Booking Holdings Inc (BKNG) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Priceline.com's fourth quarter 2004 conference call.

At this time all participants are in a listen-only mode.

Later, we will conduct a question and answer session and instructions will follow at that time.

If anyone should require assistance, please press star then zero on your touch tone phone.

As a reminder, this conference is being recorded.

Priceline.com would like to remind everyone that this call may contain forward-looking statements which are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict, therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements.

Expressions of future goals and similar expressions reflecting something other than historical facts are intended to identify forward-looking statements.

For a list of factors that could cause Priceline.com's actual results to differ materially from those described in the forward look statements, please refer to the Safe Harbor statements at the end of Priceline.com's earnings press release, as well as Priceline.com's most recent filings with the Securities and Exchange Commission.

Unless required by law, Priceline.com undertakes no obligation to update publicly any forward looking statements, whether as a result of new information, future events or otherwise.

A copy of the Priceline.com's earnings press release, together with an accompanying financial and statistical supplement is available on the Investor Relations section of Priceline.com's website located at www.priceline.com.

And now, I would like to introduce Priceline's speakers for this afternoon, Mr. Jeff Boyd, and Mr. Bob Mylod.

Gentlemen, you may begin.

Thank you very much.

It's Jeff Boyd here.

Thank you for joining our fourth quarter conference call.

I'm here with Bob Mylod, Priceline's CFO, as most of you know.

The fourth quarter capped off a very good year for Priceline.com.

For the full year 2004, we delivered solid growth with a growing range of travel products.

Gross bookings for the year of $1.7 billion, were up 52 percent versus 2003.

And pro forma gross profit of $201.1 million was up 38 percent versus 2003. 2004 pro forma net income was $38.4 million, up over 100 percent from 2003.

The second year in a row of essentially doubling our pro forma net income.

For those who are interested in market share, it is worth noting that from 2003 to 2004, Priceline's consolidated gross travel bookings grew at a significantly faster pace than our major competitors, indicating share gains for Priceline.

Keep in mind that measuring share performance on a quarterly basis can be deceiving when comparing businesses with varying seasonality.

Priceline's solid results were driven by the continuing execution of our strategy to widen our product offerings to include retail options.

We are building these products organically, as well as through acquisition, with our acquisitions of travel Web and Active Hotels contributing to bookings growth and product enhancements.

We were also able to add our investment in marketing in 2004 when business performance surpassed internal targets.

This helped us grow share while delivering solid earnings growth , and we intend to continue such investment in the long term best interest of our business, should the opportunity arise in 2005.

For the fourth quarter, gross bookings of $414 million were up 61 percent versus the prior year.

Pro forma gross profit was $51.5 million, up 62 percent over the prior year, and pro forma net become was $8.8 million, or $0.22 per share, a 267 percent increase over last year, and exceeding first call census estimates by $0.06.

Fourth quarter results were boosted by solid airline ticket results as the new product provided attractive choices for holiday travel.

The quarter also benefited from solid results at Active Hotels acquired last September.

Which is particularly gratifying as it reflects the smooth post acquisition transition, continued strong growth, and great execution by what we think is an extremely talented management team.

Organic gross bookings growth was also strong in the fourth quarter.

If you measure organic growth and gross bookings, assuming Priceline owned Active Hotels and travel Web for the entire period in question, fourth quarter 2004 organic gross bookings grew over 30 percent, versus fourth quarter 2003.

This is adjusted to exclude Orbitz bookings on travel Web, since we do not expect that contract to be extended past its 2005 year-end expiration.

Airline ticket unit sales in the fourth quarter 2004 grew 61 percent versus 2003, showing the continued success of this product and mitigating the seasonal weakness we have traditionally experienced with our opaque offering during the Thanksgiving and Christmas holidays.

We expect ticket growth rates to come down in 2005 as we anniversary the relaunch of the product.

We also expect that the long-term financial challenges at the airlines will result in continued pressure on distribution costs.

