Booking Holdings Inc (BKNG) 2014 Q3 法說會逐字稿

Welcome to the Priceline Group's third-quarter 2014 conference call.

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

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

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

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

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

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

A copy of the Group's earnings press release, together with an accompanying financial and statistical supplement is available in the [Foreign] Investors section of the Priceline Group's website, www.PricelineGroup.com.

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

Go ahead, gentlemen.

Okay, thank you very much.

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

Thank you for joining us before the markets open this morning in New York.

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

The Group reported consolidated gross bookings for the third quarter of approximately $13.8 billion, up 28% year-over-year, or about 29% on a local currency basis.

Non-GAAP net income was $1.2 billion, up 29% year-over-year, and earnings per share was $22.16, up 28% versus prior-year, surpassing FactSet consensus estimates of $21.08 per share, and our guidance for the quarter.

Our customers booked accommodation reservations for 95 million room nights in the quarter, up 27% year-over-year, versus 29% in Q2.

This modest deceleration reflects the benefit of higher growth rates in new markets, which continue to become an increasing share of our worldwide business.

Growth rates also benefited from strong execution in building supply and availability during our peak booking season.

Booking.com's platform now has over 540,000 hotels and other accommodations in 207 countries, up 52% over last year.

Booking.com is establishing clear global leadership in the online accommodations market.

We continue to see market share gains in every geography, with particular strength outside of Western Europe.

The business is also growing in the non-hotels area, as we continue to experiment and invest in adding these properties to our inventory, and taking friction out of the booking process.

Growth in our vacation rental bookings, including villas, chalets, apartments, apart-hotels and other self-catered product continues to exceed the growth of our hotel business, and as a result, comprises an increasing share of our business.

Our marketing mix is also diversifying favorably.

We believe the off-line branding investments of Booking.com have been a key component of our growing mix of direct business, and we intend to continue to complement our substantial online advertising investment with effective off-line branding.

We will likely invest in off-line advertising in additional markets during 2015 provided we continue to observe acceptable ROIs on our total advertising spend.

Priceline.com posted 10% growth in gross bookings versus 21% in Q2, reflecting the impact of tougher comps from increased advertising on Kayak last year, and a difficult environment for opaque availability.

Conversely, retail hotel and rental car growth helped to offset this challenge with solid performance.

Total rental car days accelerated in the quarter, reflecting strong performance at both RentalCars.com and Priceline.com.

Between Kayak, Priceline.com, and Booking.com, we feel good about our growing position in the United States travel market, and we plan to continue to profitably invest to improve our services, and bring more customers to our sites.

Asia Pacific also continues to be a bright spot for the Group, and we believe we delivered market share gains through the efforts of Agoda.com and Booking.com.

We saw strong growth in particular in North Asia, with some recovery from the political unrest in Southeast Asia.

We are also well into the planning and execution of our latest commercial agreement and investment in Ctrip, China's largest OTA.

We were excited to have OpenTable join our quarterly leadership team meetings in Amsterdam, and the knowledge sharing between OpenTable and the balance of the group is underway.

Pay with OpenTable, our mobile payments app, is off to a strong start with great adoption rates and feedback from diners and restaurants alike.

International expansion will be a longer-term rollout, and the team is hard at work laying the groundwork for success.

We've also completed our plans for co-marketing between our brands, and experimentation and execution on those plans has now begun in earnest.

The Group performed well in the third quarter, with market-leading growth on both the top and bottom lines, and sustained leadership and profitability as well.

I believe our teams are executing very well in an intensely competitive marketplace, and against a mixed global economic and political backdrop.

We continue to build our brands for smart investments in mobile, marketing, people, best-in-class customer service and product, and service innovation.

This includes new opportunities also, like dining, mobile payments, and hotel marketing services.

We also continued to invest in building trusting win-win relationships with our partners across accommodations, flights, rental cars, and restaurants.

I want to thank our employees around the world for their hard work and dedication in delivering terrific performance during our peak summer seasons.

We also continued to be very optimistic about the many opportunities that are still ahead of us.

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

Dan?

Thanks, Darren.

I'll discuss some of the highlights in operating results and cash flows for the quarter, and then provide guidance for the fourth quarter of 2014.

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

OpenTable is included in our income statement from the acquisition close date of July 24 through the end of the quarter.

OpenTable revenue included in Q3 results amounted to $41.2 million, and is included in advertising and other revenues in our consolidated statements of operations.

