Booking Holdings Inc. (BKNG) Earnings Call Transcript & Summary

Thank you, everyone, for joining us. We are very happy to have Ewout Steenbergen, did I pronounce it right, I hope, for a little Q&A with Booking. Covered Booking, used to be Priceline for 18 years and have always appreciated the company and the access. So thank you so much for coming.

Maybe just to start, I know you're not new anymore, but you kind of came -- a little bit more on your background and what you love about Booking. Maybe just start there.

Yes, yes. So first of all, Justin, thanks for organizing, I think, a really great event. So I joined Booking now 15 months ago. And when I got the phone call from the search firm if I was interested, and I started to do a little bit of my homework, I thought this is a really fascinating company. It's really global. It's active in 220 countries around the world. It has a number of very strong brands. Obviously, the performance had been very strong. But then also, if you start to dive deeper into it, you notice the number of opportunities there are. And I think that's still -- now 15 months in, that's still how I feel very much today. It has, of course, grown so rapidly. The scale is incredible. And there are so many things that we still look at and say, commercially, these are opportunities. And just from a prioritization perspective, we haven't even gone after those in a really meaningful way. And we know that if Booking is going after opportunities and really puts a lot of effort and investments and management focus on it, it can really take off. I think we have proven that with flights. So we started to really focus on that the last 2, 3 years. And we are now one of the largest flight OTAs in the world. So that's, of course, incredible. We put out a number about attractions. That is a new area that we focused on. We said 92% growth in the first quarter year-over-year. Still modest pace, but it's just showing how much more we can do. So the list is actually quite long. I won't go through everything in the interest of time. But if you think about geographically, Asia is an incredible opportunity for us. We have 2 very strong brands there with Agoda and Booking.com. The next 5 to 10 years, there will be the largest growth of the travel industry in Asia. So very well positioned. We're a challenger in the U.S. So that gives us growth -- faster growth in the market in the U.S. in general. I was speaking about attractions, we have advertising. We can do much more with rides. We can do a lot with fintech. Alternative accommodation is already, of course, a very big business. Today, we're about 70% of the largest incumbent in that space, but we're growing faster than anyone in that area. So there's so many of those things. So that makes me so enthusiastic about Booking.

Great. This predated your arrival, but I think it still holds. You talked about 8% bookings growth kind of an algorithm around that multiyear. Maybe talk about some of the drivers that give you confidence in that number. And then how do you think about revenue take rates versus that bookings growth?

Yes. So we said indeed 8%, 8%, 15%, so at least 8% revenue growth and growth -- bookings growth and then 15% EPS growth. And we think those percentages are achievable. If you look first at accommodations, in general, the accommodations market is growing in line with GDP plus-plus. So if you think about GDP, plus there is more growth usually in travel than GDP because if people -- when people get more income, they tend to spend more on travel, exploring the world. So that is additive. Then if you add the shift from off-line to online, that's additive. And then we have all those growth initiatives that I was just mentioning and many more. So we think at least growing 8% from our top line metrics is therefore achievable. We're very focused on achieving leverage, leverage on the marketing side, leverage on the expense side. So that should bring us to low teens from an EBITDA perspective. We have a very active return of capital to shareholders through buybacks and dividends. We generate a lot of free cash flow, so that should get the EPS in the mid-teens level. So we feel very good about that framework. We have delivered on the framework, and we think that is a framework we can stand by for the next period as well.

Great. And I know you have a presentation on your site that's new, so people might want to check that out. But I think you talk in there about driving nights growth maybe above the hotel industry. So maybe talk a little bit about that as well.