Priceline intends to continue to work with the airlines to build distribution partnerships that provide Priceline with competitive product and our suppliers with a valued distribution channel with reasonable cost.

This is particularly important in an environment where low-cost carrier growth and fare simplification hold leisure fares at low levels.

Hotel unit sales increased 51 percent in the fourth quarter 2004, compared to the fourth quarter of 2003, aided by room night sales from both travel Web and Active Hotels.

Our differentiated hotel businesses continue to perform well in the face of well publicized pressures on hotel inventory pricing and margins, associated with recovering lodging industry pricing and occupancy rates.

And, our opaque hotel product remains the best value on the internet for customers in a preferred, nondisruptive, distressed inventory channel for hoteliers.

For 2005, we expect to benefit from the relaunch of the hotel product to include retail choices, scheduled for the second quarter of 2005.

A story in today's "Wall Street Journal" provides a timely case in point.

New York City hotels are full over the next few weeks because of the Gates Public Art installation in Central Park.

The story notes an attractive rate for a metro area Hilton on travel Web, a good choice for customers who probably would have trouble finding an opaque deal for such constrained weekends.

We also expect Active Hotels to contribute nicely to hotel unit sales growth as they grow their business in the U-K and in continental Europe.

Package sales continue to contribute to growth in gross bookings and unit sales.

We are continuing our investment in making it easier for customers to purchase all their travel needs for a trip, whether through a package product, a convenient add-on to an air, hotel or rental car reservation, or services at their destination.

We believe that these steps increase revenue per visitor and, more importantly, create a distinctive and superior shopping experience.

Rental car results were aided in the fourth quarter by sales of retail inventory through the booking engine product launched on Priceline.com in November -- in October, excuse me.

The new product is now powering the published choice option on Priceline.com, as well as the booking engines on rentalcars.com and breezenet.

Consumer acceptance of the choice of retail rental car reservation on Priceline has been favorable, even though there has been virtually no advertising of the new product.

We intend to support our expanded product line with investments and marketing, with offline spending increasing in the first quarter 2005 over the fourth quarter of 2004, consistent with prior years.

Offline advertising in the fourth quarter of 2004 and first quarter this year has consisted largely of consumer testimonials explaining the benefits of choice for air and the savings proposition for hotels.

We also quickly produced a 15 second air spot in the wake of industry-wide fare simplification as a timely reminder that the new fares, and name your own price savings, can be found on Priceline.com.

In the second quarter, we intend to launch a new campaign, featuring William Shatner, that we believe will effectively communicate the benefits of choice in all our products and drive new and repeat customer traffic.

Online spending will largely be volume-driven, primarily reflecting commissions paid for affiliate books for travel Web and Active Hotels, as well as other search-driven initiatives.

We enter 2005 with a strong brand, a diverse and distinctive product line and solid plans to continue expanding the business in the United States and in Europe.

By themselves, we believe that they provide a solid foundation for growth and gross bookings and earnings.

The launch of the new hotel product in a new unified advertising campaign in the second quarter presents an additional opportunity for Priceline to widen its customer base, build share in the sale of retail hotel reservations and establish the Priceline brand in the minds of consumers as a one-stop shop for travel value.

I will now turn the call over to Bob for the financial review.

Thanks, Jeff, and good afternoon.

Going to give a brief review of our Q4 results, and then I'm going to finish with some forward guidance.

As Jeff mentioned, the fourth quarter was indeed a very strong quarter from an EPS perspective.

We have spent almost all of our effort in the past year turning Priceline from a company that depended solely upon the success of an opaque travel offering in the United States to a company that is well on its way to providing a full suite of both opaque and retail travel offerings within the United States and a market leading hotel product in Europe.

We always viewed that one of the benefits of adopting this diversification strategy would be that our income statement would become less volatile.

And that under performance in one part of our business was more likely to be offset by over performance in another part.

However, Q4 was a quarter in which there were no material under performances relative to our plan.

