Booking Holdings Inc (BKNG) — Q2 2024 Earnings Call Transcript

Thank you and welcome to Booking Holdings' second quarter conference call. I’m joined this afternoon by our CFO, Ewout Steenbergen. I am proud to report second quarter results that exceeded the high end of our expectations for room nights and revenue. The upside on revenue, combined with lower-than-expected fixed OpEx growth, helped drive adjusted EBITDA above the high end of our prior guidance range. As expected, the travel market has continued to normalize and we are pleased with the strength of our underlying business. Moving to our key metrics in the second quarter. Our travelers booked 287 million room nights across our platforms, an increase of 7% year-over-year. Revenue of $5.9 billion and adjusted EBITDA of $1.9 billion, both increased 7% year-over-year. Finally, adjusted earnings per share grew 11% year-over-year, helped by our strong capital return program which reduced our average share count by 7% year-over-year. In line with our expectations, we saw that the booking window expanded less in the second quarter relative to the first quarter which negatively impacted room night growth compared to Q1. From a regional perspective, we observed a mild moderation of travel market growth in Europe. However, we believe we're continuing to perform well relative to the market in Europe. Looking at our other regions, we continue to see high growth levels in Asia and a slight improvement in growth in the U.S. As we look ahead to the third quarter, we believe room night growth will be impacted by a booking window that expands less than it did in Q2 as well as by the more moderate market growth we have seen in Europe, where our growth has remained stable from May through July. We expect that this will result in some deceleration in room night growth compared to Q2. Ewout will provide further details on our second quarter results and our thoughts about the third quarter. I remain confident in the attractive long-term growth profile of the travel industry, our competitive position over the long term and our long-term growth and earnings model. We remain focused on what is important for the business for the long term which means continuing to execute against our strategic initiatives while simultaneously taking actions to drive more cost efficiency in the business. We continue to see progress across several important initiatives which include advancing our connected trip addition, expanding our merchant offering at Booking.com, continuing to develop our AI capabilities, growing alternative accommodations and enhancing our Genius loyalty program. These initiatives all fit together in our ongoing effort to deliver a better planning, booking and travel experience for our travelers while also benefiting our supplier partners. We believe that continuing to drive benefits to our supplier partners is critical to successfully operating a growing two-sided marketplace. We are encouraged to see healthy second quarter year-over-year growth in a number of supply partners working with us at Booking.com. We are focused on being a trusted and valuable partner by delivering incremental travel demand and developing products and features to help support these accommodation properties, the majority of which are small and independent businesses. We believe that improving the competitiveness and profitability of our smaller partners and supporting those partners across macroeconomic cycles contributes to the long-term economic health of our sector. Our alternative accommodation offering at Booking.com continues to benefit from having more listings available for travelers to choose from. At the end of Q2, our global alternative accommodation listings were about 7.8 million, which is about 11% higher than Q2 last year. We believe this greater selection of listings is contributing to the increasing mix of alternative accommodation room nights booked on our platform. We continue to make incremental enhancements to our alternative accommodation offering for both our travelers and supply partners. For our travelers, we are focused on successfully delivering a better planning, booking and travel experience over time which we believe will lead travelers to choose to book directly and more frequently with us. At Booking.com, we are continuing to grow the number of total active travelers with repeat travelers growing at an even faster rate. In terms of direct booking behavior, we are pleased to see that the direct booking channel continues to grow faster than room nights acquired through paid marketing channels. As I've stated before, we think it's important for us to remain proactive in paid marketing channels in order to bring new travelers to our platforms so long as we're able to do this at attractive returns on investments. In addition, I'm encouraged by the work our team at Booking.com is doing to increase our spend on social media in a disciplined manner which is an effort that helps to further diversify the channels we utilize while reaching our travelers on platforms they are actively using. Our Genius loyalty program at Booking.com plays an important role in helping to drive more travelers to choose to book directly with us over time. We see a meaningfully higher direct booking mix for Genius users versus other users. And that direct mix percentage steps up at each higher level of Genius status. So we are encouraged to see continued success and more of our travelers moving into the higher Genius tiers of levels 2 and 3 which now represent nearly 30% of our active travelers. In addition to a higher direct booking rate, we also see higher booking frequency from our Genius Level 2 and 3 travelers when compared to our overall business. In Q2, we drove more Genius benefits to our travelers with a 15% year-over-year increase in benefits. This is primarily driven by accommodation bookings. However, we are seeing growth in benefits and the other elements of travel as well with triple-digit growth in Genius discounts for car rentals off of a small base last year and continued testing of Genius benefits for flights. In