Booking Holdings Inc (BKNG) — Q3 2022 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 encouraged by the strong results we are reporting today and by the record level of travel during our peak summer season. In the third quarter, our customers booked 240 million room nights, a little under 0.25 million room nights, which was 8% higher than in Q3 2019. We saw an improvement in room night growth during the third quarter from 4% growth in July to 10% growth in both August and September relative to the comparable months in 2019. We note that sadly, the war in Ukraine continues. And as you know, we suspended our operations in Russia and Belarus shortly after the war broke out. If we exclude the suspended areas as well as Ukraine, our room night growth for the quarter would have been 11%. We are pleased that all of our major regions improved in August and September versus July and room nights in Asia surpassed 2019 levels for the first time in September. In the U.S., both our Priceline and Booking.com brands continue to execute well and contributed to room night growth of almost 30% in the third quarter versus the third quarter of 2019. We continue to see very strong accommodation ADR growth, which helped drive a 27% increase in global gross bookings in the third quarter or 41% on a constant currency basis, both versus Q3 2019. Despite the strong pricing environment, we have not seen evidence of our customers trading down to lower hotel star ratings or reducing the length of their trips. We took another important step in our company's recovery from a profitability perspective with the third quarter being the first time that adjusted EBITDA surpassed pre-pandemic levels. In fact, the third quarter was our highest revenue and adjusted EBITDA quarter ever. Our Q3 revenue and adjusted EBITDA were 20% and 7% higher than Q3 2019 and grew 34% and 25% on a constant currency basis. More recently, we have seen resiliency in the level of demand from travelers with room night growth improving slightly from September levels to about 12% growth estimated for the month of October versus October 2019. Gross bookings in October are estimated to be up about 30% or just over 45% on a constant currency basis. The slight improvement in October was primarily driven by the continued recovery in Asia as well as a slight improvement in Europe. As we take an early look at demand into 2023 at Booking.com, we see strong growth in gross bookings on the books for travel that will take place in the first quarter of next year, though I note that a high percentage of these bookings are cancellable. Interestingly, we have strong numbers on our books for early 2023 despite the booking window being shorter than it was at this point in 2019. David will provide further details on our results and on the recent trends we have been seeing. While there is a rising concern around the macroeconomic environment and uncertainty around consumer spending, we believe the sustained level of demand we have seen through October helps demonstrate our consumers' strong desire to travel. We believe our solid operating results, substantial liquidity and strong free cash flow positions us well to navigate potential near-term economic uncertainty while we continue our work attracting customers and partners to our platform and making progress on our key strategic priorities of payments and the connected trip. Given our confidence in the positioning of our business, the positive long-term outlook for travel and our strong balance sheet, we have stepped up the pace of our share repurchases since we reinitiated the program at the start of the year. With $4.2 billion in repurchases for the first three quarters of this year, we have reduced our share count by 5% relative to our ending share count last year. We remain focused on building a better experience for our customers and addressing their needs for value, choice, and convenience. With continued focus on our customers, we aim to increase loyalty, frequency, spend, and direct relationships over time. We are encouraged to see our unique active customers at Booking.com above 2019 levels in the third quarter, which was driven by strong growth in reactivated customers who had not made a booking in over a year as well as growth in repeat customers. Our mix of customers booking directly on our platforms reached its highest third quarter level ever. Our goal over time is to further increase our direct mix through several initiatives, including continued efforts to enhance the benefits of our Genius loyalty program, further building out our connected vision to increase engagement with our customers, and driving more of our customers to download and utilize the mobile app. The mobile 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 vision. About 45% of our room nights were booked through our apps in the third quarter, which is just over 10 percentage points higher than in 2019. Booking.com app remains the number one downloaded OTA app globally according to third-party research, and we have seen increasing levels of downloads in the U.S. We will continue our efforts to enhance the app experience to build on the recent success we have seen here. We're thinking about addressing our customers' need for value, we believe providing attractive prices on accommodations is very important. As has always been the case, our first priority, as we think about providing attractive prices, is to source competitive rates from our supply partners. We do this by working closely with our supply partners to get the best prices possible and 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 to travelers in ways that meet our property partners' specific revenue needs. In addition to sourcing competitive rates directly from our partners, we