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Booking Holdings Inc. (NASDAQ:BKNG)
Q1 2018 Earnings Conference Call
May 9, 2018, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Booking Holdings first 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 guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied, or forecasted in any such forward-looking statements.

Expressions of future goals 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 statement 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 the group's earnings press release, together with an accompanying financial and statistical supplement, is available 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 Goulden. Go ahead, gentlemen.

Glenn D. Fogel -- Chief Executive Officer and President

Thank you, and welcome to Booking Holdings' 2018 Quarter 1 conference call. I am joined this afternoon by our CFO, David Goulden. Booking Holdings had a solid quarter with revenue up 24% year-over-year in U.S. dollars, or about 16% on constant currency basis, and adjusted EBITDA increased 26% year-over-year to approximately $800 million. Our worldwide accommodation room nights of $197 million, were up 13% year-over-year, and exceeded the high end of our guidance range. Consolidated gross bookings were up 21% year-over-year in U.S. dollars, or about 12% on a constant currency basis. An important factor contributing to our EBITDA over-performance was another strong quarter of efficiencies in our performance marketing channels, as we were able to leverage our spending by over 380 basis points.

As we have discussed in the past, our performance marketing channels are complex and dynamic. Our goal is to achieve an appropriate balance between acceptable ROIs and growth. As we set out our ROI hurdles, we take into account not only the short-term impacts from our bidding strategies, but also factors such as the customer experience on the advertising platform, the income incrementality of the traffic we receive, the anticipated repeat rate from a particular platform, and several other important elements.

As we discussed last quarter, increasing direct traffic and customer loyalty is a key strategic priority for us. To achieve these goals, we strive to have the widest selection, the best prices and availability, the most informative content, the easiest user interface, and the highest level of customer service. We are pleased to report that we continue to see growth in our direct channel and note that our mobile business is an important factor in the growth of our direct business.

As we have discussed in previous quarters, we believe that brand marketing will also be an important part of driving direct traffic to our websites over time. We hope to make further progress executing our brand strategy implementing new measurement technologies and tools and testing in various geographies but want to reiterate what we have said in the past -- that we will proceed in a prudent manner.

During the quarter, we made progress adding new supply to our marketplace, maintaining our position as the leading global accommodations platform offering the most choice in over 220 countries and territories worldwide. As of March 31, booking.com, our largest brand, had a total of 28.2 million reported listings, consisting of approximately 23.0 million reported listings in hotels, motels, and resorts, and approximately 5.2 million reported listings in homes, apartments, and other unique places to stay.

Year-over-year growth in booking.com's reported listings for our alternative accommodations category was 28%, which demonstrates our ongoing focus to build additional supply. Today, all of booking.com's alternative accommodation listings are fully integrated in our marketplace and are instantly bookable with no customer fee. Room night bookings in this category are growing nicely and we firmly believe our customers want a one-stop shopping experience to find a great place to stay, whether it is a hotel, resort, home, or apartment, they want the ability to search and compare across all property types to find the best fit for their unique needs.

We remain focused on bringing more alternative accommodation properties onto our platform, especially single properties whose owners may not be as aware, as professional multi-unit managers are, of the strength of our traveler demand. We believe that this is an attractive opportunity for us. Building sophisticated capabilities in local attractions and in destination experiences remains a long-term goal for the company, as we look to provide a more holistic travel experience for our customers in order to drive loyalty and build a larger direct brand. We've been gradually increasing our investments and expertise in these areas, including our recent acquisition of Fair Harbor and are pleased with our progress to date, though we want to stress that we are still in an early stage.

During the first quarter, we utilized $1.5 billion in capital to reduce our fully diluted share count through both share repurchases and the cash settlement of the conversion premium on our convertible bonds which matured in March. We will continue to prudently deploy capital through a mix of organic growth investments, M&A, and stock repurchases.

In summary, Booking Holdings had a good start to the year. Bottom-line results for the first quarter were aided by solid revenue growth and efficiencies that we realized in our performance marketing channels. We believe the travel market remains healthy and we continue to orient ourselves to the long run. We have a single-digit market share in the very large global accommodations market and an even lower market share in the total travel market. We continue to evolve the company, so that in the long run we will be able to provide our customers with a more complete and superior travel offering. This will take time, but we believe that if we continue to leverage our unique assets and expertise and all of our brands could change to execute, we will be successful.

As always, I want to thank our more than 24,000 employees worldwide for their hard work and dedication. We are now getting ready for our busy northern hemisphere summer season. I know we will all work tirelessly to ensure our customers have a great travel experience. Finally, I want to send out a special thank you to Rob Rosenstein, the co-founder and longtime CEO of Agoda, our Asia-based business. Effective June 1, Rob is moving up to be the Chairman of Agoda and taking the role of special advisor to the CEO of Booking Holdings. I have known Rob for almost 15 years now, and I look forward to working closely with him as we continue to develop our long-term Asia strategies. Taking Rob's CEO position at Agoda is the current COO of Agoda, John Brown. Omri Morgenshtern, the current Chief Product Officer, will take the COO role there. Congratulations to all of them.

I will now turn the call over to David for the Financial Review.

David I. Goulden -- Executive Vice President and Chief Financial Officer

Thank you, Glenn. Good afternoon. I'll discuss operating results and cash flows for the first quarter and then provide guidance for the second quarter of 2018. All growth rates are relative to the prior year comparable period unless otherwise indicated. Before we get into numbers, as we discussed last quarter, starting on January 1, 2018, we began reporting on the new revenue recognition accounting standard, which recognizes revenue at check-in rather than at check-out. As a result, all year-over-year growth rates referenced in my remarks and Q2 guidance will compare the current year on the new accounting standard to the prior year under the previous accounting standard.

