Welcome to Booking Holdings Third 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 guaranteed 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 Vogel and David Goulden. Please go ahead, gentlemen.
Thank you, and welcome to Booking Holdings' 3rd quarter conference call. I am joined this afternoon by our CFO, David Goulton. We had solid execution in our busiest quarter of the year and passed a new milestone of 200,000,000 room nights booked in a single quarter, reporting 201,000,000 worldwide room nights booked. This is up 13% year over year and exceeded the high end of our guidance range. Consolidated gross bookings were up 12% year over year in U.
S. Dollars or about 14% on a constant currency basis. Our revenue increased 11% year over year in U. S. Dollars or about 13% on a constant currency basis, and adjusted EBITDA grew 8% in U.
S. Dollars with a similar currency impact on the year over year growth rate. Our strong room night growth rate was helped by a later than normal summer booking season. In addition, we had higher growth coming from our performance marketing channels, which benefited in part from our lapping the start of last year's optimization efforts. Our guidance for Q4 room night growth of 12% reflects our expectation that we will have more stability in our top line growth rate and reflects the continuation of our marketing spend.
And we note that we continue to grow significantly faster than the overall global accommodations market. I am pleased with this strategic approach we have taken with our pay channels this year. Going forward, we expect these markets will remain very dynamic, which is why we'll continue to employ our data driven approach to achieve the right balance of growth and acceptable ROIs. We will look to spend in the paid channels when we see opportunities to acquire high quality traffic at attractive ROIs. And as I said before and want to emphasize, we will work closely with those advertising partners that help us build our brand and maintain our competitive strengths while working in a manner that is best for our customers.
Conversely, we will reduce our participation with those who do not work in a way that we believe best serves our customers. As you can see in our results, we are beginning to ramp up our brand advertising. As we've discussed in the past, we expect to increase our brand advertising efforts to further our goal of bringing more customers directly to our platforms and to increase product awareness, particularly in our home segment. We are increasing our spend in digital channels as they provide efficient reach and allow us to better measure the effectiveness of our spend. This is part of our long term strategy and though we expect to increase our investment in this area, we are mindful to spend as efficiently as possible, letting results and data help direct the pace of the investment.
We have progressed in many of the investment areas that we have discussed over the current year. In particular, we've expanded our product breadth and customer experience in the areas of alternative accommodations and experiences. We continue to build supply in alternative accommodations. And as of September 30, Booking dotcom had over 5,700,000 reported listings in homes, apartments and other unique places to stay, which is an increase of 21% year over year. Booking.com's total reported listings were about 29,000,000 as of September 30.
Our room night growth in alternative accommodation remains robust and is higher than our consolidated growth rate. We're also pleased to see that the number of customers whose first ever booking with us through our home product is growing nicely. We have developed new services specifically for our booking home hosts. These services include streamlined property onboarding, enhanced guest management tools and property profiling capabilities, which allows hosts to highlight their properties unique aspects. We believe we are building a leading platform to search and discover truly unique accommodations in the same frictionless path that our customers have come to expect from us.
And we continue to believe that the best customer benefit comes from offering both hotel and home accommodations on one unified platform. We recognize that building a great home platform is only part of the challenge to building a great home business and customer awareness of our capabilities, particularly in certain geographies like the United States is low and will require a higher marketing investment in the coming quarters. However, we believe we are on the right path and in the long run, we'll achieve a leading global home business. In the area of experiences, we're building out our product capabilities, creating a seamless integrated way to offer more choices for our accommodations customers. This quarter Booking.com made progress integrating FareHarbor's products, giving Booking.com access to new local attractions in the U.
S. And the ability to leverage Fair Harbor's technology to help even more tours and attractions around the world come online. Booking.com's experiences product is scaling well and we now offer experiences in approximately 70 cities worldwide. In addition, we are making progress with experience in other areas such as offering at hotel services and restaurant booking options, though we note these are nascent efforts. As mobile becomes an increasingly integral part of the travel ecosystem, we continue to invest in our mobile platform so we can offer all of our products, accommodations, ground transport and experiences whenever and wherever our customers may be.
We are happy with our progress in this area as today over 50% of our accommodation booking transactions come from mobile devices. We continue to seek ways to promote cross brand initiatives that allow us to share best practices throughout our company and get further benefits from our multi brand platform. Price and then Agoda are now working more closely together in certain overlap markets such as the U. S. And we are seeing some efficiencies there.
With greater technical and managerial cooperation between KAYAK and OpenTable, we're excited about the pace of innovation happening at both companies. OpenTable has been growing nicely and we are confident about its large opportunity. We believe through tighter interaction with our other brands in the future, OpenTable will provide benefits to all of our customers and create additional value to our entire enterprise. The number of restaurants on the OpenTable platform has grown by 55% since its acquisition in 2014. And over the prior 12 months, OpenTable has seated over 330,000,000 diners via its online reservation system, which is 69% higher than during 2014.
OpenTable is now increasing its development quarters to come. Finally, I would like to note our $200,000,000 investment in Grab, the leading on demand transportation and mobile services platform in Southeast Asia that we announced last week. This investment and strategic partnership is consistent with our long term strategy to create the optimal worldwide travel platform, which will make all friction possible. I have mentioned this long term strategy before and will always be a work in progress as technology changes and advances, but I am pleased to see the initial foundations being laid down. In sum, I am very pleased with our execution in the Q3.
