Booking Holdings Inc (BKNG) 2008 Q4 法說會逐字稿

Welcome to Priceline's fourth 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 performances and are subject to certain risks, uncertainties, 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 would like to introduce Priceline's speakers for this afternoon, Jeff Boyd, and Dan Finnegan.

Go ahead, gentlemen.

Thank you, and welcome to Priceline's fourth quarter conference call.

I'm here with Priceline's Vice Chairman, Bob Mylod; and CFO, Dan Finnegan.

I will make some opening remarks.

Dan will give a detailed financial review, and then I will sum up.

After the prepared portion, we will take some questions.

Priceline reported consolidated gross bookings for the fourth quarter of approximately $1.5 billion, up 23% year-over-year.

Pro forma net income was $58 million, or $1.29 per share, up 34% versus prior year.

Fourth quarter results surpassed First Call consensus estimates of $1.05 per share and our guidance for the quarter.

Given the extremely difficult global economic environment that existed throughout the quarter, we were especially pleased with the demand growth we achieved, which allowed us to overcome the impact of significantly negative pricing and currency trends.

For the full year, Priceline reported gross bookings of $7.4 billion, up 53% from 2007 and pro forma net income of $5.96 a share, a 48% increase over 2007.

Our international business had a good quarter, with 28% gross bookings growth on a local currency basis, despite a substantial decline in hotel average daily rates.

International gross bookings benefited from growth in new markets and results from Agoda, the Asia hotel reservation business we acquired in November 2007, which had a gross bookings of $37 million in the quarter.

Agoda was able to achieve good growth rates, despite a weakening Asian economy and civil unrest in Thailand, which materially dampened fourth quarter travel demand in Agoda's largest destination market.

Booking.com continued to build its supply platform worldwide, with a hotel count that now exceeds 60,000 hotels in over 70 countries.

We also continued to invest in distribution in all of our online channels and recently announced an agreement to provide hotel bookings services to Ryanair, one of Europe's largest low fare airlines.

Agoda has made substantial improvements to its direct hotel supply, website functionality, and infrastructure, which should help with conversion and brand building in 2009.

We continue to work on sharing supply, customers, and best practices among our brands.

Priceline's domestic gross bookings grew 31% in the fourth quarter due to growth in sales of opaque and retail airline tickets, hotel room nights, rental car days and vacation packages.

Domestic merchant gross bookings, which includes opaque services and retail merchant hotels, grew 20%.

We continue to see attractive domestic unit growth rates, which we believe are supported by consumer demand for travel deals in a weak economic setting, attractive supply from airlines and hotels using our service to round out demand and protect yields, and effective marketing of our low price positioning in both opaque and retail markets.

With two new commercials, "The Negotiator" ad campaign continues to provide a versatile platform for effectively communicating our value proposition and strengthening our brand.

In summary, the business performed well in the fourth quarter under difficult circumstances, and I commend my colleagues around the world for their focus and execution.

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

Thanks, Jeff.

I'll discuss some of the highlights in operating results and cash flows for the quarter and then provide guidance for first quarter 2009.

On our last earnings call, we gave guidance for Q4, but assumed that the weak trends we saw in September and October would worsen in November and December.

We also pointed out that there was a significantly greater standard deviation in our Q4 guidance with respect to possible upside and downside as compared to prior quarters.

Fortunately, as you can see in our results, the variances were more to the upside with every metric from gross bookings to EPS coming in solidly above the high end range of our guidance.

As we've discussed on previous earnings calls, our business results are heavily influenced by movements in the average selling price of hotel rooms.

Our fourth quarter guidance was based on an assumption that ADRs for our international hotel service would be down by 5% to 6% in the fourth quarter and that ADRs for our domestic hotel service would be down by 3% to 4%.

In both the domestic and international markets, ADRs decreased throughout the quarter to a larger degree than we had assumed.

International ADRs were down during the quarter by over 7% versus a year ago and ADRs for our domestic hotel service were down over 5% compared to prior year.

In addition to ADRs, the other significant variable that influences our business is foreign currency exchange rates.

When we gave guidance on our November 6 call, the Euro was translating into $1.29 and the pound Sterling was translating into $1.59.