Yes. So first of all, we are putting indeed more out there on the sites because we think creating a lot of transparency around our metrics and telling a story and having a narrative, I mean it's such a great company. So we have a great story to tell around the company. If you think about nights, indeed, we have several areas where we think there is that opportunity. First, if you think about alternative accommodations, alternative accommodations for the last multiple quarters have grown faster than traditional or core accommodations, how we call it. And we have seen that in each and every market around the world. And we have been growing faster than the largest incumbent in that space for 15 out of the last 16 quarters. So most likely, this is going to continue, that alternative accommodations is growing faster. There's clearly demand from our customers. We are putting traditional and alternative accommodations side by side on our platform so it's very seamless. People can look at both and then ultimately decide what fits in their situation the best. So that proposition is quite unique and -- so that is going to be helpful. Then, of course, our position in Europe is very strong. I think we have the benefit of being the go-to in Europe. People like us, trust us, go to our app. This is how they just look for opportunities to travel, book their opportunities, have it all in one platform. This is where they use their credit card. It's easy to adjust, easy to cancel, easy to book something else. So for Europe, we are so deeply embedded and we really have the benefit of being the go-to for travel for many customers, therefore, also a lot of direct traffic that we're getting. And then I already mentioned our challenger position in the U.S. That's a nice advantage of the largest travel market where we are trying every period to grow a bit faster than the market in general. That had -- is what we have been doing so far. And that will help to drive overall growth. And then Asia, as I mentioned, is another opportunity. So that's why we think there's -- even with our scale, it's not that -- and I know sometimes there is that perception of, well, because you are so large, therefore, your growth will be basically a proxy for the market growth. We are not believing in that. We think actually our growth opportunity is better than the market on average.

Got it. And I want to revisit your philosophy as CFO a little bit. It does feel to me like transparency is increasing and you're -- I don't know, any differences you're making on that front or investor outreach or anything to highlight?

Yes. First of all, I always like to meet our investors, I like to meet the analysts. You learn a lot. And they also keep you on your toes. So you better deliver on what you tell them in one period. You better deliver on it when you meet them the next time. So I think that's really important. I think really putting more out there from a disclosure perspective to transparency. Let me give you an example. I mean we have been talking for a long time about Connected Trip. But last year, we said, "You know what, let's put some metrics around it because otherwise, people don't know, is it purely a concept and it isn't there in practice? Or is it really already there?" And we said, "We are in the high single digits in terms of Connected Trip," meaning someone that purchases for one trip more than one kind of vertical. So it could be a flight and a rental car or an accommodation and/or -- and an activity. So that's an important one. And we said high single digits and it's growing every period something like 30%, 40%. And it -- we will continue to give those disclosures. So the benefit of that is we're not just telling what we are doing, we're not only explaining our strategy and our vision. But then if we can show that in the results, the actual results, it's showing up that all the efforts we put behind it and we can point our investors where it's showing up, I think that's a real benefit. So that's one part of the philosophy. Obviously, we're always careful that we're not in the end saying too much to make competition smarter. So when we speak about what are we exactly doing on performance marketing and our algorithms there, we have to be a little bit more careful. But yes, I think transparency generally is a positive. The other is I think the philosophy that we put out around, on the one hand, being very disciplined from an efficiency perspective, from a leverage perspective. We have the scale. We have the infrastructure. So we should have a positive differential between our top line growth and our expense growth. But then on the other hand, we also want to reinvest in this business. We are philosophically thinking about this business really from a medium- and long-term value-generation perspective. So that means that the resources we're freeing up on the one hand, we can really invest in growth initiatives, but those are very explicit initiatives that we then can track and we can monitor and we can report about. And again, the transparency around that. So you heard us saying this year from the productivity program that we announced in 2024, we realized $150 million in-year savings in 2025, but then we are actually reinvesting $170 million in 2025 in these growth initiatives. And then at the same time, we can also deliver margin expansion because of the general leverage we have also on other line items. So I think that's a good indication of running a disciplined company, reinvesting for the future and also delivering financial results for the shareholders at the same time.

Great. We'll get into margins, but maybe we'll start with some of the growth drivers that you are spending the $170 million on. So why don't we start with the advertising opportunity in sponsored listings? And I know you have a preferred partner program. And maybe touch on that a little bit and then how you see the advertising opportunity.

Yes. If you look at our income statements and the breakdown that we're giving in our filings, you see advertising revenues. So that is mostly coming from KAYAK which is, by definition, an advertising business. It's a Meta business. So we make money from referrals that we're giving to the underlying OTAs. And then also OpenTable is in that category. I think what you are referring to as well and where we also focus on as part of our investment program is really advertising, advertising on our platforms, on our apps and generating more advertising income. That is an area that is really an opportunity that we're only in the early stages in terms of building that out. We have some competitors that are much larger in that. Again, for us, that's an opportunity. That's just something that we can add on what we are doing today. So advertising is a part of our $170 million program. So we expect that, that will drive significant revenue growth in the future. And that will be more sponsored ads that we can add to our proposition to our customers, particularly because we have become so much a platform where people go to naturally. So that will be a big benefit. Obviously, you have to be always careful because if you go too far and you're annoying your customers, it will negatively impact conversion. So we need to always test to make sure that we're not pushing this too far. But at this moment, I think on the careful side so we can absolutely scale that up. And it's one of those opportunities that is on the top -- one of the items on the top of the list.

