Inc. Q1 2008 Earnings Call Transcript

| About: Booking Holdings (BKNG)
This article is now exclusive for PRO subscribers. Inc. (PCLN) Q1 2008 Earnings Call May 8, 2008 4:30 PM ET


Jeff Boyd - President and CEO

Bob Mylod - CFO


Scott Barry - Credit Suisse

Vance Edelson - Morgan Stanley

Michael Millman - Soleil Securities

Justin Post - Merrill Lynch

Mark Mahaney - Citi

Jennifer Watson - Goldman Sachs

Imran Khan - JPMorgan

Brian Fitzgerald - Bank of America

Aaron Kessler - Piper Jaffray


Welcome to Priceline's first quarter 2008 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 facts 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 statements 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

Now I would like to introduce Priceline's speakers for this afternoon, Jeff Boyd and Bob Mylod. Go ahead, gentlemen.

Jeff Boyd

Thank you very much. This is Jeff and welcome to Priceline's first quarter conference call. I am here with Priceline's CFO, Bob Mylod.

Priceline reported accelerating consolidated gross bookings growth for the first quarter. Gross bookings of $1.8 billion were up 76% year-over-year, our highest bookings growth rates since the third quarter 2000. Pro forma gross profit of $181 million was up 75%, and pro forma net income was $37 million, or $0.76 per share up 77%.

First quarter results surpassed the high-end of our guidance and First Call consensus estimates of $0.60 per share due to better than forecast results in Europe and in the United States.

Our international business had another excellent quarter, topping $1 billion of quarterly gross bookings for the first time and posting a growth rate of 100%. International gross bookings benefited from robust demand, growth in new markets, continued favorable currency exchange rates and the addition of Agoda, the Asian hotel reservation business we acquired last year, which added gross bookings of $25 million in the quarter.

Priceline's domestic growth rate accelerated for the third consecutive quarter to 51% in Q1 from 24% in Q4. While an 83% year-over-year increase in airline ticket sales clearly propelled bookings growth, domestic Merchant gross bookings were up 26% in the first quarter, a significant sequential improvement from 11% in Q4.

Improving merchant results were attributable to growth in all of our opaque services and retail, hotel merchant room night sales.

Our international business continues to show high growth rates in the large continental markets but we are also pleased to see the result from new markets making a positive contribution to overall growth. now has over 45,000 hotels in over 60 countries and continues to add inventory and build new destinations. We also continued to build the means to share hotel inventory among our brands with [in the store] now available on and hotel inventory available on Agoda.

We are also benefiting from growing repeat business to and other booking branded sites where we continue to focus our online brand building.

Priceline's domestic business showed 51% year over-year-growth in the first quarter. We believe marketing our value brand, and initiatives to improve our services and distribution are paying dividends. We also believe our negotiator Ad campaign fits well with the strategy and it is not only building our brand but delivering visitors as well. The campaign also facilitates promotions like the [Hotel Feed Shop] we are currently running.

Merchant results show our supplier partners continuing to use our service to exploit revenue management opportunities and to fill in during periods of soft demand.

Our consolidated results showed better than forecast earnings leverage in the quarter, despite the negative impact of the airline ticket fee reductions on gross domestic margins.

Our outlook reflects our intention to continue investing in the business through marketing and promotional programs and accordingly, we are not forecasting the year-over-year leverage improvement which we saw in Q1 to continue for the balance of the year.

There is evidence that economic weakness and the financial challenges facing the airlines to higher oil prices are leading to softer travel demand and higher airline ticket prices. As you can see from our results so far the positive fundamentals driving our business have over shadowed these negative factors.

We believe our brands and services are particularly attractive to customer and suppliers in times of economic stress. Our forecast calls for continued high top-line growth rates with marketing efficiencies decreasing during the balance of the year. The fact remains that it is possible that the category and our business could suffer in future months to an extent that creates risk to industry forecasts and our own forecast.

Our teams around the world continued to do a great job in building our businesses organically and executing on integration initiatives. I am grateful for their dedication and determination.

With the diverse global business we believe we are well position to deliver sales and earnings growth at the top of market rates and continue investing substantial resources in building on our leader position in global hotel sales.

