Booking Holdings Inc (BKNG) 2013 Q3 法說會逐字稿

Welcome to the Priceline Group's third quarter 2013 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 risk, 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 statement, 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.

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

Go ahead, gentlemen.

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

I'm here with Darren Huston, CEO of Booking.com, and Priceline's CFO, Dan Finnegan.

Priceline reported consolidated gross bookings for the third quarter of approximately $10.8 billion, up 38% year-over-year, or about 36% on a local currency basis.

Non-GAAP net income was $920 million or $17.30 per share, up $0.40 versus prior year.

Third quarter results surpassed FactSet consensus estimates of $16.23 per share and our guidance for the quarter.

Worldwide hotel room night reservations were 74.8 million for the quarter, up 36% year-over-year.

Our international business recorded 41% gross bookings growth on a local currency basis, down from 44% in Q2.

Room night and bookings growth rates have shown considerable persistence, given the scale of the business due to solid execution in core markets and high growth rates in Asia-Pacific and the Americas.

International gross bookings also benefited generally from growth in hotel supply and growth in new markets for RentalCars.com.

Booking.com's platform now has over 355,000 hotels and other accommodations, up 45% over last year.

Booking.com continues its investment in its global supply platform, building substantially differentiated hotel and accommodation supply and the related content.

Booking.com is also executing well in changing distribution environment with, we believe, share gains, and its US brand building has added to its momentum in this country.

Booking.com extended its TV investment to Australia this year, and we are pleased to further diversify our marketing spend where the data tells us it makes sense.

Agoda delivered strong transactional growth in the quarter and continues investment in distribution and mobile which is so important in the region.

Both Agoda and Booking.com are building a solid business for international travel to and from China, increasing the Group's exposure to that key market.

Priceline's domestic gross bookings growth improved to 17% in the third quarter, due to growth in airline ticket sales and rising ticket prices and growth in hotel room night and rental car reservations.

We believe Priceline is gaining share domestically with solid execution on a number of fronts including express deals, rental cars, and mobile.

Priceline is also benefiting from increased advertising on Kayak.com which is generating increased booking volumes.

Merchant gross bookings growth of 24% reflects growth at Agoda and RentalCars.com.

Rental car days grew 28% in the quarter as both Priceline and RentalCars.com are now facing tougher comps on increasing growth rates last year.

RentalCars.com has exciting opportunities ahead, building share in international markets, expanding its mobile footprint, and investing in customer experience and brand.

Kayak.com has continued its brand building activities, and we are pleased with the early results of efforts to build a presence on Kayak for our brands where we were previously underrepresented.

As I mentioned earlier for example, referrals from Kayak helped drive accelerating growth at Priceline.com in the quarter.

Competition in travel search is intense with most players substantially increasing marketing spend, particularly in offline campaigns.

Kayak will continue to invest in building its brand and in international expansion, with a great team and the support of other brands in the Group to drive success.

The Group's business performance exceeded expectations in the quarter.

Operating margins were strong in the third quarter, relative to our forecast, on advertising and OpEx efficiencies.

Our outlook calls for pressure on margins in Q4, driven in part by investments in marketing and people, as we prioritize initiatives that drive growth and a seasonally higher share of the business in Asia-Pacific and Latin America which, to a greater degree are in investment mode, than our core markets in US and Europe.

Overall, our businesses are performing well, enjoying substantial benefits from working and sharing with sister brands within the Group, and generating operating margins that support continued investment in brand, product, and innovation.

The markets in which we operate have never been more competitive, with substantial investment, particularly in travel research by large global players, and venture backed newer entrants.

We believe our Group is pursuing an appropriate strategy of expansion and investment, but that the most important factor in our progress both historically and going forward is the quality of our people around the world and their execution, for which I am extremely grateful.

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 of 2013.

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

Q3 was a strong quarter from a top and bottom line perspective.

Strong unit growth paired with good operating margins drove results that exceeded the top end of our guidance range in all key metrics.

Hotel room nights booked grew by 36% in the third quarter, decelerating modestly compared to the unit growth rate of 38% achieved in each of the prior three quarters.

