Delaware | 06-1528493 | |||||
| (State or other | (I.R.S. Employer Identification | |||||
800 Connecticut Avenue
(address of principal executive offices)
Registrant's telephone number, including area code: (203) 299-8000
_____________________________________________________________________________________________
Securities Registered Pursuant to Section 12(b) of the Act:
| Title of Each Class: | Trading Symbol | Name of Each Exchange on which Registered: | |||||||||||||||
| Common Stock par value $0.008 per share | BKNG | The NASDAQ Global Select Market | |||||||||||||||
| 2.375% Senior Notes Due 2024 | The NASDAQ Stock | ||||||||||||||||
| 0.100% Senior Notes Due 2025 | BKNG 25 | The NASDAQ Stock Market LLC | |||||||||||||||
| 4.000% Senior Notes Due 2026 | BKNG 26 | The NASDAQ Stock Market LLC | |||||||||||||||
| 1.800% Senior Notes Due 2027 | The NASDAQ Stock | ||||||||||||||||
| 0.500% Senior Notes Due 2028 | BKNG 28 | The NASDAQ Stock Market LLC | |||||||||||||||
| 4.250% Senior Notes Due 2029 | BKNG 29 | The NASDAQ Stock Market LLC | |||||||||||||||
| 4.500% Senior Notes Due 2031 | BKNG 31 | The NASDAQ Stock Market LLC | |||||||||||||||
| 4.750% Senior Notes Due 2034 | BKNG 34 | The NASDAQ Stock Market LLC | |||||||||||||||
Securities Registered Pursuant to Section 12(g) of the Act: None.
_____________________________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý☒ No o☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o☐ No ý☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý☒ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer"filer," "smaller reporting company," and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act (Check one):
Act:
Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | ||||||||||||
Smaller reporting company | ☐ | Emerging growth company | ☐ | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o☐ No ý☒
The aggregate market value of common stock held by non-affiliates of Booking Holdings Inc. as ofat June 30, 20172022 was approximately $91.5$70.1 billion based upon the closing price reported for such date on the NASDAQ Global Select Market. For purposes of this disclosure, shares of common stock held by executive officers and directors of Booking Holdings Inc. on June 30, 20172022 have been excluded because such persons may be deemed to be affiliates of Booking Holdings Inc. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of Booking Holdings Inc.’s common stock was 48,288,592 as of37,648,373 at February 20, 2018.
16, 2023.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Annual Report on Form 10-K, to the extent not set forth in this Form 10-K, is incorporated herein by reference from Booking Holdings Inc.'s definitive proxy statement relating to theits annual meeting of stockholders to be held on June 7, 2018,6, 2023, to be filed with the Securities and Exchange Commission within 120 days after the end of Booking Holdings Inc.'s fiscal year ended December 31, 2017.2022.
Booking Holdings Inc. Annual Report on Form 10-K for the Year Ended December 31, 20172022 Index
| Page No. | ||||||||
Special Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K and the documents incorporated herein by reference contain forward-looking statements. These forward-looking statements reflect our views regarding current expectations and projections about future events and conditions and are based on currently available information. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict, including the Risk Factors identified in Part I, Item 1A of this Annual Report; therefore, our actual results could differ materially from those expressed, implied, or forecast in any such forward-looking statements. Expressions of future goals and expectations and similar expressions, including "may," "will," "should," "could," "aims," "seeks," "expects," "plans," "anticipates," "intends," "believes," "estimates," "predicts," "potential," "targets," and "continue," reflecting something other than historical fact are intended to identify forward-looking statements. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the reports and documents we file or furnish from time to time with the Securities and Exchange Commission (the "SEC" or the "Commission"), particularly our quarterly reports on Form 10-Q and current reports on Form 8-K.
PART I
Item 1. Business
As most countries have emerged from the COVID-19 pandemic and removed travel restrictions, travelers have resumed exploring the world. We are proud that, despite challenges to our global community such as the invasion of Ukraine by Russia, the impact of persistent inflation on consumers, and widespread travel disruptions at airports in North America and Europe, as well as the ongoing effects of the COVID-19 pandemic, we continued our efforts to make our brands the most trusted and convenient platforms for consumers and partners, including:
•continuing to increase room nights and brand awareness in key markets such as the U.S.;
•launching Rooms for Refugees at Booking.com to assist those displaced by the war in Ukraine to book free and discounted rooms;
•improving our loyalty programs, particularly the Genius program at Booking.com, and increasing our focus on value for our consumers;
•improving and expanding visibility of our flight offering at Booking.com;
•increasing adoption of our payments platform and payments capabilities across the Company; and
•expanding our Travel Sustainable program to more of our supply partners and across our relevant brands.
Our mission is to help peoplemake it easier for everyone to experience the world. Our services empower people to cut through travel barriers like money, time, language, and overwhelming options, to easily and confidently get where they want to go, stay where they want to stay, dine where they want to dine, pay how they want to pay, and experience what they want to experience. We operateconnect consumers making travel reservations with travel service providers around the world through our online platforms. We offer these services through six primary consumer-facing brands:
Booking.com, - the world’s leading brand for booking online accommodation reservations, based on room nights booked.
Priceline, agoda, Rentalcars.com, - a leading worldwide rental car reservation service.
Our common stock is listed on the NASDAQ Global Select Market under the symbol "BKNG,"BKNG." and traded under the symbol "PCLN" prior to February 27, 2018. Our principal executive offices are located at 800 Connecticut Avenue, Norwalk, Connecticut 06854. We refer to our company and all of our subsidiaries and brands collectively as "Booking Holdings," the "Company," "we," "our""our," or "us."
1
Our Business Model
We derive substantially all of our revenues from providing online travel reservation services, which facilitate online travel purchases between travel service providers (which we generally refer to as "partners") and gross profittravelers (which we generally refer to as "consumers"). We also earn revenues from advertising services, restaurant reservations, and various other services, such as travel-related insurance products and restaurant management services for restaurants.
For the following sources:year ended December 31, 2022, we had revenues of $17.1 billion, which we classify as "agency" revenues, "merchant" revenues, and "advertising and other" revenues.
•Merchant revenues are derived from transactions where we facilitate payments from travelers for the services provided, generally at the time of booking. Merchant revenues include travel reservation commissions and vacation package reservation services;transaction net revenues (i.e., the amount charged to travelers, including the impact of merchandising, less the amount owed to travel service providers); credit card processing rebates and customer processing fees; and ancillary fees, including travel-related insurance revenues. The majority of our merchant revenue is from Booking.com's accommodation reservations.
•Advertising and other revenues are derived primarily from (a) revenues earned by KAYAK fromfor sending referrals to online travel companies ("OTCs") and travel service providers as well as fromand for advertising placements on KAYAK's websitesits platforms and mobile apps;
We aim to achieve our mission to help people experience the world throughdemonstrate global leadership in online travel and restaurant reservationbookings and related services by:
•making it easy for people to find, book, pay for, and experience travel throughout the world;
•providing consumers with the bestmost comprehensive choices and prices at any time, in any place, on any device;
•operating our business sustainably and supporting sustainable travel choices by our consumers and partners.
We focus on relentless innovation and execution and a commitment to serve both consumers and our travel service provider and restaurant partners with unmatched service and best-in-class digital technology. The onlineWe believe that global travel and dining categoriesbookings will generally continue to grow as consumer purchasing shiftswhile shifting from traditional offline channelsmethods to interactive online channels including mobile channels. Our strategylike ours, which is a trend we have observed throughout our company's history. We expect to continuebenefit from this growth in travel and the continued shift to participate broadly in this online growth by expandingchannels as we work to expand our service offerings and markets.increase our presence in key geographies. In particular, we aimseek to be the world leader in online travel and restaurant reservation and related services by (a) leveragingleverage technology to provide consumers with the best experience, (b) partneringpartner with travel service providers and restaurants to our mutual benefit, (c) operating entrepreneurialoperate multiple brands that collaborate and share best practices,with each other, and (d) investinginvest in profitable and sustainable growth.
and useful content, such as pictures, accommodation and restaurant details, reviews, and reviews; andsustainability information; (d) excellent customer service.service; and (e) value through competitive prices, special rate programs, and loyalty programs. Our goal is to make travel easy, frictionless, and personal and to offer consumers the most value, trusted brand, the most personalized experiencebrands, and the most extensive, varied, and comprehensive accommodation selectiontravel choices in every geography atgeography. We believe that our work to build out our payments capabilities across the best prices. For example, Booking.com increasingly provides reservation servicesCompany removes friction from the booking process and delivers additional value for accommodations other than hotels. Booking.com included approximately 1,586,000 properties on its website as of December 31, 2017, consisting of approximately 396,000 hotels, motels and resorts and approximately 1,190,000 homes, apartments and other unique places to stay (updated property counts are available on the Booking.com website). Further, wetravelers. We endeavor to provide excellent customer service in a variety of ways, including through our call centers and websites,online platforms and the use of chatbots and other technologies, so that consumers can be confident that booking reservations through us will lead tobe a positive experience.
We are constantly innovatingcontinue to innovate and invest in our services in order to providemeet the needs of our consumers and partners. We seek to grow our business through innovation by providing a best-in-class user experience with intuitive, easy-to-use websites and mobile apps and by building stronger relationships with our consumers and partners. An increasing percentage of our room
2
nights are booked on our mobile apps and in 2022 Booking.com’s mobile app was the most downloaded online travel agency app globally and in the U.S. according to ensure thatthird-party research firm Apptopia. We continue to execute against our long-term strategy to build a seamless offering of multiple elements of travel, allowing us to provide a more tailored and flexible consumer experience, which we refer to as the "Connected Trip." In the near term, we are meetingfocused on providing consumers the needsability to build a complete travel itinerary on our platforms by, for example, enabling them to book a convenient taxi or rental car to coincide with their flight arrival or attractions near their accommodation, and developing travel wallet capabilities. In 2022, we continued to grow our flight offering at Booking.com, including expanding into over 50 countries by the end of onlinethe year. We expect that these developments will benefit our consumers while aiming to exceed their expectations.and partners.
Service Offerings
In 2022, Booking.com website). Accommodation providers participate in Booking.com, which operates primarily under an agency model, by filing rates and information about the property in Booking.com's proprietary extranet. In addition, Booking.com offers website and other marketing services and business analytics to accommodation providers as part of its BookingSuite initiative.
KAYAK. KAYAK, headquartered in Stamford, Connecticut, provides online meta-search services that allow consumers to easily search and compare travel itineraries and prices, including airline ticket, accommodation reservation, and rental car reservation information from hundreds of online travel platforms at once. KAYAK offers its services in over 60 countries, with its largest market in the region. Accommodation providers participate in agoda.com, which operates primarily under a merchant model, by filing ratesUnited States, through various websites including momondo, Cheapflights, and information about the property in agoda.com's proprietary extranet.HotelsCombined.
3
OpenTable. OpenTable is a leading brand for booking online restaurant reservations. HeadquarteredWith significant operations in San Francisco, California, OpenTable provides online restaurant reservation services to consumers and reservation management services to restaurants. OpenTable does businessrestaurants, primarily in the United States, though it continues to invest in expanding its international offerings.States.
Marketing and Brand Awareness
We have established widely used and recognized e-commerce brands through marketing and promotional campaigns. Both our performance advertising expense and brand advertising expense have increased significantly in recent years, a trend we expect to continue. During 2017, our total performance advertising expense was approximately $4.1 billion, primarily related to thecampaigns, particularly strategic use of online search engines (primarily Google), meta-searchperformance marketing spend. We invest resources in marketing and travel research servicesother brand building to preserve and affiliate marketing to generate traffic to our websites. We also invested approximately $392 million in brand advertising during 2017. We intend to continue a strategy of promoting brandenhance consumer awareness through both online and offline advertising efforts, including by expanding brand campaigns into additional markets. We expense the substantial majority of our advertising activities as the expense is incurred, which is typically in the quarter in which reservations are booked, but have recognized most of our gross profit when the consumer's travel or dining experience is completed. Beginning January 1, 2018, we will recognize revenue for our travel reservation services on a “check-in” basis, such that revenue will be recognized upon check-in at an accommodation, pick-up of a rental car or boarding of a flight. In either case, as a result of this timing difference between when advertising expense is incurred and revenue or gross profit is recognized, advertising expense may not be recognized in the same period as the associated revenue or gross profit.brands.
Competition
We compete globally with both online and traditional travel and restaurant reservation and related services. The markets for the services we offer are and are expected to remain, intensely competitive, constantly evolving, and subject to rapid change, and current and new competitors can and do launch new services at a relatively low cost. Some of our current and potential competitors, such as Google, Apple, Alibaba, Tencent, Amazon, Uber, and Facebook,Meta, have access to significantly greatermore customers or users, consumer data, and more diversifiedfinancial and other resources than we do, and they may be able to leverage other aspects of their businesses (e.g., search or mobile device businesses) to enable them to compete more effectively with us. For example, Google has entered various aspects of theGoogle’s online travel market, includingofferings have grown rapidly in this area by establishing alinking travel search services to its dominant search functionality through flight, hotel, and alternative accommodations meta-search product (“Google Flights”)products, and aby integrating its hotel meta-search business ("Google Hotel Ads") that are growing rapidly, as well as its "Book on Google"products and restaurant information and reservation functionality andproducts into its Google TripsMaps app.
We currently, or may potentially in the future, compete with a variety of companies, including:
•online travel or restaurant reservation services such as Expedia, Hotels.com, Hotwire, Orbitz, Travelocity, Wotif, Cheaptickets, ebookers, HotelClub, RatesToGo and CarRentals.com, which are owned by Expedia; Hotel Reservation Service (HRS) and hotel.de, which are owned by Hotel Reservation Service; and AutoEurope, CarTrawler, Ctrip (in which we hold a minority interest), eLong (in which Ctrip holds a significant minority interest), ezTravel (in which Ctrip holds a majority interest), Meituan (in which we hold a small minority interest), MakeMyTrip, OYO Rooms, Yatra, Cleartrip, Traveloka (in which Expedia holds a minority interest), Webjet, Rakuten, Jalan (which is owned by Recruit), ViajaNet, Submarino Viagens, Despegar/Decolar (in which Expedia holds a minority ownership interest), Fliggy (operated by Alibaba), 17u.com, HotelTonight, CheapOair, and eDreams ODIGEO;meta-search services;
•large online companies, including search, social networking, and marketplace companies;
•travel service providers (e.g., accommodations, rental car companies, such as Google, Facebook, Alibaba, Tencent, Amazon and Baidu;or airlines) that have their own branded online platforms to which they drive business;
•traditional travel agencies, travel management companies, wholesalers, and tour operators, many of which combine physical locations, telephone servicesoperators; and online services, such as Carlson Wagonlit, American Express, BCD Travel, Concur (which is owned by SAP), Thomas Cook, TUI and Hotelbeds (which recently acquired Tourico and GTA), as well as thousands of individual travel agencies around the world;
•companies offering technology services and software solutions to accommodation providers, including large global distribution systems, or GDSs, such as Amadeustravel service providers.
For more information regarding current and Sabre.
Government Regulation
Our ability to provide our services and may create additional inroads into online travel. Google's travel meta-searchany future services Google Hotel Adsis affected by legal regulations of national and Google Flights,local governments and regulatory authorities around the world, many of which are growing rapidlyevolving and have achieved significant market sharesubject to new or revised interpretations. Violations of any laws or regulations could result in a relatively short time. Meta-search services leverage their search technologyfines, penalties, and criminal sanctions against us, our officers, or our employees, and prohibitions on how or where we conduct or propose to aggregate travel search results for the consumer's specific itinerary across travel service provider (e.g., accommodations, rental car companiesconduct our business. They could also delay or airlines), OTCprevent potential acquisitions, and other travel websites and, in many instances, compete directly with us for customers. Meta-search services intend to appeal to consumers by showing broader travel search results than may be available through OTCs or other travel websites, which could lead to travel service providers or others gaining a larger share of search traffic. TripAdvisor and trivago, two other leading meta-search companies, support their meta-search services with significant brand and performance advertising. Throughmaterially damage our KAYAK meta-search service, we compete directly with other meta-search services. Further, meta-search services may evolve into more traditional OTCs by offering consumers thereputation, brands, global expansion efforts, ability to make travel reservations directly through their websites. For example, TripAdvisor allows consumers to make a reservation on TripAdvisor at some accommodations through its "Instant Booking" offering, which includes participationattract and retain employees and business partners, business, and operating results. Even if we comply with these laws and regulations, doing business in certain jurisdictions or violations of these laws and regulations by many of the leading global hotel chains.
•Data Protection and Privacy: We have established and continue to maintain policies and a global governance framework to comply with laws that apply to our business, meet evolving stakeholder expectations, and support business innovation and growth. In the European Union, the General Data Protection Regulation (the "GDPR") imposes significant compliance obligations and costs. In the United States, the California Consumer Privacy Act (the "CCPA") and the California Privacy Rights Act ("CPRA") impose privacy requirements and rights for consumers in California that will result in additional compliance complexity, risks, and costs. Many other U.S. states and jurisdictions globally have adopted or may adopt similar data protection regulations. Some data protection and privacy
4
laws afford consumers a private right of action against companies like ours for certain statutory violations. In many cases, data protection and privacy laws restrict the transfers of information among our subsidiaries, including employee information.
•Competition, Consumer Protection and Online Commerce: Competition and consumer protection laws and regulations impact various aspects of our business. There is significant legislative and public focus on large technology companies, including in relation to the regulation of digital platforms. The Digital Markets Act ("DMA") and Digital Services Act ("DSA") give regulators in the EU more instruments to investigate and regulate digital businesses and impose new rules and requirements on platforms designated as "gatekeepers" under the DMA and online platforms more generally, with separate rules for "Very Large Online Platforms" ("VLOPs") under the DSA. If the European Commission determines that we are a gatekeeper or one of our brands is a VLOP, we will be subject to additional rules and regulations that may not be applicable to our competitors.
•Regulation of the Travel Industry: Our business could be harmed.impacted by travel-related regulations such as local regulation of the use of alternative accommodations. In addition, in response to the significant increase in travelers in 2022, local jurisdictions and tourist destinations around the world have instituted a variety of measures to address the issues of "overtourism" and the impact of tourism on climate. As our business evolves, we expect to become subject to existing and new regulations. For example, some parts of our business are already subject to certain requirements of the EU Package Travel Directive (the "Package Directive"), and as our offerings continue to diversify and expand, we may become subject to additional requirements of the Package Directive.
•Payments: As we expand our payments services to consumers and business partners, we are subject to additional regulations, such as financial services regulations and license requirements, which has resulted in increased compliance costs and complexities, including those associated with the implementation of new or more stringent internal controls. We are also subject to payment card association rules and obligations under our contracts with payment card processors, including the Payment Card Industry Data Security Standard, compliance with which is complex and costly.
For further discussion of these regulations and how other global regulations may impact our business, see Part I, Item 1A, Risk Factors - "Information Security, Cybersecurity, and Data Privacy Risks" and"Legal, Tax, Regulatory, Compliance, and Reputational Risks."
Technology
Our business is supported by multiple systems and platforms, which were designed with an emphasis on scalability, performance, reliability, redundancy, and reliability. The platforms are generally independent among our brands, though some systems have become increasingly connected or shared.security. Our software systems, platforms, and architecture use a variety of widely-used software tools and database systems. We are modernizing our technology by building new applications with modern development tools and application programming interfaces and increasingly rely upon public cloud infrastructure for certain systems and data.
These internal systems and platforms wereare designed to include open application protocol interfaces that can provide connectivity to vendors in the industries in which we operate. These include large global systems, such as accommodation, airline ticketflight, and rental car reservation systems, and financial service providers, as well as individual accommodation service providers, such as individualindependent hotels. Our applications utilize digital certificates and other security technologies to help us conduct secure communications and transactions, as appropriate. The systems infrastructure and web and database servers of our worldwide operations are primarily hosted in the United Kingdom, Switzerland, the Netherlands, Germany, Singapore, Hong Kong, and fourmultiple locations in the United States, each of which provides network connectivity, networking infrastructure, and 24-hour monitoring and engineering support typical of hosted data centers. All data center facilities have a continuous power supply system, generators, redundant servers, and multiple back-up systems. Although we take steps to mitigate the effects of any lossAny system failure that causes an interruption or reductiondelay in service at onecould impair our reputation, damage our brands, increase customer service costs, or result in lost business, any of which could have a material adverse effect on our business and results of operations. For further discussion of our hosting facilities, if a hosting facility were inaccessible or otherwise experienced a disruption in service for any reason, we could experience a disruption totechnology and how it may impact our services, loss of transactionsbusiness, see Part I, Item 1A-Risk Factors - "Information Security, Cybersecurity, and revenue and consumer complaints.Data Privacy Risks."
Intellectual Property
5
Seasonality and Other Timing Factors
•The level of acceleration or after January 1, 2018, at the time of check-in). Recently, we have seen a modest contraction of the booking window. Future changesdeceleration in the booking window may cause additional differences between our gross bookings growth rates and revenue growth rates.
The COVID-19 pandemic has impacted the booking window of our business since its onset in 2020. For example, in 2022, we saw a shorter booking window than we saw in 2019, as an increased percentage of bookings were made for travel that was to occur close to the time of booking. However, in 2022, we saw the booking window expand compared to 2021. As the travel market continues to recover from the impact of the COVID-19 pandemic, we expect to see periods of gross bookings growth rate acceleration, which will likely result in periods where our operating margins are negatively impacted due to the timing difference of when marketing expense is recorded and when revenue is recognized.
Human Capital Resources
Workforce
Our Board of Directors and the Compensation Committee have oversight of our human capital management. We operate multiple brands to appeal to different consumers, pursue distinct marketing and business strategies, encourage experimentation and innovation, provide numerous service offerings, and focus on various markets. While we continue to optimize the collaboration among our brands, our structure often manifests in varied approaches to human capital management.
At December 31, 2017,2022, we employed approximately 22,90021,600 employees, of which approximately 4,2003,100 were based in the United States, and approximately 18,70018,500 were based outside the United States. Approximately 99% of our employees are full-time employees. We also retain independent contractors, including to support our customer service, website content translation, and system support functions.
6
Employees by Geography (as of December 31, 2022)
Diversity, Inclusion, and Belonging
Our commitment to diversity, inclusion, and belonging means honoring all experiences, valuing all voices, and leading with empathy on our journey to become a more inclusive company. We believe that a diverse workforce operating in an inclusive environment is critical to leveraging our human capital to achieve our long-term strategic goals. We strive for our leadership and workforce to reflect the broad spectrum of customers and partners we work with throughout the world because we believe this is the best way for us to connect with the viewpoints, backgrounds, and experiences of our customers and partners. We are committed to creating workplaces that embrace and celebrate the different cultures and practices of our employees and we prohibit unlawful discrimination of any type.
As of December 31, 2022, approximately 47% of our employees were women, approximately 25% of our technology positions were filled by women, and approximately 31% of leadership (which includes vice presidents and above for all brands except Booking.com, which includes senior directors and above due to a greater number of employees) were women. We are committed to pay equity, regardless of gender, race, or ethnicity. With the help of an independent compensation consultant, we conduct pay equity studies every other year, and in the off years, we work on remediation plans to address outliers.
Gender Diversity of Employees(as of December 31, 2022)
While a significant percentage of our workforce is located in jurisdictions that may present challenges to tracking employee racial or ethnic demographics for legal reasons, we seek other ways to assess our employees' experience of inclusion. For example, all of our brands include diversity and inclusion questions in annual employee engagement surveys to gauge our inclusivity progress. We also publish our consolidated EEO-1 report for employees in the United States, although this represents only approximately 15% of our workforce as of December 31, 2022.
We encourage equality and inclusivity across our workforce through various initiatives. As part of our recruitment efforts to ensure that candidate slates are diverse, we use diversity-focused sourcing platforms, we apply an inclusive language tool to job descriptions to attract historically underrepresented candidates, and we hold recruiters accountable for presenting multicultural candidates by tying it to their performance goals. In addition, we provide training to ensure interviewers consider all candidates objectively.
7
We have never hadinvested in a robust inclusive leadership training program and unconscious bias training for our leaders with plans to cascade these initiatives further into the organization to ensure that these tenets are core to our strategy. Additionally, we are entering our seventh year of operating our Women in Leadership program, which is a Company-wide initiative designed to support the advancement and development of high-performing women within our company with the goal of building and enabling gender diversity in our executive pipeline. We sponsor various employee resource groups to support the LGBTQ community and its allies, employees with differing physical and mental abilities, the Black and persons-of-color (POC) community, veteran employees, and gender equality. We are proud of the progress we have made in this space and recognize we can always improve.
Attraction, Development, and Retention
We work stoppagediligently to attract the best and most innovative talent from a wide range of sources to grow our business and achieve our long term strategic goals. We believe that we consideroffer a rich culture where employees feel included and empowered to do their best work with opportunities to grow as well as competitive compensation and benefits. For example, while the specifics can vary by brand, in the United States our relationsemployee benefit plans generally include: coverage for infertility treatments, gender reassignment surgery, gender-neutral domestic partner benefits, and paid leave for new parents, those caring for a loved one, or bereavement.
We prioritize and invest in creating opportunities for employees to grow and build their careers through training and development programs. These include offering tailored learning opportunities to enable employees to upskill while at work and driving frequent career conversations between employees and their managers, as well as executive talent and succession planning.
Competition for talent in our industry has historically been intense. However, the proliferation of global working from anywhere policies and the associated increased ability for employees to seek out and switch jobs that may not have been accessible to them previously has heightened the competition for employees even further, particularly software engineers, mobile communications talent, and other technology professionals. As a result, the competition for talent in our industry combined with inflationary pressure on compensation has caused our expenses to attract and retain key talent to increase. We continue to focus on our employees’ engagement and mental well-being, career satisfaction, development, and succession planning.
We recognize that expectations for the ways and places in which employees work have shifted dramatically as a result of the COVID-19 pandemic. Each of our brands has taken their own tailored approach to working policies that takes into account geographic location and the needs of current and prospective employees. A number of our brands have adopted more flexible work arrangements, including hybrid work from office and home flex programs.
We measure organizational culture and engagement so we can be responsive to our employees’ needs. Taking into account employee feedback, our engagement efforts include regular communication touchpoints with the CEO and other senior leaders, virtual mental wellness workshops, and free access to a meditation app and telehealth services. We regularly connect with our employees through formal engagement surveys, work-from-home surveys, and quick pulse surveys to be good. request feedback on the employee experience. The results of these efforts are shared with senior management at each of our brands who analyze areas of progress or prioritize areas for improvement in order to encourage and sustain employee engagement. We are proud that the results of our employee engagement surveys throughout 2022 broadly demonstrate a committed and engaged workforce.
Employee Relations
Although we have works councils or employee representatives in certain countries, our U.S. employees are not represented by a labor union and are not covered by a collective bargaining agreement. Our future success will depend,We work in part, onclose collaboration with works councils, employee representatives, and other organizations in the relevant jurisdictions. We have never had a work stoppage and we consider our abilityrelations with our employees to continue to attract, integrate, retain and motivate highly qualified technical and managerial personnel, for whom competition is intense. Seebe good.
For more information, see Part I, Item 1A, Risk Factors -"- "We rely on the performance of highly skilled personnel;employees; and, if we are unable to retain or motivate key personnelemployees or hire, retain, and motivate qualified personnel,well-qualified employees, our business would be harmed.harmed."
8
Company Websites
We maintain websites with the addresses www.bookingholdings.com, www.booking.com, www.priceline.com, www.kayak.com, www.agoda.com, www.rentalcars.com, www.opentable.comwww.kayak.com, and www.momondo.com,www.opentable.com, among others. We are not including the information contained on our websites as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge through the www.bookingholdings.com website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC. These reports and other information are also available, free of charge, at www.sec.gov. Alternatively, the public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the Company's Code of Conduct is available through the www.bookingholdings.com website and any amendments to or waivers of the Code of Conduct will be disclosed on that website.
Item 1A. Risk Factors
The risk factors section below contains a description of the significant risks facing our Company and should be carefully considered in full. The following is only a summary of the principal risks occur,that make an investment in our securities speculative or risky.
Risk Factors Summary
Industry and Business Risks
•Adverse changes in market conditions for travel services;
•The effects of competition;
•Our ability to successfully manage growth and expand our global business;
•The adverse impact of the COVID-19 pandemic on our business, financial condition, operatingperformance, and travel demand;
•Adverse changes in relationships with travel service providers and restaurants and other third parties on which we are dependent;
•Our performance marketing efficiency and the general effectiveness of our marketing efforts;
•Our ability to respond to and keep up with the rapid pace of technological and market changes;
•Our ability to attract and retain qualified personnel;
•Any change by our search and meta-search partners in how they present travel search results or conduct their auctions for search placement that would impact us negatively;
•Any write-downs or impairments of goodwill or intangible assets related to acquisitions or investments, any increases in provisions for expected credit losses on receivables from and cash flows could be materially adversely affected.advances made to our travel service provider and restaurant partners, and any increases in cash outlays to refund consumers for prepaid reservations;
Information Security, Cybersecurity, and Data Privacy Risks
•Risks related to data privacy obligations and cyberattacks;
•IT systems-related failures or security breaches;
Legal, Tax, Regulatory, Compliance, and Reputational Risks
•Tax, legal, and regulatory risks;
•Risks associated with the facilitation of payments;
Financial Risks
•Fluctuations in foreign currency exchange rates and other risks associated with doing business in multiple currencies and jurisdictions;
•Financial risks including increased debt levels and stock price volatility; and
•Success of investments and acquisitions, including integration of acquired businesses.
Industry and Business Risks
Declines or disruptions in the travel industry could adversely affect our business and financial performance.
Our financial results and prospects are almost entirely dependent upon the sale of travel services. Travel, including accommodation, (including hotels, motels, resorts, homes, apartments, bed and breakfasts, hostels and other properties), rental car, and airline ticket reservations, is significantly dependent on discretionary spending levels. As a result,Demand for and sales of travel services tend tooften decline during generalperiods of perceived or actual adverse economic downturns and recessionsconditions and times of political or economic uncertainty as consumers engage in less discretionary spending, are concerned about unemployment or inflation, have reduced access to credit, or experience other concerns or effects that reduce their ability or willingness to travel.
10
Intense competition could reduce our market share and harm our financial performance.
We compete globally with both online and traditional travel and restaurant reservation and related services. The markets for the services we offer are intensely competitive, constantly evolving, and subject to rapid change, and current and new competitors can and do launch new services at a relatively low cost. Some of our current and potential competitors, such as Google, Apple, Alibaba, Tencent, Amazon, Uber, and Facebook,Meta, have access to significantly greatermore customers or users, consumer data, and more diversifiedfinancial and other resources than we do, and they may be able to leverage other aspects of their businesses (e.g., search or mobile device businesses) to enable them to compete more effectively with us. For example, Google’s online travel offerings have grown rapidly by linking travel search services to its dominant search functionality through flight, hotel, and alternative accommodations meta-search products, and integrating its hotel meta-search products and restaurant information and reservation products into Google has entered various aspectsMaps. As the economy and the travel industry recover from the impact of the onlineCOVID-19 pandemic, the structure of the travel market, including by establishingindustry or consumer preferences could change in ways that could disadvantage us and benefit certain of our existing competitors or new entrants. For example, as a flight meta-search product ("Google Flights")result of the COVID-19 pandemic and the resulting international travel restrictions and social distancing practices, we saw a hotel meta-search product ("Google Hotel Ads")shift in favor of domestic travel and alternative accommodations. This shift could benefit competitors that are growing rapidly, asmore well as its "Book on Google" reservation functionalityestablished in domestic markets and its Google Trips app.alternative accommodations. As a result, our historical strengths may not provide the competitive advantages that they did prior to the pandemic. If we are unable to successfully adapt to changes in how the travel industry operates or to changes in the ways in which consumers purchase travel services, our ability to compete, and therefore our business and results of operations, would be adversely affected.
We currently, or may potentially in the future, compete with companies that provide a variety of companies,products and services, including:
•online travel reservation services such as Expedia, Hotels.com, Hotwire, Orbitz, Travelocity, Wotif, Cheaptickets, ebookers, HotelClub, RatesToGo and CarRentals.com, which are owned by Expedia; Hotel Reservation Service (HRS) and hotel.de, which are owned by Hotel Reservation Service; and AutoEurope, CarTrawler, Ctrip (in which we hold a minority interest), eLong (in which Ctrip holds a significant minority interest), ezTravel (in which Ctrip holds a majority interest), Meituan (in which we hold a small minority interest), MakeMyTrip, OYO Rooms, Yatra, Cleartrip, Traveloka (in which Expedia holds a minority interest), Webjet, Rakuten, Jalan (which is owned by Recruit), ViajaNet, Submarino Viagens, Despegar/Decolar (in which Expedia holds a minority interest), Fliggy (operated by Alibaba), 17u.com, HotelTonight, CheapOair and eDreams ODIGEO;services;
•online accommodation search and/or reservation services such as Airbnb, HomeAway (which is owned by Expedia) and Tujia (in which Ctrip and Expedia hold investments), currentlythat are focused primarily on alternative accommodations;
•travel service providers (e.g., accommodations, including individually owned properties such as homesrental car companies, or airlines) that have their own branded online platforms to which they drive business and apartments;may be able to offer lower prices on their direct channel than they provide to us;
11
•large online companies, including search, social networking, and marketplace companies such as Google, Facebook, Alibaba, Tencent, Amazon and Baidu;companies;
•traditional travel agencies, travel management companies, wholesalers and tour operators, many of which combine physical locations, telephone services, and online services, such as Carlson Wagonlit, American Express, BCD Travel, Concur (which is owned by SAP), Thomas Cook, TUI, and Hotelbeds (which acquired Tourico and GTA in 2017), as well as thousands of individual travel agencies around the world;services;
•online travel searchmeta-search and price comparison services;
•"Super apps" that offer consumers a wide range of everyday and other services (generally referred to as "meta-search" services), such as Google Flights, Google Hotel Ads, TripAdvisor, trivago (in which Expedia holds a majority interest), Qunar (which is controlled by Ctrip), Skyscanner (in which Ctrip holds a majority interest) and HotelsCombined;including travel bookings;
•companies offering new rental car business models or car- or ride-sharing services that affect demand for rental cars, some of which have developed innovative technologies to improve efficiency of point-to-point transportation and extensively utilize mobile platforms, such as Uber, Lyft, Gett, Zipcar (which is owned by Avis), BlaBlaCar, Didi Chuxing, Grabplatforms;
•online restaurant reservation services; and Ola; and
•companies offering technology services and software solutions to accommodationtravel service providers, including large global distribution systems or GDSs, such as Amadeus("GDSs") and Sabre.hospitality software and payments platforms.
Travel service providers with which we conduct business compete with us in online channels to drive consumers directly to their own platforms. Travel service providers, such as large hotel chains, may charge lower prices and offer advantages such as loyalty points or special discounts to members of closed-user groups (such as loyalty program participants or consumers with registered accounts), any of which could make their offerings more attractive to consumers than our services. We also offer various incentives to consumers and may need to offer additional or increased incentives to maintain or grow our reservation bookings, which could adversely impact our profit margins. Further, consolidation among travel service providers could result in lower OTC commission rates, increased discounting, and greater incentives for consumers to join closed-user groups as such travel service providers expand their offerings. If we are not as effective as our competitors in offering
12
discounted prices and other incentives or value to consumers, our ability to grow and compete and our results of operations wouldcould be harmed.
Although we believe that providing an extensive collection of properties, excellent customer service, and an intuitive, easy to use website or mobileeasy-to-use consumer experience are important factors influencing a consumer's decision to make a reservation, for many consumers particularly in certain markets, the price of the travel service is the primary factor determining whether a consumer willto book a reservation. As a result, itIt is increasingly important to offer travel services such as hotel room rates, at competitive prices, whether through discounts, coupons, closed-user group rates or loyalty programs, increased flexibility in cancellation policies, or otherwise. Discounting and couponing coupled with a high degree of consumer shopping behavior ishas become typical throughout the world, particularly common in Asian markets, while brand loyalty in such markets can be less important.markets. In some cases, our competitors are willing to make little or no profit on a transaction or offer travel services at a loss in order to gain market share. As a result, in certain markets we may need to provide discounts or other incentives in order to be competitive, which may make it difficult for us to maintain or grow market share, maintain historical profit margins, and may also result in lower ADRs and lower revenues as a percentage of gross bookings. If we are unable to effectively compete in these markets,offer competitive prices, our market share, business, and results of operations could be materially adversely affected.
We face risks related to the growth rate and the global expansion of our business.
We derive a substantial portion of our revenues and have significant operations outside the United States. Our international businesses includeBefore the Netherlands-based accommodation reservation service Booking.com, the Asia-based accommodation reservation service agoda.com, the U.K.-based rental car reservation service Rentalcars.com (which began operating as part of Booking.com on January 1, 2018) and, to a lesser extent, KAYAK's international meta-search services and OpenTable's international restaurant reservation business. Our internationalCOVID-19 pandemic, our OTC operations haveoutside of the United States historically had achieved significant year-over-year growth in their gross bookings. Thesebookings, in particular Booking.com’s accommodation reservation services. Without taking into consideration the recent declines caused by the COVID-19 pandemic, these growth rates, which have contributed significantly to our historical growth in consolidated revenue, gross profitrevenues and earnings, havehad generally declined a trend we expect to continueover time as the absolute level of our gross bookings increases. Otherincreased and online travel growth rates declined. In addition to the general slowing growth rates of online travel and the effects of the COVID-19 pandemic, other factors may also slow the growth rates of our international businesses outside of the United States, including for example, worldwide or regional economic conditions, strengthening of the U.S. Dollar versus the Euro, the British Pound Sterling, and other currencies, declines in ADRs, increases in cancellations, adverse changes in travel market conditions, and the competitiveness of the market. AAny decline in the growth rates of our international businesses could have a negative impact onoutside of the U.S. negatively impacts our revenue and earnings growth rates and as a consequence our stock price.
Our long-term strategy involves continued expansion in regions throughout the world. Many of these regions have different economic conditions, customs, languages, currencies, consumer expectations, levels of consumer acceptance and use of the internet for commerce, legislation, regulatory environments (including labor laws and customs), tax laws and levels of political stability,world, and we are subject to associated risks typical of international businesses. International markets may have strong local competitors with an established brand and travel service provider or restaurant relationships that may make expansion in that market difficult andor costly and take more time than anticipated. In addition, compliance with legal, regulatory or tax requirementsCertain markets in multiple jurisdictions places demandswhich we operate have unique localized preferences and lower operating margins compared to other markets. Scaling and growing our business in these markets, in particular in Asia, could require significant investment, which could have a negative impact on our time and resources, and we may nonetheless experience unforeseen and potentially adverse legal, regulatory or tax consequences.profit margins. In some markets such as China, legal and other regulatory requirements may prohibit or limit participation by foreign businesses, such as by making foreign ownership or management of internet or travel-related businesses illegal or difficult, or may make direct participation in those markets uneconomic,uneconomical, which could make our entry into and expansion in those markets difficult or impossible, require that we work with a local partner, or result in higher operating costs. If we are unsuccessful in rapidly expanding in new and existing markets and effectively managing that expansion, our business and results of operations could be adversely affected.
We intend to continue to invest in adding accommodationsimprove the accommodation choices available for reservation on our websites, suchplatforms, however the growth rate of the number of accommodations on our platforms may vary in part as hotels, motels, resorts, homes, apartments and other unique placesa result of removing accommodations from our platforms from time to stay.time. Many of the newer accommodations we add to our travel reservation services, especially in highly-penetrated markets, may have fewer rooms or higher credit risk and may appeal to a smaller subset of consumers (e.g., hostels and bed and breakfasts). Because alternative accommodations are often either a single unit or a small collection of independent units, these properties generally represent more limited booking opportunities than hotels, motels and resorts, which generally have more units to rent per property. Further, alternative accommodations in general may be subject to increased seasonality due to local tourism seasons, weather or other factors or may not be available at peak times due to use by the property owners, and we may also experience lower profit margins with respect to these properties due to certain additional costs related to offering these accommodations on our websites. As we increase our alternative accommodation business, these different characteristics could negatively impact our profit margins; and, to the extent these properties represent an increasing percentage of the properties added to our websites, we expect that our gross bookings growth rate and property growth rate will continue to diverge over time (since each such property has fewer booking opportunities). As a result of the foregoing, as the percentage of alternative accommodation properties increases, the number of reservations per property will likely continue to decrease.
We believe that the increase in the number, variety, and quality of accommodation providers that participateaccommodations on our websites,platforms, and the corresponding access to accommodation room nights, hashad been a key driver of the growth of our accommodation reservation business. The growth in ourbusiness prior to the COVID-19 pandemic. As accommodation bookings typically makes us an attractive source of consumer demand for our accommodation providers. However, accommodation providers recover from the COVID-19 pandemic and occupancy rates increase, they may wish to limit the amount of business that flows through a singlecertain distribution channel.channels. Also, certain jurisdictions particularly in Europe, are consideringhave instituted regulations intended to address the issueissues of "overtourism,""overtourism" and the impact of tourism on climate, including by restricting accommodation offerings in city centers or near popular tourist destinations, such as by restricting construction of new hotels or the renting of homes or apartments.apartments, introducing quota or registration systems, or increasing visitor fees or taxes. Such restrictions could also include limiting the number of tourists permitted to visit and stay near popular areas during peak seasons or as a general matter. As a result, we may experience constraints on the number of listings, or accommodation room nights, actually available to us or could experience a decrease in demand if consumers cannot book the experiences they would like during their trip, which could negatively impact our business growth rate and results of operations.
13
The number of our employees worldwideCOVID-19 pandemic has grown from approximately 6,900 as of December 31, 2012 to approximately 22,900 as of December 31, 2017, which growth is mostly comprised of hires by our international operations. Wematerially adversely affected, and may not be able to hire, train, retain, motivate and manage required personnel, which may limit our growth, damage our reputation, negatively affect our financial performance, and otherwise harm our business. In addition, expansion increases the complexity offurther adversely impact, our business and places additional strainfinancial performance.
In response to the COVID-19 pandemic, certain governments and businesses around the world continue to implement a variety of restrictive measures to reduce the spread of COVID-19. These measures have had a significant adverse effect on many of the partners on which our business relies, including hotels and other accommodation providers, airlines, and restaurants, as well as on our management,consumers, operations, technical performance, financial resources and internal financial controlworkforce. The spread of variants of COVID-19 and reporting functions. Our currentongoing restrictive measures in certain places have caused uncertainty. We cannot predict the long-term effects of the pandemic on our business or the travel and planned personnel, systems, proceduresrestaurant industries as a whole. If the travel and controls may not be adequate to support and effectively manage this growth and our future operations, especially as we employ personnelrestaurant industries are fundamentally changed by the COVID-19 pandemic in multiple geographic locations around the world.
Our online performance advertising efficiency, expressed as performance advertising expense as a percentage of gross profit, is impacted by a number of factors thatfinancial results and prospects are subject to variability and that are, in some cases, outside of our control, including ADRs, costs per click, cancellation rates, foreign exchange rates, our ability to convert paid traffic to booking customers and the extent to which consumers come directly to our websites or mobile apps for bookings. For example, competition for desired rankings in search results and/or a decline in ad clicks by consumers could increase our costs-per-click and reduce our performance advertising efficiency. We use third-party websites, including online search engines (primarily Google), meta-search and travel research services and affiliate marketing as primary means of generating traffic to our websites. Our performance advertising expense has increased significantly and our performance advertising efficiency has declined in recent years, a trend we expect to continue, though the rate of decrease may fluctuate and there may be periods of stable or increasing ROIs from time to time. Further, at times we may pursue a strategy of increasing performance advertising ROIs, which could negatively affect our gross bookings and gross profit growth rates. Any reduction in our performance advertising efficiency could have an adverse effect on our business and results of operations, whether through reduced revenues or revenue growth or through advertising expenses increasing faster than revenues and thereby reducing margins and earnings growth.
customer spending, including other economic impacts such as inflation that have resulted in part from the pandemic. The tax law changes made by the Tax Act are broad and complex, and there are significant uncertainties about how the Tax Act will be interpreted at both the U.S. federal and state levels, and limited guidance is available from tax authorities at this time. The interpretation and implementationeffects of the Tax Act, and regulations, rules or guidance thatpandemic, including the imposition of travel restrictions, may be adopted under or resulting fromcontinue to fluctuate throughout the Tax Actworld, which could materially change the provisional tax that we recognized in 2017 and the expected future impactcontinue to affect our business. If ongoing effects of the Tax Act on our business.
We are dependent on providers of accommodations, rental cars, and airline tickets and on restaurants.
We rely on providers of accommodations, rental cars, and airline tickets, and on restaurants, to make their services available to consumers through us. Our arrangements with travel service providers generally do not require them to make available any specific quantity of accommodation reservations, rental cars, or airline tickets, or to make accommodation reservations, rental cars, or airline tickets available in any geographic area, for any particular route, or at any particular price. Similarly, our arrangements with restaurants generally do not require them to provide all of their available tables and reservations to customers through us. We are in regular dialogue with our major travel service providers about the nature and extent of their participation in our services. A significant reduction on the part of any of our major travel service providers or providers that are particularly popular with consumers in their participation in our services for a sustained period of time or their complete withdrawal in favor of one of our competitors’ services or requiring consumers to purchase directly from them could have a material adverse effect on our business, market share, and results of operations. To the extent any of those major or popular travel service providers ceased to participate in our services in favor of one of our competitors' systems or decided to require consumers to purchase services directly from them, our business, market share and results of operations could be harmed. During periods of higher occupancy rates, accommodation providers may decrease their distribution of accommodation reservations through third-party intermediaries like us, in particular throughparticularly with regard to our discount services such as priceline.com's Express Deals® and Name Your Own Price® services.discounted offerings. Further, as consolidation among travel service providers increases, the potential adverse effect of a decision by any particular significant travel service provider (such as a large hotel chain, airline, or rental car company) to withdraw from or reduce its participation in our services also increases. In particular, the potential harm to our business and results of operations is greater if any larger partners such as airlines, hotel chains, or large rental car companies declare bankruptcy or close. To the extent restaurants limit the availability of reservations through OpenTable or if a significant number of restaurants cease to participate in our services, consumers may not continue to use our services and/or our revenues and results of operations could be adversely affected, especially if reservations during highly desirable timesaffected.
We offer a range of optional insurance products and coverages related to our travel offerings primarily through unaffiliated third-party insurance providers. We are dependent on high volume days are not madesuch providers to make their services available to consumers through us. Our business and reputation may be adversely affected if such insurers no longer make such insurance offerings available to us on economically reasonable terms or at all or if such insurance providers fail to pay out under these insurance policies.
KAYAK, a meta-search service, depends on access to information related to travel service pricing, schedules, availability, and other related information from OTCs and travel service providers to attract consumers. To obtain this information, KAYAK maintains relationships with travel service providers and OTCs. Many of KAYAK's agreements with OTCs and travel service providers and OTCs are short-term agreements that may be terminated on 30 days' notice. To the extent OTCs or travel service providers no longer provide such information to KAYAK, KAYAK's ability to provide comprehensive travel service information to consumers could be diminished and its brand, business, and results of operations could be harmed. To the extent consumers do not view KAYAK as a reliable source of comprehensive travel service
14
information, fewer consumers would likely visit its websites, which would also likely have a negative impact on KAYAK's advertising revenue and results of operations. In addition, if OTCs or travel service providers or OTCs choose not to advertise with KAYAK or choose to reduce or eliminate the fees paid to KAYAK for referrals from query results, KAYAK's business and results of operations could be adversely affected.
We face risks related to the growth of our alternative accommodations business.
As our alternative accommodations business continues to grow, we face new risks relating to characteristics of this business that impact our profits and other metrics. We may also face new claims of liability and are subject to regulatory developments that affect our business. Because alternative accommodations are often either a single unit or a small collection of independent units, these properties generally represent more limited booking opportunities than hotels, motels, and resorts, which generally have more units to rent per property. Further, alternative accommodations in general may be subject to increased seasonality or may not be available at peak times due to use by the property owners. Lower profit margins are associated with alternative accommodation properties due to certain additional costs related to offering these accommodations on our platforms. As we increase our alternative accommodation business, these different characteristics negatively impact our profit margins and to the extent these properties represent an increasing percentage of the properties we add to our platforms, we expect that our room-night growth rate and property growth rate will continue to diverge over time (since each such alternative accommodation property has fewer booking opportunities). As a result, as the percentage of alternative accommodation properties increases, the number of reservations per property will likely continue to decrease.
