Booking Holdings Inc. (NASDAQ: BKNG) Q1 2020 Earnings Call Transcript

Booking Holdings Inc. (BKNG) Q1 2020 earnings call dated May 07, 2020

Corporate Participants:

Glenn D. Fogel — Chief Executive Officer and President

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

Analysts:

Mark Mahaney — RBC Capital Markets — Analyst

Kevin Kopelman — Cowen and Company — Analyst

Naved Khan — SunTrust Robinson Humphrey — Analyst

Alex Longo — Morgan Stanley — Analyst

Lloyd Walmsley — Deutsche Bank AG — Analyst

Davy — J.P. Morgan — Analyst

Stephen Ju — Credit Suisse — Analyst

Eric Sheridan — UBS — Analyst

Deepak Mathivanan — Barclays — Analyst

Justin Post — Bank of America Merrill Lynch — Analyst

Daniel Powell — Goldman Sachs — Analyst

Lee Horowitz — Evercore ISI — Analyst

James Hardiman — Wedbush Securities. — Analyst

Presentation:

Operator

Welcome to the Booking Holdings First Quarter 2020 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 facts are intended to identify forward-looking statements.

For a list of factors that could cause Booking Holdings’ actual results to differ materially from those described in the forward-looking statements, please refer to the Safe Harbor statements at the end of the Booking Holdings’ earnings press release, as well as Booking Holdings’ most recent filings with the Securities and Exchange Commission. Unless required by law, Booking Holdings undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. A copy of Booking Holdings’ earnings press release together with an accompanying financial and statistical supplement is available in the For Investors section of Booking Holdings’ website www.BookingHoldings.com.

And now I’d like to introduce Booking Holdings’ speakers for this afternoon, Glenn Fogel and David Goulden. Please go ahead.

Glenn D. Fogel — Chief Executive Officer and President

Thank you and welcome to Booking Holdings’ first quarter conference call. I’m joined this afternoon by our CFO, David Goulden. We are living in difficult times. Since our last call in February, the spread of COVID-19 has grown exponentially bringing uncertainty, turmoil and in too many people, tragedy all over the world. What started as a regional outbreak that we had hoped would be contained and would follow the paths of other new viruses like SARS or H1N1 has grown into a global pandemic of unprecedented proportions. We join the global community in our sadness at this horrific suffering and loss of life and recognize the tremendous economic toll on so many people in so many countries. This virus has wrecked havoc on industries across the world, and this is without a doubt, the biggest disruption in modern global travel, the world has ever seen. Billions of people have been under stay-at-home orders and there have been and continue to be closures of borders, government enforced travel restrictions and strict guidelines regarding social distancing. These actions have profoundly affected our industry in every corner of this earth.

While our Q1 reported room nights declined 43% year-over-year, we did not see the virus’ full negative force on our business until mid to late March. So, the 43% decline does not truly reflect the state of our business, nor the travel industry today. In March, our reported room nights declined over 100%, meaning we received more cancellations during that amount than new bookings. Looking at things, a different way, our newly booked room nights, which exclude the impact of cancellations, were down over 60% year-over-year in March and down over 85% in April. This gives you a clear indication of how much our business is currently impacted by this crisis.

That being said, while the virus’ impact on travel is unprecedented, I am confident that this crisis will eventually end and people will travel again. Travel is fundamental to who we are and while it may take some time to return to pre-COVID-19 levels, we will get there eventually. And then we’d expect travel to continue to grow thereafter. So what are we doing now as we wait for effective treatments for a successful vaccine? During the first quarter, when it became clear that the virus’ impact was going to be more significant than anyone initially anticipated, we quickly developed a series of plans to help us navigate through these challenging times. One, stabilize the business from the immediate shock of the crisis. Two, optimize the business for the expected decrease in travel demand over the next few years. And three, position the business to capture travel demand when it returns so we can emerge from this crisis on strong footing and extend our leadership position.

As we entered the stabilization phase at the beginning of the crisis, our employees’ health and safety was a top priority. So while we have — although we have a few offices currently open in Asia, the vast majority for our employees are now working from home, including our customer service teams, which is no small accomplishment, considering the technology requirements and the huge increase in chained requests and cancellations that we experienced. I’m very proud of our teams and pleased to say that we are functioning well in this new distributed environment.

Another immediate priority was helping our customers and our supply partners. For a number of weeks, we were fielding a significantly higher number of daily inbound calls than we typically receive. For our customers, this entailed supporting them as they sought refunds for bookings that were no longer possible due to government regulations or made request to modify their travel plans. For our partners, many of whom do not have the ability to process such a large volume of customer service calls, we supported them by handling the unprecedented level of cancellations and deep modifications requests.

Looking ahead, we’ll be working with our channel partners to create plans to stimulate travelers to book again once this crisis is behind us. We know how critical it will be to bring demand to our supply partners in a cost effective way. Also, as part of our stabilization plan, we took immediate steps to conserve cash and increase liquidity such as halting stock buybacks, dramatically reducing marketing spend worldwide, cutting non-essential costs, implementing a general hiring freeze, and reducing executive compensation with our brand CEOs and I foregoing salaries during this crisis and the other senior managers throughout the company voluntarily reducing their base salaries and our Board of Directors foregoing their cash fees. In addition to reducing costs, we bolstered our liquidity by raising over $4 billion in debt. These measures have enabled us to have sufficient liquidity to weather a long period of significantly reduced travel demand and have the necessary resources to invest in securing demand when people are ready to travel again.

We have now begun to refine and execute our optimized plan in which we will adapt the new reality that assumes it will be — likely be years, not quarters, before we witness a full recovery of global travel demand. We believe that either a vaccine or effective treatment is needed before people will feel fully comfortable traveling the way they did before the pandemic started. And even after a vaccine or treatment is declared safe and effective, we believe it may be some time before there is sufficient quantity and distribution of them to give people and governments confidence for people to travel freely.

