Booking Holdings Inc (BKNG) — Q1 2024 Earnings Call Transcript

Thank you, and welcome to Booking Holdings' First Quarter Conference Call. I'm joined this afternoon by our CFO, Ewout Steenbergen. I am pleased to report a strong start to 2024. Our travelers booked nearly 300 million room nights across our platforms in the first quarter, which exceeded our expectations and grew 9% year-over-year. First quarter revenue of $4.4 billion grew 17% year-over-year, and adjusted EBITDA of about $900 million increased 53% year-over-year. Both revenue and adjusted EBITDA were ahead of our first quarter expectations. Finally, adjusted earnings per share in the first quarter grew 76% year-over-year, helped by improved profit levels as well as our strong capital return program, which reduced our average share count by 9% versus the first quarter last year. We continue to see resiliency in global leisure travel demand, including healthy growth for travel on the books that's scheduled to take place during our peak summer travel season, although a high percentage of these bookings are cancelable, and what is on the books today represents a modest percentage of the expected total summer bookings. As we look ahead to the second quarter, room night growth compared to last year will benefit from the shift in Easter timing. However, we expect that this will be offset by a less expansion of the booking window and an increased impact from the geopolitical situation in the Middle East. We believe this will result in some deceleration in room night growth versus Q1. Ewout will provide further details on our first quarter results and our thoughts about the second quarter. Over the last few years, we have talked quite a bit about our key strategic priorities, which include building towards our connected trip vision, expanding our merchant offering at Booking.com, developing our AI capabilities and enhancing our Genius loyalty program. These initiatives may seem to be distinct efforts, but I'd like to emphasize they actually all fit together in our ongoing effort to deliver a much better planning, booking and traveling experience for our travelers while also benefiting our supplier partners. By creating a much better experience for our travelers and solving more of the challenges they face when planning, booking and experiencing a trip, we believe travelers will choose to book directly and more frequently with us, resulting in increased loyalty over time. We see encouraging early proof points at Booking.com as we have grown the number of total active travelers while experiencing higher growth in repeat travelers, which speaks to the progress we are making in encouraging customers to book again with us. In addition, we are seeing increases in the average number of trips booked per traveler as well as an increasing mix of our room nights that are booked directly with us. On direct mix, we are pleased to see the direct booking channel continue to grow faster than room nights acquired through paid marketing channels. While we see paid marketing channels becoming a gradually smaller proportion of our business over time, we think it's important for us to remain proactive in these channels in order to bring new travelers to our platforms, as long as we're able to do so at attractive ROIs. We believe continuing to improve the experience for our travelers by advancing towards our connected trip vision will help to further drive these positive proof points around loyalty, frequency and direct booking behavior. I'm encouraged to see strong growth in transactions that are connected to another booking from a different travel vertical in a trip. These connected transactions increased by just over 50% year-over-year in the first quarter, though it's important to note that this growth is off of last year's small base. Connected transactions represented a high single-digit percentage of Booking.com's total transactions in Q1. It's great to see more of our travelers choosing to book connected transactions. And we believe by providing more value and a better overall experience to those travelers, they may choose to book more trips with us and have a higher likelihood of booking directly with us in the future. Flights is the most frequently booked vertical in a connected transaction outside of accommodations. And it is an important component of many of the trips our travelers are booking. In the first quarter, air tickets booked on our platforms increased 33% year-over-year, driven primarily by the growth of Booking.com's flight offering. We continue to see a healthy number of new customers to Booking.com through the flight vertical and are encouraged by the rate that these customers and returning customers see the value of the other services on our platform. Winning a traveler's business is never easy because of the high level of competition in our industry. But we are pleased to see that by providing a better way to do it, less friction, better value, a broader selection and great customer service, we are building a customer base that is more likely to choose us. Outside of flights and accommodations, we are seeing strong growth from rental cars and attraction bookings that are part of a connected transaction. We believe continuing to enhance and expand the attractions vertical has the ability to increase traveler engagement with the app while travelers are in destination