Q1 2023 Booking Holdings Inc Earnings Call

Interesting possibilities for improving all areas of travel searching booking and experiencing too.

Two interesting possibilities are interactive itinerary building and answering travelers questions. Though there are current challenges given current LMS, sometimes produce inaccurate outputs. Nevertheless, we are excited to be exploring how we can make use of these technologies for the benefit of our customers.

All of our brands like Kayak and open table are experimenting with general AI plug ins, while others are building ways to integrate the technology into their own offerings. It is as we all know very early days, but I am confident in our company's ability to benefit from these developments and improve our products for our customers given our experience.

AI, our travel related data and our human and financial capital.

Our strategic priorities, including the connected trip vision aimed to improve the experience for our customers and drive more value and benefits to them, but it's important to note that when we think about customers. We have two equally important customer groups to consider our supply partners and our travelers for our supplier partners, we strive to be a V.

You have a partner for all accommodation types on our platform from traditional hotels to the vacation rental on the beach everything in between.

We believe we can add value to these partners across the spectrum of our combination types by delivering incremental demand and developing products and features to help support their businesses.

In the area of alternative accommodations, we are seeing encouraging progress with booking dot com with alternative a combination room nights in the first quarter, increasing about 45% year over year, and representing about 33% of booking dot com total room nights, which is two percentage points higher than in Q1.

2022.

In the U S. Our mix of alternative accommodation room nights, while still low relative our global mix has increased meaningfully in the first quarter, reaching its highest level ever and it was also our absolute highest room nights and use alternative accommodations ever we are seeing continued momentum in terms of supply growth both.

Globally and in the U S for alternative accommodations with global listings, reaching about $6 $7 million by the end of the first quarter, which is about 2% higher than year end 2022.

We are seeing great traction with the adoption of our enhanced payment solution for alternative accommodation partners in the U S. We believe rolling out this solution along with other product enhancements last year, including partner liability insurance and an enhanced damage policy is helping to bring more professional supply online to our platform.

In addition, we are seeing our alternative accommodation properties across our major regions achieving improvements in productivity and our new partners are receiving their first booking on our platform earlier, we aim to build on this progress by continuing to improve the product offering to a supply partners and travelers, particularly in the U S.

Yes.

For our travelers we remained focus on building a better experience that leads to increased loyalty frequency spend and direct relationships overtime.

Our mix of customers booking directly on our platforms in the first quarter continue to increase and reached the highest first quarter level ever we see a very high level of direct bookings from the mobile App, which is an important platform as it allows us more opportunities to engage directly with travelers.

Just over 45% of our room nights booked through our apps in the first quarter, which is a few percentage points higher than in Q1 2022, we will continue our efforts to enhance the app experience to build on the recent success we are seeing here.

Another way that we build a better experience and deliver value to our travelers is going through our genius loyalty program at booking dot com.

Simplicity is a core principle of genius, where our travelers get the benefits from the program right away over time, we've enhanced these benefits, including the creation of a top tier level of genius and we will continue to find ways to deliver incremental value to our travelers through this program.

Finally, we published our 2022 sustainability report last month, which provides an update on the progress we have made against the goals laid out in our climate action plan.

Proud of the emissions reductions achieved an ambitious targets set out for our business, but as I said before we believe our greatest influence on sustainable travel is still making it easier for travelers to find and book sustainable options. We're addressing this opportunity through our work with our travel sustainable badge and program.

Which now includes over 400000 properties that can highlight their sustainable practices to customers on booking dot com and the program has been expanded to priceline.

And kayak.

In conclusion I am encouraged by the continued strength of travel demand. We are seeing so far this year as well as our team's execution against our key strategic priorities, we remain focused on delivering a better offering and experience for our customers, both our supply partners and our travelers alike.

We're as confident as ever in the long term growth of travel and the opportunities ahead for our company I will now turn the call over to our CFO David Gordon.

Thank you Glenn and good afternoon.

I'll review our results for the first quarter as well as our thoughts for Q2 and for the year.

All growth rates for 2023 are on a year over year basis, unless otherwise indicated we will be making some references to the comparable periods in 2019, where we think these are helpful. Information regarding reconciliation of non-GAAP results to GAAP results can be found in our earnings release.

We will be posting our prepared remarks to the booking holdings Investor Relations website. After the conclusion of the earnings call.

Before getting into details Q1, I want to remind you that our business is quite seasonal Q1 is typically a strong booking quarter and we incur marketing expenses in Q1, but many bookings that will stay in future quarters, which is when the revenue is recognized Q.

