Booking Holdings Inc (BKNG) 2012 Q4 法說會逐字稿

Welcome to the Priceline Group's fourth-quarter and full-year 2012 conference call.

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

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

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

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

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

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

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

And now, I'd like to introduce the Priceline Group's speakers for this afternoon, Jeffrey Boyd and Daniel Finnegan.

Go ahead, gentlemen.

Thank you very much.

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 will take questions.

Priceline reported consolidated gross bookings for the fourth quarter of approximately $6.6 billion, up 33% year-over-year.

Gross bookings growth accelerated sequentially, due to a slight acceleration in room night growth and a diminished foreign exchange headwind as the Euro strengthened during the quarter.

Non-GAAP net income was $349 million or $6.77 per share, up 26% versus prior year.

Fourth-quarter results surpassed past consensus estimates of $6.53 per share and our guidance for the quarter.

Worldwide hotel room night reservations were 46.2 million for the quarter, up 38% year-over-year.

For the full year, Priceline reported gross bookings of $28.5 billion, up 31% from 2011, and non-GAAP net income per share of $31.28, a 33% increase over 2011.

2012 full-year US dollar-denominated gross bookings and earnings growth rates were significantly reduced by a weaker Euro throughout the year.

Growth rates for our international business increased slightly on a local currency basis during the quarter, with 43% gross bookings growth.

Room night growth rates in Europe held up better than forecast, and seasonal strength in our faster growing APAC and South American markets are helping as they become a larger portion of the global business.

Booking.com continued to build its worldwide hotel supply platform with now over 275,000 hotels and other accommodations in 180 countries and territories, up 41% over last year.

Booking.com's growth in Europe has shown resilience, given continued economic weakness and worry in the Eurozone.

We believe our market leadership in European countries currently experiencing weak economic conditions is an important part of our franchise.

However, it does expose the business to cyclical weakness, but also to economic recovery and a strengthening Euro during up cycles.

As you know, our long-term strategy has been to build greater geographic diversity in our international hotel business by investing in markets outside Booking.com's core European market.

Over the course of 2012, those newer markets grew faster, and each quarter they become a larger part of the whole.

These investments and the growing mix of new market business have a negative impact on operating leverage, since the new markets are, almost by definition, less profitable than core markets.

But in our view, the long-term opportunity is too important to approach timidly.

Booking.com's new offline marketing experiment in the United States is part and parcel of this long-term strategy.

We believe that the continuing strong growth we are seeing in booked room nights shows we are on the right track.

Agoda delivered strong room night growth in the quarter, and is establishing a leadership position in the fast-growing APAC market.

We believe economic development and growth in international travel will be continued tailwinds for this business.

Priceline's domestic gross bookings grew 4% in the fourth quarter, due primarily to growth in retail rental car reservations and retail hotel room night bookings.

Disruption from Hurricane Sandy had a modest negative impact on results due to cancellations and loss of reservations.

Priceline.com is making good progress building the Express Deals business, and the reach of its mobile services.

We are also excited about the new ad campaign featuring Kaley Cuoco of the Big Bang Theory as a way to break through with our Express Deals message.

Accelerating merchant gross bookings growth of 32% continues to reflect growth at Agoda and RentalCars.com, which are comprising a larger part of the merchant mix.

Growth in rental car days increased sequentially from 35% to 36%, driven by improved results at both Priceline.com and RentalCars.com.

RentalCars.com achieved consistently impressive unit growth in 2012, showing a successful transition to the unified RentalCars.com brand, and good progress on the expansion of the business globally, which we believe is in the early innings.

With respect to Kayak, we are in the process of obtaining the remaining approvals needed in Europe and Kayak's stockholder meeting to consider the transaction is slated for early March.

We will have no further comment on the transaction or Kayak's results until we announce a closing date.

The Group's international businesses performed well in 2012, showing resilience in the face of weak economic conditions in major markets.

Competitive pressures continue, with major players ramping up marketing spend and in some regions pushing discounts and promotions.

As I have said for some time now, we intend to make investments in marketing and people to drive growth, even if those expenditures create pressure on operating leverage.