Additionally, revenue growth and profit margin performance of Q1 results and Q2 guidance are based upon comparison to prior gross profits due to the associated change to net revenue reporting in 2018. Gross bookings and other unit metrics like room night reservations are not impacted by the new revenue accounting standard. Our non-GAAP financial results and forecasts include stock-based compensation and are reconciled to our GAAP results in our earnings release.

So now, onto our results for the quarter. Our strategy to optimize performance marketing ROIs is impacting our top line growth. It's also driving significant improvements in our operating margins. The result was the second quarter in a row of expanding adjusted EBITDA margins on a bottom-line performance that substantially exceeded our guidance range and the facts at analysts' expectations.

Room nights booked in Q1 grew by 13%, percent which exceeded the high end of our guidance range. Average daily rates for accommodations or ADRs were down slightly for Q1 versus prior year on a constant currency basis, which was better than our forecast of down about 1%.

Foreign exchange rates favorably impacted growth rates expressed in U.S. dollars for our Q1 results. Q1 gross bookings grew by 21% expressed in U.S. dollars and grew by about 12% on a constant currency basis compared to prior year. Consolidated revenue for the first quarter was $2.9 billion, and grew by 25% in U.S. dollars, and by about 18% on a constant currency basis.

Q1 revenues include $45 billion from the Momondo Group, an acquisition we closed in July of 2017. We also recognized a $27 million benefit to revenue in Q1 from the reversal of a portion of OpenTable's loyalty program liability. This benefit relates to recently introduced changes to OpenTable's loyalty program and is excluded from our non-GAAP results, as we believe it's not indicative of the core operating results of our business.

Our non-GAAP revenue grew 24% in U.S. dollars and by about 16% on a constant currency basis. Total revenues for the first quarter of 2018 under the current revenue standard were approximately 2% lower than the first quarter 2018 would have been if reported under previous revenue standard, which was consistent with our guidance. This 2% difference in the quarter resulted in a 3 percentage point impact on our growth comparing Q1 with a year ago.

Advertising and other revenue, which is mainly comprised of non-intercompany revenues for KAYAK and OpenTable, grew by 50% in Q1 compared to prior year, including revenue from Momondo and the OpenTable loyalty program benefits. On a non-GAAP basis, which excludes the OpenTable benefits, growth in advertising and other revenue was 36% in Q1.

GAAP operating income grew by 31% and GAAP operating margins increased [inaudible] compared to [inaudible] last year. GAAP net income accounted to $607 million, or $12.34 per share, which grew by 35%. Our GAAP net income includes a $54.5 million benefit related to an unrealized gain in our equity investments in Seaship, which is now recorded in the income statements or all through the balance sheet, due to an accounting change that took effect in Q1. We excluded this unrealized gain, as well as the OpenTable loyalty program benefit from our non-GAAP results.

Our GAAP tax rate for the quarter was 19.4%, just slightly better than forecast. Adjusted EBITDA for Q1 amounted to $798 million, which exceeded the top end of our guidance of $705 million, and grew by 26%. Adjusted EBITDA also excludes previously mentioned Seaship gain and OpenTable loyalty program benefits. Our adjusted EBITDA margin of 27.5% was substantially better than our forecast, mainly due to higher revenue in the quarter and performance marketing efficiency. As expected, not-marketing OpEx expenses pressured year-on-year margins as we continue to invest in new markets and new capabilities.

Our non-GAAP EPS was $12.00, up 21% versus the prior year, comfortably exceeding our guidance in the quarter, and facts at consensus. Non-GAAP net income reflects a non-GAAP tax rate of 19.4% in Q1, which increased from the prior year due to impacts of the U.S. Tax Act and the higher innovation box tax rate in the Netherlands, as well as last year's rate benefiting from discrete items. Our cash investments amounted to $16.3 billion at quarter end. In Q1, we generated $640 million operating cash flow, which grew by 68% compared to the prior year. Our free cash flow for the year was $508 million, which is 64% higher than Q1 2017.

Cash flow in the quarter benefited from increased merchant transactions at booking.com, which have a favorable working capital impact. We returned about $732 million during the first quarter to our shareholders through share buybacks. In addition, we used another $773 million in the quarter for the cash settlements of the conversion premium on our convertible bonds that matured in March.

We currently have approximately $10 billion remaining of our share repurchase authorization. We will continue to be both programmatic and opportunistic with regards to our repurchases and, under stable business and market conditions, we expect to complete this authorization within a 2 to 3 year time period. Our guidance reflects our quarter to date actually results and assumes our growth rates will decelerate over the remainder of the quarter mainly due to the size of business and consistent with long-term trends.

Our guidance also reflects the continued impact of our performance marketing optimization efforts and our approach to guidance has not changed. Our Q2 guidance is based upon current foreign exchange rates which provide a tailwind to our growth rates expressed in US dollars. We are forecasting booked room nights to grow by 7% to 11%, and total gross bookings to grow by 10% to 14% in U.S. dollars and by 5% to 9% on a constant currency basis. Our Q2 forecast assumes a constant currency accommodation ADRs for the company will be down by approximately 1% compared to the prior period.

We forecast future revenue to grow by 11.5% 15.5% in U.S. dollars and by 6% to 10% on a constant currency basis. This forecast includes the impacts of revenue shifting from Q2 to Q1 due to the timing of Easter and revenue recognition at check-in.

Q2 adjusted EBITDA is expected to range between $1.085 billion and $1.125 billion dollars, which at the midpoint is up about 13% versus prior year. We forecast the adjusted EBITDA margin will be about in line with prior year Q2.

Our Q2 forecast assumes our ROI optimization efforts will continue to yield year-over-year performance marketing efficiency. We expect the de-leverage from our investments in brand marketing and non-marketing operating expenses will offset this leverage from performance marketing in the quarter. As mentioned last quarter, these investments have a more significant margin impact in Q1 and Q2, which are quarters in which we typically earn a smaller share of our annual profits due to normal seasonality of our business.