As the quarter unfolded, we saw a divergence in the trend for the pound and the Euro.

The Euro strengthened versus the dollar and averaged about $1.32 over the intervening period, while the pound continued to weaken to an average rate of about $1.5 for the remainder of the quarter.

Since a much larger portion of our international earnings are Euro denominated, these fluctuations provided some overall favorability versus the exchange rates we used when providing guidance.

Therefore, FX rates were a small positive factor that partly contributed to our overperformance versus guidance.

That said, Q4 FX rates as compared to the prior year represented a headwind that also continues to affect current results.

Specifically, the average exchange rates for the Euro and the pound were down 10% and 23% respectively in Q4.

Now with that backdrop, I'll discuss some P&L line items.

Gross profit was $205 million and grew 28% as compared to prior year.

Our domestic business generated gross profit of $78 million, which represented a 33% growth rate versus prior year.

Gross profit for our international operations amounted to $127 million and grew by 25%.

Excluding the negative impact of FX rates, international gross profit would have grown by 45%.

Operating expenses for the most part came in somewhat above guidance as a result of our overperformance in bookings and profit and also due to FX rates.

Online advertising, as well as sales and marketing expense in particular, vary in relation to bookings.

Our sales and marketing line also includes bad debt expense.

We increased our bad debt provisions in the fourth quarter in response to slower payment of agency commissions by international hotels and concern over the potential impact that the worldwide recession and lack of available credit could have on the financial health of our hotel partners and their ability to pay the commissions due to us.

Pro forma personnel expense of $30.5 million for the fourth quarter exceeded our guidance range of $28 million to $29 million, mainly due to FX rates and an increase in bonus accruals resulting from EBITDA overperformance.

Our other operating expenses were generally in line with guidance.

Lastly, other income came in at $4.3 million, mainly due to FX hedging and transaction gains.

In summary, pro forma EBITDA for Q4 was $76 million, well in excess of our forecast of $60 million to $66 million, and representing 31.4% growth versus prior year.

Importantly, these results represented a further increase in our operating leverage.

Although I won't review our full year P&L, I wanted to take a moment to highlight that for full year 2008, our pro forma EBITDA grew by 68% to $378 million, which also represented a healthy expansion in EBITDA margin.

To put the rapid growth and margin expansion we've experienced in perspective, our 2008 full year pro forma EBITDA of $378 million is not far shy of the $401 million of gross profit that we generated for the full year of 2006.

These strong EBITDA results translated into positive results in our cash flows as well.

During fourth quarter 2008, we generated approximately $80 million of cash from operations, which is a 21% increase versus prior year.

We spent about $5 million on CapEx in the quarter and repaid about $75 million principal amount of convertible debt, bringing us to an outstanding debt balance of $393 million at year end.

This leaves us at year end with a cash and marketable securities balance that is about $70 million in excess of our outstanding debt balance.

Additionally, we have a $175 million revolving credit facility that is undrawn and it doesn't expire until September 2011.

Therefore, we entered 2009 with what we believe to be a strong balance sheet, good cash flow prospects, and plenty of flexibility from a liquidity perspective.

Early conversion activity with respect to our outstanding convertible bonds has slowed from what we saw during the last four months of 2008.

That said, we have received conversion notices for $8 million principal amount of convertible debt, which will be settled in Q1 2009.

As most of you know, in recent years, our stock traded at increasing levels that were well in excess of the stated conversion prices for our bonds.

And as a result, our diluted share count rose to levels exceeding 50 million shares.

With our stock trading down significantly over the last several months versus the first half of 2008, we are now witnessing the opposite effect.

Namely that our diluted share count has fallen, along with our stock price, thereby providing a favorable share count comparable in Q4 2008 versus 2007, and in Q1 2009 versus the comparable 2008 period.

And now for first quarter guidance, and just a reminder, as we indicated on our November earnings call, we will only provide guidance at this time for first quarter.

We are looking for total first quarter gross bookings to grow by approximately 0% to 7.5% on a year-over-year basis, with domestic gross bookings growing by approximately 15%.

