Match Group Inc (MTCH) 2004 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the InterActiveCorp first-quarter earning release conference call.

At this time, all participants are in a listen-only mode.

Later we will open up the lines for questions and answers.

If you should require assistance during this call, please depress star and then zero.

And as a reminder, this conference will be recorded.

At this time, I would like to turn the conference over to your host, Vice President for Investor Relations, Roger Clark.

Please go ahead.

Thank you, John.

And good morning, everyone.

Joining me on the call, Barry Diller, Chairman and CEO;

Victor Kaufman, Vice-Chairman; and Dara Khosrowshahi, Executive Vice President and CFO.

As you know, we may during this call discuss our outlook for future performance.

Also, you are aware that there are risks and uncertainties associated with these forward-looking statements and our results can be materially different from the views expressed today.

These risks have been set forth in our public reports filed with the FCC.

Finally, we will discuss certain non-GAAP measures and I refer you to our press release in the Investor Relations section of our website for all comparable GAAP measures and full reconciliations.

With that introduction, Barry and Dara will each make some comments and then we'll go to Q and A. Barry?

Thank you, good morning.

Well, the quarter--or much less a series of quarters is hardly proxy for long-term fundamentals, we have had a fine start to the year.

Almost all our businesses performed above expectations, and for context, that means 43 brands organized into 7 principle business lines.

I assume you've all seen the top-line numbers, so I am not going to recant them here.

All of the key metrics which monitor and guide our operations and future strategy were stronger than we had anticipated.

When we were last on this call three months ago, we thought the first quarter would have flat year-over-year results, so much for forecasting, but very much for the great everyday life of operating in the trenches.

Not to frustrate you, but we're going to start our review of operations with our non-travel assets.

Not that we don't think travel is important, of course, it is, and no one should think we're maneuvering to deemphasize it because we are not.

And, of course, we recognize its relative size, but we are a 43-strong multi-brand enterprise with staggered rates of growth, mining interactivity across the broad spectrum of commerce.

Some areas have grown pretty fast, some are in early adoption, and some in pure investment mode.

And as best as we can tell, travel will always have a large share, but probably over time, it will shrink as a percentage, not by some manipulative design, but by all the opportunities we have in so many different areas in front of us.

Fueled and supported by our cash flow, this quarter alone, a pretty remarkable $556 million and with this mighty balance sheet of ours.

I'll start detailing some of these results this morning with the Electronic Retailing.

The momentum at HSN continues with U.S. revenue up 13% and operating income before amortization up 36%.

We'll again outpace QVC for the fifth consecutive quarter domestically.

It took a lot of time and broken spears to get all the gears moving correctly, and now that it's meshing consistently, we are on to the final piece in the complicated puzzle that is on-air retailing: investing in and improving our customer service.

We've launched our love-the-customer campaign everywhere throughout HSN, and over time this mantra is going to result in the gold standard for customer experience.

I wish, though, that I could have the same good things to say about our operations in Germany.

While we've done a good job solving the infrastructure problem that plagued us a year ago, we're nowhere where we need to be in merchandising.

It's for sure, of course, that is this is going to get fixed, but it is going to take time, and I don't really expect significant improvement until next year.

At HSN management, there's just no way we could have gotten this far without having brought in Tom McInerney to lead the company.

And that came over from one of our other operations is so important for us.

And that we can develop senior management talent, cross-pollinate it from one business to another is just going to be one of our strongest competitive strengths over time.

He, together with the extraordinarily talented [Marty Neelen] that runs HSN U.S., are making every wish that we had had for some while for Electronic Retailing come true.

Ticketmaster had a much stronger quarter than any of us had expected.

Because of its incredible economies of scale and some big on-sales, on a small sales increase of 4%, operating income before amortization grew 13%.

For this quarter, Match passed the 1 million subscriber mark, and the international growth is over 100%.

We've introduced a lot of new product offerings, such as personality tests and physical attraction matching.

It's been tough putting them together into a great user experience, but the next site relaunching, I think, in May, should take care of that.

LendingTree managed to grow revenue modestly on an apples-to-apples basis despite a 60% drop in re-financed mortgage volumes from the record levels of quarter 1 of last year.

As industry values come down our demand as a value aggregator goes up.

We told that you the key to this year was to invest aggressively in gaining market share, and that's what we are doing.

Transmit rates are up, close rates are up, we've got 13% more lenders in the network, and with the very beginning of building a great Real Estate product with realestate.com.

The opportunity, and we have said this before, is huge.

Less than 1% in -- of the $60 billion in Real Estate commissions last year was on-line, and that's going to quadruple by 2007 or more than that.

I mean, who really knows about the -- about the forward projections, but - given the -- given where it is now and where it is going to be, it is just a great opportunity for us.

Switching to local services and media, which, as you know, I believe for a long time is an enormous opportunity, but everything superlative that you about page surge is eventually going to be true in local - in the local space.

With over $50 billion that's spent annually on local advertising, and only 2 to $3 billion of that online, we've got the highest number of local customers with 80,000 merchants between our entertainment publications and Citysearch, and we think that only 25% of small businesses have a web site today.

EPI is starting to migrate its book sales on-line with 75% growth quarter on quarter, and it is now the number one off-line affiliate for hotels.com.

Lastly, we closed the acquisition of TripAdvisor, which is a great consumer product.

We combined all our media efforts, Citysearch, E-vit, EPI and TripAdvisor under Anne Busquet's leadership, and her eagle-sharp focus and analytical discipline in bringing all the elements together is the focus that we are going to need to win the local space, and when we do, I would say watch out.

No one listening to the following fairly lengthy report could say we are lessening our interest in or our belief in travel.

And the first statement to make about IAC Travel is that we believe we are back on track.

While we never underestimated the difficulty of integrating the teams and cultures, I recall that we used that technical term "it's going to be a bitch," we are certainly relieved to be executing instead of reorganizing.

Travel gross bookings were very strong at $3.5 billion, 51% year on year and 44% sequentially.

Expedia and hotels.com bookings are up 48% and 44% year on year.

And we do listen.

We have expanded our disclosure, now providing gross bookings for Expedia and hotels.com, as well as for agency and merchant business lines.

Our travel sites had over 23 million unduplicated unique users in March, and our overall share of the on-line travel audience was 37%, significantly higher than last quarter.

And we're talking about both agency and direct sites.

So it's worth repeating, we are back on track.

Our merchant hotel business continues to perform well, with 7 million room nights booked this quarter and revenue up 39%.

We told you last quarter that we expected hotel merchant margins to come down approximately 1% over the course of the year.

