Booking Holdings Inc. ($BKNG)

All right. We're going to get started. One of -- I think one of the last sessions of the conference. But we're very pleased to have with us today. Glenn Fogel, CEO and President of Booking Holdings. So Booking is the world's leading provider of online travel and related services. The company's mission is to make it easier for everyone to experience the world. Booking has more than 32 million listings across 4.5 million properties, including hotels, homes, apartments, other unique places to stay, some treehouses in there, too?

Absolutely.

I believe. And it serves global travelers across more than 220 countries through Booking.com, Priceline, Agoda, KAYAK and OpenTable. And over the last 12 months, 1.3 billion room nights were booked across Booking Holdings. Glenn joined the company in 2000, became the group CEO in 2017, and also expanded his responsibilities to lead Booking.com as CEO in 2019. So welcome, Glenn.

Well, thanks for me, Doug.

All right. Let's start kind of big picture. There's been this kind of long-running debate just around whether travel is structurally taking share of wallet versus other discretionary categories. How do you think about whether we're still in this secular growth phase for travel spending globally or whether you're seeing some of these markets approach maturity?

So long term, travel has always in the past, and I absolutely believe always in the future, will be a growth industry. No matter how you want to measure it, you can look back over a number of [ emplanements ], you can go back and just look at any statistics about total spend on travel, it has exceeded global GDP by 1% to 2% for a very, very, very long time. And it's obvious to see why as people get wealthier, they generally want to travel more. You have the basics of people who are too poor to travel, enter a lower middle class and now can afford to travel, about half the people on this earth. So you're talking about 4 billion people cannot afford to travel. Those people are slowly becoming wealthier, becoming able to travel. So that's an absolute tailwind for travel. Then you get into our business where we do stuff digitally. And it's hard to measure, but I'll pick round numbers. Maybe 1/3 of the people do not buy their travel digitally. So that's another tailwind. Those people who do it not digitally, they will die. And then the younger people will come in, and they will be able to -- they'll do their travel, and that will be digital. So that's another tailwind for our business. I absolutely believe and once you have established your basic needs, what are the things that give you the most enjoyment in life. How many people say, "Well, I'm sick of traveling, I don't want to go anywhere. I just want to stick at home." Nobody practically does that everybody wants travel more. So definite tailwind for us. For us, the bigger issue is not the secular industry, which I know, it's how do we continue to gain share how do we continue to get more than other ways people can do their travel digitally. And that is where we are focused on. And I think we've shown some great progress over the 20, almost -- well, it's more than 26 years, 27th year of doing it.

Okay. We'll certainly get into all of that in a minute. You noted on the call and you kind of just said it, but people have this deep and enduring desire to explore and connect and that demand has proven resilient over time. How would you characterize the current health of the global travel consumer today?

Well, so don't talk a lot about short term. After we do the call is kind of all we're going to say about the short term. One of the things I really would emphasize, every time I have one of this meeting with you, Doug or anybody. I understand the business. I understand how important it is for many people on the buy side to understand what's happening now? What's happening next month? It's important in the quarter. I'm saying, look, that's not -- my mindset is always how are we building for the long term? How are we going to increase the value of this franchise over the long run that's going to continue to provide a great return for our long-term shareholders. And I absolutely believe that as long as we focus on making better products, better services that truly, truly are differentiating, so that our customer who is the traveler, that's one of our customers, they absolutely see value benefit to using us for somebody else and our partners, 2-sided marketplace, 2 customers, that partner, the hotels, the airlines, the car rentals, the attractions all those things, are we providing a better service for them to work closely with us, work so that we are giving them benefit. As long as we continue to do that, as we have done for a very long time, we will continue to do well. And I -- look, do I want every quarter to be better than the quarter before. Of course, I do. Does that have something like in control? No, I cannot control the war. I can't. I'd like to -- I can't -- so there's always a tsunami, pandemic, yes, it goes on and on and on. That's the nature of the world, and it's your travel. But when you look long term and it averages out, it's very good.

Okay. Just given some of the near-term headwinds from the Middle East conflict, some macro uncertainty, how are you thinking about just pace and prioritization of investment into strategic growth areas. When you think about things like connected trip and AI payments, geographic expansion, for example.

