We are on the clock, so we can get started here. I'm Ron Josey. I cover the internet sector here at Citi, and look, I'm thrilled to have with us today Ewout Steenbergen. Ewout, you joined about a year and a half ago. We have a lot to get to talk to everybody. I'm here pretty much. I'm sure you know what Booking.com does. Why don't we just jump into it? Thank you for joining us today.
Good to be here.
Let's see. We were just talking travel. We were just talking like around the globe and everything else. It's summer. We're just wrapping up summer. Let's just sort of talk about, you know, do you have any summer travel trips or anything to talk about that you did this summer that's fun? That was fun.
Yeah, actually travel, I do a lot. Of course, for business, I always have done that. I think this year I would probably hit about 70 flights or so, so yeah.
We're not talking New York to Boston.
Often to Europe or to Asia, of course, given the global spread of our business. Last week I had some time with my wife to go to Japan for a personal holiday. That was very nice to Osaka and in Kyoto. I love the country. I mean, just the culture and just how gentle and peaceful the culture is and the people. It's just really impressive. Yeah.
I did too much business travel this summer, not enough personal travel. My family did a lot of personal travel, but every flight we were on was packed. Anyway, we're trying to do our own little channel checks here. I don't know if your flight was packed.
It was very full. I think every place, even if you go to places where in the past it would be considered low season and you wouldn't see a lot of tourists, now it's actually much busier. I think, by the way, Jane would probably be very happy to hear that you only traveled and only worked for business and that there was a lot of personal time.
My family had a wonderful summer. Yeah, they had a wonderful summer. You know, we were here trying to build Citi Internet. Absolutely. With that, Ewout, a question we often get is, and this is sort of a high-level question, I'm sure, when we think about the team of Booking at Booking, we think about hotel supply. We think about execution. We think about, of course, connected trip and all the different drivers. I would love to hear just, in your thoughts, what makes a hotel come to Booking, like the services you provide to hotels that they really benefit from, that they say, this is the one thing or the five things that keep us on the platform.
Five things, and I will elaborate later on on all five. One is demand. Second is marketing. Third is customer service. Fourth is technology and analytics. And fifth is payments. Those five. First about demand. Obviously we add demand to our supply partners, our hotel partners. That is economically very attractive to them. If they, for example, have filled their hotel themselves at the 50% occupancy level, if we can bring it from 50% to 80%, that is pure profit to them because they have their fixed cost already. Every room they fill after that is, of course, adding to the bottom line. Moreover, our business model is it's mostly variable expenses. You pay when we deliver, someone that checks in and generates revenue for the hotel partner. That is on the demand side. On marketing, we have a global reach from a marketing perspective.
We can mobilize travelers from across the world, which is very hard when you're a hotel partner in a certain place. We spend $7 billion, $8 billion a year on marketing. Obviously that really helps. We can do marketing support for hotel partners, which they cannot do themselves just by the scale of their business. Customer service, we can provide 24/7 multilingual customer service in 40 different languages. That's a huge support. Technology and analytics, we provide a lot of insights and tools to hotel partners. Insights in terms of how they are doing in terms of filling their hotels versus some of their competitors in the same region, how they're doing from a pricing perspective, how they can be more prominent on the website. There's a lot of tools that we help them in order to be better positioned, including some technology tools.
The last, payments, we facilitate payments, and we can do that through many different payment forms, local payment forms that a local hotel would not be able to do, a payment form in a completely different region in the world. We take over fraud risk, chargebacks, and those kinds of risks. By the way, that's of course also a benefit for the traveler customer as well. Those five are the main contributions in terms of the value we really deliver to our supply partners.
I was going to ask a little bit later on about the demand and marketing side, just given the news today with Google and whatever. One of the things that I think Booking Holdings has done a very good job of is delivering that demand and figuring out the marketing behind the supply that you have. I think you've said in the past, you know, demand is changing or the marketing is shifting a little bit with social being a bigger part of this. I would love to, if you could, dig in a little bit more on how social has changed maybe the go-to-market strategy within Booking Holdings.