Although we're not giving guidance beyond Q2, we do expect de-leverage in non-marketing OpEx and brand marketing throughout 2018, but diminishing in the second half as we lack investments made last year. We also shared operating margins will benefit from increased performance marketing efficiency until we anniversary the optimization efforts that started in Q3 of last year.

We forecast GAAP EPS between $15.50 and $16.15 for Q2, which at the midpoint is up about 10% versus prior year. Our EPS guidance assumes a fully diluted share count of about 48.6 million shares, which reflects the beneficial impact of the common stock repurchases we've made to date. Our GAAP EPS guidance for Q3 assumes a tax rate of 21% compared to prior rate of 17%. Our current year tax is higher than last year due to the impacts from the U.S. Tax Act, as well as the increased rates of the innovation box tax in the Netherlands.

We're forecasting Q2 non-GAAP EPS of approximately $16.35 to $17.00, which at the midpoint is about 10% versus prior year. Our non-GAAP EPS forecast includes an estimated income tax rate of approximately 21%, which is higher than the prior rate of 18%, due to the same reasons I just discussed for the GAAP rates.

We have hedge contracts in place to substantially shield our second quarter EBITDA and net earnings 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 impacts of foreign currency fluctuations.

Our forecast does not assume a significant change in macro economic conditions in general or in the travel market in particular. With that, we'll now take your questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, at this time if you have a question, please press the * then the No. 1 key on your touchtone phone. If your question has been answered or you wish to remove yourself from queue, you can do so by pressing the # key. Again, that is * and then 1.

Our first question is from Eric Sheridan of UBS. Your line is open.

Eric Sheridan -- UBS Securities LLC -- Managing Director Equity Research

Thanks for taking the question, maybe two if I can. Last quarter, you called out shortening booking window and the potential for some cancellations or volatility around Easter in the way you'd forecasted room nights. I wanted to understand how that played out as the quarter progressed against what you initially thought going in. And then second, you're projecting an e-sell in room nights in Q2 against what looks like an easier comp. I wanted to understand maybe a little bit, maybe some color around your forecasting there as well and anything we keep in mind. Thanks.

Glenn D. Fogel -- Chief Executive Officer and President

Hi, Eric. It's Glenn. I'm going to take that second question and then I'll let David talk a little bit about booking windows.

So, our company over time has been very consistent in talking about deceleration because of the law of large numbers. That has been something that has been trending fairly regularly over time. But there's certainly been volatility quarter-to-quarter. In some quarters, we've had small deceleration. In some quarters we've had faster deceleration. In some quarters, we've even had acceleration. There have been many factors have gone into that.

Some of the factors are macro things -- the economy. Some the factors can be a competitive action by someone. Some of these factors can be somebody who's not a competitor but has influence of some sort of reorganization and an SEO algorithm for a search engine. And some of the factors are things that we do -- optimizing our performance market is clearly one. You take all these factors and they interact and there are feedback loops. It's very complex.

That makes it very hard to project or predict short-term and its volatility. But long-term, we can make some absolute, in my sense, you can't make comp without making some predictions. The prediction is that we're going to do very well. I have a lot of confidence in the industry and the company and let me tell you why. Let's start the macro level.

Travel is a function of GDP. World GDP goes up, travel will grow faster, and I am highly confident that world GDP is going to continue to go up in the long run. That's one. The second thing, a tailwind that we've always been experiencing is the offline to online. I know it sounds archaic using off line to online. Let's call it digital processes. That trend is going to continue. Yes, in some of our developed markets there are more people who are already online, let's call it, who are doing it. But there's so many areas in the world that are not doing that yet but will be doing it. That's another thing for us.

Now let's go down to No. 3, micro. Let's get into our company individually. You know, we're a big company, but we're a small share of the travel industry. A small share of our biggest businesses, the accommodation business, a single-digit market share of, and we're measuring that -- just the number of available rooms on our platform. I'm not even talking about the inventory we haven't gotten yet. So that's a lot of opportunity for us there. And if you think about us, the share of the total travel industry in all things -- air, things like attractions, other parts of the industry that were much smaller, we're a very small share.

I mentioned the inventory. We can go out we get more inventory. That's another thing that we're working very hard. We've talked about in the past, about us going out and getting more inventory. You see the numbers that we talked about. We talked about the amount of money being put into investing in developing our non-hotel accommodations. That's an area of growth for us. We talked about our experimentation with older [inaudible], maybe you've seen it on booking.com and we have flight on that. Maybe you've seen some things we're doing with ground transportation. Maybe you've seen some of things we're now doing with attractions. Experimentation got us where we are, now it's going to continue to get us to the future. A separate part of that is coming up with innovation.

Whether it's a new thing out for Priceline.com, it's a package product they have out. It's new, it's exciting. Things like that are always going to help drive us forward growth wise. Then you come and you say what about conversion? Is that dead? No. We've always talked in the past about we do all, we have a giant experimental platform, and that we're always trying to come up with a better conversion way. Now, some quarters we do better. Some quarters we do worse but in the long run, we're always going to keep building and that conversion rate is going to continue to go up. We talked about our mobile in the past. That continues to be an absolute growth area for us. I could just keep going on.

The point is, 24,000 very talented people. We have a lot of capital. We have technology. I think we're very positioned. So, when you say what's happening, your comparing this to an Easter comp. Last year was a 21% growth rate, at which point we hadn't started our optimization yet. I would say, actually, where we're positioned is actually very good. It's a good balance between growth and profit and I like where we are.

David, do you want to take No. 2 there?

