Booking Holdings Inc (BKNG) 2008 Q1 法說會逐字稿

Welcome to Priceline's first quarter 2008 conference call.

Priceline 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 fact are intended to identify forward-looking statements.

For a list of factors that could cause Priceline'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's earnings press release as well as Priceline's most recent filings with the Securities and Exchange Commission.

Unless required by law, Priceline 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's earnings press release together with an accompanying financial and statistical supplement is available in the investor relations section of Priceline's website located at www.priceline.com.

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

Go ahead, gentlemen.

Thanks very much.

It's Jeff and welcome to Priceline's first quarter conference call.

I'm here with Priceline CFO, Bob Mylod.

Priceline reported accelerating consolidated gross bookings growth for the first quarter.

Gross bookings of $1.8 billion were up 76% year-over-year, our highest bookings growth rate since the third quarter of 2000.

Pro forma gross profit of $181 million was up 75% and pro forma net income was $37 million or $0.76 per share, up 77%.

First quarter results surpassed the high end of our guidance and first call consensus estimates of $0.60 per share due to better than forecast results in Europe and in the United States.

Our international business had another excellent quarter topping $1 billion of quarterly gross bookings for the first time and posting a growth rate of 100%.

International gross bookings benefited from robust demand, growth in new markets, continued favorable currency exchange rates, and the addition of Agoda, the Asian hotel reservation business we acquired last year which added gross bookings of $25 million in the quarter.

Priceline's domestic year-over-year growth rate accelerated for the third consecutive quarter to 51% in Q1 from 24% in Q4.

While an 83% year-over-year increase in airline ticket sales clearly propelled bookings growth, domestic merchant gross bookings were up 26% in the first quarter, a significant sequential improvement from 11% in Q4.

Improving merchant results were attributable to growth in all of our Opaque services and retail hotel merchant room night sales.

Our international business continues to show high growth rates in the large Continental markets, but we are also pleased to see the results from new markets making a positive contribution to overall growth.

Booking.com now has over 45,000 hotels in over 60 countries and continues to add inventory and build new destinations.

We also continue to build the means to share hotel inventory among our brands with Booking.com inventory now available on Priceline.com and Priceline.com hotel inventory available on Agoda.

We are also benefiting from growing repeat business to Booking.com and other booking branded sites where we continue to focus our online brand building.

Priceline's domestic business showed 51% year-over-year growth in the first quarter.

We believe marketing our value brand and initiatives to improve our services and distribution are paying dividends.

We also believe our Negotiator ad campaign fits well with this strategy and is not only building our brand, but delivering visitors as well.

The campaign also facilitates promotions like the hotel feed shop we are currently running.

Merchant results show our supplier partners continue to use our service to exploit revenue management opportunities and to fill in during periods of soft demand.

Our consolidated results showed better than forecast earnings leverage in the quarter despite the negative impact of the airline ticket fee reductions on gross domestic margins.

Our outlook reflects our intention to continue investing in the business through marketing and promotional programs and accordingly we are not forecasting the year-over-year leverage improvement which we saw in Q1 to continue for the balance of the year.

There is evidence that economic weakness and the financial challenges facing the airlines due to high oil prices are leading to softer travel demand and higher airline ticket prices.

As you can see from our results so far, the positive fundamentals driving our business have overshadowed these negative factors.

We believe our brands and services are particularly attractive to customers and supplies in times of economic stress.

Our forecast call for continued high top line growth rates with marketing efficiencies decreasing during the balance of the year.

The fact remains that it is possible that the category and our business could suffer in future months to an extent that creates risk to industry forecasts and our own forecast.

Our teams around the world continue to do a great job in building our businesses organically and executing on integration initiatives and I am grateful for their dedication and determination.

With a diverse global business, we believe we are well positioned to deliver sales and earning growth at the top of market rates and to continue investing substantial resources in building on our leadership position in global hotel sales.

Finally, we also announced today that Kees Koolen will become CEO of Booking.com effective September 1, 2008.

Kees has been Chief Operating Officer of Booking for five years and I believe he will do a great job in his new role.

We were all very grateful to Stef Norden for the tremendous job he has done building our international business and I look forward to his continued involvement as a member of our international board.

