Booking Holdings Inc (BKNG) — Q3 2023 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'm encouraged by the strong results we are reporting today and by the strong leisure travel demand environment that we continue to see. In the third quarter, our traveler customers booked 276 million, or more than a quarter of a billion room nights, which was an increase of 15% year-over-year, and we had gross bookings of $40 billion, which was an increase of 24% year-over-year. Room night growth versus 2019 was 24% in Q3. Both room nights and gross bookings were record quarterly amounts for the company, and both came in ahead of our previous expectations. Third quarter revenue of $7.3 billion grew 21% and adjusted EBITDA of $3.3 billion increased 24%, both versus Q3 last year, and both exceeded our prior expectations. Finally, our non-GAAP earnings per share in the quarter grew 36% year-over-year, and was nearly 60% higher than in the third quarter of 2019. Our earnings per share growth benefited from our improved profit levels, as well as our strong capital return program, which reduced our end-of-quarter share count by 10% versus the third quarter of 2022. Now, turning to October, we estimate that room night growth was about 8% year-over-year and about 20% versus 2019. Excluding Israel, we estimate these growth rates would have been about 9% and 22%, respectively. We saw a significant negative impact on our business in Israel, and there was some impact on travel trends outside of Israel. Nevertheless, we were encouraged to see global room night growth improve towards the end of the month. And David will explain more about October in his remarks. Overall, we continue to see resiliency in global leisure travel demand. And as we take a very early look ahead to 2024, we see strong growth on the books for travel that will take place in the first quarter of next year, though a high percentage of these bookings are cancellable. Given current trends, we expect customers and consumers will continue to prioritize travel over other discretionary spending in 2024. I firmly believe we are well-positioned to continue our work attracting customers and partners to our platform, while making progress on several important initiatives, which will help strengthen our business over the long-term. These initiatives include: one, advancing our connected trip vision. Two, further integrating AI technology into our offerings, three, continuing to grow alternative accommodations, and four, building more direct relationships with our traveler customers. 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. In the third quarter, we saw an increase in the percentage of transactions which we count as connected trips, meaning two or more travel components within a trip. Though still a small percentage of our total transactions today, it is encouraging to see an increasing number of our travelers booking more elements of their travel with us. Outside of accommodations, one of the most important elements of travel is flights, and we continue to focus on further developing our flight offering on Booking.com. In the third quarter, air tickets booked increased 57% year-over-year, driven by the growth of Booking.com's flight offering. To provide some context on how this has developed over the last few years, the 9 million tickets booked on our platforms during the third quarter were more than five times the number of air tickets booked through us in Q3 2019. This significant growth of our flight offering at Booking.com over the last four years was achieved through our successful partnership with Etraveli. As previously announced, our proposed acquisition of Etraveli was blocked by the European Commission in September, a decision we will appeal. While we strongly disagree with the EC’s decision to block the deal, our commitment to building the flight vertical at Booking.com has not changed. In fact, we have extended our partnership agreement with Etraveli through at least the end of 2028, which means we anticipate continuing to work with them on improving Booking.com's flight offering over the coming years. We believe offering a compelling flight product alongside our accommodation, ground transportation, and attractions offerings, helps to create a better, easier, and more comprehensive travel booking experience for our travelers, and more opportunities for our partners. We will continue to build out our Connected Trip vision, which we believe will ultimately result in increased customer and supplier engagement with our platform. As we discussed last quarter, we have always envisioned AI technology at the center of the Connected Trip, and we have a long history of investing in AI technology and incorporating it in our platforms across our company. I previously spoke about the hard work our teams have been doing to integrate Generative AI into our offerings in innovative ways, including Priceline’s generative AI travel assistant, named Penny, and Booking.com’s AI Trip Planner. It is still very early days, but both teams are gaining valuable insights on booker questions, concerns, and behavior as the tools continue to interact with customers. At Priceline, we are seeing some encouraging signs of lower customer service contact rates, and we are exploring other areas across our business where we believe we can use generative AI tools to increase productivity. For example, our brands are running projects using generative AI to enhance the productivity of our software developers with encouraging results so far. And we look forward to using these tools more widely in the future. I remain confident in our company’s ability to benefit from AI developments by improving our products for our customers and operating more efficiently over time. Turning to 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 and developing products and features to help support their businesses. During the quarter, some of