David I. Goulden -- Executive Vice President and Chief Financial Officer

Yeah, Eric, let me pick up on a couple of your opening question that maybe about Q2 as well. On the booking window, we did continue to see a modest decline in the booking window. We saw over the last few quarters to see a modest decline. We think it's likely impacted by some of the things we're doing around optimization in the performance marketing channels. We're now going into all the details. We are targeting less lower converting and less upper funnel ad placements that's having an impact on the booking window. Also, I would point out that mobile continues to perform well and mobile has a shorter booking window than desktop. So, those factors are going into the booking window. As we see it continuing to modestly decline.

In terms of the Easter impact on room nights booked, very much in line with what Dan commented on the last earnings call. It did have a small impact to the room nights booked, very much in line with our comments. It had a much bigger impact on revenue and if we get a question about that later on the call, I'll explain how Easter impacted revenue. Then there was just specifically relative to Q2, as Glenn mentioned, we are comparing against a period in which we were spending very heavily in the paid channels. But if you think about the actual guidance itself, it's relatively stable guidance vis-à-vis what we just reported for Q1. Our approach to guidance hasn't changed.

Also, we are now sitting here with more time between now and quarter end than when we guided for the last quarter, so there's natural increased level of potential variability, but I would point out that as in every quarter, there's always something going on. In this quarter, we are looking at some new factors in Q2, for example, given the timing of the World Cup and group play ending right at the end of the quarter is something that in prior years has impacted growth rates. So, [inaudible].

Eric Sheridan -- UBS Securities LLC -- Managing Director Equity Research

Thanks so much.

Operator

Our next question comes from Lloyd Walmsley of Deutsche Bank. Your line is open.

Lloyd Walmsley -- Deutsche Bank Securities -- Research Analyst

Thanks for taking the question, two if I can. It looks like, Glenn, I think you mentioned mobile as an important factor in driving the direct business. I'm wondering if you can just give us a sense if anything in particular has changed there. I think just two quarters ago, you had kind of downplayed mobile as a source of direct strength. So, is there a synergy with the TV spend you're doing or maybe has something changed in mobile app usage versus mobile web? Any color you could share there.

And then and then just looking at non-advertising OpEx, it actually looked like it was ultimately fairly well contained, despite some of the investments you're making. So, is that really just a function of the size of the P&L being able to absorb that or any changes in magnitude of the investment you have to make in some of these new areas? Any color you can share there would be great.

Glenn D. Fogel -- Chief Executive Officer and President

Sure, Lloyd. If I said something that was interpreted that I do not believe that mobile is important for direct or something of that nature, it was misunderstood or I misspoke, one or the other. Because certainly mobile helps direct significantly. We believe it's a very important part of the strategy going forward. Now, why are we noting it and why is it important? I don't know how much time you spend in [inaudible] Asia, for example. But people are not doing desktop. Mobile is the way you do everything.

That is so important for us to continue to be developing the right interfaces, the right connectivity for the different systems in all parts of the world where mobile really works efficiently. And I just think that that is something that for us because of the size of our company, because of the number of technologists that we have on our staff, we have an advantage. We can do these new experiments in all different areas of the business, ending up with a better result, a better use for our customers, which in the long run is how we went.

Regarding the non-ad OpEx, we talked about this a couple of quarters ago about how we were making these non-ad OpEx investments. It was people and then all the things are associated with people, the expense that goes with them. We talked about a bunch of things, reasons why we wanted to do that, why we thought that was important for our strategy long term. And we ramped up that those numbers significantly at the time. Now, those people that came on board throughout the year and they're on now full, we don't need to hire at a higher rate. We need these people now to be more efficient, more effective and such. So we believe, as Dave was pointing out, over the year -- and I certainly see going into 2019 we will get the benefit of those people who are doing all the great work that they're doing -- but you should not expect us to continue to hire the way we did last year at that kind of rate.

Lloyd Walmsley -- Deutsche Bank Securities -- Research Analyst

Got it. Thank you.

Operator

Thank you. Our next question is from Brian Nowak of Morgan Stanley. Your line is open.

Brian Nowak -- Morgan Stanley & Co. -- Managing Director

Great, thanks for taking my questions. The first one, just going back to your comment around direct traffic. It was kind of growing. I guess the question is, is direct traffic growing in your mix at this point? And if not, how are you thinking about that throughout the course of the year? And then going back to the deceleration implied in the guidance, I appreciate the color about the industry, but maybe just talk about potential for acceleration. What are the factors you are most focused on internally, whether it's regions or buckets of room nights, that you think over the course of the next year could lead to faster room night growth even through laws of large numbers? Thanks so much.

Glenn D. Fogel -- Chief Executive Officer and President

Could you just explain a little bit more about, you said direct within the mix? I didn't quite understand that question.

Brian Nowak -- Morgan Stanley & Co. -- Managing Director

So, you mentioned that direct your direct traffic is growing year-on-year. The question is, is it increasing as a percentage of your total room nights or is paid still growing in the mix?

Glenn D. Fogel -- Chief Executive Officer and President

Direct is growing. Direct is growing and we're very pleased with that growth rate and it is something that is part of the overall strategy to continue to increase that. In terms of -- I could come up with a whole bunch of hypotheticals of what could increase the growth rate and become an accelerating number versus a decelerating number, and a lot of them would be just making up and being speculative. I will say one thing though, that we have seen over time. That is when we come up with something that's innovative, something that -- we obviously haven't thought of it yet -- some new things that we've done and come out. That's actually been helpful in terms of driving more business.

So a good example of something like that might be, while we were growing so fast at the time you, would have seen it in the growth rate. But the fact is when mobile came out. I'm been here long enough, 18 years. I was here when there was no such thing as mobile. But when people started booking on mobile, by being out in front and coming up with great ways to use that technology to make it easier for people to book who wanted to use their phones, that was an advantage for us.

So it'll be something like that that I believe could come out in the future and we will be able to take advantage of it for something that I talked about earlier already, about the idea because we do have scale in our technology area. Because we have scale in all areas of our business, actually. That will help us achieve a better result than competitors who may not have the same scale.

