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Priceline.com Incorporated (NASDAQ:PCLN)

Q4 2012 Earnings Conference Call

February 26, 2013 04:30 PM

Executives

Jeffery Boyd - Chairman, President and Chief Executive Officer

Daniel Finnegan - Chief Financial Officer

Analysts

Brian Fitzgerald - Jefferies

Heath Terry - Goldman Sachs

Anthony DiClemente - Barclays Capital

Douglas Anmuth – JPMorgan

Naved Khan - Cantor Fitzgerald

Mark Mahaney - RBC Capital Markets

Aaron Kessler - Raymond James

Justin Post - Bank of America Merrill Lynch

Steven Jew - Credit Suisse

Brian Nowak - Nomura

Mike Olson - Piper Jaffray

Kevin Kopelman - Cowen and Company

Michael Millman - Millman Associates

Operator

Welcome to the Priceline Group’s Fourth Quarter and Full Year 2012 Conference Call. Priceline 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 and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements. For a list of factors that could cause Priceline’s actual results to differ materially from those described in the forward-looking statements, please refer to the Safe Harbor statement at the end of Priceline’s earnings press release, as well as Priceline’s most recent filings with the Securities and Exchange Commission. Unless required by law, Priceline undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events, or otherwise. A copy of Priceline’s earnings press release, together with an accompanying financial and statistical supplement, is available in the Investor Relations section of Priceline’s website located at www.priceline.com.

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

Jeffery Boyd

Thank you very much. Welcome to Priceline’s fourth quarter conference call. I am here with Priceline’s CFO, Dan Finnegan. I will make some opening remarks, and Dan will give a detailed financial review. After the prepared portion, we will take questions.

Priceline reported consolidated gross bookings for the fourth quarter of approximately $6.6 billion, up 33% year-over-year. Gross bookings growth accelerated sequentially due to a slight acceleration in room night growth and a diminished foreign exchange headwind as the euro strengthened during the quarter. Non-GAAP net income was $349 million or $6.77 per share, up 26% versus prior year. Fourth quarter results surpassed FactSet consensus estimates of $6.53 per share and our guidance for the quarter. Worldwide hotel room night reservations were $46.2 million for the quarter, up 38% year-over-year.

For the full year, Priceline reported gross bookings of $28.5 billion, up 31% from 2011 and non-GAAP net income per share of $31.28, a 33% over 2011. 2012 full year U.S. dollar denominated gross bookings and earnings growth rates were significantly reduced by a weaker euro throughout the year. Growth rates for our international business increased slightly on a local currency basis during the quarter with 43% gross bookings growth. Room night growth rates in Europe held up better than forecast and seasonal strength in our faster growing APAC and South American markets are helping as they become a larger portion of the global business.

Booking.com continued to build its worldwide hotel supply platform with now over 275,000 hotels and other accommodations in 180 countries and territories, up 41% over last year. Booking.com’s growth in Europe has shown resilience given continued economic weakness and worry in the Eurozone. We believe our market leadership in European countries currently experiencing weak economic conditions is an important part of our franchise. However, it does expose the business to cyclical weakness, but also to economic recovery in a strengthening euro during up-cycles.

As you know, our long-term strategy has been to build greater geographic diversity in our international hotel business by investing markets outside Booking.com’s core European market. Over the course of 2012, those newer markets grew faster and each quarter they become a larger part of the whole. These investments in the growing mix of new market business have a negative impact on operating leverage since the new markets are almost by definition less profitable in core markets. But in our view, the long-term opportunity is too important to approach tentatively.

Booking.com’s new offline marketing experiment in United States is part and parcel of this long term strategy. We believe that the continuing strong growth we’re seeing in book room nights shows we’re on the right track. I’ll go to delivered stronger net growth in the quarter and as establishing a leadership position in the fast growing APAC market. We believe economic development and growth in international travel will be continued tail winds for this business.

Priceline’s domestic gross booking grew 4% in the fourth quarter due primarily to growth in retail rent car reservations and the retail hotel room night bookings. Disruption from Hurricane Sandy had a modest negative impact on results due to cancellations and loss of reservations. Priceline.com is making good progress building express deals business and the reach of its mobile services. We’re also excited about the new ad campaign featuring Kaley Cuoco of the Big Bang Theory as a way to break through with our express deals message.

