Expedia Group Inc (EXPE) — Q2 2017 Earnings Call Transcript

Thank you. Good afternoon, everyone. Welcome to Expedia, Inc.'s financial results conference call for the second quarter ended June 30, 2017. Pleased to be joined on the call today by Dara Khosrowshahi, Expedia's CEO and President; and Mark Okerstrom, our CFO and EVP of Operations. The following discussion, including responses to your questions, reflects management's views as of today, July 27, 2017 only. We do not undertake any obligation to update or revise this information. As always, some of the statements made on today's call are forward-looking, typically preceded by words such as we expect, we believe, we anticipate or similar statements. Please refer to today's press release and the company's filings with the SEC for information about factors which could cause our actual results to differ materially from these forward-looking statements. You'll find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in our earnings release, which is posted on the company's IR website at ir.expediainc.com. I encourage you to periodically visit our Investor Relations site for important content, including today's earnings release. I'd like to remind you that beginning in Q1 2017, we include HomeAway on-platform gross bookings and property nights in our operational metrics. And such balances have been added to prior year's gross bookings and room nights for clean comparison. Finally, unless otherwise stated, all references to cost of revenue, selling and marketing expense, general and administrative expense, and technology and content expense, also exclude stock-based compensation and depreciation expense, and all comparisons on this call will be against our results for the comparable period of 2016. With that, let me turn the call over to Dara.

Thanks, Alan. We're pleased with our second quarter results, which when combined with Q1, stack up to a healthy first half of the year. For Q2, gross bookings grew 12%, revenue grew 18% and adjusted EBITDA grew 19% year-on-year. In total, stayed room nights were up 21% in the second quarter, evidence of a healthy macro environment and solid execution as we work to grow our business around the world. In our Core OTA segment, we continue to see good momentum, evidenced by faster room night growth in every major region. Our global brands continued to grow room nights at a very healthy pace as they made aggressive marketing investments across channels. Execution in variable marketing channels continue to improve, a trend which we also see early in Q3 and which we expect will continue in the back half of the year. Success here will improve new customer acquisition trends, but hurt profit margins as we lean into these channels. On the regional brands side, we're happy to continue to balance healthy adjusted EBITDA margins with a more modest topline growth. The HomeAway transition continues according to plan, with gross bookings up 45% and revenue up 31% year-on-year. We're systematically improving the online booking experience as well as supply-side tools and taking deliberate steps to move more of our bookings on platform. For example, we recently introduced the new closed system for owner and traveler communications and also require that all new and renewing subscription properties be online bookable. These changes represent industry best practices and serve to improve the overall experience and protection of our travelers, homeowners and property managers. We continue to put the vast majority of HomeAway's revenue growth right back into the business with significant investments in product and technology and marketing. In particular, we're making good progress implementing world-class performance marketing capabilities with the right people, process, and technology. Lastly, we're pleased to end the quarter with nearly 1.5 million online bookable listings and over 60,000 HomeAway properties available for booking on 11 Brand Expedia points of sale. Expect the number of integrated properties to continue to grow as we move through the year. We remain confident in a stellar HomeAway team and happy with the business transition as we pursue this enormous long-term opportunity. We're also happy to say that Egencia is now the fourth largest travel management company in the world based on revenue. Gross bookings grew 5%. Revenue grew 8% with the topline negatively impacted by Easter timing as well as the churn of certain Orbitz for Business customers during last year's migration, an impact that should continue to ease as we move through the back half of the year. New customer signings in Q2 were on track and the global sales pipeline looks good. As we mentioned last quarter, Egencia started to ramp up hiring of additional salespeople as we step on the gas to take advantage of a large global opportunity ahead. Trivago continued its blistering pace of revenue growth with stand-alone revenue up 64% year-on-year. Adjusted EBITDA was nominal in Q2 as the team continued to invest in selling and marketing around the world to continue to grow their audience and brand. As announced separately by Trivago today, we continue to expect revenue growth of around 50% for the full year with slightly improving adjusted EBITDA margins. I'd like to officially welcome the SilverRail team to the Expedia family and spend a minute talking about rail and how it fits into our portfolio. Rail tickets are a high frequency product with growing importance in Europe and Asia and represent another key component of our multiproduct and corporate travel strategy. The Brand Expedia team continues to build out the world's most complete selection of online travel products, giving consumers unparalleled convenience and savings opportunities to the shopping and booking of multiple components of a trip. SilverRail has a great opportunity ahead as a standalone enterprise and has done a terrific job building rail technology and beginning to assemble ticket content. The combination of the SilverRail offering with the rail product rolling out on Brand Expedia as well as Egencia will be quite powerful. This will be a multiyear project, but we're happy to have jumped into great position that we can build on in the coming years. Finally, you'll notice that we announced the $350 million minority investment in Traveloka and deepened our global hotel supply relationship with them. Traveloka is the clear online leader in Indonesia and is expanding aggressively throughout Southeast Asia. We're incredibly excited to continue to expand our presence in Asia and to learn from Ferry and the talented Traveloka team and to unlock a more diverse offering of travel choices for Traveloka and Expedia travelers around the globe. In closing, we're pleased with our results for the first half of the year, and I'd like to thank our employees around the world for all of their contributions to get us here. It's gratifying to be back into our operational rhythm of continuous improvement and execution across the company. The good news is that we believe we can get better, faster, more efficient and more effective in many, many areas. We've got plenty of work ahead of us, but we're up for the challenge.