Our key worldwide markets had solid performance in the quarter and have delivered remarkably resilient growth over the past year.

Average daily rates, or ADRs, for Q3 2013 were up on a local currency basis by about 1.8% for the consolidated Group.

Rental car days booked were up by 28% for Q3, which we believe represents another quarter of gaining share in the worldwide rental car reservation market.

Deceleration in our growth rate from Q2 reflects a slowdown in growth in certain markets and a more difficult year-over-year comp.

For the third quarter, compared to the prior year, the FX rate for the euro to the US dollar was favorable by about 6%, and the FX rate for the British pound to the US dollar was unfavorable by about 2%.

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

These FX rates were slightly favorable to our guidance forecast assumption.

Q3 gross bookings grew by 38% compared to the prior year.

Our Q3 international gross bookings grew by 42% in US dollars and by about 41% on a local currency basis.

Gross bookings growth accelerated 17% for our Priceline.com brand business in the US.

Performance was strong across air, rental car, and hotel verticals.

The success of Express Deals has restored growth to our opaque hotel business, providing another way for our customers to save money with a simple booking experience that also works well on mobile devices.

Priceline US growth was also helped by increasing advertising placements within Kayak.

Gross profit for the quarter was $2 billion, and grew 42% as compared to prior year.

The inclusion of Kayak in our results contributed about 5 percentage points of inorganic growth for the quarter.

Kayak revenue amounted to $68.4 million in Q3, net of intercompany activity.

Our international operations generated gross profit of $1.8 billion which constituted an increase of 42% as compared to the prior year, and an increase of 39% on a local currency basis.

Gross profit for our US business including Kayak amounted to $222 million, which represented 45% growth versus prior year.

Q3 2012 gross profit includes a $4.8 million charge related to an unfavorable hotel margin tax judgment in Washington, DC.

Non-GAAP operating income amounted to 55.5% of gross profit for Q3, and declined by 40 bips versus prior year, due mainly to the offline advertising campaign for Booking.com in the US that we launched earlier this year and a modestly dilutive impact on operating margin from the Kayak acquisition.

Online advertising expense as a percentage of gross profit is 10 bips lower than prior year.

We continue to see lower year-over-year ROIs, business mix shifting to our international brands, and to pay channels for certain of our brands.

The inclusion of Kayak provides an offsetting favorable impact on our online ad efficiency until we anniversary the acquisition because Kayak spends less relatively on online advertising as a percentage of gross profit, and spending by our other brands for ad placements on Kayak is eliminated from our consolidated results.

Other OpEx besides advertising levered compared to prior year mainly because Q3 2012 included a $13 million one-time payroll tax charge in the Netherlands and a $4.8 million charge related to an unfavorable hotel margin tax judgment in Washington, DC.

As I will discuss in a moment when we get to Q4 guidance, we believe it is likely that the Dutch government will enact a similar payroll tax levy in Q4 2013 which will negatively impact year-over-year margins for that quarter.

Our operating margin performance was better than 250 bips of operating deleverage assumed in our guidance forecast, due to gross profit over-performance, better than assumed ad efficiency, and lower than forecasted other operating expenses.

Adjusted EBITDA for Q3 amounted to $1.11 billion, which exceeded the top end of our guidance range of $1.06 billion, and represents 43% growth versus prior year.

Non-GAAP net income grew by 44% and non-GAAP EPS grew by 40%, reflecting the impact of a higher fully diluted share count.

In terms of cash flow, we generated approximately $970 million of cash from operations during third quarter 2013, which is about 44% higher than last year.

We spent about $20 million on CapEx and repurchased $460 million of our common stock in Q3.

Since the Kayak acquisition, we have in total spent $805 million to purchase about 916,000 shares of our common stock at an average price of $878 per share, to partly offset dilution from the shares issued to close the Kayak deal.

Over the last several weeks, we've received early conversion notices for about $390 million principal amount of our 2015 convertible notes which we will settle in Q4 by issuing cash for the principal amount and shares of common stock for the conversion premium.

Our cash and investments totaling about $6.6 billion at quarter close are available for general corporate purposes, including additional share repurchases, acquisitions, and debt repayment.

