Booking Holdings Inc

NASDAQ:BKNG

Earnings Call Transcript 2018-Q1

[Operator]

Welcome to Booking Holdings, First Quarter 2018 Conference Call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements.

Expressions of future goals or expectations and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements. For a list of factors that could cause Booking Holdings' actual results to differ materially from those described in the forward-looking statements, please refer to the safe harbor statements at the end of Booking Holdings' earnings press release as well as Booking Holdings' most recent filings with the Securities and Exchange Commission.

Unless required by law, Booking Holdings undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. A copy of Booking Holdings' earnings press release, together with an accompanying financial and statistical supplement, is available in the For Investors section of Booking Holdings' website, www.bookingholdings.com. And now I'd like to introduce Booking Holdings' speakers for this afternoon: Glenn Fogel and David Goulden. Go ahead, gentlemen.

[Glenn Fogel, CEO and President]

Thank you, and welcome to Booking Holdings' 2018 quarter one conference call. I'm joined this afternoon by our CFO, David Goulden. Booking Holdings' had a solid quarter with revenue up 24% year-over-year in U.S. dollar or about 16% on constant-currency basis, and adjusted EBITDA increased 26% year-over-year to approximately $800 million. Our worldwide accommodation room nights of $197 million, were up 13% year-over-year and exceeded the high-end of our guidance range.

Consolidated gross bookings were up 21% year-over-year in U.S. dollars, or about 12% on a constant currency basis. An important factor contributing to our EBITDA over performance was another strong quarter of efficiencies in our performance marketing channels, as we were able to leverage our spend by over 380 basis points.

As we have discussed in the past, our performance marketing channels are complex and dynamic, our goal is to achieve an appropriate balance between acceptable ROIs and growth. As we set out our ROI hurdles, we take into account not only the short-term impacts from our bidding strategies, but also factors such as; the customer experience on the advertising platform, the incrementality of the traffic we receive, the anticipated peak rate from a particular platform and several other important elements.

As we discussed last quarter, increasing direct traffic and customer royalty is a key strategic priority for us. To achieve these goals, we strive to have the widest selection, the best prices and availability, the most informative contact, the easiest user interface and the highest level of customer service. We are pleased to report that we continue to see growth in our direct channel and note that our mobile business is an important factor in the growth of our direct business.

As we have discussed in previous quarters, we believe that brand marketing will also be an important part of driving direct traffic to our websites over time. We hope to make further progress executing our brand strategy, implementing new measurement technologies and tools and testing in various geographies. But want to reiterate what we have said in the past, that we will proceed in a prudent manner.

During the quarter we made progress adding new supply to our marketplace, maintaining our position as the leading global accommodations platform offering the most choice in over 220 countries and territories worldwide. As of March 31, booking.com our largest brand, had a total of 28.2 million reported listings, consisting of approximately 23.0 million reported listings in hotels, motels and resorts and approximately 5.2 million reported listings in homes, apartments and other unique places to stay.

Year-over-year growth in booking.com reported listings for our alternative accommodations category was 28%, which demonstrates our ongoing focus to build additional supply. Today, all of booking.com alternative accommodation listings are fully integrated in our marketplace and are instantly bookable with no customer fee.

Room night bookings in this category are growing nicely and we firmly believe our customers want a one-stop shopping experience to find a great place to stay, whether it is a hotel, resort, home or apartment, they want the ability to search and compare across all property types to find the best fit for their unique needs.

We remain focused on bringing more alternative accommodation properties on to our platform. Especially single properties, whose owners may not be as aware as professional multi-unit managers are of the strength of our traveler demand. And we believe that this is an attractive opportunity for us.

Building sophisticated capabilities in local attractions and in destination experiences remains a long-term goal for the company. As we look to provide a more holistic travel experience for our customers in order to drive loyalty and build a larger direct brand, we have been gradually increasing our investments and expertise in these areas, including our recent acquisition of FareHarbor and are pleased with our progress to-date, though we want to stress that we are still in an early stage.

During the first quarter we utilized $1.5 billion in capital to reduce our fully diluted share count, through both share repurchases and the cash settlement of the conversion premium on our convertible bonds, which matured in March. We will continue to prudently deploy capital through a mix of organic growth investments, M&A and stock repurchases.

In summary, Booking Holdings had a good start to the year, bottom-line was also the first quarter were aided by solid revenue growth and efficiencies that we realized in our performance marketing channels. We believe that travel market remains healthy and we continue to orient ourselves to the long run, we have a single-digit market share in the very large global accommodations market and an even lower market share in the total travel market.

We continue to evolve the company, so that in the long run we will be able to provide our customers with a more complete and superior travel offering. This will take time, but we believe that if we continue to leverage our unique assets and expertise and all of our brands continue to execute we will be successful.

As always, I want to thank our more than 24,000 employees worldwide for their hard work and dedication. We are now getting ready for our busy Northern Hemisphere Summer season. And I know we will all work tirelessly to ensure our customers have a great travel experience.

Finally, I want to send out a special thank you to Rob Rosenstein the Co-founder and longtime CEO of Agoda our Asia-based business. Effective June 1, Rob is moving up to be the Chairman of Agoda and taking the role of special advisor to the CEO of Booking Holdings. I've known Rob for almost 15 years now and I look forward to working closely with him, as we continue to develop our long-term Asia strategies. Taking Rob, CEO position at Agoda is the current COO of Agoda, John Brown and Armory Morganstern [ph] the current Chief Product Officer will take the COO role there. Congratulations to all of them.

