Booking Holdings Inc (BKNG) 2013 Q4 法說會逐字稿

Welcome to The Priceline Group's fourth-quarter and full-year 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 subjects to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed, implied, or forecasted in any such forward-looking statements.

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

For a list of factors that could cause Priceline's actual results to differ materially from those described in the forward-looking statements, please refer to the Safe Harbor statements at the end of Priceline's earnings press release, 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 would like to introduce the Priceline Group speakers for this afternoon -- Darren Huston and Daniel Finnegan.

Go ahead, gentlemen.

Thank you very much.

Welcome to The Priceline Group's fourth-quarter conference call.

I am here with Priceline Group CFO Dan Finnegan.

The Group reported consolidated gross bookings for the fourth quarter of approximately $9.1 billion, up 39% year-over-year.

Gross bookings growth accelerated sequentially due to a slight acceleration in room night growth.

For the full year, the Priceline Group reported gross bookings of $39 billion, up 38%, and 271 million room nights, up 37%.

Our top-line growth rates were remarkably steady through 2013, reflecting a relatively more stable economic backdrop and continued solid execution and innovation from our teams around the world.

Booking.com continues to solidify its position as the world's leading brand for booking accommodations.

In 2013, we continued to build on our differentiated worldwide supply, with now over 425,000 hotels and other accommodations in 195 countries, up 54% over last year.

Much of the recent growth is also being driven by continued push into non-hotel accommodation, including over 112,000 vacation rental properties that are directly bookable with instant confirmation.

In addition to aggressively growing our number of accommodation partners, the Group invested nearly $2 billion in marketing during the year, including our successful Booking.com offline advertisement experiment n the United States.

Following that success, we intend to continue our off line investment in the Booking.com brand in the US in 2014, as well as expand this experiment to other markets.

In September, we launched in Australia, and in the past few weeks, we also launched offline campaigns in Canada and our first European experiment in the United Kingdom.

As with our online advertising investments, we take a measured, disciplined approach, testing and constantly optimizing, always seeking the best return for our spend.

So far we are pleased with our results, but there is still more to be done and we continue to invest to build our competencies in this area.

Booking.com's growth in Europe held out well this year, while its newer markets continue to grow faster, gradually comprising an ever larger percentage of the business.

Although these markets are sometimes less profitable than Booking.com's core markets, we believe that these investments position Booking.com to capitalize on what we believe to be an attractive long-term opportunity.

Over the course of the year, Agoda strengthened its position in the fast-growing Asia-Pacific market, making great strides in mobile functionality, accommodation supply, and localization efforts.

The Group's Q4 results benefited from the increasing mix of APAC business from Agoda and Booking.com, which seasonally peaks in this quarter.

Momentum in our US Priceline.com continued in Q4, with 27% gross bookings growth and 28% airline ticket growth.

Room night growth and rental car day growth also accelerated in the quarter.

Strong performance from Express Deals, excellent mobile execution, increased advertising on Kayak, and effective offline advertising contributed to these results.

When you combine Priceline.com's strong results with Booking.com's increasing success with American bookers, we feel proud of the solid market share gains we are making in the world's most competitive online travel market.

Also notable, for the first time in 2013, the United States became Booking.com's largest destination.

RentalCars.com recently transitioned from a semi-opaque offering to a more broadly appealing retail offering.

Early indications are encouraging and we remain excited with RentalCars.com's opportunity to expand its business globally and be the world's leading online car reservation service.

The Group made good progress in the month following the Kayak acquisition to expand our presence on Kayak, where we were previously underrepresented.

Kayak and our other brands have been sharing best practices while Kayak works to build its brand in international markets and maintain its high pace of product innovation.

Mobile execution and innovation continue to be key areas of focus and investment for all of businesses.

Mobile is a prime example of how the Group can successfully share knowledge, tools, and lessons learned across our brands.

To give you a sense of just how fast mobile is changing our business, we previously announced that Booking.com completed just over $1 billion in gross mobile transactions in 2011, increasing this threefold to $3 billion in 2012.; in 2013, that same number exceeded $8 billion.

But mobile is not just about bookings; it is also an increasingly important part of our customers' multi-screen lifestyles.

