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Edited Transcript of BKNG earnings conference call or presentation 26-Feb-20 9:30pm GMT

Q4 2019 Booking Holdings Inc Earnings Call

NORWALK Mar 6, 2020 (Thomson StreetEvents) -- Edited Transcript of Booking Holdings Inc earnings conference call or presentation Wednesday, February 26, 2020 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David I. Goulden

Booking Holdings Inc. - Executive VP & CFO

* Glenn D. Fogel

Booking Holdings Inc. - President, CEO & Director

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Conference Call Participants

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* Brian Thomas Nowak

Morgan Stanley, Research Division - Research Analyst

* Deepak Mathivanan

Barclays Bank PLC, Research Division - Research Analyst

* Douglas Till Anmuth

JP Morgan Chase & Co, Research Division - MD

* Eric James Sheridan

UBS Investment Bank, Research Division - MD and Equity Research Internet Analyst

* Heath Patrick Terry

Goldman Sachs Group Inc., Research Division - MD

* Justin Post

BofA Merrill Lynch, Research Division - MD

* Justin Tyler Patterson

Raymond James & Associates, Inc., Research Division - Internet Analyst

* Kevin Campbell Kopelman

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Lloyd Wharton Walmsley

Deutsche Bank AG, Research Division - Research Analyst

* Mark Stephen F. Mahaney

RBC Capital Markets, Research Division - MD & Lead Internet Research Analyst

* Naved Ahmad Khan

SunTrust Robinson Humphrey, Inc., Research Division - Analyst

* Stephen D. Ju

Crédit Suisse AG, Research Division - Director

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Presentation

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Operator [1]

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Welcome to Booking Holdings' Fourth Quarter 2019 Conference Call.

Booking Holdings would like to remind everyone that this call may contain forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements.

Expressions of future goals or expectations and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements. For a list of factors that could cause Booking Holdings' actual results to differ materially from those described in forward-looking statements, please refer to the safe harbor statement at the end of Booking Holdings' earnings press release as well as Booking Holdings' most recent filings with the Securities and Exchange Commission. Unless required by law, Booking Holdings undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

A copy of Booking Holdings' earnings press release, together with an accompanying financial and statistical supplement, is available in the For Investors section of Booking Holdings' website, www.bookingholdings.com.

And now I'd like to introduce Booking Holdings' speakers for this afternoon, Glenn Fogel and David Goulden. Go ahead, gentlemen.

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Glenn D. Fogel, Booking Holdings Inc. - President, CEO & Director [2]

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Thank you and welcome to Booking Holdings' fourth quarter conference call. I'm joined this afternoon by our CFO, David Goulden.

We had a strong fourth quarter as we booked 191 million room nights, which is up 12% year-over-year and exceeded the high end of our guidance range. We produced over $3.3 billion in revenue and approximately $1.3 billion in EBITDA, which are year-over-year increases of approximately 5% and 3% on a constant currency basis, respectively.

I will talk first about our full year performance in 2019 then about our objectives for 2020 and then I will address the current situation regarding the coronavirus.

2019 was a good year for our company. We booked 845 million room nights for the year, which is 11% more than in 2018. Just to put that in context, that means we booked, on average, more than 2.3 million room nights each day.

We produced strong year-over-year growth across our key financial metrics. Non-GAAP revenue and adjusted EBITDA were up 8% and 6% on a constant currency basis, respectively. Our non-GAAP EPS was up 15% on a constant currency basis, exceeding our guidance for the year. Our EPS growth rate benefited from over $8 billion of share repurchases during 2019, which demonstrates our disciplined approach to returning capital to shareholders and our confidence in our business.

I am pleased with these results considering the macro environment we faced in certain geographies throughout the year. Moreover, we accomplished this top line growth rate while also producing solid leverage in our performance marketing spend. Our ability to execute consistently in this environment speaks to our scale and global diversity as well as to the dedicated and talented teams we have at our company.

We made solid progress against our key strategic goals for the year: expanding the Booking.com payment platform, improving our alternative accommodations business and further building our connected trip strategy. As we move into 2020, we will continue to focus on becoming an even more customer-centric company that drives loyalty and increased repeat behavior. We plan to accomplish this goal through smart customer acquisition while providing the best experience in our core accommodations product using our scale to offer the best value to our customers and making further progress in our connected trip strategy.

In addition, while we have always been a cost-conscious organization, in 2020, we will further emphasize the need to make sure our expenses are appropriate for our revenue, and we'll look at ways to streamline and make all aspects of our company more efficient. Investing in products and process is important for the long term, but so too is eliminating unnecessary expense. And during 2020, we'll be taking a close look at these opportunities.

One of our highlights during 2019 was expanding our payment capabilities at Booking.com. Over 50% of our Booking.com's gross bookings now occur on properties that are enabled on its payment platform. The percentage of Booking.com's gross bookings processed on its payment platform grew from approximately 10% in 2018 to over 15% in 2019, and we expect this to reach approximately 25% in 2020. As we have discussed, this platform provides payment options favored by both our customers and property partners, particularly non-hotel property partners and provide a platform for merchant product offerings. Merchant offerings also provide Booking.com with merchandising capabilities, and we expect to continue to increase our investment in this capability to drive growth. This payment platform is foundational for our connected trip strategy in which we envision a frictionless customer experience across multiple products that we believe will drive increased loyalty.

Our alternative accommodations business grew solidly in 2019 and has large scale. As of December 31, 2019, we had 6.3 million listings in our alternative accommodations business. We remain focused on increasing the quality and variety of properties joining our platform so we can provide the best choices for our customers and drive search conversion. Booking.com's alternative accommodation business recorded approximately $3.1 billion in revenue in 2019, representing approximately 21% of our overall revenue for the year and a solid growth rate of 14% when expressed in euros. It consistently grew faster than our core accommodations business throughout the year and also maintained a healthy profit margin. We believe presenting both alternative accommodations and traditional properties on one platform is the best customer proposition.

Last year, we took further steps to create our vision of the connected trip. We're on a journey to build a multiproduct offering, including accommodations, flight, attractions, ground transport and dining, all connected by a seamless payment network and supported by personalized intelligence to provide a frictionless customer experience that we believe will drive enhanced loyalty and support growth. We saw early signs of these benefits last year as we leverage the integration of Rentalcars.com and Booking.com to deliver a better ground transport offering for Booking.com's customers. Rental car days grew 12% year-over-year in the fourth quarter primarily due to the increased cross-sell of the product to Booking.com customers. We believe we are in the early stages of seeing the benefit from this cross-sell opportunity.