have built up our ability to selectively offer discounts and incentives at Booking.com over the last few years. Visibility to merchandise is another lever that we can now pull as we look to deliver value to our customers through more competitive pricing. We believe this competitive tool helps us attract and retain customers and drive improved conversion on our platform. Importantly, we take a disciplined approach to merchandising by very closely monitoring the incremental return on investment on that spend, and we can adjust the level of our spend according to our desired return objectives. We have been pleased with the levels of incremental return we have seen this year for merchandising, and we'll continue to selectively utilize this tool going forward. For our supply partners, we strive to be a valuable partner for all accommodation types on our platform by delivering incremental demand and developing products and features to help support their businesses. Alternative accommodations on Booking.com grew about 11% versus 2019 and represented about 30% of Booking.com's total room nights in Q3. We have continued to make progress with our alternative accommodation offering by increasing our supply base of properties, which has grown by about 300,000 since the end of 2021 and has increased in each of our major regions around the world over that time period. We aim to build on this growth in our alternative accommodation supply base by improving our product offering to our supply partners globally with a continued focus on the U.S. market. Let me now talk about the progress we have made in our interrelated strategic priorities of payments and the connected trip vision. On payments, 40% of Booking.com's gross bookings were processed through our payment platform in the third quarter, which, once again, is our highest quarterly level ever. We believe Booking.com payment services drive benefits for both our travelers and our supplier partners across hotels, alternative accommodations, cars, flights, and attractions. Furthermore, we believe that Booking.com's payment platform helps deliver a more seamless and frictionless booking experience, which are important elements of our larger connected trip vision. Our long-term vision is to make booking and experiencing travel easier, more personal, and more enjoyable while delivering better value to our customers and supplier partners. We are expanding our offering into travel verticals other than accommodations, and then we'll work to link relevant travel components together to provide a more seamless, flexible consumer experience. As a result of this initiative, we believe, over time, we will drive increases in customer engagement, share of spend, and loyalty to our platform. We continue to make progress on building foundations that connect travel, including our work to integrate ground transportation options and further develop our flight offering on Booking.com. This flight offering gives us the ability to engage with potential customers who choose their flight options early in their discovery process. And over 20% of all of our flight bookings globally are new to Booking.com. There is much more work to do as we strive to give our customers the best possible trip experience, but we are pleased with the early results we have seen so far. In closing, I'm encouraged by our strong third quarter results and the sustained levels of travel demand we are seeing into the fall and into early next year. We continue to make progress in several key areas, including engagement with our app, the Genius program, our alternative accommodation offerings, payments at Booking.com, and building towards our connected trip vision. I believe these initiatives will help us deliver a better offering and experience for our customers and our partners. While there continues to be uncertainty around the near-term macroeconomic environment, we are as confident as ever in the long-term growth of travel and in the opportunities ahead for our company. I will now turn the call over to our CFO, 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 improve 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. 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 an increasing mix of our total room nights turning 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 remained shorter than in 2019, similar to what we saw in the second quarter of 2022. This booking window expanded 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 Booking.com, our room night growth rate was 11% in Q3 versus 2019 and the 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 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 recovering 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 one-third in Q3 2021. Our more fixed expenses in aggregate were better than our expectations at 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 a $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 five years, we reduced our share count by 20% despite suspending our share buyback activity for 21 months during the 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 up 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 the levels of growth we've seen over the last three 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 gross bookings. We expect about a 15% difference between the level of room night growth and gross booking growth, less than the 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 the 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 Q1 are up about 25% in euros versus the same time in 2019. Of course, we note that a 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 point 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 priorities are 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?