Fourth-quarter results demonstrate that the business continues to support this type of investment and the achievement of strong operating margins, and we believe our top line momentum shows return on those investments.

Our aim is to continue building our brands by investing in geographic expansion and supply, product and service innovation, and customer acquisition.

I want of to thank our employees around the world for their hard work and dedication in delivering a terrific year for their brands and for the Group.

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

Thanks, Jeff.

I'll discuss some of the highlights in operating results and cash flows for the quarter, and then provide guidance for the first quarter of 2013.

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 perspective.

Hotel room nights booked grew by 38% in the fourth quarter, slightly accelerating compared to the 36% growth rate achieved in Q3.

Solid growth rates were posted in all of our key markets.

The unit growth rate also benefits from the fact that our fast growing Asia-Pacific and South American regions represent a larger proportion of our business for the quarter, due to seasonality.

Gross bookings performance was strong in the back half of the quarter, which will partly benefit Q1 gross profit, as our customers complete their travel.

Average daily rates or ADRs for Q4 2012 were down on a local currency basis by about 1% for our international hotel service and were up by about 1% for our US hotel service.

Our Q4 forecast for our US hotel service ADRs to be up by about 5% turned out to be too high.

ADRs for the US hotel service were impacted by hotel mix and Hurricane Sandy, which essentially closed the high-ADR New York City market for a period of time.

Rental car days booked were up by 37%, also accelerating compared to the Q3 growth rate of 35%.

The performance was driven by accelerating growth from both our RentalCars.com and Priceline US rental car businesses.

For the fourth quarter compared to the prior year, the FX rate for the Euro to the US dollar was unfavorable by about 4%, and the FX rate for the British pound to the US dollar was favorable by about 2%.

As a result, currency exchange rates slightly depressed our year-over-year growth rates expressed in US dollars for gross bookings, revenue, gross profit, adjusted EBITDA and net income.

In summary, strong unit growth rates drove Q4 gross bookings growth of 33%, or 35% on a local currency basis.

Our Q4 international gross bookings grew by 40%, and by 43% on a local currency basis.

Gross bookings grew by 4% for our Priceline.com brand business in the US.

Good performance in retail hotel room, airline tickets and rental car reservations contributed to year-over-year growth.

However, our Name Your Own Price hotel service posted year-over-year decreases in gross bookings and revenue as a result of the continued pressure from competitive discount hotel initiatives.

Opaque hotel did see improving growth trends as we progressed through the quarter, which has carried over into Q1.

Non-GAAP gross profit for the quarter was $956 million, and grew 32% as compared to prior year.

Our international operations generated gross profit of $836 million, which constituted an increase of 37% as compared to the prior year, and an increase of 39% on a local currency basis.

Non-GAAP gross profit for our US business amounted to $120 million, which represented 4% growth versus prior year.

Non-GAAP operating income as a percentage of non-GAAP gross profit amounted to 43.8% for Q4 2012, compared to 46.5% for the prior year Q4.

The operating margin declined by 270 BPs compared to prior year, but was better than our guidance forecast.

Margins were impacted mainly by deleverage in online advertising and personnel expense.

Online advertising grew faster than gross profit, due to the continued mix shift in our business to pay channels, and to our international brands, which drive their business to a greater degree through online advertising.

In addition, as forecasted in our guidance, we experienced lower advertising ROIs compared to Q4 2011, a trend we have seen for a couple of quarters now, and which is forecasted to continue in our Q1 guidance, as we will discuss in a moment.

Personnel expense in Q4 reflects the impact of people we have added to support our growing business and to help fuel future growth.

G&A expense includes about $3 million in professional fees related to the Kayak acquisition.

I'd like to highlight a GAAP to non-GAAP adjustment we made in the quarter.

Non-GAAP gross profit, non-GAAP operating income, adjusted EBITDA and non-GAAP net income are adjusted to exclude the $16.1 million charge we recorded in Q4, related primarily to an unfavorable ruling in the State of Hawaii regarding hotel general excise taxes.

Consistent with past practice, we exclude significant charges and credits for judgments, rulings and settlements related to hotel occupancy and other related taxes because the amount and timing of these items are unpredictable, not driven by core operating results, and render comparisons with prior periods less meaningful.