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

Thanks, Jeff.

I'm going to begin by touching on a few important financial highlights from the first quarter and then I'll finish with some forward guidance.

Jeff just went over the key financial metrics for the quarter and suffice it to say, we were very pleased with the first quarter financial performance.

In terms of both the services we sell and the geographies in which we sell those services, we performed at or better than the forecast that we provided on our last earnings call in February.

I don't intend to go over all the specifics of our income statement as I think they are very well covered in our press release and our statistical supplement.

Instead I want to simply focus on the main drivers of the financial over performance relative to our prior guidance so that investors have a better understanding of how and why we did as well as we did in Q1.

Hopefully in so doing this initial discussion will also add a little context for the guidance that I will give in a few moments.

I'll start by taking a step backward and reviewing the principal key one financial metrics guidance that we gave in February during our fourth quarter earnings call.

On that call we guided to total consolidated gross bookings growth of 60% to 65% including 35% growth domestically and between 85% and 90% internationally.

Actual consolidated growth book--gross bookings growth for Q1 was 76%, including 51% domestic growth and 100% international growth.

From a pro forma EPS perspective, our prior range of guidance was between $0.50 to $0.60 per share.

Actual pro forma EPS came in at $0.76 per share.

So what drove such material upside on both the top and bottom line basis?

There are basically three main drivers and I'm going to spend a little time discussing each of them and the general impact that these drivers had on both our top and bottom lines.

Driver number one has to do with foreign currency exchange rates.

FX impacted our top and bottom lines in slightly different ways during the quarter.

Again, stepping back for a moment, in February when we gave our financial guidance, the Euro, which is the principal currency with which we transact internationally, had an exchange ratio of approximately $1.43 per Euro; and that ratio generally served as the basis for our gross bookings and earning forecast for the remainer of the first quarter.

However, by the end of the first quarter, that exchange ratio was $1.58 per Euro representing a very material strengthening of the Euro relative to the dollar in a very short time frame.

From a top line perspective that meant that the international gross bookings that we generated in Q1 translated into significantly more dollars than we anticipated.

As always we have provided local currency gross bookings growth rates in our statistical supplement so that investors can see this FX effect; but the general takeaway is that the substantial majority of our international gross bookings upside relative to guidance was driven by favorable FX moves.

Had the Euro remained at the February ratio of $1.43 for the remainder of Q1 following our earnings call, then our gross bookings growth rate would have basically come in at the high end of our 85% to 90% original guidance, which by the way in our view is good performance especially given the growth rates achieved by our chief competitors; and the very large base off of which we are achieving our growth rates; but we did want to at least highlight that most of the overperformance relative to guidance was driven by favorable currency fluctuations.

The international gross bookings growth rate also shows that the inevitable growth decline that we have been guiding to for some time is now well underway and as you will see when I get to guidance, it is something that we continue to expect for the remainder of 2008.

From a bottom line perspective, the FX story is a bit different.

Our core international operating earnings were also favorably impacted by the same FX moves that favorably impacted gross bookings; however, this benefit was more than offset by FX hedging activities that we engaged in during the quarter.

If you look at our income statement you will see a line item which shows that we incurred almost $5.1 million of expenses associated with FX during Q1.

This expense was a direct deduct to EBITDA and net income which means that had we not engaged in any FX hedging activities during the quarter, the EPS upside that we are reporting today would have been even greater.

The second driver of overperformance had to do with marketing efficiencies that we were able to achieve, particularly in our international business.

For those of you who have been following us for several quarters, you'll probably recall that we have been guiding to lower ROIs on our international online advertising spend over time due to our belief that the market for acquiring international online travel customers will become more competitive over time.

This view was incorporated into the guidance for our online advertising spend during Q1.

While we did come within our range of guidance in terms of absolute dollars spent on online advertising during the quarter the amount that we spent expressed as a percentage of total gross profit dollars was more favorable than expected and because we did better than expected on this our single biggest operating expense, we were able to drive significant overall operating leverage relative to expectations which in turn helped drive EBITDA and EPS upward despite the headwind associated with the FX hedging losses that I just mentioned.

The third and final main driver of our upside had to do with our domestic business.