Brian Nowak -- Morgan Stanley & Co. -- Managing Director

Okay, thanks.

Glenn D. Fogel -- Chief Executive Officer and President

You know, let me get David. Is there anything -- you're a technologist at heart, so maybe you have something you'd like to talk about. I could speculate why we would accelerate.

David I. Goulden -- Executive Vice President and Chief Financial Officer

I'll add just a couple points, Glenn. Just on the first point, I just want to reinforce that not only is the direct increasing as we [inaudible] our mix. It is our largest channel for bookings, Brian, just to clarify that point.

Then I'd just add one more point. Certainly, it will start to play into fact in the second half of the year. Right now, we are from a growth rate comparing periods in which we are optimizing our ROIs against periods where we weren't optimizing them so aggressively, so in the second half of the year, the comparison will start to get a little easier for that factor as well. But as Glenn said, long-term, there are many other factors, including all the things he mentioned, in terms of head room available for us to grow this industry with, this business with single-digit market shares in our core markets and new ways to attract customers, etc. So, those will be the bigger factors for driving long-term growth rates.

Brian Nowak -- Morgan Stanley & Co. -- Managing Director

Okay, thanks.

Operator

Thank you. Our next question is from Mark May of Citi. Your line is open.

Mark May -- Citigroup -- Internet Analyst

Thank you. Actually, one of my questions is a bit of a follow-up to the last comment. Is it possible for you to help quantify to some degree the impact that optimizing some of your direct response marketing has had on the growth? And maybe just help frame that a bit. And then secondly, can you talk a little bit about the relative rate of growth in your North America market and kind of how that's been trending in recent quarters? Thank you.

Glenn D. Fogel -- Chief Executive Officer and President

Okay, Mark. So, we're not going to put a pin on a number in terms of the optimization, but as David pointed out, optimization is definitely a hurt on the growth rate. And we know that if we wanted to get more growth, we could pay up for it so to speak, but that's not our strategy. Our strategy is to achieve a balance and we're at where we believe is the appropriate balance between profit and growth and that's really where we're going to play at.

In terms of North America, we don't generally start pulling out different regions, so I'm not going to go there. I will say that the world economy is good. Travel is good in most areas of the world. David I think mentioned we have a couple of small areas that are of interest and it's not North America at all. Argentina and Brazil with some currency. Russia also, some currency effects happening there, which make outbound business decline. You recapture some of that in domestic business, but it's still a negative impact on us generally. So that's a little bit in terms of a regional area or a country area. But generally, that's about as far as I go in anything I could call out as an issue.

Mark May -- Citigroup -- Internet Analyst

Thank you.

Operator

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

Mark Mahaney -- RBC Capital Markets -- Managing Director

Hey, I've just got two European-related questions. One, this is small, near-term stuff. But World Cup. Just talk about the impact that's had in years past. That is a pretty sizable event. I hear people over there are getting excited by that. They don't travel, so just how do you actually try to handicap the kind of impact that could have on your business? I know that's a near-term issue, but I want to ask that.

Secondly, also European, I want to ask about GDPR. How do you think about the extent to which that will complicate your business, either in terms of your ability to reach out to your current or potential future customers and just overall? Does that does that impinge on the effectiveness of online marketing channels? How much of a challenge for you is GDPR in terms of running the business? Thanks a lot.

Glenn D. Fogel -- Chief Executive Officer and President

Hi, Mark. I'll take the second GDPR. David, being English and they actually have a team in the World Cup this year, I'll let him handle that one.

So, GDPR. First, before I answer your question, let me just point out how we definitely believe that privacy is a very important thing. We've been thinking about how to maintain privacy for our customers, our partners, everyone long before GDPR was even a thought in Brussels. We do not believe, and we've talked about this here, we do not think this is going to have any real impact on our business in terms of our marketing or getting customers. So really, we look up and down trying to figure out if there some sort of impact, and we cannot not see a material impact from GDPR.

That being said, preparing for it and continuing as we come up to the deadline, it obviously causes costs and diversion of resources -- relatively minor compared to the size of our business, but there were actual movement of people who would have been preferring to work on the business, making either more accommodations or working on some of our new, innovative things, rather than working on GDPR. But that being said, it's something that we need to do and again, we're happy to do it. I'll let David talk about World Cup and what his thoughts and maybe a prediction on who he thinks is going to win.

David I. Goulden -- Executive Vice President and Chief Financial Officer

Mark, certainly I would not go as far as that in public. Mark, it's interesting because it's difficult to predict because a number of factors come into this. It depends which seems doing well. What we've seen in prior years, is that when teams get through to the latter round, their countrymen are not booking very heavily while it's the end of World Cup, but once they get knocked out, they stop booking quite quickly. So, it's a function of who gets through to the latter rounds. As I mentioned, with everything happening starting in the middle of June going into early July, it's the group play. Rounds end right at the end of the quarter. So, it's going to be a function of which teams are going forward beyond that. So, it's very difficult to predict. So, I can't be more specific but it's certainly a factor that we're looking at when we're modeling our growth rates and looking at sequential bookings growth and things like that during the quarter. We'll have to tell you based upon what happens if he winds up getting through to the latter rounds.

Mark Mahaney -- RBC Capital Markets -- Managing Director

Okay. Thank you very much.

Operator

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

Justin Post -- Bank of America Merrill Lynch -- Managing Director

Great, thank you. You definitely have tighten your ROI thresholds and I'm wondering if you thought about the competitive impact on that? You've said it's affected your growth rate. Where do you think those rooms might be going? Is it going direct or do you think some competitors might be getting it?. And then over time, I've followed this company for many years, you've always found great opportunities in new marketing channels that have helped propel your growth and you've actually out competed people over time. So I'm just thinking about do you still see those opportunities? Is it going to take new emerging companies that you can take advantage of or changes in Google? But over time do you still think you can have an advantage in marketing channels? Thank you.