We expect international gross bookings expressed in U.S.

dollars to come in anywhere from flat to down 7.5% versus last year's first quarter level and to grow on a local currency basis by approximately 8% to 16%.

This growth rate continues a pattern of year-over-year growth rate declines that we saw for each quarter of 2008.

The decline in growth rate is more pronounced due to the impact of deteriorating ADRs.

But keep in mind that room night growth exceeds gross bookings growth as we continue to enjoy organic growth and market share gains.

We expect revenue to grow by approximately 5% to 10% on a year-over-year basis and we expect gross profit dollars to grow by approximately 5% to 10% on a year-over-year basis.

As for Q1 operating expenses, we are targeting consolidated advertising expenses of approximately $74 million to $78 million with approximately 85% of that amount being spent on online advertising.

We expect sales and marketing expense of between $18.5 million and $19.5 million.

We expect personnel costs, excluding stock-based compensation, to come in between $30 million and $31 million.

We expect G&A expenses of approximately $14.5 million to $15.5 million.

We expect information technology costs of approximately $5 million and depreciation and amortization expense excluding acquisition amortization of approximately $4 million.

We expect total below the line positive impact of approximately $1.3 million, which is comprised primarily of foreign exchange hedging income.

We are targeting pro forma EBITDA of between $50 million and $55 million and we are targeting pro forma fully diluted EPS of approximately $0.85 to $0.95 per share, which represents 19% growth year-over-year at the midpoint.

Our pro forma EPS forecast includes an estimated cash income tax of approximately $6.5 million to $7 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 46.7 million shares, which is based on last night's closing stock price of $68.87 per share.

This is a substantially lower share count than our share count of 49.4 million in Q1 2008 due to the convertible note dynamics that I just discussed.

As for expected GAAP results, we expect to report a GAAP EPS of $0.28 to $0.38 per share.

The difference between our GAAP and pro forma results will be driven by our usual pro forma adjustments, whereby we exclude acquisition-related amortization, stock-based compensation, and certain income tax expenses, all of which are non-cash in nature, to arrive at pro forma earnings.

In addition, starting January 1, 2009 we will have a new significant adjustment to exclude non-cash interest expense resulting from the adoption of FASB Staff Position APB 14-1.

We've discussed this accounting change at length on our previous earnings calls and in our public filings, so I don't intend to go over it again on this call.

But to very quickly summarize, the new rule requires us to assign additional interest expense to our convertible notes.

The expense is non-cash in nature and does not impact historical or future cash flows.

Accordingly, as we've mentioned before, we intend to eliminate the effect of the FSB from our pro forma operating results.

The GAAP impact of the FSP on our historical results is summarized in our press release and in our 10-K.

Our forecast assumes the Euro versus the dollar exchange rate remains at the same $1.26 per Euro has last night's closing rate.

It also assumes that there is no material change in the FX relationship between the pound and the Euro.

At or near at this exchange rate, FX will continue to present a significant headwind throughout the first three quarters of 2009, as the average rates for the comparable quarters of 2008 were much stronger from a Euro perspective.

We have hedge contracts in place to substantially shield our first quarter net earnings from FX impact.

Beyond first quarter, we don't have significant hedges currently in place and our earnings for subsequent periods will, therefore, be impacted by changes in foreign currency rates.

Our first quarter guidance is also based on an assumption that ADRs for our international hotel service will be down by 9% to 11% and that ADRs for our domestic hotel service be down by 7% to 9%.

I'll now turn the call back over to Jeff for some closing comments.

Thanks, Dan.

When we reported third quarter results, we cautioned that deteriorating global economic conditions were negatively impacting travel demand, hotel average daily rates, and cancellations.

The macro environment has worsened since then and airlines and hotel operators are experiencing double-digit year-over-year declines in demand and pricing foreshadowing a difficult revenue environment for the balance of the year and the likely necessity for some suppliers of expense reductions and other restructuring steps.

There also remains significant uncertainty with respect to the balance sheets and stability of international financial institutions and governmental intervention to date, and as proposed, has not yet restored confidence to pre-crisis levels.

Many other industries are announcing layoffs in the face of weak demand and all of these developments weigh on consumer sentiment.