addition to these benefits, bookings in travel verticals outside of accommodations contribute to a traveler's Genius level tier. We will continue to explore opportunities to enhance our Genius loyalty program and deliver more benefits to our travelers. And we know that Genius is a win-win with our supplier partners, enabling them to get incremental demand when they want it which is one reason more of our supplier partners are electing to participate. On the connected trip, we continue to take steps towards our long-term vision to make the planning, booking and travel experience easier, more personal and more enjoyable, while delivering better value to our travelers and supplier partners. In order to achieve the easier, more personalized experience of the connected trip, we have always envisioned AI technology at the center of this vision. Our teams of AI experts continue to draw on their valuable experience from using AI extensively for many years as they work to further incorporate this technology into our platforms. We believe our proprietary data, along with our resource and scale, position us well to build compelling AI-powered offerings over time. Another foundational element of the connected trip is the merchant offering that we continue to expand at Booking.com. Merchant capabilities will help bring different elements of travel together in a seamless booking experience while also unlocking the ability to merchandise across verticals. The mix of merchant gross bookings reached 58% of total gross bookings at Booking.com in the second quarter, which is an increase of 10 percentage points year-over-year and is higher than our prior expectations. We are pleased to see that processing transactions through Booking.com's merchant offering generated incremental contribution margin dollars in the quarter, though this was still a small percentage of our total adjusted EBITDA. We continue to see growth in transactions that are connected to another booking from a different vertical in a trip. These connected transactions increased by about 45% year-over-year in the second quarter and can represent a high single-digit percentage of Booking.com's total transactions. We believe by providing a better overall booking experience, travelers may choose to book more trips with us with a higher likelihood of booking directly in the future. Flights are an important component for many of the connected trips that our travelers are booking. In the second quarter, air tickets booked on our platform increased 28% year-over-year, driven primarily by the growth of Booking.com's flight offering as well as strong growth in Agoda's flight business. We continue to see a healthy number of new customers coming 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 offered on our platform. In conclusion, we continue our work to deliver a better offering 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 will now review our results for the second quarter and provide our thoughts for the third quarter and the full year. All growth rates are on a year-over-year basis. Information regarding reconciliation of non-GAAP results to GAAP results can be found in our earnings release. Now let's move to our second quarter results. Our room nights in the second quarter grew 7% which exceeded the high end of our guidance by 1 percentage point. As expected, we saw room nights growth moderate from the first quarter as we saw less year-over-year expansion of the booking window in the second quarter. Looking at our room night growth by region, in the second quarter, Europe was up mid-single digits. Asia was up mid-teens, rest of world was up high single digits and the U.S. was up mid-single digits. We continue to grow our alternative accommodations business faster than our overall business. For our alternative accommodations at Booking.com, our second quarter room night growth was 12% and the global mix of room nights was 36%, which was up 2 percentage points from the second quarter of 2023. We continue to see encouraging progress in strengthening direct relationships with our travelers and increasing loyalty on our platforms. Over the last 4 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 was in the low 60% range. We've seen both of these mixes continue to increase year-over-year. Mobile ad mix of our total room nights was about 53%, which was up 6 percentage points from the second quarter of 2023. We continue to see that the significant majority of bookings received from our mobile apps come through the direct channel. For our Genius loyalty program at Booking.com, we continue to see a year-over-year increase in the mix of room nights booked by travelers in the higher Genius tiers of levels 2 and 3. These members booked more than half of the room nights over the past 4 quarters. Outside of accommodations, we saw airline tickets booked on our platforms in the second quarter increased 28%, about in line with our expectations, driven by the continued growth of flight offerings of Booking.com and Agoda. Second quarter growth in bookings increased 4%, which was approximately 3 percentage points lower than the 7% room night growth due to about 2 percentage points of negative impact from changes in foreign exchange rates and about 1% lower constant currency accommodation average daily rates. The year-over-year average daily rate decline was negatively impacted by a higher mix of room nights from Asia. Excluding regional mix, constant currency average daily rates were about flat versus 2023. While room night growth was above the high end of our guidance range, gross bookings growth came in at the midpoint of our range due to about 2% lower constant currency average daily rates versus our expectation. In addition, our gross bookings were negatively impacted by lower flight ticket prices in line with the recent trends we have heard from many airlines. Second quarter revenue of $5.9 billion grew 7% year-over-year which exceeded the high end of our guidance by 1 percentage point. Revenue growth was negatively impacted by about 2 percentage points from the change in Easter timing and 