There was no cost of revenues for OpenTable in our reporting format, so gross profit equals revenue.

We will report OpenTable's revenue for the first year to help investors understand the impact of the acquisition on our top line growth.

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

Room nights booked grew by 27% from the third quarter, decelerating modestly compared to the 29% growth rate for Q2.

Average daily rates, or ADRs, for Q3 2014 were up on a local currency basis by about 3% for the consolidated group.

The FX rate for the Euro to the US dollar for the third quarter was about the same as the prior year; however, the Euro weakened as compared to the $1.34 exchange rate that prevailed at the time we gave Q3 guidance.

The impact on the bottom line was mitigated by our hedging program, but currency exchange rates had a slightly negative impact compared to our guidance for gross bookings, gross profit and operating profit.

Q3 gross bookings grew by 28% compared to prior year.

Our Q3 international gross bookings grew by 32%, both in US dollars and on a local currency basis.

Gross bookings for our Priceline.com brand business in the US grew by 10%, driven by good performance for retail travel services, which benefited from increased retail advertising placements on Kayak.

We lapped the start of these ad placements in Q3, which caused gross bookings growth to decelerate for Priceline in Q3, and will result in further deceleration in Q4.

Hotel express deals 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 shift to express deals.

I highlight 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 $2.6 billion, and grew 32% as compared to prior year.

Our international operations generated gross profit of $2.34 billion, which constituted an increase of 33%, both in US dollars and on a local currency basis, as compared to the prior year.

Gross profit for our US operations, including OpenTable, which is largely a US business, amounted to $275 million, which represented 24% growth versus prior year.

Non-GAAP operating income amounted to 54% of gross profit for Q3, which is 191 BPs lower than last year.

Operating margins were impacted by investments we made in off-line advertising and other OpEx, to build our brands and support growth initiatives in restaurant reservations and hotel marketing services.

Operating margins came in better than our guidance due mainly to less than forecasted year-over-year decline in online advertising ROIs.

Adjusted EBITDA for Q3 amounted to $1.43 billion, which exceeded the top end of our guidance range of $1.37 billion, and represents 28% growth versus prior year.

Non-GAAP net income grew by 29%, and non-GAAP EPS grew by 28%.

In terms of cash flow, we generated approximately $1.3 billion of cash from operations during third quarter 2014 which is about 33% above last year.

We spent $29 million on CapEx, and repurchased $148 million of our common stock in Q3.

We spent about $2.5 billion of US cash in Q3 to complete the OpenTable acquisition, and we used non-US cash to invest $500 million in the Ctrip convertible bond, and $151 million in Ctrip stock.

We raised about $2.3 billion of additional capital in the US during the quarter, at what we believe to be attractive terms, by completing a $1 billion convertible debt offering, and raising about $1.3 billion through a Euro denominated bond offering.

Our cash and investments amounted to $8.2 billion at quarter end, with about $1.6 billion of that balance in the US.

Now for Q4 guidance.

OpenTable is included in our forecasted results for the entire quarter.

It is still a relatively short period of time since the deal closed, but our current intention is to increase investment in OpenTable from an advertising and OpEx perspective in Q4 and coming quarters, to position the business for future growth.

For Q4 guidance, we are forecasting total gross bookings to grow by 8% to 15% in US dollars, and by 13% to 20% on a local currency basis.

With US gross bookings growing by about 0% to 5%, which reflects lapping certain retail air add placements on Kayak during Q3.

We expect international gross bookings to grow by 10% to 17% in US dollars, and by 16% to 23% on a local currency basis.

Obviously, the deterioration in the Euro exchange rate over the last couple of months is indicative of weakening economic conditions in our most important market, which is of concern as we look at the business going forward.

Our Q4 forecast assumes that local currency ADRs with the consolidated Group will be up about 1% compared to the prior-year period.

Our Q4 forecast assumes that foreign exchange rates remain at the same $1.25 per Euro and $1.60 per British pound, as Monday's closing rates, which would result in average exchange rates that would be weaker by about 8% for the Euro and about 1% for the British pound, as compared to the prior year.

I highlight that the Euro exchange rate assumed in our forecast is about 7% weaker than the $1.34 exchange rate that prevailed at the time we reported Q2, and most analysts last updated their forecasts.