Yeah, I personally think this has been a game changer for the company over the last few years, shifting away from a lot of dependency on Google traffic to now having mid-60% of our traffic from a B2C basis now coming direct to the company. We still have this mid-30% that we are getting in terms of traffic through paid channels, but there we are diversifying. Google is still a very important part of the paid traffic, but indeed we're expanding in social, and I think that's very attractive. We have cracked the code last year in terms of being able to find attractive incremental ROIs on social media channels, particularly in Meta, but now we are expanding with a couple of other social media companies, and we're able to measure that. That's really important.
Where there's not just advertising, and we hope that something good comes out of it, we can measure incrementality, meaning we know that that traveler wouldn't have booked anyhow with us. We know that this is incremental business, and therefore the spend is attractive, and we get the right returns on it. Of course, this is going to be further expanding to, in my view, in the future, agents, generative AI agents, and we're working, as you know, very closely together with many of the large language model developers. I think this will be new generators of traffic, of leads to us in the future. I think that channel is diversifying. Growing direct plus diversifying the performance marketing channels, I think is really attractive to us.
When we think about what's working in the measurement side from an advertising perspective, is it more working on the social side? Is it working with influencers? Is it something that Booking does on their own?
Yeah, I'm a little careful there because there is a structure that we have set up, okay, that is proprietary. I don't want to make some others smarter than they are today, but we have a specific data environment, a clean data room, where some data of the social media platforms with our data are being combined. That gives us enough signals in terms of prospecting and remarketing. That also gives us the opportunity to measure really the results, as I just explained. This is a very proprietary environment, but all of the, I think, research tools behind that in terms of signaling of preferences of some of those users of social media channels so that we can target them with very specific content. Of course, the content is very tailored. It's very much based on videos and reels now instead of static content.
All of that is helping out with those results.
Makes a lot of sense. I mean, that's in everybody's usage of social. I think that is in line with what we do. Maybe sort of those five key things are key. One of the key metrics that we've been tracking is the connected trip. Connected trip, I think, is now what, low double digit of total transactions, I think was the last that we heard. I believe the benefits are transactions, greater frequency, maybe greater repeat rates. We just talked about payments being maybe the number five thing of everything. We'd love to hear more about the merchandising so that connected trip is going from that zero to low double digits over the past five-ish years, maybe, to where it can go. We'd love to hear your thoughts on merchandising around the connected trip and what is it that's making this so, you know, for the user?
Yeah, I think in essence, it's really the platform effect that is helping us selling more, more frequently across more verticals to our customers and seeing that customers are coming back more frequently to us. Maybe expanding on that a little bit. What we call today a connected trip is also called a multi-vertical trip. This is someone that books for the same trip, for example, a flight and a rental car or a hotel accommodation and an attraction. Two or more verticals in the same trip. That has gone up something like 30% - 40% every quarter. We're now in the low double-digit range. It's real. It had been a concept the company has been talking about for many years, but that's real and it's meaningful and it becomes significant from a numbers perspective, is really important.
This is, from my perspective, only the beginning of the connected trip because with generative AI, we can really make a connected trip product come to life. A connected trip product is the combination of getting inspired about a trip, being able to build an itinerary for that particular trip, then to book all of those elements in the trip, which could be again a flight, a rental car, an accommodation, an activity, some dining reservations, all of these elements together, and then flip ultimately to a trip management tool. Plus, it can become personalized because we know about your background, that you like to stay in small boutique hotels, that you like to dine with Italian restaurants, and so on. We can make it very personalized to you specifically. It can become proactive. We can suggest and say, "Hey, you're in Paris, you're walking close to the Louvre.
We noticed that you don't have any tickets. We can get you in with your family in an hour. Click the button here.
Is that live today?