2 percentage points from changes in foreign exchange rates. Adjusting for these two items, revenue would have grown about 11%. Revenue as a percentage of gross bookings was 14.1%, which was slightly higher than expected due to a timing benefit as we saw gross bookings growth decelerate in the quarter and a less expanded booking window than expected. Additionally, revenue associated with payments was higher than expected. Marketing expense which is a highly variable expense line increased 8% year-over-year. Marketing expense as a percentage of gross bookings was 4.7%, about 15 basis points higher than the second quarter of 2023, due primarily to the timing of brand marketing spend as well as increased spend in social media channels. Second quarter adjusted sales and other expenses as a percentage of gross bookings was 1.9%, about 15 basis points higher than last year due to a higher merchant mix and higher transaction taxes. Our more fixed expenses on an adjusted basis were up 5% and were below our expectations across all three line items: personnel, G&A and IT. We're very focused on carefully managing the growth of our more fixed expenses and are taking actions to help improve our operating leverage in future quarters. Adjusted EBITDA of $1.9 billion was above our expectations, largely driven by higher revenue and lower-than-expected fixed expenses. Adjusted EBITDA grew 7%, despite approximately 5 percentage points of pressure from Easter timing and 2 percentage points from changes in foreign exchange rates. Adjusting for these two items, adjusted EBITDA would have grown about 14%. When looking at our adjusted EBITDA margins, for the first half of 2024 which neutralizes the impact of the Easter timing shift, we're pleased to see 160 basis points of margin expansion versus the first half of 2023. Adjusted net income of over $1.4 billion was up 3%, slower than the growth in adjusted EBITDA, due primarily to higher income tax expenses which was impacted by some discrete items. Adjusted EPS of $41.90 per share was up 11% and benefited from a 7% lower average share count than the second quarter of 2023. On a GAAP basis, net income was over $1.5 billion in the second quarter. Now on to our cash and liquidity position. Our second quarter ending cash and investments balance of $16.8 billion was up versus our first quarter ending balance of $16.4 billion due to about $2.4 billion of free cash flow generated in the quarter, partially offset by about $1.9 billion of capital return, including share repurchases and dividends. Moving to our thoughts for the third quarter. We expect third quarter room night growth to be between 3% and 5%, a sequential deceleration as we expect the third quarter to benefit less from a year-over-year expansion of the booking window than we saw in the second quarter. For the third quarter, we expect the booking window to be more similar to last year. Additionally, we have seen a mild moderation in the market growth in Europe over the last couple of months, though our growth in Europe has remained stable from May through July and we believe we continue to perform well relative to the market. We expect third quarter gross bookings growth to be between 2% and 4%, slightly below room night growth due to about 1 percentage point of negative impact from changes in foreign exchange rates. We expect constant currency average daily rates to be down slightly year-over-year and for this to be offset by a slight benefit on flight bookings growth. While we continue to expect growth in flight bookings, we believe this will be less than previously expected due to lower flight ticket prices. We expect third quarter revenue growth to be between 2% and 4%. We expect third quarter adjusted EBITDA to be between about $3.25 billion and $3.35 billion, about flat year-over-year at the midpoint of the range. We expect adjusted EBITDA to grow slower than revenues due to deleverage from sales and other expenses and from growth in IT expenses related to higher software license fees and increased cloud costs. We expect third quarter revenue and adjusted EBITDA growth to also be negatively impacted by 1 percentage point from changes in foreign exchange rates. In terms of our outlook for the full year, we're adjusting our gross bookings growth expectation to faster than 6%, which is a bit lower than our prior expectation due to less growth in flight bookings resulting from the lower flight ticket prices I previously mentioned. While flight prices have come down, we still expect strong growth in flight tickets for the year as we continue to expand the flight offerings at Booking.com and Agoda. We expect accommodation average daily rates to be about flat to down slightly on a constant currency basis. For revenue, we now expect revenue growth of more than 7%, which is a bit higher than our prior guidance, based on the outperformance in the first half of the year and our expectation for higher revenue associated with payments. Revenue is impacted to a much lesser extent than gross bookings from the decline in flight ticket prices. We continue to expect about 1 percentage point of negative impact from changes in foreign exchange rates on our topline growth rates while reducing our fixed OpEx growth expectation to low double digits as we continue to focus on bringing this growth rate down over time. We expect adjusted EBITDA to grow in the high single digits which is slightly faster growth than our prior expectation, given our outlook for increased revenue growth and lower fixed OpEx growth. We continue to expect adjusted EBITDA margins to expand year-over-year by a bit less than 8 percentage points. Finally, we're increasing our adjusted EPS growth expectation to above 15%. In conclusion, we continue to expect 2024 to be a strong year for the company. We remain focused on executing against our strategic initiatives while taking actions to drive greater operating leverage. We're excited about our long-term vision for the connected trip and enhancing our offering through technology innovation like generative AI. And with that, we will now take your questions.

