Booking Holdings Inc (BKNG) 2014 Q1 法說會逐字稿

Welcome to the Priceline Group's first-quarter 2014 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, or forecast in any such forward-looking statements.

Expressions of future goals and similar expressions reflecting something other than historical facts 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 earning 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 speakers for this afternoon, Darren Huston and Daniel Finnegan.

Please go ahead, gentlemen.

Thank you very much.

Welcome to the Priceline Group's first-quarter conference call.

Thanks for joining us before the market opens this morning in New York.

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

The Group reported consolidated gross bookings for the first quarter of approximately $12.3 billion, up 34% year over year or about 35% on a local currency basis.

Non-GAAP net income was $416 million, up 40% year over year.

And earnings per share was $7.81, up 36% versus prior year, surpassing FactSet consensus estimates of $6.93 per share and our guidance for the quarter.

Our customers booked a combination reservations for 83.4 million room nights in the quarter, up 32% year over year.

Booking.com continues to extend its lead as the world's largest brand for booking accommodations, and continues to increase its year-over-year share of rooms booked in every region it operates in.

Booking.com's platform has over 455,000 hotels and other accommodations in 200 countries, up 54% over last year.

This reflects not only our continued aggressive push into directly bookable non-hotel accommodations, but also the still attractive worldwide opportunity to acquire traditional hotel properties.

Agoda.com delivered strong transactional growth in the quarter and we are confident that both Agoda.com and Booking.com are gaining share across the Asia-Pacific region.

High growth rates in these new markets continue to contribute to higher overall Group growth as they become an increasing share of our worldwide business.

Priceline.com posted solid 20% growth in gross bookings, with strong results in both air and rental cars.

Priceline.com's hotel results when combined with Booking.com's success in North America reflects hotel market share gains.

The Priceline.com team also made good progress reworking much of the plumbing that will allow it to improve all aspects of the site with real-time experimentation and to test taking its strong brand and hotel offering of product with multicurrency capabilities.

RentalCars.com year is off to a good start with its transition from a completely semiopaque offering to a mixed retail offering behind it.

RentalCars.com customers will now see reviews and have more transparency on the quality of the services they are booking.

Results were strong as the team continues to build share in international markets and successfully execute its mobile strategy.

KAYAK delivered impressive profitability in the quarter, and early indications from its targeted expansion in Europe are encouraging.

I am really pleased with these teams on-boarding into the group and the methodical work they do every day to build a wonderful customer experience and sustainable business model for the future.

Mobile continues to be a key focus for all the Group Companies, as we continue to see mobile bookings growth far exceed our desktop growth for all of our brands.

Mobile transactions are of course important, but the emerging mobile and multiscreen lifestyle is also transforming our customers' experience with our companies, offering us opportunities to engage with them throughout their travels.

This is of course driving more bookings and new booking patterns, but more important, deeper engagement with our Company's brands.

The Group performed well in the first quarter on both the top and bottom line.

Operating leverage stemmed from the beneficial impact of the KAYAK acquisition.

Our outlook calls for pressure on operating margins in Q2 as we'll anniversary that acquisition later this month.

We'll continue Booking.com's successful foray into offline advertising in certain international markets, and invest aggressively in online variable channels to profitably build our book of business for the third quarter.

We remain committed to making the smart investments in people, infrastructure, marketing, supply, and innovation that will allow us to pursue profitable long-term growth from a position of strength and extend our lead as the world's leading online travel business.

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

I will 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 second quarter of 2014.

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

Q1 was a strong quarter from a top- and bottom-line perspective.

Room nights booked grew by 32% in the first quarter, decelerating compared with a unit growth rate of 37% achieved in Q4.

Growth rates were solid across all our key regions and we believe that we again grew our market share in Q1.

Average daily rates, or ADRs, for Q1 2014 were up on a local currency basis by about 3% for the consolidated Group.

Rental car days booked were up by 25% for Q1, decelerating compared to 32% growth in Q4.

The growth is a blend of strong performance for retail reservations for RentalCars.com and Priceline.com, partly offset by a decrease in Name Your Own Price rental car days for Priceline.com.

For the first quarter compared to the prior year, the FX rate for the euro to the US dollar was favorable by about 4%.

However, the dollar strengthened significantly against many other currencies, including those of Australia, Brazil, Turkey, Thailand, Argentina, and Indonesia.

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

Our Q1 gross bookings grew by 34% compared to prior year.

Our Q1 international gross bookings grew by 37% in US dollars, and by about 38% on a local currency basis.

Gross bookings for our Priceline.com brand business in the US grew by 20%.

Performance was strong across retail air, rental car, and hotel verticals, including the benefit from increased advertising placements within KAYAK.

Hotel Express Deals also performed well.

But our Name Your Own Price hotel, air, and car services were all down year over year due to limited availability of discounted rates and share shifts to Express Deals.

I'll remind you that Name Your Own Price impacts merchant gross bookings and disproportionately impacts merchant revenues since we record Name Your Own Price revenues on a gross basis, while our other revenues are recorded on a net basis.

Gross profit for the quarter was $1.4 billion, and grew 37% as compared to prior year.

