Booking Holdings Inc. (NASDAQ: BKNG) Q4 2019 Earnings Conference Call
February 26, 2020
Corporate Participants:
Glenn D. Fogel — Executive Vice President and Chief Financial Officer
David I. Goulden — Executive Vice President and Chief Financial Officer
Analysts:
Lloyd Wharton Walmsley — Deutsche Bank AG — Analyst
Mark Stephen F. Mahaney — RBC Capital Markets — Analyst
Kevin Campbell Kopelman — Cowen and Company — Analyst
Justin Post — BofA Merrill Lynch, — Analyst
Brian Thomas Nowak — Morgan Stanley — Analyst
Justin Tyler Patterson — Raymond James & Associates — Analyst
Deepak Mathivanan — Barclays Bank PLC — Analyst
Eric James Sheridan — UBS Investment Bank — Analyst
Naved Ahmad Khan — SunTrust Robinson Humphrey — Analyst
Douglas Till Anmuth — JP Morgan Chase & Co — Analyst
Heath Patrick Terry — Goldman Sachs Group Inc. — Analyst
Presentation:
Operator
Welcome to Booking Holdings’ Fourth Quarter 2019 Conference Call. Booking Holdings would like to remind everyone that this call may contain forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guaranteed of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements. Expressions of future goals or expectations and similar expressions reflecting something other than historical fact are intended to identify forward-looking statements. For a list of factors that could cause Booking Holdings’ actual results to differ materially from those described in 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 Booking Holdings’ earnings press release, together with an accompanying financial and statistical supplements, is available in the for Investors section of Booking Holdings’ website, www.bookingholdings.com.
And now I’d like to introduce working holdings speakers for this afternoon, Glenn Fogel and David Goulden. Go ahead, gentlemen.
Glenn D. Fogel — Executive Vice President and Chief Financial Officer
Thank you, and welcome to Booking Holdings’ fourth quarter conference call. I’m joined this afternoon by our CFO, David Goulden. We had a strong fourth quarter as we booked 191 million room nights which is up 12% year-over-year and exceeded the high end of our guidance range. We produced over $3.3 billion in revenue and approximately $1.3 billion in EBITDA which are year-over-year increases of approximately 5% and 3% on a constant currency basis, respectively. I will talk first about our full year performance in 2019, then about our objectives for 2020. And then I will address the current situation regarding the coronavirus. 2019 was a good year for our company. We booked 845 million room nights for the year, which is 11% more than in 2018. Just to put that in context, that means we booked, on average, more than 2.3 million room nights each day. We produced strong year-over-year growth across our key financial metrics. Non-GAAP revenue and adjusted EBITDA were up 8% and 6% on a constant currency basis, respectively.
Our non-GAAP EPS was up 15% on a constant currency basis, exceeding our guidance for the year. Our EPS growth rate benefited from over $8 billion of share repurchases during 2019, which demonstrates our disciplined approach to returning capital to shareholders and our confidence in our business. I am pleased with these results considering the macro environment we faced in certain geographies throughout the year. Moreover, we accomplished this top line growth rate, while also producing solid leverage in our performance marketing spend. Our ability to execute consistently in this environment speaks to our scale and global diversity as well as to the dedicated and talented teams we have at our company. We made solid progress against our key strategic goals for the year: expanding the Booking.com payment platform, improving our alternative accommodations business and further building our connected trip strategy. As we move into 2020, we will continue to focus on becoming an even more customer-centric company that drives loyalty and increased repeat behavior. We can we plan to accomplish this goal through smart customer acquisition while providing the best experience in our core accommodations product using our scale to offer the best value to our customers and making further progress in our connected trip strategy.
In addition, while we have always been a cost-conscious organization, in 2020, we will further emphasize the need to make sure our expenses are appropriate for our revenue, and we’ll look at ways to streamline and make all aspects of our company more efficient. Investing in products and process is important for the long term, but so too is eliminating unnecessary expense and during 2020, we’ll be taking a close look at these opportunities. One of our highlights during 2019 was expanding our payment capabilities at Booking.com. Over 50% of our Booking.com’s gross bookings now occur on properties that are enabled on its payment platform. The percentage of Booking.com’s gross bookings processed on its payment platform grew from approximately 10% in 2018 to over 15% in 2019, and we expect this to reach approximately 25% in 2020. As we have discussed, this platform provides payment options favored by both our customers and property partners, particularly non-hotel property partners and provide a platform for merchant product offerings. Merchant offerings also provide Booking.com with merchandising capabilities, and we expect to continue to increase our investment in this capability to drive growth. This payment platform is a foundation for our connected trip strategy in which we envision a frictionless customer experience across multiple products that we believe will drive increased loyalty. Our alternative accommodations business grew solidly in 2019 and has large scale.
As of December 31, 2019, we had 6.3 million listings in our alternative accommodations business. We remain focused on increasing the quality and variety of properties joining our platform so we can provide the best choices for our customers and drive search conversion. Booking.com’s alternative accommodation business recorded approximately $3.1 billion in revenue in 2019, representing approximately 21% of our overall revenue for the year and a solid growth rate of 14% when expressed in euros. It consistently were faster than our core accommodations business throughout the year and also maintained a healthy profit margin. We believe presenting both alternative accommodations and traditional properties on one platform is the best customer proposition. Last year, we took further steps to create our vision of connected trip. We are on a journey to build a multi-product offering, including accommodations, flight, attractions, ground transport and dining, all connected by a seamless payment network and supported by personalized intelligence to provide a frictionless customer experience that we believe will drive enhanced loyalty and support growth.
We saw early signs of these benefits last year as we leverage the integration of rentalcars.com and Booking.com to deliver a better ground transport offering for Booking.com’s customers. Rentalcars days grew 12% year-over-year in the fourth quarter primarily due to the increased cross-sell of the product to Booking.com customers. We believe we are in the early stages of seeing the benefit from this cross-sell opportunity. We’ve also been encouraged by certain incentive programs that provide discounted ground transport options to bookings to bookers with higher value accommodations. These programs have shown an increase in conversion at acceptable ROIs. We look forward to further experimentation with these types of offerings during 2020. We also expanded our flight capabilities across the company in 2019. Booking.com launched an integrated flight product while Agoda and Priceline began building a global flight platform that is initially focused on the APAC region. Currently, Booking.com offers a flight product in 12 countries in Europe, but we plan to expand this throughout 2020. Booking.com’s goal for the year is to be able to expose 50% of its total customers to a flight product globally. Developing a robust flight product remains an important investment considering there are more than four billion global flight passengers last year. Having the ability to engage with these customers early in their travel journey gives us a better opportunity to cross-sell our accommodation and other products. But even more important, it enables us to offer a true connected trip experience.
