Booking Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 23, 2023

There are 8 speakers on the call.

Operator

Welcome to Booking Holdings 4th Quarter and Full Year 2022 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. That, therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward looking statements. That expressions of future goals or expectations and similar expressions reflecting something other than historical fact are intended to identify forward looking statements.

Operator

For a list of factors that could cause Booking Holdings' actual results to differ materially from those described in the forward looking statements, please refer to the Safe Harbor statements 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 takes no obligation to update publicly any forward looking statements, whether as a result of new information, future events or otherwise. That 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.

Speaker 1

Thank you, and welcome to Booking Holdings 4th quarter conference call. That I'm joined this afternoon by our CFO, David Gould. I am pleased to report a strong finish to 2022 as we delivered 4th quarter revenue and adjusted EBITDA of approximately $4,000,000,000 $1,200,000,000 respectively, which were both ahead of our previous expectations. Room night growth versus 2019 that 10% in the 4th quarter improved from 8% growth in Q3. And for the first time, we saw room nights across all of our major regions above 2019 levels for the quarter, which was another important milestone for our recovery.

Speaker 1

That the growth trends have further strengthened in 2023 with January room nights up 26% compared to 2019 or up about 60% year over year. We're encouraged by the continued strength and resiliency of travel demand last year and into the New Year, that we speak to consumers' strong desire to travel. However, as we stated last year, month to month trends can be volatile, that And we recognize that there is uncertainty regarding the future path of the world economy. David will provide further details on our 4th quarter results and on the recent trends we have been seeing in 2023. Looking back at the full year of 2022, that I am proud of our company's performance during what was a challenging and very competitive environment.

Speaker 1

Our customers book an all time high of nearly 900,000,000 room nights on our platforms in 2022, which was an improvement of 52% versus 2021 and 6% higher than in 2019. Gross bookings of $121,000,000,000 that exceeded the $100,000,000,000 mark for the first time in our history and increased 58% versus 2021 26% versus 2019 or 73% 36% on a constant currency basis. That these record levels of room nights and gross bookings were achieved despite travel restrictions still in place that's in many parts of the world at the onset of 2022. And I note that most of Asia did not begin to open until towards the end of the year, and Russia's invasion of Ukraine negatively impacted our business. In terms of our PML last year, we reached a new revenue record of slightly more than $17,000,000,000 which was 56% higher than 2021 and 13% higher than 2019 or up about 71% 24% on a constant currency basis respectively.

Speaker 1

We achieved this strong top line result while improving our profitability with adjusted EBITDA of $5,300,000,000 increasing 82% versus 2021 and margins expanding by 4 percentage points year over year. Adjusted EBITDA was 10% below 2019 levels. However, on a constant currency basis, it was actually 6% higher after accounting for the FX headwinds we faced in 2022. I believe these results demonstrate that we are making significant progress against our goal to that we build a larger and faster growing business that generates more earning dollars than it did prior to the pandemic. That while there's more work to be done to achieve this long term goal, I am encouraged by the progress we have seen so far.

Speaker 1

That Regarding our long term outlook for travel, we are pleased with the positioning of our business and are positive about the future. That this coupled with our strong balance sheet led us to return $6,500,000,000 to shareholders during 2022 that we are currently in the range of $1,000,000,000 by purchasing our shares. At year end, our share count was 8% lower versus the prior year and returning capital to shareholders will remain a high priority for the company going forward. David will provide further thoughts on our approach in his remarks. In addition to our strong financial results in 2022, we made meaningful progress against the key strategic priorities that I highlighted on our earnings call 2 years ago.

Speaker 1

These are expanding payments at booking.com, building out our connected trip capabilities and strengthening our position in the U. S. Market. Let me address the progress we've made in each of these areas. That On payments, in the 4th quarter, we processed 42% of Booking.com's gross bookings on a merchant basis and are pleased with our progress in this area.

Speaker 1

As mentioned in the past, moving Booking dotcom's mile from agent that Merchant drives important benefits for both our supplier partners and our travelers. For our supplier partners, that offering a payment solution adds value in several key ways, including providing access to additional traveler demand by enabling alternative payment methods, reducing cancellations, decreasing operational workloads and enabling fraud protection. That for our travelers, Booking dotcom's platform allows many consumers to pay how they want to pay and we believe ultimately helps deliver

Speaker 2

that we have a more seamless and frictionless booking experience.

Speaker 1

On the connected trip, our long term vision is to make booking and experiencing travel easier, more personal and more enjoyable, while delivering better value to our traveler that customers and supplier partners, we've expanded our offering into travel verticals other than accommodations with a focus on flights. And in the future, we will work to link relevant travel components together to provide a more seamless and flexible booking and travel experience. We believe that as a result of this initiative and the improved consumer experience, we will drive increases in customer engagement and loyalty to our platform over time. We've continued to make progress on further developing our flight offering on booking.com, Which is now available in over 50 countries. This flight offering gives us the ability to help our consumers book another important component of their travel in one place on our platform and allows us to engage with potential customers who choose their flight options early in their travel discovery process.

Speaker 1

We continue to see that over 20% of all of our flight bookers globally are new to Booking.com. We will continue this important work to provide our customers the best possible trip experience we can offer. In the U. S, both our Priceline and Booking dotcom brands continue to execute well And contributed to U. S.

Speaker 1

Room night growth of almost 30% and gross bookings growth of about 60% in 2022 versus 20 that we have grown our U. S. Business to be meaningful larger than it was prior to the pandemic. That we believe that our growth rate has outpaced the recovery in the broader market for U. S.

