Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022, including Part I, Item 1A "Risk Factors," as well as our Unaudited Consolidated Financial Statements and accompanying notes and the Section entitled "Special Note Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q. The information on our websites is not a part of this Quarterly Report and is not incorporated herein by reference.

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 make it easier for everyone to experience the world. We connect consumers who wish to make 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, Priceline, Agoda, Rentalcars.com, KAYAK, and OpenTable.

We derive substantially all of our revenues 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 services. See Note 2 to our Unaudited Consolidated Financial Statements for more information.

Trends

The COVID-19 pandemic and the resulting implementation of travel restrictions by governments around the world resulted in a significant decline in travel activities and consumer demand for related services. Accommodation room nights, which include the impact of cancellations, declined rapidly as the COVID-19 pandemic spread in 2020. Since the second quarter of 2020 and through the second quarter of 2023, changes in accommodation room nights versus the comparable period in 2019 have generally improved as government-imposed travel restrictions have eased and consumer demand for travel has generally rebounded. In 2022, global room nights were 52% higher than in 2021 and 6% higher than in 2019. The year-over-year growth in room nights in 2022 was driven primarily by the recovery in Europe, Asia, and Rest of World, as well as by growth in North America. In the first quarter of 2023, global room nights were 38% higher than the first quarter of 2022, as the impact of the COVID-19 pandemic lessened, and were 26% higher than the first quarter of 2019. The year-over-year growth in room nights in the first quarter of 2023 was driven primarily by the continued recovery in Europe and Asia. In the second quarter of 2023, global room nights were 9% higher than the second quarter of 2022 and were 26% higher than the second quarter of 2019. The year-over-year growth in room nights in the second quarter of 2023 was driven primarily by the continued recovery in Asia. In the first half of 2023, the booking window expanded as compared to the first half of 2022 and 2019, which benefited room night growth in the first half of 2023 as compared to the respective prior-year periods.

To illustrate the impact of the COVID-19 pandemic and recovery over time, the charts below compare results against the comparable period in the prior year and 2019.

Quarterly Room Nights and Change versus the prior year and 2019

In early March 2022, following Russia's invasion of Ukraine, we suspended the booking of travel services 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 each comparable period, our overall room nights in the second quarter of 2023 were up about 8% versus 2022 and up about 30% versus 2019.

We have observed a general improvement in cancellation rates in recent years, though we have seen periods of elevated cancellation rates from time to time, such as following the imposition of new travel restrictions during the COVID-19 pandemic. The cancellation rate in the second quarter of 2023 increased compared to the cancellation rate in the second quarter of 2022, which benefited from a strong recovery of new bookings following the relaxation of travel restrictions in many parts of the world. The cancellation rate in the second quarter of 2023 remained lower than the comparable period in 2019.

Because we recognize revenue from bookings when the traveler checks in, our reported revenue is not at risk of being reversed due to cancellations. Increases in cancellation rates can negatively impact our marketing efficiency as a result of incurring performance marketing expense at the time a booking is made even though that booking could be canceled in the future if it was booked under a flexible cancellation policy. There are many factors in addition to cancellation rates that contribute to marketing efficiency including average daily rates ("ADRs"), costs per click, foreign currency exchange rates, our ability to convert paid traffic to booking consumers, the timing and effectiveness of our brand marketing campaigns, and the extent to which consumers come directly to our platforms for bookings. Significant increases in cancellation rates such as those experienced during the second quarter of 2020 may increase our customer service costs.

Since the second quarter of 2020, government-imposed travel restrictions have generally limited 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 easing of government-imposed travel restrictions throughout the world helped drive an increase in the mix of our room nights booked for international travel in the second quarter of 2023 as compared to the second quarter of 2022. The second quarter of 2023 was the first quarter we saw our international mix fully recover to 2019 levels.

The mix of our room nights booked on a mobile device in the second quarter of 2023 increased compared to the second quarter of 2022. The revenue earned on a transaction from a mobile device may be less than a typical desktop transaction as we see different consumer purchasing patterns across devices. For example, accommodation reservations made on a mobile device typically are for shorter lengths of stay and have lower accommodation ADRs. The mix of our room nights booked on a mobile app in the second quarter of 2023 was above the mix in the second quarter of 2022. We continue to see favorable repeat direct booking behavior from consumers in our mobile apps, which allow us more opportunities to engage directly with consumers.

Our global ADRs increased approximately 5% on a constant currency basis in the second quarter of 2023 as compared to the second quarter of 2022, driven primarily by higher ADRs in Europe as well as increases in ADRs across most other regions as compared to the second quarter of 2022. The increase in our global ADRs in the second quarter of 2023, as compared to the second quarter of 2022, was negatively impacted by approximately three percentage points from changes in geographical mix in our business driven primarily by a higher mix of room nights from Asia, which is a lower ADR region, and a lower mix of room nights from North America, which is a higher ADR region.