Accelerating merchant gross bookings growth with 32% continues to reflect growth at a Agoda and Rentalcars.com which are comprising a larger part of the merchant mix. Growth in rental car days increased sequentially from 35% to 36% driven by improved results of both Priceline.com and Rentalcars.com. Rentalcars.com achieved consistently impressive unit growth in 2012 showing a successful transition to the unified Rentalcars.com brand and good progress on the expansion of the business globally which we believe is in the early innings. With respect to Kayak we’re in the process of obtaining the remaining approvals needed in Europe and Kayak stockholder meeting to consider the transaction is slated for early March. We will have no further comment on the transaction or Kayak’s results until announce a closing date.

The group’s international businesses performed well in 2012 showing resilience in the face of weak economic conditions in major markets, competitive pressures continue with major players ramping the marketing spend and in some regions pushing discounts and promotions. As I have said for some time now we intend to make investments in marketing and people to drive growth even if those expenditures create pressure on operating leverage.

Fourth quarter results demonstrate that the business continues to support this type of investment and the achievement of strong operating margins and we believe our top-line momentum shows return on those investments. Our aim is to continue building our brands by investing in geographic expansion and supply product and service innovation and customer acquisition. I want to thank our employees around the world for their hard work and dedication in delivering a terrific year for their brands and for the group. I will now turn the call over to Dan for the detailed financial review.

Dan Finnegan

Thanks Jeff. I will show some of the highlights and operating results and cash flows for the quarter and then provide guidance for the first quarter of 2013. Growth rate as mentioned in remarks are in relation to the prior year comparable period unless otherwise indicated. Q4 was a strong quarter from a top line perspective, although room nights books grew 38% in the fourth quarter slightly accelerating compared to the 36% growth rate achieved in Q3.

Solid growth rates were posted in all of our key markets, the unit growth rate also benefits from the fact that our fast growing Asia-Pacific and South American regions represent a larger proportion of our business for the quarter due to seasonality. Gross bookings performance was strong in the back half of the quarter which will partly benefit to one gross profit as our customers complete their travel.

Average daily rates for ADRs for Q4 2012 were down on a local currency basis by about 1% for our international hotel service and we’re up by about 1% for our U.S. hotel service. Our Q4 forecast for our U.S. hotel service ADRs could be up by about 5% turned out to be too high. ADRs for the U.S. hotel service were impacted by hotel mix and Hurricane Sandy which essentially closed a high ADR New York City market for a period of time. Rental car days book were up by 37% also accelerating compared to the Q3 growth rate of 35%.

By performances driven by accelerating growth to both our Rentalcars.com and Priceline U.S. rental car businesses. For the fourth quarter compared to the prior year the FX rate for the Euro to the U.S. was unfavorable by about 4% and the FX rate for the British pound to U.S. dollar was favorable by about 2%. As a result of currency exchange rate slightly depressed our year-over-year growth rate expressed in U.S. dollars for gross bookings, revenue, gross profit, projected EBITDA and net income. In summary, strong unit growth rates drove Q4 gross bookings growth of 33% or 35% on a local currency basis.

Our Q4 international gross bookings grew by 40% and by 43% on a local currency basis. Gross bookings grew by 4% for our priceline.com brand business in the U.S. Good performance in retail hotel room, airline ticket and rental car reservations contributed to year-over-year growth. However, our Name Your Own Price hotel service posted year-over-year decreases in gross bookings and revenue as a result of the continued pressure from competitive discount hotel initiatives. Opaque hotel did see improving growth trends as we progressed through the quarter, which is carried over into Q1.

Non-GAAP gross profit for the quarter was $956 million and grew 32% as compared to prior year. Our international operations generated gross profit of $836 million, which constituted an increase of 37% as compared to the prior year and an increase of 39% on a local currency basis. Non-GAAP gross profit for our U.S. business amounted to $120 million, which represented 4% growth versus prior year.

Non-GAAP operating income as a percentage of non-GAAP gross profit amounted to 43.8% for Q4 2012 compared to 46.5% for the prior year Q4. The operating margin declined by 270 bps compared to prior year, but was better than our guidance forecast. Margins were impacted mainly by de-leverage in online advertising and personnel expense. Online advertising grew faster than gross profit due to continued mix shift in our business to paid channels and to our international brands which drive their business to a greater degree through online advertising.

In addition, as forecasted in our guidance, we experienced lower advertising ROIs compared to Q4, 2011, the trend that you are seeing for a couple of quarters now and which is forecasted to continue in our Q1 guidance as we will discuss in a moment. Personnel expense in Q4 reflects the impact of Q3 events that support our growing business is help fuel future growth. G&A expense includes about $3 million in professional fees related to the KAYAK acquisition.

