Booking Holdings Inc (BKNG) 2014 Q4 法說會逐字稿

Welcome to The Priceline Group's fourth-quarter 2014 conference call.

The Priceline Group 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 and 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 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 statements 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 For Investors section of The Priceline Group's website www.priceline.com.

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

Sir, you may begin.

Okay, thank you very much.

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

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

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

The Group reported consolidated gross bookings for the fourth quarter of approximately $10.7 billion, up 17% year over year or about 23% on a local currency basis.

Non-GAAP earnings per share was $10.85, up 23% versus prior year, surpassing FactSet consensus estimates of $10.10 per share and our guidance for the quarter.

For the full year, The Priceline Group reported gross bookings of just over $50 billion, 346 million room nights, $3.5 billion in adjusted EBITDA, and non-GAAP earnings per share of $53.31, all up about 28% year over year.

Gross bookings benefited from growth in hotel supply of Booking.com, which now has over 600,000 hotels and other accommodations in 212 countries and territories, up 41% over last year.

Booking.com continues to invest aggressively in its global supply platform, building substantially differentiated hotel and accommodation supply content and availability.

Much of that growth in supply is driven by vacation rentals, which more than doubled to 247,000 properties including villas, chalets, apartments, aparthotels, and other self-catered products, all of which are instantly confirmable.

It is important to note that because many of our vacation rental properties have multiple units, our 247,000 properties actually represent over 1 million instantly bookable and confirmable units within these properties.

We continue to believe in the large untapped potential of the global vacation rental opportunity, which has historically been burdened by a high friction research and fulfillment process.

In addition to aggressively growing our number of accommodation partners, The Group invested nearly $2.6 billion in marketing during the year.

While the preponderance of that investment was in online channels, Booking.com continued to build its offline competencies.

Following successful TV launches in the US and Australia in 2013, we also ran effective campaigns in the UK, Canada, and Germany.

We are pleased with the return on total advertising we're seeing in these markets, and will continue to explore new markets where the data tells us it makes sense to diversify our ad spend.

2014 was a tale of two cities for Priceline.com, with solid growth in its retail businesses offset by declines in its opaque businesses.

We believe the pressure in opaque is reflective of a historically healthy overall travel environment in the United States, which is beneficial to the balance of our group-wide business.

The fast-growing Asia-Pacific market was another critical component to The Group's success in 2014.

We believe Agoda.com and Booking.com lead the region in intra-Asian hotel and accommodation bookings.

And we're now harvesting the fruit of our new commercial agreement with Ctrip that we entered last year.

China is a material and fast-growing portion of our Asia-Pacific business and we are leaning into that opportunity in a smart and responsible fashion.

RentalCars.com accelerated in Q4, comping a quarter last year in which it also accelerated.

RentalCars exited 2014 from a position of strength and has seen its momentum continue into 2015.

KAYAK delivered an outstanding first full year as part of The Group, delivering strong top-line results, and bottom-line results significantly exceeded our expectations at the time of acquisition.

KAYAK is heads down innovating to extend its product leadership and build its brand in Europe.

Early signs for KAYAK in 2015 are, so far, quite positive.

OpenTable, our newest member to The Group, remains very busy laying the groundwork for its cloud-based re-platforming and international expansion.

As I mentioned on the last call, our vision for OpenTable is expansive, and 2015 will be a year of profitable investment.

It will take time to staff and scale a European sales organization, and there's no shortage of product enhancements, internal plumbing improvements, and infrastructure investments to make so that OpenTable is best positioned to scale to its true global potential.

I will have more to share on OpenTable's progress as the year unfolds, but we are optimistic from everything we are seeing so far and our team is super motivated.

In the US, OpenTable continues to achieve high diner growth as it transitions its restaurant base to its cloud-based offering and continues its rollout of pay with OpenTable.

Mobile remains a continued bright spot for all of our brands.

Just this past week, Booking.com exceeded 100,000 gross transactions -- that's before cancellations or amendments -- on just mobile phones on two different days.

And we are still not in high season for bookings.

On January 15, we also launched Booking Now on the Apple platform in the United States.

Booking Now is our app for spontaneous or last minute bookers.

Our international launch of Booking Now, including the addition of all of our supported languages, will start in earnest next week.

Priceline.com leads The Group in the percentage of travel bookings completed on mobile, on some days now approaching 50%.

KAYAK and OpenTable both have flourishing businesses on their apps, especially in the United States, which drives strong repeat traffic.

From a very small part of our business just a few years ago, mobile has become a mission-critical part of The Group, both to deliver transactions and to deliver great end-to-end experiences for our guests.

Excellent execution on our mobile platforms has been critical to The Group's success and overall market share gains this year.

The Group performed well in 2014, exceeding expectations throughout the year, and growing more in one year on an absolute basis than in any year in our history.

As we enter 2015, we see continued strong momentum in our business across the board.

Our biggest short-term challenge is currency.