This year, we will continue to expand other aspects of a connected trip, such as attractions and dining options. For these offerings, we will utilize not only our own assets but also partner with third-party providers, so we can offer the best customer experience possible. We continue to see loyalty benefits from accommodation customers who also use our attractions product. We will continue to invest in our app platform as it becomes the center of our connected trip experience. Booking.com remains one of the most downloaded travel apps in the iOS and Android stores globally. According to a leading third-party research firm, Booking.com was the only OTA to rank in their top 10 travel apps in the world ex China in 2019, coming in at number three. We’ve been investing in the app platform for some time, as it is becoming the preferred platform for travel bookings, and we are very pleased with the strong room night growth that occurs on Booking.com’s Act. As I mentioned earlier, all of these investments are designed to drive greater loyalty and increased repeat behavior with our customers.
We made progress on this front last year. In each quarter of 2019, our direct channel grew faster than our primary pay channels and our direct channel increased its share for the year. The direct channel represents over 50% of our total booked room nights and when including rooms booked through branded search terms, this number increases to over 60%. We have a large and loyal customer base today, but we believe we can grow this further and increase market share. Booking.com is best and most loyal customers are part of its Genius program. This group of customers has grown consistently for several years. In 2019, and we had over 70 million active Genius customers, an increase of 9% year-over-year. These Genius customers were responsible for a growing proportion of Booking.com’s booked room nights in 2019, and we thank them for their loyalty. On top of that, we see that Genius customers book more frequently and more often on a direct basis when compared to non-Genius customers. We will continue to focus our efforts on growing this special group of customers and offering them great value as part of their Genius membership.
While we are pleased about our long-term prospects, we recognize that current travel demand has been impacted by the coronavirus. At the present time, Greater China has been affected the most. The broader APAC region has also been impacted, which is an area in which we have been experiencing strong growth over the last several years. And we are now starting to see a slowdown in travel globally and are aware of the potential for further demand deceleration around the world. David will provide more details in his remarks. But I would like to point out, this is not the first time our company management team has faced an exogenous impact to travel demand. We know that travel is fundamental to people’s lives, and we believe travel industry growth will rebound to prior growth rates. While the coronavirus impacts travel, we will continue to manage the company in a measured way that builds value for the long term. However, the steps we are taking today include: one, making sure we take care of our customers and help them with their travel plans, which includes facilitating cancellations and working closely with our supply partners; two, ensuring the health and safety of our over 26,000 employees around the world; three, managing our marketing efforts appropriately. We will continue to participate in those paid channels that provide us quality traffic and attractive ROIs, recognizing that we need to incorporate higher cancellation rates in our bidding calculations. In regards to brand marketing, we will be very cognizant of when and where brand marketing money should be spent this year. Four, working with our travel suppliers, so they are best positioned to achieve success on our platform. And five, continuing to invest for the future. The company that provides a better travel service, a holistic, seamless, frictionless connected trip that delivers more value to both the traveler and our supply partners will create a lasting relationship with both travelers and suppliers, and we intend to create this service over time.
With that, 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, and good afternoon. I’ll review our operating results for the fourth quarter in 2019 and then discuss our thoughts on 2020 and our guidance for the first quarter. All growth rates are relative to the prior year comparable period, unless otherwise indicated. Information regarding reconciliation to GAAP can be found in our earnings release. Now on to our results for the quarter. Our booked room night growth of 12% in Q4 exceeded the high end of our guidance range as growth accelerated through the quarter with a strong finish in December. Our room night growth in Europe continued to exceed our expectations despite continue to exceed our expectations in Q4 despite a macro environment that remain cautious. Room night growth rates for the rest of the world also exceeded our expectations and grew slightly faster than Europe in Q4. Average daily rates for accommodations, or ADRs, were down about 4% year-on-year in Q4 on a constant currency basis, which was in line with our guidance. As indicated on our last earnings call, the year-over-year ADR decline was impacted by decreases in rates within several key markets such as the U.S., Japan and Hong Kong as well as an increasing mix to faster-growing lower ADR markets and the impact of lapping 1% ADR growth in Q4 of last year.
Changes in foreign exchange rates reduced Q4 growth rates in U.S. dollars by approximately one percentage point versus last year. We estimate the change in FX rates impacted gross bookings, revenue and EBITDA growth in Q4 by a similar amount and EPS growth by less than one percentage point. Q4 gross bookings grew by 6% expressed in U.S. dollars and grew about 7% on a constant currency basis, coming in above the high end of our guidance range. Consolidated revenue in the fourth quarter was $3.3 billion and grew by 4% in U.S. dollars and about 5% on a constant currency basis. Advertising and other revenue, which is mainly comprised of KAYAK and OpenTable grew by 3% in Q4 as we lap the benefit of the hotel combined acquisition in December. Adjusted EBITDA for Q4 was $1.3 billion, which exceeded the high end of our guidance range and was up 2% year-over-year on a reported basis and about 3% on a constant currency basis. Performance marketing expense increased 2% year-on-year, which helped drive leverage about 40 basis points in the quarter. The year-on-year growth was driven by higher-than-expected volumes in our paid channels. We spent $86 million on brand marketing in the quarter, which represented a decline of 31% versus Q4 last year and contributed about 130 basis points of leverage. This decrease is in part driven by a ramp-up in spend in the second half of 2018. We remain committed to investing in brand marketing in a disciplined manner going forward. Sales and other expense decreased 1% versus Q4 last year and contributed about 30 basis points of leverage due to reduced chargeback expenses as well as a reclassification of certain sales and other expense of certain sales and other expenses incurred during 2019, inter revenues in Q4, both of which offset the increase in expenses related to the continued growth of our payments platform at Booking.com. Personnel expense was in line with our forecast, growing 16% year-on-year and contributing about 175 basis points of deleverage in the quarter as expected, driven in part by lower year-end reversal of bonus accruals that we experienced in Q4 2018. G&A expenses increased 16% and year-over-year on a non-GAAP basis, which excludes a $21 million travel transaction tax charge in Q4 of 2018. Non-GAAP G&A expenses contributed about 60 basis points of deleverage in the quarter. This year-over-year increase in G&A was driven largely by higher indirect taxes, including the French DST.