In short, we are in perilous economic times and businesses, including ours, have a very limited ability to forecast even short-term operating results.

Through this time period, our goal has been to pursue unit and local currency bookings growth in all our key markets and maintain operating margins, while continuing to build our brands and expand the international hotel platform.

I believe we have performed well against this goal so far.

However, hotel ADRs in the United States and Europe have continued a dramatic decline, which pressures gross bookings growth rates and margins as lower per unit profit hurts marketing ROIs.

In addition, the weakening Euro pressures consolidated margins by reducing the contribution that our higher margin international business makes to our dollar denominated profits.

On the other hand, we have been pleased with the unit growth shown in our domestic and international businesses.

Growth of 38% in global hotel room night sales in the fourth quarter, given market conditions, is evidence, we believe, of the strong brand positioning, content, and supply our businesses enjoy.

Ultimately, this growth represents growth in new customers, growing awareness, and growing market share and builds long-term shareholder value.

While there is little we can do to change industry pricing and currency exchange rates, we will work hard to maintain the momentum we have in unit sales and manage our expenses in an effort to deliver both market share gains and industry leading operating results.

We will now take your questions.

Thank you, gentlemen.

(Operator Instructions).

Our first question comes from Scott Barry at Credit Suisse.

Your line is open.

Good afternoon.

Bob or Jeff, could you just frame for us what -- how the Ryanair agreement fits in in terms of your distribution strategy and then maybe you could touch on what you're seeing in terms of direct distribution and repeat frequency?

Thanks.

With respect to Ryanair, affiliates have always been an important part of our distribution strategy, both here and internationally and in particular, branded distribution and travel branded distribution is good, especially with an airline of the size and brand and quality of Ryanair.

So there are always attractive transactions if the economic terms are right and if the presentation is right and we think we've got a very good deal and transaction that fits well with what Ryanair is looking for in terms of a hotel booking service and fits well for us.

So we're very happy to have, have that business and we have very strong inventory in Ryanair city pairs.

So it's really a good fit.

With respect to the balance of distribution, we've said on prior calls that we remain very happy, and this thought applies both in the United States and Europe, with the direct business that we're getting, with the momentum in the direct business we get, we think it's evidence of the strengthening of our brand.

We do it in different ways here in the United States, with a lot of offline branding, but we are getting the same kind of dynamics in Europe as our online branding work and the great work that the team is doing on the Web presentation, the inventory and the service is really driving customers to come back to the website.

We don't publish or give out any numbers with respect to that kind of performance, but we're happy with what we're seeing in the direct channel and we're happy with what we're seeing in terms of repeat business.

And I think that's one of the reasons why you've seen what at least in our opinion are pretty good unit growth metrics that underlie the results that we announced today.

Fantastic, great.

Thanks very much.

Thank you.

Our next question comes from Scott Hamann at KeyBanc Capital.

Hi, this is Cassandra Stevenson calling in for Scott.

In terms of your cost structure of fixed versus variable, could you talk about how much flexibility you have as to maintaining margins and maybe outline some things that you can work on specifically?

I mean I think the most important point to keep in mind there is that our largest variable cost is marketing, online marketing in particular.

And that's really driven by transaction growth.

So as transaction growth grows, that expense grows, if transaction growth slows down, that expense slows down.

So there is an element of self-correction in the income statement for changes in business volume.

Are there any specific items, though, that you could outline?

I mean, maybe, I could take a crack at answering your question.

Obviously, there are several line items that are more fixed in nature, the biggest ones being the offline advertising expenditure, as well as the personnel costs.

And I think in both of those line items, at least for now, as Jeff mentioned, the fourth quarter results demonstrated 38% growth in hotel room nights.

So we view this as an opportunity to try and get our message out to more consumers.

So we're going to continue to spend money at least for right now, that's our view is that we're going to invest our money in marketing to try and grow our addressable market.

You probably saw that we ran an advertisement during the Super Bowl, which was representative of our desire to do that.

And as for personnel, again, our view is that there's plenty of places left on this planet for us to bring the booking.com brand, the Priceline brand, the Agoda brand, and so we continue to be opening offices in new cities and hiring people.