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

[David Goulden, EVP and CFO]

Thank you, Glenn and good afternoon. I'll discuss operating results and cash flows for the first quarter, and then provide guidance for second quarter of 2018. All growth rates are relative to the prior year comparable period unless otherwise indicated. Before we get into the numbers, as we discussed last quarter starting on January 1, 2018 we began reporting under the new revenue recognition accounting standard, which recognizes revenue at check-in rather than at check out.

As a result all year-over-year growth rates referenced in my remarks and Q2 guidance will compare the current year under the new accounting standard to the prior year under the previous accounting standard. Additionally, revenue growth and profit margin performance for Q1 results and Q2 guidance are based upon comparison to prior year gross profit due to the associated change to net revenue reporting in 2018.

Gross bookings and other unit metrics like room night reservations are not impacted by the new accounting standard. Our non-GAAP financial results we forecast include stock-based compensation and are reconciled to our GAAP results in our earnings release.

So now onto our results for the quarter. Our strategy to optimize performance margin ROI is impacting our top-line growth. It's also driving significant improvements in our operating margins. The result was a second quarter in a row of expanding adjusted EBITDA margins and our bottom-line performance have substantially exceeded our guidance range and the FactSet analyst expectations.

Room nights booked in Q1 grew by 13%, which exceeded the high end of our guidance range. Average daily rates for accommodations or ADRs were down slightly for Q1 versus prior year on a constant currency basis, which was better than our forecast of down about 1%. Foreign exchange rate favorably impacted growth rates expressed in U.S. dollars for our Q1 results. Q1 gross bookings grew by 21% expressed in U.S. dollars and grew by about 12% on a constant currency basis compared to prior year.

Consolidated revenue for the first quarter was $2.9 billion and grew by 25% in U.S. dollars and by about 18% on a constant currency basis. Q1 revenues includes $45 billion from the Momondo Group, an acquisition we closed in July of 2017. We also recognized a $27 million benefit to revenue in Q1 from the reversal of a portion of OpenTable loyalty program liability. This benefit relates to recently introduced changes to OpenTable's loyalty program and is excluded from our non-GAAP results as we believe is not indicative of the core operating results of our business.

Our non-GAAP revenue grew 24% in U.S. dollars and by about 16% on a constant currency basis. Total revenues for the first quarter of 2018 under the current revenue standard were approximately 2% lower than the first quarter of 2018 would have been if reported under previous revenue standard, which was consistent with our guidance. This 2% difference in the quarter resulted in a 3 percentage point impact on our growth comparing Q1 with a year ago.

Advertising and other revenue, which is mainly comprised of non-intercompany revenues for KAYAK and OpenTable grew by 50% in Q1 compared to prior year, including the revenue from Momondo and the OpenTable loyalty program benefits. On a non-GAAP basis, which excludes OpenTable benefits growth in advertising and other revenue was 36% in Q1.

GAAP operating income grew by 31% and GAAP operating margins increased by 115 bps compared to Q1 last year. GAAP net income accounted to $607 million or $12.34 per share, which grew by 35%. Our GAAP net income includes a $54.5 million benefit related to an unrealized gain in our equity investments in Ctrip, which is now recorded in the income statement rather than the balance sheet due to an accounting change that took effect in Q1.

We excluded this unrealized gain as well as the OpenTable loyalty program benefit from our non-GAAP results. Our GAAP tax rate for the quarter was 19.4% just slightly better than forecast. Adjusted EBITDA for Q1 amounted to $798 million, which exceeded the top end of our guidance of $75 million and grew by 26%. Adjusted EBITDA also excludes previously mentioned Ctrip gain and OpenTable loyalty program benefit.

Our adjusted EBITDA margin of 27.5% was substantially better than our forecast mainly due to higher revenue in the quarter and performance marketing efficiency. As expected non-marketing OpEx expenses pressured year-on-year margins as we continue to invest in new markets and new capabilities. Our non-GAAP EPS was $12, up 21% versus the prior comfortably exceeding the guidance for the quarter and FactSet consensus.

Non-GAAP net income reflects a non-GAAP tax rate of 19.4% in Q1, which increased from the prior year due to impacts of the U.S. tax acts under higher Innovation Box Tax rate in the Netherlands as well as last year’s rate benefiting from discrete items.

Our cash and investments amounted to $16.3 billion at quarter end. In Q1 we generated $640 million of operating cash flow, which grew by 68% compared to the prior year. Our free cash flow for the quarter was $508 million, which is 64% higher than Q1 2017.

Cash flow in the quarter benefited from increased merchant transactions of booking.com, which have a favorable working capital impact. We returned about $732 million during the first quarter to our shareholders through share buybacks. In addition we used another $773 million in the quarter for the cash settlements of a conversion premium on our convertible bonds that matured in March.

We currently have approximately $10 billion remaining of our share repurchase authorization. We will continue to be both programmatic and opportunistic with regards to our repurchases. And under stable business and market conditions we expect to complete this authorization within a two to three year time period.

Our guidance reflects our quarter-to-date actual results and assumes our growth rates will decelerate over remainder of the quarter mainly due to size of our business and consistent with long-term trends. Our guidance also reflects the continued impact of our performance margin optimization efforts. And our approach to guidance has not changed. Our future guidance is based upon current foreign exchange rates, which provide a tailwind to our growth rates expressed in U.S. dollars.

We are forecasting booked room nights to grow by 7% to 11% and total gross bookings to grow by 10% to 14% in U.S. dollars and by 5% to 9% on a constant currency basis. Our Q2 forecast assumes a constant currency accommodation ADRs for the company will be down by approximately 1% compared to prior period. We forecast future revenue to grow by 11.5% to 15.5% U.S. dollars and by 6% to 10% on a constant currency basis. This forecast includes the impact of revenue shifting from Q2 to Q1 due to the timing of Easter and revenue recognition at check-in.