Adjusted EBITDA for Q4 amounted to $426 million, which exceeded our guidance range of $381 million to $421 million, and represents 24% growth versus prior year.

Non-GAAP net income grew by 26%, 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 $497 million of cash from operations during fourth-quarter 2012, which represents a 76% increase versus prior year.

We spent about $16 million on CapEx in the quarter.

For full-year 2012, we generated approximately $1.8 billion of cash from operations, which represents a 33% increase versus prior year.

Our cash and investments of $5.2 billion as of December 31, 2012, with about $2.1 billion of that balance in the US, are available for general corporate purposes, including share repurchases, acquisitions, and debt repayment.

Now for first-quarter 2013 guidance.

Our forecast reflects a continuation of the strong top line performance we saw in Q4.

In addition, gross bookings for the first quarter are helped to an extent by an earlier Easter this year, which causes a greater proportion of Easter bookings to occur in first quarter this year compared to last year.

We are forecasting total gross bookings to grow by 30% to 37%, and to grow on a local currency basis by approximately 29% to 36%, with US gross bookings growing by 5% to 10%.

We expect international gross bookings expressed in US dollars to grow by 36% to 43%, and to grow on a local currency basis by approximately 35% to 42%.

Our Q1 forecast assumes that local currency ADR for the consolidated Group will be roughly flat with the prior year.

Our Q1 forecast assumes that foreign exchange rates remain at the same $1.31 per Euro and $1.52 per British pound as yesterday's closing rates, which would result in average exchange rates that would be stronger by about 1% for the Euro and weaker by about 2% for the British pound, as compared to the prior year.

We have hedge contracts in place to substantially shield our first-quarter EBITDA and 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 17% to 24%, and gross profit dollars to grow by approximately 30% to 37%.

We expect 300 to 400 BPs of deleverage in non-GAAP operating income as a percentage of gross profit compared to prior year.

We assume that margins in Q1 will again be impacted by deleverage in online advertising expense, due to business mix continuing to shift to pay channels, as well as continuing pressure on ROIs.

We also launched our first TV advertising campaign supporting our Booking.com brand in the US, which contributes to the pressure on operating margins for the quarter.

Although we are not giving guidance on the amount of spending for the Booking.com branding campaign, the spending will likely spread over the quarters of the year, similarly to how Priceline's offline ad spend has historically.

Operating leverage in Q1 can also be impacted by seasonal factors, regarding timing difference between the recognition of revenue and certain expenses.

We typically expense advertising costs as incurred, but generally don't recognize revenue and gross profit until check-out.

A significant amount of bookings and related advertising costs typically occur in Q1, as customers make travel reservations for spring and Easter holidays in Q2, and summer holidays in Q3.

The effect on advertising expense is more pronounced when the business sustains high levels of gross bookings growth.

Adjusted EBITDA is expected to range between $316 million and $346 million, which at the midpoint represents 22% growth versus prior year.

We are targeting non-GAAP fully diluted EPS of approximately $4.90 to $5.30 per share, which at the midpoint represents 20% growth over prior year.

Our EPS forecast reflects about $2 million of additional year-over-year cash interest expense for Q1, related to the convertible bonds we issued in March last year.

Our non-GAAP EPS forecast includes an estimated cash income tax rate of approximately 15.5%, comprised of international income taxes, and alternative minimum tax and state income taxes in the US.

Our non-GAAP EPS guidance assumes a fully diluted share count of 51.6 million shares, based upon yesterday's closing stock price of $671.54.

We forecast GAAP EPS of $4.12 to $4.52 per share for Q1.

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

Our forecast for Q1 does not include Kayak and does not include any related deal costs.

We believe that the impact of the Kayak acquisition on our non-GAAP EPS for 2013 will be de minimis.

Our guidance reflects actual results to date and our forecast for the remainder of the quarter.

Although we are almost two months into the quarter, due to normal seasonality, a meaningful portion of our gross bookings for the quarter are expected to be generated in March.

