Booking Holdings Inc (BKNG) 2010 Q3 法說會逐字稿

Welcome to the Priceline group's third quarter 2010 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, 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 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.

Now I'd like to introduce the Priceline group speakers for this afternoon, Jeff Boyd and Dan Finnegan.

Go ahead, gentlemen.

Thank you very much.

Welcome to the Priceline group's third quarter conference call.

I'm here with Priceline 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 questions.

The Priceline Group consisting primarily of Booking.com, Priceline.com, Agoda.com and Travel Jigsaw reported consolidated gross bookings for the third quarter of approximately $4 billion up 47% year-over-year.

Non-GAAP net income was $272 million, or $5.33 per share versus $3.45 the prior year.

Third quarter results surpassed First Call consensus estimates of $4.97 per share and the high end of our guidance for the quarter.

Worldwide hotel room night reservations were 27.5 million for the quarter, up 54% year-over-year.

Growth in room night reservations for the international business exceeded our expectations driving 78% international gross bookings growth on a local currency basis, a sequential increase from 67% in the prior quarter.

International gross bookings benefited from strong transaction growth in core western European and North American markets, an improvement in average daily rates and increasing contribution from high growth new markets.

I want to provide on a one-time basis some data on our progress in new markets to help size their contribution to our international results.

Booking.com and Agoda have made excellent progress in building the group's business in the Asia Pacific region.

The combined business of Agoda plus Booking.com's business for A-Pac destinations was approximately $780 million for the 12 months ended September 30, and the third quarter growth rate for that business was just shy of 150%.

Booking.com has also made substantial progress in South America.

Gross bookings for South American destinations were $96 million for the trailing 12 months and the third quarter growth rate was in excess of 300%.

Further, in both markets our brands are building point of sale businesses which are of comparable size and growing at impressive rates as well.

For example, booking.com's point of sale business in South America for the same period was $265 million in gross bookings and growing at 133% in Q3.

When comparing these results to other on-line travel agents in the region, keep in mind that these were only hotel reservations where others may have substantial lower margin airline ticket business in their gross bookings figures.

In addition to geographic expansion, growth in hotel inventory and adding results from Travel Jigsaw also helped drive strong top-line growth in the third quarter.

Booking.com continues to build its supply platform worldwide with a hotel count of approximately 105,000 hotels in 92 countries.

Agoda continues to build its business in the Asian region and again reported triple-digit year over year growth in gross bookings contributing to the overall international and merchant growth we are reporting.

The business has performed well following civil unrest in Thailand and is well positioned for its seasonally important fourth quarter.

Travel Jigsaw delivered solid growth in rental car unit sales in the quarter and the sharing of best practices and other integration steps are proceeding well.

Priceline.com's domestic gross bookings grew 12% in the third quarter aided by strong hotel results and a turnaround in the opaque rental car business.

The US hotel business benefited from availability of promotional inventory and expansion of booking.com inventory made available on priceline.com.

When this growth is combined with North American business booked directly on booking.com, which is a great site for domestic travelers to book international destinations, our North American business is one of the group's fastest growing core markets.

Merchant gross bookings increased 41% as merchant hotel gross bookings both at Priceline and Agoda and the addition of merchant rental car bookings from TravelJigsaw offset year-over-year decreases in opaque airline ticket sales where reduced industry capacity continued to pressure inventory available for opaque discounting.

For the group consolidated operating margins improved during the quarter due to advertising and operating expense efficiencies.

The Priceline group has sustained high levels of gross bookings growth for the first nine months of this year.

We believe the scale of our international hotel network is allowing us to achieve high levels of growth in both core markets which benefit from our growing ability to tap worldwide demand, and in new markets where growing hotel inventory is booked by both local and international travelers.

Cyclical improvements in travel demand evidenced by growing ADRs has also helped.

Finally, but importantly, we believe hard work and execution by our teams in building supply and content, website innovation, distribution, and integration benefits have helped to deliver market leading growth.