Q2 adjusted EBITDA is expected to range between $1.085 billion and $1.125 billion, which at the mid-points is up about 13% versus prior year. We forecast that adjusted EBITDA margin will be about in line with prior year Q2.

Our Q2 forecast assumes that our ROI optimization efforts will yield year-over-year performance marketing efficiency. We expect the deleverage from our investments in brand marketing and non-marketing operating expenses will offset this leverage from performance marketing in the quarter.

As mentioned last quarter, these investments have a more significant margin impact in Q1 and Q2, which in quarters in which we typically earn a smaller share of our annual profits due to normal seasonality of our business.

Although, we're not giving guidance beyond Q2, we do expect deleverage in non-marketing OpEx and brand marketing throughout 2018, but diminishing in the second half as we lap investments made last year. We also assume operating margins will benefit from increased performance marketing efficiency until we anniversary the optimization efforts that started in Q3 of last year.

We forecast GAAP EPS between $15.50 and $16.15 for Q2, which at the midpoint is up about 10% versus prior year. Our EPS guidance assumes a fully diluted share count of about 48.6 million shares, which reflects the beneficial impact of the common stock repurchases we have made to-date.

Our GAAP EPS guidance for Q2 assumes a tax rate of 21% compared to prior year rate of 17%. Our current year tax rate is higher than last year due to the impacts from the U.S. Tax Act, as well as the increased rates of the Innovation Box Tax in the Netherlands.

We’re forecasting Q2 non-GAAP EPS of approximately $16.35 to $17, which at the midpoint is up about 10% versus prior year. Our non-GAAP EPS forecast includes an estimated income tax rate of approximately 21%, which is higher than prior rate of 18% due to same reasons I just discuss for the GAAP rate.

We have hedge contracting place to substantially shield our second quarter EBITDA and net earnings from any further fluctuation in currencies versus the dollar between now and the end of the quarter. But the hedges did not reflect our gross bookings, revenue or operating profit from the impacts of foreign currency fluctuations. Our forecast does not assume any significant change in macroeconomic conditions, in general or in the travel market in particular.

With that we'll now take your questions.

[Operator]

Thank you. [Operator Instructions] Our first question is from Eric Sheridan of UBS. You line is open.

[Eric Sheridan, UBS]

Thanks for taking the question. Maybe two if I can. Last quarter you called out shortening booking window and the potential for some cancellations volatility around Easter in the way you had forecasted room nights. I wanted to understand how that played out as the quarter progressed against what you initially thought going in? And then second, you're projecting a deceleration in room nights in Q2, against what look like an easier comp, wanted to understand a little bit maybe some color around your forecasting there as well and I need to keep in mind? Thanks.

[Glenn Fogel, CEO and President]

Hi, Eric, its Glenn. I'm going to take that second question and then let David talk a little bit about booking windows. So, our company overtime has been very consistent and talking about deceleration, because of a lot of large numbers. And that has been something that has been trending fairly regularly overtime, but there has certainly been volatility quarter-to-quarter. In some quarters we've had small deceleration, and in some quarters we've had faster deceleration and some quarters we even had acceleration. And there were many factors that have gone into that.

Some of the factors are macro things the economy, some of the factors could be a competitive action by someone, some of the factors can be somebody who's not a competitor, but has influence some sort of reorganization and SEO algorithm for search engine. And some of the factors are things that we do, optimizing our performance marketing, clearly one. You take all of these factors and interact and there are feedback looks, it's very complex.

And that makes it very hard to project or predict short-term in this volatility. But long-term we can make some absolute in my sense confident enough making some predictions. And the prediction is that we are going to do very well. I have a lot of comp this in the industry and the company and let me tell you why.

I’ll start at the macro level, travel is a function of GDP, world GDP gross up travel grow faster and I’m highly confident that world GDP is going to continue to go up in the long run, that’s one.

The second thing a tailwind that we always been experiencing, is the offline to online, now it sounds arcane using offline to online. Let’s call it digital processes, that trend is going to continue. Yes, in some of our developed markets, there are more people who are already online let’s call it, who are doing, but there are so many areas in the world that are not doing that yet, but we’ll be doing it. That’s another thing for us.

Let’s go down number three, micro -- let’s get into our company individually. We are a big company, but we are a small share of the travel industry, a small share of our biggest business the accommodation business, a single-digit market share of -- and we’re measuring just the number of available rooms on our platform talking about the inventory we haven’t gotten yet. So that’s a lot of opportunities for us there. And if you think about us this year, the total travel industry and all things air, things like attractions other parcel of the industry that were much smaller we’ve a very small share.

When you think about -- well I mentioned that inventory we can go out we can get more inventory, that’s another thing that we are working very hard, we have talked about in the past, that us going out and getting more inventory and you see the numbers that we talked about. We talked about the amount of money we can put into investing in developing our non-hotel accommodations that’s the area of growth for us.

We talked about our experimentation with different things, maybe you’ve seen it on the booking.com and we have flight on that. Maybe you’ve seen some of the things we’ve ground transportation, maybe you’ve seen some of the things we are now doing with attractions. Experimentations was costs where we are now it’s going to continue to give us in the future.

And a separate part of that is coming up with innovation. There is a new thing out for priceline.com, it is the package product that we have about, it’s new, it’s exciting, things like that are always going to help drive us forward growth wise.

Many companies say what about conversion is that dead, no, we have always talked in the past that we do all of it, and we have a giant experimental platform. And that we’re always trying to come up with a better conversion rate. Now some quarters we do better, some quarters we do worse, but in the long run we’re always going to be building that conversion rate just going to continue to go up.