Now for fourth quarter 2013 guidance, we are forecasting total gross bookings to grow by 27% to 34% and to grow on a local currency basis by approximately 26% to 33%, with US gross bookings growing by 17% to 24%.

We expect international gross bookings expressed in US dollars to grow by 29% to 36%, and to grow on a local currency basis by approximately 28% to 35%.

Our Q4 forecast assumes that local currency ADRs for the consolidated Group will be roughly flat compared to the prior-year period.

This reflects current trends as well as the mix impact in Q4 of high travel season and less mature Asian and South American markets that are typically lower ADR and less profitable than our more mature markets.

Our Q4 forecast assumes that foreign exchange rates remain at the same $1.35 per euro and $1.61 per British pound as yesterday's closing rates, which would result in average exchange rates that would be stronger by about 5% for the euro and about flat for the British pound as compared to the prior year.

We have hedge contracts in place to substantially shield our fourth quarter EBITDA and net earnings from any fluctuation in the euro or the 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 fourth quarter.

We expect Q4 revenue to grow year-over-year by approximately 19% to 26%, and gross profit dollars to grow by approximately 30% to 37%.

Please remember that gross profit is a better indicator of our topline momentum than revenue since we record Name Your Own Price revenues on a gross basis while our other revenues are recorded on a net basis.

For example, the success of our Express Deals service has driven opaque hotel growth in gross bookings and gross profit, but the shift of share away from Name Your Own Price hotel has caused a decline in opaque hotel revenue.

We expect about 340 bips of deleverage in non-GAAP operating income as a percentage of gross profit compared to prior year.

We assume that margins in Q4 will again be impacted by deleverage and advertising efficiency, related to our Booking.com TV campaigns in the US, and a new campaign recently launched in Australia, and the inclusion of Kayak offline advertising.

Our Q4 guidance forecast includes a $12 million charge in personnel expense, related to the payroll tax levy that we believe is likely to be enacted by the Dutch government.

The different timing for the expense, Q4 this year versus Q3 last year, creates a year-over-year margin tailwind in Q3 and creates a fairly significant drag on operating margins in Q4.

Other OpEx also reflects some deleverage as we continue to invest in people and related expenses to fuel our future business growth.

Adjusted EBITDA is expected to range between $510 million and $540 million, which at the midpoint represents 23% growth year-over-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.

We are targeting a non-GAAP fully diluted EPS of approximately $7.80 to $8.30 per share, which at the midpoint represents 19% growth over prior year, including the impact of a higher year-over-year share count.

Our non-GAAP EPS guidance assumes a fully diluted share count of 52.9 million shares based upon yesterday's closing stock price of $1,058.04 per share, and reflects the impact of shares issued and options assumed as part of the Kayak acquisition, net of shares repurchased over the year.

We forecast GAAP EPS between $6.40 and $6.90 per share for Q4.

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

We're pleased by the strong and steady unit growth the Group has delivered over the last several quarters, and that is inherent in our forecast.

Our guidance reflects deceleration in growth experienced to date in the quarter, and our expectation that such a large business comparing against high transaction growth rates will experience sequentially decelerating growth rates.

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

I will now turn the call back to Jeff.

Thanks, Dan.

Today, we announced the promotion of Darren Huston to President and CEO of the Group, effective January 1, 2014.

This promotion is part of our Board's long-term succession planning and splits the roles of Chairman and CEO.

I will remain as Chairman of the Group's Board.

Darren is the CEO of Booking.com, the Group's largest business and has done a great job delivering impressive growth and share gains as underscored by the results we announced today.

He has also participated in Group management through his membership in our Group Management Board, and in his role overseeing the relations among our international brands.

Darren is the right choice to lead the Group, and I look forward to working with him as Chairman of the Board.

I will now turn the call over to Darren for a few comments.

Thanks, Jeff.

Very briefly, I couldn't be more excited to take this next step with the Group.

I also look forward to working with our outstanding teams of all the Group's five brands and building on our strong tradition of independent and entrepreneurial brand leadership.