Our guidance reflects our expectation for sequentially decelerating growth rates for a very large business, comparing against high transaction growth rates.

Although we have seen variability in our growth trajectory over past quarters, with some quarters decelerating fairly significantly and others accelerating sequentially, the business has generally experienced deceleration in its unit growth rates over the long term.

That said, we are pleased with the resilience of the unit growth rate for the business generally, and that is inherent in our forecast for Q1.

Although we still have very real concerns about economic conditions on a worldwide basis, and in Europe in particular, our forecast does not reflect any potential worsening in macroeconomic conditions.

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

Given the uncertainty surrounding worldwide economic conditions, particularly in Europe, where much of our business is concentrated, we believe the variability around our guidance is elevated.

We will now take your questions.

(Operator Instructions)

Our first question comes from Brian Fitzgerald with Jefferies.

Your line is open.

Wanted a quick update on mobile, what kind of usage trends you're seeing there for your mobile apps and maybe what percentage of the mobile traffic is transactional versus just kind of browsing or comparison shopping?

Thanks.

We're seeing very significant adoption and growth in most of the major mobile platforms.

The iOS operating system, apps for the iPhone, Android, some very substantial business on mobile websites for our brands around the world, and very, very substantial business done on our www-dot websites on tablets.

You've heard some of our competition announce market shares.

We don't give those numbers out but we feel like we're doing very well in terms of the share of the business on mobile platforms, and it continues to grow very rapidly, and we continue to invest aggressively in apps and in mobile functionality, and those investments will continue this year.

We believe that there is a significant shopping behavior on mobile devices, some of which translates into reservation behavior later on, potentially on desktops, and I think that's something that everybody's looking into to try to understand that better.

But I don't have any data for you in terms of shopping versus buying.

Thanks, Jeff.

Thank you.

Our next question comes from Tom White of Macquarie.

Your line is open.

My question's on the guidance, specifically the international gross bookings guidance.

I guess to what extent is the acceleration you are guiding to, relative to how you guided 4Q, coming from these newer international markets?

And should we think about that effect sort of ebbing as we get into the middle two quarters of this year?

A second follow-up on the mobile shift.

How should we think about how this kind of shift to mobile Internet usage is potentially impacting or not impacting the competitive landscape in some of your key markets?

Do you think it favors existing incumbents or favors people who are trying to take share in a given market?

Thanks.

Dan, why don't you do the first one on the guidance and I'll do the mobile?

For Q4, Tom, Asia-Pacific and South America do have their most pronounced impact as a percentage of the business, and therefore, most pronounced impact on our overall growth rate and they definitely contributed to the acceleration that we delivered for Q4.

We're not going to give guidance for Q2 and Q3, but typically those are less impactful quarters for those two regions.

For Q1, our forecast is not for acceleration but for some modest deceleration versus the growth rate that we posted for Q4, if you look at the midpoint of our guidance range.

And performance continues to be strong across all regions.

On the mobile front, I think that large incumbent brands get a benefit if they execute well because it allows you -- you have the resources to invest in building the functionality.

You have the back end to drive transaction and commerce on your mobile sites, whereas newer, smaller players basically either have to rely on advertising revenue, which is not great especially on smaller devices, or on third parties for fulfillment.

I think well-recognized brands, if they have excellent apps, tend to do well in the app store because people are more likely to download apps from a recognized brand.

So I think there are some inherent advantages and hopefully over time if our brands can execute well, mobile can become an important source of direct business and, therefore, very efficient for us.

Great.

Thank you.

Thank you.

Our next question comes from Heath Terry of Goldman Sachs.

Your line is open.

I was hoping you could kind of separate out for us, even just in general terms, the degree that the increase in advertising costs that we're seeing is driven by higher transaction-specific costs versus investment in brands.

So say the difference between key word prices going up versus a decision to increase spending on something like the Booking.com brand building that you're doing in the US?

We're specifically not giving that detail, Heath.

We've shown a trend now for a couple of quarters with worse performance when you look at online advertising efficiency expressed as a percentage of gross profit and our forecast assumes that trend will continue.

It's partly due to mix in the business.

It's also due to lower year-over-year ROIs.