And in fact our mobile in the past continues to be an absolute growth area for us, and I actually just keep going on and just 24,000 very talented people, we have a lot of capital we have technology, I think we are in great position. So when we say you are comparing this what’s happening you are comparing this an easier comp. Last year was a 21% growth rate at which point we hadn’t started our optimization yet. I would say actually where our position is actually very good, it’s a good balance between growth and profit and I like where we are.

And now David, you want to take number two there.

[David Goulden, EVP and CFO]

Yes, let me pick up on a couple of your opening question, maybe I have a point about Q2 as well. So, on the booking window, we did continue to see a modest decline in the booking window, we noted that, we saw it over last few quarters to see a most decline. We think it’s likely impacted by some of the things we are doing around our optimization efforts in the performance marketing channels.

Now without going into all the details, we are targeting a less lower converting and less upper funnel outplacements that’s having an impact on the booking window and also I’d point out that mobile continues to perform well and mobile has a shorter booking window than desktop. So those factors are going into the booking window, as we said we see it continuing to modestly decline.

In terms of the Easter impact on room night booked. Very much in line with what Dan commented on the last earnings call. It did have a small impact to the room nights booked, very much in line with our comments. It had a much big impact on revenue and if we get a question on that later on, on the call, I’ll explain how Easter impacted revenue.

And then specifically relative to Q2, as Glenn mentioned, we are comparing against the period in which we are spending very heavily into pay channels. But if you think about the actual guidance itself it’s relatively stable guidance, vis-à-vis what we just reported for Q1. Our approach to guidance hasn’t changed. Also we are now sitting here with more time between now and quarter end than when we guided for the last quarter.

So there is natural increased level of potential variability, but I would point out that as in every quarter there is always something going in and in this quarter we are looking at some new factors, in Q2 for example given the timing of the World Cup and group play ending right at the end of the quarter is something in prior years has impacted growth rates. So all of those factored in.

[Eric Sheridan, UBS]

Thanks so much.

[Operator]

Thank you. Our next question is from Lloyd Walmsley of Deutsche Bank. Your line is open.

[Lloyd Walmsley, Deutsche Bank]

Thanks for taking the question two if I can. It looks like I think Glenn you mentioned mobile as an important factor in driving the direct business. Wondering if you can just give us a sense of if anything in particular has changed there. I think just two quarters ago you had kind of down played I think mobile as a source of direct strength. So is there a synergy with the TV spend you're doing or maybe if something changed in mobile app usage versus mobile web. Any color you could share there.

And then just looking at non-advertising OpEx, it actually look like it was ultimately fairly well contained despite some of the investments you're making. So is that really just a function of the size of the P&L being able to absorb that or any changes in kind of magnitude of the investment you have to make in some of these new areas. Any color you could share there would be great.

[Glenn Fogel, CEO and President]

Sure Lloyd, if I said something that was interpret that I did not believe mobile is important for direct or sort of that nature. It was misunderstood or I misspoke one of the other. Because certainly mobile helps direct significantly. And we believe it's a very important part of the strategy going forward. Now why are we noting and why is it important.

How much time you spent in -- let's take Asia for example. People are not doing desktop, the mobile is the way you do everything. And then it is so important for us to continue to be developing the right interfaces, the right connectivity for the different systems in all parts of the world where mobile really works efficiently.

And I just think that that is something that for us because of the size of our company because of the number of technologist that we have on our staff, we have an advantage, we can do these new experiments in all different areas of the business end up with a better result, a better use for our customers, which in the long run is how we went.

Regarding the non-ad OpEx, we talked about this a couple of quarters ago, about how we are taking these non-ad OpEx investments. And it was people and then all the things are associated with people expenses goes with them and we talked about a bunch of things that reasons we wanted to do that why we thought that was important for our strategy long-term. And we ramped up those numbers significantly at the time.

Now those people they came onboard throughout the year and they’re now full, we don't need to hire at this higher rate we need these people now to be more efficient more effective and such. So we believe as Dave was pointing out over the year and I certainly see going into 2019 we will get the benefit of those people who are doing all the great work that they're doing, but we should not -- you should not expect us to continue to hire the way we did last year at that kind of rate.

[Lloyd Walmsley, Deutsche Bank]

Got it, thank you.

[Operator]

Thank you. Our next question is from Brian Nowak of Morgan Stanley. Your line is open.

[Brian Nowak, Morgan Stanley]

Great, thanks for taking my questions. The first one just kind of going back to your comment around direct traffic. I was hoping it kind of growing. I guess the question is direct traffic growing in your mix at this point? And if not, how are you thinking about that throughout the course of the year?

And then just sort of going back to the deceleration implied in the guidance. And I appreciate the color about the industry, but maybe just talk about potential for acceleration. What are the factors you are most focused on internally, whether it's regions or buckets of room nights that you think over the course of the next year could lead to faster room night growth even through lot of large numbers. Thanks so much.

[Glenn Fogel, CEO and President]

Well, could you just explain a little more about, you said direct within the mix, I didn't quite understand that question.

[Brian Nowak, Morgan Stanley]

So I guess you mentioned your direct traffic is growing year-on-year. The question is, is it increasing as a percentage of your total room night service paid still growing with the mix.

[Glenn Fogel, CEO and President]

Direct is growing. Direct is growing and we are very pleased with that growth rate and it is something that is part of the overall strategy to continue to increase that. In terms of -- I could come up with a whole bunch of hypothetical so what could increase the growth rate and become an accelerating number versus a decelerating number. And a lot of them would be just making up being speculative.

