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Priceline Q1'16 Earnings Conference Call: Full Transcript

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Welcome to the Priceline Group’s First Quarter 2016 Conference Call. The Priceline Group would like to remind everyone that this call may contain forward-looking statements which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied, or forecasted, in any such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than historical fact, are intended to identify forward-looking statements. For a list of factors that could cause the Group’s actual results to differ materially from those described in the forward-looking statements, please refer to the Safe Harbor statements at the end of the Group’s earnings press release as well as the Group’s most recent filings with the Securities and Exchange Commission. Unless required by law, the Priceline Group undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events, or otherwise.

A copy of the Group’s earnings press release together with an accompanying financial and statistical supplement is available in the ‘For Investors’ section of the Priceline Group’s website,

And now, I’d like to introduce the Priceline Group’s speakers for this afternoon, Jeffery Boyd and Daniel Finnegan. Go ahead, gentlemen.

Jeffery H. Boyd :Interim Chief Executive Officer:

Thank you very much and welcome to the Priceline Group’s second quarter conference call. I am joined today by our Priceline Group CFO, Dan Finnegan in our Norwalk office before the market opens this morning in New York.

The Group performed well in the quarter and we made good progress executing against our key initiatives. The Group reported consolidated gross bookings for the second quarter of approximately $16.7 billion, up about 26% on a constant currency basis or about 21% year-over-year in US dollars. Gross profit was up 21% or about 27% on a constant currency basis and adjusted EBITDA was also up 27% to $676 million; and finally, non-GAAP earnings per share were $10.54, up 30% versus the previous year, surpassing our guidance for the quarter. GAAP earnings per share were $7.47, up 17% versus the prior year.

Our US dollar-denominated growth rates were again impacted by the strong dollar but less than we have experienced in previous quarters.

Our customers booked accommodation reservations for 137 million room nights in the quarter, up 31% year-over-year reflecting acceleration from the second consecutive quarter. We are pleased with this consistent, robust growth in reservations, which reflects continued solid execution in the market for global traveler. continues to not only grow its accommodation supply, but also increased its penetration within its supply base.’s platform now has approximately 900,000 hotels and other accommodations in over 220 countries and territories, up 31% over last year.

This platform also includes 422,000 instantly book-able vacation rental properties which grew 40% year-over-year. We believe this inventory of unique properties represents an important source of future growth for the business particularly when we can offer it with the best dynamic booking experience and great customer service. All our core business remains strong, continues to invest in the future through innovation; for example, providing a rich customer experience for customers early in the travel planning process. Booking’s new Passion Search is a unique search tool that helps our customers find and experience their true passions with reach content and an elegant interface.

We also remain focused and committed to helping our business customers with their unique travel needs. for Business had another successful quarter in extending its services from individual business travelers to small and medium size businesses. We are seeing solid growth in business bookers and will continue to innovate and develop new tools to help these customers travel more easily and efficiently. results continue to be impacted by pressure on its hotel business due to greater marketplace competition in hotel discounting. Substantial investment in technology and people are underway to drive improvements to products, user interface, and experiment velocity and a new brand campaign launched in the first quarter aims at a more broadly appealing message and brand promise.

Cost discipline contributed to a good bottom-line quarter for Agoda. As they pushed their pace of experimentation and innovation, they are concessioning the platform for continuing expansion. As mobility remains critically important across all of Agoda’s primary Asian markets, we are pleased to note that the share of mobile transactions on Agoda is among the highest of the Group’s travel businesses.

Kayak finished the quarter posting solid growth in queries, revenue, and profit. Like our other brands the pace of experimentation and innovation remains fast. Development around core search processing and functionality, mobile enhancements, and new products, all advanced during the quarter. We remain convinced that Kayak’s product rep will continue to differentiate their services in the market place.

Turning to our rental car services, rental car days grew 11% year-over-year for the Group. The largest contributor of this total, executed another solid quarter despite challenges in some of the its largest markets.

OpenTable had a good quarter in its core US business and continued adding restaurants to its cloud-based solution. OpenTable continues to make progress developing its technology platform for scaled international expansion and working with companies in the Group to test cross promotion opportunities.

In summary, the group had a strong first quarter led by its international hotel business. Bottom-line results were aided by an early Easter and a shift of brand marketing expense from Q1 to Q2. The second quarter will be negatively affected by the seasonal Easter shift and by year-over-year increases in brand and performance based marketing that represent important investments in doing the business and our brands but will pressure operating leverage in the quarter as you can see from our guidance.

