Booking Holdings Inc (BKNG) 2005 Q4 法說會逐字稿

[OPERATOR INSTRUCTIONS] Welcome to priceline.com's fourth quarter 2005 conference call.

Priceline.com would like to remind everyone that this call may contain forward-looking statements which are made pursuant to the Safe Harbor Provision 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 forecast in any such forward-looking statements.

Expressions of future goals and similar expressions reflecting something other than historical fact 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-looking 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 priceline.com's earnings press release, together with an accompanying financial and statistical supplement, is available in the Investor Relations section of priceline.com's website located at www.priceline.com.

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

Go ahead, gentlemen, and begin the conference.

Thank you very much.

And welcome to Priceline's fourth quarter conference call.

I'm here with Priceline's CFO, Bob Mylod.

Priceline performed at the high-end of our original expectations in the fourth quarter due to continued strong growth in our European operations and solid domestic results.

Gross bookings of $537 million were up 29%, year-over-year.

Pro forma gross profit of $65.3 million, was up 27% and pro forma net income was $11.4 million or $0.28 per share, up $0.29 over last year.

Fourth quarter results include results from Bookings B.V. acquired in July of last year.

For the full year, Priceline's gross bookings were 2.2 billion, an increase of 32%.

And pro forma earnings per share were $1.37, an increase of 42%.

Priceline's organic gross bookings growth rate, assuming acquired businesses were owned for the full period in question and excluding the retail hotel business on Orbitz, for the fourth quarter was 21%.

Priceline Europe had an excellent quarter with $158 million gross bookings and an organic growth rate of 88%, accelerating from 76% in Q3 and significantly in excess of that reported by our competitors.

Priceline's domestic organic growth rate was 5% in the fourth quarter, broadly consistent with the trend in the second and third quarter.

Merchant gross bookings were down slightly, consistent with the third quarter.

We experienced a continued year-over-year decrease in opaque airline ticket sales.

Furthermore, the shift in mix towards retail sales continued as a result of website changes made in early 2005.

This trend, together with the growth we are experiencing in Europe, is driving a changing mix of business that will impact our earnings seasonality and ultimately, we believe, drive continued earnings growth.

We are taking significant steps to strengthen our domestic business, particularly in air and hotels.

Early this year we launched one of our most sweeping website redesigns, More Ways to Save.

We have made the site much easier to use and there is a consistent look and feel and navigation among the products.

We have added both content and functionality, all with the purpose of making it easier for customers to find the way to save that is best suited for each trip they take.

To support the new look and functionality on the website, we launched a new advertising campaign.

The TV ads show attractive vacation scenes against the backdrop of the upbeat song "Vacation," by the Go-Gos.

The ads also show the Priceline national savings counter, which calculates total savings achieved by Priceline's customers, since we started business at over $5.5 billion.

The copy emphasizes that Priceline offers more ways to save than any other website.

This focus on savings underscores what makes Priceline different from other leading online travel sights.

With a full product line-up, improved content, and consistent web presentation we also believe Priceline is well positioned to continue building its online marketing programs.

Conversion improvements experienced in 2005 allow us to step up our investment as does our opaque product offering on Orbitz.

We recently announced the signing of a GDS services agreement with Sabre Group.

While Worldspan is and will be a search technology leader and valued partner, the contract with Sabre gives Priceline an important alternative.

This flexibility should help Priceline address the needs of its customers and airline suppliers in a time of substantial change in the relationships between airlines, technology providers, and the travel agent that sell the majority of the tickets for mainline carriers.

As I have said in previous calls, the financial difficulties of the airlines, compounded by high fuel cost, will continue to present challenges for online travel players as airlines seek ways to reduce the cost of selling tickets through intermediary channels and ramp their investment in driving traffic to their own websites.

Priceline Europe is focused on the continued expansion of its business in rapidly growing markets on continental Europe.

The consolidation and integration of management functions at Bookings B.V. and Active Hotels is largely complete.