Furthermore, as in pre-COVID-19 days, some will be dependent on the overall economy, consumers’ financial health, everyone going through a very deep recession, and consumers’ confidence in their own economic futures. For these reasons, we expect travel to fully recover later than many other industries. However, when travel demand does start to recover, we believe there will be attractive growth opportunities. We are in the process of assessing the cost structure of our entire company in developing plans to align with expected market demand. As part of these efforts, we are also evaluating our strategic initiatives and the timing of significant expenditures. We intend to continue to invest in our key projects such as Payments and the Connected Trip that we believe will position us well for the future. We are also reexamining all areas of the company to see where can we reduce or delay costs where possible. Fortunately, our financial strength allows us to make strategic decisions pointed towards the long term interest of the business.

We recently completed a strategic evaluation with OpenTable and KAYAK announcing last week a series of actions to reduce operating costs. Unfortunately, this included the decision to layoff and furlough some employees. As a principle during this crisis, we have not reached first for employee reductions to lower costs but after making adjustments in other operating expense areas, we made the tough decision to ensure the size and scope of our business is proportionate to the new realities of the travel market. We are now working with the other brand to examine their cost structures and we’ll be thoughtful and deliberate in our evaluations.

In an attempt to minimize the impact on our employees during these difficult times, we have been evaluating and employing various governmental financial support programs. Booking.com recently announced that it would participate in the employee aid programs offered by the United Kingdom and we were able to place employees on furlough there, which has enabled employees to receive a significant portion of their full-time salary. We have also applied to the Dutch government to obtain aid under the recently enacted program to support employment in the Netherlands. This program provides funds to Dutch companies impacted by this crisis and covers a portion of employee salaries for a three-month period with the requirement that companies which receive this aid maintain employment during the time the aid is provided. These programs, along with all the other steps we have taken, will help us support employees and maintain jobs as we continue to fully evaluate the operating environment. We will continue to look at other available options that might help us mitigate near term headcount reductions during this period of significantly reduced revenue.

The actions we are taking in our stabilization and optimization phase are being done so that we can capitalize quickly and efficiently on travel demand when it becomes safe for people to travel again. We want to emerge from this crisis as a strong organization that is equipped to deliver for our customers and our partners, well-capitalized and in a position to increase our market share when the world is ready to travel again.

On a smaller, but somewhat positive note, we are seeing some stability in our newly booked room night growth trends. We hope that this is the beginning of the road back to recovery, but it’s certainly too early to say with certainty. Some governments have seen progress in limiting or reducing the pandemic. They have slowly begun to reopen their economies and we have seen new bookings, primarily for domestic travel, although still at very low levels. Some, or many of these reservations may ultimately be canceled, but we believe it does show that travel for essential business and personal reasons will slowly return as society makes progress against the pandemic. And as travel returns, we expect to see improvement in our revenue.

We are also prepared for disruption in that progress, as relaxation of social distancing in some geographies may lead to a resurgence of infections and reinstatement of government restrictions. Our aim is to optimize the business to participate in the ultimate return [Technical Issues]

Operator

Please continue, sir.

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

Hello?

Operator

Go ahead, sir.

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

Hello. Hello. Am I still on the line?

Operator

Yes, one moment please.

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

Thank you. Hello, operator, can you hear me?

Operator

Yes, I can hear you.

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

Okay. Am I live on the line?

Operator

Yes, you are.

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

Thank you. Thank you, Glenn and good afternoon. Operator, am I live on the line? Can you confirm that please? I can…

Operator

Yes, you are, sir.

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

Thank you. Thank you, Glenn and good afternoon. I’ll review our operating results for the first quarter, discuss our stabilization initiative to bolster our liquidity and provide some color on trends we saw in April. All growth rates are related to the prior-year comparable period unless otherwise indicated. Information regarding reconciliation of non-GAAP to GAAP can be found in our earnings release.

Now on to our results for the quarter. At the time of our last earnings call on February 26, the outbreak of COVID-19 was largely contained to Asia and we were yet to see a meaningful impact in our business across Europe or North America. As we moved into March, the COVID outbreak continued to spread throughout Europe and North America leading to eventual declaration of a global pandemic and the implementation of numerous travel restrictions and shelter-in-place orders. Not surprisingly, we saw a resulting short duration of our top-line trends in March with significant levels of cancellations and a substantial reduction in the level of new bookings. Although, we only felt the full brunt of the COVID-19 pandemic around mid-to-late March, our Q1 results were still significantly negatively impacted.

Our Q1 reported room nights declined 43% for the full quarter, however that decline exceeded 100% in March when we received more cancellations than new bookings in the month. Our cancellation rate peaked in mid-March and has been steadily improving since then as we work through the wave of cancellation of bookings made prior to the imposition of restrictions on travel. Gross bookings declined 51% in Q1, which is a greater decline than reported room nights due to average daily rates for accommodation is decreasing about 15% year-on-year on a constant currency basis.

Consolidated non-GAAP revenue for the first quarter was $2.3 billion and decreased 21% year-on-year. Revenue in the quarter was less negatively impacted than room nights and gross bookings due to the fact that many cancellations were received in Q1 with check-ins that were expected to occur later in — were expected to occur in later quarters. Adjusted Q1 for EBITDA was $209 million, which was down 60% year-on-year. We benefited from having a highly variable cost structure to manage the declines in periods of low travel demand. As Glenn noted, we are taking further actions in reducing other areas of spend as we stabilize and then move to optimize and align our cost structure with the new demand environment.

With that being said, there are some areas of expense pressure in the quarter related to COVID-19 pandemic that I’ll walk you through. Marketing expense, which is a highly variable expense decreased 29% year-on-year as we saw a significant reduction in demand in the pay channels. In addition, we took actions to substantially reduce our brand marketing spend in response to the diminished travel demand environment. We expect our marketing expense will remain significantly below 2019 levels for the remainder of the year.

Sales and other expenses increased 75% year-on-year due primarily to a $183 million increase in provisions for expected bad debt and other credit losses resulting from the COVID-19 pandemic. Excluding the impacts of the increased provision we recorded in the quarter, sales and other decreased 10% year-on-year as this expense line is substantially variable in nature. For example, we recorded lower expenses associated with payments in Q1. This reduction was partially offset by higher outsourced customer service costs as we worked through the heavy volume of cancellations we received in the quarter.

