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Article by DailyStocks_admin    (10-22-08 03:23 AM)

The Daily Magic Formula Stock for 10/20/2008 is Priceline.Com Inc. According to the Magic Formula Investing Web Site, the ebit yield is 10% and the EBIT ROIC is >100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

General



We are a leading online travel company that offers our customers a broad range of travel services, including airline tickets, hotel rooms, car rentals, vacation packages, cruises and destination services. In the United States, we offer our customers a unique choice: the ability to purchase travel services in a traditional, price-disclosed manner or the opportunity to use our unique Name Your Own Price ® service, which allows our customers to make offers for travel services at discounted prices. Internationally, we offer our customers hotel room reservations in over 60 countries and 22 languages.



We launched our business in the United States in 1998 under the priceline.com brand and have since expanded our operations to include, among others, the brands Booking.com and Active Hotels in Europe and Agoda in Asia. Our goal is to be the leading worldwide online hotel reservation service and be the top online discount travel agent in the United States. At present, we derive substantially all of our revenues from the following sources:



• Transaction revenues from our Name Your Own Price ® airline ticket, hotel room and rental car services, as well as our vacation packages service;



• Commissions earned from the sale of price-disclosed hotel rooms, rental cars, cruises and other travel services;



• Customer processing fees charged in connection with the sale of both Name Your Own Price ® and price-disclosed airline tickets, hotel rooms and rental cars services. Priceline eliminated processing fees for its price-disclosed airline ticket service in June 2007;



• Transaction revenue from our price-disclosed merchant hotel room service;



• Global distribution system (“GDS”) reservation booking fees related to both our Name Your Own Price ® airline ticket, hotel room and rental car services, and price-disclosed airline tickets and rental car services; and



• Other revenues derived primarily from selling advertising on our websites.

For the year ended December 31, 2007, we had revenues of approximately $1.4 billion comprised of “merchant” revenue, “agency” revenue and “other” revenue. Merchant revenues are derived from transactions where we are the merchant of record and are responsible for, among other things, collecting receipts from our customers and remitting payments to our suppliers. Merchant revenues, which represented the substantial majority of our total revenues in 2007, consisted of: (1) transaction revenues representing the selling price of Name Your Own Price ® airline tickets, hotel rooms, rental cars and price-disclosed vacation packages services; (2) transaction revenues representing the amount charged to a customer, less the amount charged by suppliers in connection with the hotel rooms provided through our merchant price-disclosed hotel service; (3) customer processing fees charged in connection with the sale of Name Your Own Price ® airline tickets, hotel rooms and rental cars and merchant price-disclosed hotels services; and (4) ancillary fees, including GDS reservation booking fees related to certain of the transactions described above . Agency revenues are generally derived from retail travel related transactions where we are not the merchant of record and where the prices of our services are determined by third parties. Agency revenues consisted primarily of: (1) travel commissions; (2) customer processing fees; and (3) GDS reservation booking fees related to certain of the aforementioned transactions. Other revenues consisted primarily of revenue from advertising on our websites.



Priceline.com was formed as a Delaware limited liability company in 1997 and was converted into a Delaware corporation in July 1998. Our common stock is listed on the NASDAQ Global Select Market under the symbol “PCLN.” Our principal executive offices are located at 800 Connecticut Avenue, Norwalk, Connecticut 06854.


The priceline.com Business Model


We offer customers the ability to make hotel reservations on a worldwide basis primarily under the Booking.com and Agoda brands internationally and primarily under the priceline.com brand in the United States. In the United States, we also offer customers the ability to purchase other travel services, including airline tickets, rental car days, vacations packages, destination services and cruises, through both a traditional, price-disclosed “retail” manner, and through our proprietary demand-collection system known as Name Your Own Price ® . These services are made available over the Internet through websites that we own or control, and are provided by major travel suppliers, including more than 60,000 hotel properties worldwide. We believe that the combination of our retail price-disclosed model and our Name Your Own Price ® model allows us to provide a broad array of options to value-conscious travelers, while providing us with diverse streams of revenue.