I’d like to highlight the GAAP to non-GAAP adjustments we made in the quarter. Non-GAAP gross profit, non-GAAP operating income, adjusted EBITDA, and non-GAAP net income are adjusted to exclude the $15.1 million charge we recorded in Q4 related primarily to an unfavorable ruling in the State of Hawaii regarding hotel general excise taxes. Consistent with past practice, we exclude significant charges and credits for judgments, rulings, and settlements related to hotel occupancy and other related taxes, because the amount and timing of these items are unpredictable, not driven by core operating results and render comparisons with prior periods less meaningful.

Adjusted EBITDA for Q4 amounted to $426 million, which exceeded our guidance range of $381 million to $421 million and represents 24% growth versus prior year. Non-GAAP net income grew by 26%, including a lower year-over-year cash tax rate due to the Innovation Box Tax benefit in the Netherlands and a lower statutory rate in the UK.

In terms of cash flow, we generated approximately $497 million of cash from operations during fourth quarter 2012, which represents a 76% increase versus prior year. We spent about $16 million on CapEx in the quarter. For full year 2012, we generated approximately $1.8 billion of cash from operations which represents a 33% increase versus prior year. Our cash and investments of $5.2 billion as of December 31, 2012 with about $2.1 billion of that balance in the U.S. are available for general corporate purposes, including share repurchases, acquisitions and debt repayment.

Now for first quarter 2013 guidance. Our forecast reflects the continuation of the strong top line performance we saw in Q4. In addition, gross bookings for the first quarter are helped to an extent by an earlier Easter this year, which causes a greater proportion of Easter bookings to occur in first quarter this year compared to last year. We are forecasting total gross bookings to grow by 30% to 37% and to grow on a local currency basis by approximately 29% to 36%, with U.S. gross bookings growing by 5% to 10%. We expect international gross bookings expressed in U.S. dollars to grow by 36% to 43% and to grow on a local currency basis by approximately 35% to 42%. Our Q1 forecast is that local currency ADR for the consolidated group will be roughly flat with the prior year.

Our Q1 forecast assumes that foreign exchange rates remain at the same $1.31 per euro and $1.52 per British pound at yesterday’s closing rates. This will result in average exchange rate that would be stronger by about 1% for the euro and we provide up 2% for the British pound as compared to the prior year. We hedged contracts and placed to substantially field our first quarter EBITDA and net earnings from any fluctuation in the euro or pound versus the dollar between now and the end of the quarter but these hedges do not offset the impact of translation on our gross bookings, revenue, gross profit and operating income and do not hedge our earnings beyond the first quarter.

We expect Q1 revenue to grow year-over-year by approximately 17% to 24% and gross profit dollars to grow by approximately 30% to 37%. We expect 300 to 400 bps of deleverage in non-GAAP operating income as a percentage growth of gross profit compared to prior year. We assume that margins in Q1 will again be impacted by deleverage and online advertising expense to the business mix continuing to shift pay channels as well as continuing pressure on our lives.

We also launched our first TV advertising campaign supporting our Booking.com brand in the U.S. which contributes to the pressure on operating margins for the quarter. Although we’re not giving guidance on the amount of spending for the Booking.com branding campaign, the spending will likely spread over the quarters of the year similarly to how Priceline.com has spent has historically. Operating and leverage in Q1 can also be impacted by seasonal factors regarding the timing difference between the recognition of revenue and certain expenses. We typically have spent advertising cost as incurred but generally don’t recognize revenue in gross profit and pull checkout. A significant amount of bookings and related advertising cost typically occur in Q1 as customers may travel reservations for spring and Easter Holidays in Q2 and summer holidays in Q3. Any effect on advertising expense is more pronounced when the business sustains high levels of gross bookings growth.

Adjusted EBITDA is expected to range between $316 and $346 million which at the mid-point represents 22% growth versus prior year. We’re targeting non-GAAP fully diluted EPS of approximately $4.90 and $5.30 per share which at the mid-point represents 20% growth over prior year. Our EPS forecast reflect about $2 million of additional year-over-year cash interest expense for Q1 related to the convertible bonds we issued in March last year. Our non-GAAP EPS forecast concludes an estimated cash income tax rate of approximately 15.5% comprised of international income taxes and alternative minimum tax and state income taxes in the U.S.

