Booking Holdings Inc (BKNG) — Q2 2023 Earnings Call Transcript

Thank you, and welcome to Booking Holdings' second quarter conference call. I'm joined this afternoon by our CFO, David Goulden. I am pleased to report that in the second quarter we continue to see robust leisure travel demand which helped drive the strong results we are announcing today. The 268 million room nights booked in the second quarter increased by 9% year-over-year and gross bookings of $39.7 billion grew 15% year-over-year and was the highest quarterly gross bookings ever. Both room nights and gross bookings came in ahead of our previous expectations as a result of the favorable demand environment. Revenue growth of 27% in Q2 also nicely outperformed our expectations. The strong top line results in the quarter combined with better-than-expected marketing efficiency helped drive our Q2 adjusted EBITDA to about $1.8 billion which is an increase of 64% versus Q2 last year, and meaningfully exceeded our prior growth expectations of about 35%. Looking at the month of July we have seen an acceleration in year-over-year room night growth relative to the 9% growth we reported for Q2. We estimate July room nights increased by about 20% year-over-year benefiting from the easier comparison to July 2022. Overall, we have been very pleased to see our strong performance in the first half of the year which has benefited from the continued strength and resiliency of overall travel demand. Our solid start to the year combined with what we currently believe will be a new all-time high for Q3 summer travel period results and an improved outlook for the full year which David will discuss in detail in his comments. While the near-term results and outlook are encouraging we remain focused on what is important for the business for the long term which means making the necessary investments to strengthen and grow our enterprise while simultaneously remaining cost conscious. We are seeing progress and momentum across several important initiatives, which will help strengthen our business over the long term. These initiatives include advancing our Connected Trip vision, further integrating AI technology into our offerings, continuing to grow alternative accommodations, and building more direct relationships with our travel bookers. Starting with the Connected Trip: this is our long-term vision to make booking and experiencing travel easier, more personal, and more enjoyable, while delivering better value to our traveler customers and supplier partners. To be clear, this is not a discrete product we will introduce at some point in the future, instead this is a meaningfully enhanced way for a booker to experience and utilize Booking.com. Over time you will see incremental improvements and enhancements to our platform that move us another step closer to this long-term vision, and importantly, this approach allows us to realize benefits while we are building towards that future state. We believe that the current travel experience is much more complicated, fragmented, and frustrating to travelers than it should be and, eventually, our Connected Trip vision will greatly improve it via technology. Looking at the other side of the travel marketplace, we believe that our supplier partners will also benefit greatly from the Connected Trip as it will provide more opportunities to personalize and merchandise their offerings. We continue to build out our Connected Trip vision and have much more work to do, but we are pleased with the progress we have seen so far and expect it to ultimately result in increased customer and supplier engagement with our platform. We have always envisioned the Connected Trip as having AI technology at its center. Across our company, we have a long history with investing in AI technology and incorporating it into our platforms in order to optimize interactions with both our travelers and partners. This is an area where we believe we are well positioned given we have built strong teams of AI experts and gained valuable experience from using AI extensively for years. In addition to the many current applications for AI on our platforms, we believe that we can build an even more compelling and differentiated offering for our bookers if we can leverage AI technology to deliver a more personalized booking experience: A Connected Trip that would be more responsive to a booker’s needs and help manage different aspects of their trips. Generative AI may play an important role in delivering that Connected Trip experience to our bookers, and our teams have been hard at work to integrate this exciting technology into our offerings in innovative ways. For example, in early July, Priceline unveiled its 2023 Summer Release, which delivered over 40 new booking tools and upgrades, including Penny. Penny is Priceline’s generative AI travel assistant. Priceline has currently positioned Penny at the “end-of-the-funnel” on the checkout page where Penny can answer travel related questions that a customer may have when they have reached the checkout page. Penny is built on Priceline’s