Booking Holdings - Q2 2023

Transcript

Operator (participant)

Welcome to Booking Holdings' second quarter 2023 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. Actual results may differ materially from the expressed, implied, or forecasted in such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements.

For a list of factors that could cause Booking Holdings' actual results to differ materially from those described in the forward-looking statements, please refer to the Safe Harbor statements at the end of Booking Holdings' earnings press release, as well as the Booking Holdings' most recent filings with the Securities and Exchange Commission. Unless required by law, Booking Holdings undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. A copy of Booking Holdings' earnings press release, together with an accompanying financial and statistical supplement, is available for investors section of Booking Holdings' website, www.bookingholdings.com. Now, I'd like to introduce Booking Holdings' speakers for this afternoon, Glenn Fogel and David Goulden. Go ahead, gentlemen.

Glenn Fogel (CEO and President)

Thank you, and welcome to Booking Holdings' second quarter conference call. I'm joined this afternoon by our CFO, David Goulden. I am pleased to report that in the second quarter, I continued to see robust leisure travel demand, which helped drive the strong results we are announcing today. The 268 million room nights booked in the second quarter increased by 9% year-over-year, and gross bookings of $39.7 billion grew 15% year-over-year and was the highest quarterly gross bookings ever. Both room nights and gross bookings came in ahead of our previous expectations as a result of the favorable demand environment. Revenue growth of 27% in Q2 also nicely outperformed our expectations.

The strong top-line results in the quarter, combined with better-than-expected marketing efficiency, helped drive our Q2 Adjusted EBITDA to about $1.8 billion, which is an increase of 64% versus Q2 last year, and meaningfully exceeded our prior growth expectations of about 35%. Looking at the month of July, we have seen an acceleration in year-over-year room night growth relative to the 9% growth we reported for Q2. We estimate July room nights increased by about 20% year-over-year, benefiting from the easier comparison to July 2022. Overall, we have been very pleased to see our strong performance in the first half of the year, which has benefited from the continuous strength and resiliency of overall travel demand.

Our solid start to the year, combined with what we currently believe will be a new all-time high for Q3 summer travel period, results in an improved outlook for the full year, which David will discuss in detail in his comments. While the near-term results and outlook are encouraging, we remain focused on what is important for the business for the long term, which means making the necessary investments to strengthen and grow our enterprise while simultaneously remaining cost-conscious. We are seeing progress and momentum across several important initiatives, which will help strengthen our business over the long term. These initiatives include advancing our Connected Trip vision, further integrating AI technology into our offerings, continue to grow alternative accommodations, and building more direct relationships with our travel bookers.

Starting with the Connected Trip, this is our long-term vision to make booking and experiencing travel easier, more personal, more enjoyable, while delivering better value to our traveler customers and supplier partners. To be clear, this is not a discrete product we will introduce at some point in the future. Instead, this is a meaningfully enhanced way for a booker to experience and utilize Booking.com. Over time, you will see incremental improvements and enhancements to our platform that move us another step closer to this long-term vision, and importantly, this approach allows us to realize the benefits while we are building towards that future state. We believe that the current travel experience is much more complicated, fragmented, and frustrating to travelers than it should be, and eventually, our Connected Trip vision will greatly improve it via technology.

Looking at the other side of the travel marketplace, we believe that our supplier partners will also benefit greatly from the Connected Trip, as it will provide more opportunities to personalize and merchandise their offerings. We continue to build out our Connected Trip vision and have much more work to do. We're pleased with the progress we have made so far and expect it to ultimately result in increased customer and supplier engagement with our platform. We've always envisioned the Connected Trip as having AI technology at its center. Across our company, we have a long history with investing in AI technology and incorporating it into our platforms in order to optimize interactions with both our travelers and partners. This is an area where we believe we are well-positioned, given we have built strong teams of AI experts and gained valuable experience from using AI extensively for years.

In addition to the many current applications for AI on our platforms, we believe that we can build an even more compelling and differentiated offering for our bookers if we leverage AI technology to deliver a more personalized booking experience, a Connected Trip that would be more responsive to our bookers' needs and help manage different aspects of their trips. Generative AI may play an important role in delivering the Connected Trip experience to our bookers. Our teams have been hard at work to integrate this exciting technology into our offerings in innovative ways. For example, in early July, Priceline unveiled its 2023 summer release, which delivered over 40 new booking tools and upgrades, including Penny. Penny is Priceline's generative AI travel assistant.

Priceline has currently positioned Penny at the end of the funnel on the checkout page, where Penny can answer travel-related questions that a customer may have when they've reached the checkout page. Penny is built on Priceline's own proprietary technology and data, and also leverages large language model technology to power its conversational capabilities. The combination of these technologies allows for innovations like the ability to make a booking directly in the chat interface. The Priceline team is rapidly gaining insights on booker questions, concerns, and behavior as Penny continues to interact with customers. The plan is to further enhance Penny over time by leveraging these valuable learnings. Around the same time as Priceline's summer release, Booking.com launched its own AI Trip Planner, which began rolling out on the mobile app in the U.S. to Genius customers.

In contrast to Penny, the AI Trip Planner sits towards the top of the funnel, where travelers are in the discovery and planning processes for their trips. Built upon the foundation of Booking.com's existing machine learning models that recommend accommodation options to millions of travelers on the platform every day, the AI Trip Planner is also partially powered by large language model technology to create a conversational experience for people to start their trip planning processes. The AI Trip Planner advances trip planning by providing travelers with a rich visual list of destinations and properties, including Booking.com's live pricing information, with deep links to view more details on the options. From the chat interface of the AI Trip Planner, bookers can tap on any recommended accommodation they are interested in and then complete the reservation.

