Q1 2021 Booking Holdings Inc Earnings Call
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Excuse me. This is the operator of today's conference is scheduled to begin shortly until that Brian <unk> will again be placed on hold thank you for your patience.
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Welcome to the booking holdings first quarter 2021 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 the.
Therefore actual results may differ materially from those expressed implied or forecasted in any 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.
<unk> Holdings earnings press release, that's what all of this booking holdings, most recent filings with 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 from new information future events or otherwise.
A copy of the booking holdings earnings press release together within the companion financial and Statistical supplement is available in the for investors section of booking holdings website, Www Dot booking holdings dotcom and now I would like to introduce the booking Holdings' speaker for this afternoon, Glenn Fogel and David Walden go ahead gentlemen.
Thank you and welcome to the booking holdings first quarter conference call on.
Many of <unk> CFO.
CFO David <unk>.
I am pleased to start by reported really accommodate.
Accommodations business.
With first quarter room, nights' decline of 54% versus Q1 2019.
Which was six percentage points better than our fourth quarter 2020 of the core.
This improvement was driven by solid signs of increasing travel demand from certain countries and by our teams strong execution.
David will provide the details on our first quarter results in his remarks.
As we have said before we believe that the rate of recovery for crop will depend heavily on the right from the severity of new COVID-19 cases, the timing of the effective and broad based vaccine distribution.
And hopefully even more effective treatments in the future.
One of the piece of vaccine distribution remains frustratingly slow and most places around the world Israel, The U K and the U S are benefiting from successful vaccine distribution programs in each of these countries, we have seen encouraging booking trends, which supports our view.
The vaccine distribution is the key to unlocking pent up travel demand.
One survey work earlier on the year, we found that over 70% of Americans said that the.
The early distribution the stage of COVID-19, vaccines made them feel more hopeful and optimistic about traveling in 2021 average.
Countries from ramp up vaccine distribution, which we are now starting to see in more European countries. We believe that we will start to see booking strength to expand to more parts of the world.
While there are encouraging signs of recovery in some countries right now.
Current situations in other countries, such as India, where we are seeing staggering the increases in COVID-19 cases, and an enormous human tragedy happening reminds us that recovery is not underway everywhere.
Unfortunately in some countries the situation is getting worse.
Last week, the World Health organization of the work that the pace of the pandemic is accelerating.
We're mindful the governments may continue to take actions.
General area of Lockdowns, or reintroducing travel restrictions, including Barry people from high infection locations from entering the country.
Of these actions can have an impact on our performance and it's difficult to predict when and to what extent such actions may be taken in the future.
The more international travel must recover for there to be of complete global travel recovery and many governments may be cautious and fully opening international travel for some time.
Focusing on the U S, where the vaccination program is going well.
Pleased with our first quarter results from the U S and the strong rebound in U S travel demand for.
For Q1 in the U S. We had positive room night growth versus Q1, 2019, and it was our strongest performing major country. The.
These results were driven by domestic bookings as our international business is still very slow.
We were pleased to see improvements in our U S room night trends each month of Q1 and these improvements continued into April.
The strength of the market benefited all of our travel products can help drive the highest number of air tickets ever booked in a single quarter for our company and we know that.
The priceline and booking dot com had good use of results during the first quarter.
In this improving environment, we continue to press ahead with one of our most important strategic strategies.
Strengthening the booking dot com brand in the U S.
You may have seen booking dot com U S back to travel promotional campaign that we launched in April which offered a $50 post day promotional travel credit for U S. Travelers activated the promotion in the booking dot com App and book travel by the end of May. This is just one example of the marketing message that we will be <unk>.
The increase awareness of the booking dot com brand in the U S and in this case drive through the consumer engagement with our App.
We also remain focused on expanding the supply of booking dot coms alternative accommodation of offering in the U S.
And we targeted inside new properties of the platform in the quarter.
However, we recognize there's more work to be done to improve the breadth of this product in the U S.
During the first quarter, we continued to execute against other key strategic priorities, such as expanding booking dot coms payment platform and building the connected trip vision.
Regarding our integrated payments platform of booking Com. We have made recent progress primarily through increased adoption by our supply partners in the U S.
As I have mentioned previously this platform provides payment options favored by both travelers and our supplier partners across hotels alternative accommodations carts flight and attractions and is foundational for enabling our connected trip strategy.
The connected trip is our vision of a multi product offering including a combination of flight ground transportation attractions and dining connected by our payment network and ultimately supported by personalized intelligence to provide a frictionless seamless experience for our bookers all the way from first thinking about the initial.
Experiencing their trip arriving back home.
Building out our full connected trips vision will be a multi year endeavor.
However, we expect that our business will benefit from the steps we're taking the achieved this vision long before reaching the ultimate end State for example, the Gulf.
Hoping a robust flight product the booking dot com gives us the ability to engage with flight bookers early in their travel journey.
The allows us an opportunity to cross sell our accommodation and other services to these brokers.
We have not had these opportunities historically booking dot com given its accommodation only focus in the past.
As we think about the journey from building the connected trip. This year will be focused on enabling travelers to book the major elements of the exit.
One place on booking dot com.
This means we will be working to build our non accommodation products like flights ground transportation and attractions by increasing supply as well as exposing more of our customers two of these products.
And the booking dot com site offering we are now.
Teen countries with the most recent launch in the U K.