I was inquiring about the conditions of European travel, Glenn and Ewout. It appears that the market might be experiencing some slowdown, but if I'm understanding correctly, your performance there seems to have remained fairly stable, which suggests shifts or gains in market share. Can you provide more details on that? Why do you think your performance has stayed relatively unchanged despite a slowing European travel market?

Mark, it's Glenn. I agree with what you say. I'm very pleased with where we're sitting right now. We've talked in the past about normalization and we're happy with the numbers that we're seeing so far. Your question sort of assumed a softening of the travel business overall. Let's talk about how much and to what extent. Our goal always is to gain share. Whether the market goes up or the market goes down, I can't control demand. I can't control economies. What I can control is how well we can provide value to the travelers and to the suppliers. And as long as we continue to do that, as long as we continue to provide a reason that people should come to us as a traveler or use us as a way to distribute somebody's travel suppliers, we'll continue to gain. And we've seen this in the long run here and I expect to continue to see it in the long run going forward. I can't really give more than that right now.

And Mark, if I may quickly build on the answer that Glenn just gave, it's also important to point out that actually our growth in Europe has been quite steady and stable in the period from May through July. So yes, we are seeing some mild moderation but it has been relatively stable over the last couple of months.

Great. Could you maybe give a little bit more color on some of the moderation you're seeing, like other indicators, like length of stay or any trading down activity that you might be seeing? And given that things have started to slow, how do you gain confidence that they're not going to continue to slow both in room nights and rates?

Kevin, if you look at the overall conditions of the market, we're not really seeing a trade down on a global basis. So both in terms of the star ratings as well as in the length of stay, it's relatively stable to what we have seen in previous periods. Maybe with one exception is a really mild indication of some trade down in the U.S. but otherwise, globally, we see a very steady picture.

And a quick follow-up on ad spend dynamics with the deleveraging expected in the third quarter. Is that more of the same in terms of brand and social spend?

In the third quarter, the deleverage primarily relates to sales, operations, and fixed operating expenses. For marketing, we anticipate leverage in the second half of this year and also in the long term, as we expect to benefit from an increased direct mix. Additionally, I want to emphasize that we are increasing our spending on social media channels, which we find very attractive. We are currently expanding our presence and investing more in these channels, achieving appealing incremental returns on investment. This is a significant point to highlight regarding our marketing leverage and the progress we are making.

Great. Glenn, I'd love to hear your perspective on the travel market, bookings growing 3% to 5%. We know Europe has a really tough comp against reopening last year. Is that kind of how you're thinking about longer-term market growth? Or do you think it's kind of depressed right now on really difficult comps? And then love to hear about alternative accommodations, really, really strong growth there, an increasing percentage. Are you featuring that more on your website? And do you really like the economics of accommodations? How do you feel about those economics versus hotel?