So just talk about important is to build for the long term. And one of the things I absolutely believe is don't let the short-term volatility make you do things that are going to be hurtful for the long term. And that's so obvious to say, but sometimes it's harder to do. Sometimes you feel the pressure. You think, gee, maybe we should pull back a little bit on this. Yes, I know it's going to be great, a real big value, but it's not going to come for another year. So maybe we just pull back a little bit. I believe that's a fundamental mistake for a company. If you really believe in the long term, you really believe that this product is going to be better. Don't you want to have it out to your consumer sooner? Don't you want to be better there sooner? So yes, we do it. Now we have a great advantage, though. This is what's so wonderful. And everybody -- boy, this is almost -- you also want to ask like a quiz to the -- everybody here is like, do you remember worst year of travel ever 2020, right? Pandemic, right? We still made almost $1 billion EBITDA, I don't know, a little under $900 million, I'm rounding off. How did we do that? In the worst -- how did you do that? And by the way, we were the only large company I know of that actually made money, let alone almost $1 billion. How did we do that? Because so much of our costs are variable. So it's almost automatic. If there's no demand, I think going to spend a lot of money on performance marketing when there's no demand, okay? So that way, I don't have to then say, "Oh, things are bad. Let's not spend the money on this project, which I know is really important. I don't have to do that." So that's the answer. I believe in the future is always going to be determined by your investments in better products and services and don't be one of those people who's just trying to hit this quarter.

Okay. Let's shift gears, talk about AI. You've expressed strong conviction that AI is a net positive for booking. Just as AI-driven discovery emerges as a new traffic channel, how do you think about where kind of AI share funnel comes from? What happens to traditional search and how you pull in kind of net new users? Is there a risk to competing at all with your direct channel? How do you think about all those dynamics?

Yes. I think about those things all the time because what we're trying to do is predict the future. We're still very early, where we're in America. So I can say very early innings and nobody understands what I'm talking about. You go to France, they have no idea, what you mean. So we definitely believe in the first thing you pointed out that AI is an absolute net benefit to our future. I absolutely believe that. I see what we're building. I see how we're doing it. et cetera. Now there are so many things that are changing, though. So are people using chatbot, AI chatbots, we OpenAIs, ChatGPT or is it Gemini or anyone, using that for travel discovery, exploration absolutely. In fact, I bet if I asked you all here, who you not done that, I don't think we'd get a hand. But how many you then actually went straight and booked off of that? And I know the answer to that one, too, 0, because you can't do it yet anywhere proud of. Now maybe some of you went -- we were 1 of the earliest ones that had the app at ChatGPT the first one is going to ChatGPT with that opening, you go, yes, you had to come to [indiscernible]. You come to us. We do the book and you don't book off of that. The question will be, though, over time, how will this change and that's why we are working very closely with every single player, every single player. And I'm not talking just about the U.S., what we're in Boston, the U.S. okay. Most of the people here, if I say, tell me in a large language model, and they'll come up with the usuals. And they'll say, you ever use [ Quinn ], why [ Ernie ], I don't know -- anything on Falcon. I can go on and on around the world, DeepSeek, maybe [ Sam ], you're probably testing it for your own things. But -- that's one of those issues that we want to work with everybody so that if, if there is a way we together, working with where we're going, so I think we're going pretty good. We get the people spilling off of that on to us. That's great. Also be ones we don't pay as much as we pay Google right now. On top of that, I want to increase. So 65% of the people right now, 65% of the people are coming to our Booking.com site direct right now. I want that to go up. I want that to get even higher. I want us to be what we're doing internally with all the things we're building in the AI world in better products and services or the things we are doing in terms of creating other services, building up our Genius program, much better. The KAYAK trip, I talk about all the time. And AI is going to help -- is helping a great deal in that, all those things, that too. The most important thing is right now being so early is be agile, being able nimble, change around making sure we're putting the investments in the right places, enough poker chips on the table so that we can make sure whichever way it flows out -- as described, I was Head of Strategy and Head of Corporate Development. We had a lot of different jobs. One of the jobs I talked a couple of times this morning about a trade or asset management, Morgan Stanley asset management, regarding [indiscernible] big. But before that, I was an M&A banker for a long time dealing with the air business. One of the things when I was head here was then the Priceline Group, one of the things I recognize was, well, there's a lot of different ways to do travel. So I went out and we bought Active Hotels and Booking.com because they had an agency play in Europe. A very different than merchant. Pricing was merchant only. Then I want to get something in Asia, I said, I want to get Agoda, which is a merchant player, and either why? And people have said to me, this is our company I'm board, to do that, Booking has stuff in Asia, why do you want to duplicate. Well, the same thing when I bought active, I wanted to buy Booking and we were to have Active, why are you buying Booking? I wanted to maintain that flexibility. It was so early. We're talking 2005, 2006, 2007, I'm buying early because I don't know which way the future is going to go. So I got to make sure I've got everything covered. And by luck, they're all doing great. That's good. But that's the same thing right now. You're saying, what is this going to be in the future? I don't know the answer yet. I do know I need to maintain that flexibility and be doing all the different things, working with all the LLMs, building up on our own stuff on our own. And using AI to create a better experience. Come back in 5-year, Doug, and we'll say, this is the one that ended up being, I'm really glad I chose to invest in that one, too.

