Booking Holdings Inc (BKNG) 2009 Q3 法說會逐字稿

Welcome to Priceline's third quarter 2009 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 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 and the 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 at www.priceline.com.

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

Go ahead, gentlemen.

Thank you very much and welcome to Priceline's third quarter conference call.

I'm here with Priceline's Vice Chairman, Bob Mylod.

Our CFO Dan Finnegan is unable to be on today's call because of a family commitment, so Bob will fill in for him today and give the financial review after my opening remarks and then I will sum up.

After the prepared portion, we'll take questions.

Priceline reported consolidated gross bookings for the third quarter of approximately $2.7 billion, up 33% year-over-year.

Pro forma net income was $173 million or $3.45 per share versus $2.39 the prior year.

Third quarter results surpass first call consensus estimates of $2.90 per share and our guidance for the quarter.

Worldwide hotel room night reservations were 17.9 million for the quarter, up 56% year-over-year.

While the global economic environment remains challenging, we were pleased to see accelerating growth in hotel unit sales, which allowed us to overcome the continued impact of negative year-over-year pricing and currency trends.

Our international business gained momentum in the quarter, with 49% gross bookings growth on a local currency basis.

Year-over-year comparisons improved in part because of steadily deteriorating economic conditions that we witnessed in the second half of last year's third quarter.

Higher unit sales were tempered by continued weakness in hotel ADRs.

International unit growth benefited from geographic expansion, growth in hotel supply and growth in new markets.

Bookings.com worldwide hotel count now exceeds 73,000 hotels in over 70 countries.

Our goal has been to invest in building the business while maintaining operating leverage.

While our competition has significantly reduced marketing spend, we have increased our spend in online channels and were able to drive demand growth with reasonable efficiency, despite lower unit prices.

Agoda also reported improved growth in excess of 100%, which contributing to the sequential improvement in worldwide merchant growth bookings growth from 22% to 33%.

Agoda's growth rates reflect weakness in the prior period due to economic conditions and civil unrest in Thailand and there are also signs of economic improvement in Asian markets.

Priceline's domestic gross bookings grew 25% in the third quarter, with accelerating growth in hotel unit sales and retail airline tickets offset by year-over-year decreases in ADRs and airfare.

Domestic merchant gross bookings which include Opaque Services and retail merchant hotels continued to show strong growth despite a decline in the Air Opaque business.

We believe that overall industry growth rates improved in the fourth quarter due to weakening economic conditions in the third quarter of 2008, a lift in volumes tied to widespread booking fee reductions which seemed to benefit our retail ticket business and pervasive discounting and promotions to spur elastic leisure travel demand.

In this environment, we have strived to play a leadership role in delivering much-needed demand to our supplier partners and compelling value to our customers.

In summary, despite competitive and economic challenges, the business performed above our expectations in the third quarter and I thank my colleagues around the world for their hard work and dedication.

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

Thanks, Jeff.

I'll be discussing some of the highlights and operating results in cash flows for the quarter and then I will provide guidance for the fourth quarter.

We experienced strong booking growth rates in the third quarter versus prior year enabling us to grow pro forma EBITDA and further expand operating leverage while continuing to increase advertising support for our brands.

Our growth rates for gross booking dollars and hotel room nights accelerated sequentially from both the second and third quarters.

Hotel room nights booked grew by 56% in the third quarter verses last year and this compares to 44% growth in hotel room nights for the second quarter.

You may recall that when we announced our third quarter results last year, we discussed our view that our business had experienced a meaningful slowdown in momentum during the last half of the quarter due to the impact of the recession.

As we comped against this same period this year, it became clear that last year's results were indeed, constrained and, therefore, our comps were even easier than we thought at the time we gave guidance.

When I get to guidance, you will see that we expect the same comps dynamics to exist for much of the fourth quarter.

As you know, our gross bookings are heavily influenced by the average daily rates or ADRs of our hotel room service, which are driven more by general industry trends and conditioning.

In the third quarter, our international hotel service ADRs were down by 7% versus Q3, 2008 and were down about 11% for our domestic hotel service.