Q1 has also historically been our seasonally smallest revenue quarter on adjusted EBITDA quarter.

This means that Q1, adjusted EBITDA can be quite sensitive to the level of bookings we get in the quarter.

With the increasing mix of payments at booking Com Q1 is also becoming a strong cash flow quarter due to high level of bookings.

So now let me go onto our numbers for the first quarter.

We were encouraged to see strong year over year.

Room night growth of 38% in the first quarter, which is better than our expectations.

For the first quarter Asia was up 100% Europe and rest of world were both up more than 30%.

We continue to see growth in the U S, which was up high single digits versus the prior year.

Our growth in total room nights versus 2019 increased from 10% in Q4 to 26% in Q1.

In the first quarter U S was up more than 30% and all other regions were up about 25% versus 2019.

The booking window booking dot com expanded versus 2019 for the first time since the onset of the pandemic driven by Europe and the U S.

The booking window in the first quarter was longer than we expected due to strong levels of bookings for travel in the summer period.

Many of these bookings are cancel.

Our mobile apps represented over 45% of October room nights in the first quarter similar to the fourth quarter of 2022.

We continue to see an increasing mix of October room nights coming to us through the direct channel the direct channel increased as a percentage of our room nights in the first quarter relative to the first quarter of 2022.

The international mix of our total room nights in Q1 was about 53%, which was the highest quarterly mix since 2019, but still a couple of percentage points below Q1 2019.

Our cancellation rate in the first quarter were below Q1, 2022, and Q1 2019.

For alternative accommodations are booking dot com, our Q1 room night growth rate was about 45% year on year on the global mix of alternative accommodation room nights was about 33%, which was higher than about 31% in Q1 2022.

We are pleased with the progress we've made in North America alternative accommodations, where growth in the first quarter was much stronger than the global average.

Q1, gross bookings increased 44% year over year or 52% on a constant currency basis to 44% increase in gross bookings was six percentage points higher than the 39, 38% increase due to 9% higher.

A combination constant currency.

And also due to a couple of points from strong flight booking growth of partially offset by the eight percentage points of negative impacts from FX movements.

Accommodation constant currency.

Were negatively impacted by about five percentage points from regional mix due to Asia room nights growing the fastest of all our regions and U S growing the slowest.

Excluding regional mix constant currency ADR is we're up about 14 percentage points year on year due to rate increases in all of our regions.

Despite the higher ADR in the first quarter, we have not seen a change in the mix of hotel star ratings being booked or changes in length of stay that could indicate that consumers are trading down we continue to watch these dynamics closely.

Airline tickets booked in the first quarter were up about 73% year over year, driven by the continued expansion of booking com's flight offering.

Revenue for the first quarter was up 40% year on year or about 47% on a constant currency basis.

Although we had stronger than expected Q1 from a room night and gross booking point of view the outperformance versus our expectations. This was driven by bookings that will stay in future quarters.

As a result, we did not see revenue benefit in Q1 from these incremental bookings.

Lower than expected take rate in Q1 was entirely driven by timing effects.

Underlying a combination take rates continue to be in line with 2019 levels.

Marketing expense, which is a highly variable expense line increased 32% year over year.

Marketing expense as a percentage of gross bookings was about 30 basis points lower than Q1, 2022 due to higher rois in our pay channels and a higher mix of direct business.

Marketing merchandising combined as a percentage of gross bookings in Q1 was about 20 basis points lower than last year, which was better than our expectations would be slightly higher relative to our expectations. This was due to better rois in our pay channels as well as phasing of merchandising spend which was tied to revenues.

Sales and other expenses as a percentage of gross bookings were up about 15 basis points compared with last year, which was better than our expectations about 45% of booking com's gross bookings were processed through our payments platform in Q1 up from about 34% in Q1 2022.

Fixed expenses in aggregate were up 25% year on year, which was higher than our expectations due to a few factors that impacted personnel and indirect taxes, the 25% year over year growth excludes $39 million in accruals related to potential settlements of indirect.

Tax matter recorded in G&A, we continue to manage a more fixed expenses very carefully.

Adjusted EBITDA was $586 million in the quarter, which was up 89% year over year and would've been up 111% on a constant currency basis.

EBITDA was lower than our expectations impacted by marketing expenses incurred for the higher than expected gross bookings to stage in future quarters.

February and March gross bookings came in stronger than we expected at the time of our prior guidance. These extra bookings also negatively impacted our take rate more than we expected for the quarter.