We've also been encouraged by certain incentive programs that provide discounted ground transport options to bookers with higher value accommodations. These programs have shown an increase in conversion at acceptable ROIs. We look forward to further experimentation with these types of offerings during 2020.

We also expanded our flight capabilities across the company in 2019. Booking.com launched an integrated flight product while Agoda and Priceline began building a global flight platform that is initially focused on the APAC region. Currently, Booking.com offers a flight product in 12 countries in Europe, but we plan to expand this throughout 2020. Booking.com's goal for the year is to be able to expose 50% of its total customers to a flight product globally. Developing a robust flight product remains an important investment considering there are more than 4 billion global flight passengers last year. Having the ability to engage with these customers early in their travel journey gives us a better opportunity to cross-sell our accommodation and other products. But even more important, it enables us to offer a true connected trip experience.

This year, we will continue to expand other aspects of the connected trip, such as attractions and dining options. For these offerings, we will utilize not only our own assets but also partner with third-party providers so we can offer the best customer experience possible. We continue to see loyalty benefits from accommodation customers who also use our attractions product.

We will continue to invest in our app platform as it becomes the center of our connected trip experience. Booking.com remains one of the most downloaded travel apps in the iOS and Android stores globally. According to a leading third-party research firm, Booking.com was the only OTA to rank in their top 10 travel apps in the world ex China in 2019, coming in at #3. We've been investing in the app platform for some time and it is becoming the preferred platform for travel bookings, and we are very pleased with the strong room night growth that occurs on Booking.com's app.

As I mentioned earlier, all of these investments are designed to drive greater loyalty and increased repeat behavior with our customers. We made progress on this front last year. In each quarter of 2019, our direct channel grew faster than our primary paid channels and our direct channel increased its share for the year. The direct channel represents over 50% of our total booked room nights. And when including rooms booked through branded search terms, this number increases to over 60%.

We have a large and loyal customer base today, but we believe we can grow this further and increase market share. Booking.com's best and most loyal customers are part of its Genius program. This group of customers has grown consistently for several years. In 2019, we had over 70 million active Genius customers, an increase of 9% year-over-year. These Genius customers were responsible for a growing proportion of Booking.com's booked room nights in 2019, and we thank them for their loyalty. On top of that, we see that Genius customers book more frequently and more often on a direct basis when compared to non-Genius customers. We will continue to focus our efforts on growing this special group of customers and offering them great value as part of their Genius membership.

While we are pleased about our long-term prospects, we recognize that current travel demand has been impacted by the coronavirus. At the present time, Greater China has been affected the most. The broader APAC region has also been impacted, which is an area in which we have been experiencing strong growth over the last several years. And we are now starting to see a slowdown in travel globally and are aware of the potential for further demand deceleration around the world. David will provide more details in his remarks. But I would like to point out, this is not the first time our company management team has faced an exogenous impact to travel demand. We know that travel is fundamental to people's lives, and we believe travel industry growth will rebound to prior growth rates.

While the coronavirus impacts travel, we will continue to manage the company in a measured way that builds value for the long term. However, the steps we are taking today include: one, making sure we take care of our customers and help them with their travel plans, which includes facilitating cancellations and working closely with our supply partners.

Two, ensuring the health and safety of our over 26,000 employees around the world.

Three, managing our marketing efforts appropriately. We will continue to participate in those paid channels that provide us quality traffic and attractive ROIs, recognizing that we need to incorporate higher cancellation rates in our bidding calculations. In regards to brand marketing, we will be very cognizant of when and where brand marketing money should be spent this year.

Four, working with our travel suppliers so they are best positioned to achieve success on our platform.

And five, continuing to invest for the future.

The company that provides a better travel service, a holistic, seamless, frictionless connected trip that delivers more value to both the traveler and our supply partners will create a lasting relationship with both travelers and suppliers, and we intend to create this service over time.

With that, I will now turn the call over to David for the financial review.

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David I. Goulden, Booking Holdings Inc. - Executive VP & CFO [3]

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Thank you, Glenn, and good afternoon. I'll review our operating results for the fourth quarter and 2019 and then discuss our thoughts on 2020 and our guidance for the first quarter. All growth rates are relative to the prior year comparable period, unless otherwise indicated. Information regarding reconciliation to GAAP can be found in our earnings release. Now on to our results for the quarter.

Our booked room night growth of 12% in Q4 exceeded the high end of our guidance range as growth accelerated through the quarter with a strong finish in December. Our room night growth in Europe continue to exceed our expectations in Q4 despite a macro environment that remain cautious. Room night growth rates for the rest of the world also exceeded our expectations and grew slightly faster than Europe in Q4.

Average daily rates for accommodations or ADRs were down about 4% year-on-year in Q4 on a constant currency basis, which was in line with our guidance. As indicated on our last earnings call, the year-over-year ADR decline was impacted by decreases in rates within several key markets such as the U.S., Japan and Hong Kong as well as an increasing mix to faster-growing, lower ADR markets and the impact of lapping 1% ADR growth in Q4 of last year.

Changes in foreign exchange rates reduced Q4 growth rates in U.S. dollars by approximately 1 percentage point versus last year. We estimate the change in FX rates impacted gross bookings, revenue and EBITDA growth in Q4 by a similar amount and EPS growth by less than 1 percentage point.

Q4 gross bookings grew by 6% expressed in U.S. dollars and grew about 7% on a constant currency basis, coming in above the high end of our guidance range.

Consolidated revenue in the fourth quarter was $3.3 billion and grew by 4% in U.S. dollars and about 5% on a constant currency basis.

Advertising and other revenue, which is mainly comprised of KAYAK and OpenTable, grew by 3% in Q4 as we lap the benefit of the HotelsCombined acquisition in December.

Adjusted EBITDA for Q4 was $1.3 billion, which exceeded the high end of our guidance range and was up 2% year-over-year on a reported basis and about 3% on a constant currency basis.

Performance marketing expense increased 2% year-on-year, which helped drive leverage of about 40 basis points in the quarter. The year-on-year growth was driven by higher-than-expected volumes in our paid channels.

We spent $86 million on brand marketing in the quarter, which represented a decline of 31% versus Q4 last year and contributed about 130 basis points of leverage. This decrease is in part driven by a ramp-up in spend in the second half of 2018. We remain committed to investing in brand marketing in a disciplined manner going forward.

Sales and other expense decreased 1% versus Q4 last year and contributed about 30 basis points of leverage due to reduced chargeback expenses as well as a reclassification of certain sales and other expenses incurred during 2019 into contra revenue in Q4, both of which offset the increase in expenses related to the continued growth of our payments platform at Booking.com.