Finally, we also announced today that Kees Koolen will become CEO of effective September 1, 2008. Kees has been Chief Operating Officer of Booking for five years and I believe he will do a great job in his new role. We are very grateful to Stef Norden for the tremendous job he has done building our international business and I look forward to his continued involvement as a member of our International Board.

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

Bob Mylod

Thanks, Jeff. I am going to begin by touching on a few important financial highlights from the first quarter and then I will finish with some forward guidance. Jeff just went over the key financial metrics for the quarter and surprising to say, we were very pleased with the first quarter financial performance. In terms of both the services we sell and the geographies in which we sell those services we performed at or better than the forecast that we provided on our last earnings call in February.

I do not intend to go over all the specifics of our income statement, as I think they are very well covered in our press release and our statistical supplement. Instead I want to simply focus on the main drivers of the financial over performance relative to our prior guidance, so that investors have a better understanding of how and why we did as well as we did in Q1.

Hopefully in so doing this initial discussion will also add a little context for the guidance that I will give in a few moments. I stop by taking a step backward and reviewing the principal Q1 financial metric guidance that we gave in February during our fourth quarter earnings call. On that call, we guided to total consolidated gross bookings growth of 60% to 65% including 35% growth domestically and between 85% and 90% internationally.

Actual consolidated gross bookings growth for Q1 was 76% including 51% domestic growth and 100% international growth. From a pro forma EPS perspective our prior range of guidance was between $0.50 to $0.60 per share, actual pro forma EPS came in at $0.76 per share. So, what drove such material upside on both the top and bottom line basis.

There are basically three main drivers and I am going to spend a little time discussing each of them and the general impact of these drivers had on both our top and bottom lines. Driver number one has to do with foreign currency exchange rates.

FX impacted our top and bottom lines in slightly different ways during the quarter. Again stepping back for a moment, in February when we gave our financial guidance the Euro, which is the principal currency with which we transact internationally, had an exchange ratio of approximately $1.43 per Euro. That ratio generally served as the basis for our gross bookings and earnings forecast for the remainder of the first quarter.

However, by the end of the first quarter that exchange ratio was $1.58 per Euro representing a very material strengthening of the Euro relative to the dollar in a very short timeframe. From a top line perspective that meant that the international gross bookings that we generated in Q1 translated into significantly more dollars than we anticipated.

As always we have provided local currency gross bookings growth rates in our statistical supplement, so that investors can see this FX affect, but the general take away is that the substantial majority of our international gross bookings upside relative to guidance was driven by favorable FX moves.

Had the Euro remained at the February ratio of $1.43 for the remainder of Q1 following our earnings call, then our gross bookings growth rate would have basically come end at the high end of our 85% to 90% a regional guidance, which by the way in our view is good performance especially given the growth rates achieved by our chief competitors and the very large base of which we are achieving our growth rates. However, we did want to at least highlight, that most of our performance relative to guidance was driven by favorable currency fluctuation.

The international gross bookings growth rate also shows that the inevitable growth decline that we have been guiding to for sometime is now well underway. As you will see when I get to the guidance, it is something that we continue to expect for the remainder of 2008.

From a bottomline perspective, the FX story is a bit different. Our core international operating earnings were also favorably impacted by the same FX moves that favorably impacted growth bookings. However, this benefit was more than offset by FX hedging activities that we engaged in during the quarter. If you look at our income statement you will see a line item which shows that we incurred almost $5.1 million of expenses associated with FX during Q1. This expense was a direct deduct to EBITDA and net income, which means that we had not engaged in any FX hedging activities during the quarter.

The EPS upside that we are reporting today would have been even greater. The second driver of our performance had to do with marketing efficiencies that we were able to achieve, particularly in our international business. For those of you who have been following us for several quarters, you will probably recall that we have been guiding to lower ROIs on our international online advertising spend over time, due to our belief that the market for acquiring international online travel customers will become more competitive over time. This view was incorporated into the guidance for our online advertising spend during Q1.

While we did come within our range of guidance in terms of absolute dollar spent on online advertising during the quarter, the amount that we spent expressed as a percentage of total gross profits dollars was more favorable than expected. Because we did better than expected on this our single biggest operating expense we were able to drive significant overall operating leverage relative to expectations, which in turn helped to drive EBITDA and EPS upward despite the headwind associated with the FX hedging losses that I just mentioned.