If we look at marketing merchandising as a percentage of gross bookings in Q1 to eliminate that timing difference. This was lower than our expectations on lower than both Q1 2022 in Q1 2019.

non-GAAP net income of 440 million Daus results in non-GAAP earnings per share of $11 60 per share, which was up 100, 797% year on year.

Our average share count in the first quarter was 8% below Q1, 2022, and 16% below Q1 2019.

On a GAAP basis, we had net income of $266 million in the quarter.

As a reminder, every profit metric we highlight these quarterly earnings report includes the negative impact of stock based compensation expense, because we view SEC.

<unk> expense as a very real cost of doing business. We continue to manage SBC very carefully and it continues to be a very low precise offering cash flow.

Now onto a crash cash and liquidity position, our Q1, ending cash and investment balance of $15 3 billion was up slightly versus Q4, ending balance of $15 2 billion.

Operating cash flow for the quarter was $2 9 billion up 70% year on year on a free cash flow was $2 8 billion up 77% year on year.

Operating and free cash flow generated in the quarter benefited from $2 3 billion from changes in working capital due to the increase in our deferred most of your booking balance as well as a $586 million and adjusted EBITDA.

$8 billion of free cash flow was mostly offset by about $2 billion in share repurchases in Q1, and the payments of about $500 million, but debt that matured in March.

Now on to our thoughts for the second quarter of 2023.

In April we continued to see strong demand with room night growth versus 2019, it was slightly higher than the 26% growth. We saw in the first quarter with all of our major regions growing at similar rates.

The booking window in April booking dot com continues to be long as it was in 2019.

On a year on year basis April room night growth was in the mid teens, which is lower than Q1 due to a more difficult. Prior year comparison, you will recall that last year Q1 room nights were 9% below 2019 and April was up 10%.

April 2022 was our first month of growth versus 2019 since the onset of the pandemic.

Our comments, our second quarter maintenance assumption that <unk> growth will be up mid single digits year over year.

As you'll recall Q1 of last year was impacted by Omicron and in Q2, we saw a strong recovery, which resulted in Q2 2022 being our highest growth quarter versus 2019, especially may and June which were our highest growth months last year.

Compared with 2019, we would expect future room night growth in 2023 to be just over 20%, assuming some moderation from growth from the first quarter and April when room nights were helped by more bookings than we expected for the setup.

We expect Q2 gross bookings to grow about four points faster room nights on a year on year basis due to a few points from continued flight bookings growth and slightly higher constant currency ADR.

<unk>.

We expect Q2 revenue as a percentage of gross bookings to be approximately 120 basis points above last year due to a less negative impacts from timing and increased revenue from payments, partially offset by an increase in investment in merchandising and a higher mix of flights.

We may see less of an increase in our take rate if booking trends exceeded expectations, especially if a high percentage of these bookings of assays in future quarters. This should also result in higher than expected marketing expense in the quarter.

We expect Q2 marketing expenses as a percentage of gross bookings to be lower than last year due to an increase in dynamics, we expect marketing merchandising combined as a percentage of gross bookings in Q2 to be about in line with last year.

We expect Q2 sales and other expenses as a percentage of gross bookings to be about 40 basis points higher than last year due to higher merchant gross bookings mix and higher third party call center costs, including the impact of our partnership with major L.

We expect a more fixed expenses in Q2 to grow about 25% year over year due to higher personnel and related expenses indirect taxes and <unk> expenses.

Taking all this into account, we would expect Q2 adjusted EBITDA to be around 35% higher than last year.

In terms of our outlook for the year, we're not updating our previous full year commentary at this time, our strong bookings in the first four months of the year create the potential for some upside, but we want to see how the next few months develop before considering any updated commentary.

We continue to expect that our adjusted EBIT EBITDA margins will expand by a couple of percentage points versus 2022.

In closing we are pleased with our Q1 results and the very strong growth in bookings for the summer, we'll now move to Q&A and Rocco could you. Please open the lines.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

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

Thanks for taking my question I guess I guess two things.

First when you look at ROI in our marketing channels, how do you feel about that going into the summer are you seeing some advantages based on changes from some of your competitors.

And then secondly, as you think about your.

Overall.

Use of cash any any reason why you can't just put buybacks.

For the next five years are there anything we should be thinking about on the debt side. Thank you.

Justin why don't I take the second and then I'll, let David talk specifically about Rois on marketing and thoughts going forward. So I think we've been fairly clear in the past about how we view the company and how we believe our free cash flow should be used in the first thing we always wanted to say is.

We invest that money appropriately in the comp on a build out services and ways that we can make the way we work with our partners.