We can now expose a large segment of customers to flight as these 18 countries collectively represented more than half of booking dot trumps room nights booked in 2019.
Booking dot coms flight offering is now fully nature of the App.
While early we are in the process of beginning to utilize marketing marketing channels to bring potential customers two of the product.
On the attractions, we've continued to expand the breadth of the supply available to our travelers through our recent partnership with Viator, along with our ongoing partnership with music that was announced last year.
We see real benefits of a strong attractions offering gives them the potential of bundling opportunities as well as the ability to increase traveler engagement with the app, while travelers are in destination.
Across many of our key strategic priorities I had mentioned in the App.
Which indicates the importance of the App for our business, we've been investing in the platform for some time and we will continue to invest as the App becomes the center of our connected trip experience.
We see better customer loyalty lower customer acquisition costs and more opportunities to engage directly with travelers through our app.
Booking dot com was the.
Most downloaded travel app globally in the first quarter. According to a leading third party research firm.
We now see over two thirds of our bookings come through the mobile devices and the.
Surety of which are on the App.
One of the booking holdings goals is to do well in the area of sustainability.
I was very pleased to have recently made public our 2020 sustainability report.
The one achievement.
Particularly proud of is booking holdings, becoming operationally carbon neutral in 2020.
This is a significant milestone of our business and one we are working towards even prior to the pandemic range.
We intend to remain carbon neutral in our operations in the future.
And look forward to making progress on our sustainability strategy strategy, including diversity and inclusion and sustainable trial.
In conclusion.
The exact sheet and timing of the full recovery for travel remains uncertain.
I'm encouraged by the signs of recovery, we are seeing in some countries and I'm confident that we will eventually see a strong recovery in travel demand globally.
Being said, we are likely to experience volatility between now and debt with some countries recovering well.
It is beginning to recover and unfortunately, some getting worse I am proud of the actions that our teams of cross booking holdings continue to take to strengthen our companys position and execute against our strategic priorities.
We are thinking about our business beyond just getting back to 2019 levels of demand and we are focused on building a larger and faster growing business that generates more earnings instead of the recovery and for the long run.
I'll now turn the call over to our CFO David Goldman.
Thank you Glenn and good afternoon.
I'll review, our operating results for the first quarter and provide some color on the trends we've seen so far in the second quarter to.
To avoid the comparison to the initial spread of the pandemic in 2020, all growth rates are relative to the comparable period in 2019, unless otherwise indicated.
Information regarding reconciliation of non-GAAP results. The GAAP results can be found in our earnings release.
Also want to remind you the joined the periods of bookings of recovering revenue will recover more slowly than booking huge timing differences on this will impact of booking to revenue take rates.
Now onto our results for the first quarter.
On our February earnings call, we discussed the improvements in trends, we saw starting of the middle of January on continuing into February driven by domestic travel in most parts of the world the.
The improvement in trends continued into March resulting in a Q1 reported room nights declining 54% versus Q on 2019, which was a six percentage improvement versus the decline we reported in Q4 as a reminder, reported room nights include the impact of cancellations.
The improvements in the queue on room night decline rate versus Q4 was driven by the U S and Europe, while Asia and rest of World declines were about the same in Q1 as you were in Q4.
The U S was the strongest performing major country in Q1, and how the positive room night growth versus 2019 for the full quarter.
The trends in the U S improved through Q1 with very strong room night growth versus 2019 for the month of March.
<unk> was a contributor to growth in March U.
U S domestic room nights growth was positive for each months month of the quarter with very strong growth for the full quarter.
In Q1 other countries also experienced very strong domestic room night growth, including Russia on Australia, and we saw continued strengthening and domestic bookings in Israel.
While Europe improved for the quarter compared with Q4, we did see trends softened towards the end of March driven by rising COVID-19 case counts of new in positions of travel restrictions Europe, where the lease recovered region in terms of room nights booked in Q4 on it remained the least recovered.
Region in Q1.
Moving on our bookings, particularly through our apps continues to represent over two thirds of our total room nights on <unk>.
Alright channel gained share of both sequentially and year on year.
Domestic room nights represented about 85% of our reported room nights in Q1 in line with our Q4 2020 mix of room nights on up significantly versus 2019.
On cancellation rates continued to be elevated versus 2019 in the quarter, but improved from levels. We saw in Q4.
The booking window of booking dot com remain shorter than it was in.
In the first quarter of 2019, as we continue to see a higher mix of near term bookings. However, the booking window of contracted less than it did in the fourth quarter.
On the last call in January and February we saw on expansion of the booking window versus 2019 in Western Europe. On this expansion continued into March of the share of sort of our bookings, including those of us on travel increased versus the same time in 2019.
Jus the situation in Europe, with new COVID-19 cases, vaccination rates and travel restrictions bookings of generally either very near term or for the summer period.
The overall mix of customers booking alternative accommodations on booking dot com in Q1 was about the same in Q on Q1 last year as.
As we noted last quarter Europe is where we have our highest mix of alternative accommodations on Europe was the slowest growing regions in the first quarter, which negatively impacted our alternative accommodation mix on a global basis.
The mix of alternative accommodation bookings in Europe increased by several percentage points year over year.
Gross bookings declined 53% in Q1, which is less than on the decline in reported room nights, primarily due to strong performance in our appliance business and partially offset by a 1% decline in average daily rates for accommodations versus 2019.
Airline tickets booked in the first quarter were up 49% versus 2019.