And then the offline campaign, the TV campaign for Booking.com does contribute to the pressure, but we're not disclosing the amount at this point in time.

Okay.

Thank you.

Thank you.

Our next question comes from Anthony DiClemente of Barclays.

Your question, please.

I guess just as a follow-up to that, I think investors are wondering on this trend of lower average ROIs, how persistent could this be, and what are the factors as you look out maybe on a multiple quarter basis that could grant relief to this, or cause it to continue to be persistent?

That's one question.

And then Dan, I just had a couple of others.

You mentioned Asia-Pac specifically becoming a bigger percentage of international bookings.

I'm just wondering if you could quantify exactly what percentage, and then finally, I noticed that you did not include international revenue either on a reported or ex-FX basis in your release.

I'm wondering if you could disclose that as well?

Thank you for taking the questions.

Maybe Anthony, I'll hit the first one with respect to lower ROIs.

Our disclosures for years now have been very consistent that there are aspects of the market here that we don't control and that ROIs going down is a risk, and I think that continues to be our disclosure.

We cannot predict, and we're not giving any guidance as to what we expect beyond the guidance that we gave for the first quarter.

There are a lot of factors that go into ROIs, that if you're trying to think about it, trends in hotel average daily rates and unit economics can have an impact on ROIs.

General trends in costs per click, specific advertiser behavior, and regional mix of the business.

And as I mentioned in my opening remarks, the absolute profitability of some of the newer markets that we're investing in, and growing nicely in, and very happy with, are markets that tend to put pressure on operating margins and so mix of business over time can have an impact too.

And we don't disclose what percentage of the business Asia-Pac represents.

As Jeff pointed out in his comments, it continues to grow as a percentage of the business because it's growing at a higher rate typically than the rest of the business, but we don't disclose the specific percentage.

International revenue is going to be in our 10-K.

It's essentially the same number as international gross profit, which we do disclose, which I've already disclosed.

Thank you very much.

Thank you.

Our next question comes from Douglas Anmuth of JPMorgan.

Your question, please.

I just wanted to ask -- I know you're not guiding here to anything here beyond 1Q.

Is it generally reasonable to think about similar levels of margin compression here going forward.

You talked a lot about the mix shift and the lower ROIs, the continued investments and the big market opportunity, can we think about this extending over a period of time?

And then also can you give us a sense of how you're thinking about share buybacks currently?

Thanks.

Sorry, we're just not going to give any guidance or forecast beyond the first quarter.

One statement I will make, though, is later on in the year and early next year we're going to be comping against periods where we have experienced some margin pressure and there's a mathematical consequence to that.

But in terms of how the absolute business is going to operate, we're not going to make any comment.

With respect to share buybacks, as you all know, we have an outstanding authorization that remains, and that remains a use of our cash on an opportunistic basis, and we don't have anything new to say on that front from what we've said before.

Thank you.

Thank you.

Our next question comes from Naved Khan of Cantor Fitzgerald.

Your line is open.

So just on the sales and marketing, or sorry, advertising deleverage, Jeff, if we exclude sort of the mix shift and look at the performance in existing geographies versus earlier periods, can you talk about if you are seeing similar marketing efficiency as you were previously or are you basically seeing any impact of competition even in those geographies?

We're not going of to get into any further regional detail than what we've said already.

We have stated that we've seen some deterioration in the ROIs and have guided to it for the next quarter, and that's as far as we're going to go.

And one comment I'll make on this, and I tried to make this point in my prepared remarks, our approach to building this business is to invest in it, where we think there's an opportunity to maintain high levels of growth.

We think that's what's best for our customers and for our suppliers, and ultimately, we think that's what's best for our shareholders.

So we are not looking at the business with a primary intention of trying to squeeze every last dollar of operating margin from the businesses that exist today.

We have very small market share in some incredibly attractive markets that are fundamentally growing at very high rates, and it just would not be the right business strategy for us to be reluctant to spend there.

We've got great product and a great user interface and we should be spending aggressively there.

So we're very, very comfortable with the state of play, particularly when you look at the comparative levels of our absolute margins with, not just the other people, other companies in the e-travel space, but e-commerce in general.

