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

And we'll see this short, medium, long term, more natural language experiences coming soon, coming medium term.

Oh, yes, we are, of course, investing a lot in all of this, both on the efficiency side as well as on the top of the funnel side as well as preparing all of our data and system environment. Obviously, I don't want to give too much away of what will be coming there, but I think there's a lot going on, and it's a big part of our reinvestment program this year.

Great. And we'll get into all that stuff. Sticking with the GenAI topic for now. I think Booking has a few partnerships with some of the major companies out there. We would love to hear just the -- is the opportunity with those companies on both the customer service side and the natural language side, improving the experience on booking? Or is it -- and/or is it something else working with those companies helping with providing content or something along those lines?

Yes. What we like from all of those relationships is we learn a lot about the latest technological developments, how customers are reacting to this, how this ultimately can become lead generators for us. So those are the elements that we learn from that. And I think the other way around. We provide a lot to them because it seems to be that if OpenAI is launching a new product or Microsoft or Amazon or Salesforce, they always like to use the examples of travel and dining. So we were actually very proud that Sam Altman recently was using in his demo Booking.com as the example in terms of the latest version of ChatGPT. So these kind of things are really important to us and important to them. So I think this is very natural relationship that we are building.

Yes. That's great. I wanted to maybe one more on the 5 key points for why hotels or supply works with you. And this is on the payment side. And I think that was maybe the fifth thing that you talked about. And so when we think about the capabilities that Booking provides these hotels and the supply, I would love to hear your thoughts on what do you think Booking does to set it apart that drives hotels to say we need to work with Booking because the payment capabilities are X? Why are payments so important is the real question?

Yes. Payments are important for a couple of reasons. Strategically, it's really important because it's the underpinning of the connected trip. Secondly, as I already mentioned, we provide value to both the partners as well as the travelers. And on the third is it gives us an opportunity to ultimately set end pricing or help end pricing and make attractive end pricing for consumers because, otherwise, if it would be only the agency model, we always have to take just the price that is being set by the hotel. In this way, we have merchandising opportunities, particularly for customers that, for example, are repeat customers, are in a genius program or it makes sense to put an incentive in place. And then it is a significant contributor to the bottom line as well. So that's the fourth point. So it's a really important element overall for the company. It's sometimes not really understood because we are -- in terms of our merchant revenues is in the 60% range or so. So if you would apply that over our total growth bookings value this year, we are already one of the larger payment companies in the world at this moment. So we have built something that is really meaningful. Again, from my perspective, it's only the beginning. We can do so much more with that. We can expand in so many more directions. So fintech is actually one of those verticals where we think there's a lot of growth potential in the future.

That's great. Yes. No, we get a lot of questions on payments. Let's maybe shift topics a little bit to more current trends. And a follow-up from 2Q. I think Asia was highlighted as a key market where room nights reaccelerated to low double digits. I have my numbers right. We saw expanding flights and attractions. And just I would love to hear your thoughts on what's driving the strength in APAC. I know it's a multi-brand approach, maybe with Agoda and Booking and just more insights on the Asia callouts and what's...

Yes. I think we are very optimistic about the outlook for Asia given that, that is going to be the region with the expected highest economic growth over the next decade, multiple decades. And obviously, that will mean that a big part of the population in Asia will have an opportunity to travel for the first time or more on repeat times. And the fact that we are the largest OTA in Asia outside of Mainland China means that we will be able to capture a big part of that growth upside for the company. Agoda has a very specific strategy. It's based, by the way, in Asia. It's very much having a strategy of localization, meaning the way how their whole UX works is if you are, for example, a traveler in Korea, it feels very much like a Korean company. The interaction, the app, the website, the payment options, the product, all of that is very Korean, the brand itself and the brand campaigns that support that as well. So they do that in a very smart way in every place in Asia and are, therefore, able to really get deeply embedded in those markets. And then Booking.com is, of course, a very strong optimized global model that is being applied in Asia as well, very strong brand, also being seen often more as a premium brand for outbound travel, international travel. So we have, I think, 2 very strong propositions in the Asian markets. A lot of investments go in those markets as well because, of course, we have to stay very competitive in Asia. But we overall believe we will be very well positioned to capture that future growth.

