Booking Holdings Inc (BKNG) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by.

Welcome to the Priceline Group's fourth-quarter and full-year 2011conference call.

Priceline would like to remind everyone that this call may contain forward-looking statements, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are not guarantees of future performance, and are subject to certain risks, uncertainties and assumptions that are difficult to predict.

Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statement.

Expressions of future goals and similar expressions reflecting something other than historical fact, are intended to identify forward-looking statements.

For a list of factors that could cause Priceline's actual results to differ materially from those described in the forward-looking statements, please refer to the Safe Harbor statements at the end of Priceline's earnings press release, as well as Priceline's most recent filings with the Securities and Exchange Commission.

Unless required by law, Priceline undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.

A copy of Priceline's earnings press release, together with an accompanying financial and statistical supplement, is available in the Investor Relations section of Priceline's website, located at www.priceline.com.

And now, I'd like to introduce the Priceline's Group speakers for this afternoon, Mr.

Jeff Boyd and Mr.

Dan Finnegan.

Go ahead, gentlemen.

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

I'm here with Priceline's CFO, Dan Finnegan.

I will make some opening remarks, and Dan will give a detailed financial review.

After the prepared portion, we'll take questions.

Priceline reported consolidated gross bookings for the fourth quarter of approximately $5 billion, up 52% year-over-year.

Non-GAAP net income was $276.8 million or $5.37 per share, up 58% versus prior year.

Fourth quarter results surpassed First Call consensus estimates of $5.05 per share, and our guidance for the quarter.

Worldwide hotel room night reservations were 33.6 million for the quarter, up 53% year-over-year.

For the full-year, Priceline reported gross bookings of $21.7 billion, up 59% from 2010, and non-GAAP net income per share of $23.45, a 74% increase over 2010.

Growth rates for our international business increased slightly on a local currency basis during the quarter, with 67% gross bookings growth.

International gross bookings growth rates benefited from increased ADRs, growth in new markets, and growth in hotel supply.

Booking.com continued to build its worldwide hotel supply platform, with now approximately 195,000 hotels and other accommodations in 160 countries.

Booking.com has maintained an impressive rate of new property acquisition.

Keep in mind, however, that many new properties, especially in highly penetrated markets are smaller, have fewer rooms and potentially lower ADRs, and may appeal to a smaller subset of customers, for example, hostels and bed and breakfasts, and therefore may generate less commission revenue overtime.

Booking.com's focus on new markets in Asia, South America and North America continues, with reservations to those destinations growing faster than core markets, and increasing as a share of total reservations.

Booking.com is also making substantial investment in people to promote and manage the expansion of its hotel and geographic base.

While high growth rates in new markets are encouraging, we believe Booking.com still has a substantial opportunity to grow in its core markets.

A recent study published by Eurostat, the statistical office of the European Union, reported 1.6 billion room nights stayed in 2011 in the 27 EU countries.

Priceline's Group-wide room nights booked in the EU 27 in 2011 represents a mid-single digit percentage of that total, although our share may be higher or lower in a given destination.

Priceline's domestic gross bookings grew 16% in the fourth quarter, due primarily to growth in sales of retail hotel room night reservations, retail rental car reservations, and growth in airline ticket sales and average ticket prices.

Hotel room night booking growth also benefited from higher ADRs.

Priceline's Opaque hotel service continued to be impacted by the increase in competitive discount offerings in the market.

Merchant gross bookings growth of 37%, primarily reflects growth in the merchant businesses of Agoda and RentalCars.com, formerly TravelJigsaw.

Agoda continues to build it's business in the Asian region, and continues to report impressive year-over-year growth in gross bookings, contributing to the overall international and merchant growth we are reporting.

These results were delivered despite the negative impact of the floods in Thailand, which caused the loss of some reservations and higher cancellations.

We are grateful for the team's efforts in dealing with the effects of the floods, and continuing to move the business forward.

In 2011, RentalCars.com substantially completed the transition of its business from a number of brands under TravelJigsaw, such as CarHire3000 to RentalCars.com.

For many years, the group has operated a retail offering in the United States with a RentalCars.com URL.

We believe RentalCars.com is one of the leading domain names for online rental car reservations, and the team is delighted to consolidate the US retail business with TravelJigsaw's international business, and drive investment to build the RentalCars.com brand worldwide.