Our actuals for quarter 1 were a decrease of 70 basis points compared to quarter 1 of last year, which is right in line with our expectations.

On the other side of the equation, our average daily rates per rooms booked in quarter 1 are up 7% year on year due to very strong industry trends.

These increases in ADRs more than make up for lower margins on a per transaction basis.

We've seen ADRs strengthen through most of the year, along with high average occupancy rates in general and especially in certain markets.

New York hotel occupancy in March, for example, was 85%, which is the highest for that month in more than 30 years.

Las Vegas is having a very good convention season, and expect it to be strong for the reminder of the year.

Orlando is higher than 80% occupancy.

Its highest level in four years.

The statistics reflect very strong demand coming into our services.

That's great.

But, of course, that results in certain markets selling out during particularly popular time periods.

As retailer, this means that sometimes we don't have rooms available for the nights our customers want to book.

So we do sometimes have a surplus of demand over supply.

You can guess I would rather have that problem than the opposite.

But the good thing is, our merchant hotel business is based less on average occupancy than it is on the peaks and - valleys in occupancy.

Even in strong times, this is the nature of the hotel business.

It is also the reason we bring value to our hotel partners.

Because there are still -- and there is always going to be valleys in occupancy.

The thing about our service is that we help hotels when they need help.

And that is our fundamental value proposition.

We think that hotel supply is going to be choppy in select markets over the year.

For those of you who like to shop our sites for inventory and rates, I wouldn't read that much in what you'll find in extraordinary markets like New York, Las Vegas, and Orlando because those markets represent about 10% of our overall revenue.

We continue to work with our hotel chain partners, and just last week expanded -- extended our relationship with Hyatt, both on Expedia and hotels.com.

Hyatt has been a partner of ours since 2001, and we are going to direct connect to them through our new trade technology and, also, power their Hyatt Vacations product through our private label service.

This will give Hyatt customers the ability to book their air travel, car resignations and destination services through the Hyatt.com web site and our back end.

We continue to expand the great March of Internet Travel Internationally.

Revenue up 79%.

Gross bookings up 108%.

And in Europe, we're number one in reach, number one in gross bookings on-line, and now the fifth largest tour operator in the U. K. after only a couple of years of pure organic growth.

We're the first agency to build a train packaging product, and we forged a private label deal with Eurostar, which has a 70% market share on the London-Paris and London-Brussels markets.

We expect to launch an Expedia site in France, in Italy during the year.

We have now branded sites in 20 countries and 11 languages.

Reaching reaching a market of about 2 billion consumers.

In Asia, we're already sourcing supply in Hong Kong, Japan, Australia, New Zealand, and launching local language sites is the natural extension of our activity.

We'll continue to invest aggressively in all areas internationally throughout the year, because we can't think of a better place to put our money.

At Expedia Corporate Travel, we're focused on two key fronts: relentlessly improving our product and signing customers.

We just announced a series of product improvements, including personalized seat searches, automatic flight upgrades and proactive unused ticket notifications, and we signed up our 13 fortune 500 customer - CSX.

This is really a time for us to be buoyantly aggressive.

We love the promise of the sector we are in.

We do love travel.

And we're investing in product, technology, customer service, geographic expansion, acquisitions, and particularly marketing.

We sure believe in brands, and we know that our best offense and our best defense involves strengthening them every which way we can.

Every dollar we put into the effort for people to know and recall our brands sets a higher bar for anyone attempting to disintermediate our role, that and satisfying the consumer is going to raise the most natural barriers to invading the leadership we have.

The thing is, we are the leader in most of our services, and we want to drive further the distance between us and our competition, which in no way do we underestimate.

We told you that this year was going to be one of investment.

And with our balance sheet and the opportunities that we have, it would really be criminal not to sensibly push it.

It is a testament to the strength of our businesses, and our employees, that we can invest at these levels and still grow our profitability quite nicely.

Not every quarter is going to turn out great like this one, and for sure, there are going to be bumps along the way, we've been putting the blinders on, heads down, doing all the hard work, we think we have a world-glass -- I would say that would be world-class--global and diversified company that -- that we're going to be truly proud to have built.

So that's where we are going.

We sincerely believe that everybody who comes along with us will be richly rewarded, and to detail some of the little near-term rewards, Dara Khosrowshahi is going to take you more specifically through some numbers.

Thanks, Barry.

We've covered most of the operating highlights for the businesses and restrict my remarks to a couple of significant trends for the company overall.

First, revenue presentation.

As you may know, we changed hotels.com revenue recognition policy as a result of our integration efforts so that hotels.com now reports merchant hotel revenue on a net basis rather than a gross basis.

For those not familiar with the difference, hotels.com used to report the full value of the merchant hotel booking as revenue.

So if a customer paid $200 for a room, we recognize the full $200 as revenue.

This is what we refer to as "gross revenue."

This year, however, hotels.com recognizes only the margin we make on the hotel room.

So if our deal with a hotel carried a 25% margin, we would only recognize $50 or 25% of the $200 that the rooms sold for as revenue.

This is what we refer to as "net revenue."

The shift in revenue recognition policy was a result of changes in business practice at hotels.com and as a result, we have not restated the prior year's periods revenue.

This can make for some confusing comparables, so we are providing you with reported revenue, as well as revenue as if we had reported revenue on a net basis in the prior year period.

We'll do this for the remainder of the year until this effect anniversaries.

We're now reporting net revenue consistently across all of our IACT companies.

So, IAC overall reported revenue growth for the quarter of 6% per GAAP, but our revenue growth, if we recognized revenue on a net basis in '03 was 23%.

That's the more comparable number.

For IAC Travel specifically, reported revenue was down 9%, again, because of this gross versus net issue, but on a comparable basis, revenue was up 41% for the quarter.

None of this affects any of the results of our other businesses or our bottom-line metrics.

Another change in the presentation of our financials is that we're now including what we call "disengagement expenses" inside of the Electronic Retailing results rather than breaking them out separately.

Disengagement expenses represented what we have to bear, mostly in cable distribution fees as a result of the sale of our broadcast stations to Univision in 2001.

We used these broadcast stations to carry a substantial portion of HSN's signal.

The inclusion of these expenses threw off our comp last year and as a result, we broke them out of Electronic Retailing as a separate line item affecting our overall operating income before amortization.

We're no longer breaking them out since expenses have anniversaried and are roughly comparable.

Again, this has no effect on our overall operating income before amortization.

It is only an issue of the comparability inside of Electronic Retailing portion.

Continuing with HSN, Barry talked a little bit about our operations in Germany.