Driven by strong growth of price line by flight bookings of booking dot com on the goda, both of which did not how fly proxy Q on 2019.
Our accommodations average day rates only declined 1% versus 2019 benefiting from a higher mix of North America, which is the higher ADR region.
Excluding regional mix effects.
Yes.
Down approximately mid single digits.
And you asked in the quarter were helped by the higher mix of some of the bookings in Western Europe, which typically have higher <unk>.
Consolidated revenue for the first quarter was $1 1 billion and decreased 61% versus 2019 revenue.
The revenue in the quarter declined more than gross bookings due to the bookings made in the quarter. The are expected to check in in future quarters at which point in time to revenue will be recognized take.
Take rates in Q1 were a little less than 10% largely driven by these timing differences.
As you'll recall, we just just the impact of the timing on take rates in 2020 in 2021 during our last call. We expect timing to impact the take rates all year, assuming the booking growth continues to improve during the year.
The 61% reduction of revenue resulted in an adjusted EBITDA loss of $195 million in the quarter.
We significantly reduced our variable expense lines like marketing sales and other.
The fixed expense in Q1 were broadly in line with the commentary we provided on our last call.
Marketing expense, which is of highly variable expense line decreased 61% versus 2019.
Marketing expenses.
The decline more than gross booking ju, two and in Christ due to an increase in our Darren mix and slightly higher rois and pay channels.
Sales of other expense in Q1 were low anywhere in Q4 on a dollar basis, which was slightly better than our expectations.
Personnel expenses were in line with our expectations Q1 expenses behind the where in Q4 on the all basis due primarily to increased stock based compensation expenses and seasonal increases in benefit costs, partially offset by a higher amount of savings in Q1 related to the restructuring actions we have taken.
G&A expenses were low in Q1 than they were in Q4 on dollar basis versus the.
First of all expectation for them to be about in line due to the lower than expected personnel related costs and professional fees.
Information technology expenses, the higher in Q1 of the where in Q4 on dollar basis, but will lower than on expectations due to the timing of spend.
Finally, we reported $8 million restructuring charges in Q1, which was lower than our prior expectations, primarily due to timing of real estate restructuring charges on.
These restructuring charges are included in our non-GAAP results.
We recorded a non-GAAP net loss of $250 million in the quarter.
Q1, non-GAAP tax rate of 38% was meaningfully higher than our 2019 tax rate of 19% due to the greater impact of non tax deductible expenses on a lower base of earnings.
On a GAAP basis, we had an operating loss of $311 million in Q1, we recorded a GAAP net loss of $55 million in the quarter helped by an income tax benefit of $223 million.
Our Q1 tax rate of 80% was meaningfully higher than our 2019 tax rate of 21% due to the impact of non tax deductible expenses on a low base of earnings on the impact of discrete items recorded in the quarter.
Now onto our cash and liquidity position on <unk>.
And the cash investment balance of $16 4 billion benefited from the $2 billion raised in our Euro bond offering completed in March.
In April we used all of the proceeds from the eurobond offering to redeem two higher coupon senior notes that we issued earlier and the pandemic last year. These.
Of these refund. These refunds the actions. We took will result in approximately $70 million of annualized interest expense savings and where NPV positive transactions.
Adjusting our Q1 and the cash investments for the redemption of the Tuesday of notice. The happened in April will result in the balance of $14 4 billion, which is down from our December and the balance of $14 8 billion.
We have the $207 million operating cash flow operating cash outflow in the quarter driven primarily by change in working capital, which represents the use of cash of about $268 million in the quarter.
We will continue to focus on maintaining a strong liquidity position given the high level of uncertainty created by the COVID-19 pandemic and consistent with our points of last year, we halted all repurchases of stock.
And we will not initiate repurchases until we have better visibility into the shape and timing of a recovery.
Now onto our thoughts for the second quarter.
The continues to be considerable uncertainty about the shape of the timing of recovery for travel, which means that we are unable to provide detailed guidance at this time.
April room nights declined about 43% versus 2019, which was better than the decline in March.
Domestic room night growth was about flat versus 2019 for the month of April the best month of results for domestic room nights since last summer.
On a regional basis. The U S continues to have very strong room night growth in April and was above March levels.
The room nights.
The declines were better in April than in March recovering from a softening of the trend. We saw at the end of March on the first week of April.
The room night declines in Europe were down over 50% in April.
Asia room night declines worsened in April versus March as outbreaks of new cases decreases income.
<unk> vaccination progress has been slow on governments continue to impose restrictions on travel.
Asia was the lease recovered region in April.
The rest of the World declines were about the same as April of the work in Q1 and Q4.
While difficult to predict with accuracy. If current trends continue Q2 room night declines could be a few percentage points better than April.
To give you a snapshot of what we're seeing recently room night declines over the last seven days April were about 38%.
As I noted earlier in Western Europe, the booking window expanded in Q1. This expansion continued into April and we continue to see positive some of the booking trends in western Europe across all of Western Europe gross bookings for the sort of period on now within the 30% of where he worked at the same time in 2019.
For the U K than now is about the same level as you were at the same time in 2019, we.
We remind you that the significant majority of sort of of bookings are comparable.
Turning to the income statements as I said, we expect Q2 room night declines could be a few percentage points better than the decline in April we expect Q2 gross bookings declined slightly less than room nights driven by the same trends we saw in the first quarter.