own proprietary technology and data, and also leverages large language model technology to power its conversational capabilities. The combination of these technologies allows for innovations like the ability to make a booking directly in the chat interface. The Priceline team is rapidly gaining insights on booker questions, concerns, and behavior as Penny continues to interact with customers. The plan is to further enhance Penny over time by leveraging those valuable learnings. Around the same time as Priceline’s Summer Release, Booking.com launched its own AI Trip Planner, which began rolling out on the mobile app in the US to Genius customers. In contrast to Penny the AI trip planner sits towards the top of the funnel, where travelers are in the discovery and planning processes for their trips. Built upon the foundation of Booking.com's existing machine learning models that recommend accommodation options to millions of travelers on the platform every day, the AI trip planner is also partially powered by large language model technology to create a conversational experience for people to start their planning processes. The AI trip planner advances planning by providing travelers with a rich visual list of destinations and properties including Booking.com's live pricing information with deep links to view more details on the options. From the chat interface of the AI trip planner, bookers can tap on any recommended accommodation they're interested in and then complete the reservation. Accretive to our approach here is to marry our own proprietary data and machine learning models with generative AI technology. This allows us to provide a conversational interface with the traveler while leveraging our own recommendation engine to provide accurate detail and real-time information on the property recommendations. Like Priceline, the Booking.com team is already gaining valuable insights from the interactions with bookers even though the trip planner is in beta and is still currently in a relatively limited rollout. While we are excited by these new advances at Booking.com and Priceline, it is of course still very early days and we have much more to learn about how customers will ultimately want to interact with this new technology. In addition, we mentioned last quarter that we are examining all areas of our company to ensure we are taking advantage of AI-created efficiencies. We are confident in our company's ability to benefit from AI development and improve our products for our customers given our many years' experience in AI, our travel-related data, and connections to our supply partners and our human and financial capital. Across our businesses, we have two equally important customers: our travelers and our supply partners, with each representing one side of our marketplace. For our supply partners, we strive to be a trusted and valuable partner for all accommodation types on our platform and we look to add value for our partners by delivering incremental demand in developing products and features to help support their businesses. One area of focus for us on the supply side continues to be our alternative accommodation offering at Booking.com. Alternative accommodation room nights grew faster than our traditional hotel category at about 11% year-over-year for the second quarter and represented about 34% of Booking.com's total room nights, which is two percentage points higher than in Q2 2022. This is a new all-time high mix of our total room nights. We are pleased to see continued momentum in terms of alternative accommodation supply growth both globally and in the U.S. with global listings reaching about 7 million by the end of the second quarter which is about 8% higher than Q2 last year. We aim to build on this progress by continuing to improve the product for our supply partners and travelers particularly in the U.S. For our travelers, we remain focused on building a better experience that leads to increased loyalty, frequency, spend, and direct relationships over time. In the second quarter, our mix of customers booking directly on our platforms continue to increase year-over-year. We see a very high level of direct bookings in the mobile app which is an important platform as it allows us more opportunities to engage directly with travelers and we believe will result in increased traveler loyalty. About 48% of our room nights were booked through our apps in the second quarter which is about six percentage points higher than in Q2 2022, an acceleration in the mix shift compared to Q1, and all-time high in terms of mix of bookings coming from our mobile apps. We will continue our efforts to enhance the app experience to build on the recent success we have seen here. In conclusion, I am encouraged by the strength of travel demand so far this year and signs of what we expect to be a record summer travel season. Our teams continue to innovate and execute well against our key strategic priorities which helps us position our business well for the long term. We remain focused on delivering a better offering and experience for our