No, this is all coming. It's more to explain that with generative AI, what we call connected trip today can become really a logical, integrated, sensible, proactive kind of product. That will be, of course, unbeatable. The most important thing is, whereas always the pain with travel, something goes wrong, something has to be adjusted, your flight gets delayed or the flight times get changed, and then everything has to be updated. If that is all being done and it's very convenient, obviously that's going to be unbeatable. I think we're only at the beginning of the start of what a connected trip can mean. Of course, ultimately that would really create that platform effect in an even stronger way for our traveler customers.
Sure. Now that we're talking about generative AI, we're seeing more natural language type search functions across the site. We talked a little bit about this after earnings and during earnings. I wanted to hear your thoughts on just how a more natural language simplified experience might be changing or improving the booking experience from a user perspective. Of course, I've got to ask any change in conversion rates in natural language, but you know, if you want to.
Yeah, there are already a couple of areas that I can point to where I say I can see clear economic benefit from using generative AI tools in our business. I know there's a lot of articles written recently about generative AI that it is being applied in many organizations, but that the impact is really minimal or is unmeasurable. I'm actually happy that we can point to a couple of areas where we can see real benefits. One is in customer service. Our customer service costs per transaction are coming down in a meaningful way. If you look, for example, in our sales and other line, customer service costs are going up low single digits now, and our overall bookings are going up high single digits. The average cost per transaction is coming down, and the customer satisfaction is going up.
I think a really good outcome in terms of customer service impact of generative AI, what we can do for our customers in a better way, faster way, better satisfaction, and better economics as well. The second area is what we see is when there is generative AI tools being used for search, which could be an AI trip planner tool, but it can be also something like smart filters, which is a natural language tool where you can say, "Oh, I'm looking for a hotel with a nice gym and a great afternoon tea and in the city center," and et cetera. All the things you cannot all with all the filters normally in the past with tick the box, really select. People that use those kinds of tools tend to cancel less. Our cancellation rates are a little bit better.
That, of course, the economic impact of that is really meaningful. Every time we report numbers, it's on the net basis after cancellation. If that comes down a little bit, the cancellation rates, ultimately that's better. Intuitively, that makes sense because if you can find a better, really, accommodation that you are looking for, the probability that you say, "You know what, I book it, but it is still cancelable, and in the meantime, I continue to search for something that is better," you probably don't need to do that anymore. You found what you were looking for. You're happy and satisfied. Intuitively, it actually makes sense that it has a positive impact on cancellation rates.
We will see this short, medium, long-term, more natural language experiences coming soon, coming medium term.
Oh yeah, we are, of course, investing a lot in all of this, both on the efficiency side as well as on the top of the funnel side, as well as preparing all of our data and system environment. Obviously, I don't want to give too much away of what will be coming there, but I think there's a lot going on, and it's a big part of our reinvestment program this year.
Great. We'll get into all that stuff. Sticking with the generative AI topic for now, I think Booking has a few partnerships with some of the major companies out there. We'd love to hear just the opportunity with those companies on both the customer service side and the natural language side, improving the experience on Booking.com, or is it, and or is it something else working with those companies, helping with providing content or something along those lines?
What we like from all of those relationships is we learn a lot about the latest technological developments, how customers are reacting to this, how this ultimately can become lead generators for us. Those are the elements that we learn from that. I think the other way around, we provide a lot to them because it seems to be that if OpenAI is launching a new product or Microsoft or Amazon or Salesforce, they always like to use the examples of travel and dining. We were actually very proud that Sam Altman recently was using, in his demo, Booking.com as the example in terms of the latest version of ChatGPT. These kinds of things are really important to us and important to them. I think this is a very natural relationship that we're building.