With over 90% of our business in our international brands, and a significant majority of that being transacted in non-US dollar currencies -- mostly the euro and British pound, but also to a lesser effect the Brazilian real, Australian/Canadian dollars, Russian ruble, Thai baht, and Turkish lira -- this presents mostly a translation challenge.

Our fundamental growth momentum as measured by units or in constant currency remains strong.

Unlike some other companies who have reported, our currency challenge again is largely a translational challenge and not a mismatch of revenue and expenses.

We remain steadfastly committed to our formula of out-executing and out-innovating the competition.

We are in this game for the long run, making the smart and sustainable investments in our products and services every day of the year.

We invest in profitable growth and are earning our customers' loyalty through superior customer offerings and branded experiences.

We believe we have a winning sustainable strategy and have observed a growing mix of direct business all year, while delivering market-leading organic performance on both the top and bottom line.

We also believe we can win with strong margins in the face of heated competition and have a long history of managing our costs extremely well, and plan to continue our track record of strong leverage and margin management.

All that said, we are also not afraid to use our resources to invest assertively when investments make sense, as we believe it currently does in online demand channels and most recently into our OpenTable and booking suite investments in particular.

We looked at various options to use our capital in the current environment.

Today, we are announcing that the Priceline Board has given us the authority to repurchase up to $3 billion of our common stock.

We believe this is a good use of capital and reflects our confidence in the long-term prospects of The Group.

It has been a privilege this past year as Group CEO to lead a team of such talented and dedicated people at all the brands.

There's no better job on the planet, in my opinion, and I'm enthusiastic about all of the opportunities facing each of our brands.

I want to thank our employees around the world for delivering another terrific 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 and operating results and cash flows for the quarter and then provide guidance for the first quarter of 2015.

Q4 was a strong quarter from both a top- and bottom-line perspective.

Unit growth is an important metric to focus on for our business to understand core performance, excluding the impact of currency.

Room nights booked grew by 24% in the fourth quarter, decelerating modestly compared to the 27% growth rate for Q3.

Rental car days grew by 16% in Q4, reflecting accelerating retail growth, offset by a decrease for Name Your Own Price rental car reservations.

Strong momentum in room night and rental car day unit growth has carried over into Q1, as we will see in a moment when we review Q1 guidance.

Average daily rates for accommodations, or ADRs, for Q4 2014, were up on a local-currency basis by about 1.5% for the consolidated Group.

Q4 gross bookings grew by about 23% on a local-currency basis and by about 17% in US dollars compared to prior year.

Our Q4 international gross bookings grew by about 27% on a local-currency basis and by about 19% in US dollars.

Gross bookings for our Priceline.com brand business in the US grew by 3%.

The Priceline team is doing a great job improving the experience for customers on the website, which is driving nice conversion improvements.

The result has been accelerating retail room nights and rental car growth.

However, our Name Your Own Price services continued to be hamstrung by lack of discounted rates.

Gross profit for the quarter was $1.7 billion and grew by about 33% on a constant-currency basis and by 26% in US dollars compared to prior year.

Our international operations generated gross profit of $1.4 billion, which grew by about 32% on a constant-currency basis and by 24% in US dollars compared to prior year.

Gross profit for our US operations, including OpenTable's US business, amounted to $241 million, which represented 35% growth versus prior year.

OpenTable generated total worldwide revenue in Q4 of about $59 million.

Non-GAAP operating income amounted to 41.4% of gross profit for Q4, which is 132 bps lower than last year.

Our operating margins reflect investments we made in offline advertising and other OpEx to build our brands and support growth initiatives in restaurant reservations and our booking suite of hotel marketing services.

Operating margins did come in better than our guidance, however, due mainly to a less-than-forecasted year-over-year decline in online advertising ROIs.

Adjusted EBITDA for Q4 amounted to $712 million, which exceeded the top end of our guidance range of $665 million and represents 23% growth versus prior year.

Non-GAAP net income grew by 22% and non-GAAP EPS grew by 23%.

In terms of cash flow, we generated approximately $755 million of cash from operations during fourth-quarter 2014, which was about 36% above last year.

We invested $41 million on CapEx and repurchased 443,000 shares of our common stock for $505 million in Q4.

As Darren mentioned, earlier this month, our Board authorized us to repurchase up to $3 billion of our common stock.

We expect to execute the program going forward to return capital to shareholders at a pace that we think makes sense relative to available cash in the US and potential other uses for such capital.

Our cash and investments amounted to $8 billion at year end, with about $1.2 billion of that balance in the US.

We were pleased to recently receive a strong investment-grade credit rating from Moody's, which is in line with our current rating from S&P.

This positions us well as we continue to monitor the debt markets in the US and Europe for opportunities to raise capital at attractive rates.

For full-year 2014, Priceline Group grew room nights and gross bookings by 28%.

Adjusted EBITDA amounted to about $3.5 billion and grew 29%, while the business generated $2.9 billion of cash from operations.

The Company delivered an operating margin, expressed as non-GAAP operating income divided by gross profit, of 44.7%.

I thank our people around the world for their hard work and dedication to deliver these strong results.

