Q2 2022 Booking Holdings Inc Earnings Call
W. W. W Dot booking holdings Dot com.
And now I would like to introduce booking Holdings' speakers for this afternoon, Mr. Glenn Fogel, CEO and Mr. David Goulding CFO go ahead gentlemen.
Thank you and welcome to booking Holdings' second quarter conference call.
I'm joined this afternoon by our CFO David <unk>.
I am pleased to announce that we reached another milestone in our company's recovery with room nights for Q2 being the first quarter in which we have surpassed 2019 pre pandemic levels.
Our customers booked 246 million room nights in the second quarter. So just shy of a quarter of a billion room nights, which represented an increase of 16% versus Q2, 2019, and a significant improvement from the 9% decline in Q1.
We continue to see very strong accommodation ADR growth, which helped drive an even higher 38% increase in gross bookings in the second quarter or 48% growth on a constant currency basis.
Both our room nights and gross bookings in Q2.
Our company's highest quarterly amounts ever for these metrics.
While we continue to see bookings growth in July versus 2019.
Recent growth moderated to about 4% per room nights and just over 20% for gross bookings or about 35% growth on a constant currency basis with room night and gross bookings growth slightly improving in the back half of the month versus the comparable weeks in 2019.
For the remainder of the summer period through the end of Q3, we see higher gross bookings on the books at this point in 2019.
Which we believe will result in a record revenue for the third quarter, which is our seasonally largest revenue quarter.
Looking towards the rest of the year booking dot com, we see solid gross bookings for the fourth quarter, which are about 15% higher than at this same point in 2019 on a euro basis, though I note that a high percentage of these bookings are accountable.
And current FX rates will negatively impact that growth rate in dollars by about 10 percentage points.
The booking window remain shorter than it was at this point in 2019, which somewhat limits our visibility into how Q4 will continue to develop and although conditions could change rapidly. We are cautiously optimistic on the data we are seeing so far.
David will provide further details on the recent trends we have been saying.
Now we recognize that there is uncertainty around the macroeconomic environment and questions about the strength of consumer demand through the end of this year and into next year and while it is extremely difficult to accurately predict near term economic environment I am.
As confident as ever in consumer strong desire to travel.
Tried to long term growth profile of the travel industry, and our improving longer term competitive position.
With our industry, leading margins high quality earnings strong free cash flow and liquidity position and solid balance sheet. We believe we are well positioned to navigate any potential near term economic uncertainty and continue our work attracting customers and partners to our platform, while making progress on our key strategic.
Angie priorities of payments and the connected trip.
In terms of attracting customers to our platform our unique active customers are booking dot com surpassed 2019 levels in the second quarter, driven by very strong growth and returning customers who have not made a previous bookings over a year as well as growth in repeat customers are.
Our mix of customers booking directly on our platforms reached its highest second quarter level ever.
We aim to build on our increasing our direct mix through several initiatives, including by continuing to enhance the benefits of our genius loyalty program further building out our connected tradition to increase engagement with our customers and driving more of our customers to download and utilize the mobile app.
And our mobile App, we see the strongest direct repeat customer behavior, when compared to other platforms like desktop or mobile web.
Consistent with the first quarter over 40% of our room nights were booked through our apps in the second quarter, which is about 10 percentage points higher than in 2019.
<unk> Dot Com App continued to set new records in terms of monthly active users in Q2 and remains the number one downloaded otas globally. According to a third party research firm.
As I said before the App is a critical platform as it allows us more opportunities to engage directly with travelers and ultimately we see it as the center of our connected trip vision.
We will continue our efforts to enhance the app experience to build on the recent success we are seeing here.
So our supply partners, we strive to be a valuable partner to all accommodation types on our platform by delivering incremental demand in developing products and features to help support their businesses alternative.
Accommodation room nights bumping dot com grew about 25% versus 2019.
Representing about a third of booking dot coms total room nights in Q2.
We continued improving our alternative accommodation product globally with an additional focus on the U S market.
In the first quarter, we launched partner liability insurance for our alternative accommodation supply partners with global coverage.
In the second quarter, we launched enhanced payment solution for professional property managers in the U S and made progress increasing adoption by our partners.
Finally, we started rolling out the damage policy option for partners in the second quarter and have continued expanding this option to more countries in the third quarter.
Each of these initiatives helped add important features to our alternative accommodation offering we can.
<unk> strengthens our efforts to attract more properties and partners onto our platform.
In the second quarter, we saw the largest sequential net increase in alternative accommodation properties since 2019, and we now have $6 6 million alternative accommodation listings on booking dot com.
We are encouraged by the increase in alternative accommodation supply that we have seen so far this year and we aim to further build on this growth as we move through the second half of the year.
Let me now talk about the progress we have made and are interrelated strategic priorities of payments and the connected trip vision.
Okay.
38% of booking Dot coms gross bookings were processed through our payment platform in the second quarter.
As our highest quarterly level ever.
We continue to increase adoption of payments by our property partners with over 60% of our total Q2 gross bookings coming from properties that have adopted payments. So this means that about two thirds of the bookings payment enabled properties are being processed via payments.