customers: both our supply partners and our travelers alike. We are as confident as ever in the long-term growth of travel and 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 discuss our results for the second quarter and share our outlook for Q3 and the full year. All growth rates for 2023 are based on year-over-year comparisons unless stated otherwise. We will refer to comparable periods in 2019 when relevant. Reconciliation information for non-GAAP to GAAP results is available in our earnings release, and prepared remarks will be posted on the Booking Holdings Investor Relations website after this call. Now, regarding our second quarter results, the year-over-year comparison is challenging due to strong travel recovery following Omicron in Q2 last year. We achieved a 9% growth in room nights, which exceeded our expectations. In terms of room night growth by region, Asia grew over 40%, the rest of the world saw low double-digit growth, Europe grew a couple of points, while the US experienced a slight decline. It’s important to note that the US had strong performance last Q2, surpassing Q1 and Q3 when compared to 2019 due to the rebound from Omicron. Our global room night growth compared to 2019 was 26%, consistent with Q1. In Q2, Booking.com’s booking window expanded more than in Q1 and also showed growth over Q2 2022. Our mobile apps accounted for approximately 48% of total room nights, up six percentage points year-over-year. We are seeing a growing share of room nights coming through our direct channel, which increased relative to Q2 2022. For the first time since the pandemic started, our international room night mix fully recovered to 2019 levels in Q2. We recorded higher cancellation rates in Q2 than in 2022, as the latter benefited from increased bookings in the wake of relaxed travel restrictions post-Omicron. However, our cancellation rates remain below 2019 levels. In the alternative accommodations segment at Booking.com, Q2 room night growth was approximately 11% year-over-year, with alternative accommodations making up 34% of our room nights, up from 32% in Q2 2022. Gross bookings climbed 15% year-over-year or 16% on a constant currency basis, with the increase being due to higher constant currency ADRs and some contribution from flight bookings, although partially offset by a minor negative impact from foreign exchange movements. Our ADRs in constant currency were adversely affected by regional mix due to a higher proportion of room nights from Asia and a lower proportion from the US. Excluding the regional mix, constant currency ADRs rose by about nine percentage points year-over-year. Despite the rise in ADRs, there has been no noticeable change in the star ratings of hotels booked or the length of stays, indicating no signs of consumers trading down. Airline ticket bookings increased by about 58% year-over-year, largely driven by the growth of Booking.com’s flight offerings. Revenue for Q2 exceeded expectations, rising 27% year-over-year, or about 28% in constant currency. Q2 revenue as a percentage of gross bookings was about 130 basis points higher than last year, in line with our expectations. Our accommodation take rates remain consistent with 2019 levels. Marketing expenses, which are highly variable, increased by 4% year-over-year. As a proportion of gross bookings, marketing expenses were roughly 50 basis points lower than Q2 2022, thanks to improved returns on investments in our paid channels and a higher direct business mix. Performance marketing returns improved year-over-year, reflecting our efforts to enhance marketing efficiency. The combined percentage of marketing and merchandising expenses relative to gross bookings in Q2 decreased by around 60 basis points compared to last year, performing better than expected, mainly due to improved returns in paid channels and lower merchandising spending, which was influenced by an unexpectedly expanded booking window that will defer some expenses to future periods. Sales and other expenses increased by about 30 basis points relative to last year, slightly better than anticipated. Approximately 48% of Booking.com’s gross bookings were processed via our payments platform in Q2, rising from 38% in Q2 2022. Our fixed expenses overall increased by 20% year-over-year, which was below expectations due to lower IT expenses this quarter, including the effect of phasing IT spending into the latter part of the year. We are continuing to manage fixed expenses diligently. Adjusted EBITDA for Q2 was $1.8 billion, representing a 64% increase year-over-year, and would have risen by 70% on a constant currency basis. Adjusted EBITDA surpassed our expectations due to stronger top-line performance, improved marketing efficiency, and lower-than-expected IT costs. Our adjusted EBITDA margins rose by around 7 percentage points compared to Q2 2022. Non-GAAP net income was $1.4 billion, translating to non-GAAP EPS of $37.62 per share, a 97% increase year-over-year. Our average share count in Q2 was 9% below that of Q2 2022 and 15% below Q2 2019. On a GAAP basis, net income