We want to support our customers with the best pricing, best assortment, and best connected online experience regardless of the screen they use to book with, travel with, or stay with.

The Group performed well in 2013, exceeding expectations throughout the year.

In my new role as Group CEO, I am excited by the tremendous potential of each of our brands and by the opportunity to work with our talented and dedicated people around the world.

Going forward, we intend to continue building our brands by making investments in marketing, people, supply, and product innovation to drive long-term profitable and sustainable growth.

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

We look forward to a success filled 2014 as well.

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

Thanks, Darren.

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 2014.

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- and bottom-line performance.

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

Room nights booked grew by 37% in the fourth quarter, modestly accelerating compared to the unit growth rate of 36% achieved in Q3.

Our key European market posted a solid quarter and our unit growth rate also benefited from our fast-growing Asia-Pacific and South American regions, which represent a larger percentage of our Business for the quarter due to seasonality.

Performance was also strong in North America, and I believe, that we again grew our market share across all our regions in Q4.

Average daily rates, or ADRs, for Q4 2013 were up on a local currency basis by about 2% for the consolidated Group.

Rental car days booked were up by 32% for Q4 compared to prior year, accelerating compared to 28% growth in Q3, driven by strong performance for RentalCars.com and Priceline.com.

For the fourth quarter compared to the prior year, the FX rate for the euro to the US dollar was favorable by about 5%.

However, the dollar strengthened significantly against many Asian and Southern hemisphere currencies, including those of Australia, Brazil, Japan, Argentina, and Indonesia.

As a result, currency exchange rates had an overall slightly negative impact on our growth rate expressed in US dollars.

Q4 gross bookings grew by 39% compared to prior year.

Our Q4 international gross bookings grew by 41% in US dollars and by about 42% on a local currency basis.

Our international business continued to delivery markably high growth rates, made possible by our teams around the world diligently adding accommodations, efficiently driving demand to our desktop and mobile sites, and then continuously innovating so we successfully convert traffic into customers that book.

Our Priceline.com brand business in the US grew gross bookings by 27%, accelerating compared to Q3, with strong performance across air, rental car, and hotel verticals.

Priceline.com also benefited from increased advertising placements within Kayak.

Non-GAAP gross profit for the quarter was $1.3 billion and grew 39% as compared to prior year.

GAAP gross profit for the quarter was $1.3 billion and grew 42% as compared to prior year.

GAAP gross profit includes a credit in the amount of $6.3 million in Q4 2013 and a charge in the amount of $16.1 million in Q4 2012 related to travel transaction tax litigation.

We have excluded the impact of the credit in Q4 2013 and the charge in Q4 2012 from non-GAAP gross profit, non-GAAP operating income, adjustment EBITDA, and non-GAAP net income.

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

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

Kayak revenue amounted to $55 million in Q4, net of inter-Company activity.

Our international operations generated gross profit of $1.15 billion, which constituted an increase of 38% as compared to the prior year on both a US dollar and local currency basis.

Non-GAAP gross profit for our US business, including Kayak, but excluding the impact of the aforementioned travel transaction tax items, amounted to $172 million, which represented 44% growth versus prior year.

Non-GAAP operating income amounted to 42.7% of gross profit for Q4 and is 106 bps lower than last year.

Operating margins were impacted by 146 bps of deleverage and offline advertising, mainly related it our Booking.com TV campaigns in the US and Australia, and the inclusion of Kayak offline advertising.

Q4 personnel expense includes a $12 million charge related to a payroll tax levy in The Netherlands.

While there was a similar payroll tax levy in 2012, it was enacted in Q3 that year and we, therefore, have an unfavorable comp in Q4.

Other OpEx also reflects some deleverage, as we continue to invest in people, offices, and IT-related expenses to support our business growth.

Online advertising expense as a percentage of gross profit is 200 bps lower than prior year.

We continue to see pressure on ROIs but to a lesser degree in Q4 than previous quarters.

Much of the year-over-year improvement in this metric is due to the inclusion of Kayak, because Kayak spends relatively less 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.

We expect Kayak to benefit our consolidated online ad efficiency until the anniversary of the acquisition in May.

Operating margins came in 234 bps better than assumed in our guidance forecast due to gross profit overperformance, better-than-assumed ad efficiency, and lower-than-forecasted other operating expenses.