In fact, from a gross profit dollars perspective, almost every part of our business performed at or better than planed.

Which, when combined with continued good performance on our operating expenses drove $0.22 of pro forma EPS.

As for the specifics, from a top line perspective, our gross bookings of $413.5 million and revenue of $195 million came in within our range of guidance.

However, our pro forma gross profit of $51.5 million came in above the high end of our previous guidance.

You probably are interested in knowing why we were able to over perform at the gross profit level without experiencing a commensurate over performance in gross bookings or revenue.

There are are four principle reasons.

First, the mix of our airline ticket business in the quarter was slightly more skewed in favor of our opaque product than we had planned.

Those of you who have followed Priceline for a number of years know that this product has been a real challenge and has been declining at significant double digit rates on an annualized basis for quite some time.

While the opaque airline product continued to decline at very rapid rates in the fourth quarter, the rate of the decline was slightly less than planned.

And because we earned significantly more gross profit dollars on an opaque airline ticket, as compared to a retail ticket, a little bit of over performance can drive meaningful gross profit dollars upside.

This was indeed the case in Q4.

Second, while unit sales of hotel room nights came in toward the low end of our expectations, our hotel products experienced higher than expected average selling prices per room night.

The higher ASPs drove higher gross profit dollars per room nights sold, and therefore, higher total gross profit dollars than we had expected.

Third, we experienced slightly higher than planned gross margins in our core U.S. merchant businesses, which encompass all of our opaque products, as well as a substantial majority of travel Web's business.

Jeff already mentioned the final principle reason for our over performance on the gross profit line, which was that Active Hotels turned in better top line results than we had planed.

As for operating expenses, our advertising expense consisting of our online and offline advertising activities totalled $14.5 million for the quarter , right in line with our expectations.

Personnel expense came in slightly higher than our guidance, due to performance based employee bonuses that were funded at higher levels than expected due to our EPS over performance.

G&A expenses came in lower than planned, as a result, primarily, of a $350,000 reimbursement of legal expenses that had been incurred as part of our defense of an intellectual property lawsuit relating to Priceline mortgage.

This expense benefit was more than offset by our share of losses that were generated by Priceline mortgage during the quarter, principally as a result of a legal settlement that was reached in the same intellectual property lawsuit.

These losses appear in our other income line item on our income statement.

Our IT expenses came in well below our earlier guidance, just as they did in the previous quarter.

We continue to expect that this line item will increase going forward as a result of the launch of retail integration of hotel, moreover, we have forecasted and continue to forecast increases in our expense run rate for IT infrastructure as a result of the almost doubling of our gross bookings in the past couple of years.

However, the IT expenses associated with both retail integration of hotels and IT infrastructure have, admittedly, happened at a slower rate than planned and at slightly lower level than planned as well.

This accounts for much of the upside to this line item in the past couple of quarters.

Our pro forma income tax expense, which consists of cash tax payments associated with alternative minimum income tax in the United States, and income tax on foreign source earnings, came in higher than planned, consistent with our over performance on the operating income line, both within the United States and Europe.

As I mentioned, we reported pro forma net income of $0.22 per share, and GAAP net become of $0.12 per share, which was affected by a total of $3.8 million of net expenses, primarily related to noncash acquisition related amortization expense.

As for cash and cash flow, we began the quarter with $247.6 million of cash and marketable securities, and we closed the quarter with the same amount of cash.

Keep in mind, that we expended approximately $5.5 million of cash during Q4 on capitalized fees, expenses and other post-closing obligations associated with our acquisition of Active Hotels.

We also expended $4.1 million of cash buying in the remaining 15 percent equity interest in travel Web that we did not already own from Intercontinental hotels during the quarter.

If you back out cash expended on these acquisition related activities, our cash balances grew by $9.6 million during the quarter, by far and away the best cash generated fourth quarter in our company's history.

Total capital expenditures in the third quarter were approximately $2.4 million.

And now for a couple quick comments on guidance.

I'm going to give you fairly specific guidance for first quarter and then some full year EPS guidance.