Justin, there are two separate questions. First, regarding the overall travel market, we often discuss how it is largely influenced by GDP. Historically, as GDP rises, more people are able to travel, which benefits us. We've seen various estimates around the 3% to 5% growth range for global GDP and its impact on travel, and the figures tend to align. Additionally, we believe we can gain market share by providing excellent service, along with the advantage of the shift from offline to online bookings. All these factors support the growth model we've previously outlined, although we acknowledge there will be fluctuations and global events that could affect performance in the short term. Our long-term focus remains on improving our service. One key area we've been developing is our alternative accommodations business, which we aim to make competitive with industry leaders. While we've acknowledged it took time to catch up, we believe we've made significant progress. In our last call, we highlighted that our homes business has outpaced the industry's largest player in growth over eleven of the past twelve quarters. While I'm uncertain if our growth rate will remain at 12%, I am pleased with that performance considering the scale of our operations. Our strategy revolves around continually enhancing our product to encourage usage, regardless of whether customers choose homes, hotels, or other types of accommodations. Ultimately, our priority is ensuring customers find what they want and return to us. Discussions about the profitability between different accommodation types are secondary; what matters is empowering consumers with the right tools to make their choices. That approach will drive our success and build a great business.

Glenn, just curious, first, how you're interpreting the relative tightening of the booking window and what does that tell you about the state of the traveler into the back half? And then just curious, in your outlook, how much are you contemplating? Any impact from the tech issues that we've seen over the last couple of weeks and their impact to airlines as well?

Right. Sure. So the booking window is an interesting thing and we saw it expanding, expanding, expanding and at some point it has to stop, right? I mean, eventually, you can't keep getting bigger and bigger. One of the things I was wondering was why. Why was it expanding? Was it expanding because of inflation and people trying to book early to get that price locked up, afraid that was going to be more expensive down the road? And then now maybe they're thinking well, maybe rates aren't going to keep on increasing, so I can wait. Maybe I'll get a lower price later. I don't know and I haven't done any data to analyze and come up with what the reason is. The fact is, window gets bigger and the window gets smaller. That, of course, influences any particular quarter but in the long run, it all averages out. So I'm not going to worry too much about that. What we do make sure though is make sure that we're spending the right amount of marketing money to try and get the right conversion, do it the right ROI and that's what we continue to do and we're very careful with that. But again, another thing, just like the economies, I can't control what people are going to decide when they want to book. In regard to the tech thing, the tech issues, if you assume you're talking about the horrific events that disrupted travel throughout the world but particularly hit some of our supplier partners significantly. Delta, horrific event and I saw the CEO's interview on Squawk Box and read about what they're planning to do. It's a problem when you have critical infrastructure breaks down and then disrupts millions and millions of people's lives. That's really unfortunate. And hopefully, it won't happen again. Hopefully, people test their products before they put them out into the market. And hopefully, there are backups. Things happen but in travel, we know happens a lot. Certainly, weather happens an awful lot. This is something though that wasn't weather which you can't control, this was making sure that your infrastructure works and will be interesting how that lawsuit turns out. I will point out, it didn't affect us very much though. So we're very pleased about that.

Maybe two questions, if I could. First, following up on sort of the demand environment. When you think about the shift from goods to services that has played out in the economy more broadly in the last couple of years, do you think elements of stability or maybe re-acceleration in terms of demand, it might be down to price? Or do you think it's just time and duration that might have to sort of find a new footing for demand and maybe elements of a potential to return to growth? So will this come down to sort of suppliers and pricing or elements of a new normal and finding a new level. I'm just curious for your perspective there, Glenn. And then in terms of the broader marketing messages, you've been on this journey to sort of rejigger the way you're approaching marketing funnel and driving more direct traffic. What do you see as the key investment priorities built on some of the learnings in the last 12 months that you want to share in terms of how the marketing focus for the company might continue to evolve beyond just 2024?