In summary, the business performed well in the third quarter and continues to show solid demand in pricing trends.

I would like to thank my colleagues around the world for their hard work and dedication.

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

Thanks, Jeff.

I'll discuss some of the highlights and operating results and cash flows for the quarter, and then provide guidance for the fourth quarter 2010.

We were pleasantly surprised by our top line results in the quarter as room rate growth accelerated after we reported our Q3 guidance in early August.

Hotel room nights booked grew by 54% in the third quarter versus last year as compared to the unit growth rate of 48% that we posted in the second quarter.

The acceleration growth rate in Q3 is certainly somewhat attributable to the negative impact on gross bookings in Q2 caused by the eruption of the volcano in Iceland.

We saw strong performance in our key European markets that was likely to some degree also helped by diminished concerns over sovereign debt issues.

Our continual efforts to improve the user experience on our websites are also a contributing factor.

Lastly, as Jeff highlighted, our newer markets like Asia Pacific and South America continue to grow as a percentage of our business and are, therefore, having a more pronounced impact on our total growth rate.

These markets are growing both from a destination and point of sale perspective as we add new hotels and customers to our network.

Average daily rates, or ADRs, were also favorable to our assumption for guidance.

ADRs were up by about 4% for our international hotel service and by over 5% for our domestic hotel service for Q3 2010 compared to prior year third quarter.

The strong performance from a unit growth and ADR perspective drove total gross booking dollars to grow by 47% for Q3 compared to prior year.

FX rates for the third quarter were unfavorable to prior year rates and, therefore, adversely impacted our gross bookings growth expressed in US dollars.

The average exchange rates for the euro and the pound versus the dollar were down by 10% and 6% respectively in the third quarter of 2010 versus the third quarter of 2009.

Our international gross bookings grew by 67% and by 78% on a local currency basis for Q3 2010 compared to the prior year Q3.

The local currency growth rate of 78% compares favorably to the 67% local currency growth rate for Q2.

Travel Jigsaw, the UK-based merchant rental car reservation service we acquired in May 2010, contributed $85.8 million in gross bookings in Q3 which is its peak seasonal travel quarter.

Rental car days booked were up by 97% versus third quarter 2009 including the impact of Travel Jigsaw.

Our US rental car service also had a good quarter with a 23% increase in rental car days helped by continued strong demand and better access to supply for opaque rates.

Airline tickets booked were down by 5% in the quarter and average airfares weren't up as much as we assumed when we gave guidance.

As a result, domestic gross bookings growth of 12% was slightly below our guidance but the impact on gross profit was negligible.

In summary, room night growth and ADRs were favorable to the assumptions used for guidance resulting in earnings performance that exceeded the top end of our range of guidance.

Gross profit was $666 million and grew 54% as compared to prior year.

Our international operations generated gross profit of $530 million and grew by 68% as compared to the prior year.

Gross profit for our domestic business amounted to $136 million, which represented 16% growth versus prior year and acceleration compared to 14% growth posted in Q2.

Total operating expenses were generally in line with guidance.

Online advertising expense as a percentage of gross profit was favorable to the third quarter of 2009 and came in favorable to our guidance driven by improved advertising efficiency.

We recorded below the line expense in the quarter of about $11.7 million which is higher than the $10.5 million of expense we assumed in our guidance.

The variance relates mainly to FX hedging losses.

In summary, non-GAAP EBITDA for Q3 amounted to $363 million which exceeded our guidance range of $327 million to $337 million and represents 61% growth versus prior year.

EBITDA leverage, or EBITDA expressed as a percentage of gross profit, expanded by 260 basis points in the quarter versus prior year Q3.

In terms of cash flow, we generated approximately $305 million of cash from operations during third quarter 2010 which represents a 57% increase versus prior year.

We spent about $4 million on CapEx in the quarter.

We issued $122 million of cash in the third quarter to settle debt conversions.