We have hedge contracts in place to substantially shield our fourth quarter EBITDA and net earnings from any fluctuation in the Euro or the pound versus the dollar, between now and the end of the quarter, but these hedges do not offset the impact of translation on our gross bookings, revenue, gross profit, or operating income, and do not hedge our earnings beyond the fourth quarter.

We expect Q4 revenue to grow year-over-year by approximately 11% to 18%, and gross profits to grow by approximately 17% to 24%.

We expect the declines in our Name-Your-Own-Price service will continue to negatively impact revenue growth rates in Q4.

We expect that 350 BPs of deleverage in non-GAAP operating income as a percentage of gross profit compared to prior year, as we invest in advertising and other expenses to support our brands and new initiatives.

Our Q4 online advertising forecast reflects our actual results to date, and assumes further pressure on ad efficiency throughout the remainder of the quarter, based upon the trends we have experienced over the last couple of years.

We estimate that we will spend about $50 million to $55 million for off-line advertising in Q4.

These investments in advertising and other OpEx can have a more pronounced impact on profitability in Q4 and Q1, which are quarters where we typically earn a lower percentage of our annual profit, due to the normal seasonality for our business.

As a reminder, Q4 2013 personnel expense included a $12 million charge related to a payroll tax levy in the Netherlands.

We do not expect to incur a similar charge this year.

Adjusted EBITDA is expected to range between $625 million and $665 million, which at the midpoint represents 12% growth versus prior year.

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

Our non-GAAP EPS forecast also reflects the cash interest expense related to the two bond offerings we completed in Q3 that I mentioned a moment ago.

We are targeting non-GAAP fully-diluted EPS of approximately $9.40 to $10.10 per share, which at the midpoint represents 10% growth year-over-year.

Our non-GAAP EPS guidance assumes a fully diluted share count of 53.2 million shares, based upon Monday's closing stock price.

We forecast GAAP EPS between $7.55 and $8.25 per share for Q4.

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

In summary, we believe that our forecast represents strong top line and bottom line growth, and exceptional profit margins.

Our Q4 forecast implies full-year EBITDA growth of 26% to 28%, with an operating profit margin in the mid-40% range.

We would be pleased with this outcome under any circumstances, but particularly in a year where we made substantial investments to support our brands, including increasing off-line brand advertising support by over $100 million.

Our guidance reflects the actual deceleration in growth experience to date, and our assumption that we will experience further deceleration over the remainder of the quarter, as we compare against the period where our room night growth accelerated last year.

Although we are increasingly concerned about economic conditions in general, and in our key European market in particular, our forecast does not assume any further deterioration in macroeconomic conditions.

We will now take your questions.

(Operator Instructions)

Our first question comes from Heath Terry with Goldman Sachs.

Great, thanks.

You commented on seeing higher online ROI in the quarter, and then obviously guiding towards seeing pretty significant weakness, particularly in the US in the fourth quarter.

Wondering if you can tell us what's changed from Q3 to Q4?

Is it a specific channel?

Is it mix from independent to more chains on the hotel side?

What would you say describes the difference?

And to the extent you see quarters like Q3 where ROI and online spend is higher, how quickly can you adjust your spend to take advantage of that, and were you able to do that in the quarter?

Heath, it's Dan.

So for Q3, we actually didn't have an increase in ROIs year-over-year.

They just weren't down to the extent that we forecasted when we gave guidance, and we don't really adjust based upon the ROIs coming in better.

We follow a consistent and disciplined approach that targets what we consider to be a reasonable ROI, based upon positions in the variable channels at that point in time.

As far as the US growth rate goes, that's more a function of lapping ad placements that Priceline.com has done on Kayak over the past year, particularly powering the retail air booking path on Kayak, so that drives a significant amount of gross bookings dollars, not a significant amount of gross profit.

So the impact from the bottom line perspective is not as dramatic.

Okay, great, thank you.

Our next question comes from Justin Post with Merrill Lynch.

Thank you.

Just a couple questions on Q4 guidance.

You mentioned ADRs going from plus 3 to plus 1 in local currency.

I'm just wondering if you are seeing a real slowdown in travel so far this quarter, and are you seeing some cancellation in room nights?

And then has the competitive environment picked up as Q4 has started?

Thank you.

Dan, why don't you take that?

So as far as the ADRs go Justin, it reflects our particular business mix.

We have seen some market-to-market impacts that could be more macroeconomic or currency driven.