Our non-GAAP EPS guidance as soon as the whole diluted share accounted 51.6 million shares faced upon yesterday’s closing stock price of $671.54. We forecast GAAP EPS of $4.12 to $4.52 per share for Q1. The difference between our GAAP and non-GAAP results is driven by non-GAAP adjustments that are detailed in our earnings release. Our forecast for Q1 does not include Kayak and does not include any related deal tasks. We believe that the impact of the Kayak acquisition on our non-GAAP EPS for 2013 will be diminished.

Our guidance reflects actual results to-date and our forecast for the remainder of the quarter, although we’re almost two months into the quarter due to normal seasonality for me, full portion of our gross bookings for the quarter are expected to be generated in March.

Our guidance reflect our expectation for sequentially decelerating growth rates for a very large business comparing against high transaction growth rates. Although you have seen variability in our growth trajectory over past quarters with some quarters decelerating fairly significantly and others accelerating sequentially, the business is generally experienced deceleration and seen growth rates over the long term. That said we’re pleased with the resilience of unit growth rate for the business generally and it is inherent in our forecast for Q1. Although we still have very real concerns about economic conditions on a worldwide basis, and in Europe in particular, our forecast does not reflect any potential worsening in macroeconomic conditions. Our forecast does not assume any material change in macroeconomic conditions in general and conditions in the consumer travel market in particular. Given the uncertainties surrounding worldwide economic conditions, particularly in Europe, where much of our business is concentrated, we believe the variability around our guidance is elevated.

We’ll now take your questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our first question comes from Brian Fitzgerald of Jefferies. Your line is open.

Brian Fitzgerald - Jefferies

Thanks guys. I wanted a quick update on mobile, what kind of usage trends you are seeing there for your mobile apps and maybe what percentage of the mobile traffic is transactional versus just kind of browsing or comparison shopping? Thanks.

Jeffery Boyd

We are seeing very significant adoption in growth in most of the major mobile platforms. The iOS operating system apps for the iPhone, Android it’s a very substantial business on mobile websites for our brands around the world, and very, very substantial business done on our www. websites on tablets. You heard some of our competition announce market shares. We don’t give those numbers out, but we feel like we are doing very well in terms of the share of the business on mobile platforms and it continues to grow very rapidly and we continue to invest aggressively in apps and in mobile functionality and those investments will continue this year. We believe that there is a significant shopping behavior on mobile devices. Some of which translates into reservation behavior later on potentially on desktops. And I think that’s something that everybody is looking into to try to understand that better, but I don’t have any data for you in terms of shopping versus buying.

Brian Fitzgerald - Jefferies

Thanks Jeff.

Operator

Thank you. Our next question comes from Tom White of Macquarie. Your line is open.

Tom White - Macquarie

Great, thanks for taking my question. My question is on the guidance specifically, the international gross bookings guidance, I guess to what extent is the acceleration that you guys are guiding to relative to how you guided 4Q coming from these newer and international markets? And should we think about that effect sort of adding as we get into the middle kind of two quarters of this year? And then just a second follow-up on the mobile shift, how should we think about how this kind of shift to mobile and our usage is potentially impacting or not impacting the competitive landscape in some of your key markets? Do you think it sort of favors existing incumbent sort of favors people who are trying to take share in a given market? Thanks.

Jeffery Boyd

Dan wanted to do the first one on the guidance and I will do the mobile.

Daniel Finnegan

Okay. For Q4, Tom, Asia-Pacific and South America do have their most pronounced impact as a percentage of the business and therefore most pronounced impacts on our overall growth rate and they definitely contributed to the acceleration that we delivered for Q4. We are not going to give guidance for Q2 and Q3, but typically those are less impactful quarters for those two regions. For Q1, our forecast is not for acceleration, but for some modest deceleration versus the growth rate that we posted for Q4 if you look at the midpoint of our guidance range and performance continues to be strong across all regions.

Jeffery Boyd

And on the mobile front, I think that large incumbent brands get a benefit if they execute well, because it allows you – you have the resources to invest in building the functionality. You have the back end to drive transaction and commerce on your mobile sites, whereas newer, smaller players basically either have to rely on advertising revenue, which is not great especially on smaller devices or on third-party score fulfillment. I think well-recognized brands if they have excellent apps tend to do well in the app store because people are more likely to download apps from a recognized brand. So I think there are some inherent advantages and hopefully overtime if our brands can execute well, mobile can be become an important source of direct business and therefore very efficient for us.