and looking for something to do. And we believe that over time, travelers who experience the value we provide for in-destination services like attractions will choose to use us more in the future. Bringing all of these elements of travel together in a seamless booking experience and unlocking the ability of merchandise across verticals is a capability we have been building at Booking.com over the last several years. In addition to being a foundational element to our connected trip vision, our merchant offering brings many other benefits to our travelers and partners. For travelers, we provide the ability to pay in many different methods. And we can offer discounts, incentives and other merchandising opportunities. For our supplier partners, our merchant offering enables us to take fraud liability from our partners as part of the services we provide, reduces cancellation rates versus the agency model. And over time, we believe we can help to lower payment costs for our partners. In order to achieve the easier and more personalized experience with the connected trip we have always envisioned, AI technology plays a central role. We believe we are well positioned to leverage this technology given we have built strong teams of AI experts and gained valuable experience from using AI extensively for many years. In addition, we have proprietary data that can be used to train specific use case models or fine-tune large AI models and have the resources and scale required to help build AI-powered offerings. As we have discussed before, our teams continue to work hard to integrate generative AI into our offerings in innovative ways, including Booking.com's AI Trip Planner, Priceline's generative AI travel assistant named Penny and Kayak's recent release of generative AI-powered features and tools. We will continue to learn from traveler interactions with these tools and enhance our offerings over time. In addition, customer service, which is a critical function that we provide to both our travelers and partners, is an area we believe will be meaningfully enhanced by AI advancements. At each of our OTA brands, our teams are actively exploring ways to leverage generative AI technology to improve self-service tools, which we believe will reduce live agent contact rates and enable us to answer traveler questions faster. When customers still need to speak with a live agent, we believe that this technology will improve our live agent efficiency by making it easier to access information and document the conversations. In sum, we believe gen AI will lower our customer service cost per transaction over time and improve the customer experience. Our Genius loyalty program at Booking.com also plays an increasingly important role in the multiple elements of travel that we offer as we expect our travelers will be able to experience the benefits of Genius in each of our travel verticals over time. In addition, bookings in travel verticals outside of accommodations will contribute to a traveler's Genius level tier. We have seen an encouraging number of our rental car supplier partners choosing to adopt the Genius program, and we have just begun to test the program in flights and attractions. We are seeing success in moving more of our travelers into the higher Genius tiers of Level 2 and Level 3, which require 5 and 15 bookings in a 2-year period, respectively. We see encouraging behavior from our Genius Level 2 and 3 travelers, including higher frequency and a higher rate of direct booking than what we see for our overall business. We will continue to explore opportunities to enhance our Genius loyalty program and deliver more benefits to our travelers with more of our supplier partners electing to participate. While we have mostly been discussing our traveler customers, we operate a two-sided marketplace, and our supplier partners are equally important to us. The success of our business is built on a mutually beneficial and balanced partnership with our millions of hotels, alternative accommodations and other supplier partners around the world. We strive to be a trusted and valuable partner for all accommodation types on our platform, the majority of which are small independent businesses. We believe that improving the competitiveness and profitability of our smaller partners contributes to the long-term economic health of our sector, and we continue to onboard more small independent businesses through our alternative accommodation offering at Booking.com, and we are benefiting from having more listings available on our platform for travelers to choose from. At the end of Q1, our global alternative accommodation listings were about 7.4 million, which is about 11% higher than Q1 last year. We are focused on continuing to build on this progress by further improving the product for our supply partners and travelers, particularly in the U.S. In conclusion, I am encouraged by the strong first quarter results and the continued long-term resilience of leisure travel demand. We continue our work to deliver a better offering and experience for our supply partners and our travelers. We remain confident in our long-term outlook for the travel industry. We are positive about our future, and we believe we are well positioned to deliver attractive growth across our key metrics in the coming years. I will now turn the call over to our CFO, Ewout Steenbergen.