Speaker 1

Accommodations, which means we believe we gained market share. That At Booking.com, we've taken steps to improve our offering in the U. S. By utilizing marketing to improve awareness of our brand, that we are introducing and ramping up our flight department, scaling adoption of payments and working closely with our accommodation partners to ensure we are delivering incremental value to them. We are encouraged by our achievements in strengthening our positioning in the U.

Speaker 1

S, that there is much more work ahead as we continue to execute against this priority over the long term. In terms of our core combination business, we continue to drive benefits for our traveler customers and for our supply partners. For our supply partners, that we strive to be a valuable partner for all accommodation types on our platform by delivering incremental demand and developing the product and features to help support their businesses. For example, as I mentioned earlier, payments brings an important benefit to our partners. That In the area of alternative accommodations, Booking.com alternative accommodation room nights for the full year grew about that 50 6% versus 2021 and about 11% versus 2019 and represented about 30% of Booking.com's total room loans.

Speaker 1

During the year, we made progress with our alternative accommodation offering for the full spectrum of property types by rolling out an enhanced payment solution for professionals, launching partner liability insurance, introducing a damage policy and piloting request to book functionality, which is an important feature for some individual partners. We have seen improvements In the time to first booking and better retention rates for new partners. At the same time, we are incorporating our alternative accommodation offering in some of our recent brand advertising to help raise awareness customer awareness of this product. We aim to build on this progress by continuing to improve the product offering to our supply partners and travelers, particularly in the United States. That we remain focused on building a better experience for our customers and increasing loyalty, frequency, spend and direct relationships over time.

Speaker 1

That our mix of customers booking directly on our platforms reached its highest level ever in the 4th quarter. That our goal over time is to further increase our direct mix through several initiatives, including continued efforts to enhance the benefits of our Genius Loyalty Program, further building out our connected trip vision to increase engagement with our customers and driving more of our customers to download and utilize the mobile app. The mobile app is an important platform that it allows us more opportunities to engage directly with travelers and ultimately we see it as the center of our connected trip vision. About 45% of our room nights were booked through apps for the year, which is about 13 percentage points higher that 2019. For 2022, Booking dotcom's app remained the number one downloaded OTA app globally that for the first time moved into the number one position in the U.

Speaker 1

S. According to one of the leading third party research firms. We will continue our efforts to enhance the app experience to fill on the recent success we have seen here. That we believe providing attractive prices on accommodations is very important as we aim to deliver value to our travelers. That our first priority as we think about providing attractive prices is to work directly with our supply partners to source competitive rates.

Speaker 1

In addition to sourcing competitive rates directly from our partners, we have built up our ability to selectively offer discounts and incentives at booking.com over the last few years. This ability to merchandise is another lever that we can now pull as we look to deliver value to our customers when we cannot directly access the most competitive pricing. That we have been pleased with the levels of incremental return we have seen in 2022 from merchandising and will continue to selectively utilize this tool going forward. In conclusion, I am encouraged by the progress our teams have made in delivering strong results in 2022 while executing against our key strategic priorities. These initiatives will help us deliver a better offering and experience for our customers and partners, which strengthens both sides of our marketplace.

Speaker 1

We are as confident as ever in the long term growth of travel and the opportunity ahead for our company. Now before I turn the call over to David, I want to share the news that David has let us know that he plans to retire from his role as CFO in early 2024, after which he will be involved with us for up to 2 more years to help initially with the transition and then with other projects and initiatives as needed. That as you can see by this timeline, he's not going anywhere for quite some time. So now let me turn the call over to David. David?

Speaker 3

Thank you for those comments, Glenn. And as you said, I'm not going anywhere for some time. Over the next year, in my CFO role and when involved beyond that, I will remain as focused as ever on continuing to help deliver strong results from the business and creating value for our stakeholders. Now turning to our results. I'll review our results for the Q4 and provide some color on the trends we've seen so far in the Q1 and our thoughts on 2023.

Speaker 3

All growth rates for 2022 are relative to the comparable period in 2019 unless otherwise indicated. That all growth rates for 2023 are on a year on year basis, unless otherwise indicated, but we will be making some references to the comparable period in 2019 where we think these are helpful. Information regarding reconciliation of that non GAAP results to GAAP results can be found in our earnings release. Now on to the Q4. We were encouraged to see room night growth of 10% in the 4th that for the Q4, the U.

Speaker 3

S. Was up more than 35%, rest of world was up more than 10% and Europe and Asia were both up mid single digits. Q4 was the 1st quarter of room night growth in Asia versus 2019. That growth in total room nights

Speaker 1

on a year

Speaker 3

on year basis increased from 31% in Q3 to 39% in Q4. That our mobile apps represented over 45% of our total room nights in the Q4 and about 45% for the full year. That we continue to see an increasing mix of our total room nights coming to us through the direct channel. The direct channel increased as a percentage of our room nights in the Q4 and for the full year relative to 2021 2019. The international mix of our total room nights in Q4 was about 48%, which was higher than Q3, but still a few percentage points below Q4 2019.

Speaker 3

That our cancellation rates were slightly above 20.90 levels in Q4, but were slightly below 20.90 levels for the full year. That in Q4, the booking window at boogie.com remained shorter than in 2019, similar to what we saw in the Q3 of 2020 that this booking window expanded meaningfully versus the Q4 of 2021, when we saw that we have a higher mix of near term bookings during the COVID-nineteen omicron variant wave. That For alternative accommodations at booking.com, our room night growth rate was about 15% in Q4 versus 2019 And the global mix of alternative accommodation room nights was about 29%, which was a couple of percentage points higher than Q4 2019 And Q4 2021. Q4 gross bookings increased 32% that versus 2019 or 47% on a constant currency basis. The 32% increase in gross bookings was 22 percentage points better than the 10% room night increase due to 29% higher accommodation constant currency ADRs and also due to 5 points from strong flight bookings across the group, partially offset by 15 percentage points of negative impact from FX Movements.