As I mentioned, our domestic gross bookings growth of 50.6% came in substantially higher than our 35% guidance; and as Jeff just mentioned, while the retail airline ticket service was certainly an important contributor to this upside, the fact is that literally all of our travel service offerings on both an Opaque and retail basis did substantially better than we expected, particularly in the second half of the quarter which is always seasonally stronger than the first half of the quarter.

This top line growth combined with solid and stable gross margins and operating expense controls meant that we were able to efficiently bring a lot of the top line overperformance to the bottom line, thereby contributing to the improvement in operating leverage.

As for the reasons why, I'll just reiterate what Jeff said, which is that we think our brand positioning and value proposition--which is that we think our brand--which is that our customers are saving a lot of money, are probably standing out a little bit more than usual in what is looking like an increasingly difficult economic environment in the United States; and we think that our advertising initiatives on both an offline and online basis did a very good job of broadcasting this differentiated message during the quarter.

That pretty much covers the highlights of our earnings.

Before I move on to guidance I'll just share a few cash and cash flow items that are not covered in the press release.

During Q1, we generated approximately $43 million in operating cash flow up 131% year-over-year.

As for our cash balances we began the quarter with $512 million of cash and marketable securities; and we closed the quarter with $560 million of cash and marketable securities representing a $48 million increase in our cash and marketable securities.

I'd also like to add a quick bit of additional color with respect to our cash balances.

Given the state of the capital markets in which we've seen many companies actually have to take material earnings hits to mark-to-market securities that were widely viewed as being either cash or highly liquid cash equivalents, we've had several analyst and investor inquiries regarding the makeup of our cash balances.

Historically we believe that we've always maintained a fairly conservative approach to managing our cash, meaning that we've had fairly stringent requirements regarding both credit and duration risk.

As a result of these long held policies, we've avoided many of the investment securities such as structured investment vehicles and auction rate securities that have been the main source of trouble for many other companies.

Starting in the third quarter of last year we became even more conservative in that we essentially moved the substantial majority of our cash into short term U.S.

Treasury Securities.

Of course, with this move we've taken a bit of a hit on the interest income that we are earning on our cash balances but our plan is to maintain this conservative stance until we see greater stability in the short term funding markets.

Finally, total capital expenditures in the first quarter were approximately $2.9 million.

This amount includes all money spent on capital equipment and internally developed software.

And now for a few comments on guidance.

I'll start with some fairly specific line item guidance for the second quarter of 2008 and then finish with some broader guidance for full year 2008.

We're looking for second quarter gross bookings to grow by approximately 65% to 75% on a year-over-year basis with international gross bookings growing approximately 80% to 90% on a year-over-year basis and domestic gross bookings growing by approximately 50%.

The international growth rates are consistent with a continuation of the year-over-year growth rate decline that we saw in Q1.

As for domestic, we expect to maintain the 50% annual growth rate that we delivered in Q1.

As I mentioned, we did finish Q1 with good momentum domestically, but we also expect that this momentum will be offset by the difficult comps that we will experience starting in June when we anniversary last year's launch of our no fee retail airline ticket initiative.

We expect pro forma revenue to grow by approximately 35% to 40% on a year-over-year basis.

We expect pro forma gross profit dollars to grow by approximately 55% to 60% on a year-over-year basis.

As for Q1--as for Q2 operating expenses, we are targeting consolidated advertising expenses of approximately 90 to $95 million with approximately 90% of that amount being spent on online advertising.

We expect sales and marketing expenses of between 18 and $19 million.

We expect personnel costs, excluding stock-based compensation, to come in between 30 and $32 million.

We expect G&A expenses of approximately 12 to $13 million, information technology costs of approximately 5.5 to $6 million; and depreciation and amortization expense excluding acquisition amortization of approximately $4.1 million.

We expect total below the line positive impact of approximately $1 million which is comprised of net interest income, foreign exchange hedging income, equity and income of Priceline mortgage, and minority interest expense.

We are targeting pro forma EBITDA of between 80 to $90 million, and we are targeting pro forma EPS of approximately $1.25 to $1.40 per share.

Our pro forma EPS forecast includes an estimated cash income tax of approximately $16 million comprised of international income taxes and alternative minimum tax in the United States.