for the quarter was $1.3 billion. Now, looking at our cash and liquidity position, our ending cash and investment balance for Q2 was $15.7 billion, an increase from $15.3 billion at the end of Q1, driven by $1.9 billion of debt issuances in May 2023 and $1.6 billion in free cash flow generated in Q2, offset by $3.1 billion in share repurchases made during the quarter. We repurchased $5.1 billion of our shares in the first half of the year, representing 5% of our year-end 2022 share count. This brings our combined authorization down to $19 billion from $24 billion discussed earlier in the year. We remain confident in our ability to complete the full $24 billion of share repurchases over four years from the start of this program, assuming no major downturn in the travel sector. Moving on to our outlook for Q3 2023, in July, we observed room night growth of about 20%, up from 9% in Q2. In our main regions, Asia grew by approximately 45%, the rest of the world saw over 20% growth, Europe grew in the mid-teens, and the US grew by mid single digits. When comparing growth to 2019, July room night growth was similar to the 26% growth seen in Q2. The US was the most recovered region, with growth exceeding 30% compared to 2019. We assume that Q3 room night growth will increase by low double digits year-over-year, anticipating some moderation from July due to more challenging prior year comparisons in August and September. In 2022, we recorded room night growth of 4% in July and 10% in August and September. We also expect that, due to the expanded booking window in the first half of the year remaining in Q3, there will be fewer last-minute bookings for stays throughout the rest of Q3. We project Q3 gross bookings to outpace room night growth by about seven percentage points year-over-year, benefiting from ongoing flight booking growth and positive impacts from foreign exchange movements. We anticipate constant currency ADRs in Q3 to be consistent with Q3 2022, albeit experiencing some pressure from regional mix changes. We expect Q3 revenue as a percentage of gross bookings to be around 19%, a slight increase from last year, influenced by a positive timing impact due to the expanded booking window in the first half and increased revenue from payments, which will be partially countered by a higher mix of flights and increased merchandising expenses tied to earlier bookings. We foresee Q3 marketing expenses as a percentage of gross bookings to be lower than last year and expect marketing and merchandising combined as a percentage of gross bookings to be slightly less than last year. Sales and other expenses as a percentage of gross bookings are projected to be about 20 basis points higher than last year, primarily due to the mix of higher gross bookings. We expect our fixed expenses in Q3 to grow year-over-year by roughly 30%, owing to increases in personnel-related expenses, IT costs (including the impact of spending phasing from Q2), and higher indirect taxes in G&A. The year-over-year growth in fixed expenses includes about seven percentage points attributed to foreign exchange changes. Taking everything into consideration, we expect Q3 adjusted EBITDA to be around 20% higher than last year. Given the robust level of bookings we have observed, we are adjusting our outlook for the full year. We now expect gross bookings to grow slightly over 20%, an increase from our prior forecast of low teens growth. We anticipate full-year room night growth in the mid-teens, with constant currency ADRs slightly rising for the year but facing some pressure from regional mix changes. We currently expect revenue as a percentage of gross bookings to rise by about 20 basis points year-over-year, down from our earlier expectation of a 50 basis point increase. The revision in our overall take rate for the year is due to diminished timing benefits, a higher growth rate than initially anticipated earlier this year, and an expanded booking window, alongside stronger flight performance contributing to a higher mix of flight bookings than initially expected. We also expect our marketing and merchandising expenses, as a percentage of gross bookings, to be slightly below 2022, contrary to our previous prediction of them being on par with 2022. The improvement in our outlook is largely due to higher ROIs from paid channels. Our more fixed expenses are now expected to grow by 25%, an increase from our previous estimate of around 20%. This increase is mainly driven by variable components of personnel expenses related to overperformance against initial estimates and higher indirect taxes linked to revenue, alongside some additional pressure from foreign exchange. We are carefully managing our more fixed expenses, and we continue to expect them to grow at a significantly lower rate next year compared to this year. We also anticipate our adjusted EBITDA margins to expand by a couple of percentage points relative to 2022. In conclusion, we are pleased with our results to date and the ongoing momentum as we transition into Q3. We will now open the floor for questions.