The pace of innovation remains robust and I am confident in the long term growth prospects of the company. I want to thank our approximately 24,000 employees for their hard work and dedication during this busy quarter, providing unparalleled service to both our customers and property partners around the world. I will now turn the call over to our CFO, David Goulden, for the detailed financial review.
Thank you, Glenn, and good afternoon. I'll discuss our operating results and cash flows for the Q3 and then provide guidance for the Q4 of 2018. All growth rates are relative to the prior year comparable period unless otherwise indicated. As we discussed last quarter, full year over year growth rates referenced in my remarks and Q4 guidance will compare the current year income statement under the new revenue accounting standard to the prior year under the previous accounting standard. Gross bookings and other metrics like room night reservations are not impacted by the new revenue accounting standard.
Our non GAAP financial results and forecast include stock based compensation and are reconciled to our GAAP results in our earnings release. Now on to our results for the quarter. We are pleased with our booked room night growth of 13% in Q3, which is well ahead of the high end of our guidance range and accelerated from Q2. When we provided our guidance for the Q3 in early August, we were in a period of relatively high uncertainty given the impact that the World Cup and the unusual weather pattern in Europe are having on the summer travel season. Following our earnings call, we saw an acceleration in our room night growth rate that continued through the end of the quarter, driven by a delayed summer travel peak and improved results from some of our performance marketing channels.
We continue to show progress in growing bookings through our direct channel, which remains our largest single source of new customers. The direct channel continues to represent about half of our booked room nights and continue to grow faster than the overall growth rate. Average daily rates for accommodations or ADRs were up over 1% in Q3 versus the prior year on a constant currency basis, which is better than our forecast of flat. Strong ADRs in some of our core travel markets more than offset the negative impact from mix. Changes in foreign exchange rates reduced Q3 growth rates in U.
S. Dollars by approximately 3 percentage points versus last year and by about 1 percentage point versus guidance. We estimate the changes in FX rates impacted gross bookings, revenue and EBITDA growth rates by a similar amount. Q3 gross bookings grew by 12% expressed in U. S.
Dollars and grew by 14% on a constant currency basis, coming in about 6 percentage points above the high end of our guidance range. Consolidated revenue for the Q3 was $4,800,000,000 and grew by 11% in U. S. Dollars and by about 13% in constant currency. Revenue for the Q3 of 2018 under the current revenue standard was approximately 1% lower than it would have been if reported under the previous revenue standard.
Advertising and other revenue, which is mainly comprised of non intercompany revenue from Kaika OpenTable, grew by 14% in Q3 compared to prior year, including revenue from Morbondo, an acquisition we closed in July 2017. In the Q3, we started lapping our strategy to optimize performance marketing ROIs, which began in mid Q3 2017. As a result, we continue to see leverage from performance marketing in the quarter, however, at a lower rate than the first half of the year. The leverage from performance marketing in the quarter was more than offset by the deleverage in sales and other expense, which continues to be driven by the growth of our merchant business of Booking.com. We will see pressure on the sales and other expense lines we continue to ramp our merchant business.
However, a significant portion of these expenses are offset in revenue. As part of our effort to drive more direct traffic to our websites, we increased our spending on brand marketing in the quarter by 27% versus Q3 last year, which contributed about 40 bps of deleverage. As expected, the year on year margin pressure from non marketing OpEx, which includes sales and other, diminished in Q3 relative to the first half of twenty eighteen. GAAP operating income grew by 7% and GAAP operating margin decreased by about 170 bps compared to Q3 last year. GAAP operating income in Q3 is negatively impacted by $23,000,000 pretax related to sorry, by $27,000,000 dollars 23,000,000 pretax related to a net travel transaction tax charge from prior periods that is recorded in our G and A expense line.
GAAP net income amounted to $1,800,000,000 or $0.37 2 per share, which grew by 8%. Our GAAP net income includes a $31,000,000 pre tax net benefit related to unrealized gains and losses on our equity investments in Metwan and Ctrip. GAAP net income was also negatively impacted by the net travel transaction charge I just mentioned. We excluded the unrealized gain and the net travel transaction charge from our non GAAP results. Our non GAAP tax rate for the quarter was 21%, which was in line with our forecast.
Adjusted EBITDA for Q3 amounted to $2,360,000,000 which met the high end of our guidance range and was up 8% year on year. As I previously mentioned, we saw a negative impact on our growth rates from the changes in FX since providing our guidance. Our adjusted EBITDA margin of 49% was slightly below our forecast. This reflects higher spending in marketing, which helped our room night growth. Our non GAAP EPS was $37.78 up 7% versus the prior year.
Non GAAP net income reflects a non GAAP tax rate of 21.1% in Q3, which increased from the prior year due to the impacts of the U. S. Tax Act and the higher innovation box tax rate in the Netherlands. Our 4% lower share count in Q3 versus last year offset the negative impact on EPS growth from the higher tax rate. Our cash and investments amounted to $16,200,000,000 at quarter end.
In Q3, we generated $2,000,000,000 of operating cash flow, which grew by 4% for the quarter and by 22% on a year to date basis compared to prior year. Our free cash flow for Q3 was $1,800,000,000 which grew by 2% for the quarter and by 19% on a year to date basis compared to prior year. We returned about $2,200,000,000 during the Q3 to our shareholders through share buybacks. Since the start of the year, we reduced our fully diluted share count by approximately 4%. As of September 30, we had approximately $6,400,000,000 remaining on our share repurchase authorization.