Critical to our approach here is to marry our own proprietary data and machine learning models with the generative AI technology. This allows us to provide a conversational interface with the traveler while leveraging our own recommendation engine to provide accurate, detailed, and real-time information on the property recommendations. Like Priceline, the Booking.com team is already gaining valuable insights from the interactions with bookers, even though the trip planner is in beta and is still currently in a relatively limited rollout. While we are excited by these new advancements at Booking.com and Priceline, it is, of course, still very early days, and we have much more to learn about how customers will ultimately want to interact with this new technology.

In addition, we mentioned last quarter that OpenTable and KAYAK were experimenting with AI plugins, and we will continue to examine all areas of our company to ensure we are taking advantage of AI-created efficiencies. We are confident in our company's ability to benefit from AI developments and improve our products for our customers, given our many years' experience in AI, our travel-related data and connections to our supply partners, and our human and financial capital. Across our businesses, we have two equally important customers: our travelers and our supply partners, with each representing one side of our marketplace. For our supply partners, we strive to be a trusted and valuable partner for all accommodation types on our platform, and we look to add value for our partners by delivering incremental demand and developing products and features to help support their businesses.

One area of focus for us on the supply side continues to be our alternative accommodation offering at Booking.com. Alternative accommodation room nights grew faster than our traditional hotel category at about 11% year-over-year for the second quarter and represented about 34% of Booking.com's total room nights, which is 2 percentage points higher than in Q2 2022. This is a new all-time high mix of our total room nights. We are pleased to see continued momentum in terms of alternative accommodation supply growth, both globally and in the U.S., with global listings reaching about 7 million by the end of the second quarter, which is about 8% higher than Q2 last year. We aim to build on this progress by continuing to improve the product for our supply partners and travelers, particularly in the U.S.

For our travelers, we remain focused on building a better experience that leads to increased loyalty, frequency, spend, and direct relationships over time. In the second quarter, our mix of customers booking directly on our platforms continued to increase year-over-year. We see a very high level of direct bookings in the mobile app, which is an important platform as it allows us more opportunities to engage directly with travelers and, we believe, will result in increased traveler loyalty. About 48% of our room nights were booked through our apps in the second quarter, which is about six percentage points higher than in Q2 2022, an acceleration in the mix shift compared to Q1 and an all-time high in terms of mix of bookings coming from our mobile apps....

We will continue our efforts to enhance the app experience to build on the recent success we have seen here. In conclusion, I am encouraged by the strength of travel demand so far this year and signs of what we expect to be a record summer travel season. Our teams continue to innovate and execute well against our key strategic priorities, which helps us position our business well for the long term. We remain focused on delivering a better offering and experience for our customers, both our supply partners and our travelers alike. We are as confident as ever in the long-term growth of travel and in the opportunities ahead for our company. I will now turn the call over to our CFO, David Goulden.

David Goulden (EVP and CFO)

Thank you, Glenn, and good afternoon. I'll review our results for the second quarter, as well as our thoughts for Q3 and for the full year. All growth rates for 2023 are on a year-over-year basis, unless otherwise indicated. We will be making some references to the comparable periods in 2019, where we think these are helpful. Information regarding reconciliation of non-GAAP results to GAAP results can be found in our earnings release. We will post our prepared remarks to the Booking Holdings Investor Relations website after the conclusion of the earnings call. Now, on to our second quarter results. Against a tough year-over-year comparison in the second quarter, due to the strong rebound in travel after Omicron in Q2 last year, we were pleased to have delivered 9% room night growth in Q2, which was a few percentage points better than our expectations.

Looking at our year-over-year room night growth by region in the second quarter, Asia was up over 40%, Rest of World was up low double digits, Europe was up a couple of points, and the U.S. was down slightly. It's helpful to remember that the U.S. was very strong last Q2 and stronger than Q1 and Q3 versus 2019, due to the rebound from Omicron. Compared to 2019, our Q2 global room night growth was 26%, which was in line with Q1. For the second quarter, all our major regions grew at a similar rate versus 2019. In Q2, the booking window of Booking.com expanded further versus 2019 than it did in Q1. The Q2 booking window of Booking.com also expanded versus 2022.

As Glenn mentioned, our mobile apps represented about 48% of our total room nights in the quarter, which is about 6 percentage points higher than the second quarter of 2022. We continue to see an increased mix of our room nights coming to us through the direct channel. The direct channel increased as a percentage of our room nights in the second quarter relative to the second quarter of 2022. For the first time since the onset of the pandemic, in Q2, we saw the international mix of our room nights fully recover to 2019 levels. Our cancellation rates in the second quarter were higher than Q2 2022, as the second quarter of 2022 benefited from the strong recovery in new bookings following the relaxation of travel restrictions in many parts of the world post-Omicron.

Our cancellation rates in the second quarter continued to be below 2019 levels. For our alternative accommodations at Booking.com, our Q2 room night growth was about 11% year-over-year, the global mix of alternative accommodation room nights was about 34%, which was higher than about 32% in Q2 2022. Versus 2019, alternative accommodation room night growth was about 38%. Q2 gross bookings increased 15% year-over-year, or 16% on a constant currency basis. The 15% increase in gross bookings was six points higher than the 9% room night increase due to 5% higher accommodation constant currency ADRs, also due to a couple of points from flight bookings, partially offset by the one percentage point of negative impact from FX movements.

Our accommodation constant currency ADRs were negatively impacted by regional mix due to a higher mix of room nights from Asia and a lower mix of room nights from the U.S. Excluding regional mix, constant currency ADRs were up about 9 percentage points year-over-year. Despite the higher ADRs in the second 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 that consumers are trading down. We continue to watch these dynamics closely. Airline tickets booked in the second quarter were up about 58% year-over-year, driven by the continued expansion of Booking.com's flight offering. Revenue for the second quarter came in nicely ahead of our expectations, increasing 27% year-over-year, or about 28% on a constant currency basis.