For instance European travelers going to the US with the significant slide in the Euro versus the dollar, having a tendency to trade down, in terms of what they're willing to spend in dollars for a hotel room, to try and keep the cost of the trip consistent from a Euro perspective.

In terms of the European economic condition in particular, we're concerned about what we have seen over the last couple of months.

I think the results we posted for Q3 are very strong from a top line and bottom line perspective.

For Q4, we have seen some deceleration, and then our forecast reflects an expectation we'll see further deceleration as we go forward.

If you remember last year, we accelerated during the back half of Q4, so whenever we have a difficult comp like that, we're a little bit more cautious with our approach to forecasting.

Maybe Justin, I'll just add, this is Darren, that competitively I don't feel that the issue, we track market share of all of our accommodation partners around the world, and we believe we're increasing market share everywhere.

So there's a little bit of a geographic mix, and as Dan points out, exchange rate challenges obviously for us are translation issues in the US dollars, but they do actually have real impacts as well.

People rethink their travel.

We're very internationally travel-oriented Company.

We're more weighted into people coming from one country to the other and if not just the Euro, it's the ruble, the Australian dollar, there's other nationalities who like to travel internationally, who may change their plans or still execute their plans, and they'll actually trade down to maybe a three star versus a four star accommodation to reflect a fixed family budget.

Got it and maybe one follow-up.

In 2012, I think you saw a slowdown and then in 2013 you repivoted, did more off-line advertising, bought Kayak.

As you look forward to next year, are there some levers and different adjustments you can make maybe to try to reaccelerate growth?

Thanks.

I'll take that on.

I'm actually very optimistic.

Obviously what we constantly face is just the sheer size of our business relative to others, and we always have a strong focus on profitability.

So there are things we could do, but if we don't feel good about it from an ROI standpoint, that generally as a group those aren't things we will do.

But we have many plans.

We are really bullish on of course OpenTable and its opportunity to add to us longer term.

Hotel marketing services, as you know, is an area we're investing in, and seeing some real positive signals from our hotel partners of people interested in that kind of product which is a great new vehicle.

We're also doing a lot on the mobile front, and other plans that I'm not prepared to announce on this call for competitive reasons.

But I feel good about the pipeline of innovation that we have, and it's still a very big market.

I mean, we're the largest player now in online travel, but we're still small proportionate to the market opportunity, and it's always good to remind ourselves as well that travel is growing twice the rate of GDP.

Online travel within travel is growing.

The share is shifting to large players in the OTA space.

There's a lot of things that are working in our direction, and we would hope over time to continue to take advantage of those.

One other thing I will flag is our property count, because some people have brought this up.

You see that it's been a little slower in the last month or so, but that's really a seasonality effect.

These are -- we have a significant amount of stock that comes online in the Spring and then goes off-line in the Fall, so we don't count that on our total until it comes back online, but we don't see any barrier there as well.

We have a very strong pipeline of new properties ready to be completed and signed on and verified, and I still think the opportunity to add properties is still very significant for our business going forward.

Great, thank you.

Our next question comes from Doug Anmuth with JPMorgan.

Great, thanks for taking my question.

I was hoping you could just talk more about Booking.com into the US, and perhaps also just help us parse out the growth rates a little bit across the international business by geography.

And just to clarify on Q4, going from 32% ex-FX bookings growth in the third quarter down to 16% to 23%, and you're saying you don't think it's competition, so we can interpret it as macro and perhaps law of large numbers.

But is there anything else we should be thinking about there?

Thanks.

Dan, do you want to start off first?

I'll take that second part.

I'd say you hit it pretty well there, Doug.

I think we look at it as the law of large numbers, so generally, we expect the business to decelerate, given the size of it.

There is some macro concerns, particularly in Europe.

And then in addition we just have a very difficult comp because growth accelerated last year, so because it's our normal expectation that we're going to decelerate when we have a period of particular strength like that, it gives us more caution when we forecast against it.

And I would, this is Darren.

Just adding on the United States in particular, it is one real highlight in the global travel market.

It's a real positive, and it has been a real positive for us.

Our retail business is very strong and in particular Booking.com, we believe, is of all of the bigger players, is the fastest growing player in the US accommodations market, and we continue to expand our properties.

We've got great repeat rates, a lot of growing business in direct customers, so we're very bullish that we can get significant growth out of the US market, looking forward.