Thanks, Dara. Q2 was a solid quarter and demonstrated continued strength in the business. Total lodging revenue, including both hotel revenue and all of the HomeAway revenue, grew 16% for the second quarter, driven by stayed room night growth of 21%. Room night growth was 19% for the hotel business and 42% for HomeAway. In the hotel business, we saw a 4% reduction in revenue per room night versus flat ADRs for a gap of about 400 basis points, which was in line with our expectations. We are pleased with execution across our lodging business, which translated into strong results, but of course, we did also benefit from the shift of Easter into Q2 this year and easing unit growth comps. HomeAway gross bookings grew 45% while revenue grew 31% to $224 million. Stayed property night growth was a robust 42%. Transactional revenue grew approximately 130% year-over-year, decelerating somewhat from Q1 as we began lapping over last year's launch of the traveler service piece. As expected, subscription revenue was down around 35% year-over-year, as we continue to see the impact of having eliminated the tiered subscription model in July of last year. We also saw an increasing number of subscription listings moving to lower online bookable pricing and also, the transition of properties from subscription to the paper booking model. We expect these general trends to continue in the back half of the year, with HomeAway's revenue growth peaking in Q3. Adjusted EBITDA for HomeAway in Q2 grew slightly and was largely in line with our expectations. Advertising and media revenue of $302 million was up 49% year-over-year. On a standalone basis, Trivago revenue grew 64% year-over-year on strong volumes and solid monetization as consumers continue to flock to the platform and as advertisers continue to find Trivago a compelling place to acquire highly qualified traffic. For another quarter, the shape of our P&L was in line with our target as we continued to contain our fixed cost while investing aggressively in global selling and marketing. Cost of revenue grew just 6% year-over-year in Q2, leveraging nicely. Note that we are forecasting somewhat higher growth in overall cost of revenue in the back half of the year, due in part to increased cloud spend, but also the lapping of certain efficiencies we gained through the transition of Orbitz to Expedia platforms in the first half of last year. Total selling and marketing expenses grew 27% year-over-year driven by direct expenses, up 30%. We continue to push for global growth, led by aggressive marketing investments in Trivago, Brand Expedia, Hotels.com, and HomeAway. As we look forward, we plan to push further on the performance-based channels and to amplify our hotel acquisition efforts by further ramping up our hotel market management sales force, both of which represent a headwind to near-term profitability. We continue to expect total selling and marketing cost to grow faster than revenue for the rest of the year. Technology and content grew 9% year-over-year in Q2. Inclusive of cloud costs, we expect to see slight leverage in this line item for the full year. The growth in the back half of the year, however, is expected to be ahead of revenue growth due in part to cleaner comps on the Orbitz integration, heavier cloud spend and the hiring of additional technology talent. Our cloud migration project continues to go quite well and in line with our expectations. Total cloud spending for the quarter was $21 million, up from $9 million, same period last year, with a roughly 60%-40% split between cost of revenue and technology and content. Cloud spending is expected to ramp significantly in the back half of the year. G&A expenses grew 3% in Q2, leveraging nicely with increased professional fees and other costs largely offset by lapping over the Orbitz and HomeAway integration cost last year. We expect to see good leverage in G&A for the full year. From a capital deployment standpoint, in addition to the SilverRail and Traveloka investments, we've repurchased nearly 1 million shares so far in 2017 for a total of $134 million. Our long-standing approach to capital deployment has not changed, and we continue to balance share repurchases, our quarterly dividend and opportunistic M&A. We are pleased to have again increased our dividend to $0.30 per share to be paid in the third quarter. Turning to our financial expectations for full year 2017, on a consolidated basis, including the ramp-up in cloud spending, we continue to expect adjusted EBITDA growth in the range of 10% to 15%. Excluding cloud expenses, growth would be 14% to 19%.