Q2 revenue, as a percentage of gross bookings, was about 130 basis points above last year, which was in line with our expectations. Our underlying accommodation take rates continue to be in line with 2019 levels. Marketing expense, which is a highly variable expense line, increased 4% year-over-year. Marketing expense as a percentage of gross bookings was about 50 basis points lower than Q2 2022, due to higher ROIs in our paid channels and a higher mix of direct business. Performance marketing ROIs increased year-over-year, due in part to our ongoing efforts to improve the efficiency of our marketing spend. Marketing and merchandising combined, as a percentage of gross bookings in Q2, was about 60 basis points lower than last year, which is better than our expectation.

Relative to expectation, this is primarily due to better ROIs in our paid channels, as well as lower-than-expected merchandising spend, which was impacted by the booking window being more expanded than we expected in the quarter, which will push merchandising expense into future periods at the time revenue is recognized. Sales and other expenses as a percentage of gross bookings were up about 30 basis points compared to last year, a bit better than our expectation. About 48% of Booking.com's gross bookings were processed through our payments platform in Q2, up from about 38% in Q2 2022. Our more fixed expenses in aggregate were up 20% year-over-year, which was below our expectations due to lower IT expenses in the quarter, including some impact from phasing of IT spend into later in the year. We continue to manage our more fixed expenses very carefully.

Adjusted EBITDA was $1.8 billion in the second quarter, which was up 64% year-over-year, would have been up 70% on a constant currency basis. Adjusted EBITDA was well above our expectations due to stronger top line, the efficiencies in marketing and merchandising, and lower than expected IT expenses. Our Adjusted EBITDA margins increased by about 7 percentage points versus Q2 2022. Non-GAAP net income of $1.4 billion in the second quarter, resulting in non-GAAP earnings per share of $37.62 per share, which was up 97% year-over-year. Our average share count in second quarter was 9% below Q2 2022, 15% below Q2 2019. On a GAAP basis, we had net income of $1.3 billion in the quarter.

On to our cash and liquidity position. Our Q2 ending cash and investment balance of $15.7 billion was up versus our Q1 ending balance of $15.3 billion, due to the $1.9 billion of debt issuances in May 2023, and the $1.6 billion of free cash flow generated in the second quarter, offset by the $3.1 billion in share repurchases we completed in the quarter. In the first half of the year, we repurchased $5.1 billion of our shares, which represented 5% of our year-end 2022 share count. The repurchases so far this year take our combined authorization down to $19 billion from the $24 billion we discussed earlier in the year.

We remain comfortable with our ability to complete the full $24 billion of share repurchases within 4 years from when we started the program at the beginning of this year, assuming no major downturn in the travel environment. Now on to our thoughts for the third quarter of 2023. In July, we saw year-over-year room night growth about 20%, up from 9% in Q2. Looking across our major regions in July, we saw Asia up about 45%, Rest of World up over 20%, Europe up mid-teens, and the U.S. up mid-single digits. When comparing versus 2019, July room night growth was in a similar range to the 26% growth in Q2. The U.S. was our most recovered region, with growth at over 30% versus 2019.

Our comments for the third quarter make the assumption that room night growth will be up low double digits year-over-year, assuming some moderation in growth from July, due in part to harder prior year comparables in August and September. You'll recall from our commentary on the third quarter of 2022, that room night growth versus 2019 was 4% in July 2022, and 10% in August and September 2022. In addition, we expect that due to the expanded booking window in the first half of the year for stays in Q3, that there will be fewer last-minute bookings for stays in the rest of Q3.

We expect Q3 gross bookings to grow about 7 points faster than room nights on a year-on-year basis, due to a few points from continued flight bookings growth and a few points of positive impact from FX movements. We expect accommodation constant currency ADRs to be about in line with Q3 2022, including a couple of points of pressure from the changes in regional mix. We expect Q3 revenue as a percentage of gross bookings to be around 19%, slightly above last year, due to a more positive impact from timing, in part due to the expanded booking window in the first half of this year and from increased revenue from payments. We expect these will be partially offset by a higher mix of flights and increased merchandising spend, some which is related to bookings we received earlier in the year.

We expect Q3 marketing expense as a percentage of gross bookings to be lower than last year. We expect marketing and merchandising combined as a percentage of gross bookings in Q3 to be slightly lower than last year. We expect Q3 sales and other expenses as a percentage of gross bookings to be about 20 basis points higher than last year, primarily due to higher gross bookings mix. We expect our more fixed expenses in Q3 to grow year-over-year about 30% due to higher personnel and related expenses, higher IT expenses, including the impact of phasing from Q2, and higher indirect taxes in G&A. The year-over-year growth in our more fixed expenses includes about 7 percentage points from changes in FX.

The difference between the 20% growth in our more fixed expenses in Q2 and the 30% growth in Q3 is driven mainly by FX and Majorel. Taking all this into account, we expect Q3 Adjusted EBITDA to be around 20% higher than last year. Given the strong level of bookings that we've seen, we are updating our commentary for the full year. We currently expect gross bookings to grow slightly over 20%, up from our previous expectation for low teens growth. We expect full year room night growth in the mid-teens, and constant currency accommodation ADRs to be up slightly for the year, including a couple of points of pressure from changes in regional mix.

We currently expect revenue as a percent of gross bookings to increase year-over-year by about 20 basis points, down from our previous expectation of 50 basis points increase. The reduction in our full-year take rate is driven by less of a benefit from timing, including due to the high growth rate we expected than earlier in this year, and also due to expanded booking window, and also from stronger performance, which drove a higher mix of flights than we expected earlier in the year. We currently expect marketing merchandising as a % of gross bookings to be slightly below 2022, as compared to our previous expectation for it to be similar to 2022. The improvements in our expectation is driven primarily by higher ROIs in our paid channels.

We currently expect our more fixed expenses to grow about 25%, up from our previous expectation for around 20%. The increase in our expectation is driven primarily by variable components of personnel expense due to the overperformance versus our expectations at the start of the year, as well as higher indirect taxes, which are generally tied to revenues and some additional FX pressure. We manage our more fixed expenses very carefully and continue to expect our more fixed expenses next year to grow at an appreciably lower rate than this year. We continue to expect our Adjusted EBITDA margins to expand by a couple of percentage points versus 2022. In closing, we are pleased with our year-to-date results and the momentum in the business as we move into Q3. We'll now move to Q&A. Adam, can you please open the lines?