The inclusion of KAYAK in our results contributed about 7 percentage points of inorganic gross profit growth for the quarter.

KAYAK revenue amounted to $69 million in Q1 net of intercompany activity.

Our international operations generated gross profit of $1.21 billion, which constituted an increase of 35% as compared to the prior year, and 37% on a local currency basis.

Gross profit for our US business, including KAYAK, amounted to $201 million which represented 50% growth versus prior year, excluding the impact of travel transaction tax charges recorded in Q1 2013 that we discussed last year.

Non-GAAP operating income amounted to 35.6% of gross profit for Q1, which is 50 bp better than last year.

Operating margins were impacted by 111 bp of deleverage in the offline advertising, mainly related to our Booking.com TV campaigns and the inclusion of KAYAK offline advertising.

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 expenses as a percentage of gross profit was 200 bp better than prior year.

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 we anniversary the acquisition on May 21.

Operating margins came in 340 bp better than assumed in our guidance forecast due to gross profit overperformance, better than assumed ad efficiency, and lower than forecasted other operating expenses.

The favorable ad efficiency results from better than forecasted online ad ROIs, favorable mix of direct business, and shift of some offline advertising spend to Q2 and beyond.

Adjusted EBITDA for Q1 amounted to $513 million, which exceeded the top end of our guidance range of $450 million, and represents 39% growth versus prior year.

KAYAK had a nicely profitable quarter and contributed to our bottom-line beat.

Since KAYAK earns much of its revenues [clips] are generated rather than travel consumed, Q1 is a relatively more profitable quarter from a seasonal perspective for KAYAK than it is for our overall business.

KAYAK's contribution to our gross profit and EBITDA growth rates will be less impactful after we lap the acquisition in May.

Non-GAAP net income grew by 40% and non-GAAP EPS grew by 36%, reflecting the impact of the higher fully diluted share count.

In terms of cash flow, we generated approximately $177 million of cash from operations during first quarter 2014, which is about 3% lower than last year.

We prepaid income taxes of $346 million in the quarter for Booking.com, and returned for an early payment cash discount.

We made a similar prepayment last year in the amount of $224 million.

These taxes would otherwise have been paid monthly over the year, and so subsequent quarters of the year will have a lower payment burden as a result.

We spent about $30 million on CapEx and we repaid about $58 million of our 2015 convertible notes upon early conversion by their holders.

We also returned $97 million to shareholders through purchases of our common stock.

Our cash and investments totaled about $6.7 billion at quarter end are available for general corporate purposes, including additional share repurchases, acquisitions, and debt repayment.

Now for second-quarter 2014 guidance.

We are forecasting total gross bookings to grow by 22% to 32% in US dollars, and by 20% to 30% on a local currency basis, with US gross bookings growing by 15% to 20%.

We expect international gross bookings to grow by 24% to 34% in US dollars, and by 21% to 31% on a local currency basis.

Our Q2 forecast assumes that local currency ADRs for the consolidated Group will be up by about 1% compared to the prior-year period.

Our Q2 forecast assumes that foreign exchange rates remain at the same $1.39 per euro and $1.70 per British pound as yesterday's closing rates, which would result in average exchange rates that would be stronger by about 6% for the euro and about 10% for the British pound as compared to the prior year.

We expect the overall impact of currency fluctuations to be favorable to our growth rates expressed in US dollars.

We have hedge contracts in place which substantially shield our second-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 second quarter.

We expect Q2 revenue to grow year over year by approximately 19% to 29%, and gross profit dollars to grow by 24% to 34%.

We expect the declines in our Name Your Own Price services will impact revenue growth rates in Q2.

We expect about 300 bp of deleverage in non-GAAP operating income as a percentage of gross profit compared to prior year, driven by lower online ad ROIs and increased investment in offline advertising expense.

Our approach to online and offline advertising is consistent with past practice.

We use a disciplined approach to invest in advertising to build our brands while delivering demand at an acceptable ROI.

Our ROI targets are fluid based upon competitive and marketplace conditions, and are set to achieve the right balance between top-line growth and bottom-line profitability.

We are investing more heavily in online advertising thus far in Q2 and assume the strategy will be maintained for the remainder of the quarter.

Q2 year-over-year online advertising efficiency benefits from the inclusion of KAYAK in our consolidated results, but to a lesser extent than Q1 because we lap the acquisition on May 21.

Q2 also reflects some offline spend that was shifted from Q1 into Q2 as I mentioned a moment ago.

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

Adjusted EBITDA is expected to range between $725 million and $775 million, which at the midpoint represents 21% 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 tax and state income taxes in the US.

We are targeting non-GAAP fully diluted EPS of approximately $11.22 to $12.02 per share, which at the midpoint represents 20% growth over prior year.

Our non-GAAP EPS guidance assumes a fully diluted share count of 53.3 million shares based upon yesterday's closing stock price of $1,131.74.

We forecast GAAP EPS between $9.67 and $10.47 per share for Q2.

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 that the hard work and talent of our brand teams delivered great results in Q1 and a strong forecast for Q2.

Our guidance reflects our actual results to date 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.