The question about the shift in consumer preference from goods to services is interesting. We've observed a change where people seem to value services more, which benefits our business. The main question is whether this shift is permanent or if consumers will revert to their previous balance before the pandemic. I believe, although I don't have definitive proof, that as individuals become wealthier, they tend to spend more on services rather than goods since basic items like homes and furniture are not purchased frequently. With increased wealth, the desire to experience and enjoy life also grows, and we are witnessing this trend. Additionally, the influence of social media, particularly Instagram, plays a role in this behavior, as people tend to showcase their experiences, leading to increased travel to previously less-visited areas. While this trend is advantageous for us, I'm unsure how much it will continue since major purchases like homes and couches are still necessary. I'm not worried about a drastic decline in preference for services. Regarding marketing, I'm pleased to report some positive progress in our social media strategy. For years, we've struggled to make it effective, but recently we’re seeing improved returns on investment, which encourages us to invest more in this area. However, we also identified some marketing expenditures that we initially thought were yielding good returns but turned out not to be effective, and we’ve eliminated those. This adjustment has had a beneficial impact on our marketing efficiency over the past year. With that, I’ll let Ewout share any additional insights regarding our marketing strategy.

Yes, Eric, to provide another perspective, I've been with the company for 4.5 months now, and it has been a joy and an honor to be here. However, I am also aware of some outdated perceptions regarding the company. Many still believe that our sales heavily rely on paid channels. In reality, we are focusing significantly on our direct mix, which has reached a low 60% level for B2C—this is a major change for the company. We are also diversifying our paid channels, which is crucial in this ever-changing landscape. The algorithms for these channels are constantly evolving. I am truly impressed by the science behind our paid channels, the algorithms we fine-tune for optimization, and our strategic allocation of paid marketing dollars. There isn’t a simple solution; it’s all about the details of optimization to attract the highest number of new customers through paid channels, ensuring we achieve the best possible ROI. I'm really impressed with how the company is managing this, which gives us a significant advantage for future dealings with paid channels.

I have two questions. First, regarding the loyalty program. It seems one of your major competitors is experiencing mixed success with their loyalty initiative. Glenn, could you elaborate on how your program stands out and contributes to a high rate of repeat bookings? Second, on advertising, I've noticed that your ad revenue is relatively low at only 0.7% of gross bookings. Is this a potential area for growth as you look to leverage your scale or reach? If so, could you explain the specific areas you're considering for expansion?

Yes, I apologize for the delay in my response. I will let Ewout address the advertising opportunities. I want to discuss our loyalty program, Genius, which we briefly touched on in our prepared remarks. We haven't provided many numbers in the past, but I'm excited to share about our Level 2 and Level 3 users. They represent 30% of our active travelers, and they account for more than half of the Booking.com business, which is excellent. These users return more often and directly, proving the program's effectiveness. One of the best aspects is that, for the most part, our partners are providing most of the benefits currently, although we are also adding some ourselves. It's a fantastic arrangement. Suppliers participate because it generates additional demand for them when they need it, offering flexibility. We collaborate with these partners so they can attract that demand, particularly from our high-spending Genius members, who are likely to utilize their services. This model benefits everyone involved—travelers, partners, and us. Few others have a program like this, which sets us apart. I'm glad to see car rentals engaging more with this initiative, and we are also experimenting with flights. The Genius program aligns perfectly with our vision of a connected trip, providing various ways to enhance benefits for travelers through a scientific, data-driven approach. We leverage all our AI capabilities and extensive data to develop optimal solutions for both sides of the marketplace. This is our focus moving forward, and some of the numbers we've shared offer a glimpse of that progress. Additionally, advertising opportunities are promising, and I'll let Ewout elaborate on that.

James, I appreciate you highlighting the advertising revenues as this is a promising area that presents us with opportunities for future revenue growth. Currently, most of this revenue derives from KAYAK and OpenTable, but we see potential for additional advertising income, particularly from our apps and the active usage we're experiencing mainly with Agoda and Booking.com. However, it's important to tread carefully, as excessive advertisements can irritate travelers who are focused on other interests while using the app. Therefore, it is crucial to identify the right balance. Overall, you are correct that this represents an opportunity to support the company's growth moving forward, alongside various other prospects we have. What excites us as a business is that we are not only looking to keep pace with the market; we have numerous avenues to accelerate our growth, whether through alternative accommodations or the diverse verticals related to the connected trip, or by expanding geographically in Asia and the U.S., along with advancements in payments, generative AI, and many other areas. So, I would certainly include this in the list of opportunities we are pursuing.