Adjusted EBITDA for Q4 amounted to $578 million, which exceeded the top end of our guidance range of $540 million and represents 36% growth versus prior year.

Non-GAAP net income grew by 35% and non-GAAP EPS grew by 31%, reflecting the impact of the higher fully diluted share count.

In terms of cash flow, we generated approximately $554 million of cash from operations during fourth quarter 2013, which is about 12% higher than last year.

During Q4, we spent about $27 million on CapEx and we repaid about $415 million of our 2015 convertible notes.

For full-year 2013, we generated approximately $2.3 billion of cash from operations, which represents a 29% increase versus prior year.

During full-year 2013, in addition to the $415 million spend to repay debt, we used about $500 million to buy Kayak and the remaining minority interest in RentalCars.com and we returned $884 million to shareholders through purchases of our common stock.

Our cash and investments totaling about $6.8 billion at year-end are available for general Corporate purposes, including additional share repurchases, acquisitions, and debt repayment.

Now for first-quarter 2014 guidance.

We are forecasting total gross bookings to grow by 23% to 33% on both a US dollar and local currency basis, with US gross books growing by 15% to 20%.

We expect international gross bookings, expressed in US dollars, to grow by 25% to 35% -- and to grow by 25% to 35% on a local currency basis, as well.

Our Q1 forecast assumes that local currency ADRs for the consolidated Group will be up by about 2% compared to the prior-year period.

Our Q1 forecast assumes that foreign exchange rates remain at the same $1.37 per euro and $1.67 per British pound as yesterday's closing rates, which would result in average exchange rates that would be stronger by about 4% for the euro and about 7% for the British pound, as compared to the prior year.

We expect the overall impact of currency fluctuations to be about neutral to growth after factoring in fairly significant devaluation in various other currencies versus the US dollar as compared to the prior year.

We have hedged 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; do not hedge our earnings beyond the first quarter; and they do not hedge against further deterioration in currencies other than the euro or the pound.

We expect Q1 revenue to grow year-over-year by approximately 15% to 25% and gross profit dollars to grow by 22% to 32%.

I remind you that gross profit is a better indicator of our top-line 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 Deal service has driven opaque hotel growth in gross bookings and gross profit, but the shift of share away from Name Your Own Price has caused the decline in opaque hotel revenue.

We expect about 290 bps of deleverage in non-GAAP operates income as a percentage of gross profit compared to prior year.

More than half of the operating deleverage is attributable to growth in offline advertising relating to our Booking.com is brand and the inclusion of Kayak offline advertising.

We have been pleased with the results of the offline investment we have made in the Booking.com brand thus far in the US and Australia.

We recently launched Booking.com offline advertising campaigns in Canada and the UK and we will likely continue to invest in additional markets going forward, as long as the results continue to be positive.

For full-year 2014, we estimate that the Group will spend between $220 million and $240 million for offline advertising.

Q1 margin pressure is also caused by a later Easter this year, which means all gross profit related to Easter checkouts will be recognized in Q2 this year, whereas some benefited Q1 last year.

Other OpEx also reflects some deleverage as we ramp our headcount, office, and IT expenses to be ready for peak travel season.

Adjusted EBITDA is expected to range between $420 million and $450 million, which at the mid-point, represents 18% growth versus prior year.

Our non-GAAP EPS forecast includes an estimated cash income tax rate of approximately 15%, comprised of international income taxes and alternative minimum taxes and state income taxes in the US.

We are targeting non-GAAP fully diluted EPS of approximately $6.35 to $6.85 per share, which at the mid-point represents 15% 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 53.3 million shares based upon yesterday's closing stock price of $1,273.76 and reflects the impact of shares issued and options assumed as part of the Kayak acquisition, net of shares repurchased over 2013.

We forecast GAAP EPS between $5.02 and $5.52 per share in Q1.

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

We are pleased by the remarkably strong and steady unit growth the Group has delivered over 2013 and that is inherent in our forecast for Q1.

Our guidance reflects deceleration in growth experienced to dated in the quarter and our expectation that such a large business comparing against high transaction growth rates will experience a pattern of sequential deceleration.

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.

Thank you, sir.

(Operator Instructions)

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

Your line is open.