(Operator Instructions)

Our first question comes from Heath Terry of Goldman Sachs.

Your line is now opened.

Great.

Thanks.

Darren, when you look out sort of across the landscape of travel, what are you seeing in terms of the willingness of hotels to begin to work with additional platforms, particularly some of the smaller hotels that have long been almost sort of de facto exclusive to Priceline including your own other platforms like KAYAK?

And then maybe even more broadly, just the level of sophistication that you're seeing in hotels, and particularly with the larger chains, the franchisees of those hotels in engaging more directly with online?

I would say -- thanks, Heath.

I would say generally speaking of course everyone's advancing in the way that they think about the role of technology and how they run their operations.

A few years ago would be going out you'd have to be teaching people how to use a PC.

That obviously isn't the case anymore.

I was just in Bucharest in Romania this week and they have got fiber optics in Romania.

Who would have thought.

And obviously people need to assess their model.

But the internet is also changing very fast, and it's not only a world of just PCs.

It's now a world of tablets and phones, and there's so many options open to hotels that the degree to which they're catching up technologically, they're becoming more confused at all the different ways that they could be spending their money.

And they of course are always looking for the best and lowest-cost option to generate demand and I strongly believe we still offer that to them.

Given the fact that everything's changed, even advertising on Google or TripAdvisor ads, you actually have to pay money for that just to play.

And a lot of them rely on us to be that provider of demand, not just from local demand but demand from all parts of the world.

For any single hotel, or even for some of the chains, it's difficult for them to get the scale they need to be able to attract customers from every corner of the world even as much as technology's advanced.

Generally speaking, it is a very dynamic environment.

Many hotels have channel managers which allow them to plug into Booking, as well as Agoda, they can try things on KAYAK.

They can work with other vendors that can put them on these demand system.

Net net most of the hotels I speak with have a hard time finding the kind of ROI by doing it on their own and they would much rather prefer to focus on just running a great hotel.

The real secret to success for hotels in this new world is just run a great product, have a very differentiated thing, and we can help the entire world to find them.

And I think many of them are recognizing that that's the case.

You mentioned ROI.

Obviously you picked up some headlines earlier this month with some comments that you made about the limitations that you found in the social media platforms, the ROI there.

Is that just maybe to go beyond the headline, is that something that you feel is sort of an innate limitation of those platforms?

Or is that something that Priceline sees as an opportunity to exploit down the road as either those platforms or customers get more sophisticated around using them for travel purposes?

To be clear, we do spend money on Facebook and Twitter and many other platforms, and we really very deeply understand their offerings and they also work closely with us to try to make this work.

But it's still a small fraction of our spend.

And I think that it's important to differentiate between kind of primarily brand advertisers, the Coca-Colas and the GMs of the world, and advertisers like us which are really direct response advertisers.

For direct response advertisers there's these large source of audience in the world that just hasn't figured out how to translate that audience into a transaction.

Whereas Google of course is extremely good at this, as are many of the metas.

My comments are more wanting to move bigger and faster and I'm sure -- and to be honest, I think Facebook for instance is making a lot of progress.

But we would love to have some of these big audience pools to be able to find business at an ROI like we find at other channels.

That's really my comment.

If anything, I would call it general encouragement to continue to not lose faith that they'll be able to figure this out.

I think many of these large audience platforms, companies like Priceline are the key I think to them breaking the back of this issue, how do they build a profitable advertising business.

Great, thanks, that's really helpful.

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

Your line is now opened.

Thank you.

Can you comment a little bit about the positive ROI you're seeing in 1Q and then why you guided a little bit for deleverage in 2Q?

I think that also is related to shifting out spend to 2Q.

Maybe talk a little bit why you did that.

And are you spending more now because you anticipate healthy activity in 3Q?

Thank you.

Hey, Justin.

So to be clear, we didn't have positive ROIs in Q1.

We still had ROI pressure.

We had positive ROIs but we didn't have year-over-year.

Year over year, slightly negative, not to the extent that we have seen thus far in Q2 and we're forecasting.

We had a significant beneficial impact from the inclusion of KAYAK in Q1 and that was built into our forecast.

We knew that was going to be there.

KAYAK also had a better quarter than we had forecast and so that contributed.

We get less of a benefit as we move into Q2 from the inclusion of KAYAK because we lap the acquisition.

And we've made the conscious decision that we're going to invest to an aggressive degree in variable channels, and that's in our actual results to date and in our forecast for the rest of the quarter for the online advertising.

For offline advertising, if you look at the markets you're investing in with Booking.com and KAYAK and Priceline for that matter in the US; UK for Booking.com and Canada, there was pretty bad weather in those markets.

Polar vortex in Canada and the US and a lot of snow, flight disruptions and we had flooding in the UK, and so we decided to step off the gas and not spend as much for offline advertising there and instead defer it to Q2 where there's still a huge amount of travel booking going on for spring breaks and for summer vacations.

So that's why we pushed back on that.

I'd also note that, Justin, this is -- Q2 is a really key period in the online travel space, certainly in the Northern hemisphere, and we're wanting to make sure that we -- in the channels that we really understand well, the variable channels, that we're getting at least if not more than our fair share of those channels.