Operator (participant)

At this time, I'd like to remind everyone, in order to ask a question, press Star, then the number one on your telephone keypad. Your first question comes from the line of Lloyd Walmsley with UBS. Your line is open.

Lloyd Walmsley (Managing Director and Equity Research Analyst)

Great, thanks. Two, if I can. First, thanks for the, the some of the color on the Gen AI Trip Planners you guys have rolled out. Wondering, you know, how you guys think about that strategically and, and balance that with what search engines are doing. You know, do you think this brings you guys more direct traffic, or, or do you think when you look at what some other players like Google are doing with their new search experience, like how that might change traffic flows in the travel space? And then second one, you mentioned, you know, marketing ROI improvements and efforts to improve efficiency. Is that a function of just m- making higher ROI targets or just other changes you're making within marketing? Any, any commentary you can give there would be great. Thanks.

Glenn Fogel (CEO and President)

Hi, Lloyd. Why don't I take the first one about AI, and then I'll let David talk about marketing and ROIs? The first, and while it's an easy answer, it's the true answer, which is nobody knows yet how this very new technology, generative AI, how that's going to play out in the long run. That's one. Two, even though we don't know how it's gonna come out, we know it's very important that we continue to do everything we can to explore, experiment, see what might be very helpful to our travelers and to our supply partners, too, along with internally, to do things better internally for us. Every company is doing that, including the big search engines like Google, they're coming out with what they can do, and nobody knows.

A couple things, though, I am fairly certain that history provides a good roadmap, and that is there will be changes, but companies that are able to adapt quickly, be agile, have great technology experts, will benefit from these kinds of changes. We saw it as things, for example, like when the mobile phone came out. We were able to adapt quickly, adjust, and we got, I think, a very good advantage from that. I think that we will hopefully get the same type of benefits as this new technology, generative AI, comes out. One thing I didn't mention for, in, in the, in the prepared remarks was I mentioned all the companies, but I didn't mention Agoda. So Agoda is doing some very good things in terms of internally, how can we use GenAI to become more efficient with all types of code, Copilot-type systems.

There are lots of different things that we're playing with all at once. I'm really happy the way that we're doing it from different directions, having Priceline doing it at the bottom of the funnel, see how that works, doing Booking.com's AI Trip Planner at the top, see how that's doing that, the ChatGPT plugins from OpenTable and from KAYAK. Being able to do all these things from the different brands and being able to learn from each other, what works, what doesn't work, where should we put more emphasis, where should we put less emphasis, I think that will help us have an advantage over many other companies that may not have the scale, the experts, the basically the capital to put into what could be a very, very exciting future for us.

We'll see how it plays out, and of course, nobody knows how regulations are going to play into this, and that is something that could affect everybody. David, I don't know if you want to talk about, the marketing ROIs.

David Goulden (EVP and CFO)

Yeah, sure. Thank you. I will. Lloyd, thanks for the question. First of all, let's clarify that this is not a change in our approach relative to our desire to lean in this year to a recovering travel market. We're still leaning in to a recovering travel market, and you can see from our top-line numbers, we're doing quite well. So that hasn't, that hasn't changed, and marketing merchandising investment in total will still be higher this year than it was in 2019. It kind of goes hand in hand with that lean in comment. What I would say and what you're seeing is within that envelope, as we look for ways to optimize our, our marketing spend, we've done a little bit more optimization than we expected.

We're not going into all the kind of components of where that would- where that's happening, but we're looking at channels for incrementality, for return to direct, things like that, and consistently testing across a very large marketing spend. You see that during the quarter, we spent about $1.8 billion on marketing, so it's a large amount of money that we're spending across that spectrum, but we're always looking for ways to kind of optimize different spend, different channels, and different approaches. It's really more to do with our ongoing effort to improve the efficiency of our marketing spend, but again, within the context of us still leaning in and looking to, to take share as the market continues to recover from COVID.

Operator (participant)

Your next question comes from the line of Mark Mahaney with Evercore. Your line is open.

Mark Mahaney (Senior Managing Director)

Okay, two questions, please. First, Glenn, have you noticed any changes in the type of travel demand? I mean, you know, short versus longer stay, you know, rural, suburban versus urban. Then I wanted to ask the CFO question on AI, which is: when you think about the impact that, you know, AI's had and GenAI could have on the business from a financial perspective, do you think that that's Dave, do you think that's more likely to be on the monetization side or on the cost efficiency side?

I'm sure you're going to say both, but if you, if you could be a little bit more, if you have any more specifics on which of those you think could be more impacted by the application of GenAI over time. Thanks a lot.

Glenn Fogel (CEO and President)

Hi, Mark. I'm smiling 'cause I want to do number two first and just say both, but I'll do it in the order that, that you gave it. So this is a question that comes up a lot because... I mentioned in the last call about how I'm always looking for the smoke signals, is something changing? Some of the key things I'm always looking at, are people trading down in terms of star ratings, or are people going for a lower length of stay? Are people shifting to areas that may be cheaper travel than what previously was more expensive travel? Always looking for some sort of early warning signal that something's happening, and I do not see that yet. I do not see that in any of those areas, and that's what we're seeing right now.

In terms of the AI, it's a very interesting question. Of course, if we knew the answer, we would have a good sense of where should we be putting most of our investment dollars and our people, put them into the area that's going to give us the best return. The thing is, as I mentioned in the first question, nobody knows the answer to these things. These are all just guesses. At this stage, it's very important to spread the bets around and see where the returns are coming, see where we want to put people to work, put money to work, and see what's going to come back. It's one of the DNA of our company has always been experiment, see what works, and keep pushing in what's better, working better than other areas.

