Booking Holdings Inc (BKNG) — Q2 2025 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 pleased to report a strong quarter that demonstrates the resilience of our business and the enduring appeal of global leisure travel. Our top line trends saw solid improvement with room nights, gross bookings, and revenue, all exceeding our prior expectations. This revenue outperformance combined with our continued disciplined expense management increased adjusted EBITDA by 28% year-over-year. Even more than these financial achievements, I'm proud of our team's progress in accelerating our strategic priorities. This year continues to underscore the exciting intersection of technology and travel. Our legacy of innovation and our scale and proprietary data position us well to continue to drive meaningful value for our travelers and partners. I'll share specific examples from the quarter shortly. But first, let's briefly cover our second quarter financial highlights. During the quarter, we delivered strong results that exceeded our expectations, reflecting robust demand across our globally diversified business. Room nights reached 309 million, an 8% year-over-year increase exceeding the high end of our prior expectations, driven by strong performance across Europe and Asia. Asia, in particular, saw healthy growth in low double digits, and we remain optimistic about our long-term outlook for the region. The U.S. continues to be our slowest-growing region, but growth in the second quarter improved slightly from the first quarter and likely outpaced the broader U.S. accommodation industry. The stronger-than-expected global room night growth helped drive second quarter gross bookings up 13% and revenue up 16%, both above the high end of our prior guidance ranges. It's important to note that FX favorably impacted our growth rates by approximately 4 percentage points, consistent with our expectations. And finally, adjusted earnings per share in the quarter grew 32% year-over-year. Ewout will provide more detailed financial insights shortly, including our outlook for the third quarter and full year. Beyond the headline numbers, I am energized by the significant strides we are making across several key initiatives. We continue to expand alternative accommodations, enhance the Genius loyalty program, and grow our presence in Asia. We are also pushing forward our Connected Trip vision and continue to develop our AI capabilities. All these initiatives and others contribute interactively and synergistically, allowing us to deliver a better planning and booking experience for our travelers and bring incremental demand to our partners. Let's start with alternative accommodations. Strong relationships with our partners and our broad selection for travelers are fundamental to providing a comprehensive planning and booking offering. We're constantly working to meet the alternative accommodation experience even better for both sides of the marketplace. We strengthened our payment capabilities to deliver our partners a faster, simpler, and more efficient experience. Also, we are further rolling out request to book functionality with prebooking messaging through an API, providing access to a segment of the alternative accommodation supply that relies on this model. For travelers, we continue to broaden supply, with Booking.com's alternative accommodation listings reaching 8.4 million, an increase of 8% year-over-year. This growth provides even more choices for our travelers and contributed to a 10% year-over-year growth in alternative accommodation room nights for the quarter, outpacing our core hotel business. Another core way we deliver benefits to our travelers is through Booking.com's loyalty program called Genius. This program offers discounted pricing and other, mostly supplier-provided benefits to our travelers. We continue to extend our Genius program beyond accommodations into other travel verticals, bringing these benefits to more elements of travel. We've also been experimenting on how we can continue to reward and provide a differentiated offering to our most loyal customers with additional features like dedicated customer support agents. We're encouraged to see more of our travelers continue to move into our higher Level 2 and 3 Genius tiers, which now represent over 30% of our active travelers and book a mid-50% of Booking.com's total room nights. These Genius travelers exhibit meaningfully higher direct booking rates and a higher booking frequency than our other travelers. From a regional perspective, Asia remains central to our long-term strategy. Its size and economic momentum make it an attractive travel market, and our strong position there allows us to benefit from that growth. We expect industry growth in the region to be in the high single digits over the medium term, the fastest among our major markets. Our ambition is to continue outpacing the broader industry as we have for several years. As mentioned earlier in the call, in the second quarter, we delivered low double-digit room night growth in Asia, reflecting the strength of our two-brand approach with Agoda and Booking.com. This success comes from localizing the user experience, expanding flights and attractions, tailoring payment methods, and ensuring travelers can engage with us in their own language, all supported by thousands of our dedicated employees across the region. Now onto the Connected Trip. We continue to make progress there towards our long-term vision. It's all about making the planning and overall travel experience easier and more personalized, providing more value for the traveler, along with a data-driven process to enable partners opportunities to obtain incremental business. Travelers who book Connected Trip directly with us, meaning a trip that includes booking more than one travel vertical, more frequently choose to book directly with us in the future. To put it bluntly, we see greater loyalty in our customers who have purchased a Connected Trip. A lot of our foundational work in recent years has been about growing verticals outside of accommodations, with a view to facilitate a more comprehensive travel experience, and our efforts are showing results. Connected Trip transactions grew over 30% year-over-year in the second quarter and now represent a low double-digit percentage of Booking.com's total transactions. Our non-accommodation verticals continue to show strong growth, with flight tickets up 44%, and attraction ticket growth more than doubled year-over-year, although from a modest base. While the direct financial impact from attractions is minimal today, we believe this vertical allows us to offer our travelers compelling in-destination experiences. These data points indicate that more travelers are choosing to book multiple elements of their trips on our platforms, reflecting the increasing value and convenience we offer to travelers and enabling our flights, attractions, and ground transportation partners, many of whom are small and medium-sized enterprises, to obtain incremental business. We always know that the Connected Trip needs exceptional technology at its core. AI in general, and not particularly generative AI, is propelling us closer to this vision. We are actively investing in advanced AI capabilities, accelerating our ability to meet the evolving needs of travelers and partners. During the quarter, we continue to see developments that are allowing us to better inform travelers by creating more personalized and responsive experiences. For example, Priceline's AI assistant Penny saw multiple enhancements, including expanded voice capabilities, leading to increasing engagement rates and improved conversion metrics. At KAYAK, the team's KAYAK.ai, which is its test lab for AI-first features, continues to improve its product to be more personalized and conversational. Another example is OpenTable's AI Concierge, which launched earlier this month, embedded directly on restaurant profiles; Concierge draws from OpenTable's extensive restaurant data, including menus, reviews, and descriptions to offer more tailored recommendations. On the customer service side, generative AI has notably reduced live agent contact rates across our brands. It allows us to answer customer questions faster and more conveniently. At Agoda, agent enablement tools such as auto summarization of cases and guided workflows have resulted in more customized and seamless engagement. At Booking.com, voice-enabled generative AI agents in customer service have improved resolution times and increased customer satisfaction scores. Continuing to advance these capabilities will yield an easier, more responsive, and better-served travel experience. In addition to our organic efforts, we continue to collaborate with leading AI companies such as OpenAI, Microsoft, Amazon, and others on their agent advancements. This enables us to stay at the forefront of this rapidly developing field and we believe will expand our potential sources of new customers in the future. Of course, as we've mentioned in the past, we also continue to engage with social media platforms as traveler search patterns and travel discovery methods evolve, particularly at the inspiration stage of the travel funnel. On the topic of partnerships, I am thrilled by the traction the OpenTable team continues to gain. They've done tremendous work, creating genuine value for both our restaurant partners and diners. This quarter, we announced our partnership with Chase Sapphire Reserve, giving eligible Chase card members exclusive access to selected covered restaurants on OpenTable. It builds on the great momentum from our recent Uber and Visa announcements. Looking forward, while we acknowledge that navigating geopolitical and macroeconomic uncertainties is simply the norm for a business as global as ours. History has repeatedly shown us the enduring resilience of travel, and we remain confident in the long-term outlook for the travel industry and in our ability to adapt and innovate to continue to position us well to deliver attractive growth. I am incredibly excited about what's ahead. Our commitment is to strategically drive our business for the long term, focusing on what we can control to seek to deliver unparalleled value to both our travelers and our partners. Thank you. I will now turn the call over to Ewout for a more detailed financial review and our guidance.

