Booking Holdings Inc ($BKNG) Q3 2025 Earnings Call

Welcome to Booking Holdings' third quarter 2025 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 in 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 is available in the for investors section of Booking Holdings' website, www.bookingholdings.com. And now I'd like to introduce Booking Holdings' speakers for this afternoon, Glenn Fogel and David Steinberg. Please go ahead, gentlemen.

Thank you Glenn and good afternoon everyone. I'm pleased to walk you through our results for the third quarter and share our current outlook for the fourth quarter and full year. All growth rates are on a year-over-year basis and the reconciliation of non-GAAP to GAAP financials can be found in our earnings release. Now let's turn to our third quarter performance. Our room nights in the third quarter grew 8%. A positive result versus a strong prior year comparison and exceeded high end of our guidance by nearly three percentage points. This outperformance was helped by an expansion of the booking window beyond our prior expectation and what we experienced in the second quarter resulting in more room nights being pulled forward into the third quarter. We saw broad-based strength in room night growth across all major regions and each region exceeded our expectations. Europe and the US were up high single digits and Asia and rest of world each delivered low double-digit growth. Our globally diversified portfolio proved its value once again as we continue to see robust growth in certain travel corridors including Canada to Mexico and Europe to Asia which effectively offset softer demand in certain inbound corridors to the US. Notably, our US booker room night growth accelerated meaningfully from the second quarter, driven by solid improvements in domestic and outbound growth, and we believe our growth once again outpaced the broader US accommodations industry in a meaningful way. We're also encouraged by the growth in our direct channel in the US. We saw the booking window in the US normalize in the third quarter, which is also an encouraging improvement from the second quarter. That said, in the US, we continue to see slightly lower ADRs and a shorter length of stay versus the prior year, which may indicate that some US consumers are continuing to be thoughtful on their discretionary spending. More broadly, global ADRs on a constant currency basis were up about 1% year-over-year, which was an improvement from the second quarter, and the global average length of stay remained similar to last year. While we are pleased with our third quarter results, we remain focused on accelerating our long-term earnings potential and are energized by the progress we are making across many key strategic initiatives. We continue to strengthen our direct relationship with our travelers and see tangible progress with increases in our direct mix, mobile app mix, and loyalty mix. Over the last four quarters, our B2C direct mix was in the mid-60% range, which was up versus the low-60% range one year ago. The mobile app mix of our room nights was in the mid-50% range over the last four quarters, which was up from the low-50% range one year ago. We find that a significant majority of bookings received from our mobile apps come through the direct channel. We continue to drive engagement in our Genius loyalty program that delivers value to both our travelers and partners. The mix of Booking.com room nights booked by travelers in the higher Genius tiers of levels two and three was in the mid-50% range over the last four quarters and this mix increased year-over-year. These Genius level two and three travelers have a meaningfully higher direct booking rate than our other travelers which demonstrates the strength of the program's value proposition. We'll also see continued momentum in diversifying and expanding our business into growth areas such as alternative accommodations, payments, flights, and attractions. For our alternative accommodations at Booking.com, our room night growth was about 10% and growth outpaced our overall business in each of our major regions. The global mix of alternative accommodation room nights was 36% which was up 1 percentage point from the third quarter of 2024. Our total merchant gross bookings increased 26% year-over-year in the third quarter. Over the last four quarters, merchant gross bookings surpassed $123 billion in total transaction value, representing about 68% of total gross bookings, an increase from about 61% one year ago. Our merchant payments business is foundational to the connected trip, offers more flexibility for our travelers and partners, and generates incremental revenue and contribution margin dollars for our business. We marked another quarter of solid growth in our other travel verticals, reaffirming our strategic focus on building on our connected trip vision. During the third quarter, over 17 million airline tickets were booked across our platforms, representing an increase of 32% year-over-year, driven by the continued growth of our flight offerings at Booking.com and Agoda. We also delivered another quarter of meaningful expansion of our attractions vertical with tickets booked on our platforms growing nearly 90% year-over-year from a relatively smaller base. As Glenn mentioned before, we're seeing healthy growth in connected trip transactions, and our data shows that travelers who book more than one travel vertical with us more frequently choose to book directly with us in the future. The progress across all these initiatives is interrelated and the combined effect is helping us expand the number of customers who choose to come to us directly and book with higher frequency. Before turning back to our third quarter results, it's important to note that the third quarter has historically been our seasonally highest absolute quarter in terms of revenue and earnings. Gross bookings of $50 billion increased 14% year-over-year or about 10% on a constant currency basis. The constant currency growth rate was approximately two percentage points higher than room night growth due to about 1 percentage point from higher bookings growth from flights and other travel verticals as well as an increase in constant currency accommodation ADRs of about 1%. The increase in gross bookings exceeded the high end of our guidance by about four percentage points driven by the room night outperformance as well as about 2% higher accommodation ADRs versus our expectations. The impact from changes in FX was about in line with our expectations. Third quarter revenue of $9 billion grew 13% year-over-year, which exceeded the high end of our guidance by about four percentage points in line