In addition, as our alternative accommodation reservation business grows, we may experience claims of liability based on events occurring at properties listed on our platforms such as robbery, injury, death, discrimination, or other criminal activities. We have no control over the actions or ability to predict the actions of our consumers, property owners, and other third parties during the customer’s stay, and as a result we cannot guarantee the safety of our consumers, property owners, and third parties. In addition, we have not in the past and may not in the future undertake to independently verify the safety, suitability, location, quality, and legal compliance, such as fire code compliance or the presence of carbon monoxide detectors, of all our alternative accommodation listings. We have in the past relied and may in the future rely on property owners to disclose information relating to their listings and such information may be inaccurate or incomplete. In addition, Booking.com facilitates the provision of partner liability insurance that may protect alternative accommodation partners against liability claims, lawsuits by third parties for bodily injury, or personal property damage that occur during a stay at a partner property reserved via Booking.com. This partner liability insurance, if applicable to the claim, may provide partners with up to $1.0 million equivalent (policy limit) of third party liability coverage related to investigation, defense, and/or other costs related to the underlying claim. The Company could be required to pay amounts in excess of the partner liability policy limit. Any resulting complaints or claims, even if such a claim does not result in liability, could result in negative publicity and increased costs, which could adversely affect our reputation, business, and results of operations.
Further, the regulatory environment related to the alternative accommodations business is evolving, and laws, regulations, or property association rules could impose restrictions or burdens on these property owners and managers that limit or negatively affect their ability to rent their properties. For example, the European Commission has proposed a short-term rental regulation which, if enacted, could have a material impact on the way short-term rentals are regulated in the European Union and the obligations on platforms including around data sharing or the need to enforce local registration schemes, and in conjunction with the Digital Services Act. For additional discussion regarding the Digital Services Act, see below Part I, Item 1A, Risk Factors - "Our business is subject to various competition/anti-trust, consumer protection, and online commerce laws, rules, and regulations around the world, and as the size of our business grows, scrutiny of our business by legislators and regulators in these areas may intensify." Some jurisdictions have adopted or are considering statutes or ordinances that prohibit owners and managers from renting certain properties for fewer than a stated number of consecutive days or for more than an aggregate total number of days per year or that require owners or managers to obtain a license to rent their properties. From time to time, we are subject to inquiries related to compliance with alternative accommodation laws, rules, and regulations that we may not be able to respond to in a timely manner or in full satisfaction of such requests. The outcome of such inquiries has resulted in fines and could result in additional fines, adversely affect our reputation, or require modifications to our business operations, which could result in increased legal and compliance costs. In addition, several jurisdictions have adopted or are considering adopting statutes or ordinances requiring online platforms that list certain alternative accommodations to obtain a license to list such accommodations and/or to comply with other restrictions or requirements. Laws, rules, and regulations applicable to alternative accommodations are evolving and can be distinct and inconsistent among the various municipalities, regions, and countries in which we operate. As a result, tracking and compliance with these laws, rules, and regulations can be difficult and costly. As governments adopt new laws, rules, and regulations related to alternative accommodations, we are unable to predict what, if any, effect they may have on our business. This dynamic regulatory environment requires us to expend significant time and resources and could negatively impact the growth and/or size of our alternative accommodation reservation business.
15
We rely on marketing channels to generate a significant amount of traffic to our platforms and grow our business.
Maintaining and strengthening our brands are important aspects of our efforts to attract and retain customers. We have invested considerable resources in the establishment and maintenance of our brands, and we intend to continue to invest resources in marketing and other brand building efforts to preserve and enhance consumer awareness of our brands when and to the extent we deem appropriate. Our marketing spend is influenced by the marketing spend of our competitors as we seek to maintain and increase our brand recognition and to maintain and grow traffic to our platforms through performance marketing channels. We may not be able to successfully maintain or enhance consumer awareness and acceptance of our brands, and even if we are successful in our branding efforts such efforts may not be cost-effective. If we are unable to maintain or enhance consumer awareness and acceptance of our brands in a cost-effective manner, our business, market share, and results of operations would be materially adversely affected.
Our marketing efficiency, expressed as marketing expense as a percentage of revenues, is impacted by a number of factors that are subject to variability and are in some cases outside of our control, including ADRs, costs per click, cancellation rates, foreign currency exchange rates, our ability to convert paid traffic to booking customers, and the extent to which consumers come directly to our websites or mobile apps for bookings. Deterioration in our marketing efficiency could result in reduced revenues or revenue growth, or marketing expenses increasing faster than revenues, which would reduce margins and earnings growth. For example, competition for desired rankings in search results and/or a decline in ad clicks by consumers could increase our costs-per-click and impede our marketing efficiency. For more information regarding the role of online search engines in generating traffic to our websites, see Part I, Item 1A, Risk Factors - "Our business could be negatively affected by changes in online search and meta-search algorithms and dynamics or traffic-generating arrangements." At times we may pursue a strategy of increasing marketing returns on investment ("ROIs"), which could negatively affect our gross bookings and revenue growth rates. When evaluating our performance marketing spend generally, we consider several factors for each channel, such as the customer experience on the advertising platform, the incrementality of the traffic we receive, the anticipated repeat rate from a particular platform, and the likelihood of cancellation. Pursuing a strategy of improving marketing ROIs along with factors such as competitors' actions in the bidding environment, the amount of marketing invested by these channels to generate demand, and overall marketing platform traffic growth trends, which have shown volatility and long-term deceleration of growth rates, may also impact growth rates for marketing channels.
Many factors could cause consumers to increase their shopping activity before making a travel purchase. Increased shopping activity impedes our marketing efficiency and effectiveness because traffic becomes less likely to result in a reservation through our platforms, and such traffic is more likely to be obtained through paid marketing channels than through direct channels. Further, consumers may favor travel services offered by search or meta-search companies over OTCs, which could reduce traffic to our travel reservation platforms, increase consumer awareness of our competitors' brands and platforms, increase our marketing and other customer acquisition costs, and adversely affect our business, margins, and results of operations. To the extent any such increased shopping behavior leads to growth in our KAYAK meta-search business, such growth may not result in sufficient increases in revenues from our KAYAK meta-search business to offset any related decrease in revenues or increase in marketing and other customer acquisition costs experienced by our OTC brands.
We may not be able to keep up with rapid technological or other market changes.
The markets in which we compete are characterized by rapidly changing technology, evolving industry standards, consolidation, frequent new service announcements, introductions and enhancements, and changing consumer demands and preferences. These characteristics are changing at an even greater pace as OTCs and travel service providers seek to address consumer needs and preferences that resulted from the COVID-19 pandemic. We may not be able to keep up with these rapid changes. In addition, these market characteristics are heightened by the progress of technology adoption in various markets, including the continuing adoption of the internet and online commerce in certain geographies and the growth of the use of smartphones, tablets, and other smart devices for mobile e-commerce transactions. New developments in other areas such as cloud computing could make entering our markets easier for competitors due to lower upfront technology costs. It is increasingly important for us to effectively offer our services on mobile devices through mobile apps and mobile-optimized websites and to tailor our services to varying devices and platforms. See below Part I, Item 1A, Risk Factors - "Consumer adoption and use of mobile devices creates challenges and may enable device companies such as Google and Apple to compete directly with us."
Additionally, our ability to achieve our long-term strategy to build the Connected Trip depends on successfully integrating and developing new and evolving technologies, which will require increased financial and personnel investments that could have an adverse impact on our results of operations until we achieve the expected return on these investments. While we believe that we have the ability to achieve our long-term strategy to build the Connected Trip, the development of the
16
Connected Trip is subject to uncertainties, including further technical development of the flight, accommodation, and other verticals and technological capabilities necessary for the Connected Trip experience, the ability to collect, store, and use customer data in a compliant and integrated fashion, and the attraction and retention of employees dedicated to this development effort. As a result, it may take longer than we expect to build the Connected Trip or it may not achieve the expected return on investment. Consumer demand for the Connected Trip may also not be sustained at the levels that we anticipate. These efforts may also not be successful in improving the travel experience or retaining and attracting new customers. Further, regulatory authorities may subject us to existing or new rules or restrictions that could prevent us from successfully commercializing the Connected Trip or expose us to unanticipated claims or liabilities. With any technical innovation such as the Connected Trip effort, there could be bugs, vulnerabilities, and other system failures, which could result in lost business, harm to our brand or reputation, consumer complaints, and other adverse consequences, any of which could adversely affect our business and results of operations.
We are working toward enhancing our payments capabilities, including by offering alternative payment solutions to consumers even when those payment solutions may not be accepted by the travel service provider or restaurant. In many markets, particularly in Asia where credit cards are not readily available and/or e-commerce is largely carried out through mobile devices, alternative payment methods like Alipay, Paytm, and WeChat Pay that operate closed loop payments systems are the exclusive or preferred means of payment for many consumers. If we are unable to offer consumers their preferred method of payment by integrating new or emerging payment methods into our platforms, we may not be able to effectively offer our services to these consumers, which would limit our growth opportunities in these markets and our business and results of operations could be harmed.
Furthermore, in the future the competitive pressure to innovate could encompass a wider range of services and technologies, including services and technologies that may be outside of our historical core business, and our ability to keep pace may slow. Emerging start-ups may be able to innovate and focus on developing a particularly new product or service faster than we can or may foresee consumer need for new services or technologies before we do. Some of our competitors have more resources or more established or varied relationships with consumers than we have, and they could use these advantages to innovate in ways that could affect our competitive position. In addition, the widespread adoption of new internet, networking, or telecommunications technologies, such as artificial intelligence including machine learning ("AI"), smart home devices, chatbot, virtual reality technologies, development of the metaverse, and the creation of new "super-apps" could influence how customers search for and book travel, and require us to incur substantial expenditures to modify or adapt our services or infrastructure, which could adversely affect our results of operations or financial condition. For example, we incorporate AI into certain of our offerings. The use of AI presents risks and challenges including that algorithms may be flawed, datasets may be insufficient, erroneous, stale, or contain biased information, or content chosen for display to users by AI systems may be discriminatory, offensive, illegal, or otherwise harmful. These deficiencies and other failures of AI systems could subject us to competitive harm, regulatory action, legal liability, and brand or reputational harm.
Our future success will depend on our ability to adapt to rapidly changing technologies, to adapt our services and online platforms to evolving industry standards and local preferences, and to continually innovate and improve the performance, features, and reliability of our services and online platforms in response to competitive service offerings and the evolving demands of the marketplace.
We rely on the performance of highly skilled personnel;employees; and, if we are unable to retain or motivate key personnelemployees or hire, retain, and motivate qualified personnel,well-qualified employees, our business would be harmed.
Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization. In particular, the contributions ofindividuals, including key senior management in the United States, Europe, and Asia are critical to the overall management of our business.Asia. We may not be able to retain the services of any members of our senior management or other key employees, the loss of whom could harm our business and competitive position.
We had approximately 21,600 employees worldwide at December 31, 2022. Our future success and ability to innovate depends on our continuing to identify, attract, hire, develop, motivate, and retain a highly skilled, global, diverse workforce. In addition, competitionour customer service resources and outsource arrangements for customer support may be unable to provide adequate customer service support, particularly during peak periods. The COVID-19 pandemic has had and will have a long-term effect on how and from where people work, the attractiveness of our office environments, and remote working policies, and there may continue to be operational and workplace cultural challenges that may adversely affect our business, including talent retention, in the shorter term.
Competition for well-qualified employees in all aspects of our business, includingespecially software engineers, mobile communication talent, product professionals, and other technology professionals, is intense bothand costly. In particular, our success in markets across Europe, the United States, and abroad. Our international success in particularAsia has led to increased efforts by our competitors and others to hire our international employees. These difficulties may be amplified by increased ability to work remotely, evolving restrictions on immigration and
17
travel or availability of visas or work permits for skilled technology workers. Our continued ability to compete effectivelyworkers, and to innovatelaws or regulations in jurisdictions where we operate, such as a new cap on the Dutch (partial) tax exemption that benefits certain non-Dutch citizens working in the Netherlands. The competition for talent in our industry, including among established technology companies and develop products, services, technologies and enhancements dependsstartups, combined with inflationary pressure on compensation has caused our abilitypersonnel expenses to attract new employees and retain key talent to retainincrease, which may adversely affect our results of operations. There is also competition for technology talent from companies with whom we did not historically compete for talent that are transitioning to digital. The competition for talent is exacerbated by an increased willingness of certain companies to offer flexible and motivate existing employees.remote working policies, which expands the pool of candidates from which our competitors may attract talent. If we do not succeed in attracting well-qualified employees orand retaining and motivating existingwell-qualified employees, our business, our ability to grow and innovate, competitive position, reputation, and results of operations would be adversely affected.
Our business could be negatively affected by changes in online search and meta-search algorithms and dynamics or traffic-generating arrangements.
We use Google to generate a significant portion of traffic to our platforms and, to a lesser extent, we use other search and meta-search services to generate traffic to our platforms, principally through pay-per-click marketing campaigns. The pricing and operating dynamics on these search and meta-search platforms can experience rapid change commercially, technically, and competitively. For example, Google frequently updates and changes the logic which determines the placement and display of results of a consumer's search, such that the placement of links to our platforms can be negatively affected and our costs to improve or maintain our placement in search results can increase. The European Commission has fined Google significant amounts for anti-competitive behavior relating to its comparison-shopping service and online search advertising services. Changes by Google in how it presents travel search results, including promotion of its own travel meta-search services, amounts charged to travel partners for referrals, or the manner in which it conducts the auction for placement among search results may be competitively disadvantageous to us, may increase our costs, and may impact our ability to efficiently generate traffic to our platforms, which in turn would have an adverse effect on our business, market share, and results of operations. In addition, a decline or slowing growth in travel search traffic negatively impacts our ability to efficiently generate traffic to our platforms through performance marketing on general search platforms, which could have an adverse effect on our business and results of operations.
We purchase online traffic from a number of other sources, including some operated by our competitors, in the form of pay-per-click arrangements that can be terminated with little or no notice. If one or more of such arrangements is terminated, our business, market share, and results of operations could be adversely affected. We rely on various third-party distribution channels (i.e., marketing affiliates) to distribute accommodation, rental car, and airline ticket reservations. Should one or more of such third parties cease distribution of reservations made through us, or suffer deterioration in its search or meta-search ranking, due to changes in search or meta-search algorithms or otherwise, our business, market share, and results of operations could be adversely affected.
Consumer adoption and use of mobile devices creates challenges and may enable device companies such as Google and Apple to compete directly with us.
Widespread adoption of mobile devices, such as the iPhone and Android-enabled smartphones, coupled with the web browsing functionality and development of thousands of apps available on these devices, continues to drive substantial online traffic and commerce to mobile platforms. We have experienced a significant shift of business, both direct and indirect, to mobile platforms. The revenues earned on a mobile transaction may be less than a typical desktop transaction due to different consumer purchasing patterns. For example, accommodation reservations made on a mobile device typically are for shorter lengths of stay, have lower ADRs, and are not made as far in advance. To the extent mobile devices or platforms enable users to block advertising content, our advertising revenue and our ability to market our brands and acquire new consumers may also be negatively affected. Given the device sizes and technical limitations of smartphones, mobile consumers may not be willing to download multiple apps from multiple companies providing a similar service and instead prefer to use one or a limited number of apps for their mobile travel and restaurant research and reservation activity. As a result, the consumer experience with mobile apps as well as brand recognition and loyalty continue to be increasingly important. Our mobile offerings have received generally strong reviews and an increasing percentage of our room nights are booked on mobile devices. We believe that mobile bookings are necessary to maintain and grow our business as consumers increasingly turn to mobile devices instead of a personal computer. As a result, it is increasingly important for us to develop and maintain effective mobile platforms to provide consumers with an appealing, easy-to-use mobile experience and that the features of our mobile platforms are competitive with our peers. If we are unable to continue to rapidly innovate and create new, user-friendly, and differentiated mobile offerings, and efficiently and effectively advertise and distribute on these platforms, or if our mobile offerings are not used by consumers, we could lose market share and our business, future growth, and results of operations could be adversely affected.
18
Google and Apple each have substantial market share in the smartphone markets and provide the leading operating systems for smartphones. As a result, they could leverage their operating systems to give a competitive advantage to their services that overlap with ours. We rely heavily on Google and Apple’s app stores to provide our mobile application to users, and each of Google and Apple have more experience developing mobile apps and access to greater resources than us. To the extent Google or Apple use their mobile operating systems, app distribution channels, mobile payment systems, or search or other marketplace services to favor their services that overlap with ours, our business and results of operations could be harmed.
Impairments of goodwill, long-term investments, and long-lived assets, increases in provisions for expected credit losses on receivables from and cash advances made to our travel service provider and restaurant partners, and increases in cash outlays to refund consumers for prepaid reservations have a negative impact on our results of operations.
We have recorded and may in the future record impairments of goodwill, long-term investments, or long-lived assets. Future events and changing market conditions, like significant adverse changes in the market valuations of companies in the travel and technology industries, may lead us to re-evaluate the assumptions to estimate the fair value of our goodwill, long-term investments, and long-lived assets, including assumptions related to the recovery from the COVID-19 pandemic and performance following the pandemic, which may result in the need to recognize goodwill, investment, and asset impairment charges, which could have a material adverse effect on our results of operations.
Any significant increase in our provision for expected credit losses and any significant increase in cash outlays to refund consumers, for instance relating to a downturn in the global travel industry affecting our travel service provider and restaurant partners and marketing affiliates, could have a corresponding adverse effect on our results of operations and related cash flows. We could experience a high level of cancellations of existing reservations which could result in higher than normal cash outlays to refund consumers for prepaid reservations. In some instances, where we had agreed to provide free cancellations to consumers for non-refundable reservations, we did not estimate a recovery of prepayment already made to a travel service provider. In certain instances, we may offer cancellable room rates on behalf of a partner to provide flexibility to our consumers even if the partner has not provided a cancellable room rate, which could have a negative impact on our revenues if we are unable to facilitate booking from another customer.
Investment in new business strategies and acquisitions could disrupt our ongoing business and present risks not originally contemplated.
We have invested and in the future may invest in new business strategies and acquisitions of complementary businesses in furtherance of our mission to make it easier for everyone to experience the world. For example, we acquired Getaroom in December 2021 to enhance our business-to-business distribution capabilities for hotel partners and more effectively support our accommodations affiliate partners, and in November 2021 we entered into an agreement to acquire European-based flights booking provider Etraveli Group. Such endeavors may not be successful and may involve significant risks and uncertainties, including diversion of management's attention from current operations, greater than expected liabilities and expenses, increased regulatory scrutiny, inadequate return on capital, new risks with which we are not familiar, legal and compliance obligations that previously did not apply to us, integration risks, and difficulties and unidentified issues not discovered in our investigations and evaluations of those strategies and acquisitions. Further, we may issue shares of our common stock in these transactions, which could result in dilution to our stockholders. As a result, entering new businesses involves risks and costs that could, if realized, have an adverse effect on our business, reputation, results of operations, profit margins, cash flows or financial condition, as well as on our ability to achieve the expected benefits of any such investments or acquisitions.
We may decide to make minority investments, including through joint ventures, in which we have limited or no management or operational control. The controlling person in such a case may have business interests, strategies, or goals that are inconsistent with ours, and decisions of the company or venture in which we invested may result in harm to our reputation or business or adversely affect the value of our investment.
19
We may not be able to successfully integrate acquired businesses or combine internal businesses.
The integration of acquired businesses requires significant time and resources, and we may not manage these processes successfully. In addition to acquired businesses, we have integrated certain of our businesses that had been managed independently, integrated certain functions across our businesses, and restructured or ceased operating certain assets or businesses, and we may do so in the future, including through divestitures. Integrations are complex, often involve additional or unexpected costs, and create a variety of issues and risks, including:
•disruption or harm to the businesses involved, or to our other businesses, including as a result of the need for management to spend time and attention on the integration;
•difficulty combining different company cultures, systems, reporting structures, titles, job descriptions, and compensation schemes, or implementing and maintaining effective controls, procedures, and policies;
•problems retaining key personnel, in particular at the acquired or integrated company; and
•loss of travel service providers, restaurants, or partners of the acquired business.
We may not successfully integrate companies or achieve the strategic, financial, or operating objectives of an acquisition or integration, any of which could adversely affect our business, results of operations, or value of our acquisitions.
We face risks related to our operational and technological infrastructures.
Historically, our brands operated on a largely independent basis and many of them focused on particular services or geographies. As we look to develop our Connected Trip vision and pursue our other strategic objectives, we continue to optimize collaboration among our brands. As we manage this shift, in addition to managing any changes in our workforce, we may find it difficult to maintain the beneficial aspects of our corporate culture at the brand companies and throughout the organization as a whole. In addition, any future expansion or shift increases the complexity of our business and places additional strain on our management, operations, technical performance, financial resources, and administrative, legal, tax, internal control, and financial reporting functions. Our current and planned employees and outsourced resources, systems, procedures, and controls may not be adequate to support and effectively manage growth and increased complexity, or could result in actual or perceived disruption of our service or customer support, especially as we have employees and outsourced resources in multiple geographic locations around the world and increase the number and variety of our products and payment systems.
In addition, we are in the early stages of a multi-year phased migration to integrate and upgrade certain cross-brand global systems and processes. The implementation of new information technology, payment, enterprise resource planning, or other systems could be disruptive and/or costly or we may experience difficulty successfully integrating new systems into existing systems or migrating to new systems from existing systems, any of which could adversely affect our business and results of operations. Any failure to implement or adapt to new technologies in a timely manner or at all could adversely affect our ability to compete, increase our consumer acquisition costs or otherwise adversely affect our business, brand, market share, and results of operations.
Information Security, Cybersecurity, and Data Privacy Risks
Our processing, storage, use, and disclosure of personal data exposes us to risks of internal or external security breaches and could give rise to liabilities and/or damage our reputation.
We are an innovative technology company dependent on sophisticated software applications and computing infrastructure. If threat actors such as cyber-criminals, hackers, and state-sponsored organizations are able to circumvent our security controls and capabilities, including as a result of our own acts or omissions, it could result in a compromise or breach of consumer or employee data. In e-commerce, data security is essential to maintaining consumer and partner confidence in our services and the uninterrupted availability of our web and mobile platforms is essential for our business. Consumers who use certain of our services provide us with their personal identity data and payment information, which in turn attracts attention from threat actors and fraudsters. Cyberattacks are increasing in frequency and sophistication and are constantly evolving. We may not be able to defend against a persistent, sophisticated cyberattack from a determined adversary. In addition, our security policies and internal security controls may not keep pace with the continuous innovation of our offerings.
20
Vulnerabilities in our consumer and partner account security and workflow practices could and have resulted in unauthorized access to confidential data. These risks are likely to increase as we expand our offerings, integrate our products and services including as we incorporate AI and machine learning, and store and process more data, including personal information and payment data. The disclosure of non-public Company-sensitive information by our workforce or other parties, through external media channels such as social media, could lead to information loss, reputational harm, or loss of a competitive advantage. We expend significant resources to protect against security breaches, and regularly increase our security-related expenditures to maintain or increase our systems' security. We have experienced and responded to cyberattacks, which we believe have not had a material impact on the integrity of our systems or the security of data, including personal information maintained by us. Security breaches could result in negative publicity, damage our reputation, expose us to risk of loss or litigation and possible liability, subject us to regulatory penalties and sanctions, or cause consumers to lose confidence in our security and choose to use the services of our competitors, any of which would have an adverse effect on our brands, market share, results of operations, and financial condition. See Part I, Item 1A, Risk Factors -"Cyberattacks and system vulnerabilities could lead to sustained service outages, data loss, reduced revenue, increased costs, liability claims, or harm to our competitive position." Additionally, our consumers' personal data could be affected by security breaches at third parties upon which we rely, such as travel service providers, connectivity partners, payroll providers, health plan providers, payment processors, data exchange services (for example, XML Providers), or GDSs. See below Part I, Item 1A, Risk Factors - "Our business relies on a global supply chain of third party services providers and we are exposed to risks because we rely on the resilience, security, and legal compliance of their products and services." Our efforts to protect information from unauthorized access may also result in the rejection of legitimate attempts to book reservations through our services, which could result in lost business.
In the operation of our business, we receive and store a large volume of personally identifiable data and payment information. This data is increasingly subject to legislation and regulations in numerous jurisdictions around the world. The European Union's General Data Protection Regulation (the "GDPR") imposes significant compliance obligations and costs on us. Under the GDPR, violations could result in fines of up to 20 million Euros or up to 4% of the annual global revenues of the infringer, whichever is greater. Several data protection authorities have imposed significant fines on companies of various sizes across industry sectors for violations of the GDPR. The California Consumer Privacy Act (the "CCPA"), which became operative in January 2020, and the California Privacy Rights Act, which became operative in January 2023, each impose new privacy requirements and rights for consumers in California and has resulted and will continue to result in additional complexity and costs related to compliance. Many other states in the United States and jurisdictions globally have adopted or may adopt similar data protection regulations. These regulations are typically intended to protect the security of personal data that is collected, processed, and transmitted in or from the governing jurisdiction as well as to give individuals greater rights and/or control over how their data is processed. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, including employee information. These laws and their interpretations continue to develop and may be inconsistent from jurisdiction to jurisdiction. Furthermore, enforcement actions often cause interpretation of these new laws to evolve, which could require changing our initial responses to these laws. For example, the invalidation of the EU-US Privacy Shield in 2020 altered one of the acceptable approaches which many companies relied upon to ensure compliant data transfers between the European Union and the United States. Additionally, some of these regulations, such as the CCPA, give consumers a private right of action against companies for violations of these rules. While we have invested and continue to invest significant resources to comply with the GDPR, CCPA, and other privacy regulations, many of these regulations (such as the Personal Information Protection Law in the People's Republic of China) are new, complex, and subject to interpretation. Non-compliance with these laws could result in negative publicity, damage to our reputation, significant penalties, or other legal liability. If legislation or regulations are expanded to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, our results of operations, financial condition, or competitive position could be adversely affected.
Cyberattacks and system vulnerabilities could lead to sustained service outages, data loss, reduced revenue, increased costs, liability claims, or harm to our competitive position.
If our systems cannot cope with the level of demand required to service our consumers and accommodations, we could experience unanticipated disruptions in service, slower response times, decreased customer service and customer satisfaction, and delays in the introduction of new services. As an online business, we are dependent on the internet and maintaining connectivity between ourselves and consumers, sources of internet traffic, such as Google, and our travel service providers and restaurants. As consumers increasingly turn to mobile and other smart devices, we also depend on consumers' access to the internet through mobile carriers and their systems. Disruptions in internet access, especially if widespread or prolonged, could materially adversely affect our business and results of operations. While we maintain redundant systems and hosting services, it is possible that we could experience an interruption in our business, and we do not carry business interruption insurance sufficient to compensate us for all losses that may occur.
21
We have computer hardware for operating our services located in hosting facilities around the world. We do not maintainhave a comprehensive disaster recovery plan in every geographic region in which we conduct business, and these systems and operations are vulnerable to damage or interruption from human error, misconduct, or catastrophic events. In the event of any key person lifedisruption of service at such facilities or the failure by such facilities to provide our required data communications capacity, we may not be able to switch to back-up systems immediately and it could result in lengthy interruptions or delays in our services. In addition to placing increased burdens on our engineering staff, these outages could create a significant amount of consumer questions and complaints that need to be addressed by customer support. Any system failure that causes an interruption or delay in service could impair our reputation, damage our brands, increase customer service costs, or result in lost business, any of which could adversely effect our business and results of operations. We have taken and continue to take steps to increase the reliability and redundancy of our systems. These steps are expensive, may reduce our margins, and may not be successful in reducing the frequency or duration of unscheduled downtime.
We have experienced targeted and organized malware, phishing, and account takeover attacks, and may in the future experience these and other forms of attack such as ransomware, SQL injection (where a third party attempts to insert malicious code into our software through data entry fields in our websites in order to gain control of the system), and attempts to use our websites as a platform to launch a denial-of-service attack on another party. Our existing security measures may not be successful in preventing attacks on our systems. For instance, from time to time, we have experienced denial-of-service type attacks on our systems that have made portions of our websites slow or unavailable for periods of time. Our existing IT business continuity and disaster recovery practices are less effective against certain types of attacks such as ransomware, which could result in our services being unavailable for an extended period of time, nullify our data, expose our payment card and personal data, or expose us to an extortion attempt. Reductions in the availability and response time of our online services could cause loss of substantial business volumes during the occurrence of any such attack on our systems and measures we may take to divert suspect traffic in the event of such an attack could result in the diversion of bona fide customers. These issues are more difficult to manage during any expansion of the number of places where we operate and the variety of services we offer, and as the tools and techniques used in such attacks become more advanced. We use sophisticated technology to identify cybersecurity threats; however, a cyberattack may go undetected for a period of time resulting in harm to our computer systems and the loss of data. This could result in financial penalties being imposed by the regulators and reputational harm. Our insurance policies.policies have coverage limits and may not be adequate to reimburse us for all losses caused by security breaches. Successful attacks could result in significant interruptions in our operations, severe damage to our information technology infrastructure, negative publicity, damage our reputation, and prevent consumers from using our services during the attack, any of which could cause consumers to use the services of our competitors, which would have a negative effect on the value of our brands, our market share, business, and results of operations.
We use both internally-developed systems and third-party systems to operate our services, including transaction processing, order management, and financial and accounting systems. If the number of consumers using our services increases substantially, or if critical third-party systems stop operating as designed, we may need to significantly expand and upgrade our technology, transaction processing systems, financial and accounting systems, or other infrastructure. We may not be able to upgrade our systems and infrastructure to accommodate such conditions in a timely manner, and, depending on the systems affected, our transactional, financial, and accounting systems could be impacted for a meaningful amount of time before upgrade, expansion, or repair. Many of our processes and systems, including those related to processing and recording revenue, are highly automated and involve multiple inputs from various IT systems, which can mitigate the risk of human error but which can also make testing, troubleshooting, and auditing more difficult. As a result, it may be difficult to quickly detect and correct errors embedded in these processes or systems.
Our business relies on a global supply chain of third party services providers and we are exposed to risks because we rely on the resilience, security, and legal compliance of their products and services.
We rely on certain third-party computer systems and third-party service providers, including GDSs and computerized central reservation systems of the accommodation, rental car, and airline industries in connection with providing some of our services. Any damage to, breach of or interruption in these third-party services and systems or deterioration in their performance could prevent us from booking related accommodation, rental car, and airline reservations and have a material adverse effect on our business, brands, and results of operations. Third party business partners, service providers, and consultants may be given access to our computer networks. A cyberattack against one of these third parties that compromises their credentials may result in unauthorized access to our systems and data, resulting in a cyberattack against us. Furthermore, our agreements with some third-party service providers are terminable upon short notice and often do not provide recourse for service interruptions. In the event our arrangement with any such third party is terminated, we may not be able to find an alternative source of systems support on a timely basis or on commercially reasonable terms and, as a result, it could have a material adverse effect on our business and results of operations.
22
Consumers generally are concerned with security and privacy on the internet, and any publicized privacy and security problems could negatively affect consumers' willingness to provide private information or effect online commercial transactions generally, including through our services. Some of our business is conducted with third-party marketing affiliates, which may generate travel reservations through our infrastructure or through other systems. A security breach at any third-party that we conduct business with, such as the security breach experienced by Intercontinental Hotels Group Plc. in September 2022, could be perceived by consumers as a security breach of our systems and could result in negative publicity, subject us to notification requirements, damage our reputation, expose us to risk of loss or litigation and possible liability, and subject us to regulatory penalties and sanctions, even if we had no direct involvement in the breach. In addition, such third parties may not comply with applicable disclosure requirements or with parameters within which we permit them to process data, which could expose us to liability.
We depend upon various third parties to process payments, including credit cards, for our merchant transactions around the world. In addition, we rely on third parties to provide credit card numbers which we use as a payment mechanism for merchant transactions. If any such third party were wholly or partially compromised or ceased or suspended operations, our cash flows could be disrupted or we may not be able to generate merchant transactions (and related revenues) for a period of time and this could have a negative effect on our business, reputation, and results of operations and, in certain cases of the insolvency of such a partner, could result in additional payments by us and loss of the total transaction value.
Legal, Tax, Regulatory, Compliance, and Reputational Risks
We may have exposure to additional tax liabilities.
As an international business providing reservation and marketing services around the world, we are subject to income taxes and non-income-based taxes. Although we believe that our tax filing positions are reasonable and comply with applicable law, we regularly review our tax filing positions, especially in light of tax law or business practice changes, and we may change our positions or determine that previous positions should be amended, either of which could result in additional tax liabilities. The final determination of tax audits or tax disputes may be different from what is reflected in our historical income tax provisions and accruals. To date, we have been audited in many taxing jurisdictions. If current or future audits find that additional taxes are due, we may be subject to incremental tax liabilities, possibly including interest and penalties, which could have a material adverse effect on our results of operations, financial condition, and cash flows. See Notes 15 and 16 to our Consolidated Financial Statements for more information regarding certain tax matters and tax contingencies.
In general, governments are increasingly focused on ways to increase tax revenues, which has contributed to an increase in audit activity, more aggressive positions taken by tax authorities, more time and difficulty to resolve any audits or disputes and an increase in new tax legislation. Any such additional taxes or other assessments may be in excess of our current tax provisions or may require us to modify our business practices in order to reduce our exposure to additional taxes going forward, any of which could have a material adverse effect on our business, results of operations, and financial condition.
In December 2017, the Tax Cuts and Jobs Act (the "Tax Act") was enacted into law in the United States. The Tax Act introduced a tax on 50% of global intangible low-taxed income ("GILTI"), which is income determined to be in excess of a specified routine rate of return on qualifying business assets. The Tax Act further introduced a base erosion and anti-abuse tax ("BEAT") aimed at preventing the erosion of the U.S. tax base and a new tax deduction with respect to certain foreign-derived intangible income. If we are unable to operate our business so that BEAT does not impact us, our effective tax rate, results of operations and cash flows would be adversely affected. The interpretation and implementation of the Tax Act and regulations, rules, or guidance that have been or may be adopted under, or result from, the Tax Act have had and could have a negative impact on our results of operations and cash flows. In August 2022, the Inflation Reduction Act was enacted into law in the United States. The key tax provisions applicable to us are a 15% corporate minimum tax on book income and a 1% excise tax on stock repurchases, both of which are effective January 1, 2023. The interpretation and implementation of these provisions could have a negative impact on our results of operations and cash flows. In addition, increases in the U.S. corporate income tax rate, increasing the percentage of GILTI subject to tax in the United States, or other changes included in any adopted U.S. federal tax legislation could have a negative impact on our results of operations and cash flows.
Certain countries have taken steps to unilaterally introduce a digital services tax to address the issue of multinational businesses carrying on business in their jurisdiction without a physical presence and therefore generally not being subject to income tax in those jurisdictions. These digital services taxes are calculated as a percentage of revenue rather than income or profits. The interpretation and implementation of the various digital services taxes (especially if there is inconsistency in the application of these taxes across tax jurisdictions) could have a materially adverse impact on our results of operations and cash flows. Further, digital services taxes may not apply to our competitors such as hotel chains and smaller OTCs, which could harm our business and competitive position.
23
Additionally, there have been significant changes made and proposed to international tax laws that increase the complexity, burden, and cost of tax compliance. The Organisation for Economic Co-operation and Development ("OECD") has been working on the "base erosion and profit shifting" ("BEPS") project to ensure international tax standards keep pace with changes in global business practices. This project could change various aspects of the existing rules under which our tax obligations are determined in many of the countries in which we do business. In 2021, more than 130 countries agreed to a new OECD framework on BEPS that, among other provisions, includes proposed changes to how the right to tax income would be allocated among countries and imposes a 15% global minimum tax. The OECD recently issued additional commentary related to the 15% minimum tax, including the intention that provisions be incorporated into law with an effective date of January 1, 2024. The rules for the calculation of the 15% minimum tax are complex and additional guidance continues to be issued by the OECD. Until member countries enact legislation implementing the 15% minimum tax, it is not certain how it will impact us.
Due to the large scale of our business activities outside of the United States, any changes in U.S. or international taxation of our activities, such as new definitions of permanent establishment, new nexus and profit allocation rules, or the combined effect of tax laws in multiple jurisdictions, may increase our worldwide effective tax rate, increase the complexity and costs associated with tax compliance, and adversely affect our cash flows and results of operations.
We are also subject to other non-income-based taxes, such as value-added, payroll, sales, use, excise, net worth, property, hotel occupancy, and goods and services taxes. We refer generally to taxes on travel transactions (e.g., value-added taxes, sales taxes, excise taxes, hotel occupancy taxes, etc.) as "travel transaction taxes." From time to time, we are under audit or investigation by tax authorities or involved in legal proceedings related to these non-income-based taxes or we may revise or amend our tax positions, which may result in additional non-income-based tax liabilities.
A number of jurisdictions in the United States have initiated lawsuits or other proceedings against OTCs, including us, related to, among other things, the payment of certain travel transaction taxes (such as hotel occupancy taxes) that could include historical taxes that are claimed to be owed, interest, penalties, punitive damages and/or attorney's fees and costs. Additional jurisdictions may assert that we are subject to travel transaction taxes and could seek to collect such taxes, either retroactively, prospectively or both. We continue to defend against these lawsuits and, where appropriate, intend to continue to assert that we should not be subject to such taxes. Although we believe we do not owe the taxes claimed in these lawsuits, litigation is uncertain, and if there was an adverse outcome in this litigation, or any similar litigation in other jurisdictions, it could result in liabilities for past and/or future bookings, and it could have an adverse effect on our business, profit margins, and results of operations. An unfavorable outcome or settlement of pending litigation could encourage the commencement of additional litigation, audit proceedings, or other regulatory inquiries. Jurisdictions could also seek to amend their tax statutes in order to collect travel transaction taxes from us on a prospective basis.
Additionally, a number of jurisdictions in the United States and other countries have adopted or may adopt laws that require us to collect and remit travel transaction taxes on behalf of travel service providers, which in some instances may negatively impact our revenue and may be difficult to implement. Adverse tax decisions or new laws could have a material adverse effect on our business, margins, cash flows and results of operations.
We may not be able to maintain our "Innovation Box Tax" benefit.
The Netherlands corporate income tax law provides that income generated from qualifying innovative activities is taxed at the rate of 9% beginning in January 2021 and 7% prior to 2021 ("Innovation Box Tax") rather than the Dutch statutory rate of 25%. Effective January 1, 2022, the Netherlands corporate income tax rate increased from 25% to 25.8%. A portion of Booking.com's earnings historically has qualified for Innovation Box Tax treatment.
In order to be eligible for Innovation Box Tax treatment, Booking.com must, among other things, apply for and obtain a research and development ("R&D") certificate from a Dutch governmental agency every six months confirming that the activities that Booking.com intends to be engaged in over the subsequent six-month period are "innovative." The R&D certificate is current but should Booking.com fail to secure such a certificate in any future period - for example, because the governmental agency does not view Booking.com's new or anticipated activities as innovative - or should this agency determine that the activities performed in a prior period were not performed as contemplated or did not comply with the agency's requirements, Booking.com may lose its certificate and, as a result, the Innovation Box Tax benefit may be reduced or eliminated. Booking.com intends to apply for continued Innovation Box Tax treatment for future periods. However, Booking.com's application may not be accepted, or, if accepted, the amount of qualifying earnings may be reduced.
24
The loss of the Innovation Box Tax benefit (or any material portion thereof), whether due to a change in tax law or a determination by the Dutch government that Booking.com's activities no longer qualify, could substantially increase our effective tax rate and adversely impact our results of operations and cash flows in the future.
Our business is subject to various competition/anti-trust, consumer protection, and online commerce laws, rules, and regulations around the world, and as the size of our business grows, we may become increasingly subject to the scrutiny of anti-trust,our business by legislators and regulators in these areas may intensify.
We, the travel industry, and the technology industry generally are subject to competition and consumer protection regulators.
We have also been involved in investigations or inquiries involving consumer protection matters and pricing behavior. For instance,we have previously made certain voluntary commitments to consumer authorities to resolve investigations or inquiries that have included showing prices inclusive of all mandatory taxes and charges, providing information about the effect of money earned on search result rankings on or before the search results page, and making certain adjustments to how discounts and statements concerning popularity or availability are shown to consumers. To the extent that these or any other investigations or inquiries result in additional commitments, fines, damages, or other remedies, our business, financial condition, and results of operations could be harmed.
As markets evolve and NCAs or other governmental authorities continue to monitor our industry, investigations of the industry generally or of us specifically could occur and have occurred. While we believe that we are complying with our commitments, investigating authorities or third parties may determine that we are not complying with the commitments we have made and decide to pursue legal action to compel compliance or seek other remedies. Further, in September 8, 2017 the Swiss Price Surveillance Office opened an investigation into the level of commissions of Booking.com in Switzerland.
To the extent that regulatory authorities impose fines on us or require changes to our business practices or to those currently common to the industry, our business, competitive position, and results of operations could be materially and adversely affected. Negative publicity regarding competition and/or consumer law investigations could adversely affect our brands and therefore our business, market share, and results of operations. Further, the Macron Law, the ItalianCompetition and Austrian laws and any similar legislation enacted by other countries, and the decision by the German NCA to prohibit narrow price parity agreements, could have a material adverse effect on our business and our results of operations, in particular if consumers use our services to shop for accommodation reservations but make their reservations directly with an accommodation provider.
Another area of regulatory inquiry involves contractual search term bidding restrictions where one contracting party agrees not to bid on certain key search terms related to the other party (e.g., such other party’s name). In some of our contracts, we or the other party have agreed to bidding restrictions. If bidding restrictions are held to be illegal or otherwise unenforceable or if we remove them from all of our contracts, it could negatively impact our performance marketing efficiency, business, and results of operations.
There is significant legislative and public focus on the technology industry, especially as technology companies become larger. In some instances, countries have passed legislation that goes further to restrict business activities than actions taken by NCAs or other regulatory authorities. France, Italy, Belgium, Portugal, and Austria have passed legislation prohibiting parity contract clauses in their entirety and, last year, a German court ruled that our narrow parity clauses are not permitted. Additionally, the EU's Platform to Business Regulation regulates the relationship between online platforms such as Booking.com and European business users of online platforms. The Digital Markets Act ("DMA") and Digital Services Act ("DSA") give regulators in the EU more instruments to investigate and regulate digital businesses and impose new rules and
25
requirements on platforms designated as "gatekeepers" under the DMA and online platforms more generally, with separate rules for "Very Large Online Platforms" ("VLOPs") under the DSA. If the European Commission determines that we are a gatekeeper or one of our brands is a VLOP, we will be subject to additional rules and regulations that may not be applicable to our competitors. For example, Booking.comthe DMA imposes new restrictions and requirements, including in areas such as parity arrangements and the usage of personal data across services, which could adversely impact our business. Designated gatekeepers will also need to establish an independent compliance function to monitor compliance with the DMA. An initial designation as a gatekeeper could take place later this year, and key requirements are expected to become enforceable against designated gatekeepers in early 2024. The requirements for gatekeepers are also subject to further interpretation and regulatory engagement, and such designation may be subject to a review process. Under the DSA, we may be required to collect more information from partners, which could disincentivize certain partners from using our services. Further, if one of our brands is involved in private litigation in Sweden relateddesignated a VLOP, it would be subject to its narrow price parity provisions. We are unableadditional scrutiny, obligations, and costs, such as payment of an annual supervisory fee, requirements to predict how this litigationcarry out annual risk assessments and independent audits, and needing to establish an independent compliance function. The DMA and DSA each have significant penalties for non-compliance.
The European Commission will designate VLOPs based on a platform's number of EU "monthly active recipients" ("MARs"). The European Commission requires counting users to whom information was displayed, even if a user does not make a transaction on the platform. The assessment of MARs and any other published information by our brands represents an estimate based on the data available to us and limited guidance, and is subject to limitations. The estimate is published solely as a requirement under the DSA, may be resolved, or whether it will impact Booking.com's business in Sweden.
Additionally, in July 2021 President Biden of the United States signed an executive order aimed at restricting anticompetitive practices, including those within the technology industry. Any rules or regulations that result from this executive order, as well as any other new laws and regulations and changing public perception relating to the technology industry could impact our services, require us to change our business practices, or otherwise cause us to incur additional operating costs to comply with or address these developments. Further, as market conditions change as a result of investigations, litigation, legislation, or political or social pressure, we may increasingly becomedecide to voluntarily modify our business practices beyond what is required, the targetfull effects of competition investigationswhich may not be known when making the decision, but which could harm our competitive position and adversely affect our business and results of operations.
With additional attention on the size of travel or be limited by anti-trust or competition laws. For example,technology companies generally, our size and market share may negatively affect our ability to obtain regulatory approval of proposed acquisitions, our ability to expand into complementary businesses or our latitude in dealing with travel service providers (such as by limiting our ability to provide discounts, rebates, or incentives or to exercise contractual rights), any of which could adversely affect our business, results of operations or ability to grow and compete.
Regulatory and legal requirements and uncertainties could subject us to business constraints, increased compliance costs and complexities, or otherwise harm our business.
Our ability to provide our services we offer are subjectand any future services is and will continue to be affected by legal regulations (including laws, ordinances, rules and other requirements and regulations) of national and local governments and regulatory authorities, around the world, many of which are evolving and subject to the possibility of new or revised interpretations. Our ability to provide our services is and will continue to be affected by such regulations. For example, in 2017 our Rentalcars.com business began offeringwe currently offer optional rental car-related insurance products to customers protecting them against accidental damage to their rental vehicles, optional room and flight cancellation insurance products, and we intend to offer additional trip-related insurance products in the future, which subjects us to certain insurance distribution regulations and related increased compliance costs and complexities, any of which could negatively impact our business and results of operations. Similarly, lawsLaws in some countries relating to data localization, payments processing, registration as a travel agent, and other local requirements could, if applicable to us, adversely affect our ability to conduct business in those countries. Any increase in the number or complexity of the laws and regulations applicable to us and our businesses could increase our compliance costs and burdens and negatively affect our business and results of operations.
For example, in the European Union and the United Kingdom, the Package Travel Directive and other local laws governing the sale of travel services (the "Package Directive") sets out broad requirements such as local registration, certain mandatory financial guarantees, disclosure requirements, and other rules regulating the provision of single travel sales, travel packages, and linked travel arrangements. The Package Directive also creates additional liability for a provider of travel packages, which could be the OTC, for performance of the travel services within a packaged trip under certain circumstances. Some parts of our business are already subject to the broad scope of the Package Directive, and as our offerings continue to diversify and expand, we may become subject to additional requirements of the Package Directive. Compliance with this directive could be costly and complex or, as a result of these requirements, we could choose to limit offerings that would
26
otherwise be beneficial for the business, any of which could adversely affect our business, results of operations, or ability to grow and compete. Any changes to the Package Directive, including any changes to the scope of the travel services covered, increased levels of consumer protections, or changes to the requirements of financial guarantees could be costly or complex to comply with and may also adversely affect our business, results of operations, or ability to grow and compete in the future.
The implementation of unfavorable regulations or unfavorable interpretations of existing regulations by judicial or regulatory bodies could require us to incur significant compliance costs, cause the development of the affected markets to become impractical and otherwise have a material adverse effect on our business and results of operations. For example, in March 2017, in connection with a lawsuit begun in 2015 by the Association of Turkish Travel Agencies, claiminga Turkish court ordered in 2019 that Booking.com is required tomust meet certain registration requirements in Turkey, aorder to offer Turkish court orderedhotels and accommodations to Turkish residents. If Booking.com does not successfully appeal this decision or meet the Turkish registration requirements, Booking.com will be unable to suspend
resume offering Turkish hotels and accommodations to Turkish residents. Although Booking.com is appealing the order and believes it to be without basis, this order has had, and is likely toresidents, which would continue to have, a negativenegatively impact our results of operations. There can be no assurance that there will not be an adverse outcome to any such litigation or that such an outcome would not result in an adverse impact on our growth andbusiness, financial condition, or results of operations.