We are also making progress on the integration of the hotel inventory of Bookings and Active, although a full combination of inventory is still sometime off.

Finally, we have started to drive European demand for U.S. hotels and U.S demand for European inventory.

While we have a ways to go to build-out these services, the early indicators are promising.

Looking back, 2005 was a transformational year for Priceline as we completed the development of a full line of domestic product and repositioned our business and product offering and consolidated a leadership position for Priceline Europe and online hotel reservations. 2006 is off to a good start and our objective, simply put, is to be the leading U.S. online destination for value-conscious leisure travelers.

And the number one online hotel reservation service in Europe.

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

Thanks, Jeff.

I want to give a brief review of our Q4 results and then I'll finish with some forward guidance.

I'll start with a couple of our top line metrics.

Our gross bookings and our gross profit dollars grew at approximately 29% and 27%, respectively, on a year-over-year basis.

The growth in bookings and gross profit exceeded the 25% growth rate that we guided to on our Q3 earnings call, primarily due to continued, very strong results from our European operations.

As Jeff just mentioned, despite the fact that we are comping against increasingly larger numbers in Europe, our organic growth rate in Europe actually accelerated on a quarterly sequential basis in the fourth quarter.

Our European performance is illustrative of what we think is a unique and winning strategy in an extremely attractive market driven by an outstanding management team.

I'll say more in a moment when we get to guidance, but suffice it to say that we expect the impressive results in Europe to continue in 2006.

As for our domestic results, as was also the case in Q3, our gross bookings grew slightly despite the fact that bookings from our opaque airline business and bookings from our restructured hotel affiliate relationship with Orbitz declined by approximately $16 million on a year-over-year basis.

Bookings from retail services and continued strong rebound in rental car sales more than offset these declines.

As for operating expenses, our advertising expense of $21 million came in at the low end of our guidance due to lower than expected off-line expenses.

Our other operating expenses, collectively, came in roughly $1.5 million higher than our previous guidance.

The variance was driven by several factors.

First and foremost, our personnel costs came in higher than expected due to performance-related employee bonus expenses that were incurred in the quarter as a result of our over-performance versus our expected operating income.

G&A costs were also higher than expected due to higher than expected legal expenses plus franchise taxes that we incurred as a result of the reversal of the reserve on our deferred tax asset in the third quarter.

These expenses were partially offset by favorable variances with respect to adjustments that were made to our balance sheet accruals for credit card processing and charge-back costs, which had the effect of lowering our sales and marketing expenses.

We reported pro forma net income of $0.28 per share, which came in at the high-end of our previous guidance and $0.01better than First Call consensus estimates of $0.27 per share.

While I'm not going to give a full year recap of each of our operating line items, I do want to highlight the fact that our full year pro forma net income of $1.37 per share represented a 42% increase versus 2004, and completes a 3-year run during which we have grown our pro forma EPS by 78% on a compounded basis.

We reported GAAP net income of $0.09 per share for the quarter.

Our GAAP results were negatively impacted by approximately $6 million of acquisition related amortization expenses primarily associated with our acquisitions of Travelweb, Active Hotels and Bookings B.V., $1.2 million of stock-based compensation expense, and $900,000 of income taxes that were booked against the deferred tax asset that was established in the third quarter.

All of these expenses were non-cash in nature.

As for cash and cash flow, we began the quarter with $175.6 million of cash and marketable securities, and we closed the quarter with $175.4 million of cash and marketable securities, representing a decrease in cash of $200,000 in the quarter.

Our cash balances were affected by three significant items that I'll briefly cover.

First, as you know, we acquired Bookings B.V. during the third quarter, however, we spent an additional $1.6 million of cash during Q4 on post-closing adjustments and transaction expenses associated with that acquisition.

Secondly, we used approximately $12.2 million of cash to buy back all of our common stock warrants held by Marriott.

This transaction was done pursuant to the stock buyback program that our Board of Directors authorized and expanded following the announcement of our Q3 earnings.