Thank you, Glenn, and good afternoon, everyone. I want to start by thanking all the teams across the company. Their great work is what allows us to share these positive updates today. I will now review our results for the second quarter and provide our current thoughts for the third quarter and full year. All growth rates are on a year-over-year basis. Information regarding reconciliation of non-GAAP to GAAP financials can be found in our earnings release. Now let's move to our second quarter results. Our room nights in the second quarter grew 8%, which exceeded the high end of our guidance by about 2 percentage points. The higher-than-expected room night growth was driven by stronger-than-expected performance in Europe, Asia, and the U.S. We observed an impact in our Rest of World region in June from the events in the Middle East, which we estimate impacted global growth by about 1% in June and one-third of a percentage point overall in the second quarter. Looking at our room night growth by region in the quarter, Europe was up high single digits. Asia was up low double digits. Rest of World was up high single digits, and the U.S. was up low single digits. The U.S. continues to be our lowest growing region, but growth in the second quarter was slightly higher than the first quarter, and we believe it eclipses the broader U.S. accommodations industry. However, in the U.S., we observed lower ADRs as well as a shorter length of stay and booking window. This may suggest that U.S. consumers are being more careful with spending in the current economic environment. At a global level, constant currency ADRs were flat, excluding changes in regional mix, and the global efforts length of stay was similar to last year while the global booking window expanded year-over-year. We saw consistent trends in certain travel corridors that were noted on our previous call. Inbound travel to the U.S. was down year-over-year in the second quarter, particularly from bookers in Canada and to a lesser extent from bookers in Europe. That said, we also saw strong growth in other travel corridors including Canada to Mexico and Europe to Asia, contributing to accelerating room night growth overall. These results once again highlight our global diversification as a core strength of our business. We remained focused on executing on our key strategic initiatives to strengthen our long-term earnings potential, and we're seeing continued momentum across several areas, including alternative accommodations growth, increasing the direct and mobile ad mix of our bookings, expanding our Genius loyalty program, and further growing our other travel verticals. For our alternative accommodations at Booking.com, our second quarter room night growth was 10%, which continues to outpace the growth of our overall business. The global mix of alternative accommodation room nights was 37%, which was up 1 percentage point from the second quarter of 2024. We also see tangible progress in our efforts to strengthen our direct relationships with our travelers and increase loyalty on our platforms. Over the last four quarters, our B2C direct mix was in the mid-60% range, which was up from the low 60% range one year ago. The mobile app mix of our room nights was in the mid-50% range over the last four quarters, which was up from the low 50% range one year ago. We find that the significant majority of bookings received from our mobile apps come through the direct channel. We continue to provide compelling benefits and value to both our travelers and our partners through our Genius loyalty program. The mix of Booking.com room nights booked by travelers in the higher Genius tiers of Levels 2 and 3 was in the mid-50% range over the last four quarters. This mix continues to increase year-over-year. These Genius Level 2 and 3 travelers have a meaningfully higher direct booking rate than our other travelers. We achieved another quarter of healthy growth across our other travel verticals, as Glenn mentioned, during the second quarter, over 16 million airline tickets were booked across our platforms, representing an increase of 44% year-over-year, driven by the continued growth of our flight offerings at Booking.com and Agoda. Our attractions vertical is scaling nicely with tickets booked on our platforms more than doubling year-over-year off a modest pace. We're actively investing in driving further growth in these verticals that help strengthen our offering and underpin our long-term Connected Trip vision. Second quarter gross bookings increased 13% year-over-year or about 9% on a constant currency basis. The constant currency growth rate was approximately 1 percentage point higher than room night growth due to about 2 percentage points from higher flight booking growth, partially offset by a decrease in constant currency accommodation ADRs of about 1%. The decrease in ADRs was impacted by a higher mix of room nights from Asia and a lower mix from the U.S. As I noted before, excluding regional mix, constant currency ADRs were about in line with the second quarter of 2024. The increase in gross bookings exceeded the high end of our guidance by 1 percentage point, driven by about 2 percentage points of benefit from higher room nights, partially offset by lower accommodation ADRs versus our expectations. The impact from changes in FX was about in line with our expectations. Second quarter revenue of $6.8 billion grew 16% year-over-year, which exceeded the high end of our guidance by 4 percentage points. The outperformance was greater than gross bookings, primarily due to higher revenues from facilitating payments and lower merchandising spends. The lower merchandising spend is driven by timing, which we anticipate will impact revenue in the third quarter. Revenue as a percentage of gross bookings of 14.5% was up about 40 basis points year-over-year due to the timing impact from the Easter calendar shift and higher revenue from payments, partially offset by an increased mix of flight bookings. Constant currency revenue growth was about 12% when normalizing for the year-over-year impacts of the Easter calendar shift. Constant currency revenue growth was about 10% in the second quarter. Marketing expense, which is a highly variable expense line, increased 10% year-over-year. Marketing expense as a percentage of gross bookings was a source of leverage compared to the second quarter of 2024, driven by lower brand marketing expenses as well as a higher direct mix, partially offset by increased spend in social media channels at attractive incremental ROIs. Second quarter sales and