We will continue to be both programmatic and opportunistic with regard to our repurchases, and under stable business and market conditions, we expect to complete this authorization within the remainder of the 2 to 3 year time period we talked about in May. Turning to Q4. Our guidance reflects our quarter to date results and assumes that our growth rates will decelerate over the remainder of the quarter, mainly due to size of our business and consistent with long term trends. Our approach to guidance has not changed. Foreign exchange rates are expected to be an approximately 4 percentage point headwind to year over year growth rates in Q4, which we estimate will impact gross bookings revenue and EBITDA growth rates by similar amounts.
We use a dollar to euro exchange rate of 114.5 when setting our Q4 guidance. We are forecasting booked room nights to grow by 9% to 12% and gross bookings to grow by 6% to 9% in U. S. Dollars and by 10% to 13% on a constant currency basis. Our Q4 forecast assumes that constant currency ADRs for the company will be up by about 2% compared to prior year.
We forecast Q4 revenue to grow by 13% to 16% in U. S. Dollars and by 17% to 20% on a constant currency basis. We estimate that our Q4 revenue, as reported under new revenue accounting standard, will be slightly less than 5% higher than it would have been under the previous standard. Note that our EBITDA margins and growth rates versus prior year will also benefit from the impact of the change in the revenue accounting standard.
Q4 adjusted EBITDA is expected to range between $1,190,000,000 and $1,220,000,000 which represents 11% to 14% growth versus prior year. We forecast that adjusted EBITDA margin will be down modestly versus Q4 last year. After adjusting for the impact of the revenue accounting change, forecast EBITDA will be approximately flat versus Q4 of last year at the midpoint of our guidance range. Note that this growth rate is negatively impacted by an unfavorable year over year FX change I mentioned earlier. To help you understand the underlying drivers of leverage and deleverage in the business in Q4, I will talk about these on a like for like revenue basis to eliminate the impact of the Q4 benefit from revenue accounting change.
We are forecasting deleverage from the proposed marketing expense line in Q4. Our Q4 forecast reflects the full impact of lapping our ROI optimization efforts we started in the middle of Q3 last year. We also expect to continue to lean in to certain performance channels where we see high quality traffic. We expect to grow our brand marketing expense in the quarter at a faster rate than we did in Q3, which will contribute additional deleverage to the P and L. We believe prudent investment in brand marketing is important to drive more direct traffic to our website and build better product awareness.
Sales and other expenses continue is expected to continue to pressure margins, primarily due to ramp up our merchant business. We continue to push the expansion of our merchant platform to help build our home business and for other beneficial transaction effects. Finally, we expect continued deleverage in personnel from the investments we made in the second half of twenty seventeen and earlier this year. We forecast GAAP EPS between $18.05 $18.55 for Q4. Our EPS guidance assumes a fully diluted share count of about 46,800,000 shares, reflecting the beneficial impacts of the common stock repurchases we've made to date, which have reduced our share count by 6% versus Q4 last year.
Our non GAAP EPS guidance for Q4 assumes a tax rate of approximately 20%. Note that our GAAP tax rate in Q4 last year was negatively impacted by our onetime expense item related to the U. S. Tax Act and is therefore not comparable. We are forecasting Q4 non GAAP EPS of approximately $18.90 to $19.40 which represents 12% to 15% growth versus prior year.
Our non GAAP EPS forecast assumes an estimated income tax rate of approximately 20%, which is higher than the prior rate of 17% due to the impacts from the U. S. Tax Act as well as the increased rate of the Innovation Box tax in the Netherlands. The negative impact from the higher tax rate is more than offset by a lower share count versus Q4 last year. We have hedge contracts in place to substantially shield our 4th quarter EBITDA and net income from any further fluctuation in currencies versus the dollar between now and the end of the quarter, but the hedges do not protect our gross bookings, revenue or operating profit from the impact 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.
Our first question comes from Mark Mahaney with RBC. Your line is now open.
Okay. I want to ask about the marketing
strategy a little bit. I know you've gone through
this kind of over a year of this kind of toggle, I think away from performance and towards brand advertising. Sounds like some of the upside, the acceleration you saw this quarter happened to came due to the lapping of performance marketing. But just maybe address a little bit broader this overall shift towards brand advertising. Do you feel like you're at an optimal mix now? There's going to be constant experimentation?
I assume the answer to that is yes, but any more color on whether after this year of experimentation, you feel like you've got a better, more sustainable growth profile set up because of this toggle and marketing shift? Thanks a
lot. Hi, Mark. It's Glenn speaking. So I know you'd like me to be able to tell you it's all fine, stable and it's going to be the same going forward. But the fact of the matter, these markets, as you will know, are extremely dynamic.
So when we find good opportunities, we find high quality traffic at the ROIs that we like, we step in and we're going to buy. Similarly, when we think that there's something that we don't like, we're going to step away and whether that's because of platforms acting in a way that we don't believe in the best interest of our customers or for some other reason, we're going to vary how we're going to spend in those paid for performance channels. But what I said a year ago and I continue to say it now is the importance of increasing our brand spend and we're going to continue to do that and you saw some of the increase already and we said we're going to spend more. And the reason is we believe in the long run we want to try and drive as much traffic as we can directly and part of that is creating a brand awareness. And we talked about this in the past several times.
So I can't give you any sort of specifics about how much is we're going to do in performance, is it going to up or down. I can say that it's probably going to be dynamic. There's going to be movements up and down going forward. But I absolutely believe in the long run, the right thing is to try and increase that brand advertising to get the people to come direct. David, do you want to add any color?