We are looking for first quarter gross bookings to grow by approximately 30 to 35 percent, and we expect revenue to grow by approximately 5 to 10 percent on a year-over-year basis.

We expect pro forma gross profit dollars to grow by approximately 30 to 35 percent on a year-over-year basis.

Keep in mind, that while a Q1 is seasonally stronger quarter than Q4 in the United States, the seasonality in Europe is the opposite.

Active hotels is expected to experience a seasonal, quarterly sequential decrease in revenues and gross profit dollars in Q1.

As for Q1 operating expenses, consistent with our past practice, Q1 is the quarter in which we dramatically step up our ad spend from Q4 levels in anticipation of the strong spring/summer booking season.

We are targeting consolidated advertising expenses of approximately 19 to $21 million, approximately 50 percent of which will be spent online, and 50 percent off line.

Again, it is important to reiterate that this level of ad spend probably costs a few pennies per share of earnings in Q on relative to what we might otherwise manage our business to if we were looking to maximize one quarter's worth of earnings and not invest in front of what we think of as our quote unquote Christmas season.

But we think this is the right strategy for positioning our business for success throughout 2005 and beyond.

We expect sales and marketing expenses of between 9 and $9.5 million.

We expect personnel costs to come in between 10.7 and $10.9 million.

We expect G&A expenses of approximately 4.7 to $4.9 million, information technology costs of approximately 2.5 to $2.7 million, and depreciation and amortization expense, excluding acquisition-related amortization, of approximately $2.4 million.

We are targeting pro forma EPS of approximately 18 to $0.22 per share.

The midpoint of this range represents over 40 percent year-over-year growth in our pro forma EPS.

Our EPS forecast includes an estimated cash income tax expense of approximately 3 to $400,000.

The quarterly sequential decrease in our cash income tax is, again, consistent with the expected seasonal quarterly sequential decline in Active Hotels operating performance.

Net pro forma adjustments, associated primarily with acquisition-related noncash amortization and our noncash preferred stock dividend, are expected to total approximately $4.5 million in the first quarter.

As for full year, we are comfortable with current 2005 first call consensus pro forma earnings per share estimates of $1.18.

Which exclude the dilutive impact associated with the adoption of EITF-0408, which requires that we treat our two convertible debt issues on an, if converted basis, regardless of where our stock trades.

While we are not, at this point, giving specific line item guidance or quarterly EPS guidance, I did want to provide you with three contextual thoughts.

First, we are forecasting a continuation of last year's trend of significant year over year increases in advertising expense.

We strongly believe that our advertising dollars have been, and continue to be, an outstanding long-term investment for us.

In the past two years, we have invested heavily in our brand, and bolstered our already strong, core, best deal and best value brand attributes.

We also began to build a new and very powerful one-stop shop brand attribute that has only augmented the power and reach of the Priceline.com brand name.

We did all of this while increasing our pro forma EPS by 100 percent on an annualized basis for each of the past two years.

We view the upcoming launch of retail integration for our hotel product in the second quarter as another opportunity to invest aggressively in our brand.

In an online travel world, in which uniformity of selling price has become more of a rule instead of an exception, our brand is arguably more unique and more valuable relative to our competition today than it ever has been.

The market share gains that we have posted against our competition provide imperical evidence, we think, of the efficacy of this strategy.

And we, therefore, intend to continue to pursue our product and brand building efforts in 2005.

So, as Jeff mentioned, in the event that we witness over performance in our 2005 operating income as the year unfolds, we intend to reinvest some of that over performance back into advertising, just as we did in 2004.

The second contextual point I want to make is that our full year EPS forecast is not reflective of a material increase in hotel room nights sold, following the introduction of retail integration of our hotel product.

While we are excited about this product launch, we know that the dynamics affecting this new product are different from the ones that affected the highly successful launch of retail integration of our airline product last year.

Once the new hotel retail product is launched in the second quarter, and we understand it's impact on our best business, we will update our guidance.