We are very pleased with the growth of our brands in 2011, and with the progress each made in building it's franchise for the future.

As we have stated in previous calls, we expect growth rates to decelerate due to the large scale of the business we operate.

We are also cautious in view of continued challenging economic conditions, particularly in southern Europe where we believe austerity programs and recessionary conditions have had a negative effect on growth rates.

Our aim is to continue building our strength in new markets, gain share in core markets, and pursue innovation which we believe will allow us to build on our leadership position as the markets change.

In summary, the business performed well in the fourth quarter, 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 and operating results and cash flows for the quarter, and then provide guidance for the first quarter of 2012.

Growth rates mentioned in my remarks are in relation to the prior year comparable period, unless otherwise indicated.

Q4 was a strong quarter from a top line growth perspective.

Gross bookings grew by 52%, driven mainly by our worldwide hotel reservation business.

Hotel room nights booked grew by 53% in the fourth quarter, representing sequential acceleration, compared to the 47% growth rate achieved in Q3.

Average daily rates, or ADRs, were up on a local currency basis by approximately 2% for our international hotel service, and by about 6% for our US hotel service for Q4 2011.

FX rates for the fourth quarter for the euro and British pound were each about 2% unfavorable to the rates we assumed in our guidance, and about 1% unfavorable compared to the prior year.

Our Q4 international gross bookings grew by 65.5%, and by 67% on a local currency basis, in both cases exceeding the top end of our guidance range.

The guidance we gave on November 7 was based upon actual results through that date, and as we said on the call, the assumption that growth rates would decelerate as we proceeded through the remainder of the quarter.

Hotel room night growth rates for our international business instead accelerated through the remainder of the quarter.

And as we'll see in a moment when we discuss guidance, these bookings are expected to contribute to gross profit growth in Q1 upon checkout.

Performance was generally strong across all regions, with newer markets for Booking.com, namely North America, Asia-Pacific, and South America, growing well in excess of our consolidated growth rate.

But we did see softer growth rates in ADR trends for certain southern European countries.

Rental car days booked were up by 34%, driven mainly by strong growth for our RentalCars.com business.

The RentalCars.com team has done a good job of transitioning the brand and building their infrastructure.

The business delivered results in 2011 that exceeded our expectations, and is off to a good start in 2012.

Gross bookings growth for our US business of 16% exceeded our forecast for 13% growth.

Strong growth in retail hotel room nights booked and higher ADRs were key drivers in year-over-year growth.

Name Your Own Price hotel room nights declined slightly, likely as a result of competitive discount hotel initiatives.

Airline tickets booked were up by 6% in the quarter, reflecting good growth in retail airline tickets, partly offset by a modest decrease in Name Your Own Price tickets due to limited availability to discounted tickets resulting from further capacity cuts by the airline industry.

An 11% increase in average retail ticket prices also contributed to gross bookings growth.

US rental car business had a good quarter, helped by strong retail bookings, and availability of discounted rates for its Opaque business.

The strong gross bookings performance helped drive bottom line results that exceeded the top end of our range of guidance and First Call consensus.

Gross profit for the quarter was $725 million, and grew 51% as compared to prior year.

Our international operations generated gross profit of $609 million, which constituted an increase of 63% as compared to the prior year, and an increase of 66% on a local currency basis.

Gross profit for our US business amounted to $116 million, which represented 10% growth versus prior year.

Non-GAAP operating income as a percentage of gross profit amounted to 46.5% for Q4 2011, as compared to 46.1% for the prior year.

Operating expenses grew slower than gross profit, resulting in 40 bps of additional operating leverage.

However, online advertising expense as a percentage of gross profit was 220 bps higher than prior year, primarily as a result of business mix.

Our international business, which relies more on online advertising spend, grew at a faster pace than our US business, driving the mix impact.

In addition, our Priceline US business continues to see an increasing share of its business coming through paid channels.

Adjusted EBITDA for Q4 amounted to $344 million, which exceeded our guidance range of $310 million to $330 million, and represents 54% growth versus prior year.

Non-GAAP net income grew by 58%, including a lower year-over-year cash tax rate due to the Innovation Box tax benefit in the Netherlands, and a lower statutory rate in the UK.