We expect future revenue to decline more than gross bookings to the due to the timing factors. We have discussed how the results. We expect our Q2 revenue on a percentage of gross bookings will improve from Q1, but will be a few percentage points lower than in Q2 of 2019.
We expect marketing expense in Q2 will decline a little more on gross bookings, but less in revenue.
We expect sales and other expenses in Q2 should be up significantly versus Q1 on a dollar basis and will be a high percentage of revenue due to higher gross booking volumes in the second quarter as well as an increase in the mix of the gross bookings process on a merchant basis.
We expect personnel expenses in Q2 will be about the same as the were in Q1 all of dollar basis compared with Q1, SBC Ambev expenses are expected to be less but this is offset by an increase of bonus accruals, which are recorded proportional to revenue.
We expect G&A expense in Q2 will be higher than Q1 on a dollar basis, driven by higher personnel related costs, such as recruiting of G&A as well as higher professional fees on digital service taxes.
We expect <unk> expenses in Q2 will be higher than Q1 on a dollar basis due to increased investments in security data privacy and some of operational systems enhancements, including some deferred expenses from Q1.
We expect.
Currently estimate the full year restructuring charge related to actions of booking dot com will be approximately $30 million on we expect to record about half of these charges in the second quarter.
Given what we just explained, especially the timing difference between the recovery of bookings and revenue we expect to record an EBITDA loss in Q2, albeit less of the loss of the recorded in Q1, depending upon how demand develops during the quarter. This could potentially be a small EBITDA loss in Q2.
For the full year 2021, we continue to expect the the overall environment the travel will improve during the year, but the shape and timing of that improvement remains uncertain.
As Glenn mentioned in his remarks, while we're seeing recovery on other encouraging signs in some countries other countries and regions are struggling with a rapidly growing COVID-19 wave globally. The number of new cases of reported is increasing with a record $5 7 million New cases recorded the week of April 19. This is the.
Impacting our business across much of April.
All of Asia.
As a reminder, about the cash of our model of during the recovery.
Continue to expect the if we see continued recovery in 2021 there'll be more bookings made in 2021 that will check in 2022 than there were of bookings made in 2020 that checked it in 2021 the.
This timing factor could have a meaningfully negative impact on our revenue as a percentage of gross bookings and also drive deleverage of marketing expenses in 2021, as we incurred the majority of on market expenses at the time of booking.
To remind you in 2018 in 2019, our revenue as a percentage of gross bookings was approximately 15, 6%. This increased to 19, 2% in 2020, we expect this percentage will be well below 15, 6% in 2021 on the faster the recovery occurs the law of this.
Essentially will be.
Before closing Theres been a lot of interest in our commentary in February about the longer term model for our business and I want to reiterate what we said previously and also provide some more color.
We continue to believe it will be years not quarters before we see a full recovery of the travel market, especially international travel looked.
Looking beyond 2021, we continue to look forward to being a larger business with more diverse offerings and we more earnings that we have project COVID-19.
We remain focused on the potential for higher growth of market share we.
We expect the continues to have industry, leading EBITDA margin rates, albeit most likely at levels below those in 2019, driven by mix shifts within the business I discussed on the last call. As a reminder, these mix shifts include the continued growth of payments on the growth of flights on other connected vehicles, which will add revenue on EBITDA.
But much but at much low margin rates on traditional accommodations.
And if you think about the future shape of our accommodation business. There are a few factors to consider as discussed on last call. We expect the personal expenses in 2021 to be about the same as it is in 2019 of the savings from restructuring actions taken in 2020 are expected to be offset by personnel run rate investments made.
Pre COVID-19 on personal investments expected in 2021 of course some of the divestments also support payments on the connected trip.
As we look beyond 2021, the $370 million in savings from our restructuring actions were mainly volume related functions, meaning the as volumes grow back to levels, which we expect.
Which means as long as you go beyond the levels, we expect in 2021 will need on expenses back the business.
As we've mentioned before we'll look to do this in cost effective ways, but the work will come back on.
When added to our 2021 personnel cost base will put pressure on our combination business EBITDA margins relative to 2019 at the same level of volumes. We had in 2019 on at the same growth rates of.
Of course, there are offsetting factors that could improve margins, including variable cost efficiencies from additional scale of rebuilt grow beyond 2019 volumes from fixed cost efficiencies on them.
From increased direct mix.
The last of all I'd like to leave you with on this topic is that we believe that the recovery of the travel market will create opportunities to invest to gain share in accommodations, which could put pressure on margins during the period of share gains.
In conclusion, we were pleased to see the recovery we discussed in February into March and April and some parts of the world leading to improvement in on top line metrics were also watching the spread of COVID-19 on the distribution of effective vaccines very carefully on realized this may lead to volatility.
The volatility ahead, we remain confident the week of immersion this crisis in a stronger position.
With that we'll take your questions on graceful handover huge open the line for questions.
Thank you Sir reminder, to ask the question you will need to press Star then the number one on the telephone keypad.
That will be started on the number one on the telephone keypad. Please standby will compile the Q&A roster.
Your first question comes from the line of Justin Post from Bank of America. Your line is open.
Great. Thanks for taking my question I think of <unk>.
The things would help can you give us any updates or your thoughts on the mix between U S. Europe and in Asia. Just so we can think about the recovery and then can you remind us what happened in Europe last summer when cases came down did you see a rapid increase.
And are you seeing bookings pick up as people are vaccinated right now in Europe. Thank you.