And, again, that -- therefore, you should expect to see that line item continue to go up and, obviously, Dan's guidance for personnel expenses is reflective of that.

Thank you.

I guess we could just point out there too, Bob, that the variable elements there would be in the personnel line bonus.

So if earnings declined, bonus would go down.

And on the offline advertising, not a lot of the money is committed up front, so there's some variability there, although we wouldn't intend to cut that back.

Great, thank you.

Thank you.

Our next question comes from Kevin Crissey of UBS.

Good afternoon.

Nice quarter and I think very good guidance, considering the environment that we're in.

Can you talk a bit -- when I look at the airlines sequentially demand seemed to be decent through maybe halfway into October and then fell off significantly.

And then it seemed like for carriers, if you looked at JetBlue or Southwest, they held up through kind of the January travel period, but February and March they are seeing much more weakness.

In your guidance of 15% domestic gross bookings growth in the face of that seems exceptional.

Can you talk about what kind of sequential trends you're seeing in terms of bookings maybe kind of on a monthly pattern basis?

You know, we typically are reluctant to get into shorter time periods than quarters here, although I can talk a little bit about some of the trends that you mentioned.

One of the things that's happening in travel in general, and I think to the airlines in particular, is that they are starting to suffer a little bit more from a downturn in business travel and that's driven by corporate austerity, but it's also driven by what I'll call the tone of the times, which is actually pushing back against some incentive trips and business travel to resort destinations.

So I think some of the numbers that are being reported by the airlines are indicative of that kind of a trend as well.

Those business trends typically won't affect us as much and I think that we can run a little bit counter to some of those trends because of our value brand.

Customers come to Priceline to look for no-fee airline tickets, to look for deeply discounted opaque products and I think that that has helped our demand, certainly helped it in the fourth quarter, and implicit in our guidance is an expectation that that trend will continue as well.

So when I look at the opaque brand, I mean to me that strikes me as kind of more of the larger competitive advantage in this environment.

When you think about domestic up 15%, is -- certainly the bulk of that is coming from the opaque.

To what extent do you view the differential coming from opaque versus more of a visible market?

Well, keep in mind that our pricing for retail airline tickets tends to be lower than other online travel agencies because we don't charge a processing fee.

And we've seen pretty good momentum, not only in our opaque business, but in the retail business as well.

Okay.

Thank you very much.

Thank you.

Our next question comes from Mark Mahaney at CitiGroup.

Your line is open.

Thanks.

Jeff, I wanted to ask a broad strategic question.

Let me give this a shot.

You have a balanced offering in terms of kind of a deep value offering in the U.S.

and much more of a, somewhat typical agency offering internationally.

Over the next 12 months, or however long it takes us to work through this recession, is that the opportunity for you to balance out each of those offerings, i.e., take a value -- develop more of a value offering in international markets and develop more of a traditional agency offering in the U.S.

markets, or are you -- in the U.S.

-- in order to counter what's going to be as we come out of a recession perhaps a falloff in the demand growth that you've seen recently?

Thank you.

I think with respect to the U.S.

market, we consider Priceline's offering to be very well balanced.

If you look at the mix of domestic business versus our total merchant business, you can see that the retail business that we write on Priceline.com is, and the agency business, is getting to be a very, very big part of the total picture.

And as I mentioned in answering the previous question, we've got good growth momentum in both of those segments here.

The question is to whether we change the offering in Europe to more balance it towards the value end of the spectrum.

We always look at the product there as being value-driven.

Our effort is to have the best prices and availability in the most destinations and we -- and having the best prices, we think, gives us an appeal to value-driven customers.

I wouldn't exclude the possibility that at some point in time we would try to do a discounted offering in some parts of -- some international geographies, but I wouldn't hold it out at this point in time as being central to what we're going to be doing over the next 12 months.

The other comment I would make is that I think we would happily trade better economic times if the cost of that was a rebalancing of the demand more towards traditional retail products.

If you look at how our businesses have performed over the last couple of years, we did extremely well when the travel economy was doing very well and we've always said and continue to say we think the benefit that we would get in terms of increased consumer demand would outstrip the downturn in the value-driven consumer here in the United States.

Thank you, Jeff.

Thank you.