We've got a very robust business model here that gives us the resources to invest aggressively to try to grow as quickly as we can.

Great.

And can you comment on Trip Advisor's move to more toward more of a meta offering and how it's affecting your business?

I think we understand why Trip Advisor is doing it and we are a significant customer of Trip Advisor.

They send us a lot of business and we pay them for advertising and ultimately we believe that the user experience of Trip Advisor is distinct from that of a primarily meta search business and certainly distinct from that of an OTA, and that distinctive brand experience for us is a positive in terms of our advertising relationship with them, and I don't have any educated insight on this but my guess is that Trip Advisor will try to maintain that distinctive user experience and that the meta search will just be one feature of what is a unique experience they're offering today.

Great.

Thank you.

Our next question comes from Mark Mahaney of RBC Capital Markets.

Your line is open.

Two questions, please.

One, could you comment a little bit on the rental car market and specifically are those all for the most part standalone sales or are you trying and are you having any success in having those being cross-sell opportunities?

And secondly, when you think about your marketing spend historically in Asia-Pacific and Latin America, part of that has been for building out the brands, go to Booking.com.

Can do you feel at all that after a couple years of this that you reached a point just in those markets where you're starting to see greater efficiency as those brand names have been built out, or is it still too early for something like that?

Thank you very much.

So, Mark, with respect to the rental car business, while the substantial preponderance of those are standalone sales, we do have pretty good cross-sell in the rental car business.

We do a pretty good job of attaching a rental car sale here in the United States to an airline ticket and to a vacation package.

That works well for us.

We like it.

Some of our hotel brands send customers to RentalCars.com, and we do print a reasonable number of rental car reservations for those customers.

That marketing cross-sell is in its very early stages, and hopefully over time it will get better.

But most of that business is standalone.

The cross-sell is an opportunity but most of the business is standalone.

With respect to markets like Asia and Latin America, those markets are growing rapidly.

We're absolutely investing in supply, in people on the ground, and in marketing in those markets.

I can't give you an outlook as to whether and when we'll get to greater efficiencies there.

Certainly over time the investment in people and hotel supply should scale and give us some operating leverage on the marketing front, remains to be seen.

Thank you, Jeff.

Thank you.

Our next question comes from Aaron Kessler of Raymond James.

Your line is open.

Couple questions.

First, Dan, can you help us maybe quantify possibly the Easter shift, how significant that is?

Secondly, you talked a little about the competitive pressures on the opaque hotel side.

If you could expand on that at little, that would be helpful.

On the Easter shift, we didn't quantify anything there, Aaron.

It's just logical to assume that with Easter happening on March 31 this year, all the bookings related to Easter will take place in Q1, even though it's still a fair amount of those checkouts will actually take place in the early part of Q2.

With respect to the competitive pressures on opaque hotels, we've said for a couple of quarters now that's been a point of pressure for the US business and for those who followed us closely over the last couple of years, a couple of things driving that.

One is competition in the marketplace from Expedia unpublished rates, from some of the deal of the day sites, and also some business decisions on our part for the last couple of years, for our advertising to focus much more on retail hotels rather than opaque hotels.

If you look at the campaign that we launched at the beginning of this year, it's very significantly focused on Express Deals, which is a published price opaque hotel offering, and so we're putting some marketing muscle behind Express Deals.

We think it's a great product.

It provides great savings for the consumer.

It's a little easier to use.

We publish the price, you pick it and you get it.

You can see a little more amenity information with Express Deals.

And that is growing as a share of the total opaque business and we're happy with the results we've seen to date, and so while we still have a long way to go to get that business to where we want it to be, we're happy with the progress that the team at Priceline.com has made in that regard over the last several months.

Great.

Thank you.

Thank you.

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

Your line is open.

Just maybe a quick one on geographic progression.

Jeff, maybe you could just tell us how you feel about the European markets in like the UK, France and Germany, are you seeing any signs of saturation as far as adding new hotels or room nights per hotel?

As you've seen the rollout in Latin America and Asia, how would you compare that to Europe?

You've got seven years' experience.