Your line of David Why don't you take the yes, just let me take that so.
Just to remind you of.
Darren Historic mix.
We have basically said that Europe is of course of.
Largest our largest region historically, if you think kind of roughly 50% of or maybe a little bit more you wouldn't be far off being correct Asia, We said historically again pre COVID-19.
It was about 20% with no single country being more of the low single digits and that means that you've really got 30% left for us the rest of world combined so that is off of.
The pre COVID-19 mix, obviously that makes the change a little bit with the dynamic of what's happened recently, obviously the U S is out of this has gone has gone up as that's been the most recurrent marketplace.
So thats the historic reference points in terms of last summer.
We saw a couple of thing we of course did see after the first wave came down.
We saw people getting more comfortable traveling across vaccines were still not avail of that point in time, so people kind of traveling quite carefully on traveling locally.
What we have seen and we.
In several places what we've seen so far is there a consistent trend that win.
Place to come down when the vaccination rates go up when government restrictions start to lift good things happen, we see the happening in the U S. Right now we see the happening in Israel, and we mentioned a couple of other areas doing better than the average so our expectation is.
But we'll see those positive trends start to occur in other parts of the world, particularly in Europe as things assigned to improve as we mentioned we are seeing things improving.
April vs versus March in Europe isn't how low longer the lease recovered region.
Got it maybe one follow up you mentioned.
Share gains maybe for Glenn the opportunities.
Maybe you can give us a little more color on that and do you think of U S bookings are trending above kind of industry averages right now.
So as I said I'm very pleased with the Q1 results from the U S. I mentioned, both Priceline dot comment booking dot com doing well. So we are very happy about that I don't have we're.
Or not done with the quarter, yet so we don't have industry wide numbers to go against so I was kind of sort of I am pleased with what we're producing and we'll see after everybody has reported how we did.
Great. Thank you.
Thank you. Your next question comes from the line of Kevin Kopelman from Cowen Your line is open.
Great. Thanks, a lot of it a couple of follow ups on the on the U S. The U S growth.
Can you give us any more of a sense of how much Q1 improved.
Vs Q4 end.
Obviously, the overall industry improved in the U S in the first quarter quite a bit but.
Was booking dot com, our bookings growth in the U S.
Also of product of any specific decisions you made in the first quarter along along the lines of your new strategic.
The increasing strategic focus on U S share gains for example.
Change in the way Youre doing marketing or anything like that.
So why don't I talk generally about the strategy and then David if you want so I'm not sure who wants to disclose anything more about it.
The specific numbers and gains I will say this I've said this in several calls from the past actually many of.
Increasing our performance in the U S is a strict strategic priority and we have said that we under index in the U S. So we are doing many many things to try and improve debt and everything from the <unk>.
<unk> made sure we had the right selections of properties of people want to make sure. It's the right price to make sure. We're competitive I talked about how we had to have the U S payments platform up and running for booking dot com. So we can to create a new things such as our back to travel promo which of course wasn't in Q1, but just another example of <unk>.
Things that we're doing and there's a lot of it just blocking and tackling done by both teams Priceline dot com and the people of booking dot com working with our suppliers coming up with the ways that we can help them.
Get more customers. So certainly of different things. There's no one thing to say that was the silver bullet and I expect that we will be able to continue to do this I hope to you looking to do this in the future. It will remain a priority for us.
And David if you want to sort of the numbers.
I will just carrying reiterate what we said and give you a little flavor to make sure you understand where the emphasis was so.
Things did improve significantly sequentially.
The U S. During the quarter and we had we have.
The positive room night growth in the U S year on year, which is great. Because obviously the international business was still down a bit from out when we got into March.
The room night growth in the U S was very strong, which I characterize that.
Any of our normal growth rates that strength and further into April.
So very strong plus and then if you just kind of.
Double click down on look at just the domestic recognizing there is some substitution effect in that.
The growth rate in the U S was very strong for the entire quarter positive each month of the quarter on getting stronger.
The stronger in April than it was in March.
Okay, great and if I could just one follow up on that on you did the $50 of travel credit from that promo in April you see that isn't the kind of an ongoing.
Tactic or strategy that you might use and how.
How much of this shift.
The shifting cost from marketing spent the contra revenue.
We're just we just put it out its still of opportunity is still the book on that one it goes till the end of May for U S people. They can still do a bulk of it had to do with the end of April they had actually activate it. So we don't have a lot of that debt today, and what we think thats kind of be it certainly is something that its one one different thing I pointed out not because of huge.
The driver, but just as an example of things that we haven't done in the past that we will do in the future and in fact, just you may have noticed it we started it very similar to on that exactly the same program in the UK yesterday or maybe just two days ago. The.
The point being that we're trying to be more creative.
Going forward coming up with different ways to bring those customers to us shumway the great product. We have great service, we have to make sure they come back to us in the future, albeit not with the promotion.
Thanks, Glenn Thanks, David.
Thank you. Our next question comes from the line of Mark Mahaney from Evercore. Your line is up on them.
Okay, I think I've got two questions. The first start off I think Glenn you made some comments about the mix of alternative accommodations and being I think relatively similar in the March quarter versus a year ago, and I guess I would've thought that it would have been kind of structurally higher.