In terms of cash flow, we generated approximately $282 million of cash from operations during fourth quarter 2011, which represents a 57% increase versus prior year.

We spent about $17 million on CapEx in the quarter, and we spent about $47 million on a full-year basis, which represents a sizable increase compared to prior year.

The spending is principally for additional IT capacity and office build-outs to support growth and geographic expansion, including new office facilities for Booking.com in Amsterdam and the UK.

We expect future CapEx spending to also be higher than historical prior year levels, as we continue to spend to support business growth.

At quarter close, our cash and investments of $2.7 billion, exceed our outstanding debt balance by about $2.1 billion.

We also have our $1 billion revolving credit facility that is undrawn, and does not expire until 2016.

Now for first quarter 2012 guidance.

We are forecasting total gross bookings to grow by 33% to 38%, with US gross bookings growing by approximately 10%.

We expect international gross bookings expressed in US dollars to grow by 41% to 46% as compared to last year, and to grow on a local currency basis by approximately 43% to 48%.

Our guidance assumes that ADRs for Q1 will be flat to up slightly for our international hotel service, and up by about 5% to 6% for our US hotel service.

Our Q1 forecast assumes that exchange rates remain at the same $1.34 per euro and $1.59 per British pound as Friday's closing rates, which would result in average exchange rates that would be weaker by 3% for the euro, and by 2% for the British pound as compared to the prior year.

Although the euro has increased in value versus the US dollar recently, it is important to remember that, given challenging economic conditions and the sovereign debt issues facing Europe, we are likely to see volatility in the euro/dollar exchange rate which can materially impact our results expressed in US dollars.

We have hedge contracts in place to substantially shield our first quarter EBITDA net earnings from any fluctuation in the euro or pound versus the dollar, between now and the end of the quarter.

But these hedges do not offset the impact of translation on our gross bookings, revenue, gross profit and operating income, and do not hedge our earnings beyond the first quarter.

We expect Q1 revenue to grow year-over-year by approximately 22% to 27%, and gross profit dollars to grow by approximately 40% to 45%.

We expect non-GAAP operating income to grow at a slower pace than gross profit, mainly due to deleverage on online advertising expense, though we expect to continue to see a trend of our business mix shifting to international and online paid channels.

In addition, we assume that Q1 margins will be impacted by our continued investment in people, offices, IT expenses, and increased depreciation expense related to CapEx to support the growth of our business.

Adjusted EBITDA is expected to range between $243 million and $253 million, which at the midpoint represents 43% growth versus prior year.

We are targeting non-GAAP fully diluted EPS of approximately $3.80 to $3.90 per share, which at the midpoint represents 45% growth over prior year.

Our non-GAAP EPS forecast includes an estimated cash income tax rate of approximately 16%, comprised of international income taxes, and alternative minimum tax and state income taxes in the US.

This rate reflects the estimated impact of the Innovation Box tax benefit in the Netherlands.

We expect our full-year 2012 cash income tax rate will be approximately 4 to 6 percentage points lower than it would have been if we did not have the Innovation Box tax benefit.

Our GAAP EPS guidance -- our non-GAAP EPS guidance assumes a fully diluted share count of 51.7 million shares, based upon Friday's closing stock price of $590.41.

We expect to report GAAP EPS of $3.10 to $3.20 per share for Q1.

The difference between our GAAP and non-GAAP results is driven by non-GAAP adjustments that are reconciled in detail in our earnings release.

Our guidance reflects the growth rate deceleration observed in our actual results to date, and assumes continued deceleration through the remainder of the quarter.

We believe that the gross bookings growth rates inherent in our Q1 guidance are likely impacted by a challenging comparable quarter for Q1 2011, in which we experienced acceleration in growth rates as compared to Q4 2010.

Our Q1 2012 growth rate also likely been impacted by extreme weather across Europe, and the impact of weak economic conditions and sovereign debt concerns in Europe.

We believe that our reported results demonstrate considerable resilience, given the macroeconomic uncertainty that prevailed throughout the quarter and continues today.

While this uncertainty has not had a pronounced impact on our results to date, we have seen short-term volatility in our unit growth rates, and increased cancellation rates for our international business, which makes it more difficult to forecast trends.