Thank you, Glenn, and good afternoon. I'm very excited to join the Booking Holdings team. I look forward to continuing to work with you and David in his new role and the rest of the leadership team to help drive continued future success for our investors, employees, traveler customers and supplier partners. I will now review our results for the first quarter and provide our thoughts for the second quarter. All growth rates are on a year-over-year basis. Information regarding reconciliation of non-GAAP results to GAAP results can be found on our earnings release. We'll post our prepared remarks to the Booking Holdings Investor Relations website after the conclusion of the earnings call. Now let's move to the first quarter results. Our room nights in the first quarter grew 9%, which exceeded the high end of our guidance by about 3 percentage points. The higher-than-expected room night growth was driven by a continued expansion of the booking window as well as healthy underlying demand with better-than-expected performance in Europe and less of a negative impact from the war in the Middle East than expected. Looking at our room night growth by region. In the first quarter, Asia was up mid-teens, Europe and the rest of the world were up high single digits, and the U.S. was up low single digits. We are encouraged by the continued progress we are making in strengthening the direct relationships with our travelers. Over the last four quarters, the mix of our total room nights coming to us through the direct channel was in the mid-50% range, and when we exclude our B2B business, it was in the low 60% range. We have seen both these mixes increase year-over-year in each of those four quarters. We're focused on continuing to increase our direct mix going forward, which we believe will benefit from our efforts to improve the experience for our travelers, including building towards our connected trip vision. Increasing our direct mix benefits our P&L by driving higher efficiency of our marketing spend as a percentage of gross bookings while reducing the mix of bookings we source through paid marketing channels. In our mobile apps, the significant majority of bookings we receive are direct. And we continue to see favorable repeat direct booking behavior from consumers in our mobile apps compared to direct bookings on desktop or mobile web. The mobile apps also allow us more opportunities to engage directly with consumers. In the first quarter, mobile app mix of about 51% was 5 percentage points higher than the first quarter of 2023. We continue to offer our travelers a broad selection of places to stay and are seeing an increasing mix of our room nights being booked in alternative accommodation properties. For our alternative accommodations at Booking.com, our first quarter room night growth was 13%. And the global mix of alternative accommodation room nights was 36%, which was up versus 33% in the first quarter of 2023. Outside of accommodations, we saw airline tickets booked on our platforms in the first quarter increased 33%, driven by the continued growth of Booking.com's flight offering. First quarter gross bookings increased 10%, which exceeded our expectations. The 10% increase in gross bookings was approximately 2 percentage points higher than the 9% room night growth on an unrounded basis due to about a 1% higher accommodation ADRs plus about 1 point of positive impact from flight bookings. There was an immaterial impact from changes in FX on our gross bookings growth rate. Our ADR growth was negatively impacted by regional mix due to a higher mix of room nights from Asia. Excluding regional mix, ADRs were up about 2 percentage points. Similar to comments we have made in the past, we have not seen a change in the mix of hotel star rating levels being booked or changes in the length of stay that could indicate that consumers are trading down. We continue to watch these dynamics closely. Revenue for the first quarter of $4.4 billion also exceeded our expectations, increasing 17% year-over-year. Revenue as a percentage of gross bookings was 10.1% and improved versus the first quarter of 2023 due mostly to the Easter timing shift as well as the easier year-on-year take rate compare due to changes in the booking window last year, as mentioned on our first quarter 2023 earnings call. Marketing expense, which is a highly variable expense line, increased 6% year-over-year. Marketing expense as a percentage of gross bookings was 3.7%, about 15 basis points lower than the first quarter of 2023 due to higher ROIs in our paid channels and a higher mix of direct business. Performance marketing ROIs increased year-over-year, helped by our ongoing efforts to improve the efficiency of our marketing spend. First quarter sales and other expenses as a percentage of gross bookings was 1.6%, about 20 basis points higher than last year due in large part to a higher merchant mix. Our more fixed expenses on an adjusted basis were up 11%, which was below our expectation due primarily to lower G&A expense. We recognize that this fixed expense growth is elevated as we invest in the business but are fully focused on driving operating leverage from our more fixed expenses and targeting a much lower OpEx growth level in 2025. Adjusted EBITDA of approximately $900 million was above our expectations, largely driven by stronger-than-expected bookings as well as better-than-expected marketing efficiency. Adjusted EBITDA was up 53%, including about 20 percentage points of benefit from the shift in Easter timing. Note that we expect the first quarter will be our seasonally lowest EBITDA quarter for the year. Adjusted net income of over $700 million resulted in adjusted EPS of $20.39 per share, which was up 76%. Our average share count in the first quarter was 9% below the first quarter of 2023. On a GAAP basis, we had net income of $776 million in the quarter. Now on to our cash and liquidity position. Our first quarter ending cash and investments balance of $16.4 billion was up versus our fourth quarter ending balance of $13.1 billion due to the $3 billion debt issuance in the first quarter and $2.6 billion in free cash flow generated in the first quarter. This was partially offset by the $1.9 billion in capital return, including share repurchases and the dividend we initiated in the quarter as well as $315 million in additional share repurchases to satisfy employee withholding tax obligations. Now on to our thoughts for the second quarter. We expect second quarter room night growth to be between 4% and 6%, a deceleration from the first quarter as the first quarter benefited more from the year-over-year expansion of the booking window. We expect the booking window to be closer to the prior year in the second quarter. Additionally, the impact from the ongoing war in the Middle East was less negative than we expected in the first quarter. However, we expect a more negative impact in the second quarter given the geopolitical situation in April. April room night growth rate was above the high end of that range and benefited by a couple of points from Easter being in March this year versus April last year. Adjusting for Easter, April room night growth was about in line with the high end of that range. We expect second quarter gross bookings growth to be between 3% and 5%, slightly below room night growth due to about 3 points of negative impact from changes in FX, offset by about 1% higher constant currency accommodation ADRs plus about 1 point of positive impact from flight bookings. We expect second quarter revenue growth to be between 4% and 6% and for revenue growth to be impacted by about 2 points of negative impact from changes in FX. Adjusted for the changes in FX, we expect second quarter revenue growth to be in line with second quarter gross bookings growth as the negative impact from the shift in Easter timing is offset by increasing revenues associated with payments. We expect marketing to be a source of slight deleverage in the quarter, but if you adjust for Easter timing, we expect marketing as a percentage of revenue to be neutral year-over-year. We expect our sales and other expenses to grow faster than revenue in the second quarter, driven by a higher merchant mix. We expect our more fixed OpEx to grow faster than revenue in the second quarter due primarily to faster IT expense growth as we have been investing in new tech platforms and in line with the full year guidance we provided last quarter. We expect second quarter adjusted EBITDA to be between about $1.7 billion and $1.75 billion, down low single digits year-over-year due to about 7 points of pressure from the shift in Easter timing and about 2 points of negative impact on growth from changes in FX. Normalizing for Easter timing and changes in FX, our expectation for second quarter adjusted EBITDA would be for mid- to high single-digit growth. In closing, we are pleased with our first quarter results and the healthy leisure demand environment we are seeing. In terms of our outlook for the full year, we're not updating our previous full year commentary at this time. We want to see how the next few months develop before considering any updated commentary. We continue to expect 2024 to be a strong year for the company. Lastly, I would like to thank all my new colleagues across the company for their hard work and dedication to make these strong first quarter results possible. And thank you for your continued commitment towards our shared vision of making it easier for everyone to experience the world.