We're going to be doing a lot of different experimentation, and I think that's going to go on for some time before we really have a good sense of where the best returns are. I think in the long run, of course, all the both things you mentioned are going to give tremendous benefits to everybody. But if as you're correct to ask the question, which things first and how much? That is not known yet.

Mark Mahaney (Senior Managing Director)

Okay.

Operator (participant)

Your next question comes from the line of Justin Post with Bank of America. Your line is open.

Justin Post (Managing Director)

Great, thanks for taking my question. Obviously, very strong in Asia. Maybe talk a little bit about what you're seeing there, and, and are you able to take some share from direct bookings at hotels or competitors? I thought your marketing ROI comment was very interesting in a very crowded quarter for marketing spend. Can you, can you talk about, is it the direct traffic that's helping you be more judicious with your marketing spend, or, or how, how are you getting that ROI up?

Glenn Fogel (CEO and President)

I'll, I'll let David speak second about if he wants to give any more color into the marketing question. I will, I'll just talk a little about Asia. Yes, very pleased with Asia. Very nice to see the second quarter numbers and even nicer to see July accelerating like that. That's great, and obviously, that's a function of Asia took more time to recover. The restrictions dropped later. We're doing a year-over-year comp, so we're getting some benefit out of that. By the way, just so everybody is not confused, China is still not producing significant. They're far behind in terms of outbound recovery, and we're, you know, much more an outbound player there, and I don't expect recovery in China for us for some time, significant time, probably. Overall, it's good.

There are a lot of factors happening there that are very similar to other parts of the world where people wanted to travel, they're going out there, they're doing it. We have done a very good job, the same way we did in the U.S., same way we did in Europe, is making sure that when people wanted to travel, we were there for them, and we're seeing the results right there. David, if you want to give any more color, into that marketing question.

David Goulden (EVP and CFO)

Yeah, Justin, I think I gave a fair amount of color in my first answer, so I'm not going to repeat it. You did ask about, you know, where the direct mix plays into this as well. Yes, obviously, as our direct mix has is increasing, as we commented, it continues to do so. That helps, but we're also getting help from just looking across our total spend on marketing and looking at pockets of efficiency, using some of the variables I talked about earlier.

Justin Post (Managing Director)

Great. Thank you.

Operator (participant)

Your next question comes from the line of Kevin Kopelman with TD Cowen. Your line is open.

Kevin Kopelman (Managing Director)

Great. Thanks a lot. Could you give us an update on your efforts and progress in the North America vacation rental market, just where, where you're at on that initiative? Thank you.

Glenn Fogel (CEO and President)

Hi, Kevin. I'm very pleased that we're continuing to advance, while we talked about the overall, we'll call it alternative accommodations, is the way we, we define that area. We talked globally about our 11% growth being faster than the 9% for the overall company. That 11% was a Booking.com number. In terms of North America specifically, or let's reduce it to the U.S., which is the area where I think we all are more focused on, we have said many, many times, I have said many, many times, that's an area of focus for us. We know we underindex, we know there are areas we had to improve the product, and we talked in the last call, and the call before that, and the call before that, too, probably, about the things we are doing to improve it.

That is in both on the supply side, making sure we're improving things so that people who own homes, people who manage apartments, people who are in this space, who say, "I'm sorry, but Booking.com, you're not doing certain things that you need to do for me." I'm glad that we are doing those things, and they will then be willing, and are, beginning to list on their properties on our platform. That's great. On the other side, as I talked about last time, is the importance. Okay, we got the properties, now we gotta make sure people know about it. I talked last time again about awareness, and that we need to bring that up, too. This is not a thing you solve overnight.

This is something that you day by day, step by step, grind it out, and that's what we're doing in all the different areas, and we're seeing the progress. Are we, are we there yet? No, not even close to there yet. The good thing is we're making the progress, and that's all upside for us down the road. We're gonna keep on plugging away at it, and I think we'll continue to experience good returns as we continue to invest in the area.

Kevin Kopelman (Managing Director)

Great. Thank you again. Appreciate it.

Operator (participant)

The next question comes from the line of Doug Anmuth with JPMorgan. Your line's open.

Doug Anmuth (Managing Director)

Thanks for taking the questions. Can you talk about where you're seeing the biggest impacts of Connected Trip? How big of an impact do you think that's having in terms of your outsized growth in the quarter? Just switching to mobile, the 48% of room nights booked through the apps, anything you can share in terms of better frequency and loyalty among those app users? Thanks.

Glenn Fogel (CEO and President)

I'll leave the second one, what, what David wants to actually reveal in that area of specifics. I'm not sure if he does or doesn't. Regarding the Connected Trip, a couple of things on that. Let's start off right at the start, that the Connected Trip is not producing material numbers increases in our what we're doing right now. The good numbers that we're showing right now are not because of the Connected Trip, and it's just too small to show that. Imagine we're building an arch, and until every piece is in place, you're not getting a lot of advantage from this arch. Right now, we're building the arch. You see parts of it that are showing up, but not the big effect.

For example, really happy about one element, which is you have to have a flights product, and we're doing 58% year-over-year growth in tickets and flights. That's great. I mean, that's a really good number. It shows that we're producing a good flight product. We'll get that going. Then there are the other areas that we have to build out, like things like the attractions, things like the rides part, get people from the hotel to the airport or from your home to the airport, things like that. Building all those things out. Then, of course, the glue, payments. That's very important to make sure the whole thing is working correctly. We're able to give benefits, value to both the traveler and enable our suppliers to have an opportunity to give types of benefits so they'll win that deal.

These are things we need payments to do, we're making great progress, and we're really happy to see that number up there, that 48% in the growth from last year. All these elements are being worked on, but that is not what's producing the very good returns in Q2. The flip side of that says, "Look at all the potential future we have down the road." That's really encouraging to me. I'm very happy where we are. I'm glad with the progress we're making, but it should not be, it should not be misthought that this is the thing that's produced, Q2's numbers. David, I don't know if you want to talk about, mobile app, anything there in terms of repeat.