The third and final main driver of our upside had to with our domestic business. As I mentioned our domestic gross bookings growth of 50.6% came in substantially higher than our 35% guidance and as Jeff just mentioned, while the retail airline ticket service was certainly an important contributor to this upside, the fact is that literally all of our travel service offerings in both an opaque and retail basis did substantially better than we expected, particularly in the second half of the quarter, which is always seasonally stronger than the first half of the quarter.

This topline growth combined with solid and stable gross margins and operating expense controls meant that we were able to efficiently bring a lot of the topline over performance to the bottomline, thereby contributing to the improvement in operating leverage.

As for the reasons why, I will just reiterate what Jeff said, which is that we think our brand positioning and value proposition, is that our customers are saving a lot of money and are probably standing out a little bit more than usual in what is looking like an increasingly difficult economic environment in the United States. We think our advertising initiatives on both in offline and online basis did a very good job of broadcasting this differentiated message during the quarter.

That pretty much covers the highlights of our earnings. Before I move on the guidance, I will just share a few cash and cash flow items that are not covered in the press release.

During Q1 we generated approximately $43 million in operating cash flow up 131% year-over-year. As far our cash balances, we began the quarter with $512 million of cash and marketable securities and we closed the quarter with $560 million of cash and marketable securities, representing a $48 million increase in our cash and marketable securities.

I would also like to add a quick bit of additional color with respect to our cash balances. Given the state of the capital markets in which we have seen many companies actually have to take material earnings hedged to mark-to-market securities that were widely viewed as being either cash or highly liquid cash equivalents, we have several analyst and investor enquiries regarding the make-up of our cash balances.

Historically, we believe that we have always maintained a fairly conservative approach to managing our cash, meaning that we had fairly stringent requirements regarding both credit and duration risk.

As a result of these long-term term health policies we avoided many of the investment securities, such as structured investment vehicles and auction rate securities that have been the main source of trouble for many other companies.

Starting in the third quarter of last year, we became even more conservative in that we essentially moved the substantial majority of our cash into short-term US treasury securities. Of course with this move we have taken a bit of hit on the interest income that we are earning on our cash balances. However, our plan is to maintain this conservative stance until we see greater stability in the short-term funding markets.

Finally total capital expenditures in the first quarter were approximately $2.9 million this amount includes all money spent on capital equipment and internally developed software.

Now for a few comments on guidance; I will start with some fairly specific line item guidance for the second quarter of 2008 and then finish with some broader guidance for full year 2008.

We are looking for second quarter of gross bookings to grow by approximately 65% to 75% on a year-over-year basis with international gross booking growing approximately 80% to 90% on a year over year basis. Domestic gross booking have gone approximately 50%.

The international growth rates are consistent with the continuation of the year over year growth rate decline that we saw in Q1. As for domestic, we expect to maintain the 50% annual growth rate that we delivered in Q1. As I mentioned, we did finish Q1 with good momentum domestically, however, we also expect that this momentum will be offset by the difficult comps that we will experience starting in June, when we anniversary last year's launch of our No Fee retail Airline ticket initiatives.

We expect pro forma revenue to grow by approximately 35% to 40% on a year-over-year basis. We expect pro form a gross profit dollars to grow by approximately 55% to 60% on a year-over-year basis.

As for Q2 operating expenses we are targeting consolidated advertising expenses of approximately $90 million to $95 million with approximately 90% of that amount being spent on online advertising.

We expect sales and marketing expenses to be between $18 million and $19 million. We expect personal cost excluding stock base compensation to come in between $30 million and $32 million .We expect G&A expenses of approximately $12 million to $13 million. Information technology cost of approximately $5.5 million to $6 million and depreciation and amortization expense excluding acquisition amortization of approximately $4.1 million.

We expect total below the line positive impact of approximately $1 million, which is comprised of net interest income, foreign exchange hedging income, equity in income of Priceline mortgage and minority interest expense.

We are targeting per forma EBITDA between $80 million to $90 million and we are targeting pro forma EPS of approximately $1.25 to $1.40 per share. Our pro forma EPS forecast includes an estimated cash income tax of approximately $16 million comprised of international income taxes and alternative minimum tax in the United States.