our partners at Booking.com experienced delayed payments due to a planned upgrade to our finance and payment platforms in early July. We have now cleared the backlog of outstanding payment issues related to this system upgrade. We plan to provide compensation to partners who experienced an extended delay, and we recorded this in our Q3 results. We plan to communicate to all partners who were impacted by these payment delays within the next few days. We continue to focus on strengthening our alternative accommodations offering at Booking.com by increasing supply and raising awareness among travelers. In the third quarter, alternative accommodation room nights grew at about 24% year-over-year, which was faster than our traditional hotel category. Alternative accommodations represented about 33% of Booking.com's total room nights, which was 3 percentage points higher than in Q3 2022. We are seeing continued momentum in terms of alternative accommodations supply growth both globally and in the U.S., with global listings reaching about 7.2 million by the end of the third quarter, which is about 9% higher than Q3 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 increasing loyalty, frequency, spend, and direct relationships over time. In the third quarter, our mix of customers booking directly on our platforms continued 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. For the first time ever for our company, over 50% of our room nights were booked through our apps in the third quarter, which is about 6 percentage points higher than in Q3 2022. This is a remarkable achievement considering the mix of our mobile app room nights in the third quarter of 2019 was about 18 percentage points lower than it was in the third quarter this year. 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 strong third quarter results and the continued resilience of leisure travel demand. Our teams continue to execute well against our key strategic priorities, which helps position our business well for the long-term. We continue our work to deliver a better offering and experience for our supply partners and our travelers. We are confident 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 as well as our thoughts for Q4 and the full year. All growth rates for 2023 are year-over-year unless stated otherwise. We will reference comparable periods in 2019 where helpful. Information on reconciling non-GAAP to GAAP results can be found in our earnings release. We will post our prepared remarks to the Booking Holdings investor relations website after the call. Now onto our third quarter results. We are pleased to report 15% room night growth in Q3, which surpassed our expectations. In terms of year-on-year room night growth by region, Asia was up about 35%, the Rest of World was up in the mid-teens, Europe was up in low double digits, and the U.S. saw low single-digit growth. Compared to 2019, our global room night growth for Q3 was 24%. The average booking window at Booking.com expanded in Q3 compared to the same periods in 2022 and 2019, with more expansion versus the prior year periods than in Q2. In Q3, mobile apps accounted for over half of our total room nights for the first time, with a mix of about 51%, approximately six percentage points higher than in Q3 2022. We are seeing an increasing proportion of total room nights coming through our direct channel, which rose as a percentage of room nights in Q3 relative to the same quarter last year. The international mix of our total room nights in Q3 was over 50%, up from about 45% in Q3 2022, aligning with 2019 levels, similar to Q2. Our cancellation rates in Q3 were slightly above Q3 2022 but slightly below Q3 2019, consistent with Q2 levels. For alternative accommodations at Booking.com, our Q3 room night growth was about 24% year-over-year, with the global mix of alternative accommodation room nights at about 33%, a few points higher than Q3 2022. Q3 gross bookings increased 24% year-over-year or 21% on a constant currency basis. This 24% increase in gross bookings was nine percentage points higher than the 15% room night increase, attributed to around 4% higher accommodation constant currency ADRs, approximately 3 percentage points from favorable FX movements, and roughly 2 percentage points from flight bookings. Year-over-year ADR growth was negatively affected by regional mix with higher room night contributions from Asia and lower contributions from the U.S. Excluding regional mix, constant currency ADRs grew about 7 percentage points year-on-year. Despite higher ADRs in Q3, there was no change in the mix of hotel star rating levels being booked or length of stay, which could suggest consumers are trading down. We are monitoring these dynamics closely. Airline tickets booked in Q3 rose by about 57% year-on-year, driven by the expansion of Booking.com's flight offerings. Our Q3 revenue surpassed expectations, rising 21% year-over-year, or about 18% on a constant currency basis. While Q3 performed better than anticipated in terms of room nights and gross bookings, much of the outperformance was driven by bookings for future travel quarters. Consequently, we did not capture all of the revenue benefit in Q3 from these additional bookings. Revenue as a percentage of gross bookings in Q3 was 18.4%, below expectations due to this timing impact. Our underlying accommodation take rates remain aligned with 2019 levels. Marketing expenses, which are highly variable, increased 13% year-over-year, with marketing expenses as a percentage of gross bookings being about 50 basis points lower than Q3 2022 due to higher ROIs in paid channels and a greater mix of direct business. Performance marketing ROIs improved year-over-year thanks to our efforts to enhance the efficiency of marketing spend. Combined marketing and merchandising as a percentage of gross bookings in Q3 was around 30 basis points lower than last year, slightly