The warrant repurchase had the effect of reducing our diluted common shares outstanding by approximately 500,000 shares.

And finally, cash was favorably affected by $3.5 million of proceeds from employee stock option exercises.

Excluding the net effect of these three items, our cash balances increased by $10.1 million during the quarter.

Total capital expenditures in the third quarter were approximately $3 million.

And now for a few comments on guidance.

We're looking for total first quarter gross bookings to grow by approximately 30% on a year-over-year basis.

We expect gross bookings in Europe of approximately 180 million to $200 million.

We expect revenue to grow by approximately 5% on a year-over-year basis, we expect pro forma gross profit dollars to grow by approximately 20 to 25% on a year-over-year basis.

As for Q1 operating expenses, we're targeting consolidated advertising expenses of approximately 30 to $32 million with approximately two-thirds of that amount being spent on online advertising.

We expect sales and marketing expenses of between 9 and $10 million, we expect personnel costs to come in between 12.5 and $13 million.

We expect G&A expenses of approximately 6 to $6.3 million, information technology costs of approximately 2.6 to $2.8 million and depreciation and amortization expense, excluding acquisition related amortization, of approximately $2.6 million.

We're targeting pro forma EPS of approximately $0.17 to $0.21 per share.

Our pro forma EPS forecast includes an estimated cash income tax of approximately 2 to $400,000, comprised of alternative minimum tax in the United States and income taxes in Europe.

As for expected GAAP results, we expect to report GAAP loss of approximately $0.02 to $0.05 per share.

The difference between our GAAP and pro forma results will be driven primarily by the inclusion of acquisition-related amortization, stock-based compensation and certain income tax expenses, all of which are non-cash in nature.

Our stock-based compensation expenses are expected to increase significantly in 2006 as compared to 2005, because of the required adoption of FAS 123R, which mandates that we expense the granting of employee stock options based upon their calculated option value at the date of grant.

Specifically, FAS 123R will increase our stock-based compensation expenses by $1.5 million for the first quarter and approximately $6 million for the full year 2006.

The substantial majority of these expenses relate to stock options that were granted in 2004 or earlier.

While we're not going to give detailed line item guidance for the full year 2006, we are comfortable giving the following bookings and pro forma EPS guidance.

We expect to achieve full year gross bookings of approximately 2.7 to $2.9 billion of which approximately 800 to $900 million is expected to be generated by our European operations.

Finally, we are targeting pro forma EPS of approximately $1.50 to $1.65 per share.

GAAP EPS is expected to be approximately $0.55 to $0.65 per share as a result of the same non-cash items that will impact Q1, as well as the inclusion of 5.76 million shares of unissued common stock associated with our two convertible note offerings that we are required to use in the calculation of GAAP EPS.

These shares are not issuable unless our stock price reaches a level of approximately $40 per share.

Before we open up the call to questions, I want to spend a brief moment to expand upon the remarks which Jeff made earlier regarding the seasonality of our earnings.

I'll start by reiterating a few of the remarks that I made on our Q3 earnings call.

As you may recall, our Q3 results surprised many of our investors because they vastly exceeded First Call estimates.

Much of that over-performance was related to the intersection of seasonal factors and the revenue recognition policies of our retail services.

As I mentioned on that call, for our retail hotel service, in general, and our European hotel service, specifically, we recognize revenue not when the customer books his or her reservation but rather when the customer checks out of his or her hotel room.

Because the third quarter represents a substantially disproportionate share of full year travel consumption, customer room-night check outs were greater than customer room-night reservations booked in the quarter.

Conversely, in Q1, customer room-night check outs are less than customer room-night reservations as leisure customers tend to travel less in Q1, but they certainly do book a meaningful amount of their expected summer vacations during the quarter.

From a financial perspective, this means that a meaningful amount of the retail bookings made in Q1 will not be recognized as revenue until future quarters.

