nights in Europe from Q2 to Q3. I will turn into 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 in 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 daily 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 percentage points from an increased mix of business in North America, which is a higher 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. Flight bookings in the third quarter were up 131% versus 2019, driven by very strong growth in Priceline. We are encouraged to see another quarter of triple-digit growth from our flights, which are key components of our multi-product Connected Trip strategy. Total revenue for the 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 than 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 of stays in Q3 from bookings made in the quarter as well as for bookings that were made when customers could book accommodations but could not stay due to restrictions and other COVID-related concerns. The strong top-line 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 a few points less than gross bookings, due to slightly lower ROI in paid channels due to the invested demand capturing during the peak travel season. Sales and general expenses in Q3 were significantly higher than they were in Q2 on a dollar basis, due to a 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 through our payment platform in Q3 of over $6 billion, which was almost a third 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 government aid was mostly offset by an increase from Q2 to Q3 in our bonus accruals and digital service tax expense, both of which accrued proportionally 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 related to our investment, as well as income tax expense of $199 million. Now onto our cash and liquidity position, our Q3 ending cash and investments balance of $15.4 billion was down versus our Q2 ending balance of $16.1 billion as the $1.5 billion of free cash flow was more than offset by the repayments of a $1 billion convertible note that 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 would start returning capital to shareholders when we saw that our three largest regions were no longer at meaningful risk of reversal due to COVID, and also became more predictable. Assuming that travel recovery continues, we plan to restart returning capital in early 2022 under our remaining authorization. Assuming continued recovery, we expect to complete this organization within three 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 a lot of the region remains down versus 2019. The improvement in Asia was led by domestic travel as many countries are seeing improvement in 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. The rest of the world also improved slightly in October and was back close to 2019 levels. We saw declines in Europe that were about the same in October as they were in September, but weakened 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 and December will compare with the 10% reduction we saw in October. Looking forward to November and 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, the 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 and New Year periods than we saw at this time in 2019 in the U.S. and Western Europe. Change to the income statement, we expect Q4 gross bookings to decline by a few points less than 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 a benefit from regional mix while 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 windows in Q3, meaning a low percentage of Q3 bookings 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 than 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 to increase 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 and general expenses to be lower than they were in Q3 due to lower merchant transaction volumes. However, we expect sales 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 than normal. In conclusion, we're pleased with our recovery and the top-line in Q3, which led to strong financial results for the quarter. The financial strength we saw in Q3 was impacted by the concentration of stays 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 improved relative to September, driven by some encouraging trends in Asia. However, recently, the rising case counts across Europe increase uncertainty about how trends will progress in November and December. In closing, we have confidence in our ability to capture demand as the global recovery continues and execute against our strategic priorities.

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.

Hi, Justin. I don't think it's a very hard answer really. What we need is, obviously, more of a recovery against this pandemic, because that's clearly what's driving the problem in many industries, ours particularly. For us, we've talked about this a few times. We discussed how our business has done well with international, and international generally has been hard hit, albeit we are seeing some better trends. The long haul is still a problem. Yes, we're seeing some numbers coming up in Asia, which is great. I love it. The fact that people are getting more vaccinated in Asia is encouraging, as is the distribution of vaccines more broadly. The pharmaceutical companies' developments for new treatments to combat this awful virus, such as new pills, are also positive. But what we really need is for everyone who can get a vaccine to please go out and get vaccinated if they are medically able to do so. This will help hasten the recovery for not only the travel industry but the entire world. We're preparing for when that day comes by continuing to focus on our partners, marketing strategies, and all the steps necessary to ensure we capture market share when travel returns to above 2019 levels. David, do you want to tackle the second part?

Sure, so on core business margins, we think there are solid underlying take rates, though reported take rates will vary based on timing. As we get back to levels seen in 2019, inflationary pressures may appear on costs, notably personnel costs, given the competitive tech labor landscape and planned merit increases. While we did take some expenses out during the pandemic, many are variable expenses and will ultimately revert as we scale. Achieving economies of scale with growth will offset some of that pressure on our cost base. Additionally, we anticipate opportunities in our direct mix, which is crucial. Further investment in marketing may lead to short-term pressure on profitability, but overall we believe we will gain share and increase margins over the long term.