other expenses as a percentage of gross bookings was about in line with last year despite an increasing merchant mix, as higher payment expenses were offset by increased efficiencies in customer service as well as lower transaction taxes and bad debt provisions. Adjusted fixed operating expenses increased 11% year-over-year or about 7% on a constant currency basis and was a source of leverage in the quarter as we continue to be highly focused on managing our fixed expenses. The year-over-year increase was impacted by higher performance-based compensation accruals, increased cloud cost, and a legal settlement in the second quarter. Adjusted EBITDA of approximately $2.4 billion grew 28% year-over-year, which was 12 percentage points faster than the high end of our guidance, due primarily to stronger revenue growth. Adjusted EPS of $55.40 per share was up 32% year-over-year, faster than the growth in adjusted EBITDA, helped by the benefit of 5% lower average share count. During the second quarter, we realized approximately $45 million of in-quarter savings from the transformation program, primarily in the sales and other expenses line. We expect the actions we have taken so far will enable approximately $350 million in annual run rate savings, of which about $150 million is forecasted to be realized this year, consistent with our prior expectations. In the second quarter, we incurred $38 million in transformation costs, which were almost entirely excluded from our adjusted results. We continue to estimate the aggregate transformation cost will be about $400 million to $450 million, which is similar to onetime the run rate savings we anticipate from executing the program. Now on to our cash and liquidity position. Our second quarter ending cash and investments balance of $18.2 billion was up versus our first quarter ending balance of $16.1 billion. This was driven by about $3.1 billion of free cash flow generated in the quarter and approximately $700 million from the impact of changes in FX on our cash balance, partially offset by capital return activities including $1.3 billion in share repurchases and $300 million in dividends. In the second quarter, we issued about $2 billion in debt, which was mostly offset by about $2 billion in payments related to the maturity of debt, including the conversion premium on the convertible notes. Since we avoided the issuance of new shares by settling the note in cash, we will realize the benefit in the year-over-year reduction in diluted share count. The cash payment of $1.1 billion to settle the conversion has an effect similar and incremental to the regular share repurchases of $1.3 billion just mentioned. Free cash flow in the second quarter benefited by over $800 million from changes in working capital, driven primarily by the seasonal increase in our deferred merchant bookings balance. Moving to our thoughts for the third quarter. At the global level, we have seen steady travel demand trends in our business so far in the third quarter. However, we recognize that comparables with the prior year will be higher in August and September. Additionally, we will remain mindful that the geopolitical dynamics and uncertainty in the broader macroeconomic environment could potentially impact consumer behavior, as we have seen in the Middle East most recently. We continue to closely monitor the travel environment for any changes. Our guidance for the third quarter assumes recent FX rates for the remainder of the quarter, including the euro-U.S. dollar at 1.17. We estimate changes in FX will positively impact our third quarter U.S. dollar reported growth rates by about 4 percentage points. We currently expect third quarter room night growth to be between 3.5% and 5.5%. We expect growth to moderate from the second quarter as the third quarter has a tougher prior year growth comparison. We currently expect third quarter gross bookings to increase between 8% and 10%, including 2 percentage points of positive impact from higher flight ticket growth. We expect constant currency accommodation ADRs to be down slightly year-over-year. We currently expect third quarter revenue growth to be between 7% and 9%, lower than the increase in gross bookings due to a higher mix of flight bookings as well as increased merchandise and contra revenue, some of which is related to bookings made in prior quarters. We currently expect third quarter adjusted EBITDA to be between $3.9 billion and $4 billion, growing 9% year-over-year at the high end. We currently expect third quarter adjusted EBITDA margins to be similar to last year. This is primarily due to marketing leverage being offset by the timing of merchandising spend and increased sales and other expenses, some of which relate to the timing of payment costs. Turning to the full year 2025. While we recognize there is still elevated uncertainty in the macroeconomic and geopolitical environment, we are pleased to see that global travel demand trends continue to be steady so far in the third quarter. Given these trends and with improved visibility for the third quarter, which historically has been our largest revenue and profit quarter, we are increasing our full year guidance ranges at the midpoint. Assuming recent FX rates for the remainder of the year, we estimate changes in FX will positively impact our full year reported growth rates by about 3 percentage points. On a constant currency basis, our current expectations continue to be aligned with our long-term growth ambition of at least 8% gross bookings and revenue growth and 15% adjusted EPS growth. On a reported basis, for the full year, we currently expect gross bookings and revenue to be up low double digits, adjusted EBITDA to be up mid-teens, adjusted EBITDA margins to expand year-over-year by about 125 basis points, higher than our prior expectation of 50 to 100 basis points. Revenue will grow faster than both marketing and adjusted fixed operating expenses, and sales and other expenses are expected to grow similar to revenue while adjusted EPS is anticipated to be up in the high teens. In conclusion, we are pleased with our second quarter results and our outlook for the remainder of the year. We remain focused on executing towards our strategic vision of a generative AI-powered Connected Trip while taking actions to drive greater operating leverage. Thank you to all of my colleagues across the company for their amazing work and dedication towards delivering value for our travelers, partners, and shareholders. With that, we will now take your questions. Operator, will you please open the lines?