Glenn D. Fogel -- Chief Executive Officer and President

Justin, I agree with your point that we have done a good job in terms of marketing over time. We do believe that we will continue to do well and find new ways to be able to bring in more customers and new types of marketing. Certainly something that we've talked about in the past is our brand marketing effort. That's sort of a counter to raising ROIs on our performance and countering with brand spend to bring people direct.

That's an area that we're going to continue to work on, work very hard on, to try and develop the right formulas. Coming up with the right creatives, the right measurement tools, putting in the right geographies, so that we can bring more of those people direct to us. It's so important to our strategy in the long run that we don't depend as heavily as we have in the past on third-party sources of customers. We believe the right thing for the company in the long run is to create a service that is so good, that people, when they think about travel, they think about us immediately and come to us directly.

Justin Post -- Bank of America Merrill Lynch -- Managing Director

Got it. Then on the first question, you apparently have given up a few rooms. Do you think those are going to direct channels or where do you think those people are going? Any thoughts on that?

Glenn D. Fogel -- Chief Executive Officer and President

Thoughts on that. I have some thoughts on it and what I'm really hoping -- because I think David may have mentioned this a little; he can talk a little bit after I'm done -- is the idea that when we are optimizing, which keywords are we thinking aren't good for us in the long run? And thinking well, maybe those people will come to us later in another way, shape, or form, or maybe they'll be booking somewhere, but before they actually show up, they'll cancel there and come back to us and check our prices and our availability and see maybe they will be book with us in the end. Anything beyond that would really be just speculation. David? I don't think there's much else we could say on it.

Justin Post -- Bank of America Merrill Lynch -- Managing Director

Thank you.

Operator

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

Kevin Kopelman -- Cowen and Company -- Internet Analyst

Hi, thanks a lot. Could you give us an update on underlying take rate trends that you're seeing? It seemed like those might have been a little bit stronger in the quarter, even after making all the adjustments. And then on that, can you tell us where you did end up for the estimated Easter impact on revenue both under the new and old accounting standards for Q1? Thanks.

Glenn D. Fogel -- Chief Executive Officer and President

David, do you want to take it?

David I. Goulden -- Executive Vice President and Chief Financial Officer

I'll take Easter first, Kevin. That's kind of a long rant, and then I'll come back to the take rate. So, as I mentioned in one of the answers to an earlier question, from a bookings point of view, Easter timing was a modest headwind in Q1 in line with our expectation. The revenue impact is much greater, but also in line with our expectations. So, let me explain what was going on there.

So, in 2017, of course, Easter fell in Q2 and revenue [inaudible] was based upon checkout. So those Easter stays help Q2 revenue. In 2018, Easter fell on the first of April, but very importantly, the revenue [inaudible] moved to a check-in. So most of those Easter to stay mainly helps Q1 revenue. So, the impact of that was about 3% year-on-year benefit to Q1 growth, and about a 2% hit to year-on-year growth in Q2.

If you think about those 5 points of difference in growth, those account almost the entire difference in our constant currency revenue guide from Q1 to Q2. It's really all explained by the [inaudible] 6 points. So that's what's happening with Easter and it's in line with our expectations of what we told you on the last call.

In terms of in terms of take rates, they have actually been being quite stable and we are pleased with that. And we also mentioned that ADRs were down only very modestly in the quarter and we had it in our guidance predicted them being down 1% [inaudible] constant currency ADR. So, that's what's going on there.

Kevin Kopelman -- Cowen and Company -- Internet Analyst

Thank you very much.

Operator

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

Heath Terry -- Goldman Sachs -- Managing Director

Great, thanks. I was wondering if you could give us a bit of a sense about how, and I know you've talked about this in a couple of different ways, but just how are you thinking about the trade-off between growth and profitability? To the extent you're optimizing away from lower performing channels, are these channels that are actually losing money or simply not hitting the ROI target you had for them?

And then the second question is, as we move further away from the changes in pricing regulations, I'm wondering if you can give us a sense of what you're seeing in terms of hotel behavior, discriminating and for the meta search channels and whether or not -- I guess, one, whether you're seeing it and to the extent you are, whether it's having an impact?

Glenn D. Fogel -- Chief Executive Officer and President

Hi, Heath. It's Glenn. We talked about this in the past and how we value a performance platform from this marketing platform and how we decide what we're going to bid, how much we're going to bid. We've talked about what's the customer experience on that platform, what's the incrementality of the traffic going to be? What's the anticipated repeat rate going to be for that demo? We also think about are we supplying funds to someone who may then use those funds to compete with us later down the road? These are all factors that come in.

So it's more than just is it a positive ROI or a negative ROI? There's a lot more that goes into how we decide how we're going to bid, where we're going to bid, what level we're going to go at. We're getting leaning in and we will continue to lean in with those platforms that we believe are helping us build our business for our long-term strategy. I've said this before many times. We lean out against those platforms that are not doing that, those that we believe in the long run are actually detrimental to achieving our long-term strategies. That's the answer to that question.

Regard parity, I have not seen much impact at all regarding any of the changes in the landscape in that area. It really has not, to my knowledge, from what I've seen yet had a material impact. We still believe that we are the people who have the best price, the best availability, the best service, the best user interface, and people come to us. I know this from looking at this.

It's not always just best price, by the way. Part of our winning strategy has been doing all those other things too. So there's a lot more to it than just showing up with the best price in a meta to be successful in this business.

Heath Terry -- Goldman Sachs -- Managing Director

Thank you.

Operator

Our next question is from Douglas Anmuth with J.P. Morgan. Your line is open.