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 recovered 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 the second quarter of 2023 as compared to the second quarter of 2022, it remains highly uncertain what the trend in industry ADRs will look like going forward.

As part of our strategy to provide more payment options to consumers and travel service providers, increase the number and variety of accommodations available on Booking.com, and enable our long-term strategy to build a more integrated offering of multiple elements of travel connected by a payment platform, which we refer to as the "Connected Trip," 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 Unaudited Consolidated Statements of Operations, as well as associated incremental revenues (e.g., credit card rebates), which are recorded in "Merchant revenues." The mix of our gross bookings generated on a merchant basis was 53% in the second quarter of 2023, an increase from 44% in the second quarter of 2022. To the extent more of our business is generated on a merchant basis, we incur a greater level of these merchant-related expenses, which negatively impacts our operating margins despite increases in associated incremental revenues. 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.

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 $1.8 billion in the second quarter of 2023, up 4% versus the second quarter of 2022 as a result of the improving demand environment and our efforts to invest in marketing, partially offset by a year-over-year improvement in performance marketing returns on investment ("ROIs") and a higher share of room nights booked by consumers coming directly to our platforms. 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 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 the second quarter of 2023 were lower than the second quarter of 2022 due to higher performance marketing ROIs and an increase in the share of room nights booked by consumers coming directly to our platforms. Performance marketing ROIs were higher in the second quarter of 2023 versus the second quarter of 2022 due in part to our ongoing efforts to improve the efficiency of our marketing spend.

Historically, our growth has primarily been generated by the worldwide accommodation reservation business of Booking.com due in part to the availability of a large number of properties on its website, including approximately 3.1 million properties at June 30, 2023, consisting of over 450,000 hotels, motels, and resorts and over 2.6 million alternative accommodation properties (including homes, apartments, and other unique places to stay), and representing an increase from over 2.5 million properties at June 30, 2022. 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 the second quarter of 2023 was approximately 34%, up versus approximately 32% in the second quarter of 2022. 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 experience lower profit margins due to additional costs, such as increased customer service costs, related to offering alternative accommodations on our platforms. As our alternative accommodation business has grown, these different characteristics have negatively impacted our profit margins and this trend may continue.

Although we believe that providing an extensive collection of properties, excellent customer service, and an intuitive, easy-to-use consumer experience are important factors influencing a consumer's decision to make a reservation, for many consumers, the price of the travel service is the primary factor determining whether a consumer will book a reservation. Discounting and couponing (i.e., merchandising) occurs across all of the major regions in which we operate, particularly in 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. As a result, it is increasingly important to offer travel services, such as accommodation reservations, at a competitive price, whether through discounts, coupons, closed-user group rates or loyalty programs, increased flexibility in cancellation policies, or otherwise. These initiatives have resulted and, in the future, may result in lower ADRs and lower revenue as a percentage of gross bookings. Our investments in merchandising have negatively impacted total revenue as a percentage of gross bookings similarly in the second quarter of 2023 and 2022.

Many taxing authorities are increasingly focused on ways to increase tax revenues and have targeted large multinational technology companies in these efforts. As a result, many countries and some U.S. states have implemented or are considering the adoption of a digital services tax or similar tax that imposes 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 10% of revenue deemed generated in the jurisdiction. The digital services taxes currently in effect, which we record in "General and administrative" expense in the Unaudited Consolidated Statements of Operations, have negatively impacted our results of operations. While the Organisation for Economic Co-operation and Development has been working on multinational tax changes that could require all member parties to remove all digital services taxes, the timing for completion of that project has been delayed and many details remain uncertain. If that project is significantly delayed or not completed, more countries could implement digital services taxes, which could negatively impact our results of operations and cash flows.

Increased regulatory focus on online businesses, including online travel businesses like ours, could result in increased compliance costs or otherwise adversely affect our business. For example, 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" (VLOP) under the DSA. Earlier in the year, Booking.com received a VLOP designation notice from the European Commission. Booking.com has determined it does not currently meet the “gatekeeper” notification criteria set forth in the DMA due to the negative impact of COVID-19 on its business. We expect that these thresholds will likely be met at the end of 2023, in which case we expect to notify the European Commission as required. For information regarding risks related to the DMA and DSA, please see 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." in our Annual Report on Form 10-K for the year ended December 31, 2022. For more information on the impacts of regulations on our business, see Note 13 to our Unaudited Consolidated Financial Statements.