I just want to stress that we don't see a near-term turnaround there, and we would expect to see results for Q2 and Q3 at HSN International roughly equivalent to our results in Q1.

Q4 should obviously should be better due to the holiday season.

Now let me talk a little bit about our operating income before amortization margins.

I'm treating these margins based on net revenue in both '03 and '04 again for comparability purposes.

On a net basis, our margin this quarter was 13.4% compared to 14.6% in '03.

The downward shift is mostly due acquisitions that we made late last year.

These are EPI, LendingTree, and Hotwire, which carry lower margins and in EPI's case, lose money in the first quarter.

If you exclude the results of these businesses, our operating margins for our -- our company overall have remained very consistent. 14.5% on a net basis this quarter, versus 14.7% last year's Q1.

Now a little bit about travel specific margins.

For IACT, we increased net revenue $143 million versus the prior year period.

And increased our operating income before amortization by 24 million.

If you look at this, based on an incremental contribution margin, meaning for every dollar that we increase sales, how much went to the bottom line, how much went to the operating income before Amort line, we carried 17% or 17 cents to the bottom line.

Now much of that is due to investments that we're making in our future growth markets such as International, Corporate, and launching the new Classic Customs Vacations web site.

If you exclude these entities, the incremental margin on new revenue for the quarter for all of IACT is 26%.

Now there are some other business mix issues such as including Hotwire, and also Interval being in the results.

Interval carrying very high incremental margins, and Hotwire carrying lower incremental margins as well.

Let me go to marketing.

Aside from cost of goods, this is our largest P&L expense.

The advantage that we have is that we can push or pull back on selling or marketing based on business performance.

If our marketing is working, we might push harder and reinvest to gain even more share from our competitors, and if it's not working, we can pull back and redirect our marketing to more efficient channels.

This is especially true in the world of on-line marketing where expertise is considerable.

As a result, we can scale our expenses based on results, which gives us a lot of flexibility in managing our businesses.

Last time we spoke, we told that you we will be increasing our marketing investments in '04 to extend our leadership positions, and we have.

Selling and marketing expenses of the result as a percentage of revenue have gone from 14% in Q1 of '03, to 21% of Q1 of '04, that's an increase of 7%.

How does this break down?

First of all, 2% of the differential is due to our switch, again, from gross to net revenue reporting.

On a net basis, selling and marketing has moved from 16% of revenue in Q1 of '03 to 21% of revenue, a difference of approximately 5%.

Of that difference, half is due to our bringing in new businesses, particularly LendingTree, Hotwire, and EPI, which tend to have higher selling and marketing expenses as a percentage of revenue.

The other half of the increase, approximately 2.6% is a comparable increase in the businesses that we have owned in both periods because of our pushing the buttons on marketing and increasing our investments spent.

You'll recall before that I told you our operating margins on our organic bases have been steady year on year, 14.7% in Q1 03, versus 14.5% in Q1 '04.

So we've been able to invest an additional 2.6% in selling and marketing while keeping margins essentially flat.

That is the power of scale in our business, and that's an investment that we think will pay off.

We do expect selling and marketing costs as a percentage of revenue for the full year to be lower than what they were in Q1.

Turning to cash flow from operations, we had a great quarter.

Coming in at 594 million and free cash flow of 556 million.

Much of this was due to very good start for the travel business and the positive slope as a result of our deferred merchant bookings, as well as Ticketmaster client cash.

We think Q2 cash flow will also be strong although not as strong as Q1.

You'll recall that Q1 and Q2 are our biggest cash flow quarters of the year.

We have 3.9 billion of cash and marketable securities on our balance sheet, up from 3.4 billion at the beginning of year, and that doesn't include the value of our are VUE securities which we believe is substantial, especially with the upclosing close of the VUE/NBC transaction.

I'll finally finish a little about how our businesses are tracking for the year.

Travel, Ticketing, and electronic retailing are off to a good start as planned, although as we mentioned, Electronic Retailing growth will be damped due to international weakness, and certain investments we are making in infrastructure and for customer service this year.

Personals operating income before amortization Q1 was favorable to last year, especially because last year we spent most our marketing dollars in Q1.

This year's big push will most likely be in Q2, so we expect Q2 results to be somewhat lower than last year.

Last time we spoke, we told that you our operating income before AMORT targets for the year was 1 billion to 1.2 billion and we're on track for that range.

We also told that you that profit growth would be fairly back-end weighted and that's still true.

We'd expect operating income before AMORT growth in Q2 to be similar to, or slightly above Q1, and Q3 and Q4 to be higher than that.

With that, I will open it up for questions.

Operator?

Thank you, ladies and gentlemen, we will now conduct a question-and-answer session.

If you wish to ask a question, please press star and then 1 on your touch-tone phone.

You may remove yourself from queue at any time by pressing the pound key.

Once again, if you do have a question, press Star 1 at this time.

And our first question today comes from the line of Anthony Noto.

Please go ahead.

Thank you, Hi, Barry and Dara.

A couple of questions.

Barry, you had touched on the margin impact from the mix shift and the merchant hotel business being down 70 basis points on a year-over-year basis.

Dara, I wonder if you can elaborate more on the other drivers of the margin changes for the EBITDA margins within travel.

Last year 29.5%, this year 25.8.

Could you just walk through what drove that contraction?

My sense is it's the sales and marketing line and how you can elaborate, and how we should think about the benefit that you get from that incremental spending--historically we've looked at gross bookings that accelerated the 51% and differed revenue which was also up strong at 41%.

I wonder if you just could give us a sense in where you'd see the margin for the rest of the year, and when do we get the payback for incremental spend?

It looks like you're starting to get in the second quarter.

And then, secondly Barry, in the past we've talked about do you think you need to own on-line distribution and Citysearch gives that you strategic asset locally.

Do you think given the increased focus on search and paid for performance search, the costs that are there, that you may need to own it on a more national level?

That's it.

Thanks.

I would only say one thing before Dara begins after we have a bit of a straight jacket of formal remarks, which is - that the increasing marketing spend, of course, one of the things that you get is you get the ability to maintain and probably in this last quarter have -- we certainly know we have increased share in many respects, and long-term, that's an enormous benefit given our leadership--and given we think over time this on-line travel business is just going to keep growing.

So with that, Dara, the specifics on marketing.

Yeah, I think I'll go to margins first.

There are two significant elements of the margins coming down.

One I mentioned--which was the incremental -- the incremental investments that we're making in the new businesses, namely corporate, classic custom vacations and International, which is growing very fast.

And, again, the incremental revenue that we get from those businesses really doesn't result in any profitability.

As a matter of fact, it is a loss.