Their talent and relentless execution to add properties, rental car suppliers and restaurants, continuously innovate on our websites and apps, and officially bring new customers to our brands with online and offline advertising is responsible for our success.

I am also pleased with the balance of outstanding top-line and bottom-line growth in an ultra-competitive market.

Now for Q1 guidance.

I'd like to take a moment to talk about the impact of foreign currency exchange rates on our financial results.

As Darren mentioned, about 90% of our gross bookings and operating income for 2014 are generated by our international brands.

Therefore, as we've seen in the past, during the financial crisis and the European sovereign debt crisis, extreme volatility and foreign exchange rates significantly impacts our operating results as we translate them into US dollars.

Our Q1 forecast assumes foreign exchange rates for the remainder of the quarter are equal to yesterday's closing rates.

At these exchange rates, our gross bookings, gross profit, operating expenses, adjusted EBITDA and non-GAAP net income will mathematically translate into significantly fewer dollars than they would have at last year's exchange rates for Q1 and the remainder of the year.

Specifically, our forecast for two of our most impactful currencies, the euro and the British pound, assumes rates remain at $1.14 per euro and $1.54 per British pound, which would result in average exchange rates that would be weaker by about 17% for the euro and about 8% for the British pound for Q1 as compared to the prior year.

I highlight that the $1.14 euro exchange rate assumed in our forecast is about 9% weaker than the $1.25 exchange rate that prevailed at the time we reported Q3 and most analysts last updated their forecasts.

On the positive side, our expenses are denominated in foreign currencies on a basis similar to our revenues, so our expenses will also translate into fewer dollars.

Therefore, our operating margins are not significantly impacted by currency fluctuations and we believe that the impact of currency on our bottom line is generally similar to the top-line impact.

However, due to our normal business seasonality, the bottom-line currency impact is somewhat less pronounced in Q1 and slightly more pronounced in Q3.

Although the stronger dollar has a significant negative impact on our growth expressed in dollars, the fundamental performance of our business is still evident in the resilient unit growth driving our forecasted total gross bookings, international gross bookings, and gross profit growth on a constant-currency basis.

We believe the true performance of our business will eventually show through in our US dollar financial statements when the dollar stabilizes relative to other currencies in general and the euro in particular.

We are pleased with the high-growth rates the business has consistently delivered over the past several years, despite its size.

The travel market remains fundamentally healthy from an occupancy and ADR perspective broadly and in Europe.

Our guidance reflects a strong start to the first quarter and our assumption that our growth rates will decelerate as we proceed through the remainder of the quarter, due to the size of our business.

For Q1 guidance, we are forecasting total gross bookings to grow by 14% to 21% on a constant-currency basis and by 2% to 9% in US dollars, with US gross bookings growing by about 0% to 5%.

We expect international gross bookings to grow by 17% to 24% on a constant-currency basis and by 3% to 10% in US dollars.

Our Q1 forecast assumes that local currency ADRs for the consolidated Group will be up by slightly less than 1% compared to the prior-year period.

We expect Q1 revenue to grow year over year by approximately 4% to 11%, and gross profit to grow by 21% to 28% on a local-currency basis, and by 9% to 16% in US dollars.

We expect the declines in our Name Your Own Price service will continue to negatively impact revenue growth rates in Q1.

We expect about 550 bps of deleverage in non-GAAP operating margins compared to prior year, expressed as operating income as a percentage of gross profit, driven mainly by non-advertising operating expenses.

As we have done in the past, we are investing in OpEx to add people, offices, and IT capacity to build up the capability of the business to handle future growth.

Q1 also reflects OpEx for OpenTable and our booking suite of hotel marketing services.

Our Q1 online advertising forecast reflects our actual results to date and assumes increased pressure on ad efficiency throughout the remainder of the quarter, based upon the trends we have experienced over the last couple of years.

Investments in OpEx and advertising typically have a more pronounced impact on profitability in Q1 where we earn a lower percentage of our annual gross profit due to the normal seasonality for our business.

While we are not giving earnings guidance beyond Q1, we do expect pressure on operating margins from non-advertising OpEx to significantly diminish as we proceed throughout the year and lap the OpenTable acquisition and the launch of our booking suite initiative.

Adjusted EBITDA is expected to range between $475 million and $510 million, which at the mid-point is a decrease of 4% 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 $7.20 to $7.75 per share, which at the mid-point is a decrease of 4% versus prior year.

Our non-GAAP EPS guidance assumes a fully diluted share count of 52.7 million shares based upon yesterday's closing stock price.

We forecast GAAP EPS between $5.25 and $5.80 per share for Q1.

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

Consistent with past practice, we have hedge contracts in place to substantially shield our first-quarter EBITDA and net earnings from any further fluctuation in the euro and British 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; do not hedge us against fluctuations in other currencies; and do not hedge our earnings beyond the first quarter.

Although we remain 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 of Goldman Sachs.

Great, thanks.

Just a couple of questions.

If you could provide us a little bit more detail on, you mentioned ADR growth being less than 1% in the quarter.