Compliance with the laws and regulations of multiple jurisdictions increases our cost of doing business. TheseExamples of these laws and regulations, which vary and sometimes conflict, include the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, the DSA and DMA, and local laws which also prohibit corrupt payments to governmental officials or third parties, data privacy requirements, labor relations laws, non-discrimination, human rights or anti-human trafficking laws and regulations, such as the U.K. Modern Slavery Act 2015, tax laws, anti-trust or competition laws, U.S., E.U., or U.N. sanctioned country or sanctioned persons mandates, and consumer protection laws. Violations of these laws and regulations have resulted in the past and could result in the future in fines, penalties, and/or criminal sanctions against us, our officers, or our employees and/or prohibitions on thehow or where we conduct of our business. Any such violations could result in prohibitions on our ability to offer our services in one or more countries, could delay or prevent potential acquisitions, and could also materially damage our reputation, our brands, our internationalglobal expansion efforts, our ability to attract and retain employees and business partners, our business, and our operating results. Even if we comply with these laws and regulations, doing business in certain jurisdictions or violations of these laws and regulations by the parties with whom we conduct business could harm our reputation and brands, which could adversely affect our results of operations or stock price. In addition, these restrictions may provide a competitive advantage to our competitors unless they are also subject to comparable restrictions. Our success depends, in part, on our ability to anticipate these risks and manage these difficulties. Additionally, our employees in certain countries in Europe are represented by works councils and/or trade unions. We are required to consult with works councils on certain matters such as restructurings, acquisitions and divestitures, and other matters that could impact our labor force. Consultations may not be completed on terms satisfactory to us and, as a result, could result in increases in our cost of labor, diversion of management's attention away from operating our business, delays in certain initiatives, and expose us to claims and litigation. We are also subject to a variety of other regulatory, legal, and legalpublic policy risks and challenges in managing an organization operating in various countries, including those related to:
•additional complexity to comply with regulations in multiple jurisdictions, as well as overlapping or inconsistent legal regimes, in particular with respect to tax, labor, consumer protection, digital content, advertising, promotions, privacy, and anti-trustcompetition laws;
•difficulties in transferring funds from or converting currencies in certain countries; and
•reduced protection for intellectual property rights in some countries.countries; and
We have made efforts and expect to make further efforts to integrate access to travel services across our various brands. These changes add complexity to legal and tax compliance and our increasedinternal controls, and our size and operating history may increase the likelihood that we will be subject to regulatory scrutiny or audits by tax authorities in various jurisdictions. In addition, by virtue of Booking.com's size and presence in the Netherlands, it is required to have a supervisory board to oversee the strategy and operations of Booking.com. While the existence of the supervisory board has not had a material impact on our operations, under certain circumstances, this governance structure could require Booking.com to obtain supervisory board approval in order to take certain actions, which could result in delays or other unanticipated strategic or operational challenges.
27
There are various risks associated with the facilitation of payments from consumers, including risks related to fraud, compliance with evolving rules and regulations, and reliance on third parties.
Our stock price is highly volatile.
We are processing more of our transactions on a merchant basis where we facilitate payments from travelers through the use of payment cards and other payment methods (such as PayPal, Alipay, Paytm, and WeChat Pay). While processing transactions on a merchant basis allows us to process transactions for properties that do not otherwise accept payment cards and to increase our ability to offer a variety of payment methods and flexible transaction terms to consumers, we incur additional payment processing costs (which are typically higher for foreign currency transactions) and other costs related to these transactions, such as costs related to fraudulent payments and transactions and fraud detection. As we expand our payments services to consumers and business partners, in addition to the revenues from these transactions, we may experience a significant increase in these costs, and our results of operations and profit margins could be materially adversely affected, in particular if we experience a significant increase in non-variable costs related to fraudulent payments and transactions.
As a greater percentage of our transactions involve us processing payments, our global systems and processes must be managed on a larger scale, which adds complexity, administrative burdens and costs, and increases the demands on our systems and controls, which could adversely affect our results of operations. In addition, as our payment processing activities continue to develop, we expect to be subject to additional regulations, including financial services regulations, which we expect to result in increased compliance costs and complexities, including those associated with the implementation of new or advanced internal controls, including, by way of example, those arising from the E.U.’s Payment Services Directive 2 and similar legislation. The implementation of these processes may result in increased compliance costs and administrative burdens.
Regulators (or we) may determine, and in some cases are likely to determine, that certain aspects of our business are subject to laws that govern payments activities, such as money transmission and online payments processing, which could require us to obtain licenses to continue to operate in certain jurisdictions or result in modification of our business plans. Regulations relating to operational resilience, banking, privacy, and security of our processes could also apply to us. Further, our payments systems are susceptible to illegal and improper uses, including money laundering, terrorist financing, fraudulent sales of goods or services, and transactions by or with sanctioned parties. We have invested and will need to continue to invest substantial resources to comply with applicable laws and regulations, and failure to maintain compliance could lead to fines or require us to modify or interrupt our business practices, plans, or operations, any of which could negatively impact our business, results of operations, and profit margins.
We are beyondalso subject to payment card association rules and obligations under our control. Further,contracts with the card schemes and our payment card processors, and indirectly to the rules of payment systems in respect of credit (i.e., account to account) transfers. The rules of the card schemes and payment systems are updated in cycles, and we may need to adjust our systems and/or processes to comply with any updated obligations. Card association rules include the Payment Card Industry Data Security Standard (the "Standard"). Under the Standard and these association rules and obligations, if information is compromised, we could be liable to payment card issuers for associated expenses and penalties, and in some cases, we could be restricted in our ability to accept payment cards. Under certain circumstances in our agreements with the card schemes and in relation to the Standard, we are also subject to periodic audits, self-assessments, and other assessments of our compliance with the rules and obligations of the payment card associations and the Standard, which could result in additional expenses and administrative burdens. In addition, if we fail to follow payment card industry security standards, even if no consumer information is compromised, we could incur significant fines or experience a significant increase in payment card transaction costs. Additionally, compliance with the Standard may not prevent all security incidents. If we are fined or required to pay additional processing fees or if our ability to accept payment cards is restricted in any way as a result of our failure to comply with these payment card industry rules, or otherwise, it could adversely impact our business, results of operations, and profit margins.
We rely on banks, card schemes, and other payment processors to execute certain components of the payments process. For inbound payments, we pay these third parties interchange fees and other processing and gateway fees to help
28
facilitate payments from consumers to travel service providers. As a result, if we are unable to maintain our relationships with these third parties on favorable terms or if these fees are increased for any reason, our profit margin, business, and results of operations could be harmed. Additionally, if these third parties experience service disruptions or if they cease operations, consumers and travel service providers could have accessdifficulty making or receiving payments, which could adversely impact our reputation, business, and results of operations.
In addition, in the event that one of our major travel service providers voluntarily or involuntarily declares bankruptcy or otherwise ceases or limits operations, we could experience an increase in chargebacks from customers with travel reservations with such travel service provider and we could experience financial loss from certain prepayments made to equitysuch travel service provider if we are not able to recover the prepayment.
We face risks relating to our environmental, social, and governance ("ESG") objectives, including climate related commitments we have made that require us to invest effort, resources, and management time, and failing to meet those objectives may adversely impact our reputation, employee retention, and willingness of customers and partners to do business with us.
Investors, proxy advisory services, regulatory authorities, and other stakeholders are increasingly focused on our ESG practices. We have made climate related commitments to reduce our scope 1 & 2 emissions by 95% and our scope 3 emissions by 50% by the end of 2030, and to achieve net zero by 2040. Additionally, we committed to making it easier for our customers to find more sustainable trip options and we continue to work on enhancing related disclosure of goals, progress, and other ESG matters.
Our ability to achieve ESG goals and initiatives is subject to risks including: (1) the availability and cost of limiting or debt marketsoffsetting our use of carbon-based energy sources and technologies, (2) evolving regulatory requirements affecting ESG standards and disclosures, (3) our ability to work with partners and providers that can meet our sustainability and other standards, (4) the availability of vendor or other sources of financing, or such financing may not be available to us on commercially reasonable terms, to repay or refinance our debt as it comes due or, inthird-party data, (5) the caseimpact of our convertible notes, upon conversion.organic growth and acquisitions or dispositions of businesses or operations on our ESG goals, and (6) customers’ actual demand for ESG-oriented product offerings, which may be more expensive and less available than other options. We may need to invest significant effort, resources, and time to progress our ESG objectives, including our climate commitments, and external factors such as rapidly changing regulations, policies, and related interpretation may arise that may lead us to revise our timelines, commitments, or how we measure and report ESG data. For example, stricter regulation related to certification schemes applicable to sustainability labels under consideration in Europe could impact our Travel Sustainable program commitments.
If our ESG practices do not meet evolving investor or other stakeholder expectations or regulatory requirements, then our reputation, ability to attract or retain employees, and our attractiveness as an investment or business partner could be negatively impacted. Similarly, our failure or perceived failure to pursue or fulfill our ESG-related objectives or to satisfy various reporting standards could expose us to government enforcement actions, private litigation, and actions by stockholders or stakeholders, and adversely impact our business, brands, or reputation.
We face risks related to our intellectual property.
We regard our intellectual property as criticalimportant to our success, and we rely on intellectual property such as trademarks, copyrights, patents, and trade secrets to support our business as well as domain name, trademark, copyright and patent law, trade secret protection and confidentiality and/names or licenseother intangible rights or property secured through purchase, licensing or other agreements with our employees, travel service providers, partners, and others to protect our proprietary rights.other parties. We have filed various applications for protection of certain aspects of our intellectual property in the United States and other jurisdictions, and we currently hold a number of issued patents in several jurisdictions. Further, in the future we may acquire additional patents or patentintellectual property portfolios, which could require significant cash expenditures. However, we may choose not to patentregister or otherwise registerprotect some of our intellectual property and instead rely on trade secret or other means of protecting our intellectual property.protection. We have licensed in the past, and may license in the future, certain of our proprietary rights, such as trademarks or copyrighted material, to third parties, and these licensees may take actions that diminish the value of our proprietary rights or harm our reputation. We also have procured various intellectual property licenses from third parties. In addition, effectiveEffective intellectual property protection may not be available in every country in which our services are made available, online.particularly in certain jurisdictions in which we operate in which theft of intellectual property may be more prevalent. We may be required to expend significant time and resources to prevent infringement or to enforce our intellectual property rights.
We believe that our intellectual property rights including our issued patents and pending patent applications, help to protect our business. We endeavor to defend our intellectual property rights diligently, but intellectual property litigation is extremely expensive and time-consuming, and may divert managerial attention and resources from our business objectives. We may not be able to successfully defend our intellectual property rights
29
or theyour intellectual property rights may not be sufficient to effectively protect our business, which could materially adversely affect our business, brands, and results of operations.
From time to time, in the ordinary course of our business, we have been subject to, and are currentlymay be subject to legal proceedings and claims relating to the intellectual property rights of others, and we expect that third parties will continue to assert intellectual property claims in particular patent claims, against us, particularly as we expand the complexity and scope of our business.us. Successful infringement claims against us could result in a significant monetary liability and/or prevent us from operating our business, or portions of our business.business, or require us to change business practices or develop non-infringing alternatives, which could require significant effort and expense. In addition, resolution of claims may require us to obtain licenses to use intellectual property rights belonging to third parties, which may be expensive to procure, or possibly require us to cease using those rights altogether. Any of these events could have a materialan adverse effect on our business, results of operations, and financial condition.
Our use of "open source" software could adversely affect our ability to protect our proprietary software and subject us to possible litigation.
We periodically use open source software in connection with our software development. From time to time, companies that use open source software have faced claims challenging the use of open source software and/or compliance with open source license terms. We could be subject to suits by parties claiming ownership of what we believe to be open source software, or claiming non-compliance with open source licensing terms. Some open source licenses require users who distribute software containing open source to make available all or part of such software, which in some circumstances could include valuable proprietary code of the user. While we monitor our use of open source software and try to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur, in part because open source license terms are often ambiguous. Any requirement to disclose our proprietary source code or pay damages for breach of contract could be harmful to our business, results of operations, or financial condition, and could help our competitors develop services that are similar to or better than ours.
Regulations and policies impacting the way corporations use cookies and other payment transactions.
There are several privacy-driven initiatives that is storedare changing the gathering and use of consumer data in the digital marketing ecosystem. These include phasing out the use of third-party cookies (and other tracking technologies) by browsers such as Safari and Google Chrome, restrictions on the use of the identifier for advertisers (such as the Apple "IDFA") by mobile device manufacturers, the adoption of regulations by many jurisdictions that govern the use of cookies, and Apple's iCloud+ Private Relay, which hides a user's web browser by a website. Cookies are common tools used by thousands ofIP address from websites including ours, to, among other things, store or gather information (e.g., remember log-on details so a user does not have to re-enter them when revisiting a website), market to consumers and enhancethat the user experienceaccesses in favor of other IP addresses provided by Apple’s partners.
Google Chrome has announced that they will not permit the use of third-party cookies on Chrome by the end of 2024 and other browsers have already stopped their use. Apple has begun to require app developers to gain consent to use the IDFA and other identifiers with their own consent framework. Apple’s paying iCloud customers who update to current versions of iOS, iPadOS and OS X have access to iCloud+ Private Relay when using the Safari browser to hide such user's IP address from websites. These initiatives impact a website. Cookiessmall portion of our digital advertising practices. These changes are valuable toolsnot unique to the digital advertising at our Company. While we believe that our primary performance marketing spend will not be directly impacted by these changes, we are prepared to utilize alternative digital marketing techniques for websites like ours to improve the customer experience and increase conversion on their websites. Many countriesportion of our marketing spend that could be impacted.
In addition, many jurisdictions have adopted regulations governing the use of "cookies" by websites servicing consumers, especiallycookies. For example, in the European Union. ToEU, the extent anyePrivacy Directive regulates the use of cookies and similar technologies, including limitations on the use of data and guidelines for enabling users to accept or reject cookies. Authorities may assert, and in some cases are likely to determine, that our collection, use, or management of customer and other data is inconsistent with laws and regulations, including laws that apply to cookies or similar technology, and there may be significant penalties for non-compliance. In the EU, the ePrivacy Directive is implemented in national laws as a result of which different interpretations and requirements apply on a country by country basis. EU regulators continue to issue guidance concerning the ePrivacy Directive's requirements regarding the use of cookies and similar technologies and may impose specific measures which could impact our use of such regulations require "opt-in" consent beforetechnologies. In addition, the ePrivacy Directive and national implementation laws impose additional limitations on the use of data across messaging products and include significant penalties for non-compliance. In the U.S., disclosure requirements and limitations may apply to the use of certain cookies canand other online tracking technologies deemed to be placed on a user's web browser,sales of personal information under the CCPA or other state laws. If these regulations impair our ability, in particular Booking.com's ability to serve certain customers optimally or if we are less effective than our competitors in the manner we currently do might be adversely affected andaddressing these issues, our ability to continue to improve and optimize performance on our websites might be impaired, either of which could negatively affect a consumer's experience using our services and ourplatforms, business, market share, and results of operations could be adversely affected. Further, any failure to comply with evolving privacy regulations, guidance, and
30
interpretations could result in significant fines, government enforcement actions, private litigation, and harm to our business, results of operations, or reputation.
Financial Risks
Our liquidity, credit ratings, and ongoing access to capital could be materially and negatively affected by global financial conditions and events.
Our continued access to sources of liquidity depends on multiple factors, including global economic conditions, the condition of global financial markets, the availability of sufficient amounts of financing, our ability to meet debt covenant requirements, our operating performance, and our credit ratings. Increased volatility in the financial and securities markets in recent years has generally made access to capital less certain. Further, if our credit ratings were to be downgraded or if financing sources were to ascribe higher risk to our rating levels, our industry or us, our access to capital, and the cost of any financing would be negatively impacted. We currently have $2.0 billion available under our revolving credit facility, which provides an additional potential source of liquidity. The revolving credit facility contains certain financial covenants, compliance with which is a condition to our ability to borrow thereunder. There can be no assurance that we will be able to meet the covenant requirements at any particular time, and our ability to borrow under the revolving credit facility depends on such compliance. Further, the lenders have the right to require repayment of any amounts borrowed under the facility if we are not in compliance.
There is no guarantee that additional debt financing will be available in the future to fund our obligations, or that it will be available on commercially reasonable terms, in which case we may need to seek other sources of funding. In addition, the terms of future debt agreements could include more restrictive covenants, which could restrict our business operations.
SeePart II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources for more information on our liquidity and capital resources.
We are exposed to fluctuations in foreign currency exchange rates.
We conduct a substantial majority of our business outside the United States but we report our results in U.S. Dollars. As a result, we face exposure to movements in foreign currency exchange rates as the financial results of our businesses outside of the U.S. are translated from local currency (principally Euros and British Pounds Sterling) into U.S. Dollars. When the U.S. Dollar strengthens against other currencies in which we transact, our foreign-currency-denominated net assets, gross bookings, revenues, operating expenses, and net income are lower as expressed in U.S. Dollars. When the U.S. Dollar weakens against other currencies in which we transact, our foreign-currency-denominated net assets, gross bookings, revenues, operating expenses, and net income are higher as expressed in U.S. Dollars. Foreign currency exchange rate fluctuations on transactions denominated in currencies other than the functional currency result in gains and losses that are reflected in our financial results.
Recent years have seen volatility in the exchange rate between the Euro, the British Pound Sterling, the U.S. Dollar, and other currencies. Significant fluctuations in foreign currency exchange rates can affect consumer travel behavior. Consumers traveling from a country whose currency has weakened against other currencies may book lower ADR accommodations, choose to shorten or cancel their international travel plans or choose to travel domestically rather than internationally, any of which could adversely affect our gross bookings, revenues, and results of operations.
Volatility in foreign currency exchange rates and its impact on consumer behavior, which may differ across regions, make it more difficult to forecast industry and consumer trends and the timing and degree of their impact on our markets and business, which in turn makes it more difficult to manage our business and forecast our financial and operational performance.
Our stock price is highly volatile.
The market price of our common stock is highly volatile and is likely to continue to be subject to wide fluctuations in response to factors such as the following, some of which are beyond our control:
•financial or operating results that vary from the expectations of securities analysts and investors or any publicly-disclosed estimates;
•quarterly variations in our financial or operating results;
•changes in expectations as to our future financial or operating performance;
31
•worldwide economic conditions in general and in Europe in particular;
•fluctuations in foreign currency exchange rates, particularly between the U.S. Dollar and the Euro;
•the effects of inflation;
•changes in interest rates;
•occurrence of a significant security breach;
•changes in our capital structure;
•changes in market valuations of other internet or online service companies;
•announcements of significant business or operational changes by us or our competitors;
•loss of a major travel service provider participant, such as a hotel chain, rental car company, or airline, from our services;
•changes in the status of our intellectual property rights;
•lack of success in expanding our business;
•business interruptions, such as may result from catastrophes or other events;
•announcements by third parties of significant claims or initiation of litigation proceedings against us or adverse developments in pending proceedings;
•additions or departures of key personnel; and
•trading volume fluctuations or other market volatility.
Sales of a substantial number of shares of our common stock, including through the conversion of our convertible notes, could adversely affect the market price of our common stock by introducing a large number of sellers or short sellers to the market. Given the volatility that exists for our shares, such sales could cause the market price of our common stock to decline significantly. In addition, fluctuations in our stock price and our price-to-earnings multiple may have made or may make our stock attractive to momentum, hedge, or day-trading investors who often shift funds into and out of stocks rapidly, exacerbating price fluctuations in either direction, particularly when viewed on a quarterly basis.
The trading prices of technology company stocks in general, including ours, have experienced extreme price and volume fluctuations. To the extent that the public's perception of the prospects of technology or e-commerce or travel companies is negative, our stock price could decline, regardless of our results. Other broad market and industry factors, such as market fluctuations or political and economic conditions, may decrease the market price of our common stock, regardless of our operating performance. Negative market conditions could adversely affect our ability to raise additional capital or the value of our stock for purposes of acquiring other companies or businesses.
In the past, we have been a defendant in securities class action litigation. Securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. To the extent our stock price declines or is volatile, we may in the future be the target of additional litigation. This additional litigation could result in substantial costs and divert management's attention and resources, either of which could adversely affect our business, financial condition, and results of operations.
We face increased risks if the level of our debt increases.
We have a substantial amount of outstanding indebtedness and we may incur substantial additional indebtedness in the future, including through public or private offerings of debt securities. Our outstanding indebtedness and any additional indebtedness we incur may have significant consequences, which may be amplified if our cash flow and earnings decrease, and which could include:
32
•requiring the dedication of a portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of cash flow available for other purposes, including capital expenditures, meeting our operating expenses, share repurchases, and acquisitions;
•increased vulnerability to downturns in our business, competitive pressures, and adverse changes in general economic and industry conditions;
•decreased or lost ability to obtain additional financing on terms acceptable to us for working capital, capital expenditures, acquisitions, share repurchases, or other general corporate purposes; and
•decreased flexibility when planning for or reacting to changes in our business and industry.
Our ability to make payments of principal and interest on our indebtedness depends upon our future performance, which will be subject to general economic conditions, industry cycles and financial, business, and other factors affecting our results of operations and financial condition, many of which are beyond our control. Further, we may not have access to equity or debt markets or other sources of financing, or such financing may not be available to us on commercially reasonable terms, to repay or refinance our debt as it comes due or, in the case of our convertible notes, upon conversion.
The value of our investments could decline, which could adversely affect our financial condition and results of operations.
We maintain an investment portfolio of various and diverse holdings. Our portfolio typically includes marketable debt securities, equity securities of publicly-traded companies, the values of which are subject to market price volatility, and investments in private companies. Credit losses, impairments, and changes in the fair values of our investments could be volatile and they have had, and are likely to continue to have, a significant impact on our quarterly net income (or loss). See Notes 5 and 6 to our Consolidated Financial Statements.
Our investments in private companies are inherently risky in that such companies are typically at an early stage of development, may have no or limited revenues, may not be or ever become profitable, may not be able to secure additional funding, or their technologies, services, or products may not be successfully developed or introduced to the market. Further, our ability to liquidate any such investments is typically dependent on a liquidity event, such as a public offering or acquisition, as no public market exists for such securities. Valuations of privately-held companies are inherently complex and uncertain due to the lack of a liquid market for such securities. If we determine that any of our equity investments in such companies have experienced a decline in value, we are required to recognize the change in the Consolidated Statements of Operations. For investments classified as debt securities, any decline in value attributed to credit losses is also recognized in the Consolidated Statements of Operations.
We could lose the full amount of any of our investments, and impairment of our investments have previously and could in the future have a material adverse effect on our financial condition and results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We believe that our existing facilities are adequate to meet our current requirements, and that suitable additional or substitute space will be available as needed to accommodate any further expansion of corporate operations.
Item 3. Legal Proceedings
A description of any material legal proceedings to which we are a party is included in Note 1416 to our Consolidated Financial Statements included in this Annual Report on Form 10-K for the year Endedended December 31, 2017,2022, and is incorporated into this Item 3 by reference thereto.reference.
33
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is quoted on the NASDAQ Global Select Market under the symbol "BKNG." Prior to February 27, 2018, it was traded under the symbol "PCLN." The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported on the NASDAQ Global Select Market:
| 2017 | High | Low | ||||||
| First Quarter | $ | 1,798.75 | $ | 1,459.49 | ||||
| Second Quarter | 1,927.13 | 1,738.34 | ||||||
| Third Quarter | 2,067.99 | 1,774.40 | ||||||
| Fourth Quarter | 1,961.45 | 1,630.56 | ||||||
| 2016 | High | Low | ||||||
| First Quarter | $ | 1,361.63 | $ | 954.02 | ||||
| Second Quarter | 1,394.00 | 1,148.06 | ||||||
| Third Quarter | 1,481.78 | 1,245.51 | ||||||
| Fourth Quarter | 1,600.93 | 1,422.19 | ||||||
Holders
Dividend Policy
We have not declared or paid any cash dividends on our capital stock since our inception and do not expect to pay any cash dividends for the foreseeable future. Our revolving credit facility includes a covenant that restricts us from declaring or making any cash distribution or repurchasing any of our shares (with certain exceptions including in connection with tax withholding related to shares issued to employees) unless we are in compliance on a pro forma basis with the maximum leverage ratio covenant then in effect. Such restriction ends upon delivery of financial statements required for the three months ending June 30, 2023, or we have the ability to terminate this restriction earlier if we demonstrate compliance with the original maximum leverage ratio covenant in the revolving credit facility. At December 31, 2022, we were in compliance with the relevant maximum leverage ratio covenant. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.
Performance Measurement Comparison
The following graph shows the total stockholder return through December 31, 20172022 of an investment of $100 in cash on December 31, 20122017 for our common stock and an investment of $100 in cash on December 31, 20122017 for (i) the NASDAQ Composite Index, (ii) the Standard and Poor's 500 Index, and (iii) the Research Data Group ("RDG") Internet Composite Index. The RDG Internet Composite Index is an index of stocks representing the Internetinternet industry, including Internetinternet software and service companies and e-commerce companies. Historic stock performance is not necessarily indicative of future stock price performance. All values assume reinvestment of the full amount of all dividends and are calculated as of the last day of each month:
34
| Measurement Point December 31 | Booking Holdings Inc. | NASDAQ Composite Index | S&P 500 Index | RDG Internet Composite | ||||||||||||||||||||||
| 2017 | 100.00 | 100.00 | 100.00 | 100.00 | ||||||||||||||||||||||
| 2018 | 99.12 | 97.16 | 95.62 | 89.34 | ||||||||||||||||||||||
| 2019 | 118.18 | 132.81 | 125.72 | 126.80 | ||||||||||||||||||||||
| 2020 | 128.17 | 192.47 | 148.85 | 174.13 | ||||||||||||||||||||||
| 2021 | 138.07 | 235.15 | 191.58 | 170.44 | ||||||||||||||||||||||
| 2022 | 115.97 | 158.65 | 156.89 | 103.35 | ||||||||||||||||||||||
35
Measurement Point December 31 | Booking Holdings Inc. | NASDAQ Composite Index | S&P 500 Index | RDG Internet Composite | ||||||||
| 2012 | 100.00 | 100.00 | 100.00 | 100.00 | ||||||||
| 2013 | 187.37 | 141.63 | 132.39 | 163.02 | ||||||||
| 2014 | 183.79 | 162.09 | 150.51 | 158.81 | ||||||||
| 2015 | 205.51 | 173.33 | 152.59 | 224.05 | ||||||||
| 2016 | 236.31 | 187.19 | 170.84 | 235.33 | ||||||||
| 2017 | 280.10 | 242.29 | 208.14 | 338.52 | ||||||||
Issuer Purchases of Equity Securities
The following table sets forth information relating to repurchases of our equity securities during the three months ended December 31, 2017:2022:
ISSUER PURCHASES OF EQUITY SECURITIES
| Period | Total Number of Shares (or Units) Purchased | Average Price Paid per Share (or Unit) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||||||||
| October 1, 2022 — | 340,381 | (1) | $ | 1,748 | 340,381 | $ | 5,646,693,772 | (1) | ||||||||||||||||||||||||
| October 31, 2022 | 13 | (2) | $ | 1,664 | N/A | N/A | ||||||||||||||||||||||||||
| — | ||||||||||||||||||||||||||||||||
| November 1, 2022 — | 421,097 | (1) | $ | 1,947 | 421,097 | $ | 4,826,709,181 | (1) | ||||||||||||||||||||||||
| November 30, 2022 | 1,828 | (2) | $ | 2,013 | N/A | N/A | ||||||||||||||||||||||||||
| December 1, 2022 — | 468,326 | (1) | $ | 1,991 | 468,326 | $ | 3,894,328,381 | (1) | ||||||||||||||||||||||||
| December 31, 2022 | 792 | (2) | $ | 1,945 | N/A | N/A | ||||||||||||||||||||||||||
| Total | 1,232,437 | 1,229,804 | $ | 3,894,328,381 | ||||||||||||||||||||||||||||
(1) Pursuant to a stock repurchase program announced on May 9, 2019, whereby we were authorized to repurchase up to $15.0 billion of our common stock.
| Period | (a) Total Number of Shares (or Units) Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
| October 1, 2017 — | 76,324 | (1) | $ | 1,912.59 | 76,324 | $ | 2,944,901,911 | (1) (2) | ||||||||
| October 31, 2017 | 86 | (3) | $ | 1,909.37 | N/A | N/A | ||||||||||
| — | ||||||||||||||||
| November 1, 2017 — | 129,393 | (1) | $ | 1,746.53 | 129,393 | $ | 2,718,913,770 | (1) (2) | ||||||||
| November 30, 2017 | 2,822 | (3) | $ | 1,702.72 | N/A | N/A | ||||||||||
| December 1, 2017 — | 185,236 | (1) | $ | 1,748.97 | 185,236 | $ | 2,394,940,699 | (1) (2) | ||||||||
| December 31, 2017 | 23 | (3) | $ | 1,782.62 | N/A | N/A | ||||||||||
| Total | 393,884 | $ | 1,779.58 | 390,953 | $ | 2,394,940,699 | ||||||||||
Item 6. Selected Financial Data[Reserved]
36
| Year Ended December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| (In thousands, except per share amounts) | |||||||||||||||||||
| Total revenues | $ | 12,681,082 | $ | 10,743,006 | $ | 9,223,987 | $ | 8,441,971 | $ | 6,793,306 | |||||||||
| Cost of revenues | 250,537 | 428,314 | 632,180 | 857,841 | 1,077,420 | ||||||||||||||
| Gross profit | 12,430,545 | 10,314,692 | 8,591,807 | 7,584,130 | 5,715,886 | ||||||||||||||
Total operating expenses(1) | 7,892,553 | 7,408,379 | 5,332,900 | 4,510,818 | 3,303,472 | ||||||||||||||
Operating income(1) | 4,537,992 | 2,906,313 | 3,258,907 | 3,073,312 | 2,412,414 | ||||||||||||||
| Total other expense | 139,670 | 193,075 | 130,587 | 83,864 | 115,877 | ||||||||||||||
Income tax expense(2) | 2,057,557 | 578,251 | 576,960 | 567,695 | 403,739 | ||||||||||||||
Net income(1) (2) | 2,340,765 | 2,134,987 | 2,551,360 | 2,421,753 | 1,892,798 | ||||||||||||||
Net income attributable to noncontrolling interests(3) | — | — | — | — | 135 | ||||||||||||||
Net income applicable to common stockholders(1) (2) | 2,340,765 | 2,134,987 | 2,551,360 | 2,421,753 | 1,892,663 | ||||||||||||||
Net income applicable to common stockholders per basic common share (1) (2) | 47.78 | 43.14 | 50.09 | 46.30 | 37.17 | ||||||||||||||
Net income applicable to common stockholders per diluted common share (1) (2) | 46.86 | 42.65 | 49.45 | 45.67 | 36.11 | ||||||||||||||
| Total assets | 25,451,263 | 19,838,973 | 17,420,575 | 14,770,977 | 10,428,543 | ||||||||||||||
Long-term obligations(4) | 11,403,707 | 8,127,895 | 7,185,796 | 4,862,730 | 2,289,039 | ||||||||||||||
| Total liabilities | 14,187,702 | 9,990,293 | 8,625,106 | 6,203,954 | 3,510,281 | ||||||||||||||
| Total stockholders' equity | 11,260,598 | 9,820,142 | 8,795,469 | 8,566,694 | 6,909,729 | ||||||||||||||
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our Consolidated Financial Statements, including the notes to those statements, included elsewhere in this Annual Report on Form 10-K, and the Section entitled "Special Note Regarding Forward-Looking Statements" in this Annual Report on Form 10-K. As discussed in more detail in the Section entitled "Special Note Regarding Forward-Looking Statements," included elsewhere in this discussion contains forward-looking statements which involve risks and uncertainties.Annual Report on Form 10-K. Our actual results may differ materially from the results discussed in theany forward-looking statements. Factors that might cause those differences include thosestatements, which may be due to factors discussed in "Risk Factors" and elsewhere in this Annual Report on Form 10-K.
We evaluate certain operating and financial measures on both an as-reported and constant-currency basis. We calculate constant currency by converting our current-year period operating and financial results for transactions recorded in currencies other than U.S. Dollars using the corresponding prior-year period monthly average exchange rates rather than the current-year period monthly average exchange rates.
Overview
Our mission is to help peoplemake it easier for everyone to experience the world. We aimconnect consumers who wish to achieve our mission to help people experiencemake travel reservations with travel service providers around the world through global leadership inour online travel and restaurant reservation and relatedplatforms. We offer these services by:
Booking.com, - the world’s leading brand for booking online accommodation reservations, based on room nights booked.
Priceline, agoda, Rentalcars.com, - a leading worldwide rental car reservation service.
We derive substantially all of our gross profitrevenues from enabling consumers to make travel service reservations. We also earn revenues from advertising services, restaurant reservations and restaurant management services, and various other services, such as travel-related insurance revenues.
Trends
The COVID-19 pandemic and the following sources:
37
The comparison of room nights in 2021 and 2022 to the comparable period in 2019 avoids the distortion created from advertising placements on KAYAK's websitescomparing to a prior year period that was significantly impacted by the COVID-19 pandemic.
Quarterly Room Nights and mobile apps;Change versus 2019
In early March 2022, following Russia's invasion of Ukraine, we suspended the booking of travel services subscription fees for restaurant reservation management services provided by OpenTable;in Russia and Belarus. This led to the loss of new bookings from bookers in these countries. Excluding room nights from bookers in Russia, Ukraine, and Belarus in both 2022 and 2019, our overall room nights in 2022 were up about 10% versus 2019.
We have observed an improvement in cancellation rates since the high in April 2020, though we have seen periods of elevated cancellation rates typically coinciding with significant increases in COVID-19 cases and newly imposed travel insurance feesrestrictions. The cancellation rate in 2022 improved compared to the cancellation rates in 2021 and global distribution system ("GDS") reservation booking fees, in each case related to certain2019. In 2022, a higher share of our travel services.room nights were booked with flexible cancellation policies, as compared to 2019 and 2021, which could result in higher cancellation rates in future periods.
38
Since the second quarter of 2020, government-imposed travel restrictions have generally recordedlimited international travel (travelers booking a stay at a property located outside their own country) more than domestic travel (travelers booking a stay within their own country). We believe the continued easing of government-imposed travel restrictions in revenue on a "net" basis and have no significant associated cost of revenue. Therefore, revenue increases and decreases are impacted by changesmany countries throughout the world in 2022 helped drive an increase in the mix of our revenues between Name Your Own Price®room nights booked for international travel services and other services. Gross profit reflectsversus 2021, however, the commission or net margin earned for allmix remained below 2019 levels.
We saw an increase in the mix of our services. Consequently, gross profit is an important measureroom nights booked on a mobile device in 2022 compared to evaluate growth2019. When comparing 2022 to 2021, we saw a decrease in the mix of our room nights booked on a mobile device in 2022 due to a year-over-year increase in the mix of our room nights booked for international travel and a year-over-year expansion of the booking window. Room nights booked on a mobile device generally have a lower mix of international travel and a shorter booking window than room nights booked on a desktop. The mix of our room nights booked on a mobile app in 2022 was above 2019 and 2021. We continue to see favorable repeat direct booking behavior from consumers in our business because, in contrast to our revenues, it is not affected by the different methods of recording revenue and cost of revenue between our Name Your Own Price® travel reservation services and our other services. On January 1, 2018, we adopted a new revenue recognition accounting standard which will change the presentation of our Name Your Own Price® revenue to a net basis (see Note 2 to the Consolidated Financial Statements) for periods beginning after December 31, 2017, and, as a result, we will no longer report cost of revenues or gross profit.
Our global ADRs increased approximately 25%, on a constant currency basis, in 2022 as compared to 2019, driven primarily by higher ADRs for accommodations located in Europe as well as increases in ADRs across all other regions as compared to 2019. In addition, we estimate that our global ADRs in 2022, as compared to 2019, benefited by approximately two percentage points from changes in the geographical mix of our business driven primarily by slower room night recovery in Asia, which is a low ADR region, and stronger room night performance in North America, which is a high ADR region. Our global ADRs increased approximately 15%, on a constant currency basis, in 2022 as compared to 2021, driven primarily by higher ADRs in Europe as well as increases in ADRs across all other regions as compared to 2021. The increase in our global ADRs in 2022, as compared to 2021, was negatively impacted by approximately three percentage points from changes in geographical mix in our business driven primarily by stronger year-over-year room night growth in Asia and lower year-over-year room night growth in North America.
Prior to the COVID-19 outbreak, we observed a trend of declining constant-currency accommodation ADRs partially driven by the negative impact of the changing geographical mix of our business (e.g., lower ADR regions like Asia were generally growing faster than higher ADR regions like Western Europe and North America) as well as pricing pressures within local markets from time to time. Those declining ADR trends resulted in accommodation gross bookings growing less than room nights. As the travel market continues to recover from the impact of the COVID-19 pandemic and with all regions experiencing general inflation in prices, we have seen travel industry ADRs generally increasing from pandemic lows in 2020. While our ADRs have continued to increase in 2022 as compared to 2019, it remains highly uncertain what the trend in industry ADRs will look like going forward.
We focus on relentless innovation to grow our business by, among other things, providing a best-in-class user experience with intuitive, easy-to-use online platforms to ensure that we are not mademeeting the needs of online consumers while aiming to exceed their expectations. As part of these ongoing efforts, we have a long-term strategy to build a seamless offering of multiple elements of travel, allowing us to provide a more tailored and flexible consumer experience, which we refer to as farthe "Connected Trip," and we expect these efforts to increase room night growth and revenue growth over time. We may see a negative impact on our operating margins in advance. Forthe near term as we incur the expenses associated with Connected Trip-related investments. Further, to the extent our non-accommodation services (e.g., airline ticket reservation services) have lower margins and increase as a percentage of our total business, our operating margins may be negatively affected.
As part of our strategy to provide more detail regardingpayment options to consumers and travel service providers, increase the competitive trendsnumber and risksvariety of accommodations available on Booking.com, and enable our long-term Connected Trip strategy, Booking.com increasingly processes transactions on a merchant basis, where it facilitates payments from travelers for the services provided. This allows Booking.com to process transactions for travel service providers and to increase its ability to offer secure and flexible transaction terms to consumers, such as the form and timing of payment. We believe that expanding these types of service offerings will benefit consumers and travel service providers, as well as our gross bookings, room night, and earnings growth rates. However, this results in additional expenses for personnel, payment processing, chargebacks (including those related to fraud), and other expenses related to these transactions, which are recorded in "Personnel" and "Sales and other expenses" in our Consolidated Statements of Operations, as well as associated incremental revenues (e.g., credit card rebates), which are recorded in "Merchant revenues." To the extent more of our business is generated on a merchant basis, we face, see Part I Item 1 Business - "Competition,"incur a greater level of these merchant-related expenses, which negatively impacts our operating margins despite increases in associated incremental revenues. The mix of our gross bookings generated on a merchant basis was 44% in 2022, an increase from 34% in 2021 and 27% in 2019.
39
We have established widely used and recognized e-commerce brands through marketing and promotional campaigns. Our total marketing expenses, which are comprised of performance and brand marketing expenses that are substantially variable in nature, were $6.0 billion in 2022, up 58% versus 2021 and up 21% versus 2019 as a result of the improving demand environment and our efforts to invest in marketing. Our performance marketing expense, which represents a substantial majority of our marketing expense, is primarily related to the use of online search engines (primarily Google), meta-search and travel research services, and affiliate marketing to generate traffic to our platforms. Our brand marketing expense is primarily related to costs associated with producing and airing television advertising, online video advertising (for example, on YouTube and Facebook), and online display advertising.
Marketing efficiency, expressed as marketing expense as a percentage of gross bookings, and performance marketing returns on investment ("ROIs") are impacted by a number of factors that are subject to variability and are in some cases outside of our control, including ADRs, costs per click, cancellation rates, foreign currency exchange rates, our ability to convert paid traffic to booking customers, and the timing and effectiveness of our brand marketing campaigns. In recent years, we observed periods of stable or increasing ROIs. Although it is difficult to predict how performance marketing ROIs will change in the future, ROIs could be negatively impacted by increased levels of competition and other factors. When evaluating our performance marketing spend, we typically consider several factors for each channel, such as the customer experience on the advertising platform, the incremental traffic we receive, and anticipated repeat rates.
Marketing efficiency can also be impacted by the extent to which consumers come directly to our platforms for bookings. Marketing expenses as a percentage of total gross bookings in 2022 were lower than 2019 despite lower performance marketing ROIs due to an increase in the share of room nights booked by consumers coming directly to our platforms. Performance marketing ROIs were lower in 2022 versus 2019 due to our efforts to invest in marketing during the recovery in the travel industry in 2022. See Part I, Item 1A, Risk Factors- "Intense competition could reduceWe rely on marketing channels to generate a significant amount of traffic to our market shareplatforms and harmgrow our financial performance.business," and "Consumer adoptionOur business could be negatively affected by changes in online search and usemeta-search algorithms and dynamics or traffic-generating arrangements."
Historically, our growth has primarily been generated by the worldwide accommodation reservation business of mobile devices creates new challengesBooking.com due in part to the availability of a large number of properties through Booking.com. Booking.com included over 2.7 million properties on its website at December 31, 2022, consisting of over 400,000 hotels, motels, and resorts and approximately 2.3 million alternative accommodation properties (including homes, apartments, and other unique places to stay), and representing an increase from approximately 2.4 million properties at December 31, 2021. The year-over-year increase in total properties was driven primarily by an increase in alternative accommodation properties.
The mix of Booking.com’s room nights booked for alternative accommodation properties in 2022 was approximately 30%, up slightly versus 2019 and 2021. We have observed an overall longer-term trend of an increasing mix of room nights booked for alternative accommodation properties as consumer demand for these types of properties has grown, and as we have increased the number and variety of alternative accommodation properties available to consumers on Booking.com. We may enable device companiesexperience lower profit margins due to additional costs, such as Appleincreased customer service costs, related to compete directly with us."offering alternative accommodations on our platforms. As our alternative accommodation business has grown, these different characteristics have negatively impacted our profit margins and "Wethis trend may not be able to keep up with rapid technological changes."continue.
Although we believe that providing an extensive collection of properties, excellent customer service, and an intuitive, easy to use website or mobileeasy-to-use consumer experience are important factors influencing a consumer's decision to make a reservation, for many consumers, particularly in certain markets, the price of the travel service is the primary factor determining whether a consumer will book a reservation. We have observed an increase in promotional pricing to closed user groups (such as loyalty program participants or consumers with registered accounts), including through mobile apps. In addition, many large hotel chains and OTCs have launched initiatives, such as increased discounting and incentives, to encourage consumers to book accommodations through their websites. Discounting and couponing coupled with a high degree(i.e., merchandising) occurs across all of consumer shopping behavior isthe major regions in which we operate, particularly common in Asian markets, while brand loyalty in such markets is less important.Asia. In some cases, our competitors are willing to make little or no profit on a transaction, or offer travel services at a loss, in order to gain market share.
Many taxing authorities are increasingly focused on ways to increase tax revenues and have targeted large multinational technology companies in these efforts. As a numberresult, many countries and some U.S. states have implemented or are considering the adoption of factorsa digital services tax or similar tax that are subjectimposes a tax on revenue earned from digital advertisements or the use of online platforms, even when there is no physical presence in the jurisdiction. Currently, rates for this tax range from 1.5% to variability10% of revenue deemed generated in the jurisdiction. The digital services taxes currently in effect, which we record in "General and that are,administrative" expense in some cases, outsidethe Consolidated Statements of our control, including ADRs, costs per click, cancellation rates, foreign exchange rates, our ability to convert paid traffic to booking customers and the extent to which consumers come directly to our websites or mobile apps for bookings. For example, competition for desired rankings in search results and/or a decline in ad clicks by consumers could increase our costs-per-click and reduceOperations, have negatively impacted our
40
Our businesses outside of the U.S. (see Note 17 to the price parity investigations, from time to time NCAs, other governmental agencies, trade associations and private parties take legal actions, including commencing legal proceedings, that may affect our operations. For example, in March 2017, in connection withConsolidated Financial Statements) represent a lawsuit begun in 2015 by the Association of Turkish Travel Agencies claiming that Booking.com is required to meet certain registration requirements in Turkey, a Turkish court ordered Booking.com to suspend offering Turkish hotels and accommodations to Turkish residents. Although Booking.com is appealing the order and believes it to be without basis, this order has had, and is likely to continue to have, a negative impact on our growth and results of operations.
result of this potential timing difference between when we record advertising expensethe movements in foreign currency exchange rates, both the absolute amounts of and when we recognize associated revenue, we have historically experiencedpercentage changes in our highest levels of profitability in the second and third quarters of the year, which is when we experience the highest levels of accommodation check-outs for the year for our European and North American businesses. We expect this to continue under our new revenue recognition policy. The first quarter of the year is typically our lowest level of profitability and may experience additional volatility in earnings growth rates due to these and other seasonal timing factors. For our Asia-Pacific business, we experience the highest levels of accommodation bookings in the third and fourth quarters of the year, and the highest levels of accommodation check-outs in the fourth quarter. As the relative growth rates for these businesses fluctuate, the quarterly distribution of our operating results may vary.
We generally enter into derivative instruments to minimize the impact of foreign currency exchange rate fluctuations. See Note 6 to our Consolidated Financial Statements for additional information related to reservations booked in previous quarters. Conversely, in periods where our gross bookings growth rate accelerates, our operating margins are typically negatively impacted by relatively more variable advertising expense. In addition, gross profit growth is typically less impacted by accelerating gross bookings growth in the near term as a portion of the revenue recognized from such gross bookings will occur in future quarters.derivative contracts.
Other Factors
The competition for technology talent in our industry is intense, including among established technology companies, startups, and companies transitioning to timedigital, and this level of competition could continue in the formfuture. As a result of among other things, acquisitions. As the overall sizecompetitive labor market and inflationary pressure on compensation, our personnel expenses to attract and retain key talent are increasing, which may adversely affect our results of operations. See Part I, Item 1A, Risk Factors - "We rely on the performance of highly skilled employees; and, if we are unable to retain or motivate key employees or hire, retain, and motivate well-qualified employees, our business has grown,would be harmed."
41
Outlook
In January 2023, we saw an improvement in the competitive pressuremonthly room night growth rate versus 2019 relative to innovatethe fourth quarter of 2022, with room nights growing about 26% versus January 2019, driven primarily by improvements in Europe, Rest of World, and Asia. On a year-over-year basis, room night growth in January 2023 was 60%, due in part to the negative impact of the Omicron variant on January 2022 room nights. While there continues to be uncertainty around the month to month trends, we assume that room night growth in the first quarter of 2023 will encompassgrow by over 30% relative to the first quarter of 2022. Given that assumption for room night growth, we expect the following for the first quarter of 2023:
•the year-over-year growth in gross bookings will be about four percentage points better than the year-over-year growth in room nights;
•revenues as a wider rangepercentage of servicesgross bookings will be higher than it was in the first quarter of 2022; and technologies, including services
•operating profit will be higher than in the first quarter of 2022.
For the full year, assuming gross bookings increase in 2023 compared to 2022 by a low teens percentage, we expect the following for full-year 2023:
•revenues as a percentage of gross bookings will be higher than it was in 2022; and technologies that may
•operating profit will be outside of our historical core business,higher than in 2019 and our ability to keep pace may slow. Potential competitors, such as emerging start-ups, may be able to innovate and focus on developing a particularly new product or service faster than we can or may foresee consumer need for new services or technologies before us. Some of our larger competitors or potential competitors have more resources or more established or diversified relationships with consumers than we do, and they could use these advantages in ways that could affect our2022.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Our significant accounting policies and estimates are more fully described in Note 2 to our Consolidated Financial Statements. Certain of our accounting estimates are particularly important to our financial position and results of operations and require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our management uses itsWe use our judgment to determine the appropriate assumptions to be used in the determination of certain estimates. We`certain estimates and we evaluate our estimates on an ongoing basis. Estimates are based on among other things, historical experience, terms of existing contracts, our observance of trends in the travel industry, and on various other assumptions that we believe to be reasonable under the circumstances. Our actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policiesMatters that involve significant estimates and judgments of management include the following:
Valuation of Investments in Private Companies
See Notes 2, 5, and 6 to our Consolidated Financial Statements for additional information related to the investments in private companies and information on fair value measurements, including the three levels of inputs to the valuation techniques used to measure fair value. When inputs that are observable, either directly or indirectly (observable market data), are available at the measurement date and are not significantly adjusted using unobservable inputs, the observable inputs would be classified as Level 2 inputs. When little or no market data is available, the fair value of these investments are measured using unobservable inputs ("Level 3 inputs").
Our investments measured using Level 3 inputs primarily consist of investments in privately-held companies that were classified as either debt securities or equity securities without readily determinable fair values. Fair values of privately held securities are estimated using a variety of valuation methodologies, including both market and income approaches. We use valuation techniques appropriate for the type of investment and the information available about the investee as of the valuation date to determine fair value. Recent financing transactions in the investee are generally considered the best indication of the enterprise value and therefore used as a basis to estimate fair value. However, based on a number of factors, such as the proximity to the valuation date or the volume or other terms of these financing transactions, we may also use other valuation techniques to supplement this data, including the income approach. When a recent financing transaction occurs and represents fair value, we also use the calibration process, as appropriate, when estimating fair value on subsequent measurement dates. Calibration is the process of using observed transactions in the investee company's own instruments to ensure that the valuation techniques that will be employed to value the investee company investment on subsequent measurement dates begin with assumptions that are consistent with the original observed transaction as well as any more recent observed transactions in the instruments issued by the investee company.