I see tremendous potential for the Priceline Group to continue to serve and delight travelers around the world with industry-leading and innovative online services.

Also important will be to build on our long history of win-win distribution partnerships with hotels, rental car companies, airlines, and other travel service providers.

In the coming months, my focus will be to work with Jeff, the brand CEOs and Group leadership to make sure we stay the course on the execution of our business strategy.

Thanks, Darren.

With that, we'll now take your questions.

(Operator Instructions)

Heath Terry, Goldman Sachs.

Great.

Thanks.

I was wondering if you could start by giving us a bit of an update on what impact you saw from mobile this quarter, particularly to the extent that you're seeing any impact that was in any way a driver of some of the marketing leverage that you saw or could be seeing in the business.

As you think about particularly the incorporation that you've done of Kayak's mobile assets into the model, how is that affecting your planned investment in the category?

Thanks, Heath.

I think our mobile businesses are performing very well in the marketplace.

We have not been publishing share data in terms of the amount of reservations running through mobile platforms, but based on what we're seeing we feel very good about the extent to which we are building mobile penetration in the Group.

Especially looking at some of the disclosures that's have been made by competitors.

I think if you look at the apps in product in particular of Kayak, Priceline.com, Booking.com, I think they're all outstanding.

They're getting good reviews and substantial acceptance by consumers.

As I've mentioned before, I think it's still a little too early to start talking about marketing leverage or deleverage from the growth of business in the mobile channel because it's such early days, in terms of really understanding what the return on investment in mobile is.

That's particularly true when so many consumers are completing a transaction after accessing our brands through multiple screens.

That's something that we continue to look at.

It's our objective and the objective of others to try to get real estate on people's smartphones so that they will come back directly to our brands.

I think we're doing a good job working in that direction.

Kayak's mobile assets, we think are top notch, and we said that at the time of the acquisition.

They've been an active participant in our intercompany activities as we share with each other best practices and new developments in mobile.

Certainly our brands are advertising, not only on Kayak's desktop product, but in their mobile product.

As I mentioned in my prepared remarks, that's proceeding well.

Thanks, Jeff.

Justin Post, Merrill Lynch.

Thank you.

Jeff, could you talk about why the CEO change now, and how involved you plan to be with the Company going forward?

Then a little bit about update on Booking.com in the US, how successful has that ad campaign been?

Obviously, you're continuing it, so you must like the results.

Maybe you could help us on whether you think this thing is working and can continue next year.

Thank you.

Okay.

Justin, in terms of the CEO change, Darren is leading the biggest brand within the Group.

As you guys can see, with all of our brands we're becoming an increasingly global business, and I think it's a very, very logical and great choice for Darren to be next CEO of the Group.

As to the timing of it, part of that is personal.

I've been involved in the business for 14 years and running it for most of that time.

I'm looking forward to the opportunity to doing some different things, but also looking forward to the opportunity to work with Darren to make sure that the business continues on its successful course.

I think we have something really special here, and it's really my highest priority to make sure that this transition in CEO goes well.

I'm confident that Darren and I will work well together in that regard.

I think I'll let Darren talk about how the advertising is going in the United States for Booking.com.

Justin, we're really pleased with the results of the campaign so far.

We are a very large global brand, the largest brand for booking online hotel accommodations in the world, but we started off being a relatively unknown brand in the United States.

Our primary objective in these early stages is really to get Booking.com and Booking.yeah into the American dialect around travel, and with that we've been really pleased with the initial result.

No comment right now on the nature and extent of what we'll do in the coming year, but we're really pleased.

Now also of course, with this latest experiments in Australia in a market where we've historically done very well, to also see how that works.

So far we've been very pleased with those results as well.

Thank you.

Maybe one follow-up.

Have you been able to see an acceleration in your US Booking.com growth since you launched the campaign?

We've been really pleased with our results in the US.

We don't specifically disclose those, but for our business and what's otherwise a very mature market, we're extremely pleased, and also to get American bookers, because that's helped our business in destinations that Americans go, like Mexico, the Caribbean, and other destinations.

Great.

Thank you.

Appreciate it.

Douglas Anmuth, JPMorgan.