We believe booking dot coms payment services drive benefits for both our travelers and our supplier partners across hotels alternative accommodations cars flights and attractions. Furthermore, we believe that booking dot com payment platform helps deliver a more seamless and frictionless booking experience.
Which are important elements of our merger connected tradition.
On the connected trip I think it is helpful helpful. Mike to talk through what we are hoping to achieve with this vision.
Our vision for the connected trip strives to make booking and experiencing travel easier more personal and more enjoyable, while delivering better value to our customers in a way to provide marketing opportunities to our supplier partners and as a result, we believe over time will drive increase in customer engagement sure.
Spend and loyalty.
We are looking to increase the engagement of customers on our platform by some of the more of our customers' prowler problems than just finding the right combination of booking dot com as we've done in the past.
A simple example of solving a problem and drawn additional engagement would be proactively suggesting options for top attractions that any book seamlessly and our app walnut travelers destination and looking for something to do.
Another example is our testing discounted transportation from the airport to the hotel for say a high value accommodation customer.
And the ground transportation supplier might in the future be provided.
Price that is specific for our customer because we are able to provide incremental business.
Second we see the opportunity to increase our share of customers' travel spend.
We estimate that pre pandemic and our customers' annual spend on booking dot com represented only about 25% of their total travel spend on average we believe that by making it easier to book multiple elements elements of it in one place we can pay more for that.
Travel spend onto our platform.
Core combinations and even with top customers. We believe there are opportunities to improve our share of spend over time.
And we want to increase customer loyalty and drive a higher direct mix through our app over time, we believe by addressing our customers' critical needs of value choice and convenience through our connected tradition, we will deliver an improved experience and increase the likelihood that our customers come back to us again on a dirt.
Basis.
This year, we continue to make progress as we work on building the foundation of the connected trip, including developing a flight offering a booking dot com.
This slight offering gives us the ability to engage with potential customers who choose their flight options early in their discovery process and it allows us an opportunity to suggest other services to these flight bookers choice.
<unk> continues to be source for new customers with about one quarter of our flight bookers globally.
We aim to booking dot com within even higher share of new customers in the U S.
In conclusion, I am encouraged by our strong second quarter results and the record level of summer travel we are seeing now.
Our teams are working hard to continue making progress in several key areas, including the <unk>.
The genius program, our alternative accommodation offering payment at <unk> dot com and building towards our connected trip vision.
Through this work we believe we are building a better offering for our customers and partners, while strengthening our long term competitive positioning.
While there is uncertainty around the near term macroeconomic environment, we are as confident as ever in the long term growth of travel and the opportunities ahead for our company.
Ill turn the call over to our CFO David <unk>.
Thank you Glenn and good afternoon.
I'll review our results for the second quarter and provide some color on trends we've seen so far in the third quarter all growth rates for 2022 are relative to the comparable period in 2019, unless otherwise indicated information regarding reconciliation of non-GAAP results to GAAP results can be found in our earnings release now onto our results.
For the second quarter.
Room nights in the second quarter were up 16%, a 25 point improvement from Q1, and our first full quarter of room night growth versus 2019.
Our may earnings call, we discussed how we started off the quarter with a 10% increase in room nights for the month of April which was a 14 point improvement from March as you move into May we saw further strength, you've pretty much resulting in 22% growth for the month.
Room night growth of 14% landed between April and May.
For Q2 on a regional basis Europe were up over 20% U S was up about 30% rest of world was up in the mid teens and Asia was down high single digits with all regions improving from Q1 levels.
In Q1 was helped by all regions with Europe , and Asia contributing the most.
Mobile bookings, particularly through our apps represented about 60% of our total room nights in the second quarter.
Over two thirds of our mobile bookings and over 40% of total room nights, which was in line with the first quarter.
In the second quarter, we continued to see an increasing mix of our total room nights coming to us through the direct channel versus Q2, 2019 and versus Q2 2021.
The international mix of our room nights in Q2 was about 45% an increase from about 40% in Q1.
Q2 International room nights were up mid single digits compared to Q2, 2019 levels, which was the first quarter of growth versus 2019 for international.
And these international room nights drove most of the overall improvements and remind growth from Q1 to Q2.
The improvements in international room nights, we sure continue to be driven by cold weather in Europe , and these cross border room night bookings continued to have on average longer length of stay on a shorter booking window than comparable bookings in 2019.
In Q2, we also saw an encouraging improvement in long haul international room nights, which almost equal to 2019 levels.
Yeah.
We saw very strong growth in our domestic room nights in the second quarter also an improvement from Q1.
We were pleased to see our cancellation rates below 2019 levels in Q2, Youll recall, our Q1 cancellation rates were about in line with 2019.
In Q2, the booking window of booking dot com move closer to 2019 levels than it was in Q1, but remain shorter than 2019 across all major regions. The booking window expanded versus the second quarter of 2021.
Alternative accommodations are booking dot com, our room night growth rate was 25% in Q2 versus Q2 2019 on the global mix alternative accommodation room nights was about 32%, which was about in line with Q2 2021 on a couple of percentage points higher than Q2.
2019.
Within Europe are.
Mix of alternative accommodations continues to be meaningfully higher than the global average in North America, a mix of alternative accommodations remains low relative to global average. However, we did see an encouraging increase in mix versus Q2 2021 in that region.