We do not believe that the higher expenses associated with the large and new brand campaigns in the second quarter necessarily represents the long-term run-rate for the business. Our outlook is also forecasting weakness in hotel average daily rates which is representative of volatility and macro market conditions.

Finally while the circumstances of my return to the business as Interim CEO are unfortunate, I am working forward to working with our talented brand leadership including Gillian Tans, who I congratulate on her promotion to CEO of as we continue moving our business forward. We believe the business is well positioned to build on a small record of solid financial performance.

I would like to thank our employees around the world for their hard work and dedication.

I will now turn the call over to Dan for the detailed financial review.

Daniel J. Finnegan:Chief Financial Officer and Chief Accounting Officer:

Thanks Jeff. I’ll discuss operating results and cash flows for the quarter and then provide guidance for the second quarter of 2016. All growth rates referenced in my comments are compared to the prior year comparable period unless otherwise indicated.

Q1 was an exceptionally strong quarter for the Priceline Group with acceleration in room night growth to 31% compared to 27% in Q4. We also had solid operating margin performance. Growth was strong across all demand channels and key geographic regions. Rental car days grew by 11% in Q1 consistent with Q4 growth rate.

Average daily rates of accommodations or ADRs for Q1 were down slightly versus prior year on a constant currency basis for the consolidated Group which was below our forecast that ADRs would be up by about 1%.

Foreign exchange rates again presented a headwind to our growth rate expressed in US dollars due to the strong dollar. Our Q1 gross bookings grew by 21% expressed in US dollars but grew by about 26% on a constant currency basis compared to prior year. Gross profit for the quarter for the Priceline Group was $2 billion and grew by 21% in US dollars and by about 27% on a constant currency basis compared to the prior year. Gross profit growth was helped by Easter falling in Q1 this year versus Q2 last year.

We estimate that the early Easter timing shifted about $40 million of gross profit and adjusted EBITDA into Q1 that would have been recognized in Q2 if Easter fell in Q2 as it did last year. The timing shift benefits our Q1 gross profit, operating profit, adjusted EBITDA, net income, and operating margins, and will exert pressure on those metrics in Q2, in both cases compared to the prior year.

Our gross profit take rate representing the amount we earn in commission or gross margin relevant to the gross bookings generated through our websites, continues to be stable as it has been for quite some time now. Our international operations generated gross profit of $1.7 billion which grew by 23% in US dollars and by about 31% on a constant currency basis compared to the prior year. Gross profit for our US operations amounted to $296 million which represented 7% growth versus prior year. Growth versus prior year Q1 is negatively impacted by a favorable travel transaction tax court ruling in the amount of $16.4 million included in Q1, 2015 gross profit.

Advertising and other revenue which is mainly comprised of revenues for Kayak and OpenTable, grew by 21% in Q1 compared to the prior year. Operating income grew by 27%. Non-GAAP operating income grew by 28% and non-GAAP operating margins exceeded our guidance and increased by 152 bips compared to Q1 last year. Operating margins for Q1 2016 compared to the prior year Q1 were favorably impacted by the aforementioned Easter timing and basing of brand advertising shifting into Q2.

Solid ROIs for performance marketing were better than our guidance forecast. It’s highlighted in more detail on our soon to be filed 10-Q. In Q1 we changed from presenting online and offline advertising to performance advertising and brand advertising. As a result, brand advertising done on online channels such as YouTube and Facebook and display advertising is now combined with offline advertising and presented as brand advertising.

We think the new presentation is helpful to investors as it distinguishes between performance marketing that is typically managed on an ROI basis and brand advertising which is typically managed to planned level of spend. Non-advertising operating expenses were also favorable to our forecast and generated margin leverage compared to prior year in part due to the gross profit benefit of earlier Easter this year.

Adjusted EBITDA for Q1 amounted to $676 million which exceeded the top end of our guidance range of $620 million and grew by 27% versus prior year. Net income increased by 12% and fully diluted EPS by 17%, non-GAAP net income increased by 24%, and non-GAAP EPS grew by 30% including increased interest expense from our 2015 bond offerings and the beneficial impact of lower share count from stock repurchases. GAAP net income in Q1 includes a non-cash charge in the amount of $50.4 million related to an other than temporary impairment in the value of our cost-method investment in Hotel Urbano based on the performance of the business which has been impacted by the deteriorating economic and political situation in Brazil.

We excluded the impairment charge from adjusted EBITDA, non-GAAP net income, and non-GAAP EPS, because it is not driven by core operating results and renders comparisons with prior periods less meaningful.