That somehow because of during the COVID-19 crisis, I know you've talked about debt mix, increasing do you expect it to recover back would you expect it to revert back to where it was before that as alternative accommodations as a percentage of your lodging mix or would you expect it to be somewhat elevated post COVID-19, just because of the greater exposure.
That a lot of consumers had to that during the crisis.
Mark let.
Let me I'll answer your question first about the general what I expect from the future.
David I talked about the mix and he can talk about because we have more in Europe.
I'll, let him go through that journey, certainly why but from where we are where we are.
In terms of the future here's the situation, we've been saying for many many years and everyone's aware of this debt people have been more interest in the alternative accommodation, which is a global phenomenon and it's been going up the steady rate for some time.
COVID-19 created a step function change where people who may never have thought about an alternative of combinations now they're thinking I want to go to of home that's not near people, maybe near the beach or of the mountains. Thank you I'll say from there.
Having tried that in the future of the question as you. Just asked is will people go back to their former.
The habits of some people go into hotels of the homes going to be a more gradual increase and what will it be of drop back first and then back up I don't think anybody really knows but.
We'd make the guest that people haven't tried the alternative accommodations during the <unk>.
<unk> will forever in their consideration set.
May not always use it it will choose what type of property fits their needs, but now because it is part of their consideration set I think there is a functional change in increase of mixed on the long run that being said for US we do both we have the.
Greatest selection of both hotels and non hotel accommodations together combined so we feel we're very well positioned globally for debt, though I have spoken in the past in some regions we are definitely.
Insufficient supply that we need to build up and David If you want to explain again about the issue because of mix in terms of geographies and the mix of properties yes.
Yes, Michael if you just explain on maybe a slightly different way so.
Starting with Europe, if you just look out of.
Out of our business within Europe, you only looked at that lens you would see on.
The combination of mix in Q1.
This last year.
A fair amount compared to.
Q1, 2000, and also versus Q1 of 2019, so within Europe.
We have our largest mix of alternative accommodations, we see an increase of mix.
But you also remember I said that the Europe in Q1 was the lowest performing region.
And of course, the highest performing region was the U S, where we have a much lower mix of alternative accommodation. So that mix effects means in total on alternative accommodation mix did not increase but in Europe. For example, where it's the largest it did increase a fair amount. So it makes it back is really the biggest region in total in.
In Q1 of.
The mix of accommodation of a very similar to the 30% number we gave out for all of FY 'twenty, but again within the within different regions, they're all of it.
Shifts occurring.
If I could ask one follow on question I think you talked about it of better ROI on paid marketing channels and just your guess as to whether thats sustainable or not thanks a lot.
Yes, it's a good question of there are many things going on in <unk>.
Rois so yes.
Yes, we did see slight improve rois on the pay channel. We also saw an increased mix of those two together.
Let us have Montenegro less in bookings in the quarter, but there are many factors that go into account the rois of cost per click conversion rate cancellation rates and we're still out of period of let's say high volatility across all of those so it's not it's not reasonable to point any one factor as to why Rois where were up but they were up slice we want the pointed.
Non.
So let me just one quarter, so given the volatility of things happening.
As you pointed out with truly to two core trend.
Okay. Thank you David Thank you.
Thank you. Your next question comes from the line of Slide Wamsley from Deutsche Bank. Your line is open.
Hi, This is Chris on for Lloyd. Thanks for taking my question can you just talk a little bit about.
I guess booking frequency associated it sounds like there has been the meaningful pick up and share with you guys. Its app.
Just kind of talk to us a little bit about booking frequency on app on how that compares to non app users. Thanks.
David I know, if you've ever disclosed anything in terms of frequency on the.
No Chris I can tell you kind of what we have to a balance of answered. The question and then maybe we're not kind of maybe we haven't thought of your question completely right but.
Just to kind of remind us where we are right now.
Oh, the two thirds of our bookings on mobile the majority of those on.
On App.
Our app booking.
Customers are most frequent bookers relative to other direct channels. So as always we can have a direct booking through our mobile web direct booking all through the desktop booking and the app of.
Bookers all of the most of the the most loyal on the most of the chain, but we really haven't gone into the frequency and also I would say right now in.
In the current environment, where we're still very much recovering.
The frequency metrics are not the.
Most critical ones that we're focused on right now it's more of the overlay on top of durable top line growth rates, but we are pleased of what we're seeing with the trend towards app usage the increase in the mix and the.
Repeat behavior of App users those are all positive things for us.
Okay. Thank you that's helpful and.
And just want to make sure.
More of a housekeeping question I saw a little bit of repurchase activity that was not related to you guys. Starting up your buyback again is that correct.
No that was it that was really that was related to employee stock purchases.
Very good thanks, no buyback related.
Thank you. Your next question comes from Atlantic, Brian Nowak from Morgan Stanley. Your line is open.
Hi, This is Alex Wang on for Brian. Thanks for taking the question first just on flights I appreciate the update on the rollout to 18 countries. Maybe any early learnings you can share with us partaking in the U S.
Potentially attach rates that you could share sort of what do you foresee as the key two or three incremental investments just sort of.
Execute on flights as it progressed through the year.
Sure. So we don't give away I don't believe we've ever talked about the actual attach rates I will say that that is an important reason, we do flights and that getting that Booker upfront is important. So that we can then get them to buy something that will have a higher <unk>.
Your margin the.
<unk> countries in the bookings.
Booking dot Com is now working and we are getting initial we believe.
For some time now I guess the year now approximately we are getting some learnings how can we improve it how can we make it better.