Go ahead. Glenn, thank you.
I think just consistent with Glenn's comments, we did reinforce in my remarks that we're very focused upon the growth and the balance of that direct business, again, which remains our largest single source of new customers and represents about half of our booked room nights. So that's a very strategic part, not the only part, but the spending on brand obviously supports that and also supports our longest term strategy to expand our portfolio to provide more value to our customers.
And our next question comes from Lloyd Walmsley from Deutsche Bank. Yes. I had a couple if I can. Wanted to first, I guess, follow-up on the marketing questions. Can you give us any sense for how we should think about the return timing on the brand spend?
And are you finding you're able to scale that up with more confidence around measuring a specific payback? Or is that more of a strategic decision still to spend on brand? And then I guess the second one, you mentioned the number of customers making their first booking is growing nicely. So any specific growth kind of rate or relative growth rate to your room nights? Is it faster or slower than overall room nights?
Or maybe you can give us an update on that customer account metric given it's been a couple of years since you've updated that. Anything further you can share there?
Hi, Lloyd. So, talking about marketing and the brand, what we're trying to do here. I can't give you any sort of specifics of when we think the ROI is going to be. I will say that it's still very early. If you recall last year, we talked a little bit about how we increased the number of people in terms of our brand marketing, how we're increasing the ability to develop technology tools to be able to measure.
And we're continuing to do that and we do like what we're seeing and we are increasing the spend. This is a difficult thing as we continue to go forward in terms of understanding factor you're getting for a brand that's going over to where your pay performance is now performing better than it would have in the past and many different ways to understand what's the true ROI. It's going to be something that we're going to continue to experiment, but I do believe we are going to continue to ramp that spend as I said in the last question, and it is something that we do believe is very important. Regarding the second thing, I want to make sure you heard what I said perfectly. What I was talking about is we are having people who are coming there our first time they've ever come and book something with booking and the first thing they're using is the home product.
That's something we really like to see growing because that's showing that there's awareness of our Booking Home product beginning to grow. In terms of specifics, I'm not we're not going to give out any numbers in that area.
All right. Thank you. Thank you. And our next question comes from Mark May with Citi. Your line is now open.
Thanks for taking my question. Sorry again on the marketing side. But up until the last year or so, the company's marketing spend as a percent of revenue was, I think, pretty consistently growing a couple of 100 basis points a year. I guess now that it looks as though you're going to lean back into marketing, is that kind of the pace that we should be thinking about? I'm just trying to understand a little bit how much of the past year or so has been a bit of an anomaly?
And should we be thinking about kind of pre-twenty 17 to think more about the marketing leverage in the business?
Yes, Mark, this is David. Let me kind of start off with Ann. I understand where the question is going. Let me just, first of all, I think you do have to look at the year in 2 halves, as you mentioned. The first half, broadly speaking, we have the benefit from our ROI optimization activities comparing optimized to less optimized or a year ago.
And in the second half, we start to lap it. So you start seeing the 2 halves start to play out in a slightly different way. I think one way to look at it, if you just look at the full year, and I know this is a projection based upon the top end of our guidance range for Q4, but if you look at the full year and you add everything together, you see 13% room height growth, 17% revenue growth, 17% EBITDA growth, 16% EPS growth, I think represents a fairly healthy year. Obviously, there have been some different stories during that year, and I know it's been a little bit of a giant sometimes for us to walk everybody through the moving parts. So one way to look at that is just kind of step back and look at the bigger picture for the year.
The other part of your question is kind of what do things look like going forward. And I'm not going to give you a specific amount of leverage or deleverage, but I mean our longer term view of the business hasn't changed. And as we put our there's always been a bit of an ROI reset going on with certain of our channels over the course of the last 18 months, but our longer term view hasn't changed. And as we think about our 2019 plan, we think about our longer term plan. What we plan to do is to invest in the business to grow above market growth rates, expect to have and tolerate some modest deleverage in our EBITDA margin rates to achieve that build out of the platform and that above market position, but have a close eye on the EBITDA dollar growth.
So that gives you a little bit of direction, but I don't want to get into the specifics yet as to how much, and we're still obviously working through that, and we'll give you more as we finish our 2019 plan.
Thank you. And our next question comes from Justin Post with Bank of America Merrill Lynch. Your line is now open.
Great. One big picture question and one housekeeping. On big picture, it looks like you spent about $100,000,000 more than we thought on marketing, just our estimates, and generated about $6,000,000 more room nights than we were thinking. Did something shift intra quarter where you found pockets of better ROI or something changed in the market that made you more aggressive on the marketing spend? That's the first question versus your original outlook.
And then secondly, just the strength in merchant bookings growth versus agency. Can you just remind us of the dynamics of that? Thank you.
Sure. I'll take the first one, Justin. I'll let Dave take the second one. So as I remarked earlier, when we see good opportunities, we're going to spend. We see areas that we don't think is appropriate.
We're going to lean back in terms of marketing spend. The marks are extremely dynamic. And as David mentioned, there were some interesting things happening towards the end of Q2 running into Q3 that made things a little bit harder to try and foresee the future. So it's one of those things where we did spend more at certain times and we did end up with more room nights, that's clearly in the math there, and we're pleased about it. And we hope going forward that we'll continue to find these type of opportunities that are going help us build the franchise.