Yeah, that's great. I wanted to maybe one more on the five key points for why hotels or supply works with you. This is on the payment side. I think that was maybe the fifth thing that you talked about. When we think about the capabilities that Booking provides these hotels and the supply, I would love to hear your thoughts on what do you think Booking does to set it apart that drives hotels to say, "We need to work with Booking because the payment capabilities are X." You know, why are payments so important is the real question.
Yeah, payments are important for a couple of reasons. Strategically, it's really important because it's the underpinning of the connected trip. Secondly, as I already mentioned, we provide value to both the partners as well as the travelers. On the third is it gives us an opportunity to ultimately set enterprising or help enterprising and make attractive enterprising for consumers. Because otherwise, if it would be only the agency model, we always have to take just the price that is being set by the hotel. In this way, we have merchandising opportunities, particularly for customers that, for example, are repeat customers or in a Genius program or it makes sense to put an incentive in place. It is a significant contributor to the bottom line as well. That's the fourth point. It's a really important element overall for the company.
It's sometimes not really understood, because we are, in terms of our merchant revenues, it's in the 60% range or so. If you would apply that over our total gross bookings value this year, we are already one of the larger payment companies in the world at this moment. We have built something that is really meaningful. Again, from my perspective, it's only the beginning. We can do so much more with that. We can expand in so many more directions. Fintech is actually one of those verticals where we think there's a lot of growth potential in the future.
That's great. Yeah, no, we get a lot of questions on payments. Let's maybe shift topics a little bit to more current trends, and a follow-up from 2Q. I think Asia was highlighted as a key market where room nights re-accelerated to low double digits, if I have my numbers right. We saw expanding flights and attractions. I would love to hear your thoughts on what's driving the strength in Asia. I know it's a multi-brand approach, maybe with Agoda and Booking.com, and just more insights on the Asia callout and what's.
Yeah, I think we are very optimistic about the outlook for Asia, given that that is going to be the region with the expected highest economic growth over the next decade, multiple decades. Obviously, that will mean that a big part of the population in Asia will have an opportunity to travel for the first time or more on repeat times. The fact that we are the largest OTA in Asia outside of mainland China means that we will be able to capture a big part of that growth upside for the company. Agoda has a very specific strategy. It's based, by the way, in Asia. It's very much having a strategy of localization, meaning the way how their whole UX works is if you are, for example, a traveler in Korea, it feels very much like a Korean company.
The interaction, the app, the website, the payment options, the product, all of that is very Korean. The brand itself and the brand campaigns that support that as well. They do that in a very smart way in every place in Asia and are therefore able to really get deeply embedded in those markets. Booking.com is, of course, a very strong optimized global model that is being applied in Asia as well. Very strong brand, also being seen often more as a premium brand for outbound travel, international travel. We have, I think, two very strong propositions in the Asian markets. A lot of investments go into those markets as well because, of course, we have to stay very competitive in Asia. We overall believe we will be very well positioned to capture that future growth.
It's very helpful. Maybe taking the current trends, let's go to different regions around the world, if you will. Let's talk about the U.S. side. Lots of debate on the U.S. travel market with inbound and outbound. I think, I feel like in our conversations, we've used the word Booking as maybe a challenger brand here in the States. I just want to understand your thoughts on Booking's approach and Priceline's approach to the U.S. market. I think we saw growth reaccelerate in 2Q and would love to hear your thoughts on what's working there, what we can do better, where the focus is, is the question.
Yeah, it's, of course, fair to say that our largest position is in Europe. About 50% of our room nights come from Europe, about 25% from Asia. In the U.S., our position is a bit smaller, but we are growing faster than the market in general over the last period. We are expecting that will continue. Slowly over time, our position will get stronger. In the U.S., it's now low double digits in terms of the composition of our overall room nights. We saw a bit of an acceleration of growth in the second quarter over the first quarter. That is encouraging. We also think that we grew a little faster again than the market in general in the second quarter. If you look at just the total market growth in the U.S.
still today, in the second quarter, first quarter last year, it is still the slowest growing region of any region in the world. I would say the overall market in the U.S. is still mixed in terms of signals, despite a little bit better growth in the second quarter. I really would like to see booking windows expanding a bit, length of stay expanding, ADRs getting up instead of going down, lower end of the market being a bit stronger in the U.S. A couple of those to see the signals really reversing in order to say really the U.S. travel market growth is out of the woods. I don't think we are there yet based on the data we have seen in the second quarter.