Traveler customers in a better way to help build this franchise. So that's the first thing absolutely important.

After that we say well we can't build it organically is there something outside the company, we think that could add value make things better for both again, our traveler customers and are part of our customers and the last thing is okay. We don't see good use of that then we should be somehow returning that capital to our shareholders, which is what we laid out.

In the last quarter, we laid out our buyback program, where we had $4 million left on the previous authorization $20 billion in the next one that May 24 billion in total and then we said that over the next four years, we expect it to be able to complete the complete the full authorization.

We've given out some numbers about our buyback now and I am thrilled with the way we're doing this but.

Long term five years. This is what we laid out things can always change, but thats. The way, we laid it out and I'll leave it up to David in terms of Rois anything you're seeing differently about the summer I have myself, maybe you're seeing something just I think it's hard to predict what's going to happen too.

Is that far out, but what I will say is that so you can see that we saw.

So encouraging ROI trends compared to our expectations in the first quarter those were a little bit related to what happened to our bookings profile. So as we mentioned we got a lot of extra bookings for the summer in the first quarter more than we would have expected.

The rois into pay channels.

Better than we expected June basically three things higher ADR, a lower cancellation rates on a longer than expected average length of stay.

So we were bidding so basically that was tied to the expansion of the booking windows and expect that booking window is quite quite closely correlates to what we saw in terms of good ROI.

<unk> in the first quarter.

I've just always maintained the point these are highly competitive channels. Many players in them and relative to your question on competitive dynamic and nothing really to talk about different.

Great. Thank you I appreciate it.

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

Thanks, I just wanted to ask about Asia Pacific travel in China travel are you already seeing the impact of China outbound travel and then within Asia Pacific It sounds like Thats strongest recent region are there any particular markets that are performing well for you. Thank you.

Hey, Mark.

Sorry about that let.

Let me.

Take that apart two ways because I know last time I believe you asked about China outbound than two if I recall correctly and China.

China is not a significant part.

All of our very strong Asia growth in the first quarter.

Maybe clear that China is still not.

Anywhere near it was in 2019 and outbound is coming back in terms of overall market coming back, but there is still shortages of lift there. It is getting better than it was in January when there was I think mid teens number of available Nols.

I'm just trying to outbound is coming back.

I'll be perfectly honest with you we are seeing more growth obviously in other parts of Asia. We're very pleased with the very strong growth. We're seeing I don't believe that we're going to breakdown individual countries, but I do see that this is an area of growth for us and I'm very pleased about.

Anything else Mark.

So, let's say Colin thank you.

Okay.

Our next question comes from the line of Lloyd Walmsley from.

Your line is open.

Alright. Thanks, two if I can first just going back to the higher marketing ROI.

How much of that as you are proactively managing to higher targets versus just the competitive market.

Maybe softening up and marketing channels and like do you think this is durable and do you think we should think of this as a reflection of kind of normalizing.

Consumer demand.

And then the second one is just.

Youre seeing in terms of just Christ consciousness, among consumers either trading down at all or taking shorter trips to compensate for higher ADR.

And you'd call out there in any of your big markets.

Let me, let me take the second one because I do look at that very carefully to see are there any.

<unk> signals coming out of the market, giving us any indication of any changes and I have not seen any decline in the star ratings that people are going for and nor have we seen a decrease in the length of stays either one of which could could increase that potential softening in the market and we have not seen that yet and I think.

We made the remark about the booking window has gone out further indicating confidence I believe thats, one hypothesis won't quit us confidence about the future willing to put your money down and be willing to book.

Further our <unk> could be seen as upon I don't know that Youll see too is that people are concerned about there is not going to be enough availability or they could be concern that prices are going to continue to rise and while locking in now that's another way to look at do it none of those hypothesis, though to say anything about a weakness at all aimed churn. So I think to your first question I'll leave it to David in terms of.

Let me just remind you that this is a year that we still expect to be leaning into marketing and merchandising because we believe this recovery in the charter market available to us I think to all.

All growth rates relative to the market demonstrates that we're making progress. If you remember we started off the year by saying, we expect our marketing and Merchandizing investment to be roughly the same as it was as a percentage of gross bookings broken same as it was in 2022, we still expect that to be the case.

Remember, we said that 2022 as of year, which we will kind of leaning in and making more investment relative to gross.

Gross bookings that we did in 2019 that story for US Hasnt changed we believe that we will continue to lean in.

This year is to continue to gain share in a recovery marketplace.