Great. Thank you.

Great. Thanks so much. Hoping to dig into ad spend trends a little bit. So, spend is going up slightly. How much of that is Booking getting more aggressive as demand picks up versus a more competitive overall ad environment? And then compared to 2019, has distribution in brand and performance changed meaningfully? Lastly, can you give us an update on some of the merchandising and promotion tests that you've done over the past couple of quarters? Thanks.

David, why don't you take the first two questions about the advertising competitiveness and brand discussion? I will address the merchandising.

Thank you. On the last call, we anticipated a reduction in our marketing rise for Q3 versus 2019, and our actual results went in line with expectations. Our direct mix also bettered our expectations in Q3, resulting in less compression than anticipated between gross bookings and marketing. As we continue to see a market recovery, many competitors will return to the marketplace. Thus far, we've seen brand versus performance marketing not materially shift back to pre-pandemic levels. We aim to increase our brand spend over time; however, we are still retraining that segment following the pandemic when it was effectively shut down in 2020.

Regarding merchandising, it is crucial for us that we build out our payments platform on Booking.com to ensure competitiveness and provide great value to customers. We're collaborating with our partners to present timely offers. For instance, when a customer is securing accommodations, we might extend flash sales or complimentary services from the airport to their hotel. We're working on various promotional strategies to ensure we provide the best value to our customers.

Thanks Glenn. Thanks David. Really helpful.

Thanks. This is Zack on for Deepak. Thanks for taking the questions. First on pent-up demand. Obviously, it's been a nice tailwind for your business so far and general travel demand over the last few quarters. But just curious how you're thinking about whether there's another leg to run on the level of pent-up demand. Asia is still depressed, as you noted, and cross-border restrictions are easing. So, as we look into next year, how are you guys thinking about the level of pent-up demand? And then second, when we dig a little further into the current trends, is there any reversal in terms of urban versus suburban or shorter versus longer-term bookings you could call out? Thanks.

Zack, just to clarify, you’re asking about how we’ll see future demand based on pent-up demand, is that correct?

Yes.

Absolutely, we know there's significant pent-up demand. Any time governments ease restrictions, we immediately see a spike in demand. For example, the U.S. announcement to open up travel on November 8th led to an instant surge in demand for travel. Similarly, when the U.K. lifted restrictions, demand surged there as well. Notably, people have managed to save more during the pandemic and are eager to spend it on travel. We believe a significant amount of demand is ready to be released, but we need to continue to advocate for vaccination and for restrictions to be lifted. As for your second question, I'll let David share insights regarding trends between urban versus suburban bookings.

In Q3, we saw strong recovery across all geographies. We continue to see a bias towards leisure, particularly outdoor-oriented travel and beach properties during Northern Hemisphere summer months. However, city bookings are recovering as well, and anecdotally, securing a hotel room in urban areas is becoming increasingly difficult, indicating recovery in city travel.

Great. Thank you.

Thanks. I have three quick questions. First, has there been any impact from IDFA? Second, regarding the 100 million mobile app monthly active users, do you have enough historical data to determine if they are significantly different? Are they more or less profitable, more or less loyal, and more or less likely to convert compared to users from other platforms? Lastly, concerning the rollout of the air products to additional markets, you mentioned you have it in 21 markets and provided some good statistics about 25% of customers being new. Could you repeat the information regarding add-on sales? It sounds like a solid product addition, so the key question is, how long will it take to fully roll it out across all markets, considering how positive it's been so far?

Thanks Mark. I'll discuss the air question first, then comment on IDFA, and let David address insights on app users' profitability and engagement. First, regarding our air product, we are excited about the progress we've made, moving from the initial launch in late 2019. While we've rolled it out to 27 countries now, our goal remains to expand to all markets we currently operate in. Achieving complete rollout involves navigating regulatory requirements and obtaining the necessary licenses, which takes time. We will continue our phased approach for rollout as we adjust to market needs.

To your point about 100 million mobile app MAUs, we closely track customer engagement. We have observed that direct customers, who use the app to book, are generally more loyal and generate higher revenue than those using mobile web or desktop. We aim to drive more app engagement as they offer us a significant opportunity for increased customer loyalty and profitability.