In terms of cash flow, we generated $344 million of cash from operations during first quarter 2016 which is about 65% above last year. We used our cash during the quarter to repurchase 202,000 shares of our common stock for $259 million. CapEx amounted to $53 million. Our cash and investments amounted to about $11 billion at March 31, 2016, with about $700 million of that balance in the US.

Now for Q2 guidance. Gross bookings have continued to grow strongly across all channels and key geographic regions thus far in Q2 but growth has decelerated compared to Q1. Our guidance assumes that our growth rates will decelerate further as we progress with the quarter mainly due to the size of our business and consistent with long-term trends. In addition we believe that the Euro Cup and earlier timing this year for Ramadan will negatively impact our year-over-year growth rate in June.

Our Q2 forecast is based upon recent foreign exchange rates and assumes that our growth rates in US dollars will not be significantly impacted by foreign exchange rate fluctuations. This is the first quarter in quite a while where FX is not expected to be a headwind.

The Q2 guidance we are forecasting book room nights to grow by 15% to 22% and total gross bookings to grow by 11% to 18% in US dollars and on constant currency basis. Our Q2 forecast assumes the constant currency accommodation ADRs for the consolidated Group will be down by about 1% compared to the prior year period. Our forecast for decreasing ADRs relate to the shifts and the geographic mix of our business, ADR weakness in markets experiencing soft demand due to traveler safety concerns, and the impact on demand of economic weakness in certain international markets. Not surprisingly, these conditions have also resulted in elevated cancellation rates.

We expect Q2 revenue to grow year-over-year by approximately 7% to 14%. We expect gross profit to grow by 9% to 16% in US dollars and on a constant currency basis.

The difference between forecasted gross bookings and gross profit growth relates to the lag between the timing of reservation booking and travel. A meaningful portion of the bookings recorded in Q2 are expected to benefit our gross profit in Q3 when summer travel takes place.

We expect about 575 bips of deleverage in non-GAAP operating margins compared to prior year expressed as non-GAAP operating income as a percentage of gross profit.

Almost half of the margin pressure is due to the shift of Easter gross profit in to Q1 and significantly increased brand advertising associated with the launch of new ad campaigns. Consistent with prior year’s operating leverage is also pressured by investments in non-ad OpEx for our accommodation reservation business to be ready for repeat travel season and future growth. Although we occasionally experience periods of lumpiness in the growth of brand advertising and non-advertising OpEx investments which can pressure margins as our guidance assumes for Q2, we expect over the longer-term to have operating leverage in these two expense categories.

Finally, margins are also impacted by our assumptions for performance advertising efficiency. Our performance advertising return on investment has been solid thus far in the quarter but as usual our forecast assumes deterioration from current levels and provides us with flexibility in a dynamic market to follow our consistent approach of advertising our brands at reasonable ROIs.

Our adjusted EBITDA is expected to range between $740 million and $795 million which at the midpoint is down 5% versus prior year. Our non-GAAP EPS forecast includes an estimated cash income tax rate of approximately 16% comprised of international income taxes and alternative minimum tax and state income taxes in the US. We are targeting non-GAAP fully diluted EPS of approximately $11.60 to $12.50 per share which at the midpoint is down 3% versus prior year. Our non-GAAP EPS guidance assumes a fully diluted share count of 50.6 million shares based upon yesterday’s closing stock price and reflects the beneficial impact of the common stock repurchases we made in 2015 and Q1 2016.

We forecast GAAP EPS between $9.35 and $10.25 per share for Q2. The difference between our GAAP and non-GAAP results is driven by non-GAAP adjustments that are detailed in our earnings release.

Consistent with past practice, we have hedged contract and placed a substantial shield our second quarter EBITDA net earnings from any further fluctuation of the Euro and British pound versus the dollar between now and the end of the quarter. Our forecast does not assume any significant change in macroeconomic conditions in general or in the travel market in particular.

We will now take your questions.

Question & Answer


Thank you. Our first question is from Tom White with Macquarie. You may begin.

Thomas White:Macquarie:

Great. Thank you for taking my question. Just on the hotel room night guidance and the deceleration, now you talked a little bit about the soccer tournament and Ramadan, I am just curious if their differences in kind of the geographic seasonality of your business maybe is increasingly playing a role here as given that some of your faster growing geographies like Asia, has peak travel in kind of 4Q and 1Q versus the middle part of the year and then just secondly on the increased brand campaign spend, can you may be just give a little bit of color, is that sort of increase in spend in kind of countries where you guys are already advertising, is it rolling out the campaign to new markets and new languages, any detail there. Thank you.