Really haven't marketed this at all in terms of the way we market our hotels offering because we want to get it right before we started spending a lot of money, we don't want to waste money as you know.
I am very pleased though with the very limited effort that we've done that people are using it and we are getting feedback that people are coming back. So that's good and some of that.
It's important for the long run and I want to emphasize how much. This is a long game, we're playing here because as you know the number is still very very very small and this is very early but we hope in the long run the disconnected trip, which is not just the flights, but it's also the ground transportation on the attractions in the dining all of the things.
The people do when they are traveling to create something that makes them want to always use our app more than anything else when they think of travel it come back to us. So it's critical that we have that first thing which is important to a lot of people fight and we're going to continue to make investments into it to make sure that is absolutely a great great service.
Just one follow up I think a couple of quarters ago, you guys had tested a digital brand campaign I'm not sure. If there's anything you can share on that but maybe bigger picture as we look at the performance channels ex search do you see any opportunities to sort of lean in some more of the non search performance channels with online <unk>.
As we are seeing increasing sort of digital transformation as a result of the pandemic.
What we recognize thats, where the eyeballs are going so we need to make sure that we're putting on.
Our name appropriately in front of people when they think of travel they think of US. So we are cognizant of that fact, and we are we are working on that so yes, we were.
We'll continue to work with that.
Great. Thanks.
Thank you. Our next question comes from the line of Maria <unk> from Barclays. Your line is open.
Great. Thanks for taking the questions.
One on the agency versus merchant bookings and then.
One of the payments so the one on agency versus merchant it looks like the merchant bookings of recovered level.
Much quicker in <unk> compared to the agency is there anything to kind of call out there.
Explain the quicker recovery.
And then on payments you guys mentioned you guys on north of 20% of bookings is there.
There are specific target you guys transfer of each and the law.
Long term and.
How should that flow through to.
<unk> revenue and operating margins over time thanks.
Steve one of your charging of those agency merchant question and I'll talk about the long of the long vision on payments.
So actually.
We saw a slightly.
The lower mix of merchants in Q1 this year than in Q1 last year. Both in total on a booking dot com because bear in mind, you're kind of comparing a essentially out of.
And almost the non price this quarter last year of course Q1.
The March things got worse, but most of the quarter was not prices and now you're talking about.
Comparing with the quarter the is very much still in the crisis with recovery mode. So people in the short term looking at the more flexible agency pay at the hotel.
Moral because that has.
Just on the attractive proposition at times like this with flexibility becomes very very important we do expect the motions.
Business actually increased during the year and.
Booking dot com, where we have obviously the biggest mixture of happening and we still think that the merchant business in total.
2021 will be of slightly higher mix than it was in 2020, but of course flexibility is one of the factors.
Holdings.
People looking at the bookings in this environment. So that's what's going on this year.
The long and the long view, we'd like to get us there.
As much business possible on payments, because we believe we will create a better service for both our customers, we're traveling and our supplier partners to be able to do all sorts of things you can't do on is just the straight agency play and we believe we can provide value to everyone in that way and I gave the example earlier.
About we Couldnt do a back to trial promotion, if we didn't have the payment product to do that and there are many ways, we're going to be able to merchandise peoples, our supplier partners different ways to merchandise their offerings in ways that you can really only too well with the payment platform and of course, putting things together bundling.
All of different things, so obviously, we'd like to get as many people in because it's good for everybody who comes into it both the customer and supplier that being said, we know that we'll never get to 100% there will be still be of lots of people, who will say well I need a hotel like this agency thing I would say the desk of small fine, we'll see if that happens or whatever but even in that situation.
We may actually do the payment for the hotel on the way, we can save them money. So it's a great. It's a great opportunity for us but is the long view on just going to take some time to get there.
And then just to kind of reiterate what we said before about how it plays out in the income statements.
We get additional revenue.
From providing the payments service, we have variable cost weight to that city of sales and other issues, whether you see the biggest offsetting our cost elements to offset to match. The revenue there are some incremental expenses obviously.
Other lines as well relates to running the payments program, but the biggest variable cost of sitting sales I know the as we mentioned in 2020 the.
The payments business on.
Operating very close to break even when factoring the particularly the variable cost into accounts.
Which is an improvement from where it was before and so it's obviously on an enabler of the business as Glenn just articulated so we want to continue to grow the mix and maintain that.
Breakeven profile will be growing it out recognizing the in the future. We recognize the monetization opportunities that can lead to incremental EBITDA from the payments business, which we expect albeit at lower margin rates in the core accommodations.
Great. Thank you.
Thank you. Your next question comes from the line of Doug Anmuth from Jpmorgan. Your line is open.
Great. Good afternoon, the first day on for the things for taking the questions. My first one is on the alternative of combination product.
You talked about works needed to improve the public in the U S.
Inventory on the awareness of you've talked about in the past or the other areas, where you see opportunities to improve and then on.
Just on the room night growth on booking growth. It seems like there's been a sizable diversions and trajectory.
Kind of feel like.
The affecting the Alberta anything else notable that's driving that and how should we think about the relationship between the two of going forward.
So I'll take the first and David why you take the second so in terms of the alternative of combinations and the states on the things you mentioned are very very reported so we've got to have the right properties for the customer and I have talked about this from the past that we under index with the private homes. The single homes in the states and that has been a.
A popular product in the space because of the pandemic and that's on that we are continuing to work on in the future.