And the fact that we saw some improvement in Q1 as I mentioned in an answer to my question suggested was more to do with the kind of shape of all bookings profile in the booking window getting more somewhat bookings with.

Hi.

Higher transaction values, then we would expect it to get from a mixed point of view in Q1.

While the Rois came in better, but we still plan to lead the industry and as I said in Q2 and for the full year, we still expect that.

<unk> and marketing merchandising to be as it was in 2022.

Okay, Alright, thanks, guys.

Your next question comes from the line of Brian <unk> from Morgan Stanley . Your line is open.

Great. Thanks for taking my questions I have two the first one is on the direct mix of traffic the percentage of business is direct you've made a lot of progress on that over the last year or so a couple of years Glenn.

If you break it down by region wherever you made the most progress in increasing the percentage of business that's direct.

Should we think about how high that is.

What's the regions do you have the most runway to sort of drive that percentage of business. That's direct up longer and then the second one on your forecasting you guys have a lot of data and you're very good at forecasting and it seems like demand really came through better than you thought throughout the quarter.

Regions sort of drove that outsized demand versus your forecasting.

So we don't break down the direct mixed by region at all.

I can repeat things I said in the past about how important direct makes is to the long term.

Increase the value of the franchise because of things we talk about with our connected trip that getting people in through the App, primarily having them understand all the different things, we will be able to offer to them, giving them real personalized thing that will make them want to always come back to us, but what we learned about them the more they come back to us.

Flywheel effect happening there again, I wont buncombe break it down by region.

Our goal is to have every reach and have as many people as possible using the app and coming directly that's the first thing in terms of.

We married against our forecast on how much data really wants to get into that.

You can see that we are obviously, we did significantly better on the top line I think.

To go to I would say it was fairly balanced across all regions is obviously the place we sold the booking window expand the most.

In the U S and Europe , So thats, where we got a higher share of some of the bookings and we expect it to get in Q1, but you can see it also Asia did very well in general.

So.

Exceeded our expectations, but we didn't have the booking window phenomena. There. So I wouldn't call out any particular region, but I will call out some of the differences in what we saw across the regions that contributed to the overtreatment.

Great. Thank you both.

Our next question comes from the line of Doug Anmuth from Jpmorgan. Your line is open.

Thanks, so much for taking the question.

And then I just wanted to revisit on AI.

Can you just talk about some of the advantages that booking would have in leveraging generative AI versus what other external or potentially new travel services might provide and do you feel the need to protect the data on your platform to keep it from being used for training broadly across many large language models.

Thanks.

Thanks, Doug.

Very interesting questions about that and break it out you start off with AI. Then we went to a specific subset degenerative.

Let's just talk in general about AI first how important this has been to our business for many many many years more than a decade, perhaps a machine learning model that really helped us do a better job, making sure that what we're presenting to.

Consumer for example, it was really something that they have a higher percentage chance, they're going to convert on that all sorts of ways that we use.

Very sophisticated machine learning models in many parts of the business that have helped us get where we are today and of course, we come out in the fall something that is.

Somewhat a lot of people were not that aware of this general AI large language models and see what can be done with them and clearly anytime there is a major shift in technology, everyone things like well, there's going to be disruptive to the players who are already doing well is it not.

<unk> said in my prepared remarks from our March how I feel very confident where we are in this because of the work we've done in AI in the past the number of people. We've had working on at the amount of capital we have our collaborations with universities I believe that we are going to be.

Benefits greatly from this new type of technology in many different areas and so we haven't we haven't even thought of them yet and some things are going to be as simple and easy as perhaps increasing the productivity of our developers, which we believe is hopefully going to achieve some very good results in the hopefully not so distant future things that perhaps are further away.

That people interact with us in that connected trip vision in the way that you really do are able to recreate that human travel agent into some of that is actually an automated player but is that so much better than the human being did in the past now.

In terms of your very important question about the data and how do we protect it and not let it get out and be used by others that is a very important thing and everyone from our attorneys to people.

Development.

Apartments people, who are really working with some of these large language model foundational model people. We are looking very closely I think already been using our data and should they be and I think theres going be a lot of interesting regulations in this area that nobody knows the answer yet too, but how will people will be compensated if their data is being.

Used in the past for training purposes, or not I think it's a very open question that nobody knows the answer to yet, but we will be very interested in the results.

Thank you Glenn.

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

Thank you so much.

First question I wanted to I wanted to ask about ADR is a big area of interest.

With all the strength Youre seeing in Q1 could you just.

And quarter to date can you touch on how ADR has had trended.

Compared to what Youre seeing as over the last call.