David Goulden (EVP and CFO)

Yes, thankfully, I will. Oh, sorry, go on, Doug. Doug, you were gonna ask a question?

Doug Anmuth (Managing Director)

No, go ahead.

David Goulden (EVP and CFO)

Thank you. Thank you. In terms of, when you think about what's happening with, with the app, there are basically three ways that people can interact with us directly. They can come through the app, they can come to us directly on, on a desktop device, they can come to us directly on a mobile device. And out of those three, not too surprisingly, the app is the, is the, is the stickiest channel in terms of, frequency and loyalty, as you mentioned. Which is why, obviously, app is now a very high percentage of direct and has become an increasing percentage of direct, and we think that's, that's, that's a good thing.

Relative to differences in frequency and loyalty, we're not in a position to get into those today, but it is definitely our best channel in terms of frequency and loyalty.

Glenn Fogel (CEO and President)

Doug, one other thing I want to add to this, yeah, Doug, is the importance of the app and the Connected Trip. It's one of the important parts along with the other ones, because one of the things that we really believe is important when you're traveling is to get advice, deals, all sorts of things that you want to have your travel agent in your pocket. Well, in your phone, that is the travel agent in the pocket. You throw on top of this, all the GenAI stuff, all that. There's some real potential opportunities down the road, that when people are traveling, they're gonna have a much better experience than they have had in the past, and that's what I'm looking for down the road.

Eric Sheridan (Managing Director)

Thank you, Glenn and David.

Operator (participant)

Your next question comes from the line of Lee Horowitz with Deutsche Bank. Your line is open.

Lee Horowitz (Co-Head of Internet Equity Research)

Great, thanks. Your direct booking mix improvement remains impressive. I guess for starters, can you help us unpack what drove the acceleration and mix towards direct in the quarter? Something specific on your end that you guys are doing that, that drove that improvement quarter on quarter, and how should we think that being replicated going forward? Secondly, are we getting to a point where direct mix may fully offset your growth into lower margin businesses, and thus, over time, allow you to actually walk margins back towards 2019 levels? Just any commentary there in terms of direct mix and margins over time would be helpful. Thanks so much.

Glenn Fogel (CEO and President)

Hi, Lee. I'll, I'll let David talk about whether or not he wants to talk about where the margins may go with that, but I'll talk just in general, why do we continue quarter after quarter, it seems to be improving our direct mix. I believe the reason is because people like the product. That's the thing that helps. They've used it, and they decide to come back because we're giving the best prices. We've got the most select, selection, the greatest selection. We're making it easier for them to do it, and we're providing great customer service if something goes wrong to fix it. The reason I use, and I'm not gonna list some other retail, online retailers, there are just some big ones that I use. I use it constantly.

I do it because it's better, and I believe in the end, that's what wins, is customer centricity. Come back with a better product, one that people believe and trust is the reason people are loyal to a brand. That's what we're building here, and I believe that's why we are slowly, incrementally building out that direct mix. I think that's the biggest thing for me. David, you can, you can add if you want to add anything to that. Also, I'm not sure what you want to talk about in terms of margins when people come direct and what that may do in the long run to our, our margin profile, EBITDA margin profile.

David Goulden (EVP and CFO)

Yeah, Lee, we, obviously, direct mix is very helpful for, for the business. Of course, we're talking about here really direct mix within our accommodation business. It's kind of our, our, our core business. We mentioned before that we believe that we can continue to improve margins a little bit from where they were in 2023, but we're not trying to walk them all the way back to where, where they were in 2019. We all have significant businesses that are lower margin businesses than we had in 2019, when we had a large flights business, we're moving towards having a large payments business. Direct mix can obviously offset some of the pressure in the business, but don't expect it to walk our margins back to 2019.

That's not what we've talked about getting to, but we do believe it's one of the factors that can lead us to have continuous improvement from where we are now.

Lee Horowitz (Co-Head of Internet Equity Research)

Helpful. Thank you.

Operator (participant)

Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.

Eric Sheridan (Managing Director)

Thank you so much for taking the questions. Maybe against your broader long-term goals for growth that you called out earlier in your comments, we'd love to get any update about how you're feeling about supply growth with respect to shared accommodations and/or local experiences against continuing to diversify supply and build out more elements of the Connected Trip, and how do those factor in as elements of investment beyond 2023, looking out into next year? Thanks so much.

Glenn Fogel (CEO and President)

Hi, Eric. The important thing is always priorities. What's the most important thing? We've mentioned numerous times in terms of our alternative accommodations, how important it is to continue to build out the supply there. You know, we have a large number of listings, that's true. I've talked about it many times, though. You have to have the right type of listing in the right locations, and we talked in the past, and it, it's not done yet. In the U.S., getting the right accommodations in the right places so that when people come, they have something to buy. That's very important. That's top priority. When you shift down to something like attractions, not as important right now. It's important, but it's not as high a priority as getting the alternative accommodations.

That's one of the most critical things, is making sure we're spending the time, energy, effort, and money in the places that are giving us the best return. We have good attractions from third-party connections. We have key ones, the key ones, and someday it'll be important to build out further along that. For right now, for this year and next year, I want to make sure that we're gonna have the bigger bang for the buck, which is making sure we have the right number and the right types of alternative accommodations on our platform.

Eric Sheridan (Managing Director)

Super clear. Thank you.

Operator (participant)

Your next question comes from the line of Jed Kelly with Oppenheimer. Your line is open.

Jed Kelly (Managing Director)

Hey, great. Thanks for taking my question. Just going back to the, the U.S. business, you highlighted mid-single digit growth in the U.S. Can you talk about how that's trending, you know, how that's trending relative to your competitors? Does that capture the amount of Americans traveling over to Europe, or is that including in your European growth nights? Thank you.