We experienced this financial phenomenon in last year's first quarter following our acquisition of Active Hotels; however, it will be much more pronounced in Q1 of this year, given the addition of Bookings B.V. and the full integration of retail products into the priceline.com website in Q1.

Specifically, the percentage of our gross bookings in Q1 that are subject to deferred revenue accounting is expected to jump from approximately 19% in last year's first quarter to approximately 35% in this year's first quarter.

Which means that a much more meaningful amount of our Q1 gross bookings won't be recognized as revenue until later in 2006.

However, from a cost perspective, we expense all of our advertising activities in the period in which we generate the gross bookings.

So, as a result, our quarterly results are expected to become increasingly impacted by the mismatch between the deferred timing of our revenue recognition for retail products on the one hand and the current expensing of our advertising activities on the other.

Again, to put some numbers against these words, our Q1 online advertising expense, which is substantially dedicated to the generation of retail gross bookings, is expected to more than double on a year-over-year basis.

As Jeff just mentioned, we think we have a big opportunity, especially in Europe, to expand our markets and take more share from our competitors.

So we intend to invest heavily in marketing to support this goal.

All of these expenses will be recognized in Q1.

However, a significant portion of the revenues associated with this marketing spend will not be recognized until later in 2006.

So what does all of this mean?

It means that this mismatch between timing of revenue and expense recognition is expected to cause our quarterly pro forma net income results to become far more seasonal than in past years.

While we will be solidly profitable in this year's Q1, both in the United States and in Europe, Q1 will represent a much smaller percentage of full year earnings in 2006 as compared to 2005.

Conversely, we expect Q3 to generate approximately 36 to 40% of our full year pro forma earnings which represents an increase versus 2005.

Finally I want to point out as I have done on previous calls, that all of our forecasts are based upon an assumption that we will continue operating in a consumer travel market that is roughly similar to the current one.

And that any geo-political instability or terrorist event, particularly within the United States and in Europe, would in all likelihood have a negative impact on the travel market, in general, and our operating results, in particular.

And with that, we'd be happy to take your questions.

[OPERATOR INSTRUCTIONS]

Our first question comes from Scott Kessler from Standard & Poor's.

Hi.

Thanks very much.

I was wondering if you could talk a little bit about the competitive environment.

It's pretty obvious to a lot of us that in terms of specific OTAs there's a lot of activity in terms of both pricing and in terms of promotion.

Obviously the vendors are getting increasingly active as well.

I was wondering if you could talk about that and how you are addressing that issue.

A lot of us obviously understand that you have a slightly different strategy and value proposition.

Thanks.

Thank you.

It is a very competitive market and, as I said in my remarks, there's no question that for the major suppliers, the national hotel chains, and the mainline airlines have all invested a significant amount of money in upgrading their websites and driving brand loyal customers directly there.

Priceline, as you mentioned, is a little bit different.

Our opaque product and our packages product really are the core of Priceline's value brand and those products are something that the suppliers cannot and do not offer on their own website.

So, domestically speaking, I think we do have a little bit of a hedge against competition directly from suppliers and I think they value the business we drive to them on the opaque side to round out their revenue management.

In Europe the environment is also competitive in the sense that there are a number of large online travel agents chasing after business and as well suppliers, but it's a little bit different on the supplier front because in the hotel business in Europe the supply is much more fragmented.

Much more of our inventory and our business involves secondary and tertiary cities and independent hotels who really do not have the resources to mount considerable Pan European marketing efforts, and so we bring really valuable demand with them and we really are not in serious competition with their own direct distribution efforts.

So I think we're also differently positioned in Europe for that reason.

And if I could just follow up with another question.

I guess a few days ago, late last week, you guys announced the distribution agreement with the Sabre GDS and I was wondering if you could talk a little bit about why you decided to do that, when you would expect implementation to occur in full and what benefits you expect to derive from that relationship?

Thanks.

Couple of principal reasons behind the transaction with Sabre.