Our next question comes from Mike Olson at Piper Jaffray.

Thanks.

Good afternoon.

You said your supplier base for booking.com grew 47%, I think, in the quarter.

What kind of range do we expect over the next few quarters and have you seen any competitive changes in Europe in the last few months?

I, I -- we don't provide projections in terms of the specific growth in hotels that we're looking for, but suffice it to say, we continue to work to not only expand the geographies where we're offering our services, but also the hotels in the geographies where we've been working.

So we're still investing in building the hotel supply all around the world and you can expect that to continue.

And, I'm sorry, your second question?

Just on competition, any changes in competition in Europe in the last few months?

No.

I mean, I would say it's been relatively static.

We -- as you are all aware, Expedia purchased Venere which is the Rome-based online travel business, hotel business.

That happened, I think, in the third quarter.

That's the only thing of note, which I think has been out there for a while.

Okay.

Let me try one other, just a question about visibility.

Can you give us any sort of flavor for what the average time before travel is that you see customers booking their travel?

You know, I don't think we've given details on that.

We haven't disclosed advance purchase, but what we can say is not surprisingly, given the nature of all of our products, there -- it's a fairly short window.

So we can't sit here in the middle of February today and say we know that the rest of the quarter is sort of fully booked and we have incredible amounts of visibility.

We have some amount of visibility towards sort of the forward look in terms of revenue and gross profit recognition, but we certainly do a very healthy amount of business of bookings now for stays that are going to happen literally within the next two weeks.

Okay.

So it's weeks, not months?

Yes, it's better expressed in weeks, not months.

Okay.

Thanks very much.

Thank you.

Our next question comes from Jennifer Watson at Goldman Sachs.

Great, thank you.

Can you provide a little bit of color around the country strength in Europe, where you saw trends kind of improve versus slow down a little bit?

I think -- it's hard for us to get very specific.

You can look at some of the countries and say that earlier on Spain had difficulty, economic difficulty, a downturn in their real estate market before things seemed to get bad in Germany and so forth.

But I think it's fair to say that the economies across Europe now are, Western Europe in particular, are uniformly weak and I don't have any color in terms of a particular economy that's doing relatively better or worse.

And in terms of consumers, have you seen any big changes in terms of their behavior on your site over the course of the past quarter?

One thing that may be of interest is that the activity, the shopping activity is up.

The people are shopping more.

So -- and I don't know if this is true for our other competitors in the space, but there may be a little bit of a difference in the translation of traffic into business going on just because people are really looking for the best deal in shopping a little more.

Okay, great.

Thank you.

Thank you.

Our next question comes from Imran Khan of JPMorgan.

Yes, hi.

Thank you for taking my questions.

Two questions.

You talked about in the past on return on investment from marketing dollar perspective and how you're trying to manage that.

Can you talk a little bit about what kind of return you were seeing from your marketing dollar in Q4 versus Q3, if that materially changed?

And, secondly, with regards to international business, Jeff, I think in the past you talked a little bit about how outside the core Western European countries bookings business was like 20% of the gross bookings and that was growing 209% in, I believe that was in the second quarter of 2008.

Can you give us some color of what percentage of bookings revenue is outside those core countries now represent?

Thank you.

Okay.

Bob, maybe on the first one, the Q3 to Q4 ROIs.

I think what we would say about ROIs, Jeff mentioned a couple things that create a headwind for ROIs, one being the decline in ADRs, which are giving us fewer amounts of gross profit dollars per unit sale with which to go and reinvest in online advertising.

And the second one is we have seen a little bit of a step-up in the amount of shopping, which would translate, therefore, to more clicks potentially per reservation made.

I think that's just illustrative of what's going on in the economy and it remains one of sort of the big wild cards for 2009, is what is ROI going look like with these two factors unfolding?

So you can see that inherent in our guidance, there is a little bit of an increase in terms of the amount of online advertising expressed as a percentage of our projected gross profit dollars.

And there's certainly going to be some volatility around that, potentially on the upside and downside, so it's something that we're watching very carefully on a day-by-day basis.

And, obviously, it's impacted by competitive factors, too.