Hello, Operator?

Great. A couple of questions. First on the business, how is HomeAway conversion performing as you've added more properties and made more properties online bookable? What are you seeing with conversion rates and are you still expecting some pretty good leverage next year? And then on the second question, on the EBITDA guidance, looks like you're keeping a 10% to 15%, but obviously, EBITDA is growing much faster in the first half, which is somewhat unusual. As you accelerate marketing spend, would you expect to see that in any operational metrics, like room nights or bookings or how would we see that flow into the model? Thank you.

Thanks, Justin. As far as conversion for HomeAway goes, the conversion rates are very healthy and increasing on a year-on-year basis. There are a number of factors that are benefiting conversion, clearly adding to the breadth and depth of supply and getting more of that supply to the instant bookable is a positive factor on conversion. So that's affecting conversion. Second positive factor for us is sort. And we have some terrific data scientists down at HomeAway who now have more freedom as far as their sort experimentation goes and are now sorting properties who have a higher online booking success rate, for example, whose response to consumers as far as the request-response model is higher, whose experience reviews are higher, etc. So the sort team has many more degrees of freedom to sort the stuff that is able to convert online as well. Third factor is just testing and learning on the site. We are very, very early on the development of the site of the optimization of the consumer experience. We have some terrific UI and product folks. And I think the ideas, while flowing, are just starting to show up on the site. We've consolidated the back end of many of the sites out there of the various brands so that when we drive improvements and experience, they can be propagated through all of our sites on a global basis very, very quickly. And then I think the recent moves to move communications to our internal secure channels, for example, is also going to be a conversion tailwind. So, we see conversion going up and we see that continuing and frankly, we need it to continue. We expect it to continue in order for us to hit our plans, but so far so good.

And then Justin on guidance, yeah, in fact, we're keeping our guidance where it is and just a couple of things to remind you of. If you look at last year, about two-thirds of our dollar adjusted EBITDA was produced in Q3 and Q4, so there's a lot of the year left to come. And this year particularly, we just have tougher comps as we move through the back half of the year on expenses, and that's because right now we are benefiting from lapping over kind of the first half of last year where we were heavied up in association with the integration and as you recall we started to realize the expense synergies through the back part of the year. Quite frankly, we also want to keep the flexibility to make investments. We don't lock and load on our plans at the beginning of the year and stop there. We're making decisions every quarter and when we see the types of returns and progress that we have been seeing with investments and market managers, salesforce, for example, to add hotel properties, that's the type of thing that we want to have the flexibility to do more of in the back part of the year. That's the plan. And we may have it up from there. Selling and marketing is another place where we like to invest in. We have been pretty aggressive in variable marketing channels through the first part of this year. We expect that to continue. Whether we do something incremental in approach to what we've been doing, I wouldn't necessarily say that we haven't made those decisions. So, I would actually expect that in terms of where this shows up in the P&L, although there could be some opportunity in performance marketing for room night growth, really the bulk of the investments are things that are more kind of longer term in nature and things that are unlikely to produce real results within a quarter. It's more likely to be sort of more long-term in nature.

Great. Thanks for taking my questions. I was hoping you can elaborate on your comments on improved variable marketing execution in the second quarter. And I think you said that you expect that to continue in the back half. And then just following up on Justin's question, how are the conversion rates of HomeAway properties on other Expedia properties trending? I think last quarter, there were 20,000 rooms on Expedia and Hotels.com and now there is 60,000 rooms. What should we read into about the conversion rates given that trend?