And finally, I want to reiterate that the seasonal earnings patterns of our business have permanently changed, as a result of our acquisition of Active Hotels, and the successful integration of retail products to our suite of offerings.

This just completed fourth quarter was a lustrative of this point, but it is worth emphasizing that the future Q4 earnings are expected to be relatively more contributory to full year results than in past years.

We, therefore, expect fourth quarter EPS to come in higher than current first call consensus estimates.

With that, we'd be happy to answer your questions.

Thank you, sir. [Operator Instructions] Our first question is from Anthony Noto of Goldman Sachs.

Your question, please?

Good afternoon, Jeff and Bob.

Bob, you eluded to the current situation -- actually, I should say, the results in the fourth quarter as it relates to the gross margin and the opaque business.

I was wondering if you could comment on the trends that you're seeing in the first quarter as it relates to opaque business?

And are you benefiting at all from the environment in the opaque business the way you have in the fourth quarter?

And then additionally, there's been a lot of chatter about the cost marketing dollars online, not necessarily your television advertising dollars, but the cost of paid search and other online packages that have increased and really caused customer acquisition costs to go up quite significantly.

Given Priceline's unique business model, I'm wondering if you're vulnerable to that inflation or not vulnerable to that?

Then I have one follow question.

Why don't I take the first one, Anthony, then Jeff can take the second one.

Our margins -- we were very happy with our margins in the fourth quarter, and our margins in Q1 are fairly stable relative to where we were in Q4.

So, some of the static that seems to be affecting the market in general has not really affected our opaque business.

And, I would say, as Jeff mentioned, that's fairly consistent with the environment we've been operating in for the last year as the overall market dynamics have admittedly been a little more volatile.

As to vulnerability to online search pricing, I think, as we have stated before, Priceline is relatively less reliant on online spending, especially here in the United States, than our competition, and for our brand, the majority of our spend is still in offline advertising, so I view our exposure to those price increases as being less than the competition.

And, we continued to manage that spend across all of our businesses, basically, to be contributory right off of the bat.

And, I don't see any change in that tactic and that strategy going forward.

Great.

And then, as you look out in the sort of landscape of travel, both domestically and international, are there small tuck in acquisitions that could be part of your strategy, especially as it relates to either affiliate partnerships or technology opportunities?

Thanks.

I think we've had pretty good success with small tuck in acquisitions in prior years.

If you look at lowestfare.com, rentalcars.com and breeze.net they have all made a nice contribution to our business, and in some cases, really helped our entry into the retail product market for rental cars in the case of rentalcars.com and breeze.net, obviously, travel Web in the case of hotels.

So, we'll continue to look for opportunities that can provide us added distribution, new product, geographic expansion, really very similar to what we've been doing over the last couple of years.

Great.

Thank you.

Our next question is from Imran Kahn of J.P. Morgan.

Couple of questions.

First, if you look at your advertisement cost, feels like advertisement cost was 59 percent of your total advertisement, cost compared to 49 percent in Q3.

I just want to understand if there are any specific reason you increased the online advertisement in Q4?

And, but it seems like we're guiding for 50/50 for next year.

What's the thinking behind that?

Secondly, if you could give us an update in terms of your cost (indiscernible) initiatives, and what kind of conversion you're seeing trying to getting your Priceline to your retail product?

Well, again, I'll take the first one, Imran, and Jeff can take the second one.

The reason for the mix in our online versus offline spend really has to do with mix of revenue string.

In Q4, Active Hotels, which is almost entirely -- in fact is entirely an online spender of advertising, represents a higher percentage of our revenue in Q4 than it does in Q1.

And so the mix is really a lustrative of that.

As has always been the case, Q4 is the quarter in which, from an offline perspective, we dial back our spending for offline advertising for our core and opaque product, because, historically, it's not been a good season for us to spend money.

Now, as we said, going forward, that could change a little bit, but generally, the ramp in our advertising for our core opaque offering generally happens in Q1 and Q2.