Finally, information technology expenses increased 42% year-over-year, driven by several items, supporting the growth of the business, including payments to contractors, software license fees, outsourced data center and cloud costs. Our non-GAAP EPS was $23.30, up 4% on a reported and constant currency basis versus the prior year. Non-GAAP net income reflects a non-GAAP tax rate of 17.7% in Q4, which is significantly higher than Q4 last year due to a onetime adjustment of approximately $72 million in Q4 2018 related to a provision of the Tax Act that was clarified by revenue guidance issued in Q4 2018. Our Q4 tax rate was about one percentage point lower than our guidance due to some discrete items. Our 9% lower share count in Q4 benefited EPS growth in the quarter. On a GAAP basis, operating income increased by 3% and GAAP operating margin decreased by about 50 basis points compared to Q4 last year. Q4 GAAP net income amounted to $1.2 billion or $27.75 per share, up 81% from Q4 2018. Our Q4 GAAP net income includes 360 $326 million of pretax unrealized gains on equity investments in Metro and Ctrip and $47 million of FX remeasurement losses on our Eurobonds. We exclude these unrealized losses and reversion gains from our non-GAAP results. We had a GAAP tax rate of 17.5% for the quarter, which increased significantly from the prior year due to the tax impact of the items excluded non-GAAP results as well as the fact, as I mentioned, impacted the non-GAAP tax rate. In Q4, we generated $1.1 billion of operating cash flow, which declined 1% compared to Q4 last year. Our free cash cash flow for the quarter was about $1 billion, which decreased by 1% compared to last year, mainly due to timing of payments, which reduced year-over-year growth by 15 percentage points.
We repurchased $1.3 billion of our stock in Q4, bringing the total repurchases for the year to over $8 billion. As of the end of the year, we had about $11.5 billion remaining under our $15 billion repurchase authorization. We ended the quarter with $11.8 billion in cash and investments and $8.7 billion of outstanding debt. Looking back at 2019, we are quite pleased with our performance during the year as we produce steady room night growth in the 10% to 12% range. We delivered a very healthy 39% EBITDA margin while investing in the business and absorbing unplanned DST expenses. And we grew our non-GAAP EPS by 11% or around 15% on a constant currency basis, which exceeded our annual guidance of low double-digit growth. Turning to 2020. Our initial outlook reflected a continuation of this operating model, i.e., to gain share in accommodations with some deceleration in room night growth to invest in payments, merchandising and the connected trip, creating modest pressure on operating margins and for EPS growth to benefit from our share repurchases. Due to a few mechanical factors, including the lapping of ADR declines and the phasing of personnel and G&A expenses during the year, we expected our earnings growth to be weighted largely to the second half of the year. Now turning to more recent events. The coronavirus has had an impact across our business since it made news headlines on January 21. The early impacts were increased in China, but we also saw these impacts across Asia and, to a lesser extent, in other regions outside of Asia as well. To help with context, the APAC region represents a little over 20% of our room nights with no single country accounting for more than a mid-single-digit share of total room nights. In APAC, we’ve seen an increase in cancellations, reduction in new bookings and pressure on ADRs. As you all know, it’s not possible to predict where and to what degree outbreaks of the coronavirus will disrupt travel patterns. While the incidence of infections has slowed in China, in the last week alone, new outbreaks have occurred in South Korea, Iran and Italy.
We’ve been able to measure the impacts on our business so far in Asia and we’ve seen our recent impact of our room night bookings in Europe following the outbreak in Italy. As a result, we’re providing only a near-term outlook with a wider guidance range to account for the possibility there will be a growing travel disruption in Europe. Based on where we are in the quarter and considering the continued impact of the coronavirus, we’re forecasting Q1 booked room nights to be down 5% to 10% versus the prior year. Clearly, we’re dealing with a very fluid situation, and it’s extremely difficult to predict where Q1 will come out, but this is our best estimate based upon the data we have available now. We forecast total gross bookings to decline 8% to 13% on a constant currency basis and about 200 basis points more in U.S. dollars. Our Q1 forecast assumes that constant currency ADRs of the company will be down about 4%. We forecast for non-GAAP revenue to decline 3% to 7% on a constant currency basis and declined 200 basis points more in U.S. dollars. Q1 adjusted EBITDA is expected to range between $560 million and $590 million, which is down 16% to 20% year-over-year on a constant currency basis and about 200 basis points more in U.S. dollars. We are forecasting Q1 non-GAAP EPS of approximately $9.05 to $9.65, which is 14% to 19% below Q1 2019. On a constant currency basis, we estimate Q1 non-GAAP EPS to decrease year-on-year by approximately 12% to 17%. Our non-GAAP EPS forecast for Q1 includes an asset income tax rate of approximately 18.5%. Our Q1 non-GAAP EPS guidance assumes a fully diluted share count of about 41.6 million shares, which is 9% below Q1 of last year. We forecast GAAP EPS to be between $7.95 and $8.55 for Q1.
Our GAAP EPS guidance for Q1 attributed a tax rate of approximately 18.5%. We used a dollar to euro exchange rate of $1.10 when setting our Q1 guidance. We have hedge contracts in place to substantially shield our first quarter EBITDA and net income 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 impact of foreign currency fluctuations. Finally, a housekeeping item. Starting with our Q1 results and going forward, we plan on reporting our performance and brand marketing expenses on a combined basis as we view our overall marketing spend as an investment in customer acquisition and retention.
We’ll now take your questions. Operator?
Questions and Answers:
Operator
[Operator Instructions] Our first question comes from the line of Lloyd Walmsley from Deutsche Bank. Your line is open.
Lloyd Wharton Walmsley — Deutsche Bank AG — Analyst
I guess, just the first question, a bit of a clarification. I think, David, you said something about seeing expecting some share gain with deceleration in room nights I wasn’t sure if I heard that correctly. Is that kind of before the impact of the virus or including the impact of the virus? Anything you can kind of share there. And along the same lines, ex the virus, are you seeing anything in particular, changing with marketing ROIs as some competitors pull back in certain brands in certain geographies? And then, I guess, a second question, if I can, would just be anything particular changing with regard to some of the SEO channel impacts from last quarter. Are you seeing that spread to either new geographies or change in intensity? Anything you could share there would be great.
David I. Goulden — Executive Vice President and Chief Financial Officer
Sure, Lloyd, thank you. Let me start off answering the first question. So yes, to clarify, what I said was when we turn to 2020, we talked about our initial outlook, which is our outlook at the start of the year. Obviously, around the time we’re putting our plans to get a full year. We talked about that reflects the continuation of the same operating model we delivered in 2019. So my comments about gain share in accommodations with some deceleration room nights, some modest pressure on operating margins and for EPS to benefit from our share buybacks, which give you a flavor of the shape of our profile for the year coming into the year before the coronavirus. Yes. And then on the SEO challenge is to pick up your second. I just want to kind of remind people as we said, the SEO channel is a relatively small part of our business and has been for a period of time. The SEO channel continues to be under pressure as the primary provider of that channel focused more upon their paid search rather than free search, but we continue to do well in that channel. We have teams dedicated to it. We are pleased with our share in that channel. As a channel, it is under continued pressure, but as we said before, really contributes a very minor part of our overall business.