But if you look more specifically, particularly at the Eurozone, what you're seeing from a consumer demand perspective and just willingness to spend on travel, whether the day-to-day data points you're seeing are positive or negative from any trend perspective.

And then you mentioned that as we go through or past Q1 that the operating margin pressure should diminish.

As that happens are there incremental positive ROI growth channels from a customer acquisition or business acquisition perspective that you see out there that you can allocate those dollars to accelerate growth?

Or do you simply expect to see that fall to the bottom line?

Okay thanks, Heath.

This is Darren.

I'll take the ADR growth, European economy issue and maybe Dan can comment on operating margins.

No in general, certainly everyone knows what's going on with the euro but we're not sensing overall that there are big issues with consumer demand in Europe.

It's a mixed bag.

Certainly Russian outbound is down, for obvious reasons, although Russian domestic travel is still quite strong.

France specifically is still in a bit of a malaise, both as a destination and as bookers.

But that's made up for the fact that the Brits as bookers are very strong, the German bookers are very strong, and Southern Europe it looks like it's going to be very popular this spring and summer.

So, overall the US is definitely one of the hottest markets in the world but Europe is holding up quite well, at least the early signs in 2015.

And, Heath, on operating margins, so, yes, we said that we expect the pressure to diminish as we go throughout the year as it relates to other non-advertising OpEx expenses.

We already advertise aggressively in all the variable channels, and we'll spend an unlimited amount of money there regardless of what's going on with OpEx as long as we can get a fair return on our investment.

The impact of less margin pressure from OpEx should benefit bottom line, and how advertising plays out is just a completely separate story.

Great.

Thank you, guys.

Thank you.

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

Thank you.

Just talking a little bit on a high level on the space.

Obviously Expedia has had a lot of acquisition news lately.

Does that really change anything for Priceline?

And they do have their room nights up at a faster rate so how does that affect the overall environment, if you can provide any help on that?

And then, secondly, on mobile, it looks like mobile is growing as a piece of your business.

Are the up-front costs to acquire customers more there?

And do you expect a longer pay pack?

Are they coming back more frequently direct on mobile?

Maybe a little bit about the mobile channel versus PC.

Thank you.

Okay, Justin, thanks.

This is Darren.

I'll take both questions.

First of all, as it relates to what if Travelocity, the pending deal with Orbitz, it's hard, I'm not Expedia so I don't know exactly what they are doing but it sounds like a consolidation strategy.

Our focus as a group is quite different than that.

We're very focused primarily on organic growth and acquisition.

And from an acquisition standpoint we're focused on buying premium winning brands that either add new geographies or business verticals or competencies, new channels we can add to our existing brands.

So, if you look at our history as a group, whether it was buying booking.com to compete in Europe, Agoda Asia, Rentalcars in rental cars, KAYAK in meta, OpenTable in restaurants, and then recently Buuteeq to help build our Booking Suite business, it's all been adjacent growth versus doubling and tripling down on similar brands.

My own view is I don't see the deal that Expedia, if it passes, as being a negative for our Group.

I think if anything it consolidates and clarifies competition and there's still plenty of room to grow.

If you think travel market was a $1 trillion -- recently someone said it was a $1.3 trillion market -- if you add both all of our business and Expedia's business together it's still less than 10% of the total opportunity space.

And if you look at the US specifically, for us it's all upside and we plan to work very hard to continue to increase our share in the US market.

So, to me it just shows there's tremendous potential ahead.

And we're just staying very focused on what we do well and I'm sure Expedia will do the same.

So, I don't see it overall as a net negative.

In terms of Expedia's growth rates, we obviously have always prided ourselves on being very highly profitable and continuing to grow very fast.

I'm super proud of the 28% growth on top and bottom line that we printed in 2014.

It's always good to remind you that when we talk about our roommates they are all 100% organic.

And that's just a very different result than what you're seeing with Expedia.

But I do give them a lot of credit, they seem to have printed a great quarter.

But we just have a different philosophy as it relates to building business for the long term.

And then mobile specifically, yes, mobile is -- I've been here now three and a half years and it's by far the biggest thing that's changed in our business.

And it's causing all sorts of issues and questions in terms of how do you generate demand, how do you build experiences.

But as I've always said, for an eCommerce player like us, mobile is a net-net positive.

It's allowing us to serve customers over multiple screens.

And whether they arrive first on a phone or a tablet or a PC is not as important to us as how do we basically become relevant to them other than being just the transaction.

How does OpenTable or Booking or Agoda create more relevancy in the end-to-end experience that they're having on a local basis.

True enough, we do spend money on buying business that originates on mobile phones, and that market, it's still not the most perfect market, it's still quite chaotic.

But we feel we've gotten a lot smarter about how we buy our business.

Some brands are very app-driven, if you look at OpenTable or KAYAK.

Other brands are very mobile web-driven.

And then brands like Booking have a little bit of both.

And we feel, if anything, the skills we built on the desktop, we're feeling as good or if not better about the skills that we're applying in the mobile environment to buying new demand.