So a quick one on the guidance. Can you talk about what changed in terms of the shape of the year that you're seeing versus what you expected on the February call? And walk us through this kind of changing booking window trends that you're seeing. And then if you could comment on whether it's giving you any concern about the back half or you see it as more of a neutral change.

Kevin, this is Ewout. If you think about the second quarter guidance that we have provided to you, I think a couple of elements that you have to take in consideration. One is we are expecting a less expanded booking window in the second quarter than we have seen in the first quarter. So there has been a little bit of a pull forward of room nights from the second quarter into our first quarter results. We are expecting more of an impact from the Middle East from what we have seen so far. But in the opposite direction is that Easter is a slight benefit for the second quarter. There is a little bit of noise, so to say, in the results quarter-by-quarter, particularly from Easter and the booking window. But if you look at the combined first half year results that we are expecting, so the actuals in the first quarter and the guidance for the second quarter, we believe that the results are really strong and very consistent to full year guidance that we have provided. In terms of the comps that you are referring, actually, first quarter and second quarter comps are a bit tougher for us. And the second half of the year, the comps will become easier. So that is actually going to be a benefit during the course of 2024.

Can I try two questions, please? First, why do you think the ROI is higher in paid marketing channels? Is that just efficiencies you found or you find that overall performance marketing channels, platforms that are out there are just providing a better return on ad spend to their customers in general? And then secondly, could you quantify at all what percentage of total transactions now are connected?