Can I ask two questions, please? First, regarding Asia, you provided some product details, Glenn, but could you also give us more information about the various markets in Asia and highlight any that are performing particularly well for you? Secondly, Ewout, at the investor conference at the end of May, you mentioned the potential impact of LLMs and suggested they might benefit the business by diversifying traffic sources. Could you elaborate on that? Are you observing any signs that support this, or is it merely a reasonable long-term hypothesis?

As you know, we don't break out individual countries within regions. We are pleased with what's going on in Asia in general. And I will get one specific. We have talked about how we don't really think much of China as an area we're going to be able to compete well domestically at all. It's also somewhat more problematic than we'd hoped, say, a decade ago where we had higher hopes to us being able to be a major player there for outbound business. We are no longer in that kind of thinking. Of course, we still enjoy a benefit of inbound to China because we have many Europeans or other parts of the world who want to travel to China. We have a nice business there. That's probably the only specific thing I'll point out in terms of the individual country in Asia, but I will just reemphasize it is the area that we think long term is going to have the highest growth rate and therefore, that's the reason we're very pleased to have two great brands there. We have Agoda, which is based there, and we have thousands of employees throughout the region, which is one of the really important things in our business is being able to actually have that person-to-person relationship with the suppliers and also really understanding what's going on in that market and Agoda understands that. That's why they're able to do things like localization that's very powerful. At the same time, we have our global player, Booking.com. That's obviously a global playbook, and they are doing well too. So overall, I think we have a great playbook in general there. We like what we're doing. It was our fastest-growing region for the previous quarter, which we reported. So all in all, good things there. And I'm going to take a little bit of Ewout's thing on the LLMs. They don't let me follow up because I find it's such an exciting thing that we're doing. And we obviously are talking with all the major players there and some of the minor players to come up with different ways that we can work together. Look, this is a very, very early technology that, even though we all see so many great things coming from it right now, we know there are things that are going to come down the road that we haven't thought of yet, but I see it's a great opportunity for us to be able to do even better service for both our travelers who obviously are enjoying the benefits of these large language models and be able to do discovery and all sorts of inspirational things they want to do, but also with our partners, we used to be able to do better things for them. I just think it's the greatest thing and then throw on the benefit, of course, and it's not your question, Mark, but in terms of improving efficiency for our business. So we have so many great things coming out of it. And it's great that we have the scale to be able to take advantage of this, having the people, having the capital, and having the AI engineers. This is one of the benefits of being a global giant—that you can really be able to take advantage of these new things that come down and that's why I'm just so excited. But Ewout, I'll let you follow up on what you've ever said Mark back in San Francisco.