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 the impact of that on take rates and profitability maybe over the next year or so?

Lloyd, why don't I take the first one. I'll let David talk about payments, then add anything he wants in terms of fixed cost going forward. So obviously, we are very pleased with third quarter and we are very pleased with what we're seeing, albeit it's small numbers into the first quarter. David just talked about that 25% on the books in euros, I'd love to see that. Your question is whether there's anything we're seeing from consumer sentiment or on expanding some macro that may be inhibiting growth or could hurt in the future? And something that's very hard to know is what's the counterfactual. And we're doing well but one measure would be if all these terrible things that we read in the newspapers had not been happening, how much better would it be? I can't measure that? I don't know. What I do know though is that we are seeing good numbers, and we're pleased with where we are. We know that we've been through bad times in the past and were able to do very well. We've made adjustments where we've had to. I've been with this company for almost 23 years. We've had some recessions and we have some real disasters. And we have managed this company extremely well steering it through some very stormy weather and being able to adjust. So many of our expenses are variable, so we can adjust very quickly and we adjust automatically almost as volumes change. But I'm feeling good right now, albeit the world can change any time, and I'll let David now talk to you about specifics of fixed expenses and also about payments.

Yes. Thank you, Glenn. I just point out that about two-thirds of our expenses are variable, which is 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 detail, 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 that mix of revenue has increased. Now, of course, back in 2019, we actually weren't 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 roadmap. It's a multiyear roadmap 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 it will help have a more constructive dialogue upon how it's doing going forward against those benchmarks.

I have two questions. I appreciate the information on the U.S. nearing 30% growth. Regarding the U.S. market, could you clarify the current profitability status in comparison to other regions? Is it mainly still focused on investments for growth? How do you envision improving profitability in that area? For my second question, I might mispronounce it, but it's about Majorelle. David, could you discuss the potential benefits and challenges of that partnership as we look ahead to 2023 and its impact on the profit and loss statement?

Sure, Brian, let's go in reverse order. Regarding Majorelle, you're very close. From a profit and loss perspective, this year is mostly about reallocating funds geographically as we navigate through a transition phase. We've previously mentioned that approximately $25 million in personnel expenses and about $6 million in general and administrative expenses per quarter are being redistributed into sales and other areas, starting June 1. You will see the full effects of this in the third and fourth quarters. While our partnership with Majorelle does yield some cost advantages, the main benefit is flexibility. It enhances our ability to quickly adapt to varying market needs and language demands. In the long run, compared to building everything in-house, there are cost benefits that will begin to materialize in 2023, although we haven't specified the amounts yet. We may evaluate whether to provide an estimate on the middleware next year, but that's not our primary focus. While I'm not saying there are no cost efficiencies, that isn't the reason we entered the partnership. Our partnership has proven to be highly effective. We just finished the summer period, and our customer service results were strong under the new model since we retained some employees. In the U.S., we are indeed growing, which means we are investing, and this shouldn't come as a surprise. We haven’t disclosed contribution margin figures by region and don’t plan to, but it’s clear that we are investing in the U.S. to enhance our position, which continues to grow. As this evolves, we’ll be able to achieve higher profitability. However, we are not implying that this growth compromises our current operations in the U.S. It's a profitable market for many, including us, though we may not be making as much as others since we are not heavily investing in aggressive pricing.

Just a follow-up on the marketing spend. Could you characterize how you see the competitive environment right now on advertising channels over Q3 and quarter-to-date? How that compared to earlier in the year and maybe also compared to 2019?

One, I just mentioned in general and then if David wants to state specifics. 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 on 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. Go ahead, Kevin, please. Do you have the second question?

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?

Sure. To wrap up Glenn's point about the market environment, we noted that our returns on investment were slightly lower this last quarter as anticipated. We aimed for lower returns to support our continued focus on recovery. It's worth mentioning that our returns were actually higher in the first half of the year compared to 2019. In terms of investment levels, we still intend to invest in the business, although we acknowledge certain backlog challenges. We won't reduce our strategic initiatives in response to a short-term slowdown, but we are carefully considering how many people to hire and aligning them with the most important priorities for the business, as you would expect from us.

Two questions, please. Can you discuss how you have been able to increase mobile app usage? This clearly provides significant benefits for the business model, but what strategies have you implemented? Also, I know you aim to increase this further. How much higher do you think is realistic? Additionally, could you provide more details on the flights business? Where do you currently stand in terms of rolling it out, how many markets are involved, and what is the level of awareness for this product? Please elaborate on the growth trajectory for the flights offering.

Mark is correct about the significance of the mobile app, and I emphasize its importance in every earnings call. We strive to create an excellent experience for users, as satisfied users are likely to return and recommend our service to others. We're not doing anything drastically different from our competitors, but we believe we're executing it well. It's difficult to predict the upper limit of mobile usage since mobile device manufacturers keep improving their products, and users are finding more advantages in mobile over desktop. Mobile usage numbers could be very high. Our goal is to encourage users to utilize our app for mobile web searches, which is crucial for us. More than 60% of our business is coming from mobile, with 45% from the app specifically. We aim to maximize app usage among mobile device users. Regarding flights, I haven't checked the number of countries recently, but there are many, albeit with low activity in some regions due to limited awareness. For instance, Pakistan has minimal flight options currently, but we are working on increasing our presence there. The primary goal for us is to enhance user experience. I honestly think our flight product isn't yet where it needs to be. We are focused on improving it, offering features that some competitors already provide but we have yet to implement. There is significant potential for growth in this area, and although we're pleased with our growth rates, the overall size is still relatively small.

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 Q1. 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.