with the outperformance on gross bookings. Constant currency revenue growth was about 8%. Revenue as a percentage of gross bookings of 18.1% was lower by about 30 basis points year-over-year due to an increased mix of flight bookings as well as increased merchandising contra revenue some of which was tied to bookings made in prior quarters. This was partially offset by higher revenues from payments. Marketing expense, which is a highly variable expense line, increased 9% year-over-year. Marketing expense as a percentage of gross bookings was a source of leverage driven by changes in traffic mix and lower brand marketing expenses as a percentage of total gross bookings. We continue to make disciplined investments in social media channels at attractive ROIs. On a combined basis, marketing and merchandising as a percentage of gross bookings also had leverage in the quarter. As expected, third quarter sales and other expenses as a percentage of gross bookings was slightly higher compared to a year ago, driven by an increasing merchant mix resulting in higher payments expenses, partially offset by increased efficiencies in customer service. Adjusted fixed operating expenses increased 10% year-over-year or mid-single digits after normalizing for changes in FX. The year-over-year increase was also impacted by increased cloud costs. We continued to drive efficiencies in our fixed expenses through our ongoing cost optimization initiatives while at the same time reinvesting into the business to effectively drive long-term growth. Adjusted EBITDA of approximately $4.2 billion grew 15% year-over-year, which was about six percentage points faster than the high end of our guidance due primarily to stronger revenue growth. Adjusted EPS of $99.50 per share was up 19% year-over-year, faster than the growth in adjusted EBITDA, helped by the benefit of a 4% lower average share count. During the third quarter, we realized approximately $70 million of in-quarter savings from the transformation program, primarily in sales and other expenses and in personnel expenses. We also took further actions during the quarter to advance certain efficiency initiatives into the implementation phase and as a result we now estimate in-year savings for 2025 will exceed $225 million and we have enabled approximately $450 million in annual run rate savings surpassing our prior expectations for the full program. We now expect to deliver about $500 to $550 million in run rate savings and we estimate the aggregate transformation costs will be approximately one time the run rate savings. In the third quarter, we incurred $15 million in transformation costs which were excluded from our adjusted results. As a reminder, we're reinvesting approximately $170 million above our baseline investments in 2025 to support our strategic priorities for long-term value creation. This reinvestment is funded by the savings generated from the transformation program combined with additional operational efficiencies in our ongoing operations. Now turning to our cash and liquidity position. Our third quarter ending cash and investments balance was $17.2 billion compared to our second quarter ending balance of $18.2 billion due to a reduction of $2.4 billion from deferred merchant bookings and other current liabilities. We generated $1.4 billion in free cash flow offset by capital return activities including about $700 million in share repurchases and about $300 million in dividends. Additionally, we paid $1.5 billion to redeem high coupon debt that was originally due in 2030. As we look ahead to the fourth quarter, while there remains some uncertainty in the macroeconomic and geopolitical backdrop, we're pleased to see continued momentum with steady travel demand trends in our business so far in the fourth quarter. As always, we will continue to closely monitor the travel environment for any changes. Our guidance for the fourth quarter assumes recent FX rates for the remainder of the quarter, including the Euro US dollar at 1.17. We estimate changes in FX will positively impact our fourth quarter US dollar reported growth rates by about 5 percentage points. We currently expect fourth quarter room night growth to be between 4% and 6%. We expect growth to moderate from the third quarter as we expect the booking window to be less expanded in the fourth quarter. We currently expect fourth quarter gross bookings to increase between 11% and 13% including about two percentage points of positive impact from higher flight ticket growth. We expect constant currency accommodation ADRs to be about in line with last year. We currently expect fourth quarter revenue growth to be between 10% and 12% lower than the increase in gross bookings due to a higher mix of flight bookings. We currently expect fourth quarter adjusted EBITDA to be between $2 billion and $2.1 billion or about 14% growth at the high end. We currently expect fourth quarter adjusted EBITDA margins to be slightly higher than last year driven by leverage on adjusted fixed operating expenses. Turning to the full year 2025, with a strong third quarter on the books, steady trends to date along with improved visibility for the fourth quarter we're increasing our full-year guidance. Assuming recent FX rates will remain steady for the remainder of the year, we estimate changes in FX will positively impact our full-year reported growth rates by about three percentage points for gross bookings and revenue and by about four percentage points for adjusted EBITDA and adjusted EPS. On a constant currency basis, our latest expectations are above our long-term growth condition of at least 8% gross bookings and revenue growth and 15% adjusted EPS growth on a reported basis for the full year. We now expect room nights to be up about 7%. Gross bookings to be up about 11% to 12%. Revenue to be up about 12%. Adjusted EBITDA to be up about 17% to 18%. Adjusted EBITDA margins to expand year-over-year by about 180 basis points, higher than our prior expectation of about 125 basis points. Revenue to grow faster than both marketing and adjusted fixed operating expenses, sales and other expenses to grow similar to revenue and adjusted EPS to be up slightly more than 20%. In conclusion, we're energized and highly motivated by the clear momentum in the business. Our continued progress reinforces our confidence that our loyal customers and global supply along with our technology and data all powered by our people are industry defining assets that will fuel our long-term success. Thank you to all of my colleagues across the company for their shared commitment and extraordinary work. With that, we'll now take your questions. Operator, will you please open the lines?