Our pro forma EPS guidance is based upon a pro forma diluted share account of approximately $50.2 million shares, which is based on last night’s closing stock price of $122.3 per share. This EPS guidance is substantially ahead of the implied quarterly guidance that we gave on our last earnings call and is reflective of our cautious optimism that we can deliver another strong quarter of top and bottomline annualized growth despite the absence of Easter in Q2.

As you can see, we are once again forecasting a diminishment in our online advertising efficiencies on a year-over-year basis. Part of this has to do with the absence of Easter in Q2, but part of it also has to do with our expectations, but the efficiencies that we have achieved on a year-to-date basis will become more difficult to achieve as the quarter unfolds from this point forward. Keep in mind that Q2 gross bookings and revenue are always backend loaded from a seasonal perspective and this is even more pronounced this year due to Easter not falling in the beginning part of Q2.

As for expected GAAP results, we expect to report a GAAP EPS of between $0.80 to $0.95 per share. The difference between our GAAP and pro forma results will be driven primarily by the inclusion of acquisition related amortization, stock-based compensation and certain income tax expenses all of which are non-cash in nature.

Now for a few comments on full year 2008; we are going to limit our detailed guidance mainly to gross bookings and earnings, but I will try to offer some additional qualitative thoughts along the way, that will hopefully help those of you who are working on detailed quarterly financial forecast for the remainder of 2008.

I will start with gross bookings guidance. We are forecasting total gross bookings of between $7.5 billion and $7.9 billion for full year 2008. The mid point of this range represents an expected annual increase of approximately 60%, which we expect will result in our gaining significant market share from all of our major competitors during 2008.

From a profit perspective, we are expecting to achieve approximately $340 million to $365 million of pro forma EBITDA excluding stock-base compensation for the year. We expect that our full year pro forma cash tax rate will be approximately 20% in 2008 up from 2007 levels due to our expectation that are international pre-tax profits, which are subject to cash income taxes, will grow at a faster rate than our US pre-tax profits, which are subject only to very minimal taxes due to our ability to utilize substantial net operating loss carry forwards.

As for pro forma EPS, we are forecasting a range of between $5.25 and $5.65 per share. This pro forma EPS forecast would translate to GAAP EPS of between $3.50 and $3.90. And quickly well among the subject of GAAP, I want to briefly follow-up on an upcoming accounting rule change, that we have been highlighting in our public filings for the last year and which we will continue to highlight in the 10-Q that we file tomorrow.

[FSB APB14A] is a new rule that we expect the FASB to officially adopt within the next month. The rule requires that issuers with low coupon convertible debt such as Priceline, recognize additional non-cash interest expense as if the convertible debt had been issued as straight debt, without any conversion feature.

The rule change will have no impact on our cash earnings per share, because as I just mentioned, any incremental interest expense associated with the rule change will be non-cash in nature. Accordingly as is the case with other non-cash charges, they are excluded from our pro forma results. We intend to remove this non-cash interest expense from our pro forma earnings in 2009 and beyond. We do not expect to adopt the rule change until 2009, and so we do not expect the rule change to impact our 2008 GAAP results.

Here a few more clarifying points on our forward guidance. First, well we are not going to give out the international and domestic components of the gross bookings guidance for the back half of 2008. I can tell you that it is our expectation that the forecasted annualized gross booking growth rate for both our international businesses and our domestic businesses will come down on a quarterly sequential basis in both Q3 and Q4.

Second, the forecast for both Q2 and the remainder of 2008, assume that the Euro versus Dollar exchange rate remains at the same $1.54 per Euro that exists as of today. Third, our forecast assumes that the average unit selling prices of our domestic hotel service, which have recently been running roughly 2% to 3% ahead of last year, continue to run at that same growth rate throughout the remainder of Q2 and 2008.

The average unit selling prices of our international hotels service, which have recently been running roughly flat on a year-over-year basis, continue to run up at that same flat rate for the remainder of Q2 and 2008.

Fourth, we are not forecasting the same favorable operating leverage for the remainder of 2008 as compared to Q1, due primarily to the assumption that we will become less efficient in our online advertising spend for the reminder of the year.

So far our actually quarter-to-date results do not indicate any material diminishment in our international online efficiencies. However, as I just mentioned we still have a lot of the quarter in front of us, with June being our single biggest month for ad spend in the quarter.