This amount was comprised of $50 million of cash to repay debt principal and cash delivered of about $72 million in satisfaction of the conversion premium on the bonds.

On a year-to-date basis through September 30, the group has generated almost $600 million in cash from operations and raised $575 million of cash from issuing convertible debt in March.

We've put over $500 million of this cash to work during the year to date period.

We used $108 million for acquisitions, including the acquisition of Travel Jigsaw.

We bought back about $126 million worth of our common stock and used $295 million to retire substantially all of our remaining convertible debt issued in prior years, this included about $100 million paid in cash rather than by issuing common stock to settle conversion premium in excess of principal value.

As of September 30, our cash and investments of $1.5 billion exceed our outstanding debt balance by about $900 million.

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

We were pleased to receive an investment-grade rating in October from Standard & Poor's on our 2015 bonds.

The rating reflects the Company's consistent track record of strong financial performance and a solid balance sheet with reasonable leverage and excellent liquidity.

Now for fourth quarter 2010 guidance.

Our forecast reflects the continued strong performance in hotel room nights booked that we have seen thus far through Q4 and also includes Travel Jigsaw.

Our forecast assumes that exchange rates remain at the same $1.40 per euro and $1.62 per British pound as Friday's closing rates.

At or near these levels, exchange rates will have an adverse impact on our year over year financial results expressed in US dollars.

Specifically, euro and pound average FX rates for the fourth quarter would be down by approximately 5% and 2% respectively as compared to the prior year.

We have hedge contracts in place to substantially shield our fourth quarter net earnings from any further 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.

I highlight that the euro exchange rate we're using as the basis for our Q4 guidance is stronger than the rate of $1.32 per euro that was in effect when most analysts issued their forecasts that are the basis for the consensus estimate for Q4.

This move in exchange rates together with continued strength in the fundamental performance of the business result in guidance that exceeds analyst consensus forecasts for Q4.

We are forecasting total gross bookings to grow by 36% to 41% with domestic gross bookings growing by approximately 5% to 10%.

This domestic forecast assumes flat gross bookings for air and double-digit growth for hotel gross bookings.

We expect international gross bookings expressed in US dollars to grow by 54% to 59% as compared to last year and to grow on a local currency basis by approximately 58% to 63%.

Our fourth quarter guidance assumes that the rate of year-over-year increase for international and domestic hotel ADRs will improve further compared to the increases we experienced in Q3.

We expect Q4 revenue to grow year over year by approximately 31% to 36% and gross profit dollars to grow by approximately 49% to 54%.

For Q4 operating expenses, we are targeting consolidated advertising expenses of approximately $141 million to $146 million with about $6 million of that amount being spent for off-line advertising.

Online advertising expense as a percentage of gross profit is assumed to be essentially in line with prior year Q4.

We expect sales and marketing expenses between $29 million and $32 million.

We expect personnel costs, excluding stock-based compensation, to come in between $60.5 million and $63.5 million.

We expect G&A expenses of approximately $21 million to $24 million.

We expect information technology costs of about $7 million and depreciation and amortization expense, excluding acquisition amortization, of about $5 million.

We expect total below the line negative impact of approximately $6.5 million which is comprised primarily of foreign exchange hedging loss, net interest expense, and the charge for non-GAAP net income allocated to non-controlling interests.

We assume that losses will be incurred on our hedge contracts since the FX rates assumed for guidance reflect a stronger euro than the rates that prevailed earlier in the quarter.

Non-GAAP EBITDA is expected to range between $200 million and $210 million which at the midpoint represents 54% growth versus prior year.

We are targeting non-GAAP fully diluted EPS of approximately $2.91 to $3.06 per share which at the mid point represents 50% growth year over year.

Our non-GAAP EPS forecast includes an estimated cash income tax of approximately $43.5 million comprised of international income taxes and alternative minimum tax and state income taxes in the US where we have a sizable NOL to reduce our cash tax liability.