Jeffery H. Boyd :

So maybe I’ll take the second question and Dan can handle the first. With respect to the increased brand spend, an important part of that is new advertising campaign for here in the United States. Bookings product has enjoyed good growth and consumer acceptance and we are very-very happy to be increasing our investment and building its market position and supporting that growth.

There is no a new market that represents a significant portion of that increased spend.

Daniel J. Finnegan:

And then as far as our geographic mix goes Tom, what I said in my prepared comments was for Q1 and Q2, we are happy with the growth we are seeing across all of our key geographic regions and that’s been the case for quite a while now so we have got regions other than Europe growing faster than our consolidated gross rate typically. Europe growing a little bit slower but still posting really solid growth rates so the shift in mix amongst regions has been pretty gradual. The impact of Euro Cup has been -- you have seen that in the past as well and typically what happens, it’s the last two weeks of June, the first two weeks of July.

So at the outset when all the teams are still playing, people are paying attention to the tournament and not necessarily booking travel as their teams get knocked out and the tournaments wraps up typically people then book their summer vacations. They are not going to forego their vacation but it may impact the timing of when they book it.

And in terms of Ramadan, you have seen impact every year. We have a big business in the Middle East and Asia Pacific regions. It moves 10 days earlier until this year we have 10 extra days in the month of June typically at the outset of Ramadan you see a slowing in bookings as Muslims are observing Ramadan and then at the end of Ramadan we see an uptick in travel which is beneficial for our business in that -- was in July last year and will be in July again this year.

Thomas White:

Okay, thank you.

Daniel J. Finnegan:

You are welcome.


Thank you. Our next question is from Eric Sheridan with UBS. You may begin.

Eric Sheridan:UBS:

Thanks for taking the questions. Maybe just two. One on the measurement advertising side, the performance side. The stable ROI curious just to understand what you are seeing in the market from a competitive standpoint that informs the decisions and the statements on ROI in performance based advertising and how you think about that moving through the rest of the year.

And second on the CEO search, maybe understanding a little bit of what you are aiming for in the CEO search, timing and sort of how we should think about that going forward? Thanks guys.

Jeffery H. Boyd :

Okay, again maybe I’ll answer the second question and Dan can take the first. Our Board as we said in our public disclosures is commencing a search straightaway for a long term successor to me as Interim CEO. We don’t have prediction as to how long that will take but I think folks can use their common sense to come to some concept of what a search for a position like this could take in terms of time.

In terms of the type of a person that we’re looking for, obviously we need to have a person who has broad experience and a demonstrated track record of success in managing large global organizations where technology is a very important part of the business and where they’ve demonstrated their ability to deal with changing market conditions successfully.

Daniel J. Finnegan:

And non performance advertising Eric, our approach is consistent with the way we’ve always handled it. So, we are looking to bring traffic to the website at a reasonable return on investment. We have had several years I guess since the middle of 2012, where we have been under pressure with that metric and then we had a few quarters in a row where we have seen ROIs pretty solid without categorizing and is better or worse than prior year, pretty neutral, much better than the trends we have seen before that.

For going forward, I feel good about our ability to compete in these variable channels with the number of properties we have got available on our website, the breadth and depth of selection, the work that our marketing teams do to continuously innovate and become more sophisticated in the way we compete within these channels and with a great work that our front end teams do also to continuously improve conversion on our websites and mobile platforms. Those all are a good competitive advantages as we compete in that market place.


Thank you. Our next question is from Mark Mahaney with RBC Capital Markets. You may begin.

Mark Mahaney:RBC Capital Markets:

Thanks. Just one question on alternative accommodations, could you talk about trends there and you give up some data on the inventory that you have there because you talk about the bookings trends you are seeing and your thoughts on integrating that overtime, more and more into the core purchase packet that something that you want to do. Thank you.

Jeffery H. Boyd :

Thank you, Mark. So we gave statistics with respect to the increase in the number of properties, vacations properties. In terms of our inventory, those types of properties are growing faster than inventory overall.

Also the share of available properties is increasing order but keep in mind that the number of a rentable rooms or units per property for these kinds of accommodations is usually a lot smaller than a typical hotel and that’s something that we’ve been pointing out now for years. The growth rates that we are seeing with respect to these properties are attractive. They are definitely helping deliver the kind of 31% year-over-year room night growth that we saw in the first quarter and as I said in my prepared remarks, we view this sector of the market as a very important source of growth for the business going forward and our aim here really with respect to not just vacation properties but other non-hotel accommodations is to build the inventory substantially, provide a dynamic booking experience that is superior to any other alternative in the market place for these kinds of accommodations and a customer service and customer experience that is consistent with what we’ve been providing for the customers for years and what’s made us a leading player in the space.