Personnel expense decreased 3% year-over-year, primarily due to decrease in stock-based compensation, which was impacted by reduced financial performance as a result of the COVID-19 pandemic. Excluding SBC expenses, personnel increased 12% year-over-year, and although we have implemented a hiring freeze, personnel expense this quarter was impacted by annualized hires that were made last year. We expect the pressure on personnel expense will diminish as we move through the year.

G&A expenses increased 6% year-over-year, largely driven by higher indirect taxes including digital service taxes. Excluding these indirect taxes, G&A expense decreased 7% year-over-year as we reduced discretionary expenses such as T&A expense. We will see less year-over-year pressure on G&A from digital service taxes once we lap the enactment of the French DST, which occurred in Q3 of last year. Finally, information technology expenses increased 20% year-on-year, driven by higher software fees and outsourced datacenter and cloud costs.

On a GAAP basis, we incurred an operating loss of $308 million as our GAAP operating expense in the quarter included a charge of $489 million related to an impairment of goodwill for OpenTable and KAYAK. This impairment charge is driven by reduced financial projections as a result of the COVID-19 pandemic. We excluded the impairment of goodwill from our non-GAAP results. Our Q1 GAAP net loss was $699 million. Our Q1 GAAP net loss includes $307 million of pre-tax losses on our equity investments in Trip.com and Meituan and the $100 million impairment charge related to strategic investments. This was partially offset by $33 million of FX remeasurement gains on our eurobonds. We excluded these unrealized losses, impairment charge and remeasurement gains from our non-GAAP results.

Now on to our cash and liquidity position. Our Q1 ending cash and investment balance was $9.2 billion, which decreased from our December ending balance of $11.8 billion, due to several factors including the following primary drivers. First, we had $380 million of operating cash outflow in the quarter, which was driven by $820 million use of cash due to change in working capital as well as the lower earnings we generated in the quarter. Working capital in Q1 was negatively impacted by a prepayment of taxes in the Netherlands of $770 million that was subsequently funded in April. The large reductions in our deferred merchant bookings, accounts payable and accrued expense balances were mostly offset by the significant reduction in our accounts receivable balance in Q1. The deferred merchant booking reduction was driven by both lower bookings and customer refunds. We expect these balances to all continue to decline in the low level of bookings we are currently seeing in the business.

Second, we repurchased $1.3 billion of our stock in Q1. Almost all of which was purchased under a stock buyback plan we filed last November. We halted buybacks as soon we recognized the growing impact of the pandemic. Third, we had capex of $80 million in the quarter. And finally, the value of our investments declined in part by the $370 million unrealized loss on equity securities and the $100 million impairments related to a strategic investment that I mentioned earlier. In addition, we had $106 million decline in investment value that did not impact the P&L, but was reflected in the balance sheet. The majority of the remaining $288 million difference between cash and investments at year-end of March 31 is primarily due to timing of the settlements of sales for some corporate bonds that were classified in prepaid expenses and other assets at the end of March. These sales were settled in April and moved into cash and investments.

In our efforts to stabilize the business for the immediate shock of the crisis, we’ve taken several steps to shore up and bolster our liquidity position. We halted repurchases of our stock and we will not initiate repurchases until we have better visibility in the shape and timing of recovery from the COVID-19 pandemic. We worked to receive a refund in April of the prepayments of taxes in the Netherlands that was made earlier in Q1. We amended our revolving credit facility to substitute a minimum liquidity covenant for the previous leverage covenant that was due in ’21 to ensure we continue to have access to a source of liquidity.

And finally, and most notably, we completed a bond in convertible note offering on April 8 that raised $4.1 billion of capital. If you adjust our March 31 ending cash investment balance of $9.2 billion for a bond in convertible note offering and the settlement of the corporate bond sales and the refund of the Dutch tax prepayments, all which occurred in April, our March 31 cash and investment balance would increase to about $14.3 billion, approximately $12 billion of this is highly liquid after considering the actions we’ve taken including recently completing the sale of our Trip.com [Indecipherable] moving on cash and investments into corporate — moving on cash and investments in corporate bonds into AAA treasury and government money market funds. After the bond in convertible offering, we had about $13 billion of debt, $4 billion of which matures before the end of 2022.

Due to the COVID-19 crisis, I will not provide quarterly guidance like we normally do. However, I will provide some color from our preliminary April results which will give you a clear picture of our recent top-line trends considering that April was the first month fully impacted by the pandemic. As Glenn mentioned, on newly booked room nights in April, we’re down over 85% year-on-year. As a reminder, newly booked room night excludes the impact of cancellations. Of course, these new bookings may be canceled in the future, especially as a very high percentage of new bookings in April were made with flexible cancellation policies. Reported room nights continue to be negative in April as cancellations outpaced new bookings. We expect our revenue in April to have a greater year-on-year decline than newly booked room nights, considering the impact of the cancellations in March for April stays and also since many hotels, especially in Europe, were not open in April.

New bookings revenue for full second quarter may vary from April’s results depending upon the level of travel demand and accommodation availability we experience in May and June. As Glenn noted, we’re seeing some stability on newly booked room night growth trends with the year-on-year decline rate being quite consistent for our April after reducing rapidly through the first quarter. We believe that domestic travel will rebound sooner than international travel as we expect travelers to look to their home country or region first for safe travel option.

In April, we made a meaningfully higher domestic mix in our business. Historically, domestic accommodation bookings represent about 45% of Booking.com’s total business and if we consider Western Europe as one market, the historic mix increases to about 55%. In April, Booking.com’s domestic share increased to approximately 70% and if you consider Western Europe as one market, the domestic mix increased over 75%. Towards the end of April, we saw some very early indications that domestic travel were starting to return in certain markets where shelter-in-place rules were relaxed, including Greater China, South Korea, Vietnam and Germany. Newly booked room nights in the U.S. declined less than our global average in April and we saw an improvement in domestic travel during April, but we cannot tie this to relaxation in shelter-in-place rules, as these have only happened in a few States and in recent days.