Our businesses outside of the U.S. (see Note 2 to our Unaudited Consolidated Financial Statements for information related to revenue by geographic area) represent a substantial majority of our financial results, but because we report our results in U.S. Dollars, we face exposure to movements in foreign currency exchange rates as the financial results and the financial condition of our businesses outside of the U.S. are translated from local currency (principally Euros and British Pounds Sterling) into U.S. Dollars. As a result of the movements in foreign currency exchange rates, both the absolute amounts of and percentage changes in our foreign-currency-denominated net assets, gross bookings, revenues, operating expenses, and net income as expressed in U.S. Dollars are affected. Our total revenues increased by 27% in the second quarter of 2023 as compared to the second quarter of 2022, but without the impact of changes in foreign currency exchange rates our total revenues increased year-over-year on a constant-currency basis by approximately 28%. 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. We generally enter into derivative instruments to minimize the impact of foreign currency exchange rate fluctuations. We enter into foreign currency forward contracts to hedge our exposure to the impact of movements in foreign currency exchange rates on our transactional balances denominated in currencies other than the functional currency. See Note 6 to our Unaudited Consolidated Financial Statements for additional information related to our derivative contracts. In addition, we designate certain portions of the aggregate principal value of our Euro-denominated debt as a hedge of the foreign currency exposure of the net investment in certain Euro functional currency subsidiaries. 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 the Unaudited Consolidated Statements of Operations (see Notes 9 and 14 to our Unaudited Consolidated Financial Statements). Such foreign currency transaction gains or losses are dependent on the amount of net assets of the Euro functional currency subsidiaries, the amount of the Euro-denominated debt that is designated as a hedge, and fluctuations in foreign currency exchange rates.

Other Factors

Over the long term, we intend to continue to invest in marketing and promotion, technology, and personnel within parameters consistent with attempts to improve long-term operating results, even if those expenditures create pressure on operating margins. In recent years, we have experienced pressure on operating margins as we invested in initiatives to drive future growth. We also intend to broaden the scope of our business, including exploring strategic alternatives such as acquisitions.

The competition for technology talent in our industry is intense. As a result of the competitive labor market and inflationary pressure on compensation, our personnel expenses to attract and retain key talent have increased, which has adversely affected our results of operations and may adversely affect our results of operations in the future.

Outlook

In July 2023, we continued to see strong travel demand with room night growth of about 20% relative to July 2022. For the third quarter of 2023, we assume room nights will grow at a low double digits percentage relative to the third quarter of 2022. Given that assumption for room night growth, we expect the following for the third quarter of 2023:

• the year-over-year growth in gross bookings will be about seven percentage points higher than the year-over-year growth in room nights;

• revenues as a percentage of gross bookings will be slightly higher than it was in the third quarter of 2022; and

• operating profit will be higher than in the third quarter of 2022.

Given the strong level of bookings we have seen in the first half of 2023 and into July, we are updating our outlook for full-year 2023. For the full year, assuming room nights increase in 2023 compared to 2022 by a mid-teens percentage, we expect the following:

• the year-over-year growth in gross bookings will be slightly over 20%;

• revenues as a percentage of gross bookings will be higher than it was in 2022; and

• operating profit will be higher than in 2019 and 2022.

Critical Accounting Estimates

Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our Unaudited Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). 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. We use our judgment to determine the appropriate assumptions to be used in the determination of certain estimates and we evaluate our estimates on an ongoing basis. Estimates are based on 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. Matters that involve significant estimates and judgments of management include the valuation of investments in private companies, the valuation of goodwill and other long-lived assets, income taxes, and contingencies. For a discussion of our critical accounting estimates, see the "Critical Accounting Estimates" section of the Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022. The "Critical Accounting Estimates" section in our Annual Report on Form 10-K for the year ended December 31, 2022 includes additional information on the valuation of our investment in Yanolja. See Notes 5 and 6 to our Unaudited Consolidated Financial Statements for information on impairment charges recognized during the three and six months ended June 30, 2023 and 2022.

Recent Accounting Pronouncements

See Note 1 to our Unaudited Consolidated Financial Statements, which is incorporated by reference into this Item 2, for details regarding recent accounting pronouncements.

Results of Operations

Three and Six Months Ended June 30, 2023 compared to the Three and Six Months Ended June 30, 2022

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 impacted our year-over-year growth in gross bookings, revenues, and operating expenses for the three and six months ended June 30, 2023. 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. See "Results of Operations" in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on our Operating and Statistical Metrics, including room nights, rental car days, airline tickets, and merchant and agency gross bookings.