Thank you. And we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one a second time. If you are called upon to ask your question and are listening via speaker phone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is star one to join the queue. And our first question comes from the line of Kevin Copelman with TD Cowen. Your line is open.

Thanks so much. I was hoping to dig in on your US acceleration in Q3. Could you talk about your B2B initiatives in

The US that you mentioned and maybe globally, and then it sounds like B2C also accelerated in the US. So any additional color on what you saw as the key drivers there would be great. Thank you.

Yeah, let me add a few other data points there, Glenn. Kevin, clearly we saw healthy growth domestically in terms of travel as well as outbound saw some healthy growth. So both were doing well from a US perspective. Another important thing that I would like to point out and I think we're really positive and really excited about this. This is the growth of our direct channel in the US. So what we are seeing is clearly a payoff of our brand awareness that is getting stronger in the US, more familiarity and therefore more customers coming now direct to us in the US. So that is really something that has seen quite a step up in the third quarter and we see that as a really positive trend and ultimately that is all the result of all the investments we have been making over the last number of quarters and years. Investments in product, investments in supply, in marketing and in brand. So overall indeed thank you for pointing it out. We're very happy where the US is this quarter.

Thanks Eva. Thanks Glenn. And our next question comes from the line of Doug Anmuth with JP Morgan. Your line is open.

Thanks for taking the question. I know you were early in the test program with OpenAI as well, but can you talk about your thought process heading into the app integration and what you're seeing in the early days and just how should we think about economic impact if bookings were to shift from direct traffic or from Google? Thank you.