So, you should expect to see that mix shouldn't -- that change in mix shouldn't surprise you.

On the cross brand strategy, I think we have started, but are in the fairly early days of making the most out of the inventory we now have at travel Web and Priceline and Active, in terms of hotels, making that inventory available to customers in the United States, as well as customers in Europe is an opportunity that is mostly in our future.

We have started with some fairly elementary integration, and will basically going to follow the same pattern that we have followed with our other brands, travel Web, rooms are going to be made available on Priceline.

They are in a limited way today.

And, as we mentioned, the relaunch of that product is coming in the second quarter of this year.

We have traffic going back and forth between lowestfare.com and rentalcars.com and breeze.net, as customers coming to retail brands still can be very interested in trying to save more money if they don't like what they see.

We're able to send them over to Priceline.com and often convert them into an opaque product.

So, we've really got a nice opportunity to direct customers to the product that's right for them for the particular trip they're taking, and to make sure that the widest available inventory that we have across all of our businesses is appropriately available to all of our customers, however they access us.

All right.

Thank you.

Our next question is from Mark Mahaney of American Technology Research.

Your question, please?

Thank you very much.

Couple questions.

First, you gave an organic bookings growth rate for the December quarter.

Can you provide a comparison, what was that organic growth rate the way you have measured it in the September quarter, so we can see what the trend was?

I don't have an organic growth number for the September quarter, Mark.

Okay.

And then, can you provide a little more detail on, Bob, in your point about something of a new thinking on the seasonality of the business?

Just flush that out a little bit more, and your particularly had some comments about the December quarter.

Is this largely due to the inclusion of Active Hotels, or is there something else that's making you change your mind on the seasonality of the business?

Thank you.

It's really not a changing of our mind.

It's just again, a changing in our suite of product offerings.

It is a combination of Active, which makes more money in the fourth quarter than it does in the first quarter.

As well as an increase in the share of our business represented by retail products.

As Jeff mentioned in his remarks, historically, our opaque product has had lots of difficulty in the fourth quarter as we've had buying challenges, which, then alleviate in the first quarter, so, historically, before retail integration and before Active, you would typically see a fairly nice quarterly sequential increase in EPS from Q4 to Q1.

With Active, now part of the mix, you actually see a decrease.

Again, with retail, to me, it's more of a function of how much better Q4 is than it used to be as opposed to any commentary on Q1.

Thank you very much.

Our next question is from Scott Barry of Credit Suisse Boston.

Your question, please.

Thanks.

Bob, you touched on this, but could you talk a little more.

Iac said yesterday that hotels.com was going to abandon this low price position because of pricing (inaudible) in hotels.

Could you just comment on the implications there for Priceline and the dynamic and that strategic shift.

I think we have always tried to characterize our brand and build our brand as representing the best deal and best value on the internet.

As we said in the prepared remarks.

I think there's a recognition that price matters to customers, and that if you're offering the exact same product that's available across a variety of other web sites including supplier web sites, it's really not possible to hold that ground.

For Priceline, we still have the 40 percent savings claim versus the leading online sites.

We continue to have the support of our hotelier partners for the product.

They continue to use the channel to move their distressed inventory, because they find that using Priceline is not disruptive of their plans to build their own web sites for brand loyal customers.

So, we think, we think there's a recognition that this is space that we really continue to occupy, and it's going to continue to be an important part of our brand building going forward.

We're all about choice, but it's going to be choice of retail price or choice of getting what's the best value on the internet.

Okay.

Fantastic.

Just a quick follow up, if I could.

Can you comment on what the declines in your opaque air business looked like in December post the anniversary of the retail launch?

I guess what I would say is, I'm not going to give you a specific number, Scott, but, as we've said, it does get harder to anniversary against the launch of retail as it relates to retail products.

But it certainly gets easier to anniversary against opaque.

Because, there's no question when we launched retail there was a little bit of cannibalization, although, as you know, obviously, it was a very accretive thing to do.