Our non-GAAP tax rate is increasing as compared to prior year due to more significant growth in international earnings as compared to domestic earnings.

Our non-GAAP EPS guidance assumes fully diluted share count of 51.4 million shares based upon Friday's closing stock price of $388.87.

We expect Travel Jigsaw to be very slightly accretive to non-GAAP EBITDA and EPS for Q4.

Q3 is Travel Jigsaw's most significant seasonal quarter from a P&L perspective as revenue was earned upon completion of summer travel.

As per expected GAAP results, we expect to report a GAAP EPS of $2.29 to $2.44 per share.

The difference between our GAAP and non-GAAP results is driven by non-GAAP adjustments to exclude stock-based compensation, acquisition related amortization, including amortization related to the acquisition of Travel Jigsaw, noncash interest expense for amortization of debt discount, noncash gains or losses related to early debt conversions, certain noncash income tax expenses and to include the impact on net income attributable to non-controlling interests of certain of the aforementioned non-GAAP adjustments to arrive at non-GAAP earnings.

We also intend to adjust non-GAAP results to exclude charges or benefits, if any, related to hotel occupancy tax judgments, rulings, or settlements.

As we have emphasized in recent quarterly earnings releases, we believe it is highly likely that we will experience sequential deceleration and quarterly year on year unit growth rates in the future due to the sheer size of the business and progressively more difficult comps as economic conditions continue to gradually improve.

Our Q4 guidance reflects the deceleration we have experienced thus far in the quarter and assumes that we will encounter further deceleration in growth rates as we proceed through the quarter.

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

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

Thanks, Dan.

We are pleased with our results for the third quarter and the current trajectory of our international hotel business which continues to perform well in our core western European and North American markets and continues to build business in new markets, both destination and point of sale.

Rental car business is also performing well at Priceline.com and Travel Jigsaw.

We will continue our investments in building our brands, geographic expansion and innovation as a foundation for future growth.

We will now take your questions.

Thank you, gentlemen.

(Operator Instructions).

Our first question comes from Ingrid Chung of Goldman Sachs.

Thanks, good afternoon.

I know that generally you don't talk about CPC trends, but I was wondering if you could tell us what's been driving your improving advertising efficiencies, and if you could talk to conversion rate trends, too, that would be very helpful, thanks.

Hi, Ingrid.

You're right, we don't talk about CPC trends, mainly because we're such a big player in a lot of the markets, that it would be sensitive competitively to indicate if we were spending more or less.

We also don't talk about what we're seeing with conversion.

It is an important feature that we work on trying to improve every day.

The one factor I guess that is out there that we have disclosed, and you can see, is that ADRs are improving, and so that certainly helps overall on ROIs.

Okay.

And just a follow-up.

I was wondering if you could speak -- you gave specific point of sale comparisons for -- sorry, for Latin America.

I was wondering if you could give the same stats for A-Pac.

I don't have the same stat for you, Ingrid, but what I said in the remarks is that the point of sale business is of comparable size, and growing at impressive rates.

And when you think about the Asian business, to the extent it includes business for Agoda, that's its whole business, which is point of sale Agoda business.

Most of that is Asian, but it's the whole business.

Okay, great, thanks.

Thank you.

Our next question comes from Imran Khan of JPMorgan.

Hi, thank you so much for taking my questions.

Two questions.

One, you were trying to build up Booking.com business in the US, expanding coverage in the US.

Could you give us some sense like where you stand in terms of developing Booking.com in the US?

How should we think about the development, and where we are in terms of building hotel coverage for Booking.com, and what kind of traction you are seeing?

And secondly, TravelJigsaw, I think, Dan, you talked about $85 million bookings for Q3.

Could you give us some sense like what was the year over year growth rate for TravelJigsaw?

Thank you.

Okay, Imran, with respect to the Booking.com business in the United States, the status of the hotel acquisition is that great progress has been made.