So I’ll start with the first part, and then I’ll let Ewout elaborate a bit more. We are satisfied with how our marketing programs are performing overall. We’ve discussed this many times before. We look at this comprehensively and continuously seek the best allocation of our resources. When we identify effective strategies, we invest more in them. Conversely, when we determine that certain efforts are redundant and not yielding additional benefits, we cut back on those expenditures. That’s our approach. I won’t get into specifics to maintain our competitive edge, but I’m truly pleased with the impressive returns we’re seeing from our marketing initiatives. This success is thanks to the hard work of our team, and I want to acknowledge their efforts. Ewout, would you like to reiterate what we’ve previously mentioned?

Sure. Mark, so the percentage of connected trip as a mix of total transactions at this moment is high single digits, and that is growing very rapidly. I think the way we look at it is really in combination with multiple other elements. We're seeing that we're delivering more value for our customers. Therefore, we see higher loyalty customers moving up to higher levels of Genius, more repeat customers coming to us. We can provide them more benefits over time. They're buying more from multiple verticals, and therefore, the connected trip is growing as well. So this is really a flywheel that we're having here. And we're seeing all of these metrics moving in the right direction, and they are all interrelated. So we're actually really encouraged by the total pattern of what we're seeing in terms of the added value we deliver to the customer and how it is being recognized by those travelers.

I was wondering if you can give us the update of your regional mix. We get that question all the time and just how it's changed, any regions growing faster than others at this point and how it's changed maybe since pre-pandemic. And then second, the Digital Service Act in Europe has taken hold. And just wondering if you're seeing any changes in performance marketing channels around that or any disruptions or any opportunities.

Thank you, Justin. I missed the second part of your question. Let me start with the first part, and then Ewout can address the rest. Regarding regional mix, this has been a significant topic for us over the past few years due to the pandemic. The timing of the pandemic's worst phases and the subsequent recovery has affected our performance across different regions. As we discussed in last year's calls, Asia was slower to recover but is now providing a favorable comparison since they were further behind. The U.S. came out of the pandemic first, which made last year's comparisons more challenging. However, I want to emphasize that we are quite strong in Europe, and I have made it a priority to improve our performance in the U.S. We've invested substantial resources into this area, and I'm pleased to report that we've returned to pre-pandemic performance levels in the U.S. It’s encouraging to see that our efforts are yielding positive results, and we will continue to focus on the U.S. One area where we’ve excelled is in alternative accommodations. While we have a robust global presence in this sector, we've been catching up in the U.S., particularly with specific property types that I believe will be beneficial. We're making good strides in enhancing our offerings, which has encouraged homeowners to list their properties on our platform. Our recent marketing efforts have highlighted alternative accommodations, reinforcing my belief that we have a tremendous opportunity to grow our market share in the U.S. I'm looking forward to that. Ewout, I'll turn it over to you for the rest.

Yes. And quickly to give a couple of numbers around the regional mix. Europe, high single-digit growth in the first quarter, that was above our expectations. Very important that we see even Europe continue to do better than our own internal expectations. Asia, mid-teens growth, particularly very strong in China, Japan, Korea, India and Indonesia. And then U.S. at low single-digit growth, as Glenn already mentioned, but we believe that we have done better than the market in the first quarter with our U.S. growth and are on a great trajectory and have many additional opportunities to grow faster in the future in the U.S. With respect to your second question regarding the DMA changes, actually, if we look at the higher ROIs for our paid channels and the marketing leverage that we're seeing in the first quarter, that is all coming from our own actions, from the improvements we're making, the continuous optimization of our paid marketing approach as well as the growth of direct channels. We don't see really an impact from the Google DMA changes. And I would say that is more neutral for us as a total effect.

Glenn, just hoping you could perhaps quantify anything on Genius frequency or bookings versus nonmembers? And maybe you can just help us understand what you see in the path of customers as they move into upper Genius loyalty tiers. And then Ewout, just a follow-up on your U.S. comments from a few minutes ago, the low single-digit room night growth above market. Is there anything to point to in that region in particular relative to the faster growth you've seen elsewhere?