All right. Great. So Glenn, I think I heard you talk in the prepared remarks about connected trips bookings up, I think it was 45% and accounting for a high single-digit percentage of the mix. At this point, is there anything you can share about how the basket size of a particular trip could be moving around and presumably it's up a lot because people are attaching more things. And I guess what the impact to your customer acquisition strategy may be as a result as customer lifetime values go up?

Sure. Well, I won't give specifics but I'll confirm what you say is true, is that somebody buys two things. It's definitely going to be bigger than one thing. And also because they bought more things, as we use the science, as we use our data, as we use all the capabilities we have to come up with, what is the value for that customer? Well, how much should we spend to attract that person is going to change, obviously. And it's also the question is in terms of loyalty. We found and it does make sense, a more satisfied customer is going to come back more often. And people in the connected trip, people who use the connected trip, we do see a higher repeat rate for a connected trip person. And we see them coming direct. And the great thing about the connected trip too is that in the past, with just one vertical which was the hotel business, we were missing out on customers who wanted to start with flights and now with flights, people are starting at flights and they come and they buy something else too. And also, it's the convenience factor and that goes into the whole reason why the connected trip. I've heard from people say, 'Well, what makes you different?' And the truth is right now, we're semi-different because we don't have the full connected trip done yet, the way I want it to be. But at the end of the day, we all know how frustrating travel is. And we know how much easier it would be if there was just one place, one person who would handle everything for you, put it all together in the way that was the optimal way with all the different things you have to decide upon. And then if anything went wrong, that it would all get fixed. And now with the benefits of Generative AI coming out and the progress I see being made with it, I talked to our people in customer service and what we're putting together there, I believe we will create something that truly is differentiating and that will create a reason that people will want to come to us. The more people who come to us, more opportunities we have to work with our partners to provide them opportunities to help build their businesses. Again, I'll get to use it again, I could say win-win-win again, because that's really what we're trying to achieve here.

So the modestly softer travel environment that the industry seems to be expecting in the second half of the year seems to be working through models by way of pricing pressures. I guess, Ewout, can you comment some on how you think about flexing your cost structure going forward to the extent that, say, hotel ADR has become a bigger headwind for the industry and by extension, your adjusted EBITDA margins?

Lee, thank you so much for asking the question because we are, at this point in time, really putting much more emphasis on this particular area and looking for more operating leverage for the company in the future. And we should particularly be well positioned to do that because we have the scale. So we should be able to run much more volume over the same fixed infrastructure that we have as a company in the future and take advantage of that. And take advantage of that in the way that we can reinvest in new growth initiatives as well as, of course, also benefiting EBITDA margins and return of capital to our shareholders. So let me give you a couple of examples of what we are doing at this moment. We have already done a couple of reorganizations in some of our businesses. We have been looking very carefully at head count, in some places, put a head count pause in place. We are looking at some expense benchmarking in some other brands and businesses, looking at procurement in real estate and many other areas. So more to come on that over the next couple of quarters that I can give you more details. But definitely, this has become a really big focus area. And we are pleased that, therefore, we can also say to you that for the full year guidance, we are now reducing the outlook with respect to fixed OpEx from low to mid-teens to now low double digits. As well as we continue to focus on growing our fixed OpEx at a lower level than the topline growth in 2025.

I have to admit, I don't think we're at that level right now. However, this presents an incredible opportunity. It's impressive that we are performing as well as we are overall, but we still lack the number and variety of home accommodations in the U.S. to be fully competitive, which is disappointing to me. There is still a lot of potential for growth. We are not going to spend large amounts of money on a subpar product, so there's no need for concern. Instead, we will focus on using our current budget to secure the right properties and ensure that everything runs smoothly and meets our standards. We want customers to feel satisfied when they visit our site, rather than disappointed compared to other options. This is our current focus. The numbers indicate that we are doing well in many regions, but I see a great opportunity in the U.S. For those in the New York area, if you looked for a rental in the Hamptons this summer on our site, you probably noticed that the offerings were limited compared to what others provide. I want to change that; I want to have a wide range of options and make it easier for people to book through us. We aim to build trust so that using Booking is the preferred choice for summer rentals. We will work on this as it is a good opportunity for us. However, your assessment is correct; we are not there yet.