Room nights, rental car days, and airline tickets reserved through our services for the three and six months ended June 30, 2023 and 2022 were as follows:

						Three Months Ended June 30,												Increase (Decrease)						Six Months Ended June 30,												Increase (Decrease)
(in millions)						2023						2022									2023						2022
Room nights						268						246						8.8		%				542						444						21.9		%
Rental car days						20						16						24.0		%				39						32						23.4		%
Airline tickets						9						6						58.3		%				17						10						65.2		%

Room nights reserved through our services increased for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, driven primarily by the continued recovery in Asia. Room nights reserved through our services increased for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, driven primarily by the continued recovery in Asia and Europe.

Rental car days reserved through our services increased for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, driven primarily by year-over-year growth in rental car demand, which benefited from lower average daily car rental prices.

Airline tickets reserved through our services increased for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, driven primarily by the expansion of Booking.com’s flight offering.

Gross bookings resulting from reservations of room nights, rental car days, and airline tickets made through our merchant and agency categories for the three and six months ended June 30, 2023 and 2022 were as follows (numbers may not total due to rounding):

						Three Months Ended June 30,												Increase (Decrease)						Six Months Ended June 30,												Increase (Decrease)
(in millions)						2023						2022									2023						2022
Merchant gross bookings						$	21,122					$	15,097					39.9		%				$	41,049					$	26,104					57.3		%
Agency gross bookings						18,570						19,448						(4.5)		%				38,070						35,734						6.5		%
Total gross bookings						$	39,692					$	34,545					14.9		%				$	79,119					$	61,838					27.9		%

Merchant gross bookings increased for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022 due to the continued improvement in travel demand trends, as well as the expansion of merchant accommodation reservation services at Booking.com. Agency gross bookings decreased for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, almost entirely due to the ongoing shift from agency bookings to merchant bookings at Booking.com. Agency gross bookings increased for the six months ended June 30, 2023, compared to the

six months ended June 30, 2022, due primarily to the year-over-year increase in agency gross bookings in the first quarter of 2023, partially offset by the year-over-year decrease in agency gross bookings in the second quarter of 2023.

The year-over-year increase in gross bookings during the three and six months ended June 30, 2023 was due primarily to the increase in room nights, the increase in constant-currency accommodation ADRs of approximately 5% and 7%, respectively, and the positive impact from year-over-year growth in gross bookings from reservations for airline tickets, partially offset by the negative impact of foreign exchange rate fluctuations.

Gross bookings resulting from reservations of airline tickets increased 62% and 82% year-over-year, during the three and six months ended June 30, 2023, respectively, due to higher airline ticket growth and ticket price increases. Gross bookings resulting from reservations of rental car days decreased 9% and 4% year-over-year, during the three and six months ended June 30, 2023, respectively, due primarily to lower average daily car rental prices, partially offset by higher rental car days growth.

Revenues

Online travel reservation services

Substantially all of our revenues are generated by providing online travel reservation services, which facilitate online travel purchases between travel service providers and travelers. See "Results of Operations" in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on our revenues, including merchant and agency revenues.

Advertising and other revenues

See "Results of Operations" in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on our advertising and other revenues.

						Three Months Ended June 30,												Increase (Decrease)						Six Months Ended June 30,												Increase (Decrease)
(in millions)						2023						2022									2023						2022
Merchant revenues						$	2,770					$	1,749					58.4		%				$	4,522					$	2,799					61.6		%
Agency revenues						2,429						2,301						5.5		%				4,211						3,751						12.3		%
Advertising and other revenues						263						244						8.0		%				507						439						15.4		%
Total revenues						$	5,462					$	4,294					27.2		%				$	9,240					$	6,989					32.2		%
% of Total gross bookings						13.8		%				12.4		%										11.7		%				11.3		%

Merchant, agency, and advertising and other revenues increased for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, due primarily to the continued improvement in travel demand trends, partially offset by the negative impact of foreign exchange rate fluctuations. Merchant revenues for the three and six months ended June 30, 2023 increased more than agency revenues due to the ongoing shift from agency revenues to merchant revenues at Booking.com.

Total revenues as a percentage of gross bookings were 13.8% and 11.7% for the three and six months ended June 30, 2023, respectively, an increase from 12.4% and 11.3% for the three and six months ended June 30, 2022, respectively, due primarily to a less negative impact from differences in the timing of booking versus travel in the three and six months ended June 30, 2023.