In July 2021, Yanolja announced a new round of funding which was completed in October 2021 along with certain other transactions. As a result of these observable transactions, we increased the carrying value of our investment in Yanolja to
42
$306 million as of December 31, 2021. During the three months ended June 30, 2022, considering the significant adverse changes in the market valuations of companies in the travel and technology industries, we evaluated our investment in Yanolja for impairment and recognized an impairment charge of $184 million resulting in an adjusted carrying value of $122 million at June 30, 2022 and December 31, 2022. As discussed below, we used unobservable inputs to determine fair value. We used a combination of the market approach and the income approach in estimating the fair value of our investment in Yanolja as of June 30, 2022. The market approach estimates value using prices and other relevant information generated by market transactions involving identical or comparable companies. The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using a discount rate based on a company’s weighted-average cost of capital, and is adjusted to reflect the risks inherent in its cash flows. The key unobservable inputs and ranges used in estimating the fair value of our investment in Yanolja as of June 30, 2022 include, for the market approach, percentage decrease in the calibrated earnings before interest, taxes, depreciation, and amortization ("EBITDA") multiple (36%) and for the income approach, the weighted average cost of capital (10%-14%) and terminal EBITDA multiple (14x-16x). Significant changes in any of these inputs in isolation would result in significantly different fair value measurements. Generally, a change in the assumption used for EBITDA multiples would result in a directionally similar change in the fair value and a change in the assumption used for weighted average cost of capital would result in a directionally opposite change in the fair value.
The determination of the fair values of investments in private companies, where we are a minority shareholder and have access to limited information from the investee, reflects numerous assumptions that are subject to various risks and uncertainties, including key assumptions regarding the investee’s expected growth rates and operating margin, as well as other key assumptions with respect to matters outside of our control, such as discount rates and market comparables. It requires significant judgments and estimates and actual results could be materially different than those judgments and estimates used. Future events and changing market conditions may lead us to re-evaluate the assumptions reflected in our valuation, which may result in a need to recognize additional impairment charges that could have a material adverse effect on our results of operations.
Valuation of Goodwill Long-Livedand other Long-lived Assets and Intangibles.
The application of the purchaseacquisition method of accounting for business combinations requires the use of significant estimates and assumptions to determine the fair value of the assets acquired and liabilities assumed. Our estimates of the fair value are based upon assumptions that we believe are reasonable and, whenreasonable. When we deem appropriate, includewe utilize assistance from a third-party valuation firm.firms. The purchase price consideration transferred is allocated to the assets acquired and liabilities assumed based on their respective fair values at the acquisition date. The excess of the purchase price consideration transferred over the net of the amounts allocated to the identifiable assets acquired and liabilities assumed is recognized as goodwill. Goodwill is assigned to reporting units that are expected to benefit from the synergies of the business combination as of the acquisition date.
combination.We review long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The assessment of possible impairment is based upon the ability to recover the carrying value of the assets from the estimated undiscounted future net cash flows, before interest and KAYAK in May 2013.taxes, of the related asset group.
We test goodwill for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We test goodwill at a reporting unit level and our annual goodwill impairment tests are performed as of September 30. As of September 30, 2017,2022, we performed our annual quantitative goodwill impairment test. Othertest and concluded that there was no impairment of goodwill.
The estimation of fair values of our reporting units reflect numerous assumptions that are subject to various risks and uncertainties, including key assumptions regarding each reporting unit’s expected growth rates and operating margin and the competitive environment, as well as other key assumptions with respect to matters outside of our control, such as discount rates and market comparables. Generally, changes in the assumptions used for comparable company multiples would result in directionally similar changes in the fair value and changes in the assumptions used for discount rates would result in directionally opposite changes in the fair value. The estimation of fair value requires significant judgments and estimates and actual results could be materially different than OpenTable,the judgments and estimates used. During 2022, there have been significant adverse changes in the market valuation of companies in the travel and technology industries. Discount rates have also been impacted during the period due to rising interest rates and adverse changes in the macroeconomic environment. Future events and changing market conditions, including economic uncertainties such as inflation, rising interest rates and risks of a potential
43
recession, may lead us to re-evaluate the assumptions used to estimate the fair values of our reporting units, substantially exceeded their respective carrying values.which may result in a need to recognize additional goodwill impairment charges that could have a material adverse effect on our results of operations.
During the year ended December 31, 2020, as a result of the deterioration of the Company’s business due to the COVID-19 pandemic, the Company recorded significant goodwill impairment charges (described below) related to the OpenTable
2020 Interim Goodwill Impairment Test
Due to the significant and negative financial impact of the COVID-19 pandemic (see Note 2), we performed an interim period goodwill impairment test at March 31, 2020 and recognized a goodwill impairment charge of $489 million related to the OpenTable and KAYAK reporting unit for the three months ended March 31, 2020, which is subjectnot tax-deductible, resulting in an adjusted carrying value of goodwill for OpenTable and KAYAK of $1.5 billion at March 31, 2020. The goodwill impairment was primarily driven by a significant reduction in the forecasted near-term cash flows of OpenTable and KAYAK as well as the significant decline in comparable companies' market values as a result of the COVID-19 pandemic.
The estimated fair value of OpenTable and KAYAK was determined using a combination of standard valuation techniques, including an income approach (discounted cash flows) and a market approach (applying the recent decline in enterprise values of comparable publicly-traded companies to numerous risksthe recently calculated fair value for OpenTable and uncertainties."KAYAK as well as applying comparable company multiples). The income approach estimates fair value utilizing long-term growth rates and discount rates applied to the cash flow projections. In the cash flow projections, we assumed at the time that OpenTable and KAYAK would experience a significant decline in near-term cash flows with a recovery to 2019 levels of financial performance (including profitability) occurring in 2023. The shape and timing of the recovery was a key assumption in our fair value calculation (both in the income and market approaches).
2020 Annual Goodwill Impairment Test
As of September 30, 2020, we performed our annual goodwill impairment test and recognized a goodwill impairment charge of $573 million for the OpenTable and KAYAK reporting unit for the three months ended September 30, 2020, which is not tax-deductible, resulting in an adjusted carrying value of goodwill for OpenTable and KAYAK of $1.0 billion at September 30, 2020. The goodwill impairment was primarily driven by a significant reduction in the forecasted cash flows of OpenTable and KAYAK, reflecting a longer assumed recovery period to 2019 levels of profitability, mainly due to the continued material adverse impact of the COVID-19 pandemic, including its impact on the flight vertical at KAYAK, and the lowered outlook for monetization opportunities in restaurant reservation services.
The estimated fair value of OpenTable and KAYAK was determined using a combination of standard valuation techniques, including an income approach (discounted cash flows) and a market approach (applying comparable company multiples). The income approach, applied as of September 30, 2020, reflected a reduction in the forecasted cash flows of OpenTable and KAYAK and a longer assumed recovery period to 2019 levels of profitability, driven primarily by a lowered outlook for monetization opportunities in restaurant reservation services and slower than previously expected recovery trends for airline travel, which is a key vertical for KAYAK. For the interim goodwill impairment test at March 31, 2020, we assumed a recovery to 2019 levels of financial performance would occur in 2023 for OpenTable and KAYAK. Based on our evaluation of all relevant information available as of September 30, 2020 for the annual goodwill impairment test, we expected at the time that OpenTable and KAYAK would not return to the 2019 level of profitability within five years from that date, and that it was uncertain whether the shape of the recovery would ultimately match our expectations. An increase or decrease of one percentage point to the profitability growth rates used in the cash flow projections would have resulted in an increase or
44
decrease of approximately $100 million to the estimated fair value of OpenTable and KAYAK as of September 30, 2020. The discount rate is determined based on the reporting unit’s estimated weighted-average cost of capital and adjusted to reflect the risks inherent in its cash flows, which requires significant judgments. The discount rate used for the annual goodwill impairment test as of September 30, 2020 was higher than the discount rate used for the interim goodwill impairment test as of March 31, 2020. If the discount rate used in the income approach increases or decreases by 0.5%, the impact to the estimated fair value of OpenTable and KAYAK, at September 30, 2020, would have ranged from a decrease of approximately $65 million to an increase of approximately $70 million.
Income Taxes.Taxes
We determine our tax expense based on our income and statutory tax rates applicable in the various jurisdictions in which we operate. Due to the complex nature of tax legislation and frequent changes with such associated legislation, significant judgment is required in computing our tax expense and determining our tax positions. OnThe U.S. Tax Cuts and Jobs Act (the "Tax Act") enacted in December 22, 2017 the U.S. government enacted the Tax Act. The Tax Act made significant changes to U.S. federal tax law, including a reduction in the U.S. federal statutory tax rate from 35% to 21%, effective January 1, 2018. The Tax Act imposes a one-time deemed repatriation tax imposed on accumulated unremitted international earnings, to be paid over eight years.
We regularly review our deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of temporary differences, and tax planning strategies and record valuation allowances as required.
We are subject to ongoing tax examinations and assessments in various jurisdictions. To date, weWe have been audited in several taxingmany jurisdictions with no significant impactand from time to time face challenges regarding the amount of taxes due. These challenges include questions regarding the timing and amount of deductions that we have taken on our financial condition, results of operations or cash flows.tax returns. Although we believe that our tax filing positions are reasonable theand comply with applicable law, we regularly review our tax filing positions, especially in light of tax law or business practice changes, and we may change our positions or determine that previous positions should be amended, either of which could result in additional tax liabilities. The final determination of tax audits or tax disputes may be different from what is reflected in our historical income tax provisions and accruals. Accordingly,
The evaluation of tax positions and recognition of income tax benefits require significant judgment and we may incur additionalconsult with external tax expense based uponand legal counsel as appropriate. We consider the technical merits of our assessmenttax positions along with the applicable tax statutes, related interpretations and precedents, and our expectation of the outcome of proceedings (or negotiations) with tax authorities. We recognize liabilities when we believe that uncertain positions may not be fully sustained upon audit by the tax authorities, including any related appeals or litigation processes. Liabilities recognized for uncertain tax positions are based on a two-step approach for recognition and measurement. First, we evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not outcomesthat the position will be sustained based on its technical merits. Second, we measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Interest and penalties attributable to uncertain tax positions, if any, are recognized as a component of income tax expense. The tax benefits ultimately realized by us may be different than what is recorded in the financial statements due to future events such as our settling the matter with the tax authorities and our success in sustaining our tax positions.
See Notes 15 and 16 to our Consolidated Financial Statements for additional information.
Contingencies
Loss contingencies (other than income tax-related contingencies disclosed above) arise from actual or wepossible claims and assessments and pending or threatened litigation that may adjust previouslybe brought against us. Based on our assessment of loss contingencies at each balance sheet date, a loss is recorded tax expense to reflect examination results.
The determination of shares issued towhether a loss is probable and whether the recipients, sometimes to zero, at the endamount of the performance period. The performance periodsloss can be reasonably estimated requires significant judgment and evaluation of all the underlying facts and circumstances, including judgments about the potential actions of third-party claimants, regulatory authorities, and courts. Claims, assessments, and litigations involve significant uncertainties such as the complexity of the facts, the legal theories involved, the nature of the claims, the judgment of the courts, the applicable methodology for determining potential damages, and, in the case of class actions, whether a class action can be certified and the extent to which members of a class would or would not file a claim.
45
On a quarterly basis, we update our performance based equity awards are typically three years. We record stock-based compensation expense for these performance-based awards based uponanalysis and estimates considering all available information, including the impact of negotiations, settlements, rulings, and advice of legal counsel. Changes in our assessment of whether a loss is probable, our estimate of the probable outcome atloss, or our determination of whether the endamount of loss can be reasonably estimated could have a material impact on our results of operations and financial position. Changes in our assumptions regarding a particular matter or the effectiveness of our strategies related to legal and other proceedings could also have a material impact on our results of operations and financial position. For all loss contingencies, until a matter is finally resolved, there may be an exposure to loss in excess of the performance period (i.e., the estimated performance against the performance targets). We periodically adjust the cumulative stock-based compensation expense recorded when the probable outcome for these performance-based awards is updated based upon changes in actual and
See Note 16 to $10.6 million, $20.7 million and $22.6 million, respectively, representing the impact of adjusting the estimated probable outcome of unvested performance share units. Our actual performance against the performance targets could differ materially from our estimates.Consolidated Financial Statements for additional information.
Recent Accounting Pronouncements -
See Note 2 to theour Consolidated Financial Statements for details, which is incorporated into this Item 7 by reference thereto.
46
Results of Operations
Year Ended December 31, 20172022 compared to Year Ended December 31, 20162021
We evaluate certain operating and financial measures on both an as-reported and constant-currency basis. We calculate constant currency by converting our current-year period operating and financial results for transactions recorded in currencies other than U.S. Dollars using the corresponding prior-year period monthly average exchange rates rather than the current-year period monthly average exchange rates. Foreign exchange rate fluctuations negatively impacted our year-over-year growth in gross bookings, revenues, and operating expenses for the year ended December 31, 2022. Since our expenses are generally denominated in foreign currencies on a basis similar to our revenues, our operating margins have not been significantly impacted by currency fluctuations.
Operating and Statistical Metrics
Our financial results are driven by certain operating metrics that encompass the booking and other business activity generated by our travel and travel-related services. Specifically, reservations of accommodation room nights, rental car days, and airline tickets capture the volume of units booked through our OTConline travel companies' ("OTC") brands by our travel reservation services customers. Gross bookings is an operating and statistical metric that captures the total dollar value, generally inclusive of taxes and fees, of all travel services booked through our OTC brands by our customers, net of cancellations, and is widely used in the travel business. Our non-OTC brands (KAYAK and OpenTable) have different business metrics from those of our OTC brands, and thereforeso search queries through KAYAK and restaurant reservations through OpenTable do not contribute to our gross bookings.
| Year Ended December 31, | ||||||||||
| (in millions) | ||||||||||
| 2017 | 2016 | Change | ||||||||
| Agency | $ | 69,697 | $ | 58,638 | 18.9 | % | ||||
| Merchant | 11,529 | 9,449 | 22.0 | % | ||||||
| Total | $ | 81,225 | $ | 68,087 | 19.3 | % | ||||
| Year Ended December 31, | ||||||||
| (in millions) | ||||||||
| 2017 | 2016 | Change | ||||||
| Room Nights | 673.1 | 556.6 | 20.9 | % | ||||
| Rental Car Days | 73.0 | 66.6 | 9.6 | % | ||||
| Airline Tickets | 6.9 | 7.3 | (5.3 | )% | ||||
| Year Ended December 31, | Increase (Decrease) | ||||||||||||||||
| (in millions) | 2022 | 2021 | |||||||||||||||
| Room nights | 896 | 591 | 51.6 | % | |||||||||||||
| Rental car days | 62 | 47 | 30.7 | % | |||||||||||||
| Airline tickets | 23 | 15 | 49.9 | % | |||||||||||||
Gross bookings resulting from reservations of room night reservations increased by 20.9%nights, rental car days, and airline tickets made through our agency and merchant categories for the yearyears ended December 31, 2017,2022 and 2021 were as follows (numbers may not total due to rounding):
| Year Ended December 31, | Increase (Decrease) | ||||||||||||||||
| (in millions) | 2022 | 2021 | |||||||||||||||
| Agency gross bookings | $ | 67,379 | $ | 50,741 | 32.8 | % | |||||||||||
| Merchant gross bookings | 53,873 | 25,845 | 108.4 | % | |||||||||||||
| Total gross bookings | $ | 121,253 | $ | 76,586 | 58.3 | % | |||||||||||
Agency gross bookings are derived from travel-related transactions where we do not facilitate payments from travelers for the services provided, while merchant gross bookings are derived from services where we facilitate payments. Agency and merchant gross bookings increased in 2022 compared to 2021 due primarily to the year ended December 31, 2016, primarilycontinued improvement in travel demand trends. Merchant gross bookings increased more than agency gross bookings due to strong execution by our brand teams to add new properties to ourthe expansion of merchant accommodation reservation services advertise our brands to consumers and provide a continuously improving experience for customers on our desktop and mobile platforms, as well as the ongoing shift from offline to online for travel bookings.at Booking.com.
47
Revenues
Substantially all of our revenuerevenues are generated by providing online travel reservation services, which facilitate online travel purchases between travel service providers and travelers.
Revenues from online travel reservation services are classified into threetwo categories:
•Agency. Agency revenues are derived from travel-related transactions where we do not facilitate payments from travelers for the travel services provided. Agency revenues consist primarilyalmost entirely of travel reservation commissions as well as certain GDSfrom our accommodation, rental car, and airline reservation booking fees and certain travel insurance fees, and are reported at the net amounts received, without any associated cost of revenue.services. Substantially all of the revenue for Booking.com isour agency revenue comprised ofis from Booking.com's accommodation reservation commissions.reservations.
•Merchant. Merchant revenues are derived from travel-related transactions where we facilitate payments from travelers for the services provided, generally at the time of booking. Merchant revenues are derived from transactions where travelers book accommodation, rental car, airline reservations, and other travel related services. The majority of our merchant revenue is from Booking.com's accommodation reservations. Merchant revenues include: ◦travel reservation commissions and transaction net revenues (i.e., the amount charged to travelers, including the impact of merchandising, less the amount owed to travel service providers) in connection with our merchant reservation services; ◦revenues from facilitating payments, such as credit card processing rebates and customer processing fees; and ◦ancillary fees, including travel-related insurance revenues. |
Advertising and other revenues
Advertising and other revenues are derived primarily from (1) from:
•revenues earned by KAYAK for (a) sending referrals to OTCs and travel service providers and (b) advertising placements on KAYAK's websitesits platforms; and mobile apps; (2)
•revenues earned by OpenTable for (a) restaurant reservation feesservices (fees paid by restaurants for diners seated through OpenTable's online reservation service) and (b) subscription fees earned by OpenTable for restaurant reservation management services; (3) revenues earned by priceline.com for advertising on its websites; and (4) revenues generated by Booking.com's BookingSuite branded accommodation marketing and business analytics services.
| Year Ended December 31, | Increase (Decrease) | ||||||||||||||||
| (in millions) | 2022 | 2021 | |||||||||||||||
| Agency revenues | $ | 9,003 | $ | 6,663 | 35.1 | % | |||||||||||
| Merchant revenues | 7,193 | 3,696 | 94.6 | % | |||||||||||||
| Advertising and other revenues | 894 | 599 | 49.4 | % | |||||||||||||
| Total revenues | $ | 17,090 | $ | 10,958 | 56.0 | % | |||||||||||
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2017 | 2016 | Change | ||||||||
| Agency Revenues | $ | 9,714,126 | $ | 7,982,116 | 21.7 | % | ||||
| Merchant Revenues | 2,133,017 | 2,048,005 | 4.2 | % | ||||||
| Advertising and Other Revenues | 833,939 | 712,885 | 17.0 | % | ||||||
| Total Revenues | $ | 12,681,082 | $ | 10,743,006 | 18.0 | % | ||||
Agency, Revenues
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2017 | 2016 | Change | ||||||||
| Cost of Revenues | $ | 250,537 | $ | 428,314 | (41.5 | )% | ||||
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2017 | 2016 | Change | ||||||||
| Gross Profit | $ | 12,430,545 | $ | 10,314,692 | 20.5 | % | ||||
| Gross Margin | 98.0 | % | 96.0 | % | ||||||
Total gross margin (gross profit as a percentage of total revenue) increased during the year ended December 31, 2017, compared to the year ended December 31, 2016, because our revenues are disproportionately affected by priceline.com's Name Your Own Price® reservation services. Name Your Own Price® reservation services are recorded "gross" in revenue with a corresponding travel service provider cost recorded in cost of revenues, and in the year ended December 31, 2017 these revenues represented a smaller percentage of total revenues than in the year ended December 31, 2016. Our price-disclosed reservation services, which are recorded in revenue "net" of travel service provider costs, have been growing and priceline.com's Name Your Own Price®reservation services have been declining. As a result, we believe that gross profit is an important measure for evaluating growth in our business.
48
Operating Expenses
| Year Ended December 31, | Increase (Decrease) | ||||||||||||||||
| (in millions) | 2022 | 2021 | |||||||||||||||
| Marketing expenses | $ | 5,993 | $ | 3,801 | 57.6 | % | |||||||||||
| % of Total gross bookings | 4.9 | % | 5.0 | % | |||||||||||||
| % of Total revenues | 35.1 | % | 34.7 | % | |||||||||||||
Marketing expenses consist primarily of the costs of:
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2017 | 2016 | Change | ||||||||
| Performance Advertising | $ | 4,141,771 | $ | 3,479,287 | 19.0 | % | ||||
| % of Total Gross Profit | 33.3 | % | 33.7 | % | ||||||
| Brand Advertising | $ | 391,584 | $ | 295,698 | 32.4 | % | ||||
| % of Total Gross Profit | 3.2 | % | 2.9 | % | ||||||
•referrals from meta-search and travel research websites;
•affiliate programs;
•offline and online brand marketing; and
•other performance-based marketing and incentives.
We adjust our marketing spend based on our growth and profitability objectives, as well as the travel demand and expected ROIs in our marketing channels. We rely on performance advertisingour marketing channels to generate a significant amount of traffic to our websites. Performance advertisingOur marketing expenses, consistwhich are substantially variable in nature, increased significantly in 2022 compared to 2021, due primarily to the continued improvement in travel demand as the impact of the costs of: (1) search engine keyword purchases; (2) referrals from meta-search and travel research websites; (3) affiliate programs; and (4) other performance-based advertisements. For the year ended December 31, 2017, performance advertisingCOVID-19 pandemic lessened in 2022 versus 2021. Marketing expenses increased compared to the year ended December 31, 2016, to generate increased gross bookings and gross profit. We adjust our performance advertising spend based on our growth and profitability objectives and the expected performance of our performance advertising channels. Performance advertising expense as a percentage of total gross profit for the year ended December 31, 2017bookings decreased slightly in 2022 compared to the year ended December 31, 20162021 due to the timing of performance advertising spend relative to when associated revenue is recognized, as well as changesyear-over-year increases in the sharemix of direct traffic, partially offset by channel. In addition,year-over-year decreases in performance marketing ROIs. Performance marketing ROIs were lower in 2022 versus 2021 due to our efforts to invest in marketing during the third and fourth quarters of 2017, we pursued a strategy of improving our performance advertising ROIs, which positively impacted performance advertising efficiency. We recognize the substantial majority of our performance advertising expenses as they are incurred, which is typicallyrecovery in the quartertravel industry in which the associated2022.
Sales and MarketingOther Expenses
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2017 | 2016 | Change | ||||||||
| Sales and Marketing | $ | 561,958 | $ | 435,225 | 29.1 | % | ||||
| % of Total Gross Profit | 4.5 | % | 4.2 | % | ||||||
| Year Ended December 31, | Increase (Decrease) | ||||||||||||||||
| (in millions) | 2022 | 2021 | |||||||||||||||
| Sales and other expenses | $ | 1,818 | $ | 881 | 106.3 | % | |||||||||||
| % of Total gross bookings | 1.5 | % | 1.2 | % | |||||||||||||
| % of Total revenues | 10.6 | % | 8.0 | % | |||||||||||||
Sales and marketingother expenses consist primarily of: (1)
•credit card and other payment processing fees associated with merchant transactions; (2)
•fees paid to third parties that provide call center, website content translations, and other services; (3) promotional costs; (4) customer relations costs; (5)
•chargeback provisions and fraud prevention expenses associated with merchant transactions;
•provisions for bad debt,expected credit losses, primarily related to agency accommodation commission receivables;receivables and (6) provisions for prepayments to certain customers; and
•customer chargebacks associated with merchant transactions. For the year ended December 31, 2017, salesrelations costs.
Sales and marketingother expenses, which are substantially variable in nature, increased significantly in 2022 compared to the year ended December 31, 20162021, due primarily to an increase in merchant transaction costs of $573 million, and an increase in third-party call center costs of $235 million. Merchant transactions increased transaction volumes,year-over-year in 2022 due to the continued improvement in travel demand trends as the impact of the COVID-19 pandemic lessened in 2022 versus 2021, as well as higher promotionalthe expansion of merchant accommodation reservation services at Booking.com. The year-over-year increase in third-party call center costs in 2022 was due in part to the transfer of certain customer service operations of Booking.com to Majorel, which shifted costs from personnel expenses to sales and higher bad debt expense related to accommodation commission receivables.other expenses.
49
Personnel
| Year Ended December 31, | Increase (Decrease) | ||||||||||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||
| 2017 | 2016 | Change | |||||||||||||||||||||||||
| (in millions) | (in millions) | 2022 | 2021 | Increase (Decrease) | |||||||||||||||||||||||
| Personnel | $ | 1,659,581 | $ | 1,350,032 | 22.9 | % | Personnel | $ | 2,465 | $ | 2,314 | ||||||||||||||||
| % of Total Gross Profit | 13.4 | % | 13.1 | % | |||||||||||||||||||||||
| % of Total revenues | % of Total revenues | 14.4 | % | 21.1 | % | ||||||||||||||||||||||
Personnel expenses consist of compensation to our personnel, including salaries, bonuses, primarily of:
•salaries;
•bonuses;
•stock-based compensation, compensation;
•payroll taxes,taxes; and
•employee health and other benefits.
Personnel expenses, excluding stock-based compensation, increased during6% in 2022 compared to 2021, due to an increase in salary expense of $139 million and an increase in bonus expense accruals of $66 million, partially offset by the year ended$136 million expense, recorded in 2021, associated with the return of government assistance received through various government aid programs. Employee headcount of approximately 21,600 as of December 31, 2017,2022 increased by 6% as compared to the year ended December 31, 2016, primarily2021. Personnel expenses in 2022 and employee headcount as of December 31, 2022 were reduced due to increases in aggregate salariesthe transfer of approximately $239 million for the year ended December 31, 2017 primarily relatedcertain customer service operations of Booking.com to headcount growthMajorel which shifted costs from personnel expenses to support our business.sales and other expenses. Stock-based compensation expense was $260.9$404 million for the year ended December 31, 2017,in 2022 compared to $249.6$370 million for the year ended December 31, 2016.in 2021.
General and Administrative
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2017 | 2016 | Change | ||||||||
| General and Administrative | $ | 585,541 | $ | 455,909 | 28.4 | % | ||||
| % of Total Gross Profit | 4.7 | % | 4.4 | % | ||||||
| Year Ended December 31, | Increase (Decrease) | ||||||||||||||||
| (in millions) | 2022 | 2021 | |||||||||||||||
| General and administrative | $ | 934 | $ | 620 | 50.9 | % | |||||||||||
| % of Total revenues | 5.5 | % | 5.7 | % | |||||||||||||
General and administrative expenses consist primarily of: (1)
•indirect taxes such as digital services taxes and travel transaction taxes;
•fees for outside professionals;
•occupancy and office expenses; (2) and
•personnel-related expenses such as travel, relocation, recruiting, and training expenses; and (3) fees for outside professionals, including litigation expenses.
General and administrative expenses increased during the year ended December 31, 2017,in 2022 compared to the year ended December 31, 2016,2021 due primarily to an increase of $167 million in indirect taxes driven by higher personnel-related, occupancy and office expenses associated with increased headcount to support the expansion of our international businesses,digital services taxes, as well as a $27the $46 million litigation-related expense,accrual related to the potential settlement of which
Information Technology
| Year Ended December 31, | Increase (Decrease) | ||||||||||||||||
| (in millions) | 2022 | 2021 | |||||||||||||||
| Information technology | $ | 526 | $ | 412 | 27.6 | % | |||||||||||
| % of Total revenues | 3.1 | % | 3.8 | % | |||||||||||||
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2017 | 2016 | Change | ||||||||
| Information Technology | $ | 189,344 | $ | 142,393 | 33.0 | % | ||||
| % of Total Gross Profit | 1.5 | % | 1.4 | % | ||||||
Information technology expenses consist primarily of: (1)
•software license and system maintenance fees; (2)
•cloud computing costs and outsourced data center costs;
•payments to contractors; and
•data communications and other expenses associated with operating our services; (3) outsourced data center costs; and (4) payments to outside consultants. services.
50
Information technology expenses increased during the year ended December 31, 2017,in 2022 compared to the year ended December 31, 2016,2021 due primarily to growth in our worldwide operations.increased cloud computing costs, payments to contractors, and software license fees.
Depreciation and Amortization
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2017 | 2016 | Change | ||||||||
| Depreciation and Amortization | $ | 362,774 | $ | 309,135 | 17.4 | % | ||||
| % of Total Gross Profit | 2.9 | % | 3.0 | % | ||||||
| Year Ended December 31, | Increase (Decrease) | ||||||||||||||||
| (in millions) | 2022 | 2021 | |||||||||||||||
| Depreciation and amortization | $ | 451 | $ | 421 | 6.9 | % | |||||||||||
| % of Total revenues | 2.6 | % | 3.8 | % | |||||||||||||
Depreciation and amortization expenses consist of: (1)
•amortization of intangible assets with determinable lives; (2)
•amortization of internally-developed and purchased software;
•depreciation of computer equipment; (3) depreciation of internally developed and purchased software; and (4)
•depreciation of leasehold improvements, furniture and fixtures, and office equipment.
Depreciation and amortization expenses increased duringin 2022 compared to 2021 due to increased amortization expense related to the acquisition of Getaroom, partially offset by decreased depreciation of computer equipment and leasehold improvements.
Restructuring, Disposal, and Other Exit Activities
| Year Ended December 31, | Increase (Decrease) | ||||||||||||||||
| (in millions) | 2022 | 2021 | |||||||||||||||
| Restructuring, disposal, and other exit activities | $ | (199) | $ | 13 | * | ||||||||||||
| % of Total revenues | (1.2) | % | 0.1 | % | |||||||||||||
* Not meaningful
Restructuring, disposal, and other exit activities in 2022 includes the gain of $240 million on the sale and leaseback transaction related to Booking.com's future headquarters building (see Note 10 to our Consolidated Financial Statements), partially offset by a loss of $41 million related to the transfer of certain customer service operations of Booking.com to Majorel. Restructuring, disposal, and other exit activities for the year ended December 31, 2017, compared2021 principally relate to the year ended December 31, 2016, primarilyrestructuring charges as a result of increased depreciation expenses due to capital expenditures for additional data center capacityrestructuring actions taken in 2020 and office build-outs to support growth and geographic expansion, the inclusion of intangible amortization for the Momondo Group since its acquisition on July 24, 2017, and increased capitalized software development costs.
| Year Ended December 31, | |||||||||
| (in thousands) | |||||||||
| 2017 | 2016 | Change | |||||||
| Impairment of Goodwill | $ | — | $ | 940,700 | N/A | ||||
| % of Total Gross Profit | N/A | 9.1 | % | ||||||
| Year Ended December 31, | Increase (Decrease) | ||||||||||||||||
| (in millions) | 2022 | 2021 | |||||||||||||||
| Interest expense | $ | 391 | $ | 334 | 16.9 | % | |||||||||||
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2017 | 2016 | Change | ||||||||
| Interest Income | $ | 157,194 | $ | 94,946 | 65.6 | % | ||||
| Interest Expense | (253,976 | ) | (207,900 | ) | 22.2 | % | ||||
| Foreign Currency Transactions and Other | (35,291 | ) | (16,913 | ) | 108.7 | % | ||||
| Impairment of Cost-method Investments | (7,597 | ) | (63,208 | ) | (88.0 | )% | ||||
| Total | $ | (139,670 | ) | $ | (193,075 | ) | (27.7 | )% | ||
| Year Ended December 31, | Increase (Decrease) | ||||||||||||||||
| (in millions) | 2022 | 2021 | |||||||||||||||
| Other income (expense), net | $ | (788) | $ | (697) | 13.1 | % | |||||||||||
51
The following table sets forth the composition of "Other income (expense), net" for the years ended December 31, 2022 and other includes foreign currency gains or losses on derivative contracts, foreign currency transaction gains or losses, including costs related2021:
| Year Ended December 31, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Interest and dividend income | $ | 219 | $ | 16 | |||||||
| Net losses on equity securities | (963) | (569) | |||||||||
| Foreign currency transaction (losses) gains | (43) | 111 | |||||||||
| Loss on early extinguishment of debt | — | (242) | |||||||||
| Other | (1) | (13) | |||||||||
| Other income (expense), net | $ | (788) | $ | (697) | |||||||
See Note 21 to foreign currency transactions,our Consolidated Financial Statements for additional information.
Interest and net realized gains or losses on investments. Derivative contracts that hedge our exposure to the impact of currency fluctuations on the translation of our international operating results into U.S. Dollars upon consolidation resulted in foreign currency losses of $2.8 milliondividend income increased for the year ended December 31, 2017,2022, compared to foreign currency gains of $3.4 million for the year ended December 31, 2016. Foreign currency transaction losses, including costs2021, primarily due to the impact of higher interest rates on cash management activities (with related to foreign currency transactions, resultedexpenses recorded in foreign currency losses of $31.2 millioninterest expense) and $19.6 million for the years ended December 31, 2017 and 2016, respectively.investment activities.
See Note 4Notes 5 and 6 to our Consolidated Financial Statements for additional information related to net losses on impairmentsequity securities and the impairment of cost-method investments.an investment in equity securities.
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2017 | 2016 | Change | ||||||||
| Income Tax Expense | $ | 2,057,557 | $ | 578,251 | 255.8 | % | ||||
| % of Total Earnings Before Income Taxes | 46.8 | % | 21.3 | % | ||||||
Loss on early extinguishment of debt is related to our Senior Notes due April 2025 and our Senior Notes due April 2027 that were redeemed in 2016April 2021 (see Note 9 to our Consolidated Financial Statements) and the non-deductible impairment charge of approximately $60 million associated with a cost-method investment recognized in 2016 (see Note 412 to our Consolidated Financial Statements).
| Year Ended December 31, | ||||||||||
| (in millions) | ||||||||||
| 2016 | 2015 | Change | ||||||||
| Agency | $ | 58,638 | $ | 47,969 | 22.2 | % | ||||
| Merchant | 9,449 | 7,559 | 25.0 | % | ||||||
| Total | $ | 68,087 | $ | 55,528 | 22.6 | % | ||||
| Year Ended December 31, | ||||||||
| (in millions) | ||||||||
| 2016 | 2015 | Change | ||||||
| Room Nights | 556.6 | 432.3 | 28.7 | % | ||||
| Rental Car Days | 66.6 | 59.9 | 11.2 | % | ||||
| Airline Tickets | 7.3 | 7.7 | (5.2 | )% | ||||
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2016 | 2015 | Change | ||||||||
| Agency Revenues | $ | 7,982,116 | $ | 6,527,898 | 22.3 | % | ||||
| Merchant Revenues | 2,048,005 | 2,082,973 | (1.7 | )% | ||||||
| Advertising and Other Revenues | 712,885 | 613,116 | 16.3 | % | ||||||
| Total Revenues | $ | 10,743,006 | $ | 9,223,987 | 16.5 | % | ||||
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2016 | 2015 | Change | ||||||||
| Cost of Revenues | $ | 428,314 | $ | 632,180 | (32.2 | )% | ||||
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2016 | 2015 | Change | ||||||||
| Gross Profit | $ | 10,314,692 | $ | 8,591,807 | 20.1 | % | ||||
| Gross Margin | 96.0 | % | 93.1 | % | ||||||
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2016 | 2015 | Change | ||||||||
| Performance Advertising | $ | 3,479,287 | $ | 2,738,218 | 27.1 | % | ||||
| % of Total Gross Profit | 33.7 | % | 31.9 | % | ||||||
| Brand Advertising | $ | 295,698 | $ | 273,704 | 8.0 | % | ||||
| % of Total Gross Profit | 2.9 | % | 3.2 | % | ||||||
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2016 | 2015 | Change | ||||||||
| Sales and Marketing | $ | 435,225 | $ | 353,221 | 23.2 | % | ||||
| % of Total Gross Profit | 4.2 | % | 4.1 | % | ||||||
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2016 | 2015 | Change | ||||||||
| Personnel | $ | 1,350,032 | $ | 1,166,226 | 15.8 | % | ||||
| % of Total Gross Profit | 13.1 | % | 13.6 | % | ||||||
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2016 | 2015 | Change | ||||||||
| General and Administrative | $ | 455,909 | $ | 415,420 | 9.7 | % | ||||
| % of Total Gross Profit | 4.4 | % | 4.8 | % | ||||||
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2016 | 2015 | Change | ||||||||
| Information Technology | $ | 142,393 | $ | 113,617 | 25.3 | % | ||||
| % of Total Gross Profit | 1.4 | % | 1.3 | % | ||||||
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2016 | 2015 | Change | ||||||||
| Depreciation and Amortization | $ | 309,135 | $ | 272,494 | 13.4 | % | ||||
| % of Total Gross Profit | 3.0 | % | 3.2 | % | ||||||
| Year Ended December 31, | |||||||||
| (in thousands) | |||||||||
| 2016 | 2015 | Change | |||||||
| Impairment of Goodwill | $ | 940,700 | $ | — | N/A | ||||
| % of Total Gross Profit | 9.1 | % | N/A | ||||||
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2016 | 2015 | Change | ||||||||
| Interest Income | $ | 94,946 | $ | 55,729 | 70.4 | % | ||||
| Interest Expense | (207,900 | ) | (160,229 | ) | 29.8 | % | ||||
| Foreign Currency Transactions and Other | (16,913 | ) | (26,087 | ) | (35.2 | )% | ||||
| Impairment of Cost-method Investments | (63,208 | ) | — | N/A | ||||||
| Total | $ | (193,075 | ) | $ | (130,587 | ) | 47.9 | % | ||
Income Taxes
| Year Ended December 31, | ||||||||||
| (in thousands) | ||||||||||
| 2016 | 2015 | Change | ||||||||
| Income Tax Expense | $ | 578,251 | $ | 576,960 | 0.2 | % | ||||
| % of Total Earnings Before Income Taxes | 21.3 | % | 18.4 | % | ||||||
| Year Ended December 31, | Increase (Decrease) | ||||||||||||||||
| (in millions) | 2022 | 2021 | |||||||||||||||
| Income tax expense | $ | 865 | $ | 300 | 188.6 | % | |||||||||||
| % of Income before income taxes | 22.1 | % | 20.5 | % | |||||||||||||
Our 20162022 effective tax rate differs from the U.S. federal statutory tax rate of 35%21%, primarily due to lowerhigher international tax rates, a valuation allowance recorded against deferred tax assets related to certain unrealized losses on equity securities, certain non-deductible expenses, and an increase in unrecognized tax benefits, partially offset by the non-deductible impairment charge for goodwillbenefit of $940.7 million related to OpenTable recognized in 2016 (see Note 9 to our Consolidated Financial Statements) and the non-deductible impairment charge associated with a cost-
Under Dutch corporate income tax law, income generated from qualifying innovative activities is taxed at a rate of 9% ("Innovation Box Tax") for periods beginning on or after January 1, 2021 rather than the Dutch statutory rate of 25%. Previously, the Innovation Box Tax rate was 7%. Effective January 1, 2022, the Netherlands corporate income tax rate increased from 25% to 25.8%. A portion of Booking.com's earnings during the years ended December 31, 2022 and 2021 qualified for Innovation Box Tax treatment, which had a significant beneficial impact on our effective tax rates duefor these periods. For more information regarding the Innovation Box Tax, see Part I, Item 1A, Risk Factors - "We may not be able to the growthmaintain our 'Innovation Box Tax' benefit."
52
Results of Operations
Year Ended December 31, 2021 compared to Year Ended December 31, 2020
For a comparison of our international businessesresults of operations for the fiscal years ended December 31, 2021 and 2020, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the tax benefits recorded in 2016 arising from U.S. state tax law changes resulting in a net decrease to deferred tax liabilities, mostly associatedfiscal year ended December 31, 2021, filed with acquired intangible assets.the SEC on February 23, 2022.
53
Liquidity and Capital Resources
Marketing expenses and personnel expenses are the most significant operating expenses for our business. We rely on marketing channels to generate a significant amount of traffic to our websites. See our Consolidated Statements of Operations and "Trends" and "Results of Operations" above for additional information on marketing expenses and personnel expenses including stock-based compensation expenses.
Our continued access to sources of liquidity depends on multiple factors, including global economic conditions, the condition of global financial markets, the availability of sufficient amounts of financing, our ability to meet debt covenant requirements, our operating performance, and our credit ratings. If our credit ratings were to be downgraded, or financing sources were to ascribe higher risk to our rating levels, our industry or us, our access to capital and the cost of any financing would be negatively impacted. There is no guarantee that additional debt financing will be available in the future to fund our obligations, or that it will be available on commercially reasonable terms, in which case we may need to seek other sources of funding. In addition, the terms of future debt agreements could include more restrictive covenants than those we are currently subject to, which could restrict our business operations. For more information, see Part I, Item 1A, Risk Factors - "Our liquidity, credit ratings, and ongoing access to capital could be materially and negatively affected by global financial conditions and events."
At December 31, 2017,2022, we had $17.8$15.2 billion in cash, cash equivalents, and short-term investments and long-term investments. Approximately $16.2investments, of which approximately $9.3 billion is held by our international subsidiaries. Cash, cash equivalents, and long-term investments held by our international subsidiaries and isare denominated primarily in U.S.Euros, Hong Kong Dollars, Euros and to a lesser extent, British Pounds Sterling and other currencies.Sterling. Cash equivalents and short-term investments and long-term investments are principally comprised of U.S.money market fund investments, time deposits and internationalcertificates of deposit, government and corporate bonds, U.S. and international government securities, high-grade commercial paper, U.S. government agency securities, convertible debt securities, equity securities of Meituan, Grab Holdings Limited ("Grab") and American Depositary SharesDiDi Global Inc. ("ADSs"DiDi"), and our investments in private companies. We completed the sale of Ctrip, money market fundsour investment in equity securities of Meituan in February 2023 and time deposits (see Notereceived gross proceeds of $1.7 billion. See Notes 5 and 6 to our Consolidated Financial Statements).Statements.
At December 31, 2022, we prepaidhad a portion of our Dutch incomeremaining transition tax liability of approximately $713$811 million $500 million and $431 million, respectively, to earn prepayment discounts.
In accordance with the Tax Act, generally, future repatriation of our international cash will not be subject to a U.S. federal income tax liability as a dividend, but will be subject to U.S. state income taxes and international withholding taxes.taxes, which have been accrued by us. In August 2022, the Inflation Reduction Act of 2022 was enacted into law in the United States. The key provisions applicable to us include a 15% corporate minimum tax on book income. In addition, see Part I, Item 1A, Risk Factors - "We may have exposure to additional tax liabilities."
In August 2017, we issued Senior Notes due March 15, 2023, with an interest rate of 2.75% (the "2023 Notes"), and Senior Notes due March 15, 2028, with an interest rate of 3.55% (the "2028 Notes"), each having an aggregate principal amount of $500 million. Interest on the 2023 Notes and the 2028 Notes is payable semi-annually on March 15 and September 15, beginning March 15, 2018. In March 2017, we issued Senior Notes due March 10, 2022, with an interest rate of 0.8% (the "March 2022 Notes") for an aggregate principal amount of 1.0 billion Euros. Interest on the March 2022 Notes is payable annually on March 10, beginning March 10, 2018. The net proceeds of these notes may be used for general corporate purposes, which may include share repurchases, repayment of debt and acquisitions. See Note 10 to our Consolidated Financial Statements for further details on the 2023 Notes, 2028 Notes and March 2022 Notes.
54
In November 2022, the Company issued senior notes for an aggregate principal amount of 3.5 billion Euros with interest rates ranging from 4.0% to 4.75% and with maturity dates ranging from November 2026 to November 2034. The Company paid $19 million in debt issuance costs during the year ended December 31, 2022 related to the issuance of these senior notes. A portion of the proceeds from the issuance of these senior notes were used to repay the Senior Notes due November 2022 (the "November 2022 Notes"). In addition, we intend to repay the Senior Notes due March 15, 2018, with an interest rate2023 from these proceeds upon maturity. The remaining proceeds from the issuance of 1.0% (the "2018 Notes"),these senior notes are currently convertible and will remain convertible until the trading day prioravailable to be used for general corporate purposes.
In November 2022, we repaid $778 million on the maturity date of March 15, 2018, regardless of the Company's stock price. We reportedNovember 2022 Notes. In March 2022, the carrying valueCompany repaid $1.1 billion on the maturity of Senior Notes due March 2022. In addition, the 2018 Notes as a current liability in our Consolidated Balance Sheet as ofCompany paid the applicable accrued and unpaid interest relating to these senior notes.
At December 31, 2017. We are required to repay the remaining2022, we had outstanding senior notes with varying maturities for an aggregate principal amount of $12.5 billion, with $500 million payable within the 2018 Notesnext twelve months. The senior notes had a cumulative interest to maturity of approximately $714$2.4 billion, with $365 million in cash,payable within the next twelve months. See Note 12 to our Consolidated Financial Statements for additional information related to our debt arrangements, including principal amounts, interest rates and in addition, we have elected to deliver cash of approximately $700 million (based on our stock closing price of February 26, 2018) to satisfy the conversion value in excess of the remaining aggregate principal amount.maturity dates.
During the year ended December 31, 2017,2022, we repurchased 1,025,890 shares of our common stock for an aggregate cost of $1.8$6.7 billion. As ofAt December 31, 2017,2022, we had a total remaining aggregate amount of $2.4$3.9 billion authorized by our Board of Directors to purchaserepurchase our common stock. We may from time to time make additional repurchases of our common stock, depending on prevailing market conditions, alternate uses of capital and other factors. During the period from January 1, 2018
In November 2021, the Company entered into an agreement to acquire global flight booking provider Etraveli Group for approximately 1.6 billion, resulting from net income of $2.3 billion, a favorable impact of $742.9 million for non-cash items and net favorable changes in working capital of $293.4 million and in other assets and liabilities of $1.3 billion, which is principally related to the long-term transition tax liability recognized as a result Euros ($1.7 billion). Completion of the U.S. Tax Act (seeacquisition is subject to certain closing conditions, including regulatory approvals.
In December 2022, we entered into a sale and leaseback transaction for Booking.com’s future headquarters building. The building was sold for an aggregate consideration of approximately 566 million Euros ($601 million) and we concurrently entered into an agreement to lease the building from the purchaser for an initial term of 16.5 years, with up to five renewal options of five years each. The annual base rent under the lease is 24 million Euros ($26 million) and will increase annually based on the consumer price index, subject to a specified ceiling. See Note 1310 to our Consolidated Financial Statements). The changes in working capitalStatements for the year endedadditional information.
At December 31, 2017, were primarily related to a $687.4 millionincrease in accounts payable, accrued expenses and other current liabilities, offset by a $269.7 million increase in accounts receivable and $124.3 million increase in prepaid expenses and other current assets. The increase in these working capital balances was primarily related to increases in business volumes. Non-cash items were principally associated with stock-based compensation expense, depreciation and amortization, and amortization2022, we had lease obligations of debt discount.
| Payments due by Period (in thousands) | ||||||||||||||||||||
| Contractual Obligations | Total | Less than 1 Year | 1 to 3 Years | 3 to 5 Years | More than 5 Years | |||||||||||||||
Operating lease obligations(1) | $ | 686,277 | $ | 148,200 | $ | 255,565 | $ | 138,608 | $ | 143,904 | ||||||||||
Land lease obligation(1) | 71,194 | 1,499 | 2,998 | 2,998 | 63,699 | |||||||||||||||
Building construction obligation(1) | 265,702 | 91,852 | 154,908 | 18,942 | — | |||||||||||||||
Senior Notes(2) | 11,031,124 | 895,228 | 1,352,955 | 2,239,305 | 6,543,636 | |||||||||||||||
Revolving credit facility(3) | 6,909 | 3,187 | 3,722 | — | — | |||||||||||||||
| Earnout - acquisition | 9,170 | — | 9,170 | — | — | |||||||||||||||
| U.S. transition tax liability | 1,257,191 | 6,345 | 306,016 | 203,758 | 741,072 | |||||||||||||||
Total(4) | $ | 13,327,567 | $ | 1,146,311 | $ | 2,085,334 | $ | 2,603,611 | $ | 7,492,311 | ||||||||||
At December 31, 2022 there were $452 million of standby letters of credit and bank guarantees issued on our behalf. These are obtained primarily for regulatory purposes.