Sure. As far as the variable marketing channels, the business itself is pretty basic in that we are getting back into the testing and learning. And I'd say conversion rates are healthy on our various sites. Obviously, they're hurt as more traffic goes mobile. But in general, we're happy with the testing and learning on the sites. Higher conversion means the ability to extend your marketing, especially on the marketing channels. And I would say that we're improving our capability in terms of data science and in terms of just integrating our marketing technologies into our mainline data and site technologies, which is allowing us to reach a greater breadth of variable channels than we have heretofore. The Trivago channel, the meta channels in general, are very healthy for us. And search continues to be healthy. So as long as they're healthy, we plan to lean into them because these are spends that certainly come through on a lifetime basis and it's a set of new customers who's going to repeat with us and it's something that makes sense. As far as the conversion of HomeAway properties on the mainline Expedia, it's very early, right? So, I think you will see the number of HomeAway properties ramp up on the Expedia sites. We've seen some promising early signs, especially as we've gone from kind of the 20,000 to the 60,000. There's still a bunch of testing that we have to do around sort order, around trying to detect signal from the customer as to when that particular customer will be more likely to be searching for vacation rentals, etc. So lots of testing and learning to do. Good early signs, but off of a very small base and we hope to build that base as the year moves on.

Okay. Thanks. I kind of want to ask the exact same question that Paul just asked, but maybe slightly differently.

You know what, Mark, I'm going to let Mark answer the question. Since you're going to ask the same question, I'll let Mark answer it.

I might do that, but just slightly differently.

That's great. Okay, then, I'm very intrigued by the bringing over of the HomeAway inventory onto the Expedia site. And so instead of asking what the impact is on HomeAway conversion, I want to ask is what the impact could be on Expedia and Hotels.com core conversion. I would think that this is a big win for you, but I don't know where along the way you have to make the tweaks, the testing, and the learning. Is it trying to figure out how the traffic is coming in off of search or other pay channels, or is it that when you're on the site, how you match them up like you could just go through a little bit of a sausage on that like I think it's a great opportunity. But if you could go through it and then just a quick one, any comments on social media particularly Facebook as a marketing channel, all the other channels sound healthy, but you didn't mention that. I think it's always been small for you; is there any reason why it wouldn't be anything more than small for you in the future?

Sure. So on conversion on Brand Expedia, first of all, the HomeAway inventory is only right now on Brand Expedia and very recently on 11 points of sale. We recently expanded it. We generally agree with you that this is a big opportunity for us. As a general rule, what we find is that when you expand assortment and inventory for specific destinations, you just have more likelihood of having something that a customer wants. And that's generally evidenced in conversion. The trick with this type of inventory, though, is that it's different. So when you have travelers that are shopping on a site, you don't know right out of the gate whether they're looking for a four-bedroom home or whether they're looking for a single bed. So now you just have to start to understand the traffic you're bringing in, whether it comes with some sort of purchase intent, how do you match them up with a landing page that may be tailored to that intent to be vacation rentals, you have to start thinking about your sort filters. You have to start thinking about sort order, and there's a lot of different testing you have to do to try to again match the purchase intent with what you show them. It's a science, but there's also some art to it. The great news is, is that we've got a team at Brand Expedia and across our leisure brands. So, this is what they do for a living and this is the machinery. So we're confident that we're going to get there, but it will take some time.

And the great news there is also, you've got the HomeAway team, which is continually optimizing their sites and what works, what kind of content users are looking for. So the HomeAway team are kind of our leading commandos and our Expedia team can learn from the commandos and build a very effective product. So, we're pretty optimistic here. Right now, HomeAway on Expedia is in the very, very early innings and we expect more.

Take the Facebook one?

Yes. As far as Facebook, spending is continuing to grow off of what is compared to a whole spend, a relatively small base. But the Facebook spending growth is quite healthy. We are testing and learning and working kind of on an engineer-to-engineer basis with the Facebook team, and they continue to improve their product. I think we are looking at the incrementality of a bunch of the retargeting products that they've got. And also looking really aggressively to find intent signal, travel intent and destination intent signal in their huge, huge audience. So we are optimistic the channel keeps growing, and we just want to keep it going. Every day, every week, the focus here isn't on how big the price is, it's just getting better. It's just our teams are getting better and better and better on the execution front.