Yeah, maybe a couple of points Doug just you also asked about the economics and some of the data. So first of all what we are seeing in terms of traditional search that we still see volume growth. So travel clicks that are coming to us from traditional search are still going up year over year. That of course might change over time but I think that is an important data point. The other is the number of leads that we're receiving from large language models relatively small but it is growing and probably over time these two worlds might become more hybrid because we are seeing of course more AI being built into browsers at this point in time. What are we measuring in terms of impact? Ultimately, faster search, better conversion, lower cancellation rates, and higher customer satisfaction. Very early signals we're having around it, but overall very encouraged we are with what we are seeing at this moment.

Great. Thank you both. And our next question comes from the line of Lee Horowitz with Deutsche Bank. Your line is open.

Great. Thanks for the question. Maybe sticking with the topic, there's obviously a lot of noise in the market around some of your hotel partners looking to partner directly with some of the generative search players in order to perhaps increasingly bypass platforms like yourselves. I guess how do you contextualize this particular risk and what tools do you think you have at your disposal to maybe mitigate this kind of disruption? Thanks so much.

And our next question comes from the line of Mark Mahaney with Evercore ISI. Your line is open.

Okay. Thank you. I want to ask two topics please. First is social media. I think you mentioned kind of leaning into social media marketing and I think you've been talking about this for a year and maybe two. Could you spend a little bit more time on that? Is that now become a material let's say a double digit percent of your performance marketing coming from there? And do you find that the returns have been continually improving? And then Asia, you know, you riffed on Asia in the opening comments. So could you peel to that back a little bit? Are there particular parts within Asia that have really started to perform better for you? You've been I know that the region as a whole has got the world's highest travel growth rates, but do you feel like with the go and booking that you've been particularly able to penetrate certain markets better than others? Thank you very much.

Hello Mark, this is David. First on the social media, we continue to experiment and invest with the social media channels whilst we also continue to stay very disciplined with respect to ROIs which is really important because these channels the ROIs can really fluctuate a lot. So we are very much focused on really being able to measure incremental ROIs in a very clear way. We see different stages of where the social media channels are. Some are more leaning in than others. So changes will happen there over time with all the different channels. I prefer not to go too much in detail which ones are really better working for us than others because obviously I don't want to make others smarter than they are at this point in time. But what we like is really diversifying our multiple social media platforms because expanding our performance marketing channels overall is a positive in terms of spend. You should think about that it is a couple of hundreds of millions which is meaningful of course a total number but if you look at the total marketing spend for us it's of course still a smaller percentage of the overall spend. In terms of Asia, very clearly we are very happy with the growth we're seeing in Asia. We have two strong brands. Two different strategies. Agoda is very much focused on localization and they really present themselves as a Korean company in Korea and a Japanese company in Japan. Booking has far more the global reach, the global model, the global optimization that they bring to the region. We're making a lot of investments in terms of our product, in terms of our marketing, in terms of our supply and overall we are happy with the growth we're seeing and we're really despite of course always healthy competition we're having in Asia, we're really holding up very well in that overall environment. Asia is of course from a medium or long-term perspective the most important market. That is where we will see over the next few decades the largest growth in the world because the GDP growth is going to be the highest there. There will be very large parts of the population that will start to travel and travel more in the future. So the fact that we are already the market leader outside of mainland China and being able to be focused to hold that position is going to be positioning us very well for the next couple of years.

Thank you. And our next question comes from the line of Ronald Josie with Citi. Your line is open.

Hey, thanks for taking the question. I have two, please. Glenn, you know, as entry points to the web and booking evolve here given just newer tools and OpenAI being one of them, just talk to us how maybe this evolves or changes your strategy to attract a call it 30-35% or so traffic that's not direct. So question about how the front end is changing and sort of thoughts there. And then on the product side, you know, look, seeing tons of innovation with AI trip planner, Penny, hotel search, AI mode, concierge. I think you talked about the homepage is unique now per user. Talk to us about the impact this might be having on either cancellation rates, conversion rates, things along those lines. Thank you.

That's exactly right. I guess I'm wondering how much more important brands are going forward as OpenAI goes through this app strategy and as users front end of the web evolves.