better than our expectations because of improved performance marketing ROIs. Q3 sales and other expenses as a percentage of gross bookings increased about 10 basis points compared to last year, slightly better than anticipated. Approximately 51% of Booking.com's gross bookings were processed through our payments platform in Q3, compared to around 40% in Q3 2022. For the total company, 56% of gross bookings were merchant, up from about 45% in Q3 2022. Our more fixed expenses overall rose 24% year-over-year, which was below our expectations due to lower personnel and personnel-related costs. We are carefully managing our fixed expenses. On a GAAP basis, fixed expenses rose 33% year-over-year and included a $90 million accrual in G&A expense related to the termination fee for the Etraveli acquisition agreement; this accrual is excluded from our non-GAAP results. Adjusted EBITDA was $3.3 billion in the third quarter, up 24% year-over-year, with a 22% increase on a constant currency basis, also exceeding our expectations. Non-GAAP net income of $2.6 billion resulted in non-GAAP EPS of $72.32 per share, representing a 36% year-over-year increase. Our average share count in Q3 was 9% lower than in Q3 2022 and 16% lower than in Q3 2019. On a GAAP basis, net income was $2.5 billion in the quarter. Now on to our cash and liquidity position. The Q3 ending balance of cash and investments was $14.3 billion, down from $15.7 billion at the end of Q2 due to $2.6 billion in share repurchases during the quarter, partially mitigated by $1.3 billion of free cash flow generated in Q3. We have repurchased $7.7 billion of shares through the first three quarters, representing 8% of our year-end 2022 share count. This year’s repurchases reduce our combined authorization to $16 billion from the total of $24 billion discussed earlier this year. Our buyback program considers share price, and at current levels, we anticipate spending more on buybacks in Q4 than in Q3. We are confident in our ability to complete the full $24 billion of share repurchases within four years from the start of the program at the beginning of this year, assuming no major downturn in travel. Now onto our thoughts for the fourth quarter of 2023. In October, we estimate year-over-year room night growth at about 8%, down from 15% in Q3, influenced by both a tougher year-on-year comparison and the situation in the Middle East. Compared to 2019, October room night growth was around 20%. Excluding Israel, October room nights grew about 9% versus 2022 and approximately 22% versus 2019. The 22% growth compared to October 2019, excluding Israel, is slightly lower than the 24% growth in Q3 versus 2019. By region in October, Asia experienced about 15% year-on-year room night growth, Europe approximately 10%, while the U.S. and Rest of World declined slightly. The impact of the Israel-Hamas war is most apparent in the Rest of World growth figures. Israel accounts for about 1% of our global room nights on a booker plus inbound travel basis. The Middle East, including Turkey and Egypt, represents about 4% of our global room nights on a booker basis. We noticed a slowdown in bookings starting in the second week of October due to cancellations and reduced new bookings after the onset of the war. The cancellations that began in the second week of October were concentrated in Israel, though there were influences on travel trends outside of the country as news was absorbed. We were encouraged to see room night growth recover towards the end of the month. Our observations for the fourth quarter assume room night growth will increase about 9% year-over-year. Compared to 2019, we expect Q4 room night growth to be around 20%, assuming no further escalation of the conflict in the Middle East. We anticipate Q4 gross bookings to grow about five percentage points faster than room nights year-over-year due to a couple of points from higher accommodation constant currency ADRs, alongside some pressure from regional mix changes, and a couple of points from continued growth in flight bookings. We expect Q4 revenue as a percentage of gross bookings to reach about 15%, higher than Q4 last year due to timing benefits. We expect Q4 marketing expenses as a percentage of gross bookings to be slightly lower than last year. We project that combined marketing and merchandising as a percentage of gross bookings in Q4 will be slightly higher than last year as we continue to seek opportunities. We expect Q4 sales and other expenses as a percentage of gross bookings to align closely with last year, as the increased merchant gross bookings mix offsets efficiencies in payment costs. We anticipate our more fixed expenses in Q4 to grow a couple of points faster year-over-year than they did in Q3. Considering all these factors, we expect Q4 adjusted EBITDA to surpass $1.4 billion. Our year-to-date performance and fourth quarter outlook suggest that for the full year, we expect room nights to grow in the mid-to-high teens year-over-year. We currently foresee full year gross bookings growth exceeding 20% year-on-year. We anticipate revenue as a percentage of gross bookings to rise year-on-year by about 10 basis points, down from our prior expectation of a 20 basis point increase due to higher bookings growth and an extended booking window which diminishes the anticipated benefits from timing. We continue to expect full year marketing and merchandising as a percentage of gross bookings to be slightly below 2022, and for more fixed expenses to increase around 25% year-over-year. We are carefully managing our fixed costs and expect these expenses to grow at a significantly lower rate next year compared to this year. We also anticipate that our adjusted EBITDA margins will expand by a couple of percentage points compared to 2022. In conclusion, we are pleased with our Q3 results, the trends leading into Q4, and the bookings we have secured for early 2024.