So overall, I think the high-level answer to your question is, it's a little bit too early, a little bit too premature to give you a precise answer how much LLM will help with the diversification of channels towards us in terms of leads that come to us from those models. So let me expand a little bit on that. First of all, I would like to point out that if you look at our direct channel, that continues to grow. That's, of course, super important for us as a company. It's now in the mid-60% level from a B2C basis from the low 60% level last year. So that continues to expand. And, of course, the more travel that comes directly to us, book more with us, and more across multiple verticals, that's, of course, the best traffic we can have. That is also the traffic with the highest ROIs. But then next to that, if you look at the performance marketing channels, it's actually, to some extent, interesting that the Google clicks continue to hold up quite well. In fact, they're still growing for accommodations, slightly still period-over-period. So we don't see yet a decline in that. But we would like to, of course, really diversify our performance marketing channels to other channels like we are doing with social media. Just to give you another data point there, actually, the spend in social media channels was up this quarter, 25% compared to the second quarter of last year. So also, there, we're continuing to learn and experiment finding new modern channels that travelers are using to get inspired for travel and finding ways to ultimately book. As you know, we are very actively working together with all the hyperscalers and what they are doing with respect to their agent development. For example, we're very proud that we were mentioned as one of the key partners for ChatGPT agent mode, and Booking.com was clearly highlighted in the demos that they showed a couple of days ago. So overall, still too early to say. But what you should take away, I think, the main point is we are really trying to expand to learn and the more channels we can use, the better it is for the company in the future.

I have two. The first one is on the U.S. Maybe can you just talk to us about some of the growth initiatives you have internally to really sort of catapult the growth in the U.S. to be durably faster going forward? Then the second thing, Glenn, I know we've talked a lot about GenAI and GenAI assistance over the last few years. Walk us through sort of in your mind, the biggest one or two technological hurdles that have to be cleared in order to make sort of scalable GenAI assistance that can be deployed to hundreds of millions of people anytime soon.