In addition, as I mentioned earlier, we have observed weaker transaction growth rates and ADR trends for certain southern European countries, likely due to economic conditions and sovereign debt concerns.

If these problems were to intensify or spread to other key markets, our business would be adversely impacted.

I want to take a moment to comment on a few industry and market factors, as we look to the balance of 2012.

A number of our competitors have experienced substantial margin compression as part of a program of investment to position their businesses for growth.

On the other hand, our Group has seen improvement in operating leverage over the past several years.

While we do not currently foresee substantial margin compression associated with large IT platform rebuilds and the like, there are factors that could put pressure on margins going forward, including continued growth in the mix of paid online business, decreases in marketing ROIs tied to click costs, pressure on unit economics or conversion rates, high growth in markets like Asia which are at an earlier stage of development and have lower operating margins compared to more mature markets, and continued investment in geographic expansion and hotel additions, which may, as Jeff just discussed, provide diminishing returns over time.

We also continue to be generally cautious in our outlook for top line growth, given the uncertain worldwide economy, potential currency headwinds affecting our results expressed in US dollars, and expected sequentially decelerating growth rates for a very large business, comparing against high transaction growth rates in each quarter of 2011.

Our forecast does not assume any material change in macroeconomic conditions in general, and conditions in the consumer travel market in particular.

We will now take your questions.

(Operator Instructions).

Our first question or comment comes from the line of Mr.

Stephen Ju from Credit Suisse.

Your line is open.

Good afternoon.

Congratulations on a good quarter.

As we look out at the balance of 2012, this is a year in which have series of major soccer and Olympic tournaments all hitting Western and Eastern Europe all during the year.

Any color you can give us, in terms of what the impact, if any, your business might be -- what has been the impact in the past with the 2006 World Cup in Germany also?

Thanks.

Stephen, our business is so diverse now geographically, that we typically don't notice the impact of an event like that showing up, and having a dramatic impact on our consolidated results.

The World Cup, years back, at one point we thought that it helped our growth rate, and then a year later we determined that it likely hurt our growth rate.

So it's hard also to determine the specific impact of these events when you've got a business that's growing at very fast rates.

That said, we are focusing in the UK to make sure that we've got good availability during the Olympics.

And it's likely that that would drive some higher ADRs in that market, and those are positive factors for us.

Thank you.

Our next question or comment comes from the line of Mr.

Brian Nowak from Nomura.

Your line is open.

Thanks.

I was curious about if you could speak to some of your most recent most -- most recent APAC trends and if you're still seeing the triple digit bookings growth you were seeing a few quarters ago?

And then, also, any more clarity on the relative regional growth rates you're seeing with Booking.com, and how the North American growth rate compares to APAC, or the Latin American growth rate?

Thanks.

We typically do not break down regional trends.

What we've said in this call and in prior calls, is that for the international hotel business and for Booking.com, new markets include APAC, South America and North America.

And that those businesses are growing more rapidly than the core Western European markets, and that was our trend observed in the fourth quarter.

We haven't given any more detail beyond that.

Our next question or comment comes from the line of Mr.

Ross Sandler from RBC Capital.

Your line is open.

Hi, Dan, I just have two quick questions.

First, you mentioned flat to slightly up ADR for 1Q.

The question is, if ADR starts to potentially go negative in 2012, how does that impact unit economics and overall EBITDA to gross profit?

The second question is, now that TripAdvisor is separated from Expedia, could that potentially be a bigger source of in-market traffic?

And how does the ROI compare on TripAdvisor versus Google?

Thank you.

Well, on the first question, Ross, weakening ADRs have a negative impact on our business.

And first of all, that means the price of the hotel stay is lower, and we get a percentage of that daily ADR and so our take goes down.

It can have a negative impact on our operating leverage as well, because it means that the unit economics for our online advertising are adversely impacted.

And so that's one of the items we were referring to there, when we say this is something we look at and worry about for going forward, that we've been lucky, or we've been fortunate over the past several quarters to have strong advertising efficiency for online advertising.

But that could certainly change due to factors outside of our control, such as how ADRs move, or what happens with click costs.