Yes, so what we gave you some data on the call by $80 are still trending trend trending positively.

On a year on year basis.

Europe and across all regions on a year on year basis. So we're not seeing any slowdown in the ADR. So whenever you have we've been looking at some of the things I'm sure.

Behind behind your question, but we're not seeing a reduction in <unk> in any region on a year on year basis on a year on full year basis. So we see.

<unk> continues to hold very strongly.

Great.

And then one other question could you talk about a little bit about the dynamics in the U S market.

What are you seeing in the U S.

It's causing your growth to be a little bit slower there and how do you feel about your market share in the U S.

We feel.

Obviously, our U S business is still growing very very strongly compared to 2000.

A 19 and we have seen.

Seeing that growth relative to 2019 come down a little bit.

But we.

We feel that's part of it.

Still feel thats.

When you look at how our business is vis vis 2019 is significantly bigger than it was before.

Still growing at a very healthy rate vis vis 2019, so we don't really worry about that and I would just add my conversations with our partners some of our biggest partners.

With their senior management. The critical thing for me is are we provided them with what they need are we providing incremental business to them. It helps them do better in their business and do you feel that we're being valuable to what you need.

Only heard positive things.

All the people that I speak to in regards to where we are today versus where we were in the past and it's a much more complementary relationship and I believe that will help us in the future to continue to build on that.

Great. Thanks, Glenn Thanks, David.

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

Great maybe sticking with some of the comments on direct.

You guys continue to post impressive direct booking results in App growth.

Maybe looking beyond this year, how does the price of execution within the direct channel and point of where you see margin progression beyond 2023, and then maybe one on VR arch has continued to indicate that you guys seem.

Seem to be picking up some share in the U S vacation rental market is an area, where you have been perhaps underrepresented I guess, what do you <unk> maybe some of the improvements you are seeing within the USB our industry and then looking forward what are the things.

Thank you.

You would need to continue to do that.

<unk>.

Really scale up that business in line with some of your competitors.

So why don't I start Lee if I can start with as you put it out there.

I would like to use their alternative accommodations, neither one of the great customer friendly a term of course, but let me talk about that and then I'll, let Dave talk about the.

Direct because then what that may or may not indicate what you're willing to share in terms of margins down the road and I talked a little bit about in my prepared remarks about some of the things we are doing in <unk>.

Terms of the alternative accommodations area in the U S to build that business and you were very polite to say that maybe we made.

100 index levels.

Nice to say because I continue to be admitted in the past we have not been hitting that as well as we showed that we were far behind where I thought we should be especially since we do fairly well in other parts of world, particularly in Europe , and the things that we've been doing the things that I'll talk about first of all you got to make sure you are providing a good service to the people who own the home so only apartments.

Are we doing things like liability insurance, well now we have something like that damage.

<unk>.

Waiver type stuff that we have that yes, we do.

Last time, I talked about how we're testing out and the ability to request to book because some people are properties. They don't want to have automatic booking they want to have a request to the system. So we are developing out back then once you start getting that Dan you had started St. While our people are aware of your product because as I said it wasn't a lot of.

People didn't have a lot of knowledge that we have such a product.

It used to joke that if you went down in New York City, and you said something on the Street and said I need a place in the Hamptons, where should I go I can almost guarantee and they weren't going to say booking dot com, while we need to get that supply is once we have it and we got to make people aware that we had the supply. So we have to build all that out.

There is nothing miracle about this this is blocking and tackling business while one.

Supply out there, making it attractive and then make sure people know about it and that's what we've been doing cranking away and I'm pleased and I said, it's really nice to see us starting to hit it.

With our mix in the U S. At all time high in terms of alternate combination in part of our total mix along with having the absolute absolute number of alternative.

Nomination room night bookings, so I am pleased with the progress that we're making and I know that we have to continue that because I know customers like this product and this is an area, where we have growth possibilities and David regarding directly.

Sure.

Alright makes obviously is very tied to our strategy our strategy issue.

<unk>, a better product to provide better service for our customers and partners.

Customers come back to us more frequently and more directly absolute acquired them in the first place so shall we bring them into the.

Portfolio first time around so it really does tie to executing against our strategy and lots of things that we do many things we do contribute to that better product I could talk about alternative accommodation I can talk about payments, adding flights are always things just create a best service for our customer and therefore more likely to get them back directly to our strategy. It is.

Also tied to our basketball because we made the comment.

The corner last call in February .

Honestly not targeting.

The margin level because of the mix shift in the business with some of these new areas that we are hosting but we do expect to be able to grow our EBITDA margin above the levels were at in 2020 'twenty three.