Operator

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

Heath Terry - Goldman Sachs

Something you could kind of separate out for us even just in general terms the degree that the increase in advertising cost that we’re seeing is driven by higher transaction, specific cost versus investment in brand. So the difference between keyword pricing going up versus the decision to increase spending on something like this the Booking.com brand building that you’re doing in the U.S.

Jeff Boyd

We’re specifically not giving that detail Heath. We have shown a trend now for a couple of quarters with worse performance when you look at online advertising efficiency express in percentage of gross profit and our forecast assumes if that trend will continue. It's partly due to mix of the business, it's also due to lower year-over-year ROIs. And then the offline campaign the TV campaign for Booking.com does contribute to the pressure but we’re not disclosing the amount at this point in time.

Operator

Thank you. Our next question comes from Anthony DiClemente of Barclays Capital. Your question please.

Anthony DiClemente - Barclays Capital

I guess just a follow-up to that I think industries are wondering on this trend of lower average ROIs, how persistent could this be and what are factors as you look out maybe on a multiple quarter basis that could grant release to this or cause it to continue to be persistent. That’s one question and Dan I just had a couple of others you know you mentioned Asia-Pac specifically becoming a bigger percentage of international bookings. I’m just wondering if you could quantify exactly what percentage and then finally I noticed that you guys did not include international revenue either or on a reported or excess basis in your release. I’m wondering if you could disclose that as well. Thank you for taking the questions.

Jim Rogers

Maybe Anthony I will have the first one with respect to lower ROIs, our disclosures per year’s have been very consistent that there are aspects to the market here that we don’t control and that ROIs going down is a risk and I think that continues to be our disclosure. We cannot predict and we’re not giving you any guidance’s to what we expect beyond the guidance that we gave for the first quarter. There are a lot of factors that go into ROIs that if you’re trying to think about it trends in hotel average daily rates and unit economics can have an impact on ROIs general trends and cost per click specific advertise or behavior and regional mix of the business and as I mentioned in my opening remarks the absolute profitability of some of the newer markets that we’re investing in and growing nicely in and very happy with are markets that tend to put pressure on operating margins and so mix of business overtime can have an impact too.

Dan Finnegan

And we don’t disclose what percentage of the business Asia-Pac represents, as Jeff pointed out in his comments it continues to grow as a percentage of business because it's growing at a higher rate typically than the rest of the business but we don’t disclose the specific percentage and in international revenue, it's going to be in our 10K it's essentially the same numbers international growth profit which we do disclose. So which I already disclosed.

Operator

Thank you. Our next question comes from Douglas Anmuth of JPMorgan. Your question please.

Douglas Anmuth – JPMorgan

I just wanted to ask I know you’re not guiding here to anything beyond 1Q, is it generally reasonable to think about similar levels of margin compression here going forward. I mean you have talked about the mix shift and the lower ROIs that continued investments in the big market opportunity you can we think about this extending over a period of time and then also just can give us the sense of how you’re thinking about share buybacks currently? Thanks.

Jeffery Boyd

Yeah, I am sorry, but we are just not going to give any guidance or forecast beyond the first quarter. One statement I will make though is later on in the year and early next year, we are going to be comping against periods where we have experienced some margin pressure and there is a mathematical consequence to that, but in terms of how the absolute business is going to operate, we are not going to make any comment. With respect to share buybacks, as you all know we have an outstanding authorization that remains and that’s remains a use of our cash on an opportunistic basis. And we don’t have anything new to say on that front from what we said before.

Douglas Anmuth - JPMorgan

Thank you.

Operator

Thank you. Our next question comes from Naved Khan of Cantor Fitzgerald. Your line is open.

Naved Khan - Cantor Fitzgerald

Yeah, thanks. So, I was just wondering on the sales and marketing or sorry advertising de-leverage, Jeff, if we exclude sort of the recent mix shift and just look at the performance in existing geographies versus earlier periods, can you talk about if you are seeing similar marketing efficiency as you previously are or are you basically seeing any impact of competition even in those geographies?

Jeffery Boyd

Yeah, we are not going to get into any further regional detail than what we have said already. We have stated that we have seen some deterioration in the ROIs and have guided to it for the next quarter and that’s as far as we are going to go. And one comment I will make on this and I try to make this point in my prepared remarks. Our approach to doing this business is to invest in it, where we think there is an opportunity to maintain high levels of growth. We think that’s what’s best for our customers and for our suppliers. And ultimately, we think that’s what’s best for our shareholders. So, we are not looking at the business with a primary intention of trying to squeeze every last dollar of operating margin from the businesses that exist today. We have very small market share in some incredibly attractive markets that are growing at – fundamentally growing at very high rates. And it just would not be the right business strategy for us to be reluctant to spend there. We have got great product and a great user interface and we should be spending aggressively there. So, we are just very, very comfortable with the state of play, particularly when you look at the comparative levels of our absolute margins with not just the other people, other companies in the e-travel space. But e-commerce, in general, we have got a very robust business model here that gives us the resources to invest aggressively to try to grow as quickly as we can.