Q2, gross bookings about 35 billion increased 38% versus Q2, 2019 or 48% on a constant currency basis.
The 38% increase in gross bookings was 22 percentage points better than the 16% room night increase due to 25% higher a combination constant currency.
And also due to a few points from strong flight booking growth across the group, partially offset by the 10 percentage points of negative impact from FX improvement from FX movements.
Our accommodation constant currency.
Benefited by about two percentage points from regional mix and about 23 percentage points from rate increases across all of our regions, most notably in Europe , and North America, especially in high demand leisure oriented destinations.
Constant currency ADR growth versus 2019 accelerated from 18% in Q1 to 25% in Q2, due primarily to higher rates in Europe .
Despite the higher ADR in the second quarter, we have not seen a change in the mix of hotel staff ready levels being booked or changes the length of stay that could indicate that consumers are trading down we'll continue to watch the dynamics closely.
Airline tickets booked in the second quarter.
Hundred 90% versus small base in 2019 and up 31% versus 2021, driven by the continued expansion of booking com's flight platform.
Consolidated revenue for the second quarter was $4 3 billion, which was up 13% versus 2019 up about 20% on a constant currency basis revenue as a percentage of gross bookings was about 275 basis points below Q2, 2019 down more of our expectations due primarily.
The timing differences between gross bookings and revenue recognition driven by stronger bookings than we expected in Q2.
Our underlying conversion take rates were about in line with Q2 2019 levels.
Marketing expense, which is a highly variable expense items increased 27% versus Q2 2019.
<unk> expense as a percentage of gross bookings decreased by about 40 basis points versus Q2, 2019, which is better than our expectations, mainly due to higher than expected marketing rois in a high intent travel environments. Additionally are there. It makes it was a little higher than we expected.
Our expenses were up 87% versus Q2 2019 due to a higher volume of merchant gross bookings and higher third party call center costs.
38% of booking com's gross bookings were processed through our payments platform in Q2 up from 16% in Q2 2019.
Compared with Q2 2021 sales expenses as a percentage of gross bookings up about 40 basis points slightly better than expectations of up 60 basis points.
A more fixed expenses in aggregate were better than our expectations up 7% versus Q2, 2021, primarily due to a slower than expected ramp up in some of our G&A expenses.
EBITDA was $1 1 billion in the second quarter, which is better than our expectations. If we were to normalize for negative.
Timing impact on revenue in the second quarter, our adjusted EBITDA would have been meaningfully higher than in Q2 2019.
In addition, the changes in FX rates are negatively impacting the translation of our EBITDA into U S. Dollars. Our Q2 EBITDA would have been about 10% higher FX were in line with Q2 2019.
non-GAAP net income of $776 million.
And non-GAAP EPS of about $19, a share which is down 19% versus Q2 2019.
On a GAAP basis, we had operating income of $1 billion in net income of $857 million in Q2.
Now onto our cash and liquidity position.
Q2, ending cash and investment balance of $14 2 billion was up versus our Q1 ending balance of $12 8 billion.
Primarily driven by $2 $6 billion of free cash flow, partially offset by a $1 3 billion in share repurchases in Q2.
The increase in free cash flow included a $2 1 billion dollar benefit from change in working capital due to the increase in our deferred merchant bookings on the other current liabilities, partially offset by the increase in our accounts receivable.
We continue to return capital to shareholders and more recently have increased the pace of our repurchase given the pullback in our share price. In addition to the $1 3 billion of share repurchases in Q2, we repurchased another $840 million buy shares in the month of July which brings our year to date repurchases to just over 3 billion.
And our outstanding authorization to about $7 $4 billion.
Given our recent increased pace of share repurchases. We now believe we will complete our current authorization and about two years from when we started the repurchasing back in January .
Now one of the recent trends our thoughts for the third quarter.
July room nights increased about 4% versus 2019 or about 7%, excluding Russia, Belarus and Ukraine.
Gross fluctuated a bit in July and was strong in the second half of the month versus the comparable weeks in 2019.
ADR growth remained at Q2 levels and gross bookings were up just over 20% in July including some help from clients, partially offset by negative impacts of FX pressure in July constant currency gross bookings were up about 35%.
Compared with June growth racing July moderated in all regions with North America, showing the smallest change.
In July .
Room night growth was up mid single digits and up low double digits, excluding Russia, Belarus, and Ukraine growth in the U S was about 25%.
The World was up low single digits, and Asia was down about 10% versus 2019.
When thinking about the rest of Q3, we realized a continues to be volatility in the environment and our commentary assumes that room night growth for the full quarter will be at the same levels. We saw in July .
We do expect the strength in ADR croissant utilized to continue for the remainder of the third quarter as well as continued strengthening pricing flight bookings, we expect the difference between the level of room night growth in gross booking growth for the full third quarter to be a few percentage points less than the 22%. It was in Q2 due to factors including more.
FX pressure in Q3, we expect FX pressure gross bookings by about 12% in Q3.
In July the overall booking window booking dot com remain shorter than it was in 2019 similar to Q2.