FX rates were favorable to the $1.42 per euro and unfavorable to the $1.67 per British pound that prevailed when we gave our guidance in August and since a significant portion of our international results are denominated in euros, FX was a net favorable factor for the quarter compared to guidance; however, when comparing our results to the prior year, FX rates continued to have an adverse impact.

The average exchange rates for the euro and the pound versus the dollar were down 5% and 14% respectively in the third quarter 2009, versus the third quarter 2008.

Gross profit was $434 million and grew 37% as compared to prior year.

Our domestic business generated gross profit of $118 million which represented 26% growth versus the prior year.

Gross profit for our international operations amounted to $316 million and grew by 42% as compared to the prior year.

Total operating expenses were generally in line with our guidance.

On a year-over-year basis, we increase pro forma operating expenses by 24% as we continue to invest in marketing, people and new offices to support the growth of our business.

We recorded below the line expenses in the quarter of about $1.8 million, which is in line with our guidance.

In summary, pro forma EBITDA for Q3 amounted to $225 million which exceeded our forecast of between $178 million and $188 million and represents 47% growth versus prior year.

I would like to highlight two pro forma adjustments we recorded in the third quarter.

First, as you have seen in our recently filed 8-K, on October 30, 2009 Priceline received a jury verdict in the class action suit brought by the city of San Antonio on behalf of itself and a class of 172 Texas municipalities against Priceline and other online travel companies.

The Company recorded a charge in general and administrative expenses in the amount of $3.7 million related to this judgment in the third quarter.

We have excluded this charge from pro forma earnings as the timing and amount of this time of charge are unpredictable, not driven by the core operating results of our business and render comparisons to prior periods and guidance less meaningful.

The second pro forma adjustment I would like to discuss deals with our domestic income tax provision.

In the third quarter of 2009, we recorded an income tax benefit of $181.9 million to reverse a portion of the valuation allowance on the Company's deferred tax asset due to our view that it's more likely than not that our future pretax profits will be ample enough for us to really this tax benefit.

As it has been our past practice, we have excluded this benefit for pro forma purposes.

In terms of cash flow, we generated approximately $195 million of cash from operations during the third quarter of 2009.

We spent about $2 million on CapEx in the quarter and repaid $86 million principle amount of convertible debt, bringing us to an outstanding debt balance of $271 million at quarter end.

This leaves us at quarter end with cash and marketable securities of about $448 million in excess of our outstanding debt balance.

We also have our $175 million revolving credit facility that is undrawn and doesn't expire until September of 2012.

Now, on to guidance.

For the fourth quarter of 2009, we're forecasting total gross bookings to grow by 30 to 40% with domestic gross bookings growing by approximately 15%.

We expect international gross bookings expressed in US dollars to grow by 50 or 60% as compared to last year and to grow on a local currency basis by approximately 37 to 46%.

We expect our bookings growth rate versus prior year to continue to be hampered by decreases in ADRs; however, our fourth quarter guidance is based on an assumption that the rate of decline in our ADRs will improve verses the rates of decline that we saw in Q3 as our ADR comps become easier.

Our comps also become more favorable from an FX perspective in Q4, and as a result, this is the first quarter since Q3 of 2008 where our guidance assumes that international growth expressed in US dollars will exceed our local currency growth.

Our forecast assumes that the exchange rates remain at the same $1.48 per euro and $1.66 per British pound as of Friday's closing rates.

This would yield average rates from a euro and pound perspective for the fourth quarter that a appreciate by approximately 13 and 5% respectively as compared to the prior year.

We have hedge contracts in place that essentially lock in these rates and, therefore, would substantially shield our fourth quarter net earnings from any deterioration in the euro or pound between now and the end of the quarter, but these hedges do not offset the impact of translation on our gross bookings, revenue and gross profit nor will they have any impact on any of our financial results beyond 2009.

We expect Q4 revenue to grow year-over-year by approximately 24 to 28%, and gross profit dollars to grow by approximately 40 to 45%.