International: Price-Disclosed Hotel Services . We offer a retail, price-disclosed hotel service in Europe and Asia through our international operations, which we have developed through recent acquisitions. In September 2004, we acquired Booking.com Limited, a Cambridge, England-based Internet hotel reservation distributor, and in July 2005, we acquired Amsterdam-based Booking.com B.V., one of continental Europe’s leading Internet hotel reservation services, with offices primarily in Amsterdam, Barcelona, Berlin, Loule, Paris, Rome and Vienna. All of our European operations, including Booking.com Limited and Booking.com B.V., are majority-owned by us. In November 2007, we acquired Agoda Company, Ltd. (“Agoda”) and AGIP LLC (“AGIP,” and together with Agoda, the “Agoda Companies”), an Internet hotel distributor with operations in Singapore and Thailand. We work with over 60,000 chain-owned and independently owned hotels offering hotel reservations on various websites and in multiple languages. For geographic related information, see Note 19 to our Consolidated Financial Statements.



Our international business — the significant majority of which is currently generated by our European operations — represented approximately 55% of our gross bookings in the year ended December 31, 2007, and contributed more than two-thirds of our consolidated operating income during that period. We expect that throughout 2008 and beyond, our international operations will represent a growing percentage of our total gross bookings and operating income.

United States: Retail Travel Services . In the United States, we offer customers the ability to purchase price-disclosed hotel rooms, airline tickets, rental car days, vacation packages, destination services and cruises at retail prices. In these transactions, the customer typically selects airline flights, hotel reservations, rental car or other travel itineraries from an array of results produced in response to the customer’s request. These results include the identity of the travel supplier, the exact price of the itinerary, and other details relating to the itineraries. In some circumstances, the customer pays us at the time of reservation, and in other circumstances, the customer pays the travel supplier directly at the time of travel.



United States: Name Your Own Price ® Travel Services . We have developed a unique pricing system known as a “demand collection system” that uses the information sharing and communications power of the Internet to create a different way of pricing services. We believe our services have created a balance between the interests of buyers, who are willing to accept trade-offs in order to save money, and sellers, who are prepared to generate incremental revenue by selling their services at below retail prices, provided that they can do so without disrupting their existing distribution channels or retail pricing structures. Our demand collection system allows consumers to specify the price they are prepared to pay when submitting an offer for a particular leisure travel service. We then access databases in which participating suppliers file secure discounted rates not generally available to the public, to determine whether we can fulfill the customer’s offer and decide whether we want to accept the offer at the price designated by the consumer. For most of these transactions, we have discretion in supplier selection and are the merchant of record in the transaction. Consumers agree to hold their offers open for a specified period of time (generally, not longer than one minute) to enable us to determine whether we can or want to accept the offer. Once fulfilled, offers generally cannot be canceled — thereby making such purchases generally non-refundable. This system uses the flexibility of buyers to enable sellers to accept a lower price in order to sell their excess capacity. We believe that our demand collection system addresses limitations inherent in traditional seller-driven pricing mechanisms in a manner that offers substantial benefits to both buyers and sellers. We believe that the principal advantages of our system include the following:



• Cost Savings . Our Name Your Own Price ® demand collection system allows consumers to save money in a simple and compelling way. Buyers effectively trade off flexibility about brands, service features and/or sellers in return for prices that are lower than those that can be obtained at that time through traditional retail distribution channels.



• Incremental Revenue for Sellers . Sellers use our Name Your Own Price ® demand collection system as a revenue management tool to generate incremental revenue without disrupting their existing distribution channels or retail pricing structures. We require consumers to be flexible with respect to brands and service features. As a result, our Name Your Own Price ® system does not reveal sellers’ brands to customers prior to the consummation of a transaction, thereby protecting their brand integrity. This shielding of brand identity and price enables sellers to sell services at discounted prices without cannibalizing their own retail sales by publicly announcing discount prices and without competing against their own distributors.



• Proprietary Seller Networks . We have assembled proprietary networks of industry leading sellers that represent high quality brands. By establishing attractive networks of seller participants with reputations for quality, scale and national presence, we believe that we foster increased participation by both buyers and sellers.