We expect Q3 revenue as a percentage of gross bookings to be about 70 basis points lower than in Q3 2019 due to investments in merchandising consistent with our prior commentary about the opportunity for us to lead into a recovery travel market in 2022, and due to an increase in the mix of flights and some impact from FX rates.
We expect our underlying accommodation take rates remained stable.
We expect Q3 marketing expense as a percentage of gross bookings will be slightly above Q3, 2019, as we expect to invest in capturing demand and increasing awareness during the peak travel season.
We expect Q3 sales.
As a percentage of gross bookings to be about 40 basis points higher than it was in Q3 2021 due to a higher gross.
Gross bookings mix and highest third party call center costs, including the impact of our partnership with major L.
We expect a more fixed expenses in aggregate will be about 20% higher than Q3 2021 with personnel up about 10% on both G&A and IC, but meaningfully versus Q3 of last year.
The year on year increase in G&A was driven by higher sales taxes, which are tied to revenue as well as increased personnel related expenses due to return to hybrid work environments. We expect <unk> expenses increased year over year, a similar rate to what we saw in Q2.
So you're always into accounts, we would expect Q3 adjusted EBITDA to be slightly above Q3 2019.
Noted for Q2, the comparison of our Q3 EBITDA expectations to Q3 2019 is negatively impacted by changes in FX rates.
At current exchange rates, we expect FX neutral Q3, EBITDA growth versus 2002.
2019 will be about 15 percentage points higher than our expectation on a reported basis.
We know there's a lot of interest in what will happen beyond the summer.
If you don't com's gross bookings for the Q4 travel period or over 15% higher than they were at this time in 2019, but with a high percentage of tangible bookings the booking window is still shorter than it was in 2019, which reduces the amount of gross bookings that we would expect on the books for Q4 at this time.
The short booking window limits, our visibility into Q4, and we recognized the conditions could change rapidly. Please.
Please note these bugan dot com gross booking trends for Q4 periods on a euro basis on a dollar basis. These growth rates would be about 10% three points lower.
We are maintaining the full year EBITDA margin commentary, we provided in February in May and we still expect EBITDA margin for 2022 to be a few points higher than in 2021.
As a reminder.
Timing negatively impacts adjusted EBITDA and EBITDA margins for the year.
Not for the impact of timing or expectations for the full year EBITDA margins will be a few points higher than our guidance for the year.
As the year has progressed, we've revised our allocation our growth investments in marketing and merchandising. We now expect marketing spend as a percentage of gross bookings to be about the same as it was in 2019 and I expect to spend more on merchandising.
It's higher merchandising along with a higher than anticipated mix the higher than anticipated mix of flights and some negative FX impact means we expect our take rates for the year will now be in the mid 14% range.
Our underlying a combination take rates remain about the same as they were in 2019.
In conclusion, we're encouraged by our strong Q2 results and by the continued growth above 2019 levels. We have seen in July we remain confident that our focus on customer acquisition and our strategic properties is the right approach for 2019 for 2022, we will now take your questions Michelle.
Thank you Sir.
Ladies and gentlemen, we will now begin the question and answer session.
I would like to ask a question. Please press star followed by the number one on your telephone keypad.
If you would like to withdraw your question. Please press star followed by the number too.
One moment. Please for your first question.
Our first question comes from Mark Mahaney of Evercore. Please go ahead.
Let me ask two questions. Please one long term one short term long term, how do you increase glyn that.
That your share of annual spend per customer if it was 25% in the past, but do you think the best way to increase that is and what's a reasonable number is it 50%.
And then secondly, just near term on the room night. So this deceleration.
From May to June and continuing into Q3 could you is this it doesn't sound like you're seeing macro issues. So is that a comps issue or is it just that you've had this really material recovery in travel and now thats starting to fade and become more it is starting to become more of a normal growth environment. So just what's your what's your.
Interpretation of why are we seeing a deceleration in our room night growth. Thank you.
Thank you Mark.
A question actually has some interrelated.
So let's start a little bit with.
I'm going to repeat how happy I am when we spoke last time talked about April being the first month that we were able to say we're covered beyond 2019, and now we have a full quarter, where we've done very very well as you pointed out very strong.
Yes, we see that there's been some moderation, but I will repeat that July gross bookings, 35% on a constant currency basis, that's pretty strong and yet we know that the recovery is not fully done yet we know there are countries around the world that are still somewhat inhibiting travel or making more Jeff.
And we know we hear about people, saying out hard it's been in some airports, we read about some of the travelers with cancellations and the crowds and yet $5.
For all these things so why the deceleration hard to say and we can all hypothesize about what that is and why and all that but I do believe there is tremendous opportunity still in this recovery and then going into your first question about what share we can get.
That is something that we will get even more because I believe in our future.
We know travel is going to continue to increase in the long run we don't know steady between all this volatility we've seen in western out years. This recovery is not a linear straight line up the ups and downs ups and downs and that we have.
Some economic things people are talking about and certainly with the pandemic because of what it was.
As Dave pointed out what things would have been without Russia Belarus.
There's a lot of uncertainty in the short run that's understood, but the long run is fairly certain that travel will continue to increase our job is to continue to improve our products and our services. So we get that higher share of our current customers get more customers to get a lot of their share to how do we do that all the thing I talked about I talked about building out that.
