Booking Holdings Inc. (BKNG) Q2 2025 Earnings Call Transcript

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Overview

The earnings call summary reveals strong financial performance with significant year-over-year growth in key metrics such as Adjusted EBITDA, revenue, and EPS. The Q&A section highlights positive trends in Asia and potential growth from alternative accommodations and Connected Trip initiatives. Despite some uncertainties in the U.S. market and lack of detailed guidance on LLMs, the overall sentiment remains positive, supported by increased shareholder returns through dividends and share repurchases.

Key Financial Performance

Adjusted EBITDA Increased 28% year-over-year, driven by revenue outperformance and disciplined expense management.

Room Nights Reached 309 million, an 8% year-over-year increase, driven by strong performance in Europe and Asia, with Asia seeing low double-digit growth.

Gross Bookings Increased 13% year-over-year, supported by stronger-than-expected global room night growth and a 4 percentage point favorable FX impact.

Revenue Increased 16% year-over-year, exceeding expectations due to higher revenues from facilitating payments and lower merchandising spend.

Adjusted Earnings Per Share (EPS) Grew 32% year-over-year, supported by revenue growth and a 5% lower average share count.

Alternative Accommodation Listings Increased to 8.4 million, an 8% year-over-year growth, contributing to a 10% increase in alternative accommodation room nights.

Flight Tickets Increased 44% year-over-year, driven by growth in flight offerings at Booking.com and Agoda.

Attraction Tickets More than doubled year-over-year, although from a modest base, reflecting strong growth in non-accommodation verticals.

Cash and Investments Balance Ended the quarter at $18.2 billion, up from $16.1 billion in the previous quarter, driven by $3.1 billion in free cash flow and FX changes.

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Operating Highlights

Alternative Accommodations: Booking.com's alternative accommodation listings reached 8.4 million, an 8% year-over-year increase. Alternative accommodation room nights grew 10% year-over-year, outpacing the core hotel business.

Connected Trip: Connected Trip transactions grew over 30% year-over-year, representing a low double-digit percentage of Booking.com's total transactions. Non-accommodation verticals showed strong growth, with flight tickets up 44% and attraction ticket growth more than doubling year-over-year.

AI and Technology: Investments in AI capabilities, including Priceline's AI assistant Penny and OpenTable's AI Concierge, have improved customer engagement and satisfaction. GenAI has reduced live agent contact rates and improved resolution times.

Asia Market Expansion: Room nights in Asia grew low double digits year-over-year. The company localized user experiences, expanded flights and attractions, and tailored payment methods to strengthen its position in the region.

U.S. Market Performance: The U.S. remains the slowest-growing region, with low single-digit growth. However, it likely outpaced the broader U.S. accommodation industry.

Financial Performance: Adjusted EBITDA increased 28% year-over-year. Adjusted EPS grew 32% year-over-year. Gross bookings rose 13%, and revenue increased 16% year-over-year.

Operational Efficiencies: The company achieved $45 million in quarterly savings from its transformation program, with an expected $350 million in annual run-rate savings.

Loyalty Program Expansion: The Genius loyalty program now represents over 30% of active travelers, with higher booking frequency and direct booking rates. The program is being extended to other travel verticals.

Partnerships: OpenTable partnered with Chase Sapphire Reserve, offering exclusive access to select restaurants. Collaborations with AI companies like OpenAI and Microsoft aim to enhance customer acquisition and engagement.

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Risk or Challenges

Geopolitical and Macroeconomic Uncertainties: The company acknowledges that navigating geopolitical and macroeconomic uncertainties is a norm for their global business. Recent events in the Middle East impacted global growth by about 1% in June and 1/3 of a percentage point overall in the second quarter. These uncertainties could potentially impact consumer behavior and travel demand.

U.S. Market Performance: The U.S. remains the slowest-growing region for the company, with lower ADRs, shorter lengths of stay, and booking windows. This suggests U.S. consumers are being more cautious with spending in the current economic environment.

Inbound Travel to the U.S.: Inbound travel to the U.S. was down year-over-year in the second quarter, particularly from bookers in Canada and Europe. This decline could affect the company's performance in the U.S. market.

Currency Exchange Rates: The company’s growth rates are influenced by foreign exchange (FX) impacts. While FX positively impacted growth rates in the second quarter, fluctuations in currency exchange rates remain a risk to financial performance.

Transformation Program Costs: The company incurred $38 million in transformation costs in the second quarter and expects total costs to range between $400 million and $450 million. These costs could impact short-term profitability.