We often refer to services offered through our Name Your Own Price ® service as “opaque” services because all aspects of the travel service are not visible to the consumer before making an offer.



The priceline.com Strategy


The online travel category has continued to experience significant worldwide growth as consumer purchasing shifts from traditional off-line channels to interactive online channels. Priceline.com has been a leader in the deep discount segment of this market in the United States and in the hotel reservation market internationally. Our strategy is to continue to participate broadly in online travel growth by expanding our service offerings and markets.



• Become the Leading Worldwide Online Hotel Reservation Service . The size of the travel market outside of the United States is substantially greater than that within the United States. Historically, Internet adoption rates and e-commerce adoption rates of international consumers have trailed those of the United States. However, international consumers are rapidly moving to online means for purchasing travel. Accordingly, recent international online travel growth rates have substantially exceeded and are expected to continue to exceed the growth rates within the United States. Prior to 2004, substantially all of our revenues were generated within the United States. For the year ended December 31, 2007, o ur international business — the significant majority of which is currently generated by our European operations — represented approximately 55% of our gross bookings, and contributed more than two-thirds of our consolidated operating income during that period. We expect that throughout 2008 and beyond, our international operations will represent a growing percentage of our total gross bookings and operating income. Because of what we believe to be superior growth rate opportunities associated with international online travel, we intend to continue to invest resources to increase the share of our revenues represented by international consumers and capitalize on international travel demand.



We believe that the positioning of our Booking.com hotel reservation service gives us a foothold into a broader international market. We intend to use the Agoda Companies, our recently acquired online hotel distributor with operations in Singapore and Thailand, to further develop our operations throughout Asia, where Internet penetration is growing at a substantially greater pace than in the United States over the last several years. We have begun, and intend to continue, development of the means to share hotel availability among our brands, which we believe will allow us to monetize demand across international markets. In addition, from time to time we explore strategic transactions and acquisitions that, among other things, allow us to provide our services to new markets. We believe that by promoting our brands worldwide, sharing hotel supply and customer flow and applying our industry experiences in the United States and Europe to other international regions, we can further expand our service internationally and become the leading worldwide online hotel reservation service.



• Continue to be One of the Top Online Travel Businesses in North America for Value-Conscious Leisure Travelers . Our Name Your Own Price ® demand collection system in the United States allows consumers to save money in a simple and compelling way. Buyers effectively trade off flexibility about brands, service features and/or sellers in return for prices that are lower than those that can be obtained at that time through traditional retail distribution channels. We have expended significant resources to allow us to introduce price-disclosed retail services in the United States to our consumers to compliment the Name Your Own Price ® service. We believe that by offering a “one-stop-shopping” solution to our customers, we can simultaneously fulfill the needs of those customers who are prepared to accept the unique restrictions of our Name Your Own Price ® service in exchange for receiving significant savings relative to retail prices, as well as those customers who are less price sensitive and require the certainty of knowing the full details of their travel itinerary prior to purchasing. In June 2007, we eliminated booking fees on price-disclosed retail airline tickets as part of our strategy to provide value to our customers.

We intend to enhance our service offerings continually, particularly our retail offerings, by adding competitive functionality, adding competitive content at competitive pricing, adding and improving the content and merchandising on our website as well as cross-sell opportunities to maximize customer conversion.



• Competitive functionality: We continue to expend significant resources to remain competitive in terms of the features and functionality we offer our customers. For example, since launching our domestic retail air service, we added the ability to search for flexible dates or alternative airports, book one-way and multi-destination itineraries and easily make modifications to search criteria. We intend to add additional functionality such as the ability to search child and senior fares and to access real time seat maps.



• Competitive selection and pricing: We believe that having a wide selection of travel options at competitive pricing is critical to our success. For example, in June of 2007, we eliminated booking fees on price-disclosed retail airline tickets, added JetBlue fares to both our retail price-disclosed and Name Your Own Price ® airline ticket services and added over 10,000 additional hotels to our domestic vacation package service. In addition, we have renewed or entered into new agreements with several of our major airline and hotel suppliers, which we believe improved our access to a better selection of travel alternatives and pricing.