But it's a very competitive market, and we certainly stand ready to compete for that business, and feel good about the progress our team has made.

There's much more to do, it's one of the number of very large markets where I think our product deserves more market share, and we plan to go out and make that happen.

Thank you.

Our next question comes from Ross Sandler with Deutsche Bank.

Yes, just two quick questions.

I think a follow-up from what Doug just asked, but if you look at the growth rate for core Booking.com implied by the 700,000 room nights per day, you decelerated fairly meaningfully from Q2 to Q3, and I know Easter had an impact on the Q2 growth rate, but where do you think we are in terms of Booking.com's share gain story, globally in most of these markets?

Is it still happening, or are you basically the market?

And in particular, where does that stand in the US?

And then Darren, you just mentioned new mobile products or some new initiatives.

Can you just elaborate a little bit on what you're implying from that comment a few minutes ago?

Thanks.

Doug, I'll take the first piece.

So I'm not sure what you're referring to there.

In terms of local currency growth rate for our international business, we went from 34.5% to 31.8% from Q2 to Q3.

So what I would classify as modest deceleration, I believe that Booking.com is growing its share across the board in all of the markets in which we're operating.

So growing still at a very good rate within Europe, and as we've said several other times on prior calls, Europe is still such a big part of the business that the overall growth rate pretty closely tracks the trends that you're seeing with the European business, and then our other newer markets, North America, Asia Pacific and South America, growing at a faster rate than the US.

And let me take on I think you were asking, Ross about mobile, specifically.

Yes, it's an area that doesn't cease to amaze me in terms of the potential of mobile.

If anything particularly bookings through mobile phones had been extremely strong.

Tablets are becoming a little more like PCs, I think, for everyone, and it's just the curiosity with all of the new phablet-type form factors coming out and also the growth in ultra light PCs, et cetera, where the tablet ultimately will fit in.

But certainly we are seeing more and more of the business coming through mobile, and I think that really does play to a strength.

If you look at the ratings of our products on Google or on the iTunes store, we have some of the most highly-rated products and we've spent a lot of time as a team working the plumbing to make sure that they are all cloud-connected, that the consumer has a great experience walking in with an electronic version of their booking et cetera, et cetera.

And a lot of the new innovation which we aren't announcing on this call really relates to how do we enhance the experience for the consumer.

So now that the plumbing is working really well and we're getting great feedback, how do we take our mobile game to the next level so that it connects end-to-end from looking, booking to staying for the user, and I'm very excited and optimistic about the opportunities that will bring for us.

These things are not easy to do.

They make executing an online business more complicated, but they really play to our scale and our ability to invest across a very large base of properties and we can then bring pretty amazing value to our consumers, and their multi-screen lifestyle, so hopefully that helps.

The other thing, I don't know if Dan totally touched on it, but we feel also very good that our productivity per hotel continues to increase.

So if you take a hotel that was on our website four years ago, they will see more bookings per day from Booking today than they did a year ago, than they did the year before that, and the year before that.

So our core hotel partners are getting more production from us, but still there's so much more to do, and we still represent a small share of the total accommodation space, so I don't frankly see any limits to that at this time.

Great.

Thanks.

Our next question comes from Mark Mahaney with RBC.

Thanks.

If I could try to get off three questions, you talked about Ctrip somehow being still in the planning stages.

Could you talk about when, or the extent that's already operational, what's the path to that being fully operational and material, perhaps?

Second, in terms of competition, could you just talk qualitatively?

It's always been a competitive marketplace.

Is there something that's changed in terms of where the competition is coming from?

Are you seeing it more from direct travel wholesalers or hotels or airlines directly, as opposed to other online travel agencies?

Is the direction of the competition changed?

And then finally on alternative accommodations, you talked about it becoming more material.

Is that having an impact on the rest of the business?

Like, do you view those alternative combinations as purely incremental, somewhat cannibalistic, could you describe what impact that has on the rest of the business?

Thanks a lot.

Yes, thanks a lot Mark.

So maybe I'll take you to those quickly one by one.

On the Ctrip deal, as you know, we've been in a commercial relationship with them for some time.

Part of the new commercial relationship was a deeper integration for Ctrip, being able to then book Booking.com and Agoda hotels, and a lot of that integration has happened and we're seeing very strong results from it.

Obviously those accrue to both us and to Ctrip, because it's now on a branded basis, and more and more Chinese are traveling outbound.