Naved Khan - Cantor Fitzgerald

Great. And can you comment on TripAdvisor’s move to move towards a more of a meta-frame and how you view it affecting your business?

Jeffery Boyd

I think we understand why TripAdvisor is doing it and we are significant customer of TripAdvisor. They send us a lot of business and we pay them for advertising. And ultimately we believe that the user experience of TripAdvisor is distinct from that of primarily meta-search business and certainly distinct from that of an OTA. And that distinctive brand experience for us is positive in terms of our advertising relationship with them. And I don’t have any educated insight on this, but my guess is that TripAdvisor will try to maintain that distinctive user experience. And that the meta-search will just be one feature of what is a unique experience they are offering to that.

Naved Khan - Cantor Fitzgerald

Good. Thank you.

Operator

Thank you. Our next question comes from Mark Mahaney of RBC Capital Markets. Your line is open.

Mark Mahaney - RBC Capital Markets

Thank you. Two questions please. One could you comment a little bit on the rental car market and specifically are those all from the most part stand-alone sales or are you trying, are you having any success in having those being cross sell opportunities and secondly when you think about your marketing spend that historically an Asia-Pacific, Latin America, part of that is obviously being building up the brands to go to Booking.com, do you feel at all that after couple of years at this that you have reached a point just in those markets where you’re starting to see greater efficiency as those brand names have been built out or is it still too early for something like that. Thank you very much.

Jeff Boyd

So Mark with respect to the rental car business, while the substantial ponderous of those our stand-alone sales, we do have pretty good cross sale in rental car business, we do a pretty good job of attaching a rental car sales here in the United States to an airline ticket and to a vacation package that works well for us we like it. Some of our hotel brands send customers to Rentalcars.com and we do print a reasonable number of rental car reservations for those customers that marketing cost sell is in its very early stages and hopefully overtime it will get better. But most of that business is stand-alone the cross sell is an opportunity but most of the business is standalone. With respect to markets like Asia and Latin America we’re, those markets are growing rapidly. We’re absolutely investing in supply, in people on the ground and in marketing in those markets. I can’t give you an outlook as to whether and when we will get to greater efficiencies there, certainly overtime the investment in people and hotel supply should scale and give us some operating leverage on the marketing front remains to be seen.

Operator

Thank you. Our next question comes from the line of Aaron Kessler of Raymond James. Your line is open.

Aaron Kessler - Raymond James

Couple of questions, first Dan can you help us maybe quantify a (inaudible) of the Easter Ships is how significant that is and then secondly you talked a little bit about the competitive pressures on the Opaque Hotel side if you can expand on that little would be helpful. Thank you.

Dan Finnegan

On the Easter ship we didn’t quantify anything. It's just logical to assume that with Easter happening on March 31 this year all the bookings related to Easter will take place in Q1 even though still a fair amount of those check-outs will actually take place in the early part of Q2.

Jeff Boyd

With respect to the competitive pressures on Opaque Hotels we have said for a couple of quarters now that that has been a point of pressure for the U.S. business and for those who followed us closely over the last couple of years, couple of things driving that, one is competition in the marketplace from Expedia unpublished rates from some of the deal of the day sites and also some business decisions on our part for the last couple of years for our advertising to focus much more on retail hotels rather than Opaque Hotels. If you look at the campaign that we have launched at the beginning of this year it's very significantly focused on express deals which is published price Opaque Hotel offering and so we’re putting some marketing muscle behind express deals.

We think it's a great product, it provide great savings for the consumer and it's a little easier to use. We have published the price you pick it and you get it, you can see a little more on that the information with express deals and that is growing as a share of the total Opaque business and we’re happy with the results we have seen to-date and so while we still have a long way to go to get that business to where we wanted to be, we’re happy with the progress that the team at Priceline.com has made in that regard over the last several months.