And I don't think the increase in mobile to any degree, because we have a common ROI standard, I don't think the increase in mobile to any degree has driven us to any lower standard.

If anything, the one real positive is it's driving more of our business direct to our brands versus having to buy it.

Thank you, appreciate it, Darren.

Thank you.

Our next question comes from Doug Anmuth of JPMorgan.

Great, thanks for taking the question.

Can you guys talk a little bit more about the investment in Q1 in OpenTable and Booking Suite and just talk about the key initiatives there?

And then, also, you mentioned that you're starting to harvest the fruit from the Ctrip relationship.

Can you provide some more color on some of the benefits that you're seeing there, as well?

Thanks.

Okay, Doug, this is Darren again.

I'll take those.

First of all, let me talk first about OpenTable.

Since we bought it we've made a massive investment in replatforming the OpenTable B2B software as now going to be all cloud-based.

The whole front end has been replatformed so we can run AB experimentation on it.

There's been a lot of best practice sharing.

You're going to see the OpenTable product now improve at a very dramatic pace because we put it on to this new modern cloud-based platform.

We've also now posted our position that our beginning hiring for a number of international cities,.

I'll let you do your own research there in terms of which cities we're expanding into.

So, I would say its time to date has been a lot of best practice sharing.

Betting some of the plumbing done in 2015 for us is a big investment year for OpenTable.

And, as we've always said, we're going here to create something that is going to be truly a global platform and a modern eCommerce platform, and we remain very bullish on the opportunity with that asset.

And certainly today it has been performing about the level that we had expected it to.

But, really, the best is yet to come.

And then as it relates to Booking Suite, we bought Buuteeq and a smaller company called Hotel Ninjas.

That team now has been completely brought into booking.com.

We've rebranded it Booking Suite.

We're now in the market with a number of products, mostly website products.

The demand for those products is very strong.

And we're just now in a rhythm of really trying to scale the old Buuteeq business, now that it's fully integrated with Booking.

And the receptivity from the market has been very strong.

So, what we're doing there is building out a SaaS-based business.

It takes a little bit of time to get going but it's a really nice annuity revenue stream.

But almost as importantly, it's bringing us closer to our hotel partners and showing that as a company we can add value for them as well as a marketing services software provider.

And then, finally, with Ctrip, there I'd say that the biggest highlight has been a significantly growing outbound business, both with Agoda and Booking.com on Ctrip.

That reflects, of course, a very strong Chinese market.

We've also seen our non-C trip business, by the way, growing very strong.

Ctrip now is a branded experience so customers are learning ability Booking.com and Agoda, a and that's obviously very valuable to us.

The other side of the Ctrip deal was getting Ctrip hotels onto the Booking.com website.

We now have, let's call it, a few handfuls of their hotels on our website.

It's taken a little bit longer because we've had to work to make those hotels and upgrade the product so that it was at the level of the product we have on our website otherwise.

But we're getting good traction there and we look in the coming quarters to significantly accelerate our rollout of Ctrip properties in China.

I've mentioned this before but one of our biggest challenges in China is most business at Chinese hotels is domestic, and we really are very strong on inbound and outbound.

And the C trip product portfolio is going to allow us to also have a very competitive selection of properties for domestic Chinese guests, as well.

So, those are the three.

C trip in particular, if you've all followed it, they are in a super competitive environment.

We're really supportive of James and his team.

We think they have the strongest hand in the market.

And we still believe that today and we're proud of the deal we have.

And we're working really closely with them as they fight the competitive battles that they are fighting, which has largely been a domestic Chinese challenge.

Great, thanks, Darren.

Our next question comes from Ross Sandler of Deutsche Bank.

Great, thanks guys.

Congrats on the quarter.

I just had two questions.

First one, Airbnb called out that they had 550,000 travelers that used them for New Year's Eve this past year in 20,000 cities or something.

So, this isn't exactly apples to apples to your 800,000, 900,000 room nights per night average in the fourth quarter, but just big picture how do you view Airbnb competitively in the hotel space longer term?

And then a quick follow-up to the earlier question on mobile unit economics.

I'll ask this a different way.

As you guys move away from paid searches and marketing channel, do you see the online marketing as a percent of gross profit staying in this 31% range or could that get better one day?

That's all, thanks.

Okay.

This is Darren.

I'll take the first one and a fair shot at the second, and Dan can have anything to add.

With respect to Airbnb, we have a lot of respect for what they're doing.

As good as their website is, it's still a relatively high friction process of booking on Airbnb.

But the whole sharing economy peer to peer is a real force.

I'll remind people that, on average, every day we have more than 1 million guests, if you do the math.

And if you look at the total number of units that are actually bookable on Booking.com it far exceeds what's available on Airbnb.

The interesting dynamic is really happening in the vacation rental space.

We're coming into the market with an instantly bookable, immediately confirmable product.

They are coming from the bottom up with a sharing economy.

And there is a lot of interest among our consumers in self-catered products.