Operating Expenses

Marketing Expenses

						Three Months Ended June 30,												Increase (Decrease)						Six Months Ended June 30,												Increase (Decrease)
(in millions)						2023						2022									2023						2022
Marketing expenses						$	1,801					$	1,737					3.6		%				$	3,318					$	2,884					15.0		%
% of Total gross bookings						4.5		%				5.0		%										4.2		%				4.7		%
% of Total revenues						33.0		%				40.5		%										35.9		%				41.3		%

Marketing expenses consist primarily of the costs of:

• search engine keyword purchases;

• affiliate programs;

• referrals from meta-search and travel research websites;

• offline and online brand marketing; and

• other performance-based marketing.

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 our marketing channels to generate a significant amount of traffic to our websites. For the three and six months ended June 30, 2023, our marketing expenses, which are substantially variable in nature, increased compared to the three and six months ended June 30, 2022, to help drive additional gross bookings and revenues. Marketing expenses as a percentage of total gross bookings decreased for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, due to year-over-year increases in performance marketing ROIs and year-over-year increases in the mix of direct traffic. Performance marketing ROIs were higher in the second quarter of 2023 versus the second quarter 2022 due in part to our ongoing efforts to improve the efficiency of our marketing spend.

Sales and Other Expenses

						Three Months Ended June 30,												Increase (Decrease)						Six Months Ended June 30,												Increase (Decrease)
(in millions)						2023						2022									2023						2022
Sales and other expenses						$	666					$	465					43.2		%				$	1,208					$	804					50.2		%
% of Total gross bookings						1.7		%				1.3		%										1.5		%				1.3		%
% of Total revenues						12.2		%				10.8		%										13.1		%				11.5		%

Sales and other expenses consist primarily of:

• credit card and other payment processing fees associated with merchant transactions;

• fees paid to third parties that provide call center and other customer services, airline ticketing-related services, website content translations, and other services;

• chargeback provisions and fraud prevention expenses associated with merchant transactions;

• provisions for expected credit losses, primarily related to accommodation commission receivables and prepayments to certain customers;

• customer relations costs; and

• travel transaction taxes.

For the three and six months ended June 30, 2023, sales and other expenses, which are substantially variable in nature, increased compared to the three and six months ended June 30, 2022, due primarily to an increase in merchant transaction costs of $109 million and $239 million, respectively, and an increase in third-party call center costs of $57 million and $119 million, respectively. Merchant transactions increased year-over-year in the first half of 2023 due to the continued improvement in travel demand trends, as well as the expansion of merchant accommodation reservation services at Booking.com. The year-over-year increase in third-party call center costs in the first half of 2023 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 other expenses.

Personnel

						Three Months Ended June 30,												Increase (Decrease)						Six Months Ended June 30,												Increase (Decrease)
(in millions)						2023						2022									2023						2022
Personnel						$	752					$	635					18.5		%				$	1,474					$	1,231					19.7		%
% of Total revenues						13.8		%				14.8		%										16.0		%				17.6		%

Personnel expenses consist primarily of:

• salaries;

• stock-based compensation;

• bonuses;

• payroll taxes; and

• employee health and other benefits.

Personnel expenses, excluding stock-based compensation, increased 18.7% and 19.7% year-over-year for the three and six months ended June 30, 2023, respectively, due to an increase in salary expense of $80 million and $152 million, respectively, and an increase in bonus expense accruals of $16 million and $33 million, respectively. Employee headcount of approximately 23,100 as of June 30, 2023 increased by 19% as compared to June 30, 2022. Personnel expenses for the three and six months ended June 30, 2023 and employee headcount as of June 30, 2023 were reduced due to the transfer of certain customer service operations of Booking.com to Majorel, which shifted costs from personnel expenses to sales and other expenses. Stock-based compensation expense for the three and six months ended June 30, 2023 was $128 million and $241 million, respectively, compared to $108 million and $201 million for the three and six months ended June 30, 2022, respectively.

General and Administrative

						Three Months Ended June 30,												Increase (Decrease)						Six Months Ended June 30,												Increase (Decrease)
(in millions)						2023						2022									2023						2022
General and administrative						$	304					$	207					47.6		%				$	593					$	365					62.4		%
% of Total revenues						5.6		%				4.8		%										6.4		%				5.2		%

General and administrative expenses consist primarily of:

• indirect taxes such as digital services taxes and certain travel transaction taxes;

• occupancy and office expenses;

• fees for outside professionals; and

• personnel-related expenses such as travel, relocation, recruiting, and training expenses.