Lloyd Wharton Walmsley — Deutsche Bank AG — Analyst
Okay. And then anything on just marketing ROIs outside of the impact of the virus given competitive dynamics?
David I. Goulden — Executive Vice President and Chief Financial Officer
Yes, let me start and then maybe again, I’ll talk about Q4 because, obviously, our Q4 was a very clean quarter relative to not having a virus in. It’s only a few weeks behind us. So I think it’s a good time to still talk about Q4. We were pleased with our ROIs in the channels in Q4. We didn’t see any major shifts. We mentioned that we saw a continued leverage in our performance marketing spend because our performance marketing channels continue to grow less rapidly than the overall business. So the leverage that we demonstrated was kind of a mix-driven leverage and mathematic leverage. Our ROIs didn’t really change very much in Q4, nothing to really note. We’re pleased with where they were. And I think with that the genesis of all your questions or you’re also asking about current quarter as well?
Lloyd Wharton Walmsley — Deutsche Bank AG — Analyst
That’s great. I’ll assume that the virus is making things pretty messy, but unless you want to add something?
David I. Goulden — Executive Vice President and Chief Financial Officer
No, I just wanted to go stop there. I think that’s the right place to stop.
Lloyd Wharton Walmsley — Deutsche Bank AG — Analyst
Great, thank you.
Operator
You do have another question from the line of Mark Mahaney from RBC. Your line is open.
Mark Stephen F. Mahaney — RBC Capital Markets — Analyst
I want to ask about two things. This kind of attach rate with the connected trip? And how how far along you think you are in tapping into that opportunity. I noticed that both Rentalcar days and airline ticket growth unit growth rates nicely accelerated in the December quarter. It looks like that’s much easier comp in airline tickets, but you called out some kind of greater cross-selling opportunities you’re getting with Rentalcars. So just talk about how where you are in the process of doing that? Is it a small percentage that you’ve even attempted this? So we can get a sense of how much better the results could be in Rentalcars. And then, Glenn, when you were talking about the outlook, you seem to emphasize a little bit more streamlining costs in 2020 I don’t think that was related to coronavirus. I think it’s or maybe it was. But I don’t think it was. It sounded like you want to take be a little bit more careful about costs or something like that. Could you just explain the why behind that? Why get a little bit more focused on streamlining costs this year versus last year, unless it was all coronavirus, but I didn’t get that impression.
Glenn D. Fogel — Executive Vice President and Chief Financial Officer
Mark, yes, let me take the first one, the attach rates, etc. And I think you called it out correctly. The Rentalcar business has shown some good numbers. You look at the supplemental statistics at the end of our press release and you can see some nice growth there. And part of that growth is coming from that cross-sell part of our connected trip that we’re building out. And you’re also correct in your statement about the air business, air business is so early. We just really are getting that up and running, that you’re not really seeing any of the increase there from that or not of the matter right now. It’s very, very low attach rates. When I look at those numbers, I believe, over time, we should increase those significantly. And it’s going to take some time as we continue to optimize what’s the best way to present it, where to show it. One of the things I’m very proud about is the center we built in Tel Aviv that is filled with a bunch of machine learning experts, AI geniuses who really look at all the different parts of the way we present things. And they’re trying to come up with what is the best way to present an offer to a traveler at the right time and putting in what is the right merchandising benefit that we should do it to get the right conversion and the right bottom line. It’s something that the more data we get, the better we’ll know what the right thing to do, but it’s something that’s going to take time. So that’s the answer to that one. Regarding costs, you’re also absolutely correct on that.
One of the things, when I took the job over in Amsterdam as CEO of Booking.com, and I’ve been there now a little more than six months, is looking at what are we spending on, where are we spending, what projects are on, which ones are the right ones, which ones should we not be doing right now. And then taking that throughout our entire organization. I always believe that you should be a cost-effective company. And I believe it’s also very natural, as companies grow very rapidly and achieve great success on the bottom line, sometimes discipline lightened up a little bit. So certainly, before the coronavirus, I was already thinking that we need to make sure that we’re doing everything we can to spend money correctly. One of the things I’ve mentioned in the calls over the last couple of quarters is us bringing all of our companies together better. And that one of the benefits of that is to get some efficiencies in our spend, a real cost-procurement-type project. And in the past, we’ve run all these companies independently. And that was the right thing to do at the time. But while doing that, you do lose out on some cost efficiencies. Now the state of the company, where it’s at, and now it’s time to start bringing that in, and that’s what we’re going to be doing.
Mark Stephen F. Mahaney — RBC Capital Markets — Analyst
Okay. Thanks
Operator
We do have another question from the line of Kevin Kopelman from Cowen. Your line is open.
Kevin Campbell Kopelman — Cowen and Company — Analyst
Great. Thanks a lot. Could you give us more color on the latest trends in Europe travel bookings that you’ve seen over the last few days following the outbreak of the coronavirus in Italy?
David I. Goulden — Executive Vice President and Chief Financial Officer
Yes, Kevin, this is David. Let me take that. Maybe just kind of maybe frame it in the way that the quarter shapes up, and we and our projections do take into account what we’ve seen in the last few days. So let me kind of give you a lay of the land, first of all, by region, not surprising. We already mentioned that China is a worst impacted. Asia, excluding China, has also been impacted for some time. The rest of the world, which obviously includes Europe and Europe is a big piece out for us, was growing through February but we also expect it to be impacted to the negative in March as well. And to give you a bit more color in terms of just how that plays across the quarter, on a consolidated basis, we saw we, of course, saw room night in January room night growth in January, even though we saw some tapering off at the end with the virus being on the news on the 21st. Expect February to be approximately flat from a growth rate point of view, and therefore, to get to our guidance for the quarter, expect to see declines in March.
Kevin Campbell Kopelman — Cowen and Company — Analyst
Got it. And so that and that March expectation is based on just the worsening kind of trends over the last few days?
David I. Goulden — Executive Vice President and Chief Financial Officer
Yes. I mean, we really obviously, as other pension, we’re dealing with a very fluid situation, very difficult to predict what’s going on because we’re responding to something that we have no control over. We’re giving you kind of our best view of. So when we have when we built, what we expect to happen in March and create the guidance range, we’re looking very specifically at what has happened over the last few days after the outbreak in Italy and the response we’ve seen in Europe in response to that, which is not surprising, has been negative. So yes, we are expecting and we’re seeing, even though we’re going to get room night growth through rest of world in February, towards the end of February, that was already in a decline. And we expect it to continue to decline into March.