And as to the second question, in terms of specific numbers, I can't give them to you, but the trend that we pointed out a couple of quarters ago, which is that the newer markets are growing faster than the core markets, remains the trend.

The growth rate in all of the markets has come down and you can see that in the results that we've reported in the third quarter and the fourth quarter and it's inherent in our guidance for the first quarter.

But the trend that the new markets are growing faster than the core markets remains and it remains an important part of our plans to go out and continue to build the hotel supply in those markets, to open up new markets and to try to continue to build on that momentum, but the growth rates are not what they were when we showed you that chart a couple quarters ago.

Great, thank you.

Thank you.

Our next question comes from Justin Post at Merrill Lynch.

Thank you.

When you look at last year, it looks like you did around 41 million hotel room nights.

I'm wondering if you'll give us any kind of range of what percent of those were international and if you've added up the opportunity online booking nights or in total, what you think the total opportunity you have in front of you?

I wonder if you'll help us with either one of those numbers?

I think the best we can tell on you that front is you'll have to look at the gross bookings numbers that we've given you and make your own ADR assumptions in terms of a split, and a lot of folks have done that and they have gotten reasonably close on it.

And -- but we, we do not have a total opportunity number for you, but we get asked all the time how many hotels are there, how many are you going to get, that sort of thing.

We don't manage the business that way.

We just don't have that data to give you.

Okay.

When you think about -- I just want to confirm, rental cars and air is all U.S.

And just really you saw an acceleration in rental cars and air held up really well.

I mean do you think that is the opaque business really driving that or do you think it's your relatively attractive booking fees, or what do you think is the real -- is there more inventory?

What drove the reacceleration there in the quarter?

I mean on -- with respect to rental cars, we had a better inventory position in the fourth quarter than we did in the third quarter on the opaque side of the business.

I think it's -- that's really the answer to that question.

The retail business grew, too, but the opaque business had a better quarter because we had better inventory.

On the airline ticket side, the -- that business continues to do well because of the no-fee positioning.

Okay, and last one, I think you said that there's a currency benefit in your 1Q that won't continue in 2Q and 3Q, or going forward.

Could you just give us the size of the currency benefit?

Is it 1.3 or is it larger than that?

What we said there, Justin, was it was a slight favorability versus the rate that we had assumed when we prepared the guidance at the end of Q3.

But, overall, the rate was unfavorable year-on-year.

How about Q1?

Q1, we were about $1.50 last year and we are assuming that the $1.26 we had the other night will continue through the end of the quarter.

And just wondering how big of the benefit will be in Q1, from your hedging?

Oh, we -- it was in Dan's numbers.

We guided to a little over $1 million.

So it's minimal and, obviously, if the currency were to move one way or the other, then that benefit would either get eliminated and find its way into the rest of the P&L or it would get bigger, depending upon currency moves.

But as Dan mentioned, the hedging really only relates -- we've only done a small amount of hedging so far, so we don't have the remainder of the year hedged.

Great, thank you.

And to confirm, Justin, the airline ticket numbers and the rental car days are U.S.

only.

Thanks.

Thank you, and gentlemen, our final question comes from Vance Edelson at Morgan Stanley.

Hi, just a follow-up on that last question.

Is FX hedging for 2Q something that you might pursue in the future, or have you decided it's just not going to be necessary or perhaps not worth it?

How are you thinking about that?

Our strategy has been to try and at least hedge the coming quarter and so that's what we've done for first quarter and we'll continue to look at opportunities to hedge second quarter as we move forward.

Okay, and just quickly, it looks like you're taking market share.

You're certainly suggesting that.

Is that just from looking at your own results versus indications of what the industry growth might be right now, or do you have anything more specific regarding your performance versus your peers?

Thanks.

It's really based on the reported results through the third quarter for our competition and based on their reported results, based on the language in their conference calls and what we're seeing in the marketplace, it just seems to us that we probably continued to gain share.

Okay, thanks.

Appreciate it.

Thank you.

Gentlemen, did you have any final remarks?

Thank you, very much, for attending the call.

Thank you, gentlemen.

And thank you, ladies and gentlemen, for your participation.

This does conclude your call.

You may disconnect your lines at this time.

Have a great day.