I will say one thing though that is, we’ve seen overtime and that is when we come up with something that’s innovative something that we -- obviously we haven’t thought of it yet, it’s a new things that we’ve done and come out and that has absolutely been helpful in terms of driving more business.

So a good example of something like that might be and well we are grow so fast at the time you wouldn’t have seen it in the growth rate, but the fact is when mobile came out, I’ve hear long enough 18 years, I was here when there was no such thing as mobile. But when people started booking on mobile by being out in front and coming up with great ways to use that technology to make it easier for people to book who wanted to use their phones that was an advantage for us.

So to be something like that that I believe could come out in the future and we’ll be able to get advantage of it for something I talked about earlier already, about the idea because we do have scale in our technology area, because we’ve scale in all areas of our business actually and that will help us achieve a better result than competitors who may not have the same scale.

[Brian Nowak, Morgan Stanley]

Okay, thanks.

[Glenn Fogel, CEO and President]

Let me give David, I think you’re a technologist at heart so maybe give us something that I talked about. Especially why we would accelerate?

[David Goulden, EVP and CFO]

I’d just add a couple of points, Glen just on the first point just want to reinforce that not only is the direct increasing as a percentage of a mix it is our largest channel for bookings Brian, so just clear that point. And then I’ll just add one more point, certainly it will start to play into in fact in the second half of the year right now we are from a growth rate comparing periods in which we have -- we are optimizing our ROIs against periods where we weren’t optimizing them quite, so rest of these during the second half of the year the compares with start to get a little bit easier for that factor as well.

But as Glen said long-term there are many other factors including all the things you mentioned in terms of headroom available for us to grow this industry with -- this business with single-digit market shares in our core markets and new ways to attract customers, et cetera. So those will be the bigger factors for driving long-term growth rates.

[Brian Nowak, Morgan Stanley]

Okay, thanks.

[Operator]

Thank you. Our next question is from Mark May of Citi. Your line is open.

[Mark May, Citi]

Thank you. Actually one of my questions is a bit of a follow-up to the last comment. Is it possible for you to help quantify to some degree the impact that optimizing some of your direct response marketing has had on the growth? And maybe just help frame that a bit? And then secondly, can you talk a little bit about the relative rate of growth in your North America market and kind of how that’s been trending in recent quarters? Thank you.

[Glenn Fogel, CEO and President]

Hey, Mark. So we’re not going to put a pin on a number in terms of the optimization, but as David pointed out optimization is definitely a hurt on the growth rate and we know that if we want to get more growth we could pay up for it so to speak, but that’s not what our strategy. Our strategy is to achieve a balance and we’re at where we believe is the appropriate balance between profit and growth and that’s really we’re going to play out.

In terms of North America we don’t generally start pulling out different regions differently. And so I'm not going to go there I will say that the world economy is good, travel is good in most areas of the world. David I think mentioned we have a couple of small areas that are of interest and is not North America at all.

Argentina and Brazil with some currency and Russia also some currency effects happening there, which make outbound business decline or you recapture some of that in domestic business, but it’s still a negative impact on us generally. So that’s a little bit in terms of a regional area or country area, but generally that’s about as far I go in terms of anything I could call out is an issue.

[Mark May, Citi]

Thank you.

[Operator]

Thanks our next question is from Mark Mahaney of RBC Capital Markets. Your line is open.

[Mark Mahaney, RBC Capital Markets]

Hey. I just got two European related questions, one just this is a small near-term stuff about the World Cup, just talk about the impact that had in years passed, that is a pretty sizable event and your people over there getting excited by that, they don't travel. So just how do you actually try to handicap that kind of impact that could have on your business? I know that's a near-term issue, but I wanted to ask that.

And secondly, also European, I want to ask about GDPR and how do you think about the extent to which that will complicate your business, either in terms of your building to reach out to your current or potential future customers? And just overall, does that impinge on the effectiveness of online marketing channels as -- how much of a challenge for you is GDPR in terms of running the business? Thanks a lot.

[Glenn Fogel, CEO and President]

Hi, Mark. I'll take the second one GDPR and David being English and they actually have a team in World Cup this year I’ll let him handle that one. So GDPR, first before answer that your question, let me just point out how we definitely believe that privacy is a very important thing and we've been thinking about how to maintain privacy for our customers, our partners everyone long before GDPR was even a thought in Brussels.

We do not believe, when we talked about this we do not think it's going to be have any real impact on our business in terms of our marketing or getting customers, really we look up and down trying to figure out is there some sort of impact and we really do not see a material impact in it from GDPR.

That being said, preparing for it and continuing as we come up to the deadline obviously cause us costs and diversion of resources. Relatively minor compared to the size of our business, but they were actual movement of people who would have been preferring to work on the business making either more combinations or working some of our new innovative things rather than we working on GDPR. But that being said it’s something that we need to do and again we're happy to do it. And I’ll let David talk about World Cup and what his thoughts and maybe give a prediction on he think is going to win.

[David Goulden, EVP and CFO]

Mark, I would not go as far as that in public. Mark it's interesting because it's difficult to predict because the number of factors come into this. It depends which team is doing well. What we've seen in prior years is that when teams get through to the later round, their countrymen are not booking very heavily while it’s in the World Cup, but once they get knocked out they start booking quit quickly.

So, it's a function of who gets through to the later rounds. And as I mentioned, with everything happening starting in middle of June going into early July, I think that it’s the group play rounds that end right at the end of the quarter. So, it's going to be a function which teams are going forward beyond that. So it's very difficult to predict so can't be more specific. But it’s certainly a factor that we are looking out when we're modeling our growth rates and looking at sequential bookings growth and things like that during the quarter. We’ll have to tell you based upon what happens and who winds up again through to the later rounds.