Operator

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

Justin Post - Bank of America Merrill Lynch

Most of my questions have been answered but just maybe a quick one on geographic progression and Jeff maybe you could just tell us how you feel about the European markets, it might be UK, France, and Germany, are you seeing any signs of saturation as far as adding new hotels or room nights per hotel? And then as you have seen the rollout in Latin America and Asia, how would you compare that to Europe, you’ve got 7 years’ experience, is it kind of progressing on that curve and do you feel very good about those markets as kind of a 3 to 5-year growth outlook for Priceline? Thank you.

Jeffery Boyd

Okay. So, with respect to the more established markets in Western Europe, the results that we printed in the last couple of markets, I think are demonstrative of some still pretty solid growth trends in those markets. And I think that they provide some evidence that we haven’t yet reached a point where the market is saturated. And if you look at the share of total potential room nights that we are booking, we still feel like we’ve got headroom there. We continue to add hotels in those markets. Although as I have said on previous calls, there is a diminishing return and the new properties, hotels, and other accommodations that you add typically have fewer rooms than your existing days of supply. And sometimes there are properties that are not as widely appealing to our customer base as a hotel might be, but we are still adding properties.

If you look at the progress of the business in Asia and in Latin America, I think it’s very impressive what the teams have done in those markets. I feel like we have made really good progress not just building supply and destination business, but we are starting to see real point-of-sale in those markets and I am really very pleased with the progress that we have made there, but I want to caution folks and I have said this before in conferences, you shouldn’t expect those markets to progress as quickly to a size that the European market has progressed to just because while the population is huge, the absolute size of sort of the affluent middle class that’s in a position to take a trip and stay in a hotel is still quite a bit smaller than that population in Europe or in North America. And there is good news and bad news there. The bad news is that it’s probably not going to get as big as the European business did as fast as the European business did, but I think it bodes well for a very attractive long-term opportunity to drive growth to businesses even as internet penetration grows and grows just the number of people traveling and the general travel economy should grow for a long time to come and that’s particularly true in Asian markets and particularly true with respect to international travel in those markets, which is growing very rapidly. So, a great long-term opportunity, but it’s probably not going to get as big as fast as the businesses did in the industry in Europe.

Justin Post - Bank of America Merrill Lynch

Great. And maybe one follow-up, you have taken a little different approach with the offline campaign here in the U.S., is that just because the U.S. market is more mature and it’s just a different approach or is that something that we might see globally?

Jeffery Boyd

I won’t comment on what we might do globally. I think in the United States there is some unique circumstances. Number one is the size of the market. We got a very, very big market that speaks the same language and a market that you can talk to with a single ad campaign. And I think that’s an important efficiency. The Priceline Group has a lot of experience in dealing with the U.S. offline market and so that gives us some comfort that we’ve got a chance of executing well. Other players in the industry have very high share of voice in offline channels and that gives other players, including priceline.com for that matter an advantage in many different distribution channels when you have a well-recognized brand. And so we think it’s a very interesting and hopefully profitable experiment to see what the impact of having an advertising campaign for booking.com in the United States and how it impacts the business across the board and we’re going to be looking at that very carefully obviously over the course of the year.

Operator

Thank you. Our next question comes from Steven Jew of Credit Suisse. Your line is open.

Steven Jew - Credit Suisse

So it's been a couple of quarters since you signed the agreement with us, would you give us a sense of what has been done and how in a practical perspective this will play out over what time frame starting with a greater placement of your inventory on the (inaudible) platform and second I think on Booking.com it seems that you have got some functionality on the site for your customers to do more granular searches in terms of non-hotel types of accommodations. Anything you can share in terms of how this inventory converts versus over hotel and further what your view continues to add this inventory to platform.

Jeff Boyd

So with respect to CTRIP that transaction has been in effect for many months now. CTRIP is sending customers to Booking.com hotels outside of China. We’re happy with the relationship and the business is small, it's not something that would be visible in our results at this point in time get on the size of the business but we think the long term opportunity is attractive and we’re happy with where that is at this point in time. Principally CTRIP’s customers travelling internationally outside of China. With respect to non-hotels Booking.com has a substantial amount of non-hotel accommodation on it's website, I wouldn’t make any comment on conversion specifically but I have said including just few minutes ago that these accommodations tends to have us more room counts and potentially a narrower addressable market than the hotel market. Having said that we think that it's a great service to offer to our customers and we will continue to invest in bringing that kind of inventory on to the website and working on the use experience both on the website and at the property to make sure that its top notch and we have greatly satisfied customers as a result of it. So we’re going to keep at it.