And whether that product ultimately ends up being somebody's sofa or being in aparthotel room in Paris, nobody knows.

But one of the things that Airbnb is really helping us with is the rules in this space have traditionally been very foggy and gray, and city by city around the world, the rules are now getting written.

And that helps us a lot because we're always going to play on the right side of the rules, but they've always been a little bit foggy.

And we'll see where that all goes at the end of the day.

We don't see a big impact on hotel demand based on this new advent of what I would call self-catered demand.

And that's all up -- Airbnb, us, other players.

But maybe one day you'll see that shift.

And obviously the big hotel brands I don't think are sitting is still either.

We see a lot of properties, for instance, in Europe, where they will have the hotel and then they have an apartment block in behind the hotel.

You use the hotel front desk but then as a family you might stay in the apartment.

That kind of new behavior is a reaction, I think, to some of this current trend, at least.

And then as it relates to mobile unit economics, I should also qualify that mobile web search is primarily still a Google business, and it is working better and better.

So, even when we acquire a customer on the phone, one of the best ways to do it is through Google and through their web search.

But as I look forward, what we've generally done as our business has become more direct, we're leaning even heavier into some of these channels.

We certainly keep ROI standards but I can't particularly say if long term online will be a lesser percentage.

But we will continue to adjust our marketing mix.

And we think at our margin level that we need to keep throwing out the fishing net to find more and more customers, and we're not satisfied just to work off the loyalty of our existing customer base.

So, a lot of it depends on the opportunity to cast the fishing net in an ROI positive fashion and it's hard to really predict that based on the competitive dynamics of some of these markets.

But the one thing that is real is we're having to adjust our marketing mix over time based on mobile specifically, but also based on the ability of, let's call it, the non-Google participants to create products that are ROI positive for us.

And we are seeing progress in places like Facebook, for instance, and others where they're improving the ability for direct responsible performance marketers like The Priceline Group to buy their product.

And that's a real good thing for us because it hasn't been that case traditionally in the past.

I agree.

We're not moving away from paid search.

We're moving closer to it.

We're looking for every opportunity to spend money with our partners, to drive business profitably.

We're seeing nice growth in our direct business, which we hope will continue over time.

And that may cause what you would perceive to be moving away but we're actually diving in with both feet, partnering with our HR partners to drive more opportunities for both of us.

Great, thanks, guys.

Thank you.

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

Thank you.

Two questions please.

I think two quarters ago you'd quantified vacation rentals as a percentage of your total bookings.

Could you give us an update there?

Has it exceeded 10% perhaps on a trailing 12-month basis?

And then, secondly, Darren you talked about having used acquisitions to expand into newer areas, and you mentioned a couple of them.

I want to ask your thoughts about expanding into things like local attractions and air, especially internationally.

How do you think about those as incremental or adjacent market opportunities?

How high on the priority list or low on the priority list are those two things, particularly attractions and international air?

Okay, thanks, Mark.

We don't have any new numbers on vacation rentals.

We gave a trailing 12 months.

But I will say the vacation rental business is outgrowing our business.

So, the next time we say a number -- maybe we do it a year -- the first time we said the number you can think about it in that way.

So it's becoming a greater proportion of our business.

I always also flag, you have to be careful with property count.

That's why we added the vacation rental sub number because those properties do come in with less units than our traditional hotels.

And that's why you will see our property count continue to expand at a rate faster than our overall business because we're bringing on less units per property.

And I think that will continue to be the case going forward.

I say that and we're not by any means done with acquisition.

There's a lot more to do.

And the next move in vacation rentals is to really address the homeowner- versus property-managed vacation rental product, and we're well on our way to doing that.

And in terms of acquisitions or opportunity space, number one, I would say we have a lot to digest right now, and we're in what I consider to be the most attractive spaces.

And the addition of restaurants is just an amazing opportunity for The group.

Air is a very low-margin business and it's ripe with customer service concerns.

And our play in air right now is a little piece at Priceline, but also of course KAYAK, which plays off of both OTAs and direct air.

And even though air is not a very attractive business from an EBITDA perspective, it is an important part of travel and we want to make sure that whatever we do in air that we remain relevant in air.

And certainly with over 90 partnerships with airlines all around the world, including Ryanair and EasyJet and KLM, et cetera, we play an important partnership of how do you monetize air into things like hotel bookings.

But as I look forward, yes, attractions are interesting.

We're doing a lot of experimentation right now with various elements of cross sell.

Always we're looking at things that, yes, we could make money off of but much more importantly what are the things that we can cross sell that improves the experience with the consumer and enhances their loyalty.

If you follow Booking right now, for instance you'll see us do a lot of pre-trip e-mails.

And you'll see us now, we have insider guides of the top cities in the world, and within those guides you'll see us testing and experimenting with various things.

But, again, we're not going to become the tchotchke shop that sells 50 different things to just make a little bit more money.

We're really cognizant of what does the user really want us to do.

And if any of those things gets big traction then we'll figure out should we enter this space organically, through acquisition, or an alliance, or some other mode, is the way I think about it.