I must emphasize again, that it’s too early to say, we’re witnessing anything like a broad rebound in travel, especially as we’ve seen some countries like Singapore where travel demand was less impacted than other places initially, but is now seeing significant travels demand decreases associated with new outbreaks. If we look across all our business, the decline rate for newly booked room nights in the last few days in April was only a few percent better than the decline rate in the first few days. We’ve also observed a meaningful change in Booking.com’s customer booking behavior. In April, the customers mainly booked either very close to stay or several months out. The combined mix of both very short booking and bookings for over two months time is twice the normal amount. This booking behavior change has also been accompanied by an increase in mobile bookings, particularly in our app, helping drive a higher mix of direct bookings and we’ll continue to focus on providing our customers with a great app experience.

As Glenn emphasized, we have a tough road ahead of us as we look to navigate through the unprecedented challenges that COVID-19 has presented to us. We’re working hard to stabilize our business through actions including our cost savings initiatives and the significant bolstering of our liquidity position. We’ll continue to optimize our business and our cost to align it with expected market demand and we’ll work to position ourselves to capitalize upon the reemergence of travel demand when that time occurs and wherever that demand occurs. We have the confidence that through these actions, we’ll be well positioned to come out of this crisis and extend our global leadership role in the travel marketplace. With that, we will take your questions.

Glenn D. Fogel — Chief Executive Officer and President

And David, can you hear me?

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

I can hear you now, Glenn.

Glenn D. Fogel — Chief Executive Officer and President

Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first response is from Mark Mahaney, RBC Capital. Please go ahead.

Mark Mahaney — RBC Capital Markets — Analyst

Thanks. Maybe I’ll try two questions. First, David, I think at the end you talked about this increase in app bookings so rise in direct bookings, is that something you actually were able to drive, that just happened randomly and is there a way to coming out of this crisis that at the margin you can tilt more of your bookings to — you can accelerate this transition to direct bookings? And then secondly, thanks for the data points on the improvements in a couple of the markets, any quantification on those? Is there any way to say that any of these markets, South Korea, Vietnam, whatever are back at down 50% or something like that? Like what’s the — can you kind of draw the curve a little bit or it may be too early? Thank you very much.

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

Yeah, Mark. Thank you. This is David. I’ll take that. Let me go to the second question first. We have called out markets where there has been a double-digit improvements in the rate of decline from the start of April to the end of April. And we really don’t count — kept our remarks for the month of April because early trends in May are too early to call, so I’m not going to tell you exactly how much of that’s down. I mentioned to it in total even with this improvement we’ve seen in these markets, our all-in room night decline rate is only a few points better at the end of month than it was at the start, but the markets that we called out have seen double-digit improvements during the course of the month of April.

In terms of the shift toward app, first of all, I’ll just caveat, as I said before, anything that we talk about in terms of April when we were running this kind of 10% to 15% of our normal volumes, you have to take and qualify through that lens and try not to draw too big a trend from it. We did see during the course of the month that we saw more app customers, we saw more Genius customers, which is often tied to app use as well and we were pleased with the fact that in the areas we saw some demand increase, where we saw the residual demand occur, more of it was going into the app. We’ll continue to try and emphasize the app as we come through this because we want to make sure that we drive more direct business and of course the app is one of the strongest ways to drive direct business. But I wouldn’t say there was a particular strategy that drove us there. I’m pleased that that’s the way the things came out and we’re going to continue to understand how our customers are buying and trying, continue the app trends as demand starts to recover.

Mark Mahaney — RBC Capital Markets — Analyst

Thank you, David. Thank you, Glenn. Wishing you both the best.

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

Thank you, Mark.

Glenn D. Fogel — Chief Executive Officer and President

Thank you.

Operator

Thank you, your next response is from Kevin Kopelman, Cowen. Please go ahead.

Kevin Kopelman — Cowen and Company — Analyst

Great, thanks so much. I just wanted to dig into the cost trends that you’re seeing in April and also what you’re planning for going forward. So could you help us think about that? Maybe starting with advertising, how that might trend relative to that new bookings metric and then moving on to personnel and your other big chunks of expenses, what you’re planning for there. Thanks.

Glenn D. Fogel — Chief Executive Officer and President

David, why don’t you take?

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

Yeah. Thank you, Kevin and Glenn, let me take that. So marketing expenses are going to correlate quite closely to the rate of newly booked room nights. So you can assume as close correlation there. I actually walked through a number of these in the prepared remarks for Q1 and Q2. But just to summarize, sales and other, obviously, a piece of that is — a large piece of that is tied to, to our merchant platform, that is variable with volume, but things like customer service costs and bad debt, as you saw was a major factor in Q1. Those may continue to be a factor in Q2. Next biggest area, of course, is personnel. And, as we mentioned, the hiring freeze and the other actions that we took do not have much of an impact in Q1. In Q2, you’ll get the full impact of those, also to the extent that we are successful with our application for government aid, that would generally help Q2 and some of the optimization actions that we’ve already taken like KAYAK and OpenTable will also help Q2.

So as we move through the year and continue with optimization activities, that will also help with personnel expense as we move through the year, although the government aid programs will be mainly focused upon Q2 and not the second half. As I mentioned, pressure will decrease on G&A, particularly, as we start to lap the DST expenses last year. And information technology is an interesting line, we saw obviously a fair amount of pressure on that in Q1. I pointed out how some of those costs relates to our volumes, and even though our revenues were basically not very high in Q1, the volumes that we had to process through the business through refunds and cancellations, etc, were also high and that drove IT cost up. That was one of the factors. We expect there to be less pressure on that line going through the rest of the year.

Kevin Kopelman — Cowen and Company — Analyst

Thanks. And then if I could just ask one quick follow-up, can you talk about how successful you’ve been in getting refunds out to customers who have had to cancel and also helping them coordinate refunds when they’re dealing with a hotel?

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

Yeah. Well, Glenn will take that one.