• Content and merchandising: As part of our evolution to a “one-stop-shopping” website, we have added thousands of pages of content to allow customers to research destinations and hotel properties before booking a reservation. We offer property descriptions, maps, images, and user reviews whereby our customers can benefit from the experiences and opinions of other customers. In the United States, we introduced “PriceBreakers sm ,” which is a presentation of selected travel itineraries at discounted prices that is updated daily. We intend to continue to improve our content and merchandising with more comprehensive descriptions, more and higher quality images, and more user reviews, which we believe will improve conversion of users shopping on our website.



• Cross-sell opportunities : We also cross-sell different travel components to maximize the revenue we generate from each customer in the United States. We have developed and implemented functionality that allows customers to “add-on” travel components to their selection, both during the shopping experience and at time of purchase. For example, customers can add a rental car reservation to their air or hotel reservation, or a hotel reservation to their air reservation. Customers can also add destination related services such as shuttles, tours and activities. Additionally, we cross-sell opaque services on our retail path and retail services on our opaque path. For example, an unsuccessful opaque air customer may be offered a price-disclosed alternative, while a retail hotel shopper may be offered the Name Your Own Price ® alternative for greater savings. We intend to further enhance these cross-sell opportunities across all of our services.



We strive to be the preferred discount distribution channel in the United States for airlines, hotels and rental car companies. Our Name Your Own Price ® service protects supplier brand and published pricing and our packages and other merchandising provide access to the brand neutral leisure traveler at attractive distribution costs.

Service Offerings — International


Retail Hotels. We offer a retail, price-disclosed hotel service in Europe and Asia, primarily through our Booking.com and Agoda brands. We operate our international operations through Booking.com Limited and Booking.com B.V. in Europe and the Agoda Companies in Asia. Through these operations, we work with over 60,000 chain-owned and independently owned hotels offering hotel reservations on various websites and in multiple languages.



Service Offerings — United States



Name Your Own Price ® Hotels . Through our Name Your Own Price ® hotel room reservation service, customers can make reservations at hotel properties in substantially all major cities and metropolitan areas in the United States and Europe. Most significant national hotel chains as well as several important real estate investment trusts and independent property owners participate in our Name Your Own Price ® service. Hotels participate by filing secure private discounted rates with related rules in a global distribution system database. These specific rates generally are not available to the general public or to consolidators and other discount distributors who sell to the public, however, hotel participants may make similar rates available to consolidators or other discount providers under other arrangements.



To make an offer, a customer specifies: (1) the city and neighborhood in which the customer wants to stay, (2) the dates on which the customer wishes to check in and check out, (3) the “class” of service (1, 2, 3, 4, 5-star or “resort”), (3) the price the customer is willing to pay, and (4) the customer’s valid credit card to guarantee the offer. When making an offer, consumers must agree to stay at any one of our participating hotel partners and accept a reservation that cannot be refunded or changed. The target market for our Name Your Own Price ® hotel room reservation service is the leisure travel market.



Retail Hotels. We also operate a price-disclosed hotel service in the United States that enables our customers to select the exact hotel they want to book and the price of the reservation is disclosed prior to purchase.



Name Your Own Price ® Airline Tickets . There are a total of 13 domestic airlines and 26 international airlines participating in our Name Your Own Price ® airline ticket service.



Our Name Your Own Price ® airline ticket service operates in a manner similar to our Name Your Own Price ® hotel room reservation service. To make an offer, a customer specifies: (1) the origin and destination of the trip, (2) the dates on which the customer wishes to depart and return, (3) the price the customer is willing to pay, and (4) the customer’s valid credit card to guarantee the offer. When making an offer, consumers must agree to:



• fly on any one of our participating airline partners;



• leave at any time of day between 6 a.m. and 10 p.m. on their desired dates of departure and return;



• purchase only round trip coach class tickets between the same two points of departure and return;



• accept at least one stop or connection;



• receive no frequent flier miles or upgrades; and



• accept tickets that cannot be refunded or changed.