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

Lloyd, I’ll address the first question about AI, and then I’ll let David discuss marketing and ROIs. To start, it's a simple yet honest answer: no one truly knows how generative AI, being such a new technology, will unfold in the long term. However, even without that clarity, we recognize the importance of exploring and experimenting with it to enhance the experience for our travelers and our supply partners, as well as to improve our internal operations. Many companies, including major search engines like Google, are navigating this space, and there are no definitive answers yet. That said, history suggests that adaptable companies with agile technologies and expertise will thrive through these changes. For instance, when mobile technology emerged, we quickly adapted, gaining a competitive edge. We hope to achieve similar benefits with the rise of generative AI. Although I mentioned various companies earlier, I did not specifically note Agoda, which is making significant strides in using generative AI to boost efficiency with various coding systems. We are exploring numerous initiatives across our brands, from how Priceline operates on mobile to Booking.com's AI Trip Planner, alongside ChatGPT plug-ins from OpenTable and Kaya. Our collaborative approach to learning from each brand's successes and challenges will likely give us an advantage over other companies that may lack our resources and expertise to invest in what could be an exciting future. The impact of regulations remains uncertain, which could affect the entire industry. Now, David, would you like to discuss market ROIs?

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

Okay. I have two questions. First, Glenn, have you observed any changes in the types of travel demand? Specifically, are there shifts between short and longer stays, or between rural suburban areas and urban locations? Secondly, I want to ask the CFO about AI. Considering the financial impact of AI and generative AI on the business, do you believe it will be more influential on the monetization side or the cost efficiency side? I expect you to mention both, but if you could provide more specifics on which area you think will be more affected by the application of generative AI over time, that would be great. Thank you.

Hi, Mark, I'm smiling because I want to address both points, but I'll follow your order. This question arises frequently because, as I mentioned in the last call, I'm always on the lookout for changes. Some key indicators I monitor include whether people are opting for lower star ratings, choosing shorter stays, or shifting to more affordable travel destinations compared to previously expensive ones. I'm always searching for early warning signs that something is changing, but I don’t see any of those indicators at this moment. Regarding AI, it's an intriguing question. If we had a solid answer, we would know where to invest our resources for the optimal return. However, as I noted earlier, these are all just educated guesses. At this stage, it's crucial to diversify our investments and observe where returns are emerging to determine where to allocate resources. Experimentation has always been a fundamental part of our company’s approach. We'll engage in various experiments and continue to pursue the strategies that yield better results over others. I anticipate this experimentation will continue for a while before we clearly identify where the best returns lie. Ultimately, I believe both aspects you mentioned will provide significant advantages in the long run, but it’s essential to assess which areas to prioritize and to what extent, which remains uncertain at this time.

Thank you for taking my question. It's clear that you're performing very well in Asia. Could you share more about what you are observing in that region? Are you gaining market share from direct bookings at hotels or competing platforms? Additionally, I found your comments on marketing ROI quite compelling, especially in such a competitive quarter for marketing expenditures. Can you elaborate on whether direct traffic is enabling you to manage your marketing spend more effectively, or how you are achieving that improvement?

So I'll let David speak second about if you want to give any more color into the marketing question. I'll leave out Asia. So, yes, very pleased with Asia. Very nice to see the second quarter numbers and even nicer to see July accelerating like that. That's great. And, obviously, that's a function of Asia took more time to recover the restrictions dropped later. We're doing a year-over-year comp. So we're getting some benefit out of that. And by the way just everybody there is no confusion in China not producing significant they're far behind in terms of outbound recovery and we're much more an outbound player there and I don't expect a recovery in China for us for some time, significant time probably. So overall it's good. There are a lot of factors happening there. There are very similar to other parts of the world where people wanted to travel. They're going out there. They're doing it. And we have done a very good job, the same way we did in the US, and we did in Europe is making sure that when people wanted a trial we were there for them and we're seeing the results right there. And David if you want to give any more color into that marketing question?

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

Great. Thanks a lot. Could you give us an update on your efforts and progress in the North America vacation rental market just where you're at on that initiative? Thank you.

Hi Kevin. I'm very pleased that we're making progress in what we refer to as alternative accommodations. Our global growth rate of 11% is ahead of the company's overall 9%, and that 11% figure comes from Booking.com. Specifically in North America, particularly in the US, which is where we are concentrating our efforts, we recognize that we have room for improvement. We've acknowledged this focus repeatedly. We understand our position in the market and the areas where we need to enhance our offerings. In our last call, we discussed our initiatives to improve the product on the supply side, ensuring that homeowners, property managers, and others in the market feel adequately supported by Booking.com. We are excited to see them list their properties on our platform. Additionally, as I mentioned previously, it's crucial to raise awareness about these properties. This is a gradual process that requires consistent effort, and we're committed to it across all areas. While we aren't there yet, we are making progress, which bodes well for our future. We will continue to focus on this area and expect to see positive returns as we invest further.

Thanks for taking the questions. Can you talk about where you're seeing the biggest impacts of connected trip? And how big of an impact do you think that's happening in terms of your outsized growth in the quarter? And then just switching to mobile the 48% of room nights booked through the apps. Anything you can share in terms of better frequency and loyalty among those app users?