Personnel expense was in line with our forecast, growing 16% year-on-year and contributing about 175 basis points of deleverage in the quarter as expected, driven in part by lower year-end reversal of bonus accruals than we experienced in Q4 2018.

G&A expenses increased 16% year-over-year on a non-GAAP basis, which excludes a $21 million travel transaction tax charge in Q4 of 2018. Non-GAAP G&A expenses contributed about 60 basis points of deleverage in the quarter. This year-over-year increase in G&A was driven largely by higher indirect taxes, including the French DST.

Finally, information technology expenses increased 42% year-over-year driven by several items supporting the growth of the business, including payments to contractors, software license fees, outsourced data center and cloud costs.

Our non-GAAP EPS was $23.30, up 4% on a reported and constant currency basis versus the prior year. Non-GAAP net income reflects a non-GAAP tax rate of 17.7% in Q4, which is significantly higher than Q4 last year due to a onetime adjustment of approximately $72 million in Q4 2018 related to a provision of the Tax Act that was clarified by regulatory guidance issued in Q4 2018. Our Q4 tax rate was about 1 percentage point lower than our guidance due to some discrete items. Our 9% lower share count in Q4 benefited EPS growth in the quarter.

On a GAAP basis, operating income increased by 3% and GAAP operating margin decreased by about 50 basis points compared to Q4 last year. Q4 GAAP net income amounted to $1.2 billion or $27.75 per share, up 81% from Q4 2018. Our Q4 GAAP net income includes $326 million of pretax unrealized gains on our equity investments in Meituan and Ctrip and $47 million of FX remeasurement losses on our eurobonds. We exclude these unrealized losses and remeasurement gains from our non-GAAP results.

We had a GAAP tax rate of 17.5% for the quarter, which increased significantly from the prior year due to the tax impact of the items excluded from non-GAAP results as well as the fact, as I mentioned, the impact of the non-GAAP tax rate.

In Q4, we generated $1.1 billion of operating cash flow, which declined 1% compared to Q4 last year. Our free cash flow for the quarter was about $1 billion, which decreased by 1% compared to last year, mainly due to timing of payments, which reduced the growth by 15 percentage points.

We repurchased $1.3 billion of our stock in Q4, bringing the total repurchases to the year to over $8 billion. As of the end of the year, we had about $11.5 billion remaining under our $15 billion repurchase authorization.

We ended the quarter with $11.8 billion in cash and investments and $8.7 billion of outstanding debt.

Looking back at 2019, we're quite pleased with our performance during the year as we produced steady room night growth in the 10% to 12% range, we delivered a very healthy 39% EBITDA margin while investing in the business and absorbing unplanned DST expenses. And we grew our non-GAAP EPS by 11% or around 15% on a constant currency basis, which exceeded our annual guidance of low double-digit growth.

Turning to 2020. Our initial outlook reflected a continuation of this operating model, i.e., to gain share in accommodations with some deceleration in room night growth; to invest in payments, merchandising and the connected trip, creating modest pressure on operating margins; and for EPS growth to benefit from our share repurchases. Due to a few mechanical factors, including the lapping of ADR declines and the phasing of personnel and G&A expenses during the year, we expected our earnings growth to be weighted largely to the second half of the year.

Now turning to more recent events. The coronavirus has had an impact across our business since it made news headlines on January 21. The early impacts were in Greater China, but we also saw these impacts across Asia and to a lesser extent, in other regions outside of Asia as well. To help with context, the APAC region represents a little over 20% of our room nights with no single country accounting for more than a mid-single-digit share of total room nights. In APAC, we've seen an increase in cancellations, reduction in new bookings and pressure on ADRs.

As you all know, it's not possible to predict where and to what degree outbreaks of the coronavirus will disrupt travel patterns. While the incidence of infections has slowed in China, in the last week alone, new outbreaks have occurred in South Korea, Iran and Italy. We've been able to measure the impacts on our business so far in Asia and we've seen a recent impact on room night bookings in Europe following the outbreak in Italy. As a result, we're providing only a near-term outlook with a wider guidance range to account for the possibility there will be a growing travel disruption in Europe.

Based on where we are in the quarter and considering the continued impact of the coronavirus, we're forecasting Q1 booked room nights to be down 5% to 10% versus the prior year. Clearly, we're dealing with a very fluid situation and it's extremely difficult to predict where Q1 will come out, but this is our best estimate based upon the data we have available now. We forecast total gross bookings to decline 8% to 13% on a constant currency basis and about 200 basis points more in U.S. dollars. Our Q1 forecast assumes that constant currency ADRs of the company will be down about 4%.

We forecast Q1 non-GAAP revenue to decline 3% to 7% on a constant currency basis and decline 200 basis points more in U.S. dollars.

Q1 adjusted EBITDA is expected to range between $560 million and $590 million, which is down 16% to 20% year-over-year on a constant currency basis and about 200 basis points more in U.S. dollars.

We're forecasting Q1 non-GAAP EPS of approximately $9.05 to $9.65, which is 14% to 19% below Q1 2019. On a constant currency basis, we estimate Q1 non-GAAP EPS to decrease year-on-year by approximately 12% to 17%. Our non-GAAP EPS forecast for Q1 includes an estimated income tax rate of approximately 18.5%. Our Q1 non-GAAP EPS guidance assumes a fully diluted share count of about 41.6 million shares, which is 9% below Q1 of last year.

We forecast GAAP EPS to be between $7.95 and $8.55 for Q1. Our GAAP EPS guidance for Q1 assumes a tax rate of approximately 18.5%. We use a dollar to euro exchange rate of $1.10 when setting our Q1 guidance.

We have hedge contracts in place to substantially shield our first quarter EBITDA and net income from any further fluctuation in currencies versus the dollar between now and the end of the quarter, but the hedges do not protect our gross bookings, revenue or operating profit from the impact of foreign currency fluctuations.

Finally, a housekeeping item. Starting with our Q1 results and going forward, we plan on reporting our performance and brand marketing expenses on a combined basis as we view our overall marketing spend as an investment in customer acquisition and retention.

We'll now take your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Lloyd Walmsley from Deutsche Bank.

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Lloyd Wharton Walmsley, Deutsche Bank AG, Research Division - Research Analyst [2]

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I guess just the first question, a bit of a clarification. I think, David, you said something about expecting some share gain with deceleration in room nights. I wasn't sure if I heard that correctly. Is that kind of before the impact of the virus or including the impact of the virus? Anything you can kind of share there. And along the same lines, ex the virus, are you seeing anything in particular changing with marketing ROIs as some competitors pull back in certain brands, in certain geographies? And then, I guess, a second question, if I can, would just be, anything particular changing with regard to some of the SEO channel impacts from last quarter? Are you seeing that spread to either new geographies or change in intensity? Anything you could share there would be great.