It's also just the process in general how we get people on board, who are dealing with to get them to come in and we currently are using the multi multi product property managers more than say some of our competitors, who can go out and get individual property. So theres difference on how we're doing it right now.
I do believe this is of very very achievable goal to be as competitive as anybody else and as David mentioned earlier about mix, we do a great business in Europe, and the alternative accommodations area of very good business and Theres. No reason, we shouldnt be able to do the exact same thing here in the states. So it is taking time.
Yeah on the on.
What's going on between the dynamic between the room night growth and.
Booking growth.
On a couple of factors going on here of one I mentioned, the fact that we're doing that we're seeing.
The better.
Booking growth of performance from flights because of volume.
And also.
We are doing even though the units of.
Our down 4% to 6% in car is actually fairly good increase in.
In rates the cost of the total total bookings of the CTV is down better for both light and caused the diesel of combinations, but the biggest factor is really what's going on with <unk> and the has been a bit of a shift from what we've seen even the last cut.
Months and.
We are sort of the ADR on the quarterly only down 1%.
Now I would say that a couple of things the like for like $80 on absolutely still on the pressures due to low occupancy rates, but there are some mixed benefits of really impact of the year on year comprised of the first mixed benefit was the mix shift towards the U S is the you actually start to accelerate particularly in March you saw a really fast pick.
Up in growth rates in March that we were not forecasting when we lost net.
Use of that was a positive for the room micro who also from ADR and also in Europe, what's happening right now because there are still of lot of restrictions people booking today are booking generally more often for the summer holiday on the summer holiday period in Europe is higher.
Hi.
The most short term stays so those two mix effects on really helping the AVR picture and we expect the both the phenomenon that I talked about in terms of the Aaron Pas on ADR of.
Of the likely to go through to Q2 as well, but we do think the 80 hours of sorts. We go down again in the second half due to a couple of reasons again, the like for like on.
On the pressure as an example of this.
<unk> in the first quarter of down mid teens, if you exclude regional mix, that's more of a kind of like the like comparison.
It's not like for like on price is more likely to kind of the exposed in the second half.
Regional mix May continue to help.
We do think that this failure of.
Booking of the sum of benefit of some of the bookings will will face on the reported.
We will become more comparable with the underlying state on.
Those will those will converge back to get more on the second half of them. They did in the first half. So some interesting phenomena going on with mix them with booking window in Europe, driving what we're going to see in Q on Q2.
Great. Thank you Robert.
Thank you and your last question comes from the line of Deepak <unk> Matthew <unk> from Wolfe Research. Your line is open.
Great Hey, guys. Thanks for taking the questions just a couple of ones. So first wanted to go back to your comment about investing to gain share with the margin opportunity.
How should we think about your approach strategically is it on variable marketing channels. Obviously, there's a few products that you have talked about before but are the other any other initiatives that you would notice something that could be impactful. During this recovery period and then the second question is on the labor market situation here in the U S. Obviously, the very tight in some of the hotel operators of <unk>.
All of that the challenges there as well how do you think this affects your business if at all maybe broadly talk about how the supply side is evolving during the recovery.
And so I'll tell I'll start with the second part labor and all of that.
David go back margins on.
Can you just can look over or as we continue to go for the future. So.
Certainly we've all read and heard news articles about shortages right now popping up in different areas of the hospitality industry and some of the leaders in the industry, particularly some of the hotels and restaurants, saying just can't get workers, but I don't believe that's going to impact where people.
<unk> going to be able to find a place to stay at all.
Right now there is no shortage in my mind of Great places for people to go to and I don't see that happening, yes. Some property types, maybe short at certain times during high season, particularly some of the very popular areas from the summer.
The leisure comes back in some parts of the world, but overall for the business I don't see this as a significant or even a small risk to the business at all and David you can talk a little bit about margins.
Yes, I mean, clearly in the business like all of those or the trade off between gross and profitability or gross margins, particularly in the short term.
And the areas that we would expect to be lean into there are a number of initiatives that we can drive to a leading to to drive the growth obviously, we need to be smart and we need to be nimble and you can look at where the pockets of opportunity, but we continue to be.
I think.
A very good market here in the pay channels and look at those demand opportunities and really have the opportunity to lead into the.
We think we kind of where we think we can actually gain incremental traffic. We can do things with merchandising and we can also do things with things like promotions like back to travel also the areas like brands. So there are multiple <unk>.
We can pull to drive growth above market, where we believe there are opportunities to do so and we believe that the recovery, obviously presents a very dynamic environment for for everybody. We want to make sure that we are.
Taking a range of opportunities that we can do the make or made for us on those are the things that were in the short term impact of <unk>.
Bear in mind as we talked about what's happening this year during periods of time when bookings are growing faster than revenue that impacts the business because generally our expenses are associated upfront with capturing the booking on the revenue comes later so those of all the things that go into the dynamics around <unk>.
Gross versus margin and the combination of business.
Got it that's very helpful. Thank you so much.
Thank you everyone and Thats all the questions on behalf for today I'll turn the call over back to RSV of Glenn Fogel for any closing remarks.
Thank you.
In closing I want to thank our partners our customers our dedicated employees and our shareholders. We appreciate your support as we continue to navigate through these better those so the still difficult times.
We want to continue to build on the long term vision for our company and thank you everyone and please be safe.
Good day.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you all for joining you may now all disconnect.
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