We have significant resources dedicated to the task, but there's still a very large number of hotels to go.

Keep in mind that we certainly work to try to sign up the most important hotels in the most popular destinations, particularly for European travelers first, so it's not going to be the exact same return as more and more hotels are added.

But Booking.com still has quite a ways to go to build out the kind of comprehensive inventory that is available on Priceline.com.

And with respect to TravelJigsaw and gross bookings growth, we are not going to disclose the absolute growth rate, but we're pleased with the growth rate that we're seeing.

Great.

Thanks, Jeff.

Thank you.

Our next question comes from Herman Leung of Deutsche Bank.

Great, thanks.

Just two quick questions.

First is on your ADR improvement in hotels over time in the fourth quarter, your assumptions between international and domestic, should we kind of expect the same type of ADR-type improvement into the fourth quarter?

And then second question is, just wanted to get an update on the tax credits on the Netherlands tax, if you can talk about that, give us a quick update on how we should think about that, that would be great.

Thanks.

Sure, Herman.

So we didn't disclose specifically the ADR assumptions for Q4, other than to say we do expect further improvement.

And there has been a pretty steady trend of improvement there, which would probably be the best thing you could look back to.

In terms of the tax credits in the Netherlands, we really don't have a lot of additional information we can give you compared to what we reported last quarter.

We're still in the process of negotiating and discussing with the tax authorities over there to what extent, if any, our earnings will qualify as being considered to be driven through innovation.

It's certain that it won't be 100%, because obviously there are activities that we do that wouldn't be considered innovative.

But that said, we consider that we believe that the business is extremely innovative, and that's what's enabled them to perform so well in the market.

So we're hopeful that the results will be good, but we really don't have any further information yet.

We're hoping that we'll have a resolution by the end of the year, but it's largely outside of our control.

We're waiting on the tax authorities to help us come to a final conclusion there.

Yes, just to be clear, on that Netherlands, so it's a portion of the R&D spend that you're doing on the Netherlands side, where you can actually apply a tax credit to.

Is that the right way to think about it?

It's really not an R&D tax credit in the way that people in the United States might be familiar with.

It's a provision of the law that says, to the extent that you can demonstrate that the Company's earnings, taxable income is derived from innovation, that those earnings so derived will be taxed at a lower rate, 5% versus the statutory rate.

And so it's really a question of determining to what extent your earnings are derived from innovation.

And then there's a phase-in period as well, in terms of how long the full impact of that innovation is attributed to your earnings, and as Dan said, those discussions are ongoing.

Got it.

Thanks a lot.

Thank you.

Our next question comes from Douglas Anmuth of Barclays Capital.

Great, thanks for taking the question.

You talked a lot about the APAC strategy, and also South America, but I was curious if you could talk about China, and in particular, if you think you need a bigger presence there.

And then, secondly, can you talk about what you can do to get the US business going again, and just how much is this a function of capacity issues versus increased competition or anything else that might be going on in the market?

Thanks.

Okay, with respect to the Asian business, the numbers that we read out earlier include business in China.

And while we don't have a large presence in China, we have hotels that are participating from China, and we have Chinese consumers who book reservations on our website.

That is a similar sort of organic strategy that Agoda and Booking.com have followed in other markets, and we're satisfied with the results of that effort so far, and hotel development efforts continue.

With respect to the US business, we're very pleased with how our US business is performing.

And when you think about the gross bookings growth rates, the principal difference between, I think the business that we reported today and some of the results that you may have heard from some of our competition, is that our airline ticket business probably has not performed as well as perhaps some of our competition.

And we are very disciplined about the extent to which we invest in marketing in that business, because the returns on it are so much less than the other merchant businesses we have.

And I think our air team is doing a great job running the business, but we're probably not as aggressive as some of our competition might be in investing and marketing that business, because it's just much more important for us to drive the hotel business, and the US hotel business is doing quite well.