Given this factor and given that the cost of online spend is ultimately driven by an increasingly competitive marketplace, we still believe that it is prudent to forecast this expected loss of advertising efficiency for the reminder of 2008.

Lastly, while we are not planning to give specific quarterly guidance for Q3 and Q4, we do expect that the year-over-year growth rates in pro forma EPS will be roughly the same for both Q3 and Q4.

Finally before I turn the call over for questions I wanted to repeat and emphasize a general cautionary point that we made on our last earnings call.

Up until this point our businesses have performed very well in the current economic environments both here in the United States and abroad. All of the guidance that I just gave presumes that we will continue to operate in similar economic conditions that exist today. For instance, as my guidance indicates we are projecting very strong year-over-year unit growth in both the US and Europe for the reminder of 2008, despite what could potentially be a worsening economic environment.

Our guidance also assumes no deterioration in the average selling prices of our services, despite some broad industry trends within our various supplier networks that potentially could point and lead to subsequent deterioration. While our numbers to-date gives us reason to believe that we should fair better than any other companies in this environment, we want us stress that we do not believe that we are immune to or benefit from deteriorating economic factors.

Overall economic pressures did strain our unit sales, our average unit selling prices. For the value of the euro relative to the dollar, will certainly put our forecast at significant risk.

I will also point out as I have done in previous calls that all of our forecasts are based upon assumptions that we will continue operating in the consumer travel market that is roughly similar to the current one.

Any terrorist event particularly within the United States or Europe would in all likelihood have a negative impact on the travel market in general and our operating results in particular.

With that we would be happy to answer your questions.

Question-and-Answer Session


Thank you, sir. (Operator Instructions). Our first question comes from Scott Barry at Credit Suisse.

Scott Barry - Credit Suisse

Hi, guys. I was just curious, is there any way you can give us some sense for what your organic growth rates look like in some of the more established markets like the UK, Germany etcetera?

Bob Mylod

No, Scott we really do not breakout growth rates by market other than to say that Continental Europe has been and continues to grow at a faster rate then the UK. Some of the newer markets specially once we move into Eastern Europe's Scandinavia and Asia are growing at faster rates than Western Europe, but without getting into any specific country’s growth rate.


Thank you our next question comes from Vance Edelson at Morgan Stanley.

Vance Edelson - Morgan Stanley

Thanks. In term of marketing and specifically the way you go are going to position the brand and the message you are going to have for customers, do you see any changes during the remainder of the year in order to try and capitalize on your value focus. I guess in light of competitors of yours that their plans on launching a new campaign. Any changes in tact are expected.

Jeff Boyd

I do not want to get very specifically into what we might or might not do in the future for competitive reasons but I do feel comfortable saying that we feel its been very successful so far this year to point at differentiated products and places where we have an advantage of lower price point something different and I think you can expect us to continue to emphasize that.


Thank you. Our next question comes from Michael Millman at Soleil Securities.

Michael Millman - Soleil Securities

Thank you. Regarding international hotels does the growth come primarily from increasing the number of hotels in certain markets or does it comes from increasing the amount of buyers or users within a certain ex-country because you done by advertising there or is that you are relatively new there?

Jeff Boyd

It is really a combination of factors adding hotel inventory definitely helps and as you can see from the press release, we are offering over 45,000 hotels through booking dot com now.

So that absolutely helps, but you have to apply distribution to those hotels as well and that can come from establish markets, where we have a presence, but it also can come from new markets where we are opening up.


Thank you. Our next question comes from Justin Post at Merrill Lynch.

Justin Post - Merrill Lynch

Yes. Could you talk a little bit about a brand are you seeing any cross border travel there in the United States. Then just I am just thinking more strategically obviously you are on top of your game right now, what do you think like the investment areas that you could put some of the profits or things that you are doing to work or it just more of maybe buying back stock? What do you see just longer terms some of the investment areas for the company?

Jeff Boyd

Justin in terms of the first question, you do see the brand in the Untied States from time-to-time, but majority of the business that we are riding these days is European customers, who are booking hotels in the United States. With respect to new investment areas I think you can see from looking at our income statement that we are investing a tremendous amount of money in marketing our products both here in the United States and overseas and we intend to continue doing that. If you look at what we have done in the past in terms of more of capital intensive transactions, we have opportunistically been buyers of own common stock and we have been active in the M&A market. So, that will give you an indication of some other things we might do in the future if the circumstances were right.