Thanks for taking the questions. Maybe two. Good result on the room night growth. Obviously, big improvement from what we saw in Q1. Any sense you can give us on the conversion between booked versus stayed room night and how that might arc through the year so investors can sort of better understand what the pace of room night growth might be as we move through the year? And then second question, going back to the loyalty and reward layer inside some of your key properties, anything you could share there about how increased loyalty rewards or duration of being in those programs might change customer lifetime value and how that might be changing over time? Thanks so much, guys.

Sure, Eric. So the best way to look at the booked versus stayed gap is if you take a look at the year-to-date stayed room night growth number, it's around 17% for essentially the hotel business, excluding HomeAway. And that compares with last quarter, we disclosed the booked room night growth of 18%. And I'll tell you this quarter was broadly similar. In terms of looking out through the rest of the year, I would just remind you that we pulled back pretty sharply in variable marketing channels in Q2 and in Q3 of last year and then went back in pretty significantly starting in the fourth quarter. So you will start to see some harder comps for us moving into the fourth quarter that will shape up the overall full year number. In terms of loyalty and rewards, first of all, we are a big believer in the loyalty program, particularly the Hotels.com rewards program at – where you see 10 nights and you get 1 free. We find that on a pre and post basis, when you look at cohorts, customers that sign up for the loyalty program are just more likely to give a bigger share of your wallet, more likely to come back to you via your app or direct channels. And all in, it ends up being a good thing. And then generally the longer people are with the program, the more used they get to it and the more active they become as well. So, generally, it's a net positive. Of course, you've got to be very careful and make sure that you manage the program closely and make sure that you're awarding points appropriately and not essentially rewarding members who aren't loyal to you, for example. But that's something that the Hotels.com team is very good at and continues to get better at over the many years they've been at it.

Hi, guys. Question on another follow-up in the room night. I think you said last quarter that the global brands room night was 17%. I don't recall – I can't remember if that was booked or stayed. What was that this quarter? And, I guess, normalizing that for booked versus stay, what does that trend looks like? And then, I guess, just looking forward, what's the overall strategy in terms of managing some of the non-global brands, the legacy brands, and are those businesses continuing to kind of grow? Are they flattening out? Like any color there will be helpful. Thank you.

Sure, Ross. I think Dara and I'll tag team on this one, but let me run through some of the numbers first. So, I would say generally the global brands numbers is not something that we're going to disclose always on an ongoing basis. We'll do it when it's helpful to tell the story and otherwise, we'll kind of just do it periodically. I will just give you a little bit more color, though, on just the composition of our room nights because it is a question we get very frequently. Somewhere between 85% and 90%, depending on the quarter, of our room nights are delivered by our global brands, which are Brand Expedia, Hotels.com, EAN, which is our private label business, and Egencia. This quarter, I would think about growth on a stayed basis of kind of in the 20s. And Easter was about a 200 basis points helper for us this quarter across the whole portfolio and I would think the impact on the global brands will be broadly the same. We then go to what we call our regional brands and this is the consumer-facing piece of our recent acquisitions being Wotif, Travelocity, Orbitz, CheapTickets, ebookers, for example, excluding the Orbitz Partner Network business. Think about that is in the kind of high-single digit range of our overall room nights. That business has been flat to slightly up. And then the remainder is largely made up of Hotwire and the legacy Orbitz Partner Network business that we've now integrated with the Brand Expedia business. And as you recall, when we migrated that business over, there was a large number of partners that we just didn't keep with us and these were partners who want particular customizations, we weren't ready to do, or partners who were empty calories, essentially profitless or loss making room nights. And so that part of the business has been down pretty significantly. Dara, do you want to cover kind of how we're managing this?