Douglas T. Anmuth -- JP Morgan Securities -- Senior Equity Research Analyst

Thanks for taking the question. Glenn, you talked about wanting to be the place to go for travel and you've certainly been talking more about a broader holistic travel approach and more full service. I was hoping you could help us understand how much of your business, non-hotel, non-accommodations could be over time, how you think about that and what kind of investments are required to get there if you think over the next three to five years? Thanks.

Glenn D. Fogel -- Chief Executive Officer and President

I definitely have talked about this a great deal. I do believe it is the proper way for us to go for the long run. One of the critical things about this is not just making sure that we have an appropriate return on the investments on the, let's take for example let's say you wanted to do -- we're doing attraction right now. We believe it's very beneficial, helping our customers before they show up, while they show up, to get those attractions or experiences. More than just the money we would make from those, it's providing a much easier way for that customer to achieve a great trip.

So, we could over time make a lot less money on that individual action, but because it builds great loyalty, be very beneficial and, of course, it's going to show up. David, doing his accounting, he's going to tell me, "Hey, this is great. Lot at how we're doing on our accommodations." We'll have to then figure out how much we attribute to some of these other services and make sure that we are properly realizing what is a good investment or not. So that's the first part of that answer.

I do not have in front of me a 5-year plan with the absolute numbers and dollars for each of these items. As you know, we're an experimental company. We build products out. We see how they work. If they work, we do more and we develop it further. If it doesn't seem to be working, we pull back. The right thing though is maintaining the balance. We've talked about this. This is how do we use our capital? We use our capital for organic growth and organic growth investments is things like building out these services.

There's also M&A. As I mentioned, we went out and we bought Fair Harbor to help. That's one building block in building out this large, holistic system. And those are the different ways we're going to do it. I can't give you some numbers. I can say I do believe that it is and it will be when we have done this, a very strong competitive advantage over companies that do not have that.

Douglas T. Anmuth -- JP Morgan Securities -- Senior Equity Research Analyst

Okay, thank you, Glenn.

Operator

Our next question is from Deepak Mathivanan of Barclays Capital. Your line is open.

Deepak Mathivanan -- Barclays Capital, Inc.-- Equity Analyst

Great, thanks for taking the question. Two questions from me. First, growth in brand marketing dollar was lower than last couple of quarters. There's obviously seasonal aspect to it. But can you talk about your current thinking on brand marketing effectiveness compared to prior expectations?

And then second question, one of your competitors is ramping supplier acquisition and marketing investment in Europe. Do you think that's driving competitive pressure or maybe peripherally on the customer acquisition side in Europe? Thanks a lot.

Glenn D. Fogel -- Chief Executive Officer and President

Brand. So we started talking last year about the importance of brand and that we planned to make investments in brand. We talked about the need for technological measurements to make sure we're doing it right and we're going to do it. And one of the things I said several times, I said we would do it carefully. I used the word "careful," I used the word "prudent." I said that we weren't going to just go out and spend a huge amount of money. That we would test our way in and experiment. And we're continuing to do that. And when we find the right formula, when we find out exactly where we think it is doing very well, that's where we're going to open up the spigot more and spend more. But what we're not going to do is spend a huge amount of money before we have a higher certainty that what we're doing is doing well. So that's how we're going to play that one.

Your other question about -- people have been competing with us for a very long time getting supply. This is nothing new at all. And I do not expect this to change in the long run. People will continue to go out and try to get more supply. All of our competitors will. We've been doing pretty well generally against that. We're always making sure that we have good relationships with our property partners. We're making sure we're getting great prices and availability. We're making sure we're giving value to these partners. I feel pretty good about our position in Europe right now and I don't -- really, in the checks with partners that we've had, the numbers that we've looked at, I have not seen any anything yet from any competitor in terms of European getting in inroads in there because of any reason.

Deepak Mathivanan -- Barclays Capital, Inc.-- Equity Analyst

Great, thanks a lot.

Operator

Thank you. Our next question from Brian Fitzgerald with Jefferies. Your line is open.

Brian Fitzgerald -- Jefferies LLC -- Analyst

Thanks, guys. I wanted to ask around non-traditional inventory. How you how you feel about the depth and breadth of supply there going forward? That's it. Thanks.

Glenn D. Fogel -- Chief Executive Officer and President

Well, I was very happy, Brian, when we did our announcement a few weeks ago about 5 million listings. That was something that the team was happy about and we were all happy about. It's 5.2 million now. I also made a note here and I've talked about this in the past, that while we do like having a lot of listings, we do recognize that we don't have all the right type of listings. I spoke specifically in my prepared remarks about wanting to get more single-home inventory. I talked in the past about we don't have it all in the right geography. Some places, we have great breadth and depth. Some areas not so much. So, there's a tremendous amount of opportunity in front of us to go out and get more of that. But just getting inventory isn't enough and we said this. I was just talking about somebody else getting more inventory and how it's going to affect them.

Well, it's the same thing with us. I've talked in the past the importance of not only getting that availability and that connectivity in those properties onto our platform, but it's making sure that the customer, when they're thinking about where they're going, is thinking about us for that type of accommodation. The awareness of our non-hotel accommodations in the U.S. is not nearly as high as we would like it to be. We recognize that.

I don't know if you've seen some of our recent advertisements by booking.com. They have one going on right now, running right now that is specifically oriented to that type of property, but one of the things recognize to be successful, to be very successful, and to be a leader throughout the world is we need to have the inventory everywhere.

Brian Fitzgerald -- Jefferies LLC -- Analyst

Great, thanks, Glenn.

Operator

Thank you. Our next questions is from Justin Patterson of Raymond James. Your line is open.

Justin Patterson -- Raymond James -- Analyst

Great, thank you very much. Shifting back to the high-level investment themes and technology changes, AI has been one of your investment areas. It sounds like you had some good success with natural language processing. Could you talk about how it's being used in the business today, what benefits you're seeing from that, and how you think that changes the business over the long term? Thanks.