First is Sabre provides us with a redundancy in terms of an alternative, just in case there's technical or other problems at Worldspan, and that's something that will make us all sleep better at night.

Secondly, there's a lot of change going on in the arrangements between airlines and GDSs and travel agents, and I referred to that in my prepared remarks, and I think having a relationship with Sabre, which is a leading both technology and distribution partner, gives us just more flexibility to negotiate whatever changes may occur in the marketplace.

And ultimately we want to be in the best position we can be to deliver low-cost distribution to our airline partners, and having a relationship with both Worldspan and Sabre puts us in a much stronger position to do that over time.

And when is implementation going to occur in full?

We are not publishing any specific implementation date, but I can tell you that we are working on implementation, and I would not anticipate that there would be a long, long delay before implementation as perhaps might have been the case when Expedia signed with Sabre.

Great.

Thank you.

Our next question comes from Scott Barry from CSFB.

Just two questions.

One, Bob, would you be willing to share the European net revenue number in the 4Q or, alternatively, could we talk about what's driving the year-over-year increases in agency net revenue yield?

Yes, I'll just give you the number.

The revenue in international Europe was $22.6 million.

Okay.

And in terms of what is driving it, Scott, I think -- again, as I said in my remarks we're pursuing what we think is a very unique strategy relative to either our online competitors in Europe or our offline competitors which are a very big part of the market over there.

We're pursuing a direct-connect technology with our hotel suppliers, we're pursuing a commission structure that's far lower than any of our competitors and we're pursuing a working capital cash flow model with respect to our suppliers that's far more supplier friendly.

I think that is the main reason for why we have a lot more hotels, we believe, than any of our competitors.

And as we have also said a number of times, the more supply we get the more vibrant our offering is from an online advertising perspective.

So I think it's a combination of sort of the business model, but then secondly I think the execution by our management team over there is really second to none.

Both the management teams from Active and Bookings have integrated very well, we have created a very sort of entrepreneurial structure over there where our management directly owns a percentage of the business of Priceline Europe.

I think they're very, very focused on creating shareholder value for the Priceline shareholders, but also themselves.

And again, I think it's a combination of all of these things that has put us in a position to be growing at rates faster than the market.

Great.

Just one follow-up if I might.

Could you share with us what your volume expectations are for the new Orbitz reciprocal marketing arrangement or could you just maybe comment on whether that could offset the restructuring that you have gone through in your merchant hotel business?

I don't think we really want to get too specific with that.

The one comment I will make, Scott, is that the Orbitz arrangement this year principally benefits the airline ticket business, whereas the deal last year was really a retail hotel deal.

So they are really two different lines of business.

Okay.

Great.

Thanks.

Our next question comes from Anthony Noto from Goldman Sachs.

Thank you very much.

Jeff and Bob, I apologize I missed some of the first couple of questions.

So if any of these are redundant, just say that and we can move on.

Jeff, I was wondering if you could talk specifically about the competitive environment.

Your business versus competitors as it relates to net rates.

I think you mentioned some things about the differences versus competition from the suppliers, but why are you not seeing the pressure on rates that some of your competition has even while you are entering the retail business.

And then, Bob, secondly the Company has done a good job of improving returns either through accretive acquisitions or capital structure and buybacks; you have an outstanding buyback.

The stock looks like it is trading about at 14 times conservative '06 EPS numbers; your return on equity has been increasing quite dramatically.

As you think about 2006 numbers, can you be more aggressive on the stock buyback front or are there other accretive acquisitions that would cause you not to want to do that?

Thanks.

I'll answer the first question, and in terms of margin structure and the kind of pressures that some of our competitors have reported, if you think back to our retail hotel business here in the United States, it really started with Travelweb and Travelweb was built to be the hotel friendly distribution channel for published merchant hotel inventory.

And as a consequence, we had a mix of business and a margin structure that was much more supplier friendly from inception, i.e. lower, and therefore those margins have proved to be quite sustainable.