But at this specific moment, we've got our hands full and we're by and large focused on organic execution.

Thank you, Darren.

Our next question comes from Mike Olson of Piper Jaffrey.

Thanks, good morning.

You mentioned vacation rentals again as a focus and, I think you just said, you'll be looking at addressing the homeowner property category.

Does that present more challenges than what you've done so far in this space with the property manager inventory?

So, should the pace of BR inventory addition slow in the coming quarters because of that?

And then, secondly and totally separately, does the $3 billion buyback have any specific time frame on it?

Like, is it authorization for one or two years or is it just an open-ended authorization?

Thanks.

Yes, thanks, Mike.

Since we started primarily focusing on hotels, even moving into bed and breakfasts and hostels and even treehouses and igloos, everything we've added to the site has presented new challenges.

And what we do is we bring it in, we experiment with it, we adjust our business system.

Recently we rolled out a simple extranet.

And we've got a lot of other things in the pipeline to specifically address the needs all the way down to the single unit, single property, single owner model.

That ultimately as a Company is our destination.

We're here to be the world's largest inventory and selection of accommodations at the best price for the simplest experience.

And this very much fits that.

I honestly don't believe the challenges are insurmountable but it takes a lot of work in an industry that's traditionally operated in a very different fashion than modern eCommerce, which is the ability to buy things at a price and be able to actually book them without ever having to talk to the seller of the product.

And that's what we're working towards.

And, frankly I'm quite optimistic -- not that we have the answer to everything at this moment but we've got really smart teams working on this right now.

And over to Dan on the $3 billion.

On the stock buyback authorization, Mike, similar to all of the authorizations we've had in the past, that's open ended.

There's no specific time frame by which we need to execute that.

If you look at our track record we've been active in the market.

In Q4 we bought back over $500 million.

Over the last couple years we've bought back $1.6 billion worth of our stock.

That said, this is the biggest buyback authorization we've ever gotten from our Board.

We got it because we want to use it.

We'll be active in the market but we're not going to constrain ourselves by stating the pace at which we will execute it.

All right, thank you.

Our next question comes from Naved Khan of Cantor Fitzgerald.

Yes hi, thanks.

Just two questions.

One on the TV ad spend -- last year it grew faster than your online spend as well as the growth in gross profits.

And I know you're not guiding 2015 but can you just talk about what to expect for the year in terms of TV ad spend?

And then on a different topic, have you tested the traffic cross-sell synergies between the core travel and OpenTable?

And what have you seen so far?

I'm going to let Dan take the first one, I'll take the second one.

Hi, Naved.

On the TV ad spend we're not giving any guidance for the year.

We didn't mention it as it relates to Q1 being a factor positively or negatively related to guidance, so you can assume it's fairly neutral.

As we've added more and more markets over the last couple years, and then you continue to spend in those markets at the same amount or some relative increase that's not growing as fast as our business, the pressure on operating margin subsides to an extent.

That said, we still like the results we've seen in all of the markets where we've launched our advertising and we're likely to launch in additional market this year, particularly for Booking.com.

So, when we do that, you can see from quarter to quarter some operating pressure when we add those new markets.

And Naved, on the second question, the way I like to think about cross sell is a very narrow way to think about it.

That would be -- I made a hotel booking and immediately I'm going to make a restaurant booking.

And I think of the much bigger opportunity as cross-promotion, meaning, A, I live in Italy and I love using Booking.com -- oh, and you can also do that with restaurants?

And that's the part that we've seen the biggest interest.

If we look at our insider guides and our pre-trip e-mails the biggest thing people are interested in who book accommodations is restaurants, the restaurants nearby where they've booked and the ability on that first night, if they are arriving late, where can I eat.

Many of our hotels have restaurants, and as a competitive thing within the space of the person sitting there.

And in that we're absolutely confident that there's significant interest in that.

What we need to then get, of course, is great relevant content, get the OpenTable reviews, photos, et cetera, and really lace those two things together.

But we're quite optimistic.

I'd say all of that and OpenTable's proposition is not going to grow as a primary just because of Booking.com.

OpenTable will need to stand on its own as a business, which it has in the United States and I'm confident it will internationally.

Booking.com will be a nice new group of tens of millions of customers we can introduce the concept to.

And that's really the way I think about it versus get a hotel booking, get a restaurant booking.

Although, by the way, we've tested that, it works, but it's not like the biggest idea in terms of the synergy between the brands.

Thank you.

Our next question comes from Tom White of Macquarie.

Thanks for taking my question.

I think in your prepared remarks you talked about Booking and Agoda, you guys believe now are the leaders in intra-Asia travel.

Could you maybe just talk a bit about what metrics that's based on and why you believe the playbook there is working?

And then, just quickly, you talked about less pressure on online ad ROIs in quarter than expected.

Maybe talk a bit about what's driving that.

I'm curious if any of it relates to your emerging markets.

Are you seeing any of the recent investments you've made there starting to pay off in terms of repeat visits?

Thanks.

Okay, thanks, Tom.