Others may be using a lot of couponing and discounting.

That's not traditionally been the way that we build business.

We wanting to make sure as the channels warm up and the snow leaves and crisis get less, we want to be in the market executing because that's when you really build demand for the summer and we want to make sure that our forecast reflects that.

And maybe one follow-up.

As we think about 3Q, the KAYAK acquisition will be lapped, what would you give advice as we start to model 3Q without KAYAK in there?

We won't give any guidance beyond Q2 as our normal practice, Justin, but we definitely get less benefit in the online ad efficiency from the KAYAK acquisition as we lap it.

So I would just assume that there's no built in efficiency from that and then you've got to come up with your own estimation as to what you think will happen with the online ROIs and the marketplace in general.

That's such a big number in our P&L that it can be very volatile and can have positive or negative impact on operating leverage.

Thank you and nice quarter.

Thanks, Justin.

Thank you.

Our next question comes from Douglas Anmuth of JPMorgan.

Your line is now opened.

Great.

Thanks for taking the question.

I just want to just stick with the KAYAK theme here.

Just coming up on the anniversary in a couple weeks, can you just talk how you're thinking about the benefits of KAYAK versus the standalone business, and then also how it's driving broader Group.

How that's grown over last year relative to what you're thinking when you acquired it.

Thanks.

I'll take that one, Douglas, thanks for your question.

I would say generally speaking we've seen that metas is becoming a more important channel for all of the OTA brands in the group.

I think beating and owning in meta has taught us a lot about what does that mean, what does it mean to be on the other side for somebody selling advertising for those buying advertising.

We certainly did a lot across the group to share best practice, and I would say particularly in the area of mobile KAYAK has been a tremendous addition into the conversation of the group as we try to feel our way through how we can drive success in the mobile space.

They also have had a pretty nice impact on Priceline's air business, another area I would flag as a positive.

Now, the way we run the Group is the brands run very independently.

We do share across the Groups.

We have sessions around social and mobile and other topics.

But it is really up to Steve and his team to drive the results.

And knowing Steve and his folks I think they get energized being around a group of other really high-performing companies, and thinking about how they're going to take their product and lead to their vision of being the world's leading meta.

And now I'm excited that they've settled in with the group.

They're driving some really good results.

Now the next stage for them is to go from being what I would call primarily a US business to becoming very global, and they've begun a number of experiments to that degree that we're feeling really good about and are quite promising.

Okay.

Great.

Thank you.

Our next question comes from Ross Sandler of Deutsche Bank.

Your line is now opened.

Thanks, guys.

Just had two questions.

Back to the ROI discussion.

So if you strip out the impact from KAYAK we're probably seven quarters into the period where you started to call out ROI pressure.

So is the year-on-year decline in ROI ex-KAYAK a function of the geographic mix shift which is natural in the business, or if we look at it on a same geo basis, is the ROI declining there as well?

And do you envision a time where booking will have a base of organic traffic that could potentially offset these ROI pressures or not?

And then the second question is one that you've gotten in the past, but TripAdvisor announced this week that they're going to launch assisted book for all channels, smartphone, mobile, and tablet -- sorry, smartphone, desktop, and tablet.

How do you view these assisted channels?

If we were to see Google implement assisted book do you have any sense of how that could impact your unit economics in hotel?

Thanks.

Why don't you take the first one.

I'll take the second.

Hey, Ross.

First, on the ROIs, you're right we've had pressure now for seven quarters to varying degrees.

We saw the back half of 2013 less pressure as we were comping against the periods where the pressure first started and so the comps got a little bit easier.

I'd argue that as you go into the back half of this year, maybe therefore the comps are a little bit tougher, but we're not going to give a forecast and it's very difficult to predict even if we wanted to give one exactly how the market's going to play out that far into the future.

In terms of geographic shift, won't give you any details of our marketing or ROIs by market.

But this is too significant of an impact in the consolidated results to not be more across the board.

I'll take that on the trip assist.

Probably start out by just saying that TripAdvisor is a really good partner of ours and we have a very healthy relationship and I'd say it's gotten even stronger over time.

It feels quite data driven, quite symbiotic.

We're finding ways together to drive a lot more business in the core product.

And when it comes generally to the introduction of new products like trip assist the way we think about it is we're always judging both on the ROI as well as the strategic value, and I find strategic value is it a good experience for the customer, is it clear to the customer who they booked with.

Does it help us build customers for the future or is it just about a single transaction.

And if the strategic value of a particular product is high, for instance, Google PPC over the years, then we lean in, then we invest, then we spend more money on it.

We focus our people on innovating against it.

We actually co-create products in those scenarios.

If the strategic value is low obviously we don't spend heavily.

We lean back.

We go for really high ROIs, we don't invest.

We might even just partially put product in it or even not participate at all.

So that's always the tradeoff we're going through.

And I think in the case of trip assist, we understand the product really well.

The TripAdvisor team has made a lot of changes to try to address some of our strategic concerns, but at least on the launch we decided not to participate at this time, but not that we won't in the future.