So that would have a potentially negative impact on that metric, which could drive pressure on our operating margins.

And with respect to TripAdvisor, they are a good source of traffic for us now, and a good advertising partner for us.

We continue to look for ways to improve our business with them.

With respect to the ROIs on TripAdvisor, we wouldn't comment on what the relative ROIs are versus any other paid channel.

But suffice it to say, that they are attractive enough for us to do significant business with them.

Our next question or comment comes from the line of Mr.

Naved Khan from Jefferies.

Your line is open.

Yes, thanks.

Jeff, you spoke about negative impact from extreme weather in Europe.

Can you quantify the impact, and what's in your guidance for Q1?

And then I have a follow-up.

We don't have a specific quantification for the impact of extreme weather.

Many of you saw in the papers, there was a period of weeks where there was extreme cold in Europe that was experienced as far south as Rome, a very unusual cold snap.

And we believe that had an impact on the business during that time, but we don't have a quantification of that for you.

Okay.

Thanks.

And then in the US, obviously, it seems like you're emphasizing more towards the online advertising versus TV ads.

As you look to sort of reposition the business, is it that you're turning away from Name Your Own Price, and focusing more on hotel-only kind of business, or how should we be thinking about it?

There's no question that the dominant theme in our television advertising in the United States this quarter, is around retail hotel product where you don't have to bid.

And we think that campaign is -- has been very successful and has created a lot of PR buzz, in terms of generating awareness.

That's certainly not to say that we are de-emphasizing or in any way walking away from the Name Your Own Price business, which continues to be one of our signature products, and great value for consumers.

But our research with consumers has shown us over the years that there still are a very large number of US consumers that don't even really know that Priceline.com offers full retail hotel product.

And having made the investment to build that inventory to be one of the largest inventories available, and many more choices for consumers, we thought it was important to underline that at this point in time.

Our next question or comment comes from the line of Mr.

Mark Mahaney from Citigroup.

Your line is open.

Thanks.

Two broad questions.

First, in terms of thinking about Asia-Pacific and Latin America, in terms of the marketing, branding that you want to do with those names -- what I'm trying to get at is do you think this is still a multi-year approach you're going to need to take, in order to continue to build out the Agoda brand, to continue to build out the Booking.com brand?

Do you feel like you're halfway through that kind of invest -- marketing investment cycle or quarter of the way, anything you could do to quantify that?

And also could you also talk broadly about the rental cars business going forward?

And how -- if there's a way you think about how big that could be to Priceline, over the next three to five year time horizon.

To the extent to which you think it's an easy cross-seller, or is a completely separately run business?

Thank you.

Okay.

Mark, so with respect to APAC branding, it's definitely a multi-year investment.

If you look at how long both Agoda and Booking.com have been in the APAC market, the relative market share that both brands have, the massive size of that market, especially when you take into consideration China and Japan, which have very, very low penetration of multi-national online travel agents selling in-market, we have to look at that as a multi-year opportunity.

We view that as good news, because it means we have a -- if we can execute a long period of growth to look forward to -- and keep in mind that we've been investing in those markets for years.

And we're able to do so, I think with still having a respectable margin situation -- put another way, we make money in APAC.

We're not deficit spending.

It's just that the margins in that market are not as high.

The operating margins, as they are in other markets where we've been operating for a longer time.

With respect to RentalCars.com, we're excited about the opportunity for RentalCars.com.

But we are mindful of the fact, that the rental car market internationally is a much smaller market than the hotel market.

And therefore, the opportunity to grow, and to grow to be of a material size to the Group is something that's going to take longer.

While there is some cross-sell that we do take advantage of, we'll continue to take advantage of, RentalCars.com is going to have to be successful completely independent of that, because the cross-sell opportunities are not going to be enough to really build that into a giant business by themselves.

And so that's one of the reasons we're excited about the rebranding, because we think under one URL, a URL as good as RentalCars.com, you've got a real shot at building a very strong international brand that can stand on its own.

Our next question or comment comes from the line of Mr.

Heath Terry from Goldman Sachs.

Your line is open.

Thank you.

I know you don't want to go into specific detail regionally but can you give us a sense of where you're seeing the strongest cross-border activity, particularly for Booking.com, to the extent that you're starting to see some traction in the US?