That's very helpful. So maybe taking the current trends and let's go to different regions around the world, if you will. Let's talk about the U.S. side. Lots of debate on the U.S. travel market with inbound and outbound. And I think I feel like in our conversations, we've used a word Booking as maybe a challenger brand here in the States. And so I just -- I wanted to understand your thoughts on Booking's approach and Priceline's approach to the U.S. market. I think we saw growth reaccelerate in 2Q and would love to hear your thoughts on like what's working there, what we can do better, where the focus is, is the question.

Yes. Well, it's, of course, fair to say that our largest position is in Europe. About 50% of our room nights come from Europe, about 25% from Asia. And the U.S., our position is a bit smaller, but we are growing faster than the market in general over the last period. And we are expecting that, that will continue. So slowly over time, our position will get stronger in the U.S. It's now low double digits in terms of the composition of our overall room nights. We saw a bit of an acceleration of growth in the second quarter over the first quarter. That is encouraging. We also think that we grew a little faster again than the market in general in the second quarter. But if you look at just the total market growth in the U.S., still today in the second quarter, first quarter last year, it is still the slowest-growing region of any region in the world. So I would say the overall market in the U.S. is still mixed in terms of signals despite a little bit better growth in the second quarter. I really would like to see booking windows expanding a bit, length of stay, expanding ADRs, getting up instead of going down, lower end of the market being a bit stronger in the U.S. A couple of those to see the signals really reversing in order to say really the U.S. travel market growth is out of the woods. I don't think we are there yet based on the data we have seen in the second quarter.

And from a branding perspective, how do you feel about the Booking brand here, Booking.yeah, Booking.com, like all the great here in the States, so it's been pretty effective, a huge investment for the company.

Huge investment in the brand. We do that in many different platforms. We have the MLB, now the NBA sponsorships. We usually have an ad around the Super Bowl. So really, it's important that people recognize the Booking brand that is a well-established company and that people know that we are a very sizable company and a company they should trust to work with in the future. So that's very deliberate. If we measure really our brand recognition, I think it has gone up a lot in the U.S. So it's definitely different than a couple of years ago.

We're watching traffic every month as I look at the team and the data comes out. That's great. And maybe last one on current trends, just alternative accommodations. It's been pretty impressive growth over the past couple of years with both supply and room night growth and percentage of total room nights growth. And so I wanted to ask specifically about U.S. supply here in -- for alternative accommodation, something that I think Glenn and maybe you talked a little bit about years ago and were investing here in supply. So any insights on U.S. supply and as it relates to alternative accommodations?

Yes. So alternative accommodations overall globally, we now had at the end of the second quarter 8.4 million listings on our platform that grew year-over-year by about 8%. The growth for the U.S. specifically was slightly above that 8%. Room night growth was about 10%. So it grew faster than traditional accommodations in all regions of the world. We would expect for the future that, that will continue to grow faster than traditional accommodations. It's just something that people get more familiar with that it is on our platform. It's very naturally integrated. So if someone is looking for an accommodation, you get hotels, motels, resorts, ins, apartments, villas all on your search outcome. So you can easily compare. I think that's really our competitive differentiation overall. And we see that the demand for alternative accommodation remains very high. So we'd expect that to continue to grow and it growing a bit faster. At what point we will reach an equilibrium, I think, is hard to say. At least for the time being, I think, the growth will be still a bit faster would be our expectation.

Got it. Very helpful. So we have about 8 minutes left. I think we might take some questions at some point. Maybe I'll -- we'll do that in a minute or 2. I got to get some finance questions here given your role. So it's been 1.5 years in the CFO role. And what I wanted to -- I would love your thoughts on how the role itself has evolved since you joined the company.

I'm super happy how the role has evolved, how the company has evolved over the last 1.5 years. A lot of hard work by many colleagues how we are progressing with the execution of all our strategic initiatives. And if you look at all those growth drivers, if you say flights up 44%, tractions doubling, connected trip up 30%, we're just speaking about alternative accommodations, 10% up, direct business in the 60% range, so a lot of hard work and execution from the whole team to really drive those results. And then at the same time, also just the organizational majority is going up in general. So I'm pretty impressed by just the progress I've seen over the last 1.5 years I'm with the company. What I particularly like in the role is -- first of all, Glenn and I have a very close partnership, and we, I think, are very strong as a company linking strategy, execution, communications, driving results, metrics and transparency around it and really doing all those things in combination. I think it's a very broad role that, therefore, I'm very honored to have at this moment. And you hopefully also see that with many more disclosures that we are putting out to decide buy side, sell side, in terms of the results of the company and background and metrics. So it's really trying to really show that all the things we're talking about strategically in terms of execution that you also can see that showing up in terms of our numbers.