Our pro forma EPS guidance is based upon a pro forma diluted share count of approximately 50.2 million shares which is based on last night's closing stock price of $122.03 per share.

This EPS guidance is substantially ahead of the implied quarterly guidance that we gave on our last earnings call and is reflective of our cautious optimism that we can deliver another strong quarter of top and bottom line annualized growth despite the absence of Easter in Q2.

As you can see, we are once again forecasting a diminishment in our online advertising efficiencies on a year-over-year basis.

Part of this has to do with the absence of Easter in Q2, but part of it also has to do with our expectation that the efficiencies that we have achieved on a year-to-date basis will become more difficult to achieve as the quarter unfolds from this point forward.

And keep in mind that Q2 gross bookings and revenue are always back end loaded from a seasonal perspective and this is even more pronounced this year due to Easter not falling in the beginning part of Q2.

As for expected GAAP results, we expect to report a GAAP EPS of between $0.80 to $0.95 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.

And now for a few comments on full year 2008.

We're going to limit our detailed guidance mainly to gross bookings and earnings, but I will try to offer some additional qualitative thoughts along the way that will hopefully help those of you who are working on detailed quarterly financial forecasts for the remainder of 2008.

I'll start with gross bookings guidance.

We're forecasting total gross bookings of between 7.5 and $7.9 billion for full year 2008.

The midpoint of this range represents an expected annual increase of approximately 60% which we expect will result in our gaining significant market share from all of our major competitors during 2008.

From a profit perspective we're expecting to achieve approximately 340 to $365 million of pro forma EBITDA excluding stock-based compensation for the year.

We expect that our full year pro forma cash tax rate will be approximately 20% in 2008, up from 2007 levels due to our expectation that our international pre-tax profits, which are subject to cash income taxes will grow at a faster rate than our U.S.

pre-tax profits, which are subject only to very minimal taxes due to our ability to utilize substantial net operating loss carry-forwards.

As for pro forma EPS, we are forecasting a range of between $5.25 and $5.65 per share.

This pro forma EPS forecast would translate to GAAP EPS of between $3.50 and $3.90; and quickly while I'm on the subject of GAAP I wanted to briefly follow up on an upcoming accounting rule change that we've been highlighting in our public filings for the last year and which we will continue to highlight in the 10Q that we file tomorrow.

FSB APB14A is a new rule that we expect the FASB to officially adopt within the next month.

The rule requires that issuers with low coupon convertible debt such as Priceline recognize additional non-cash interest expense as if the convertible debt had been issued as straight debt without any conversion feature.

The rule change will have no impact on our cash earnings per share because as I just mentioned, any incremental interest expense associated with the rule change will be non-cash in nature.

Accordingly, as is the case with other non-cash charges that are excluded from our pro forma results, we intend to remove this non-cash interest expense from our pro forma earnings in 2009 and beyond.

We don't expect to adopt the rule change until 2009 and so we don't expect the rule change to impact our 2008 GAAP results.

Here are a few more clarifying points on our forward guidance.

First, while we are not going to give out the international and domestic components of the gross bookings guidance for the back half of 2008, I can tell you that it is our expectation that the forecasted annualized gross bookings growth rates for both our international businesses and our domestic businesses will come down on a quarterly sequential basis in both Q3 and Q4.

Second, the forecasts for both Q2 and the remainder of 2008 assume that the Euro versus dollar exchange rate remains at the same $1.54 per Euro that exists as of today.

Third, our forecast assumes that the average unit selling prices of our domestic hotel service which have recently been running roughly 2% to 3% ahead of last year, continue to run at that same growth rate throughout the remainder of Q2 and 2008; and the average unit selling prices of our international hotel service, which have recently been running roughly flat on a year-over-year basis, continue to run at that same flat rate for the remainder of Q2 and 2008.

Fourth, we are not forecasting the same favorable operating leverage for the remainder of 2008 as compared to Q1 due primarily to the assumption that we will become less efficient in our online advertising spend for the remainder of the year.

So far our actual quarter to date results do not indicate any material diminishment in our international online efficiencies; however, as I just mentioned, we still have a lot of the quarter in front of us with June being our single biggest month for ad spend in the quarter.