But when you think about this, though, and we kind of struggle with this for a lot of different companies across our coverage with companies, obviously, who want to leverage all the channels that you talked about all the AI providers and we'll see what happens, how that all develops. But then, of course, building out the products on your own channel, how do you think about what the functionality looks like kind of between the two? What advantages you might have from the direct AI products versus those going through some of the LLMs essentially.

So let's separate it out. Let's move back from the AI only, let's say, what are the general things because that's really -- the question comes up a lot. So the business is much more complicated than a lot of people really understand because, well, everybody is a traveler, well, I can see which the travel part it's harder to understand the partner side and the amount of effort work that goes involved and maintaining the connectivity, the content, keeping it all together and working with the partners to create different pricing, different types of things to offer up to help them do their business the best. So you've got hoteliers right now in the Middle East, who we are dealing with all the time. But right now, our account managers talking to them day by day. Look here's where we are. This is what we see as demand. This is what we think we can do. There's only so much here's how we think you can maximize, okay? That's a lot, you don't understand. It's not just throwing a bunch of content into a ChatGPT and hope to God that works, that's not the business. The reason we have 4.5 million properties that deal with us. The reason we have all those listings, is because we provide a value to them, a service to them. If we did not, they would not go to all the trouble of being part of it. Doing those things together is really helpful. Now throw on top of that personalization. And everyone says, "Well, Google knows everything about you." They don't know everything about you. Here's something they don't know. They don't know what I can offer to you because you are at Genius Level 3. And that's why you used to be booking with us because I'm giving you these benefits that nobody else can. Google doesn't know that. We know that. Now do you think going to tell, No, no, I'm not going to tell. And that's the reason I go through so many different things. One of the benefits of connected trip is being able to give an opportunity to our suppliers to get more business by offering up something that is an opaque product that is not going to cannibalize their regular parts of their business. So I got, for example, a car service, right now. Well, what they don't want to do is the -- is lower their standard rate for everybody. But they're more than happy to give us a lower price or somebody who's buying a hotel with us, which we can then offer over to our customer. Customer wins because they got the cheaper car service. Car service wins, they got the incremental. We win, because we got a little money from both of them. This is win-win-win and AI, one of the benefits is, along with -- we say AI. I say AI, every single person here is immediately, I am certain going to Gen AI, right? But there's a lot of things our ML models, our machine learning models, what the right pricing, with the right thing we should offer at the right time, how we should rank stuff. All of this AI, call it, globally only internal things put together is creating a more scientific way to offer up the right offers to people at the right time. And here's the thing because we are the biggest, because we have the most data. What is the most important thing in AI is having data that you can then train and then do models off of. It's a win-win-win. It's a flywheel that just keeps on spinning faster. That's why I'm so positive. That's why I say to people and say, "Oh my God, these aren't you worried about AI, so it's the greatest thing ever." For us, it's so much better than it used to be. this is net positive. And it's weird when that people say, like, "No IT much better."