And the dialogue is very constructive.

And I think in the case of TripAdvisor or Google or anyone who introduces a new product, we're very involved in the discussion, and now ultimately they're going to make their decision and we'll make our decision, and that's how these things work.

I do feel very comfortable that we are building a bigger and stronger direct business over time.

We're not so reliant on any partner that we're not afraid to make really difficult decisions because we do every day.

And over time it's smart and it's built us a better business.

Great.

Thanks, guys.

Thank you.

Our next question comes from Mark Mahaney of RBC.

Your line is you now open.

I wanted to ask a broad question about alternative accommodations.

You've given the disclosure that's become a larger part of your base.

Could you talk about the impact of that to the business in terms of -- maybe just in terms of consumers.

Do you find that this is bringing a broader range of consumers?

Are you able to increase match rates?

What this does to your overall economics, does it help with geographic expansion?

Does it just give you greater depth in each existing market?

What's the impact of the buildout of alternative accommodations on your business?

Thanks.

Thanks, Mark.

I'd say generally speaking it's been very positive, because if you think about it, when people come to a city they're just looking for a place to stay.

But the scenarios under which you arrive, the same person might be with their family and kids, another one might be a business trip.

Maybe you're backpacking or you're on a golf trip with friends.

And in a way hotels can satisfy many of those needs, but there's other types of accommodations that might better satisfy.

For instance, I was talking to some folks about hostel booking.

They were telling us you guys know you're the number-one way that people book our hostels.

It's hard to imagine three years ago that we were huge in the hostel world, but the hostel world brings us a younger consumer.

It's a low ticket.

Or brings us a family that's on a very low budget.

It also when you look at Paris it allows you to find a place you can book for EUR30, but we also have the [Georgia stank] and you can pay EUR1,000 if you want.

It's that breadth of assortment that really allows us to treat different consumer scenarios with products that matches the needs of the consumer.

Specifically, vacation rentals which is kind of the latest in the long tail or self-catered products, it's becoming a really big deal.

Because vacation rentals are very difficult to book.

You go through an e-mail, phone dance with these so people don't feel secure about it.

So for many families, a vacation rental is an upgrade, if they're on vacation in the South of Spain or [Navesa], or in Tuscany.

So our role of going down the path of accommodations, getting them wired up, making them directly bookable, making them instantly confirmable is good work to do, and by increasing that assortment it gives us further strength in Booking.com or other brands as products that consumers will want to go to first to really find the accommodation that matches them.

I'd say it's been -- it's really hard work, by the way, because as you go down the long tail you're getting the really small places, you're getting to the cities without names.

You're getting to families and all of this.

But it's great work in the sense that it's really reinventing the product that we bring to consumers and it's really going extremely well.

And the only other thing I would say is more people are looking for products like apartments and self-catered product around the world, and even hotels are adjusting.

You find many hotels in Europe that in the front they're a hotel but in the back they've got an apartment block that they're using for families et cetera.

We're also seeing that the product even within a single hotel can have many variants depending on the user needs that they're trying to address.

Thank you, Darren.

Thank you.

Our next question comes from Michael Millman of Millman Research.

Your line is now opened.

Thank you.

Could you talk about what impact you're seeing from Trivago on KAYAK in the US?

And also on the rental cars, can you talk about what you're seeing in pricing in Europe and the US and what you're seeing in fleet availability in Europe and the US?

Thank you.

Okay.

I'll let Dan take the second one on rental cars.

With regard to Trivago and KAYAK, I think both of them are, this is now from the UK side, both are great sources of demand.

Trivago in the United States has grown significantly, but off of a very low base, and we're participating in that with Trivago and we do the same with KAYAK.

We try to treat our source of demand very independently regardless of the fact that Expedia is the majority owner of Trivago and we own KAYAK, we try to keep a Chinese Wall between those.

I know Expedia is the same.

We're getting a lot of growth out of both of those sources of bookings today.

And in terms of our rental car business, Michael, pricing is up low-single digits in the US and down low-single digits for our European business.

Availability for summer is always a challenge.

The team at RentalCars.com does a great job of working closely with the suppliers to make sure we get our fair share of availability.

That's an ongoing task to make sure we're in the right position.

In the US as far as it relates to our Name Your Own Price business, been more challenged.

Each of the big players, the big three have partnered with their own lower-price alternatives where they can move some excess inventory on weekends and what have you.

In the past, more typically drawn to our Name Your Own Price channel.

So this is really nothing new.

It's always a challenge for the Priceline team to get at that excess inventory.

We'll have quarters where we get better results because we're more successful and quarters like Q1 and what we're projecting for Q2 where it looks like it's going to be more challenging, the market's healthy, and there's just not that many excess cars to move through Name Your Own Price.

Thank you.

Thank you.

Our next question comes from Dean Prissman of Credit Suisse.

As you look at the continued growth of your business, room night growth of 32%, I'm guessing it's combination of both new users and greater wallet share with existing customers.

Can you qualitatively discuss the relative importance of each lever?

And then I have a follow-up.

I would say we have a healthy balance of both new usage as well as repeat.