So you are going to see a natural margin contraction because those businesses are growing a lot faster than the domestic business.

So, you know, I don't think that you are going to see a near-term payback on those kind of businesses, because those are not the kind of investments that we make, but certainly next year or the year after, et cetera, you are going to see that effect reverse itself, which is those businesses are going to start going from negative to positive.

We actually anticipate International, for example, is going to be positive later in the year, which is going to increase incremental margins, so to speak.

The other significant factor is marketing, and marketing -- you know, marketing investments result in higher share which over long term is very, very important us to.

You should also note that Q1 of last year--and we talked about this in Q4.

Q1 of last year from a marketing perspective was extremely efficient.

We really did not have too many competitors kind of playing the search game so to speak, and we told you in Q3 and Q4 that our marketing expenses, especially on-line were increasing.

So when you look at this year's Q1, versus last year's Q1, you are going to see marketing efficiency coming down, just because the world has changing, and that's something that we have saw last year.

And finally, as far as the marketing and investment goes, you see it in the gross bookings.

Gross bookings have accelerated.

We think we've gained a lot of share.

You also see it in our audience, so we just think it's a great investment to make.

To the second question on national distribution, the answer is, no.

We -- not that it wouldn't be lovely if somebody threw us some really reasonable amount -- but even actually then, we'd be pretty skeptical.

I'm not saying we wouldn't, but the truth is that we have a really -- a strategy which is you do see this in how aggressive we are in terms of building these brands.

We think that so as long as these brands are strong and getting stronger, that people are going to connect to them directly.

They are going to find ways to our front door, and I don't really think that -- that we need a -- a national portal or national distribution to, so to speak, help our brands.

Well, I was wondering if I could just follow up with one quick question on the margins and gross bookings, Dara.

In the press release you talked about margins within travel improving throughout the year.

Could you give us a sense of that trajectory.

And then secondly, because gross bookings is a better indication of the demand of your marketing dollars that you spend as opposed to net revenue, does that 51% now catch up in terms of top line growth in the second quarter, because you'll now recognize a bunch of that revenue plus the demand that you will generate in your marketing the second quarter.

Is that a - the true up quarter?

Thanks.

Yeah, I'll address the second question first, which is that's what we anticipate.

So a lot of that gross bookings should start flowing through.

Some of it obviously has flowed through in Q1 and some of it's going to flow through in Q2.

So again, gross bookings kind of is the best indicator of near-term demands, so to speak.

As far as marketing goes, we haven't given any specifics as to the trend, but certainly we do expect sales and marketing as a percentage of revenue to decrease throughout the year, probably on some kind of a trend line.

I think Barry during investor days said that sales and marketing is going to be approximately 900 million for the year, and we expect it to be below that actually.

Yeah.

Somewhat substantially.

Yes.

But, again, it's not because we are not aggressive in terms of what we are -- what we are spending in marketing.

Again -- we think every dollar we invest right now today in marketing strengthens this company endlessly.

Next question.

Thank you.

And our next question comes from the line of Heath Cary.

Please go ahead.

Great.

I was wondering if you could just talk a little bit more about the competitive environment.

I mean, I know you talked about having 35% of -- or 37% of users in March.

Do you see the competitive environment, particularly within travel, getting more, less intense?

What kind of moves are you seeing your competitors make that may or may not concern you.

And then if you could also talk a little bit about the personals business.

We saw subscribers up 32%.

Revenue is up a bit less than that.

I was wondering if you could just talk about what the driver is there.

Well, first of all, -- and I'll take the -- the last question first.

But on -- on Personals, I mean, I think we said -- the fact that we've got over 1 million subscribers at this date and at this early phase, which I think is the early phase of Personals--is the driver.

I mean, every day we have, I think, 55,000 people register, and those registration numbers have been constant now for -- for some time.

So, there is tremendous interest in the category.

I think that -- that what has happened -- what happened was in this quarter, and really started last year, is we decided that we wanted to change the -- the monthly sub-rate in order to get a longer life for the -- for the subscriber, which I am not sure yet that we have any real results in --.

We actually do.

What are they?

In 2003, 74% of subscribers subscribe for a month package.

The balance being 26% for multi-month packages which have a lower price, but they don't require you to keep acquiring the subscriber again.

In '04, only 54% of our subscribers subscribe for a one-month package.

So the mix is shifting --.

I think it is early though.

Yeah.

I think it is a little early in terms of being able to say just exactly do we have this pricing thing down.

This area of subscriptions is one that is relatively new for us, and I think we are getting better at it every day, and I think we'll get to be good at it, but getting it priced correctly is -- is -- has been a bit, you know, peck and hunt and find.

Other than that, the issue for us -- we put so much into the site that getting it -- getting it easy for a consumer to see and -- what they want and proceed has been a bit difficult and I think that's going to change as I said earlier.

I think that - I think Personals is, I would say, at this stage, kind of waiting for this new product release, waiting for new marketing which is going to come in the next couple of months, et cetera.

Having got, I think, the subscription rate concepts at least on a course that we're going to follow for certainly a while.

As far as competition is concerned, in travel, sure, we've got competition.

There's nothing that our competitors, though, are doing that has surprised us.

And we don't have -- I mean, you know, we don't have a lot of on-line competition.

We certainly have two prime competitors, but again, the strategy of ours of having, you know, really, four services at the top-end classic, then Expedia for the broad middle, and hotels underneath that for primarily Hotels, and then under that in terms of pricing for the consumer is Hotwire.

I think that we -- we've got very good, in a sense, internal competition, and internal crossover--which I think has helped us a great deal on this.

This is all very new.

We didn't have these surfaces.

I mean, really two of them weren't on stream and Expedia and Hotwire a year ago were fierce competitors.

Hotels.

Sorry, hotels, forgive me.

We're fierce competitors.

So, it is certainly much better now for us with this, you know, array of services now working together.

But I don't think there is anything much new in competition.

Great, thank you.

Next question.

Thank you.

Our next question comes from the line of Paul Keung.

Please go ahead.

Yes, good morning.

Some clarification.

You mentioned that you gained 26 cents of incremental OIBA per dollar revenue once we net out CCVN national in a corporate business.

I was wondering--the travel gross margins, are you normally about 50 -- I mean over 60%?

I was just curious, when do you think we could start seeing that type of leverage again--or much greater leverage on your businesses net of those investments.

Two is what are the - second question--what are the potential growth margins for these new investments?

Are they comparable to the additional U.S. business, that being CCVN International and corporate?

You know, as far as when the incremental margins are going to improve, I'd say next year we certainly expect the incremental margins are going to improve.

Are they going to reach 50%?