Yes, just as far as of the strategy for the non-global brands, in general, these brands are on the Brand Expedia platform and to the extent that our platform improves, especially on the conversion side more than the competitive set, the aggregate competitive set, you're going to have conversion as a tailwind and these brands will get to kind of ride on the conversion tailwind. So our expectation is that over a long period of time, these brands are going to grow. How fast will they grow? As fast as the online travel markets or with the travel market is to be proven. The teams are really starting to get an operational rhythm. There's a group of folks who are coming together kind of under one roof that are working on these brands. And while we won't be as aggressive, especially in the variable channels as we are with some of the global brands, we will look for a higher ROI on the next dollar of marketing spend. These brands do spend significant marketing dollars. We are looking to kind of get there, establish their own personality as far as what the brand means and what it communicates and how they serve their core customer and each of them have their own core customer. And I think that playbook is really just starting to come together. So we're optimistic about the global brands, and we expect high profit margins. We're not going to see the kind of growth that we see in the global brands, but we do expect growth going forward. But, we have to prove that out to you and it's certainly our intention to.

Hey, good afternoon. I just have one question. So Traveloka sounds like it provides you with newer opportunities to expand in Asia. Are there other markets where you could bolster your existing offering through acquisitions or potentially through organic effort? I think in other words, where else do you think you're maybe under-indexed, you could invest more, if any?

Yeah, great question. I think, first of all, we are incredibly excited to have Traveloka as an even closer partner. They've really performed exceptionally well and in a relatively short period of time have established themselves as a real leader in Indonesia, expanding throughout Southeast Asia. So very impressed with them and very impressed with the management team. We're hopeful that we can use some of our global expertise to help them, and we expect to learn a lot from them as well. In terms of opportunities in other markets, I would say that we are under-indexed in almost every single market in the world aside from the United States and Canada. So, we see this as being a huge amount of opportunity. And I think, again, on a business that is, call it, $80 billion of bookings and a market of $1.3 trillion, we've got a ton of runway ahead of us. And I think the opportunities ahead of us are, I'd say largely organic in nature. We've got some pretty amazing global growth brands. We've got the capability to add new hotels at an increasingly fast clip. We've got the technological capability to add new airlines. We've got the marketing capabilities that Dara spoke about how we're getting better and better there. So I think we've got incredible organic runway ahead of us. But as is the case with Traveloka, as is the case with our investment in Despegar, part of this is not only an operational story, but also a capital deployment story and we're going to continue to look for ways to deploy capital in smart ways, either through full acquisitions, as we have certainly done in the past, but also through smart investment in leading players where we think we can potentially help them and where they can potentially help us.

Just the other factor to add here is that we believe that our Expedia Affiliate Network business, this is our private label business that wires up our global inventory to really a global base of affiliate partners out there. This is a team that because of our inventory is able to detect a lot of little local players who are growing up because as these local players grow up, often they start booking big amounts of travel into the US and into Europe. So having the affiliate team out there allows us to detect kind of who the early local players are. The EAN business team gets to work with these local folks, and they're like, wow, these Traveloka folks are really smart and they're growing really, really fast, which then, of course, alerts kind of our strategy, themes, etc. So we have a bit of an early warning system, not only in terms of our supply folks who are on the ground, but also in terms of our private label folks who are growing very, very fast and continue to expand the relationship with many, many brands out there around the globe.

Great. Thanks for taking my question. HomeAway's international booking still appear to be less than 30% of the overall site bookings. Can you discuss some of the different competitive dynamics with HomeAway internationally versus domestically and what procedures can be implemented to accelerate HomeAway's online bookings internationally?

Yeah, it's a great question. In general, what I'd tell you is that, obviously, with BRBO and the HomeAway brand, those two brands are very, very strong domestically and are not as strong internationally. And one of our very significant growth opportunities over the next five years with HomeAway is to extend internationally. As it relates to the order of operations, our focus has been mostly domestic this year. And you can expect our focus to turn from domestic to growing the international markets. We think there's a lot of potential, but there's also a lot of work ahead of us. So this year is about domestic and next year is about global for the HomeAway team.

Thanks, guys. Maybe on your cloud spend. Mark, you talked about it ramping in the back half of the year. If you had to say what inning you are in terms of the cloud spend and the immigration process, could you give us that? And then are you finding the processes accelerating as you progress? Last question around kind of the cloud stuff is, you mentioned that's a 60/40 split, the spend. Does that mix stay consistent as you go through the back half of the year? Thanks.