We're always looking to get both levers.

In a way, I don't feel it's that healthy to have too much of your business direct because you've got to keep casting the net and the fishing net to bring more customers basically into the franchise.

So we have a healthy balance of both.

More of our business as Dan mentioned is coming direct, which I think is healthy and that includes new customers.

But I don't really want to talk too much about wallet share and other topics which would be confidential.

Thanks.

And then given the size of the outbound China travel market and even greater potential, beyond the Ctrip relationship, can you update us on your strategy with Booking.com, particularly as one considers the tour group oriented nature of international travel originating from the country?

Thanks.

That's a great question, Dean.

We feel very positive about our outbound business from China.

It's one of our fastest growing businesses in the world.

We did find just for color the Malaysian Air tragedy where everybody had a bit of a short-term impact, so we are seeing Chinese in droves right now traveling to North Asia, Southeast Asia, even to Oceana, Europe, US.

And I think part of this is all nationalities are becoming more comfortable with [pip] travel or traveling in a do-it-yourself way instead of package travel.

That's a general trend.

We certainly see that with the Chinese as well.

You could come to Amsterdam, I took a tail end flight the other day to Shanghai and it was full of people with Louis Vuitton bags and Chanel bags and they were definitely traveling on their own, it wasn't group travel.

I think you're going to continue to see that trend.

The internet in some ways makes it more comfortable for even cautious travelers to go out as a couple or as a family versus having to travel as groups.

I had spent three years as the head of Microsoft in Japan, even back then Japanese only traveled in groups.

You definitely see a massive change in that.

Where now Japanese are traveling alone or with very small groups of friends doing their do-it-yourself travel versus kind of packages.

By the way, doesn't mean packages are going away anytime soon.

It's just that the general trend is for more and more independent travel including among North Asian folks.

Thanks, Darren.

Thank you.

Our next question comes from Ken Sena of Evercore Partners.

Your line is now opened.

Does growth in Facebook and some of the newer channels pose any sort of change to how you think about rate parity over the next few years given that it's a log-in experience?

Maybe as you look out over the next few years, how should we think about rate parity and what effect that could have on the competitive landscape?

Thanks.

Thanks, Ken.

I think it's a good chance to touch on this topic.

I'd say first, you need to start with the consumer, and if anything, things are getting more confusing for consumers.

If you go onto most meta channels despite all the great work that's been done, most rates are not real deals.

There's tax issues, exchange rate issues, a lot of wholesale inventory being laundered as retail inventory.

Sometimes you'll click on a rate and it goes to a blank website and they try to sell you something else.

So the whole area of rates in hotels and accommodations I would say unfortunately is like back sliding.

There's just a lot of noise in the market and that's a very important thing that needs to get addressed by combination of OTAs and metas, and the world just needs more transparency as it relates to rates.

I guess the second point I'd make is we'll never let our customers get charged more.

It's a basic principle of the Company.

We will not let them get charged more.

It's why we have a best price guarantee.

It's why we push for transparency and clarity, and we'll go to the ends of the earth to make sure they don't.

So in some degree we need more data on it.

We need to better understand if a property is selling a product less in some surgical social channel.

But we understand those opportunities whether it's social, Google, et cetera, and all of the new ways to market as well as anyone does, and we're monitoring this and creating the investment in big data, et cetera, to really understand in-depth to basically deliver on that basic principle.

We will never let our customers get charged more.

And that also by the way includes collecting deals that are better than anywhere they'll find on the internet.

We have thousands and thousands of rates on our sites that if you log-in or you're a loyal user that hotels providing to you to get your business.

So we're in our own massive marketing channel for hotels to take a customer that might have shown us somebody else to come to their hotel.

I think that's going to continue going forward.

I actually relish the opportunity to continue to address this, and I think we are in a pretty unique position to help bring some sanity to the world of pricing, both because of KAYAK, but also because of our position in the marketplace as the world's leading player in the space.

Great, thank you.

Thank you.

Our next question comes from Tom White of Macquarie.

Your line is now opened.

Thanks for taking my question.

I guess I just wanted to reconcile some of your comments around meta search becoming a more important channel for the OTAs.

But I'm also hearing some comments about sort of better direct navigation business in the quarter.

If we look at sort of your markets on a geographic, unique basis, is the percentage of traffic you're getting from meta search increasing or decreasing?

And then also just on mobile, maybe provide a bit more color some of the non-transaction engagement you referenced in your prepared remarks.

Thanks.

Let me take the first comment.

Meta search is an important channel for us, but it's not as big as you might think it is.

It's been growing as a percentage of our source of demand, but we have many other sources of demand.

Of course there's Google.

There's many other search engines that we buy demand from globally.

But we also have a very long tail of affiliates from easyJet to Ryanair and all the way down the line, many, many airlines and railroads, et cetera.

So if you look at all sources of paid demand, our direct demand is outgrowing our source of paid demand.

Within paid demand, meta continues to grow quite well and take some X proportion, but it's not so dramatic that it's completely shifting our overall landscape.

And then on the [Tripx] business, you mentioned for Q1 it was up positive.