From a branding perspective, how do you feel about the Booking.com brand here? Booking.com, like all the greats here in the U.S. It's been pretty effective, pretty huge investment for the company.
Huge investment in the brand. We do that in many different platforms. We have the MLB, now the NBA sponsorships. We usually have an ad around the Super Bowl. It is important that people recognize the Booking.com brand, that it's a well-established company, and that people know that we are a very sizable company and a company they should trust to work with in the future. That is very deliberate. If we measure really our brand recognition, I think it has gone up a lot in the U.S. It is definitely different than a couple of years ago.
We're watching traffic every month as I look at the team and, you know, when the data comes out. That's great. Maybe last one on current trends is alternative accommodations. You know, it's been pretty impressive, the growth over the past couple of years with both supply and room night growth and percentage of total room nights growth. I wanted to ask specifically about U.S. supply here for alternative accommodations, something that I think Glenn and maybe you talked a little bit about years ago and were investing here in supply. Any insights on U.S. supply and as it relates to alternative accommodations?
Yeah, so alternative accommodations overall globally, we now had at the end of the second quarter 8.4 million listings on our platform. That grew year- over- year by about 8%. The growth for the U.S. specifically was slightly above that 8%. Room night growth was about 10%. It grew faster than traditional accommodations in all regions of the world. We would expect for the future that that will continue to grow faster than traditional accommodations. It's just something that people get more familiar with, that it is on our platform. It's very naturally integrated. If someone is looking for an accommodation, you get hotels, motels, resorts, inns, apartments, villas, all on your search outcome. You can easily compare. I think that's really our competitive differentiation overall. We see that the demand for alternative accommodations remains very high. We would expect that to continue to grow and grow a bit faster.
At what point we will reach an equilibrium, I think is hard to say. At least for the time being, I think the growth will be still a bit faster, would be our expectation.
Got it. Very helpful. We have about eight minutes left. I think we might take some questions at some point. Maybe we'll do that in a minute or two. I got to get some finance questions here, given your role. It's been one and a half years in the CFO role. I would love your thoughts on how the role itself has evolved since you joined the company.
I'm super happy how the role has evolved, how the company has evolved over the last one and a half years. A lot of hard work by many colleagues, how we are progressing with the execution of all our strategic initiatives. If you look at all those growth drivers, if you say flights up 44%, attractions doubling, connected trip up 30%, we're just speaking about alternative accommodations 10% up, direct business in the 60% range. A lot of hard work and execution from the whole team to really drive those results. At the same time, also just the organizational maturity is going up, in general. I'm pretty, pretty impressed by just the progress I've seen over the last one and a half years I'm with the company. What I particularly like in the role is, first of all, Glenn and I have a very close partnership.
We, I think, are very strong as a company linking strategy, execution, communications, driving results, metrics, and transparency around it, and really doing all those things in combination. I think it's a very broad role that, therefore, I'm very honored to have at this moment. You hopefully also see that with many more disclosures that we are putting out to the buy side, sell side in terms of the results of the company and background and metrics. It's really trying to really show that all the things we're talking about strategically in terms of execution, that you also can see that showing up in terms of our numbers.
We appreciate that very much, particularly as we hear conversion rates improving and we see that in the numbers, because the numbers you just talked about were pretty impressive. For a company as big as you are, to see the growth rates in flights and newer attractions and newer things is notable. One of the questions we often get is just balancing investments with profitability. I think last December we talked about a three-year strategic change, maybe longer term, $400 million - $450 million in costs coming out this year, $150 million in cost savings, $175 million in investments. I think I have those numbers right. Talk to us about the balance between the two, and then we'll open up for questions after that one.