Ryan, first, on the U.S., I think our strategy and approach with respect to the U.S. is a lot of small initiatives that ultimately add up to us every period, gaining a little bit of market share. Over time, I think our position gets larger and larger. To give you a little bit more color on that, we are investing in product, we're investing in supply, we're investing in marketing, we're investing in brands, and many different initiatives, for example, of course, also alternative accommodations to really improve our position. If we look at the growth, as we said in our prepared remarks, second quarter growth was slightly above our first quarter growth. So we definitely see some early signs of strengthening in the U.S. market. But there are also mixed signals because, for example, if we look at ADRs, they were slightly down. There was a shorter booking window, shorter length of stay, with domestic travel being up but less than international travel, which is definitely stronger. So there are a lot of those signals that we're seeing at the same time. But if we bring it all together, we believe that based on third-party data sources, we have been able to grow faster again in the second quarter than the market in general. In other words, we had another quarter where we gained a little bit of market share in the U.S. The other positive thing I would like to say is, of course, our global diversification. We're such a large global business, and we're not overly dependent on the U.S. So if we see differences in travel behavior and other corridors, wherever people want to go, we can pick up that traffic. Therefore, I think the global diversification is clearly a sign of strength for Booking Holdings.

Brian, your question is one that we think about an awful lot because the ultimate goal is to provide the greatest service to both our travelers and our partners. I think you're seeing more on the traveler side, the demand side. We know there are hundreds of millions of people who are using different LLMs right now to do all sorts of research, ask questions. One of the most common inquiries is for inspiration for travel—how to do their travel better, or where should they go, and all sorts of questions like that. When you look at our customer base, and Ewout mentioned it, in our business to consumer, right now, we're getting a mid-60% of the people coming to us directly. Our mission, what we have to do is to continue not only to keep that mid-60% wanting to keep coming to us instead of going over to any of the other ways they could start doing their travel, but also to increase that. How are we going to do that? We need to give them better reasons, provide better service, and improve the experience. How will these large language models, and the generative AI capability we are developing, help? Because it may not be a large language model; it may be a very specific travel model that we are creating so that travelers really feel they are achieving what they want, getting the best service, the greatest value, easily and efficiently, and if anything goes wrong, it gets fixed right away or, in our case, we see it before they even know something has gone wrong. That's what we're currently building. Now you may be asked, how long is it going to take? When is that going to happen? The truth is, this will not be one of those things that a year or two from now we will say, oh, it's done, here it is. This is happening incrementally. You're already seeing little things here and there coming in— for example, maybe you've already tried at Booking.com being able to search using natural language, where instead of going through filters, you can simply type in, I need a villa on the beach on the Jersey Shore. Even that natural language functionality will figure that out and return what you want. That's one example where we already have that. We will continue to build on that. We are also looking at other more technical aspects, but I don't want to give away the entire playbook. We're looking ahead for a more technical solution that would be definitely better for the consumer. I believe that in the long run, this is going to happen, and our job is to get there faster.

Glenn and Ewout, I have two. First, it sounds like you're more encouraged on the backdrop, and you mentioned the tougher August and September comps and some tougher macro and geopolitical headwinds. Are there any other factors that we should be thinking about for Q3 that might be keeping the outlook in check there? And then just on alternative accommodations, the room night growth looks like a little bit of deceleration. Do you feel like that's a broader industry trend, or is there something else more specific going on?

Doug, first of all, if you look at the third quarter guidance that we have provided, the backdrop is the following: very steady results we have seen so far this year across the board, all the regions up to and including the month of July. So very steady results we have seen so far. Having said that, if you look back to 2024, the market started to accelerate in August and September. So we're facing some very high comps for those two months, and we have taken that into consideration with respect to our third quarter guidance. Overall, what I would like to recommend is not to look too much on a quarter-to-quarter basis. That is also not how we manage the company. There can be fluctuations on a quarter-to-quarter basis, and timing of certain items can vary, as we called out during our prepared remarks. The most important thing is the full year guidance. If you look at the full year guidance, we believe it's very strong. We've actually increased our guidance at the midpoint for both top line metrics and bottom line metrics. Overall, we feel very good about the year, how it's progressing, and the outlook in terms of the guidance for the full year 2025. Glenn, do you want to take alternative accommodations?

You can take it.

So alternative accommodations. I think overall, we are quite pleased, Doug, with our growth in the second quarter. It still outpaces traditional accommodations in every region globally. From our perspective, it continues to have quite a large potential, also over the next period. I do need to point out it is reaching a level of maturity now for us as a company. We have today 8.4 million listings, and that is up 8% year-over-year. We're now approximately 75% of the largest player in this space regarding room nights. Obviously, we don't know exactly where that is, as we are not including experiences in our number, but we say approximately 75%. Maybe one more thought on this, as we are looking more at overall growth and not so much in subcategories, because in the end, the preferences of our traveler customers are what we are trying to serve. Sometimes they prefer to go to a hotel, other times to a resort, sometimes to a home or an apartment. For us, ultimately, the overall growth and how well we are serving and delivering value for our travelers is the most important thing. But I would say we are seeing great growth in alternative accommodations, which we believe continues to be an important driver of future growth as well.