Thank you. Our next question comes from Mark Mahaney of Citi.

Mark Mahaney - Citi

Thank you. Could you provide a little more detail on those marketing efficiencies that you saw particularly in Europe, was there any changes in pricing trends for key word advertising, where the new types of advertising channels that you use, that help you to gain those efficiencies?

Then just a quick question on Agoda looks like that growth rate continues to ramp, I assume its triple digits something like that year-over-year. Can you maybe talk about some of the country markets, where I know the number still relatively small versus your overall business, but near-term or early stage, which country market seem to be doing the best. Thank you very much.

Jeff Boyd

On the marketing front and this is consistent with, what we have said in previous calls. We are going to be very circumspect in commenting on exactly how we are gaining marketing efficiencies because it is competitively sensitive. However, I do feel comfortable and saying that one of the reasons that we continue to do well as that we the mix of the markets that we operate in tends to be more divestment some of the competition. Some of the newer markets just do not have as much competition for online advertising as a very mature market like the UK might. So, having lot of inventory and a widely distributed business I think helps us in that regard and Bob with respect to Agoda?

Bob Mylod

Yes, as far Agoda, Mark we are not giving out organic growth rates of Agoda, but yes, you have a very safe assumption that Agoda grew on a triple-digit basis even on an organic basis. We are cautiously optimistic about the start that we have with Agoda. Although, we have a lot of work to do there, on a whole bunch of fronts and we view 2008 as a year of investment and our goal obviously as when we get into 2009 and 2010 that Agoda and in Asia become a more important part of the story.

As for the countries specifics, my answer would be similar concerning where we are generating our bookings. We are not going to give specific countries, but as we have talked about historically Agoda is much more focused on the region South of China and East of India. So, places like Thailand and Singapore, Malaysia, Indonesia are several countries to mention just a few of them Australia, New Zealand as well. That is where we seeing the core amount of our bookings in the growth. That is I have to say that we do not also expect to be an important player ultimately and China and India just at initially those are our core markets.


Thank you. Our next question comes from Jennifer Watson at Goldman Sachs.

Jennifer Watson - Goldman Sachs

Great, thank you. Can you guys provide a little more color on the trends you are seeing in the opaque business in terms of traffic and buying rates?

Jeff Boyd

Jennifer, I think if you look at the improvement in the gross rate of our merchant gross bookings that tells you that the business is continuing to convert very well. As I mentioned in my remarks I think the suppliers are looking for the revenue management opportunities and thinking about the opaque channel, when they are seeing softness in their occupancies or in their forward bookings and so I think that growth rate is really evidence that we got good suppliers support and business is converting well.


Thank you. Our next question comes from Imran Khan at JPMorgan.

Imran Khan - JPMorgan

Hi, thank you for taking my questions. I was wondering if you can talk a little bit about what kink of trends you are seeing on customer acquisition in the US. You talked about an International listing efficiencies. Would you elaborate on what trends you are seeing in the US market in terms of customer acquisition? Secondly, have you seen an increase in promotional inventory due to the occupancy decline. Thank you.

Jeff Boyd

As I think in terms of the trends we are seeing in the United States, we have been very pleased by the customer reaction to the offline advertising that we have been running so far. The negotiator campaign got some new spots and we think they are very funny into the point and if you look at the acceleration in our domestic gross bookings, I think that provides support for that thesis.

We continue to also work aggressively in online channels and search partner marketing and to try to operate aggressively in channels where our product can particularly serve well in places where you have got shoppers that are more prices conscious and less brand loyal, and again, I think we are seeing good results there.

Bob Mylod

As it relates to the hotel inventory question in the US, I think we are as Jeff mentioned in his prepared remarks, we think that while we do not, we never are rooting for a recession, it is true that in a down environment there is potentially opportunities specially on the opaque side of our business, for hotels to take advantage of the utility that we provide them which allows them to sell excess inventory at prices bellow retail without impairing the integrity of their overall retail prices. Yes, we have seen some evidence that some of our hotels are taking advantage of that.


Thank you. Our next question comes from Brian Fitzgerald of Bank of America.