Connected trip I talked about they can be at better we talk about payments, which are all things, we're doing and we're seeing us gain that share.
This improved about what is the ultimate.
What we took 25 ally should that go somebody individually.
Average some some customers I am sorry, we're getting a huge amount of it some customers less and it certainly depends on what kind of product our customers are looking for and we have mentioned in the past that we know in some parts of the world are alternative accommodations is not where I want to be yet we're working on that to make that better so sometimes on certain of our customers.
Booking dot com for this type of stay they aren't going to use some competitor for this other type of de Mexico, We can do better and get more share so nothing about that.
My goal is X percentage will come back and say absolutely on the right path.
That sure.
To do that in the long run David anything anything you want to add to that.
Yes.
Okay.
Glen.
Your next question comes from Justin post of.
Bank of America. Please go ahead.
Great. Thank you.
Looks like your bookings to AD spend ratio was about $19 nine in Q2, that's up from $18. Three so so it looks like getting progress there, but maybe investing more in merchandising and thats impacting your take rate can you just explain why you think this is the right strategy for the company shifting a little bit to merchandising.
And then second it does appear you could gain some share of room nights in the U S.
And just trying to think about how you think about those companies customers repeating do you have confidence that spending and getting market share is going to result in better repeat rates next year, you'll be able to keep those customers. Thank you.
Yes, so actually your last question actually applies to the earlier arc, which is part of our decision on how we spend our money whether it be dollar hero again, whatever how we spend it to point people to our platform and to get them to buy something is in fact, thereby what do we think we're going to get in terms of return one return.
I'll come back how often are they going to come back come back direct or not.
All of these types of things go into our calculations are out of our machine learning all of the science.
To try and decide what is the best use the money and we're looking obviously the markets are dynamic guy.
While again to use it today right now these markets are dynamic and whether it is performance marketing market and you're looking at or any other type of market in terms of what is the best way to put that money to work to get the best long term or long term value for our company and that's what we're doing right now and clearly David pointed out that remaining water.
Merchandising right now because we believe that is the appropriate use of our money right now to get the best return in the long run for the company.
And obviously, one factor is getting them to come back again, and again and that's an important point and trying to make sure that we used to buy correctly.
Great. Thank you Ed and maybe a follow up are you seeing higher repeat rates I know it's early in the transition but are you seeing high repeat rates.
I'm going to say that we believe the repeat rates are appropriate for the money, we're spending and we're comfortable with how we're spending about that.
Great great. Thank you.
Your next.
Question comes from related Walmsley of UBS. Please go ahead.
Thanks.
So you guys have talked in the past about looking to grow room nights in 2023 faster than what you were doing in 19 I guess is that is that still your ambition does the macro make it harder to kind of.
Check that and.
Any any kind of medium term outlook you can share and then secondly.
Recognizing there is a balance with using the margin for merchandising, but what is the latest update around payments margin turning now to profitability, maybe with FX translation or our other value added services are you guys starting to roll those out thinking about it what's the latest thought process and timing.
There thanks.
Yes Laurie.
Let me take I'll take both of those so.
Our goal is absolutely to when we have a fully recovered market place whenever that is and that gets back to your question about 2023 will not be the case, we don't know yet, but our view is that when we get back to a more stabilized market growth level.
To that point in time, we would expect to be growing fast we were in 2019, that's still very much.
Australia all statements based on the <unk>.
Things that Glenn talked about moving forward with building out later that could trip.
Having a more comprehensive offering and also doing more with payments, which gets back to the second part of your question. So that goal is absolutely out of that goal.
Please be growing on the top line and the bottom line faster than we were in 2019, when we went into a fully normalized recovered market environment. We believe we believe we can do that.
In terms of where are we on the payments platform and we continue to be pleased with the progress that we're making.
We expect to run our payments platform very close to breakeven this year and would expect to start seeing some positive returns for the payments platform in aggregate in 2023, some of that will just come through better economics in the core processing of payments and some of that would be starting to introduce it a bit more scale some of them.
<unk>.
Payment oriented products that we currently experimented rolling out we're currently working on FX.
Options for our customers paying your currency type solutions also find out by Layla type offerings over the first two were experimenting with a different markets right now we expect to roll it out a little bit more fully in 2023, and the combination of that and some things we will add in 2000 Crazy I'm talking about.
Moving into a positive position relative to getting richer for payments platform next year.
Okay. Thank you.
Yeah.
Your next question comes from Kevin Kopelman of Cowen. Please go ahead.
Great. Thanks, a lot.
Just to follow up on the marketing question.
Talked about it in quarter that kind of high intent environment can you dig into that.
Exactly you were saying there that allowed.
The AD rois to outperform in Q2, and how has that trended into Q and then have a quick follow up.
Okay, I'm sorry, Kevin.
Yes.
Did you guys kind of broke up there but no.
I missed the last part here and how does that turn into them.
Cut out.
Sorry.
So if you could dig into the high intent environment that you described in the second quarter and how it.
What the drivers were and how that has looked into the third quarter.
Alright. Thank you let me take that Glenn can add some color. So yes, we were pleased to see the rois.