For Q4 operating expenses, we're targeting consolidating advertising expenses of approximately $94 million to $97 million with approximately 94% of that amount being spent on online advertising.

We expect sales and marketing expenses between $20 million and $21 million.

We expect personnel costs excluding stock-based compensation to come in between $40 million and $41 million.

We expect G&A expenses of approximately $23 million to $24 million.

We expect information technology costs of approximately $5.5 million and depreciation and amortization expense excluding acquisition amortization of approximately $4.5 million.

We expect total below the line negative impact of approximately $1.9 million which is comprised primarily of foreign exchange hedging expenses and net interest expense.

This compares to below the line positive impact of $4.2 million in Q4, 2008.

The $6 million unfavorable swing from year-to-year is driven mostly by FX hedging.

During Q4, 2008, the dollar strengthened throughout the quarter and we recorded gains on our hedge contracts as a result.

For Q4, 2009, the FX rate assumption I just mentioned would represent weakening of the dollar versus the earlier part of the quarter and we, therefore, would record FX hedging expense.

Pro forma EBITDA is expected to range between $98 million and $108 million and we are targeting pro forma fully diluted EPS of approximately $1.52 to $1.62 per share, which represents 22% growth year-over-year at the mid-point.

Our pro forma EPS forecast includes an estimated cash income tax of approximately $19 million to $22 million comprised primarily of international income taxes and also some alternative minimum tax in the United States.

Our pro forma EPS guidance is based upon a pro forma diluted share count of approximately 50.7 million shares, which is based on Friday night's closing stock price of $172 per share.

This is significantly higher than our diluted share count of 45.3 million or 45.3 million shares in Q4, 2008, due to a year-over-year increase in our primary share count as a result of early conversions of our convertible notes and the impact of higher share prices on fully diluted shares related to our convertible notes.

As for expected GAAP results, we expect to report GAAP EPS of between $1.06 and $1.16 per share.

The difference between our GAAP and pro forma results is driven by pro forma adjustments to 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, we adopted FASB Staff Position APB14-1 on January 1, 2009 on a retrospective basis, therefore, our GAAP results for 2009 and 2008 include non-cash interest expense for amortization of debt discount and in 2009, include non-cash gains related to debt conversions.

We excluded these non-cash items for pro forma purposes.

The impact of the FSP on our GAAP results is summarized more fully in our 10-Q.

We also intend to adjust pro forma results to exclude charges if any related to hotel occupancy tax rulings, settlements or judgments.

Our guidance assumes that macroeconomic conditions in general and conditions in the travel market, in particular, remain relatively unchanged.

Before I turn the call back to Jeff, I want to provide a little more commentary with respect to the guidance I just gave.

There is no question that the results and corresponding annualized growth rates that we have delivered, especially during the recent Autumn months have been particularly impressive, especially in our international businesses.

I mentioned a few moments ago that it's our view that these results were partly driven by easier comps that began in the second half of the third quarter and carried into the fourth quarter; however, as we discussed on our Q4, 2008, earnings call, we saw marked improvement in our business fundamentals beginning in November of 2008.

And, therefore, we know that annualized growth rate comparables will be increasingly more challenged than those we have seen in recent months.

We have factored this dynamic into the fourth quarter guidance we're given today.

But it doesn't show up distinctly in our headline numbers for full quarter guidance due manly to how favorable our comparables in October, the quarter's largest month appear to have been.

And, therefore, how strong our October 2009 growth rates actually were.

Therefore, it won't be until 2010 that the point I'm making here is more fully reflected in our growth numbers.

And while we're not giving guidance beyond the fourth quarter of 2009, we do want to highlight our view that in the near future, our growth rates and units sold will resume the pattern of deceleration that we had begun to experience before last year's severe economic conditions unfolded.

With that said, I will now turn the call back over to Jeff for closing comments.

Thanks, Bob.

We believe our worldwide business has performed well in the wake of the financial crisis and global recession.

Our fourth quarter guidance is reflective of the mixed outlook that has is characterized this year, with the exception of currency, which, for now, has shifted from headwind to tailwind.