Speaker 3

Our accommodation constant currency ADRs benefited by about 1 percentage point from regional mix and about that 28 percentage points from rate increase across all our regions. Despite the higher ADRs in the 4th quarter, we have not seen a change in the mix of hotel star ratings being booked or changes in length of stay that could indicate the customers are trading down. We continue to watch these dynamics closely. L and TIGS booked in the 4th quarter were up about 2.49% that this is a small base in 2019 and up about 61% versus 2021 driven by the continued expansion of Booking.com's FlyteProd. That revenue for the Q4 was up 21% versus 2019 and up about 35% on a constant currency basis.

Speaker 3

That revenue as a percentage of gross bookings was about 130 basis points below Q4 2019 and was about in line with our expectations. That underlying accommodation take rates were about in line with Q4 2019 levels. That marketing expense, which is a highly variable expense line, increased 32% versus Q4 twenty that 2019, marketing expense as a percentage of gross bookings was very in line with our expectations and with Q4 2019. That sales and other expenses as a percentage of gross bookings were up about 40 basis points compared with Q4 2021 and was in line with our expectations. That about 42% of boogie.com's gross bookings were processed through our payment platform in Q4, up for about 30% in Q4 2021.

Speaker 3

Our more fixed expenses in aggregates were up 24% versus Q4 2021, that non GAAP net income of $957,000,000 results in non GAAP EPS of about $25 a share, which was up 6% versus Q4 2019. On a GAAP basis, we had net income of over $1,200,000,000 in the quarter, which includes a $240,000,000 that pretax gain related to sale of our office building for Booking.com's future headquarters in a sale leaseback transaction as that Wells has $179,000,000 unrealized gain in our equity investments primarily related to Metron, Didi and Grab. That we're looking at the full year, we're pleased to report that our 2022 room nights were 6% higher than 2019 and our gross bookings were 26% higher And about 36% higher on a constant currency basis. Our full year revenue was over $17,000,000,000 which is 13% above 2019 and up about 24% on a constant currency basis. Full year revenue as that the percentage of gross bookings was 14.1% in 2022, which was lower than the 15.6% in 2019 due to almost a full point in negative impact on timing, about 40 basis points from the slow recovery in advertising and other revenues, which have no associated gross bookings that we are at about 30 basis points from an increased mix in flights.

Speaker 3

The benefit of take rates in 2022 from increased revenue from payments was offset by our increased investments in merchandising, each of which impacted our reported take rates by about 1 percentage point in 2022 compared to about 0.5 percentage points each in 2019. These changes in payment revenue and merchandising costs versus 2019 are mainly at booking.com. Our full year adjusted EBITDA was about $5,300,000,000 which was 10% below 2019 and up about 6% on a constant currency basis. Adjusted EBITDA margin was 31%, which is 4 points higher than our EBITDA margin in 2021 and better than our expectations for a few points higher at the start of the year. That we are now on to our cash and liquidity position.

Speaker 3

Our Q4 ending cash and investment balance of $15,200,000,000 was up that This is our Q3 ending balance of $11,800,000,000 driven primarily by the $3,600,000,000 bond offering we completed in Q4, that the $2,100,000,000 of free cash flow generated in the quarter and about $600,000,000 in proceeds from the sale leaseback transaction I mentioned previously. That this increase in our cash balance was partially offset by about $2,300,000,000 in share repurchase in Q4 and by the payment of about $780,000,000 for a November debt maturity. For the full year 2022, we generated almost $6,200,000,000 in free cash flow, which was 35 38% higher than in 2019. We repurchased over $6,500,000,000 of our shares in the year and reducing our year end share count by about 8% versus 2021 And by 22% over the last 5 years. We are proud of this accomplishment because it reflects both our commitment to return capital to shareholders and how carefully we've managed our stock based compensation expense and its dilutive impacts.

Speaker 3

We continue to see many publicly traded companies pro form a out the very real expense associated with stock based compensation. We strongly disagree with this approach and therefore every profit metric we report includes the negative impact of stock based compensation expense. We view SVC expense as a very real cost of doing business, a cost that every stakeholder should fully count when that we're evaluating the performance and returns of our business or any business. If anything, we view SBC dollars even more valuable than cash dollars because of our long term expectation that dollars worth of stock today will be worth more in the future. It's the same expectation that serves as a rationale for pursuing our share repurchase program, a program that has meaningfully reduced our share count over time and has not just that offset dilution from SBC.

Speaker 3

Simply offsetting dilution does not represent a return on capital to shareholders, that it actually represents a cash drain on a business that does not be accounted in many companies' pro form a reporting of profits. That in 2022, our stock based compensation resulted less than 0.7% of shareholder dilution. That during the last 5 years, it's resulted in less than 3% of cumulative dilution. As I mentioned, during the same period, we reduced total share count by a net 22%, inclusive of the shares that were added as a result of our stock based compensation activities. That our future practices will continue to be guided by the same two philosophical approaches that guide us decades, namely, number 1, the stock based compensation counts and 2, that our stock repurchases, 1st and foremost, are meant are actively meant to return capital to shareholders in the form of share count reductions.