It's really, we say intra-Asian travel because it really has been the strength of The group.

If you look at the Agoda brand in Southeast Asia, it really is the leading way people book accommodations in Southeast Asia.

And then with the addition of Booking.com, which brings travelers from all over the world into Asia, and then Asians amongst Asia, it really plays to our strong suit as brands.

There are very large domestic OTAs in the market, the Ctrips, the [Gilands], the [Rackatins], who do actually very high volume business, but their business is largely domestic.

And we have a pretty good sense from our hotel partners that we're the leading players from a market share standpoint in terms of how Asians move within Asia, meaning from country to country.

And for the second part, Tom, regarding Q4, we said the favorability for operating margins was mainly driven by better than forecasted online ad ROIs.

So, not so much of a mix, direct growing faster.

And that's also in there but that was in our forecast.

We don't get into the specifics of what's driving those better ROIs but you know all of the elements that go into it.

You've got CPCs, conversion, which we've got our great teams at all of our brands working hard at every day to improve, cancellation rates, unit economics.

The way that all blended out in Q4 was favorable to what we had assumed in our forecast.

Okay, thank you.

Our next question comes from Brian Fitzgerald of Jefferies.

Thanks.

A quick question on your thoughts around loyalty programs and their impacts on consumer travel behavior.

Is that something that's important to you guys?

Are you going to be investing around that?

Do you feel like you're at a bit of a disadvantage relative to some of the other OTAs that have been investing around loyalty programs?

Thanks, guys.

Yes, thanks, Brian.

Agoda has a loyalty program that was very points driven.

It's as much my philosophy as some of the brand CEOs.

I grew up at Starbucks and other places.

My own view, and what we've seen in the data, is that customers are most loyal when you give them a great experience.

And that's what we've been focused on.

If you look at repeat behavior, if you look at number of bookings, share of wallet in a year, we've seen in our biggest brands, who don't have a formal and closed loyalty program, significant increases in those kind of metrics every single year that we've been in a business.

So, that's what we focus on.

Now, the other question, though, is for high volume travel what do you do.

And most of our business is built off of leisure travelers who don't actually book that often.

But for high volume travel it seems like loyalty is an aspect.

By the way, it is a very deep aspect more in the United States than it is in many other parts of the world where people take a lot more leisure travel versus pure business travel.

So, we've always been interested in what is the role of points and loyalty programs, what role should The Group play in that.

By the way, some of these programs, you think they drive people to be more loyal but they can actually make them more dissatisfied with you because people will give you points and then make it harder and harder for you to use your points.

That's what marketers do.

And CFOs do at times, as well (laughter) -- looking at Dan.

So, there's always cautions with these things but we're obviously very interested.

It hasn't been a big issue for us in the past.

But when you do look at specific pockets of high-volume travelers that's where we probably have the greatest going-forward interest in this topic.

Great, thanks, Darren.

Our final question comes from Ron Josey of JMP Securities.

Great, thanks for taking the question.

I'll be brief.

Just following up on an earlier question, I believe, Darren, you'd answered, specifically on segmentation, and finding non-Google participants.

I wanted to get your thoughts on marketing to Millennials.

I think you've said in the past Millennials have a pension for non-hotel activity.

You launched Booking Now recently, the new TV ad campaign I think maybe focused on them, as well.

So, as you think about the new segments not resting on your existing customers, curious on your approach there.

Thank you.

Yes, thanks, Ron.

That's a great question.

We are very cognizant of Millennials.

I think another thing I would add to your list, it's MHAs, it's things like Booking Now, they basically like not to go to Paris or London or New York, they like to just wander off into the countryside.

Many of them don't have computers, they only have phones.

So it's thinking of all of those things and as well as having product on the site.

We're one of the world leaders in hostels.

If you go to any hostel in Europe a lot of people are using Booking.com to book hostels.

So, making sure that we're relevant to this next generation of travelers is also helping us to make sure we're relevant with the emerging lifestyles of consumers.

So, we do a lot of work -- not, I wouldn't say, traditional marketing work, like we're not buying ads on just programs that Millennials watch, that's never been something we do, but we target them more from a data perspective, and also making sure that the product we have is relevant to their lifestyles.

And at least the data that we see shows that we have a very large group of young people who use Booking.com on a regular basis.

Even backpacking through Europe we're a relevant thing.

We're not just a rich person's product.

And that obviously keeps the brand healthy.

And we hope that the hostel stayers become hotel bookers, et cetera, through their life cycle.

But it's a great question.

And certainly watching my own children, the world is changing very fast and we want to make sure we're relevant to the way that they use their screens versus the way that Dan and I would use our screen, which is quite different.

Great, thank you.

Thank you.

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

Okay, thank you very much.

Thank you all for joining the call and we look forward to getting back into the weeds on the execution here.

And I think Dan mentioned the currency is a translation challenge for us, but as a team wee continue to be very focused and organically executing through the way that we've always done.

And we're very optimistic in where the business will be going in the coming quarters, years, et cetera.

So, thank you.

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.