Going forward, near-term results will continue to show the impact of the relative strengths or weakness of prior-year periods and cyclical trends and demand in pricing.

We believe our long-term performance will continue to be more closely tied to building our geographic and supply footprint, growing new markets, strengthening our brands worldwide and executing on integration initiatives.

We will now take your questions.

Thank you.

(Operator Instructions).

Our first question comes from James Cakmak of Sidoti & Company.

Good afternoon.

Hi.

Hi, I was wondering if you could provide for travel on trends on the Opaque travel side domestically.

I think what we have seen throughout the year is a strong consumer demand for value and a high level of interest in the channel from supplier as a place discount.

And, as a result, it's driven some good results in terms of a growth and in our merchant gross bookings and we're pleased with the results we have seen so far this year.

Okay, so as far as, how they performed in the third quarter over 2Q, would you say that with unemployment and everything picking up, it was slightly stronger than what we saw in the fourth, the demand?

I don't think we have a particular comment or point of view that the demand has gotten stronger or weaker as a result of sort of the month-to-month changes in employment and economic figures.

We've had a very robust demand for our products, really across the board.

The real distinct that you see are, for example, in airline tickets we're very low.

Airfare has put a dent in the supply environment and the demand environment for Opaque Airline tickets and we mentioned that in our prepared remarks.

Okay, thank you.

Thank you, our next question comes from Scott Barry of Credit Suisse.

Good afternoon.

Could you touch on some of the drivers of the impressive ability to maintain your ad returns despite the skinny unit economics and increase clicks per reservation in this type of macroenvironment.

Yes, I think the thing that has benefited us in that regard is very strong brand strength that helps with your conversion and with respect to the hotel business, continuing to add to supply and innovate on the website helping your conversion.

I would say, Scott, as the business is more and more mature, an increasing percentage of our business, especially internationally is being driven by a repeat and that helps offset, another way of saying to allow us to reinvest in growth because a lot of the repeat comes for free.

Great, thanks.

Thank you, the next question comes from Imran Khan of JPMorgan.

Yes, hi, thank you so much for taking my questions.

Two quick questions.

In revenue margins for the agency business, the agency revenue as a percentage of agency bookings seems like growing year-over-year.

Can you help us understand some of the newer markets, how you take rate differentiate , your newer market versus much more mature markets and secondly, Bob, you talked about how comps will get difficult -- you said that the last quarter, last year call.

Can you tell us how much year-over-year growth rate (Inaudible - highly accented) input into the November growth rate in your guidance.

Thank

I am not going to comment on each of the individual growth rates for the months of the fourth quarter.

What I said is from a seasonal perspective, October is the single biggest month of the fourth quarter and we believe it was our easiest comparable month.

The combination of the same two things means October's contribution to the fourth quarter total growth rate is going to be very, very attractive; however, that doesn't alleviate the point that we're trying to make, which is we expect as the quarter unfolds, our comparables will get more difficult.

You may remember when we announced the fourth quarter -- earlier this year, when we announced the fourth quarter of 2008, we went out of our way to say the business did start to picture up in November and December of last year.

We're trying to highlight the fact that we thought that did happen and, therefore, our comps will get easier.

For the take rates, I think that is the main function there, Imran, the higher percentage of business is coming from the international business.

Primarily, substantially all booking.com where their agency take rates are higher than the agency take rates in the United States which are principle driven by our airline ticket business.

So it is mainly driven by mix.

There is a little bit of an element that as our hotel base matures, we try to move them up in terms of the rate over time and it's manly driven by mix.

Great, thank you.

Thank you, the next question comes from Mark Mahaney of Citigroup.

Thanks, two questions please With that acceleration in units and gross bookings, you probably saw some sort of acceleration in basic customers or a number of new customers.

What is your read into the newest customers you had on Priceline and how they differed from prior customers.