Glenn D. Fogel — Chief Executive Officer and President

Yeah. So this is a difficult issue. We have customers who have purchased reservations far in the future, perhaps that were non-refundable. And then there was a case of a pandemic and there is a force majeure situation or a situation where the customer says, well, I can’t travel because the government has said that you cannot travel there and we have hoteliers who are saying, wait, I can’t refund everybody, I may have even spent the money here, and it’s a difficult situation. So we always believe in trying to do what is best for the customers and our contracts with our hoteliers is completely set up for this exact situation, a force majeure situation in which case and it goes over a long history of travel that in a situation like this, the hotel should refund the customer. So what we will do is, we will provide the money to the customer and recover from the hotel. Now we’ve talked about that there is an issue, many of these hotels are closed right now, there’s nobody actually there to have discussions with. We hope to get a significant portion of it but we don’t know yet if you’re not talking with the people and we always want to come up with a good relationship with a hotel. So as they reopen, as things start again, we want to do this in the best way possible. I don’t think we have any specific numbers to give. David is quoting the reserves and I think that’s — we hope for the best going forward.

Kevin Kopelman — Cowen and Company — Analyst

Thanks, Glenn. And thanks, David.

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

Thank you, Kevin.

Operator

Thank you, your next response is from Naved Khan of SunTrust. Please go ahead.

Naved Khan — SunTrust Robinson Humphrey — Analyst

Yeah. Thanks a lot. Just a couple of questions. So in the new bookings that are coming in, are you seeing any kind of a pattern in terms of people — more people opting for maybe alternative lodging versus a hotel or vice versa? And then in terms of just the — the fixed cost, I think, David, you gave us a sense of where these were on your Q4 call, I think you said that less than 50% of the opex and after the initiative that you’re taking — that you’ve taken or will take, give us some sense of where these could land ultimately.

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

Yeah. Naved, on the new bookings, I mentioned the fact that we’re seeing a bit of a, what I call a dumbbell in the kind of pattern, which means that they are either very close to the current stay or they are a long way out. What happened in the first quarter is hotel and alternative performed about the same. So they basically, almost in lockstep from a growth point of view throughout the quarter. In April, we saw a shift to alternative associated with those longer-term bookings. So we saw alternative accommodation doing better in the April bookings, particularly at the far end of the dumbbell, which is the two months-plus out bookings, particularly in the domestic markets, where we saw some decent return rates in the domestic markets in the month of April. So that’s also relative to the mix.

On the fixed costs, we are still, as Glenn said, I think he went through a fair amount of detail in his commentary, we are still building our optimized plans for many parts of the business. We’ve really only put those in place yet in one of our business segments and we’re working through the other business segments, as we speak and of course, the timing of that is also going to be tied to what we’re doing around some of the government aid program. So I don’t want to come with a number just yet. I’ll give you a data point, for example, that the reductions that we took at KAYAK and OpenTable reduced the personnel and office expenses there by about 20%. And those will be part of that fixed or semi-fixed cost base I’ve talked about. That’s one example. I really don’t want to go into any more details when it comes to finalizing our plans yet, but as we do and when we do, we’ll let you know what we’re expecting to do to our cost base.

Naved Khan — SunTrust Robinson Humphrey — Analyst

Got it. Thank you and good luck.

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

Thank you.

Operator

Thank you, your next response is from Brian Nowak of Morgan Stanley. Please go ahead.

Alex Longo — Morgan Stanley — Analyst

Hi, this is Alex Longo on for Brian. Thanks for taking the question. Just two questions. One, Glenn, you talked about sort of positioning the business to become stronger. Can you talk to us a little bit how you think about new strategies or approach in the U.S. market, specifically coming out of the downturn? And then the second question, just given the stay-at-home dynamics and with strong social media use, do you see an opportunity to potentially use more social advertising to drive growth coming out of the downturn?

Glenn D. Fogel — Chief Executive Officer and President

Thanks, Alex. It’s very important for us as we come out as optimized to make sure that we’re doing everything we can to become a better competitor in the U.S. We’ve talked in the past that we believe we under-index in the U.S. and that is something that is important to countering and be able to do. One of the things that we believe this provides a better overall value proposition to the customers, and it’s also, as we talked in the past of making our customers more — or potential customers aware of this better value proposition. And that goes through the Connected Trip that we’ve talked about in the past and how important we think that we’ll be able to provide something different and better to the consumer. But your point is a good one about social media and how do we get that message to those consumers. And with — our CMO came from Google who has been here about 10 months now, we absolutely believe that the social area — social media is a way to try and drive that message to the consumer and we will be doing things in future, albeit always looking what’s the right ROI for that. It does us no good to waste advertising money.

Alex Longo — Morgan Stanley — Analyst

Great. Thanks, Glenn.

Operator

Thank you. Your next response is from Lloyd Walmsley of Deutsche Bank. Please go ahead.

Lloyd Walmsley — Deutsche Bank AG — Analyst

Thanks. Two questions if I can. First, can you just talk about how you see the P&L coming out of this? And specifically, do you think that performance marketing can structurally benefit perhaps from lower competition in advertising auctions? And then secondly, wondering if you’re seeing any shift between kind of urban and more ski and beach type of locations for booking and given somewhat of a shift to alternative. Give us an update on how you feel about your whole home inventory position as people perhaps look to locations with less urban density. Thanks.

Glenn D. Fogel — Chief Executive Officer and President

Well, let me start with the second one first, about the nature of the — where’s the demand going in April and such. And I can’t give you any more specifics beyond what we’ve already described through a slight increase in people going for the alternative accommodations over home. I can say though, there’s not a lot of skiing in April, so I don’t know what I can tell you. And remind me, your first question was?

Lloyd Walmsley — Deutsche Bank AG — Analyst

First question was do you see — how do you see the P&L coming out of this and then, might there be some longer-term structural benefit from lower competition in advertising options?

Glenn D. Fogel — Chief Executive Officer and President

Yeah, so one of the things that I think is important to understand, what we do believe that certainly because of this pandemic, some of the smaller players in the industry are going to have trouble going forward. But the big players are still going to be around, they’re going to be very competitive as they were in the past and they are the ones who are the sophisticated players in the performance marketing area. So I don’t think it’s going to change a great deal versus the people who’ve been [Indecipherable] are going to be seeing people going forward. So I don’t see significant change in that area. In terms of the P&L, when we get to that place down the road, that shining sun where we have fully recovered, I hope to be doing what we did in the past. We have the leading margins in the industry and still growing nicely and that’s about the best one can put forward in terms of a long-term prediction.