General and administrative expenses increased for the three months ended June 30, 2023, compared to the three months ended June 30, 2022 due to an increase of $50 million in indirect taxes, which was impacted by a $23 million accrual related to the settlement of certain indirect tax matters. The year-over-year increase in general and administrative expenses for the three months ended June 30, 2023 was also due to an increase of $20 million in fees for outside professionals. General and administrative expenses increased for the six months ended June 30, 2023, compared to the six months ended June 30, 2022 due to an increase of $130 million in indirect taxes, which was impacted by a $62 million accrual related to the settlement of certain indirect tax matters as well as by the reversal in the first quarter of 2022 of accruals for certain travel transaction taxes of approximately $25 million (see Note 13 to our Unaudited Consolidated Financial Statements). The year-over-year increase in general and administrative expenses for the six months ended June 30, 2023 was also due to an increase of $36 million in personnel-related expenses.

Information Technology

						Three Months Ended June 30,												Increase (Decrease)						Six Months Ended June 30,												Increase (Decrease)
(in millions)						2023						2022									2023						2022
Information technology						$	144					$	137					5.5		%				$	281					$	271					3.7		%
% of Total revenues						2.6		%				3.2		%										3.0		%				3.9		%

Information technology expenses consist primarily of:

• software license and system maintenance fees;

• cloud computing costs and outsourced data center costs;

• payments to contractors; and

• data communications and other expenses associated with operating our services.

Information technology expenses increased during the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 due primarily to increased cloud computing costs and outsourced data center costs.

Depreciation and Amortization

						Three Months Ended June 30,												Increase (Decrease)						Six Months Ended June 30,												Increase (Decrease)
(in millions)						2023						2022									2023						2022
Depreciation and amortization						$	121					$	107					12.7		%				$	241					$	218					10.4		%
% of Total revenues						2.2		%				2.5		%										2.6		%				3.1		%

Depreciation and amortization expenses consist of:

• amortization of intangible assets with determinable lives;

• amortization of internally-developed and purchased software;

• depreciation of computer equipment; and

• depreciation of leasehold improvements, furniture and fixtures, and office equipment.

Depreciation and amortization expenses increased during the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, due primarily to increased amortization expense related to internally-developed and purchased software.

Restructuring, disposal, and other exit activities

						Three Months Ended June 30,												Increase (Decrease)						Six Months Ended June 30,												Increase (Decrease)
(in millions)						2023						2022									2023						2022
Restructuring, disposal, and other exit activities						$	1					$	6					(86.8)		%				$	2					$	42					(94.6)		%

Restructuring, disposal, and other exit activities for the three and six months ended June 30, 2022 relate to the loss on transfer of certain customer service operations of Booking.com to Majorel. See Note 15 to our Unaudited Consolidated Financial Statements for additional information.

Interest Expense and Other Income (Expense), Net

Interest Expense

						Three Months Ended June 30,																		Six Months Ended June 30,
(in millions)						2023						2022									2023						2022
Interest expense						$	241					$	76											$	435					$	144

Other Income (Expense), Net

The following table sets forth the composition of "Other income (expense), net" for the three and six months ended June 30, 2023 and 2022:

						Three Months Ended June 30,												Six Months Ended June 30,
(in millions)						2023						2022						2023						2022
Interest and dividend income						$	266					$	24					$	494					$	27
Net (losses) gains on equity securities						(34)						181						(167)						(806)
Foreign currency transaction (losses) gains						(48)						16						(101)						46
Other						2						(1)						7						(2)
Other income (expense), net						$	186					$	220					$	233					$	(735)

The following table presents the changes in interest and dividend income and interest expense for the three and six months ended June 30, 2023 and 2022:

						Three Months Ended June 30,												Increase (Decrease)						Six Months Ended June 30,												Increase (Decrease)
(in millions)						2023						2022									2023						2022
Interest and dividend income						$	266					$	24					1,024.2		%				$	494					$	27					1,742.2		%
Interest expense						(241)						(76)						216.2		%				(435)						(144)						201.0		%

Interest and dividend income increased for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, primarily due to the impact of higher interest rates on cash management activities (with related expenses recorded in interest expense) and investment activities. Interest expense increased for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, primarily due to higher interest rates related to our cash management activities (with related income recorded in interest income) and the issuance of senior notes in November 2022 and May 2023, partially offset by the maturities of senior notes during 2022 and 2023.

See Note 14 to our Unaudited Consolidated Financial Statements for additional information on "Other income (expense), net". See Note 5 to our Unaudited Consolidated Financial Statements for additional information related to net (losses) gains on equity securities.

Foreign currency transaction (losses) gains for the three and six months ended June 30, 2023 include losses of $8 million and $34 million, respectively, related to our Euro-denominated debt and accrued interest that were not designated as net investment hedges and losses of $67 million and $84 million, respectively, on derivative contracts. Foreign currency transaction (losses) gains for the three and six months ended June 30, 2022 include gains of $38 million and $68 million, respectively, related to our Euro-denominated debt and accrued interest that were not designated as net investment hedges offset by losses of $40 million and $56 million, respectively, on derivative contracts.