So I think we couldn’t be more enthusiastic about these types of accommodations and we couldn’t be more convinced that the product that we’re building and the service that we are providing is better than anything else out there in the market place.

Eric Sheridan:

Jeff one quick follow-on on that non-hotel accommodations, could you just comment on the economics to a Priceline of a booking of a non-hotel accommodation versus a regular hotel accommodation.

Daniel J. Finnegan:

The take rates are in line with a overall take rate mark.

Eric Sheridan:

Thank you, Dan.


Thank you. Our next question is from the Douglas Anmuth with JP Morgan you may begin.

Doug Anmuth:JP Morgan:

Thanks for taking the question. I just wanted to follow up on your comments about the deceleration into 2Q. Can you just help us understand the timing a little bit better here kind of as you are existing 1Q and going into 2Q and the degree to which you think that’s while large numbers versus some of the other factors you mentioned specifically into 2Q around security, macro concerns and other. Thanks.

Daniel J. Finnegan:

Hi Doug. So the growth rate in Q1 at 31% was clearly not sustainable. If you look at the growth we posted for Q1 together with the midpoint that we’ve guided to for Q2 and kind of average them out, you’d come to about a 25% growth rate year-to-date which is the growth that we posted for all of 2015.

So I feel pretty good if we can check the box of getting halfway through this year with no deceleration versus last year. We were asked a lot of questions last quarter about why are you growing so much faster, what are you doing differently, did you figure something out. We said the good news was no, we think that we’re just continuing to perform well and the market is healthy. I think that’s also the case with what we’re seeing now in Q2.

We’re continuing to perform well. From data that we can monitor we think our share in variable channels is stable. The share of business coming to us directly is stable so I think the growth for Q1 was not sustainable. The growth we have seen thus far in Q2 I categorized in my prepared remarks is I consider to be strong growth.

And as we typically do, we have seen that our growth will decelerate as we move through the quarter. We have the couple of external factors with Euro Cup and Ramadan that we’re calling out for the month of June which has caused us to build may be a little bit more conservatism in or I’ll color that actually as just reflect the fact that we think that’s going to negatively impact our growth for that month.

Doug Anmuth:

Okay. Thanks Dan.

Daniel J. Finnegan:

You’re welcome.


Thank you. Our next question is from Justin Post with Bank of America-Merrill Lynch. You may began.

Justin Post:Bank of America-Merrill Lynch:

Thank you. A couple of questions. Jeff welcome back and why the increase in brand spend in 2Q and any other initiatives for the company that you are doing this quarter as you have come back? And then sounds like in the prepared remarks you had some higher cancellation rates and lower ADR so maybe some industry pressure, talk a little bit about what you are seeing out there.

Jeffery H. Boyd :

Okay so just in the terms of the increase to the brand spend in Q2 I think typically in this business and more specifically in the United States because of the way demand for travel ramps up, your brand advertising spend usually is heavy in the first half going into the early part of the third quarter and then it sort of tends to trend down. So I think the ramp up in spending for brand advertising at least in this market is consistent with demand trends. And again we have a very profitable hotel business that allows us to make these kinds of investments in marketing and as you know we have a very strong culture of metric-driven management so you can expect us to look very carefully at the returns on the brand investments to make sure that its paying off in terms of strengthening our brand and driving traffic to the website.

With respect to the market conditions, I think that we all have seen over the last year since the financial crisis, what has been essentially a very fragile economic recovery that’s been characterized by periods of apparent strength followed by periods our apparent weakness, whether its driven by headline risk associated with sovereign debt crisis or other political considerations and more recently oil prices, to me some of the weakness that we’re seeing is essentially consistent with the fragility of the economic situation that we’ve experienced over the long term.

But as Dan mentioned, we have seen in industry statistics at a minimum deceleration of increasing average daily rates for hotels and a lot of markets around the world and in our case, what we’ve seen is on a constant currency basis a slight reduction in ADRs for the first time in a long time as well as Dan also mentioned, increases in cancellations in certain markets and so we wanted to flag that for investors as something that’s a component of our forward-looking guidance for top line growth.

Daniel J. Finnegan:

And just to add one other point there Justin with the ADR decline as pointed out that mix is also impacting that. So, we are seeing strong travel to Russia and APAC strong destination, those are typically lower than our average ADRs. We have seen some weakness in markets like France impacted by terrorism to the higher ADR market.

So mix is also contributing to that trend in our financials.

Justin Post:

Thank you.

Daniel J. Finnegan:

You are welcome.