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

Hi, Mark. I was not saying that I see more than I normally do. I'm just saying I was very pleased to see this resiliency in global leisure travel demand and saying that we're looking at 2024, we're seeing strong growth on the books for travel. And that's going to happen in the first quarter. So it's just reinforcing my belief that travel is healthy. And we're looking forward to continued healthy travel.

Yes, Mark, to respond to your question, it aligns somewhat with what Glenn just mentioned. Our growth in room nights this quarter was fueled by increased travel demand during the peak season and throughout the booking window. As a reminder, coming into Q3, we indicated that we were seeing an extended booking window in Q1 and Q2, which led us to anticipate fewer last-minute bookings in Q3. However, last-minute bookings in Q3 ended up being somewhat lower than we would expect in a typical year without such a long booking window. Instead, we received more bookings for longer durations. Consequently, the booking window actually broadened in Q3. This set the stage for what Glenn referred to, as we now look into the first quarter of next year. Thanks to the strong demand we observed for bookings, many of which extend beyond this quarter, our positioning for Q1 looks significantly better than before the current situation.

Okay. Thank you, Glenn. Thank you, David.

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

Okay. Thank you, David.

Great. Thanks for taking my question. Maybe one for Glenn and one for David. Glenn, you've been working on Connected Trip for a long time. Obviously, a lot of progress with air and other areas. If this vision really works out, what does it mean for Bookings financials? And do you think you're accelerating the pace of progress there? And then for David, we see the U.S., which reopened first at kind of low single-digit growth. How are you thinking about Europe comps next year? And can you just remind us of your kind of relative exposure by geography? Thank you.

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

Yes, thank you, Glenn. And then, Justin, relative to your question. Yes, we were pleased to see room night growth year-over-year in the U.S. market. Don't forget, in the U.S., our room nights are over 30% higher than they were in 2019. So we have made significant strides in terms of advancing our overall position in the U.S., if you compare that with market growth rates are probably more likely recovered versus 2019, not up by 30%. When we think about next year, I don't want to get into too much detail. But I will give you a couple of things to think about. I'd say that when you look across all the regions, if you look at where travel as a percentage of GDP is going to wind up in 2023 compared to where it was in 2019, it still has some recovery, before it fully gets back to the percentage of GDP it used to be in 2019. So I think that provides upside. I'd also say that, as Glenn said in his comments, and as we see, we do see consumers continue to prioritize travel over other discretionary expense items, we don't see any reason why that should change based on current trends. And then also just relative to our own view of the business, we're still committed to our milestones we gave you and said we will continue to grow faster post-COVID than we were before on the top line and bottom line and consequently basis, that was 8% bookings on revenue, 8% on bookings, 8% on revenue, 15% earnings per share or constant currency growth rates in 2019. And whilst we're not talking about even specific, around 2024, we are still sticking to those overall guidelines and outlooks.

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

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

So, Kevin, why don’t I start and David can add on anything I fail to add in. Obviously, very, very pleased with that number. That's a really good growth rate. And when we compare it to some other people in the space, I'm very impressed by what we've been able to accomplish. And I will shout out to the whole team that works on alternative accommodations. But there's some again. I've been talking about for some time about, we need to improve the product, we need to make people aware of it. And by doing that, we'll get more business. And that's what we've been doing. Now I can do all the things I've talked about them in the past, and we continue to do things to make it a better product. And there's still a lot of things that need to be done to make it even better. And that's what we're going to keep on doing. There's no magic bullet. No, no silver bullet and tell, here's how it came about. It comes through a lot of hard work and a lot of different ways of just grinding away, cranking out making it better talking with the suppliers who have these properties, making sure we're marketing appropriately when people want that property, they can find it and they see it. All those things together will enable us to achieve what I think was a very, very good print on the growth rate there. But I'll tell you, we're not there yet. And I mentioned look, I want to increase the supply a lot more look, it's great. 9% increase. So I mentioned in my prepared remarks and the increase up to 7.2 billion listings. That's great. That's good. But I know there are a lot of areas we need to add even more, particularly in the United States, because that's the place that I want to use our product. Because if I look for anything, and I don't see it. Well, to me, that's upside down. We're doing great right now. And I still see so much opportunity ahead because for example, we don't have enough properties in certain areas and other product features that we need to improve upon. All together. I look at this great opportunity. We're going to well, and we will do it even better in the future. I hope and David, anything specific to add to that? Okay.