Doug, we don't disclose specific numbers regarding our Genius membership or the distribution across different tiers. However, I want to express how pleased I am with the ongoing growth of the whole program. This expansion aligns with our efforts to test additional verticals, flights, and attractions, providing greater value to travelers and creating opportunities for our supplier partners to attract incremental demand. It's a mutually beneficial relationship. Our partners choose to participate because they see real value in it, and we will continue to explore different approaches, sometimes adding value ourselves to ensure we offer the best options for travelers. As we discussed earlier, when people experience value and benefits, they are motivated to return. This repeat business is crucial. I appreciate Ewout's terminology, whether it's "flywheeling" or "flywheel"; the concept is the same. Providing more value encourages people to come back more frequently, which presents significant opportunities for us. Now I’ll turn it over to Ewout for any additional comments regarding the low single-digit growth in the U.S. market.

Yes, Doug, a couple of additional insights around the U.S. So what we like particularly is the sequential improvement from the fourth quarter in terms of our growth, particularly within the growth. We saw the highest growth for alternative accommodations, which is really encouraging. If you look at U.S. bookers, more international growth than domestic growth. And then again, we really very much believe that U.S. is for us a growth market opportunity. It's fantastic with the scale that we have already today, with all the strategic expansions we're doing in multiple verticals and going more direct to connected trip, generative AI and many of the other strategic initiatives that we're having that we're actually having an opportunity to expand our position over the next few years in the U.S.

Maybe to come back to the last discussion you are having about the U.S. Over the last sort of 10 years or so, you've had a lot of strategies in the U.S. between branded spending, paid search spending, the merchant product and now AI. I guess maybe for either of you, as you sort of think about the next couple of years, what do you sort of think the largest unlock will be to differentiate yourself to drive continued outsized growth within the online travel category in the U.S.?

There are a few interesting points related to your question. When you mentioned online, it seemed to limit the discussion to that area. I recently reviewed an industry report highlighting the significant business that remains offline, which shows there's still a great opportunity for us, particularly in the U.S. Regarding your question, we've implemented many strategies, and I would say they've largely succeeded, as reflected in our increased market share over time, reaching back to the pre-pandemic period. I'm pleased with our progress, and we will keep working hard. I've mentioned before how we are gradually making incremental changes that are helping us grow consistently. However, I sense your question pertains to whether there will be a more transformative change in the future rather than just these incremental improvements. I do believe that's possible, especially with our efforts in AI and technology, which can create a distinct difference. I'll also touch on the frustrations travelers face today; while there have been improvements, it's not yet sufficient. I believe that the adoption of AI, particularly generative AI, will significantly enhance the traveler experience in the coming years due to these technological advancements. Our responsibility is to implement these solutions quickly, providing value to both our suppliers and travelers so they keep returning. I'm excited about where we are headed.

Can you guys comment about ADR by region and kind of what you're seeing among different markets that you're operating? And also, can you update us on ADR expectations for 2024? Maybe any changes from your prior expectation. I guess lastly, any trends that you see in terms of summer travel season, I guess, especially in Europe? How does that compare to last year?

ADR by regions, James, in the first quarter, what we have seen is ADRs were up in Europe and were flat in North America and in Asia. So therefore, on a constant currency basis, 1% overall growth in ADRs as we have reported today.

We have strong travel growth booked for the peak summer season, which makes me optimistic about the summer, although I won't provide specific numbers.

So I was wondering if there is anything you can share about how the folks who have access to Trip Planner might be behaving. It seems like there's a lot of potential application here because if they're doing research, then there's top-of-funnel implications. And then you could theoretically recommend other pieces of the trip as well. So this could theoretically drive greater connected trip activity. So just wondering. This has been out for a little less than a year. So I'm just wondering what you guys are seeing so far.

Yes. So it's low numbers of people who are using it such, and we're continuing to develop and learn all the time the interactions to see how people are using it. So it's a very small number of people compared to the number of people who use our services, but we are continuing to advance it. And I agree with you. This has tremendous potential down the road. And I think a lot of people believe that, too. In fact, it's very hard to read any article about generative AI and not have in the first paragraph the use case of travel. It's always right there because we all see how complex the number of permutations, trying to understand what is the best way to do it. And using gen AI to simplify it is really something that I believe will make a huge difference, albeit it's going to take time. You're not going to see tremendous changes over the next couple of quarters. But I do believe, over time, this will create a much better way for people to do their planning, their booking, executing and helping them when they are in destination, which is a really important thing because nobody goes on travel so they can sit in the hotel. They want to do stuff. And we want to be able to provide that too and bring, as I said, about all the elements we've talked about, all the initiatives into one holistic system that enable it to be a better experience for our traveler customers. I believe that just has tremendous opportunity for us.