Okay, great, thank you.

Thank you.

Our next question comes from Ross Sandler of RBC Capital Markets.

Guys, just two quick questions.

First, what impact -- I know this is kind of a high level hypothetical, but what impact would domestic airlines bypassing the GDS systems have on your domestic air business?

And if we make the assumption that all carriers decide to do what American is trying to do, how much operating expense would be required for you guys to connect directly?

Thanks.

Ross, I'll hit the impact first.

As we look at the gross profit generated by our entire airline ticket business, and that includes opaque and retail, and the opaque contributes a lot more gross profit dollars than the retail does, because of the long sustained growth in our hotel business and our international business, that's really become just a much, much smaller part of total gross profit dollars.

And so if, the gist of the first question is, would that somehow be material to us in the financial sense as classically defined by the accountants, the answer to that is clearly, no.

Having said that, we have, we believe, very good relationships with the airlines, and we certainly have the ability to do innovative things in our connections with the airlines.

And I think we provide to the airlines the lowest cost distribution that they have out there, and I don't believe that operating expense is required to continue to connect with them in ways that are acceptable to the airlines, is going to have any significant impact on our CapEx or anything of that nature.

There's an opportunity cost there, because as the IT resources we have dedicated to that product are working on things like back office connections, they're not working on innovation that's customer facing, and could ultimately help drive the business to grow faster.

Thank you.

Our next question comes from Justin Post of Banc of America.

Thanks.

Couple of things.

Thanks for that extra disclosure on Asia.

When you look at Asia versus Europe on a big picture, any thoughts on the relative market opportunity, one market versus the other?

And then a question on a concern some people have had, just on your hotel inventory.

Do you think search engines could ever have a really comprehensive list of hotel inventory in Europe for consumers to search from, or is that something that Priceline maybe has a sustainable advantage?

Thank you.

So with respect to Asia versus Europe, the markets are very different, and each has their own unique characteristics that make them both very attractive.

The European market is characterized, especially in western Europe, by very large and relatively affluent middle class that spends disposable income on travel.

And as a result, that has allowed the businesses we operate in Europe to grow at high rates, and become big in a reasonably short period of time.

In Asia, the population is huge, much bigger than Europe if you include China for sure, and the levels of general economic growth are much higher than the general macroeconomic growth in the European markets.

So you have the benefit of growing economies, and you also have the benefit of a travel market that's probably growing faster than it is in general in Europe or in North America.

I think the destinations are getting more travel from international travelers, and I think that Asian people are traveling more as they become more affluent, as they get jobs in cities.

And in the case of China, as it becomes legally permissible to do so, and you're able to get a visa, the destinations that are allowable for visas is expanding for the Chinese.

And I think that represents a pent-up market demand that over time should be very bullish for people in the travel industry in general.

So those are all good things about the Asian market that are a little bit different from Europe.

The one thing that I will say about Asia, and this is true for South America as well, is that you don't yet have the emergence of the very, very large affluent middle class.

That's a trend that will happen over many, many years, but it's not there right now.

So, while the numbers that we gave out earlier in this call are demonstrative of a very attractive business environment in those markets, I don't think that they have the potential to grow as big, as quickly as the European markets and North American markets did in online travel.

But they do have, at least in our estimation, the capability of growing to be very large over a long period of time.

Okay, and on search engine threat, just on their ability to actually get inventory, and offer a similar experience.

I think if you look at, the search engines today have access to all of the data that's really available on not only the hotel direct sites but all of the online travel sites, so that today the search engines have the ability to show a consumer almost every hotel in the world basically.

That's the nature of how they work.

So the question really is not whether the search engines are going to have access to those hotels.

It's really a question of how it's displayed, and what the model is for advertising.

And I think it's certainly possible over time that the search engines could display more information, more content, and even try to display current pricing, and I think people on this call know that there's steps being taken by Google to experiment with that.