Got it. And then anything else in that $170 million to highlight to people that you're excited about?

Yes. So attractions is one that -- and we're highlighting the growth we're seeing there. We're focused on expanding in Asia. Asia, such an important market, but you have to localize in terms of payment options, in terms of UX, in terms of brand marketing campaigns. So this is one -- penetrating deeper in Asia is a very important one. Expanding the network of OpenTable. So OpenTable is doing very well, so a lot of energy into OpenTable at the moment. So we really want to expand the network, going to other geographical areas and really have more customers in -- more restaurants in our network that will drive, of course, more traffic in the future. Generative AI, there's a lot of generative AI investments that we are funding from that $170 million program. So those are a couple of those areas.

Got it. Let's dive into GenAI. And you had an announcement with OpenAI Operator. So how do you see the world of traffic coming to you? I don't know if you want to talk about Google shifting or anything related to the traffic. But why did you do that deal? And do you see a world where you're getting more AI-generated traffic?

Yes. I think like everyone else, no one can really predict where the GenAI world is going, ultimately, what will be happening with consumers and consumer preferences and who are ultimately going to be winners. So our strategy is actually to prepare for all the scenarios and to really anticipate on many different directions this might go. So what are we doing? First of all, from a foundational perspective, modernizing our technology infrastructure, our data environment, tokenizing our data so that our technology and data environment is ready really for an agentic world. That's one. The second is to think about where can we find efficiencies internally with generative AI. And there's many of those opportunities. I know many companies talk about it. But again, in the spirit of transparency and our management's philosophy, we actually like to point at, okay, here, investors, shareholders of the company, you can really see that showing up. So for example, what we're doing with generative AI in customer service. Think about our agents -- well, first of all, do you still need to speak to a human? I think over time, I think some of those large language models is incredibly human-like, very natural and that will -- for simple matters. You don't need to wait in line anymore. You get a better customer experience, faster and more efficient. For more complex matters, yes, you still mainly need a human agent but can find the information much quicker, doesn't need to spend the time writing notes afterwards. That's a big benefit. That's what we are going after. If you look at our sales and other line, that was a line that showed deleverage over last period. And that had mostly to do with the growth of our payments business and the cost we are incurring on the pay-in. But now what we are seeing is with the efficiencies on customer service, it's going in the other direction. So the sales and other line has moved from deleverage to basically neutral. And we'll, of course, continue to work on that. So that's an example in that second category of efficiencies. I think the third is what you are referring to with respect to the partnerships that we're building with all the hyperscalers, all the large language model developers because we think it's really important to be close to that world to understand what is happening, be their partner, doing joint product development. Because ultimately, those might become more leads-generating platforms, replacing traditional search. And we want to be there really close partners in that. So indeed, we were partner -- or we are partnering with OpenAI very closely, with Microsoft. Of course, we're having discussions with all others, including Google that, of course, now with AI mode is really pushing much harder in that area. We think that's -- over time, that will be a positive because now we are, of course, in traditional search very dependent on one player, but there will be many players out there. Most likely, they want to partner with us because they like a monetization option. They need a revenue model. They have spent so much CapEx on their developments, and we can provide that to them. And then the last thing to mention, the fourth area to mention is that we would like, of course, also to build our own travel-specific vertical agent because we want to make sure that customers are -- that are coming direct to us today will stay with us as direct customers. And they want to use our agent because this agent is the most knowledgeable about travel, has the most insight in your personal preferences. Your data is coming from a company that customer knows, trusts and know where to go to if something goes wrong. Yes, you can go to a generic agent. But if it goes wrong, where did it book ultimately your trip? And where should you go to if there is a problem? Or who is touching your money? So we can take care of all those trust factors because we have the relationship, the trust of our customers. So we're working on all of those, and then we'll see how things will play out from a scenario perspective over time.