Given this factor and given that the cost of online spend is ultimately driven by an increasingly competitive marketplace, we still believe that it is prudent to forecast this expected loss of advertising efficiency for the remainder of 2008.

And lastly, while we are not planning to give specific quarterly guidance for Q3 and Q4, we do expect that the year-over-year growth rates in pro forma EPS will be roughly the same for both Q3 and Q4.

And finally before I turn the call over for questions I wanted to repeat and emphasize a general cautionary point that we made on our last earnings call.

Up until this point our businesses have performed very well in the current economic environments both here in the United States and abroad.

All of the guidance that I just gave presumes that we will continue to operate in similar economic conditions as exist today.

For instance, as my guidance indicates, we are projecting very strong year-over-year unit growth in both the U.S.

and Europe for the remainder of 2008 despite what could potentially be a worsening economic environment.

Our guidance also assumes no deterioration in the average selling prices of our services despite some broad industry trends within our various supplier networks that potentially could point and lead to such a deterioration.

While our numbers to date give us reason to believe that we should fare better than many other companies in this environment we want to stress that we don't believe that we are immune to or benefit from deteriorating economic factors.

Overall economic pressures that strain our unit sales, our average unit selling prices or the value of the Euro relative to the dollar would certainly put our forecasts at significant risk.

And I'll also point out as I've 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 any terrorist event, particularly within the United States or Europe, would in all likelihood have a negative impact on the travel market in general and our operating results in particular.

With that, we would be happy to answer your questions.

Thank you, sir.

(OPERATOR INSTRUCTIONS)

Our first question comes from Scott Barry at Credit Suisse.

Hi, guys.

I was just curious, Bob, is there any way you could give us some sense for what your organic growth rates look like in some of the more established markets like the UK, Germany, etc?

Well, Scott, we really don't break out growth rates by market other than to say that continental Europe has been and continues to grow at a faster rate than the UK and some of the newer markets especially once you move into Eastern Europe, Scandinavia and Asia are growing at faster rates than Western Europe; but without getting into any sort of specific country growth rates.

Thank you.

Our next question comes from Vance Edelson at Morgan Stanley.

Thanks.

In terms of marketing and specifically the way you're going to position the brand and the message you're going to have for customers, do you see any changes during the remainder of the year in order to try and capitalize on your value focus; and I guess in light of a competitor of yours that plans on launching a new campaign, any changes in tactics expected?

I don't want to get very specifically into what we might or might not do in the future for competitive reasons, but I do feel comfortable saying that we feel it's been very successful so far this year to point at differentiated products in places where we have an advantage, a lower price point, something different and I think you can expect us to continue to emphasize that.

Thank you.

Our next question comes from Michael Millman at Soleil Securities.

Thank you.

Regarding international hotels, does the growth come primarily from increasing the number of hotels in certain markets or does it come from increasing the amount of buyers or users within a certain X country because you've done more advertising there or you're relatively new there?

It's really a combination of factors.

Adding hotel inventory definitely helps and as you can see from the press release, we're offering over 45,000 hotels through Booking.com now, so that absolutely helps; but you have to apply distribution to those hotels as well and that can come from established markets where you have a presence, but it also can come from new markets where you're opening up.

Thank you.

Our next question comes from Justin Post at Merrill Lynch.

Yes.

Could you talk a little bit about a Booking.com brand?

Are you seeing any cross border travel there into the United States; and then, Jeff, just thinking more strategically obviously you're on top of your game right now, where do you think of like the investment areas that you could put some of the profits or things that you're doing to work or is it just more of maybe buying back stock?

Where do you see just longer term some of the investment areas for the Company?

Justin, in terms of the first question you do see the Booking.com brand in the United States from time to time, but the majority of the business that we're writing these days is European customers who are booking hotels in the United States.

With respect to new investment areas I think you can see from looking at our income statement that we're investing a tremendous amount of money in marketing our products both here in the United States and overseas and we intend to continue doing that and if you look at what we've done in the past in terms of more capital intensive transactions, we have opportunistically been buyers of our own common stock and we've been active in the M&A market and so that will give you an indication of some of the things we might do in the future if the circumstances were right.