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David I. Goulden, Booking Holdings Inc. - Executive VP & CFO [3]

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Sure, Lloyd, thank you. Let me start off answering the first question. So yes, to clarify, what I said was, when we turn to 2020, we talked about our initial outlook, which is our outlook at the start of the year obviously around the time we were putting our plan together for the year. We talked about that reflect the continuation of the same operating model we delivered in 2019. So my comments about gain share in accommodations with some deceleration in room nights, some modest pressure on operating margins and for EPS to benefit from our share buybacks was giving you a flavor of the shape of our profile for the year coming into the year before the coronavirus.

Yes. And then on the SEO channel just to pick up your second. I just want to kind of remind people, as we said, the SEO channel is a relatively small part of our business and has been for a period of time. The SEO channel continues to be under pressure as the primary provider of that channel focus more upon their paid search rather than free search, but we continue to do well in that channel. We have teams dedicated to it. We are pleased with our share in that channel. As a channel, it is under continuing pressure, but as we said before, really contributes a very minor part of our overall business.

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Lloyd Wharton Walmsley, Deutsche Bank AG, Research Division - Research Analyst [4]

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Okay. And then anything on just marketing ROIs outside of the impact of the virus given competitive dynamics?

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David I. Goulden, Booking Holdings Inc. - Executive VP & CFO [5]

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Yes. Let me start and maybe Glenn can add clarity. Again, I'll talk about Q4 because, obviously, Q4 was a very clean quarter relative and not having a virus in. It's only a few weeks behind us so I think it's a good time to still talk about Q4. We were pleased with our ROIs in the channels in Q4. We didn't see any major shifts. We mentioned that we saw continued leverage in our performance marketing spend because our performance marketing channels continue to grow less rapidly than the overall business so the leverage that we demonstrated was kind of a mix-driven leverage, a mathematic leverage. ROIs didn't really change very much in Q4, nothing to really note. We're pleased with where they were. And I think was that the genesis of your question or you're also asking about current quarter as well?

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Lloyd Wharton Walmsley, Deutsche Bank AG, Research Division - Research Analyst [6]

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That's great. I'll assume that the virus is making things pretty messy, but unless you want to add something.

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David I. Goulden, Booking Holdings Inc. - Executive VP & CFO [7]

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No. I just wanted to stop there. I think that's the right place to stop.

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Operator [8]

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We do have another question from the line of Mark Mahaney from RBC.

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Mark Stephen F. Mahaney, RBC Capital Markets, Research Division - MD & Lead Internet Research Analyst [9]

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I want to ask about 2 things. This kind of attach rate with the connected trip and how far along do you think you are in tapping into that opportunity. I noticed that both rental car days and airline ticket unit growth rates nicely accelerated in the December quarter. Looks like that's much easier comp in airline tickets, but you called out some kind of greater cross-selling opportunities you're getting with rental car. So just talk about where you are in the process of doing that? Is it a small percentage that you've even attempted this at so we can get a sense of how much better the results could be in rental cars? And then, Glenn, when you were talking about the outlook, you seem to emphasize a little bit more streamlining costs in 2020. I don't think that was related to coronavirus or maybe it was, but I don't think it was. Sounded like you want to be a little bit more careful about costs or something like that. Could you just explain the why behind that? Why get a little bit more focused on streamlining costs this year versus last year, unless it was all coronavirus, but I didn't get that impression.

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Glenn D. Fogel, Booking Holdings Inc. - President, CEO & Director [10]

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Mark, yes, let me take the first one, the attach rates, et cetera. And I think you called it out correctly. The rental car business has shown some good numbers. You look in the supplemental statistics at the end of our press release and you can see some nice growth there. And part of that growth is coming from that cross-sell part of our connected trip that we're building out. And you're also correct in your statement about the air business. Air business is so early. We just really are getting that up and running that you're not really seeing any of the increase there from that or not enough to matter right now. It's very, very low attach rates. When I look at those numbers, I believe, over time, we should increase those significantly. And it's going to take some time as we continue to optimize, figuring what's the best way to present it, where to show it.

One of the things I'm very proud about is the center we built in Tel Aviv that is filled with a bunch of machine learning experts, AI geniuses, who really look at all the different parts of the way we present things. And they're trying to come up with what is the best way to present an offer to a traveler at the right time and putting in what is the right merchandising benefit that we should do it to get the right conversion and the right bottom line. It's something that the more data we get, the better we'll know what the right thing to do, but it's something that's going to take time. So that's the answer to that one.

Regarding costs, you're also absolutely correct on that. One of the things when I took the job over in Amsterdam as CEO of Booking.com, and I've been there now a little more than 6 months, is looking at what are we spending on, where are we spending, what projects are we on, which ones are the right ones, which ones should we not be doing right now, and then taking that throughout our entire organization. I always believe that you should be a cost-effective company. And I believe it's also very natural as companies grow very rapidly and achieve great success on the bottom line, sometimes discipline lightens up a little bit. So certainly before the coronavirus, I was already thinking that we need to make sure that we're doing everything we can to spend money correctly. One of the things I've mentioned in the calls over the last couple of quarters is us bringing all of our companies together better. And that one of the benefits of that is to get some efficiencies in our spend, a real cost procurement type project. And in the past, we've run all of these companies independently. And that was the right thing to do at the time. But while doing that, you do lose out on some cost efficiencies. Now the state of the company where it's at, now it's time to start bringing that in, and that's what we're going to be doing.

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Operator [11]

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We do have another question from the line of Kevin Kopelman from Cowen.

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Kevin Campbell Kopelman, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [12]

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Great. Could you give us more color on the latest trends in Europe travel bookings that you've seen over the last few days following the outbreak of the coronavirus in Italy?

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David I. Goulden, Booking Holdings Inc. - Executive VP & CFO [13]

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Yes, Kevin, this is David. Let me take that. Maybe just kind of maybe frame it in the way that the quarter shapes up and our projections do take into account what we've seen in the last few days. So let me kind of give you a lay of the land, first of all, by region, not surprising. We already mentioned that China is the worst impacted. Asia, excluding China, has also been impacted for some time. The rest of the world, which obviously includes Europe and Europe's a big piece of that for us, was growing through February, but we also expect it to be impacted to the negative in March as well. And to give you a bit more color in terms of just how it played across the quarter, on a consolidated basis, we, of course, saw room night growth in January, even though we saw some tapering off at the end with the virus hitting the news on the 21st. Expect February to be approximately flat from a growth rate point of view. And therefore, to get to our guidance for the quarter, expect to see declines in March.