I'll let David address the specifics on the second question. Regarding the connected trip, I want to clarify that it is not currently driving significant increases in our results. The positive figures we're reporting are not a result of the connected trip, as it remains too small to have a noticeable impact. We're in the development phase, building it incrementally. While we can see some components emerging, the overall effect is still limited. For instance, I'm pleased to report that we are experiencing a 58% year-over-year growth in ticket and flight sales, which is a strong indicator that we're producing a solid flight product. We need to continue working on other aspects, such as attractions and transportation from hotels to airports, as well as airport transfers from homes. These developments are crucial, along with ensuring that our payment systems function effectively, which is vital for providing benefits to travelers and enabling suppliers to deliver attractive offers. We've seen a 48% growth in this area from last year, which is encouraging. However, it should be noted that these elements are not the primary contributors to the strong returns we saw in Q2. On the bright side, the potential for future growth is very promising, and I’m pleased with our progress. It’s important not to confuse these developments with the success we achieved in Q2. David, would you like to discuss anything regarding the mobile app, particularly related to user frequency and loyalty?

Yes. Thank you. So Doug, you're going to ask the question? No, go ahead.

No, go ahead.

So in terms of when you think about what's happening with the app. There are three ways of people can interact with us directly. They can come through the app. They can come to us directly on a desktop device and come to a strictly on a mobile device. And out of those three not too surprisingly, the app is the – is the sickest channel in terms of frequency and loyalty as you mentioned, which is why obviously your app is now a very high percentage of direct and has become an increasing usage of direct and we think that's a good thing. But relative to differences in frequency and loyalty we're not in a position to get into those today but it is definitely our best channel in terms of frequency and loyalty.

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

Great, thanks. Your direct booking mix improvement remains impressive. I guess for starters can you help us unpack what drove the acceleration in mix towards direct in the quarter? Something specific on your run that you guys are doing that drove that improvement quarter-on-quarter? And how should we take that being replicated going forward? And then secondly, are we getting to a point where direct mix may fully offset your growth into lower-margin business and thus over time allow you to actually walk margins back towards 2019 levels? Just any commentary there in terms of direct mix and margins over time would be helpful. Thanks so much.

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

Yes. Lee, we obviously go next is very helpful for the business. And of course, we're talking about here really direct mix within our accommodations business, is kind of core business. And we've mentioned before, that we believe that we can continue to improve margins, a little bit from where they were in 2023, but we're not trying to walk them all the way back to where they were in 2019. We all have significant businesses that are lower margin businesses than we had in 2019, when we have a large price business we're moving towards having a life payments business. So, direct mix can obviously, offset some of the pressure in the business. But don't expect it to walk our margins back to 2019. That's not what we've talked about gains, but we do believe it's one of the factors that can lead us to have continued improvement from where we are now.

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

Hi, Eric. The key focus is always on priorities. We've emphasized how crucial it is to enhance our supply of alternative accommodations. While we have a significant number of listings, it's essential that those listings are the right types in optimal locations. In the US, we need to ensure we have the right accommodations available so customers have options. This is our top priority. On the other hand, attractions are important but not as critical right now compared to securing alternative accommodations. It's essential that we allocate our time, energy, effort, and resources where we're likely to see the best returns. We have solid attractions through third-party partnerships, and while expanding in that area will be important in the future, our immediate focus for this year and next is to ensure we have the proper variety and volume of alternative accommodations on our platform.

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

Yeah. David, I'll let you go on both those. I mean I'm not sure what you want to talk about in terms of us versus competitors or not.

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

Hi, guys. Thank you. Glen must have taken a question. I just have one on the full year guidance. Obviously, the big change are the revenue divided by growth being up only 0.2% year-on-year. So could you just talk a little bit about how that will map next year? Obviously pulling forward some bookings brings forward the marketing and also therefore it has the impact on EBITDA. But can you talk about the longer-term dynamic presumably that has no impact on 2024 and on the margin trajectory you see going forward?

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

Okay. That's really helpful David. Thank you. As a follow-up, one of the things that's obviously changed is that some of your marketing dollars, which come below the revenue line have turned into merchandising dollars above the revenue line. And so it seems really like that revenue line is very, very hard to model. If we were to think of things in terms of EBITDA divided by gross bookings, is there any meaningful reason why your core business or the accommodation business outside of payments and flights and all of the sort of businesses that dilute that bigger should not see a return to pre-COVID profitability if not improvement if you increase direct mix. So if I just think accommodation EBITDA divided by gross bookings is there any reason why that should be less profitable in the future than it was before COVID.