Yes. Thanks, Leonard. And then on the housekeeping, actually, it's a fairly important point. You can really see the transition occurring starting to occur in Q4 'seventeen when the growth in our merchant bookings side just significantly outseed the growth in our agency bookings as we are building out and deploying a global payments platform at booking.com. That does a number of great things for us, for our customers and our partners.
For our customers, it gives them many more choices to how they may want to pay for their transactions either in advance or closer to their stay. It gives them more opportunities just to pay with the payments product of their choice. It may not necessarily be a credit card. It could be something like an Alipay, for example. For us, it lets us basically provide our customers with a more consistent service because we're in charge of exactly how that payment flow works.
And then for our partners, again, we offer them more ability to accept different payment forms from different customers in different parts of the world because we can basically pay them, the partner, in the form of whatever they like to take, even though we may have taken the payment in on the front end via a different payment mechanism. So it is the build out of that global payments platform, principally rolling through booking.com that's having the impact, and you see that mix shift occurring. It's been occurring for quite some time as we see merchant revenues or merchant bookings rather outstripping the growth of the agency bookings.
Great. And one follow-up. Is Agoda similarly growing faster than your other platforms? Can you tell us about that?
We don't usually talk about individual brands, which one's growing faster, which ones are not. But I will say that Asia is a fast growing area. It's also a very competitive area. It's been that way for some time and I suspect it's going to continue to be that way for some time in the future.
Great. Thank you.
Thank you. Our next question comes from Kevin Kopelman with Cowen and Company. Your line is now open.
Hi. Thanks a lot for taking my question. Just a follow-up on the marketing questions. Can you give us an update on your relationship with Google? And given your comments in the prepared remarks, whether you feel they're helping you best serve your customers?
Thanks.
So as you know, we don't generally talk about any individual advertising platform. And we've also talked though over many, many years, we've had a wonderful relationship with people at Google, basically helping build out our business together with them, a very symbiotic relationship, helping improve each other's capabilities. And we're very pleased with that. And we hope that continues for a very long time. I can't say much beyond that, that would be helpful to you, I don't think.
Okay, understood. And then just another question on brand marketing. You talked about wanting to grow that. Right now, you're about $500,000,000 annually. How are you thinking about what the right amount is to spend on brand to make sure you're getting out there around the world today?
Thanks.
So as you know, one of the things that we're very proud about is our history of doing experimentation and not trying to make guesses or just projections without data. So what we're going to do is continue to do what we've always done and that is spend, test, test, spend, see how it goes. It's complicated. It's going to take a long time. And over that over this long period of time, we will find out what the optimal amount to spend is.
But I can't give you a number now given that it's going to take significant amount of experimentation for a very long time before we're able to come up with what we think the optimal is. And the interesting thing about that is because this world is so dynamic, things changing so rapidly, I don't expect we're ever going to come up with a set number. It's always going to be moving. One thing though I will add that I am happy to see is more and more of the brand marketing is going to digital video. And one of the good things about that is the measurement of that spend is better than it used to be when you're doing over the air TV.
So at least we're getting better data to be able to measure against.
Thanks, Glenn. And then lastly, can I just can you give us quarter to date share repurchase? Thanks a lot.
I'll leave that to David to say no.
Kevin, we'll just update you every quarter on how we've done. I think that's our new policy. I think it's the right way to go.
Thanks, David. Thanks, Glenn.
Thank you. And our next question comes from Brian Nowak with Morgan Stanley. Your line is now open.
Thanks for taking my questions. I have 2. The first one, just trying to a little bit better understand the 3Q and the 4Q guidance. The room that acceleration and the guidance acceleration, can you just talk to any specific regions or products that were the biggest contributors to the overall acceleration in growth? Then the second one, just to kind of again better understand the quarter.
So you said direct traffic, it sounds like grew faster than the overall rate. So I think direct grew in the mix. Your performance probably drove more upside than expected. How did that happen? Were you able to use data to sort of test and deliver more volume at lower ROIs or were ROIs more stable?
What you thought is how did performance come in better than expected? Was it at lower ROI or not?
Brian, let me start and then I'm sure maybe pass over to Glenn for a couple of comments. So yes, you asked a number of things there. So yes, just to confirm, direct did increase mix in the quarter. And also, our performance growth in the performance channels did better than they did in the early part of the year, specifically in Q2 to just kind of confirm that. And why did we see some more opportunity there?
Well, we always test the amount of elasticity and what the potential is to increase growth rates and return for investment. We're testing constantly in those channels, as Glenn mentioned, very dynamic and real time testing of Cowen, what we see as opportunity. And we saw a
little bit more opportunity to
drive growth without dropping ROI very much, if that makes sense. Prior elasticity tests we had during the year would say that if you were wanting to drive a lot of growth, you have high reduction in ROI. We saw some opportunities in some of our key channels to drive some more growth with less of a drop in ROI. We thought that was a smart thing to actually do. So that accounts for a number of things we've already talked about.
It accounts for kind of why our performance marketing spend was perhaps a little bit higher than many people have estimated. But as we commented upon, the performance in room night, that was part of the reason why we were able to do bed in room nights, not the only reason why we were able to do bed in room nights. And that's why we lent into those channels a little bit more in Q3 than we expected to when we gave our guidance. There are some other factors, of course, that were very much at the top of our mind when we gave our guidance at the start of the quarter. I mentioned the rather unusual patterns we were seeing in July.
In August, those started to get better, particularly the whole weather situation in Europe got better, both in terms of the heat wave breaking in the north and the scorch wave breaking in the south. So those are all contributing factors. But specifically related to the channels, I think that gives you some color.