And then what kind of traffic into Asia you're seeing, particularly relative to the intra-market that Agoda sees?

Heath, we don't, as you know, give a lot of detail on this.

Just speaking very broadly, if you look at Booking.com's business in a lot of these new markets, it's driven in the first instance by the very substantial pool of international travelers that Booking can access, because of its network around the world.

So the entrance into these markets is often driven by the international traveler.

And as Booking.com is able to build up significant inventory and significant content in local languages, the domestic traveler comes next.

It wouldn't be surprising if the domestic traveler was initially more interested in international destinations because Booking.com has the best international inventory.

But over time, our hope is that Booking.com is able to drive a significant purely in-country business.

And that certainly has happened in Western Europe.

With respect to Asia in particular, relatively speaking, Agoda is more driven by the Asian traveler, and Booking.com is more driven by the international traveler.

Our next question or comment comes from the line of Mr.

Tom White from Macquarie.

Your line is open.

Thanks for taking my question.

There's been a recent spike in fuel costs.

I was wondering if you could talk a bit about the impact of any prolonged increase in fuel cost on your business, and parse it out by product, air versus hotel?

And also, if there's any interesting differences by geography?

Thanks.

Well, Tom, we haven't seen any impact in our results to date.

I think the Q4 results are strong, and the Q1 guidance is positive as well.

But certainly something that takes a big bite out of discretionary spending available for travelers is not a positive factor for our business.

So if fuel prices go higher or stay elevated for a prolonged period of time, that's a negative factor but it hasn't had a negative impact to date.

In terms of parsing it by segment or travel, I mean, higher fuel pricing typically drive even higher airline ticket prices.

We've already seen that over the last several quarters, even without the dramatically higher fuel prices.

So we've already been contending with that.

Higher ticket prices also make it harder for leisure travelers to be able to afford to travel.

And that's not helpful, but since our business is predominantly hotel-centric, to the extent they still travel by car or train or shorter flight, we would hope to have the ability to tap into that booking.

Our next question or comment comes from the line of Mr.

Kevin Crissey from UBS.

Your line is open.

Hi.

Thank you very much.

You've got a nice cash balance.

Any thought acquisition opportunities, and thoughts on entering the corporate travel management market?

Well, we're happy, we have a good, strong cash balance, and we don't feel any pressure to spend that in a hurry.

We look at every acquisition opportunity that comes into the market.

And we would look to be involved with acquisitions in the future as we have in the past.

And then we also look at buying our stock back from time to time on an opportunistic basis, and we would likely continue to do that in the future as well.

We've got our convertible debt that doesn't come due until 2015, but that would be a use of cash as well.

In terms of getting more involved in corporate managed travel, we don't see that at this point in time, Kevin.

It's an area that as you've tracked, Egencia for Expedia, it's not a very profitable business.

It's very high touch, a lot of gross bookings, not a lot of profit to it.

So it's not a priority for us at the moment.

Our next question or comment comes from the line of Tracy Young from Evercore.

Your line is open.

Hi.

I don't know if you'll answer this specifically, but you did mention that there would be an increase in CapEx.

Is there anything that we should expect in terms of projects in Asia, or something that would be a significant boost in CapEx?

And then also, the domestic bookings is 10%.

You did mention the ADRs are up about 6% for the quarter, so that seems a little bit low.

Is there anything you can provide as far as guidance on that?

Why don't I -- I'll hit the CapEx question, and Dan can hit the domestic growth question.

And the short answer is, there is no particular IT project that we would point you to.

If you look at our CapEx increases, it's typically been for general IT build out to handle growing traffic loads associated with growing business, and to a degree the expansion of our office space.

We hired a substantial number of employees in 2011.

Our office needs have grown.

We have new office space in Amsterdam, as well as in the UK for Booking.com, so there's some office space build out in there as well.

And Tracy, on the domestic growth rate question, we said ADR is up 5% to 6% for Q1.

And you're right, we are projecting about 10% gross bookings growth.

So if you look at what we talked about for Q4, we've had strong growth in our retail hotel room night bookings, and that trend is likely to continue.

We've had some modest declines in our Name Your Own Price hotel business, which is our biggest business in the US, and so that has a negative impact on growth rates.