[Mark Mahaney, RBC Capital Markets]

Okay, thank you very much.

[Operator]

Thank you. Our next question is from Justin Post of Bank of America. Your line is open.

[Justin Post, Bank of America Merrill Lynch]

Great, thank you. So just you definitely have tightened your ROI thresholds and I just wondering if you’ve thought about to competitive impact on that? I mean, you've said it affected your growth rate, where do you think those rooms might be going is it going direct or do you think some competitors might be getting it?

And then overtime I follow this company for many years, you've always sound great opportunities in new marketing channels that have helped propel your growth and you've actually out competed people overtime. So, I'm just thinking about do you still see those opportunities? Is it going to take new emerging companies that you could take advantage of or changes in Google, but overtime do you still think you can have an advantage in marketing channels? Thank you.

[Glenn Fogel, CEO and President]

So, Justine I agree with your point that, we have done a good job in terms of marketing overtime. And we do believe that we will continue to do well and find new ways to be able to bring in more customers from new types of marketing. Certainly something that we've talked about in the past as our brand market effort as that sort of accounted to raising ROIs on a performance and countering with brand spent to bring people direct.

And that’s an area that we're going to continue to work on, work very hard on to try and develop the right formulas, coming up with the right creators, the right measurement tools, putting in the right geographies. So that we can bringing more of those people direct to us. It’s so important to our strategy in the long run that we don't depend as heavily as we have in the past on third-party sources of customers.

We believe the right thing for the company in the long run is to create a service that is so good that people when they think about travel, they think about us immediately and come to us directly.

[Justin Post, Bank of America Merrill Lynch]

Got it. And then the first question, I mean you have currently given up a few rooms, do you think those are going to direct channels, or where do think that those people are going? Any thoughts that on?

[Glenn Fogel, CEO and President]

Thoughts on that. I have some thoughts on it, and what I'm really hoping because I think David may have mentioned this so he can talk a little bit on this too after I'm done. Is the idea that when we are optimizing, and saying which keywords are we thinking aren't good for us in the long run. And thinking well, maybe those people will come to us later in another way, shape or form or maybe they will be booking somewhere, but before they actually show up or cancel there and come back to us and check our prices and our availability and see maybe they will book with us in the end. Anything beyond that would really be just speculation, I don't know David you have anything there, I don’t think there is much else we could say on it.

[Justin Post, Bank of America Merrill Lynch]

Great, thank you.

[Operator]

Thank you. Our next question is from Kevin Kopelman of Cowen & Company. Your line is open.

[Kevin Kopelman, Cowen & Company]

Hi, thanks a lot. Could you give us an update on underlying take rate trends that you're seeing. It seem like those might have been a little bit stronger in the quarter even after making all the adjustments. And then on that, can you tell us where you did end up for the estimated Easter impact on revenue both under the new and old accounting standard for Q1? Thanks.

[Glenn Fogel, CEO and President]

I’ll let David do you want to…

[David Goulden, EVP and CFO]

I'll take Easter first Kevin that's those kind of slightly longer answer and then I'll come back to the take rate. So as I mentioned in one of the answers to an earlier questions, from a bookings point of view, Easter timing was a modest headwind in Q1 in line with our expectation. The revenue impact is much greater, but also in line with our expectations. So let me kind of explain what was going on there.

So in 2017 of course Easter fell in Q2 and revenue rec was based upon checkouts. So those Easter stays helped Q2 revenue. In 2018, Easter fell on the 1st of April, but very importantly the revenue rec moved to a check-in. So most of those Easter stays mainly helps Q1 revenue. So the impact to that was about 3% year-on-year benefit to Q1 growth and about a 2% hit to year-on-year growth in Q2.

And if you think about those 5 points of difference in growth, those account almost the entire difference in our constant currency revenue guide from Q1 to Q2, which really all explained by Easter and defined our 6 points. So that's what's happening with Easter and it's in line with our expectations and what we’ve told you on the last call.

In terms of take rates, they have actually been quite stable. And we're pleased with that. So we also mentioned that ADRs were down only very modestly in the quarter and we had it in our guidance predicted them being down 1% again talking constant currency ADR. So that's what's going on there.

[Kevin Kopelman, Cowen & Company]

Thank you very much.

[Operator]

Thank you. Our next question is from Heath Terry of Goldman Sachs. Your line is open.

[Heath Terry, Goldman Sachs]

Great, thanks. I was wondering if you could give us a bit of a sense about how I don't know you’ve talked about this in couple of different ways, but just how you're thinking about the trade-off between growth and profitability? To the extent you're optimizing away from lower performing channels are these channels that are actually losing money or simply not getting the ROI target that you have for them?

And then second question, as we move further away from the changes in pricing current regulations in Europe. Wondering if you can give us a sense of what you're seeing in terms of hotel behavior is discriminating hence for the meta-search channels and whether or not I guess one, what you're seeing to the extent that you're whether it's having any impact?

[Glenn Fogel, CEO and President]

Hey, it's Glenn. So we talked about this in the past and how we value performance platform for this marketing platform. And how we decide what we're going bid, how much we're going to bid. And we’ve talked about what's the customer experience on that platform, what's the incrementality of the traffic. What's the anticipated repeat rate going to be that channel. And we'll also think about are we supplying funds to someone who may then use those funds to compete with later down the road. These are all factors that come in.

So it’s more than just is it a positive ROI, a negative ROI. There is a lot more that goes into how we decide how we are going to bid, where we are going to bid, what level we’re going to go at. We are definitely leaning in and we will continue to lean in with those platforms that we believe are helping us build our business for our long-term strategy and I’ve said this before many, many times. And we lean out against those platforms that are not doing that, those that we believe in the long run are actually going to be detrimental to achieving our long-term strategies.