You stated that direct bookings comprised mid-50% of total and low 60%, excluding B2B, which suggests that your B2B share has declined compared to last year, if my calculations are accurate. Overall, B2B is a smaller segment when compared to your largest competitor. I assume this was a strategic choice, but I want to understand why you seem less enthusiastic about the B2B opportunity compared to other market players.

John, we are not really recognizing that math. And actually, we are really encouraged by the growth of our B2B business as well. You're right that overall, it's a smaller business than some other players in our industry but we have a couple of propositions that are really strong and all of our brands are actually active in the space. Booking.com is active in this space. Priceline with Getaroom, Agoda with Rocket Travel and many other propositions that we have in the market. So it is an important part of our commercial strategy but it is definitely something that is a bit smaller than other players.

Great. And maybe a second one on alternative accommodations. I think just broadly speaking, marketing intensity in the alternative space appears to have escalated a bit year-to-date. Talk about Booking's offering and positioning in the vertical and how that positions you to sort of continue delivering impressive growth if the competitive environment continues to ramp over time?

John, I think actually, our proposition is unique with respect to alternative accommodations because we are putting both traditional and alternative accommodations on our same platform. So we have the benefit of all our brand marketing spend, all our paid market spend coming together on the same platform and giving the traveler an opportunity to pick and select their best option. Maybe they're coming in and looking for two hotel rooms for their family and ending up by booking an apartment with two bedrooms and they're very happy with that outcome. As Glenn said earlier, we are actually agnostic about which direction this is taking customers because it is important that they are finding the best option for them, ultimately, how to travel. We're agnostic from an economics perspective about this. And it is all about making sure we have the most attractive proposition in the market. But this is, from our perspective, a differentiator because we are able to bring all of those supply opportunities together on our platforms as a company.

Maybe just on this commentary on the booking window kind of not expanding as much. Can you maybe just talk about if you're seeing any mix in your cross-border versus domestic bookings and if that might have anything to do with it? And the second question I have is on the U.S. online growth. It seems like it picked up a little bit versus the last quarter. I'm wondering if it was driven by alternative lodging or if that is not the case?

Ewout, why don't you take that first one and then I'll talk a little bit about the U.S. and the increase we saw in the second quarter versus the first quarter.

Naved, the way how we look at the booking window is, as Glenn actually commented on a couple of minutes ago, to some extent, it doesn't matter for us. It doesn't matter when a traveler actually books because they will travel at a certain point in time. When they travel, they have the experience. And at that point, we will recognize the revenues and the economics to the company. So if you look at the performance of the business over multiple quarters, this is averaging out. If bookers booked earlier or later, ultimately for the same trip and that can really depend on many factors. It can depend on assumptions what will pricing do over time or locking in certain flights or locking in certain accommodations or other factors why bookers might come to us earlier or later for the same trip. But it is important if any investor looks at us from a medium- and long-term perspective, it doesn't matter because over time, it's averaging out and we will deliver the same results for our shareholders and continue to build our business over time with all the opportunities we have.

Regarding the U.S. market, I want to avoid pinpointing whether our performance improved due to homes or hotels. Our focus is on providing travelers with the necessary offerings at all times. I'm pleased to see our business in the U.S. accelerate in the second quarter compared to the first. It's important for us to excel in every aspect of this business; we need to provide homes and partner effectively with hotels to meet their demand. Additionally, we must ensure we have comprehensive inventory for flights and ground transportation. Travelers seek experiences beyond just accommodations, so we need to enhance our attractions and offer what they want at the right time. We've also improved our insurance services and integrated these into our merchant platform, which is seeing growth and enhancing convenience in the connected trip. Our goal is to create a better experience for travelers and offer more opportunities for our supplier partners. While I'm pleased with our performance in America, I believe there's still significant potential for improvement. The U.S. remains a key area for growth, and we have opportunities to do even better there.

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