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Kevin Campbell Kopelman, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [14]

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Got it. And that March expectation is based on just the worsening kind of trend over the last few days?

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David I. Goulden, Booking Holdings Inc. - Executive VP & CFO [15]

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Yes. I mean, we really, obviously, as I mentioned, we're dealing with a very fluid situation, very difficult to predict what's going on because we're responding to something that we have no control over. We're giving you kind of our best view on it. So when we built what we expect to happen in March and created the guidance range, we're looking very specifically at what has happened over the last few days after the outbreak in Italy and the response we've seen in Europe in response to that, which is not surprising has been negative. So yes, we are expecting and we're seeing, even though we're going to get room night growth through rest of world in February, towards the end of February that is already in decline. And we expect it to continue to decline into March.

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Operator [16]

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

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Justin Post, BofA Merrill Lynch, Research Division - MD [17]

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A couple of questions. I guess it would be helpful if you could give us a view on past behavior when you've had travel disruptions and people cancel their trips or your most loyal customers don't book. How long does it take before they start going on trips again or do you see a time frame where people cancel and then rebook? I know you can't be too specific, but any thoughts on that? And then second, it's interesting your main competitor pulling back spending, you're talking about some cost savings. Do you think there's inefficiencies in marketing or other channels in travel and maybe the industry as a whole could benefit as people take a deeper look at their costs?

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Glenn D. Fogel, Booking Holdings Inc. - President, CEO & Director [18]

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Justin, I think it would not be wise to try and use past experience as an analogy for what will happen in the future. The situation now is very different. Say, I've now been in this business, in fact, this week, it will be 20 years I've been at this company. My anniversary is Friday, 20 years. And so I've seen a lot of exogenous factors, as I mentioned, impacting travel, some extremely severe. And I won't go through all of them because we'll use up the entire time for the call. That being said, they all have different effects and different rebound time periods. So it's not going to be helpful for me to tell you what took after 9/11 or after the GFC or after swine flu or after the volcano in Iceland. I actually could go on and on and on, let me stop there. So I really can't be that helpful. And you'll just have to make your own best guesstimates which will be as good as anybody else's guestimates.

Regarding spending, we have very high margins compared to anybody else in the industry, but that does not give us a license to waste money. And I want to continue to always be looking, are we spending correctly every single part of this company. And so we can then spend the money in the right place at the right time.

In terms of marketing, there probably is a lot of waste in the industry, probably. And I think we can see that some people who are probably going to be pulling back in terms of their marketing. We like to think that we've been efficient and effective, but I think there's always room everywhere to do better. And we're going to continue to do so. That's only the right way to try and have a long-term successful company.

Towards your first question, I am confident the business will be coming back. It's something that we've seen over and over and over again. As I said many, many times here, travel is a basic need for people. They have been doing it for a very, very long time. And as soon as the air clears, so to speak, you'll see people will be coming back to travel.

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Operator [19]

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We do have another question from the line of Brian Nowak from Morgan Stanley.

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Brian Thomas Nowak, Morgan Stanley, Research Division - Research Analyst [20]

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I have 2, please. David, just I appreciate the month-over-month commentary for the first quarter, but maybe just so we can all sort of better understand the underlying durability of growth. How big of a room night and EBITDA headwind have you put into the guide to factor in corona for the first quarter? And then the second one, Glenn, just sort of talk about opportunities in sort of untapped geographies. Talk to us about how you think about the importance and the opportunity to focus more on the U.S. from a branding and a performance marketing perspective this year to perhaps take more share in that area.

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David I. Goulden, Booking Holdings Inc. - Executive VP & CFO [21]

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Yes. Okay. Thanks, Brian. I'll take the first part of it. I'm going to try to avoid getting into specific growth rates by month. I've given you a flavor. I think you can do some back of the envelope math to kind of figure out what March has to look like in terms of getting to a minus 5% to minus 10% range. Way that we've looked at this is that we have, as I mentioned in my answer to Kevin, have looked at very much to what's happened to the last few days and anticipating at the lower end of the range that the travel environment in Europe may get worse because we will be surprised if there's only one outbreak in Europe over the course of the rest of the quarter. So we've taken into account what we saw happening over the last week, which, of course, is led by a lot of cancellations. So over time, it may not be quite as bad as we're seeing than last week because you see, obviously, there's a different growth rate on underlying bookings vis-à-vis cancellations. The early reaction to these news events is usually you get a spike in cancellations and things can moderate out. But we've taken into account what we've seen happening over the course of the last week. We projected that for the rest of the quarter and recognize that, in fact, it may get worse if there are additional outbreaks in Europe or further slowdowns in the rest of the world. So that's how we've tried to intelligently give you some guidance data points from obviously data that we're getting that's moving very rapidly, but it is the best data that we have until this morning.

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Glenn D. Fogel, Booking Holdings Inc. - President, CEO & Director [22]

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And in regards to our opportunities around the world, the U.S. is, without doubt, our biggest opportunity. It is an enormous market that we under-index significantly. And the reason for it, why we have not achieved what we'd like to yet. And historical, as you know, Booking.com was always a hotel-only company. And we didn't have an air product there, for example. Many Americans like to start their travel business using air. Now we're going to be bringing out an air product over time. That will be one.

Second thing is extremely price-competitive, price-sensitive consumer in the U.S. Booking.com, historically, an agency player, meaning the price was set by the hotels or by the non-hotel accommodations. We believe that we have to be able to merchandise, meaning adjusting what that value to the consumer is going to be. But to do that, you got to have a payment product. It was only last quarter that we got running the domestic payment product for our U.S. consumer. So that's another one.

Another big issue, packages. Many Americans like to use a package product or like to do some sort of combination that will get them more value. Well, we're just starting that now. One of the things I'm very proud about is working between Priceline.com and Booking.com to come up with a package product for the U.S. consumers, and we're just getting that out.

The other thing is, we have other assets to help bring consumers to our sites and make them aware of the great things we have. One, for example, OpenTable. A lot of people are using OpenTable every month. In the past, we have never done anything to really bring together the power of the OpenTable platform and the Booking.com platform in a way they'll provide more value to consumers. So lots of things that we're working on because I do believe the U.S. is a great opportunity for us to help build out our business.

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Operator [23]

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We have another question from the line of Justin Patterson from Raymond James.

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Justin Tyler Patterson, Raymond James & Associates, Inc., Research Division - Internet Analyst [24]

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Great. One on connected trip first. How should we think about scaling supply through your own assets and third-party partners on the attractions and dining side? With partners in there, is there anything you need to control to ensure an optimal customer experience? And then the second question is on marketing. As your direct channel mix grows and your payments business grows, how do you think about that incremental ROI of using coupons to drive conversion versus, say, attracting customers via brand and performance marketing?