Speaker 3

In January, we started to sell down our investment in Methuan that we completed the sale of our position in February. Total proceeds of $1,700,000,000 from the sale represents a $1,200,000,000 that we have over 2 50% increase in the value of our original investments. On an after tax basis, we expect this to increase our available cash position by about $1,400,000,000 Our business partnership with MedtWAN continues. As we think about our capital structure and allocation framework going forward, we are focused on growing returns for our shareholders whilst appropriately investing in our business and maintaining our strong investment grade credit ratings. That we will target maintaining a gross leverage ratio of about 2%, which is about in line with historic levels.

Speaker 3

That On a net leverage basis, we will start to run the business with negative net leverage. However, we plan on moving gradually to a position of positive net leverage, targeting about 1x net leverage over time. We believe managing our capital structure with these targets will allow us to maintain our strong investment grade credit ratings whilst also generating additional capacity for returning capital to shareholders as our EBITDA increases. That given these considerations and our current outlook for the business, we expect our annual total return of capital to shareholders to be at least equal to our free cash flow over the next few years. In 2019, we started the year with $4,500,000,000 remaining under our share repurchase authorization that was approved in the prior year and in the Q2 2019,

Speaker 1

our Board

Speaker 3

of Directors approved a new $15,000,000,000 authorization. That Since the start of 2019, we repurchased the full $4,500,000,000 under the prior authorization and have repurchased $11,100,000,000 under the that the $15,000,000,000 authorization, leaving us with $3,900,000,000 remaining at the end of last year. We're announcing today that our Board of Directors that we will begin utilizing after we complete the current authorization. We expect to complete the share repurchases of the cumulative $24,000,000,000 authorization within the Before I turn to 2023, I'd like to remind you we'll primarily compare 2023 with 2022. However, there will be some periods where a comparison to 2019 will be helpful to better understand the trends in the business.

Speaker 3

For example, that comparing January 2023 versus 2019 helps avoid the distortion created by from comparing to January 22, Which was negatively impacted by the Omicron variance. As you recall, our January 2022 room nights were 21% below 2019, but it's quickly improved and February was in line with February 2019. To now answer recent trends and our thoughts for the Q1 of 2023. In January, we booked that over 95,000,000 room nights, our highest monthly amount ever and about 10,000,000 more room nights than our previous monthly record set last May. That Jeremy, 20 20 2 room nights were up 60% on a year on year basis.

Speaker 3

This compares to Q4 2022 room night growth of 39% on a year on year basis. When comparing January 2023 with January 2019, Brunei's were up 26%, a very nice improvement from the 10% growth in the Q4 of 2022. That this improvement in growth rates versus 2019 from Q4 January was driven primarily by Europe, that Rest of the world and Asia, January room night growth versus 2019 was about 35% in the U. S, that over 25% in Europe and rest of the world and over 20% in Asia. In January, we saw lower cancellation rates versus 2019.

Speaker 3

Additionally, we've seen the booking window fully normalize back to 2019 levels in January. That in some regions it has expanded as we see a healthy mix of near term bookings as well as bookings for stay late in the year. That we also continue to see no change in the mix of hotel star rating levels being booked or changes in length of stay that could indicate that customers are trading down despite ADRs continuing to be higher than in 2019. The average length of stay for transactions booked in January continued to be a bit longer than it was in 2019. January likely saw some benefit from bookings that were made in the month instead of December last year or potentially later in this year, this may indicate that room night growth could moderate from these levels going forward that some of these booking pattern differences normalize.

Speaker 3

On a year over year basis, January Group's bookings were up 74% or up that we are now at 83% on a constant currency basis. The 74% increase in gross bookings is 14 percentage points higher than 60% room night growth due to 13% higher constant currency ADRs and also due to a few points from flights booking, partially offset by 9 percentage points of negative impact from FX movements. Gross mortgages in January were up 55% versus 2019 that were up 72% on a constant currency basis. While there continues to be uncertainty around the month to month trends, our comments for the Q1 made the assumption that room night growth for the full quarter will be over 30% year on year. Compared to 2019, this will be just over 20%, assuming some moderation in growth from what we've seen over the last few weeks.

Speaker 3

We expect Q4 gross bookings to grow about 4 percentage points faster than room nights on a year on year basis due to about 6% higher constant currency ADRs and a couple of points from continued flight bookings partially offset by about 6 points a third from FX. That we expect Q1 revenue as a percentage of gross bookings to be about 10.3%, a 40 basis points improvement from Q1 2019 due to a less negative impact on timing, partially offset by increased investments in merchandising and a higher mix of flights. That we expect Q1 marketing expense as a percentage of gross bookings to be slightly lower in Q1 than in Q1 2022

Speaker 1

due to

Speaker 3

the increase in direct mix. That marketing and merchandising combined as a percentage of gross bookings in Q1 will be a little higher than in Q1 2022, that for the full year, we expect them to be about in line with last year. We expect Q1 sales and other expenses as a percentage of gross bookings to be about 30 basis points higher that we expect to continue to expect to be in the range of $1,000,000,000 in Q1, due to higher gross motion bookings mix and higher third party call costs, including the impact of our partnership with Major Elm. That we expect our more fixed expenses in Q1 to grow just over 20% versus Q1 2022 due to higher personnel and related expenses, that we expect indirect taxes and IT expenses. Taking all this into account, we expect Q1 adjusted EBITDA to be over $600,000,000 which represents a more than 93% increase versus Q1 2022.