So that’s answer to that question. Regarding parity, I have not seen much impact at all regarding any of the changes in the landscape in that area it really has not to my knowledge from of what I have seen yet had a material impact. We still believe that we are the people who have the best price, the best availability, the best service, the best user interface and people come to us.

Sometimes some -- I know this from looking it, best price doesn’t always -- it’s not always just best price by the way and part of our winning strategy has been doing all those other things too. So there is a lot more to it than just showing up with the best price as a matter to be successful in this business.

[Heath Terry, Goldman Sachs]

Thank you.

[Operator]

Our next question is from Douglas Anmuth of JP Morgan. Your lines is open.

[Douglas Anmuth, JP Morgan]

Thanks for taking the question. Glenn, you talked about wanting to be the place to go for travel and you’ve certainly been talking more about a broader holistic travel approach and more full service. I was hoping you could help us understand how much of your business kind of non-hotel, non-accommodations could be overtime, how you think about that? And what kind of investments are require to get there if you think over the next three to five years? Thanks.

[Glenn Fogel, CEO and President]

Yes, I definitely talked about this a great deal and I do believe it is the proper way for our scope for the long run. And one of the critical things about this is not just making sure that we have an appropriate return on the investments on the -- let’s take for example say, you wanted to do -- we’re doing attractions right now, we believe that’s very beneficial helping our customers, before they show-off, and while they show-off to get those attractions or experiences more of than just the money we would make from those, it’s providing a much easier way for that customer to achieve a great trip.

So we could overtime take a lot less money on that he individual action, but because it builds great loyalty be very beneficial and of course it’s going to show-up, David doing his accounting, he's here, he is going to tell me hey this is great, look at what we are doing on our accommodations and we’ll have to then figure out how much we attribute to some of these other services and make sure that we are properly realizing once it’s a good investment or not. So that’s the first part of that answer.

I do not have in front of me a five year plan with the absolute numbers and dollars for each of these items. As you know we are an experimental company, we build products out, we see how they work, if they work we do more and we develop it further, if it doesn’t seem to be work we pull back.

The right thing though is maintaining the balance and we’ve talked about this and this is how do we use our capital, we use our capital organic growth, and organic growth investments is things like building out these services, there’s also M&A. As I mentioned we went out we bought FareHarbor to help there a new one build a lock and building out this large holistic system.

And those are the different way we’re going to do it. I can’t give you some numbers, what I can say I do believe that it is -- it will be when we have done this, a very strong competitive advantage over companies that do not have that.

[Douglas Anmuth, JP Morgan]

Okay, thanks Glenn.

[Operator]

Thank you. Our next question is from Deepak Mathivanan with Barclays Capital. Your line is open.

[Deepak Mathivanan, Barclays Capital]

Great, thanks for taking the question. Two questions for me. First growth in brand marketing dollar was slower than last couple of quarters, does obviously seasonal aspect of it, but can you talk about your current thinking on brand marketing effectiveness compared to prior expectations?

And then the second question one of your competitors is ramping supply acquisition and marketing investments in Europe, do you think that’s driving competitive pressure of maybe preferably on the customer acquisition side in Europe? Thanks a lot.

[Glenn Fogel, CEO and President]

A brand, so we started talking last year about the importance of brand and that we plan to make investments in brand. And we talked about the need for technological measurements to make sure we’re doing it right and we’re going to do it. And one of the things I said several times, I said we do it carefully I use word careful, I use word prudent, I said that we weren’t going to just go out and spend a huge amount of money that we would test our way in and experiment and we’re continuing to do that.

And when we find the right formula, when we find out exactly where we think it is doing very well that’s where we’re going to open up to speak it more and spend more. But what we’re not going to do is spend a huge amount of money before we have a higher certainty that what we’re doing is doing well. So that’s how we’re going to play that way.

Your other question about people have been competing with us for a very long time, getting supply this is nothing at all and I do not expect this to change in the long run, people will continue to go out and try and get more supply to all of our competitors will and we’ve been doing pretty well generally against that.

We’re always making sure that we’re having good relationship with our property partners, we’re making sure we’re getting great prices and availability, we’re making sure we’re giving value to these partners. I feel pretty good about our position in Europe right now and I don’t really in the checks partners that we’ve had the numbers that we’ve looked at in all things I have not seen anything yet from any competitor in terms of European getting in-roads in there because of any reason.

[Deepak Mathivanan, Barclays Capital]

Great thanks a lot.

[Operator]

Thank you. Our next question is from Brian Fitzgerald of Jeffries. Your line is open.

[Brian Fitzgerald, Jeffries]

Thanks, guys. I wanted to ask around non-traditional inventory, how you feel about the depth and breadth of supply there going forward? That’s it, thanks.

[Glenn Fogel, CEO and President]

Well, I was very happy Brian when we did our announcement a few weeks ago about 5 million listings that was something that the team was happy about and we were all happy about it’s $5.2 million now. I also made the note here and I’ve talked about this in the past about that while we do like hiring a lot of listings we do recognize that if we don’t have all the right type of listings and I spoke specifically in my prepared remarks about wanting to get more single home inventory.

And I talked in the past about we don’t have it all in the right geography some places we have great breadth and depth, some areas not so much. So there’s a tremendous amount of opportunity in front of us to go out and get more of that.