Lloyd Walmsley — Deutsche Bank AG — Analyst

Okay, thank you.

Operator

Thank you, your next response is from Doug Anmuth of J.P. Morgan. Please go ahead.

Davy — J.P. Morgan — Analyst

Hi, this is Davy [Phonetic] on for Doug. Thanks for taking our questions. So first of all, can you talk about your business travel mix, what the mix was going into COVID-19 and do you have any data that suggest maybe some business is helping recovery in some of the markets where you are seeing some? And then in those markets where you are seeing some pickup in demand, are those countries recovering in a similar manner? Just looking to see if the timeline in those countries can help educate us on how other country recoveries might look like going forward.

Glenn D. Fogel — Chief Executive Officer and President

So why don’t I take the latter one or take the former one. One of the things I think is somewhat — I think it’s something that can be deceiving in terms of trying to take what has happened in one country and then model outcomes everywhere else. And we’ve seen a little bit of cases where countries have begun to open up, doing better, but then because they opened up the economy, there is a resurgence in infection and then they put in the reinstatement of the restrictions and things go backwards. And I think it’s hard to do that. And also you have different countries, they’ve different travel patterns also. So I definitely would not — I definitely would not take what is happening in one and then apply that across the entire world and say, OK, that’s how this is going to roll out. I think that’d be a chance to come out with a very bad prediction for future. And, David, in terms of the first question.

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

Nothing really, no major observation of business travel, that is, we don’t have a formal percentage. We have a self-declared estimate that maybe as much as one-fifth of our business might be business travel, but it’s not a noisy number, it’s not a number that we really track or spend a lot of time looking at it. It’s basically just a self-declared booking field. What I would say is and obviously as Glenn said, we’re just talking about very small deviation. We’re trying give you as much color as we can for what we saw in April. What I will tell you, and it’s pretty obvious, that our domestic business was — rates grew appreciably faster than the international rates, except this business travel — well, it’s international, that’s still very depressed. I’m not seeing a large piece of this, but obviously a chunk of it is, so that’s another way to look at it, we don’t really have any specific data for the month of April, what happened to business travel versus non-business travel, other than the fact that we know what happened to domestic versus international.

Davy — J.P. Morgan — Analyst

Got it. Thank you, both.

Operator

Thank you, your next response is from Stephen Ju of Credit Suisse. Please go ahead.

Stephen Ju — Credit Suisse — Analyst

Learning and experimenting to merchandise better to the customer and connected travel have been themes you’ve been talking about for some time now, but with the demand environment being what it is, does that slow down the product development team in terms of the ability to innovate, because I guess there’s a comparative lack of data and consumer behavior. And I guess, your competitors are probably struggling with the same difficult circumstances as well, but strictly as you think about what you wanted to achieve for booking in terms of product development and what the company looks like on the other side of the crisis. Thanks.

Glenn D. Fogel — Chief Executive Officer and President

You’re right. One of the things that’s been a great advantage for us is our experimentation ability because with more data, really come up with insights and be able to develop things much faster and that’s always been a great advantage for us and if there is no demand, you’re right, it’s hard to put something and say is this working or not, how well does it work or not. So I agree with you that, but one can still make great insights with what, in comparisons, a small amount of data, but still can give you the insights. Don’t forget, we were a lot smaller 10 to 15 years ago, but we were able to come up with a lot of new things that were very valuable and helped make us a leader in innovation in this industry and we believe that we’ll still be able to do that and the Connected Trip will still be going forward, because we do believe and we are seeing — we’re seeing data before COVID that was indicating we’re going in the right way and I do believe that this will continue going forward. As demand comes back, we’ll be able to do more and more with that data.

Stephen Ju — Credit Suisse — Analyst

Thank you.

Operator

Thank you, your next response is from Eric Sheridan of UBS. Please go ahead. One moment please.

Eric Sheridan — UBS — Analyst

The inventory, longer term, Glenn, any views about how supply might consolidate on the other side of COVID-19 just because of the benefits of needing scale versus some of the historical trends, which could be quite a positive for the OTAs as demand is needed and demand starts to pick up looking back at past period yield case there to take share, it tend to be a better partner for the hotel industry. So just curious about the relationship with supply and how you yourself see supply evolving over the long term on the other side of COVID-19. Thanks so much, guys.

Glenn D. Fogel — Chief Executive Officer and President

In the long run, a very long run, there’ll be supply that will be commensurate with what it was before COVID and it will match up with what the demand is in the long run. There may be, there may be in the period, right now, going forward, should go into this recovery, that there may be some decline in some areas of supply, that just isn’t as great a place to stay and therefore the demand doesn’t go there and prices have adjusted that the better quality places are a little bit cheaper and people go or gravitate there. But here’s the point, the buildings don’t disappear. The hotel business doesn’t — if there is demand, it will get sold, maybe a new owner, it may be recapitalized and such. But it will — it will be there. So I think in the long run, I am not concerned about a constrain on supply that impacts our ability to provide great value to the consumer at all or any chance that the supplier doesn’t need us anymore. I don’t see that happening at all.

Operator

Thank you, your next response is from Deepak Mathivanan of Barclays. Please go ahead.

Deepak Mathivanan — Barclays — Analyst

Thanks for taking the questions. Glenn, how would you characterize your answer to the previous question on the alternative accommodation side, I mean alternative accommodations has a great mix up inventory from urban apartments to traditional vacation rentals, and also you know people like hosts that are using their homes. Have you seen any meaningful disruption on that side? Is that something that’s going to change meaningfully long term in your view? And then second question, I was also going to ask about your thoughts on investing behind brand, it feels like particularly in markets like U.S., you can invest on brand and then support it with some of the direct channels to capture meaningful share of the initial recovery demand. What are your views on that? Thank you so much.