So I'll talk a little bit about merchandising. A couple of things. First thing is, so it can be an investment that we're making, a way to bring in customers, retain customers or ways that we feel it necessary to be competitive against other OTAs or our suppliers even. The fact is that we're always looking where to spend the money at the best return. And merchandising, if we see somebody else is off in a lower price, we recognize that one of the most important things is to give a competitive price, and we need to make sure that we're offering that up to the customer. Many times, we want to do my talk with our supplier partners and making sure they bring us, as I said in the prepared remarks, about bringing us the most competitive prices. But if for some reason is not available, and we feel a need, we'll put money in there to make sure that our customers like to book with us and we'll provide them a great place to do their travel bookings. That's one. Second thing is I want to make sure everybody understands that merchandising doesn't always mean a discount by us. It can mean lots of things. People offering up some other type of benefit, for example. Although if somebody were to offer up an upgrade in a room, I'll consider that a merchandising technique to do. If somebody offers a free breakfast at the hotel, I'll consider that too. We're not paying for that breakfast; it's the free breakfast. So parts of ways to do lots of levers to play. That's one of the things we think is so important is making sure that we are providing the most competitive offering out in the space, and in addition, being able to use all of our investments in the right way at the right time to get the right return. And as a lot of data to see where is it best to be put out. I'll let David go with the other two questions.

Thank you, Glenn. Looking ahead, the timing is affecting our take rate by about one percentage point this year. We anticipate regaining most of that next year, though not entirely. There may still be some timing effects depending on the growth rates into and out of the year, but we expect to recover most of it. On the marketing and merchandising front, we've focused this year on capitalizing on a recovering marketplace. We'll be reducing our leverage in these areas further next year, but we need to assess the market to determine the extent of the remaining recovery, particularly in travel. Some areas have yet to return to pre-pandemic levels, so we'll evaluate the appropriate level of investment. If we continue to increase our market share, which we believe we did this year and last year, we might maintain those levels until the market growth stabilizes. We will provide more updates on our position in February once we complete our planning for the year and gain further visibility into next year. Regarding your question about Q1, last year was atypical due to the Omicron variant. We need to monitor how current variants play out this year. I wanted to point out that we have about 25% more gross bookings for next year compared to the same period in 2019, which indicates strong booking activity for Q1. While there's still a lot to happen before then, this is an encouraging sign. It's worth noting that the previous figure we shared was a 15% growth forecast, and in both previous quarters, actual revenue was significantly higher than our early indicators as bookings increased. Just to clarify, the 25% figure refers to the euro bookings.

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?

So Doug, I'll start with the hotel trading down trends. I haven't noticed any significant differences in any geographical area. We're observing that people who want to travel have accumulated substantial savings during the COVID period, and they are eager to travel, with some even extending their stays to fully enjoy their experiences, regardless of the economic conditions. As for future ADRs, I can't say we have anything definitive to share publicly.

Yes. Regarding the trade down, Doug, as you mentioned, we're not observing this trend in Europe, which is often where questions arise. Globally, we are not seeing it either, so it's not a significant factor, particularly not in Europe. For the ADRs we have projections for next year, we will discuss them in constant currency since it’s uncertain how exchange rates will change. In Q3, we reported 28 points of constant currency ADR mix, and that has remained relatively consistent at around 26 points in October, with 24 points coming from rates and only 2 percentage points from mix. As ADR continues to recover, we will lose that 2-point mix, which is mainly due to the previous mix in Asia. However, the majority of what we’re experiencing is rate driven. Our property partners continue to face similar expense and inflation pressures related to utilities, energy, labor, and more. We will monitor how the situation evolves and will provide further updates in February if there are any changes.

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?

So Eric, our fundamental idea has always been that more is better; having more supply is advantageous, and it ultimately comes down to what the consumer prefers in terms of where they want to stay. Whether it's a home, villa, apartment, or hotel, it's their choice. Overall, we need to keep working diligently to increase our supply across all categories. I've often discussed our need for single properties, specifically homes that we need to develop. I've mentioned the importance of focusing on the U.S. as well. A key aspect is enhancing the onboarding experience for property owners, improving their payment processes, and finding ways to help them feel more comfortable with guests staying in their properties, perhaps through an insurance-like structure. These are initiatives we've been working on and will continue to implement to make it easier for property owners and managers to list their properties on our platform. I believe that, as we've observed over the years, increasing our supply will help strengthen the business. I genuinely think that this doesn't require any groundbreaking inventions; people are already doing this. We just need to keep progressing, employ the right people, create the necessary solutions, and eventually, we will achieve this, even if it takes longer than I'd prefer. However, I am very satisfied with our current position, and I find some of the numbers we've discussed quite promising.