If a customer’s offer is not accepted, but we believe the offer is reasonably close to a price that we would be willing to accept, we will attempt to satisfy the customer by providing guidance to the customer indicating that changing certain parameters of the offer would increase the chances of the offer being accepted. For example, in some cases we disclose to the customer that agreeing to fly into an alternate airport would increase the chances of his or her offer being accepted. In other cases, we inform the customer that increasing his or her offer by a certain amount would increase the chances of it being accepted. We may also offer a customer the opportunity to purchase a price-disclosed retail airline ticket.



Retail Airline Tickets. We also offer our customers in the United States the ability to purchase retail airline tickets at disclosed prices and with disclosed itineraries. The airline sets the retail price paid by the consumer and is the merchant of record for the transaction. These airline tickets do not have the restrictions associated with our Name Your Own Price ® service. For example, in addition to having fully disclosed itineraries, retail airline tickets are generally changeable and cancellable for a fee. In June 2007, we eliminated booking fees we had previously charged on the sale of retail airline tickets.



Name Your Own Price ® Rental Cars . Our Name Your Own Price ® rental car service operates in a manner similar to our hotel reservation and airline ticket services. Our rental car services are currently available in substantially all major United States airport markets. The top five brand name airport rental car companies in the United States are seller participants in our rental car program. Consumers can access our website and select where and when they want to rent a car, what kind of car they want to rent (e.g., economy, compact, mid-size, SUV, etc.) and the price they want to pay per-day, excluding taxes, fees and surcharges. When we receive an offer, we determine whether to fulfill the offer based upon the available rates and rules. If a customer’s offer is accepted, we will immediately reserve the rental car, charge the customer’s credit card and notify the customer of the rental car company and location providing the rental car.



Retail Rental Cars. We also offer a price-disclosed rental car service on www.priceline.com that enables our customers in the United States to choose between price-disclosed or Name Your Own Price ® rental cars. Our price-disclosed rental car service operates under the agency model, under which we earn a commission upon rental car return, and accommodates one-way and off-airport reservations . As with our retail airline ticket and hotel reservation services, rental car reservations booked in a retail manner do not have the restrictions associated with our Name Your Own Price ® service. Customers can select the exact car they want to book and the price of the reservation is disclosed prior to purchase.



With respect to each of our airline, hotel and rental car services, we believe the combination of our Name Your Own Price ® model and the retail model allows us to provide a broad array of options to value-conscious travelers, while providing us with diverse streams of revenue.



Vacation Packages . Our vacation package service allows consumers in the United States to purchase packages consisting of airfare, hotel and rental car components. Consumers can select the exact hotel or resort that they want to reserve, and then, in most cases, select either a retail airline ticket or an opaque airline ticket for the air component of their package. Additionally, consumers can add destination related services such as tours, shuttles, and activities. Vacation packages are sold at disclosed prices, although consumers cannot determine the exact price of the individual components.



Destination Services . We currently offer customers in the United States the opportunity to purchase destination services such as event tickets, ground transfers, tours, restaurant meals and other services available at their travel destinations. This service is offered to consumers as part of the process of booking an air, hotel and vacation reservation, and also as a standalone service. In certain locations, we also offer parking and expanded ground transfer options.

Cruises . We also offer price-disclosed cruise trips through National Leisure Group, Inc. (“NLG”), an agent representing major cruise lines. Our cruise service allows consumers in the United States to search for and compare cruise pricing and availability information from 17 cruise lines, and to purchase cruises online or through a call center by selecting from our published offerings and prices. We receive commissions from NLG on successful cruise bookings.



Travel Insurance . We offer our air, hotel and vacation package customers in the United States an optional travel insurance package that provides coverage for, among other things, trip cancellation, trip interruption, medical expenses, emergency evacuation, and loss of baggage, property and travel documents. The travel insurance is provided by member companies of American International Group, Inc. (“AIG”). We receive a percentage of the premium from AIG member companies for every optional insurance package purchased by our customers.



While we are currently focused on the travel services described above, over time, we may evaluate the introduction of other services that we believe could enhance the travel experience of our customers.