Glenn D. Fogel — Chief Executive Officer and President

In terms of the first, and we’ll go back to the second one. So in terms of alternative accommodations, interesting question about will there be a decline in the supply because there’s no demand right now for many of them and they just say, well, I’m not going to bother with this, one. Two, is there an issue people are deciding, this isn’t a great thing to do because there’s concerns about having strangers in their homes and just don’t want to have that, how long does that go for. You have also the trends beforehand about the regulatory environment, does this issue of the pandemic increase regulatory restraints on the supply or not.

The flip side of that is very interesting, of course is where did Airbnb and a lot of this business really come out of was the Great Recession in 2008-2009 where a lot of people said I need to get extra income. So I’ll rent out my spare bedroom or something of that nature, and that of course has morphed into a much more professional thing. I think I think in the end, this is a good business for everybody. People like alternative accommodations, the people that host, the people who own these properties, people who are doing this in these cottage industries, they like it, it’s good money and as demand comes back, they’ll continue to do it and there will be supply to meet that demand. On the demand side, people as you see right now, in just April alone, people see a need for it. I think that’s good. I really don’t see a lot of changes.

One of the thing — and I’ll just use your question to point to this, is that people think the world is going be so different and I don’t think the world is going to be hugely different once we get past this. There have been pandemics in the past, go back a 100 years, go back Hong Kong flu, but there have been pandemics, there have been terrible things, but in the end, people want to travel. People are willing to supply accommodations and I don’t see that there’s going to be a great change in the long run. And your other question was?

Deepak Mathivanan — Barclays — Analyst

Yeah, it was just on using brand advertising and support it with direct channels to capture a lot of the incremental demand during the initial recovery curve. Do you think that’s something that’s possible or how are you thinking about it, at least in certain markets like U.S., where it feels like brand advertising can be more efficient initially?

Glenn D. Fogel — Chief Executive Officer and President

Well, we are talking with the whole marketing team about that, one of the things you don’t want to be doing, the reason we’re not brand advertising right now is you don’t want to be putting a message out when nobody is really listening or very few people are listening to you and you’re spending the money for the number of people who you’re spreading this message to, who really are not interested in traveling right now. That’s not an efficient use of the money. I talked a little earlier about how we really want to be ROI efficient in this, so I’m not sure. Certainly, when we think that enough people are ready to travel, then it would be good to start pushing that message out to them. The critical thing is when is that right point, we’ll be measuring very carefully to see when that right time is.

Deepak Mathivanan — Barclays — Analyst

Great. Thank you so much.

Operator

Thank you, your next responses is from Justin Post of Bank of America. Please go ahead.

Justin Post — Bank of America Merrill Lynch — Analyst

Good to see you back. Two questions, and I apologize, If they have been asked, but first, thinking about your merchant platform today, much bigger than before. Does that help you when people are ready to come back and hotels are engaging with different offers or pricing or things like that? And then secondly, if you assume more people are going to travel in their own countries versus international, does that change anything for ADRs or your market share or your take rates? Thank you.

Glenn D. Fogel — Chief Executive Officer and President

Well, I’ll do the first one and I’ll let David talk to the second one. The merchant platform will be very important, and that’s why we do believe it’s such an important part for us to continue to invest in our payments products and get that out, because as you point out, providing value, providing the right price, putting it together through that Connected Trip, that’s one of the things we’ve talked about a lot. We still believe this is a great thing for consumers really being able to put together different packages in a way, so paying one way and clearly one of the things too is us having more control over the cash makes it much easier if a refund is needed. To be doing it for one thing, instead of a customer having to deal with refund from their Air, from their hotel, from their car, maybe other things that are attractions they didn’t — all different people I talk to try and get refund from. By doing it in one package, Connected Trip with us, through our merchant payment platform, we’ll be able to give much better value both in the time when they buy it and even if they have to deal with getting a refund. So that’s more important. And David, I’ll let you talk about ADRs and what you think.

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

Yeah, sure. Thanks, Justin. So, historically both ADRs and length of stay has been a little shorter for domestic travel because people’s longer trips have been international and therefore they have been going toward higher ADR, longer length of stay. Now, to the extent those international trips get moved back into the advancing marketplace, that distinction may actually not be as great because if the domestic marketplace was generally more short term oriented, and that mix shift becomes more of the place that people want to go for their longer major vacations etc, that may not be as big a factor as it was before. And there’s really no difference to take rates.

Justin Post — Bank of America Merrill Lynch — Analyst

Great, thank you.

Operator

Thank you, your next response is from Daniel Powell of Goldman Sachs. Please go ahead.

Daniel Powell — Goldman Sachs — Analyst

Great, thanks for taking the questions. Two, if I may. First is, kind of to build on the question around the timing of advertising and when you decide to sort of step back on the gas, I guess sort of, what are you looking for sort of indicate when would be a good time to step in and what would your expectation be around ROIs if there has been somewhat of a vacuum created from hotels and other partners, perhaps not being as able or willing to spend when things start to look a bit — a little bit better? And then the second question, you mentioned maintaining good relationships with your suppliers. Wondering if you could sort of give us a sense of during the global financial crisis, what did your relationships — what your access to inventory look like coming out of that environment versus what you might expect in this one. Thanks.

Glenn D. Fogel — Chief Executive Officer and President

Sure. So regarding the brand advertising and I’m sure you’ll forgive me for saying that I really don’t want to give away exactly when we’ll put on the gas and what the signals are so our competitors can then get a jump on that day, and I’m sure you’ll understand that. Look, it is important, though, for us to feel that we are going to be effective in using that brand advertising and going through, and as the question earlier about — there’s a lot of things that we can do, desktop now and be able to put out what is — have video, have brand, and have performance through video channels then you can start seeing some better response and a better sense of what your ROIs are, not being able, little bit more selective in how you use that. And I think we’re going to definitely be pushing that way.

In regards to the supply relationships and the Great Recession as a model going forward, we were very pleased to see that — and this is why we feel comfortable and confident to talk about how a deep recession can be helpful to distributors because in the past, the suppliers leaned in heavily into distributors who had demand but for the obvious reason that if you’re a hotel and you’re running 40% or 30% occupancy rate you need to get that demand and we’re here to provide it to them. So that helps build that better relationship and I do think that’s what you’re going to see going forward. And I do agree, I think that some of them may not be doing as much brand advertising, perhaps as they were in the past and that could be due to cash constraints and other things where they need to make sure they’re maintaining a certain amount of cash flow.