Thank you. Our next question is from Naved Khan with Cantor Fitzgerald. You may begin.

Naved Khan:Cantor Fitzgerald:

Yeah, hi thanks. Curious to know if you guys are seeing any impact on your SEO traffic because of the changes that Google made to the search engine results pages this last quarter?

Daniel J. Finnegan:

I think that our emphasis and the lion’s share of our business really comes more from page search than it does from organic search in the travel space in particular. Kayak and OpenTable may get more business from organic channels but in the OTA space in the Group, it’s and typically much more of a paid search channels and it is an SEO channel.

Naved Khan:

Okay and then any impact from TripAdvisor’s instant book. You guys started participating in few months ago. Anything to call out there in terms of trends what you are saying in that channel?

Jeffery H. Boyd :

Hi Naved. We didn’t call anything out in the prepared remarks because there is really no change from what we said last quarter. So given the relative size of TripAdvisor to our business, he haven’t seen any significant impact to our numbers.

Naved Khan:

Thank you.

Jeffery H. Boyd :

You are welcome.


Thank you. Our next question is from Ken Sena with Evercore. You may begin.

Ken Sena: Evercore:

Hi. I am just going back to the ADR question. You mentioned change in geographic mix on some safety concerns and also some macro weakness but can you also attribute it to just growth overall in alternative accommodations whether your own in terms of the strong room night growth or competitors and then also when you are thinking about the alternative accommodations market, is there more you can say as far as how you are segmenting it in terms of whether its managed by property managers or for rental by owner or other, just to kind of give us a sense of how you -- market. Thank you.

Daniel J. Finnegan:

Ken on the ADR, side no significant impact on our overall blended ADRs from our increasing share of vacation rentals. And it’s still fairly early days in the vacation rental space and we have got teams of people at that are continuing to innovate and grow that business .

Jeffery H. Boyd :

Right now it’s mostly through property managers but we are going to continue to add properties there and we are looking to make our tools easier for single property owners to also be able to participate. So we are going to continue to advance there but right now it’s mostly property managers.

Ken Sena:

Thank you very much.


thank you. Our next question is from Lloyd Walmsley with Deutsche Bank. You may begin.

Lloyd Walmsley: Deutsche Bank:

Thanks. As you guys ramp up your brand advertising spend this quarter, I think you characterized YouTube and Facebook as part of that bucket. So wondering if those channels have a good measurable ROI such that you can really scale up those spend and track the results or if kind of moving into that brand bucket suggest, it’s a less direct impact? And then a second if I can, Jeff you are coming back after two years and perhaps you met the space from a more strategic level. So wondering if you can just kind of give us your views on what you think the biggest changes have been in this space in general and the position of Priceline over the last couple of years and kind of your outlook on the space as a whole going forward that would be great.


Jeffery H. Boyd :

Okay, so, Lloyd thank you for those questions. In terms of online brand spend, that something that has grown in brands around the Group in the last couple of years and it does provide the opportunity for different ways of measuring effectiveness and at least in our view in some cases more effective ways to measure the effectiveness of your brand spend. So, I am actually very optimistic that moving a brand spend to those channels has the potential to help us drive better long-term returns on g term returns on investments on our brand spending but at this point in time, it’s not being measured like performance based advertising where you are looking at the same session unit economics device by cost per click kind of thing.

It’s not those kind of measurements and so I don’t want to represent that we are or ultimately we’d be looking at the same way but I think it bodes well for our ability to better manage our brand spending over time.

With respect to -- from a higher level the changes that we are seeing in this space I think that I continue to be very impressed by the size and the scope of the opportunity that the Priceline Group and others in our space have in front of us. Year after year, a good execution is rewarded when demand goes to new distribution channels, when you look at the importance of two businesses that you mentioned in terms of sources of demand, YouTube and Facebook and others, it’s an opportunity for companies that can execute quickly and well to diversify and build on their demand. I also continue to be impressed by how attractive the global nature of the business is and the scale that we have developed and in particular has developed, that just gives us an opportunity in markets around the world to build really big businesses despite the turmoil that characterizes not only the world economy but the political situation around the world and one thing that has impressed me about this business since I started running it as Chief Operating Officer of in late 2000 is the resiliency of our business in the face of some of these challenges which is not to say that we don’t see the impact of a terrorism or financial crisis, we absolutely see it. The economic cycles do effect our business but time after time after time they recover quickly and they build because of a very substantial tailwinds that we have benefiting us in terms of open up this activity from offline channels to online channels, the growth of the economic activity and middle class spending in emerging markets around the world, and finally the ability of our talented teams around the world to improve the edge we have in trying to drive demand in these channels.