See Note 16 to our Consolidated Financial Statements for additional information related to our commitments and contingencies.
We believe that our existing cash balances and liquid resources will be sufficient to fund our operating activities, capital expenditures, and other obligations through at least the next twelve months. However, if during that period or thereafter, we are not successful in generating sufficient cash flow from operations or in raising additional capital when required in sufficient amounts and on terms acceptable to us, we may be required to reduce our planned capital expenditures and scale back the scope of our business plan, plans,
55
either of which could have a material adverse effect on our business, our ability to compete or our future growth prospects, financial condition, orand results of operations. If additional funds were raised through the issuance of equity securities, the percentage ownership of our then current stockholders would be diluted. We may not generate sufficient cash flow from operations in the future, revenue growth or sustained profitability may not be realized, and future borrowings or equity sales may not be available in amounts sufficient to make anticipated capital expenditures, finance our strategies, or repay our indebtedness.
Net cash provided by operating activities for the year ended December 31, 2022 was $6.6 billion, resulting from net income of $3.1 billion, a favorable net impact of $1.7 billion from adjustments for non-cash items and the gain on the sale and leaseback transaction, and a favorable net change in working capital and long-term assets and liabilities of $1.8 billion. Non-cash items were principally associated with net losses on equity securities, depreciation and amortization, stock-based compensation expense and other stock-based payments, deferred income tax benefit, provision for expected credit losses and chargebacks, and operating lease amortization. For the year ended December 31, 2022, deferred merchant bookings and other current liabilities increased by $3.7 billion, and accounts receivable increased by $1.2 billion, primarily due to increases in business volumes.
Net cash provided by operating activities for the year ended December 31, 2021 was $2.8 billion, resulting from net income of $1.2 billion, a favorable impact of $1.4 billion from adjustments for non-cash items and the loss on early extinguishment of debt, and a favorable net change in working capital and other long-term assets and liabilities of $269 million. Non-cash items were principally associated with net losses on equity securities, deferred income tax benefit, depreciation and amortization, stock-based compensation expense and other stock-based payments, and operating lease amortization. For the year ended December 31, 2021, accounts receivable increased by $1.0 billion and deferred merchant bookings and other current liabilities increased by $1.5 billion, primarily due to increases in business volumes.
Net cash used in investing activities for the year ended December 31, 2022 was $518 million, principally resulting from purchases of investments of $768 million, primarily in various corporate and government debt securities (see Note 5), as well as from purchases of property and equipment of $368 million. This was partially offset by proceeds from the sale and leaseback transaction of $601 million and proceeds from the sales and maturities of investments of $32 million. Net cash used in investing activities for the year ended December 31, 2021 was $1.0 billion, principally resulting from the acquisition of Getaroom of $1.2 billion and purchases of property and equipment of $304 million. This was partially offset by proceeds from the sales and maturities of investments of $508 million, net of purchases of $17 million.
Net cash used in financing activities for the year ended December 31, 2022 was $4.9 billion, almost entirely resulting from payments for the repurchase of common stock of $6.6 billion and payments on the maturity of debt of $1.9 billion. This was partially offset by the proceeds from the issuance of long-term debt of $3.6 billion. Net cash used in financing activities for the year ended December 31, 2021 was $1.2 billion, almost entirely resulting from payments on the redemption and conversion of debt of $3.1 billion and payments for the repurchase of common stock of $163 million, partially offset by the proceeds from the issuance of long-term debt of $2.0 billion.
Year Ended December 31, 2021 compared to Year Ended December 31, 2020
For a comparison of our cash flow activities for the fiscal years ended December 31, 2021 and 2020, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 23, 2022.
Contingencies
For information related to the French and other tax assessments and other tax matters, see Note 16 to our Consolidated Financial Statements and Part I, Item IA, Risk Factors - "We may have any off-balance sheet arrangements that have, or are reasonably likelyexposure to have, a current or future effect onadditional tax liabilities."
For information related to the pension matter and our financial condition, results of operations, liquidity, capital expenditures or capital resources.other contingent liabilities, see Note 16 to our Consolidated Financial Statements.
56
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We have exposure to several types of market risk: changes in interest rates, foreign currency exchange rates, and equity prices.
We manage our exposure to interest rate risk and foreign currency risk through internally established policies and procedures and, when deemed appropriate, through the use of derivative financial instruments. We use foreign currency exchange derivative contracts to manage short-term foreign currency risk.
The objective of our policies is to mitigate potential income statement, cash flow, and fair value exposures resulting from possible future adverse fluctuations in rates. We evaluate our exposure to market risk by assessing the anticipated near-term and long-term fluctuations in interest rates and foreign currency exchange rates. This evaluation includes the review of leading market indicators, discussions with financial analysts and investment bankers regarding current and future economic conditions, and the review of market projections as to expected future rates. We utilize this information to determine our own investment strategies as well as to determine if the use of derivative financial instruments is appropriate to mitigate any potential future market exposure that we may face. Our policy does not allow speculation in derivative instruments for profit or, except in certain limited situations, execution of derivative instrument contracts for which there are no underlying exposures. We do not use financial instruments for trading purposes and are not a party to any leveraged derivatives. To the extent that changes in interest rates and foreign currency exchange rates affect general economic conditions, we would also be affected by such changes.
As of December 31, 2022 and 2021, the carrying value of our Euro denominated debt was $7.6 billion and $6.2 billion, respectively. We designate certain portions of the aggregate principal value of our Euro-denominated long-term debt as a hedge of the foreign currency exposure of the net investment in certain Euro functional currency subsidiaries. The foreign currency transaction gains or losses on the Euro-denominated debt that is not designated as a hedging instrument for accounting purposes are recognized in "Other income (expense), net" in our Consolidated Statements of Operations (see Notes 12 and accrued interest thereon, provide21 to our Consolidated Financial Statements). Such foreign currency transaction gains or losses are dependent on the amount of net assets
57
of the Euro functional currency subsidiaries, the amount of the Euro-denominated debt that is designated as a natural hedge, againstand fluctuations in foreign currency exchange rates.
We generally enter into derivative instruments to hedge our exposure to the impact of movements in foreign currency exchange rate fluctuationsrates on our transactional balances denominated in currencies other than the net assetsfunctional currency. We will continue to evaluate the use of certainderivative instruments in the future. See Note 6 to our Consolidated Financial Statements for additional information related to our derivative contracts.
We are exposed to equity price risk as it relates to changes in fair values of our Euro functional currency subsidiaries.
Item 8. Financial Statements and Supplementary Data
The following Consolidated Financial Statements of the Company and the report of our independent registered public accounting firm are filed as part of this Annual Report on Form 10-K (See Part IV, Item 15, Exhibits and Financial Statement Schedules): Consolidated Balance Sheets as ofat December 31, 20172022 and 2016;2021; Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Stockholders' Equity, and Consolidated Statements of Cash Flows for the years ended December 31, 2017, 20162022, 2021, and 2015;2020; Notes to theour Consolidated Financial Statements; and Report of Independent Registered Public Accounting Firm.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such a term is defined under Exchange Act Rule 13a-15(e). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we include a report of our management's assessment of the design and effectiveness of our internal controls over financial reporting for the year ended December 31, 2017.2022.
Management's Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such a term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2017.2022. Our independent registered public accounting firm also attested to and reported on the effectiveness of internal control over financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
58
Changes in Internal Controls. No change in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) occurred during the three months ended December 31, 20172022 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
In 2022, we began a multi-year implementation to integrate and upgrade certain cross-brand global financial systems and processes, including but not limited to SAP S4 Hana ("SAP").
The first phase of this implementation became operational in 2022 at select financially immaterial entities at Booking.com. The impact of such changes to our processes and procedures related to internal control over financial reporting is not material. We expect the remaining Booking.com entities to go live in 2023 as part of the next phase of this implementation. As a result, there will be certain material changes to our processes and procedures that impact our internal control over financial reporting. We believe we are taking the necessary steps to monitor and maintain appropriate internal control over financial reporting during this period of change.
While we expect this implementation to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue assessing changes to our internal controls during subsequent periods.
59
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Booking Holdings Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Booking Holdings Inc. (formerly known as The Priceline Group Inc.) and subsidiaries (the “Company”"Company") as of December 31, 2017,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017,2022, of the Company and our report dated February 27, 2018,23, 2023, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying "Management's Report on Internal Control Over Financial Reporting". Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Stamford, Connecticut
February 27, 201823, 2023
60
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by Part III, Item 10 will be included in our Proxy Statement relating to our 20182023 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2017,2022, and is incorporated herein by reference.
Item 11. Executive Compensation
Information required by Part III, Item 11 will be included in our Proxy Statement relating to our 20182023 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2017,2022, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by Part III, Item 12 will be included in our Proxy Statement relating to our 20182023 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2017,2022, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by Part III, Item 13 will be included in our Proxy Statement relating to our 20182023 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2017,2022, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information required by Part III, Item 14 will be included in our Proxy Statement relating to our 20182023 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 20172022, and is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a)List of Documents Filed as a Part of this Annual Report on Form 10-K:
The following Consolidated Financial Statements of the Company and the report of our independent registered public accounting firm are filed as part of this Annual Report on Form 10-K: Consolidated Balance Sheets as ofat December 31, 20172022 and 2016;2021; Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Stockholders' Equity and Consolidated Statements of Cash Flows for the years ended December 31, 2017, 20162022, 2021, and 2015;2020; Notes to theour Consolidated Financial Statements; and Report of Independent Registered Public Accounting Firm.
All financial statement schedules have been omitted because they are not applicable, not material or the required information is shown in the Consolidated Financial Statements or the notes thereto.
(b)Exhibits
In reviewing the agreements included as exhibits to this Annual Report on Form 10-K, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure
61
information about the Company or the other parties to the agreements. Some agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
•should not be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
•may have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, whichdisclosuresarenot necessarily reflected in the agreement;
•may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
•were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Annual Report on Form 10‑K and the Company's other public filings, which are available without charge through the SEC's website at http://www.sec.gov.
| Exhibit Number | Description | ||||
3.1(a) | Restated Certificate of Incorporation of the | ||||
3.2 | Certificate of Amendment of the Restated Certificate of Incorporation, dated as of June 4, 2021. | ||||
3.3(b) | Amended and Restated By-Laws of | ||||
| 4.1 | Reference is hereby made to Exhibits 3.1, 3.2, and | ||||
4.2(c) | Specimen Certificate for | ||||
4.3 | Indenture, dated as of | ||||
Indenture, dated as of August 8, 2017, between the Company and U.S. Bank National Association, as trustee. | |||||
| Form of 2.375% Senior Note due 2024. | |||||
| Officers' Certificate, dated September 23, 2014, for the 2.375% Senior Notes due 2024. | |||||
| Form of 1.800% Senior Note due 2027. | |||||
| Officers' Certificate, dated March 3, 2015, for the 1.800% Senior Notes due 2027. | |||||
| Form of 3.650% Senior Note due 2025. | |||||
| Officers' Certificate, dated March 13, 2015, for the 3.650% Senior Notes due 2025. | |||||
| Form of 3.600% Senior Note due 2026. | |||||
| Officers' Certificate, dated May 23, 2016, for the 3.600% Senior Notes due 2026. | |||||
| Form of 2.750% Senior Note due 2023. | |||||
| Officers' Certificate, dated August 15, 2017, with respect to the 2.750% Senior Notes due 2023. | |||||
| Form of 3.550% Senior Note due 2028. | |||||
| Officers' Certificate, dated August 15, 2017, with respect to the 3.550% Senior Notes due 2028. | |||||
| Description of the Company's Common Stock Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. | |||||
| Description of the Company's 2.375% Senior Notes due 2024 Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. | |||||
| Description of the Company's 1.800% Senior Notes due 2027 Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. | |||||
| Description of the Company's 0.100% Senior Notes due 2025 Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. | |||||
| Description of the Company's 0.500% Senior Notes due 2028 Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. | |||||
| Form of 4.625% Senior Note due 2030. | |||||
| Officer’s Certificate, dated April 13, 2020, with respect to the 4.625% Senior Notes due 2030. | |||||
| Form of 0.750% Convertible Senior Note due 2025. | |||||
| Indenture, dated as of April 14, 2020, between Booking Holdings Inc. and U.S. Bank National Association, as trustee. | |||||
62
| Exhibit Number | Description | ||||
| Form of 0.100% Senior Note due 2025. | |||||
| Officers' Certificate, dated March 8, 2021, with respect to the 0.100% Senior Notes due 2025. | |||||
| Form of 0.500% Senior Note due 2028. | |||||
| Officers' Certificate, dated March 8, 2021, with respect to the 0.500% Senior Notes due 2028. | |||||
| Form of 4.000% Senior Note due 2026. | |||||
4.31(ll) | Officers' Certificate, dated November 15, 2022, with respect to the 4.000% Senior Notes due 2026. | ||||
4.32(ll) | Form of 4.250% Senior Note due 2029. | ||||
4.33(ll) | Officers' Certificate, dated November 15, 2022, with respect to the 4.250% Senior Notes due 2029. | ||||
4.34(ll) | Form of 4.500% Senior Note due 2031. | ||||
4.35(ll) | Officers' Certificate, dated November 15, 2022, with respect to the 4.500% Senior Notes due 2031. | ||||
4.36(ll) | Form of 4.750% Senior Note due 2034. | ||||
4.37(ll) | Officers' Certificate, dated November 15, 2022, with respect to the 4.750% Senior Notes due 2034. | ||||
| Description of the Company's 4.000% Senior Notes due 2026 Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. | |||||
| Description of the Company's 4.250% Senior Notes due 2029 Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. | |||||
| Description of the Company's 4.500% Senior Notes due 2031 Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. | |||||
| Description of the Company's 4.750% Senior Notes due 2034 Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. | |||||
10.1 | |||||
10.2 | |||||
| Form of Restricted Stock Unit Agreement for awards under the 1999 Omnibus Plan to non-employee directors. | |||||
10.3(gg)+ | Form of Restricted Stock Unit Agreement for awards under the 1999 Omnibus Plan. | ||||
10.4 | |||||
10.5 | |||||
10.6 | |||||
10.7 | Amended and Restated KAYAK Software Corporation 2012 Equity Incentive Plan. | ||||
10.8 | OpenTable, Inc. Amended and Restated 2009 Equity Incentive Award Plan. | ||||
10.9 | Buuteeq, Inc. Amended and Restated 2010 Stock Plan. | ||||
10.10 | Amended and Restated Rocket Travel, Inc. 2012 Stock Incentive Plan. | ||||
10.11 | Amended and Restated Annual Bonus Plan. | ||||
10.12 | Form of Non-Competition and Non-Solicitation Agreement. | ||||
10.13 | |||||
Second Amended and Restated Employment Agreement, dated April 21, 2015 by and between the | |||||
Employment Agreement, dated December 15, 2016 by and between the | |||||
Non-Competition and Non-Solicitation Agreement, dated December 15, 2016 by and between the | |||||
| Employee Confidentiality and Assignment Agreement, dated December 15, 2016 by and between the | |||||
Employment Agreement, dated January 19, 2018, between the | |||||
Non-Competition and Non-Solicitation Agreement, dated March 1, 2018, between the | |||||
Employee Confidentiality and Assignment Agreement, dated January 19, 2018, between the | |||||
| Credit Agreement, dated as of | |||||
10.22(aa)+ | Form of Employee Confidentiality and Assignment Agreement. | ||||
10.23(cc) | Amendment No. 1, dated as of April 7, 2020, to the Credit Agreement, dated as of August 14, 2019, by and among the Company, the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as administrative agent. | ||||
63
| Exhibit Number | Description | ||||
10.24(ee) | Amendment No. 2, dated as of October 28, 2020, to the Credit Agreement, dated as of August 14, 2019, by and among the Company, the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as administrative agent. | ||||
10.25(ii)+ | Letter Amendment to 2018 PSU Award and 2019 PSU Award Agreements with Glenn D. Fogel dated January 28, 2021. | ||||
10.26(ii)+ | Letter Amendment to 2018 PSU Award and 2019 PSU Award Agreements with David I. Goulden dated January 28, 2021. | ||||
10.27(ii)+ | Letter Amendment to 2018 PSU Award and 2019 PSU Award Agreements with Peter J. Millones dated January 28, 2021. | ||||
10.28(jj)+ | Letter Agreement, dated July 31, 2021, by and between the Company and Paulo Pisano. | ||||
10.29(kk) | Amendment No. 3, dated as of December 22, 2021, to the Credit Agreement, dated as of August 14, 2019, by and among the Company, the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as administrative agent. | ||||
10.30(nn) | Agreement for the Sale and Purchase of the Booking Campus in Amsterdam, the Netherlands, dated as of December 14, 2022, by and among Booking.com Real Estate Amsterdam B.V., as the Seller, D-IE WIIS Oosterdok Coöperatief U.A., as the Purchaser, and Booking.com Holding B.V., as the Guarantor. | ||||
| List of Subsidiaries. | |||||
| Consent of Deloitte & Touche LLP. | |||||
| Power of Attorney (included in the Signature Page). | |||||
| Certification of Glenn D. Fogel, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||
| Certification of | |||||
| Certification of Glenn D. Fogel, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code). | |||||
| Certification of | |||||
| 104 | Cover Page Interactive Data File - the cover page from | ||||
____________________________
+ Indicates a management contract or compensatory plan or arrangement.
| (a) | |||||
| Previously filed as an exhibit to the Current Report on Form 8-K filed on February 21, 2018 (File No. 1-36691). | |||||
| (b) | Previously filed as an exhibit to the Current Report on Form 8-K filed on June 4, 2021 (File No. 1-36691). | ||||
| Previously filed as an exhibit to Amendment No. 2 to Registration Statement on Form S-1 filed on March 18, 1999 (File No. 333-69657). | |||||
| Previously filed as an exhibit to the Current Report on Form 8-K filed on November 25, 2015 (File No. 1-36691). | |||||
Previously filed as an exhibit to the Registration Statement on Form S-3 filed on August 8, 2017 (File No. 333-219800). | |||||
| Previously filed as an exhibit to the Current Report on Form 8-K filed on September 22, 2014 (File No. 0-25581). | |||||
| Previously filed as an exhibit to the Current Report on Form 8-K filed on September 26, 2014 (File No. 0-25581). | |||||
| Previously filed as an exhibit to the Current Report on Form 8-K filed on March 2, 2015 (File No. 1-36691). | |||||
| Previously filed as an exhibit to the Current Report on Form 8-K filed on March 4, 2015 (File No. 1-36691). | |||||
| Previously filed as an exhibit to the Current Report on Form 8-K filed on March 12, 2015 (File No. 1-36691). | |||||
| Previously filed as an exhibit to the Current Report on Form 8-K filed on March 13, 2015 (File No. 1-36691). | |||||
| Previously filed as an exhibit to the Current Report on Form 8-K filed on May 23, 2016 (File No. 1-36691). | |||||
64
| Previously filed as an exhibit to the Current Report on Form 8‑K filed on March 10, 2017 (File No. 1-36691). | |||||
Previously filed as an exhibit to our Current Report on Form 8-K filed on August 15, 2017 (File No. 1-36691). | |||||
Previously filed as an exhibit to our Current Report on Form 8-K filed on March 8, 2021 (File No. 1-36691). | |||||
| (p) | Previously filed as an exhibit to the Current Report on Form 8‑K filed on March 9, 2011 (File No. 0-25581). | ||||
| (q) | Previously filed as an exhibit to the Current Report on Form 8-K filed on March 2, 2018 (File No. 1-36691). | ||||
| (r) | Previously filed as an exhibit to the Current Report on Form 8‑K filed on March 3, 2017 (File No. 1-36691). | ||||
| Previously filed as an exhibit to the Current Report on Form 8-K filed on March | |||||
| Previously filed as an exhibit to the Registration Statement on Form S-8 filed on June 13, 2014 (File No. 333-196756). | |||||
| Previously filed as an exhibit to the Annual Report on Form 10-K filed for the year ended December 31, 2015 (File No. 1-36691). | |||||
| Previously filed as an exhibit to the Current Report on Form 8-K filed on March 4, 2013 (File No. 0-25581). | |||||
| Previously filed as an exhibit to our Current Report on Form 8-K filed on April 24, 2015 (File No. 1-36691). | |||||
| Previously filed as an exhibit to the Current Report on Form 8-K filed on December 16, 2016 (File No. 1-36691). | |||||
| Previously filed as an | |||||
| Previously filed as an exhibit to | |||||
| Previously filed as an exhibit to the Quarterly Report on Form 10-Q filed on May 9, 2019 (File No. 1-36691). | |||||
| (bb) | This document is being furnished in accordance with SEC Release Nos. 33‑8212 and 34‑47551. | ||||
| (cc) | Previously filed as an exhibit to the Current Report on Form 8-K filed on April 8, 2020 (File No. 1-36691). | ||||
| (dd) | Previously filed as an exhibit to the Current Report on Form 8-K filed on April 14, 2020 (File No. 1-36691). | ||||
| (ee) | Previously filed as an exhibit to the Current Report on Form 8-K filed on October 30, 2020 (File No. 1-36691). | ||||
| (ff) | Previously filed as an exhibit to the Annual Report on Form 10-K filed on February 26, 2020 (File No. 1-36691). | ||||
| (gg) | Previously filed as an exhibit to the Quarterly Report on Form 10-Q filed on May 7, 2020 (File No. 1-36691) | ||||
| (hh) | Previously filed as an exhibit to the Current Report on Form 8-K filed on July 17, 2020 (File No. 1-36691) | ||||
| (ii) | Previously filed as an exhibit to the Current Report on Form 8-K filed on January 29, 2021 (File No. 1-36691) | ||||
| (jj) | Previously filed as an exhibit to the Quarterly Report on Form 10-Q filed on November 3, 2021 (File No. 1-36691) | ||||
| (kk) | Previously filed as an exhibit to the Annual Report on Form 10-K filed on February 23, 2021 (File No. 1-36691). | ||||
| (ll) | Previously filed as an exhibit to the Current Report on Form 8-K filed on November 15, 2022 (File No. 1-36691). | ||||
| (mm) | Previously filed as an exhibit to the Current Report on Form 8-K filed on October 25, 2019 (File No. 1-36691). | ||||
| (nn) | Previously filed as an exhibit to the Current Report on Form 8-K filed on December 19, 2022 (File No. 1-36691). | ||||
Item 16. Form 10-K Summary.
None.
65
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BOOKING HOLDINGS INC. | |||||||||||
| By: | /s/ Glenn D. Fogel | ||||||||||
| Name: | Glenn D. Fogel | ||||||||||
| Title: | Chief Executive Officer and President | ||||||||||
| Date: | February | ||||||||||
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Glenn D. Fogel, David I. Goulden and Peter J. Millones, and each of them severally, his or her true and lawful attorney-in-fact with power of substitution and resubstitution to sign in his or her name, place and stead, in any and all capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the Securities and Exchange Commission in connection with this Annual Report on Form 10-K and any and all amendments hereto, as fully and for all intents and purposes as he or she might do or could do in person, and hereby ratifies and confirms all said attorneys-in-fact and agents, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
66
| Signature | Title | Date | ||||||||||||
| /s/ Robert J. Mylod Jr. | Director, Chair of the Board | February 23, 2023 | ||||||||||||
| Robert J. Mylod Jr. | ||||||||||||||
| /s/ Glenn D. Fogel | Director, Chief Executive Officer and President | February | ||||||||||||
| Glenn D. Fogel | ||||||||||||||
| /s/ | February | |||||||||||||
| Officer (Principal Financial Officer) | ||||||||||||||
| /s/ Susana D'Emic | Chief Accounting Officer and Controller | February 23, 2023 | ||||||||||||
| Susana D'Emic | (Principal Accounting Officer) | |||||||||||||
| /s/ Timothy M. Armstrong | Director | February | ||||||||||||
| Timothy M. Armstrong | ||||||||||||||
| /s/ | Director | February | ||||||||||||
| Director | February 23, 2023 | |||||||||||||
| Wei Hopeman | ||||||||||||||
| /s/ Charles H. Noski | Director | February | ||||||||||||
| Charles H. Noski | ||||||||||||||
| /s/ | Director | February | ||||||||||||
| /s/ Nicholas J. Read | Director | February 23, 2023 | ||||||||||||
| Nicholas J. Read | ||||||||||||||
| /s/ Thomas E. Rothman | Director | February | ||||||||||||
| Thomas E. Rothman | ||||||||||||||
| /s/ | Director | February | ||||||||||||
| /s/ Lynn | Director | February | ||||||||||||
| Lynn | ||||||||||||||
| /s/ Vanessa A. Wittman | Director | February 23, 2023 | ||||||||||||
| Vanessa A. Wittman | ||||||||||||||
67
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page No. | |||||
| Report of Independent Registered Public Accounting Firm (PCAOB ID: 34) | |||||
| Consolidated Balance Sheets | |||||
| Consolidated Statements of Operations for the years ended December 31, | |||||
| Consolidated Statements of Comprehensive Income for the years ended December 31, | |||||
| Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, | |||||
| Consolidated Statements of Cash Flows for the years ended December 31, | |||||
| Notes to Consolidated Financial Statements | |||||
68
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Booking Holdings Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Booking Holdings Inc. (formerly known as The Priceline Group Inc.) and subsidiaries (the "Company") as of December 31, 20172022 and 2016,2021, the related consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2017, and2022, including the related notes (collectively, referred to as the “financial statements”"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172022 and 2016,2021, and the results of its operations and its cash flows, for each of the three years in the period ended December 31, 2017,2022, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2018,23, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Total Revenues-Refer to Notes 2 and 3 to the financial statements
Critical Audit Matter Description
Total revenues for the year ended December 31, 2022 were $17.1 billion. Substantially all of the Company’s revenues are generated by providing online travel reservation services, which principally allow travelers to book travel reservations with travel service providers through the Company’s platforms. Revenues consist of a significant volume of low-dollar transactions utilizing multiple custom systems.
We identified total revenues as a critical audit matter as the majority of the processes to calculate and record revenues are highly automated, rely on a number of custom systems, and involve interfacing significant volumes of data across multiple systems. Given the complex information technology (IT) environment, this required the involvement of professionals with expertise in IT to identify, test, and evaluate the revenue data flows, the revenue systems and the automated controls.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company's revenue transactions included the following, among others:
•With the assistance of our IT specialists, we:
–Identified the systems used to calculate and record revenue transactions.
69
–Tested the general IT controls over each of these systems, including testing of user access controls, change management controls, and IT operations controls.
–Performed testing of system interface controls and automated controls within the relevant revenue streams.
•We tested business process controls to reconcile the various systems to the Company's general ledgers.
•We performed detail transaction testing by agreeing the amounts recognized to source documents and testing the mathematical accuracy of the recorded revenues.
Goodwill - Refer to Notes 2 and 11 to the financial statements
Critical Audit Matter Description
The Company's evaluation of goodwill impairment involves the comparison of the fair value of each of the Company's reporting units to its carrying value. The total goodwill balance was $2.8 billion as of December 31, 2022. A substantial portion of the Company's goodwill relates to the acquisitions of KAYAK in 2013, OpenTable in 2014 and Getaroom in 2021. As it related to the annual impairment test, the Company estimated the fair values using a combination of standard valuation techniques, including an income approach (discounted cash flows) and market approaches (earnings before interest, taxes, depreciation, and amortization ("EBITDA") multiples of comparable publicly traded companies). With respect to the income approach, management makes significant estimates and assumptions related to forecasts of future performance, including revenues, operating margins and discount rates.
Given the significant judgments made by management to estimate the fair value of the OpenTable and KAYAK reporting unit, performing audit procedures to evaluate the reasonableness of management's estimates and assumptions related to selection of the discount rates and forecasts of future revenues and operating margins required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future revenues and operating margins and the selection of the discount rates for the OpenTable and KAYAK reporting unit included the following, among others:
•We tested the effectiveness of controls over goodwill impairment evaluation, including those over the forecasts and the selection of the discount rates.
•We evaluated management's ability to accurately forecast by comparing actual results in previous years to management’s historical forecasts.
•We evaluated the reasonableness of management’s forecasts of future revenues and operating margins by comparing management’s forecasts with:
–Historical revenues and operating margins.
–Internal communications to management and the Board of Directors.
–Forecasted information within analyst, economist and industry reports of the Company and selected companies in its peer group.
•We considered the impact of industry and market conditions on management's forecasts.
•With the assistance of our fair value specialists, we evaluated the discount rates, including testing the underlying source information and the mathematical accuracy of the calculations and developing a range of independent estimates and comparing those to the discount rates selected by management.
•We evaluated the reasonableness of management's forecasts of future cash flows and discount rates utilized in the income approach fair value calculation by comparing the income approach fair value to the market approach fair values.
Commitments and Contingencies - Tax Matters- Refer to Note 16 to the financial statements
Critical Audit Matter Description
The Company is subject to ongoing tax examinations and assessments in various jurisdictions. During the year the Company entered into an agreement with the French tax authorities to settle tax assessments from 2006-2018 for $163 million. Further the Company has on-going income tax and indirect tax assessments relating to permanent establishment, transfer pricing matters, and/or value added taxes ("VAT"), including interest and penalties from French, Italian, and Turkish tax authorities in the amount of $40 million, $268 million, and $44 million respectively. In addition, the Company received an Italian Tax Audit Report which does not constitute a formal tax assessment; however, it recommends a VAT assessment of $164 million, plus interest and penalties. The Company believes that it has been, and continues to be, in compliance with the relevant tax laws, and
70
the Company is contesting these assessments. The Company has recorded a liability of $163 million for the French settlement. The Company has recorded a liability of $19 million related to the income tax matters in Italy and a liability of $47 million related to the VAT matters in Italy.
Given the complexity of the relevant tax laws and regulations, auditing management's evaluation and accounting for the tax positions associated with these tax assessments involved subjective and complex judgments.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the accounting for the tax positions associated with the tax assessments included the following, among others:
•We tested the effectiveness of controls over accounting for uncertain tax positions.
•We evaluated the evidence of settlement with the French tax authorities.
•With the assistance of our income tax specialists, we evaluated management's analysis regarding the likelihood of sustaining its tax positions upon examination by the relevant tax authorities and, we evaluated management's estimate of the amount of tax benefit recognized.
•With the assistance of our indirect tax specialists, we assessed the reasonableness of the indirect tax contingent liability.
•We assessed the basis of the Company's analysis and measurement by obtaining, reading, and evaluating relevant third-party specialists' reports and the Company's documentation.
•We obtained, read, and evaluated relevant correspondence between the Company and the tax authorities.
•We evaluated any developments in the matters during the current fiscal year through inquiry of both Company personnel and the Company's third-party specialists.
/s/ DELOITTE & TOUCHE LLP
Stamford, Connecticut
February 27, 201823, 2023
We have served as the Company’s auditor since 1997.
71
Booking Holdings Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands,millions, except share and per share data)
| December 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 12,221 | $ | 11,127 | ||||||||||
Short-term investments (Available-for-sale debt securities: Amortized cost of $176 and $25, respectively) | 175 | 25 | ||||||||||||
| Accounts receivable, net (Allowance for expected credit losses of $117 and $101, respectively) | 2,229 | 1,358 | ||||||||||||
| Prepaid expenses, net (Allowance for expected credit losses of $18 and $29, respectively) | 477 | 404 | ||||||||||||
| Other current assets | 696 | 231 | ||||||||||||
| Total current assets | 15,798 | 13,145 | ||||||||||||
| Property and equipment, net | 669 | 822 | ||||||||||||
| Operating lease assets | 645 | 496 | ||||||||||||
| Intangible assets, net | 1,829 | 2,057 | ||||||||||||
| Goodwill | 2,807 | 2,887 | ||||||||||||
Long-term investments (Includes available-for-sale debt securities: Amortized cost of $576 at December 31, 2022) | 2,789 | 3,175 | ||||||||||||
| Other assets, net (Allowance for expected credit losses of $5 and $18, respectively) | 824 | 1,059 | ||||||||||||
| Total assets | $ | 25,361 | $ | 23,641 | ||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | 2,507 | $ | 1,586 | ||||||||||
| Accrued expenses and other current liabilities | 3,244 | 1,765 | ||||||||||||
| Deferred merchant bookings | 2,223 | 906 | ||||||||||||
| Short-term debt | 500 | 1,989 | ||||||||||||
| Total current liabilities | 8,474 | 6,246 | ||||||||||||
| Deferred income taxes | 685 | 905 | ||||||||||||
| Operating lease liabilities | 552 | 351 | ||||||||||||
| Long-term U.S. transition tax liability | 711 | 825 | ||||||||||||
| Other long-term liabilities | 172 | 199 | ||||||||||||
| Long-term debt | 11,985 | 8,937 | ||||||||||||
| Total liabilities | 22,579 | 17,463 | ||||||||||||
| Commitments and contingencies (see Note 16) | ||||||||||||||
| Stockholders' equity: | ||||||||||||||
Common stock, $0.008 par value, Authorized shares: 1,000,000,000 Issued shares: 63,780,528 and 63,584,444, respectively | — | — | ||||||||||||
| Treasury stock: 25,917,558 and 22,518,391 shares, respectively | (30,983) | (24,290) | ||||||||||||
| Additional paid-in capital | 6,491 | 6,159 | ||||||||||||
| Retained earnings | 27,541 | 24,453 | ||||||||||||
| Accumulated other comprehensive loss | (267) | (144) | ||||||||||||
| Total stockholders' equity | 2,782 | 6,178 | ||||||||||||
| Total liabilities and stockholders' equity | $ | 25,361 | $ | 23,641 | ||||||||||
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 2,541,604 | $ | 2,081,075 | ||||
| Short-term investments | 4,859,873 | 2,218,880 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $39,282 and $25,565, respectively | 1,217,801 | 860,115 | ||||||
| Prepaid expenses and other current assets | 415,527 | 241,449 | ||||||
| Total current assets | 9,034,805 | 5,401,519 | ||||||
| Property and equipment, net | 480,081 | 347,017 | ||||||
| Intangible assets, net | 2,176,823 | 1,993,885 | ||||||
| Goodwill | 2,737,671 | 2,396,906 | ||||||
| Long-term investments | 10,421,600 | 9,591,067 | ||||||
| Other assets | 600,283 | 108,579 | ||||||
| Total assets | $ | 25,451,263 | $ | 19,838,973 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 667,523 | $ | 419,108 | ||||
| Accrued expenses and other current liabilities | 1,138,980 | 857,467 | ||||||
| Deferred merchant bookings | 980,455 | 614,361 | ||||||
| Convertible debt | 710,910 | 967,734 | ||||||
| Total current liabilities | 3,497,868 | 2,858,670 | ||||||
| Deferred income taxes | 481,139 | 822,334 | ||||||
| Long-term U.S. transition tax liability | 1,250,846 | — | ||||||
| Other long-term liabilities | 148,061 | 138,767 | ||||||
| Long-term debt | 8,809,788 | 6,170,522 | ||||||
| Total liabilities | 14,187,702 | 9,990,293 | ||||||
| Commitments and Contingencies (See Note 14) | ||||||||
| Convertible debt | 2,963 | 28,538 | ||||||
| Stockholders' equity: | ||||||||
| Common stock, $0.008 par value, authorized 1,000,000,000 shares, 62,689,097 and 62,379,247 shares issued, respectively | 487 | 485 | ||||||
| Treasury stock, 14,216,819 and 13,190,929 shares, respectively | (8,698,829 | ) | (6,855,164 | ) | ||||
| Additional paid-in capital | 5,783,089 | 5,482,653 | ||||||
| Retained earnings | 13,938,869 | 11,326,852 | ||||||
| Accumulated other comprehensive income (loss) | 236,982 | (134,684 | ) | |||||
| Total stockholders' equity | 11,260,598 | 9,820,142 | ||||||
| Total liabilities and stockholders' equity | $ | 25,451,263 | $ | 19,838,973 | ||||
See Notes to Consolidated Financial Statements.
72
Booking Holdings Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands,millions, except share and per share data)
| tda | Year Ended December 31, | |||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||
| Agency revenues | $ | 9,003 | $ | 6,663 | $ | 4,314 | ||||||||||||||
| Merchant revenues | 7,193 | 3,696 | 2,117 | |||||||||||||||||
| Advertising and other revenues | 894 | 599 | 365 | |||||||||||||||||
| Total revenues | 17,090 | 10,958 | 6,796 | |||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Marketing expenses | 5,993 | 3,801 | 2,179 | |||||||||||||||||
| Sales and other expenses | 1,818 | 881 | 755 | |||||||||||||||||
| Personnel, including stock-based compensation of $404, $370, and $233, respectively | 2,465 | 2,314 | 1,944 | |||||||||||||||||
| General and administrative | 934 | 620 | 581 | |||||||||||||||||
| Information technology | 526 | 412 | 299 | |||||||||||||||||
| Depreciation and amortization | 451 | 421 | 458 | |||||||||||||||||
| Restructuring, disposal, and other exit activities | (199) | 13 | 149 | |||||||||||||||||
| Impairment of goodwill | — | — | 1,062 | |||||||||||||||||
| Total operating expenses | 11,988 | 8,462 | 7,427 | |||||||||||||||||
| Operating income (loss) | 5,102 | 2,496 | (631) | |||||||||||||||||
| Interest expense | (391) | (334) | (356) | |||||||||||||||||
| Other income (expense), net | (788) | (697) | 1,554 | |||||||||||||||||
| Income before income taxes | 3,923 | 1,465 | 567 | |||||||||||||||||
| Income tax expense | 865 | 300 | 508 | |||||||||||||||||
| Net income | $ | 3,058 | $ | 1,165 | $ | 59 | ||||||||||||||
| Net income applicable to common stockholders per basic common share | $ | 76.70 | $ | 28.39 | $ | 1.45 | ||||||||||||||
| Weighted-average number of basic common shares outstanding (in 000's) | 39,872 | 41,042 | 40,974 | |||||||||||||||||
| Net income applicable to common stockholders per diluted common share | $ | 76.35 | $ | 28.17 | $ | 1.44 | ||||||||||||||
| Weighted-average number of diluted common shares outstanding (in 000's) | 40,052 | 41,362 | 41,160 | |||||||||||||||||
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Agency revenues | $ | 9,714,126 | $ | 7,982,116 | $ | 6,527,898 | ||||||
| Merchant revenues | 2,133,017 | 2,048,005 | 2,082,973 | |||||||||
| Advertising and other revenues | 833,939 | 712,885 | 613,116 | |||||||||
| Total revenues | 12,681,082 | 10,743,006 | 9,223,987 | |||||||||
| Cost of revenues | 250,537 | 428,314 | 632,180 | |||||||||
| Gross profit | 12,430,545 | 10,314,692 | 8,591,807 | |||||||||
| Operating expenses: | ||||||||||||
| Performance advertising | 4,141,771 | 3,479,287 | 2,738,218 | |||||||||
| Brand advertising | 391,584 | 295,698 | 273,704 | |||||||||
| Sales and marketing | 561,958 | 435,225 | 353,221 | |||||||||
| Personnel, including stock-based compensation of $260,910, $249,574 and $247,395, respectively | 1,659,581 | 1,350,032 | 1,166,226 | |||||||||
| General and administrative | 585,541 | 455,909 | 415,420 | |||||||||
| Information technology | 189,344 | 142,393 | 113,617 | |||||||||
| Depreciation and amortization | 362,774 | 309,135 | 272,494 | |||||||||
| Impairment of goodwill | — | 940,700 | — | |||||||||
| Total operating expenses | 7,892,553 | 7,408,379 | 5,332,900 | |||||||||
| Operating income | 4,537,992 | 2,906,313 | 3,258,907 | |||||||||
| Other income (expense): | ||||||||||||
| Interest income | 157,194 | 94,946 | 55,729 | |||||||||
| Interest expense | (253,976 | ) | (207,900 | ) | (160,229 | ) | ||||||
| Foreign currency transactions and other | (35,291 | ) | (16,913 | ) | (26,087 | ) | ||||||
| Impairment of cost-method investments | (7,597 | ) | (63,208 | ) | — | |||||||
| Total other expense | (139,670 | ) | (193,075 | ) | (130,587 | ) | ||||||
| Earnings before income taxes | 4,398,322 | 2,713,238 | 3,128,320 | |||||||||
| Income tax expense | 2,057,557 | 578,251 | 576,960 | |||||||||
| Net income | $ | 2,340,765 | $ | 2,134,987 | $ | 2,551,360 | ||||||
| Net income applicable to common stockholders per basic common share | $ | 47.78 | $ | 43.14 | $ | 50.09 | ||||||
| Weighted-average number of basic common shares outstanding | 48,994 | 49,491 | 50,940 | |||||||||
| Net income applicable to common stockholders per diluted common share | $ | 46.86 | $ | 42.65 | $ | 49.45 | ||||||
| Weighted-average number of diluted common shares outstanding | 49,954 | 50,063 | 51,593 | |||||||||
See Notes to Consolidated Financial Statements.
73
Booking Holdings Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)millions)
| Year Ended December 31, | ||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||
| Net income | $ | 3,058 | $ | 1,165 | $ | 59 | ||||||||||||||
| Other comprehensive (loss) income, net of tax | ||||||||||||||||||||
| Foreign currency translation adjustments | (111) | (57) | 50 | |||||||||||||||||
| Net unrealized (losses) gains on available-for-sale securities | (12) | 31 | 23 | |||||||||||||||||
| Total other comprehensive (loss) income, net of tax | (123) | (26) | 73 | |||||||||||||||||
| Comprehensive income | $ | 2,935 | $ | 1,139 | $ | 132 | ||||||||||||||
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Net income | $ | 2,340,765 | $ | 2,134,987 | $ | 2,551,360 | ||||||
| Other comprehensive income (loss), net of tax | ||||||||||||
Foreign currency translation adjustments(1) | 295,547 | (93,984 | ) | (114,505 | ) | |||||||
Net unrealized gain (loss) on marketable securities(2) | 76,119 | (285,552 | ) | 619,259 | ||||||||
| Comprehensive income | $ | 2,712,431 | $ | 1,755,451 | $ | 3,056,114 | ||||||
See Notes to Consolidated Financial Statements.
74
Booking Holdings Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017, 20162022, 2021, and 20152020
(In thousands)millions, except share data)
| Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||
| Balance, December 31, 2014 | 61,821 | $ | 480 | (9,888 | ) | $ | (2,737,585 | ) | $ | 4,923,196 | $ | 6,640,505 | $ | (259,902 | ) | $ | 8,566,694 | ||||||||||||
| Net income | — | — | — | — | — | 2,551,360 | — | 2,551,360 | |||||||||||||||||||||
| Foreign currency translation adjustments, net of tax charge of $60,418 | — | — | — | — | — | — | (114,505 | ) | (114,505 | ) | |||||||||||||||||||
| Net unrealized gain on marketable securities, net of tax charge of $1,551 | — | — | — | — | — | — | 619,259 | 619,259 | |||||||||||||||||||||
| Reclassification adjustment for convertible debt | — | — | — | — | 329 | — | — | 329 | |||||||||||||||||||||
| Exercise of stock options and vesting of restricted stock units and performance share units | 219 | 2 | — | — | 20,849 | — | — | 20,851 | |||||||||||||||||||||
| Repurchase of common stock | — | — | (2,540 | ) | (3,089,055 | ) | — | — | — | (3,089,055 | ) | ||||||||||||||||||
| Stock-based compensation and other stock-based payments | — | — | — | — | 249,133 | — | — | 249,133 | |||||||||||||||||||||
| Conversion of debt | — | — | — | — | (110,105 | ) | — | — | (110,105 | ) | |||||||||||||||||||
| Excess tax benefits on stock-based awards and other equity deductions | — | — | — | — | 101,508 | — | — | 101,508 | |||||||||||||||||||||
| Balance, December 31, 2015 | 62,040 | $ | 482 | (12,428 | ) | $ | (5,826,640 | ) | $ | 5,184,910 | $ | 9,191,865 | $ | 244,852 | $ | 8,795,469 | |||||||||||||
| Net income | — | — | — | — | — | 2,134,987 | — | 2,134,987 | |||||||||||||||||||||
| Foreign currency translation adjustments, net of tax charge of $34,268 | — | — | — | — | — | — | (93,984 | ) | (93,984 | ) | |||||||||||||||||||
| Net unrealized loss on marketable securities, net of tax charge of $15,313 | — | — | — | — | — | — | (285,552 | ) | (285,552 | ) | |||||||||||||||||||
| Reclassification adjustment for convertible debt | — | — | — | — | (28,538 | ) | — | — | (28,538 | ) | |||||||||||||||||||
| Exercise of stock options and vesting of restricted stock units and performance share units | 339 | 3 | — | — | 15,569 | — | — | 15,572 | |||||||||||||||||||||
| Repurchase of common stock | — | — | (763 | ) | (1,028,524 | ) | — | — | — | (1,028,524 | ) | ||||||||||||||||||
| Stock-based compensation and other stock-based payments | — | — | — | — | 249,726 | — | — | 249,726 | |||||||||||||||||||||
| Excess tax benefits on stock-based awards and other equity deductions | — | — | — | — | 60,986 | — | — | 60,986 | |||||||||||||||||||||
| Balance, December 31, 2016 | 62,379 | $ | 485 | (13,191 | ) | $ | (6,855,164 | ) | $ | 5,482,653 | $ | 11,326,852 | $ | (134,684 | ) | $ | 9,820,142 | ||||||||||||
| Net income | — | — | — | — | — | 2,340,765 | — | 2,340,765 | |||||||||||||||||||||
| Foreign currency translation adjustments, net of tax benefit of $174,584 | — | — | — | — | — | — | 295,547 | 295,547 | |||||||||||||||||||||
| Net unrealized gain on marketable securities, net of tax charge of $81,166 | — | — | — | — | — | — | 76,119 | 76,119 | |||||||||||||||||||||
| Reclassification adjustment for convertible debt | — | — | — | — | 25,575 | — | — | 25,575 | |||||||||||||||||||||
| Exercise of stock options and vesting of restricted stock units and performance share units | 160 | 1 | — | — | 5,139 | — | — | 5,140 | |||||||||||||||||||||
| Repurchase of common stock | — | — | (1,026 | ) | (1,843,665 | ) | — | — | — | (1,843,665 | ) | ||||||||||||||||||
| Stock-based compensation and other stock-based payments | — | — | — | — | 261,274 | — | — | 261,274 | |||||||||||||||||||||
| Conversion of debt | 150 | 1 | — | — | (540 | ) | — | — | (539 | ) | |||||||||||||||||||
| Cumulative effect of adoption of accounting standard updates | — | — | — | — | 8,988 | 271,252 | — | 280,240 | |||||||||||||||||||||
| Balance, December 31, 2017 | 62,689 | $ | 487 | (14,217 | ) | $ | (8,698,829 | ) | $ | 5,783,089 | $ | 13,938,869 | $ | 236,982 | $ | 11,260,598 | |||||||||||||
| Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Shares (in 000's) | Amount | Shares (in 000's) | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | 63,179 | $ | — | (21,762) | $ | (22,864) | $ | 5,756 | $ | 23,232 | $ | (191) | $ | 5,933 | ||||||||||||||||||||||||||||||||||||
| Cumulative effect of adoption of accounting standards update | — | — | — | — | — | (3) | — | (3) | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 59 | — | 59 | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments, net of tax | — | — | — | — | — | — | 50 | 50 | ||||||||||||||||||||||||||||||||||||||||||
| Net unrealized gains on available-for-sale securities, net of tax | — | — | — | — | — | — | 23 | 23 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of convertible senior notes | — | — | — | — | 96 | — | — | 96 | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of debt | — | — | — | — | (245) | — | — | (245) | ||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options and vesting of restricted stock units and performance share units | 227 | — | — | — | 6 | — | — | 6 | ||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | (685) | (1,264) | — | — | — | (1,264) | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation and other stock-based payments | — | — | — | — | 238 | — | — | 238 | ||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 63,406 | $ | — | (22,447) | $ | (24,128) | $ | 5,851 | $ | 23,288 | $ | (118) | $ | 4,893 | ||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 1,165 | — | 1,165 | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments, net of tax | — | — | — | — | — | — | (57) | (57) | ||||||||||||||||||||||||||||||||||||||||||
| Net unrealized gains on available-for-sale securities, net of tax | — | — | — | — | — | — | 31 | 31 | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of debt | — | — | — | — | (86) | — | — | (86) | ||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options and vesting of restricted stock units and performance share units | 178 | — | — | — | 5 | — | — | 5 | ||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | (71) | (162) | — | — | — | (162) | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation and other stock-based payments | — | — | — | — | 389 | — | — | 389 | ||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 63,584 | $ | — | (22,518) | $ | (24,290) | $ | 6,159 | $ | 24,453 | $ | (144) | $ | 6,178 | ||||||||||||||||||||||||||||||||||||
| Cumulative effect of adoption of accounting standards update | — | — | — | — | (96) | 30 | — | (66) | ||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 3,058 | — | 3,058 | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments, net of tax | — | — | — | — | — | — | (111) | (111) | ||||||||||||||||||||||||||||||||||||||||||
| Net unrealized losses on available-for-sale securities, net of tax | — | — | — | — | — | — | (12) | (12) | ||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options and vesting of restricted stock units and performance share units | 197 | — | — | — | 7 | — | — | 7 | ||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | (3,400) | (6,693) | — | — | — | (6,693) | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation and other stock-based payments | — | — | — | — | 421 | — | — | 421 | ||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 63,781 | $ | — | (25,918) | $ | (30,983) | $ | 6,491 | $ | 27,541 | $ | (267) | $ | 2,782 | ||||||||||||||||||||||||||||||||||||
See Notes to Consolidated Financial Statements.