Glenn D. Fogel -- Chief Executive Officer and President

Sure. One of the areas that I guess, I'm not sure if you read our shareholder letter that wrote for the proxy, but we talk a little bit about how we're using in customer service, the chat bot and how we're very pleased with the result and how that's doing right now. It really is a great thing because customers are happy because it's easier, quicker, faster to get their problem solved. We like it because it helps in terms of our expenses obviously. All good there. And that's one example. There are going to be a lot more examples of that down the road.

I'm sorry what was your other question? Do you have no question?

Justin Patterson -- Raymond James -- Analyst

No, just kind of long term, where do you see the biggest AI benefit? So that piece, you just described as cost side. How do you think about that playing into bookings and other areas of the business?

Glenn D. Fogel -- Chief Executive Officer and President

Well, obviously personalization is so important. That's part of that whole holistic system that I've talked about. I'm probably getting some of you bored with me talking about it, but it's important so I'm just going to keep repeating it.

Then there's the idea a customer, with the incredible amount of choice in all the different things that they could do and such, it's helpful to give them guidance. And I always give the analogy of that old time human travel agent who knew everything about you because they knew the things you've done in the past and they knew your income, they knew what you liked, they what kind of a trip you should, what kind of restaurant you should go to, what kind of attractions you go, the experiences you should have, how you're going to get from your home to the airport, how you're going to get from the airport to the hotel, or the non-hotel, depending on where it was, and all those great things.

That's what AI needs to recreate so that when people come to us, we are able to provide them with what really is the perfect trip and make their lives easier. I am certain you have done leisure travel and you've been frustrated. It's frustrating for me too. I still have these issues, but I know that with technology we can cure this stuff and the people who cure those problems first, who get rid of that friction, who make it easier for everybody, those are going to be the people who people are going to direct and are going to be the winners. We want to be that person.

Justin Patterson -- Raymond James -- Analyst

Thanks, Glenn.

Operator

Thank you. Our next question is from Tom White of D.A. Davidson. Your line is open.

Tom White -- D.A. Davidson & Co. -- Analyst

Great, thanks for taking my question. Maybe just a follow-up on some of the deceleration that we've seen in the growth of the business over the past few quarters, and sort of vis-à-vis your alternative accommodation product. I guess I'm just trying to understand if there's potential do you think for this product to be large enough over time to reaccelerate your overall growth rate in any meaningful way? Maybe through adding pockets of supply like you mentioned in some geographies or more whole home inventory or maybe just growing consumer awareness of the category? I'm just trying to understand if this is a big enough product to maybe kind of reverse the decel that we've seen recently.

Glenn D. Fogel -- Chief Executive Officer and President

Could is an interesting word. I mean, yes it could and it might. My interesting issue in that right now, and I'm going to use your questions just to riff on it a little bit. So, clearly we think it's very important right now. We know our customers want it and we're going out and getting that inventory, but we're also making sure that we obey the rules.

Not all municipalities want to just let this go willy nilly. They have all sorts of ideas about how this should be regulated and we are fully in favor of working with local municipalities, local organizations to make sure this is done appropriately. Because if it's not, if we just let everybody just do it with nothing regulated, you can end up with the potential, you know, the tragedy of the commons issue, where it causes a problem for the entire city. And we've seen certain cities where people are objecting to that type of tourism because it's making life for the people who live there very difficult.

On top of that, there are some municipalities that believe that this type of activity is having effects on rental places for people who live there. I don't know if you saw the recent thing on that. All sorts of issue like that. So one of the things we are very much in favor of much of this, but we want to do it legally and correctly. I was very happy to see a couple of weeks ago when the Mayor of Paris came out and was talking about how we are a role model for doing this the right way. So that's good.

Second thing that's interesting, I'm not sure if you saw or heard about or seen about one of the major chain hotels that is out there and is now testing doing home sharing. It's very small, a small test, but they're out there doing it too. So it'll be interesting over time. Where the blending, where you people don't make much of a distinction. That is just I need a place to stay and I look and they come to booking.com and we have all the stuff there. They see which property is right for that particular trip. So I don't want to think about at the end of the day is it going to be bigger or smaller than traditional or not? I just want everything to get bigger for us.

Tom White -- D.A. Davidson & Co. -- Analyst

Okay, thanks for the color.

Operator

Thank you. At this time I'd like to turn Mr. Fogel for closing remarks.

Glenn D. Fogel -- Chief Executive Officer and President

Thank you. I want to end by saying that I'm very pleased with our first quarter results. We balanced attractive growth with profit margin expansion and we'll pursue the strategy we've just talked about to give us the highest probability of capitalizing on this very large opportunity that we have in front of us. I look forward to speaking with you all next quarter. Thank you.

Operator

Ladies and gentlemen this does conclude your program. Thank you for your participation in today's conference. You may now disconnect.

Duration: 62 minutes

Call participants:

Glenn D. Fogel -- Chief Executive Officer and President

David I. Goulden -- Executive Vice President and Chief Financial Officer

Eric Sheridan -- UBS Securities LLC -- Managing Director Equity Research

Lloyd Walmsley -- Deutsche Bank Securities -- Research Analyst

Brian Nowak -- Morgan Stanley & Co. -- Managing Director

Mark May -- Citigroup -- Internet Analyst

Mark Mahaney -- RBC Capital Markets -- Managing Director

Justin Post -- Bank of America Merrill Lynch -- Managing Director

Kevin Kopelman -- Cowen and Company -- Internet Analyst

Heath Terry -- Goldman Sachs -- Managing Director

Douglas T. Anmuth -- JP Morgan Securities -- Senior Equity Research Analyst

Deepak Mathivanan -- Barclays Capital, Inc.-- Equity Analyst

Brian Fitzgerald -- Jefferies LLC -- Analyst

Justin Patterson -- Raymond James -- Analyst

Tom White -- D.A. Davidson & Co. -- Analyst

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