I would just probably just add that and I understand where people are coming from these questions and looking at the numbers versus what guidance was. But what I continue to try and do is have our investors and people who are looking at our company is focused on the long term. What we're trying to grow, what we're trying to build, what's going to be great for customers and partners. So in the long run, we're able to achieve the mission, which really is to help people experience the world. NOLAN experienced the world at less friction and more profits for us.
That's what we're trying to do here. And some quarters are going to be better than expected, some quarters are perhaps not going to be as good. And there's so much and again, I'll use it, we're dynamic. We've got a lot of players in a market that are also bidding against us, bidding their own strategies. You have brand advertising, we're trying to figure out what works, what doesn't work, lots of factors happening.
But as long as we continue to build our products, make things better for the customers, create what I've talked about in the past about this holistic system that really makes it easier for people to travel, as long as we focus on that and continue to do that, I believe in the long run, we will continue to grow this company at a reasonable rate. And as we've said so many times, we're still a single digit in accommodations in the whole industry. So that's a lot of ramp left.
Great. Thanks, guys.
Thank you. And our next question comes from Douglas Ameren with JPMorgan. Your line is now open.
Great. Thanks for taking the question. Maybe a good segue into something that's not marketing related. But Glenn, just hoping you can talk a little bit more about non hotel accommodations just passed through the busiest part of the season. How do you sum up where you are here in terms of supply, the value proposition to consumers and also awareness and how that ties into your key priorities as you look into 2019?
Thanks.
Yes. Look, it's incredibly important. We believe it's a great opportunity. We reported listings 21% year over year. You got to have the actual supply to actually book anything.
If you don't have that, that you're not going to be able to move the business. So that's a good start. But we've also talked in the past about the need to spend money to improve all the different things that need to be done to make a house, the person who owns that property be willing to rent it out to somebody and we need to get the awareness to the demand side to get them to know, hey, we got this great product, come and get it. That's a lot of effort and we were starting from behind from some of our competitors, no doubt about that. That being said, we talked about things that we've built and I talked a little bit about it in my prepared remarks about some of the stuff that we've been building.
And it's really a long term project. This is not going to be done in a quarter or 2 quarters, even a year, but it's something that is a long term thing that we absolutely believe in. And we believe that we're going to be able to continue to do it in the way that we think is the best way and that's having both hotels and home properties on the same site. So the customer sees both products right there, sees the reviews right there. And we believe that you don't hit somebody with a traveler's fee at the end.
And we believe incredibly important is the ability to do it on an instant booking basis, so that when the customer is ready to purchase, it's done. It's not going back and forth, back and forth. And one of the things in that though is that there's an issue of trust and that's some of the tools we talked about for the host to be able to build some of the tools to make those hosts feel comfortable in an instant booking of area. So lots of things to be done, but it's an important part of what we're trying to build here. And I have seen, as I mentioned earlier, seeing the first time they were booked with us is booking a home product, loving that.
Okay. Thank you.
Thank you. And our next question comes from Naved Khan with SunTrust. Your line is now open.
Yes, thanks. It's Naveed Khan from SunTrust. Maybe two questions. So can you just maybe talk a little bit about the China outbound demand and maybe plans for hotels combined now that you've gotten approval from Europe for acquiring that business? And then I had a follow-up on metasearch.
So, first question on hotels combined, and I may have missed it. I don't believe we actually got the final approval yet. So I will pass on that question. So your question about Meta in general?
Yes. And then just along with hotels combined, I also wanted to know if you're willing to provide some color on China outbound demand, what are any kind of trends you might be willing to share?
China outbound, yes, look incredibly important. I love saying this, I'll say it again, I love China's the locomotive, the travel train. I just saw some interesting statistics that I thought were indicative of how important this can be. So in 2014, there were 55,000,000 Chinese passports that they can use to go outbound. 2017, it's 120,000,000 passports.
That shows kind of the growth. People don't get a passport unless you intend to actually go out of the country. China is also making things make it easier for Chinese tourists to go out. So in 2015, there were 46 countries that were visa free. Now there are 74 countries, makes it a lot easier to go.
Look, as the and this is anywhere in the world, when the economy is doing well, as people get more money, they want to travel more. And in China, when the person is able to afford to travel outside China, they want to go. If you look at some of the social stuff going on, social media, people putting out their pictures of visiting London and Paris and Rome and all that, but it's more than that. It's all over the world. And I've talked about the times being in Alaska and seeing Chinese tourists, being in Iceland, seeing Chinese tourists.
It is so important for us to be able to get a good share of that product and that's why we're doing a lot of effort. We have over 1,000 people in China working for us there. I think we have either a dozen or 14 offices in China. We have made, as you know, we made some significant investments to have good partners in China. We invested in Ctrip some time ago, we invested in Metron and we recently made investment in Didi.
By making these investments, we are getting different ways to reach the Chinese tour so that we can show them all the great things that we offer to them. So when they want to travel, we've got what they need. And we're excited about it. We're pleased about it. We think it's going to have a long term benefit to our company.
And Glenn, if I can just pick up the point on Meta. That was in the first question. For obvious reasons, we're not going to talk about hotels combined because we have not got the final approval yet, although we're working down that path nicely. But what I would say is that we think the meta segment is very important, and it is a segment because I think there are a group of people who will always want to go to a meta first before choosing their travel, and there are other people who are prepared to build their longer term relationships with OTA platforms. And we think the winning model is a global multi platform model, which we are building in the meta space.