There are no expectation in the second quarter and to get some leverage on that marketing spend is obviously the biggest single line.
Income statements.
<unk> as a high volume in Q2, because there was no single factor that.
Led to that as a multiplicity of things as you know the calculation of ROI based upon.
Many many different variables some of the ones that made a difference to the positive in the second quarter, having a lower cancellation rate helped with rois.
We saw some strengthening in length of stay versus what we were expecting and also versus 2019 and some of the ADR trends also helped us.
There are other factors as well.
I would point out those three as long as it's certainly.
A meaningful impact on the overall ROI environments.
Still a lot of people a lot of volume.
In the environment, you said people were looking at the World counseling.
What we mean by high intent.
In the third quarter.
We still expect that to be the biggest travel season from a.
From a ruse 40 view it or is it the.
The market is still recovering as Glenn said, it's not linear but the trend line is certainly going up positively which is what we like to see.
And like last quarter, we think there'll be an opportunity to attract books.
Bookers to the platform bear in mind for a number of people. So theres a couple of years since they've made the us booking and they may not automatically become actually regain.
<unk> gains on existing customers is the opportunity to win new customers in the peak travel season. So our plan is still to lean in.
As we said we would do with <unk>.
Can we expect in total that lean into marketing to be a little less impactful on the P&L that we did for the full year.
Leaning on.
Our merchandising.
A little more but we will still have both of them turned up pretty high in the third quarter.
Great and then a quick follow up.
On the demand.
I think in the mix, how should we be thinking about that as a percentage of the mix.
What is the kind of kind of level, you're looking at and would you is it is it has gotten more important is that something you'd consider disclosing.
Again I missed the first part of question I think lenders, while I apologize.
Apologies.
So could you give us a sense of merchandising how big it could be in the mix or what Youre envisioning and then.
As it's become more is it is it something you'd consider disclosing thanks.
Yes. Thank you I got question merchandising.
Obviously, it's something that we use selectively.
We'll think about full disclosure as it grows obviously this year is something that we will.
Think of it as something we leading into this year.
Recovering marketplace, just like marketing as and when things recover we may not obsoleting question heavily so where Cassie. This may also fluctuate.
We have not broken it out yes. It does obviously have a bit of an impact on take rates and probably the way to give you some flavor on it in the future to give you a bit more flavor as to how it's impacting take rate, but there'll be more to disclose at this point in time.
And thank you so much.
One thing I'd, just add one thing in terms of general.
Merchandise, but in general when we talk about one of the values of the connected trip and I mentioned in my prepared remarks about providing a marketing platform for suppliers to be able to do what they feel is appropriate in terms of maximizing their value in us providing them an opportunity to do their own way to merchandise.
And offer up different types.
<unk> to our customers Oems all sorts of important scientific analysis of where extra incremental for that and what I believe is something that is going to be very helpful going on about particularly.
In a less of a market where.
Everybody feels they can sell a maximum price when things start getting a little more interesting that will be another opportunity for us to provide value to our supplier partners.
And just final thing.
And then as we build out the elements of the connected trip that gives us more ways to merchandise at the moment a lot almost disease through pricing type activity, but as I mentioned, we are looking at providing incentives or other bankers still high value accommodation customers buying more elements of the total.
So the mix of how we merchandise on our side will also change over time as well.
I appreciate it.
Okay.
Your next question comes from Brian Nowak of Morgan Stanley . Please go ahead.
Thanks for taking my question. Good evening guys. So just a couple I wanted to follow up on pretty pretty strong U S numbers and you're talking about the 30% growth and even the 25% growth in July maybe you can just talk to us about.
What are sort of some of the unique drivers around that U S business. At this point is there are you seeing outsized genius adoption is the merchandising having an impact there is ore disproportionate driver what is sort of one or two of the key funnel drivers youre seeing in the U S for that type of growth as the first.
One and then the second one and maybe you said it and I know you guys have so many helpful numbers can you just sort of talk to us about the growth rates youre seeing on cross border travel versus intra continental travel across the entire company.
Sure. So let me take the first one and David can talk second I know you talked a little bit.
What sort of details you want to give him a second one on the first one I'll make the point that several years ago I said that it was important for us to do better in the U S that would be a strategic priority for us to get more share.
<unk> in the U S. We felt we have very good product.
Does approve upon it and that is something that we should be doing better reward and now we're beginning to see some of that we're seeing these kind of growth rates that you've just mentioned and then some.
Some of that.
Happy that the team has executed well now what is the silver bullet. There is no silver bullet is a lot of things a tremendous number of different things being worked out by so many different teams.
We could spend all the rest of this call talking about all the things that have been done by the people to improve so we can get higher share and you've seen some of it yourself you see our brand marketing you've seen the things that we're doing in terms of app, you'll see us in terms of being payments that we have conducted a didn't have payments from the states and we add but assuming.
Assuming those things just the blocking and tackling every day working with the suppliers achieving better relationships. So that we can work together. So we can offer up to travelers something that really fits what their needs are and I can't come out and help you in terms of this is the biggest part of this next partners export what I can say is that this is something that.
Has been something that's been important to us, but I'm glad to see the results starting to come through it's not done by any way shape or form there is a lot more to be done and I continue.