What are the efficiency gains and the biggest areas internally that you're benefiting from right...

So now the obvious one, right? Everybody has their people using Claude Code, and your technology is being done at a much cheaper price and it's much better, and it is. It really is. So either your savings come because you don't need as much in terms of personnel or you're able to develop things you need to do faster that provide better products and you balance between those lines, so that's fine. Everybody knows that one. Other one obvious one -- everybody is talking about it and he is absolutely true, and Ewout mentioned this a couple of times in the call. customer service, customer service costs going down per contact, reducing contact -- and what's really interesting is higher customer satisfaction with an actual AI answer instead of a human. That's really good. Anybody here use -- maybe I will use OpenTable here, anybody? Oh, that's good. And how many times have -- you actually ever call for reservation? You made a phone call, right? Yes, probably did. I know you did. Okay, here's the interest thing though. You may even talk through an AI and you didn't know it, because that's part of the things we've been building out and developing with other third party do it open with OpenTable and restaurant stuff. Well, throughout when you call us for a customer service contact on your Booking.com and how you answered that is a voice that sounds like a human, you think it's a human, but it's not a human. That's really inexpensive when it's coming out of token instead of a person, right? And it comes back with better answers, make so much better. How many times you go -- first of all, I dare say, everybody here is called customer service on a travel problem and waited like forever, and it's so frustrating kills you, right? Well, that's because only -- you do your staffing to have an optimal number of wait minutes, so you don't want to do it, everybody can pick up immediately. I don't cost fortune. But with AI, you can do it, so you do pick up. It does pick up immediately, and it's not much more cost. That's a real improvement. And then you call in the old style and the person finally picks up and they tell you, "Oh, I'm sorry, I had to put you on hold and talk to somebody else," which is basically at that point, you're into ready to throttle somebody. But with AI, within knowing so much more, it actually comes up with a solution faster. These are really big things. And then you go beyond all things I mentioned about content, bringing it together. And look, Connected Trip things. We're every -- it's been to Amsterdam. You always -- but I have said this story before, so if you've heard it, I'm sorry, but the fact is, every goes to Amsterdam as a tourist, you want the Canal ride and you want to go to the [indiscernible] you want to see like [ Nightwatch ], okay? You want to go to the museum though, on the rainy day. you don't want the boat ride on the sunny day. Amsterdam range lots of. But with AI and all that and connected trip by come and you booked it, let's say you had the boat was going to be on Wednesday, the museum could be on Thursday, it's tool study. We -- it's not hard to know what the weather is, all the stuff. We're reaching out. We're saying, we think we should switch this around course of the weather. One push the button, click yes and we'll switch it. Here's the days time, we'll switch the tickets, all that, no cost to you, really, that's the type of things we're going to be seeing down the road. It will be some and that will be the reason somebody says, "I use Booking because you're walking around cities with a travel agent in your pocket, that's your phone, you're on that one-on-one relationship all the time that makes it so much better for you. And that's what we're seeing coming on. That's what we're building. We're building a much better thing. I can't improve the boat ride I can't improve the narration by the person who's doing the boat ride, but I can make it a lot better so you do it on a day that will be most enjoyable.

Okay. Let's talk more about Connected Trip. So connected transactions, I think, grew high teens in 1Q. They're now a low double-digit percentage of Booking.com, overall transactions. What are the -- you've been at this for a number of years and the products kind of keep getting better, numbers are obviously increasing. But what are the one or two biggest like friction points to overcome so you really see like step kind of increase with Connected Trip.