Financial Services


We offer financial services through Priceline Mortgage Company LLC, d/b/a pricelinemortgage.com, of which we own 49% and hold two of five seats on the board of managers. Pursuant to an intellectual property license from us, pricelinemortgage.com utilizes the priceline.com Name Your Own Price ® business model. Pricelinemortgage.com is controlled by EverBank, a federally chartered savings association supervised by the Office of Thrift Supervision, and a wholly owned subsidiary of EverBank Financial Corp. Pricelinemortgage.com has access to the management resources and expertise of EverBank, one of the nation’s largest privately held banking and mortgage firms. EverBank Financial Corp. provides management services to pricelinemortgage.com, including the procurement of personnel and office space and assistance in obtaining regulatory approvals. Pricelinemortgage.com is operating in all 50 states. Robert J. Mylod, our Chief Financial Officer, is a director of, and an investor in, EverBank Financial Corp., the parent company of EverBank. Mr. Mylod’s investment represents less than 1/10 of one percent of EverBank Financial Corp.’s outstanding common stock.



Under the terms of an agreement with EverBank Financial Corp., pricelinemortgage.com allows consumers to access attractive financial services including, but not limited to, mortgages, home equity loans, and banking service. We record our proportionate share of the results of pricelinemortgage.com as equity in income (loss) of investees and minority interests.

CEO BACKGROUND

Jeffery H. Boyd , age 51, has served as a Director of priceline.com since October 2001. Mr. Boyd has been President of priceline.com since May 2001 and Chief Executive Officer since November 2002. Mr. Boyd was President and Co-Chief Executive Officer from August 2002 to November 2002 and Chief Operating Officer from November 2000 to August 2002. He previously served as Executive Vice President, General Counsel and Secretary of priceline.com from January 2000 to October 2000. In 1995, Mr. Boyd joined Oxford Health Plans, Inc. as its Executive Vice President, General Counsel and Secretary, where he served in such capacities through December 1999.



Ralph M. Bahna , age 65, has served as a Director of priceline.com since July 1998 and Chairman of the Board of Directors since April 8, 2004. Since 1992, Mr. Bahna has been the President of Masterworks Development Corp., a company he founded to develop an international group of hotels named Club Quarters TM . Club Quarters are private, city-center facilities designed for the business travelers of cost conscious organizations. Since 1993, Mr. Bahna has served as the Chairman of Club Quarters TM . From 1980 to 1989, Mr. Bahna served as the Chief Executive Officer of Cunard Lines, Ltd., and the Cunard Group of Companies. Prior to Cunard, Mr. Bahna was employed by Trans World Airlines, Inc., where he developed and launched its highly successful Ambassador Service.



Howard W. Barker, Jr. , age 61, has served as a Director of priceline.com since January 2003. Mr. Barker was a partner of the auditing firm KPMG LLP from July 1982 until September 2002, when he retired. He is a member of the American Institute of Certified Public Accountants, the Connecticut Society of Certified Public Accountants and the Florida Institute of Certified Public Accountants. He currently serves as a member of the Board of Directors of Medco Health Solutions, Inc. where he chairs the Audit Committee and is a member of the Compensation Committee and a member of the Board of Directors of Chiquita Brands International, Inc., where he chairs the Audit Committee. He has also served as Treasurer and a member of the Board of Directors of Senior Services of Stamford and served as President and a member of the Board of Directors of the Volunteer Center of Lower Fairfield County, Connecticut from 1990 to 1996 and member of the Board of Directors of the Darien United Way and Person to Person from 1997 to 1999 and 1998 to 2000, respectively.



Jan L. Docter, age 58, has served as a Director of priceline.com since November 2007. Mr. Docter currently serves as a consultant to several companies, including Booking.com B.V. Mr. Docter has been self-employed since mid-2006. Mr. Docter served as the interim Chief Financial Officer of Corio NV, a Dutch real estate investment company, from mid-2005 to mid-2006. From 2003 to mid-2005, Mr. Docter was self-employed. Prior to that, he was Chief Financial Officer of Getronics NV, a Dutch information and communications technology services company, from 1988 to 2003. From 1985 to 1988, he was Chief Financial Officer of Centrafarm Group NV, a European producer and distributor of generic pharmaceuticals and other drugs. From 1979 to 1984, he served in a variety of financial positions for the recording/entertainment company Polygram NV. Mr. Docter also was an Industry Special Grants Officer for the Dutch Ministry of Economics Affairs.