75
Booking Holdings Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)millions)
| Year Ended December 31, | ||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||
| OPERATING ACTIVITIES: | ||||||||||||||||||||
| Net income | $ | 3,058 | $ | 1,165 | $ | 59 | ||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||
| Depreciation and amortization | 451 | 421 | 458 | |||||||||||||||||
| Provision for expected credit losses and chargebacks | 232 | 109 | 319 | |||||||||||||||||
| Deferred income tax (benefit) expense | (257) | (445) | 213 | |||||||||||||||||
| Net losses (gains) on equity securities | 963 | 569 | (1,713) | |||||||||||||||||
| Stock-based compensation expense and other stock-based payments | 404 | 376 | 255 | |||||||||||||||||
| Operating lease amortization | 156 | 178 | 184 | |||||||||||||||||
| Unrealized foreign currency transaction (gains) losses related to Euro-denominated debt | (46) | (135) | 200 | |||||||||||||||||
| Impairment of goodwill | — | — | 1,062 | |||||||||||||||||
| Loss on early extinguishment of debt | — | 242 | — | |||||||||||||||||
| Gain on sale and leaseback transaction | (240) | — | — | |||||||||||||||||
| Other | 38 | 71 | 68 | |||||||||||||||||
| Changes in assets and liabilities, net of effects of acquisitions: | ||||||||||||||||||||
| Accounts receivable | (1,228) | (1,002) | 891 | |||||||||||||||||
| Prepaid expenses and other current assets | (217) | 6 | 161 | |||||||||||||||||
| Deferred merchant bookings and other current liabilities | 3,718 | 1,539 | (2,266) | |||||||||||||||||
| Long-term assets and liabilities | (478) | (274) | 194 | |||||||||||||||||
| Net cash provided by operating activities | 6,554 | 2,820 | 85 | |||||||||||||||||
| INVESTING ACTIVITIES: | ||||||||||||||||||||
| Purchase of investments | (768) | (17) | (74) | |||||||||||||||||
| Proceeds from sale and maturity of investments | 32 | 508 | 2,997 | |||||||||||||||||
| Additions to property and equipment | (368) | (304) | (286) | |||||||||||||||||
| Acquisitions, net of cash acquired | — | (1,185) | — | |||||||||||||||||
| Proceeds from sale and leaseback transaction | 601 | — | — | |||||||||||||||||
| Other investing activities | (15) | — | — | |||||||||||||||||
| Net cash (used in) provided by investing activities | (518) | (998) | 2,637 | |||||||||||||||||
| FINANCING ACTIVITIES: | ||||||||||||||||||||
| Proceeds from the issuance of long-term debt | 3,621 | 2,015 | 4,108 | |||||||||||||||||
| Payments on maturity and redemption of debt | (1,880) | (3,068) | (1,244) | |||||||||||||||||
| Payments for repurchase of common stock | (6,621) | (163) | (1,303) | |||||||||||||||||
| Other financing activities | (17) | (23) | (33) | |||||||||||||||||
| Net cash (used in) provided by financing activities | (4,897) | (1,239) | 1,528 | |||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents | (40) | (13) | — | |||||||||||||||||
| Net increase in cash and cash equivalents and restricted cash and cash equivalents | 1,099 | 570 | 4,250 | |||||||||||||||||
| Total cash and cash equivalents and restricted cash and cash equivalents, beginning of period | 11,152 | 10,582 | 6,332 | |||||||||||||||||
| Total cash and cash equivalents and restricted cash and cash equivalents, end of period | $ | 12,251 | $ | 11,152 | $ | 10,582 | ||||||||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||||||||||
| Cash paid during the period for income taxes (see Note 15) | $ | 600 | $ | 735 | $ | 319 | ||||||||||||||
| Cash paid during the period for interest | $ | 380 | $ | 318 | $ | 278 | ||||||||||||||
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| OPERATING ACTIVITIES: | ||||||||||||
| Net income | $ | 2,340,765 | $ | 2,134,987 | $ | 2,551,360 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation | 187,231 | 140,059 | 101,517 | |||||||||
| Amortization | 175,543 | 169,076 | 170,977 | |||||||||
| Provision for uncollectible accounts | 62,316 | 46,241 | 24,324 | |||||||||
| Deferred income tax benefit | (32,465 | ) | (111,905 | ) | (61,335 | ) | ||||||
| Stock-based compensation expense and other stock-based payments | 261,274 | 249,726 | 249,133 | |||||||||
| Amortization of debt issuance costs | 9,308 | 7,758 | 7,578 | |||||||||
| Amortization of debt discount | 69,734 | 68,974 | 66,687 | |||||||||
| Loss on early extinguishment of debt | 2,366 | — | 3 | |||||||||
| Impairment of goodwill | — | 940,700 | — | |||||||||
| Impairment of cost-method investments | 7,597 | 63,208 | — | |||||||||
| Excess tax benefits on stock-based awards and other equity deductions | — | 60,986 | 101,508 | |||||||||
| Changes in assets and liabilities, net of effects of acquisitions: | ||||||||||||
| Accounts receivable | (269,732 | ) | (284,221 | ) | (68,694 | ) | ||||||
| Prepaid expenses and other current assets | (124,269 | ) | 5,495 | (81,611 | ) | |||||||
| Accounts payable, accrued expenses and other current liabilities | 687,446 | 514,404 | 165,985 | |||||||||
| Long-term U.S. transition tax liability | 1,250,846 | — | — | |||||||||
| Other | 34,076 | (21,757 | ) | (23,909 | ) | |||||||
| Net cash provided by operating activities | 4,662,036 | 3,983,731 | 3,203,523 | |||||||||
| INVESTING ACTIVITIES: | ||||||||||||
| Purchase of investments | (6,491,156 | ) | (6,741,202 | ) | (8,669,690 | ) | ||||||
| Proceeds from sale of investments | 3,580,001 | 3,684,103 | 5,084,238 | |||||||||
| Additions to property and equipment | (287,805 | ) | (219,889 | ) | (173,915 | ) | ||||||
| Acquisitions and other investments, net of cash acquired | (1,003,075 | ) | (7,813 | ) | (140,338 | ) | ||||||
| Acquisition of land-use rights | — | (48,494 | ) | — | ||||||||
| Proceeds from foreign currency contracts | — | — | 453,818 | |||||||||
| Payments on foreign currency contracts | — | — | (448,640 | ) | ||||||||
| Net cash used in investing activities | (4,202,035 | ) | (3,333,295 | ) | (3,894,527 | ) | ||||||
| FINANCING ACTIVITIES: | ||||||||||||
| Proceeds from revolving credit facility | — | — | 225,000 | |||||||||
| Payments related to revolving credit facility | — | — | (225,000 | ) | ||||||||
| Proceeds from the issuance of long-term debt | 2,044,952 | 994,705 | 2,399,034 | |||||||||
| Payment of debt issuance costs - revolving credit facility | — | — | (4,005 | ) | ||||||||
| Payments related to conversion of senior notes | (285,718 | ) | — | (147,629 | ) | |||||||
| Payment of debt | (15,118 | ) | — | — | ||||||||
| Payments for repurchase of common stock | (1,827,919 | ) | (1,011,574 | ) | (3,088,839 | ) | ||||||
| Payments of contingent consideration | — | — | (10,700 | ) | ||||||||
| Proceeds from exercise of stock options | 5,140 | 15,572 | 20,851 | |||||||||
| Net cash used in financing activities | (78,663 | ) | (1,297 | ) | (831,288 | ) | ||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents | 99,996 | (45,203 | ) | (149,131 | ) | |||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents | 481,334 | 603,936 | (1,671,423 | ) | ||||||||
| Cash, cash equivalents and restricted cash and cash equivalents, beginning of period | 2,082,007 | 1,478,071 | 3,149,494 | |||||||||
| Cash, cash equivalents and restricted cash and cash equivalent, end of period | $ | 2,563,341 | $ | 2,082,007 | $ | 1,478,071 | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||
| Cash paid during the period for income taxes | $ | 702,421 | $ | 636,550 | $ | 534,105 | ||||||
| Cash paid during the period for interest | $ | 154,853 | $ | 125,912 | $ | 54,299 | ||||||
| Non-cash investing activity for contingent consideration | $ | — | $ | — | $ | 9,170 | ||||||
| Non-cash financing activity | $ | 1,000 | $ | — | $ | — | ||||||
See Notes to Consolidated Financial Statements.
76
Booking Holdings Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION |
Booking Holdings Inc. ("Booking Holdings" or the "Company"), formerly known as The Priceline Group Inc., helps people seeks to make it easier for everyone to experience the world by providing consumers, travel service providers, and restaurants with leading travel and restaurant online reservation and related services. Through its online travel companies ("OTCs"), the Company connects consumers wishing to make travel reservations with providers of travel services around the world. The Company is the leader in the worldwide online accommodation reservation market based on room nights booked. The Company offers its services through six primary consumer-facing brands: Booking.com, Priceline, agoda, Rentalcars.com, KAYAK, and OpenTable, which allow consumers to: book a broad array of accommodation reservationsaccommodations (including hotels, motels, resorts, homes, apartments, bed and breakfasts, hostels, and other alternative and traditional accommodations properties) through its Booking.com, priceline.com and agoda.com brands. Thea flight to their destinations; make a car rental reservation or arrange for an airport taxi; make a dinner reservation; or book a vacation package, tour, activity, or cruise. Consumers can also use the Company's priceline.com brand also offers consumers reservations for rental cars, airline tickets, vacation packagesmeta-search services to easily compare travel reservation information, such as flight, hotel, and cruises. The Company offers rental car reservations worldwide through its Booking.com and Rentalcars.com brands. Through KAYAK,from hundreds of online travel platforms at once. In addition, the Company offers a leading meta-searchother services to consumers, travel service allowing consumers to easily searchproviders and compare travel itinerariesrestaurants, such as travel-related insurance products and prices, including airline ticket, accommodationrestaurant management services. The Company's portfolio of brands are organized into four operating segments which are aggregated into one reportable segment based on the similarity in economic
characteristics, other qualitative factors, and rental car reservation information, from hundredsthe objectives and principles of travel websites at once. The Company provides restaurants with reservation management and customer acquisition services and consumers with the ability to make restaurant reservations at participating restaurants through OpenTable, a leading provider of online restaurant reservations.Accounting Standards Codification ("ASC") 280, Segment Reporting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation —
The Company's Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, including acquired businesses from the Momondo Group (which is managed as partdates of the Company's KAYAK business) from its acquisition date of July 24, 2017.acquisition. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates —
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results may differ significantly from those estimates. The estimates underlying the Company's Consolidated Financial Statements relate to, among other things, the valuation of goodwill and other long-lived tangible and intangible assets, the valuation of investments in private companies, income taxes, contingencies, stock-based compensation, the allowance for doubtful accounts, the valuation of goodwill, long-lived assets and intangibles, income taxes,expected credit losses (also referred to as provision for bad debts or provision for uncollectible accounts), chargeback provisions, and the accrual of obligations for loyalty and other incentive programs.
The Company's financial results and prospects are almost entirely dependent on facilitating the adoptionsale of travel-related services. The COVID-19 pandemic and the new accounting updateresulting implementation of travel restrictions by governments around the world resulted in a significant decline in travel activities and consumer demand for travel related to stock-based compensationservices, in 2020 in particular. During the first quarter of 2017, certain amounts in the Consolidated Statement of Cash Flows for the yearsyear ended December 31, 20162020, given the severe downturn in the global travel industry and 2015the financial difficulties faced by many of the Company's travel service provider and restaurant customers and marketing affiliates, the Company increased its provision for expected credit losses (also referred to as provision for bad debts or provision for uncollectible accounts) on receivables from and prepayments to its travel service provider and restaurant customers and marketing affiliates (see Note 7). Moreover, due to the high level of cancellations of existing reservations, the Company incurred higher than normal cash outlays to refund consumers for prepaid reservations, including certain situations where the Company had already transferred the prepayment to the travel service provider. During the year ended December 31, 2021, based on its review of recent historical credit loss experience and stability in the economic conditions in certain markets, the Company revised its estimates of expected credit losses (see Note 7). Any significant increase in the Company’s provision for expected credit losses and any significant increase in cash outlays to refund consumers would have a corresponding adverse effect on the Company's results of operations and related cash flows.
As a result of the deterioration of the Company’s business due to the COVID-19 pandemic, the Company recorded significant goodwill impairment charges during the year ended December 31, 2020 (see Note 11). In addition, the Company recorded a significant impairment charge during the year ended December 31, 2020 for one of the Company's long-term investments (see Notes 5 and 6). It is possible that the Company may have to record additional significant impairment charges in future periods.
77
In response to the reduction in the Company's business volumes as a result of the impact of the COVID-19 pandemic, during the year ended December 31, 2020, the Company took actions to reduce the size of its workforce to optimize efficiency and reduce costs. See Note 19 for additional information. The Company also participated in certain governmental assistance programs and received certain grants and other assistance. In June 2021, the Company announced its intention to voluntarily return the government assistance received and completed the repayments by December 2021. The Company repaid $107 million during the year ended December 31, 2021. See Note 20 for additional information.
Even though there have been improvements in the economic and operating conditions for the Company's business since the outset of the COVID-19 pandemic, the Company cannot predict the long-term effects of the pandemic on its business or the travel and restaurant industries as a whole.
Reclassification
Certain amounts from prior periods have been reclassified to conform to the current year presentation.
Fair Value of Financial Instruments — The Company's
Certain financial instruments, including cash, restricted cash, accounts receivable, accounts payable, accrued expenses, and deferred merchant bookings, are carried at cost which approximates their fair value because of the short-term nature of these financial instruments. Accounts receivable and other financial assets measured at amortized cost are carried at cost less an allowance for expected credit losses to present the net amount expected to be collected (see Note 7). See Notes 4, 5, 6, and 1012 for information onrelated to fair value for investments, derivatives, and the Company's outstanding Senior Notes.senior notes.
There are three levels of inputs to valuation techniques used to measure fair value:
Level 1: Quoted prices in active markets that are accessible by the Company at the measurement date for identical assets and liabilities.
Level 2: Inputs that are observable, either directly or indirectly. Such prices may be based upon quoted prices for identical or comparable securities in active markets or inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available.
Cash and Cash Equivalents —
Cash and cash equivalents consists primarily of cash and highly liquid investment grade securities with an original maturity of three months or less. Cash equivalents are recognized based on settlement date.
Restricted Cashand Cash Equivalents —
Restricted cash and cash equivalents are restricted through legal contracts regulations or by the Company's intention to use the cash for a specific purpose.regulations. Restricted cash and cash equivalents at December 31, 20172022 and 2021 principally relatesrelate to the minimum cash requirement for Rentalcars.com's regulatedthe Company's travel-related insurance business established in the fourth quarter of 2017. Restricted cash at December 31, 2016 and 2015 collateralizes office leases. business.
The following table reconciles cash and cash equivalents and restricted cash and cash equivalents reported in the Consolidated Balance Sheets to the total amount shown in the Consolidated Statements of Cash Flows (in thousands)millions):
| December 31, | ||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||
| As included in the Consolidated Balance Sheets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 12,221 | $ | 11,127 | ||||||||||||||||
Restricted cash and cash equivalents (1) | 30 | 25 | ||||||||||||||||||
| Total cash and cash equivalents and restricted cash and cash equivalents as shown in the Consolidated Statements of Cash Flows | $ | 12,251 | $ | 11,152 | ||||||||||||||||
(1) Included in "Other current assets" in the Consolidated Balance Sheets.
78
| December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| As included in the Consolidated Balance Sheets: | ||||||||||||
| Cash and cash equivalents | $ | 2,541,604 | $ | 2,081,075 | $ | 1,477,265 | ||||||
| Restricted cash and cash equivalents included in prepaid expenses and other current assets | 21,737 | 932 | 806 | |||||||||
| Total cash, cash equivalents and restricted cash and cash equivalents as shown in the Consolidated Statements of Cash Flows | $ | 2,563,341 | $ | 2,082,007 | $ | 1,478,071 | ||||||
Investments held by the Company include debt securities and equity securities. Investments in debt or equity securities that include embedded features, such as conversion or redemption features, are analyzed by the Company to determine if these features are embedded derivatives that require separate accounting treatment. Payments made for investments are reported in "Purchase of investments" and proceeds received from sales or maturities of investments are reported in "Proceeds from sale and maturity of investments" in the Consolidated Statements of Cash Flows.
Debt Securities
The Company has classified its investments in debt securities and equity securities with readily determinable fair value as available-for-sale securities. Preferred stock that is either mandatorily redeemable or redeemable at the option of the investor is considered a debt security for accounting purposes. These securities are recognized based on trade date and carriedreported at estimated fair value with the aggregate unrealized gains and losses, related to these investments, net of taxes,tax, reflected as a part of "Accumulatedin "Accumulated other comprehensive income (loss)" within stockholders' equity (see "Recent Accounting Pronouncements" described laterloss" in this footnote for accounting changes that are effective January 1, 2018).
the Consolidated Balance Sheets. The fair value of thethese investments is based on the specific quoted market price of the securities or comparable securities at the balance sheet dates. Investments in debt securitiesUnobservable inputs are consideredalso used when little or no market data is available. See Note 6 for information related to be impaired when a decline in fair value is judged to be other than temporary becausemeasurements.
If the amortized cost basis of an available-for-sale security exceeds its fair value and if the Company either intendshas the intention to sell the security or it is more-likely-thanmore likely than not that itthe Company will havebe required to sell the impaired security before recovery. Once a decline in fair value is determined to be other than temporary,recovery of the amortized cost basis, an impairment charge is recorded and a new cost basisrecognized in the investment is established.Consolidated Statements of Operations. If the Company does not intendhave the intention to sell the debt security butand it is probablenot more likely than not that the Company will not collect all amounts due, then onlybe required to sell the impairmentsecurity before recovery of the amortized cost basis and the Company determines that the decline in fair value below the amortized cost basis of an available-for-sale security is entirely or partially due to credit-related factors, the credit risk would beloss is measured and recognized as an allowance for expected credit losses along with the related expense in earnings and the remainingConsolidated Statements of Operations. The allowance is measured as the amount by which the debt security’s amortized cost basis exceeds the Company’s best estimate of the impairment wouldpresent value of cash flows expected to be recognizedcollected.
The Company's investments in "Accumulated other comprehensive income (loss)" within stockholders' equity. Marketablemarketable debt securities are classifiedrecognized based on the trade date. The cost of marketable debt securities sold is determined using a first-in and first-out method. The Company's investments in debt securities are assessed for classification in the Consolidated Balance Sheets as short-term or long-term investmentsat the individual security level. Classification as short-term or long-term is based on the maturities of the securities, as applicable, and the Company's expectations regarding the timing of sales and redemptions. Investments of a strategic nature that have been made for the purpose of affiliation or potential business advantage or in connection with a commercial relationship are included in "Long-term investments" in the Company's Consolidated Balance Sheets, based onexcept in situations where the maturity date ofCompany expects the debt security. See Notes 4investment to be realized in cash, redeemed, or sold within one year.
Equity Securities
Equity securities are reported as "Long-term investments" in the Consolidated Balance Sheets and 5 for further detail of investments.
The Company holds investments in equity securities of private companies, over which the Company does not have the ability to exercise significant influence or control. These investments, which do not have readily determinable fair values, are accountedmeasured at cost less impairment, if any. Such investments are also required to be measured at fair value as of the date of certain observable transactions for using the cost methodidentical or a similar investment of accountingthe same issuer.
Accounts Receivable from Customers and classified within "Other assets"Allowance for Expected Credit Losses
Accounts receivable is reported net of expected credit losses. The Company estimates lifetime expected credit losses upon recognition of the financial assets. The Company has identified the relevant risk characteristics of its customers and the related receivables and prepayments, which include the following: size, type (alternative accommodations vs. hotels) or geographic location of the customer, or a combination of these characteristics. Receivables with similar risk characteristics have been grouped into pools. For each pool, the Company considers the historical credit loss experience, current economic conditions, supportable forecasts of future economic conditions, and any recoveries in assessing the lifetime expected credit losses. Other key factors that influence the expected credit loss analysis include customer demographics, payment terms offered in the Consolidated Balance Sheets. Undernormal course of business to customers, the cost method, investmentsnature of competition, and industry-specific factors that could impact the Company's receivables. Additionally, external data and macroeconomic conditions are carriedconsidered. This is assessed at costeach quarter based on the Company’s specific facts and are adjusted to fair value only for other-than-temporary declines in fair value (see "Recent Accounting Pronouncements" described later in this footnote for accounting changes that are effective January 1, 2018).circumstances.
79
Property and Equipment, — Net
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets or, when applicable, the lifeterm of the lease related to leasehold improvements, whichever is shorter.
Website and Internal-use Software Capitalization — Certain
Acquisition costs and certain direct development costs associated with website and internal-use software are capitalized and include external direct costs of services and payroll costs for employees devoting time to the software projects principally related to website and mobile appplatform development, including support systems, software coding, designing system interfaces, and installation and testing of the software. These costs are recorded as property and equipment and are generally amortized over a period of two to five years beginning when the asset is substantially ready for use. Costs incurred for enhancements that are expected to result in additional features or functionalities are capitalized and amortized over the estimated useful life of the enhancements. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred. Additions
Cloud Computing Arrangements
The Company utilizes various third-party computer systems and third-party service providers, including global distribution systems ("GDSs") and computerized central reservation systems of the accommodation, rental car, and airline industries in connection with providing some of its services. The Company uses both internally-developed systems and third-party systems to operate its services, including transaction processing, order management, and financial and accounting systems. Implementation costs incurred in a hosting arrangement that is a service contract are capitalized and amortized over the term of the hosting arrangement. The capitalized implementation costs during the years ended December 31, 2017, 2016 and 2015 were $80.4 million, $54.2 million and $44.2 million, respectively.
Leases
The Company determines if an arrangement is a lease, or contains a lease, when a contract is signed. The Company determines if a lease is an operating or finance lease and records a lease asset and a lease liability upon lease commencement, which is the date when the underlying asset is made available for use by the lessor. The Company has operating leases for office space, and data centers. For office space and data centers, the Company has elected to combine the fixed payments to lease the asset and any fixed non-lease payments (such as maintenance or utility charges) when determining its lease payments. The Company's finance leases are mainly for computer equipment.
The Company uses its incremental borrowing rate as its discount rate to determine the present value of its remaining lease payments to calculate its lease assets and lease liabilities because the rate implicit in the lease is not readily determinable. The incremental borrowing rate approximates the rate the Company would pay to borrow in the currency of the lease payments on a collateralized basis for the weighted-average life of the lease. Operating lease assets also include any prepaid lease payments and lease incentives received prior to lease commencement.
The Company recognizes operating lease costs and the amortization of finance lease assets on a straight-line basis over the lease period. At December 31, 2017term. The interest component of a finance lease is recognized using the effective interest method over the lease term. Certain of the Company's lease agreements include rent payments which are adjusted periodically based on an index or rate. Any change in payments due to such adjustments are recognized as variable lease expense as they are incurred. Variable lease expense also includes costs for property taxes, insurance, and 2016,services provided by the Company had approximately $50.5 millionlessor which are charged based on usage or performance (such as maintenance or utility charges).
Most leases have one or more options to renew beyond their initial term. The exercise of renewal options, mainly for office space and $45.3 million, respectively, associated with land-use rights recorded in “Other assets”data centers, is at the Company’s discretion and are included in the Consolidated Balance Sheets. See Note 14determination of the lease term for further details.accounting purposes if they are reasonably certain to be exercised.
Business Combinations, Goodwill, — and Intangible Assets
The Company accounts for acquired businesses using the acquisition method of accounting which requires thataccounting. The consideration transferred is allocated to the assets acquired and liabilities assumed be recordedbased on their respective values at the date of acquisition at their respective fair values. Anydate. The excess of the purchase priceconsideration transferred over the estimated fair valuesnet of the netamounts allocated to the identifiable assets acquired and liabilities assumed is recordedrecognized as goodwill.
80
In 2021, the Financial Accounting Standards Board ("FASB") issued a new accounting standards update that requires an acquirer to recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC 606, Revenue from Contracts with Customers, rather than at fair value on the acquisition date as required under legacy U.S. GAAP. The Company's Consolidated Financial Statements reflect an acquiredCompany adopted this update in 2021 and applied it to all business starting atcombinations occurring on or after January 1, 2021.
Goodwill is assigned to reporting units that are expected to benefit from the datesynergies of the acquisition.
business combination. Goodwill is not subject to amortization and is reviewed at least annuallytested for impairment or earlieron an annual basis and between annual tests if an event occurs or circumstances change and there is an indicationthat would more likely than not reduce the fair value of impairment.a reporting unit below its carrying amount. The Company tests goodwill at a reporting unit level. The fair value of the reporting unit is compared to its carrying value, including goodwill. Fair values are determined using a combination of standard valuation techniques, including an income approach (discounted cash flows) and market approaches (EBITDA(e.g., earnings before interest, taxes, depreciation, and amortization ("EBITDA") multiples of comparable publicly-traded companies and precedent transactions)publicly traded companies) and based on market participant assumptions. AnA goodwill impairment loss is recorded tomeasured at the extent that the impliedamount by which a reporting unit’s carrying amount exceeds its fair value, of goodwill is less thannot to exceed the carrying valueamount of goodwill. See Note 911 for furtheradditional information.
Intangible assets are carried at cost and amortized on a straight-line basis over their estimated useful lives.
Impairment of Long-LivedLong-lived Assets and Intangible Assets —
The Company reviews long-lived tangibleassets, including intangible assets and amortizable intangibleoperating lease assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The assessment of possible impairment is based upon the Company's ability to recover the carrying value of the assets from the estimated undiscounted future net cash flows, before interest and taxes, of the related operations.asset group. The amount of impairment loss, if any, is measured as the excess of the carrying value of the asset over the present value of estimated future cash flows, using a discount rate commensurate with the risks involved and based on assumptions representative of market participants.
The functional currency of the Company's subsidiaries is generally the respective local currency. For operations outside of the U.S., assets and liabilities are translated into U.S. Dollars at the rate of exchange existing at the balance sheet date. Income statement amounts are translated at monthly average exchange rates applicable for the period. Translation gains and losses are included as a component of "Accumulated other comprehensive loss" in the Company's Consolidated Balance Sheets. Foreign currency transaction gains and losses are included in "Other income (expense), net" in the Company's Consolidated Statements of Operations.
Derivatives
Derivatives not Designated as Hedges
As a result of the Company's operations outside of the U.S., it is exposed to various market risks that may affect its consolidated results of operations, cash flows, and financial position. These market risks include, but are not limited to, fluctuations in foreign currency exchange rates. For the Company's operations outside of the U.S., the primary foreign currency exposures are in Euros and British Pounds Sterling, the currencies in which the Company conducts a significant portion of its business activities. As a result, the Company faces exposure to adverse movements in foreign currency exchange rates as the financial results of its operations outside of the U.S. are translated from local currencies into U.S. Dollars upon consolidation. Additionally, foreign currency exchange rate fluctuations on transactions denominated in currencies other than the functional currency of an entity result in gains and losses that are reflected in net income.
The Company may enter into derivative instruments to hedge certain net exposures of nonfunctional currency denominated assets and liabilities and the volatility associated with translating earnings for its operations outside of the U.S. into U.S. Dollars, even though it does not elect to apply hedge accounting or hedge accounting does not apply. These contracts are generally short-term in duration. Certain of the Company's derivative instruments have master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. The Company is exposed to the risk that counterparties to derivative instruments may fail to meet their contractual obligations. The Company regularly reviews its credit exposure and assesses the creditworthiness of its counterparties. The Company reports the fair value of its derivative assets and liabilities on a gross basis in the Consolidated Balance Sheets in "Other current assets" and "Accrued expenses and other current liabilities," respectively. Unless designated as hedges for accounting purposes, gains and losses resulting from changes in the fair value of derivative instruments are recognized in "Other income (expense), net" in the Consolidated Statements of Operations in the period that the changes occur and are classified within "Net cash provided by operating
81
activities" or "Net cash (used in) provided by financing activities," as appropriate, in the Consolidated Statements of Cash Flows. See Note 6 for additional information related to these derivative instruments.
Derivatives Designated as Cash Flow Hedges
See Note 6 for information related to derivatives designated as cash flow hedges.
Non-derivative Instrument Designated as Net Investment Hedge
The foreign currency transaction gains or losses on the Company's Euro-denominated debt are measured based upon changes in spot rates. The foreign currency transaction gains or losses on the Euro-denominated debt that is designated as a hedging instrument for accounting purposes are recorded in "Accumulated other comprehensive loss" in the Consolidated Balance Sheets. The foreign currency transaction gains or losses on the Euro-denominated debt that is not designated as a hedging instrument are recognized in "Other income (expense), net" in the Consolidated Statements of Operations. See Notes 12 and 14 for additional information related to the net investment hedge.
Revenue Recognition
Online travel reservation services
Substantially all of the Company's revenues are generated by providing online travel reservation services, which principally allows travelers to book travel reservations with travel service providers through the Company’s platforms. While the Company generally refers to a consumer that books travel reservation services on the Company's platforms as its customer, for accounting purposes, the Company's customers are the travel service providers and, in certain merchant transactions, the travelers. The Company's contracts with travel service providers give them the ability to market their reservation availability without transferring responsibility to deliver the travel service to the Company. Therefore, the Company's revenues are presented on a net basis in the Consolidated Statements of Operations. These contracts include payment terms and establish the consideration to which the Company is entitled, which includes either a commission or a margin on the travel transaction. Revenue is measured based on the expected consideration specified in the contract with the travel service provider, considering the effects of factors such as discounts and other sales incentives. Estimates for sales incentives are based on historical experience, current trends, and forecasts, as applicable. Coupons are recorded as a reduction of the transaction price, generally at the time they are redeemed. The local occupancy taxes, general excise taxes, value-added taxes, sales taxes, and other similar taxes ("travel transaction taxes"), if any, collected from travelers are reported on a net basis in revenues in the Consolidated Statements of Operations.
Revenues for online travel reservation services are recognized at a point in time when the Company has completed its post-booking services and the travelers begin using the arranged travel services. These services are classified into two categories:
•Agency revenues are derived from travel-related transactions where the Company does not facilitate payments from travelers for the travel services provided. The Company invoices the travel service providers for its commissions in the month that travel is completed. Agency revenues consist primarilyalmost entirely of accommodationtravel reservation commissions as well as certain global distribution system ("GDS")from the Company's accommodation, rental car, and airline reservation booking fees and certain travel insurance fees, and are reported at the net amounts received, without any associated cost of revenues. Such revenues are primarily recognized by the Company when the customer's travel is completed (see "Recent Accounting Pronouncements" described later in this footnote for accounting changes that are effective January 1, 2018).services.
•Merchant revenues are derived from servicestravel-related transactions where the Company facilitates payments from travelers for the travel services provided. Name Your Own Price®travel reservation services are presented inprovided, generally at the income statement on a gross basis so merchant revenue and costtime of revenues include the reservation price to the customer and the cost charged by the service provider, respectively (see "Recent Accounting Pronouncements" described later in this footnote for accounting changes that are effective January 1, 2018). For all other merchant transactions, the Company presents merchant revenue on a net basis in the income statement.
Advertising and Other Revenues
Advertising and other revenues are primarily earnedrecognized by KAYAK and OpenTable and to a lesser extent by priceline.com for advertising placements on its website and Booking.com's BookingSuite branded accommodation marketing and business analytics services.OpenTable. KAYAK earnsrecognizes advertising revenue primarily by sending referrals to OTCsonline travel companies ("OTCs") and travel service providers and from advertising placements on its websites and mobile apps.platforms. Revenue related to referrals is earnedrecognized when a customerconsumer clicks on a referral placement or upon completion of the travel. Revenue for advertising placements is earnedrecognized based upon when a customerconsumer clicks on an advertisement or when KAYAK displays an advertisement. OpenTable earnsrecognizes revenues for reservation fees when diners are seated through its online restaurant reservation service and subscription fees for restaurant management services on a straight-line basis over the contractual period thatin accordance with how the service is provided.
82
Loyalty Programs
The Company provides various incentive programs such as referral bonuses, rebates, credits, and discounts. In addition, the Company offers loyalty programs. Participating customers earnprograms where participating consumers may be awarded loyalty awardspoints on current transactions that can be redeemed for future qualifying transactions. As awards are earned,in the Company estimatesfuture. The estimated value of the amount of awardsincentives granted and the loyalty points expected to be redeemed and recordsis generally recognized as a reduction of revenue at the time they are granted.
Deferred Merchant Bookings
Cash payments received from travelers in revenue. Atadvance of the Company completing its performance obligations are included in "Deferred merchant bookings" in the Company's Consolidated Balance Sheets and are comprised principally of amounts estimated to be payable to travel service providers as well as the Company's estimated future revenue for its commission or margin and fees. The amounts are mostly subject to refunds for cancellations. The Company expects to complete its performance obligations generally within one year from the reservation date. The increase in the Deferred Merchant Booking balance during the year ended December 31, 2017 and 2016, a liability of $104.7 million and $84.4 million, respectively, for these programs2022 was includedprincipally due to the increase in "Accruedbusiness volumes.
Marketing Expenses
The Company's advertising expenses and other current liabilities"are reported in "Marketing expenses" in the Consolidated Balance Sheets.
2021, respectively, related to performance marketing. Brand Advertising — Advertisingmarketing expenses classifiedare expenses incurred to build brand awareness over a specified time period. These expenses consist primarily of television advertising and online video and display advertising (including the airing of the Company's television advertising online), as brand advertising are generally managed by the Company to a targeted spending level to drive brand awareness. This includes both online and offline activitieswell as other marketing expenses such as online videos (for example, on YouTubepublic relations and Facebook), television advertising, billboards and subway and bus advertisements.sponsorships. Brand advertising expense ismarketing expenses are generally recognized as incurred with the exception of advertising production costs, which are deferred and expensed the first time the advertisement is displayed or broadcast.
Sales and Marketing — Other Expenses
Sales and marketingother expenses are generally variable in nature and consist primarily ofof: (1) credit cardcards and other payment processing fees associated with merchant transactions; (2) fees paid to third parties that provide call center, website content translations, and other services; (3) chargeback provisions and fraud prevention expenses associated with merchant transactions; (4) customer relations costs; (4) promotional costs;and (5) provisions for bad debt,expected credit losses, primarily related to agency accommodation commission receivables;receivables and (6) provisions for customer chargebacks.prepayments to certain customers.
Personnel —
Personnel expenses consist of compensation to the Company's personnel, including salaries, stock-based compensation, bonuses, payroll taxes and employee health and other benefits. Included in "Accrued expenses and other current liabilities" in the Consolidated Balance Sheets are accrued compensation liabilities of $288.1$518 million and $242.6$421 million at December 31, 20172022 and 2016, respectively.2021, respectively, related to personnel expenses.
Stock-Based Compensation —
Stock-based compensation expense related to performance share units, restricted stock units and stock options is recognized inbased on fair value on a straight-line basis over the financial statements based upon fair value.respective requisite service periods and forfeitures are accounted for when they occur. The fair value on the grant date of performance share units and restricted stock units is determined based on the number of units granted and the quoted price of the Company's common stock asstock. For performance share units with market conditions, the effect of the market condition is also considered in the determination of fair value on the grant date or acquisition date. using Monte Carlo simulations. The fair value of employee stock options is determined using the Black-Scholes model.
The Company records stock-based compensation expense for these performance-based awards based onusing its estimate of the probable outcome at the end of the performance period (i.e., the estimated performance against the performance targets)targets or performance goals, as applicable). The Company periodically adjusts the cumulative stock-based compensation expense recorded when the probable outcome for these performance-based awards is updated based upon changes in actual and forecasted operating results. The fair valueresults or expected achievement of employee stock options assumed in acquisitions was determined using the Black Scholes model and the market value of the Company's common stock at the respective acquisition dates. Fair value is recognizedperformance goals, as expense on a straight-line basis over the employee requisite service period, and, beginning January 1, 2017, forfeitures are accounted for when they occur.applicable.
83
The benefits of tax deductions in excess of recognized compensation costs are recognized in the income statementConsolidated Statements of Operations as a discrete item in periods beginning on or after January 1, 2017 when an option exercise or a vesting and release of shares occurs. Excess tax benefits are presented as operating cash flows and cash payments for employee statutory tax withholding related to vested stock awards are presented as financing cash flows in the Consolidated Statements of Cash Flows.
Benefit Plans
The Company maintains a defined contribution 401(k) savings plan covering certain U.S. employees. The Company also maintains certain other defined contribution plans outside of the United States for which it provides contributions for participating employees. The Company's matching contributions during the years ended December 31, 2022, 2021, and 2020 were $40 million, $32 million, and $33 million, respectively.
Government Grants and Other Assistance
The Company recognizes government grants in the financial statements when it is probable that the grant will be received and the Company will comply with the conditions of cash flows.the grant. Government grants are recorded as a reduction in the related operating expense or the cost of the asset that they are intended to defray. The government grants received by the Company have principally been granted to defray personnel costs. See Note 320 for further information on stock-based awards.related to government grants and other assistance.
Information Technology —
Information technology expenses consist primarily of: (1) software license and system maintenance fees; (2) outsourced data center and cloud computing costs; (3) payments to contractors; and (4) data communications and other expenses associated with operating our services; (3) outsourced data center costs;the Company's services.
Restructuring, Disposal and (4) paymentsOther Exit Activities
The Company records employee severance and other termination costs that meet the requirements for recognition in accordance with the relevant guidance of ASC 420, Exit or Disposal Cost Obligations, or ASC 712, Compensation - Nonretirement Postemployment Benefits, as applicable. For involuntary termination benefits that are not provided under the terms of an ongoing benefit arrangement, the liability for the current fair value of expected future costs associated with a management-approved restructuring plan is recognized in the period in which the plan is communicated to outside consultants.the employees and the plan is not expected to change significantly. For ongoing benefit arrangements, inclusive of statutory requirements, employee termination costs are accrued when the existing situation or set of circumstances indicates that an obligation has been incurred, it is probable the benefits will be paid, and the amount can be reasonably estimated. Termination benefits associated with voluntary leaver schemes are recorded when the employee irrevocably accepts the offer and the amount can be reasonably estimated.
Long-lived assets to be sold are classified as held for sale in the period in which the requirements for such classification are met in accordance with ASC 360, Property, Plant, and Equipment. Assets that are classified as held for sale are measured at the lower of their carrying amount or fair value less cost to sell.
Income Taxes —
The Company accounts for income taxes under the asset and liability method. The Company records the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the Consolidated Balance Sheets, as well as operating loss and tax credit carryforwards. Deferred taxes are classified as noncurrentnon-current in the balance sheet.Consolidated Balance Sheets.
The Company records deferred tax assets to the extent it believes these assets will more-likely-than-notmore likely than not be realized. The Company regularly reviews its deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences, the carryforward periods available for tax reporting purposes, and tax planning strategies. A valuation allowance is provided when it is more likely than not that some
portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the period in which related temporary differences become deductible. In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, significant judgments, estimates, and interpretation of statutes are required.
84
Deferred taxes are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date of such change.
The Company recognizes liabilities when it believes that uncertain positions may not be fully sustained upon reviewaudit by the tax authorities. Liabilities recognized for uncertain tax positions are based on a two-step approach for recognition and measurement. First, the Company evaluates the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit based on its technical merits. Secondly,Second, the Companymeasures the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Interest and penalties attributable to uncertain tax positions, if any, are recognized as a component of income tax expense.
The Company accounts for taxes on global intangible low-taxed income ("GILTI") introduced by the U.S. Tax Cuts and Jobs Act (the "Tax Act") as period costs. See Note 1315 for further details onrelated to income taxes.
Loss contingencies (other than income tax-related contingencies) arise from actual or possible claims and assessments and pending or threatened litigation that may be brought against the Company determined that its brands constitute its operating segments. The Company's Booking.com brand represents a substantial majority of gross profit and net income.by individuals, governments or other entities. Based on similar economic characteristicsthe Company's assessment of loss contingencies at each balance sheet date, a loss is recorded in the financial statements if it is probable that an asset has been impaired or a liability has been incurred and other similar operating factors, the Company has aggregated the operating segments into one reportable segment. For geographic information, see Note 16.
Recent Accounting Pronouncements Adopted
The Company early adopted this update in the fourth quarter of 2017, resulting in a reclassification, which reduced retained earnings and increased AOCI by $19.0 million.
Other Recent Accounting Pronouncements
Subject to Contractual Sale Restrictions
In March 2017,June 2022, the FASB issued an accounting standards update with guidance on the fair value measurement of equity securities subject to contractual sale restrictions. The update clarifies that a new accountingcontractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The update also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The update also requires certain additional disclosures for equity securities subject to shorten the premium amortization period of purchased callable debt securities with non-contingent call features that are callable at fixed prices and on preset dates from their contractual maturity to the earliest call date. For public business entities,sale restrictions. The amendments in this update isare effective for fiscal yearsthe Company beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. Entities are required to apply this updateJanuary 1, 2024 on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact to its Consolidated Financial Statements of adopting this update.
85
3. REVENUE
Disaggregation of Revenue
Revenue by Type of Service
Approximately 89%, 87%, and 88% of the Company's revenues for the years ended December 31, 2022, 2021, and 2020, respectively, relates to online accommodation reservation services. Revenue from all other sources of online travel reservation services and advertising and other revenues each individually represent less than 10% of the Company's total revenues for each year. Substantially all of the Company's agency revenue is from Booking.com's accommodation reservations.
Revenue by Geographic Area
See Note 17 for the information related to revenue by geographic area.
Incentives and Loyalty Programs
At December 31, 2022 and 2021, liabilities of $143 million and $71 million, respectively, were included in "Accrued expenses and other current liabilities" in the Consolidated Balance Sheets for incentives granted and loyalty programs.
During the year ended December 31, 2020, the Company performed its annual quantitative goodwill impairment test (see Note 9).
Refunds to Travelers
Due to the high level of cancellations of existing other-than-temporary impairment model, including (1) requiring disclosurereservations as a result of the allowance for credit losses, (2) allowing reversals of the previously recognized credit losses until the entity has the intent to sell, is more-likely-than-not required to sell the securities or the maturity of the securities, (3) limiting impairment to the difference between the amortized cost basis and fair value and (4) not allowing entities to consider the length of time that fair value has been less than amortized cost as a factorCOVID-19 pandemic (see Note 2), in evaluating whether a credit loss exists.
The Company's 1999 Omnibus Plan, as amended and restated effective March 2, 2017,June 3, 2021, (the "1999 Plan") is the primary stock compensation plan from which broad-based employee, non-employee director, and consultant equity awards may be made. As ofAt December 31, 2017,2022, there were 2,129,5311,226,245 shares of common stock available for future grant under the 1999 Plan. In addition, under plans assumed in connection with various acquisitions, there were 81,30418,865 shares of common stock available for future grant as ofat December 31, 2017.2022.
Stock-based compensation issued under the plans generally consists of restricted stock units, performance share units, and stock options. Performance share units and restricted stock units are payable in shares of the Company's common stock upon vesting. The Company issues shares of its common stock upon the exercise of stock options. The tax benefit related to stock-based compensation was $40 million, $37 million, and $30 million for the years ended December 31, 2022, 2021, and 2020, respectively.
Due to the impact of the COVID-19 pandemic (see Note 2), there was a far lesser extent and typically onlysignificant decline, as of March 31, 2020, in the contextestimated performance over the performance periods against the performance targets and consequently, a significant reduction in the number of assuming grantsshares that were probable to be issued as compared to December 31, 2019. As a result, for the three months ended March 31, 2020, the Company recognized a reduction in connection with acquisitions, stock options. stock-based compensation expense of $73 million, which is included in "Personnel" expense in the Consolidated Statement of Operations for the year ended December 31, 2020. During the three months ended June 30, 2020, considering pre-COVID-19 performance and the significant effect of the COVID-19 pandemic on Company performance and consequently on the number of shares that were probable to be issued to employees, the Company modified the performance-based awards granted in 2018 (other than the performance-based awards granted to executive officers and certain other employees) to adjust the number of shares to be issued, subject to other vesting conditions. As a result, the Company incurred additional stock-based compensation expense of $11 million, which was
86
recognized over the remaining requisite service period. In 2021, the Company modified the performance-based awards granted in 2018 and 2019 to its executive officers to adjust the number of shares to be issued, subject to other vesting conditions. The modification, in aggregate, resulted in additional stock-based compensation expense of $40 million, which was recognized over the remaining requisite service periods for the performance-based awards.
Restricted stock units and performance share units generally vest over periods from 1 to 3 years. Stock options granted to employees generally have a term of 10 years. The Company issues new shares of common stock upon the vesting of restricted stock units and performance share units and the exercise of stock options. See Note 2 for the Company's accounting policy on stock-based compensation.
| Share-based Awards | Shares | Weighted-average Grant Date Fair Value | ||||||
| Unvested at December 31, 2014 | 570,315 | $ | 912.26 | |||||
| Granted | 198,141 | $ | 1,226.41 | |||||
| Vested | (161,862 | ) | $ | 757.66 | ||||
| Performance Shares Adjustment | 64,328 | $ | 1,238.30 | |||||
| Forfeited/Canceled | (33,665 | ) | $ | 1,151.70 | ||||
| Unvested at December 31, 2015 | 637,257 | $ | 1,070.10 | |||||
| Granted | 202,740 | $ | 1,314.93 | |||||
| Vested | (298,753 | ) | $ | 858.23 | ||||
| Performance Shares Adjustment | 52,224 | $ | 1,294.84 | |||||
| Forfeited/Canceled | (77,862 | ) | $ | 1,278.06 | ||||
| Unvested at December 31, 2016 | 515,606 | $ | 1,287.88 | |||||
| Granted | 174,507 | $ | 1,740.78 | |||||
| Vested | (143,771 | ) | $ | 1,316.26 | ||||
| Performance Shares Adjustment | 19,357 | $ | 1,501.48 | |||||
| Forfeited/Canceled | (41,003 | ) | $ | 1,416.09 | ||||
| Unvested at December 31, 2017 | 524,696 | $ | 1,431.88 | |||||
The Company mademakes broad-based grants of 100,614 restricted stock units that generally havevest during a three-year vesting period of one- to three-years, subject to certain exceptions for terminations other than for "cause," for "good reason"reason," or on account of death or disability. These share-based awards had a total grant date fair value
The following table summarizes the activity of $175.6 million based on a weighted-average grant date fair value per share of $1,744.95.
| Restricted Stock Units | Shares | Weighted-average Grant-date Fair Value | ||||||||||||||||||
| Unvested at December 31, 2021 | 281,924 | $ | 1,914 | |||||||||||||||||
| Granted | 180,259 | $ | 2,098 | |||||||||||||||||
| Vested | (147,201) | $ | 1,809 | |||||||||||||||||
| Forfeited | (34,522) | $ | 2,058 | |||||||||||||||||
| Unvested at December 31, 2022 | 280,460 | $ | 2,070 | |||||||||||||||||
Performance Share Units
The Company granted 73,893grants performance share units to executives and certain other employees. Theemployees, which generally vest at the end of a three-year period (with the exception of certain shorter term performance share units had a total grant date fair valuegranted in 2022 and 2021 that vest at the end of $128.2 million based upon a weighted-average grant date fair value per share of $1,735.10. The performance share units are payable in shares of the Company's common stock upon vesting. Subjectone and two years), subject to certain exceptions for terminations other than for "cause," for "good reason"reason," or on account of death or disability, recipientsdisability. The number of theseshares that ultimately vest depends on achieving certain performance share units generally must continue their service through the requisite service period in order to receive any shares. Stock-based compensation related tometrics, performance share units reflects the estimated probable outcome atgoals, stock price increase and/or relative total shareholder return, as applicable, by the end of the performance period. The actual number of shares to be issued on the vesting date will be determined upon completion of the performance period, which generally ends December 31, 2019, assuming there is no accelerated vesting for, among other things, a termination of employment under certain circumstances. As of December 31, 2017,
The following table summarizes the estimated number of probable shares to be issued is a total of 82,656 shares, netactivity of performance share units forfeited and vested since the grant date. If the maximum performance thresholds are met at the end of the performance period, a maximum number of 139,190 total shares could be issued. If the minimum performance thresholds are not met, 56,338 shares would be issued at the end of the performance period.
| Performance Share Units | Shares | Weighted-average Grant-date Fair Value | ||||||||||||||||||
Unvested at December 31, 2021 (1) | 108,323 | $ | 2,123 | |||||||||||||||||
Granted (2) (3) | 50,443 | $ | 2,210 | |||||||||||||||||
| Vested | (44,276) | $ | 1,859 | |||||||||||||||||
Performance shares adjustment (4) | 33,742 | $ | 2,390 | |||||||||||||||||
| Forfeited | (4,530) | $ | 2,244 | |||||||||||||||||
Unvested at December 31, 2022 | 143,702 | $ | 2,294 | |||||||||||||||||
(1) Excludes 12,251 performance share units with a grant date fair value of $111.7 million, based on a weighted-average grant date fair value per share of $1,302.25. The actual number of shares to be issued will be determined upon completion of the performance period which generally ends December 31, 2018, assuming there is no accelerated vesting for, among other things, a termination of employment under certain circumstances.