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

Great. Thanks for taking the question. And really helpful to hear all the stats and see everything go as well this quarter. Glenn, I wanted to take you back maybe a year ago, we talked about growing bookings share of annual spend per customer. And as we see direct bookings increase to increase the connected trips rise, AI trip planners launch, just talk to us about the progress of just gaining share of that annual spend per customer. Any updated goals there? Thank you.

So Ron, let me clarify your question. You're referring to the annual spend per customer, correct? Specifically the percentage of travel spend. Yes, we discussed achieving around 25% a year ago. Part of the challenge is that our customers don't always choose us; sometimes they opt for a competitor, and we notice this more frequently than I'd prefer. One factor is that we may not have the products they want, which we're currently working on, as I mentioned earlier. Additionally, customers might pick different brands for international versus domestic travel. The main objective for us is to cultivate loyalty so that customers see us as their go-to option for all travel needs. This involves enhancing the connected trip experience and offering payment solutions tailored to their preferences, while ensuring we're learning more about the customer, with their consent. If we can meet their expectations consistently, they'll return to us time and again. I believe we can significantly improve this over the long term, although it's unlikely that we will capture all customers all the time. We are focused on developing areas like expanding our alternative accommodations and providing the payment options that customers prefer. In many parts of the world, they might not use Visa or Mastercard; they look for different payment methods. We need to ensure that we offer those options, making it easier for travelers to choose us. I could elaborate further, but this is the direction we need to take. As for potential improvements, I'm not going to make specific predictions, but I do believe there is a significant opportunity for better performance than what we are currently experiencing.

Thanks for taking my questions. I had two please. The first one, I'm just wondering Glenn in terms of anything you can speak to in terms of shift in travel trends. There's been a lot of discussion around shoulder month travel April, May, August, September because of remote work and elevated prices. When I hear you guys talk about the months I don't necessarily see that in what you're saying but it may be related to comps. I'd just love to hear your perspective on shoulder month travel first? And then secondly now that there's a new loyalty program in the market I was just wondering your thoughts on Genius? And how you're thinking of the current offering relative to competing programs now in the market? Thank you.

Sure. It used to be straightforward, with clearly defined shoulder periods and peaks in travel, but that's no longer the case. Things are quite confusing at the moment, especially with Omicron affecting different regions at different times. Last year, some places faced COVID outbreaks or reopened, which complicates the comparison for this year. I'm hopeful that next year, things will return to a more predictable seasonal pattern for travel. However, there's a new trend emerging, where people are traveling more frequently but not necessarily going to their offices, leading to longer weekends or extended trips. This could mean a more even distribution of travel throughout the year, as people take advantage of times that used to be considered shoulder seasons. I can't predict exactly how this will unfold, but we're watching for signals to guide our marketing spending in the near term. In the long run, we aim to enhance our products, as that's the best way to succeed. Many of you may have your own ideas about the future of travel trends, but I'm not going to speculate. I believe you had another question that I seem to have forgotten.

Yeah. Just Genius and your thoughts on Genius for the current product now in the market?

So there is... If we look back to when American Airlines first launched its loyalty program, I'm old enough to say that I joined it. Since then, there have been many different loyalty programs for various purposes, well beyond just travel. When another company introduces a new loyalty program, that's interesting, but I really appreciate what we're doing with Genius. I believe it's an excellent product, and we plan to enhance it even further. One great aspect is how we work with our partners, creating mutual benefits that improve their offerings while also benefiting our customers. This is how any loyalty program should function, and I think we've done well in this regard. We need to gain more advantages that enable suppliers to offer better opportunities and enhance travelers' experiences to secure that transaction. We're committed to this approach. We've already made significant improvements since the program began, and now we have three tiers in place. There are many future developments planned as we continue to advance the connected trip, which will allow us to offer additional incremental benefits. I don’t focus too much on what competitors are doing; my priority is ensuring that we execute well on what matters most to both our customers and suppliers. Thank you.

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