Great, thank you.

Hope you can hear me okay.

My question regarding the gross profit guidance for Q1, looks like quite a bit of deceleration.

Maybe you could parse that out?

Is it just natural deceleration of the business, or are there other factors like Easter that are affecting your outlook?

And then when you look out further in the year, are there anything else besides the Kayak acquisition that you would point out maybe investors should think about as we work through the year on tougher comps?

Thank you.

Hello, Justin.

As far as the gross profit growth, the later Easter is definitely a significant factor, so that will be a shift of gross profit out of Q1 into Q2.

Since Q1 is a relatively smaller quarter from a gross profit perspective, it has a more significant impact in Q1 We also are forecasting some deceleration, as I said in my prepared comments, and that would flow through in the gross profit line.

For the remainder of the year, we did give some guidance on offline advertising, because that is a difficult one for you guys to model and we have been rolling out into some additional markets.

In terms of online advertising, we are not going to give guidance for the expectation for the future other than, I did make a comment in my prepared remarks, that we will lapse the Kayak in May and that has had a beneficial impact on online ad efficiency in the year since we've owned it.

Okay, great.

Thank you.

You are welcome.

Thank you.

Our next question comes from Dean Prissman of Credit Suisse.

Your line is open.

My questions.

So for your vacation and rental properties, is there any color you can share in terms of the profile of your supplies?

Specifically, is the majority of inventory coming from a number of large property managers, or is the base of potential suppliers far more fragmented?

And then just on Kayak, is there any perspective you can share in terms of how you've either begun to or intend to apply Kayak's technologies across to your other brands?

Thank you.

Dean, this is Darren, I'll take that -- both those questions.

First of all, on vacation rentals -- vacation rentals are a real natural extension of our -- Booking.com's move into non-hotel accommodations.

As you probably know, the vacation rental market is a supply-heavy, demand-starved marketplace.

[Our play] is different from others because we're working to make vacation rentals directly bookable and instantly confirmable at scale and we want, ultimately, for a vacation rental to be as easy to book as a hotel room on Booking.com.

There's a lot of issues to work through and in terms of the early suppliers on Booking.com, there are number of large property management companies in that mix.

These are companies that have built the infrastructure to do direct bookings -- they have the digital calendars of the homeowners; they have exclusive access to the homes.

But there is also a lot of smaller properties as well -- apartment blocks -- products like this that we have been able to bring online and we are pretty optimistic that we can continue to do that but we are going to hold a pretty high bar on that ability, again, to be instantly bookable and confirmable going forward.

And then as it relates to Kayak specifically, there has been outstanding learning particularly in the mobile space and Kayak to the Group brought a lot of great thinking in that area and it's really benefited all the Group companies to be in those conversations with Kayak.

I also think that Kayak's approach, generally speaking, to product development was quite consistent with the other brands, but together we've learned a number of things from that nimbleness and how we can experiment real-time things like that.

Going forward, Steve and team are now taking a really disciplined and methodical approach to international expansion, and that's very consistent with the way the Group works as well.

I wholly support that kind of process versus just throwing things out there.

They are really thinking through things and I am quite optimistic about the future.

Great.

Thank you.

Thank you.

Our next question comes from Naved Khan of Cantor Fitzgerald.

Your question, please.

A couple of questions.

So can you talk about if you are contemplating any impact from the political unrest in Thailand in your guidance?

And then with regards to the pace of hotel additions, the 425,000 that you have currently -- it seems to be a nice pick-up from the number you reported last time.

Does it include -- is it fair to assume it's largely because you are also signing up vacation rental properties at a higher pace that's causing the acceleration?

I'll again take both those questions.

The Thai market, there is a number of things happening in January; it seems to always be a sporadic month, but the Thai has been challenging, obviously, with the unrest, although we are finding that bookers are finding their way around Thailand.

We are seeing strong bookings in places Malaysia, Indonesia, other Southeast destinations.

We don't think -- obviously, we are a global business so these things aren't as material to our global results.

I would also highlight, of course, the winter storms that many of you are experiencing in the United States, as well as the floods in the UK, and the Winter Olympics.

They all have a tendency to dampen pockets of demand depending on where users are, but overall, we don't think those have a material affect on the global business.