Thanks for taking the question.

I just wanted to ask two things.

First on the early integration with Kayak, could you just talk a little bit more about how you're feeling about how it's being used for Express Deals, and then also where you currently are in terms of the booking path and getting more of the Priceline Group brands in there?

Then secondly, can you just comment on the rental car days deceleration that we saw and the key drivers there?

Thanks.

Thanks, Doug.

With the early integration with Kayak, the integration includes both advertising placements which would include banners for Express Deals.

If you go to Kayak, you'll see those from time to time, and we have to compete for that space but we're happy with how that's working.

With respect to the booking path, our Group of brands did not previously participate in Kayak's booking path before the acquisition was closed.

But we are participating now, and again, that's a competitive marketplace, but we're happy to be trying to get our share there.

With respect to the rental car days deceleration, Dan, maybe you could.

What we highlighted, Doug, was deceleration in certain markets.

We saw some softness in demand for RentalCars.com, particularly in their biggest market in the UK, and what you're going to chalk that up to, whether it's comping against the Olympics or great weather, we just saw some softness there.

Overall, the business continues to perform very well.

It was also just comping against a very high growth rate in the prior year.

That was also an issue for the Priceline US business.

There can be variability for the opaque rental car business, depending upon our access to discounted rates.

We had some acceleration in our growth rate there in Q3 2012, and so that created a difficult comp for this year, although that service continues to post some healthy growth rates.

Okay.

Great.

Thank you.

Ross Sandler, Deutsche Bank.

Thanks, guys.

Sorry to see you go, Jeff.

But quick question on the guidance, maybe for Dan.

You guys called out a few items that are impacting the operating margin deleverage in the guidance.

I think there was four things, mix shift to APAC, marketing ROIs, TV campaign, and the Dutch payroll issue.

Can you just bracket for us a little bit better which of these items are accounting for the deleverage?

Now that you've comped the negative ROI period from 3Q last year in your online marketing, can you just talk about what you're seeing broadly in terms of the year-on-year ROI trend?

Thanks.

The last piece there in terms of the year-over-year trend for online advertising, the comps are easier.

You can see that the results that we posted for Q3 are better.

We don't have deleverage in that line item.

That's somewhat helped by alleviation in the amount of decline in ROIs year-over-year, and then also just the inclusion of Kayak, as I pointed out in my scripted remarks.

They have a higher percentage of direct traffic to the website that they're not acquiring through paid online channels.

We now eliminate the spend by our other brands on the Kayak platform.

In terms of Q4, the principal drivers in terms of year-over-year deleverage first and foremost I point to the offline campaigns.

We didn't have that spend last year and we do this year.

Then as well, a significant contributor is that Dutch payroll tax, the $12 million hitting us this year, and there was none last year related to that item.

Then beyond that, it would just be more broadly the expenses that we incurred to run the business, people, offices, travel, things of that nature.

Mark Mahaney, RBC Capital Markets.

Thanks.

Jeff, I know you're still staying with the Company.

I know it's a team effort, but your stock has gone from $10 to $1,000 since you've been CEO.

That's a 100 [bagger].

Congratulations.

I don't think I've seen that before and may not see that again.

Two questions.

One, same day bookings, the sense we have is that that's now becoming a material advantage for online travel agencies.

Could you talk about how large or how material that opportunity has been for you?

Then any color at all on the Asia-Pacific Latin America markets?

You threw out a few more qualitative comments than normal.

Would you be able to quantify what percentage of your international comes from those two markets?

Thank you.

Mark, thank you for those kind words.

I really appreciate it.

Same day bookings, I think has taken on a little bit of increased importance in our space because of the mobile product that's now essentially ubiquitous.

There's been a lot of development by our brands and others to try to drive same day deals to consumers via the mobile platforms, and that's a compelling opportunity.

I think what's happening is that the availability of that product is changing people's behavior, that they're more comfortable waiting until the last minute to book a hotel in the hopes that they'll find a deal on their smartphone.

It's just a great example of technology changing behavior and representing an opportunity, not just for consumers but for brands like ours who can meet that demand.