Thank you.

Our next question comes from Mark Mahaney at Citi.

Thank you.

Could you provide a little more detail on those marking efficiencies that you saw particularly in Europe, was there any changes in pricing trends for key word advertising, were there new types of advertising channels that you used that helped you gain those efficiencies?

And then just a quick question on Agoda.

It looks like that growth rate continues to ramp, I assume it's triple digits, something like that year-over-year.

Can you maybe talk about some of the country markets where I know the number's still relatively small versus your overall business but near term or early stage which country markets seem to be doing the best?

Thank you very much.

On the marketing front and this is consistent with what we've said in previous calls, we're going to be very circumspect in commenting on exactly how we're gaining marketing efficiencies because it's competitively sensitive, but I do feel comfortable in saying that one of the reasons that we continue to do well is that we--the mix of the markets that we operate in tends to be more diverse than some of the competition and some of the newer markets just don't have as much competition for online advertising as a very mature market like the U.K.

might.

So having a lot of inventory and a widely distributed business I think helps us in that regard.

And, Bob, with respect to Agoda?

Yes, as for Agoda, Mark, we're not giving out organic growth rates of Agoda, but yes, you have a very safe assumption that Agoda grew on a triple basis even on an organic basis.

We're cautiously optimistic about the start that we have with Agoda, although we have a lot of work to do there on a whole bunch of fronts and we view 2008 as a year of investment and our goal obviously is when we get into 2009 and 2010 that Agoda and Booking.com in Asia become a more important part of the story.

As for the country specific, sort of a similar answer as it relates to the prior question about where we're generating our bookings, we're not going to give specific countries but as we've talked about historically Agoda is much more focused on the region south of China and east of India, so places like Thailand and Singapore, Malaysia, Indonesia are several countries to mention just a few of them, Australia, New Zealand as well.

That's where we're seeing the core amount of our bookings and the growth.

That's not to say that we don't also expect to be an important player ultimately in China and India, it's just that initially those are our core markets.

Thank you.

Our next question comes from Jennifer Watson at Goldman Sachs.

Great.

Thank you.

Can you guys provide a little more color on the trends that you're seeing in the Opaque business in terms of traffic and [bind] rates?

Jennifer, I think if you look at the improvement in the growth rate of our merchant gross bookings, that tells you that the business is continuing to convert very well and as I mentioned in my remarks, I think the suppliers are looking for the revenue management opportunities and thinking about the Opaque channel when they're seeing softness in their occupancies or in their forward bookings, and so I think that growth rate is really evidence that we've got good supplier support and business is converting well.

Thank you.

Our next question comes from Imran Kahn at JPMorgan.

Hi.

Thank you for taking my questions.

I was wondering if you can talk a little bit about what kind of trends you're seeing on customer acquisition in the U.S?

You talked about in international you were seeing efficiencies.

Can you give us some color what kind of trends you're seeing in the U.S.

market in terms of customer acquisition; and secondly have you seen an increase in promotional increase due to the occupancy decline?

Thank you.

I think in terms of the trends we're seeing in the United States, we've been very pleased by the customer reaction to the offline advertising that we've been running so far.

The Negotiator campaign has got some new spots and we think they're very funny and to the point and if you look at the acceleration in our domestic gross bookings, I think that provides support for that thesis.

We continue to also work aggressively in online channels in search of partner marketing and to try to operate aggressively in channels where our product can particularly convert well in places where you've got shoppers that are more price conscious and less brand loyal, and again I think we're seeing good results there.

And then Imran, as it relates to the hotel inventory question in the U.S., I think we are, as Jeff mentioned in his prepared remarks, we think that while we don't--we never are rooting for a recession, it is true that in a down environment there's potentially opportunity especially on the Opaque side of our business for hotels to take advantage of the utility that we provide them which allows them to sell excess inventory at prices below retail without impairing the integrity of their overall retail prices; and yes, we have seen some evidence that some of our hotels are taking advantage of that.

Thank you.

Our next question comes from Brian Fitzgerald at Banc of America.

Thanks.

A couple questions.