Great. Two if I could. Ewout, there remains sort of a robust debate on sort of what the structural growth algorithm is for online travel at this point. I guess in your early experience of booking, what strikes you as perhaps the most compelling area that you could put $1 of investment to work in order to drive faster revenue growth for longer that maybe comes in above the investor expectations? And then maybe one on fixed OpEx. Obviously, your fixed OpEx base is up materially relative to '19, particularly when you compare it to bookings growth relative to '19. So I guess maybe what has shifted in the business that is perhaps maybe a bit more capital intensive at this point or necessitating sort of greater headcount to sort of accomplish the goals that you guys want?

Thank you, Lee. Regarding structural growth, I am very optimistic about the company's future. This is an exceptional company that is highly successful. I truly believe we can grow faster than GDP moving forward. The shift from offline to online bookings is significant, and I see consumers increasingly spending on experiences rather than material goods. There are several areas that I believe are currently underestimated for the company, especially after my six weeks in this role. First, let's discuss direct bookings. We have transformed our approach and are not solely reliant on paid channels anymore. Direct bookings are now in the low 60% range for our B2C business. This is crucial, as we are retaining those customers by providing more value, encouraging travelers to return to our app and book directly with us. Next, we have significant potential in alternative accommodations, which is often overlooked. We are already about two-thirds the size of the largest competitor in this sector and have been growing faster than them over the last eight quarters. There remains considerable opportunity to enhance our offerings. The integration of traditional and alternative accommodations allows travelers to seamlessly transition between types, often leading them to book something different than they initially intended. Lastly, generative AI is a key area for us. While Glenn mentioned it, I feel the real strategic advantage lies in our capital investments and the quality of our data. In generative AI, the data that informs language models is likely the biggest differentiator. We have a valuable advantage in our data due to the various ways we engage with travelers, partners, and other stakeholders in the travel industry. This gives me great confidence in the structural growth opportunities the company has over the next few years. Regarding fixed operating expenses, we've made strategic expansions into various sectors, including payments, which ties back to your earlier question. These decisions will help spur future growth, which is positive. However, we aim to reduce the increase in fixed operating expenses starting in 2025, which will lead to more operating leverage in the coming years. While this year will see the completion of some investments, such as certain tech platforms, next year should bring increased operating leverage from these initiatives.

Just wanted to ask about underlying room night trends. Just talk about in the first quarter, the size of some of the transitory impacts that you called out like Easter shift, geopolitical disruption and the booking window and sort of how that shakes out to how you think about underlying trends in the business. And second, on the attractions offering, can you talk about the investments that you've made so far and how your supply is today versus where you need it to be over time to sort of open up the full potential of that opportunity? And our understanding is that attractions are often booked closer to the trip date, which requires getting the traveler back to the app. Talk about how you're sort of looking to drive a solution to that dynamic and how the connected trip offering could help drive that behavior over time.

With respect to your first question, room nights dynamics in the first quarter. So positives here compared to our original guidance for the first quarter were the fact that the booking window was expanding and that we're able to pull some room night bookings from the second quarter into our first quarter results. Healthy demand in Europe, and Europe was stronger than we anticipated, as we mentioned before, and less of an impact from the Middle East. And you saw excluding the Middle East impact, actually, the result was exactly the same. So there was no material impact from the Middle East. Easter was a negative, a small negative. But that was, of course, anticipated in the guidance that we provided before.

So regarding attractions, it's important to note that we haven't discussed this topic much in the past. Attractions are primarily supplied through third-party companies, such as Viator, Klook, and Musement. We have partnerships with these companies to secure our supply. Additionally, we acquired FareHarbor, which can be seen as similar to OpenTable for small and medium-sized attractions, providing us with a solid connection to those venues. We have certain priorities and while we want to explore various avenues, we recognize we cannot pursue everything at once. Our main focus has been on enhancing our flight offerings as that is a critical component for us. Following that, we are ensuring we have adequate ground transportation. Our team is also putting significant effort into enhancing the attraction segment and we're seeing great progress in that area. This is all part of our strategy to create a connected trip experience, especially since travelers typically do not book attractions well in advance. Many prefer to make reservations while they're at their destination, which makes our app invaluable; it acts like a travel agent in their pocket, offering great deals and ideas. We're able to connect customers with tailored offers that drive demand for attractions at the moment they are in destination. Overall, this presents us with an incredible opportunity that we are just beginning to explore, and it reaffirms my belief in the significant potential that lies ahead for us as we continue to move forward.