Got it. One thing I think happens with AI and agents is they're going to be really -- things are going to become even more transparent, like they're going to find great deals and stuff like that. And I know your Genius program adoption is really growing. You gave some nice stats on that in your investor presentation. But how do you see that Genius program as an asset? I'd love to hear your thoughts there. And are you happy with what you're seeing there?

Yes. We're very happy. We now have mid-50% of our bookings coming from Genius tier levels 2 and 3, so the 2 highest tiers, which is more than half of our bookings. That's really great. But we're not really looking at this just on a stand-alone basis. So we're seeing it more a part of our overall ecosystem proposition. So what we are seeing is in general, customers coming more direct to us, we see them coming more frequently to us. So more times per year, they do their bookings with us. We see them booking across more verticals. So in the past, maybe only for a hotel, now they do a hotel and alternative accommodation. And next time, they say, "Oh, I can also book a flight. Oh, it's actually was a good experience." And they come back again for that. So we see that. Then we see them doing those connected trip or multi-vertical transactions for one trip. So moving up in the loyalty status level from Genius, getting more economic benefits coming out of that, and therefore, coming back more frequently and they do it more and more on the app. So all of that hangs together. It's all correlated to each other. So we're not really looking at loyalty as something that's standalone. It will become more and more important because -- if I can quickly add it back to GenAI, GenAI is, of course, opening up the world of a real connected trip in the sense of logic between what you're booking, what you have done in the past. So if you book a rental car, your hotel should have a parking place for you. And if your flight gets delayed, your restaurant reservation has to be pushed out and all the -- just the issues that are today, the messiness of travel and things that happen, the peace of mind that we can provide with GenAI. So that means even more, I think, benefit of being personalized peace of mind. And then people come more and more back, and that will then help also from a loyalty perspective. So that's, I think, what is opening up with GenAI.

Got it. Want to make sure we get margins and macro in. So why don't we -- we'll start with margins. And you've talked about growing margins. I don't know if that's part of your algorithm, but what are the drivers for growing margins over time?

So yes, we -- by the way, we are, of course, already running an industry-best margins. EBITDA margins post stock-based compensation -- I just want to emphasize post stock-based compensation because from our perspective, it doesn't make any sense that a big cost that you pay your staff is not considered a normal cost of running your business. So that's why we think you need to include that. And our margins on that basis are really at a very good level. But then we have the opportunity of the scale, the efficiencies, the leverage, the productivity program we announced last year to simplify the organization, to make it more nimble, to go after opportunities across the board like real estate and procurement and several others. So that will, of course, help margins. Driving marketing leverage will help margins, general leverage because we know for the next incremental traveler that comes to us, we don't need another office building, we don't need another layer of management, et cetera. So the incremental margin should always be better on the next one. And clearly, this is a business where scale is really important. Scale really matters. So being large is a clear advantage. So all of that should help drive margins. The flip side is a little bit what I talked about before is -- but we also want to reinvest in the business. And we want to grow -- ultimately, the best way from our perspective to create value for our shareholders is driving the top line as fast as we can. And by reinvesting in -- we're talking about advertising and instructions and many other areas. Ultimately, that's, of course, a very good way to reinvest. How that ultimately the balance of the 2 will play out is to be seen over time. But at least we want to make sure that we can explain all of these moving parts so that our shareholders see that and -- it's not somewhere hidden and it's unclear what is really going on.

Internet companies do like to hide things. So -- all right.

I didn't say that.

Yes. Great. And then on the macro, I don't know what you can share with us right now. But clearly, U.S. has trailed other regions. And maybe with a little bit more hindsight now as the year progressed, why do you think that happened? And what can you share us on the macro side?