Daniel Powell — Goldman Sachs — Analyst

Great. Appreciate it.

Operator

Thank you, your next response is from Lee Horowitz of Evercore ISI. Please go ahead.

Lee Horowitz — Evercore ISI — Analyst

Great. And thanks for taking the question. Given the moves you guys have made with your balance sheet, and shorten things up in obviously depressed private and public valuations, I’m wondering how you’re thinking about your potential ability to be a acquirer of assets across the travel space during this crisis given your strong balance sheet.

Glenn D. Fogel — Chief Executive Officer and President

Well, we like — we always like having a strong balance sheet for many reasons, that being one of them. And of course valuations as we know have changed drastically but they’ve changed drastically for a reason. And so the risk factor has significantly increased than it was a short time ago. So our — the way we approach acquiring assets or any type of acquisition, it is always the same, which is we measure in terms of what will it add to our business, or the franchise to help consumers and partners, what is going to be great. What do we think about management? Do we think they’re good? Do we think they can help us or not? And if not, can we operate this or will this add without that management team? This is something that we’ve always — we’ve built our company through M&A, as you know and we’re going to continue to look out for that. But we recognize that this is a frothy time and we have to be careful and picky in terms of what we do because the risk factors are much higher now. And David, you want to talk anything more about the balance sheet or no?

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

No.

Glenn D. Fogel — Chief Executive Officer and President

All right.

Operator

Okay. Our final question is from James Hardiman of Wedbush Securities.

James Hardiman — Wedbush Securities. — Analyst

Hey, good afternoon and thanks for taking my question. So really appreciate all the data points on March and April, obviously somewhat limited. But I wanted to take a step back, was curious if you guys have done some consumer work. It seems like you’re in a unique position to sort of understand what types of travel, consumers are most likely to reengage in the soonest. Obviously there’s air travel, hotels, restaurants, vacation homes, apartments even car rental, all of which you guys have your — a piece of. How are you thinking about which of those are most likely to resume normality the quickest?

Glenn D. Fogel — Chief Executive Officer and President

Well, what we’ve seen is, the hotel area — and David talked a little bit about what we’ve seen in that, a lot of air is still extremely limited whether by government restrictions, like people to go to certain countries or the amount of flights and times available. And people just in general are fearful about getting on a plane right now, and you may have seen, for example, the Ryanair data that just came out. In Europe, Ryanair has bid bellwether for air travel in Europe in April. It was essentially almost nothing, really almost nothing. And that’s, unfortunately what we’ve seen in other parts of the world, extremely low amount of air travel. But this all will go somewhat together as people feel more comfortable about how the entire situation is, it’s the vaccine you talk about, it’s a treatment perhaps and it’s also in their economic situation, all those things. So I think what we’ll see as things start coming back, yes, some things will be the other one, I think overall it will all come back pretty — very similar.

James Hardiman — Wedbush Securities. — Analyst

Got it. And then last question for me, if I may, it sounds like you’re not quite ready to give any sort of a monthly cash burn number just given some of the expense optimization is still going on. But maybe walk us through some of the puts and takes. You’ve got about $1 billion of deferred merchant bookings. How quickly is that coming down? Are there timing differences between when you provide refunds to customers versus when you’re getting those refunds from the hotels? And then, can you help us with an interest number given the transactions that’s taking place?

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

Thank you, James. Maybe I’ll wrap up with this one. So, we haven’t given a cash flow projection for the year. We did give you an indication as to kind of what our cash position would look like at the end of 2021 before we did our bond offering because we have significantly $4.1 billion more than that. So we’re not going to get to a monthly burn. We walked you through the changes to our balance sheet for working capital movements in Q1. Those balances will continue to reduce until we start to get travel demand occurring once again. I think the best way to handle this is once we’ve really gone through our optimization plans and we’ve decided when we’re going to reset our cost base too, at that point in time, we’ll give you more color as to where we are. I do not have an interest rate number for you off the top of my head, but we can follow up with everybody and follow up with that one.

James Hardiman — Wedbush Securities. — Analyst

Okay, fair enough. Appreciate it.

Operator

Thank you. There are no further questions in the queue at this time. I’d like to turn the call back over to Glenn Fogel

Glenn D. Fogel — Chief Executive Officer and President

Thank you. Now I understand there was a technical difficulty and some of the last part of my speech — my prepared remarks were cut-off and I think what’s actually works out well because the last two paragraphs are actually a nice way to close this off. So let me just close out all for everyone. We know the progress against the pandemic is going to be disruptive at times as relaxation of social distancing in some geographies may lead to a resurgence of infections and a reinstatement of government restrictions. Our aim is to optimize the business to participate in the ultimate return of demand, manage our expenses in light of our best estimate of the shape of that return, invest in our business to build on our leadership position in the industry and serve our customers, employees and partners and build shareholder value going forward.

We have a tough road ahead of us and we have been through many difficult issues in the past, the last few weeks and we’re going to have some in the future, for weeks to months and quarters to come. The pace, scale and impact of COVID-19 is unprecedented but we know one day, we will be on the other side and we are doing everything we can to ensure we are well positioned to navigate through these challenging times.

We have a confidence that with a highly variable cost structure, strong cash and liquidity, great global brand awareness and some of the best people anywhere, we are well positioned to come out of this crisis and extend our leadership role in the global travel ecosystem.

I’m going to close by giving a heartfelt thank you to all the employees, our customers, our partners and the governments as we work through these difficult days together. And to our employees, I have never been more proud of you and your enormous efforts to support our customers, partners everywhere. We know there will be more tough days ahead, not just for us but for so many people in industries all over the world. I am confident we will get through it.

And lastly, I want to say thank you to all the frontline workers out there, the doctors and nurses, the scientists trying to come up with a cure or a vaccine, the delivery people, the people making sure there will be food in the stores, basically to everybody at their job that is designated as critical. To all of you working night and day to help our world get through this, thank you from all of us at Booking Holdings. Good night.

Operator

[Operator Closing Remarks]