Yes.

The biggest driver that would be continuing to increase our archive mix. We would also expect to be able to do better from a leverage on a more fixed cost going forward on those themselves.

More than offset the pressure from the mix of low margin businesses as they grow within our portfolio so continuing to.

Improve our direct mix is very important for both the strategy Amazon for model and will be the major sources.

Also.

Provide some margin expansion beyond where we all the ship.

Okay.

Helpful. Thank you both.

Your next question comes from the line of Julian can Tony from Jefferies. Your line is open.

Great. Thanks for taking my questions.

Hoping you could update us on the on your strategy in the U S market you've had a lot of success gaining share in recent years, but I'm curious if you could update us on your learning so far about the return on investments and how that's informing your aspirations to continue pursuing that opportunity as aggressively as you have been.

Second.

You sort of characterized investing ahead of the travel recovery to gain share throughout 2021, and 2022 I'm curious if that's your strategy.

Asia Pacific region as that market recovers and if you have any early reads on returns on that investment.

Yes, so I'll start off by saying that I'm very pleased with how the strategy and work it out in the U S. Given our gain in share that David mentioned, we have a bigger business than we did in 2019 and it's been growing nicely I really do think that it's achieving what we've been trying to accomplish which is to not be under.

Under index player that we were in the past and we're making good progress there in terms of the absolute Rois on these things we don't break them out by region at all but I will say that obviously, we are very conscious of spending money the right way to get the right return we are a.

Came out of book business previously financed sign all important is to make sure that you're getting your money's worth where youre spending it and we are doing that now I think going forward our strategies work until she is continuing in the same vein.

And in turn to Asia. It was not dissimilar that we want to make sure. When people are going to start traveling we don't want to wait until you're halfway down the down the track to get out of the gate that would not be the best move get out in front and be there when the traveler wants to start traveling and providing them with what they want and that we.

<unk> been doing and we just talked a little bit about how we are very pleased with the first quarter for Asia growth and I think hopefully it will continue the same way.

Great. Thanks, so much.

Your next question comes from the line of Deepak <unk> from Wolfe Research. Your line is open.

Great. Thank you this exact on for Deepak.

First on the fixed cost side.

<unk> I guess, the first half is kind of tracking above 40% growth.

I kind of outlined last quarter.

And <unk> also kind of sequentially stepping up a little bit here just curious on your thoughts on how we should think about the fit.

Cost growth.

Sequentially kind of into the back half of the year.

Next year and then second on.

The buyback.

It's stronger than we were expecting.

I'm just curious how we should think about kind of the puts and takes.

In terms of the cadence of buybacks for the rest of the year. It is once you kind of a good run rate or how should we think of that.

Okay.

David.

The owner of the P&L, they're looking at that you wanted.

Hung up the costs on the cost side, yes, I mean, we talked about.

25% in the first quarter.

We talked about the 25% in the second quarter, So obviously thats going to put a little bit of pressure on our guidance for the full year.

What I'd say is generally whether you look at anything that's in the full year view, we have not updated our guide.

<unk> they are all going to be some lucky because we have some puts and takes for the full year. The line item level, but we're not we're not going to update that line item detail today other than just recommenced. It will have a margin expansion by a couple of points versus 2022 remember next year. We said that we do expect to our fixed cost to grow more slowly next year, then we expect to grow.

<unk> this year and that continues to be the case.

And regarding buybacks I think we laid it out a little bit you know what our plan is you know what we're doing.

Im not sure if there's any more color I could give it I mean, we're pleased with where we are.

Great. Thank you.

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

Great. This is Josh on for Jeff Thanks for taking our question.

Wondering if you could maybe speak to how recent improvements in payments is resonating with U S property managers and their opportunity to increase share.

Sure Josh.

Payments is an important part of our business.

In the past about how is the glue that brings everything together along with making it easier for both the customer traveler and for the partner and B I think the <unk>.

Rose in the amount of our business going through payments is a good indicator that is working and being accepted well.

Customers have choice, both the traveler and the partner both of them can choose to use the payments or not the factors going off to me would would be.

Proof positive that people are finding it useful and I believe in the long run it's very very being very very helpful. As we continue to build out the connected trip protocol.

And your next question comes from the line of Stephen Ju from Credit Suisse. Your line is open.

Thank you, so Glenn and David.

Your merchant booking dollars are now at parity with.

With your agency dollars. So just wondering how much of this is to you though.

Rapid air versus a more proactive choice the consumer may be making a lodging product selections to your point earlier to alternative accommodations.