Anything you can read into those newer customers about their loyalty to Priceline or how you attempt to keep them loyal in the future and if I could ask about taxes and tax collection in the US and how you want to give, render that back to the municipalities of the states so -- of the relevant jurisdictions, post in New York City decision have you made a change across other municipalities, other areas as well or are you doing that on a case-by-case basis?

Thank you.

Okay, I think with respect to new customers, we, of course, look carefully at the composition of customers coming into Priceline and I don't think that the accelerating growth rate is really reflective of much more than increasing new customers and repeat customers.

We haven't seen a remarkable trend in terms of the change of mix in customers with the exception of retail airline tickets, which retail airlines shopping is pervasive on the internet and all of the interest in and reduced and eliminated booking fees that started two years ago with us and continued with the matching has generated a lot of new customers that are coming around and shopping for an airline ticket and that is something that we're happy to see.

It's our opportunity to try to cross sell and bring them into the brand, especially to buy things that are uniquely ours such as the Opaque product.

With respect to occupancy taxes, we are paying the taxes in New York.

They passed a regulation that is very specific in its application to online travel agents, but that is specific to New York.

We haven't, that to us doesn't represent a precedent that applies in different places which have different rules.

Thank you, Jeff.

Thank you, the next question comes from Ingrid Chun of Goldman Sachs.

Thank you, good afternoon.

A couple of questions.

First, in terms of the tougher comparison beginning in November, is that more of a domestic or international phenomenon given, I guess you did 25% domestic bookings growth in 3Q and your guiding to 15% in 4Q and secondly, do you have an idea as to how much overlap you have with competitors in terms of hotels in Europe?

Are most of the Booking.com hotels exclusively using Booking.com and does it make sense for smaller hotels with fewer IT resources to use more than one platform?

I think on the second question there is a tremendous amount of overlap in hotel inventory between Booking.com and its competitors and not just the international competitors like Expedia, Hotels.com and also a strong local competitors.

The hotels typically are not working with online travel agents on an exclusive basis, they retain the ability to sell and book through others and generally do.

There may be some hotels that, smaller hotels in particular that come to the conclusion that one online travel agency relationship is sufficient for them but candidly, it's not about IT resources.

The interfaces are easy enough to use that anyone who is internet savvy can use them.

It's more a question of general management time.

On the tougher comps, they really apply to both the domestic and European international business.

Okay, great.

Thank you.

Thank you, our next question comes from Justin Post of Merrill Lynch.

Thank you.

Jeff, could you help us with the international opportunity.

Obviously, your growth rate is phenomenal.

I think you added 2,000 hotels in the quarter.

Any reason that it might have slowed down a bit and based on the room nights, we have an estimate for the international room nights or total hotels at 73,000.

Any idea on what the market opportunity is so we help frame that and anything new on a competitive front that you're seeing in Europe or Asia.

Thanks.

So on the hotel count and, Justin, as know, we are asked this question a lot.

We don't look at the absolute hotel count as defining our markets.

Our counts are still up significantly and still is an important part of what we're doing, not just internationally but here in the United States to add hotels to all of our programs and potentially more important, to make sure we have the right rates and availability from the hotels that do participate with Priceline and Booking.com and Agoda and that can be as meaningful to the output of the business as adding new hotels.

We'll continue to add hotels but we don't look at the market in terms of this many hotels and when we get them all, we'll be 100% penetrated.

Not the way we view the market.

From a competitive perspective, I think that you have heard in the conference calls of the two competitors that we, that are publicly traded that they're very focused on the international hotel opportunity that Expedia is making an agency product available to hotels and Orbitz is trying to re-orientate its organization to focus primarily on hotel bookings.

So, it continues to be very competitive out there and we work very hard to keep track of what is going on with the competition, but we also try very hard to make sure that we're doing what we think is right for our business and not necessarily trying to map what they doing.

One followup.

Do you think that you can define maybe any of your sustainable competitive advantages or what is helping you outperform the market at this point and can that continue for years to come?

I think that our network of supply and demand ask one of the largest single advantages that we have.

We have very sizeable pools of distribution now and in the United States and in Europe and we have a growing source of distribution in Asia.