So I am very proud of what the team has built from nothing to something. We had no flights a few years ago. Last quarter, 28% increase. And we're now, I think, I think if you exclude Ctrip.com's domestic flights, we may be the biggest third-party seller of flight tickets from nothing. It's off. but it's so early. Again, I'll use -- again, early innings, why not? That's everything. We are so far from where we're going to be, and anybody who's been on our sites knows that because you don't see it. So I don't see it now. I'm like, "I'm in a city. Why am I getting more things to be, why don't you get more push notifications to something better with a special deal." We've done nothing practically with OpenTable. It kills me. But again Rome wasn't built in a day and neither is our company. But in Mayfair, it's 1 almost expensive parts of the world. I'm seeing it clarities. It's so expensive. I got to take out a mortgage, okay? I'm there. There are incredible restaurants in Mayfair, and they would love to have me because they know I would pay a fortune there, they want me to go there, I'm a transient. They would pay, but they don't know them there. But Booking those on there because I booked it through a Booking, OpenTable knows I like food, how do we put it together? And by the way, I like [indiscernible]. And that restaurant knows that from OpenTable and somehow the restaurant to OpenTable to Booking to me should be offering. Glenn, come by this restaurant and you will get this beautiful 64 million Rothschild, whatever, and that's the way it should be. It's not yet. But that's just 1 little opportunity -- it's so big yes, where are we? We are so early. It's like we're not even -- we're not even on the -- for [indiscernible] innings, we're still putting on our clothes in the clubhouse, but that's all upside. That's all upside. I see it coming. And the fact when it does work really well, when I do see those connections or I do see that offer coming to me in the Connected Trip, that's wonderful. And that's a beautiful start.

And what role does Genius play in Connected Trip?

Adds it all in. It's a super power on top. It superpowers everything. So for example, Genius was originally started out as a way for hotels, to be able to offer a discounted price in opaque way or a hidden way, closed user group way. So it wouldn't be cannibalizing things, and it was being offered only to people who were very frequent travelers who we were able to show to the hoteliers, there's real value here because these people are high-spending people, you'll do better than that, and they did. So it wasn't coming out of our pocket. But I'll tell you, we're discounting the price. They were happy we're pricing, happy. But now we're doing more. Now it's not just hotels, now we are going across all the verticals. And then being able to combine it all and then be able to offer more. Look, everybody here probably has a platinum or special credit card where you get special [indiscernible]. And you probably all frequent flyer members of different and probably all the airlines, et cetera. What we're building is only right now, I want to build some of that is even better. Now I know it's going to be hard to get people who already have, call it, 1 million points on American Express Platinum get you switch out because you're already stuck there because you want to use those points on that. But there are so many people out there who don't have that, particularly in the rest of the world. We're not talking America. Don't forget, America, U.S., relatively small part of our business, most of the rest of the world. Those people are not yet locked into those things at all. So bring those people in a way that they really see a true advantage Connected Trip, Genius together, offering them things they wouldn't get elsewhere and then go on to that, the AI way to do it. I've talked to this before, I urge you all. So a competitor of yours, mention, they did a different shop, did an analysis of all the AI trip planning type things. I came out and said, Priceline's Penny was the best, okay? I urge you all to go to Priceline Penny, put in a really complicated thing. Say, I'm thinking about going a trip this summer with my family. I got 3 kids, and 1 kid is actually away at school. So it's going to fly from another city. And I'm not sure whether or not we can take the dog or not. And really complicated, put it in, see what comes out. I'm telling you, it's going. Now it's not perfect yet, and there's still things come out. I'm like, "Oh my god, that's horrible." But I'm telling you, I did last night with a complicated trip for myself and my family. I did that. I used the exact same prompt language. I did the same at copy to an LLM, we've got partners another one. I believe -- and I think anybody else would say, or so better, was giving better results, better with ways to do it, better ways to book it, test it yourself, just do it. You'll see, and we are so early in that too, and we'll be seeing more of those things coming down the road over time. So I absolutely am confident that we are producing at it truly is better, and that tell you win in the long run, it's a better service, a better product.

Okay. When you think out over, let's say, 3 to 5 years and think about the growth factors, really driving the top line. So when you think across geographic expansion, Connected Trip, payments, new verticals. How do you kind of rank those vectors in your mind?

Which one is going to be the biggest one? Is that the way...

Yes.

So I think it's -- so one of the things we used to always say in the back was -- and we still -- I don't remember who said it first, is that, in God we trust, everybody else brings data. It's an old saying, from a long time ago, and we still believe that. So I don't try and predict the future in that area. I just make sure that we are being agile testing will allow and may see water. And yes, we put more money to one versus the other, but not telling anybody else this. But we definitely are making sure that we are covering the entire playing field so we are not surprised. .