We appreciate that very much. So particularly as we hear conversion rates improving, and we see that in the numbers because the numbers you just talked about were pretty impressive for a company as big as you are and to see the growth rates and flights and newer attractions and newer things. So maybe one of the questions we often get is just balancing investments with profitability. And so I think last December, we talked about a 3-year strategic change, maybe longer term, $400 million, $450 million in costs coming out this year, $150 million cost savings, $175 million investments. So I think I have those numbers right, but talk to us about the balance between the 2, and then, we'll open up for questions maybe after that one.

Yes. Philosophically, the approach we are taking is the areas where we can go after efficiencies and really finding opportunities for leverage is very separate from the decision process around reinvestments because, otherwise, you run the risk that the areas where you find the efficiencies will also reuse the funds that are being freed up, but that is sometimes not the most attractive area where you can find reinvestment opportunities in the company. So, therefore, 2 very separate mechanisms that we apply. So going a little bit deeper in both, yes, we have the transformation program. I think we are making good progress, $400 million to $450 million we expect to take out. We said we have already enabled about $350 million. Enabled means we have developed specific execution and implementation plans. Those have been approved or have gone through certain processes, for example, in Europe with respect to Works Council, et cetera, and have now moved to the implementation phase. So to realize stand out $350 million, and you were speaking about $150 million, we expect to realize in year 2025. But on top of that, we have our normal leverage that we are trying to accomplish, leverage with respect to fixed OpEx, leverage with respect to marketing. We had some deleverage in sales and other based on payment expenses, but that's now being offset by customer service, GenAI efficiencies, I spoke about earlier. So that deleverage has disappeared. So overall, we will continue to really drive advantage of the overall skill. In the end, travel is a scale business, and we have the skills, so we should take strategic advantage and just having the discipline always to grow the topline faster than those variable and fixed expense lines and take advantage. But then on the other hand, as we discussed over the last half hour, we have so many opportunities to reinvest. There's so many areas that the company can grow faster. It could be in other verticals, like attractions, like flights, like advertising, it could be in fintech, it could be in regions like Asia, we discussed. It could be in some of our other businesses like in OpenTable that has become really active, has become really revitalized and is expanding its network at the moment in generative AI tools. So there's so many areas where we can reinvest. So we're doing both at the same time. The good thing is, for us, at the moment, we can grow those investments, and we can also expand EBITDA margins. At the same time, you saw that we raised the guidance for the full year, and we have already the highest EBITDA margins of any of the competitors in the industry on a like-for-like basis, let me call out again, including stock-based compensation, which is a normal cost of running anyone's business. So highest EBITDA margins already, we can expand that, and still put meaningful investment behind all of those growth initiatives.

So much to jump off of. We could talk for hours. Any questions in the audience? Well, I can go on here. So I'll continue here. Let's see. I had so many other questions. Maybe in the 1.5 minutes left, we've talked so much and maybe we'll get some more of the fun stuff, so to speak. Let's talk capital allocation. So capital allocation, we have a repurchase authorization that's quite meaningful, and we would love to understand your thoughts there. And everyone would love to understand cadence, but just your thoughts bigger picture on this.

Yes. Well, Ron, as you know, the company's financial situation is very healthy, significant cash balance, significant free cash flow generation, just over $9 billion free cash flow over the last 12 months. So we are in a position to reinvest in the business, but also to actively return capital to our shareholders. And we do that, as you know, through a dividend that was initiated last year and increased this year by 10%. We do that through active buyback programs of our own stock. There's always a little bit of tactical movements we're doing there in terms of being price sensitive, but over time, there will be a consistent buyback level as well as a company. So overall, I think we're in quite a good place. I think the discipline around the capital philosophy, the capital approach to consistency around it is really important. So I think that is overall the approach we're taking. So to some extent, a little bit boring because not so much different than in the past, but boring in that area, from my perspective, is seen as good.

On sizable numbers. So as we wrap up here, any other trips planned? We started the conversation about Japan. Any trips planned for winter that you've coming up?

Not so much yet, but a lot of business travel over the next period. As a family, we always like in December for the holidays to go back to Asia. We lived there for a number of years, so we're very attached to Asia. So that's probably the next family trip.

Wonderful. Ewout, thank you very much for the time here.

Thank you so much, Ron.

Always pleasure being with you, and I appreciate the commentary. Thank you.