I think based on the data we see internally, we are taking good advantage of that business trend and doing well in same day bookings in particular through our mobile platforms.

That may be something where we have a bit of an advantage too because I think our brands are well-known for value, and it's a logical place for a consumer to look at a brand that's well-known for value.

Maybe I'll turn it over to Darren to talk about how we're doing in Asia-Pacific and Latin America.

We've been doing very well in both markets.

Obviously as you know, Agoda, their primary booker market is Southeast Asia, but also Booking.com has done extremely well, particularly with (inaudible) Chinese business for both brands have been very strong.

Inbound Japanese business has been strong, so that's a great market.

Latin America continues to be a very strong market for us, both travel within Latin America but also our increasing strength with American bookers has helped our Latin American business.

We're really pleased.

I think both markets are becoming even more important to the Group and also it's a demonstration of the globalization of our business.

Thank you, Darren.

Thank you, Jim.

Brian Fitzgerald, Jefferies.

Congrats, Darren.

Congrats, guys, on the quarter.

Maybe two quick questions.

As TripAdvisor is adding smaller IBEs, internet booking engines, to their platform, do you think it's going to create volatility or temporary pricing pressure for those leads as maybe they're less sophisticated and have less data in terms of being able to adeptly price those leads and solve for ROI?

Then really quickly, the second one was any unique dynamics you're seeing from your Google derived traffic as the carousel functionality has been out there for a while now?

Okay.

Brian, with respect to the so-called IBEs on TripAdvisor, it's a very small part of their business right now.

We don't have a lot of data to analyze or to comment on.

I do think that at least in my estimation, it's unlikely that single hotels will be empowered to bid aggressively on TripAdvisor by virtue of that connectivity.

They will absolutely benefit by being displayed and they'll get bookings, but I think it's unlikely they'll have the sophistication or the conversion to dramatically move the auction dynamics in their advertising market.

Again, it's early days, but that's just my opinion with respect to that.

In terms of the unique dynamics on Google, we obviously have seen the carousel.

They're continuously experimenting both in their hotel price ads platform as well as across the various venues where we advertise.

We would not comment on how we're doing with respect to one of their particular experiments or presentations.

Suffice it to say that we work very hard to understand how all of those presentations work.

We work with Google to make the best out of all of their channels, and we continue to do that.

Great.

Thanks, Jeff.

Tom White, Macquarie.

Jeff, you talked a bit about the changing distribution landscape and all the investment in the meta search space at the moment, by both you guys and your competitors.

When we think about the percent of your total traffic that comes from meta, or maybe just page channels more generally, is it increasing if we isolate it by geography?

Obviously, some of your newer markets I think you guys are maybe getting more traffic there from paid channels, but what about from more mature markets?

Is meta overall increasing as a percent of your overall traffic?

Thanks.

I think the best way I can answer that is to refer you to the growth that other reporting companies have mentioned recently for TripAdvisor and for trivago.

There's definitely growth in the channel and while TripAdvisor is really much more than just a meta site, that ultimately is the price comparison tool they offer to their customers.

There's definitely growth in those channels and growth for our brand in those channels.

That's one of the reasons that we are delighted to have joined up with Kayak because they've got a great product, and they're participating in that growth.

It's not big enough to substantially drive the marketplace, at least for a business of our size, but it's an important distribution channel, and it's growing for us.

It's a good distribution channel.

There are customers who want to comparison shop.

If you look at the experience that we can provide to somebody who arrives at one of our brands from a meta search site, we can get them to a booking better than anybody.

We think we're well-positioned to compete in that channel.

The other thing I will say though is I think we're going in the right direction to make sure that we build our strength in a variety of distribution channels and ultimately build our brands because just like any other online brand, our goal is to get customers to come to our site, enjoy the experience, and come back directly.

You see the brand advertising that we're doing now with three of our brands, Priceline.com, Booking.com, and Kayak.com.

I think we have good expertise and capability in that area too, and we'll hopefully continue to invest there to try to drive direct traffic as well.

Great.

Thank you.

Eric Sheridan, UBS.

Thanks.

Jeff, congratulations, and Darren as well on the new roles.