(2) Excludes 9,692 performance share units with a grant date fair value of $133.2 million, based on a weighted-average grant date fair value per share of $1,237.53. The actual number of shares to be issued will be determined based upon completion ofawarded during the performance period whichyear ended December 31, 2017.
87
(3) Includes 7,856 performance share units outstanding, netawarded during the year ended December 31, 2021 for which the grant date under ASC 718 was established during the year ended December 31, 2022.
(4) Probable outcome for performance-based awards is updated based upon changes in actual and forecasted operating results or expected achievement of performance share units that were forfeited or vested sincegoals, as applicable, and the grant date. Asimpact of December 31, 2017, the total number of shares expected to be issued pursuant to these performance share units during 2018 is 123,930 shares.modifications.
Stock Options
The following table summarizes the assumptions used to value options granted during the year ended December 31, 2020 using the Black-Scholes options pricing model:
| Black-Scholes assumptions | ||||||||
| Risk-free interest rate | 0.56 | % | ||||||
| Expected term in years | 6.4 | |||||||
| Expected stock price volatility | 33.8 | % | ||||||
| Expected dividend yield | 0 | % | ||||||
Stock options granted by the Company during the year ended December 31, 2020 had an aggregate grant-date fair value of $79 million and a weighted-average grant-date fair value per option of $485.
The following table summarizes the activity for stock options during the years ended December 31, 2015, 2016 and 2017:
| Employee Stock Options | Number of Shares | Weighted-average Exercise Price | Aggregate Intrinsic Value (in thousands) | Weighted-average Remaining Contractual Term (in years) | ||||||||||||
| Balance, December 31, 2014 | 146,385 | $ | 380.05 | $ | 111,277 | 6.5 | ||||||||||
| Assumed in acquisitions | 1,422 | $ | 230.37 | |||||||||||||
| Exercised | (52,697 | ) | $ | 355.85 | ||||||||||||
| Forfeited | (6,006 | ) | $ | 511.87 | ||||||||||||
| Balance, December 31, 2015 | 89,104 | $ | 383.03 | $ | 79,474 | 5.4 | ||||||||||
| Exercised | (38,150 | ) | $ | 404.40 | ||||||||||||
| Forfeited | (1,971 | ) | $ | 241.65 | ||||||||||||
| Balance, December 31, 2016 | 48,983 | $ | 372.07 | $ | 53,587 | 4.4 | ||||||||||
| Exercised | (17,359 | ) | $ | 294.45 | ||||||||||||
| Forfeited | (949 | ) | $ | 837.09 | ||||||||||||
| Balance, December 31, 2017 | 30,675 | $ | 401.61 | $ | 40,986 | 3.9 | ||||||||||
| Vested and exercisable as of December 31, 2017 | 30,504 | $ | 398.63 | $ | 40,848 | 3.9 | ||||||||||
| Vested and exercisable as of December 31, 2017 and expected to vest thereafter | 30,675 | $ | 401.61 | $ | 40,986 | 3.9 | ||||||||||
| Employee Stock Options | Number of Shares | Weighted-average Exercise Price | Aggregate Intrinsic Value (in millions) | Weighted-average Remaining Contractual Term (in years) | |||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 135,851 | $ | 1,407 | $ | 135 | 8.3 | |||||||||||||||||||||||||||||
| Exercised | (5,306) | $ | 1,374 | ||||||||||||||||||||||||||||||||
| Forfeited | (9,732) | $ | 1,411 | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 120,813 | $ | 1,408 | $ | 73 | 7.3 | |||||||||||||||||||||||||||||
| Exercisable at December 31, 2022 | 624 | $ | 891 | $ | 1 | 1.2 | |||||||||||||||||||||||||||||
88
5. INVESTMENTS
The following table summarizes the Company's investments by major security type at December 31, 2022 (in millions):
| Cost | Gross Unrealized Gains /Upward Adjustments | Gross Unrealized Losses /Downward Adjustments | Carrying Value | |||||||||||||||||||||||
| Short-term investments: | ||||||||||||||||||||||||||
| Debt securities: | ||||||||||||||||||||||||||
| International government securities | $ | 13 | $ | — | $ | — | $ | 13 | ||||||||||||||||||
U.S. government securities (1) | 131 | — | (1) | 130 | ||||||||||||||||||||||
| Corporate debt securities | 32 | — | — | 32 | ||||||||||||||||||||||
| Total short-term investments | $ | 176 | $ | — | $ | (1) | $ | 175 | ||||||||||||||||||
| Long-term investments: | ||||||||||||||||||||||||||
| Debt securities: | ||||||||||||||||||||||||||
| International government securities | $ | 63 | $ | — | $ | (1) | $ | 62 | ||||||||||||||||||
U.S. government securities (1) | 147 | — | (3) | 144 | ||||||||||||||||||||||
| Corporate debt securities | 366 | — | (7) | 359 | ||||||||||||||||||||||
| Total debt securities | 576 | — | (11) | 565 | ||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||
| Equity securities with readily determinable fair values | 1,165 | 1,352 | (446) | 2,071 | ||||||||||||||||||||||
| Equity securities of private companies | 78 | 259 | (184) | 153 | ||||||||||||||||||||||
| Total equity securities | 1,243 | 1,611 | (630) | 2,224 | ||||||||||||||||||||||
| Total long-term investments | $ | 1,819 | $ | 1,611 | $ | (641) | $ | 2,789 | ||||||||||||||||||
(1) Includes investments in U.S. municipal bonds.
The following table summarizes the Company's investments as of by major security type at December 31, 20172021 (in thousands)millions):
| Cost | Gross Unrealized Gains /Upward Adjustments | Gross Unrealized Losses /Downward Adjustments | Carrying Value | |||||||||||||||||||||||
| Short-term investments: | ||||||||||||||||||||||||||
| Debt securities: | ||||||||||||||||||||||||||
| Corporate debt securities | $ | 25 | $ | — | $ | — | $ | 25 | ||||||||||||||||||
| Long-term investments: | ||||||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||
| Equity securities with readily determinable fair values | $ | 1,165 | $ | 1,990 | $ | (305) | $ | 2,850 | ||||||||||||||||||
| Equity securities of private companies | 66 | 259 | — | 325 | ||||||||||||||||||||||
| Total equity securities | 1,231 | 2,249 | (305) | 3,175 | ||||||||||||||||||||||
| Total long-term investments | $ | 1,231 | $ | 2,249 | $ | (305) | $ | 3,175 | ||||||||||||||||||
89
| Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Short-term investments: | |||||||||||||||
| International government securities | $ | 725,566 | $ | 246 | $ | (436 | ) | $ | 725,376 | ||||||
| U.S. government securities | 996,112 | 5 | (1,999 | ) | 994,118 | ||||||||||
| Corporate debt securities | 3,067,703 | 449 | (4,837 | ) | 3,063,315 | ||||||||||
| U.S. government agency securities | 4,444 | — | (30 | ) | 4,414 | ||||||||||
| Commercial paper | 72,650 | — | — | 72,650 | |||||||||||
| Total short-term investments | $ | 4,866,475 | $ | 700 | $ | (7,302 | ) | $ | 4,859,873 | ||||||
| Long-term investments: | |||||||||||||||
| International government securities | $ | 607,000 | $ | 1,588 | $ | (678 | ) | $ | 607,910 | ||||||
| U.S. government securities | 844,910 | 2 | (10,636 | ) | 834,276 | ||||||||||
| Corporate debt securities | 6,689,747 | 8,399 | (41,722 | ) | 6,656,424 | ||||||||||
| U.S. government agency securities | 500 | — | (6 | ) | 494 | ||||||||||
| Ctrip convertible debt securities | 1,275,000 | 103,100 | (9,600 | ) | 1,368,500 | ||||||||||
| Ctrip equity securities | 655,311 | 299,697 | (1,012 | ) | 953,996 | ||||||||||
| Total long-term investments | $ | 10,072,468 | $ | 412,786 | $ | (63,654 | ) | $ | 10,421,600 | ||||||
The Company has classified its investments in international government securities, U.S. government securities, and corporate debt securities as available-for-sale debt securities. The aggregate unrealized gains and losses, net of tax, are reflected in "Accumulated other comprehensive loss" in the Consolidated Balance Sheets. The Company's investment policy seeks to preserve capital and maintain sufficient liquidity to meet operational and other needs of the business. As ofAt December 31, 2017, the weighted-average life of the Company’s fixed income investment portfolio, excluding2022, the Company's investmentinvestments in Ctrip convertible debt securities was approximately 1.4 years withhad an average credit quality of A+/A1/A+. and the Company’s long-term investments in available-for-sale debt securities had maturity dates between 1 and 2 years.
The Company invests in international government securities with high credit quality. As ofAt December 31, 2017,2022, investments in international government securities principally included debt securities issued by the governments of Germany, France, Norway, Sweden, and Canada.
During the Netherlands, Belgium, France, Germanyyear ended December 31, 2020, the Company realized $2.2 billion in cash from sales and Austria. maturities of its investments in government and corporate debt securities.
| Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Short-term investments: | |||||||||||||||
| International government securities | $ | 249,552 | $ | 221 | $ | (89 | ) | $ | 249,684 | ||||||
| U.S. government securities | 456,971 | 57 | (140 | ) | 456,888 | ||||||||||
| Corporate debt securities | 1,510,119 | 1,119 | (928 | ) | 1,510,310 | ||||||||||
| Commercial paper | 1,998 | — | — | 1,998 | |||||||||||
| Total short-term investments | $ | 2,218,640 | $ | 1,397 | $ | (1,157 | ) | $ | 2,218,880 | ||||||
| Long-term investments: | |||||||||||||||
| International government securities | $ | 655,857 | $ | 4,110 | $ | (623 | ) | $ | 659,344 | ||||||
| U.S. government securities | 773,718 | 337 | (7,463 | ) | 766,592 | ||||||||||
| Corporate debt securities | 6,042,271 | 9,973 | (50,455 | ) | 6,001,789 | ||||||||||
| U.S. government agency securities | 4,979 | — | (27 | ) | 4,952 | ||||||||||
| Ctrip convertible debt securities | 1,275,000 | 65,800 | (47,712 | ) | 1,293,088 | ||||||||||
| Ctrip equity securities | 655,311 | 213,233 | (3,242 | ) | 865,302 | ||||||||||
| Total long-term investments | $ | 9,407,136 | $ | 293,453 | $ | (109,522 | ) | $ | 9,591,067 | ||||||
Net unrealized (losses) gains related to these investments included in "Other income (expense), net" in the Consolidated Statements of Operations for the years ended December 31, 2017, 20162022, 2021, and 2015, respectively.2020 were as follows (in millions):
| Year Ended December 31, | ||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||
| Meituan | $ | (526) | $ | (731) | $ | 2,006 | ||||||||||||||
| Grab | (165) | 101 | — | |||||||||||||||||
| DiDi | (70) | (205) | (100) | |||||||||||||||||
The Company invested $200 million in preferred shares of Grab Holdings Inc. Prior to the business combination transaction involving Grab Holdings Inc., Grab and Altimeter Growth Corp. (the "Grab Transaction"), the Company's investment in Grab was classified as a debt security for accounting purposes with the aggregate unrealized gains and losses, net of tax reflected in "Accumulated other comprehensive loss" in the Consolidated Balance Sheets. In December 2021, the Company's investment in preferred shares were converted to Class A ordinary shares of Grab and such ordinary shares began publicly trading on the NASDAQ Stock Market. As a result, the Company's investment was classified as equity securities with readily determinable fair values and the aggregate unrealized gains of $265 million was reclassified from "Accumulated other comprehensive loss" in the Consolidated Balance Sheet to "Other income (expense), net" in the Consolidated Statement of Operations for the year ended December 31, 2017, the Company does not consider any of its investments to be other-than-temporarily impaired.2021 (see Note 6).
In January 2023, the Board of Directors of the sixth yearCompany approved the sale of the note. On September 12, 2016,Company's investment in equity
securities of Meituan. The Company completed the Company invested $25 millionsale in a Ctrip six-year senior convertible note issued at par value, which included a put option allowing the Company, at its option, to require prepayment in cash from Ctrip at the endFebruary 2023 and received gross proceeds of $1.7 billion. The cost basis of the third year of the note. Company's investment in Meituan was $450 million.
90
The Company determined that the economic characteristics and risks of the put option are clearly and closely related to the note, and therefore were not embedded derivatives.
6. FAIR VALUE MEASUREMENTS
Financial assets and liabilitiesmeasured at fair value on a recurring basis at December 31, 2022 and nonrecurring fair value measurements are categorized below based on the Company invested $450.0 million in preferred shareslevel of Meituan-Dianping, a Chinese group-buying website. These investments are accounted for underinputs to the cost method and included in "Other assets" invaluation techniques used to measure fair value (see Note 2) (in millions):
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
| Recurring fair value measurements | ||||||||||||||||||||||||||
| ASSETS: | ||||||||||||||||||||||||||
| Cash equivalents and restricted cash equivalents: | ||||||||||||||||||||||||||
| Money market fund investments | $ | 11,483 | $ | — | $ | — | $ | 11,483 | ||||||||||||||||||
| Time deposits and certificates of deposit | 60 | — | — | 60 | ||||||||||||||||||||||
| Short-term investments: | ||||||||||||||||||||||||||
| International government securities | — | 13 | — | 13 | ||||||||||||||||||||||
| U.S. government securities | — | 130 | — | 130 | ||||||||||||||||||||||
| Corporate debt securities | — | 32 | — | 32 | ||||||||||||||||||||||
| Long-term investments: | ||||||||||||||||||||||||||
| International government securities | — | 62 | — | 62 | ||||||||||||||||||||||
| U.S. government securities | — | 144 | — | 144 | ||||||||||||||||||||||
| Corporate debt securities | — | 359 | — | 359 | ||||||||||||||||||||||
| Equity securities | 2,071 | — | — | 2,071 | ||||||||||||||||||||||
| Derivatives: | ||||||||||||||||||||||||||
| Foreign currency exchange derivatives | — | 65 | — | 65 | ||||||||||||||||||||||
| Total assets at fair value | $ | 13,614 | $ | 805 | $ | — | $ | 14,419 | ||||||||||||||||||
| LIABILITIES: | ||||||||||||||||||||||||||
| Foreign currency exchange derivatives | $ | — | $ | 26 | $ | — | $ | 26 | ||||||||||||||||||
| Nonrecurring fair value measurements | ||||||||||||||||||||||||||
Investment in equity securities of a private company (1) | $ | — | $ | — | $ | 122 | $ | 122 | ||||||||||||||||||
(1) During the three months ended June 30, 2022, the Company's Consolidated Balance Sheets. The Company evaluatesinvestment in Yanolja was written down to its investments quarterly to determine if any indicators of other-than-temporary impairment exist.estimated fair value (see Note 5).
91
Financial assets and liabilities carriedmeasured at fair value as of on a recurring basis at December 31, 2017 are classified in the categories described in the tables below (in thousands):
| Level 1 | Level 2 | Total | ||||||||||
| ASSETS: | ||||||||||||
| Cash and restricted cash equivalents: | ||||||||||||
| Money market funds | $ | 1,895,272 | $ | — | $ | 1,895,272 | ||||||
| U.S. government securities | — | 22,265 | 22,265 | |||||||||
| Corporate debt securities | — | 6,674 | 6,674 | |||||||||
| Commercial paper | — | 96,321 | 96,321 | |||||||||
| Time deposits | 17,896 | — | 17,896 | |||||||||
| Short-term investments: | ||||||||||||
| International government securities | — | 725,376 | 725,376 | |||||||||
| U.S. government securities | — | 994,118 | 994,118 | |||||||||
| Corporate debt securities | — | 3,063,315 | 3,063,315 | |||||||||
| U.S. government agency securities | — | 4,414 | 4,414 | |||||||||
| Commercial paper | — | 72,650 | 72,650 | |||||||||
| Long-term investments: | ||||||||||||
| International government securities | — | 607,910 | 607,910 | |||||||||
| U.S. government securities | — | 834,276 | 834,276 | |||||||||
| Corporate debt securities | — | 6,656,424 | 6,656,424 | |||||||||
| U.S. government agency securities | — | 494 | 494 | |||||||||
| Ctrip convertible debt securities | — | 1,368,500 | 1,368,500 | |||||||||
| Ctrip equity securities | 953,996 | — | 953,996 | |||||||||
| Derivatives: | ||||||||||||
| Currency exchange derivatives | — | 1,767 | 1,767 | |||||||||
| Total assets at fair value | $ | 2,867,164 | $ | 14,454,504 | $ | 17,321,668 | ||||||
| Level 1 | Level 2 | Total | ||||||||||
| LIABILITIES: | ||||||||||||
| Currency exchange derivatives | $ | — | $ | 127 | $ | 127 | ||||||
| Level 1 | Level 2 | Total | ||||||||||
| ASSETS: | ||||||||||||
| Cash equivalents: | ||||||||||||
| Money market funds | $ | 977,468 | $ | — | $ | 977,468 | ||||||
| International government securities | — | 30,266 | 30,266 | |||||||||
| U.S. government securities | — | 176,140 | 176,140 | |||||||||
| Corporate debt securities | — | 9,273 | 9,273 | |||||||||
| Commercial paper | — | 1,998 | 1,998 | |||||||||
| Time deposits | 49,160 | — | 49,160 | |||||||||
| Short-term investments: | ||||||||||||
| International government securities | — | 249,684 | 249,684 | |||||||||
| U.S. government securities | — | 456,888 | 456,888 | |||||||||
| Corporate debt securities | — | 1,510,310 | 1,510,310 | |||||||||
| Commercial paper | — | 1,998 | 1,998 | |||||||||
| Long-term investments: | ||||||||||||
| International government securities | — | 659,344 | 659,344 | |||||||||
| U.S. government securities | — | 766,592 | 766,592 | |||||||||
| Corporate debt securities | — | 6,001,789 | 6,001,789 | |||||||||
| U.S. government agency securities | — | 4,952 | 4,952 | |||||||||
| Ctrip convertible debt securities | — | 1,293,088 | 1,293,088 | |||||||||
| Ctrip equity securities | 865,302 | — | 865,302 | |||||||||
| Derivatives: | ||||||||||||
| Currency exchange derivatives | — | 756 | 756 | |||||||||
| Total assets at fair value | $ | 1,891,930 | $ | 11,163,078 | $ | 13,055,008 | ||||||
| Level 1 | Level 2 | Total | ||||||||||
| LIABILITIES: | ||||||||||||
| Currency exchange derivatives | $ | — | $ | 1,015 | $ | 1,015 | ||||||
| Level 1 | Level 2 | Total | ||||||||||||||||||||||||
Recurring fair value measurements (1) | ||||||||||||||||||||||||||
| ASSETS: | ||||||||||||||||||||||||||
| Cash equivalents and restricted cash equivalents: | ||||||||||||||||||||||||||
| Money market fund investments | $ | 10,410 | $ | — | $ | 10,410 | ||||||||||||||||||||
| Time deposits and certificates of deposit | 25 | — | 25 | |||||||||||||||||||||||
| Short-term investments: | ||||||||||||||||||||||||||
| Corporate debt securities | — | 25 | 25 | |||||||||||||||||||||||
| Long-term investments: | ||||||||||||||||||||||||||
| Equity securities | 2,850 | — | 2,850 | |||||||||||||||||||||||
| Derivatives: | ||||||||||||||||||||||||||
| Foreign currency exchange derivatives | — | 5 | 5 | |||||||||||||||||||||||
| Total assets at fair value | $ | 13,285 | $ | 30 | $ | 13,315 | ||||||||||||||||||||
| LIABILITIES: | ||||||||||||||||||||||||||
| Foreign currency exchange derivatives | $ | — | $ | 11 | $ | 11 | ||||||||||||||||||||
| Nonrecurring fair value measurements | ||||||||||||||||||||||||||
Investments in equity securities of private companies (2) | $ | — | $ | 325 | $ | 325 | ||||||||||||||||||||
(1) The definitionCompany did not have any Level 3 fair value measurements at December 31, 2021.
(2) During the year ended December 31, 2021, the Company recorded upward adjustments to its investments in equity securities of each input is described below:private companies, including Yanolja, based on observable price changes in orderly transactions for identical or similar investments of the same issuer (see Note 5).
Rollforward of Level 3 Recurring Fair Value Measurements
The following table summarizes the fair value adjustments for debt securities measured using significant unobservable inputs (Level 3) (in millions):
| Year Ended December 31, 2021 | ||||||||||||||
| Balance, beginning of year | $ | 200 | ||||||||||||
| 265 | ||||||||
Transfers out of Level 3 | (465) | |||||||||||||
| Balance, end of year | $ | — | ||||||||||||
(1) During the year ended December 31, 2021, as a result of the Grab Transaction, the Company’s investment in Grab was reclassified as equity securities with readily determinable fair values (see Note 5).
Investments
See Note 5 for additional information related to the Company's investments.
The valuation of the Company's investments in corporate debt securities U.S. and international government securities, commercial paper, government agency securities and convertible debt securities areis considered a "Level 2" valuationsvaluation because the Company has access to quoted prices for identical or comparable securities, but does not have visibility tointo the volume and frequency of trading for all of these investments. For the Company's investments, athis investment. A market approach is used for recurring fair value measurements and the valuation techniques use inputs that are observable, or can be corroborated by observable data, in an active marketplace.
92
Investments in private companies measured using Level 3 inputs
The Company's investments measured using Level 3 inputs primarily consist of investments in privately-held companies. Fair values of privately-held securities are estimated using a variety of valuation methodologies, including both market and income approaches. The Company uses valuation techniques appropriate for the type of investment and the information available about the investee as of the valuation date to determine fair value. Recent financing transactions in the investee are generally considered the best indication of the enterprise value and therefore used as a basis to estimate fair value. However, based on a number of factors, such as the proximity in timing to the valuation date or the volume or other terms of these financing transactions, the Company may also use other valuation techniques to supplement this data, including the income approach. When a recent financing transaction occurs and represents fair value, the Company also uses the calibration process, as appropriate, when estimating fair value on subsequent measurement dates. Calibration is the process of using observed transactions in the investee company's own instruments to ensure that the valuation techniques that will be employed to value the investee company investment on subsequent measurement dates begin with assumptions that are consistent with the original observed transaction as well as any more recent observed transactions in the instruments issued by the investee company.
During the three months ended June 30, 2022, the investment in Yanolja was written-down to its estimated fair value. The Company used unobservable inputs to determine fair value. The Company used a combination of the market approach and the income approach in estimating the fair value of its investment in Yanolja as of June 30, 2022. The market approach estimates value using prices and other relevant information generated by market transactions involving identical or comparable companies. The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using a discount rate based on a company’s weighted-average cost of capital and is adjusted to reflect the risks inherent in its cash flows. The key unobservable inputs and ranges used in estimating the fair value of our investment in Yanolja as of June 30, 2022 include, for the market approach, percentage decrease in the calibrated EBITDA multiple (36%) and for the income approach, the weighted average cost of capital (10%-14%) and terminal EBITDA multiple (14x-16x). Significant changes in any of these inputs in isolation would result in significantly different fair value measurements. Generally, a change in the assumption used for EBITDA multiples would result in a directionally similar change in the fair value and a change in the assumption used for weighted average cost of capital would result in a directionally opposite change in the fair value.
The determination of the fair values of investments, where the Company is a minority shareholder and has access to limited information from the investee, reflects numerous assumptions that are subject to various risks and uncertainties, including key assumptions regarding the investee’s expected growth rates and operating margin, as well as other key assumptions with respect to matters outside of the Company's control, such as discount rates and market comparables. It requires significant judgments and estimates and actual results could be materially different than those judgments and estimates utilized in the fair value estimate. Future events and changing market conditions may lead the Company to re-evaluate the assumptions reflected in the valuation which may result in a need to recognize an additional impairment charge that could have a material adverse effect on the Company's results of operations.
Derivatives
In the normal course of business, the Company is exposed to the impact of foreign currency fluctuations. The Company mitigates these risks by following established risk management policies and procedures, including the use of derivatives. The Company enters into foreign currency forward contracts to hedge its exposure to the impact of movements in foreign currency exchange rates on its transactional balances denominated in currencies other than the functional currency. The Company does not use derivatives for trading or speculative purposes.
The Company's derivative instruments are valued using pricing models. Pricing models take into account the contract terms as well as multiple inputs where applicable, such as interest rate yield curves, option volatility, and foreign currency exchange rates. Derivatives areThe valuation of derivatives is considered "Level 2" fair value measurements.measurement. The Company's derivative instruments are typically short-term in nature. The Company reports the fair values of its derivative assets and liabilities on a gross basis in the Consolidated Balance Sheets in "Other current assets" and "Accrued expenses and other current liabilities," respectively.
As of December 31, 20172022 and 20162021, the Company did not designate any derivatives as hedges for accounting purposes. Gains and losses resulting from changes in the fair values of derivative instruments are recognized in "Other income (expense), net" in the Consolidated Statements of Operations in the period that the changes occur and cash flow impacts, if any, are classified within "Net cash provided by operating activities" or "Net cash (used in) provided by financing activities," as appropriate, in the Consolidated Statements of Cash Flows.
93
The table below provides estimated fair values and notional amounts of foreign currency exchange derivatives outstanding at December 31, 2022 and 2021 (in millions). The notional amount of a foreign currency forward contract is the contracted amount of foreign currency to be exchanged and is not recorded in the balance sheet.
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Estimated fair value of derivative assets | $ | 65 | $ | 5 | |||||||
| Estimated fair value of derivative liabilities | 26 | 11 | |||||||||
| Notional amount: | |||||||||||
| Foreign currency purchases | $ | 2,870 | $ | 840 | |||||||
| Foreign currency sales | 2,682 | 1,857 | |||||||||
The effect of foreign currency exchange derivatives recorded in "Other income (expense), net" in the Consolidated Statements of Operations for the years ended December 31, 2022, 2021, and 2020 is as follows (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Losses on foreign currency exchange derivatives | $ | 52 | $ | 30 | $ | 31 | |||||||||||
Derivatives designated as cash flow hedges
In March 2021, the Company entered into reverse treasury lock agreements with certain financial institutions, with an aggregate notional amount of $1.8 billion and expiration date of March 31, 2021, to hedge the risk of changes in the cash flows related to the planned redemption, in April 2021, of the Senior Notes due April 2025 (the "April 2025 Notes") and the Senior Notes due April 2027 (the "April 2027 Notes") attributable to changes in the underlying U.S. treasury notes' interest rates. The Company designated the reverse treasury lock agreements as cash flow hedges. As of March 31, 2021, the Company recognized unrealized losses of $15 million in "Accumulated other comprehensive loss" in the Consolidated Balance Sheet. In April 2021, the Company settled the reverse treasury lock agreements for an aggregate amount of $15 million and also redeemed the April 2025 Notes and the April 2027 Notes. The cash flows related to the reverse treasury lock agreements are classified within "Net cash (used in) provided by financing activities" in the Consolidated Statement of Cash Flows. During the three months ended June 30, 2021, the Company reclassified the losses on the cash flow hedges from "Accumulated other comprehensive loss" in the Consolidated Balance Sheet to "Other income (expense), net" in the Consolidated Statement of Operations, concurrently with the recognition of the losses upon early extinguishment of the April 2025 Notes and the April 2027 Notes (see Note 12).
Other Financial Assets and Liabilities
At December 31, 2022 and 2021, the Company's cash consisted of bank deposits. Cash equivalents principally include money market fund investments, time deposits, and certificates of deposit and their carrying value generally approximates the fair value as they are readily convertible to known amounts of cash. Other financial assets and liabilities, including restricted cash, and cash equivalents, accounts receivable, accounts payable, accrued expenses, and deferred merchant bookings, are carried at cost which approximates their fair valuevalues because of the short-term nature of these items. As of December 31, 2017Accounts receivable and 2016,other financial assets measured at amortized cost are carried at cost less an allowance for expected credit losses to present the Company held investments in equity securities of private companies of approximately $450.9 million and $7.6 million, respectively, and these investments are accounted for under the cost method of accountingnet amount expected to be collected (see Note 4)7). See Note 4 for information on the carrying value of available-for-sale investments, Note 1012 for the estimated fair value of the Company's outstanding Senior Notes and Note 18 forsenior notes, including the estimated fair value of the Company's contingent liabilities associated with business acquisitions.convertible senior notes.
Goodwill
See Note 11 for nonrecurring fair value measurements related to the goodwill impairment test.
94
7. ACCOUNTS RECEIVABLE AND OTHER FINANCIAL ASSETS
Accounts receivable in the Consolidated Balance Sheets at December 31, 2022 and 2021 includes receivables from customers of $1.5 billion and $1.1 billion, respectively, and receivables from payment processors and networks of $730 million and $343 million, respectively. The remaining balance principally relates to receivables from marketing affiliates. The Company's receivables are short-term in nature. In addition, the Company had prepayments to certain customers of $29 million and $67 million, included in "Prepaid expenses, net," and $5 million and $18 million, included in "Other assets, net" in the Consolidated Balance Sheets at December 31, 2022 and 2021, respectively. The amounts mentioned above are stated on a gross basis, before deducting the allowance for expected credit losses.
In the normal course of business, the Company is exposed2020, due to the impact of foreign currency fluctuations. Thethe COVID-19 pandemic (see Note 2), given the severe downturn in the global travel industry and the financial difficulties faced by many of the Company’s travel service provider and restaurant customers and marketing affiliates, the Company limits these risks by following established risk management policiesincreased its provision for expected credit losses on receivables from and procedures, includingprepayments to its customers and marketing affiliates. Significant judgments and assumptions are required to estimate the use of derivatives. See Note 2allowance for expected credit losses and such assumptions may change in future periods, particularly the Company's accounting policy on derivative financial instruments.
The following table summarizes the activity of the allowance for expected credit losses on its transactional balances denominated in currencies other thanreceivables (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Balance, beginning of year | $ | 101 | $ | 166 | $ | 49 | |||||||||||
| Provision charged to earnings | 130 | 48 | 216 | ||||||||||||||
| Write-offs and adjustments | (110) | (107) | (116) | ||||||||||||||
| Foreign currency translation adjustments | (4) | (6) | 17 | ||||||||||||||
| Balance, end of year | $ | 117 | $ | 101 | $ | 166 | |||||||||||
The allowance for expected credit losses on receivables includes a portion of the functional currency. Foreign currency derivatives outstanding as of December 31, 2017 associated with foreign currency transaction risks resulted inamounts related to refunds paid or payable to certain travelers without a net asset of $1.6 million, with an asset incorresponding estimated expected recovery from the amount of $1.7 million recorded in "Prepaid expenses and other current assets" and a liability in the amount of $0.1 million recorded in "Accrued expenses and other current liabilities" in the Consolidated Balance Sheet. Foreign currency derivatives outstanding as of December 31, 2016 associated with foreign currency transaction risks resulted in a net liability of $0.3 million, with a liability in the amount of $1.0 million recorded in "Accrued expenses and other current liabilities" and an asset in the amount of $0.7 million recorded in "Prepaid expenses and other current assets" in the Consolidated Balance Sheet. Derivatives associated with these transaction risks resulted in foreign currency gains of $45.4 million and foreign currency losses of $15.8 million and $15.3 million fortravel service providers. For the years ended December 31, 2017, 20162022, 2021, and 2015, respectively. These mark-to-market adjustments on2020, the derivative contracts, offset by the effectCompany recorded a reduction in revenue of changes in currency exchange rates on transactions denominated in currencies other than the functional currency, resulted in net losses of $27.2$37 million, $13.9$13 million, and $13.8$37 million, respectively, for the years ended December 31, 2017, 2016 and 2015, respectively. These net impacts are reportedsuch refunds, which is included in "Foreign currency transactions and other""Provision charged to earnings" in the Consolidated Statements of Operations.table above.
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Balance, beginning of year | $ | 47 | $ | 55 | $ | 6 | |||||||||||
| Provision charged to expense | (20) | (4) | 51 | ||||||||||||||
| Write-offs and adjustments | (4) | (5) | (2) | ||||||||||||||
| Currency translation adjustments | — | 1 | — | ||||||||||||||
| Balance, end of year | $ | 23 | $ | 47 | $ | 55 | |||||||||||
8. NET INCOME PER SHARE
| For the Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Balance, beginning of year | $ | 25,565 | $ | 15,014 | $ | 14,212 | |||||
| Provision charged to expense | 62,316 | 46,241 | 24,324 | ||||||||
| Charge-offs and adjustments | (51,652 | ) | (35,233 | ) | (22,682 | ) | |||||
| Currency translation adjustments | 3,053 | (457 | ) | (840 | ) | ||||||
| Balance, end of year | $ | 39,282 | $ | 25,565 | $ | 15,014 | |||||
The Company computes basic net income per share by dividing net income applicable to common shareholdersstockholders by the weighted-average number of common shares outstanding during the period. Diluted net income per share is based upon the weighted-average number of common and common equivalent shares outstanding during the period. Only dilutive common equivalent shares that decrease the net income per share are included in the computation of diluted net income per share.
95
Common equivalent shares related to stock options, restricted stock units, and performance share units are calculated using the treasury stock method. Performance share units are included in the weighted-average common equivalent shares based on the number of shares that would be issued if the end of the reporting period were the end of the performance period, if the result would be dilutive.
The Company's convertible senior notes have net share settlement features requiring the Company, upon conversion, to settle the principal amount of the debt for cash and the conversion premium for cash or shares of the Company's common stock, at the Company's option. TheIf the conversion prices for the convertible senior notes are includedexceed the Company's average stock price for the period, the convertible senior notes generally have no impact on diluted net income per share. For periods prior to January 1, 2022, the treasury stock method was used for convertible senior notes in the calculation of diluted net income per share if their inclusionshare. Following the adoption of the accounting standards update on January 1, 2022 (see Note 2), the if-converted method is dilutive under the treasury stock method.used for all periods after that date.
A reconciliation of the weighted-average number of shares outstanding used in calculating diluted earningsnet income per share is as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Weighted-average number of basic common shares outstanding | 39,872 | 41,042 | 40,974 | ||||||||||||||
| Weighted-average dilutive stock options, restricted stock units and performance share units | 151 | 209 | 158 | ||||||||||||||
| Assumed conversion of convertible senior notes | 29 | 111 | 28 | ||||||||||||||
| Weighted-average number of diluted common and common equivalent shares outstanding | 40,052 | 41,362 | 41,160 | ||||||||||||||
For the years ended December 31, 2022, 2021, and 2020, 10,270, 12,722, and 124,922 potential common shares, respectively, related to stock options, restricted stock units and performance share units, as applicable, were excluded from the calculation of diluted net income per share because their effect would have been anti-dilutive for the respective year.
9. PROPERTY AND EQUIPMENT, NET
Property and equipment, net at December 31, 2022 and 2021 consist of the following (in millions):
| For the Year Ended December 31, | ||||||||
| 2017 | 2016 | 2015 | ||||||
| Weighted-average number of basic common shares outstanding | 48,994 | 49,491 | 50,940 | |||||
| Weighted-average dilutive stock options, restricted stock units and performance share units | 295 | 238 | 395 | |||||
| Assumed conversion of Convertible Senior Notes | 665 | 334 | 258 | |||||
| Weighted-average number of diluted common and common equivalent shares outstanding | 49,954 | 50,063 | 51,593 | |||||
| Anti-dilutive potential common shares | 1,864 | 2,443 | 2,563 | |||||
| December 31, | Estimated Useful Lives (years) | ||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Computer equipment | $ | 758 | $ | 728 | 2 to 6 years | ||||||||||||
| Capitalized software | 900 | 742 | 2 to 7 years | ||||||||||||||
| Leasehold improvements | 277 | 268 | 1 to 15 years | ||||||||||||||
| Office equipment, furniture and fixtures | 58 | 61 | 2 to 8 years | ||||||||||||||
Building construction-in-progress (1) | — | 328 | |||||||||||||||
| Total | 1,993 | 2,127 | |||||||||||||||
| Less: Accumulated depreciation | (1,324) | (1,305) | |||||||||||||||
| Property and equipment, net | $ | 669 | $ | 822 | |||||||||||||
(1) See Note 10 for additional information on the sale and leaseback transaction.
Depreciation expense was $227 million, $259 million, and $291 million for the years ended December 31, 2017, 20162022, 2021, and 2015 include approximately 1.42020, respectively. Additions to capitalized software during the years ended December 31, 2022, 2021, and 2020 were $217 million, shares, 2.0 $191 million, shares and 2.1$144 million, shares, respectively, that could be issued under the Company's outstanding convertible notes. Under the treasury stock method, the convertible notes will generally have an anti-dilutive impact on net income per share if the conversion prices for the convertible notes exceed the Company's average stock price. respectively.
Noncash investing activity related to additions to property and equipment, at December 31, 2017including stock-based compensation and 2016 consisted of the following (in thousands):
| 2017 | 2016 | Estimated Useful Lives (years) | |||||||
| Computer equipment and software | $ | 769,622 | $ | 522,675 | 1 to 5 years | ||||
| Leasehold improvements | 198,766 | 143,191 | 1 to 15 years | ||||||
| Office equipment, furniture and fixtures | 46,722 | 34,176 | 3 to 10 years | ||||||
| Building construction-in-progress | 8,388 | 5,945 | |||||||
| Total | 1,023,498 | 705,987 | |||||||
| Less: accumulated depreciation | (543,417 | ) | (358,970 | ) | |||||
| Property and equipment, net | $ | 480,081 | $ | 347,017 | |||||
10. LEASES
The Company's intangible assetsCompany has operating and finance leases for office space, data centers, and computer equipment.
The Company recognized the following related to its leases in its Consolidated Balance Sheets (in millions):
| December 31, | ||||||||||||||||||||||||||
| Classification in Consolidated Balance Sheets | 2022 | 2021 | ||||||||||||||||||||||||
| Operating lease assets | Operating lease assets | $ | 645 | $ | 496 | |||||||||||||||||||||
| Operating lease liabilities: | ||||||||||||||||||||||||||
| Current operating lease liabilities | Accrued expenses and other current liabilities | $ | 125 | $ | 143 | |||||||||||||||||||||
| Non-current operating lease liabilities | Operating lease liabilities | 552 | 351 | |||||||||||||||||||||||
| Total operating lease liabilities | $ | 677 | $ | 494 | ||||||||||||||||||||||
| December 31, | ||||||||||||||||||||
| Classification in Consolidated Balance Sheets | 2022 | 2021 | ||||||||||||||||||
| Finance lease assets | Property and equipment, net | $ | 52 | $ | 10 | |||||||||||||||
| Finance lease liabilities: | ||||||||||||||||||||
| Current finance lease liabilities | Accrued expenses and other current liabilities | $ | 21 | $ | 4 | |||||||||||||||
| Non-current finance lease liabilities | Other long-term liabilities | 32 | 6 | |||||||||||||||||
| Total finance lease liabilities | $ | 53 | $ | 10 | ||||||||||||||||
The Company recognized the following costs related to its leases in its Consolidated Statements of Operations (in millions):
| Year Ended December 31, | ||||||||||||||||||||||||||
| Classification in Consolidated Statements of Operations | 2022 | 2021 | 2020 | |||||||||||||||||||||||
| Finance lease cost | Depreciation and amortization | $ | 9 | $ | 3 | $ | 1 | |||||||||||||||||||
| Operating lease cost | General and administrative and Information technology | 160 | 185 | 194 | ||||||||||||||||||||||
| Variable lease cost | General and administrative and Information technology | 45 | 46 | 46 | ||||||||||||||||||||||
| Less: Sublease income | General and administrative | (5) | (3) | (2) | ||||||||||||||||||||||
| Total lease cost, net of sublease income | $ | 209 | $ | 231 | $ | 239 | ||||||||||||||||||||
As of December 31, 2022, the future lease payments for operating and finance leases are as follows (in millions):
| Operating Leases | Finance Leases | |||||||||||||
| 2023 | $ | 143 | $ | 21 | ||||||||||
| 2024 | 110 | 20 | ||||||||||||
| 2025 | 92 | 13 | ||||||||||||
| 2026 | 65 | — | ||||||||||||
| 2027 | 54 | — | ||||||||||||
| Thereafter | 349 | — | ||||||||||||
| Total remaining lease payments | 813 | 54 | ||||||||||||
| Less: Imputed interest | (136) | (1) | ||||||||||||
| Total lease liabilities | $ | 677 | $ | 53 | ||||||||||
As of December 31, 2022, the Company has entered into leases that have not yet commenced with future lease payments of approximately $63 million which are not reflected in the table above. These leases will commence in 2023 with lease terms of up to ten years and will be recognized upon lease commencement.
97
Supplemental cash flow information related to operating and finance leases is as follows (in millions):
| Year Ended December 31, | ||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||||||
| Operating cash flows from operating leases | $ | 175 | $ | 186 | $ | 200 | ||||||||||||||
| Financing cash flows from finance leases | 9 | 2 | 1 | |||||||||||||||||
| Operating lease assets obtained in exchange for new operating lease liabilities | 392 | 162 | 67 | |||||||||||||||||
| Finance lease assets obtained in exchange for new finance lease liabilities | 50 | 8 | 5 | |||||||||||||||||
"Operating lease amortization" presented in the operating activities section of the Consolidated Statements of Cash Flows reflects the portion of the operating lease cost from the amortization of the operating lease assets.
At December 31, 2022 and 2021 the weighted-average lease term and discount rate for operating and finance leases are as follows:
| December 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Operating leases: | ||||||||||||||
| Weighted-average remaining lease term | 9.8 years | 8.4 years | ||||||||||||
| Weighted-average discount rate | 3.2 | % | 2.0 | % | ||||||||||
| Finance leases: | ||||||||||||||
| Weighted-average remaining lease term | 2.7 years | 2.7 years | ||||||||||||
| Weighted-average discount rate | 2.0 | % | 0.7 | % | ||||||||||
In September 2016, the Company signed a turnkey agreement to construct a building for Booking.com's future headquarters in the Netherlands. Subsequent to that date, the Company had made several progress payments related to the construction of the building. As of December 31, 2021, such payments were included in "Property and equipment, net" in the Consolidated Balance Sheet. In addition, upon signing the turnkey agreement, the Company paid 43 million Euros ($48 million) for the acquired land lease, which was included, net of amortization, in "Operating lease assets" in the Consolidated Balance Sheet as of December 31, 2021. In addition to the turnkey agreement, the Company had a remaining obligation at December 31, 2017 and 2016 consisted2021 to pay 68 million Euros ($77 million) over the remaining initial term of the following (in thousands):acquired land lease, which expires in 2065.
| December 31, 2017 | December 31, 2016 | ||||||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Amortization Period | Weighted Average Useful Life | ||||||||||||||||||||
| Supply and distribution agreements | $ | 1,056,660 | $ | (355,000 | ) | $ | 701,660 | $ | 809,287 | $ | (270,813 | ) | $ | 538,474 | 3 - 20 years | 16 years | |||||||||||
| Technology | 137,288 | (104,478 | ) | 32,810 | 112,141 | (80,549 | ) | 31,592 | 1 - 5 years | 5 years | |||||||||||||||||
| Patents | 1,623 | (1,623 | ) | — | 1,623 | (1,598 | ) | 25 | 15 years | 15 years | |||||||||||||||||
| Internet domain names | 42,265 | (28,802 | ) | 13,463 | 39,495 | (25,089 | ) | 14,406 | 5 - 20 years | 8 years | |||||||||||||||||
| Trade names | 1,779,076 | (350,447 | ) | 1,428,629 | 1,667,221 | (261,412 | ) | 1,405,809 | 4-20 years | 19 years | |||||||||||||||||
| Non-compete agreements | 21,900 | (21,639 | ) | 261 | 21,900 | (18,321 | ) | 3,579 | 3-4 years | 3 years | |||||||||||||||||
| Total intangible assets | $ | 3,038,812 | $ | (861,989 | ) | $ | 2,176,823 | $ | 2,651,667 | $ | (657,782 | ) | $ | 1,993,885 | |||||||||||||
the Company entered into a sale and leaseback transaction whereby the Company transferred ownership of the building and the acquired lease rights to a subsidiary of Deka Immobilien Investment GmbH for an aggregate consideration of approximately 566 million Euros ($601 million). The Company concurrently entered into an agreement to lease the building from the purchaser for an initial term of 16.5 years, with up to five renewal options of five years each. The annual estimated amortization expense for intangible assets forbase rent under the next five yearslease is 24 million Euros ($26 million) and thereafter is expectedwill increase annually based on the consumer price index, subject to bea specified ceiling. The lease commenced in December 2022 and has been classified by the Company as follows (in thousands):
an operating lease. The Company recognized a gain of $240 million on the sale and leaseback transaction, which was recorded in the "Restructuring, disposal, and other exit activities" in the Consolidated Statement of Operations.
98
| 2018 | $ | 172,393 | |
| 2019 | 160,864 | ||
| 2020 | 152,868 | ||
| 2021 | 146,695 | ||
| 2022 | 143,862 | ||
| Thereafter | 1,400,141 | ||
| $ | 2,176,823 | ||
| 2017 | 2016 | ||||||
| Balance, beginning of year | $ | 2,396,906 | $ | 3,375,000 | |||
| Acquisitions | 294,200 | — | |||||
| Impairment | — | (940,700 | ) | ||||
| Currency translation adjustments | 46,565 | (37,394 | ) | ||||
| Balance, end of year | $ | 2,737,671 | $ | 2,396,906 | |||
A substantial portion of the Company's intangiblesintangible assets and goodwill relates to the acquisitions of OpenTable, KAYAK, and Getaroom. See Note 18 for additional information related to the acquisition of OpenTableGetaroom in July 2014December 2021.
Goodwill
The changes in the balance of goodwill for the years ended December 31, 2022 and KAYAK2021 consist of the following (in millions):
| Year Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Balance, beginning of year | $ | 2,887 | $ | 1,895 | |||||||
| Acquisitions | — | 1,022 | |||||||||
Foreign currency translation adjustments and other adjustments(1) | (80) | (30) | |||||||||
Balance, end of year (2) | $ | 2,807 | $ | 2,887 | |||||||
(1) During the year ended December 31, 2022, measurement period adjustments relating to the acquisition of Getaroom resulted in May 2013. Asa decrease to goodwill of $38 million.
(2) The balance of goodwill as of December 31, 2022 and 2021 is stated net of cumulative impairment charges of $2.0 billion.
At September 30, 2017,2022, the Company performed its annual quantitative goodwill impairment test. Other than OpenTable,test and concluded that there was no impairment of goodwill.
2020 Interim Goodwill Impairment Test
Due to the fair valuessignificant and negative financial impact of the Company’sCOVID-19 pandemic (see Note 2), the Company performed an interim period goodwill impairment test at March 31, 2020 and recognized a goodwill impairment charge of $489 million related to the OpenTable and KAYAK reporting units substantially exceeded their respectiveunit for the three months ended March 31, 2020, which is not tax-deductible, resulting in an adjusted carrying values.value of goodwill for OpenTable and KAYAK of $1.5 billion at March 31, 2020. The goodwill impairment was primarily driven by a significant reduction in the forecasted near-term cash flows of OpenTable and KAYAK as well as the significant decline in comparable companies' market values as a result of the COVID-19 pandemic.