Is it kind of progressing on that curve and do you feel very good about those markets as kind of a three to five year growth outlook for Priceline?

Thank you.

Okay.

So with respect to the more established markets in Western Europe, the results that we've printed in the last couple of quarters I think are demonstrative of some still pretty solid growth trends in those markets and I think that they provide some evidence that we haven't yet reached a point where the market is saturated.

And if you look at the share of total potential room nights that we're booking, we still feel like we've got headroom there.

We continue to add hotels in those markets, although as I've said on previous calls, there's a diminishing return and the new properties, hotels and other accommodations that you add typically have fewer rooms than your existing base of supply and sometimes they're properties that are not as widely appealing to our customer base as a hotel might be.

But we are still adding properties.

If you look at the progress of the business in Asia and Latin America, I think it's very impressive what the teams have done in those markets.

I feel like we've made really good progress, not just building supply and destination business, but we're starting to see real point of sale in those markets, and I'm really very pleased with the progress that we've made there.

But I want to caution folks and I've said this before in conferences, you shouldn't expect those markets to progress as quickly to a size that the European market has progressed to, just because while the population is huge, the absolute size of the affluent middle class that's in a position to take a trip and stay in a hotel is still quite a bit smaller than that population in Europe or in North America.

And there's good news and bad news there.

The bad news is that it's probably not going to get as big as the European business did as fast as the European business did, but I think it bodes well for a very attractive long-term opportunity to drive growth to businesses, even as Internet penetration grows and grows, just the number of people traveling and the general travel economy should grow for a long time to come, and that's particularly true in Asian markets, and particularly true with respect to international travel in those markets, which is growing very rapidly.

So a great long-term opportunity, but it's probably not going to get as big as fast as the businesses did in the industry in Europe.

And maybe one follow-up.

You've taken a little different approach with an offline campaign here in the US.

Is that just because the US market is more mature and it's just a different approach, or is that something that we might see globally?

I won't comment on what we might do globally.

I think in the United States, there's some unique circumstances.

Number one is the size of the market.

We've got a very, very big market that speaks the same language and a market that you can talk to with a single ad campaign, and I think that's an important efficiency.

The Priceline Group has a lot of experience in dealing with the US offline market, and so that gives us some comfort that we've got a chance of executing well.

Other players in the industry have very high share of voice in offline channels, and that gives other players including Priceline.com for that matter, an advantage in many different distribution channels, when you have a well-recognized brand.

And so we think it's a very interesting and hopefully profitable experiment to see what the impact of having an advertising campaign for Booking.com in the United States, and how it impacts the business across the board, and we're going to be looking at that very carefully, obviously, over the course of the year.

Appreciate it.

Thank you.

Thank you.

Our next question comes from Stephen Ju of Credit Suisse.

Your line is open.

It's been a couple quarters since you signed the agreement with CTRIP.

Will you give us a sense of what has been done and how in a practical perspective this will play out, over what time frame, starting with the greater placement of your inventory on the CTRIP platform?

Second, I think on Booking.com it seems like you've added some functionality on the site for your customers to do more granular searches in terms of non-hotel types of accommodations.

Anything you can share in terms of how this inventory converts versus hotels and further, what your view is in continuing to add this type of inventory to the platform.

Thank you.

With respect to CTRIP, that transaction has been in effect for many months now.

CTRIP is sending customers to Booking.com hotels outside of China.

We're happy with the relationship, and the business is small, it's not something that would be visible in our results at this point in time, given the size of the business, but we think the long-term opportunity is attractive and we're happy with where that is at this point in time.

Principally, CTRIP's customers traveling internationally outside of China.

With respect to non-hotels, Booking.com has a substantial amount of non-hotel accommodation on its website.

I wouldn't make any comment on conversion specifically, but I have said, including just a few minutes ago, that these accommodations tend to have smaller room counts and potentially a narrower addressable market than the hotel market.

Having said that, we think that it's a great service to offer to our customers and we'll continue to invest in bringing that kind of inventory onto the website, and working on the user experience, both on the website and at the property to make sure that it's top-notch and we have greatly satisfied customers as a result of it.