Income Taxes

						Three Months Ended June 30,												Increase (Decrease)						Six Months Ended June 30,												Increase (Decrease)
(in millions)						2023						2022									2023						2022
Income tax expense						$	328					$	287					14.0		%				$	365					$	138					163.9		%
% of Income before income taxes						20.3		%				25.1		%										19.0		%				46.8		%

Our 2023 effective tax rates differ from the U.S. federal statutory tax rate of 21%, primarily due to the benefit of the Netherlands Innovation Box Tax (discussed below), partially offset by higher international tax rates and certain non-deductible expenses. Our 2022 effective tax rates differed from the U.S. federal statutory tax rate of 21%, primarily due to higher international tax rates, valuation allowance related to certain unrealized losses on equity securities, and certain non-deductible expenses, partially offset by the benefit of the Netherlands Innovation Box Tax.

Our effective tax rates for the three and six months ended June 30, 2023 are lower compared to the effective tax rates for the three and six months ended June 30, 2022, primarily due to a lower valuation allowance related to certain unrealized losses on equity securities, lower international tax rates, and lower U.S. federal and state tax associated with our international earnings, partially offset by a decrease in the benefit of the Netherlands Innovation Box Tax.

During the three and six months ended June 30, 2023 and 2022, a majority of our income was reported in the Netherlands, where Booking.com is based. Under Dutch corporate income tax law, income generated from qualifying innovative activities is taxed at a rate of 9% ("Innovation Box Tax") rather than the Dutch statutory rate of 25.8%. A portion of Booking.com's earnings during the three and six months ended June 30, 2023 and 2022 qualified for Innovation Box Tax treatment, which had a beneficial impact on the effective tax rates for these periods. For additional information relating to Booking.com's Innovation Box Tax treatment, including associated risks, please see Part I, Item 1A, Risk Factors - "We may not be able to maintain our "Innovation Box Tax" benefit." in our Annual Report on Form 10-K for the year ended December 31, 2022.

Liquidity and Capital Resources

Our financial results and prospects are almost entirely dependent on facilitating the sale of travel-related services. 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 Unaudited 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 which are more fully described in 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" in our Annual Report on Form 10-K for the year ended December 31, 2022.

At June 30, 2023, we had $15.7 billion in cash, cash equivalents, and investments, of which approximately $10.1 billion is held by our international subsidiaries. Cash, cash equivalents, and long-term investments held by our international subsidiaries are denominated primarily in Euros, U.S. Dollars, and British Pounds Sterling. See Notes 5 and 6 to our Unaudited Consolidated Financial Statements for additional information about our cash equivalents and investments. Our investment policy seeks to preserve capital and maintain sufficient liquidity to meet operational and other needs of the business. In February 2023, we completed the sale of our investment in equity securities of Meituan and received gross proceeds of $1.7 billion.

Deferred merchant bookings of $6.0 billion at June 30, 2023 represents cash payments received from travelers in advance of us completing our performance obligations and are comprised principally of amounts estimated to be payable to travel service providers as well as our estimated future revenue for our commission or margin and fees. The amounts are mostly subject to refunds for cancellations.

At June 30, 2023, we had a remaining transition tax liability of $692 million as a result of the U.S. Tax Cuts and Jobs Act ("Tax Act"), which included $516 million reported as "Long-term U.S. transition tax liability" and $176 million included in "Accrued expenses and other current liabilities" in the Consolidated Balance Sheet. This liability will be paid over the next three years. 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, which have been accrued by us.

In May 2023, we issued senior notes due November 2028 with an interest rate of 3.625% for an aggregate principal amount of 500 million Euros and senior notes due May 2033 with an interest rate of 4.125% for an aggregate principal amount of 1.25 billion Euros. The proceeds from the issuance of these senior notes are available for general corporate purposes, including to repurchase shares of our common stock. In March 2023, we repaid $500 million on the maturity of the Senior Notes due March 2023. The convertible senior notes due in May 2025 are currently convertible at the option of the holder and have been classified as "Short-term debt" in the Consolidated Balance Sheet as of June 30, 2023. See Note 9 to our Unaudited Consolidated Financial Statements for additional information related to our debt arrangements, including principal amounts, interest rates, and maturity dates.