The Company estimated OpenTable’s fair value of OpenTable and KAYAK was determined using a combination of standard valuation techniques, including an income approach (discounted cash flows) and a market approaches (EBITDA multiplesapproach (applying the recent decline in enterprise values of comparable publicly-traded companies to the recently calculated fair value for OpenTable and precedent transactions)KAYAK, as well as applying comparable company multiples). At
The income approach estimates fair value utilizing long-term growth rates and discount rates applied to the cash flow projections. In the cash flow projections, the Company assumed at the time that OpenTable and KAYAK would experience a significant decline in near-term cash flows with a recovery to 2019 levels of financial performance (including profitability) occurring in 2023. The shape and timing of the recovery was a key assumption in the fair value calculation (both in the income and market approaches).
2020 Annual Goodwill Impairment Test
As of September 30, 2017, OpenTable's fair2020, the Company performed its annual goodwill impairment test and recognized a goodwill impairment charge of $573 million for the OpenTable and KAYAK reporting unit for the three months ended September 30, 2020, which is not tax-deductible, resulting in an adjusted carrying value was approximately 18% higher than its fair valueof goodwill for OpenTable and KAYAK of $1.0 billion at September 30, 2016, which reflects performance that exceeded forecast.
The results of Step 2 indicated there was no goodwill impairment at September 30, 2017 because the impliedestimated fair value of OpenTable's goodwill exceeded its carryingOpenTable and KAYAK was determined using a combination of standard valuation techniques, including an income approach (discounted cash flows) and a market approach (applying comparable company multiples).
99
The income approach estimates fair value by approximately 24%. In addition,utilizing long-term growth rates and discount rates applied to the Company tested the recoverability of OpenTable’s other long-lived assets and concluded there was no impairmentcash flow projections. The income approach, applied as of September 30, 2017. Since2020, reflected a reduction in the forecasted cash flows of OpenTable and KAYAK and a longer assumed recovery period to 2019 levels of profitability, driven primarily by a lowered outlook for monetization opportunities in restaurant reservation services and slower than previously expected recovery trends for airline travel, which is a key vertical for KAYAK. For the interim goodwill impairment test at March 31, 2020, the Company expected a recovery to 2019 levels of financial performance occurring in 2023 for OpenTable and KAYAK. Based on the Company's evaluation of all relevant information available as of September 30, 2020 for the annual goodwill impairment test, therethe Company expected at the time that OpenTable and KAYAK would not return to the 2019 level of profitability within five years from that date, and that it was uncertain whether the shape of the recovery would ultimately match the Company’s expectations. An increase or decrease of one percentage point to the profitability growth rates used in the cash flow projections would have been no eventsresulted in an increase or decrease of approximately $100 million to the estimated fair value of OpenTable and KAYAK as of September 30, 2020. The discount rate is determined based on the reporting unit’s estimated weighted-average cost of capital and adjusted to reflect the risks inherent in its cash flows, which requires significant judgments. The discount rate used for the annual goodwill impairment test as of September 30, 2020 was higher than the discount rate used for the interim goodwill impairment test as of March 31, 2020. If the discount rate used in the income approach increases or decreases by 0.5%, the impact to the estimated fair value of OpenTable and KAYAK determined using the income approach, at September 30, 2020, would have ranged from a decrease of approximately $65 million to an increase of approximately $70 million.
The estimation of fair value reflects numerous assumptions that are subject to various risks and uncertainties, including key assumptions regarding OpenTable and KAYAK’s expected growth rates and operating margin, expected length and severity of the impact from the COVID-19 pandemic, the shape and timing of the subsequent recovery, and the competitive environment, which were applied for the 2020 interim and annual goodwill impairment tests, as well as other key assumptions with respect to matters outside of the Company's control, such as discount rates and market comparables. Generally, changes in circumstancesthe assumptions used for comparable company multiples would result in directionally similar changes in the fair value and changes in the assumptions used for discount rates would result in directionally opposite changes in the fair value. The estimation of fair value requires significant judgments and estimates and actual results could be materially different than the judgments and estimates used. Future events and changing market conditions may lead the Company to indicatere-evaluate the assumptions used to estimate the fair values of our reporting units, which may result in a potential impairment.need to recognize an additional goodwill impairment charge that could have a material adverse effect on the Company's results of operations.
The Company's intangible assets consist of the yearfollowing (in millions):
| December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Amortization Period | |||||||||||||||||||||||||||||||||||
| Supply and distribution agreements | $ | 1,386 | $ | (658) | $ | 728 | $ | 1,407 | $ | (591) | $ | 816 | 3 - 20 years | ||||||||||||||||||||||||||||
| Technology | 287 | (185) | 102 | 297 | (151) | 146 | 2 - 7 years | ||||||||||||||||||||||||||||||||||
| Internet domain names | 38 | (35) | 3 | 41 | (36) | 5 | 5 - 20 years | ||||||||||||||||||||||||||||||||||
| Trade names | 1,806 | (812) | 994 | 1,814 | (724) | 1,090 | 3 - 20 years | ||||||||||||||||||||||||||||||||||
| Other intangible assets | 5 | (3) | 2 | 2 | (2) | — | Up to 15 years | ||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | 3,522 | $ | (1,693) | $ | 1,829 | $ | 3,561 | $ | (1,504) | $ | 2,057 | |||||||||||||||||||||||||||||
Amortization expense for intangible assets was $224 million, $162 million, and $167 million for the years ended December 31, 2016,2022, 2021, and 2020, respectively.
100
The estimated future annual amortization expense for the Company recognized a non-cash impairment charge for goodwill related to OpenTable of $940.7 million, which was not tax deductible.Company's intangible assets at December 31, 2022 is as follows (in millions):
| 2023 | $ | 222 | |||
| 2024 | 221 | ||||
| 2025 | 213 | ||||
| 2026 | 180 | ||||
| 2027 | 169 | ||||
| Thereafter | 824 | ||||
| $ | 1,829 | ||||
12. DEBT
Revolving Credit Facility
In June 2015,August 2019, the Company entered into a $2.0 billion five-year unsecured revolving credit facility with a group of lenders. BorrowingsU.S. Dollar-denominated borrowings under the revolving credit facility will bear interest, at the Company’s option, at a rate per annum equal to either (i) the adjusted LIBORLondon Inter-bank Offered Rate, or if such London Inter-bank Offered Rate is no longer available, the agreed alternate rate of interest ("LIBOR") (but no less than 0%) for the interest period in effect for such borrowing plus an applicable margin ranging from 0.875% to 1.50%; or (ii) the sum of (x) the greatest of (a) JPMorgan Chase Bank, of America, N.A.'s prime lending rate, (b) the U.S. federal funds rate plus 0.50%, and (c) an adjusted LIBOR (but no less than 0%) for an interest period of one month plus 1.00%, plus (y) an applicable margin ranging from 0.00%0% to 0.50%. Following an amendment to the revolving credit facility in December 2021, (i) Euro-denominated borrowings will bear interest at a rate per annum equal to the Euro Interbank Offered Rate ("EURIBOR"), or if EURIBOR is no longer available, the agreed alternate rate of interest (but no less than 0%) for the interest period in effect for such borrowing and (ii) Pounds Sterling-denominated borrowings will bear interest at a rate per annum equal to the Sterling Overnight Index Average ("SONIA"), or if SONIA is no longer available, the agreed alternate rate of interest (but no less than 0%), in each case, plus an applicable margin ranging from 0.875% to 1.50%. Undrawn balances available under the revolving credit facility are subject to commitment fees at the applicable rate ranging from 0.085%0.07% to 0.20%.
The revolving credit facility provides for the issuance of up to $70.0$80 million of letters of credit as well as borrowings of up to $50.0$100 million on same-day notice, referred to as swingline loans. BorrowingsOther than swingline loans, which are available only in U.S. Dollars, borrowings and letters of credit under the revolving credit facility may be made in U.S. Dollars, Euros, British Pounds Sterling, and any other foreign currency agreed to by the lenders. The proceeds of loans made under the facility wouldcan be used for working capital and general corporate purposes, which could includeincluding acquisitions, share repurchases, orand debt repayments. The Company paid $4.0 million in debt issuance costs related to the revolving credit facility during the year ended December 31, 2015. At December 31, 20172022 and 2016,2021, there were no borrowings outstanding and approximately $3.8$14 million and $4 million, respectively, of letters of credit issued under this revolving credit facility.
Company's ability to borrow thereunder. In 2020, the Company terminated its $1.0 billion five-yearamended the revolving credit facility entered intoto (i) suspend the maximum leverage ratio covenant through and including the three months ended March 31, 2022, which was replaced with a $4.5 billion minimum liquidity covenant based on unrestricted cash, cash equivalents, short-term investments and unused capacity under the revolving credit facility and (ii) increase the permitted maximum leverage ratio from and including the three months ended June 30, 2022 through and including the three months ending March 31, 2023. The Company cannot declare or make any cash distribution and cannot repurchase any of its shares (with certain exceptions including in October 2011 and recognized interest expense of $1.0 millionconnection with tax withholding related to shares issued to employees) unless it is in compliance on a pro forma basis with the write-offmaximum leverage ratio covenant then in effect. Such restriction ends upon delivery of financial statements required for the remaining unamortized debt issuance coststhree months ending June 30, 2023, or the Company has the ability to terminate this restriction earlier if it demonstrates compliance with the original maximum leverage ratio covenant in 2015.the revolving credit facility. Beginning with the three months ended June 30, 2022, the minimum liquidity covenant ceased to apply and the maximum leverage ratio covenant, as increased, was again in effect.
101
OutstandingDebt
Outstanding debt as ofat December 31, 2017 consisted2022 consists of the following (in thousands)millions):
| December 31, 2022 | December 31, 2022 | Outstanding Principal Amount | Unamortized Debt Discount and Debt Issuance Cost | Carrying Value | ||||||||||||||||||||||||||||
| Current liabilities: | Current liabilities: | |||||||||||||||||||||||||||||||
| 2.75% Senior Notes due March 2023 | 2.75% Senior Notes due March 2023 | $ | 500 | $ | — | $ | 500 | |||||||||||||||||||||||||
| Total current liabilities | Total current liabilities | $ | 500 | $ | — | $ | 500 | |||||||||||||||||||||||||
| December 31, 2017 | Outstanding Principal Amount | Unamortized Debt Discount and Debt Issuance Cost | Carrying Value | |||||||||||||||||||||||||||||
| Short-term debt: | ||||||||||||||||||||||||||||||||
| 1.0% Convertible Senior Notes due March 2018 | $ | 714,304 | $ | (3,394 | ) | $ | 710,910 | |||||||||||||||||||||||||
| Long-term debt: | Long-term debt: | |||||||||||||||||||||||||||||||
| 0.35% Convertible Senior Notes due June 2020 | $ | 1,000,000 | $ | (64,825 | ) | $ | 935,175 | |||||||||||||||||||||||||
| 0.9% Convertible Senior Notes due September 2021 | 1,000,000 | (83,272 | ) | 916,728 | ||||||||||||||||||||||||||||
| 0.8% (€1 Billion) Senior Notes due March 2022 | 1,200,800 | (6,238 | ) | 1,194,562 | ||||||||||||||||||||||||||||
| 2.15% (€750 Million) Senior Notes due November 2022 | 900,600 | (4,683 | ) | 895,917 | ||||||||||||||||||||||||||||
| 2.75% Senior Notes due March 2023 | 500,000 | (3,203 | ) | 496,797 | ||||||||||||||||||||||||||||
| 2.375% (€1 Billion) Senior Notes due September 2024 | 1,200,800 | (12,240 | ) | 1,188,560 | 2.375% (€1 Billion) Senior Notes due September 2024 | $ | 1,067 | $ | (3) | $ | 1,064 | |||||||||||||||||||||
| 3.65% Senior Notes due March 2025 | 500,000 | (3,290 | ) | 496,710 | 3.65% Senior Notes due March 2025 | 500 | (1) | 499 | ||||||||||||||||||||||||
| 0.1% (€950 Million) Senior Notes due March 2025 | 0.1% (€950 Million) Senior Notes due March 2025 | 1,014 | (3) | 1,011 | ||||||||||||||||||||||||||||
| 0.75% Convertible Senior Notes due May 2025 | 0.75% Convertible Senior Notes due May 2025 | 863 | (9) | 854 | ||||||||||||||||||||||||||||
| 3.6% Senior Notes due June 2026 | 1,000,000 | (6,840 | ) | 993,160 | 3.6% Senior Notes due June 2026 | 1,000 | (3) | 997 | ||||||||||||||||||||||||
| 4.0% (€750 Million) Senior Notes due November 2026 | 4.0% (€750 Million) Senior Notes due November 2026 | 800 | (3) | 797 | ||||||||||||||||||||||||||||
| 1.8% (€1 Billion) Senior Notes due March 2027 | 1,200,800 | (5,136 | ) | 1,195,664 | 1.8% (€1 Billion) Senior Notes due March 2027 | 1,067 | (2) | 1,065 | ||||||||||||||||||||||||
| 3.55% Senior Notes due March 2028 | 500,000 | (3,485 | ) | 496,515 | 3.55% Senior Notes due March 2028 | 500 | (2) | 498 | ||||||||||||||||||||||||
| 0.5% (€750 Million) Senior Notes due March 2028 | 0.5% (€750 Million) Senior Notes due March 2028 | 800 | (3) | 797 | ||||||||||||||||||||||||||||
| 4.25% (€750 Million) Senior Notes due May 2029 | 4.25% (€750 Million) Senior Notes due May 2029 | 800 | (6) | 794 | ||||||||||||||||||||||||||||
| 4.625% Senior Notes due April 2030 | 4.625% Senior Notes due April 2030 | 1,500 | (9) | 1,491 | ||||||||||||||||||||||||||||
| 4.5% (€1 Billion) Senior Notes due November 2031 | 4.5% (€1 Billion) Senior Notes due November 2031 | 1,067 | (7) | 1,060 | ||||||||||||||||||||||||||||
| 4.75% (€1 Billion) Senior Notes due November 2034 | 4.75% (€1 Billion) Senior Notes due November 2034 | 1,067 | (9) | 1,058 | ||||||||||||||||||||||||||||
| Total long-term debt | $ | 9,003,000 | $ | (193,212 | ) | $ | 8,809,788 | Total long-term debt | $ | 12,045 | $ | (60) | $ | 11,985 | ||||||||||||||||||
Outstanding debt as ofat December 31, 2016 consisted2021 consists of the following (in thousands)millions):
| December 31, 2021 | Outstanding Principal Amount | Unamortized Debt Discount and Debt Issuance Cost | Carrying Value | |||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| 0.8% (€1 Billion) Senior Notes due March 2022 | $ | 1,137 | $ | — | $ | 1,137 | ||||||||||||||
| 2.15% (€750 Million) Senior Notes due November 2022 | 853 | (1) | 852 | |||||||||||||||||
| Total current liabilities | $ | 1,990 | $ | (1) | $ | 1,989 | ||||||||||||||
| Long-term debt: | ||||||||||||||||||||
| 2.75% Senior Notes due March 2023 | $ | 500 | $ | (1) | $ | 499 | ||||||||||||||
| 2.375% (€1 Billion) Senior Notes due September 2024 | 1,137 | (5) | 1,132 | |||||||||||||||||
| 3.65% Senior Notes due March 2025 | 500 | (1) | 499 | |||||||||||||||||
| 0.1% (€950 Million) Senior Notes due March 2025 | 1,080 | (4) | 1,076 | |||||||||||||||||
| 0.75% Convertible Senior Notes due May 2025 | 863 | (99) | 764 | |||||||||||||||||
| 3.6% Senior Notes due June 2026 | 1,000 | (4) | 996 | |||||||||||||||||
| 1.8% (€1 Billion) Senior Notes due March 2027 | 1,137 | (3) | 1,134 | |||||||||||||||||
| 3.55% Senior Notes due March 2028 | 500 | (2) | 498 | |||||||||||||||||
| 0.5% (€750 Million) Senior Notes due March 2028 | 853 | (5) | 848 | |||||||||||||||||
| 4.625% Senior Notes due April 2030 | 1,500 | (9) | 1,491 | |||||||||||||||||
| Total long-term debt | $ | 9,070 | $ | (133) | $ | 8,937 | ||||||||||||||
102
| December 31, 2016 | Outstanding Principal Amount | Unamortized Debt Discount and Debt Issuance Cost | Carrying Value | |||||||||
| Short-term debt: | ||||||||||||
| 1.0% Convertible Senior Notes due March 2018 | $ | 1,000,000 | $ | (32,266 | ) | $ | 967,734 | |||||
| Long-term debt: | ||||||||||||
| 0.35% Convertible Senior Notes due June 2020 | $ | 1,000,000 | $ | (90,251 | ) | $ | 909,749 | |||||
| 0.9% Convertible Senior Notes due September 2021 | 1,000,000 | (104,592 | ) | 895,408 | ||||||||
| 2.15% (€750 Million) Senior Notes due November 2022 | 791,063 | (5,336 | ) | 785,727 | ||||||||
| 2.375% (€1 Billion) Senior Notes due September 2024 | 1,054,750 | (12,861 | ) | 1,041,889 | ||||||||
| 3.65% Senior Notes due March 2025 | 500,000 | (3,727 | ) | 496,273 | ||||||||
| 3.6% Senior Notes due June 2026 | 1,000,000 | (7,619 | ) | 992,381 | ||||||||
| 1.8% (€1 Billion) Senior Notes due March 2027 | 1,054,750 | (5,655 | ) | 1,049,095 | ||||||||
| Total long-term debt | $ | 6,400,563 | $ | (230,041 | ) | $ | 6,170,522 | |||||
Fair Value of Debt
Convertible Senior Notes.Notes
In addition, if the Company's convertible debt is redeemed or converted prior to maturity, a gain or loss on extinguishment is recognized. The gain or loss is the difference between the fair value of the debt component immediately prior to extinguishment and its carrying value. To estimate the fair value of the debt at the conversion date, the Company estimated its straight debt borrowing rate, considering its credit rating and straight debt of comparable corporate issuers. For the year ended December 31, 2017, the Company recognized a non-cash loss of $2.4 million ($1.5 million after tax) in "Foreign currency transactions and other" in the Consolidated Statement of Operations in connection with the early conversion of the 2018 Notes.
In the event that all or substantially all of the Company's common stock is acquired on or prior to the maturity of the 2020 Notes in a transaction in which the consideration paid to holders of the Company's common stock consists of all or substantially all cash, the Company would be required to make additional payments in the form of additional shares of common stock to the holders of the 2020 Notes in an aggregate value ranging from $0 to approximately $397 million depending upon the date of the transaction and the then current stock price of the Company. As of March 15, 2020, holders will have the right to convert all or any portion of the 2020 Notes, regardless of the Company's stock price. The 2020 Notes may not be redeemed by the Company prior to maturity. The holders may require the Company to repurchase the 2020 Notes for cash in certain circumstances. Interest on the 2020 Notes is payable on June 15 and December 15 of each year.
In May 2013, the Company issued $1.0 billion aggregate principal amount which was chargedof convertible senior notes due June 2020, with an interest rate of 0.35% (the "June 2020 Notes"). In June 2020, in connection with the maturity of the outstanding June 2020 Notes, the Company paid $1.0 billion to satisfy the aggregate principal amount due and an additional paid-in capital.$245 million conversion premium in excess of the principal amount.
Debt discount after tax of $82.5$100 million ($142.9130 million before tax) related to the May 2025 Notes and $83 million ($143 million before tax) related to the September 2021 Notes less financingdebt issuance costs associated withallocated to the equity component of the respective convertible debt of $1.6 million after taxnotes was recorded in additional paid-in capital related toin the 2021 Notesbalance sheet at December 31, 2014. Debt discount after tax of $92.4 million ($154.3 million before tax) less financing costs associated with the equity component of convertible debt of $0.1 million after tax was recorded in additional paid-in capital related to the 2020 Notes at June 30, 2013. Debt discount after tax of $80.9 million ($135.2 million before tax) less financing costs associated with the equity component of convertible debt of $2.8 million after tax was recorded in additional paid-in capital related to the 2018 Notes at March 31, 2012.origination.
103
On January 1, 2022, the Company recognized interest expense of $93.7 million, $94.5 million and $92.7 million, respectively, relatedadopted the new accounting standards update relating to convertible notes, comprisedinstruments (see Note 2). The adoption of $21.3the new accounting standards update resulted in a decrease of $26 million, $22.5 million in "Interest expense" and $22.6 million, respectively, for the contractual coupon interest, $67.7 million, $67.5 million and $65.6 million, respectively, related to
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Coupon interest expense | $ | 6 | $ | 13 | $ | 15 | |||||||||||
| Amortization of debt discount and debt issuance costs | 4 | 43 | 54 | ||||||||||||||
| Total interest expense | $ | 10 | $ | 56 | $ | 69 | |||||||||||
| Weighted-average effective interest rate | 1.2 | % | 3.8 | % | 3.5 | % | |||||||||||
Other Long-term DebtSenior Notes
In August 2017,November 2022, the Company issued (i) Senior Notes due March 15, 2023,November 2026 with an interest rate of 2.75% (the "2023 Notes")4.0% for an aggregate principal amount of $500 million. The 2023750 million Euros, (ii) Senior Notes were issueddue May 2029 with an initial discountinterest rate of $0.7 million. In addition, the4.25% for an aggregate principal amount of 750 million Euros, (iii) Senior Notes due November 2031 with an interest rate of 4.5% for an aggregate principal amount of 1.0 billion Euros, and (iv) Senior Notes due November 2034 with an interest rate of 4.75% for an aggregate principal amount of 1.0 billion Euros. The Company paid $2.7$19 million in debt issuance costs during the year ended December 31, 2017. Interest2022 related to the issuance of these senior notes. A portion of the proceeds from the issuance of these senior notes were used to repay the Senior Notes due November 2022 (the "November 2022 Notes"). In addition, the Company intends to repay the Senior Notes due March 2023 from these proceeds upon maturity. The remaining proceeds from the issuance of these senior notes are available to be used for general corporate purposes.
In November 2022, the Company repaid $778 million on the 2023maturity of the November 2022 Notes. In March 2022, the Company repaid $1.1 billion on the maturity of Senior Notes is payable semi-annually ondue March 152022. In addition, the Company paid the applicable accrued and September 15, beginning March 15, 2018.unpaid interest relating to these senior notes.
In August 2017,March 2021, the Company issued Senior Notes due March 15,2025 with an interest rate of 0.1% for an aggregate principal amount of 950 million Euros and Senior Notes due March 2028 with an interest rate of 3.55% (the "2028 Notes")0.5% for an aggregate principal amount of $500 million.750 million Euros. The 2028proceeds from the issuance of these senior notes were used to redeem the April 2025 Notes were issued with an initial discount of $0.4 million.and the April 2027 Notes.
In April 2021, the Company paid $1.1 billion and $868 million to redeem the April 2025 Notes and the April 2027 Notes, respectively. In addition, the Company paid $3.2the applicable accrued and unpaid interest. The Company recorded a loss, before tax, of $242 million in the Consolidated Statement of Operations for the year ended December 31, 2021, on the early extinguishment of these senior notes.
In April 2020, the Company issued (i) Senior Notes due April 2025 with an interest rate of 4.1% for an aggregate principal amount of $1.0 billion, (ii) Senior Notes due April 2027 with an interest rate of 4.5% for an aggregate principal amount of $750 million, and (iii) Senior Notes due April 2030 with an interest rate of 4.625% for an aggregate principal amount of $1.5 billion. The Company paid $19 million in debt issuance costs during the year ended December 31, 2017. Interest on2020 related to the 2028 Notes is payable semi-annually on March 15issuance of these senior notes.
Each of our senior notes are unsecured and September 15, beginning March 15, 2018.rank equally in right of payment with all of our other senior unsecured notes.
104
| Other Senior Notes | Date of Issuance | Effective Interest Rate(1) | Timing of Interest Payments | |||||||||||||||||
| 2.75% Senior Notes due March 2023 | August 2017 | 2.88 | % | Semi-annually in March and September | ||||||||||||||||
| 2.375% Senior Notes due September 2024 | September 2014 | 2.54 | % | Annually in September | ||||||||||||||||
| 3.65% Senior Notes due March 2025 | March 2015 | 3.76 | % | Semi-annually in March and September | ||||||||||||||||
| 0.1% Senior Notes due March 2025 | March 2021 | 0.30 | % | Annually in March | ||||||||||||||||
| 3.6% Senior Notes due June 2026 | May 2016 | 3.70 | % | Semi-annually in June and December | ||||||||||||||||
| 4.0% Senior Notes due November 2026 | November 2022 | 4.08 | % | Annually in November | ||||||||||||||||
| 1.8% Senior Notes due March 2027 | March 2015 | 1.86 | % | Annually in March | ||||||||||||||||
| 3.55% Senior Notes due March 2028 | August 2017 | 3.63 | % | Semi-annually in March and September | ||||||||||||||||
| 0.5% Senior Notes due March 2028 | March 2021 | 0.63 | % | Annually in March | ||||||||||||||||
| 4.25% Senior Notes due May 2029 | November 2022 | 4.35 | % | Annually in May | ||||||||||||||||
| 4.625% Senior Notes due April 2030 | April 2020 | 4.72 | % | Semi-annually in April and October | ||||||||||||||||
| 4.5% Senior Notes due November 2031 | November 2022 | 4.57 | % | Annually in November | ||||||||||||||||
| 4.75% Senior Notes due November 2034 | November 2022 | 4.81 | % | Annually in November | ||||||||||||||||
(1) Represents the coupon interest rate of 0.8% (the "March 2022 Notes")adjusted for an aggregate principal amount of 1.0 billion Euros. The March 2022 Notes were issued with an initial discount of 2.1 million Euros. In addition, the Company paid $5.0 million indeferred debt issuance costs, duringpremiums or discounts existing at the year ended December 31, 2017. Interest onorigination of the March 2022 Notes is payable annually on March 10, beginning March 10, 2018. Subject to certain limited exceptions, all payments of interestdebt.
Debt discount and principal for the March 2022 Notes will be made in Euros.
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Coupon interest expense | $ | 241 | $ | 257 | $ | 264 | |||||||||||
| Amortization of debt discount and debt issuance costs | 10 | 10 | 9 | ||||||||||||||
| Total interest expense | $ | 251 | $ | 267 | $ | 273 | |||||||||||
The Company estimateddesignates certain portions of the effective interest rates ataggregate principal value of the Euro-denominated debt origination to be 2.78% foras a hedge of the 2023 Notes, 3.56% forforeign currency exposure of the 2028 Notes, 0.84% for the March 2022 Notes, 3.62% for the 2026 Notes, 2.20% for the November 2022 Notes, 3.68% for the 2025 Notes, 1.80% for the 2027 Notes and 2.48% for the 2024 Notes.
net investment in certain Euro functional currency subsidiaries. For the years ended December 31, 2017, 20162022 and 2015,2021, the Company recognized interest expense of $144.8 million, $108.0 million and $61.5 million, respectively, related to other long-term debt which was comprised of $138.9 million, $104.1 million and $59.0 million, respectively, for the contractual coupon interest, $2.1 million, $1.5 million and $1.1 million, respectively, related to the amortization of debt discount and $3.8 million, $2.4 million and $1.4 million, respectively, related to the amortization of debt issuance costs. The remaining period for amortization of debt discount and debt issuance costs is the period until the stated maturity dates for the respective debt.
105
13. TREASURY STOCK
At December 31, 2022 and 2021, the Company assumed third-party senior debthad a total remaining authorization of $15.1 million associated with$3.9 billion and $10.4 billion, respectively, to repurchase its common stock under a program authorized by the acquisitionCompany's Board of Directors in 2019 to repurchase up to $15.0 billion of the Momondo Group. The debt was repaid by the Company in July 2017.
Company's common stock. In the first quarter of 2016,February 2023, the Company's Board of Directors authorized a program to repurchase up to $3.0 billion of the Company's common stock. In the first quarter of 2017, the Company's Board of Directors authorized an additional program to repurchase up to $2.0 billion of the Company's common stock. As of December 31, 2017, the Company had a remaining authorization of $2.4 billion to purchase its common stock. In the first quarter of 2018, the Company's Board of Directors authorized an additional program to repurchase up to $8.0$20.0 billion of the Company's common stock. The Company may makeexpects to complete repurchases under the two authorizations within the next four years, assuming the Company remains in compliance with the applicable maximum leverage ratio covenant under the credit facility amendment. See Note 12 for a description of shares under its stock repurchase programs, dependingthe impact of the 2020 credit facility amendment on prevailing market conditions, alternate uses of capital and other factors. Whether and when to initiate and/or complete any purchase of common stock and the amount of common stock purchased will be determined at the Company's discretion. Additionally, theability to repurchase shares. The Board of Directors has also given the Company the general authorization to repurchase shares of its common stock to satisfy employee withholding tax obligations related to stock-based compensation.
The following table summarizes the Company's stock repurchase activities during the years ended December 31, 2022, 2021, and 2020 (in millions, except for shares, which are reflected in thousands):
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||
| Authorized stock repurchase programs | 3,320 | $ | 6,526 | — | $ | — | 601 | $ | 1,122 | |||||||||||||||||||||||||||||
| General authorization for shares withheld on stock award vesting | 80 | 167 | 71 | 162 | 84 | 142 | ||||||||||||||||||||||||||||||||
| Total | 3,400 | $ | 6,693 | 71 | $ | 162 | 685 | $ | 1,264 | |||||||||||||||||||||||||||||
Stock repurchases of $70 million in December 2017 of 18,217 shares for an aggregate cost of $32.0 million2022 were settled in January 2018. During the period from January 1, 2018 through February 20, 2018, the Company repurchased 185,620 additional shares for an aggregate cost of $345.5 million.
2023. In the year endedaddition, stock repurchases subsequent to December 31, 2016, the Company repurchased a total2022 were approximately $542 million as of 762,984 shares of its common stock in the open market for an aggregate cost of $1.0 billion, which included 635,877 shares for $861.5 million acquired through its general repurchase programs and 127,107 shares for $167.0 million withheld to satisfy employee withholding tax obligations related to stock-based compensation. Stock repurchases in December 2016 of 10,215 shares for an aggregate cost of $15.0 million were settled in January 2017.February 22, 2023.
For the years ended December 31, 2017, 20162022, 2021, and 2015,2020, the Company remitted $101.4employee withholding taxes of $165 million, $165.1$163 million, and $81.6$141 million, of employee withholding taxes, respectively, to the tax authorities, which is different from the aggregate cost of the shares withheld for taxes for each year due to the timing in remitting the taxes. The new accounting standard for stock-based compensation (see Note 2) requires the Company to only report the cash remitted to the tax authorities is included in financing activities in the statementsConsolidated Statements of cash flows for all periods presented.Cash Flows.
106
The table below providespresents the changes in the balances for each classification of accumulated other comprehensive income (loss)as of loss ("AOCI") by component for the years ended December 31, 20172020, 2021, and 20162022 (in thousands)millions):
| Foreign currency translation adjustments | Unrealized losses on cash flow hedges (1) | Net unrealized gains (losses) on available-for-sale securities | Total AOCI, net of tax | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | Net investment hedges (2) | Total, net of tax | Before tax | Tax | Total, net of tax | Before tax | Tax | Total, net of tax | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Before tax | Tax (3) | Before tax | Tax | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | (186) | $ | 54 | $ | (2) | $ | (5) | $ | (139) | $ | — | $ | — | $ | — | $ | (7) | $ | (45) | $ | (52) | $ | (191) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) ("OCI") before reclassifications | 197 | (7) | (182) | 42 | 50 | — | — | — | 6 | (1) | 5 | 55 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amounts reclassified to net income (4) | — | — | — | — | — | — | — | — | 4 | 14 | 18 | 18 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OCI for the period | 197 | (7) | (182) | 42 | 50 | — | — | — | 10 | 13 | 23 | 73 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | 11 | $ | 47 | $ | (184) | $ | 37 | $ | (89) | $ | — | $ | — | $ | — | $ | 3 | $ | (32) | $ | (29) | $ | (118) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| OCI before reclassifications | (287) | 20 | 275 | (65) | (57) | (15) | 4 | (11) | 265 | (62) | 203 | 135 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amounts reclassified to net income (4) (5) | — | — | — | — | — | 15 | (4) | 11 | (265) | 93 | (172) | (161) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OCI for the period | (287) | 20 | 275 | (65) | (57) | — | — | — | — | 31 | 31 | (26) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | (276) | $ | 67 | $ | 91 | $ | (28) | $ | (146) | $ | — | $ | — | $ | — | $ | 3 | $ | (1) | $ | 2 | $ | (144) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| OCI before reclassifications | (303) | 26 | 219 | (53) | (111) | — | — | — | (13) | 3 | (10) | (121) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amounts reclassified to net income (4) | — | — | — | — | — | — | — | — | (3) | 1 | (2) | (2) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OCI for the period | (303) | 26 | 219 | (53) | (111) | — | — | — | (16) | 4 | (12) | (123) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | (579) | $ | 93 | $ | 310 | $ | (81) | $ | (257) | $ | — | $ | — | $ | — | $ | (13) | $ | 3 | $ | (10) | $ | (267) | ||||||||||||||||||||||||||||||||||||||||||||||||||
(1) Relates to the reverse treasury lock agreements entered in March 2021 that were designated as cash flow hedges and settled in April 2021 (see Note 6).
| December 31, 2017 | December 31, 2016 | ||||||
Foreign currency translation adjustments, net of tax (1) | $ | (15,700 | ) | $ | (311,247 | ) | |
Net unrealized gain on marketable securities, net of tax (2) | 252,682 | 176,563 | |||||
| Accumulated other comprehensive income (loss) | $ | 236,982 | $ | (134,684 | ) | ||
(3) The tax ($310.4 million before tax)benefits relate to foreign currency translation adjustments to the Company's one-time deemed repatriation tax liability recorded at December 31, 2017 and 2016, respectively, associated with the Company's Euro-denominated debt. The Company's Euro-denominated debt is designated as a hedge against the impact of currency fluctuations on its Euro-denominated net assets (see Note 10).
(4) The reclassified net gains (losses) on available-for-sale securities, before tax, are realized.
(5) For the year ended December 31, 2021, amounts reclassified to net income includes a gain of $203 million ($265 million before tax) related to the Company's investment in Grab, which was reclassified from available-for-sale debt securities to equity securities with readily determinable fair values (see Note 5).
107
15. INCOME TAXES
The composition of pre-tax income (loss) for the years ended December 31, 20172022, 2021, and 2016, respectively,2020 is as follows (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| International | $ | 4,717 | $ | 1,937 | $ | 2,575 | |||||||||||
| U.S. | (794) | (472) | (2,008) | ||||||||||||||
| Total | $ | 3,923 | $ | 1,465 | $ | 567 | |||||||||||
Provision for Income Taxes
The composition of income tax expense for the years ended December 31, 2022, 2021, and U.S. pre-tax2020 is as follows (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Current income tax expense (benefit): | |||||||||||||||||
| International | $ | 1,145 | $ | 665 | $ | 320 | |||||||||||
| U.S. Federal | (8) | 68 | (9) | ||||||||||||||
| U.S. State | (15) | 12 | (16) | ||||||||||||||
| Current income tax expense (benefit): | 1,122 | 745 | 295 | ||||||||||||||
| Deferred income tax (benefit) expense: | |||||||||||||||||
| International | (61) | (103) | (62) | ||||||||||||||
| U.S. Federal | (172) | (323) | 296 | ||||||||||||||
| U.S. State | (24) | (19) | (21) | ||||||||||||||
| Deferred income tax (benefit) expense | (257) | (445) | 213 | ||||||||||||||
| Income tax expense | $ | 865 | $ | 300 | $ | 508 | |||||||||||
Income tax liabilities of $880 million and $181 million are included in "Accrued expenses and other current liabilities" in the Consolidated Balance Sheets at December 31, 2022 and 2021, respectively. During the three months ended March 31, 2020, the Company made a prepayment of the Netherlands income taxes of 660 million Euros ($717 million) to earn prepayment discounts. The Company requested a refund of this amount from the Dutch tax authorities and it was $35.4received in April 2020. During the three months ended March 31, 2021, the Company prepaid Netherlands income taxes of 149 million for Euros ($175 million). During the year ended December 31, 2015.2022, the Company paid Netherlands income taxes of 348 million Euros ($363 million).
| Current | Deferred | Total | |||||||||
| International | $ | 755,836 | $ | (10,361 | ) | $ | 745,475 | ||||
| U.S. Federal | 1,327,663 | (57,350 | ) | 1,270,313 | |||||||
| U.S. State | 6,523 | 35,246 | 41,769 | ||||||||
| Total | $ | 2,090,022 | $ | (32,465 | ) | $ | 2,057,557 | ||||
| Current | Deferred | Total | |||||||||
| International | $ | 627,718 | $ | (14,359 | ) | $ | 613,359 | ||||
| U.S. Federal | 63,613 | (32,405 | ) | 31,208 | |||||||
| U.S. State | (1,175 | ) | (65,141 | ) | (66,316 | ) | |||||
| Total | $ | 690,156 | $ | (111,905 | ) | $ | 578,251 | ||||
| Current | Deferred | Total | |||||||||
| International | $ | 526,052 | $ | (17,789 | ) | $ | 508,263 | ||||
| U.S. Federal | 88,237 | (68,696 | ) | 19,541 | |||||||
| U.S. State | 24,006 | 25,150 | 49,156 | ||||||||
| Total | $ | 638,295 | $ | (61,335 | ) | $ | 576,960 | ||||
U.S. Tax Reform
In 2020, the Company recorded provisional income tax expense of approximately $1.6 billion, which includes U.S. state income taxes and international withholding taxes, related to the mandatory deemed repatriation of estimated accumulated unremitted international earnings of approximately $16.5 billion. The Company also recorded a provisional netan income tax benefit of approximately $217$8 million relatedto adjust its income tax expense that was recorded during the year ended December 31, 2017 relating to the remeasurement of the Company’s U.S. deferred tax assets and liabilitiesfederal one-time deemed repatriation liability. This benefit was primarily due to the reduction of the U.S. federal statutoryadditional tax rate from 35% to 21%.credits. The Company currently expects to use approximately $204utilized $108 million of deferred tax assets related to U.S. federal net operating loss carryforwardslosses ("NOLs") and approximately $46$115 million of other tax credit carryforwards and accordingly, has reduced theto reduce its transition tax liability to approximately $1.3 billion, which is presented as "Long-term U.S. transition tax liability" in the Consolidated Balance Sheet as of December 31, 2017. The Company continues to evaluate whether and to what extent it will utilize its NOLs and other tax credits to reduce the transition tax liability. 2021.
Under the Tax Act, the Company's international cash and investments as of
108
The Tax Act also introduced in 2018 a tax on 50% of global intangible low-taxed income (“GILTI”),GILTI, which is income determined to be in excess of a specified routine rate of return, and also introduced a base erosion and anti-abuse tax (“BEAT”("BEAT") aimed at preventing the erosion of the U.S. tax base. The Company continues to review the GILTI and BEAT provisions of the Tax Act for applicability to the Company and expects further guidance from U.S. Treasury Department, Internal Revenue Service, state tax authorities and/or other authorities on the application of these provisions. The Company has not yet adopted an accounting policy as to whether the Company will treat taxes on GILTI as period costs or whether the Company will recognize deferred tax assets and liabilities when basis differences exist that are expected to affect the amount of GILTI inclusion upon reversal.costs.
Deferred Income Taxes
The Company currently expects that the majorityutilized $309 million of its available U.S. NOLs as of December 31, 2016 will be utilized in 2017 to reduce its U.S. federal tax liability for the deemed repatriation tax. After utilization of available NOLs, as ofat December 31, 2017,2022, the Company had U.S. federal NOLs of $180$315 million, which are subject to an annual limitation and mainly expire from December 31, 2019 to December 31, 2021, and U.S. state NOLs of $510 million, which mainly expire between December 31, 2020 and December 31, 2034. In addition, at December 31, 2017, the Company has approximately $180 million of non-U.S. NOLs, of which $86 million expires between December 31, 2019 and December 31, 2024, and approximately $18 million of U.S. research tax credit carryforwards available to reduce future tax liabilities, the majority of which do not have an expiration date.date, and U.S. state NOLs of $465 million, which mainly begin to expire in years December 31, 2032 and forward. In addition, at December 31, 2022, the Company had $859 million of non-U.S. NOLs, the majority of which do not have an expiration date, and $42 million of U.S. research tax credit and foreign tax credit carryforwards available to reduce future tax liabilities.
The utilization of these NOLs allowances and credits is dependent upon the Company's ability to generate sufficient future taxable income and the tax laws in the jurisdictions where the losses were generated. The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of these deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. The Company considers many factors when assessing the likelihood of future realization of the deferred tax assets, including its recent cumulative earnings experience by taxing jurisdiction, expectations of future income, tax planning strategies, the carryforward periods available for tax reporting purposes and other relevant factors.
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 20172022 and 20162021 are as follows (in thousands)millions):
| December 31, | ||||||||||||||||||
| 2017 | 2016 | 2022 | 2021 | |||||||||||||||
| Deferred tax assets/(liabilities): | ||||||||||||||||||
| Deferred tax assets: | Deferred tax assets: | |||||||||||||||||
| Net operating loss carryforward — U.S. | $ | 70,750 | $ | 15,977 | Net operating loss carryforward — U.S. | $ | 95 | $ | 88 | |||||||||
| Net operating loss carryforward — International | 27,831 | 18,371 | Net operating loss carryforward — International | 176 | 137 | |||||||||||||
| Accrued expenses | 57,524 | 72,631 | Accrued expenses | 74 | 50 | |||||||||||||
| Stock-based compensation and other stock based payments | 48,104 | 60,937 | Stock-based compensation and other stock based payments | 36 | 50 | |||||||||||||
| Euro denominated debt | 57,740 | — | ||||||||||||||||
| Fixed assets | 8,600 | — | ||||||||||||||||
| Subtotal - deferred tax assets | 270,549 | 167,916 | ||||||||||||||||
| Foreign currency translation adjustment | Foreign currency translation adjustment | 83 | 48 | |||||||||||||||
| Tax credits | Tax credits | 35 | 19 | |||||||||||||||
| Operating lease liabilities | Operating lease liabilities | 29 | 38 | |||||||||||||||
| Property and equipment | Property and equipment | 126 | 95 | |||||||||||||||
| Other | Other | 7 | 11 | |||||||||||||||
| Total deferred tax assets | Total deferred tax assets | 661 | 536 | |||||||||||||||
| Valuation allowance on deferred tax assets | Valuation allowance on deferred tax assets | (120) | (37) | |||||||||||||||
| Deferred tax assets, net | Deferred tax assets, net | 541 | 499 | |||||||||||||||
| Deferred tax liabilities: | Deferred tax liabilities: | |||||||||||||||||
| Discount on convertible notes | (32,810 | ) | (77,845 | ) | Discount on convertible notes | — | (20) | |||||||||||
| Intangible assets and other | (517,353 | ) | (740,329 | ) | Intangible assets and other | (174) | (192) | |||||||||||
| Euro denominated debt | — | (117,737 | ) | |||||||||||||||
| Fixed assets | — | (2,245 | ) | |||||||||||||||
| Euro-denominated debt | Euro-denominated debt | (84) | (20) | |||||||||||||||
| State income tax on accumulated unremitted international earnings | (36,616 | ) | — | State income tax on accumulated unremitted international earnings | (8) | (8) | ||||||||||||
| Unrealized gain on investments | (70,408 | ) | — | |||||||||||||||
| Other | (9,480 | ) | (3,958 | ) | ||||||||||||||
| Subtotal - deferred tax liabilities | (666,667 | ) | (942,114 | ) | ||||||||||||||
| Valuation allowance on deferred tax assets | (43,694 | ) | (24,475 | ) | ||||||||||||||
| Unrealized gains on investments | Unrealized gains on investments | (202) | (417) | |||||||||||||||
| Operating lease assets | Operating lease assets | (26) | (37) | |||||||||||||||
| Installment sale liability | Installment sale liability | (119) | (156) | |||||||||||||||
| Deferred tax liabilities | Deferred tax liabilities | (613) | (850) | |||||||||||||||
Net deferred tax liabilities (1) | $ | (439,812 | ) | $ | (798,673 | ) | Net deferred tax liabilities (1) | $ | (72) | $ | (351) | |||||||
(1) Includes deferred tax assets of $41.3$613 million and $23.7$554 million as ofat December 31, 20172022 and 2016,2021, respectively, reportedincluded in "Other assets"assets, net" in the Consolidated Balance Sheets.
The valuation allowance on deferred tax assets of $43.7 million at December 31, 20172022 includes $26.8$29 million related to international operations and $16.9$91 million primarily related to certain unrealized losses on equity securities and Connecticut NOLs. The
109
valuation allowance on deferred tax assets at December 31, 2021 includes $26 million related to international operations and $11 million primarily related to certain U.S. research credits,federal capital loss carryforwards and Connecticut NOLs. The increase in the
valuation allowance increased by $19.2 million during the year ended December 31, 2017, principally dueis primarily related to deferred tax assets generated from certain non-U.S. NOLs acquired in the Momondo Group transaction.unrealized losses on equity securities.
Reconciliation of U.S. Federal Statutory Income Tax Rate to Effective Income Tax Rate
A significant portion of the Company's taxable earnings areis generated in the Netherlands. According to Dutch corporate income tax law, income generated from qualifying innovative activities is taxed at a rate of 5%9% ("Innovation Box Tax") for periods beginning on or after January 1, 2021 rather than the Dutch statutory rate of 25%. Previously, the Innovation Box Tax rate was 7%. Effective January 1, 2022, the Netherlands corporate income tax rate increased from 25% to 25.8%. A portion of Booking.com's earnings during the years ended December 31, 2017, 20162022, 2021, and 2015 qualifies2020 qualified for Innovation Box Tax treatment, which had a significant beneficial impact on the Company's effective tax rate for those years. During December 2017, legislation was enacted in the Netherlands that increased the Innovation Box Tax rate to 7%, effective for tax years beginning on or after January 1, 2018.
The effective income tax rate of the Company is different from the amount computed using the expected U.S. statutory federal rate of 35%21% for the years ended December 31, 2022, 2021, and 2020 as a result of the following items (in thousands)millions):
| Year Ended December 31, | ||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2022 | 2021 | 2020 | |||||||||||||||||||||||
| Income tax expense at federal statutory rate | $ | 1,539,413 | $ | 949,633 | $ | 1,094,912 | ||||||||||||||||||||||
| Income tax expense at U.S. federal statutory rate | Income tax expense at U.S. federal statutory rate | $ | 824 | $ | 308 | $ | 119 | |||||||||||||||||||||
| Adjustment due to: | Adjustment due to: | |||||||||||||||||||||||||||
| Foreign rate differential | (458,252 | ) | (377,542 | ) | (316,078 | ) | Foreign rate differential | 264 | 137 | 55 | ||||||||||||||||||
| Innovation Box Tax benefit | (397,074 | ) | (324,633 | ) | (260,193 | ) | Innovation Box Tax benefit | (452) | (230) | (79) | ||||||||||||||||||
| Impairment of goodwill and cost-method investment | — | 343,484 | — | |||||||||||||||||||||||||
| Tax Act - Remeasurement of deferred tax balances | (216,572 | ) | — | — | ||||||||||||||||||||||||
| Tax Act - U.S. transition tax and other transition impacts | 1,562,532 | — | — | |||||||||||||||||||||||||
| Goodwill impairment | Goodwill impairment | — | — | 228 | ||||||||||||||||||||||||
| Stock-based compensation | Stock-based compensation | 42 | 37 | 32 | ||||||||||||||||||||||||
| Federal GILTI | Federal GILTI | 10 | 17 | 73 | ||||||||||||||||||||||||
| State income tax benefit | State income tax benefit | (31) | (6) | (31) | ||||||||||||||||||||||||
| Valuation allowance | Valuation allowance | 87 | (19) | 36 | ||||||||||||||||||||||||
| Uncertain tax positions | Uncertain tax positions | 72 | 39 | 64 | ||||||||||||||||||||||||
| Tax Act - U.S. transition tax benefit and other transition impacts | Tax Act - U.S. transition tax benefit and other transition impacts | — | — | (8) | ||||||||||||||||||||||||
| Other | 27,510 | (12,691 | ) | 58,319 | Other | 49 | 17 | 19 | ||||||||||||||||||||
| Income tax expense | $ | 2,057,557 | $ | 578,251 | $ | 576,960 | Income tax expense | $ | 865 | $ | 300 | $ | 508 | |||||||||||||||