Have you seen any change in U.S.

or U.K.

traveler behavior kind of attributable to macro pressure; shorter flights, shorter stays or trips to less expensive destinations?

And then on the Agoda end, any color on the degree of cross geography mix there?

I think you've said inventory integration for Agoda would start in '09 and is there any chance we could see that earlier?

Thanks.

In terms of traveler behavior we really don't have anything that comes from our own data to give you on that front.

I think you can see in the industry data that's coming out about airline traffic and load factors and hotel occupancy and yields that there has been evidence of some softening.

On the Agoda front we do have our hotel inventory available on Agoda and we're seeing some reservations, but it's really too small to be talking about at this point in time.

Thank you.

Our next question comes from Aaron Kessler at Piper Jaffray.

Yes, a couple quick questions.

First can you talk about the impact--I know it's early that you're seeing from your hotel promotion in the U.S.

and also do you think the European business could be also somewhat counter cyclical essentially gaining share in a weaker market, people doing more comparison shopping online?

Thank you.

On the hotel promotion it's too early to comment on that and I think even after it's later we probably won't do much commenting on it.

It's just one of a number of kind of promotions that we've run in the past.

With respect to whether the international business is counter cyclical, we believe that having great inventory and availability, more hotels and more availability and good pricing--good market pricing makes our site a great place to shop if you're looking for the lowest price, but I don't think it puts it in the same kind of posture that we're here in the United States where we're really viewed as a discount brand.

I don't know if that's helpful to you, but that's the way we look at it.

Thank you.

Our next question comes from Justin Post at Merrill Lynch.

Thank you.

My question was already asked.

Thank you.

Thank you.

Our next question comes from Michael Millman at Soleil Securities.

Thank you.

Two things.

Could you tell us how many hotels--comparing the 45,000 hotels at what you had a year ago and in the U.S.

on the 83% air ticket increase, where do you think that's coming from?

The airlines didn't seem to have a lot more passengers in the quarter, so do you think it's coming from the supplier side or from other OTAs?

Michael, you mean where's the market share coming from?

Yes.

Yes.

I think answer is it's probably coming--probably mainly from the OTAs at least based upon the earnings announcements that we've heard in the last few days from our competitors.

We grew our domestic business at a substantially faster rate than both Expedia and Orbitz and we assume that we grow our airline ticket business as a substantially faster rate.

Keep in mind, though, that even though we're growing very quickly on the airline ticket business, we are a very, very small fraction of either Expedia or Orbitz.

So while indeed it would look like we're taking share, I would pause it to say that probably Expedia and Orbitz barely even noticed it in their numbers.

They're obviously having their own trends, but the decline in year-over-year gross bookings that Orbitz reported I can assure you wasn't because Priceline grew--that we grew our airline ticket business rapidly on a year-over-year basis.

On the other question in terms of what the hotel count was a year ago compared to the 45,000 hotels in Europe today, I don't have that exact number for you.

We can get it for you, but it's up by many, many thousands of hotels.

Our final question comes from Mark Mahaney at Citi.

Thanks.

Just want to get back to the U.S.

market and what are clearly market share gains for you there and there's the advantage you have of the high value or great value or super value brand you've had for years and there's also the difference in the bookings fees.

Is there any way you can tell, you can break apart those elements?

Maybe there are surveys that you've done, figured out which of those may be greater as a factor in driving incremental share over the last two or three quarters?

Thank you very much.

Mark, I think looking at the numbers the increase in the number of airline tickets that we're writing tells you that the booking fee change did have an impact.

I think that's discernible in looking at the numbers, but there's also no question that the other businesses, the "Name Your Own Price" hotel and rental car and our packages business are performing well under the circumstances and what I think the mix of all of these products has allowed us to do is to consistently have a number of different powerful value marketing messages in the marketplace supported by our TV advertising and I think that helps all of our products when customers are consistently reminded oh, they have better prices on hotels.

Oh, they also have better prices on airline tickets; oh, they sell packages.

I think it's just very helpful for us to consistently hammer at that value message and I think that's why the business has performed well as a whole.

Gentlemen, did you have any concluding remarks?

Thank you all very much for participating in the call.

This does conclude your call.

Thank you for your participation.

You may disconnect your lines at this time.