And so the question is how much content do they show, and how do they display it, and then how do they use it to support advertising revenues on their websites.

And we certainly think that one of the predominant ways they're doing it today, and they will do in the foreseeable future is to take advertising from online travel agents, and use the ability that we have to have superior conversion of that lead, which allows us to pay an attractive price for it, will represent an attractive model for the search engines for some time to come.

Thank you.

Thank you.

Our next question comes from Michael Millman of Millman Research.

Thank you.

You mentioned that at least your air ticket business was down because you didn't promote it.

I was wondering what your sense of the business in fact is of the leisure travel business, assuming that is a reasonable proxy.

Could you also talk about the opaque car rental business, which you indicated was strong.

To what extent is that strength continuing from September, October, November, or has it gone in the opposite direction.

And then, Avis is participating with a lot of airlines, just recently announced.

And was wondering to what extent that might reduce the demand for rental cars through Priceline and other OTA's.

So, starting with the question about leisure travel from a macro sense, I think there's been a general reduction in the growth rates for airline tickets sold by online travel agents over the last couple of quarters, us included.

And I think that is more representative of the fact that our competition is now fully anniversaried, the benefits they got from cutting processing fees, and the growth rates are stepping down a little bit, or it's requiring more investment to maintain higher growth rates.

I think that things like airline capacity, which is still very -- under very sort of strict control in terms of growth, has something to do with that, and high airline ticket prices, especially compared to last year, also has an impact on leisure demand.

I think all of those factors I just mentioned could be a reason why you've seen a little bit of pressure on airline ticket growth rates, but having said that, I still view and we still view that demand for leisure travel has been reasonably robust.

And if you look at the results of our non-air businesses, they seem to be evidence of that.

Is that in the US, as well?

I beg your pardon?

Is that in the US, as well as the rest of the world?

Yes.

With respect to opaque rental car trends, we don't give guidance, forward-looking guidance by product in that sense, but the rental car business both in the United States and internationally continues to perform well, and I don't have a comment with respect to Avis and their programs with the airlines.

Thank you.

Thank you.

Our next question comes from Mike Olson of Piper Jaffray.

Thanks, good afternoon.

A couple of quick questions.

When you look at the outperformance in the quarter, what geography would you say is most surprising for you?

And is the outperformance that you saw in whatever that geography is, because of a high level of growth in that market, or is it just because you're taking share in that market, or a combination?

We've enjoyed, particularly with the international hotel business, a fairly high level of growth in our core markets.

And I define those to be the core western European markets, as well as North America.

And I think we've been pleasantly surprised at how those growth rates have held up, and I think we believe that's attributable to great work and execution by our teams on website improvements and conversion initiatives, and that sort of hard work that helps keep the business robust.

As well as integration initiatives like the sharing of inventory between Booking.com and Priceline.com.

And we also think it's in part attributable to the fact that the point of sale demand that's coming from outside those markets, that is coming from the new markets, is helping to hold up growth rates in the core markets.

It's really the network effect.

Thanks.

And then on the metasearch sites, they're definitely a channel for driving bookings to you.

You could also argue that they facilitate direct bookings to a greater extent by aggregating pricing from OTAs and direct sites side by side.

How do you think about that?

I think that historically, the metasearch sites have derived, at least to the degree that we can ascertain it, more of their income from selling advertising to online travel agents than they have from suppliers.

I think the suppliers have mixed feelings about empowering that channel in that fashion.

I think they have a mixed commitment of resources to try and put their best content forward on metasearch sites, and I think they have mixed policies about to what degree that they're willing to pay.

The second thing is that it's still, we believe, is the case, that for any given lead that's generated on a metasearch site has a better chance of converting at an online travel agent that has a full selection of hotels, great content, things like user reviews that really aren't available on supplier websites, and customers like shopping and booking on the online travel sites.

And I think all of those factors would support a continued significant flow of leads to the online travel sites.

Kayak has been very successful in building its metasearch business for airline tickets.