Two quick questions.

One on the advertising business more broadly, what I understand with sponsored listing now launched as a product in Kayak, the puts and takes, as you think about being more aggressive on pushing advertising products, either on the platform or off and how that might help marketing efficiency for Priceline in general going forward?

Then the other question really is around the agreement that's was announced between Expedia and Travelocity, and how you might think about that impacting the domestic business as we move into 2014, 2015?

Thanks.

Thank you, Eric.

With respect to the ad business, I think the way that we look at that on our brands and the way Kayak looks at it, it's really an optimization game to try to build a presentation on your website that gives the customer what they're looking for in the most efficient way, and ultimately maximizes your conversion and the revenue that you can drive from a page view.

Sponsored listings can work well in that regard as long as it's not defeating the choice that the customer's looking for, or the price transparency that the customer's looking for.

You can expect there to continue to be optimization there.

The other thing I'll say is that not all of our brands are active in advertising on the site.

Priceline.com and Kayak obviously have substantial advertising on their site, but if you look at Booking.com, Agoda, or RentalCars.com, you're just not going to find it.

Different brands are independently managed and have the ability to deal with the trade-offs between driving advertising revenue or putting direct product in front of customers.

Our different brands deal with that differently, and I think that's the only comment I would make on that front.

With respect to the Expedia/Travelocity transaction, I think it represents a good transaction for Expedia.

They disclosed a range of EBITDA which is a nice addition to their earnings for the first year that they have it implemented.

After that, for that revenue to grow, I think it's going to be a challenge for Travelocity to take a portion of the total revenue derived from a transaction and be competitive with other players like ourselves, who are basically having the entire economics to use for investing and innovating and marketing.

It's also hard to win the innovation game when you can really only play it on the front half of the product that you're delivering to your customer.

I think that ultimately might represent a long-term challenge for Travelocity.

The final thing I'll say is that Expedia is going to have a greater share of market, vis-a-vis suppliers, particularly in the markets where Travelocity is strong.

That'll probably be a benefit for them, but if your question was phrased in terms of, is that going to change materially the overall dynamics in the advertising and distribution markets in which we play, I think the answer to that is probably no.

That's what I was trying to get at.

Thank you so much, Jeff.

Mike Olson, Piper Jaffray.

Hi, thanks.

Given some recent partnerships and just general continued momentum in vacation rentals, do you increasingly feel that you'll needed to make more significant effort in that space, in general?

Do you believe the consumer really wants to have all available lodging options on one site?

Then how do you think your hotel partners would react to more significant vacation rental this thing's integrated onto OTA sites in general?

Mike, thank you.

I think I'll let Darren take that one.

As you can probably tell on Booking.com, which is probably, of the brands in the Group, we're the ones going the furthest into what we call non-hotel accommodations.

We have found that there's always a place to stay for every person, depending on your needs, whereas you might be traveling on business one time, the same booker may be traveling with a family of four or five for a week and wanting to stay in Southern Spain.

What we want to try to do is present a variety of accommodation options so that we can help consumers find the best option for them.

I think certainly it's hard to argue that vacation rentals might not fit in one of those options, but if you're on business, you don't want to see a bunch of vacation rentals if you're going to be staying in downtown New York.

I do think it's valuable.

I think there's a lot of work to be done to make vacation rental booking as smooth as booking a hotel.

I think it is an interesting space for us for the long term.

There's a lot of work to do in multi-room, non-hotel accommodations as well.

At least we've seen when a demand comes in the front of the funnel, people do appreciate having more options than fewer options when searching for accommodations.

All right.

Thank you.

Michael Millman, Millman Research.

Thank you.

Following up on at least the US car rental business, there's now more discount brands.

To what extent is that reducing the availability of cars for the opaque market on one hand, and on the other hand, putting prices at a point where the consumers really don't need the aggravation of the opaque market?

Then I have another question.

Michael, thank you for your question.

With respect to discount brands and the impact of discount brands on opaque, it is true that the name brands that we offer on opaque have consolidated some discount brands.

One of the reasons for doing that is to have some flexibility in moving cars back and forth, although I can't tell you for sure the degree to which they're effectively doing that.