Nope, nope. Thank you. That was great.

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

Thank you, Brian. The U.S. is similar to other markets in that growth depends on offering a better product. It's important for people to find the properties they want at the right price easily, and to receive excellent customer service if any issues arise. That's our strategy. Some of the numbers might look unusual, partly due to the effects of COVID, which has caused different regions to recover at varying rates. If you're comparing year-over-year results, it may seem like there's been a slowdown, but looking back to 2019 could provide a clearer perspective. We've achieved significant growth in our market share in the U.S. and we plan to continue our current initiatives to further increase that share. I also mentioned alternative accommodations, which play an essential role in our growth strategy domestically. Regarding the Genius program, we're focused on developing it to deliver great value to travelers while also providing opportunities for our partners to attract additional demand as needed. By working together, we can enhance value for both sides of the marketplace. When we incorporate these elements with the concept of the Connected Trip and advancements in Generative AI, we believe we have a solid plan to continue growing our U.S. market share, a process we have been engaged in for some time. I'm very satisfied with our current position.

Thanks. I had a couple, if I can. First, it sounds like you're still talking about holding this lean in posture on marketing with the leverage on I think marketing plus merchandising in 4Q. As growth slows, should we expect to see you all moderate that posture and get more leverage? And I guess looking at markets, like the U.S growing low single digits? Are you still holding that posture there? Or are you kind of bifurcating the strategy differently as different markets are perhaps more recovered. Anything you could share there would be great. And then the second one would just be sort of related. But as more than half of room nights are now booked through the mobile app, should that also be an increasing driver of marketing leverage? Or do you think just escalating pricing in performance channels offsets that, so it's kind of balance that? How should we think about that? Thanks.

Lloyd, I’d like to discuss this topic and mention some additional details. I want to emphasize the importance of being cautious, as I don’t want to reveal our strategic plans with competitors listening. Thus, my comments will be somewhat general. One key point I keep stressing to the team is the need for agility. We must be smart and responsive in seizing opportunities in the market while pulling back in areas where we might not achieve good returns on investment. This could relate to geographical regions, channels, or even the development of entire products; I view all these aspects together as a whole. Our focus is on achieving growth alongside appropriate profitability. Currently, as David mentioned, we are in a favorable position because we see potential here. However, circumstances can change over time. While it’s easy to say we’ll commit to a strategy long-term, we must acknowledge that the world can shift quickly and dramatically. We will continue to adapt our approach, and what David shared about the numbers reflects our current stance. Always keep in mind that while we have an overall strategy, we are ready to adjust based on new developments. Regarding the mobile app, David, why don’t you explain how it will factor into our future numbers?

Yes, Lloyd, I’d like to add a few comments. First, to follow up on what Glenn mentioned about the leading market recovery, we are seeing a gradual recovery in travel as a percentage of GDP post-COVID, which we believe will continue into 2024. However, we haven't fully recovered yet, so there are still opportunities ahead. You may notice that we are spending less on marketing and merchandising in 2023 compared to 2019, but we are achieving better results relative to what we spent in 2022. This is due to a couple of factors, including an increased direct mix, which is closely related to mobile usage. The majority of our mobile app bookings are direct, which contributes positively. Regarding Q4, I wouldn’t read too much into it. We anticipate some additional marketing expenses in Q4 compared to other quarters where we have seen leverage. The rationale is straightforward: we are having a strong year and have chosen to invest in extra programs in Q4 that we believe will help us finish the year strong and maintain our momentum heading into 2024. This is a deliberate choice on our part, and not due to any market challenges. We will still aim for overall leverage in marketing and merchandising for the entire year.

Thank you.