When you think about this in the long term, and you tie it back to that question about generative AI in trying to come up with something that people really feel is a better way to do it. We have a customer who comes to us and they're not sure what they want, but they're fortunately coming to us because we offer both homes and hotels. And they can access through filters or something else now. We have for Booking.com the natural language search. That's a good start. But what we ultimately want to be able to do is tie everything together—the personalization, what we know about that customer when they come to us because they're logged in, and we know about them— what kind of family they have, what kind of trip is this. They’re typing and having a conversation back like they would with an old-time human travel agent and being able to come up with what really is the best potential ways they can accomplish their goal of going on this holiday, this vacation, or this trip. All elements of knowledge and proprietary data that we have—reviews, everything we have—can be utilized immediately to provide the best solutions. That's how we win in the long run. And that's why we don't think too much about whether it's accommodations, alternative accommodations, or hotels. We want to offer what the customer needs, putting it all together in a holistic, synergistic improvement compared to what has been done in the past. We're getting there, and I firmly believe we will.

I appreciate the stats on Connected Trip and how that continues to scale. Can you talk a little bit about what some of the key investments are that are still left to build scale on the inventory side behind Connected Trip? And give us a little bit of color on how broadly that is marketed in terms of owning more of the overall basket size of travel and how that go-to-market approach might evolve over the long term.

I'll talk a little bit about it, Eric. I'll let Ewout talk about anything regarding basket size and financing if he wants to reveal anything in that area. Look, it's interesting you asked about what we need more in supply in that area. The important thing is to remember that Connected Trip encompasses everything. It's all things travel. We want to make sure we have the greatest selection for the customer. We often talk about some of the individual verticals, and I think every time we've done this call, I've mentioned how we want to get more alternative accommodations. I’ve talked about the U.S. and certain types, etc. None of that has changed. We still want to get more of everything. We want every customer to have the opportunity to find whatever they desire. The critical thing is putting it together in a way that leverages our data and knowledge—using what we know, and again, going back to my previous answer about personalization—bringing it all together using science to present it in the right way at the right time. So that customer is being shown what they are most likely to desire and what is most likely to achieve their goals. The upside for the partners is that this Connected Trip offers an incredible opportunity for us to provide our partners—I mentioned in my prepared remarks how many of them are small and medium-sized enterprises or small businesses—they don't have the technology or knowledge. We do it for them, enabling them to gain incremental business by showing the consumer what people are willing to buy, all done in a way that benefits both sides. That's what we are constructing, and we are making significant progress.

Let me add to two other points more from a value creation perspective to Glenn's answer. One is payments, which serve as a strategic underpinning of our Connected Trip because payments allow us to create value for partners, for travelers. It also results in competitive pricing in the market. It's beneficial for our shareholders because it adds to the bottom line overall. So payments are indeed critical as an underpinning for Connected Trip. The second point is about the economics because, besides the convenience, the peace of mind that comes from having all these pieces of a Connected Trip organized together—supported by generative AI—contributes to our value proposition. When we see travelers booking across multiple verticals, we only have to incur the acquisition cost once. Overall, bringing everything together increases economic value for the company. Moreover, if we see people booking more often with us across multiple verticals, they tend to return more often and believe more strongly in coming back to us directly in the future. Thus, everyone benefits from the rapid growth of our Connected Trip.

And to add another layer, you mentioned the glue payback of the Connected Trip. We throw in another layer of glue—the incredible Genius offering, which is now branching out across all verticals. We're using data insights to ascertain which Genius offerings should be added at specific times to specific customers, with much of that contribution aimed to come from the supplier as they desire to offer Genius benefits to drive sales. Travelers benefit from these offerings, and we’re happy to be the intermediary, utilizing our knowledge to present the right opportunity at the right time. Everything is coming together, and it's genuinely an exciting period right now.

Looking at the U.S., you noted some softening of metrics like booking window length and stay. Can you comment on any trends you've seen in U.S. behavior as you move further away from what seemed like peak macro concerns in April? And then could you also comment on what you're seeing in those kinds of macro-sensitive metrics from your Europe and APAC customers?