Speaker 3

That as we think about the full year ahead, we're encouraged by the strong trends we're seeing in Q1 so far. However, we do expect that continued volatility in our top line trends, which makes it very difficult to predict how the top line will progress during the year and how the full year will turn out. Assuming a moderation in growth from current levels and taking into account the more difficult comparisons we move through the year, that our full year commentary assumes low teens gross booking growth versus 2022. That, of course, it's early in the year, but this is our best estimate at this point in time. For the full year, we expect our 2023 revenue as a percentage of gross bookings to be about 50 basis points higher than in 2022, which will result in year over year revenue growth that's higher that our year over year gross bookings growth.

Speaker 3

We expect the negative impact and timing to mostly go away in 2023 that we also expect that our payments mix will continue to add to take rates. After offsetting these, our continued increase in the mix of flights in our business an increase in merchandising spend versus 2022. We expect marketing and merchandising combined as the Central Group's bookings will be about the same as in 2022. We expect our more fixed expenses in 2023 to grow about 20%, which is similar to the growth last year. We expect these more fixed expenses to grow more slowly that we expect to deliver a record level of EBITDA in 2023, we'll continue to expand our EBITDA margins by a couple of percentage points versus 2022.

Speaker 3

That we are pleased with our Q4 results and the early trends we're seeing in 2023. That we remain confident that our strategic priorities will enable us to provide better services for our travelers and partners. We continue to remain focused on building a larger that we have pre COVID that delivers more and faster growing EBITDA dollars and more and faster growing earnings per share with industry leading that margins. We'll now move to Q and A. So Chris, can you please open the lines?

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer that your first question comes from Brian Nowak, Morgan Stanley. Brian, please go ahead.

Speaker 4

Great. Thanks for taking my questions. Congratulations, David. I have two questions. One sort of blocking and tackling 1 big picture.

Speaker 4

Just the first blocking and tackling 1, as you're thinking about that's the low teens gross bookings for this year. Can you just sort of walk us through how you're thinking about your best guess, your base case on ADRs around that model? Then the second one, kind of more big picture. There's a lot of discussions or speculation about search and potentially travel search it's becoming more sophisticated because of new AI tools. How do you think about Booking dotcom's position in that world and sort of the ability continue to grow the percentage of business that's direct if the search funnel becomes a little more comprehensive.

Speaker 4

Thanks.

Speaker 3

Okay, Frank.

Speaker 1

Thank you.

Speaker 3

Let me take the first one and hand over to Glenn for the second one. So Yes, there are a few puts and takes, obviously, as we think about the entire year. To answer your question, we expect that room night growth will be slightly lower than the low teens gross booking growth. We'll get a little bit of help from FX. That we'll get a little bit of help from flights, but we think that across the year as the ADR compare gets it's harder and we got more recovery in Asia that impacts GeoMx.

Speaker 3

We'll see a little bit of pressure on constant currency ADRs for the full year.

Speaker 1

Bryan, why don't I take the second one? Obviously, a lot of hype about that AI right now about generative IAI. I guess hype is a good word. We talk about where are we on the Gartner hype cycle right now. I'm not sure.

Speaker 1

That I don't think we're into that trough of disillusionment yet. I think we're still probably in the peak of inflated expectations, but There's no doubt this technology has to be accelerating all the time. And I think you may be limiting the question almost because it's not just that how is AI going to impact search down the road, it's just AI in general. And we've been talking about this for some time. That I happen to be listening to our call from 3 years ago and I talked about what we're doing at AI.

Speaker 1

I talked about our Tel Aviv Center. I talked about The things we're doing, how important it was to develop our machine learning capabilities and all the things that we do at Booking Holdings using AI to improve that we're presenting to our customers, working with our partners better using AI. So there's a tremendous amount of interest, of course, in all these areas that some of the stuff we see is very interesting, but I think it's going to take some time before there's going to be major changes in your specific question about search. That no doubt is going to make it better. In terms of your question, how are we going to be positioned for these changes?

Speaker 1

I think the best thing anybody can do is look back at the past. That there's been lots of technology changes since we first started our business over 20 years ago. And as those changes happen, we adapted and developed. That we did great when, for example, people went from just desktop to mobile. And we were very good coming out with these new team learning tools to be able to predict what would be best for a customer.

Speaker 1

I would say that our capabilities are as good as anybody else's that we will adapt and do very well with these new technologies. So I am confident in the future and I am not scared. I'm actually encouraged that we'll be able to use all these new tools to provide a better service for both sides of the marketplace.

Speaker 4

Great. Thank you both.

Operator

Thank you. Your next question comes from Mark Mahaney, Evercore. Mark, please go ahead.

Speaker 2

Okay. Let me ask 2 questions, please. The China outbound question, Glenn, just that will take a while, but that has been a massive market historically. I think it's the largest outbound travel market. I know it was a small single digit percentage, mid single digit percentage, whatever, back in 2019.

Speaker 2

Your thoughts on how to position the company to maybe better to tap into that now than you were able to a couple of years ago. And then is there another U. S. Out there? What I mean by that is that you've talked about leaning into gaining market share gains in the U.

Speaker 2

S. Is there another region where you think you kind of under punch your weight, if I said that right, and can also apply the U. S. Playbook to also gain better share in that market. Thank you.

Speaker 1

Thanks, Mark. In regards to China, obviously, a lot of excitement about China too, dropping restrictions in terms of being able to travel due to COVID, getting everybody very excited about what does that mean. And not just for travel, of course, just reducing those restrictions is that the increasing GDP in China and what that's going to do in terms of demand for all sorts of things and what's going to do to inflation And how it's going to impact the rest of the world economies. In terms of your specific question, you're correct. We were a small player in terms of the overall Chinese travel business before the pandemic.

