an ADRs are still trending positively. They’re up on a year-on-year basis and they’re up in — across all regions on a year-on-year basis. So we’re not seeing any slowdown in ADRs. And when we — we’ve been looking at some of the things, I’m sure, behind your question but we’re not seeing a reduction in ADRs in any region on a year-on-year basis or on a year-on-year basis. So we see ADRs continue to hold very strongly.
Kevin Kopelman: Great. And then, one other question. Could you talk about a little bit about the dynamics in the U.S. market. What are you seeing in the U.S. that’s causing your growth to be a little bit slower there? And how do you feel about your market share in the U.S.
David Goulden: We feel that obviously, our U.S. business is still growing very, very strongly compared to 2019. And we have — seeing that growth relative to 2019 come down a little bit. But we feel that a part — we still feel it’s — when you look at how our business is vis-à-vis 2019 is significantly bigger than it was before and it’s still growing at a very healthy rate vis-à-vis 2019. So we don’t really worry about that.
Glenn Fogel: And I would just add, my conversations with our partner, some of our biggest partners and with their senior management, the critical thing for me is, are we providing them with what they need? Are we providing incremental business to them that helps them do better in their business? And do you feel that we are valuable to what you need. And I only heard positive things from all the people that I speak to in regards to where we are today versus where we were in the past. And it’s a much more complementary relationship and I believe that will help us in the future to continue to build on that.
Operator: Your next question comes from the line of Lee Horowitz from Deutsche Bank.
Lee Horowitz: Great. Maybe sticking with some of the comments around direct. You guys continue to post impressive direct booking results and app growth. Maybe looking beyond this year, how does this price of execution within the direct channel inform the way you see margin progression beyond 2023? And then, maybe one on VR. continue to indicate that you guys seem to be picking up some share in the U.S. vacation rental market, an area where you’ve been perhaps underrepresented. I guess what do you owe maybe some of the improvements you’re seeing within the U.S. VR industry? And then looking forward, what are the things you think you can you need to continue to do in order to really scale up that business in line with some of your competitors?
Glenn Fogel: So why don’t I start Lee — going to start with — as you put it up VR, vacation rental — I’d like to use alternative accommodation. Neither one is a great customer-friendly term, of course. Let me talk about that and then I’ll let David talk about the direct business of what that may or may not indicate when you go into the share in terms of margins down the road. And I talked a little bit about in my prepared remarks about some of the things we are doing in terms of the alternative accommodations area in the U.S. to build that business and you were very polite to say that maybe — that we may under index where we said, it’s very nice to say because I continue to admit that in the past, we have not been hitting that as well as we showed that we were behind where I thought we should be, especially since we do fairly well in that in other parts world, particularly in Europe.
Things that we’ve been doing are things that I talk about, first of all, is you got to make sure you’re providing a good service to the people who own the home, who own the apartments. Are we doing things like liability insurance. Well, now we have something like that. Damage waiver type stuff. So we have that. Yes, we do. Last time I talked about how we were testing out an ability to request to book because some people or properties, they don’t want to have automatic booking. They want to have a request to book system, so we are developing out back. Once you start getting that in, you had start saying, well, are people aware of your product? Because as I said, there wasn’t a lot of — people didn’t have a lot of knowledge that we had such a product.
And I was just to joke that if you went down in New York City and you said something on the street and said, I need a place in the Hamptons, where shall I go, I could almost guarantee you they weren’t going to say Booking.com. Well, we need to get that supplies once we have it, then we got to make people aware that we have the supplies. We have to build all that. So there’s nothing miracle about this. This is tackling business 101. Get your supply out there, make it attractive and then make sure people know about it and that’s what we’ve been doing, cranking away at it. And I’m pleased and I said it’s really nice to see us starting to hit it. It can come up with their mix in the U.S. at all-time high in terms of alternative accommodation in part of our total mix, along with having absolute number of alternative accommodation room night bookings.
So I am pleased with the progress that we’re making and I know that we had to continue that because I know customers like this product and this is an area where we have growth possibilities. And David, regarding direct only, do you want to?
David Goulden: Sure. Direct mix obviously is very tied to our strategy. Our strategy is to build a better product, provide better service for our customers and partners and get those customers to come back to us more frequently and more directly after we’ve acquired them in the first place to which shall we bring them into the portfolio the first time around. So it really does tie to executing against our strategy and lots of things that we do, many things that we do contribute to that better products. I could talk about alternative accommodation, I can talk about payments, we can talk about adding flights to all these things just create a better service for our customer and therefore, we’re more likely to get them back directly.
So it’s very much tied to our strategy. It is also tied to your financial model because we made the comment last quarter on February, that we’re obviously not targeting pre-COVID margin level because of the mix shift in the business for some of these new areas that we’re now focused in but we do expect to be able to grow our EBITDA margin above the levels we’re at in 2023 and the biggest driver, that would be continue to increase our direct mix. We’d also expect to be able to do better from a leverage on our more fixed costs going forward. And those themselves would kind of more than offset the pressure from the mix of lower-margin businesses as they grow within our portfolio. So continuing to improve our direct mix is very important for both the strategy and the financial model and will be the major sources to be able to provide some margin expansion beyond where we are this year.
Operator: Your next question comes from the line of John Colantuoni from Jefferies.
John Colantuoni: Hoping you could update us on your strategy in the U.S. market. You’ve had a lot of success gaining share in recent years but I’m curious if you could update us on your learning so far about sort of the return on investments and how that’s informing your aspirations to continue pursuing that opportunity as aggressively as you have been? And second, you sort of characterized investing ahead of the travel recovery to gain share throughout 2021 and 2022. I’m curious if that’s your strategy in the Asia Pacific region as that market recovers. And if you have any early reads on returns on that investment.