As it relates to our property count, yes, we have been adding a lot of vacation rental properties.

These are generally self-catered products -- some of them have one room, some of them may have multiple rooms.

But I also want to make sure people understand, we are still adding hotels in many, many countries, even countries we have been in for years, places like Italy, Spain, France.

The mix of what we are adding has fewer rooms than the average property that we have in the base, but there are still a lot of multi-rooms properties of various sorts and types that still need to be acquired in the system.

Great.

Thanks.

Thank you.

Our next question comes from Heath Terry of Goldman Sachs.

Your line is open.

Thanks.

Darren, I was wondering if you could give us a sense of what you're seeing within advertising, customer acquisition costs, particularly around mobile, whether it's on the app download side, or even just the more straightforward customer acquisition through search or some of the other alternative channels that you have?

As you think about lifetime value of your app customers, how are you thinking about allocating budget around -- between those channels that you have available to you?

Yes, thanks, Heath.

We don't give out conversion ROI data, things like this, obviously they are proprietary.

But I would say at the highest level, mobile is obviously an interesting area and mobile comes in various forms.

People say mobile, it's such a broad concept, but you actually have to get into either web-based mobile or app-based mobile and then you've got to talk separately about tablets and phones.

As mobile has increased as the mix of our Business, mobile is tending towards becoming more PC-like.

It's interesting how we talk about in mobile, how it's all last minute booking or [add stays], but if act, over time, people are starting to do even more regular types of bookings on mobile phones or on tablets.

Tablets used to be a product of the rich and the wealthy, but more and more they are becoming very mainstream, and begin to behave very much like a laptop or another device.

We think mobile is a generally a net positive for an online travel agent because it increases the number of screens that we can market against, it improves the experience of our customers.

But figuring out exactly where to spend money and how to attract customers is still an ongoing art.

We meet regularly as a group to discuss these things, to really, really be smart about it because sometimes you can get -- fads can happen and people can go out chasing downloads, but if people download apps and they never use them, those aren't very valuable.

So we think we have got a pretty good handle now on what the ROI is of a mobile download versus a mobile app that will actually convert.

But we continue to try to learn in that space, but I would say we certainly have a lot of caution about going and chasing downloads that never produce.

We think a lot through that.

The other really important thing is many people will book on one device, but then experience on another device, or they will start a booking on one device and then pick up the same search on another device.

We are working a lot to connect our screens so that single account users can really reflect their experience regardless of the screen that they're using.

That is obviously a new phenomena that people are starting to figure out and generally we have got a pretty good handle on.

Great.

Thanks very much.

Thank you.

Our next question comes from Mike Olson of Piper Jaffray.

Your question please.

Hello, good afternoon.

You talked a lot about continuing the offline marketing aggressively.

Is the ongoing aggressive spend in offline investment that would otherwise be made in online marketing channels or is it an investment in marketing that would otherwise fall to the bottom line.

In other words, would you just be spending those dollars anyway or what's the trade-off you're making with spending more on offline, a trade-off versus more online marketing, or a trade-off versus higher profitability, or is it some combination?

Okay, well I would say it's not a trade-off.

We -- in all of our online channels that we're optimizing ROI and we're not moving money from the online spend into the offline spend.

The offline spend is -- we also treat very methodically and we're creating tools and figuring out how to use offline spend as a new way to acquire customers and we compare that spend, both from an immediate booking perspective, as well as a lifetime value perspective against all of our online channels.

So you can think about it as adding a leg to our marketing stool and trying to make that as data-driven as all the success we have had on the online side.

We got into this really from an experiment standpoint because the Booking.com brand, in particular, it's broadly used, but it doesn't have very high [aided] awareness, even on our more mature markets, and the bet is basically, by increasing aided awareness through effective offline marketing, can we get more earnings or more cash flow in the business from that bet and can it make economic sense relative to our other investments.

So it's not a trade-off but it's certainly, all of our marketing investments are compared against one another, regardless of channel and regardless if they're offline or online.

That's the standard that we hold the entire Group to and this has just given us a few more options and ultimately does also allow us to build more direct business for the future.

Thank you.

Thank you.

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

Your question please.

You had said an interesting factoid about the US is now the largest destination for Booking.com and it sounds like that's after years of building up a presence in North America.