Besides that, you can have some volatility in Name Your Own Price airline tickets, depending upon our ability to obtain discounted rates.

And that varies, depending upon how the market is developing in that quarter.

All else being equal, it's going to be more difficult, given the capacity cuts that the carriers have put in place in the last quarter or so.

So those would be the key drivers for domestic.

Our next question or comment comes from the line of Mr.

Mike Olsen from Piper Jaffray.

Your line is open.

Good afternoon.

I know you don't want to talk about specific growth rates by country, but could you highlight a couple of the top specific emerging market countries within Asia and South America, that you feel you're best positioned, have a leadership position in, and that offer the highest potential growth opportunity in the next couple years?

And then maybe the opposite as well, are there any particular emerging market countries that have proven particularly challenging or that you're avoiding?

Thanks.

So I'd -- as you know, we try not to get down to country by country.

With respect to the business in Asia, Thailand has always been a key destination for us, and we've underlined that over the last couple of years, as there have been disruptions in Thailand from exogenous events.

Hong Kong, Singapore, also good markets.

I'm not going to represent whether we do or don't have a leadership position in any particular market.

If you look at Australia, New Zealand, that's an attractive market for us, we're certainly not the market leader there, but we still think there's opportunity there.

Historically, our approach to the region has been focused primarily outside of China and India, and we are not excluding those markets as being of interest to us, and we are investing in those markets.

So those are places where our business is relatively small, and where the opportunity potentially is enormous.

Our next question or comment comes from the line of Mr.

Douglas Anmuth from JPMorgan.

Your line is open.

Great.

Thanks for taking the question.

I know you mentioned 220 basis points of deleverage in online advertising.

But can you talk more about the trends that you're seeing in search, both paid and organic?

There is number of companies like TripAdvisor and HomeAway that have talked about seeing less traffic from Google in 4Q, either because of changes in Google -- how Google displays results or because of macros, so if you could comment on that.

Also just to clarify, should we be thinking about advertising costs as the primary reason for the guide being more flattish year-over-year for 1Q, in terms of margins?

Thanks.

I think with respect to ad deleverage, as Dan mentioned, one of the principal driver is the increasing mix of paid business versus other businesses, if you look at the total channel mix of the Group's business.

I think you have to be careful in taking the experience of a HomeAway or a TripAdvisor and reading that over to an online travel agency, because essentially those businesses are media model businesses, and could very well have a different experience with Google than we might have.

Having said that, everybody knows that there are a lot of changes going on in the Google marketplace, including vertical search flights and hotel finder.

And while we're not going to comment on any specific impact of those products to -- in the marketplace, they're both products that Google could drive a lot more traffic to than they are today.

And they could have an impact on businesses, of not only media model players, but online travel agency players as well.

Our next question or comment comes from the line of Mr.

Herman Leung from Susquehanna.

Your line is open.

Great.

Thanks.

Two quick questions.

First, I guess there's a bit of increased hiring obviously going on with your business, at least looking at your stock comp rising, as well as personnel cost.

When do you -- I guess what areas are you specifically hiring in, and when do you expect some of that large scale employees start to contribute to the business?

And then secondly, on your CPC rates on the European side, can you talk about where this increase in marketing is going?

Whether it's on the SEM side or on the SEO side, and are you seeing good returns on the Google hotel finder?

Thanks.

So with respect to hiring, we typically have hired up reasonably significantly to support seasonal growth peaks in the business, our business, the international business in particular, peaks in the summer.

And with the growth rates we've been experiencing, it's important to hire up customer service associates to handle that business.

And in addition, as we've been expanding geographically, and building the hotel inventory, we need to hire people to be out in the regions visiting the hotels, and making sure we have them signed up in the first instance, and rates and availability on a ongoing basis.

All of those people get productive very, very quickly.

But there's an element of variability to it, because we need more of them as the business grows, and as the hotel inventory grows.

So I think that's the way to look at that.

We may have relatively more or relatively fewer than we actually need at any given point in time, and that can drive a little positive or negative leverage.

And if you look at our conference calls over the past couple of years, you can see some verbiage about that, but I don't think those variances are material to the long-term profitability of the model.

With respect to CPCs in Europe, and your question about where the investment goes, our investment is way, way emphasized on paid channels.