Honestly, we don't know.

A lot of that's going to depend on the situation next year, the competitive situation, and how the travel business is operating overall.

But certainly there is -- there is a significant amount of -- of incremental margin in the business, and we've chosen reinvest that incremental margin in marketing and again close our share.

We think it's the best investment we can make right now.

As far as the other businesses go, the -- on ECT, your gross margins are going to be higher than your traditional gross margins.

Your marketing costs are certainly going to be less than the marketing costs of the other businesses, but your G&A is going to be higher because there is a higher kind of -- a higher touch business, so to speak.

It is more of a fee business.

And on International and CCV -- I think International we expect to have similar margins as -- as the domestic business, to the extent that it matures, although we do anticipate, you know, to the extent, for example, if we launch in Asia Pacific, we're going to have another kind of start-up type of business inside of International as well.

And Classic, again, it's too soon to tell.

I would - we would actually - I would guess that we might have higher margins because the price points for that kind of travel are very, very high, but, again, that business is not close to any kind of maturity.

Okay, and one more, if I may.

The TripAdvisor acquisition, what's the geographic rationale behind it, and do you think you will do similar acquisitions all in marketing companies whether it is in travel or other arenas.

We think it is -- actually, it's a great area, I mean, and we are thinking about expanding it beyond -- actually it is expanded beyond travel.

There is an - it's an electronics site that's -- I think it has just gone up recently.

And it will expand over time.

What's great about TripAdvisor is you go to one place.

It's got all the information.

All the editorial.

All the reviews.

All sorts of value add, and then, of course, so - for the consumer, it is an excellent place to go and kind of leisurely -- how is that for a word -- search around and kind of follow the -- you know that -- that tree of searching to find out, you know, more and more about where you are interested in going, et cetera.

As an advertising vehicle, it is terrific.

We know it's terrific because we are one of its largest advertisers in terms of our travel services.

So, both offensively in terms of a great -- it is a great product for consumers, which is why we're going to do it in as many areas as we can figure out, and it's a great media product--is both a kind of good offense-defense of play for us.

So we do -- we really do like it a lot, and it's -- the people who run it are -- are -- are really - I mean it has a really small group of people and they're really good.

They've done it very quickly.

How old -- I mean from start to now, how long is it that they have been working it?

They founded the company three years ago, and it's number five in media metrics as far as top travel sites.

I mean that's really extraordinary.

It's been profitable, it's very profitable, thank you -- somebody shouted from the other side of the room.

I mean, it's a -- it's -- it's really a good area.

Anyway, thank you.

Next.

And thank you.

We'll take our next question.

It comes from the line of Victor Miller.

Please go ahead.

Good morning.

InterActive's balance sheet suggests that deferred merchant bookings and deferred revenue combined increased by 82% 1Q 2004, to 726 versus the 399 level a year ago.

I am assuming there is still that gross net imbalance in there.

Maybe you can talk about what that impact would be, and also talk about what clues this might provide in assessing the tone of business for the rest of the year given the fact that at a minimum up 82% and with the net gross probably more, then Bob Peck has a follow up.

Thanks.

We haven't done the comp calculations on -- on a net basis, Victor.

Give us a minute and we will come back to you on that number.

What is the next question then -- let's do that and then come to this.

Could you give us a little more information on Hotwire's revenues in OIBA for the quarter?

Sure, go ahead, Dara.

We don't disclose the revenue or operating income before AMORT, but it - it tracked very, very well.

We were happy with the quarter, and it was solidly profitable, but it is not something that we break out.

Why don't we -- we'll come back to you when we -- when put the information together.

Let's do the next question, please, operator.

Okay.

Thank you.

And our next question comes from the line of Jeetil Patel.

Please go ahead.

Yeah, a couple of questions.

Can you talk about net revenues versus gross bookings up - you know, kind of -- that ratio was 14% in terms of your take in Q1.

You have 15% last year.

Probably runs at about 16.5% all of last year.

When do you think that cut-over happens where you start to basically recognize a lot of the deferred, and you see that conversion kind of move higher than the 14% or 15% that you did last year.

Second is, if you look at OIBA for transaction, you were at - in the mid-$15 range.

Do you think that has the potential to move north of $20--which will still be lower than last year, but would demonstrate the margin improvement, kind of take into account take rate and marketing.

Do you think that is attainable by your end?

On a net revenue versus gross bookings basis, what you are seeing in Q1 is a bit of seasonality--which, again in Q1, you have a significant amount of -- of gross bookings.

Gross bookings pops up significantly over Q4 of last year and gross bookings increases, but you don't recognize the revenue until later in the year, and because -- especially this Q1, we have such a big acceleration, you saw kind of the -- the net revenue versus gross bookings kind of decrease more than usual.

That's -- that's what essentially accounts for the decrease.

We do expect to see that going up over the year.

You know, I think it should be around, about, again, similar to last year as well.

Okay, so the same type of progression throughout the year?

You know, the war threw things off a little bit.

Okay.

And it's been very difficult kind of comping this year versus last year.

So I think it will be similar, although, you know, you might see some offsets.

For example, last year I'd say, in Q1 of '03, the window of the booking until the stay was much smaller than it was this year.

So, this year the window is kind of stretched out.

We would anticipate then in Q2 the opposite to happen, but, again, the war just threw things off so it's difficult to tell.

Next question please.

Thanks.

Thank you.

And our next question comes from the line of Safa Rashtchy.

Please go ahead.

Good morning, Barry, Dara.

A couple of quick questions.

First, Dara give us some historical growth rates on Expedia.

I believe you disclosed that it grew 35%.

Could you tell us how that compares with the growth rates in the previous quarters?

And second, on the margin issue, could you tell us why you feel confident that the margins will stabilize, given that we have seen a decline, and Barry, you said that you feel you are back on track, but the competition continues.

Certainly, your position as the leading player continues, but the cost for customer acquisition seems to go up.

The hotels and suppliers seem to be strengthening their positions as direct to - sale-to-customer.

So I would like to know broadly how you feel that the margins -- why you feel the margins will stabilize.

Thanks.

Do you want to start first and then I --.

Sure.

The Expedia growth rates, they're somewhat comparable to prior years.

You know, they -- there may be a slight slowdown in Expedia just because of the scale that you're getting inside of the business, and obviously the domestic travel market is slowing down to some extent, while International is increasing at a very, very significant rate.

So I think on the Expedia gross-bookings basis, actually Q1 gross bookings were, I'd say, better than expected.

So we're happy with the top-line growth.