Yes, so it is ramping up in the second half. If I was going to give it a baseball analogy, I don't know, second or third inning, I'd say. It's going to be a relatively modern game, though. So we might go the extra innings, we'll see. I'd say that it's not necessarily accelerating. I would say that team is getting better and better and better at not only migrating code into the cloud, but once they get there, optimizing it. And so it's sort of a immigration and optimization progress. We want to get there quickly, but we want to get there smartly. And so the teams going as fast as they can within reason, making sure that again they do it in the most intelligent way. In terms of the mix, I'd say on a full year basis, the mix is more like 50/50. So you'll see probably a shift of more of it into R&D through the back part of the year.

Thanks for taking the question. I just wanted to ask you guys about the strategy in building out supply. Dara, I think you talked about or maybe it was Mark, about just pushing harder with hotel salespeople in the back part of the year. If you could talk more about that? And how do you try to balance supply growth with your ability to drive consumer demand? And then also, how are you kind of thinking about weighting hotel property growth and then HomeAway on Brand Expedia? Thanks.

Sure. Sure, absolutely. As far as the – I'll answer the last question first, weighting HomeAway and Expedia growth. Both of those teams are moving hard on supply, hotel supply and alternative lodging supply, as quickly as they can. So it's not 'or' it's an 'and.' And the teams are moving fast and running. And we absolutely intend to add significant supply, both in alternative lodging and in hotels on a global basis really for the foreseeable future. As far as our supply strategy and build-out, we have consistently seen that as we sign up hotels and we bring them onto the system, we are able to deliver demand to those hotels. And we're very carefully watching the balance of new hotel signings, how quickly we bring them onboard, how quickly we get the first booking, and our kind of penetration or demand into each individual hotel in a particular market, so that if you have a market where you are theoretically acquiring too many hotels, you would slow down because your demand is thinning out. Now in reality, we're not seeing that very often. Most of the time, if not the vast majority of the time, as we add hotels, the system is able to create demand. Every hotel is another auction that we can enter in some of the variable channels. As we add more hotels on a destination basis, usually destination conversion increases. So this machine is working. And as we see it work, we get more confident in our ability to execute against it. And as we get more confident in our ability to execute against it, usually we put more capital behind it. So that is certainly going to be a part of our strategy. How fast we go depends on how fast we can create demand and how much throughput the teams have. But so far, they've given us reason to be confident in their ability to execute.

Thanks very much. One or two on HomeAway. Dara, going back to the international expansion comment, I mean, HomeAway today has a dozen brands. We know that some of them are really small, but it seems to be regionalized. So when you think about expanding HomeAway internationally, what is it, a build or a buy strategy? Did the HomeAway brand become more front and center, or do you look for a continuation of the strategy that it is today where you have an opportunity to pick up stronger localized brands? And then second quick question, wondering if you can comment on just kind of overall trends in terms of direct traffic. I know you're not going to give absolute numbers, but trends on direct traffic. And is the shift to mobile a drag on direct traffic visits? Thanks so much.

Sure. As far as HomeAway international expansion, HomeAway historically have grown significantly through acquisition. And while we do have regional brands, the vast majority of those regional brands are now on the mainline HomeAway platform, and as a result, getting the benefit of all the technology investments that we're making to improve the consumer experience and the supplier experience on the platform itself. While Mark and I are ones never to say no to acquisition, we do believe that the majority of our growth on a go-forward basis, as it relates to HomeAway, is going to be on an organic basis. We just think the service can get so much better. We are already investing in non-U.S. growth in Asia, etc., but we just think we can step on the gas over the next couple of years. When going back to Mark's comment about our under-indexing outside the U.S., that is even more true of HomeAway. And we just think that the opportunity in Europe, in Asia, and Latin America is enormous, and we certainly plan to get to it. But we do believe it will be more organic than through acquisition. Thank you again to the ever-expanding employee base across the company and another welcome to the SilverRail team and also a welcome of sorts to the Traveloka team to the Expedia family. It's great to have you guys onboard. So thank you very much for joining the Q2 call. And Alan, anything to add?

The replay will be up shortly. Thanks, everybody, we'll talk to you next quarter.