The other side of the agreement was for us to put Ctrip product on the Booking.com website in particular.

There's a lot of work going on to get the technical terms, the APIs worked out, so that we have the right connection points, because they want those bookings to be able to happen for the consumer very seamlessly.

But we hope to be in test with their product on our website, say by the middle of this quarter, so the end of this month, and then we'll see where we go from there.

We're going to take a slow rollout approach, just to make sure the consumer experience is absolutely perfect, as it relates to that particular integration, but I don't see any barriers to making that happen.

In terms of competition, there's obviously a lot of noise in the marketplace, it's an extremely competitive marketplace.

I don't see anything really that material has happened.

If anything, our dependence, particularly on Google, has lessened, which is some of the challenge Google has in growing their clicks relative to the rest of the internet.

More of our business is coming direct, which is very healthy.

I think that's partly related to off-line, but also partly, we offer our guests a great direct experience, and a lot much higher percentage of them are using accounts now versus finding us through indirect channels.

And in terms of us versus hotels or hotel chains, I don't see any material change there.

I think there's always going to be business that goes direct to hotels, and to hotel chains.

We frankly embrace that fact, but there's also a lot of travelers who travel less frequently, and are really looking for a bed in a particular city versus a particular property, and I think that continues to play to our strength.

And then your last question was on non-hotels.

No, I don't see this at all cannibalistic.

If anything if you look at the Millennial travelers, the younger travelers, they prefer to stay in non-hotels.

They prefer to stay in secondary cities.

Certainly with the rise of players like Airbnb, et cetera, it's making people more courageous to try new things, and if anything, the non-hotels are really do significantly increase the variety of product on our site.

Its made the world of accommodations more transparent, and more exciting, frankly, for people.

Non-hotels also help us a lot when cities get sold out which it does happen, convention times, things like that, so they provide nice shoulder availability for people.

And for particularly for leisure travelers and families, sometimes a non-hotel can feel like an upgrade, because they have got a lot of people, they all want to stay in the same house, they don't mind traveling into the city to see the museum, but one has more of a self-catered versus catered experience, so I really don't see any negative in it.

Hotels still do very well.

Occupancy rates in many parts of the world are quite high.

I don't see there being any sign, at least at this time, that the phenomenon of more non-hotels entering the legitimate space is having any big effect on hotels, or the more traditional product.

Thank you, Darren.

Sure.

Our next question comes from Naved Khan with Cantor Fitzgerald.

Darren, you touch upon the opportunity for TV spending in some of the newer markets, can you elaborate on that a little bit?

Are you seeing those kind of opportunities?

Yes, so we don't, as you know, we advertise the three brands.

Priceline.com is still primarily US, although we do do adds in Canada now.

With Kayak its been a North American story, although we have increased our off-line marketing in Europe, and still working the model but feeling some success there.

And then for Booking.com, it's really not been that long but we're now in the US, Australia, Canada, the UK, and then recently launched in Germany.

And as time goes on if anything, we're feeling better about that investment, that it fits well in our mix, it gives us a really nice drive towards our direct business.

It's also helped diversify our sources of demand really nicely, that allows us to -- the more we diversify source demand and better understand sources, we can act a little more strategically vis-a-vis our source of demand, we don't have to lean into everything at all times because some of our sources of demand can have strategic conflict, and this has been a real breakthrough for us to know that we can be out on our own and to build our brand and to build customer relationships for the long term, rather than having to consistently be in the market buying them on a transactional basis.

So that's the story, and then in terms of future plans, unfortunately, nothing to reveal at this time, although I know you were hoping for that.

But we're looking at a number of options going into 2015 and we wanted to make sure we signaled at this time that they are quite likely will involve more markets.

Okay, thanks and then just a quick follow-up if I may.

Turning back to your guidance, especially for international bookings growth, what kind of impact are you baking in from the threat of ebola, and what have you seen so far in your numbers?

Well, I would that's a great question.

I would say it again, it's a very mixed environment, and before I get into the negatives, it's always worth highlighting, the summer was actually quite stable in Europe, and a lot of particularly Brits and Germans didn't go to southern Europe.

There were other pockets like France, Benelux, and of course Russians weren't traveling a lot, so it was a mixed picture but relatively stable.

And also it's important to highlight that the US has been very strong, as has North Asia and we also did great business during the World Cup out of Brazil.