Glenn Fogel: Yes. So I’ll start off by saying that I’m very pleased with how the strategy has been working out in the U.S. given our gain in share. As David mentioned, we have a bigger business than we did in 2019. It’s been growing nicely. I really do think that it’s achieving what we’ve been trying to accomplish which is to not be the under-indexed player than we were in the past and we’re making good progress there. In terms of the absolute ROIs on these things, we don’t break them out by region at all. But I will say that, obviously, we are very conscious of spending money the right way to get the right return. And we are — came out of the business. Previously, I was in China. I know how important is to make sure that you’re getting your money’s worth to where you’re spending it and we are doing that.
Now, I think it’s just going forward strategy work and to see us continuing in the same thing. And in terms of Asia, it was not dissimilar that we want to make sure when people are going to start traveling, we don’t want to wait until you’re halfway down the track to get out of the gate. That would not be the best move. Get out in front, be there when the traveller wants to start traveling and providing them with what they want. And that we’ve been doing and we just talked a little bit about how we were very pleased with the first quarter for Asia growth. And I think, hopefully, it will continue the same way.
Operator: Your next question comes from the line of Deepak Mathivanan from Wolfe Research.
Zachary Morrissey: Great. This is Zach on for Deepak. Just first on the fixed cost you — or I guess the first half is kind of tracking above the kind of 20% growth that you kind of outlined last quarter. And the 1Q to 2Q is also kind of sequentially stepping up a little bit here. Just curious on your thoughts on how we should think about the fixed cost growth kind of maybe sequentially kind of into the back half of the year and into next year? And then second on just the buybacks. I think 1Q came in this stronger than we were expecting. Just curious how we should think about kind of the puts and takes in terms of the cadence of buybacks through the rest of the year, is 1Q kind of a good run rate? Or how should we think of that?
Glenn Fogel: David, you’re the owner of the P&L there, looking that you want to take on the cost.
David Goulden: Yes. On the cost side, yes, I mean, we talked about being 25% in the first quarter — we talked about being 25% in the second quarter. So obviously, that’s going to put a little bit of pressure on our guidance for the full year. But what I’d say just generally, when you look at anything that’s in the kind of full year view, we’ve not updated our guidance, there are going to be some — likely go to be some puts and takes for the full year at the line item level but we’re not going to update that line item detail today other than just recommit that we’ll have a margin expansion by a couple of points versus 2022. Remember, next year, we said that we do expect our fixed cost to grow more slowly next year than we expect them to grow this year and that continues to be the case.
Glenn Fogel: And regarding buybacks, I think we laid it out a little bit. You know what our plan is. You know what we’re doing. And I’m not sure there’s any more color I can give and we’re pleased with where we are.
Operator: And your next question comes from the line of Jed Kelly from Oppenheimer.
Unidentified Analyst: This is Josh on for Jed. Just wondering, if you can maybe speak to how recent improvements in payments is resonating with U.S. property managers and their opportunity to increase share?
Glenn Fogel: Sure, Josh. Payments is an important part of the business. I’ve talked in the past about how it’s the glue that brings everything together, along with making it easier for both the customer traveller and for the partner. And I think the growth in the amount of our business going through payments is a good indicator that is working and being accepted well. Customers have choice, both the traveller and the partner. Both of them can choose to use the payments or not. The fact that it’s going up to me would be proof positive that people are finding it useful. And I believe in the long run, it’s very — being very, very helpful as we continue to build out the connected trip further.
Operator: And your next question comes from the line of Stephen Ju from Credit Suisse.
Stephen Ju: So Glenn and David, your merchant booking dollars are now at parity with your agency dollars. So just wondering how much of this is due to the ramp in air versus a more proactive choice to consumer may be making and they’re lodging product selections — to your point earlier, to alternative accommodations. And I guess doing more merchant and the rise in deferred merchant bookings there should improve your free cash flow generation. So does this change your capital allocation plans a little bit?
David Goulden: On the second question, no, the capital allocation plan that we talked about last quarter, that Glenn summarized earlier, anticipated that we would be continuing to increase our merchant mix. So on that piece, there is no change. In terms of where is that merchant increase coming from, just to remind us all, it’s really coming from a mix shift inside of Booking.com where we are moving from what used to be almost entirely an agency model now to a much more balanced model. That is the biggest change would be in accommodations. That’s still, by far, the biggest part of the business, although our flights grows, it’s having an impact. But what’s really driving the changes that you’re seeing is the increase in merchant mix across our accommodations business, our Booking.com.
Operator: Your next question comes from the line of James Lee from Mizuho.
James Lee: Two here. Can you guys maybe give us an updated outlook on ADRs. I think previously, you talked about expectation being maybe flattish on constant currency for FY ’23. And also, David, maybe you can remind us — talk about some of the puts and takes on take rate for your expectation for 2020.
David Goulden: We said that we expect our ADRs for the second quarter just to kind of continue the picture. We expect our ADRs for the second quarter to be up slightly on on-year basis. As I mentioned in one of my earlier answers, we’re not out — we’re not updating every single line item on our full year guidance. But if they continue to hold at the current level, there may be a little bit of upside compared to what we said on the last call on ADRs. As I said, there’ll be some puts and takes up and down our full set of guidance. But we’re not specifically updating our guidance or giving you anything beyond what we’re talking about for Q2. We’ll have to wait and see how that all develops. But I think you can see from where we were in Q1, plus what we’re expecting in Q2, things are trending positively.
Operator: And your next question comes from the line of Richard Clarke from Bernstein.