Yeah, and I would just again say on -- on -- obviously raw margins--which is everybody's yesterday concern--we talked about, and raw margins are down 70 basis points and we've said that we - think they are sustaining over time.

As far as the gross margins, I mean, this is by and large our -- several factors, of course, it is last year's -- efficiency was much greater, but this is appetite.

This is us saying for a period of time, and this time does not last forever, we think that it is very sensible for us to hit every place that we can, both on-line and offline our -- every opportunity to -- to strengthen the brands, and it's had a very good effect, and there's no question but that over time these things come in balance, and we think that the latter part of the year is one place they'll begin to come in balance, because, you know, customer acquisition, while it's, quote, going up, as it relates to on-line, you know, we have said for a long time we do not think this goes forever.

We also think that there are other place for us to market, to advertise Expedia than on-line, PFP, one kind of group hopping over the other to, you know, to bump the -- the rates up.

This is -- this is -- this is -- this is just everybody kind of rushing into the marketplace, all at once.

This would even itself out over the year we think, and certainly over future years.

I mean the channel -- there are going to be other channels for us to market in.

So, as I say, I think it's -- again, I think -- I think it is the best -- I mean I understand everybody's issue with margins and margins and margins, but the issue is that, again, the raw margins are fine.

The issue is, are elective spending in marketing to achieve certain ends.

Now that's not a fixed cost.

And that is not -- as I say, there's not more competition coming into the sector.

It just doesn't -- it is not there.

I am not saying we don't have competition.

We have it now.

We're going to have it forever.

But I -- while I understand the -- the scrutiny on -- on margins; frankly, I think that when everybody kind of gave up on the theory of saying, oh, you know, their raw margins are going to disappear because of competition and this and that, and that's certainly no longer true.

They, as we say, are quite stable.

In a way, now it's kind of on to this other area, and I just think there's not enough perspective and not enough understanding of just how much, again, this is a choice of ours that we are -- that we are following electively.

So, I consider what we're doing in terms of our spend net-net, completely positive for us.

Completely.

I don't think--some of it is, of course, always defensive, but I promise you almost all of it is offensive.

I think just to add to that, Safa, there are some mixed issues there.

Again, if you compare Q1 of this year versus last year.

Last year's spending was very, very efficient and the spending that we see this year is pretty much in line, as far as efficiencies goes with Q3 or Q4 of last year.

So, we are certainly not seeing anything surprising there.

Also, this year, again, at the beginning of the year especially, we're investing really aggressively in international and international marketing, for example, was up over 200% year-over-year.

And these are patterns that we see kind of country by country.

You spend significant amounts in sales and marketing for us -- for example, the big investment this year was in Germany.

And we see this.

Expedia kind of three, four years ago, domestically looks exactly as Expedia.UK - dot co UK-- kind of does now and Germany is probably a year or two behind.

So, we've seen these patterns before, and there is nothing as far as the -- the spending goes which suggests that kind of there's -- there's anything different from -- from what we expected.

Also, remember that last year with hotels.com, Travelocity was a big affiliate of hotels.com, and like we said in Q4, we're spending in sales and marketing to replace that lost volume, so to speak.

You can see that we're doing a good job of it as far as our gross bookings go, but, again, that is less efficient than it was last year, but those -- those are patterns that we saw kind of Q3, Q4 as well.

Next question

Thank you.

Our next question comes from the line of Tom Underwood.

Please go ahead.

Yes, a couple of questions.

First, I was just wondering if either Barry or Dara, you could kind of quantify what we were talking about in terms of ad spending for travel.

Could you give us a level of what that was in the quarter and how that compared to a year ago.

We don't break out travel and Ad spend from the other -

What about Ad spend overall -- --.

It's not wise for us to do so.

Understand.

What about for the company in aggregate?

We said - excuse me, sorry, we said that it's going to - we had originally put forward a fairly large figure for the year.

It's still going to be very large, but it'll be less large than it was.

And, again, I want to stress that that figure was just for Ad spend, not for total sales and marketing--but our ad spend for the full year, right now we're seeing is going to be less than what we saw last year.

So that's a pretty good trend.

And it is still going to be, you know, a very large amount, --

Sure.

Okay.

It ought to be.

I -- I -- I don't know.

I was just going to inject, I do hope there will be questions -- I mean, we are happy to go on with travel all night.

I have got a nontravel question --.

Hallelujah.

I was just wondering in kind of just a larger corporate issue, in terms of did -- it looks like you did not buy back shares in the quarter.

I was just wondering why and what your plans are along those lines going forward.

Happy to - happy to respond to it.

We did not buy shares in the quarter because we were in a series of conversations with Vivendi and NBC about settling, so to speak, the -- all of the interests that we have that are a hangover from when we sold our entertainment interests to the VU.

And part of that was going to be a very, very large share buyback.

And that has not materialized.

We don't know when and if it ever will, probably won't.

Doesn't matter to us because the truth is that we're -- we told you all about the securities that we have.

We think they're in a better position when this deal closes than we were when we got them, because GE is a better creditor, I would think.

That would not be an insult to Vivendi.

So the -- the credit certainly's better.

We're -- we've got a better instrument in the -- we now have a letter of credit on one part of the prefers, and -- and on the whole thing, we're getting about 5% after-tax, and that ain't terrible.

I wish we were doing so well with multiple billions of dollars that we are currently investing, but I would never want to do so well as to be anything but rock conservative so it's not -- so keeping them, again, we always said we are relatively neutral on this, and of course we would like the overhang, so to speak, in the fact that's it a great dramatic piece of news for people to go back and forth.

We would love it to be over on one side, but just so - so that we never have to refer to it again.

But the truth is that -- that economically, you know, there are a lot of arguments that say just stay where we are.

Maybe it'll change, but we are counting on it, and I think you can look to us as we have done in the past.

We spent a 1.4 billion last year to buy back stock.

ou can look for us to be as we said opportunistic about it, and you could look for us, certainly, we are going to buy stock back.

So this quarter, it's just because of that, we didn't think we were in a position to do so.

Okay.

Thanks.

Next question

Thank you.

And our next question comes from the line of [Peter Mirsky].

Please go ahead.

Thanks.

I wanted to ask permission to ask the nontravel questions.

But just a couple of quick things --.

No one needs permission.

LendingTree.

This is kind of called an encouragement.

On LendingTree -- you had what looked like pretty healthy spike in the transmit rate.

Wondering if you could comment on that, and then at HSN, it looked like the volume was down a bit, but obviously the results were pretty good.

Can you comment on that?

Well, on HSN, I mean, the units, you mean, but -- but in fact, I mean, I mean, HSN is doing great.

I mean the gains in HSN across everything has been really impressive.