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Glenn D. Fogel, Booking Holdings Inc. - President, CEO & Director [25]

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I want to do the first, and I'll let David being our CFO, he can talk about how we're going to optimize in terms of coupons. You're right in terms that in an ideal world you would like to have all of your supply directly connect to us and you prefer in an ideal world not to be using third-party suppliers. That being said, that's a balance against speed to market and making sure you have the supply necessary to create a good offer to the consumers. So in the interest of speed, we have gone with third-party providers to provide inventory that we don't have. I mentioned OpenTable a little while ago. Well, OpenTable has a great product. They do a lot of business in a lot of different cities, but there are also a lot of cities around the world that they don't do business. And we want to provide that dining opportunity to our consumers in as many cities as we can so we will partner with others. Attractions, the same thing. We had our own contracts with supply, but there are a lot of places in the world where people are traveling, so to make sure that we have the supply, we're going to third parties. Over time, we believe that in the long run having your own supply helps you in terms of creating that truly seamless connected trip, but speed matters in this market so we're going to do that, too.

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David I. Goulden, Booking Holdings Inc. - Executive VP & CFO [26]

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Yes. And Justin, on the different marketing channels. First of all, we're very pleased to build our direct business and it's very important for the future and the connected trip and the app and all things kind of drive in that direction, but the performance marketing channels are also really important sources of acquisition of new customers for us. And sometimes, some existing customers can come back to that net as well. But to answer your question, we look at all these on a very measured incremental ROI basis. We can really measure our different activities and compare them on a very comparable basis. So when it comes to things like coupons or other attractions we may only offer through one of our channels, we just look at the ROI on that vis-à-vis other channels and decide where we lean in or don't as the case may be. So we have pretty good metrics on all things like that because we are able to measure the short-term return on those investments.

Again, longer term, we're looking to drive people towards the direct channel, particularly towards the app. And Glenn mentioned how well downloaded that is and how it's becoming very much a powerful app in the travel space. And as the connected trip becomes a bigger piece of the business and the app becomes a way to experience the connected trip during the trip, it's even more strategic. But tactically, we can look at all these different things, including things like couponing on a very measured basis and decide to lean in based upon which ones give us both the short-term returns and also create the highest level of repeat or return to direct activity after that initial offer.

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Operator [27]

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Our next question comes from the line of Deepak Mathivanan from Barclays.

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Deepak Mathivanan, Barclays Bank PLC, Research Division - Research Analyst [28]

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Great. David, last year, you talked about achieving double-digit earnings growth and then exceeded it pretty nicely ex FX. Understand the situation is a little bit more fluid right now and the color you provided on the operating model was helpful. How should we think about those things kind of translate into earnings growth for this year? And then how are you thinking about using the balance sheet for share repurchases in the near term when there is like a disruption currently going on?

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David I. Goulden, Booking Holdings Inc. - Executive VP & CFO [29]

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Sure, Deepak, thanks for the question. Let me take the first part of it. So yes, I mean, we talked about our operating model expectations pre-coronavirus as a continuation of the model. I think it was quite successful for us in 2019. And I don't want to get to specific targets for 2020 because there's not a lot of point in putting out a hypothetical forecast for the year, which we can never measure against and bridge against because, obviously, the year is going to come out very different from what we expected it only a few weeks ago, but we were pleased with the way that 2019 came out if you kind of look back at Q4, look at 2019, understand the underlying health of the business. And we believe that there's no reason why that model can't continue in normal times. And then, Glenn, you want to talk about second part, balance sheet?

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Glenn D. Fogel, Booking Holdings Inc. - President, CEO & Director [30]

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Yes. So we are very pleased to have a very strong balance sheet, significant amount of free cash. We have a very good credit rating. And the question really is, as we've always had, is how should we best use our capital. One of the things has always been share repurchases. Another thing that we always do is we're always looking at other companies that could potentially help add to our connected trip strategic vision. And we're going to continue to look at that. Certainly, valuations have changed significantly in the recent past, and that may provide an opportunity for us in both areas. But as David says, it's a very fluid situation right now and we're not going to box ourselves into anything right this second. I will say though, however, we do look at this very, very carefully because we do want to be agile.

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Operator [31]

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We have another question from the line of Eric Sheridan from UBS.

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Eric James Sheridan, UBS Investment Bank, Research Division - MD and Equity Research Internet Analyst [32]

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Maybe if I can, a few around cost structure and how you're thinking about investing in the business in sort of a relatively uncertain environment. Is there a way to tease out what are some of the investments you plan on making just because they fit with the strategic vision, they're going to be made for the long term, irrespective of how the environment arcs up or down over the next sort of couple of quarters? And how much of it is more variable in nature, where you might tune up or down investments, so we could better understand the variable piece that will probably more likely track with how room nights either get better or worse from the excellent results in Q4 versus the cautionary results or guide for Q1.

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Glenn D. Fogel, Booking Holdings Inc. - President, CEO & Director [33]

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Sure. So I've been talking about our long-term strategic vision for some time now since I became CEO of the holding company a little more than 3 years ago and how important it is to create and continue to create value for all sides of this marketplace. And we're going to continue to do that. And that requires investing in people in terms of code, making sure we are providing something that is a differentiator from what is out there right now. And there is no reason to slow that down, stop that or hold back on that. The sooner we get out that truly superior travel service, the better we will be. And I want to be in that position when we come out of this current environment, which is something that is unexpected but will end. I want to come out of that as soon as possible with the best services that we have. So we're going to continue on that. We are not changing that at all.

Now in terms of investments, in terms of marketing and things like that, naturally, you always want to make adjustments based on what the environment is. So for, as I mentioned, about brand marketing. Well, we are not going to be making brand marketing to people who are not listening to that message at all. If you're not thinking about traveling, you're not listening to a travel ad, it's foolish for us to invest money in a brand marketing campaign. And that's an example, an extreme on the other side. And in between, there are always different things in between that we are going to be making adjustments as we go throughout the year. And we've always been doing that. That's no different. David, anything to add?