Kevin Campbell Kopelman — Cowen and Company — Analyst
Thank you.
Operator
Our next question comes from the line of Justin Post from Bank of America. Your line is open.
Justin Post — BofA Merrill Lynch, — Analyst
A couple of questions. I guess, it would be helpful if you could give a view on past behavior when you’ve had travel disruptions and people cancel their trips or your most loyal customers don’t book. How long does it take before they start going on trips again? Or do you see a time frame where people cancel and then rebook? I know you can’t be too specific, but any thoughts on that? And then second, it’s interesting your main competitor pulling back spending, you’re talking about some cost savings. Do you think there’s inefficiencies in marketing or other channels in travel and maybe the industry as a whole could benefit as people take a deeper look at their costs?
Glenn D. Fogel — Executive Vice President and Chief Financial Officer
Justin, I think it’d be it would not be wise to try and use past experience as an analogy for what will happen in the future. The situation now is very different, say, I’ve now been in this business. In fact, this week, it will be 20 years I’ve been at this company. My anniversary is Friday. 20 years. And so I’ve seen a lot of exogenous factors, I mentioned them, impacting travel, some extremely severe. And I won’t go through all of them because we’ll use up the entire time for the call. That being said, they will have different effects and different rebound time periods. So it’s not going to be helpful for me to tell you what took after 9/11 or after the GFC or after swine flu or after the volcano in Iceland. I could go on and on and on, which I’ll stop there. So I really can’t be that helpful. And you’ll just have to make your own best guesstimates, which will be as good as anybody else’s guestimates. Regarding spending, we have very high margins compared to anybody else in the industry. But that does not give us a license to waste money. And I want to continue to always be looking, are we spending correctly every single part of this company. And so we can then spend the money in the right place at the right time. In terms of marketing, there probably is a lot of waste in the industry. Probably. And I think we can see that some people who are probably going to be pulling back and turn into their marketing. We like to think that we’ve been efficient and effective. But I think there’s always room everywhere to do better, and we’re going to continue to do so. That’s only the right way to try and have a long-term successful company. I am confident, though, that regardless of what the towards your first question, I am confident the business will be coming back. It’s something that we’ve seen over and over and over again. As I said many, many times here, travel is a basic need for people. They have been doing it for a very, very long time. And as soon as the air clear, so to speak, you’ll see people will be coming back to travel.
Justin Post — BofA Merrill Lynch, — Analyst
Great, thank you.
Operator
We do have another question from the line of Brian Nowak from Morgan Stanley. Your line is open.
Brian Thomas Nowak — Morgan Stanley — Analyst
I have 2, please. David, just I appreciate the month-over-month commentary for the first quarter, but maybe just so we can all sort of better understand the underlying durability of growth. How big of a room night and EBITDA headwind have you put into the guide to factor in the corona for the first quarter? And then the second one, Glenn, just to sort of talk about opportunities and sort of untapped geographies. Talk to us about how you think about the importance and the opportunity to focus more on the U.S., from a branding and a performance marketing perspective this year to perhaps take more share in that area.
David I. Goulden — Executive Vice President and Chief Financial Officer
Yes. Okay. Thanks, Brian. I’ll take the first part of it. I’m going to try to avoid getting into specific growth rates by month. I’ll give you a flavor, I think you can do some back of the envelope math to kind of figure out what March has to look like in terms of getting to a minus 5% to minus 10% range. The way we look at this is that we have, as I mentioned in my answer to Kevin, have looked very much so what’s happened to the last few days. And anticipating at the lower end of the range that the travel environment in Europe make it worse because we would be surprised if there’s only one outbreak in Europe over the course of the rest of the quarter. So we’ve taken into account what we saw happening over the last week, which, of course, is led by a lot of cancellations. So over time, it may not be quite as bad as we’re seeing in the last week because you see, obviously, there’s a different growth rate on underlying bookings vis-a-vis cancellations. The early reaction to these news as usually, you got spike cancellations and things can moderate out. But we’ve taken into account what we’ve seen happening over the course of the year last week. We projected that for the rest of the quarter. And recognize that, in fact, make it worse. If there are additional outbreaks in Europe or further slowdowns in the rest of the world. So that’s how we’ve tried to intelligently give you some guidance data points from, obviously, we gain is moving very rapidly it is the best data that we have as of until this morning.
Glenn D. Fogel — Executive Vice President and Chief Financial Officer
And in regards to our opportunities around the world, the U.S. is, without doubt, our biggest opportunity. It is an enormous market that we under-indexed significantly. And the reason for it, why we have not achieved what we’d like to yet. And historical, as you know, Booking.com was always a hotel-only company. And we didn’t have an aircraft there, for example. Many Americans like start their travel business, using air. So we now we’re going to be bringing out an air product over time. That will be one. Second thing is extremely price-competitive, price-sensitive consumer in the U.S. Booking.com, historically, an agency player, meaning the price was set by the hotels or by the non-hotel accommodations. We believe that we have to be able to merchandise, meaning adjusting what that value to the consumer is going to be. But to do that, you got to have a payment product. It was only last quarter that we got up running the domestic payment product for our U.S. consumer. So that’s another one. Another big issue, packages. Many Americans like to use a package product or like to do some sort of combination that will get them more value. Well, we’re just starting that now. One of the things I’m very proud about is working between Priceline.com and Booking.com to come up with a package product for the U.S. consumers that we’re just getting that out. The other thing is we have other assets to help bring consumers to our sites and make them aware of the great things we have. One, for example, OpenTable. A lot of people are using OpenTable every month. In the past, we have never done anything to really bring together the power of the OpenTable platform and the Booking.com platform in a way that will provide more value to the consumers. So lots of things that we’re working on, because I do believe the U.S. is a great opportunity for us to help build out our business.
Brian Thomas Nowak — Morgan Stanley — Analyst
Great, thanks, guys.
Operator
We have another question from the line of Justin Patterson from Raymond James. Your line is open.
Justin Tyler Patterson — Raymond James & Associates — Analyst
Great. One on connected trip first. How should we think about scaling supply through your own assets and third-party partners on the attractions and dining side? With partners in there, is there anything you need to control to ensure an optimal customer experience? And then the second question is on marketing. As your direct channel mix grows and your payments business grows, how should we how do you think about that incremental ROI of using coupons to drive conversion versus, say, attractive customers via branded performance marketing?