Glenn, I think you mentioned you see opportunities to enhance the experience in the mobile app. Can you give an example of what kind of things we could see there? And then I don't know if you guys updated us on the mix of urban and cross-border any stats that would be pretty helpful.

I'll let David discuss the statistics related to urban. Regarding the app, there's one notable point I want to emphasize. As a traveler, I often wonder what I might be missing. It's essential to have features that pop up on my screen from our app, showcasing exciting activities, discounts, or options to skip lines. This would encourage users to think, "Using Booking.com enhances my travel experience significantly." The beauty of the mobile app is that it's always with users, whether in their hands or pockets, allowing us to provide improved services, activities, and value. That's why it's a crucial element of our connected trip vision. David, would you like to share any statistics?

No sense on the note to say that historically, we've had a heavier weight of mix urban not. So as recovery continues, if people go back to cities and other locations, that usually is a positive for us, but no stats on mix. On cross-border, we did tell you that we're back up to 45% of our bookings now in the third quarter. For international, that's down from a little over 50% on a pre-pandemic basis. So there's still some decent recovery left there to happen as things continue to normalize back to where they were.

Two on margins that relate to margin. When considering margins beyond this year, how does the strength in direct and applications influence your thoughts on the long-term margin profile of the business, especially with some of your growth initiatives like flights yielding lower margins than your core, which could eventually offset these challenges? Also, how should we view the potential impact of APAC as a source of premium growth on the overall margin profile in 2023?

Yes, Lee, I want to discuss 2023 margins, but that's better suited for next February. In the long term, we plan to recap what we're thinking and save the 2023 details for then. Our strategy is to enhance our products and services for customers and partners, encouraging them to engage with us more frequently and directly. Our direct business is crucial, as it is closely linked to customer engagement and loyalty. Customers who purchase multiple items from us are more likely to return through our paid channels. However, we're facing some challenges in our volume profile due to changes in our business mix, transitioning from almost exclusively accommodation to a higher mix of payments and flights, which typically have lower margins. The key to maintaining strong margins is to increase our direct business mix, positively affecting all areas of the company. We've stated previously that we will lead the industry in profitability and margins. Due to these mix factors, we anticipate that medium-term margins may be slightly lower than in 2019, but we expect to see a business that grows faster, resulting in more EBITDA and earnings per share than the growth of revenue and expenses. We believe this is the most important aspect.

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?.

The 10% room night guide serves as a framework for Q4. There is still considerable volatility, and we cannot precisely predict room night performance in November and December due to the current environment. However, we have experienced growth rates of 10% to 12%. This provides a general idea for our commentary regarding the potential shape of the profit and loss statement for Q4. It does not suggest a slowdown at the end of October; in fact, room night growth remained consistently at 12% throughout October. This guide is meant to offer a perspective rather than a strict prediction. While we provide a number for modeling purposes, it doesn't reflect any significant changes we observed in October, whether slowing down or speeding up. It is simply a way to visualize the potential layout of the income statement for Q4.

And then just one on alternative accommodations. You guys mentioned as a percentage of total, it's around 30%, slightly higher than Q3 '19. I guess, are there any low-hanging fruit or opportunities ahead to kind of increase this percentage over the next couple of years?

Well, I mean, we could easily increase that if we didn't do so well in hotels. It's one of those things where we think of this holistically, we want to get more bookings, as I mentioned earlier. This is really a case where the consumer makes the decision, not us. We think one of the great advantages of our platform is that we offer all the different types of accommodations. And we have seen the data where people come to our site. And the first thing they're looking at may be one type of accommodation, let's say, a hotel. They end up booking with a home because they saw that in the search results and they were going back and forth looking around. It's really, so that we're very pleased to have that ability to offer up all the types of accommodations to the customer. So I don't see anything to try and artificially try and drive more people to the alternative accommodations necessarily as a thing that's going to increase the value of the company. I think providing the customer with what they want, what they need, what they think is best for them is really the right way — being consumer-centric and really driving that is the best way to build the company.

So Glenn, your unit growth commentary in the U.S. was actually very interesting. So can you talk about the relative size of your user base for Booking.com in the U.S. versus, say, Priceline? And presumably, booking continues to grow, do you think it's necessary to support both brands longer term? And if you were to take one step out and zoom out more globally, there was always a sharper line in the sand between the consumer experience on Booking.com and? Or do you think as you do more merchandising and connected trips, should we be thinking about a unified brand position under Booking.com?

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 with different strategies. We really — we totally understand the issue of whether we’re 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've ever disclosed anything of that nature. So I think we're going to sit tight with that and keep going the way we are. 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.