I would think long-term, however, that, that would change again, given that the size of the European and Asia travel markets are the same, or when they could be the same or bigger than the US market.

How do you think about that?

It sounds like a great accomplishment, but would you want that to be the case, say, 5 to 10 years from now?

Any general thoughts on that?

Thanks, Darren.

Thanks, Mark.

When we say largest market we are meaning country market; so that's comparing the US to France or China or Italy independently.

I would say at a regional level, Asia shows tremendous promise, obviously, with the population, as does Europe more broadly defined if you include Eastern Europe.

Each one of those regions has tremendous potential.

In terms of country markets, meaning US as a quarter, likely, of the world's GDP still, and likely a quarter of all travel expenditures, so we would have expected to be truly global.

At least today that the US should be the largest market, maybe 20 years from now it will be China, but at least today, that would be a reasoned expectation.

But the fact that it's just now becoming our largest destination market still means that there is a lot of growth ahead of us in the United States because it deserves to be significantly larger than it is today.

Thanks, Darren.

Thank you.

Our next question comes from Ron Josey of JMP Securities.

Your line is open.

For taking the questions.

I wanted to ask, maybe Darren, a little bit more about the seasonality.

I know you said that while the bookings in the quarter came from Asia-Pac and South America, particularly, Agoda having the best quarter -- 4Q is always the seasonally highest quarter.

Can you talk a little bit more about just the contribution from Asia-Pac and South America -- and for South America, particularly, is it doing so well because of North American travelers using Booking.com?

Thanks.

Maybe I'll get Dan first to just talk a little bit about the seasonality of the business and I'll make some comments geographically.

Thank you.

Seasonality, Ron, Q4 and Q1, to a lesser degree, are typically the peak season for South America and Asia-Pacific.

So we see, particularly, in Q4, we feel the impact of those faster-growing regions representing a larger percentage of our total gross bookings, driving up our consolidated growth rate.

Then we start to move into Q1, also an important quarter for those regions, but we also now see North America and Europe, the booking start to kick in for Easter and summer check-outs, so it's a little less pronounced in Q1.

And just regarding South America, specifically.

It's interesting how South America itself is very dependant on inter-regional travel.

South America is generally a long ways from other places, but as you get up to the northern part of South America or into the Caribbean, Central America, it becomes more and more dependant on American bookers, particularly as you get into Mexico, or [other Caribbean], and that has really benefited as a destination, as we've grown in America with American bookers.

I would also flag, though, that we were quite early into Brazil and Argentina, so our business there is both strong from an inbound basis, but also among Brazilians and Argentineans and many of those end up coming to places like Miami, East Coast of America, and that has helped that business as well.

I feel like we have got a great presence in South America, but also still again so much more to do than where we today.

Great.

Thank you.

Thank you.

Our next question comes from Ross Sandler of Deutsche Bank.

Your line is open.

Thanks, guys.

Just a high-level question on mobile.

Is the mix of mobile transactions similar in terms of percentage coming from pay channels versus organic channels relative to your base business in desktop?

And within those pay channels, are they similar or are the ones that are working similar as to desktop, i.e., search versus affiliate and other in mobile?

Thanks.

Dan, do you want to take a first cut at that?

Well, maybe I'll just quickly comment.

Within mobile, again, you have got tablet and phone and then you've got app versus web.

App is just a very different thing because you're getting the app and then the business is generally exclusively direct once you've acquired the app, but the place you go to get the app downloads can vary.

But as it relates to web-based mobile, it is relatively the same as desktop, although still a lot to work out with regard to the non-Google sources, because you can think of all the things that -- you can think of TripAdvisor, trivago, or an affiliate like easyJet or Ryanair, they don't necessarily have all the tools to pass us the same amount of mobile business as they do with desktop business.

But Google, specifically, is probably -- it's obviously a different business on Google on the phone, because you've got less real estate to play with, but they have been doing probably the most work here to make it an effective way to buy mobile business over time.

Thank you.

Our next question comes from Doug Anmuth of JPMorgan.

Your question, please?

Great, thanks for taking the question.

Darren, I know it's only been maybe six weeks or so officially since you've been in the new seat, but I was just hoping you could perhaps give us some color on where you think your thought process might differ most from Jeff's, if it does at all?