One thing to note is that the price point for HSN has been growing up.

Now it's about fifty bucks.

And we think that's incredibly healthy for us.

I mean we -- we once got in a trough of selling computers a couple of years ago but we were not -- it was really designed for volume.

And it was okay, and -- it -- it was a bit of a drug in terms of the top line.

Bottom line was bad.

We're now - got this terrific mix of electronics products and computers led by Gateway, a good brand, good margins for us, great consumer product.

Yesterday, just an as example of the broadening out of HSN, we had an $8 million day.

Not bad.

And that was for Kodak camera, electronic camera -- electronic -- I mean digital camera, sorry.

And $200 apiece.

We sold 12,000 units, I think, something like that.

I mean, just great on-air sale.

So the price has gone up.

The array of products -- I mean at the -- White House correspondent dinner, Jay Leno did this joke, where he said that -- he made an allusion to me and HSN that we sold worthless things, you know, to people.

He said, no, no, no, that was Carl Rowe.

Kind of big joke, big laugh.

But the truth is that the stuff -- I mean this -- this caricature of the past about these businesses is -- is truly long gone.

So the maturing of -- of -- and broadening of that product base and the fact that -- of how on-line is relating to it, really, to me proves every day why this business is still part of this company.

And why we are genuinely excited about it.

I buried the lead, which was your question, I think, was on LendingTree.

LendingTree on transmit rates.

Transmit rates are up significantly, and this is really a part of what we told you before which is as volumes of -- of kind of financing volumes come down, the lenders in our networks, so to speak, pay a lot more attention to the volume coming in, and become a lot more competitive as far as getting the number of bids to the supply coming in, and that's why transmit rates have gone up.

So there are two things that kind of shield us against a -- a reduction in -- in what you see, which is refinancings.

One is in general we gain market share as far as the volume that comes to LendingTree.

The second is, as far as the share of volume that we get, we're able to translate that into closings much better because the lenders don't have as much volume, and they -- and they work harder on the volume that comes down the pike.

So transmit rates are just an indication of that, and it's an indication that things are going well.

So, given the direction of rates, that should then be somewhat sustainable?

We believe so.

Yes.

Great, thanks very much.

Next question.

Thank you.

Our next question comes from the line of [Douglas Anmuff].

Please go ahead.

Thank you.

IC travel has obviously signed a number of direct connectivity agreements over the last few months.

Can you provide more details on these deals just in terms of how they changed the merchant process, in terms of technology, the potential cost savings and also the access to inventory?

Thank you.

Well, the new trade which is an acquisition we made I think 18 months ago, or so, whose technology it is that allows this direct connect, we're rolling it out carefully.

It's -- like any technology, it's going to get itself smoothed out - with -- with the hotels, but it's -- obviously it's a terrific tool because it allows you realtime connectivity inside the systems, and so it -- it -- it will have without any question to us, it has to have positive effects for us.

And for the whole industry, just because it's-- I mean, almost everybody knows the merchant business essentially was done on faxes and -- and I mean, when you would go to hotels.com, you'd essentially see this endlessly huge room of fax machines running back and forth.

Not very, as they say modern for an on-line business.

In any event, it is proceeding.

I don't know -- we have 1390 hotels connected, and we think there'll be 4500 by the end of the year.

So it's -- it's proceeding.

It was -- I mean it was very wise of Expedia, I think, to buy new trade.

When they did - and begin the implementation long before anybody ever thought about it.

And just a couple of other numbers.

Around 14% of our volume in Q1 was actually facilitated by this kind of direct connect.

So reduce at the back-end cost.

And we estimate that, you know, depending on the size of the hotel and depending on the type of hotel operation that you have, direct connecting can save anywhere between 2 and 7% of the hotel's transaction costs.

So it -- it -- the -- it reduces our transaction costs.

It reduces the cost of the hotel working with us at scale, and it also gets us access to rates and inventory on a realtime basis.

Which is very important, especially in this kind of an environment.

Thanks, Dara.

Next question, please

Thank you.

Our next question comes from the line of [Brian Egger].

Yes, good morning.

I don't want to belabor this advertising discussion, but I just want to clarify one point.

Are you spending enough less than $900 million of the advertising this year such that you are reaffirmation of 1 billion to 1.2 billion in OIBA is any kind of change in outlook, and otherwise you're OIBA potential may be higher if you are not spending enough on advertising.

Is that much of a change there?

I don't know, take your guess.

But no, I think literally, we don't really know yet.

Obviously we're a quarter into the year, and all we do know is that we -- we had set fourth a very, very aggressive marketing spend.

We wanted to plug it into our figures, and still believe, as I said earlier, that we can do this -- this, you know really great -- we think solid brick building.

While at the same time, showing the kind of growth historically that we've had; and, I mean, think about the aggression, and saying that we are not only going to have close to a billion dollars in marketing that we're going to put on the line.

But at the same time, we are going to grow, I think, by about 30%.

Those are -- as aggressive two sticks -- as you could put out there.

As we said earlier, we think that the year is going to come in and, again, in this predicting stuff, who the hell knows, but, again, everything that we know now is that -- and we've given a broad range because we think it is appropriate to give a broad range.

We don't want to do guidance.

We don't want to do -- we don't want to answer the unknowable or we don't want to low-ball it, the endless game that unfortunately all of the people on this call and on other calls play with each other and the market in general.

And we certainly don't want to play that game.

We just want to do it straight are.

So we thought that the range is appropriate and we are sticking with it.

Victor, do you have anything you want to add about this area of how we deal with these issues of budgeting with the numbers and marketing and stuff like that?

I think -- you know, the emphasis on it is way too great.

I think we said to everybody at the end of last year that -- that this year to a large degree is a transition year.

It's a year when we integrated Expedia and Hotels.

We're building out our business.

We are spending aggressively, and we're growing quite strongly.

I think that we all can get lost in the specifics of numbers as compared to the strength of the overall business.

Which is really very good.

Okay, very good.

Thank you.

Thank you.

Next question

Thank you, our next question comes from [Mark Mahaney].

Please go ahead.

Thank you very much.

Two questions, one on Cap Ex for the year.

Any particular guidance you would give?

Looks like the Cap Ex declined nicely for the March quarter.

Is that how we should think about it going forward?

And then secondly, in the past you've talked about organic growth rates both for revenue and OIBA.

Are they now close enough to the reported numbers that there's not a need to break those out?

Or if there is a significant variance there, could you provide those?

Thank you.

Sure on the organic growth rates.

The bottom sign is very similar, really didn't change.

From a top-line perspective, on a net revenue basis again, that compares to the 23% that was reported, we would have grown about 15%.