I hope that’s responding to your questions.

Lloyd Walmsley:

Yeah. Very helpful. Thank you.


Thank you. Our next question is from Mike Olson with Piper Jaffray. You may begin.

Mike Olson:Piper Jaffray:

Hey, good morning. So you are giving some fairly specific reasons for Q2 bookings growth being a bit below expectations with Easter and Ramadan and maybe some macro issues impacting ADRs but I just want to make sure that outside of those you are not seeing any changes in competitive dynamics like alternative accommodations growth, hotels direct potentially getting more aggressive, meta search gaining a higher share of direct traffic or other RTAs getting share or any other factors that are impacting your bookings. In other words, is it fair to say that the more cautious booking outlook is entirely market or timing based versus competitive issues? Thanks.

Daniel J. Finnegan:

I don’t think that the deceleration that we’re pointing to here has really anything to do with competitive factors in the market place. We obviously have a number of brands that are out there and I think it’s fair to say that not each one of them has the exact same competitive strength and positioning but as we look at the share of the business that we are getting from major distribution channels, we feel very comfortable that we’re holding or gaining share. When we look at what’s happening in alternative accommodations and particularly the growth that Airbnb is advertising in the market place, I personally think that represents an opportunity for us because we are in a position to build our business in that space and to drive very substantial demand to those properties, convert them with an experience that’s great for the customer and profitable for us.

So I feel view that as a net substantial positive in terms of market place conditions for the Group.

Mike Olson:

Thank you.


Thank you. Our next question is from Brian Nowak with Morgan Stanley. You may began.

Brian Nowak:Morgan Stanley:

Thanks for taking my questions. I have two. The first one going back to the branded campaign in the US around I guess curious to hear about is learnings you have on US and the past couple of years what you think is work towards been more challenging and what drives the decision to kind of further increase branded ad spend to grow revenues or page search expertise to kind of continue taking share? And then secondly there is an update on OpenTable kind of how we can think about an OpenTable rollout in Europe our next big milestone to look for this year.


Jeffery H. Boyd :

Okay thank you. With respect to branding and branding spend in the United States I would start off by saying that we are very pleased with the progress that has made in building its business and in building its brand in the United States. From time-to-time we have given some insight into what are overall growth rate is in the United States and we’re not providing that color today but I will say that we are pleased with the absolute and relative rates of growth for the as business here in United States.

We are very pleased with the results of the original brand launch on television of in the United States and saw a demonstrable impact in terms of not just awareness but also the business and ultimately the total cost that we experienced to drive customers as a whole were attractive to us.

As to why brand spending versus performance based marketing, in the United States it’s a different market than international markets. First of all, our competition has very substantial share of voice on television and if you participate, you are conceding awareness and ultimately demand to your competition. And when you think about the size of the US market in terms of population and the travel market, and the fact that it’s a homogenous market that you can advertise to with one campaign across the country, it really makes sense to have brand advertising here and I think that strategy is thought along. And we said in our prepared remarks, having a push associated with a new campaign is not something that’s going to happen every quarter of every year but we think it’s a solid and sound strategy to continue to build awareness for our brand which today, research is available everywhere, under-indexes in terms of awareness with other major travel brands in the space.

In terms of OpenTable and their plans to expand internationally, I think I said in my prepared remarks that there is a technology job to do in terms of obligations to their tech platform that may make international expansion easy versus having to build the platform every different country and that that work is underway and I think once its completed, we’ll be in a better position to essentially build on the international footprint that we have as a Group in helping OpenTable bring its product overseas. I’ll mention that they have done some work in Australia on a preliminary basis to try to understand what the potential impact of that is and while it’s very small and very early days, we think it’s showing us that this strategy is the right strategy to help build out the brand.

Brian Nowak:

Great, thanks.


Thank you. Our next question comes from Daniel Powell with Goldman Sachs. You may begin.

Heath Terry: Goldman Sachs:

Hi. Actually it’s Heath Terry. Just wanting to get a sense with the EBITDA coming in about $50 million above the high end of your guidance for Q1, is there any reason that wasn’t invested back into driving booking growth even in to Q2. Just curious of the returns that you were seeing on incremental spends were lower than your threshold if there was something beyond that.

And then I also realize it’s extremely early but we’ve now had Marriott, Hyatt, Hilton, and InterContinental, all announce lower rates and other benefits for people that book direct. Do you foresee any impact of that even it’s just to your business with those chains?