Obviously, the business has been run extremely well, of course, in the past, but is there any strategy, geography, marketing initiative, or anything like that, that you think is perhaps a little bit different going forward?

Thanks.

Thanks, Doug.

It's always important to remember for people and I have been running Booking.com before I took on this role for a couple of years, and a lot of the things that -- philosophies that were developed for the Group, I was very much a part of developing.

As they say, you don't want to fix what ain't broke.

So I really much feel like our strategy of focusing on organic growth, potentially looking for opportunistic acquisitions but not relying heavily on acquisitions for growth, running independent brands entrepreneurly, all of these facets and probably most importantly in the Group is our focus on the customer and making sure everything we design is around satisfying our end users is really -- will continue.

I don't see any major deviations from that path.

There are lots of things going on in the Group also on the innovation side, and those will only be different because the market continues to evolve and it's very competitive.

But I hope that you will see coming out of all the brands, if anything, an increased pace of innovation around our products as the landscape continues to evolve and we continue to adjust to that.

We are not afraid to invest, but we definitely have a philosophy that those investments should be in profitable investments and things that can be sustainable for the long-term versus buying business in an unprofitable [way] and I certainly subscribe to those principles and we are going to continue to execute in that manner.

Okay.

Great.

Thank you.

Thank you.

Our next question comes from Tom White of Macquarie.

Your question, please?

Thanks for taking my question.

Maybe just a follow-up on the comments in the prepared remarks about US becoming the biggest destination for Booking.

Could you maybe just parse that a little bit, whether -- how much of that is a result of US point-of-sale, maybe impact from the offline ad campaign you guys are doing here or versus maybe increased hotel supply and making it more compelling for European travelers to -- or international travelers to travel here?

Thanks.

Yes, thanks, Tom.

We don't -- I can't parse it -- where the traffic is coming from just because it's quite proprietary, but I'll say it is a combination of all the factors.

We have been significantly expanding our property base in the United States; we have signed now pretty much all of the chains in the United States; it's a very chain-dominant market, so our product on the shelf is extremely competitive.

We have also expanded our teams in the United States -- over 1,000 people now work for Booking.com in the United States.

We have offices across the country and we're going to continue to expand those, so I feel like the product on the shelf is very strong and then that has driven, then, a lot of engagement in the product by both international travelers as well as domestic travelers.

We have always been, for years, strong in cities like New York, which is a big international destination, Miami, San Francisco, but you're seeing increasing strength in cities that are really primarily American destinations and a lot of that is because we're attracting significantly more Americans to use our product.

Thank you.

Our next question comes from Aaron Kessler of Raymond James.

Your line is open.

First, if you can talk a little bit about on Kayak, how you are looking to integrate with that going forward here?

I know when you acquired them it was about operating independently, although it does seem like Priceline, as well as Booking has integrated a little more.

Then just any overview on where you think penetration rates are for Europe online travel as well as the European mix of Booking.com?

Thank you.

First of all, let me just talk about Kayak first.

We were really -- we felt very much as brands, we were underrepresented in Kayak before the acquisition, and I'd say we've taken pretty big steps to get our fair representation within Kayak, but we're also very careful that Kayak has to be a marketplace that clears at market rates and we're going to continue with that principle because Expedia and other players are also buying into Kayak and we have no intension to make Kayak a Priceline Group-only marketplace.

But I feel good that we have gotten the right things there, we're sharing a lot of learnings with them, but the level and depth of integration work has pretty much been done.

And, Dan, do you want to talk about--?

In terms of Internet penetration in Europe, Aaron, I don't have any specific data to share with you.

We look at the same types of reports that you do from PhoCusWright and others.

I would say that, given the growth rates that we continue to post in Europe, it's clear that the penetration is still ongoing and that there is still a shift to the Internet, that's one of the drivers that's helping us grow at the rate that we are

Great.

Thank you.

And just any quick thoughts on the air acceleration in the quarter?

What was behind that?

It's good execution by the Priceline.com air team, for one, getting access to discounted rates for opaque, and then it's also been largely helped by integration with Kayak, as you mentioned earlier.

So Priceline is powering book at Kayak for airline tickets and that's driven some nice additional business for Priceline.