So we think it's a very important part of our strategy and people shouldn't get confused. We don't think it's necessarily competitive with other parts of the business. It's complementary because it addresses a segment of the marketplace that just prefers to go there first, and we want to have a great solution for those customers as well.
That's helpful. And just on your commentary on Meta. So now that you are sort of lapping the changes you made last year, the ROI changes, Do you see more room for improving ROI there, or do you think they're at an appropriate level for now?
Well, in terms of Meta as a channel now for our other businesses, I think we are now will be fully lapping in Q4. The areas where there was the biggest share shift in terms of changes that we made when we started our ROI optimization effort was in fact in META. So we should get benefits in there Q4 over Q4. But we like our ROI approach. We think that what we've done is got things to a level that works nicely for us and for our business.
So now we're lapping those, and we're looking incrementally at opportunities, just like I mentioned we did with other channels in the Q3.
Thank you. Thank you. And our next question comes from Mike Olson with Piper Jaffray. Your line is now open.
Hey, good afternoon. One follow-up on homes. Have you been able to decipher whether or not vacation homes are mostly additive or cannibalistic to traditional bookings? And then separately on experiences, should we think about this as being a significant area of investment in the near future? Or is it fairly minor relative to your spend on other categories?
Just wondering how that stacks up on the priority list? Thanks.
I'm sorry. Could you read that second one again, Mike?
Experience is just wondering where it stacks up on the priority list and how much the near term investments could be there?
So in terms of cannibalistic in terms of homes, I don't usually think of it that way really. I think about providing the choices and what the consumer decides is fine by us. It's not our decision to try and direct them one way or the other. We do recognize though if we don't have the home, we may lose somebody who wanted a home, even though they may come to us and want to check out the hotels, we don't have the home, that may be a negative. We've always said that it's important for us to try and get every single type of accommodation on that platform.
It's homes, apartments, it's we say unique place to stay, we really mean unique. We're talking about Yurts, we're talking igloos in the winter, we're talking everything there. That way by providing that incredible breadth really makes it more appealing to the consumer that when they want to travel or think about what they're going to do, they come to us, they know they're going to get what they want on our site. Now in terms of experiences, in the long run, it is important. It's not something that we're going to just go 1,000,000 miles an hour right now and crash the income statement by just throwing money at it to build out the thing, but it's something that is very, very important.
And the reason is not only the money that it will bring to the bottom line, the incremental EBITDA, but we also believe in the long run, it goes to that thing I've talked about so many times, is providing that system that makes it easier and better for the person to travel. And I've experienced myself as a consumer, I use it and in cities where we have these things like experiences, it's just been a wonderful thing to be able just to show that QR code off the Booking.com app, skip the line to go on to the funicular, go up to the the castle at the top of the mountain in Salzburg, I did that. And I said, this is great. And that's the type of thing we do. So it will build loyalty, it will make it easier.
So there's a lot of compounding besides just getting the incremental amount of money out of that one transaction.
Thank you.
Thank you. And our next question comes from Anthony DiClemente with Evercore. Your line is now open.
Thank you for taking my questions. I have 2. Glenn, the hotel suppliers themselves, have been out there talking about success of their own direct to consumer initiatives. They're competing to grow direct relationships with their guests as you are. So I guess the question is, how is that going?
How much of your spend on brand is really to actually compete with what amounts to your suppliers who are trying to build those same direct relationships in the channel? And then second question would be for, I guess, either David or Glen. What's the right capital structure for Booking Holdings? Is the business over capitalized relative what really is steady cash flows over time? So maybe just talking about the puts and takes of stock buybacks versus strategic M and A versus other uses of your capital would be really helpful.
Thank you.
So, our business is based on creating a great relationship both with people who want to stay in an accommodation and people who are supplying the accommodation. And whether it be a large multinational, international chain or a single little hotel owner in the middle of some small village in France. It's always trying to provide value to them at the same time, provide value to the demand side. And sure, I've seen the ads for some of the large international chains and nothing wrong with that. They want to attract people to come to them directly.
They think it may be cheaper for them to do that. There's nothing wrong with that. We have a great relationship. I'd point out that the international large chains is actually a small portion of our business. We've talked about in the past about 18% of our business.
But we want to do everything that we can to be helpful and help make their business better. That's how we win in the long run. And we do provide a lot of value. We have the largest demand platform in the world for accommodations. So anybody who has a hotel and wants to fill a bed with a body and make some money, we're the people to come to.
And some of the stuff that we do, doing over 40 languages, over 40 languages and doing customer service in these languages, we pay for that, double the pay for that, that's our cost. Doing all the marketing that we do, those things are done more efficiently than almost any hotel could do on their own. And therefore, that efficiency, we're providing that value to these hotels. I want to I read about this and I hear about people say the fight between the people like us and the hotels and I really wish people would stop thinking this is a sporting event, a boxing thing or something like that.
This is a thing where sure people want to
attract people to their own sites the same way, look, I want everybody to come to us, right? So I don't want to pay money for marketing. But in the end, I really want to change the just the tone of everything so that we see that we're really helping each other. And this is really a symbiotic relationship. And I'll let David talk about capital structure.
Yes. And obviously, capital structure could be a very long topic, and we've only got a couple of minutes for it. So I'll try and give you the kind of I'll highlight you. First of all, I think you have to step back and look at what we're trying to do with the business. There is a huge travel market opportunity out there, and we only have we have a single digit share of the accommodation segment where we are strongest.