Myself about we got to do better than the alternative accommodations in the states not enough people know about it hung about supplying all those areas and waterproof bottom there and obviously play to start it up for <unk> Dot com in the states and it's doing well, but a lot more to do there and all those things the connected trip so lots more to be done there, but that is an area, where we're going to continue as I said, it's one of our <unk>.
Priority one of the things we're working hard on it.
Those seem to be able to show people curious what the growth the progress that we've made so far.
Yeah, Thanks, Brian and Brian on.
On international travel.
Q3 is probably the best place to kind of look because we got the full quarter numbers to talk about.
National was that was the first quarter that we saw growth in international travel in total visitor E 2019. So in Q2 international travel in total was up mid single digit growth accordingly.
Room nights in aggregate were up 16 points, obviously domestic.
So strong very strong, but it was the first quarter, we saw return to growth of international travel in aggregate and to your point within international travel.
We saw that.
Rather than average growth in the.
So within regional travel so travel within Europe .
And the long haul international travel was still down.
Mid single digits, but we're still was almost recovered back to 2019 levels. So I think some some encouraging trends as we move through the quarter as I mentioned and so the overall improvement from Q1 Q2 International travel drove most of that improvement.
Okay. Thank you both.
Your next question comes from Doug Anmuth of Jpmorgan. Please go ahead.
Thanks for taking the questions. Glenn can you just elaborate a little bit around your thoughts on ADR strength and sustainability and just kind of how things get.
A little bit more interesting I think as you said and potentially less hot market and then David just wanted to ask about payments I think you said, it's kind of close to breakeven. This year some positive returns in 'twenty three.
Could you just talk about how you're.
Kind of working through the initial diluted nature of there from a margin perspective. Thanks.
So a couple of thoughts about ADR, obviously, you talked about ADR and very global average type thing, but it's interesting when you look around the world the same everywhere.
Very different than what's happened in the face lips, saying differences in Europe too.
It is interesting that in.
Almost all of them by the time I've been in the travel industry. When you had lower occupancy rates that would usually end up with lower ADR as people tried to fill up those last rooms, because the margin drop.
So the bottom line is huge yet that is not what's happening here you see occupancy rates for example in the states still not at historical highs yet we don't know ADR certainty are and that's an interesting change from how it had been in the past and now your question is a good lesson, what's going to happen in the future are these things going to come back on <unk>.
Come back down now at some point if demand does drop how are we going to see that come back down or are the hotel is going to continue what they've been doing which is saying look I.
I can't even serviced all of my rooms, so I'm not going to try and fill them.
Labor and labor costs that are being better by doing a higher ADR and not trying to do everything that's happening in some of the places.
Nobody knows what's going to happen.
And in the future I do know, though that we have flexibility ourselves that we work well when there is ADR is or I should say.
The numbers, we just finance great and also win.
Are dropping because.
Suppliers need more demand or are there to help them.
We did better than most other people in the industry coming straight out of wind.
The depth of the pandemic, because we've worked really hard with the suppliers to find a way to get that demand and we did that and that's really our goal is to make sure. We're putting heads in beds for them at the price that they think is right and that's what we're going to continue to do so I can't tell you what's going to happen in the future I can tell you we will continue to execute well.
Either scenario.
Yes.
And Doug on payments I think that is not a new story. The fact that we're going to have some revenue streams that are going to be growing faster than the current average because then Europe and there'll be less profitable from a profit margin point of view, we talked about payments area. During the year that are both going to be.
Significant contributors to the business in the future will result in incremental EBITDA.
Incremental EBITDA dollar growth, but will be dilutive to margin rates.
And I don't think Thats anything new I think.
That's a good thing for the business. It means we will have passed the EPA.
<unk> growth by having those businesses that we would win out so I think it's a conversation we had a few times the daily.
And hopefully nothing new and we're making progress and getting payments into the position. We took we thought we might be able to go into 2023, So I view that as encouraging.
Okay. Thank you Bob.
Yes.
Your next question comes from Mike Novick Con of Truest. Please go ahead.
Yeah, Hi, Thanks, a lot.
Glenn in the past.
Heatwaves have heard bookings.
I go back to 2018, 2019, I think that has happened.
And this year do you think there is any impact from a heat wave or maybe a flight cancellations in the July trend and he just shared.
Give us a cost on that and then.
Looking at the U S room night growth.
How should I think about the contribution from get enrolled is that how much of a factor is that.
So I can answer the second one first of all I heard that one well on the way to go back and get that first question again.
We're very very pleased with how it's working very nice, but that is not a big.
Big driver at all in these numbers, so and I'll, let David what sort of specificity, but I would say do not.
That is not.
It's nice it's gotten a very happy hour doing I'm pleased I love. The guys are doing great and it's very helpful. In our b to B to C partnership area, helping us build out that part of our business to be a very competitive part of the business with others too. It's one element we've had that part of the business for a long time before this is just one addition to our overall <unk>.
Area, So thats something on there I'll, let David handle USA get room, or thus far on that.
Alright.
It's only it's only a few points.
Rental growth in the U S.
Yeah. So if we can.