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David I. Goulden, Booking Holdings Inc. - Executive VP & CFO [34]

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Yes, Eric, I'll just maybe put a little bit of a framework around what Glenn talked about. So if you think of operating expenses and just kind of look at 2019 for a second, about $9.5 billion, a little over half of our OpEx is really variable with volume. Obviously, our performance marketing change with volume up and down. Our brand marketing is clearly not volume-related. But obviously, as Glenn just said, no point spending a lot of brand if people are not primarily thinking about travel. A large piece of our sales and other expenses also relates to volume as well because that ties back to the merchant processing costs on our payment platform. So over half of our OpEx really is directly tied to the volume within the business. Now obviously, there are volume-related aspects in the other areas, which are mainly in our personnel, G&A, IT, et cetera. And obviously, there's some fixed and there's some variable expenses there. But if you think about our cost structure, it really is quite variable with the larger expense lines being tied to volume quite directly. And of course, in the areas that are not tied directly, there are things we can continue to do to refine and optimize as Glenn talked about.

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Operator [35]

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We do have another question from the line of Naved Khan from SunTrust.

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Naved Ahmad Khan, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [36]

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A couple of questions. So David, in your commentary, you spoke about maybe 2020 seeing payments processed through your own payment platform going to 25%. What are the levers that you control to kind of get that from 15% in 2019 to 25% this year? And then the other question I have was just maybe, can you shed some light on maybe early results from the Grab partnership, how that might be working for you?

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David I. Goulden, Booking Holdings Inc. - Executive VP & CFO [37]

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Sure. So let me start off with the payments platform. Actually, Glenn was the one who gave the numbers out, but let me just kind of talk to you about how we see it developing and the impact it will have on our income statement. So as you see, we basically had to grow from 10% in 2018, 15% in '19, 25% in '20. We expect obviously to exit 2020 at higher than 25% payments. That's the average for the year. Might be helpful just to understand a little bit about what that's doing to our income statement because there's always some questions about that in prior calls.

In 2020, we expect payments actually to contribute to both revenue growth as it has been, but also to start contributing to EBITDA growth as well with very little impact at all on our EBITDA rate in 2020, will contribute towards EBITDA growth as we recover an ever-increasing percentage of our payment costs. So that's how to think about payments rolling through our business. Obviously, there's still a very attractive nature in our agency model as well so one is not going to completely replace the other. But as Glenn said, for all sorts of reason, including the ability to participate in merchandising and also to be able to package and control things together via the connected trip, payments will become an ever-increasing part of the business. And we're pleased with how it is progressing and we're on track to get it to a stage where it starts to contribute towards EBITDA growth, which we'll start doing this year.

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Glenn D. Fogel, Booking Holdings Inc. - President, CEO & Director [38]

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And regarding the Grab relationship, I'm very pleased about how that's been progressing. And for people to remember, we invested in Grab for 3 reasons. One reason was Grab has a significant number of customers and we want to find all different ways that we can get exposed our hotel accommodation, all of our travel services to customers in different ways, and that certainly was a great way to do it, one.

The other thing is that our travelers when they arrive in a place that they're not familiar with, they want to know how are they going to get around. And many people sometimes mistakenly assume that whatever ridesharing capability they have in their home country is going to be in the place they go visit, and it's not going to be there and not knowing what they're going to do. And then they figure out, what am I going to do? And one of the great things is, we said that we would come up with Grab a way that a person can use the Booking.com app and in a seamless way can get a ridesharing without having to download another app, without having to put a credit card into something that they're not familiar with, and it will be seamless and a great experience. And I mentioned last quarter how we've gotten that up and running in Singapore.

And the third thing, of course, we said we'd like to have a financial return on the money we invested. One of the things I mentioned last quarter was how, by the end of the year, I expected us to be able to have that Grab app operational on the Booking.com app by the end of the year for Indonesia and Thailand. And I'm very pleased that we are now actually operational in every single territory that Grab operates on the iOS platform. So it's just a great shout-out to the team who's been working on that, and thank you guys for getting that done ahead of schedule and really pushing that through.

We'll be operational for Android, I think, in 2 to 4 weeks, I've been told. And we're talking about, it's now beyond Singapore. It's Malaysia. It's Indonesia. It's Thailand. It's Vietnam. It's Cambodia. It's Philippines. It's Myanmar. It's everywhere that Grab is. And I tell you, I've seen this used and it really is something that makes it so easy. You get off that plane in that airport and you just go to that Booking.com app and right away you can get that car to take you to the hotel. It's a wonderful experience. And we're also on the other side being able to show our hotel accommodations to more and more Grab customers, so good in all areas.

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Operator [39]

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Our next question comes from the line of Stephen Ju from Crédit Suisse.

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Stephen D. Ju, Crédit Suisse AG, Research Division - Director [40]

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Okay. So Glenn, I guess out of adversity can come opportunities. So in an environment in which folks are going to be really starved for business, are there any silver linings we should be thinking about in terms of Booking becoming a more important partner for your suppliers or being able to onboard more supply for the future? And I guess for the integrated travel experience as well as the rollout of your own payment rails, you are talking about transforming what the Booking.com experience has meant for the consumer for some time now. So do you feel like you have to retrain them to look for non-hotel products or pay upfront? And do you think you need to incur some cost to bring up that awareness?

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Glenn D. Fogel, Booking Holdings Inc. - President, CEO & Director [41]

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So nobody, nobody wants their business to succeed because of unfortunate events. Nobody hopes for that. But sometimes the events happen anyway and you do end up being a beneficiary of those events. Companies that are stronger when they enter into a bad period emerge even stronger. And in this industry, I've seen it happen over and over again. There is no doubt, I've talked in the past about potential recessions and what would happen in a recession and why I believe that would make us more valuable to suppliers so that they would use us more to get demand because they needed it more. And you have pointed out what could be a very unfortunate thing for many players in our industry. So yes, silver lining is one way to describe it. I do believe that in the long run we will emerge from this in a much better position, a stronger competitor, and we will end up being better off, though, of course, no one would ever hope for that to happen under that way.

In regards to the consumer, consumers are amazing how they learn very rapidly how to save money, get value when they see a new app. And it's interesting. You don't even see announcements of them in different products many times. It's just you're playing around with it and you see it. Now we, of course, will be using all sorts of marketing methods to get and make sure our customers are aware of the better way to do your travel planning, your travel execution, but I am not concerned at all that when we have that better product, I am not concerned that people won't know about it. People will know about it.

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Operator [42]

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Our next question comes from the line of Doug Anmuth from JPMorgan.

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Douglas Till Anmuth, JP Morgan Chase & Co, Research Division - MD [43]

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Just wanted to ask 2. First, you talked about the 15% of Booking.com bookings using the payments platform. Can you just talk a little bit more about what you're seeing in terms of conversion rates and speed to book and then other metrics that you may look at in payments? And then secondly, Glenn, you mentioned wanting to expose flights ultimately to 50% of your customers. Just curious why that's the number, kind of why you'd stop there?