We have very, very wide hotel inventory and great content with respect to that inventory and our ability to basically build that supply and build that content and continue to push that demand gives us a greater opportunity to satisfy every customer coming through one of our websites because of the extent of our supply and gives us a greater opportunity to provide compelling distribution value to our hotels because of the scope of our distribution network.

I think that the scale that we have achieved is one of our most important assets.

If you look at the great results that we're seeing in Asia from Agoda and Booking.com and the new markets, what you're seeing is every time we enter into a new market, we're doing it from a stronger position than we did in the last new market and so it gets us excited about Asia and the Pacific and what we're doing in the Middle East and South America and in North America for Booking.com and the international traveler and if you look at the size of our business relative to the total market for hotel reservations, we have I think a good market share in Europe for Booking.com and we have good but frankly not leading market share in the United States for hotel distribution and elsewhere, we're very, very small part of the market.

If you look at the places where we're not leading, it's a lot bigger opportunity than the one place we're leading which is Europe.

All right, thank you.

Thank you.

The next question comes from Russ Sandler of RBC Capital Markets.

Thanks, guys.

Two good questions.

Did you see the booking window compress in 3Q and if so, how does visibility factor in your guidance for 4Q.

Then just a clarification on the tougher comps comment for 4Q.

Does the trend you're seeing in November and December, is that a way to -- overall bookings growth or is it more in the volume growth and why wouldn't you see more meaningful ADR comp improvement in 4Q.

Thanks.

I'll take the second question first.

As it relates to ADR, we're expecting improvement relative to Q3 and not qualifying it other than to say we think it will be better.

That is reflective of the fact that while maybe things are turning, we are still in a recession, we have an unemployment rate north of 10% and the business traveler, which, to a large degree, impacts occupancy rates and, therefore, ADR is still weak.

We're not necessarily predicting a dramatic turnaround in ADRs but happy to see them stabilize and improve a bit.

The difficult comps really relates to units.

Obviously, as Jeff mentioned, we potentially have a tailwind internationally with respect to FX and obviously maybe a bit of an improvement year-over-year and the decline in ADRs, so, it's really driven by units.

As for the booking window, we don't have anything remarkable to comment on there.

It's been steady.

We obviously, because we generate bookings in October, we have some visibility that are foreign to the revenue picture what it looks like internationally where we recognize revenue when people check out.

Most of the revenue and gross profit that we generate is generated by the Opaque business where we recognized that at time of booking.

So, it's not like we can sit here in the first week of November and say that we know that we have very, very clear visibility to November and December.

Okay, thanks, guys.

Thank you, our next question comes from Michael Millman of Millman Research.

Thank you.

I also wanted to ask two questions.

The first, looking at European hotels, seeing a differential in growth when you look at local guest staying in local areas or are you seeing local areas vacation organization going into the lodge or hotels, lodge and destinations or are you seeing, I guess, the third alternative is people from the lodge of destinations from London going more and more spreading out into secondary and tertiary hotels and taking claims as opposed to driving.

And the other question relates to rental car companies, you're up 12% in units in the third quarter and to what extent is that Opaque to what extent is it just agency and related to that.

The racks keep telling us how they reducing, reducing their fleet and so are you seeing that and , on the Opaque rental cars, do you have a inventory given to you for the coming quarter or is it almost, you go up and say what have you got for us today?

Thank

Okay, why don't I take those in reverse order.

So, with respect to our arrangements with the rental car suppliers on the Opaque business, the inventory is dynamic, our suppliers provide us with rates when they have a need to increase their fleet utilization and so we don't have any forward commitments and we don't seek from the product for the supplier is a management tool is that use it as such.

With respect to your second question, there is no question that the rental car companies have skinny down their fleets in order to make sure that they can maintain yield integrity and that absolutely has had an impact on Opaque ability from time to time and has been a headwind for the Opaque rental car business.

We are fortunate to have a very broad distribution of retail rental car product and we designed our website to deliver the best available deal foot customer no matter what the supply environment is.