Okay. EBITDA margin expanded about 200 basis points per year really over the past several years. How should investors think about sustainable margin trajectory from here, particularly just as you balance reinvestment in AI and other products versus leveraging some of those fixed costs.

Yes. It's really hard because -- and I know as a banker, we're in together models and trying to guess what should it be going this a long time ago. But it's hard, I understand the need for people to get a sense of that. So I would say this. We can make those margins whatever we want them to be. And the question is, what's the balance? What do you want to do? How fast do you want to grow? What products do you need to build? And then you have to your own guessing, which is as we build this out, how much does this increase loyalty, increase direct, thereby, we don't have to now pay as much for marketing, perhaps. On the other hand, though, you have the flip side that all the other verticals except hotels has a much lower margin profile. So there are a lot of complications that go into that. So I would say for -- you're asking to give guidance to the investors. I would say that our CFO has said it very clearly in the calls, and I'll refer to the way he says it. I think that's the best way. I won't repeat it, but I will say that I know that it's important for us to continue to be agile to make investments when they're important and not. And it also to recognize though, as a shareholder myself, I am also very cognizant of the need to maintain discipline and at the end of the day, it's free cash flow, grow that one. Grow that one really well, Glenn, and we'll all be really happy. And buy back shares to it, with the free cash flow.

Yes. Well, let's hit that on capital returns. So you do pay a dividend. You've repurchased, I think, about $6.5 billion in stock each of the last couple of years, $18 billion in authorization at the end of 1Q. How do you think about optimal capital return framework just given that free cash flow generation, the growth opportunities? And where does M&A fit in?

Yes. So the way we've always looked at is, first, build the business. Are there opportunities that we think deploying cash for investment internally is going to produce a great return that we think is really good. Then are there M&A opportunities that we have high [indiscernible] will also be a good thing. Then if we don't make sure that you're paying back cash to your shareholders because they can deploy it better than you can. And that's been for 27 years. We've been -- well, that's so because we didn't have cash in the beginning. But later, when we started getting cash, we started doing that. . And I believe that's still the way to do it. I believe the way we've done it over the last couple of years has been wonderfully buying back 40% of the outstanding shares over the last dozen years. I'm really pleased with what we've done that. We didn't waste the money on. And two, what I'm really glad is that when we buy back shares, they really reduce the total outstanding. A lot of companies, that doesn't quite work their buy like shares, but for some reason it doesn't stay dropping like why is that? What's happening? Oh, they're giving a lot of new shares out, too. We don't do that, and we make it very clear. did all of our expenses, stock-based compensation, a real expense. We make certain that everybody understands that. No cash or stock to a shareholder, it's a cost, and we make sure we're very clear about that.

Okay. And maybe just last question, which kind of sums it all up, you have this long-term growth ambition for constant currency, 8% gross, bookings growth, 8%. And revenue growth and 15% adjusted EPS growth. What drives your confidence in that long-term growth ambition...

Well, I think one of the things is the very important term in there is long, you heard that long term, right? Because I can't predict what's going to happen tomorrow in the Middle East, I can't predict. We can -- I mean you look at the numbers last year. Well, we blew those numbers away, didn't we, in all those numbers. And the year before that, too. So if you're looking short term, there'll be volatility. I don't know what's going to mean next week, next month, next quarter, next year. But over the long term, I'm fairly confident that GDP will continue -- world global GDP is going to grow at this percent. I'm fairly confident, I'm very confident that travel will grow that digital will increase. All those things, all those reasons. And then we just need to continue to improve the product to take share as we have done over. Do you see -- are US did you look at that? So for 4 quarters increasing our U.S. growth rate, low-teens class 1, we just announced from where -- in the past, we were like nothing, now doing. So we are improving the product, improving the service, many people do it. Continue to do those things, we will continue to do that. And then throw on top of that the efficiencies through better technology and all that and then throw on top of that buying back shares, helps in your EPS helps make sure you get that up to that number. So in long term, Yes. I mean it's almost why should I not be.

Okay. All right. It's a great place to leave it there. Thank you.

Thank you.

Thank you.