Yes. And you're right, we don't give normally intra-quarter updates on trends. So I can't do that here. But what I, of course, can speak about is also what we have been talking about on our first quarter earnings call. And it's -- to some extent, it's really fascinating that the U.S. is having the impact from a number of factors, and it's all on the U.S. at the same time. Canadians traveling less to the U.S.; Europeans traveling less to the U.S.; and then where we see within the U.S., from a U.S. booker perspective, more an impact on the lower end of the consumer segment. So we saw this a little bit last year that there is a bifurcation of the U.S. consumer, where at the high end, people have income, have well 4-, 5-star-rated hotels; demand is staying strong; ADRs are strong; international travel is strong. But at the lower end, 1-, 2-rated hotels, more domestic travel, budget travel, it's definitely more difficult. And we see more pressure, shorter stays, shorter booking windows for the U.S. in the -- at the lower end. So the U.S. market is having all of these factors all coming together at the same time. Will that go away soon? That is to be seen. I sometimes -- when I see the economic news, I think there's always this talk about general indicators always, is the economy going better, is the PMI going better, et cetera. But I don't think there's enough attention to, yes, but how is that exactly impacting different parts of the consumer economics? Because I don't think we should look at averages in U.S. because it's so different in different parts of the society. So that's, I think, a very important one. So then coming to us as a company. I think we have, of course, a large benefit of being very globally diversified. About 50% of our bookings are coming from U.S.-based customers, about 25% from Asia, low double digits from the U.S. So we have a little bit less exposure to the U.S. That's a benefit. And some of those dynamics I've talked about in the U.S., we're not seeing in any other part of the world. So that's really U.S.-specific in terms of dynamics.

Great. I got a couple more, but I just want to see if there's a question from the audience over the last couple of minutes. All right. We know Airbnb is focused on attractions, and you are as well. Do you see that as a big market? Like is that interesting to you, that size of that market?

Yes. It's -- first of all, it's a market with a big TAM. Secondly, it's a market with quite attractive take rates. For us, we are trying to scale up very quickly by working together with the hyper -- sorry, with the aggregators in that space so we can have a lot of supply and options to our customers. Where it's particularly economically attractive for us is we often don't have to incur specific additional acquisition costs for that line of business. Because we know based on an airline ticket that we have sold or an accommodation booking that someone is going to be in, for example, in Paris. So we can immediately send out e-mails to that traveler and say, "Hey, great, you're going to Paris. Have you thought about a tour here? Have you thought about a boat tour on the Seine River? Have you thought about a ticket for the Louvre or for the Eiffel Tower?" So for us, therefore, it's really attractive that it is naturally an add-on on what we are already doing with those customers. And therefore, it works very well from an economics perspective.

Yes. The economics are good. So we've heard about attractions for 10 years now, but it does seem like there's greater hope. Has there been some unlocks with tech that is making this easier to target? Or is it just the right time? What's kind of [indiscernible] here?

Well, it's -- to some extent, it's the right time because, as I mentioned before, we can't do everything at the same time. So naturally, we had to build a payments engine because if we don't have that, it was going to be very hard to expand in the future. And flights -- clearly, because flight is always at the start of trip planning in many cases, so that was really important. This is just the natural thing after flights and accommodations and rental cars to focus on attractions. We do own a technology platform in this space, but it is not so much an aggregator. This is a company called FareHarbor. And FareHarbor provides technology for the activity operator itself. So this could be the boat tour operator or the tour company. And we help them with technology on their platform. So if someone goes directly to them that you can book and ticket and pay. But we, therefore, have the relationship with all of these providers in the market. And that will give us an opportunity, of course, to do more with that strategically in the future as well.

Got it. The last thing, and I'm sure you're happy about it, is your balance sheet and your cash flow. But how do you think about your capital structure? I know it's been buying back for several years, but any thoughts there you want to share on our last question?

Yes. Obviously, I think we are in a very positive position from a cash flow generation perspective. If you think about the hierarchy how we want to spend debt, ideally, at the top of the list is organic reinvestments. Because organic reinvestments, we know our business the best, we know our management the best, we know our opportunities the best. But there's always so much you can do at the same time in an organization. Often, I always say financial resources, I wish that is the limiting factor because writing a check is the easiest thing. But often that's not the case. It's just how many things can you do at the same time. Inorganic yes, for us, a little bit more difficult, obviously, from an antitrust perspective, particularly with some rulings we had in the past in Europe. But then return of capital to shareholders is then from a hierarchy perspective the next step. So we are active with buybacks. We are active with our dividend that was initiated last year, and we had a 10% growth of the dividend payout level this year. So I think it's -- to some extent, it's boring, Justin, because it's the same thing, we can do it over and over. But I hope the predictability and stability ultimately is a good thing. And certainly, I hope that's something that our shareholders recognize.

Great. We're over time. So thank you so much for joining us today. I really appreciate it.

Thank you.