But just getting inventory isn’t enough and we’ve said this I'm just talking about somebody else getting more inventory and how it’s going to affect them well it’s the same thing with us. I talked in the past the importance of not only getting that availability and that connectivity in those properties onto our platform, but just making sure that the customer when they’re thinking about where they’re going is thinking about us for that type of accommodation.

The awareness of our non-hotel accommodations in the U.S. is not nearly as high as we would like it to be, we recognize that and I don’t know if you’ve seen some of our recent advertisements by booking.com they have one going right now, running right now that is specifically oriented to that type of property, but one thing as we recognized to be successful to be very successful and to be a leader throughout the world is this we need to have the right inventory everywhere.

[Brian Fitzgerald, Jeffries]

Great. Thanks, Glenn.

[Operator]

Thank you. Our next question is from Jason Patterson of Raymond James. Your line is open.

[Jason Patterson, Raymond James]

Great, thank you very much. Shifting back to the high level investment themes and technology changes, AI has been one of your investment areas, it sounds like we had some good success with natural language processing. Could you talk about how that’s being used in the business today? What benefits you’re seeing from that? And how you think that changes the business over the long-term? Thanks.

[Glenn Fogel, CEO and President]

Sure. One of the areas that I guess I'm not sure if you read our shareholder letter that I wrote for the proxy, but we talked a little bit about how we’re using customer service the Chatbot and how we’re very pleased with the result how that’s doing right now. It really is a great thing because customers are happy, because it’s easier, quicker, faster to get their problem solved. We like it because it helps in terms of our expenses obviously all good there. And that’s one example and there are going to be a lot more examples there down the road.

But I'm sorry what was your other -- do you have another question?

[Jason Patterson, Raymond James]

No just kind of long-term, where do you see the AI benefit so that piece you just described is cost side, how do you think about that playing into bookings and other areas of the business?

[Glenn Fogel, CEO and President]

Well, obviously personalization is so important and that’s part of that whole holistic system that I’ve talked about probably getting some of you are bred with me talking about it. But it's important so I'm just going to keep repeating it. And then there is the idea a customer with the incredible amount of choice and all the different things that they could do as such. It's helpful to give them guidance.

And I always give the analogy of it all time human travel agent who knew everything about you because they knew the things you've done of the past, our new year income, they knew what you liked, what kind of trip you should have, what kind of restaurants you should go to, what kind of attraction you should go, what the experience you should have, how you're going to get from your home to the airport, how you are going to go from the airport to the hotel or the non-hotel depending on what it was and all those great things.

That's what AI needs to recreate so that when people come to us we are able to provide them with really is the perfect trip and make their lives easier. I am certain you have done leisure travel and you've been frustrated. And it's frustrating for me too. I still have these issues, but I know that with technology we can cure this stuff and the people who cure those problems first who get rid of that friction who make it easier for everybody those are the number of the people who people are going to come to direct are going to be the winners. And we want to be that person.

[Jason Patterson, Raymond James]

Thanks, Glenn.

[Operator]

Thank you. Our next question is from Tom While of D.A. Davidson. Your line is open.

[Tom While, D.A. Davidson]

Great, thanks for taking my question. Maybe just a follow up on kind of the deceleration that we’ve seen in the growth of the business over the past few quarters and sort of vis-à-vis your alternative accommodation product. I guess, I'm just trying to understand if there is potential do you think for this product to kind of be large enough overtime to reaccelerate your overall growth rate in any meaningful way maybe through adding pockets of supply like you mentioned in some geographies or more home inventory or maybe just growing consumer awareness of the category. Just trying to understand if this is a big enough product to may be kind a reverse the decel that we've seen recently.

[Glenn Fogel, CEO and President]

Well, could is an interesting world I mean. Yes, it could and it might. One of the interesting issues in that right now. And I'm going to use your question just to refine it a little bit. So clearly we think it's very important right now. And we know our customers want it, we're going on getting that inventory. But we're also making sure that we obey the rules. Not all municipalities want to just let this go will nearly they have all sorts of ideas and how they should be regulated.

And we are fully in favor of working with local municipalities, local organizations to make sure this is done appropriately. Because of its mind if we just let everybody just doing nothing really, you can end up with potential the tragedy the comments issue where it caused the problem for the entire city. And we’ve seen certain cities where people are objecting to that type of tourism because it's making life for the people who live there very, very difficult.

On top of that there are some municipalities that believe that this type of activity is doing -- having effects on rental places for the people who live here. And if you saw the recent thing on that all sorts of issue like that. So one of the things we are very much in favor of much of this, but we want to do it legally and recognize very, very happy to see a couple of weeks ago, when the Mayer of Paris came out and was talking about how we are a role model for doing this the right way, so that's good.

Second thing interesting, I'm not sure if you saw or heard about or seen about one of the major chain hotels that is out there and is now testing doing home sharing, it's small test, but they're out there doing it too. So it will be interesting overtime we are the blending where you people don't make much of a distinction that is just I need a place to stay and I look. And they come to booking.com and we have all the stuff there. And they see which property is right for that particular trip.

So I don't want to think about at the end of the day is it going to be bigger or smaller than traditional or not. I just want everything to get bigger for us.

[Tom While, D.A. Davidson]

Okay, thanks for the color.

[Operator]

Thank you. At this time, I’d like to turn to Mr. Fogel for closing remarks.

[Glenn Fogel, CEO and President]

Thank you. I want to end by saying that I'm very pleased with our first quarter results. We balance attractive growth with profit margin expansion and we will pursue the strategy we've just talked about to give us the highest probability of capitalizing on this very large opportunity that we have in front of us. I look forward to speaking with you all next quarter. Thank you.

[Operator]

Ladies and gentlemen this does conclude your program. Thank you for your participation in today's conference. You may now disconnect.