In fact in terms of our advertising efficiency, the trend we've seen for some time now, nice growth in our direct booking business, nice growth in repeat bookers.

Darren talked about our advertising philosophy.

We try and focus our dollars in areas that we think are strategically valuable, and we'll build a customer that recognizes our brand and is loyal to it based upon the service we can provide them over the long run.

Great.

Thanks.

And then just on mobile, talked about non-transaction engagement.

I was just wondering if there's any more color there, and if you ever thought that that might be a monetizeable opportunity for you somewhere down the line, maybe advertising revenues or something like that.

Thanks.

I think on that the way we think about it is sometimes it's hard to connect all the pieces, but the user will pick one of the screens to ultimately book on.

We want to give credit to the experience, to all the screens that they ultimately use.

The multiscreen attribution is not simple.

But we think we have a fairly strong bead on it now in terms of where users are entering the system and what devices they're using to ultimately complete their journey.

If anything what we're learning is they're using more and more and more screens along the journey.

It's amazing how many screens people touch on the same booking.

I think what that's helping us do is it's changing us from being just a booking engine to something that improves the entire trip, from easy check-in to, using Wi-Fi, to even considering things like guides to the city and other elements of innovation.

In some ways it's almost like the move to increase the number of screens, the move to multiple has increased the pallet that we're painting on.

Before it was just a desktop and it was a single experience and people would print off their paper-based confirmation and that would be it in terms of their digital connection with us.

But now everything stays digital.

Many never print their confirmations.

They want to actually go on the confirmations when they're standing at the Brussels train station and say take me to my hotel, which you can now do on Booking.com; it will literally give you walking directions or driving directions to your hotel.

It will help you find things around your hotel.

But it's interesting.

I'd say despite all of the growth of screens it's still early days.

But I think we're getting a lot smarter about thinking of the consumer as holding many screens and then deciding how we interact with that.

I wouldn't say it's a big advertising thing necessarily.

That's not how we're thinking about it.

It's much more about how do we become more meaningful in the booking experience rather than just being a great place to do the transactions.

Great, thanks for the color.

Thank you.

Our next question comes from Mike Olson of Piper Jaffray.

Your line is now opened.

Good morning.

For Booking.com in the US, where would you say we are on the spectrum of growth trajectory?

Was there some low-hanging fruit in terms of market share gains in the first few quarters of entering the market with the new brand and the big ad campaign, and now it becomes more challenging to gain incremental share?

Or is it the opposite, that now with the brand further permeated in the market, it should be easier to leverage the work you've done in building Booking.com in that market?

I would say -- thanks, Mike.

I would say that generally speaking it's still early days.

We recently passed 40,000 properties in the United States, and to build out property count like that it takes many years.

We've got now pretty much all the chains on-board.

Now we're building out the independent hotels.

We haven't really gotten into long tail accommodations.

I was talking to the team in Boston the other day about Maine and all the B&Bs and things that they have yet to put on the platform.

So we're seeing continued growth.

There's some markets that are very retail oriented, places like Miami where we're really big or San Diego and other markets that are more wholesale oriented, Orlandos of the world, places like that that we need to continue to chip away at.

But in the way that we grew the rest of our business, it doesn't all come in one pop.

It's like a continuous, methodical, breaking down walls, moving forward, and I feel really good about what our teams are doing in the United States.

And we're going to continue to expand the number of offices, the amount of engagement we do with hotels, and we're still at Booking.com highly under-indexed in the United States relative to Europe.

And the degree to which we can continue this hard work, there's a lot of growth still ahead of us in that market.

Okay.

Following an earlier question, could you talk about where you are on number of vacation rental properties now on Booking.com?

And will you kind of focus on primarily adding portfolios of properties from managers or also individual property owners?

I think the count today is -- it changes constantly.

Vacation rentals at the bottom.

It changes, I think it's 145,000, approximately, vacation rentals.

We define those as self-catered products, that includes holiday homes and -- 144,702.

By the way, all of our data on the website is real and it's constantly updating.

That's why I looked.

What we're trying to do is build out those properties that you can truly confirm, know you're going to be able to stay there.

It has electronic calendars that are secure.

And we started by working with property managers because that was easy in a sense because it's like working with the hotel owners.

It's got thousands of rooms; the rooms impact the vacation rentals themselves.

And slowly we're building out other tools [simple extra met].

Other products that will ultimately allow us to work with individual vacation homeowners as well.

That's our goal.

There's a lot of work to do to get there.

You'll continue to see this number go up over time because we're just going to methodically break down the walls and bring the product on-board.

We're really happy with our production.

If you talk to any of the players who work with us, I think they'll highlight to you that Booking.com produces extremely well for them, and we hope to bring that production to a broader number of accommodations over time.

I would say we're more European slanted today because it was a natural place to start.

We do have vacation rentals in other parts of the world.

But slowly that count outside of Europe is also building as well.

Thank you.

Thank you.

Our next question comes from Brian Fitzgerald of Jefferies.

Your line is now opened.

Thanks, guys.

A couple quick ones.

Maybe a quick follow-up on mobile.

Anything to call out in terms of engagement as differentiated across your brands or geographies?