Therefore, we have a lower single digit share of the broader travel marketplace. And our mission is to build out the best online global travel marketplace on the planet, offering choice, value, service and seamlessness for our customers. And that prize is a huge prize, and that is a prize I think everybody wants us to go forward and try to develop. So that is our primary mission in life, and we are fortunate to have enough financial resources to be able to do that and, of course, be able to return a significant amount of money to our shareholders. Now that ability to return to shareholders as aggressively as we can right now has been aided by the U.
S. Tax Act and is relatively new. I think that the commitment to return 10,000,000,000 over the next 2 to 3 years is a very important step forward. But I do want to put it in the context of that broader opportunity to invest both organically and inorganically in building out this incredibly large opportunity we have in front of us, where I think we have the ability to generate something which is of significant value for our customers, our shareholders, for our partners, which is kind of our primary mission in life. So if that helps, that's how we think about
And our next question comes from James Hardiman with Wedbush.
Hi, good afternoon. Thanks for taking my call. You touched on this a little bit, but maybe clarify a little bit. You had a strong finish to the Q3, and then better than expected guidance for the Q4. I'm trying to figure out how much of that is momentum versus coincidence.
Obviously, you don't give us a Q4 guide until now. But you spoke to delayed summer travel booking scenario. I wouldn't think that that would affect the Q4 very much. But I guess at the end of the day, I'm trying to get at, are you more optimistic about the Q4 today than you were 3 months ago? And then maybe as somewhat of a side, maybe talk a little bit geographically, Europe was called out as maybe a headwind to overall growth last time we talked.
Obviously, the mix of Europe changes in the Q4, but I'm just trying to figure out if that's sort of resolved itself and whether or not Europe is a headwind or a tailwind as we look into the Q4 and beyond? Thanks.
Yes. James, let me start with that. So to answer the direct question, are we more optimistic about Q4 now than we were when we did our guidance last time? Yes. I think we were pretty clear last time when we were guiding, we were sitting looking at a June July period, which were impacted by some macro factors that were out of our control.
Europe being our biggest single marketplace was going through the most ridiculous weather pattern we've ever seen where the South was sorry, where the North was kind of warm and dry and people didn't want to go away on vacation. And the South was basically in the 40s and rainy and people didn't want to go there. So that really affected our business. We couldn't predict when that was going to change, and that was also compounded by the World Cup going on, which again had a big impact on Europe with big countries doing well in the tournament. So we were sitting there looking at a high degree of uncertainty.
As I mentioned, as we developed through the quarter, things got better. Things got better than we expected in most of our geographies, and Europe was certainly the biggest one, and things did improve in Europe. And obviously, we ended the quarter at a higher growth rate than the average for the quarter because we commented that we expected deceleration back on our August call. So we are looking at Q4 from a stronger lens than we expected to be if things hadn't improved. And as I mentioned, our guidance for Q4 would reflect some deceleration from what we saw from a growth rate in October.
So those are factors which we are looking at, and hopefully that kind of clarifies the puts and takes. But the short answer to the question is yes, we are in a stronger position about our view of Q4 now than we would have been if things had not improved in Q3, which is what we built into our Q3 guidance.
Got it. And the geographic question, it sounds like Europe the concerns there have largely been alleviated. Is Europe now a tailwind to growth going forward?
I'm not going to get into the relative growth rates in different segments, but obviously a lot of the things that were out of control we talked about that impacted our view of the world in early Q3, were happening in Europe. And we talked about some level of acceleration from Q2 into Q3, and we saw that across most of our major geographies.
Got it. Thanks, guys.
Thank you. And our last question comes from Deepak Mathivanan with Barclays.
Just a question on the 50% transaction mix from mobile. As mobile ramped over the last several quarters, has there been a meaningful change on repeat behavior, cost of customer acquisition that should potentially be an incremental positive to unit economics going forward as given that we have now crossed a significant threshold in terms of 50%. And is the mix between paid and organic significantly different on mobile devices?
So we don't we're not going to get into talking about the relative costs for mobile or desktop. I would, of course, caution the obvious thing, but some people seem to sometimes forget this that mobile does not mean app and does not need So I just want to make sure everybody is on the same page on that one because it's not. We are very pleased though because we believe as people continue to move towards the mobile device and doing all of their doing their travel with the mobile, it gives us a great opportunity to continue to work with the customer throughout the trip, providing them with more services, more things and make it a better experience, make their travel better so that they are then more loyal to come back to us again because we're offering all these great things on the mobile. That's the good part about mobile. That's where it's really at.
And I wouldn't get too much wrapped around whether or not the cost is higher or lower. Again, these are competitive markets. And over time, I imagine they'll probably going to end up in an area where they hit an equilibrium that's not that different than desktop, who knows. That's my point about mobile. David, if you want to add anything to that.
No, Glenn, I
think that's the key point. The key point is that when you talk about the trip and being able to interact with the customer during their trip, the mobile device is always with them. It's always on the desktop, they can go back to occasionally, but they tend not to take the desktop with them. So if they open their laptops at night, maybe they interact with it once or twice a day, but the mobile device is there the entire time. So it's a very strategic shift in the business.
And particularly as we build out all the aspects of the trip, we like our customers interacting with us much more often on mobile than they can on a desktop device.
So thank you for joining us for the call today. Very pleased with our quarterly results and we remain very excited about the future prospects of the company. We look forward to updating you after our Q4 call. Thank you very much and good night.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a