Philosophically, the approach we are taking is the areas where we can go after efficiencies, and really finding opportunities for leverage is very separate from the decision process around reinvestments. Otherwise, you run the risk that the areas where you find the efficiencies will also reuse the funds that are being freed up. That is sometimes not the most attractive area where you can find reinvestment opportunities in the company. Therefore, two very separate mechanisms that we apply. Going a little bit deeper in both, yes, we have the transformation program. I think we are making good progress. $400 million- $450 million we expect to take out. We said we have already enabled about $350 million. Enabled means we have developed specific execution and implementation plans.
Those have been approved or have gone through certain processes, for example, in Europe with respect to Works Council, etc., and have now moved to the implementation phase. To realize then that $350 million, and you were speaking about $150 million we expect to realize in year 2025. On top of that, we have our normal leverage that we are trying to accomplish, leverage with respect to fixed OpEx, leverage with respect to marketing. We had some deleverage in sales and other based on payment expenses, but that's now being offset by customer service, GenAI efficiencies I spoke about earlier. That deleverage has disappeared. Overall, we will continue to really drive advantage of the overall scale.
In the end, travel is a scale business, and we have the scale, so we should take strategic advantage and just have the discipline always to grow the top line faster than those variable and fixed expense lines and take advantage. On the other hand, as we discussed over the last half hour, we have so many opportunities to reinvest. There are so many areas that a company can grow faster. It could be in other verticals, like attractions, like flights, like advertising. It could be in fintech. It could be in regions like Asia we discussed. It could be in some of our other businesses, like in OpenTable that has become really active, has become really revitalized, and is expanding its network, at the moment in generative AI tools. There are so many areas where we can reinvest. We are doing both at the same time.
The good thing is for us at the moment, we can grow those investments, and we can also expand EBITDA margins at the same time. You saw that we raised the guidance for the full year, and we have already the highest EBITDA margins of any of the competitors in the industry on a like-for-like basis. Let me call out again, including stock-based compensation, which is a normal cost of running anyone's business. Highest EBITDA margins already, we can expand that and still put meaningful investment behind all of those growth initiatives.
So much to jump off of. We could talk for hours. Any questions in the audience? I can go on here, so I'll continue here. Let's see. I have so many other questions. Maybe in the minute and a half left, we've talked so much, and maybe we'll get some more of the fun stuff, so to speak. Let's talk capital allocation. Capital allocation, you know, we have a buy-up repurchase authorization. It's quite meaningful and would love to understand your thoughts there. Everyone would love to understand cadence, but just your thoughts, bigger picture on this, you know.
Yeah. Ron, you know, the company's financial situation is very healthy, significant cash balance, significant free cash flow generation, just over $9 billion free cash flow over the last 12 months. We are in a position to reinvest in the business, but also to actively return capital to our shareholders. We do that, as you know, through a dividend that was initiated last year and increased this year by 10%. We do that through active buyback programs of our own stock. There's always a little bit of tactical movements we're doing there in terms of being price sensitive, but over time, there will be a consistent buyback level as well as a company. Overall, I think we're in quite a good place. I think the discipline around the capital philosophy, the capital approach, the consistency around it is really important. I think that is overall the approach we're taking.
To some extent, a little bit boring because not so much different than in the past, but boring in that area from my perspective is usually seen as good.
Unsizable numbers. As we wrap up here, any other trips planned? We started the conversation about Japan. Any trips planned for winter that you have coming up?
Not so much yet, but a lot of business travel over the next period. As a family, we always like in December for the holidays to go back to Asia. We lived there for a number of years, so we're very attached to Asia. That's probably the next family trip.
Wonderful. Ewout, thank you very much for the time here. Always a pleasure being with you and appreciate the commentary. Thank you.