But I think what's happening now, the primary is not ebola.

It's more the travel business is very headline-driven and headlines create perceptions that can lead to reality.

And of course people already know in a lot of our core markets that their currency has devalued, that it is a discouragement for maybe international travel.

So maybe they stay more domestically, which will often lead to a lower ADR, or even a lower length of stay.

And we do see that a little bit, and are more concerned that those perceptions can become more significant negative reality, even though to date we haven't seen any major drop off.

It's just been more a concern that there are concerns building, particularly outside the United States.

Ebola is out there.

We've had issues in the past like SARS, that have been much more impactful.

I want to clear we aren't seeing that kind of impact in our numbers, but I would have it on the list of negative things.

It's big enough to be on the list, but probably at the bottom of the list relative to other effects that we've already highlighted on this call.

That's very helpful, thank you.

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

Could you just give us an update on Kayak, how that's performing, as a standalone business and how international expansion is going?

Thanks.

Well maybe I can answer this, Dan maybe you can chime in if anything you want to add.

I would say that Kayak, since the day we acquired it, has exceeded our expectations from a profit standpoint.

I'm really proud of the work that Steve and his teams have done.

I would say we are not as aggressively investing.

We certainly don't want to invest in a loss to build the Kayak business, but we have done a lot of experimentation, and feel pretty good about the results, in particular in Europe.

We've also expanded Kayak very methodically into other languages, and we continue to want to see the brand grow and be more successful, but in a very sustained fashion.

The other area I'm really proud of at Kayak is that product continues to improve.

We get great accolades from the customers who use Kayak and the investments that we're making there seem to be, at least from the data, seem to be paying off very well, and we're still very optimistic that there's more that we can do at the Kayak investment over time.

But to date, I would say overall quite pleased and beyond our expectations, but look to see the effect of the various experiments that are going on and our ability to profitably roll this business out to more parts of the world.

Thanks, and if I could just ask a follow-up on FX impact.

You talked about having hedging contracts in place to cover you for one quarter.

Are those included in the Q4 EPS guidance?

Thanks.

They are, Kevin, so we take the contracts out right around the point where we are reporting, and so we're essentially hedged against any movements from FX for here forward for Euro and pound.

Thank you.

Our next question comes from Ken Sena with Evercore Partners.

I was wondering if you could update us maybe on the enterprise efforts in terms of boutique and HotelNinja, and what's the reception that you're seeing from suppliers at this point in terms of new products, and also their willingness to allow a demand channel to manage that for them?

Thank you.

Thanks a lot, Ken.

Overall, what we have done with those acquisitions is they become the cornerstone of what we call hotel marketing services.

We continue to market boutique as a website quite successfully, but we have really been spending, let's call it a dark period, really architecting the products and rethinking them to put together on what I would call a hotel marketing software stack.

And it's something we haven't yet launched, but we have been doing a bunch of testing.

We have been doing many focus groups, talking to our property partners.

And I would generally say the reception has been very positive.

The large majority of our partners, are what I would call in a lean-in mode.

They like Booking.com in particular as a very cost-efficient way to build demand, and they are very receptive to us helping them with their direct websites, and helping them build demand.

So to date, very positive, experiments are going really well.

I'm excited that we're getting into it and the team's integration has been seamless.

We hope to have further things to announce in 2015.

Great, thanks.

Our next question comes from Brian Fitzgerald with Jefferies.

Thanks.

Wanted to drill down a little bit on OpenTable.

Is the integration so far happening as expected?

Is the cadence as you expected?

Any unique insights as you go through that process?

And then I might have missed it.

Could you comment on the ability to cross sell that you're seeing so far from travelers and the diners?

Do you see it going the other way, also?

Thanks.

Okay, well thanks, Brian.

So with regard to OpenTable, as you know, the major pillars of that integration are co-marketing, international expansion, and Pay With OpenTable which we highlighted at the time of acquisition, where there's been a lot of planning that has gone into those, we're now in experiment.

If you look hard enough, you'll see us co-marketing and promoting off of various tools within Booking.com, and we'll expand that over time to other brands.

International expansion, if you look carefully, you'll see we posted a number of positions.

We are now -- our plans are complete and we look to expand the product to many other top cities around the world, so all of that and Pay with OpenTable, we're expanding that to more cities around the United States and the pick up has been very good.