Can you say the first question is I think I heard flight cancellations I'm not sure. What you said could you go back to yeah.
Yes, it's really about you know if there is any impact from either the heatwave in Europe or flight cancellations.
But we are seeing in the July numbers, you just gave us some color.
Got it okay. So it goes back to me trying to explain.
About the nonlinearity of concentrations.
Because yeah.
We see the change and I talked at the beginning about that and what hypothesis certainly somebody.
In the past people have definitely talked about well it hot people don't travel as much that's true there's definitely there is that in there and there certainly is the cancellation of the airports of the chaos that probably played a factor too.
A lot of things that are probably at play.
Look at how strong may was did that take some bookings from July we ended up in May because people would just as soon as the.
Pandemic levels went down.
Kind of went down.
Homeaway away.
Weighted.
So many potential hypothesis I can't piece the rollout.
In fact, I would say, it's actually not that it's not that important because were important for the long run.
One month versus another month in my mind, Yes, I know, there's always going to be volatility at least there's variability, but we're looking at the long run.
<unk>, what we want to continue to open up a lot of our build this business and we're doing that and I see that so I can't really help you guys as you'd like yourself.
But what's more important in my mind is are we executing creating a better product better service they will get more share as the travel recovery continues which it is and again I emphasize this recovery.
Is nowhere near done yet when you look at countries like Japan.
Places, where it's not just.
Just traveling as they used to at all in Asia. We mentioned Asia is not a full recovery yet look at China lots of places where the pandemic is not totally disappeared everybody's living like they did in 2019 at all and there's a lot of room to come back just from a recovery and we're looking forward to that.
Okay.
Okay. Thank you for your thoughts.
Yeah.
Your next question comes from Deepak <unk> of Wolfe Research. Please go ahead.
Hey, Thanks for taking our question this is Jack.
Sure Deepak.
Wanted to ask can you guys talk about any shifts in the consumer demand you're seeing between your alternative accommodations in hotels booking things sort of normalize a bit from COVID-19.
Well I think we talk a little bit about what share of our business in the alternative accommodations now and how we saw a couple of percentage points better than 2019, driven more accommodations versus hotels steady improvement that we were pleased with seeing we talked a little bit about the U S. The mix there is.
Low interest the share thats going to altra in accommodations, but we're pleased with the mix of improving its on the right path.
I'm not sure in terms of general, though I think I I think I know your question is is this going to be people going back to where the formerly had done a lot more hotels and are they going to switch back there I don't think anybody knows or not but what I would emphasize how important it is to offer both and Thats. Why we think we have an advantage because we know and I've mentioned.
This in previous calls we know people come to our site.
They want one type of accommodation yet we see by the way they search and the way they look at different potential places to stay.
Actually a lot of uncertainty and by offering both hotel and a home or apartment or whatever it is we are providing better information to the traveler to be able to make the right choice and have a higher opportunity that they will buy from us because we're offering these different types of services. So I don't know.
What's going to happen in terms of People's behavior going back.
Yes, I'll take that.
People, who are enjoying a home and never get before Theyre going to continue to look at that home and I'm fine with that because we offer it. So its okay by me, but thats whats happening what I'd like to do of course is to make our whole product b.
<unk>.
It would be as good as anybody elses and make sure that nobody ever says Iga J, perhaps but here are some things you don't have yet that is something I want to get rid of.
Got it thanks, so much.
Your next question comes from Lee Horowitz of Deutsche Bank. Please go ahead.
Great. Thanks, Thanks for the questions two if I could can you comment at all on how hotel attach rates are pacing for your air product relative to your expectations and how you think about continuing to improve those from here and then just one on cost if I could just given the directional commentary you've given us.
Fixed cost for this year looking beyond this year, how do you think about the kind of sustainable level of fixed cost growth into a more normalized demand environment. Thanks, so much.
Well I'll take the first one I'll, let David do the second one.
We have said and it hasn't changed what we said in the path.
Is that fair.
A meaningful percentage of bookers, who first book a flight booking accommodation and we think for new customers we.
We see that encouraging percentage of them are attaching an accommodation to the flight booking which is what I said in the past I will say the same because it's pretty much the same.
David on your side.
Yes, my side, obviously, the biggest element in our fixed cost personnel and in recent years with current inflation rates in order to wage inflation.
That is being pressured particularly for the second one.
Technology people and for our people the marketing folks et cetera engineers. So that's been under pressure for a little while we believe it when we get back to this post COVID-19 steady state.
And we get through the situation, where we are.
Gaining share growing top line that we used to go into bottom line.
We believe that we can start looking at the right time and getting leverage from our fixed cost but.
We are obviously facing some short term pressures.
Great. Thank you.
Yeah.
Ladies and gentlemen, I will now turn the conference back to Mr. Glenn Fogel for closing remarks.
Thank you Eric is a difficult situation, but last two and a half years. We are very pleased to have arrived at where we are today and I want to thank our partners our customers dedicated employees and our shareholders.
We appreciate the support as we continue to build on our long term vision for our company. Thank you everyone and good night.
Ladies and gentlemen. This concludes your conference call for this afternoon, we would like to thank everyone for their participation and ask you to please disconnect your lines.
Okay.
Okay.