And on the European front, as Bob mentioned before, our margin structures I think are significantly more reasonable than perhaps some of our competitors and we really have not seen a lot of pressure from the hotels bringing those margins down, and in fact I think if you look at our reported results from Europe, it's indicated that they are going the other way.

So we're a little bit different there.

On the capital side, I'll let Bob address that one.

Yes, Anthony, at the end of the third quarter our Board of Directors, sort of looking at the results that we were going to deliver for the rest of '05 and certainly the way we were looking at '06, felt comfortable increasing our authorized amount.

It was increased by $50 million.

Probably for the last year and a half there really has been very few opportunities for us to actually be in the market to buy our stock because we were pursuing the acquisitions of Active and Bookings.

But in Q4 that was not the case and we were buyers of our stock.

Essentially we view that repurchase of the Marriott warrant as essentially a buyback of our stock and we were buyers of our stock at prices north of $24.

So I think that's hopefully demonstrative of we have a generally bullish view of our business prospects.

I wouldn't want to put a number out there in terms of what we're targeting to buy, but I think as long as we sort of view Priceline stock as a good investment, we certainly have the cash on hand to buy more stock in the open market, and we obviously also expect to be generating significant cash flow in 2006.

If I could just ask two quick follow-ups, Bob.

The first is I definitely understand the changing mix of the business and how that hurts the revenue recognition.

Could you give us a sense of where the not gross bookings are, but where sort of the revenue would have been in terms of growth in the first quarter if you didn't have gross booking revenue, growth would have been in the first quarter if you didn't have that change in revenue recognition?

And, Jeff, if you could elaborate on the rate question as it relates specifically to air as well.

Thanks.

Let me try the first one and Bob reserves the right to jump in and tell you guys to ignore what I'm about to say.

I think it would be very, very hard for us to try to unwind the revenue recognition piece of it, but we did give a number to try to quantify the increase in the online advertising expense.

And if you are trying to somehow quantify the mismatch, I think the thing that we could point you to is to look at the increase in that number and try to understand that increase in relation to our overall advertising spend and the level of the business and that could give you some idea of what the impact of the mismatch was.

Yes.

I wouldn't add too much more to that other than obviously gross bookings and growth in gross bookings is a leading indicator of what we ultimately will trickle down the income stream.

Right.

Now our gross profit dollars are not expected to grow as fast as gross bookings in Q1, so I wouldn't necessarily want you to say look at our gross bookings and say that's what it otherwise would have been, because I just don't want to get into an exercise of trying to look at our business in a different way other than the way that we actually -- We already have enough sort of pro forma adjustments to our numbers, I wouldn't want to create any more confusion around that.

But suffice it to say we certainly believe that we're generating a lot of bookings right now that we'll recognize as revenue in Q2 and Q3.

Thank you.

Anthony, your second question.

I just was wondering when you had made the comments on contracting rates of competition but not at Priceline, it was centered on hotels, and I was wondering if you could comment on the air business.

I know your traditional opaque air business does not have a commission when you make the spread, but your retail air business is out facing rate pressures as others have or are you at a low enough rate that you are not seeing that?

No, I think if you look at the prepared text I have gone through in the last couple of calls, I've always said that the airlines are trying to drive their distribution costs down, and that really is referring to the GDS economics that we enjoy as part of our overall margin on airline tickets.

That has been under pressure and we expect it to continue to be under pressure.

What makes Priceline different from the others is we do have a book of opaque business and packages, a well rounded relationship with the airlines that allows us to try to come up with sort of wholesome arrangements that cover all three and put our business in a position to continue even though we might be taking a little bit of a hit on the pure retail ticket sales.

Great.

Thank you.

Our next question comes from Aaron Kessler from Piper Jaffray.

Great, thank you.

Good quarter, guys.

Couple of questions for you.

Can you give us a little bit of an update on just how the Travelweb and retail air businesses performed?

Also, any sense for how much the opaque air business declined in Q4 and expectations for 2006?