Regarding IDFA and privacy-related changes, the impact on our marketing activities has been minimal. Most of our marketing primarily utilizes paid channels, such as PPC, which remain unaffected. We pride ourselves on leveraging first-party data and do not predict significant disruptions to our strategies. We've taken a proactive approach and have maintained strong performance despite changes in privacy frameworks.

Thank you, Glenn. Thank you, David.

Thanks so much for taking the question. I want to come back to the comments you talked about a little bit earlier around the dynamics around hotel room night growth with traditional hotel supply room night growth versus alternative accommodations. Curious what your view is on how the landscape on both the supply and the demand side might evolve as we move into a post-pandemic world and aim towards summer of 2022, and how you think about making investments on supply to match up to a more normalized travel environment in '22. Thanks so much.

Thank you. Before the pandemic, we observed an increasing share of alternative accommodations in our business. The pandemic caused a shift as travelers prioritized safety by avoiding crowded places, leading to increased interest in alternative accommodations. We're confident that this long-term trend will remain. We must continue to work closely with suppliers to ensure we have a robust portfolio of both hotels and alternative accommodations, enhancing our brand awareness in both sectors. Our analysis shows users often begin their search in one category and later compare options across both, highlighting our competitive edge.

To your point, Eric, we did see substantial demand in Q3 across both segments, which contributed to strong results. Continued efforts to grow our hotel and alternative accommodation portfolios will allow us to better meet customer demands moving forward.

Okay. Thank you so much. Glenn, I think in the past we've talked about your payment’s product helping to expand your brand by onboarding those users who may not necessarily be using credit cards and instead online payment services. Given the overall depressed state of travel in Asia, maybe much of that value lock is still in front of us, but are you seeing evidence in other regions of the world that this is helping to bring in that incremental user? And also, just the rising ability for you guys to merchandise as you do more with the Connected Trip, but this opens up a greater opportunity for you guys to run promos and change prices, enhance, flex your gross margins up and down to drive growth on top of what has always been a performance marketing-driven growth. So, is there still a pretty material gap in ROI from doing one versus the other at this point in time in terms of what you perceive?

The key to our payment strategy is onboarding users who prefer alternative payment methods. This is crucial, especially in regions where traditional credit card usage isn't predominant. We've forged partnerships with payment methods localized to where users are adapting their purchasing habits. This not only facilitates their transactions with Booking.com, but also enriches their experience, thereby helping us increase conversion rates.

To your second point, with payments becoming an essential aspect of our service, the ability to leverage merchandising will empower us further. We're continuously assessing the return on investment across our marketing channels, allowing us to adapt and optimize based on real-time data rather than any rigid approach.

Thank you.

Thanks for taking the questions. I just wanted to ask about social advertising and if the dollars there are still small, but just curious what gives you the confidence that it will work to the point of potentially adding some real dollars there? It's an area you've tried before, so just curious what’s different now? And then secondly, David, if you could just walk through those Q4 sequential revenue dynamics again and if there's something that's particularly different, as opposed to just the normal seasonality?

Hi, Doug. Yes, social advertising remains a small part of our overall budget, but it offers a large potential audience. We are focused on structured testing to ascertain effective methodologies to maximize our outreach. If we observe a positive ROI from our investments, we will increase our spend. Our adaptable strategy remains a strength, enabling us to pivot as necessary based on its performance.

Doug, let me clarify about sequential revenue comparisons. Q3 was structurally strong due to end-of-summer bookings— bookings received from prior quarters stayed predominantly in the third quarter. Additionally, with more bookings in Q3 than expected, the comparison dynamics versus Q4 shift significantly. It’s not just typical seasonality; we had a Q3 where demands were concentrated, thus directly influencing Q4 appearances and comparisons.

Thank you. In closing, I want to repeat what I said at the close of last quarter's earnings call, and reiterate our strong belief that our industry's full recovery will be hastened by everyone who can get a vaccine, going out and getting it. We urge all people who are approved for and medically able to be vaccinated to do their part, making our society safer. As always, I want to thank our partners, customers, dedicated employees, and shareholders. We appreciate your support as we continue to build on the long-term vision for our Company. Thank you, and please be safe. Goodnight.