Speaker 1

And in terms of the future, yes, there is an opportunity there and there are a lot of outbound travelers that we definitely are hoping that they can go outbound travel soon. I don't think it's going to happen nearly as quickly as I think some people have been predicting. When you look at some of the numbers out of January, it shows the amount of outbound airlift available was a teens number. I think maybe it was 15% of what it was in 2019 through the actual lift that you get out of China. So I think it's going to take some time for that.

Speaker 1

Now in terms of how we can take advantage of the increase that are that is going to happen in the future, we're going to use pretty much the same playbook we use pretty much everywhere, albeit China a little different because there's not Google there. But in terms of marketing and making people aware of all the great products that we offer and be able to be competitive at pricing, all things any consumer cares about whether you're in China, Europe, U. S, wherever in the world, we'll keep doing those things. I know it's not China is a very competitive market and it's going to take some time. And as we said, when we talk about our priorities, you'll note that we say U.

Speaker 1

S, I don't say China, but I would like to be able to say, look, we have been able to be successful in gaining market share in the U. S. Over the last few years. I think everybody see those numbers. So yes, we will try and do better than we did in the past in China, but I don't think anybody should start going to the bank any expectations of significant improvements anytime in the near term.

Speaker 1

What was your second question? What was that? That was my second question.

Speaker 2

No, no. Is there another U. S. So, is there not Europe, but is there another regional market where you think your market share probably isn't where you want it to

Operator

be and you can use

Speaker 2

that's U. S. Learnings to expand share in that market?

Speaker 1

Well, we want to increase our market share everywhere, of course. The reason we kept calling out the U. S, that the U. S. Is very similar to Europe in many ways, and we had noticed how under indexed we were there.

Speaker 1

That's not quite the same case when you look around the world, albeit except in China, which we've noted. We do fairly well in a lot of parts of the world, but there's nothing that we pull out separately and say, hey, here's another area we're going to really press hard to try and do better at. We can do what we've been doing throughout the world for a long time is gaining share everywhere.

Speaker 2

Okay. Thanks, Glenn. Thanks, Glenn, and congratulations, David.

Speaker 3

Mark, thank you. And just to add a comment, relative to what we're seeing that In January, we saw obviously a nice improvement in the Asia region compared to Q4. That is not being driven by China. That's being driven by the other markets In the Asia region, China is a small contributor to that improvement so far.

Speaker 1

Thank you.

Operator

Thank you. Your next question comes from Lloyd Walmsley, UBS. Lloyd, please go ahead.

Speaker 5

Thanks, guys. That If I heard you right, you talked to, I think, 50 bps of revenue take rate improvement this year. How much of that is kind of the timing headwind unwinding? What are kind of some other puts and takes we should think about impacting revenue take rates this year? And as we think about 2024 And growth continues to normalize.

Speaker 5

Is there another 50 bps intake rate just from that kind of timing unwind? You talked about the 1% headwind to 2022. And then, the second one, I guess, you've been picking up share in the U. S. For a while now.

Speaker 5

Can you talk about just how repeat business is coming in and specifically repeat direct is coming in as that kind of cohort of users starts to age in the U. S. And maybe how that compares to historical levels. Anything you can share there would be great. Thanks.

Speaker 3

Yes. Lloyd, let me take the first part of that. So I think I kind of went through a little bit of this in the commentary, but there's a lot of numbers in the commentary with all the comparisons Versus last year versus 2019, etcetera. So relative to the 50 bps of improvement this year, essentially, that The timing drag on take rates last year has basically gone almost entirely gone away. So there was that Yes, about a point of timing, last year that goes away.

Speaker 3

And also we get a little bit of an increase from that payments as payment mix increases. The offsetting amount to those that get you to the plus 50 is that we have continuing this year at the same level of merchandising we exited last year at, broadly speaking. So you get a year on year impact of merchandising that's a negative And flight mix as well. So that's how you get to the CAF plus 50 improvement from last year. So Your question on 2024 though, the timing impact has really gone away at this point in time, compared to 2019, a lot less of core growth rates change that much more than we expect during the year.

Speaker 3

So essentially, there are puts and takes along the lines of the same thing I talked about, that payments, merchandising, flights, etcetera. But we don't expect major changes in the take rate levels from where we are right now. You shouldn't be modeling big changes in to take rates because we have some things helping and we have some things kind of hurting and they're generally going to offset each other broadly speaking at this point in time.

Speaker 1

We don't go refill in terms of your question there, we're not going to be talking about in the U. S. Triggers, that's what you're asking for.

Speaker 5

Okay. Any directional sense of just how you're feeling about the aging cohorts Yes, in the market share gains you've had just broadly?

Speaker 1

No, I'm not going to get specific in terms of that. I just will say how pleased I am. We've been talking about it for some time on these calls about what we're doing in the U. S. And gaining share and the reasons that we're doing and how we're doing it.

Speaker 1

I'll just reiterate how pleased we are to be able to do that and we're going to keep on grinding away to continue to try and gain share. Okay. Thank you.

Operator

Thank you. Your next question comes from Justin Post, Bank of America Merrill Lynch. Justin, please go ahead.

Speaker 6

Thank you. Maybe one for David and one for Glenn. David, it looks like you're getting your EBITDA back towards the 33%, maybe 33.5% range this year in guidance, how do you think about where you are now versus pre pandemic and what are the levers going forward? And then Glenn, I think you said AA nights were about 29% of total and that's that's kind of flattish with last year. How are you thinking about your alternative accommodation business?