Operator

Thank you. Our next question comes from Brian Nowak of Nomura. Your line is open.

Brian Nowak – Nomura

Firstly is one more on incremental APAC, did non-APAC international content currency booking accelerate in the quarter or was it all of the acceleration really driven by Asia and then the second one on the mobile search spending side are you finding search marketing spend on mobile to be materially less efficient from an ROI perspective than desktop? Or are the mobile cost look like in search pricing trends adjusting appropriately for the lower conversion. Thanks.

Jeff Boyd

For the first one Brian we’re not disclosing the growth rates region by region but we did see we were pleased with the performance for our key markets and then just having a high growing marketing like Asia-Pacific and South America constituting a larger percentage of the total that’s overall helpful to consolidated growth rate as well.

Dan Finnegan

And with respect to mobile search spend efficiencies, I think we still are in such an early phase of marketing on those platforms that it's anything that somebody would say about the long term efficiency of marketing and mobile would be speculation or visionary or both, I just think people are experimenting, they are spending probably in places that they might not otherwise spend but for the attractiveness and growth in the channel I’m just trying to make sure they are not missing something. So I just think it's too early to categorize that with any certainty.

Operator

Thank you. Our next question comes from Mike Olson of Piper Jaffray. Your line is open.

Mike Olson - Piper Jaffray

Just a quick one from me, you mentioned staying aggressive on advertising and new and emerging armlets, you aren’t giving specific numbers around U.S. Booking.com marketing but will the increased spend on booking in the U.S. still from marketing spend that would have otherwise essentially been done in international markets or is it completely incremental to that spend? In other words, there is Booking.com in U.S., brand spend either way at any of the proportion of international marketing spend that would have been in place without it?

Jeffery Boyd

Absolutely not, it’s there is no limitation on any spending by Booking.com outside of the United States as a consequence of the offline marketing campaign in the United States.

Mike Olson - Piper Jaffray

Yeah, thanks very much.

Operator

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

Kevin Kopelman - Cowen and Company

Hi, thanks. Just a quick follow-up on that, can you tell us what the initial response has been to the Booking.com campaign from customers? And is that campaign fully rolled out in terms of different ad channels that you mentioned like movie theatres and online? Thanks.

Jeffery Boyd

The campaign is still in its very early days. There certainly have been several weeks of TV run. I think there has been some cinema as well, but only a fraction of the media, this ultimately going to be spent has been spent here in the first couple of weeks of the quarter, so a lot more to come. It’s too early to give any insight into the operational impact of the advertising. It’s just too early days. I will say, however, that when you look at the PR response to the campaign and you know the sort of the very highest level brand research that’s available, we are very pleased with the consumer reaction to the campaign. The reaction to the creative and I think we got a lot of nice earned media in newspapers, online television when the campaign launched and we are very happy with the starts that we are off to with this campaign.

Kevin Kopelman - Cowen and Company

That’s great. Thank you.

Operator

Thank you. Our next question comes from Michael Millman of Millman Associates. Your line is open.

Michael Millman - Millman Associates

Thank you. Could you tell us or describe the differences between Hotwire and EXPRESS DEALS? And also on the car rentals, where you indicated they were strong. Currently, the companies are telling us that opaque business is way down because of I guess consolidation and that prices are at least in January and February are way up and could you comment on what you are seeing regarding those two items?

Jeffery Boyd

So, maybe I will do the Hotwire versus EXPRESS DEALS, Dan, and you can address the car rental question. The EXPRESS DEALS is similar to Hotwire in the sense that they both use a published price, but the hotel inventory can be different, the prices themselves can be different. The margin structures can be different. The way that we classify hotels in terms of star levels, the zones, and the number of hotels participating. So, there are can be and are very significant difference in terms of the actual product as presented to the consumer.

Daniel Finnegan

And performance for the business has been strong by both internationally and in the U.S. for our retail products and our Name Your Own Price product had a better quarter in Q4 and it’s having a good quarter in Q1 with better access to this kind of inventory. Pricing for us was down about 2% than Q4 for both internationally and in the U.S. for our retail products.

Michael Millman - Millman Associates

Thank you.

Daniel Finnegan

You’re welcome.

Operator

Thank you. That does concludes the Q&A portion of our call. At this time, I would like to turn the call back over to management for any closing remarks.

Daniel Finnegan

Thank you all very much for participating in the call.

Operator

Thank you, ladies and gentlemen. That does conclude your program. You may disconnect your lines at this time. Have a great day.

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