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Glenn D. Fogel, Booking Holdings Inc. - President, CEO & Director [44]

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Well, we wouldn't actually stop there. That's just my target for this year. We do intend to have 100% of the people eventually be exposed to it and we want 100% using it. It takes time because of regulatory licensing things. It's not as though you can just immediately just start selling airline tickets everywhere. That takes time to get your licenses in certain jurisdictions. And David?

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David I. Goulden, Booking Holdings Inc. - Executive VP & CFO [45]

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Yes, let me just characterize a little bit of what we're seeing on the payment platform and why we think it's very important, both now and in the future. So the benefits come in different areas and they're multiple and sometimes they are additive. So in some cases, just offering people payments in different methodologies, payments in currency of their own choice or payment processor of their own choice would be to offer a Chinese customer to pay in Alipay, WeChat Pay or something like that. Just offering that payment choice, even if the underlying hotel product is the same, we have seen conversion increases, even if people don't use that choice. It's a bit like offering something in a local language. And of course, we offer our site for local languages. The fact you offer something and present it in some of these native language or in this case, you give them a payment choice that they recognize is actually something that by itself will help with conversion, and we can demonstrate that, that does, albeit a small amount if they don't use payments. And then, of course, if they do use payments, it helps a little bit more.

So you do get some conversion benefits, but the other thing the payment platform will let us do as well is we can also, as Glenn mentioned, we can start participating in the pricing process via merchandising more proactively. So we can offer, basically, Booking.com can get involved in that and offer Booking-sponsored benefits or other offers to the customer that you can only really do if you are participating as a merchant and you're taking the payments on behalf of the property and passing it through.

So the other thing that the payment platform also will do, it will help bridge a gap between a customer and the property in terms of customers can pay in, in their payment platform or their payment currency of choice and we can pay out to the property partner in their payment currency of choice. So for example, again, the hotel in Italy or in Paris may not take all the payment methods that we offer to our Asian customers, and we can give them virtual credit cards in, for example, a Mastercard or a Visa format. So there are all sorts of different benefits from the payments platform.

Another one I talked to you about that helps in the business as well is that the agency model, of course, leaves the payment process open to the customer to deal with the property and vice versa. And we actually get a lot of our customer service request calls are to do with things that go wrong somewhere or were not expected in that equation between the property and the customer where we're not participating because we're just being agents providing the booking. So we find if we manage the payment process, we can reduce the number of customer service incidents around a payment question and actually increase the overall satisfaction and experience of both the customer and the property partner.

So there are many benefits of the payment platform. As I said, I mentioned a few. In some cases, you get all of them in one transaction. In some cases, you only get one, but it's something that we are developing rapidly inside of Booking.com. Of course, we got a lot of experience in payments in both Agoda and in Priceline so we're taking leverage of that capability where we've already seen those benefits occur.

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Operator [46]

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Our last question comes from the line of Heath Terry from Goldman Sachs.

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Heath Patrick Terry, Goldman Sachs Group Inc., Research Division - MD [47]

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Great. You called out specifically the January 21 date as the one where you've sort of started to see the headlines for coronavirus. Wondering if you could share with us sort of where your expectations were then for bookings growth in the quarter just to get a better sense of sort of where the magnitude of the shift between then and where we are now. And then also as we think about sort of where you're seeing the divergence in bookings growth and room night growth continuing and spreading. I know in the past, you've talked about, obviously, that being a function of cheaper ADRs. Just wondering if maybe you could get a little bit more into detail with us on that as far as how much of that is geographic, how much of that is, you believe, customers continuing to downshift to cheaper rooms and how much of it might be an access to inventory issue as hotels look to retain more of their compression nights for their own platform.

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David I. Goulden, Booking Holdings Inc. - Executive VP & CFO [48]

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Sure. Let me take those in reverse order. So the ADR question, probably the best place to go is back to Q4 because we were operating, obviously, in a business as usual type environment. And without going through a long explanation because we gave a fairly long explanation to what's happening to ADRs and why we saw that ADR reduction in the fourth quarter, bear in mind, part of it is because we were lapping a rather unusual increase a year ago, so the 4 really became a 3, if you normalize that. And then we saw basically half of that decline due to lower rates in the key countries, which were like U.S., Japan, Hong Kong. Of course, again, on a pre-virus model and some of that was macro. About half of the decline in ADRs was due to a shift towards lower ADR countries. Again, some of that was also macro because some of the higher ADR countries got very expensive from an FX point of view. So when we go back and look at Q4 and look at Q3, we saw basically 2 points of normalized reduction in ADRs in Q3 and 3 points in Q4. We believe about half of that was kind of macro and half of that was mix-related going forward. So hopefully, that gives you a little bit of flavor as to kind of what's going on. Going into 2020, we expected the ADR reductions to be down to a couple of points, again, on a pre-coronavirus basis basically, just assuming that the macro piece of that continued with a little bit more in the first half and a little bit less in the second half due to lapping effects of what we saw occurring last year.

And just to go back to your very first part of the question. Just like we try not to give specific guidance for where we were for the year pre the coronavirus, and we did give you, I think, a fairly good flavor as to how we thought the business would operate during the year pre the coronavirus, we try not to get into a lot of bridging exercises between where we were Q1 before and afterwards. For what it's worth, I can tell you that we were tracking nicely ahead of our internal expectations for the first 3 weeks in January, but that's only a 3-week period of time. So take it for what it's worth, but we were running slightly in front of the expectation we had for the year, which I outlined relative to when we talked about 2019 and where we expected things to continue into 2020. I don't want to get into a specific, we thought room night growth would be X and now it's Y because we can never really compare against that hypothetical growth. We were comfortable with where the year was shaping up. We felt good about the profile of business we talked about in 2020 relative to what we saw in 2019 and the business model continuing. And hopefully, that gives you a flavor you can have, really come to your own conclusion as to what it was. But we're pleased with how things were shaping up going into '20 and the shape of '20 as we looked at the full year.

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Glenn D. Fogel, Booking Holdings Inc. - President, CEO & Director [49]

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So this concludes the remarks. And I just want to end by saying in summary, our 2019 performance met some important financial and strategic goals. And I'm very pleased about the steps we have taken to date to provide more value to the customers and our supply partners, and we look forward to doing more so in the future. And we're going to manage through the current travel environment, and I am very confident in our long-term prospects.

And finally, I want to thank our supplier and marketing partners, our more than 26,000 employees distributed across more than 300 offices and a very special thank you to a subset of those 26,000 who over the last couple of months had been working so hard in this environment. I want to thank them very much. And most of all, I want to thank our traveler customers who are out there exploring the world. Good night.

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Operator [50]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.