Great.

Thank you.

Thank you.

Our next question comes from Brian Fitzgerald of Jefferies.

Your line is open.

As, we've been watching the number of reviews on Booking.com for a while, and maybe as a proxy for engagement, and we noticed it plateaued out towards the end of the quarter and then has inflected up since nicely.

Just wondering, is that reflective of seasonality?

Are you going through a periodic culling process where you are cleaning up the reviews, making sure they're fresh?

Any color there would be great?

Yes, that's a great question, Brian.

One -- there is two things that people don't -- that they don't find obvious that we should probably market more on our reviews.

One is that all of our reviews are from verified guests, so by definition, you can't write a review unless you have stayed.

But secondly, the reviews on our site are only 14 months old.

So we don't cull any reviews out of the recent reviews; they're all real guests, bad reviews, good reviews, or review.

We'll take the odd review out that uses strong language or mentions somebody [personally], but we'd never remove the review score itself.

What you are seeing, basically, is a seasonality because of this 14-month rule, and we're very confident that the rate at which people return reviews is not changing and you'll see that those counts will continue to increase as the business continues to grow.

Awesome.

Thanks, guys.

Thank you.

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

Your question, please?

Hi, thanks a lot.

Could you give us any more color on your TV advertising test in the UK?

And is your approach there any different given your brand is probably more well known there versus other countries where you've used TV advertising for Booking.com?

Thanks.

Yes, I would say on the United Kingdom, in Europe, despite our strength, we are constantly surprised at how few Europeans still know our brand, even though many have used us and the UK is a big important market for us so this was the obvious next place for us to test.

For us, we're just being really cognizant and methodical about the costs and returns, including how brand awareness ultimately drives bookings.

And we're getting smarter and smarter about this.

The net of it is we're very strong in Europe, but we believe that -- and hope that offline marketing can have a great impact this.

But again this is a test and an experiment and if we find that it doesn't have the needed impact, then we'll bring that down.

The UK was also -- our ads, we're trying to use the same content in many markets; we changed the voice over, so if you watch the UK booking ads, you'll notice that they are just done in a different tone; we test those tones with customers.

But the voice over in English works very well, and that's why to date all four markets are English-speaking markets.

Great.

Thank you very much.

Thank you.

Our next question comes from Brian Nowak of Susquehanna.

Your line is open.

I have two.

The first one, you made strong progress in the US with the Booking.com brand and ad campaign.

I would be curious about your thoughts about just strategically a couponing or a discounting initiative on mobile or desktop in the US to really drive further growth or market share?

And then the second one, in your 10-K geographic breakdown of revenue, other revenues -- so non-US, non-Europe, non-UK -- accelerated really nicely to 113% growth in 2013.

I assume that's APAC and Agoda.

If so, can you just talk to which countries you are seeing that accelerating growth in and help us understand sustainability from here?

Thanks.

I'll let Dan [take] and be able to answer that second question, [seemed as though] you were referring to.

On the first question, we -- Booking.com is an agency model.

That means that the hotels are basically going into the marketplace and setting their own rates and, therefore, we don't naturally tend to do a lot of couponing.

This is different -- that Priceline and Agoda, which are merchant models, would more likely use that as a tactic.

There are more things we can do, but we like to be an everyday low price option for customers that they know that the prices we have are the lowest they can get in the market.

We sometimes do closed user group deals that we collect from hotels and do them just to our logged in and subscribed customers, and that seems to be a pretty effective tactic for us in terms of driving our growth.

But couponing, specifically, is not something that we use on any basis with the agency model in Booking.com.

And in terms of that geographic footnote, Brian, it's not going to be very helpful for you in trying to decipher a growth rate for that other column.

There was just some shifts there between certain regions and into The Netherlands.

And so if you look at the footnote there, that's just a combination of our various other subsidiaries that operate outside of US or Netherlands.

Okay.

Thanks.

Thank you.

At this time, I show no further questions in queue.

Okay.

Well, thank you very much and look forward to talking to you guys again next quarter.

Thank you, gentlemen, and thank you, everyone, for your participation.

That does conclude The Priceline Group fourth-quarter and full-year 2013 conference call.

You may disconnect your lines at this time.

Have a great day.