Jeffrey E. Epstein , age 51, has served as a Director of priceline.com since April 2003. Mr. Epstein is Executive Vice President and Chief Financial Officer of Oberon Media, Inc., a leading global provider of casual games and game platforms, which he joined in April 2007. From June 2005 until its sale in March 2007, Mr. Epstein was Executive Vice President and Chief Financial Officer of ADVO, Inc., the largest direct mail media company in the United States. Mr. Epstein was the Chairman of the Board, Acting President and Chief Executive Officer, or member of the Board of Directors of Revonet, Inc., a B2B marketing and database company from January 2004 through June 2005. Mr. Epstein was the Senior Vice President and Chief Financial Officer of VNU’s Media Measurement and Information (MMI) Group, whose businesses include Nielsen Media Research, from March 2002 until December 2003. From March 1998 to February 2002, Mr. Epstein held senior management positions with DoubleClick, including Chief Financial Officer. Mr. Epstein is a member of the Board of Directors of MDC Partners Inc., a marketing communications company with over 30 businesses, including Crispin, Porter & Bogusky.



James M. Guyette , age 63, has served as a Director of priceline.com since November 2003. Mr. Guyette is currently Chairman, President and Chief Executive Officer of Rolls-Royce North America Inc., a world-leading supplier of power systems to the global aerospace, defense, marine and energy markets, a position he has held since 1997. Prior to joining Rolls-Royce, Mr. Guyette was Executive Vice President – Marketing and Planning for United Airlines. He held a number of other senior roles in his nearly 30 years with the carrier. Mr. Guyette serves on the boards of Rolls-Royce plc, International Aero Engines and PrivateBancorp Inc. He is a member of the Boards of Directors of the Wings Club, the Smithsonian Museum – Air and Space Museum Board, the U.S. Chamber of Commerce, the Flight Safety Foundation, St. Mary’s College – Moraga CA – Board of Regents, and is a member of the Board of Governors for the Aerospace Industries Association.



Nancy B. Peretsman, age 54, has served as a Director of priceline.com since February 1999. Since June 1995, she has been a Managing Director of Allen & Company LLC, an investment bank. Prior to joining Allen & Company, Ms. Peretsman had been an investment banker since 1983 at Salomon Brothers Inc., where she was a Managing Director from 1990 to 1995. Ms. Peretsman serves on the Board of Directors for several private companies. She is a member of the Board of Trustees of The New School. Ms. Peretsman is a Trustee of the Institute of Advanced Study, and a member of the Board of Trustees of Princeton University. She is also a National Board Member of Teach for America.



Craig W. Rydin , age 56, has served as a Director of priceline.com since January 2005. Mr. Rydin has been Chairman of the Board of Directors of The Yankee Candle Company, Inc. since February 2003, and its Chief Executive Officer and a director of Yankee Candle since April 2001. Prior to joining Yankee Candle, Mr. Rydin was the President of the Away From Home food services division of Campbell Soup Company, a position he held from 1998 to 2001. From 1996 to 1998, Mr. Rydin served as the President of the Godiva Chocolatiers division of Campbell. Prior to his position with Godiva, Mr. Rydin held a number of senior management positions at Pepperidge Farm, Inc., also a part of Campbell. Mr. Rydin serves on the board of Philips-Van Heusen (PVH – NYSE) and is a member of their compensation committee.



Set forth below is biographical information for executive officers of the Company (each an “executive officer”), other than executive officers who are nominated to serve as Directors of the Company and whose biographical information is set forth above.



Daniel Finnegan , age 46, has been the Company’s Senior Vice President, Controller and Chief Accounting Officer since October 2005. Mr. Finnegan joined priceline.com in April 2004 as Vice President and Chief Compliance Officer. Prior to joining priceline.com, Mr. Finnegan served as Chief Financial Officer for CS Technology, Inc., a consulting company, from October 2000 to April 2004 and as Chief Financial Officer for Coty US, Inc., a manufacturer of cosmetics and fragrances, from November 1996 to October 2000.