Glenn D. Fogel — Executive Vice President and Chief Financial Officer
I want to do the first, and I’ll let David being our CFO, you can talk about how we’re going to optimize in terms of coupons. You’re right in terms that in an ideal world, you would like to have all of your supply directly connect to us. And you prefer in an ideal world, not to be using third-party suppliers. That being said, that’s a balance against speed-to-market and making sure you have the supply necessary to create a good offer to the consumers. So in the interest of speed, we have gone with third-party providers to provide inventory that we don’t have. I mentioned OpenTable a little while ago. Well, OpenTable has a great product, and they are they do a lot of business in a lot of different cities. But there are also a lot of cities around the world that they don’t do business. And we want to provide that dining opportunity to our consumers in as many cities as we can. So we will partner with others. Attractions, the same thing. We had our own contracts with the supply, but there are a lot of places in the world where people are traveling, so to make sure that we have the supply, we’re going to third parties. Over time, we believe that in the long run, having your own supply helps you in terms of creating that truly seamless connected trip, but speed matters in this market. So we’re going to do that, too.
David I. Goulden — Executive Vice President and Chief Financial Officer
Yes. And Justin, on the different marketing channels. First of all, we’re very pleased to build our direct business. And it’s very important for the future in the connected trip and the app and all things how driving that direction. But the performance marketing channels are also really important sources of acquisition of new customers for us. And sometimes, some existing customers can come back to that net as well. But to answer your question, we look at all these on a very measured incremental ROI basis. We can really measure our different activities and compare them on a very comparable basis. So when it comes to things like coupons or other attractions we may only offer through one of our channels, we just look at the ROI on that vis-a-vis other channels and decide where we lean in or don’t, as the case may be. So we have pretty good metrics on all things like that because we are able to measure the short-term return on those investments. Again, longer term, we’re looking to drive people towards the direct channel, particularly towards the app, and Glenn mentioned how well downloaded that is and how it’s becoming very much a powerful app in the travel space. And as the connected trip becomes a bigger piece of the business, and the app becomes a way to experience the connected trip in during the trip, it’s even more strategic. But tactically, we can look at all these different things, including things like couponing on a very measured basis and decide to lean in, based upon which ones give us the both the shortest short-term returns and also create the highest level of repeat or return to direct activity after that initial offer.
Justin Tyler Patterson — Raymond James & Associates — Analyst
Thank you.
Operator
Our next question comes from the line of Deepak Mathivanan from Barclays. Your line is open.
Deepak Mathivanan — Barclays Bank PLC — Analyst
Great. David, last year, you talked about achieving double-digit earnings growth and then exceeded it pretty nicely ex facts. I understand the situation is a little bit more fluid right now, and the color you provided on the operating model was helpful. How should we think about those things kind of translates into earnings growth for this year? And then how are you thinking about using the balance sheet for share repurchases in the near-term when there is like a disruption currently going on?
David I. Goulden — Executive Vice President and Chief Financial Officer
Sure, Deepak, thanks for the question. Let me take the first part of it. So yes, I mean, we talked about the our operating model expectations pre-coronavirus as a continuation of the model, I think, was quite successful for us in 2019. And I don’t want to get to specific targets for 2020 because there’s not a lot of point in putting out a hypothetical forecast for the year, which we can never measure against or bridge against because, obviously, the year is going to come out very different from what we expected only a few weeks ago, but we were pleased with the way that 2019 came out. If you kind of look back at Q4, look at 2019, understand the underlying health of the business. And we believe that there’s no reason why that model can’t continue in normal times. And then, Glenn, you want to talk about second part balance sheet?
Glenn D. Fogel — Executive Vice President and Chief Financial Officer
Yes. So we are very pleased to have a very strong balance sheet, significant amount of free cash. We have a very good credit rating. And the question really is, as we’ve always had, is how should we best use our capital. One of the things that’s always been, share repurchases. Another thing that we always do is we’re always looking at other companies that could potentially help add to our connected trip strategic vision, and we’re going to continue to look at that. Certainly valuations have changed significantly in the recent past, and that may provide an opportunity for us in both areas. But as David says, it’s a very fluid situation right now and we’re not going to box ourselves into anything right this second. I will say though, however, we do look at this very, very carefully because we do want to be agile.
David I. Goulden — Executive Vice President and Chief Financial Officer
Operator, do we have any more questions, please? Your line is open.
Operator
Yes, sir. We have another question from the line of Eric Sheridan from UBS. Your line is open.
Eric James Sheridan — UBS Investment Bank — Analyst
Thanks for taking the question. Maybe if I can, a few around cost structure and how you’re thinking about investing in the business in sort of a relatively uncertain environment. Is there a way to tease out what are some of the investments you plan on making just because they fit with the strategic vision, they’re going to be made for the long term, irrespective of how the environment works, up or down, over the next sort of couple of quarters? And how much of it is more variable in nature, where you might tune up or down investments, so we could understand the variable piece? They’ll probably more likely track with how room night to get better or worse from the excellent results in Q4 versus the cautionary results or guide for Q1.
Glenn D. Fogel — Executive Vice President and Chief Financial Officer
Sure. So I’ve been talking about our long-term strategic vision for some time now since I became CEO of the holding company a little more than three years ago and how important it is to create and continue to create value for all sides of this marketplace. And we’re going to continue to do that. And that requires investing in people in terms of code, making sure we are providing something that is a differentiator from what is out there right now. And there is no reason to slow that down, stop that or hold back on that. The sooner we get out that truly superior travel service, the better we will be. And I want to be in that position when we come out of this current environment, which is something that is unexpected, but will end. I want to come out of that as soon as possible with the best services that we have. So we’re going to continue on that. We are not changing that at all. Now in terms of investments in terms of marketing and things like that, naturally, you always want to make adjustments based on what the environment is. So for, as I mentioned, about brand marketing. Well, we are not going to be making brand marketing to people who are not listening to that message at all. If you’re not thinking about traveling, you’re not listening to a travel ad, it’s foolish for us to invest money in a brand marketing campaign. And that’s an example on extreme on the other side. And in between, there are always different things in between that we are going to be making adjustments as we go throughout the year. And we’ve always been doing that. That’s no different. Do you have anything to add?
David I. Goulden — Executive Vice President and Chief Financial Officer
Yes, Eric, just maybe put a little bit of a framework around what Glenn talked about. So if you think of of operating expenses, you just kind of look at 2019 for a second, about $9.5 billion, a little over half of our opex is really variable with volume. Obviously, our performance marketing change would be going up and down. Our brand marketing is not volume-related. But obviously, as Glenn just said, no point spending a lot of branded people not primarily think about travel. A large piece of our sales and other expenses is also relates to volume as well because that ties back to the merchant processing costs on our payment platform. So over half of our opex really is directly tied to the volume within the business. Now obviously, there are volume-related aspects in the other areas, which are personnel, G&A, IT, etc. And obviously, there’s some fixed and the some variable expenses there. But if you think about our cost structure, it really is quite variable with the larger expense lines being tied to volume quite directly. And of course, in the areas that are not tied directly, there are things we can continue to do to refine and optimize, as Glenn talked about.