And then on booking, user reviews up 44% by our estimates year over year, 10% in the quarter.

How do you think about how you drive review growth there and the efficacy of the reviews, make them more valuable to the traveler?

Thanks.

Maybe I'll -- let me start with reviews.

I'll start with the review question and then go backwards.

On reviews, the thing I would flag to people is our reviews are all from verified guests and we still have the rule that once your review's 14 months old, it comes off the site.

So it makes the comps a little bit weird at times because of seasonality.

So important, when you look at that number you always take that into account.

And the second thing is obviously our ability to attract people to do reviews changes over time.

Right now I'm feeling very good that if anything engagement is increasing despite the fact that often when you check out of a hotel you get a message from us, from the hotel, maybe somebody else, and people are engaging very deeply in our reviews.

And our review response rates are very high and keeping our reviews very high quality, and we're proud of that and we feel like we have the largest number of verified reviews for accommodations in the world.

Of course, others have many more reviews, but they're not necessarily verified.

They're much more open-ended in terms of anyone being able to leave a review.

I think your other question was on mobile.

(technical difficulty)

So we said in the past, the brands are at different stages of maturity in terms of mobile apps and mobile websites.

Booking.com, KAYAK, and Priceline.com are pretty far advanced.

All of our brands are getting significant and growing levels of traffic coming to us through mobile devices, and we're doing a nice job in growing our mobile bookings at very high rates as well.

So mobile engagement, typical level.

A customers.

(technical difficulty)

-- more of an art because everyone is trying to figure out this exact question.

I think for the group versus others we very heavily weighted on mobile web.

We think that's where you're going to pick up brand-new transactional customers.

Somebody's standing in an airport saying I need a hotel tonight, and they often do that on a web base, they're not going to download your app to necessarily make that.

We think of app customers as more of our loyal bookers.

We don't necessarily try to chase them down to do their very first booking ever on a mobile app.

We're happy with that.

That's been our general way of generating demand towards mobile.

We also believe that mobile downloads don't -- for sure don't lead to engaged booking yet.

There's a lot of charlatans out there that will sell you all sorts of tools to get lots of downloads.

But it doesn't necessarily ultimately make it a good ROI investment.

We've had similar views in the past on things like Facebook Likes.

It's nice to have it.

But if it's not ultimately leading to a good result then we definitely shied away from it.

We also don't believe strongly in overly interrupting the experience, but when you get on the web, we immediately tell you to download the app without letting you get through to the experience.

That's something that differentiates our approach.

I think we're much more about what's the consumer experience and quickly getting them into the booking path and learning about what they're going to do next.

Again, it's an evolving -- there's lots of companies that are trying to influence the space.

We're building out our own tooling.

We have a lot of smart people looking at it.

I feel very good about our results.

But it would be wrong for me to say we've got everything figured out.

We try to be as smart as we can and be ROI focused as much as we can on the space.

Thank you.

Thank you.

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

Your line is now opened.

Thanks a lot.

On KAYAK, you said it delivered impressive profitability.

Can you give us any sense of how it compares to overall Group margins?

And also can you discuss any Easter timing impact for Q1 and to what extent that will offset the Priceline anniversary of KAYAK in Q2.

Thanks.

The KAYAK profitability, the KAYAK business is nicely profitable.

Some of the competitors talk about growth rates of their businesses, but profit is more in question.

Steve and his team have chosen to strike the right balance I think between what they spend to drive top-line growth while still delivering very healthy margins.

So -- (technical difficulty)

-- earnings based upon checkout, they're delivering higher relative percentage of their annual profit in Q1, so they're really positive to our margins for Q1.

In terms of Easter timing, that is a benefit to Q2 and a detriment to Q1, so last year -- (technical difficulty) That's reflected in our forecast.

So Q2 looks better -- Q2 looks worse as a result of that shift in terms of profitability and gross profit growth.

Okay.

Thanks.

And then a follow-up on vacation rentals.

We know it's a large percentage of the properties.

Can you give us any sense of how big a factor it is on bookings or room nights?

Is that a meaningful addition to growth yet?

I think as we disclosed, vacation rentals are not -- are on average not as big as.

(technical difficulty) indication on this call that just that this call it self-catered hotel with lots of apartments.

And there's actually quite a few of those and it's a growing category, particularly in Europe, but also in other parts of the world.

So yes, we feel like the production in the vacation rental space is very strong.

But always if you look at the growth of our property count, it's always going to over-emphasize the amount of rooms supplied because the supplies as we've disclosed many times is getting less rooms per property.

It's not that there's no hotels to acquire.

We're acquiring many, many hotels, it's just over time the long tail per property brings on less rooms.

Thanks so much.

Thank you.

And at this time I'd like to turn the call back to Management for any further remarks.

I want to thank everyone again, this is our first conference call from Amsterdam.

It's our first conference call from Europe.

Hopefully that's a signal that we are a global Company.

I apologize everyone having to get up before the market.

I do really appreciate the interest and the engagement and we're looking forward to a great Q2.

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

This does conclude today's program.

You may all disconnect.

Everyone have a wonderful day.