So those are kind of the comparables as far as acquisitions go.

Cap Ex, we would expect to see increase Cap Ex during the year.

We did delay some projects, and also we're going to have some fairly substantial Real Estate investments toward the end the year, so there will be a uptick, but on the base businesses, the businesses don't require too much Cap Ex.

So kind of on the base businesses we are in pretty good shape.

Next question.

We will go with a couple of more questions because there is some -- there are some people that have queued up.

So let's -- to the next question please, operator.

Okay.

It comes from [Michael Milman].

Please go ahead.

Thank you.

Could you talk about your thinking regarding expanding your direct connection to the airlines now that you are doing this more with the hotels, and sort of related to that, how much are the GDS incentive fees?

What percentage of your travel revenue comes from the GDS incentive fees, and as they seem to be reducing that or trying to reduce that, how do you offset those?

We don't break out these numbers.

We just don't think that it makes any sense for us competitively.

I don't know if on your first question if there is any -- the first part of your question that there's anything that we can really answer, is there?

I think just on direct connect, we have a great partner in World Spin and we are working with them.

The economics work and the technology integration is terrific and right now there are no plans to direct connect.

Obviously we -- we addressed the issue, and we think about it all the time, but we're very, very happy with World Spin.

Next question.

Thank you.

And our next question comes from Bart Ware.

Yeah, Winslow Capital.

Two questions, one, can you talk on the local's business and what kind of loss ramp we're going to see from here.

And secondly, Barry, given the full myopic focus on the travel margins, why not even be increasingly more aggressive on your share repurchase?

I mean, you've got $4 billion in cash, plus you have in monetized VUE, you know, why not just step it up dramatically then if a substantially different opinion?

As far as the loss -- we will do it in order.

As far as the loss on -- on local, it is definitely coming down.

What is it, this last --

In Q1 it was 13.6 million.

So we think that over kind of the next couple of quarters it's going to come down and Q4 will be very profitable.

Yeah, we think that -- it's certainly heading the right direction.

As I said in my opening remarks, it's -- you think about the work in this company.

I mean, the -- not every area -- we have so many initiatives, which is why -- I don't want to crab about the concentration on travel, and don't, believe me, want anyone to think that we don't love our travel business, but we are doing so many other things, and I think the things that we are doing in local are as important as anything we are doing.

I think the opportunity is simply huge.

I think we've got to crack it, we've got to get it right, and getting it right is as complicate as any initiative this company has ever taken on.

I mean, to get the service right is just really hard, but every day it does get better.

And I think everybody knows that now there is this paid-for-performance model.

It is absolutely perfect locally.

And it's -- it's just a huge opportunity.

So it -- it's -- it is as aggressively organized as we know how to do, and so -- so we're -- we're proceeding.

As far as stock buybacks, and, yes -- again, I don't want to be defensive about margins.

As I said earlier, I just think that you have got to look at this stuff -- you don't got to do nothing, but I mean it's--I think--sensible, and what Victor said was the -- was the most simple and accurate way to talk about this company's area of investment this year and what we think it means.

And the corollaries, is of course, true, which is, you know, there's no question we are going to buy back stock.

And we are not going to do it, you know, because we think there's some instant short-term dislocation.

But -- because I don't think that would be responsible.

We certainly did it last year.

I mean 1.4 billion four ain't chopped liver.

And we do have plenty of resources.

We are really careful about the resources.

So -- but we certainly are adding cash.

I mean, $550 million of cash in a quarter for a business that didn't exist -- well, certainly -- I mean -- it didn't have any cash flow, as a matter of fact.

Negative cash flow seven years ago.

Is not bad and not bad forget seven years ago, not bad versus last year, last quarter, last anything.

So with that said, I think it -- I think that -- I have said as much as you can say in this area.

I don't know if any of my colleagues want to add anything else about share repurchase, but I will -- I will meander around not too much longer.

On this.

As a matter of fact, actually, I think I have said what needs to be said on the subject.

So, just one more question and we will take that.

Otherwise, we will -- we'll -- we have tried your patience long enough.

So one more question

Thank you.

That question comes from [Ethan Hugo].

Please go ahead.

Hey, guys.

I was wondering, putting advertising aside in the travel business, what are you doing to increase loyalty in -- in your on-line travel business.

It occurs to me that you obviously know better than we all do, but there's probably a very high churn rate, or a lack of loyalty among your retail users.

What are you doing aside from explicit advertising, to drag people to the site who will then, you know, be dragged to other sites.

How can you -- how can you find a way to basically make customers stay and be more loyal to using, particularly Expedia, but your other businesses as well.

As far as loyalty on the travel sites, I mean, people do a lot of shopping for travel, but we've got 50%, kind of repeat users.

So, that says something for loyalty and again, I think marketing and advertising and customer experience and all of those things over time are going to produce more and more loyalty with people just as they always do with any, you know, brand.

It is still a very, very young brand.

So I mean, it is going to take years and years of concentration on a product.

Again, Expedia, IACT now totally--but the legacy of Expedia essentially a technology company which is -- zealots on -- on the technology and on getting right.

So I think that's going to stick, you know, over time.

And -- and as far as loyalty in general or at large, we are - we know -- let me say it differently, we -- we've believed for some time that various loyalty projects, various rewards programs, and all sorts of things, are probably going to be the glue that sticks the whole thing together.

And I would say that we've talked about this, but then we have certainly lots of crossing beginning to take place within the companies, within the brands, but this year, next year, you will look for us to have programs in place that are going to provide, I think, not only that stickiness, but I think it's be a whole new, so to speak, Internet currency.

With anyway, with that, thank you all.

We appreciate your time.

I just --

Dara, go ahead.

To answer Victor Miller's question that didn't get answer.

Victor Miller's probably asleep by now.

Yes, exactly.

On the balance sheet -- the numbers that you see for deferred revenue and deferred merchant bookings, those are all on a gross basis.

So all you need to do is add those numbers, compare it to either the end of last year or Q1 of '03, and just as a comp for Q1 of '03, our deferred merchant bookings and revenue number increased by 232 million, which is an increase of around 60%.

That compares to an increase in gross bookings for IACT travel of 51%.

The numbers are roughly comparable.

That's your answer and if you have any other questions, we will take them offline.

As we will continue to do in any other area.

Again, thanks for your time and we appreciate your -- your being on the call and we look forward to seeing you again next quarter.

Bye-bye.

Ladies and gentlemen, this does conclude our conference for today.

Thank you for your participation.

And thank you for using AT&T executive teleconference.

You may now disconnect from the line.