Speaker 6

And to the extent you can talk about it, obviously competitive concerns, What are your big initiatives for that business this year? Thank you.

Speaker 3

All right. Just let me take the EBITDA margin question first. So that if we have a couple of points to where we are in 2022 to

Speaker 1

hit to

Speaker 3

2023, The drivers between that and the difference between that and the 39 points we were at in 2019 are basically that A few things. One, we're leaning in more relative to marketing and merchandising than we did in 2019. That's very conscious to continue to gain share that In the recovery market, we've got the mix of lower margin businesses. We said that flights and payments will start to have an impact as they grow and they are making a part of the difference. That we've got some targeted OpEx investments in when you look at our total OpEx expense vis a vis 2019, that we've got DST and we've got FX.

Speaker 3

I mean, I'm not they're in a rough order of impact. That's how you kind of get to the 6 points of difference. So when you think about where we would go going forward from that, we do expect to be able to to increase our even down margins from this level. We're not trying to get back to COVID, pre COVID mine levels to be super clear, We do think there's still some growth potential from where we are right now. And the drivers of that, if you think of the things I just mentioned are the reasons we're down below versus 20 that 2019 now, the drivers that we think we can use to our advantage over time is that as our direct mix increase that that mix increases, we should be able to kind of lean in less in total to our marketing spend.

Speaker 3

We may lean in to the same level In absolute terms, on paid marketing, but paid marketing becomes a small part of the business. We do believe that over time, we can get more leverage on our fixed costs. But then we do expect that to be continued pressure from the lower mix from the high mix of lower margin businesses that will continue to grow. We believe that over the kind of medium term, we can still increase margins from where we are today in 2023, but again, not back to the 2019 levels.

Speaker 1

Regarding the alternative accommodation space, we are very pleased with what we're doing and growing. I mentioned in the prepared remarks some of the things that we did last year, and I will repeat them all, but those are the things that we're doing to make sure that partners, that suppliers will unappoint their properties to our platform. And that's the first thing. Then having done that and doing that right now is the idea how do we get the awareness. So you noticed, for example, our Super Bowl pad, where we did include the non hotel accommodation in that, made sure we continue to grow that of branding throughout the year to make sure people are aware.

Speaker 1

It's really it's not anything that is magic. It's making a product that people want to use And making the product that people who own properties want to put on our platform and then putting in the marketing to push it through. That It has increased it has not increased substantially over the years as our hotel product continues to build very rapidly too. We can have a big increase in this year of the alternative accommodations that we start growing so darn fast in the hotel area, but we're doing both. So that's the point.

Speaker 1

And our thing is we know, and this is really important. We know customers come to our site, come to our app, they start at one type of property and then they switch and they look at another one, another entirely different one and then they go back and they come back. We really believe having both types of properties, hotels and non hotels, in the same place that enables our customer To be able to compare interest and look at what they cost and look at the reviews makes for a better process for consumers over time. Look, we just cut a lot of this stuff out last year. And for example, I mentioned our request to book.

Speaker 1

We're still trialing that. We're that it's going to take some more time. I am very encouraged by where we are and where we're going. So I have no concerns about us continuing in the same direction.

Speaker 6

Great. Thank you, Glenn. Thank you, David.

Speaker 3

Thank you, Justin.

Operator

Thank you. Your question comes from Eric Sheridan, Goldman Sachs. Eric, please go ahead.

Speaker 6

Thanks so much for taking the questions. That Glenn, your comments around the competitive intensity that you faced in 2022, I'd love to look backwards is the first part of the question And sort of reflecting back on 2022, how you saw the competitive intensity of the industry broadly evolve against the backdrop where sort of pent up demand that was sort of a bit of a tailwind for the industry from a growth perspective. And as you look forward into 'twenty three and beyond, as demand somewhat normalizes away from the pent up dynamic, how should we be thinking about some of those key initiatives you're most focused on to sort of meet where you see pockets of competitive intensity against a more normalized demand environment. Thanks so much.

Speaker 1

Sure. Well, that The competitiveness was quite clear when you compare 2022 versus 2021. We had a very nice recovery in 2021 and we benefited From the fact that a lot of our competitors just didn't seem to be out of the gate so fast in terms of their marketing, in terms of what they're doing, whether it be brand performance marketing in terms of trying to get the same demand that we were out getting there. So in 2022, Also, we're putting full throttle on to get those customers. So that's what we saw.

Speaker 1

We saw it in performance marketing. So it's significantly increased the amount of money being put into brand marketing in lots of different ways that everybody wanted to make sure that they were out trying to get those that's what's the difference between 2020 1, 2022. That's when I speak about what a competitive market really was last year. So this industry has always been competitive. The wonderful thing about the way technology is developed is that it enables customers with very little friction to look at all the different ways they can do their travel.

Speaker 1

So we have to always be providing them with a great service, a great price so they will actually use It's one thing that I think some people don't recognize as much perhaps is that this is like every day we go out there and we fight for those customers. Yes, we have loyal customers, but we're well because we've bought them with a great service and great price. We got to keep on doing it to maintain their loyalty and we're going to keep on doing that. Now in terms of the future, that In terms of areas that I don't think it's going to get any less competitive, but I do think that we do have some advantages because of our great technology, because of the skill sets that we have to continue to try and advance this service better, so people do use it and they do say, hey, I'm going to go to Booking because it's just better. That we're going to have to keep on doing, but there's no magic bullet here.

Speaker 1

We got to do it every day.

Speaker 3

Great. Thank you, Glenn. That you're not going to be able to get

Operator

back to the line of John Colantoni with Jefferies. John, please go ahead.