Brian Fitzgerald - Bank of America

Thanks. Have you seen a change in US or UK traveler behavior attributed all the macro pressure, short of flights short of stays or trips to less expensive destinations? Then Agoda and any color in the degree of cross geography mix there, I think you have said inventory integration for Agoda would start in '09 and is there as chance we would see that earlier? Thanks.

Jeff Boyd

In terms of traveler behavior we really do not have any thing that comes from our own data to give you on that front. I think you can see in the industry data that is coming out about Airline traffic and load factors and hotel occupancy and yields up there. There has been evidence of some softening.

On the Agoda front, we do have our hotel inventory available on Agoda and we are seeing some reservations, but it is really too small to be talking about at this point in time.


Okay, your next question comes from Aaron Kessler with Piper Jaffray.

Aaron Kessler - Piper Jaffray

Thanks, couple of quick questions. First, can you talk about impact -- I know it is early -- that you are seeing from your hotel promotion in the US. Also do you think European business could also be somewhat cyclical essentially gaining share in weaker market people are looking to do more comparison shopping online? Thank you.

Jeff Boyd

On the hotel promotion is too early to comment on that. I think even after this later we probably will not do much commenting on it. It is just one of the number of promotions that we have run in the past. With respect to whether their international business is cyclical, we believe that having great inventory and availability, more hotels and more availability, and good pricing, good market pricing makes our site a great place to shop, f you are looking for the lowest price. However, I do not think it puts us in the same posture that we are here in the United States where we really viewed as a discount brand. I do not know if that is helpful to you, but that is the way we look at it.


Thank you. Our next question comes from Justin Post with Merrill Lynch.

Justin Post - Merrill Lynch

Thank you my question was already asked. Thank you.


Thank you. Our next question comes from Michael Millman with Soleil Securities.

Michael Millman - Soleil Securities

Thank you. Two things could you tell us how many hotels, comparing the 45,000 hotels with what you had a year ago and in the US on the 83% air ticket increase. What do you think that is coming from the airlines did not seem to have a lot more passengers in the quarter? So, do you think it is coming from the supplier side or some other OTAs ?

Bob Mylod

Michael, you mean where is this market share are coming from?

Michael Millman - Soleil Securities


Bob Mylod

Yes, It is coming probably mainly the OTAs at least based upon the earnings announcements that we have heard in last few days from our competitors. We grew our domestic business at a substantially faster rate than both Expedia and Orbitz and we assume that we grow our airline ticket business at a substantially faster rate.

Keep in mind though, that even though we are growing very quickly on the airline ticket business we are very, very small fraction of either Expedia or Orbitz. So, well indeed it will look like we are taking share I would positive to say that probably Expedia and Orbitz barely even noticed at in their numbers. They are obviously having their own trends, but the decline in year-over-year gross booking that Orbitz reported I can assure you it was not because Priceline – that we grew our airline ticket business rapidly on year-over-year basis.

Jeff Boyd

On the other question in terms what the hotel count was a year ago compared to the 45,000 hotels in Europe today. I do not have that exact number for you. We can get it for you, but it is up by many, many thousands of hotels.


Our final questions come from Mark Mahaney at Citi.

Mark Mahaney - Citi

Thanks. Just want to get back to the US marketing, whether clearly market shares gains for you there and that is the advantage you have of the high value or great value or super value brand you had for years and there is also the difference in the booking fees. Is there anyway you can tell you can break apart those elements maybe there are surveys that you have done, figured out which of those maybe greater as a factor in driving incremental share over the last two or three quarters. Thank you very much.

Jeff Boyd

Mark, I think looking at the numbers the increase in the number of airline tickets that we are writing tells you that the booking fee change did have an impact. I think that is discernible when looking at the numbers, but there is also no question that the other businesses, the Name Your Own Price Hotel and Rental Car and our packages business are performing well under the circumstances.

What I think the mix of all of these products is allowed us to do as to consistently have a number of different powerful value marketing messages in the marketplace supported by our TV advertising. I think that helps all of our products, when customers are consistently reminded, oh they have better prices on hotels. Oh, they also have better prices on airline tickets. Oh they sell packages. I think it just very helpful for us to consistently hammer at that value message and I think that is why the business is performed well as a whole.


Gentlemen did you have any concluding remarks?

Jeff Boyd

Thank you all very much for participating in the call.


This concludes your call. Thank you for your participation. You may disconnect your lines at this time.

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