I guess.

Doing more merchant.

Horizon deferred merchant bookings there should improve your free cash flow generation. So does this change your capital allocation plans.

Thank you.

On the second question no the capital allocation plan that we talked about last quarter, Glenn summarized earlier anticipated that we would be continuing to increase our merchant mix. So that piece. There is no change in terms of where that merchant.

Increased coming from just to remind us all is really coming from a mix shift inside of booking dot com.

We.

Moving from what used to be almost entirely on agency model now to a much more balanced model.

The biggest change would be in combinations are still by far the biggest part of the business. Although as flights grows it's having an impact but what's really driving the changes that you're seeing is the increase in merchant mix across our accommodations business or polka dot com.

Thank you.

Yeah.

Your next question comes from the line of James Lee from Mizuho. Your line is open.

Okay.

Great. Thanks for taking my questions two here.

Can you guys, maybe give us an updated outlook on <unk>.

I think previously you talked about expectation being maybe flattish on constant currency for FY2023 and also David maybe you can remind us talk.

Talk about some of the puts and take on takeaway for your expectation for 2023.

<unk>.

Yes.

We said that we expect <unk> for the second quarter just to kind of continue.

The picture, we expect our <unk> for the second quarter to be up slightly year on year basis as I mentioned a moment early honestly, we're not we don't update every single line item on our full year guidance, but if they continue to hold at the current levels, maybe a little bit of upside compared to what we said.

On the last call on ADR is as I said there'll be some puts and takes up and down a full set of guidance, but we're not specifically.

Update on guidance, we will give you anything beyond what we're talking about for Q2, we'll have to wait and see how that develops but I think you can see where we were in Q1, plus what we're expecting in Q2.

Things are trending positively.

And your next question comes from the line of Richard Clarke from Bernstein. Your line is open.

Hi, Thanks for taking my questions just the first question was.

What is the ability for you to continue to get discounts on the hotels I know you're a genius discounts are tending to be hotel funded this traveling environments, they more or less likely to give those and is that influencing your level of merchandising at all.

Would that change if the travel environment.

The backhaul.

Hi, Richard.

Look there's no doubt that hotels when they are doing well may see less of the need to use all other ways to distribute and get business than just happy to come to him direct right and one of the things. They are always looking at what's the return so with us and genius, it's really being very.

Targeted with them make sure they understand how we can get the incremental demand that they wouldn't necessarily be able to get otherwise and then working with them to make sure is this value to them or not.

Actually you've talked.

A bit in the past, but not much.

But our salespeople award with Hoteliers and talk to them, sometimes work with genius program. The genius program and yours that it's not actually the best use of their money and the best way to do this and told them look I don't think you should use genius. This way. This amount this time, whatever other time et cetera.

The idea of long term, having a good partnership.

It's not just knocking down the door hotels, they give us discounts give us discount that's not how this works. This works with science this source of data.

The machine learning stuff I talked about in the past.

And together to come up with the way that we can come up with a better way to improve their business now no doubt as travel improves and such there's going to be less of a need as the hotels will find other ways and less expensive ways or more efficient ways. So that means that maybe there will be some places, but I am not at all concerned that youre.

The point is that this is going to make a drastic difference to how we do our business in the in the future I don't see it I see this as something that is going up more and more central as we continue to develop more ways to provide value to the traveler customer.

The work with the customer supplier partner in ways that are complementary symbiotic for all of US that we all win of this the traveler wins, so tailwind and we win.

Okay.

Maybe it's a little technical question after it it talks about.

19 billion of bookings in the quarter, you've talked about longer booking windows, but your deferred merchant bookings for $5 billion just trying to square.

The gap between the 19 billion in the four and a half billion.

We see that.

Richard you're confusing me on that one.

As a as Richard your assumptions both on that one.

Okay.

The deferred merchant bookings line, which is four 5 billion on your balance sheet.

How does that square with you getting $19 billion of bookings mentioned bookings in the quarter.

You are saying largely for future quarters.

Richard why we follow up with you offline on that one go out and try and partners hold down just to understand the question make sure we get you the answer.

If one does it give us the answer we can.

For them as well, but we'll touch basically you offline John I'll call you back.

Okay.

Yes.

And there are no further.

Time, Mr. Glenn Fogel, I turn the call back over to you.

Thank you so as always I want to thank our partners our customers our dedicated employees and our shareholders. We appreciate your support as we continue to build on the long term vision for our company. Thank you everyone and good night.

This concludes today's conference call. Thank you for your participation you may now disconnect.