But having that ability to transfer cars back and forth and push idle inventory to a discount brand that can be sold at retail could potentially have an impact on the availability for opaque.

With respect to pricing, the consolidation hasn't, at least in the experience of our business, had a dramatic impact on opaque availability.

I think the reason for that is that the price competition from the discount brands is similar, whether they've been operating independently or whether they've been operating as part of some of the larger ones.

There is in most markets still plenty of discount brands that are independent to push that pricing down.

Now, the degree to which that has produced a circumstance where people don't want to make the opaque trade-off, and by the way, I wouldn't use your word of aggravation, it's actually quite unaggravating to rent an opaque rental car on Priceline.com, you're going to get a car at an airport from a major brand for 25% to 30% discount.

Usually for our customers, they're very happy about that.

The trade-off is they're going to take some comfort in knowing that they're going to get an on-airport, well-known brand versus potentially having to go off-airport or get something from an unknown rental car company that might have a lot more miles on it, et cetera.

That's a long answer to your question, but I think the pricing is really driven much more by broad fleet dynamics than what's been going on in the discount space.

Thank you.

The other is I guess [Focus Right] has at least put out some papers arguing that APAC travel within the region now surpasses Europe.

Can you comment on whether you see that as well?

This is Darren.

Thanks, Michael.

It's interesting, the statistics in the travel are pretty hard to come by.

[Focus Right]'s definitely a good source of information, but I think certainly both the European and APAC markets are very attractive marketplaces.

Now, of course, there's the rise of the Chinese traveler that we all know about, certainly, increasing incomes in Southeast Asia, those are all dynamics that are particular to Asia which you don't see in Europe.

Europe doesn't have the population growth, nor the same kind of opportunity.

I would say Europe, the Americas, APAC are all of course sizable opportunities with plenty of room to grow still for the Group.

Michael, I would just add to that that when we've been talking about the Asia-Pacific opportunity, it's a substantial opportunity but notwithstanding the [Focus Right] data, we caution that it's going to be difficult to have that market grow as fast on the internet as the Western European market has, just because of Internet penetration, the type of devices that people are using, and most importantly, the overall level of relative affluence is just so much higher in Western Europe.

I'm sure there's been a dramatic increase in intra-Asia travel although we don't have those numbers, but I still think the good news is that opportunity is going to continue to unfold over a longer period of time.

Thank you.

Ron Josey, JMP Securities.

Dan, I want to get back because I think you'd mentioned some advertising efficiencies on Kayak.

In your prepared remarks, you mentioned that better advertising efficiencies helped the bottom line.

Was it Kayak that was better?

Or were there other benefits than your advertising spend that helped, such as TV and brand spend?

Thank you.

For Q3, Ron?

Yes, for 3.

For Q3, ROIs came in better than what we had forecasted as well, so that definitely helped.

The dynamic where Kayak has a lower percentage of online ad spend and we eliminate spending by the other brands on Kayak, we knew about that.

That was built into our forecast.

The bigger driver there is just some efficiency in terms of ROIs and overall spend for offline as well.

Got it.

Thank you.

One last question real quickly.

Given the strong domestic bookings growth we saw in the quarter in guide, any comments on Express Deals, in terms of how that's impacting overall hotel growth domestically?

That has really just been a game-changer for the US business for opaque hotel.

As you will remember last year, we were posting quarters where we had pretty significant declines in opaque unit growth.

We've turned that around now, and the opaque hotel business is growing nicely for the US Priceline.com business.

We continue to see some declines in Name Your Own Price, but the two together, Express Deals and Name Your Own Price, have driven overall growth.

Express Deals have just been another nice offering in the arsenal for people that aren't willing to make the more substantial trade-offs for Name Your Own Price.

It also just lends itself very well to mobile because it's a simpler offering where the person can see the price and just click and make the booking.

It's been a real positive for the US business.

Great.

Thank you.

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

Thank you all very much for participating in the call.

Thank you, gentlemen.

That does conclude the program.

Thank you, everyone, for your participation.

You may disconnect your lines at this time.

Have a great day.