And also in terms of opaque U.S. business for hotels.

It looks like you may have gained some share in the U.S.

I want to get your sense of that as well.

Thanks.

Let me start there and-- and if I don't cover everything, Aaron, pop back in..

Okay.

The Travelweb business, and I think I mentioned in the last couple of calls that the retail hotel business on Priceline has been growing very nicely and that growth comes principally from two places.

The first is a much more prominent appearance on Priceline's own website, which started with shop and compare links in the spring of last year and now even more prominent than that with More Ways to Save.

And the second is because we have had better conversion with our new content and online channels our online business for Travelweb has increased.

So if you take out the Orbitz deal, which represented significant volume and was changed last year as we previously disclosed, the retail hotel business on Priceline has more than doubled in each of the last three quarters.

So I think that's a success story.

On the opaque side, in the hotel business, some of that growth in retail has been at the expense of the opaque products, so I don't think it would be a fair statement to try to look at the retail product or the opaque product in isolation in saying that we were taking or losing share in either opaque or retail.

Because of the integration on the website, I think you really have to look at total hotel sales and while I think we made significant share gains in total hotel sales in Europe in the last quarter, I don't have perfect information domestically but I certainly would not try to make that same claim domestically.

I think our progress in the United States has been steady in hotels, but not necessarily stellar and one of the things -- one of the strong motivations behind more ways to save in the new advertising campaign is to really get a consistent positioning for the product and give us a much more flexible platform to merchandise the great deals we have across all of our products and we're hopeful that that will help not only air package and rental car sales but hotel sales as well.

Great.

And then a couple quick follow-up questions, if possible.

Sure.

On your Priceline Europe side, do you have a number for the pro forma bookings in 2005 and what is your sense for how much marketing you have devoted so far to Priceline Europe and how much of an increase are we going to see in that?

If you are asking for the pro forma, if you mean the organic bookings counterpart triangulate to the growth rate we gave you?

Right, exactly. [MULTIPLE SPEAKERS] For all of 2005 you had bookings and active for the whole year, I guess what the bookings would have been.

We have not given out that number, Aaron, but we will continue to sort of update that organic growth rate on a go-forward basis until we have fully comped against the acquisition.

Okay.

And our last question comes from Mark Mahaney from American Technology Research.

Okay.

It's with Citigroup.

Two questions, please.

One is there was some comments made by one of your competitors about a surgence in tour operators in Europe.

Have you seen that?

Have you seen that -- do they not necessarily affect your business, but have you seen that across the board?

And then secondly, I know you talked about maybe slightly greater than expected spending in offline advertising.

Just have you seen anything materially different in the prices that you are paying for search advertising?

Thank you.

Maybe I can take the first one, because presumably you are referring to Expedia's call last night, Mark?

Yes, thanks, Bob.

Yes, I think that they -- it was really a discussion of the European market and basically it's just a statement of fact that in Europe more than in the U.S., the tour operators have sort of ruled that business for basically as long as vacations have been around.

I didn't necessarily glean from that that they thought that tour operators were making a resurgence necessarily.

Now, you may see evidence that tour operators are spending more time and effort trying to build online capabilities.

And I think that's right, but I think that when you look at our business, which is a hotel only business, the impact of those efforts is going to be less on us than on somebody who is trying to sell air, hotel and packages, the way some of the competition is.

And in terms of the pricing for online search, I think that we have benefited from improvement in our conversion, so our overall cost per customer acquired last year was reasonably steady given the significant increase in volume that we experienced.

And for those who know something about search, you buy keywords at a certain cost, and if you want to increase your volume, you can pay more to get higher placement in the search engines but the cost for all of the business that you get can tend to go up.

We have been able to drive an increase in our business more through conversion last year than through increasing the price we're paying for given search terms.

Thank you very much.

I show no further questions at this time I would like now to turn the conference back over to you, sir.

Thank you all very much for attending our call.

[OPERATOR INSTRUCTIONS]