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

I will let David talk about what you wants to clarify on that. I don't think we talked about 2024. I think we talked first quarter. I will let David clarify whatever he wants to clarify.

Yes, Doug, regarding the conversation about 2024, we’ll address that more in February next year. I prefer not to discuss it now. We've shared some insights about the strong bookings in the first quarter and our growth framework post-COVID remains the same. I want to hold off on anything further until we have more information. During our next discussion, we will provide more detailed insight. However, it's still too early to discuss specific line items in the income statement for 2024.

Okay. Thank you, David.

Thank you. Following up on the discussions regarding the vacation rental industry, could we delve deeper into the U.S. vacation rental business? Glenn, you mentioned the need to expand supply and enhance product functionality to support growth. What are the challenges in rolling out these additional products and achieving a competitive supply level compared to others in the market? Additionally, what is the anticipated timeline and the investment required to bring that business to your desired level?

Hi, Lee. I'm not going to disclose the specifics regarding the level and amount of money we're planning to invest or the methods we will use. However, the best approach is to examine our historical performance and the trajectory of our growth, which will provide clearer insights into our future results. It’s noticeable when looking at our site that certain areas in the U.S. may lack sufficient property options, so it makes sense to target those locations for growth. We've previously mentioned that there are opportunities with properties managed by larger groups, as this simplifies our acquisition process. While I'm not revealing our exact strategies, it’s clear we're focusing on these areas first. Recently, we've introduced a request-on-demand feature that allows prospective guests to request bookings rather than automatically book instantly. This enhancement caters to owners or managers of higher-end properties who prefer to manage bookings more selectively. We plan to continue implementing various improvements to ensure our product competes well in the market, supported by appropriate marketing investments to raise awareness. This strategy should facilitate our continued growth.

Thanks for the information. I have a follow-up regarding the low hanging fruit. Can you provide insights into the outbound travel trends in the APAC region and how close we are to returning to pre-COVID travel levels this quarter? Should we consider these travel patterns as a potential driver of premium growth in the medium term?

I'm not certain about the term premium growth, but we have discussed how different regions are rebounding at varying rates. Asia was definitely the last to recover. It’s encouraging to witness the growth rates in those regions as others begin to stabilize. However, outbound travel from China remains significantly behind, as indicated by industry reports regarding their potential for recovery. While this segment is a small portion of our business and won’t dramatically affect our overall performance, we are optimistic about Asia returning to the same levels as the rest of the world. I understand the term premium you mentioned and could provide a clearer explanation.

I guess just faster growth relative to the core.

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

No, no, no, no.

Okay, got it. Sorry. Thank you.

Thank you so much for taking the question. Maybe come back to the topic of Air, where I understood on the comments about appealing Travel decision from the European Commission. If we go beyond that appeal and think about how you plan on building scale in the supply side. I would love to know how are you thinking about some of the investments that are key to build that as opposed to possibly going down the acquisition route in Air. And where you've already deployed Air, especially markets like North America, can you remind us of what Air has done in terms of growing overall checkout baskets and return on trip side? Thank you so much.

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

I can discuss our progress regarding customer dynamics, especially related to Booking.com, where Air is still new and rapidly expanding. We've previously mentioned that over 20% of Air customers are first-time users, and this trend continues as the business grows, which is very promising. We also observe that these new customers, who are booking Air for the first time, have a healthy attachment rate to accommodations despite being new, which is encouraging. While this rate is not as high as what we've seen with Priceline, it remains positive. It’s important to note that the majority of air sales are to existing customers, which is expected. These customers tend to have a strong attachment rate for air tickets to accommodations since they are familiar with us from their accommodation experiences. Additionally, we have solid data indicating that customers who purchase multiple services from us, whether they are new or existing, demonstrate better frequency, loyalty, and future spending. Overall, the dynamics surrounding air travel remain healthy and beneficial to us in several ways.

Thank you so much.