So we're going to keep at it.

Thank you.

Thank you.

Our next question comes from Brian Nowak of Nomura.

Your line is open.

One more on incremental detail on APAC.

Did non-APAC international constant currency bookings accelerate in the quarter or was all the acceleration really driven by Asia?

And then the second one, on the mobile search spending side, are you finding search marketing spend on mobile to be materially less efficient from an ROI perspective than desktop or are the mobile costs per click and search pricing trends adjusting appropriately for the lower conversion?

Thanks.

The first one, Brian, we're not disclosing the growth rates region by region.

What we did say was we were pleased with the performance for all of our key markets, and then just having a high growing market like Asia-Pacific and South America, constituting a larger percentage of the total, that's overall helpful to the consolidated growth rate as well.

And with respect to mobile's search spend efficiencies, I think we still are in such an early phase of marketing on those platforms that it's -- anything that somebody would say about the long-term efficiency of marketing in mobile would be speculation or visionary or both.

I just think people are experimenting.

They're spending probably in places that they might not otherwise spend but for the attractiveness and growth in the channel and just trying to make sure they're not missing something.

So I just think it's too early to categorize that with any certainty.

Okay.

Thanks.

Thank you.

Our next question comes from Michael Olson of Piper Jaffray.

Your line is open.

Just a quick one from me.

You mentioned staying aggressive on advertising in new and emerging markets.

You aren't giving specific numbers around US Booking.com marketing.

Will the increased spend on Booking in the US steal from marketing spend that would have otherwise potentially been done in international markets, or is it completely incremental to that spend?

In other words, does Booking.com US brand spend eat away at any of the portion of international marketing spend that would have been in place without it?

Absolutely not.

There is no limitation on any spending by Booking.com outside of the United States as a consequence of the offline marketing campaign in the United States.

Okay.

Thanks very much.

Thank you.

Our next question comes from Kevin Kopelman of Cowen and Company.

Your line is open.

A quick follow-up on that.

Can you tell us what the initial response has been to the Booking.com ad campaign from customers, and is that campaign fully rolled out in terms of different ad channels that you mentioned like movie theaters and online?

Thanks.

So the campaign is still in its very early days.

There certainly have been several weeks of TV run.

I think there has been some cinema as well.

But only a fraction of the media that's ultimately going to be spent has been spent here in the first couple of weeks of the quarter.

So a lot more to come.

It's too early to give any insight into the operational impact of the advertising.

It's just too early days.

I will say, however, that when you look at the PR response to the campaign, and the very highest-level brand research that's available, we're very pleased with the consumer reaction to the campaign, the reaction to the creative, and I think we've got a lot of nice earned media in newspapers, online, television, when the campaign launched and we're very happy with the start that we're off to with this campaign.

That's great.

Thank you.

Thank you.

Our next question comes from Michael Millman of Millman Associates.

Your line is open.

Could you tell us or describe the differences between Hotwire and Express Deals, and also on the car rentals, where you indicated they were strong.

Currently the companies are telling us that opaque business is way down, because of I guess consolidation, and that prices are at least in January and February are way up, and could you comment on what you're seeing regarding those two items?

So maybe I'll do the Hotwire versus Express Deals, Dan, and you can address the car rental question.

Express Deals is similar to Hotwire in the sense that they both use a published price, but the hotel inventory can be different.

The prices themselves can be different.

The margin structures can be different.

The way that we classify hotels in terms of star levels, the zones, and the number of hotels participating.

So there can be and are very significant difference in terms of the actual product as presented to the consumer.

And performance for the business has been strong, Michael, both internationally and in the US for our retail products and our Name Your Own Price product had a better quarter in Q4, and is having a good quarter in Q1, with better access to discounted inventory.

Pricing for us was down about 2% in Q4 for both internationally and in the US, for our retail products.

Thank you.

Thank you.

That does conclude the Q&A portion of our call.

At this time, I'd like to turn the call back over to management for any closing remarks.

Thank you all very much for participating in the call.

Thank you, ladies and gentlemen.

That does conclude your program.

You may disconnect your lines at this time.

Have a great day.