Ron, we're seeing a couple of things. First conversion definitely with all the new tools that we're having we're seeing that people have an opportunity to find easier what they are looking for can be more targeted have a faster path to ultimately get to a booking and that is helping conversion levels. Then also what we are seeing at the same time is that cancellation rates are a bit lower. Every period if you look at it it's slightly lower than in the comparable period one year ago and that is also a positive and we believe that this is not a coincidence. This is also because people can find exactly what they're looking for. So they don't need to continue to search and ultimately cancel one booking and book somewhere else or book something else with us. So they are satisfied with what they have booked. So cancellation rates slowly coming down also clearly a huge economic effect. And then if something goes wrong, what we're also seeing is that customer service is seeing a huge benefit in what we can deliver. Reduced contact rates, faster handling time, and higher customer satisfaction. I think it's actually remarkable. If you look at our results this quarter, our customer service costs are down year over year in absolute terms despite volume growth of close to 10%. So the average cost per booking is coming down very rapidly and the satisfaction scores are going up. So all of these things are interrelated. It's interrelated with all the elements that Glenn said people come more direct to us are booking more often with us are booking more across multiple verticals are cancelling less are having higher satisfaction and like to come back and book more direct. So all of these things are interrelated and really strengthening each other.

Great. Our next question comes from the line of Justin Post with Bank of America. Your line is open.

Great. A couple first like to dive into the US. It really seems like the OTA industry is maybe taking some share here. Just wondering if it's the loyalty program, leisure growing faster than business. You know, what's helping the industry take share and you specifically take some share. And then on the algorithm, just wondering, there's a lot of stuff going on with connected trip, you know, obviously payments and more air. Just could you help us think about how both bookings could grow relative to nights and also how you're thinking about revenue take rates over the next couple years. Thank you.

Justin, when we speak about connected trip, I would like to make a distinction between what we're seeing now and then really where we're heading to in the future. So, what are we seeing now? We're seeing a lot of our other verticals growing in a very healthy way. Flights 32% attraction 90% we see our payment related bookings going up in the mid 20% we see our connected trip transaction so where someone booked more than one vertical for the same trip going up mid 20s of course the direct element is a part of that so all of these metrics look really in the direction that customers like to really bring those elements together because it's peace of mind it's all one platform and we deliver a lot of value for them as a consequence. But if we think about generative AI, this is really the opportunity for us. We can make the real connected trip come to life over the next couple of years. And what I mean with that is building an intelligence layer that all these elements of the trip naturally fit together are interrelated, all personalized based on what we know and what you like to do and how you like to travel and where you like to dine. If something happens, everything can automatically be updated. It means that people will be more frequently using our app. We can become more proactive in what we offer to you and more and more value can be created as a consequence. So actually that is our big opportunity around generative AI and I think the value we can generate in that way is really going to be even more than what we are seeing today. So that's where I am personally really excited about.

Maybe one quick follow-up. Do you think the gap between bookings growth and room nights growth can grow?

Yes. There's of course always a few things that go in the mix. Take FX aside. What are ADRs doing? That is of course one element there. It's a growth in other verticals that is going in there. But generally we would say yes because if we take room nights plus ADRs plus other verticals we would like to of course to see that total growth bookings will grow faster than room nights on average over time.

Thank you. And our next question comes from the line of Trevor Young with Barclays. Your line is open.

Great. Thanks Glenn. Maybe a bigger picture one for you. From a competitive standpoint, do you foresee competitive intensity picking up over the next two to three years? It seems as though a major Asia player has aspirations in Europe while an accommodation competitor is making a big push into traditional hotels and adjacencies. Meanwhile, you know, consumers will have a new channel via AI tools to make travel all that much more accessible. And if you do see competitive intensity picking up, how are you evolving your strategy to better position Booking for that environment?

Great. Thank you. And ladies and gentlemen, that concludes our question and answer session. I will now turn the conference back over to Mr. Glenn Fogel for closing remarks.

And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.