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

Okay. AI. We have limited time, so I'll keep my thoughts brief. With any new technology, there's a lot of hype at the start, but it often takes longer to realize its true potential. While I believe AI will be transformative, we're still in the early stages. We've seen some positive data points. For instance, customer service agents can use an AI copilot to assist them in answering questions more quickly, which is particularly beneficial for new agents. Given the high turnover in customer service, this could improve productivity significantly. Additionally, AI can enhance coding efficiency, and while we are still in the early stages of seeing its impacts, we are optimistic. We have examples from customers like Priceline, where a chatbot helps consumers make quick decisions during the buying process. For instance, questions about pet policies at hotels can be answered promptly, improving the customer experience. We also have the Booking.com AI product, which helps create itineraries and integrates with hotel data for seamless bookings. Although these applications are currently a small fraction of our overall inquiries and bookings, they show promise and are encouraging. The key question is when we'll reach a point where people notice significant improvements. We're committed to experimenting with these technologies to enhance efficiency, reduce costs, and provide better experiences for travelers, ensuring they choose our services over competitors. That's the plan, and I'm on board with it. And David, I'm not entirely clear on your second question.

I would like to discuss our framework for post-COVID recovery, as it is crucial. We have committed to becoming a larger and faster-growing business once the market stabilizes and returns to normal growth rates. This means delivering more earnings per share and achieving faster growth than before, both on the revenue and profit sides. We believe we can achieve this because we've made significant progress since 2019, which acts as our comparison point. If we reach normalized growth rates in 2024, it will be five years since then; if in 2025, it will be six years. The business has transformed fundamentally since 2019, particularly with Booking.com and other areas of our business. At that time, our focus was mainly on hotel accommodations and agency services. Since then, we have significantly expanded our alternative accommodation offerings, which are now substantial and rapidly growing. We also made great strides in payments; previously, our payment processing was minimal, but now over half of our transactions occur through our payment platform, enhancing our service for customers and partners. Additionally, we've developed air taxi and car services, expanded our merchandising capabilities, and refined our performance marketing tools, enabling us to better compete in recurring marketplaces. Our Genius program has also been significantly enhanced. We believe these advancements since 2019 will position us to grow faster and achieve a larger business size both in revenue and profits compared to 2019. Overall, we have created a more competitive and valuable business for our customers and partners, moving closer to our vision of the Connected Trip. This is the framework we use to guide our growth strategy.

Super helpful. Thank you both.

Thanks. Thanks for taking my questions. A couple for me. So as more bookings come through the app, I'm curious how repeat rates have trended among more recent cohorts on the app or whether you're seeing any diminishing returns and stickiness as you move beyond early adopters into the longer tail? And second, are you seeing any patterns in behavior like demand strength in higher-priced hotels that's giving you confidence in consumers' continued continuation of prioritizing travel spend over other forms of discretionary spend next year? Thanks.

Let me address your last question first and then hand it over to Dave. I'm not certain about what we can disclose regarding your initial inquiry, but it's clearly a significant topic. As we've mentioned multiple times over several quarters, the question about any softening in our metrics, such as star ratings or length of stay, keeps reappearing in various forms. Our answer remains no. Regarding why we believe discretionary spending on travel will persist compared to other areas, this is supported by numerous surveys indicating that individuals plan to continue traveling. Moreover, it's essential to emphasize the long-term perspective as we evaluate our business and its potential for value growth. If we assume that global GDP will rise over time alongside per capita GDP, it's reasonable to expect that as people become wealthier, they will allocate a larger portion of their expenditures towards services and experiences rather than material possessions. Once someone has the basics, such as an apartment or furniture, they are less likely to make frequent purchases in those categories. Instead, they will likely travel more often or in greater comfort, or possibly both. This trend is evident in countries where an increase in personal GDP corresponds with a rise in outbound travel. That's why I am confident that, in the long run, we will benefit from a favorable trend; travel will always remain a priority for many, thereby enhancing the demand for our services. Our aim is to capture a more significant share of this expanding market, outpacing global GDP growth. I genuinely believe we face a promising future ahead. As for the specifics regarding apps, I'm uncertain about what we are able to discuss in relation to that question.

I'll be really quick because we got over time. But there are multiple ways you can book on our property on our platforms directly. You can book directly through the app, book directly on the mobile web and book directly on a desktop or laptop. The app is by far the stickiest those in terms of repeat rates return rates. And of course, the app is where we're kind of designing to optimize the experience around the Connected Trip, because not only do we want you to be able to book all elements through the app, but also goes with you on the trip, that doesn't usually happen when you book and print something on one of the other platforms. So it's very important for us. It's a big effort. It's where the Connected Trip is moving towards. And then what I would just leave you with as a final sort of course, not all customers are created equally and the higher value customers who do more business, where spend more of their total spend with are higher usage of both app and direct by an appreciable amount, compared to the average customer. So the app is very much at the center of that thinking.

Okay. Thanks so much.

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