Glenn Fogel (CEO and President)

Yeah, David, I'll let you go on both of them. I'm not sure what you want to talk about in terms of us versus competitors or not.

David Goulden (EVP and CFO)

Yeah, let me clarify. First of all, when, when we talk about these regions on a geography basis, we're talking about on a booker basis. Yes, Jed, it does, it does capture bookings being made by U.S. travelers, including those that are moving overseas, which is, you know, one of the reasons why we're getting growth. We mentioned that we're back to, you know, making mid-single digit growth in July in the U.S., after seeing a very, very small decline in growth in Q2. Actually, that was really just April and May.

By the time we got to June, we were back to growth as well, that April and May comparison was really due to the really strong rebound we saw, particularly in those months, when the all clear was declared from Omicron last year. We got a little bit of kind of funky compares going on there. I think we're doing, we're doing well in the marketplace. It's too early to kind of call how we see us doing against the market for a single quarter. We like to kind of look at that on a longer term basis and look at how the year pans out.

I would just point out that relative to the market, we've mentioned that in July, when over 30% growth in the U.S. versus 2019, that is significantly well ahead of any market data point. Our market is perhaps closer to breakeven, maybe slightly positive compared to 2019. We're, we're up 30. We kind of tend to look at it over those longer periods of time, and we'll, we'll have a better view on exactly how we're doing in the U.S. relative to the market as the year develops and as the year ends. As I mentioned, we're pleased with many of our, our programs there. We also know there's a lot of upside for us to continue to push more into, in, into the U.S. marketplace.

Glenn Fogel (CEO and President)

Thank you.

Operator (participant)

Your next question comes from the line of Alex Brignall with Redburn. Your line is open.

Alex Brignall (Partner and Transport and Leisure Analyst)

Hi, guys. Thank you, very much for taking the question. I just have one on the full year guidance. Obviously, the big change there is the revenue divided by gross bookings being up only 0.2% year-on-year. Could you just talk a little bit about how that will manifest next year? Obviously, pulling forward some bookings brings forward the marketing, and also therefore, you know, has the impact on, on EBITDA. Can you talk about the longer-term dynamic? Presumably, that has no impact on 2024, and on the margin trajectory you see going forward. Thank you.

David Goulden (EVP and CFO)

Yeah, Alex, let me take that. Yes, I mean, there are as you called out in the prepared remarks, there are two factors that are causing us to take the guidance for take rates to score our numbers down a little bit from where we were before. Actually, both are kind of what I would call good things happening within the business. The first is that the business is growing faster and the booking window has elongated compared to where we thought we'd be this year, which means that we're not going to get all the benefit from timing recovery this year. Some of that timing recovery will be delayed into next year, so that we should get back as a positive. That piece of the reduction will get back as positive next year.

The fact that flights is growing faster than we expect is also putting a little bit of pressure on margin. As Glenn said, that's a good thing as well because we are building out more capabilities and more opportunities to work with our customers across connected transactions. Those are the 2 main dynamics, one of which we will get back in terms of timing recovery, which we thought would happen this year, will now happen more likely over two years.

Alex Brignall (Partner and Transport and Leisure Analyst)

Okay, that's really helpful, David. Thank you. As a follow-up, one of the things that's obviously changed is that some of your marketing dollars, which come below the revenue line, have turned into merchandising dollars above the revenue line. So it seems really like that revenue line is very, very hard to model. If we were to think of things in terms of EBITDA divided by gross bookings, is there any meaningful reason, right, why your core business, so the accommodation business outside of payments and flights and all of the sort of businesses that dilute that figure, should not see a return to pre-COVID profitability, if not improvement, if you increase direct mix? If I just think accommodation, EBITDA divided by gross bookings, is there any reason why that should be less profitable in the future than it was before COVID?

David Goulden (EVP and CFO)

That's obviously a different way of looking at the EBITDA margins than we typically do, but you're right. Obviously, some of the counter revenue, because of merchandising, is impacting the revenue line. The direct mix will obviously help overcome pressures in the accommodation business. Obviously, things like alternatives become slightly bigger, things like Asia become slightly bigger. So even when we've talked about the long-term model for the business, assume that the core accommodation business can get back to, in the rough region where it was 2019-ish, and then the impact on EBITDA margins in the overall business will be driven by a mix of some of the newer businesses that will become quite large in terms of particularly payments and flights, neither of which were a major factor in 2019.

What I would point to, though, is I step back further and say what we've committed to for our long-term model, which I think is very important compared to 2019, is we have a business that is larger on the top line and the bottom line, and growing faster on the top line and the bottom line than it did in 2019. And that, I think, is the overall commitment that we've made, that we're very committed to, to stick to, that I think will help drive your thinking about the overall model.

Alex Brignall (Partner and Transport and Leisure Analyst)

I guess it's crucial to think of the, the additional businesses as incremental to your core business.

David Goulden (EVP and CFO)

That's, well, that's the way to think about building the model out to look at our future EBITDA, yes.

Alex Brignall (Partner and Transport and Leisure Analyst)

Thank you very much.

Operator (participant)

Your next question comes from the line of Ron Josey with Citigroup. Your line is open.

Ron Josey (Managing Director)

Great, thanks for taking the question, and, and really helpful to hear all the stats and, and see everything go as well this quarter. Glenn, I wanted to take you back maybe a year ago. We talked about growing booking share of annual spend per customer. As we see direct bookings increases, the increase, the Connected Trips rise, AI Trip Planners launch, just talk to us about the progress of, of just gaining share that annual spend per customer. Any updated goals there? Thank you.

Glenn Fogel (CEO and President)

Ron, let me try and understand the question. You're saying the annual spend per customer, is that right?

Ron Josey (Managing Director)

percentage share of travel, of travel spend, yes. I think we talked about-

Glenn Fogel (CEO and President)

Yeah

Ron Josey (Managing Director)

... getting to, like, 25%-

Glenn Fogel (CEO and President)

Yeah, right.