Kevin, just a few additional data points on what we mentioned in the prepared remarks. We see that the top end of the U.S. consumer market will be a little stronger—spending more in the five-star hotel category, spending more on international travel, including to Europe. You would say Europe is much more expensive now with the euro-dollar exchange rate, but still at the high end, people are traveling to Europe and spending. We see more cautious behavior at the lower end of the market, which shows up in domestic travel and among lower-rated hotels. So there is definitely some negative behavior we see impacting the U.S. consumer. If you look at other parts of the world, actually, Europe is holding up quite well. We see Europeans booking earlier and at higher prices than a year ago, clearly prioritizing travel as part of their discretionary spend over other categories. In Asia, looking at the second quarter over the first quarter, we see incremental growth quarter-over-quarter. That stems primarily from the impact we saw in the first quarter due to political events and earthquakes affecting traffic. Demand is doing well, and we are well-positioned in Asia, as Glenn mentioned, with Agoda as really the Asian champion, and Booking.com also has a strong position in several markets. Overall, again, our ability to service consumers across the globe is a definite advantage for the company.

Great. Just would like to think a little bit about Q4 and what's implied in your guidance. But can you just remind us of what happened last year, why it was so strong? And how you're thinking about forward holiday bookings at this point? And then I know advertising was one of your initiatives for growth this year. Just maybe give us an update on how that's going and how you think about the advertising opportunity from here.

Justin, regarding the fourth quarter of last year, we saw basically two main effects. One is that we observed growth continuing. I had mentioned that growth started to accelerate from August and September onwards, carrying through to Q4. The second effect was that, compared to the fourth quarter of 2023, we had relatively low comps, which helped optically with growth in that quarter. Obviously, the first impact is something that is real and we face in Q4 this year. The second factor is not so real, as it pertains to comparison of '24 over '23. We are not currently guiding specifically for the fourth quarter. We're focused more on the complete year guidance. If you examine the full year guidance, we've raised our expectations at the midpoint. You can see improvements in both top and bottom line metrics, along with enhanced EBITDA margin outlook. So that’s how we believe the full year will unfold. Regarding advertising as a potential growth channel, we saw advertising revenues go up 11% compared to the second quarter of 2024. This includes KAYAK, which is primarily an advertising business, but you also see the growth among our strategic investments in advertising as it represents one element of our $170 million investment program this year, which is scaling up nicely. Therefore, I’m quite pleased with the 11% growth in that line item for the second quarter.

I have just two, one is a follow-up. Glenn, you mentioned with natural language now live on Booking. Talk to us a little bit more just about conversion rates that you're seeing from this new tool? Are you seeing better conversion rates, repeat usage, and things along those lines? And then Ewout, maybe a quick follow-up to Justin's comment on investments but just on the OpEx side, given the rise in direct bookings, Genius adoption, and mobile, just longer-term, talk to us about how you see the P&L evolving just given that direct is a larger part, and you could see continued leverage in sales and marketing.

Regarding just the one small use of generative AI, natural language, and its implementation, I'm not going to give a specific number, but as you know, we do a lot of testing. If something's not working, we remove it. Every single click carries significant value in our business. If it's still there, it means that it's doing something positive for us. That's just one aspect among many where we are enhancing and learning, combined with improvements made across the various brands, such as OpenTable with their Concierge system and Priceline with their assistant, Penny, which both leverage available data to deliver a better experience for users. Each improvement increases our overall benefits, and sharing insights among our brands allows us to optimize our offerings. With the scale of our business and the multitude of facets we manage, we have the unique advantage of applying successful initiatives across our entire platform.

Yes, Ron, I love your question about investments because I'm really super passionate about that topic. The way we approach this from a management philosophy perspective is characterized by what I call a double discipline. We are, on the one hand, very disciplined in pursuing operating leverage, efficiencies, and opportunities to leverage the scale we have as a business. This means we can manage much higher volumes over our current scale, thus achieving operational efficiencies over time, which will clearly benefit the P&L. However, on the other side, we have numerous opportunities to reinvest in the business. We've mentioned several of those during this call, but there are many other areas in which we can accelerate our growth in the future by investing, such as in verticals, generative AI, fintech, and others. However, we remain disciplined regarding these reinvestments, ensuring they ultimately drive higher top line growth for the company in the future. It’s a dual track: a commitment to allocate resources effectively while also seizing opportunities for growth. For this year, we are reinvesting $170 million, while also extracting $150 million in transformation program in-year savings. I believe much more is possible on both fronts over time. The positive outcome, of course, aligns with our goal of driving faster growth and delivering superior value to our shareholders.

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