Speaker 7

To take questions. So marketing efficiency moved back to 2019 levels in the second half of twenty twenty two after being much higher in the first half. And I realize some of that's just the timing of the recovery and sort of the transition to a more competitive environment that you just talked about in the prior question. But how are you thinking about balancing continued investments in customer acquisition with driving EBITDA dollars in 2023 along with the mix between sort of merchandising and marketing. So any detail there would be helpful.

Speaker 7

And then if you could give us that some more detail about how bookings so far in the core summer period have trended, that'd be great. Thanks.

Speaker 3

All right, John, let me answer both those questions. So, as I think you know, we took a conscious decision, especially in 20 22 to kind of lean into our marketing channels, the combination of merchandising and marketing. And collectively, they were a fair amount higher than they were in 2019 from a spend point of view. And that was a conscious choice and we believe that is reflected in the share gains we made not just in the U. S.

Speaker 3

But also globally. We're obviously we are recovered at a level much more than the travel industry is in total. When you look at occupancy rates and how they've recovered and you look at our room nights and obviously we're significantly in front of that. So We believe that has been a sensible investment. We as I mentioned in my prepared comments, we will keep the combined investment in marketing and merchandising in 2023 at about the same level as it was in 2022.

Speaker 3

Now during the year, we'll kind of look at what we think the right balance of merchandising versus marketing is. From the clients that I made, you would realize we probably that on average across the year compared to 2022, spending a bit more on merchandising, a bit less on marketing, but that could change during the year. We can't really think of the 2 together based upon the efficiency we see in each of the south. And we'll stay at that more elevated level because we believe the market is still recovering. There's still potential for share gains for us in our marketplace.

Speaker 3

So we can't really think of the 2 together. And if you kind of look at it versus 2019, it's a fairly sizable step up, but we think that's been a smart investment and a good investment that makes sense at least that this year we still see recovery in the travel industry. And if you remind me again please the second part of your question.

Speaker 7

2nd part was, if you could give any detail around summer bookings so far?

Speaker 3

Oh, yes. Thank you. So, summer bookings, yes. So, We have seen, as I mentioned, the travel window, the booking window recover completely on a global basis. But actually, that the booking window has now expanded a little bit in Europe and North America.

Speaker 3

It's still slow it was or shortly it was, I should say, in Asia. So that means that in Europe and North America, we're seeing strong demand for short term bookings, but also for summer bookings. So that we're seeing the summer booking season shaping up quite well. We're not going to go on repeat the count on the book type metrics we talked about last year. We think they perhaps that, of course, a bit of confusion, but more appropriate for a recovering environment.

Speaker 3

But you can see based upon the fact that we have strong growth in Unites, that we have now in those markets slightly lengthened booking windows, a strong growth in gross bookings then obviously that would certainly say subject to obviously the fact that things are cancellable and a high degree of our bookings are flexible, but it certainly looks like it's shaping up to be a strong summer season for us.

Speaker 7

Great. Thanks, David.

Operator

Thank you. Your next question comes from Kevin Kopelman, Cowen. Kevin, please go ahead. Thanks.

Speaker 5

So I want to ask about the flights initiative. Could you update us there what the outlook is for flights this year? And then also could you comment on the eTraveler acquisitions? Thanks.

Speaker 1

Sure, Kevin. So in the prepared remarks, to talk a little bit about the number of countries we have there. Obviously, we're very pleased where we are in terms of the growth of the number of tickets that we're selling now. That It's a very good product. We like it because as I mentioned people some people go to flights first, so we want to make sure they know who we are and then start buying from us.

Speaker 1

In terms of the acquisition, I can't how the world works with regulations, I have nothing comment on that. We continue to work with the people in the process and continue to work on that. But I will say I'm just so pleased. We look where we were again I listened to that call 3 years ago, the earnings call. And we had just 3 years ago, we talked, we had just gotten in 2019, the flights bit up off the ground, sorry about the pun, at Booking.com.

Speaker 1

And we're just starting to where we are now. I just love what the people have been able to build. I love the fact that people like it and are coming to us and we have high hopes for the future in this area.

Speaker 5

Thanks, Glenn. And then a quick one other quick one. As we think about year over year comps as the year goes on, is this fair to think of Q2 Has a pretty tough comp and then the second half is more normal.

Speaker 1

I'll let David talk about that if he wants to or not.

Speaker 3

Yes. If you look at year on year, then obviously the comps get harder when we get past Q1, right, Q1 is going to be the easiest comp on a year basis. And the toughest quarter on a year on year basis will be Q2. If you could remember, we had that kind of early peak in travel bookings in the May time frame last year as we have that it went through our nonlinear recovery. We all said it would be a nonlinear.

Speaker 3

So Q1 will be the easiest comp Q2 will be the toughest comp and Q3 and Q4 No, little in between.

Speaker 4

Great. Thanks, David.

Operator

Thank you. Ladies and gentlemen, that was final question. I will now turn it back to Glenn Fogle for closing remarks.

Speaker 1

Thank you. I want to thank our partners, our customers, our dedicated employees and our shareholders, we appreciate your support as we continue to build on the long term vision for our company. And I want to close by thanking everyone at Booking Holdings and everyone around the world who are contributing to help the people who have been so terribly hurt by the tragic events in Turkey and Syria. We have employees in Turkey and many more who have family and friends there, along with supply partners in the devastated area.

Speaker 3

That our

Speaker 1

hearts go out to all who are suffering there. Thank you and good night.

Operator

To thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect

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Earnings Conference Call
Booking Q4 2022
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