Jeffery H. Boyd :

Why don’t I do the second one and Dan will do the first. With respect to the major hotel chains, a couple of things to keep in mind. First is, just said at the outset that our relationships with hotels in particular and with the hotels chains, is an important part of who we are as a Group that we have a traditional supplier friendliness of bringing demand to our hotel partners at very low distribution cost and in particular because of the international footprint of our business, we uniquely can provide access to demand around the world that even the most sophisticated chains cannot access themselves because they don’t have the functionality, the language capabilities, or the distribution capabilities that we have on a global basis.

So we are providing a little bit of a different and at least in my judgment more valuable service to our hotel partners really than anybody else in this space.

With respect to their efforts to drive traffic directly to their websites, it’s understandable. They have a strong desire to strengthen their brands and we understand that. On the other hand we believe our customers are entitled to competitive pricing and the best availability that is out there for intermediaries because we provide the largest business to most of the hotels that we work with. So we try to maintain that balance.

I think people should keep in mind that the share of business the Priceline Group does with the chains is relatively small. It’s not like it used to be for Priceline when the chains for US business were such a major part of the whole. It’s really a much smaller part of the business and ultimately for any hotel that wants to maximize the benefit they get from working with our brands, the most important things are going to be their pricing, their content, their availability, the competitiveness of the offer that we can show to our customers.

Daniel J. Finnegan:

And Heath, in terms of the EBITDA performance in Q1, we e typically don’t manage our brand spending that way. So we don’t say okay we over-performed and therefore let’s just churn a lot more money into advertising. Our performance advertising approach has been very consistent over many years now.

It’s consistent in Q1 and Q2 is what it has been in the past. In terms of the brand advertising, the timing was more in Q2 than Q1 based upon when the campaigns were available to roll for a and for a It is a strategic decision to hold back a little bit on running the campaign a little further along with the tech platform we launched.

So, we’re trying to spend what we think is the right amount to build our brands for the long term rather than overspending because we had some over-performance in EBITDA on the quarter.

Heath Terry:

Thank you.


Thank you. Our next question is from Kevin Kopelman with Cowen and Company. You may begin.

Kevin Kopelman:Cowen and Company:

Hi. Thanks a lot. So, you quantified the Easter impact for us -- can you help us just think about how large the Euro Cup and Ramadan impacts are and then also the brand campaign, if you could quantify that for us. Thanks.

Jeffery H. Boyd :

Yeah. So, we’re not going to quantify the Ramadan and Euro Cup impact. But I will say growth is strong thus far out of the gate and we typically then assume that growth will decelerate as we move through the quarter given the size of the business.

There is no change in our approach there and then we factored in but I would say overall for the quarter is a relatively small impact related to the two specific issues. And then the brand spending what we said is that the deleverage in Q2 almost half of it is driven by a combination of the Easter shift in timing and the increase in brand spend. So even get a pretty good idea on what that amount is by doing the math.

Kevin Kopelman:

Okay. Thanks very much.

Jeffery H. Boyd :

You are welcome.


Thank you and our next question is from Stephen Ju with Credit Suisse. You may begin.

Stephen Ju:Credit Suisse:

Thanks. Is there anything you can share with us in terms of the overall impact you maybe noticing from outbound travel activity and hopefully new bit demand out of the APAC region especially China and do you feel like those travelers are opting more for the larger hotel or chain inventory as opposed to the more independent or even the alternative properties where you guys are stronger. Thanks.

Daniel J. Finnegan:

You know Stephen, I don’t think we have any particular comment to make about the relative strength or weakness of APAC. It’s I think the performance of the business in APAC in general has been consistent with our expectations. The only regional comment I would make there is that inbound travel, international travel to China has continued to be under pressure for primarily pollution reasons honestly more than anything else.

And in terms of hotel quality, I don’t have a comment to make to you there.


Thank you. Our last question is from Brian Fitzgerald with Jefferies. You may begin.

Brian Fitzgerald: Jefferies:

Thanks. Maybe a really quick question. Any differentiating trends you’re seeing in terms of inventory on a regional basis?

Daniel J. Finnegan:

No. Nothing to call off Brian. I mean it pretty much tracks the footprint of our business so we are adding vacation rentals in all of our markets principally in Europe, it’s our biggest market.

So nothing I would call out there that’s noteworthy.

Brian Fitzgerald:

Great. Thanks Jeff.

Jeffery H. Boyd :

You’re welcome.


Thank you. I would now like to turn the call back over to Management for any closing remarks.

Jeffery H. Boyd :

Thank you all for participating in the call.


Ladies and gentlemen, this concludes today’s conference. Thanks for your participation and have a wonderful day.

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