I want to follow up on alternative accommodations considering the rapid growth in overall room nights. Ewout, you and Glenn mentioned this, but I would like to know more about the supply side, particularly the 7.4 million properties listed on the site. Are these properties of higher quality compared to the past? How do they differ from other platforms available? Ewout, you noted earlier that Booking offers both alternative accommodations and traditional options, which is an advantage. I would appreciate your insights on what you're observing from a consumer perspective, especially regarding those who book both types and the mix of those bookings.

Let me address the second part of your question regarding alternative and traditional accommodations. We don't view these as separate categories because we believe our unique approach is integrating both on our platforms. This division is unnecessary as we see many consumers interested in both options. They want to explore various alternatives and often transition from searching for a traditional hotel to considering an apartment for rent or vice versa. We believe that combining all these offerings is advantageous and provides a comprehensive solution for our travelers.

In terms of quality, I believe the inventory we have is of high quality and comes at various price points, covering a complete range. It's not surprising that lower-priced items may not be as luxurious as those that are higher-priced. While we cover a broad spectrum, we do lack certain types in specific areas. As we approach summer, I am considering whether we have enough high-end homes in the Hamptons, and I don't think we do. Our competitors seem to have more inventory in that area, which I view as an opportunity for us since we are performing well. Although we don't have the variety or quantity of accommodations that I desire, we should be expanding significantly in every geographical area. Our foundation was in Europe, and we are very competitive there with a diverse inventory. However, I acknowledge that we need to continue working on our U.S. presence, and I see us making substantial progress in that regard.

Great. Just following up on that last point, Glenn. How do you think about getting more of that single unit inventory? Is it connecting more with property managers, the PMS systems? And then my second question is, just how should we view the big events in Europe this year, this summer in travel, particularly around the Olympics impacting demand or how people would travel?

Sure. We definitely have found that it's easier to acquire more inventory when we engage with managers who control a significant amount of the inventory we need. Those multi-property managers are crucial to our business growth. Until very recently, we hadn't focused much on attracting individual properties. However, it's important for us to make efforts across the board, ensuring we provide a user-friendly platform that suppliers appreciate. Recently, we made significant improvements in how our larger managers reconcile payments with individual properties, which has encouraged them to work with us more. While individual improvements may seem minor, collectively they encourage these managers to seek additional demand from Booking.com because of the ease and usefulness of our service. Properties always aim to avoid emptiness since that means lost revenue, which can never be recovered. Therefore, suppliers will look to us for more demand as long as we continue to offer them a reliable and convenient platform. Regarding summer events like the Paris Olympics, predicting the impact is always challenging. Having been here for 24 years, I've seen many Olympic events unfold differently than anticipated. The key takeaway is not to focus too much on any single short-term event. Instead, we should consider our long-term performance: what we've achieved over the years in terms of increasing value, attracting more customers and suppliers, and generating cash flow for our investors. While I can speculate about the Paris Olympics, my guess is as good as anyone else's, and I don't think it's worth spending too much time worrying about.

Just one. I wanted to follow up on some of the prior questions on the U.S. market. I was hoping you could kind of comment on maybe the relative unit economics of your U.S. accommodations business today versus in Europe. Obviously, the Booking.com brand here is well known but less well known than in Europe. And so maybe there's like a heavier kind of marketing load per room night here. But the ADRs here are nice and high. But then again, maybe the take rates are lower. So I'm just kind of curious directionally how accommodation kind of unit economics in the U.S. stack up versus Europe at the moment and maybe where you kind of see that going over the next few years.

We don't disclose much more and giving you these regional growth rates. We don't go any further than that in terms of detail. I understand your reason for asking, but for reason of competitiveness and such, we're not going to break this down any further than that.

Thank you. I want to thank our partners, our customers, our dedicated employees, our shareholders, and I especially want to thank Ewout for joining the team. Ewout, thank you very much. We greatly appreciate everyone's support as we continue to build on the long-term vision for our company. Thank you, and good night.