Operator
We do have another question from the line of Naved Khan from SunTrust. Your line is open.
Naved Ahmad Khan — SunTrust Robinson Humphrey — Analyst
Yeah, thanks a lot. A couple of questions. So David, in your commentary, you spoke about maybe 2020 seeing payments process through your own payment platform going to 25%. What are the levers that you control to kind of get that from 15% in 2019 to 25% this year? And then the other question I have was just maybe can you share some light on your maybe early results from the Grab partnership, how that might be working for you?
David I. Goulden — Executive Vice President and Chief Financial Officer
Sure. So let me start off with the payments platform. Actually, Glenn wanted to give the numbers out, but let me let me just kind of talk to you about how we see it developing and the impact it will have on our income statement. So as you see, we basically had to grow from 10% in 2018, 15 in 2019, 25 in 2020, we expect obviously to exit 2020 at higher than 25% payments. That’s the average for the year. It might be helpful just to understand a little bit about what that’s doing to our income statement because there’s always some questions about that in prior calls. In 2020, we expect payments actually to contribute both to both revenue growth as it has been, but also to start contributing to EBITDA growth as well. With very little impact at all on our EBITDA rate in 2020 will contribute towards EBITDA growth as we recover an ever-increasing percentage of our payment costs. So that’s how we think about payments rolling through our business. Obviously, there’s still a very attractive nature in our agency model as well. So one is not going to completely replace the other but as Glenn said, for all sorts of reasons, including the ability to participate in merchandising and also to be able to package and control things together in via the connected trip, payments will become an ever-increasing part of the business, and we’re pleased with how it is progressing. And we’re on track to get it to a stage, which starts to contribute towards EBITDA growth, which we’ll start doing this year.
Glenn D. Fogel — Executive Vice President and Chief Financial Officer
And regarding the Grab relationship, I’m very pleased about how that’s been progressing. And remember, we invested in Grab for three reasons. One reason was Grab has a significant number of customers, and we want to find all different ways that we can get exposed our hotel accommodation, all of our travel services to customers in different ways, and that certainly was a great way to do it, one. The other thing is that our travelers when they arrive in a place that they’re not familiar with, they want to know how are they going to get around. And many people sometimes mistakenly assumed that whatever ridesharing capability they have in their home country is going to be in the place they go visit, and it’s not going to be there and not going to know what they’re going to do. And then the figure what am I going to do? And one of the great things is we said that we would come up with Grab a way that a person can use the Booking.com app and in a seamless way, can get ride-sharing without having to download another app, without having to put a credit card in something that they’re not familiar with, and it will be seamless and a great experience. And I mentioned last quarter, how we’ve gone that up and running in Singapore. And the third thing, of course, we said we’d like to have a financial return on the money we invested. One of the things I mentioned last quarter was how, by the end of the year, I expected us to be able to have that Grab at operational Booking.com app by the India for Indonesia and Thailand. And I’m very pleased that we are now actually operational in every single territory that Grab operates on the iOS platform. So it’s just a great shoutout to the team who’s been working on that, and thank you guys for getting that done ahead of schedule and really pushing that through. We’ll be operational for Android, I think in two to four weeks, I’ve been told. And we’re talking about it’s now beyond Singapore, it’s Malaysia, it’s Indonesia, Thailand, it’s Vietnam, it’s Cambodia, it’s Philippines. It’s my word, everywhere the Grab is. And I tell you, I’ve seen this used, and it really is something that makes it so easy. You get off that plane in that airport, you just go to that Booking.com app and right away, you can get that car to take you to hotel. It’s a wonderful experience. And we’re also on the other side, being able to show our hotel accommodations to more and more Grab customers. So good in all areas.
Naved Ahmad Khan — SunTrust Robinson Humphrey — Analyst
Thanks.
Operator
Our next question comes from the line of Stephen Ju from Credit Suisse. Your line is open.
Mark Stephen F. Mahaney — RBC Capital Markets — Analyst
Okay thanks very much. So Glenn, I guess, out of adversity can come opportunities. So in an environment in which folks are going to be really starved for business, are there any silver linings we should be thinking about in terms of booking becoming a more important partner for your suppliers or being able to onboard more supply for the future? And I guess for the integrated travel experience as well as the rollout of your own payment rails, you are talking about transforming what the Booking.com experience has meant for the consumer for some time now. So do you feel like you have to retrain them to look for non-hotel products or pay upfront? And do you think you need to incur some cost to bring up that awareness?
Glenn D. Fogel — Executive Vice President and Chief Financial Officer
So nobody, nobody wants their business to succeed because of unfortunate events. Nobody hopes for that. But sometimes the events happen anyway, and you do end up being a beneficiary of those events. Companies that are stronger when they enter into a bad period emerge even stronger. And in this industry, I’ve seen it happen over and over again. There is no doubt, I’ve talked in the past about potential recessions and what would happen in a recession and why I believe that would make us more valuable to suppliers so that they would use us more to get demand because they needed it more. And you’ve pointed out what could be a very unfortunate thing for many players in our industry. So yes, silver lining is when we describe it. I do believe that in the long run, we will emerge from this in a much better position, a stronger competitor, and we will end up being better off. Though, of course, no, would ever hope for that to happen under that way. In regards to the consumer, consumers are amazing how they they learn very rapidly, how to save money, get value when they see a new and it’s interesting. You don’t even see announcements of them in different products many times. It’s just you’re playing around with it and you see it. Now we, of course, will be using all sorts of marketing methods to get and make sure our customers are aware of the better way to do your travel planning, your travel execution. But I am not concerned at all that when we have that better product, I am not concerned that people don’t know about it, people will know about it.
Mark Stephen F. Mahaney — RBC Capital Markets — Analyst
Thank you.
Operator
Our next question comes from the line of Doug Anmuth from JP Morgan. Your line is open.
Douglas Till Anmuth — JP Morgan Chase & Co — Analyst
Just wanted to ask 2. First, you talked about the 15% of Booking.com bookings using the payments platform. Can you just talk a little bit more about what you’re seeing in terms of conversion rates and speed to book and then other metrics that you may look at in payments? And then secondly, Glenn, you mentioned wanting to expose flights ultimately to 50% of your customers. Just curious why that’s the number, kind of why you’d stop there?