If you look at what we're spending in online marketing, that's paid marketing.

It doesn't represent a massive amount of spend on people working on optimization for search engines and other channels.

That's not to say that we don't do some work on that, but that's just not a significant part of that spend number you see in the income statement.

Our next question or comment comes from the line of Mr.

Justin Post from Bank of America.

Your line is open.

Thanks.

Jeff, I think you gave some new market data, and I don't think you've ever quantified your share or the opportunity in Europe since you bought the two European acquisitions.

And I think you said mid single digits.

We've been estimating kind of low double digits.

Are your ADRs any different than you saw in that study, would you estimate?

And secondly, do you think their room assumptions are reasonable?

Obviously, you gave the data, but that seems like a low share from what we've been hearing from hotels.

It seems like you have more share than that.

And then secondly, I think seasonality was a factor for very strong bookings in Q4 and Q1 last year of Asia and South America.

Are you still seeing nice benefit, as those markets grow much faster?

You mentioned that, and could that be a factor for maybe some deceleration as we get toward the middle of the year?

Thank you.

So with respect to Eurostat, investors have been asking us for a long time for share data.

And we've responded for a long time that we not only did we not want to give it out, but that we really didn't have any high level data that was -- that seemed at all reliable, with respect to what the size of the total market was.

That Eurostat study is the first thing that we've seen that purports to be somewhat complete.

That doesn't mean that it is perfect, and it's very possible that it contains a lot more accommodations than we are currently dealing with.

So it doesn't represent what our share is of the hotels that are actually participating with us, it represents what our share is of the total number in their count.

So we gave visibility to that study, because we thought it was interesting, and we thought you all might find it interesting.

But I think investors and analysts have to come to their own conclusions about what that really says about the share, our share in markets where -- with participating hotels, and our share in markets where we have relatively higher penetration, for example, in Western Europe where we've been operating for a long time, and in many cities where our share is obviously higher than that.

With respect to your question on seasonality, our business now reflects the fact that we have a growing business in Asia and in South America, that has a little bit different seasonality than a the Northern hemisphere does.

I don't see any particular trend to point to that in this particular quarter, that says that's going to significantly change our seasonality in the balance of the year.

But no question that it has an impact, because it is a growing piece of the business.

Our next question or comment comes from the line of Mr.

Jeetil Patel from Deutsche Bank.

Your line is open.

A couple questions.

First of all, it looks like in general in the US market, you're give out gross margin is trending higher domestically.

Implicitly, it looks like gross margins in your guidance are going to be going up in the US as well.

As we think about that, is the bigger shift here that 2012 may be more of a year of scaling up the Booking.com brand in the US market, and going really after that hotel opportunity, since you seem to be signing up quite a few hotels at least domestically.

And then second, maybe another way to look at Booking.com, but can you talk about where the percentage of mix of hotels ends up going to, between US, Europe and Asia?

So with respect to gross margins being higher, and Dan will correct me if I'm wrong about this, I think that's driven more by bookings that were made in the fourth quarter, that are being stayed in the first quarter, and our decelerating growth rate, which is driving a timing impact where we've got a little bit more gross profit dollars, compared to gross bookings because of that timing.

It doesn't have anything to do with the extent to which Booking.com is or is not penetrating the market in the United States.

The domestic business as we report it, is driven by transactions on the Priceline.com website.

The other factor with the US could be the extent to which retail airline tickets are representing a portion of gross bookings, and they have negligible gross profit associated with them.

There's been no significant fundamental change in core margins for our domestic business.

I think your second question had to do, if I understood it correctly, with hotel acquisition.

And while hotel acquisition for the international business is occurring in all markets, including core markets and places where we've been operating for a long time, there is substantial investment in new markets.

And we're probably bringing on more new hotels in new markets than we are in the core markets.

Our final question or comment comes from the line of Mr.

Anthony DiClemente from Barclays Capital.

Your line is open.

My question is answered.

Thank you.

Okay, sir, I will turn the conference back over to you for any closing remarks.

Thank you all very much for participating in our call.

Ladies and gentlemen, thank you for participating in today's conference.

This concludes the program.

You may now disconnect.

Everyone, have a wonderful day.