I would say outside of those three pillars though, the biggest learnings have been in how much we as a team can help OpenTable with their B2C efforts.

In a way, OpenTable was really built as a B2B software play into restaurants, and they've had success in B2C but they've only come very recently, and they've done some great work to rearchitect the B2C, or this is their website basically for consumers.

And it just is happening at the right time, that they can learn a lot from the Group on how to experiment and optimize and do various forms of marketing to drive more and more diners to the OpenTable restaurants.

That's been a real positive, and a ton of learnings have gone back and forth.

We've put a couple of folks now into OpenTable from Booking.com, to help them with that B2C side of the business.

I'd also say that their B2B competency, back to the previous question, is also assisting us in how we think about hotel marketing services.

They've had a tradition of selling in basically software annuity contracts into restaurants, and building relationships that were both B2B and B2C.

That's something we as a Group have not had that experience, and we've really learned a lot from them on how to manage that, and how to manage expectations around how that delivers, and how to manage any inherent conflict in providing both software and B2C booking experience.

So to date, I'd say as I think we've highlighted, OpenTable financially has performed about where we thought it would perform, if not maybe a little bit better than that, but really what I'm most excited about is the things we're doing to build a new, more exciting platform for OpenTable, as part of the group, looking forward into the future.

Great, thanks Darren, very helpful.

Our next question comes from Ronald Josey with JMP Securities.

Great, thanks for taking the question.

Two please.

Wondering if you can give us an update on how you're preparing for the Spring/Summer travel season in Asia and Latin America?

Anything different this year as they increasingly shift online?

I think Dan, you mentioned things recovered somewhat in Southeast Asia.

And then the second one, second quarter in a row where we've seen increased percentage of users whose are now logging into Priceline.

Wondering if this increase is due to mobile, or something you do in the marketing spend?

Thank you.

Dan, do you want to take Asia a little bit, and I'll jump into the account?

Sure, so getting ready for spring and summer is just normal operating procedure in the business.

It's going out and trying to make sure that we've got -- we're constantly adding properties.

And then for the properties we've got in our system, making sure we've got good availability, best prices for our customers.

And then aggressively tapping into demand through variable channels at a reasonable ROIs.

Then when we bring the traffic to our websites, having what we think is the best in-market experience for our customers, to make sure that we convert that traffic into a booking.

And Southeast Asia is back online to a certain extent, given the unrest in Thailand?

I wouldn't say completely back online.

We said it improved to an extent, but still not back where it was, prior to the unrest there and martial law.

I would say generally, and Dan framed it well, that Southeast Asia was no longer in the hole.

But with the combination of everything that happened there, the burning of factories in Vietnam, and of course the two Malaysian Air tragedies in particular, have shaken a lot of confidence for a lot of travelers who are not experienced travelers, maybe their first or second time out of the country.

But I obviously -- time is what will heal this, but I think that's also been part of the reason why you've seen such a pick-up in North Asian travel.

I think for a lot of North Asians right now, it just feels a little bit more safe, but I'm really confident that over time obviously, these things will work their way through.

And your second question was just about how do we get more logged-in users?

We're using various techniques.

We have tens of thousands of closed user group rates on the site that you have to be logged in to be able to see.

You don't, by the way see these rates on any meta, you don't see them on Google, and that's been a real asset to us to get people to log in because we basically say, log in to see lower rates, and it's pretty compelling.

But also I think having an account allows you, as you had noted to go across screens, so if you book on a PC, having your account is what allows your booking to show up on your mobile phone.

It sounds so simple, but it's extremely powerful.

Then you don't have to print off your confirmation.

And also I think logging in gives consumers just more comfort that they're able to get to their stuff a lot easier.

The other thing is, generally speaking, we've done a lot of work to make the creation of an account and the maintenance of an account have a lot less friction than it did in the past, and I think that's been a big positive for all of the brands, actually.

Great, thank you very much.

That concludes the Q&A session.

I will now turn the call back over to management for closing remarks.

Yes, we want to thank everyone again for joining the call.

I think you see that our guidance reflects appropriate level of prudence on the things that we don't control, but we remain very optimistic.

This was the largest quarter in the Priceline Group's history and we will, I'm sure, print many quarters like that looking forward into the future, so thanks for joining the call, everyone.

Thank you, ladies and gentlemen.

That does conclude today's conference.

You may all disconnect, and everyone have a great day.