Glenn D. Fogel — Executive Vice President and Chief Financial Officer
Well, we wouldn’t actually stop there. That’s just my target for this year, we do intend to have 100% of the people eventually be exposed to it and we want 100% using it. But this is it takes time because of regulatory licensing things, it’s not as though you can just immediately just start selling airline tickets everywhere. That takes time to get your licenses in certain jurisdictions. And data?
David I. Goulden — Executive Vice President and Chief Financial Officer
Yes, let me just characterize a little bit of what we’re seeing on the payment platform and why we think it’s very important, but now in the future. So the benefits come in different areas, and they’re multiple and sometimes they are additive. So in some cases, just offering people, payments in different methodologies, payments in currency of their own choice or payment process of their own choice whereas to offer a Chinese customer to pay in Alipay, WeChat pay off, something like that. Just offering that payment choice, even if the underlying hotel product is the same, we have seen conversion increases, even if people don’t use our choice. It’s a bit like offering something in a local language. And of course, we offer our site for local languages. The fact you offer something and presented in some of these native language. In this case, you give payment choice that they recognize that they recognize, is actually something that by itself will help with conversion, and we can demonstrate that, that does, albeit a small amount. If they don’t use payments, and then, of course, if they do use payments, it helps a little bit more. So you do get some conversion benefits.
But the other thing the payment platform do as well is we can also, as I mentioned, we can start participating in the pricing process via merchandising more proactively. So we can offer, basically, Booking.com can get involved in that and offer book responsor benefits or other offers to the customer that you can only really do if you are participating as a merchant, and you’re taking the payments on behalf of the property and passing it through. So the other thing that the payment can do the payment platform also will do, it will help bridge gap between a customer and the property in terms of our customers can pay in, in their payment platform or the payment currency of choice, and we can pay out to the property partner in their payment currency of choice. So for example, again, the hotel in Italy or in Paris may not take all the payment methods that we offer to our Asian customers, and we can give them virtual credit cards. And for example, a Mastercard or a Visa format. So there are all sorts of different benefits from the payments platform. Another one I talked to you about that helps in the business as well is that the agency model, of course, leaves the payment process open to the customer to deal with the property, and vice versa. And we actually get a lot of our customer service request calls are to do with things that go wrong somewhere or were not expected in that equation between the property and the customer where we’re not participating because we’re just being agents providing the booking. So we find if we manage the payment process, we can reduce the number of customer service incidents around the payment question and actually increase the overall satisfaction and experience of both the customer and the property partner. So there are many benefits of the payment platform. As I said, I mentioned a few. In some cases, you get all of them in one transaction. In some cases, you only get one. But it’s something that we are developing rapidly inside of booking.com. Of course, we’ve got a lot of experience in payments in both Agoda and in Priceline. So we’re taking leverage of that capability, where we’ve already seen those benefits occur.
Douglas Till Anmuth — JP Morgan Chase & Co — Analyst
Thanks very helpful.
Operator
Our last question comes from the line of Heath Terry from Goldman Sachs. Your line is open.
Heath Patrick Terry — Goldman Sachs Group Inc. — Analyst
Great. You called out specifically the January 21 date is the one where you’ve sort of started to see the headlines for coronavirus. Wondering if you could share with us sort of where your expectations were than for bookings growth in the quarter, and just to get a better sense of sort of where the magnitude of the shift between then and where we are where we are now. And then also on the as we think about sort of where you’re seeing the divergence in bookings growth and room night growth continuing and spreading? I know in the past, you’ve talked about, obviously, that being a function of cheaper ADRs. Just wondering if maybe you could get a little bit more into detail with us on that as far as how much of that is geographic, how much of that is you believe customers continuing to downshift to cheaper rooms and how much of it might be an access to inventory issue as hotels look to retain more of their compression nights for their own platforms.
David I. Goulden — Executive Vice President and Chief Financial Officer
Sure. Let me take those in reverse order. So the ADR question, probably the best place to go is back to Q4 because we were operating, obviously, in a business-as-usual type of environments. And without going through a long explanation because we gave a fairly long relations to what’s happening to ADRs and why we saw that ADR reduction in the fourth quarter. Bear in mind, part of it is because we were lapping a rather unusual increase a year ago. So the four really became a 3, if you normalize that. And then we saw basically half of that decline due to lower rates in the key countries, which were like U.S., Japan, Hong Kong. Of course, again, on a pre-virus model, and some of that was macro. About half of the decline in ADRs was due to a shift towards lower ADR countries. Again, some of that was also macro because some of the higher ADR countries got very expensive from an FX point of view. So when we go back and look at Q4 and look at Q3, we saw basically two points of normalized reduction in ADRs in Q three points in Q4. We believe about half of that was kind of macro, and half of that was mix-related going forward. So hopefully, that gives you a little bit of flavors to kind of what’s going on. Going into 2020, we expected the ADR reductions to be down to a couple of points, again, on pre-coronavirus basically just assuming that the macro piece that continued with a little bit more in the first half and a little bit less in the second half due to lapping effects of what we saw occurring last year. And just to go back to your very first part of the question. Just like we try not to give specific guidance for where we were for the year, pre-coronavirus. And we did give you, I think, a fairly good flavor to how we thought the business would operate during the year pre the coronavirus. We try not to get into a lot of bridging exercises between where we were Q1 and before and afterwards. For what it’s worth, I can tell you that we’re tracking nicely ahead of our internal expectations for the first three weeks in January, but it’s only a 3-week period of time. So take it for what it’s worth, but we were running slightly in front of the expectation we had for the year, which I outlined relative to when we talked about 2019 and when we expected things to continue into 2020. But I don’t want to get into a specific, we thought room night growth would be and now it’s why because we can never really compare against that hypothetical growth. We were comfortable with where the year was shaping up. We felt good about the profile of business we talked about in 2020 relative to what we saw in 2019 and the business model continuing, and hopefully, that gives you a flavor you can have really come to your own conclusions to what it was. But we’re pleased with how things were shaping up going into 2020 and the shape of 2020 as we looked at the full year.
Glenn D. Fogel — Executive Vice President and Chief Financial Officer
So this concludes the remarks. And I just want to end by saying in summary, our 2019 performance met some important financial and strategic goals. And I’m very pleased about the steps we have taken to date to provide more value to the customers and our supply partners, and we look forward to doing more so in the future. And we’re going to manage through the current travel environment, and I am very confident in our long-term prospects. And finally, I want to thank our supplier and marketing partners, our more than 26,000 employees distributed across more than 300 offices and a very special thank you to a subset of those 26,000 over the last couple of months, have been working so hard in this environment. I want to thank them very much. And most of all, I want to thank our traveler customers who are out there exploring the world. Good night.
Operator
[Operator Closing Remarks]