In May 2023, we entered into a five-year unsecured revolving credit facility with a group of lenders. The revolving credit facility extends a revolving line of credit up to $2.0 billion to the Company and provides for the issuance of up to $80 million of letters of credit, as well as up to $100 million of borrowings on same-day notice. The revolving credit facility contains a maximum leverage ratio covenant, compliance with which is a condition to our ability to borrow thereunder. Upon entering into this new revolving credit facility, we terminated the $2.0 billion five-year revolving credit facility entered into in August 2019. At June 30, 2023 there were no borrowings outstanding and $17 million of letters of credit issued under the new revolving credit facility. See Note 9 to our Unaudited Consolidated Financial Statements for additional information related to the new revolving credit facility.

During the six months ended June 30, 2023, we used $5.2 billion of cash to repurchase shares of our common stock. In the first quarter of 2023, the Board authorized a program to repurchase up to $20.0 billion of the Company's common stock and at June 30, 2023, we had a total remaining authorization of $18.8 billion. We expect to complete the share repurchases under the remaining authorization within four years from when we started the program at the beginning of this year, assuming no major downturn in the travel market. Effective January 1, 2023, the Inflation Reduction Act of 2022 has mandated a 1% excise tax on share repurchases. Excise tax obligations that result from our share repurchases are accounted for as a cost of the treasury stock transaction. See Note 10 to our Unaudited Consolidated Financial Statements for additional information.

In November 2021, we entered into an agreement to acquire global flight booking provider Etraveli Group for approximately 1.6 billion Euros ($1.8 billion). Completion of the acquisition is subject to certain closing conditions, including regulatory approvals. See Note 15 to our Unaudited Consolidated Financial Statements for additional information.

At June 30, 2023, we had lease obligations of $836 million. Additionally, at June 30, 2023, we had, in the aggregate, $328 million of non-cancellable purchase obligations individually greater than $10 million. Such purchase obligations relate to agreements to purchase goods and services that are enforceable and legally binding and that specify all significant terms, including the quantities to be purchased, price provisions, and the approximate timing of the transaction.

At June 30, 2023, there were $919 million of standby letters of credit and bank guarantees issued on our behalf. These are obtained primarily for regulatory purposes.

See Note 13 to our Unaudited 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 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 plans, either of which could have a material adverse effect on our business, our ability to compete or our future growth prospects, financial condition, and 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.

Cash Flow Analysis

Net cash provided by operating activities for the six months ended June 30, 2023 was $4.6 billion, resulting from net income of $1.6 billion, a favorable impact from adjustments for non-cash and other items of $509 million, and a favorable net change in working capital and long-term assets and liabilities of $2.6 billion. Non-cash and other items were principally associated with deferred income tax benefit, depreciation and amortization, stock-based compensation expense and other stock-based payments, net losses on equity securities, provision for expected credit losses and chargebacks, and operating lease amortization. For the six months ended June 30, 2023, deferred merchant bookings and other current liabilities increased by $3.1 billion and accounts receivable increased by $672 million, primarily due to increases in business volumes.

Net cash provided by operating activities for the six months ended June 30, 2022 was $4.4 billion, resulting from net income of $157 million, a favorable net change in working capital and long-term assets and liabilities of $3.0 billion, and a favorable impact from adjustments for non-cash and other items of $1.2 billion. Non-cash and other 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 six months ended June 30, 2022, deferred merchant bookings and other current liabilities increased by $4.9 billion and accounts receivable increased by $1.1 billion, primarily due to increases in business volumes.

Net cash provided by investing activities for the six months ended June 30, 2023 was $1.5 billion, principally resulting from proceeds from sale and maturity of investments of $1.7 billion, partially offset by additions to property and equipment of $180 million. Net cash used in investing activities for the six months ended June 30, 2022 was $243 million, principally resulting from the purchase of property and equipment.

Net cash used in financing activities for the six months ended June 30, 2023 was $3.8 billion, resulting from payments for the repurchase of common stock of $5.2 billion and payments on the maturity of debt of $500 million, partially offset by proceeds from the issuance of long-term debt of $1.9 billion. Net cash used in financing activities for the six months ended June 30, 2022 was $3.4 billion, resulting from payments for the repurchase of common stock of $2.3 billion and the repayment of debt of $1.1 billion.

Contingencies

For information related to tax matters, see Note 13 to our Unaudited Consolidated Financial Statements and Part I, Item IA, Risk Factors - "We may have exposure to additional tax liabilities" in our Annual Report on Form 10-K for the year ended December 31, 2022.

For information related to the pension matter and our other contingent liabilities, see Note 13 to our Unaudited Consolidated Financial Statements.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains 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 our Annual Report on Form 10-K for the year ended December 31, 2022; therefore, our actual results could differ materially from those described in the 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, particularly our Annual Report on Form 10-K for the year ended December 31, 2022, our subsequent Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K.