Increased Competition in Travel Verticals: The company is actively investing in non-accommodation verticals like flights and attractions, but these areas are highly competitive and may require significant investment to scale.

Dependence on Technology and AI: The company is heavily investing in AI capabilities to enhance customer experience and operational efficiency. However, reliance on advanced technology poses risks related to implementation challenges, data security, and staying ahead of competitors.

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Guidance & Outlook

Room Night Growth: Third quarter room night growth is expected to be between 3.5% and 5.5%, with growth moderating due to tougher prior year comparisons.

Gross Bookings: Third quarter gross bookings are expected to increase between 8% and 10%, including a 2 percentage point positive impact from higher flight ticket growth.

Revenue Growth: Third quarter revenue growth is projected to be between 7% and 9%, lower than gross bookings growth due to a higher mix of flight bookings and increased merchandise and contra revenue.

Adjusted EBITDA: Third quarter adjusted EBITDA is expected to be between $3.9 billion and $4 billion, growing 9% year-over-year at the high end. Adjusted EBITDA margins are expected to remain similar to last year.

Full Year 2025 Guidance: Gross bookings and revenue are expected to grow in low double digits, adjusted EBITDA to grow mid-teens, and adjusted EPS to grow in the high teens. Adjusted EBITDA margins are expected to expand by about 125 basis points year-over-year.

Constant Currency Growth: Full year constant currency growth expectations align with long-term goals of at least 8% gross bookings and revenue growth and 15% adjusted EPS growth.

Macroeconomic and Geopolitical Risks: The company acknowledges elevated uncertainty in the macroeconomic and geopolitical environment but remains optimistic about steady global travel demand trends.

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Shareholder Return Plan

Dividends: In the second quarter, Booking Holdings distributed $300 million in dividends.

Share Repurchase: Booking Holdings repurchased $1.3 billion worth of shares during the second quarter.

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Key Q&A

Q:Can you provide details on the performance of different markets in Asia and the potential impact of LLMs on the business?

A:Management did not break out individual countries but expressed general satisfaction with Asia's performance, highlighting it as the fastest-growing region. They noted challenges in China but emphasized the strength of Agoda and Booking.com in the region. Regarding LLMs, they are in early stages of exploring opportunities with major and minor players, seeing potential for better service and efficiency but stated it is too early to quantify the impact.

Q:What are the growth initiatives in the U.S. to accelerate durable growth, and what are the technological hurdles for scalable GenAI assistance?

A:Management is pursuing small initiatives in the U.S., including investments in product, supply, marketing, and alternative accommodations, which have led to incremental market share gains. They noted mixed signals in the U.S. market, such as shorter booking windows and slightly down ADRs. For GenAI, they aim to provide better service and personalization, but achieving scalable GenAI assistance will be incremental and take time.

Q:What factors are influencing the 3Q outlook, and what is the trend in alternative accommodations?

A:The 3Q outlook is influenced by high comps from August and September of the previous year. Management emphasized focusing on full-year guidance, which has been raised. Alternative accommodations continue to grow faster than traditional accommodations, with 8.4 million listings (up 8% YoY) and remain a key growth driver.

Q:What are the key investments left for scaling the Connected Trip, and how does it impact the overall business?

A:Management aims to expand supply across all travel verticals and improve personalization using data and technology. The Connected Trip is seen as a driver of loyalty and frequency, with over 30% YoY growth in transactions. Payments and Genius offerings are strategic underpinnings, enhancing value for both travelers and partners.

Q:What trends are observed in U.S., Europe, and APAC customer behavior?

A:In the U.S., high-end consumers are spending more on international travel and 5-star hotels, while lower-end consumers show cautious behavior. Europe is holding up well, with earlier bookings and higher prices. APAC shows sequential growth, recovering from earlier disruptions, with strong demand and positioning in the region.

Q:What happened in Q4 last year, and how is advertising performing as a growth initiative?

A:Q4 last year saw growth acceleration and low comps from the previous year. Advertising revenues grew 11% YoY in Q2, driven by KAYAK and strategic investments, showing positive scaling.

Q:What are the conversion rates and repeat usage trends for natural language search on Booking.com, and how does the P&L evolve with increased direct bookings?

A:Management did not provide specific conversion rates but indicated positive results from natural language search. Increased direct bookings, Genius adoption, and mobile usage are expected to drive operating leverage and efficiencies, supporting reinvestment in growth initiatives.

Q:Review of Unclear Management Responses

A:Management avoided providing precise answers on the potential impact of LLMs, stating it is too early to quantify, and did not disclose specific conversion rates for natural language search on Booking.com.

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Earnings Word Cloud

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