And as you look at the results that have been delivered by the OTA's in terms of selling airline tickets over the last couple of years, it's still pretty good.

Great, thanks very much.

Thank you.

Our next question comes from Sandeep Aggarwal of Caris & Company.

Thanks for taking my questions.

I have two questions, please.

One is, in your guidance for Q4 2010, what kind of airlines pricing trends are you assuming?

Do you think the higher than expected price increase or airlines can actually limit total demand.

And then we are curious to know what is Priceline's current view on acquisition of ITA by Google.

Dan, why don't you take the first one.

Sandeep, as far as our Q4 guidance goes, what I said is we're assuming that air gross bookings will be flat year-on-year.

We don't give details regarding units and pricing, but that's the sum product of our assumptions.

And with respect to the ITA acquisition, the Company's view on that has not changed since it was announced.

We can see some potential benefits to the OTA industry if Google's stated intent of using that kind of functionality to deliver the more qualified lead to the OTA is how they operate the business over time.

We've also expressed some potential concerns about the acquisition.

The Priceline Group has not been vocal in opposition to the extent that Expedia and some of the others, there's an alliance out there.

We're not a part of that alliance, but we've made our concerns known.

Thank you.

Thank you.

Our next question comes from Bill Lennan of Monness, Crespi.

Thank you, I have two, on western Europe and occupancy rates really.

As European occupancy rates start -- keep marching towards historic peak levels, are you seeing any evidence, or do you have any concerns that hotels will increasingly be able to take back share of their own inventory with respect to how it's sold?

The second question is again on western Europe.

Anecdotally, we look at Booking.com hotel counts versus the competition, and there seems to be modest growth over the last couple of months.

Are you where you want to be in western Europe with respect to number of hotels signed, and therefore, growth comes from taking more inventory, or should we expect western European hotel counts, particularly in the big cities, Rome, Paris, London, to keep increasing?

With respect to occupancy rates, there's no question that as occupancy rates go up, especially for peak travel periods, the challenge becomes more one of getting availability to make sure that your site has availability for the last available room at the hotel, and I think our teams around the world do a very good job of that.

I've said before, typically as business improves, the hotels continue to try to maximize the scope of their distribution, so they can raise rates as aggressively as possible.

And we think we have very cost effective distribution, and we want to have rooms available, if there are any rooms available, and I think we do a pretty good job of that.

With respect to hotel counts, Booking.com and Agoda continue to aggressively sign up new hotels.

I think for both businesses, a lot of those hotels are in new markets, and so if you're looking at the balance of hotels that are being brought online, you might see more coming on in Asia than in the more well established capital cities and European destinations, where you're getting closer to having most of the hotels that typically would be bookable.

Although there's always opportunities to increase your inventory, even in markets that are fairly well penetrated, but the Company certainly is intending to continue to aggressively sign up hotels.

You just may see the balance more in the new markets.

Thank you very much.

Thank you.

Our next question comes from Mark Mahaney of Citi.

Great.

A comment and a question.

First, to Bob Mylod, congratulations.

And then secondly, the question has to do with M&A activity going forwards.

Given what you've been able to so far succeed with TravelJigsaw, does that change your thinking about adding in, layering in new products to your international options or offerings going forwards?

Thanks a lot.

Mark, I think we're very happy with the TravelJigsaw acquisition.

It's off to a great start.

We think that the rental car business internationally is a very attractive business.

Would we potentially be more interested in doing something that was outside the hotel and the car hire space, like air and packages?

I think the airline ticket business in Europe is a challenging business for online travel agents, and we continue to think that.

I would never say never on something like that, but we think that the rental car business is much more attractive.

There appear to be no questions in queue.

Gentlemen, did you have any closing remarks?

Thank you very much for participating in our call.

Ladies and gentlemen, that does conclude your program.

Thank you for your participation, and have a wonderful day.

You may disconnect at this time.