So it really is a one-stop shopping experience for the customer and if there are good Opaque rates available, we have them so there is no need for the customer to go any further.

With respect to trends in terms of visitation and travel and the European hotels, we don't happen to have those at our fingertips and that is not the kind of thing we would share, anyway.

It really gets into distribution strategy and marketing opportunities and this is not something we would be prepared to discuss.

Is there any 30,000 foot view for you that you can shed?

I think that the 30,000-foot view that I would spread is leisure travel in the European market has been stronger this summer than most people thought it would be at the beginning of the year and they're just a number of continuing robust tailwinds to leisure travels in general, the low-cost airlines are continuing to provide travel with the opportunity to fly for very, very low prices, which is facilitating a short breaks, north, south travel when the weather is lousy, there is a lot of hotel discounting out there making it attractive for travelers to stay at the hotels.

Those would be a couple of 30,000-foot trends in part behind the results you have seen from us and some of our competition.

Thank you.

Thank you, our next question comes from Michael Olson, Piper Jaffray.

All right, thank you, good afternoon.

A couple of quick ones here.

You touched early on international expansion.

You can talk about how you prioritize the geographies outside of the US and Europe, what are the top two focus areas and, second, certainly the foot present of Opaque customers is growing through the downturn.

Are there any metrics you can share or any way you can quantify how big the Opaque customer footprint is now compared to maybe Q3 last year.

Thanks.

You mean with respect to expansion geographies, I mentioned a few of them and answered two a previous question.

We like to refer to it in the international business as planting seeds as we have done in Eastern and Central Europe and Southern Europe as well.

The Western European markets are much, relatively more heavily penetrated and developed from an online travel perspective whereas the eastern, central and southern markets less sell and with important opportunities still.

Asia is an important opportunity for us and we have two businesses there, the Booking.com business which has a advantage in entering that market because it can show up to the hotels with a sizeable pool of European demand that is interested in the Asian market as well and this, I motioned previously, Agoda is doing well there also.

And we continue to open up other markets opportunistically in the Middle East in South Africa, Sao Palo, Brazil, and all great markets for us and so that we're planning for the future.

With respect to growth in the Opaque product, we have been pleased by the new customer growth we have seen over the years.

I think our advertising has done a great job in bringing people to the website and we work hard to make the Opaque opportunity attractive for customers on the website and I don't think there is anything demographically significant we're aware of.

I think it's just a broadening of the appeal as are more and more concerned with value and more willing to explore the tradeoffs as we have said in the past our hope is when they come for the first time, they have a very good experience, satisfied and we have a good chance of getting them back and our repeat metrics for the products give us reason for that hope.

All right, thanks.

Thank you, our final question for today comes from Doug Anmuth of Barclays.

Thank you, I hoped you could talk about marketing spend more and how you can talk about how much you think you benefited in a environment where your competitors have pulled back here and as you look to 2010 with the possibility of your biggest competitors sort of coming back and spending more money again now that the fee cuts will be lapsed next year, how you think that is going to impact your plans.

Thanks.

I think that the pullback that we have seen from the competition has been a benefit for us.

You can't quantify it but certainly when that much money comes out of the marketplace by your competition, it's got to do something for you.

I think what happens next year is opened to an analysis and debate.

On the one hand, there will be an anniversary of the fee cuts and the generation of new business that created on the website and on the other hand, you're going to be lapping earnings results that reflect a benefit of reduced marketing spend.

So I don't think that it a a foregone conclusion that it will be free in the case of Orbitz to re-inject $38 million into their marketing spend in the third quarter of next year.

I think the pressure that puts on is the earnings comp and is significant.

So my expectation is not that there is going to ab a flood of marketing trend to make up for anniversary and fee cuts.

I think the competition and this is the way we approach it will be ROI driven and execute on a rational marketing strategy that is accretive to their earnings.

Okay, great.

Thank you.

All right, thank you all very much for participating in our call.

Ladies and gentleman, this does conclude your program.

Thank you for your participation and have a wonderful day.

You may disconnect at this time.