Ron Josey (Managing Director)

a year ago or something.

Glenn Fogel (CEO and President)

Yeah. Yeah, right. Clearly, part of the issue is, is that our customers, and I'm, I'm happy about this, they don't always use us. Sometimes they use a competitor, we see that. We see that unfortunately more than I'd like. Part of it is not having a product that they want. That's one thing which we're building out, as, as we talked a little bit about. The other thing is perhaps somebody thinks that they go, for example, internationally, I'll go for this brand, and but domestically, go with that one. The key thing for us is to develop that loyalty, that a reason that somebody really thinks that they'll come to us for any travel, will come to us.

Part of it is bringing all this together with a Connected Trip, bringing it all together with payments, developing the more we learn about the customer, with their permission, of course, and then providing them with the, what they may want more than anyone else, so that they will always come back to us for all this. What do I believe in the end it could be? Do I believe that in the end we could have the all customers all the time? Of course not. I hope that we can continue to improve this substantially in the long run. We'll see that as we begin to finish off some of these areas that we're still building out. Things like making sure we have enough of those alternative accommodations from people, somebody wants it, we actually have one.

It's like making sure that we have the payment product that they want to use, a payment system that... You know, many things around the world we've talked about, they don't use Visa card, they don't use Mastercard, they don't use American Express. They got other ways they want to pay. Make sure we have that payment for them so that that co- traveler, customer feels comfortable using us. I can go on and on and on with many other things. That's what we need to do. How high do I think it can be? I'm not going to guess at it. I just know it can be substantially better than we are right now.

Ron Josey (Managing Director)

All right. Thank you, Glenn.

Operator (participant)

Your next question comes from the line of Scott Devitt with Wedbush. Your line is open.

Scott Devitt (Managing Director)

Thanks for taking my questions. I had two, please. The first one, I'm just wondering, Glenn, in terms of anything you can speak to in terms of shift in travel trends. There's been a lot of discussion around shoulder month travel, April, May, August, September, because of remote work and elevated prices. When I hear you guys talk about the months, I don't necessarily see that in what you're saying, but it may be related to comps. I'd just love to hear your perspective on shoulder month travel first. Secondly, now that there's a new loyalty program on the market, I'm just wondering your thoughts on Genius and how you're thinking of the current offering relatives to competing programs now on the market. Thank you.

Glenn Fogel (CEO and President)

Sure. Yeah, it used to be easy. There was a shoulder, and there was peak, and life was easy to understand, and that's how it used to be, and it's not like that at all. Boy, are things confusing right now when you have Omicron circling the world, and some areas it's hitting, and then a year later, that's the area they comp against. It gets very, very confusing, as David was pointing out in the numbers, how something could look something, but actually it's much more understandable to say, "Oh, that they had COVID in that area last year, or they just opened up last year." Here's the thing: I hope that next year, things have turned back to a more normalized, easier to understand in what the seasonality of travel is.

However, there's a new thing that's come in, and that is the idea of people not going to offices as much, and then they're also traveling more. They're using this Monday and Friday, where they're traveling more for these longer weekends, et cetera, or perhaps the whole week, et cetera. I think that's going to make it more, I think it's going to be more uncertainty to see what that is. What that may end up doing is evening out travel throughout the year more, where people are able to use time in areas that used to be shoulder season, but now people are using it more, which will spread out the travel more. I don't know, but we'll find out. That's why, though, I, I, I can't change any of that, so I'm not going to worry about it too much.

What we'll use is, in the near term, is what signals we see in terms of how much we should spend on marketing or not. In the long run, what we hope is to continue to improve the products, because that's the way in the long run to win. That's how we'll do it. I'm sure lots of people are going to have lots of guesses about what the seasonality trends are going to be for the next 2 years globally. I'm not going to try and, and try and do that. You had, you had another question, I believe. I forgot it, though.

Scott Devitt (Managing Director)

Yeah, yeah, just Genius and your thoughts on, on Genius with a competing product now in the market?

Glenn Fogel (CEO and President)

Uh, so-

Scott Devitt (Managing Director)

You know, there's been-

Glenn Fogel (CEO and President)

Yeah. You know, going all the way back to when American Airlines came out with their first loyalty plan, I'm actually old enough to remember. I actually joined it. All the way to now, there are lots of different loyalty plans for all different things and beyond travel for sure. You know, another company comes out with a new one, whatever, it's, it's nice, interesting, but the truth is, I love what we're doing on Genius. I think it's a great product, and we're going to do even more with it. One of the things that's really wonderful about it is that we use it with our partners together in a way to give benefit to both of us, making sure that it is actually incrementally improving what's good for that partner, along with, of course, making sure it's good for our customer traveler.

Doing that is the way a, a, any type of loyalty program should really work. That's something that I think we've done a good job with, and we continue to do it. Now, what we need to do is add on more benefits, and adding more benefits that enables the supplier to give more opportunity to merchandise and give things that will be good for the traveler so they can win that, actual transaction. That's something we're going to continue to do. I, you know, we've talked about how we've improved it from when it just started out, and now we're up to three tiers. There are lots of things down the road that we'll add on as we continue to develop the Connected Trip that will give us the opportunity to give more, benefit, incremental benefits to both sides.

I, I really don't worry too much about what somebody else is doing. I'm more concerned making sure we're executing right on the things that's important for our customers, who are both the travelers and the suppliers.

Scott Devitt (Managing Director)

Thank you, and congratulations.

Glenn Fogel (CEO and President)

Yeah.

Operator (participant)

I will now turn the call back over to Glenn Fogel for closing remarks.

Glenn Fogel (CEO and President)

Well, I'd like to just thank everybody, for participating. We're very, very pleased with the results we had. I want to thank the partners, of course, our customers, our dedicated employees, and of course, our shareholders. We appreciate everybody's support as we continue to build on the long-term vision for our company. Thank you very much, and good night.

Operator (participant)

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Speaker 14

Goodbye.