So, as I said, we continue to decline at double digit year over year decreases, but, suffice it to say that those double digit declines are not as -- they're not as big today as they were before we started anniversarying against the retail integration of air retail.

Great.

Thanks very much.

Our next question is from Scott Devitt of Legg Mason.

You mentioned strength in Active Hotels in the quarter.

I was wondering if you could quantify the size of the contribution, either in gross bookings or revenue, and then separately also on Active?

I think it's mostly an affiliate model.

Just wondering what, if any, the plans were to launch a branded hotel site in the UK???

Thanks.

We're not going to get into the specific operating performances of each business segment.

But, we had given a gross bookings estimate.

And, as I mentioned in my remarks, we came in at the very, very high end of that range, which, therefore, resulted in higher revenues, higher gross profit dollars, as well as operating earnings.

But again, Q4 was a story of good performance by Active, as well as good performance by every segment, so, I couldn't sort of -- I couldn't tell you that the 14 to $0.18 range of guidance that we gave for Q4, as compared to our actual results of $0.22, was all related to one specific business.

It really was every business contributed to the effort.

As to the plans, in terms of brand building in Europe, we're taking that process a step at a time, Active's got a lot of ground to gain, and a lot of good results ahead of it just building out its business across Europe.

They've made great progress over the last year in that regard, and continue to make good progress.

So, we've got a lot of opportunity to mind there before we even get into brand building.

We'll start the process by the guys at Active are going to take over management of Priceline.co.UK???.

They're going to make their inventory available to Priceline.co.UK?? customers which we think will significantly enhance the offering there.

And, I think there's some things that they can do on the distribution front there to more aggressively market the Priceline UK?? website.

As some of you may remember, we, many years ago spent some money advertising the name.

We may have some minor residual equity in that brand, but I think over time we'll spend some money marketing that brand, as well as the online efforts that Active is doing for its own properties today.

Great.

Thank you.

Gentlemen, we do have one more question from Justin Post of Merrill Lynch.

Hi, Bob and Jeff.

Wanted to ask you a couple questions.

First, on interactive marketing.

They definitely underspent our expectations last quarter.

Wondering if that helped you at all, and if you think the industry could be less competitive next year?

And the second question is, just on your direct connect pressure.

Are you feeling any incremental pressure to directly connect with the airlines or hotels at this point?

On the first question, I can't really give you quantification of whether we benefited from the decision of interactive to spend less.

I have to tell you that , regardless of the fact that they spent less, they still spent dramatically more than we did advertising their brand than we did advertising ours.

And so, I think that, while there may be some benefit to us, if advertising expenses generally mitigate, I still think that this is a very attractive market that we're operating in, and I'm sure my competition does, too.

And, I would expect people in 2005, both Priceline, as well as other online travel companies, to continue to invest in marketing.

And as both Bob and I said in the prepared remarks, we intend to do so.

And, I think we'll continue to be competitive.

I'm sorry, Justin.

Your second question?

In the que, you constantly talk about -- not constantly, but talk a lot about the direct connect pressure to connect with hotels and air.

I'm just wondering if there's any update on that?

I think you've seen in the published announcements that folks have made over the past 12 months, that there continues to be pressure on distribution costs, and we continue to believe that it's really more about trying to make sure that suppliers have reasonable costs, rather than the specific technology that is used to achieve those costs savings.

There are a couple new players in the space out there that are out there trying to sell a lower cost solution, and you can expect Priceline to continue to look for ways to try to reduce the overall cost for suppliers selling their product through us.

But, I can't really comment on specific direct connect initiatives.

Okay.

Great.

Last question, just want to review what you said earlier about the hotel launch in the second quarter.

You're not factoring any of that into your guidance at this point?

I think specifically what we said is, we're -- our outlook for the full year doesn't include a material contribution from the relaunch.

Great.

Thanks a lot.

Gentlemen, at this time I'm show nothing further questions.

Thank you all very much.

We'll see you next quarter.