Brett Keller , age 40, has been Chief Marketing Officer of priceline.com since January 2002. He previously served as Senior Vice President, Marketing of priceline.com and in other positions from February 1999 through December 2001. From 1997 to 1999, Mr. Keller served as Director of Online Travel at Cendant.



Peter J. Millones , age 38, is Executive Vice President, General Counsel and Corporate Secretary of priceline.com. Mr. Millones has been General Counsel and Corporate Secretary of priceline.com since January 2001. He previously served as Vice President and Associate General Counsel of priceline.com from March 2000 to January 2001. Since 2003, Mr. Millones has been responsible for priceline.com’s U.S. human resources department. From September 1995 through March 2000, Mr. Millones was with the law firm of Latham & Watkins.



Robert J. Mylod Jr. , age 41, has been the Chief Financial Officer of priceline.com since November 2000. From May 2000 to October 2000, Mr. Mylod was acting Chief Financial Officer for WebHouse Club, Inc., a privately held e-commerce company and a licensee of priceline.com. From January 1999 to May 2000, Mr. Mylod held several different positions within priceline.com’s finance department, including Senior Vice President, Finance. Prior to joining priceline.com, Mr. Mylod was a Principal at Stonington Partners, a private equity investment firm that manages over $1 billion of institutional capital dedicated to venture capital investments and leveraged buyouts. Mr. Mylod is on the board of directors of EverBank Financial Corp.



Stef Norden , age 39, has served as Chief Executive Officer of Booking.com B.V. since July 2003. From February 2002 to June 2003, Mr. Norden co-owned Bookingsportal B.V., which was an affiliate of Bookings. From 1998 to 2000, Mr. Norden served as a director of BBV, an integrated optics company of which he was a co-founder. In 2000, BBV merged with Scotland-based Kymata and was subsequently acquired by Alcatel.



Ronald V. Rose , age 57, has been the Chief Information Officer of priceline.com since March 1999. From September 1995 to March 1999, Mr. Rose served in various capacities with Standard & Poor’s, a financial services company, including Chief Technology Officer of Retail Markets. While at Standard & Poor’s, Mr. Rose led the development of many Internet initiatives within the Financial Information Services area and chaired the Internet Architecture Council.



Christopher L. Soder , age 48, has been President, North American Travel since February 2007. Mr. Soder was Executive Vice President, Travel Services from March 2005 to February 2007 and had been Executive Vice President, Lodging and Vacation Products from July 2002 to March 2005. From February 2000 to July 2002, Mr. Soder was President of priceline.com’s hotel service. Before joining priceline.com, Mr. Soder was Western Region Vice President, Business Markets, for AT&T, where he was responsible for the company’s complete technology portfolio sales to over 20,000 business customers across a 10-state region.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

General . We are a leading online travel company that offers our customers a broad range of travel services, including airline tickets, hotel rooms, car rentals, vacation packages, cruises and destination services. In the United States, we offer our customers a unique choice: the ability to purchase travel services in a traditional, price-disclosed manner or the opportunity to use our unique Name Your Own Price ® service, which allows our customers to make offers for travel services at discounted prices. Internationally, we offer our customers hotel room reservations in 60 countries and 22 languages.

We launched our business in the United States in 1998 under the priceline.com brand and have since expanded our operations to include, among others, the brands Booking.com and Active Hotels in Europe and Agoda in Asia. Our goal is to be the leading worldwide online hotel reservation service and be the top online discount travel agent in the United States. At present, we derive substantially all of our revenues from the following sources:



Transaction revenues from our Name Your Own Price ® airline ticket, hotel room and rental car services, as well as our vacation packages service;



Commissions earned from the sale of price-disclosed hotel rooms, rental cars, cruises and other travel services;





Customer processing fees charged in connection with the sale of both Name Your Own Price ® and price-disclosed airline tickets, hotel rooms and rental cars services. Priceline eliminated processing fees for its price-disclosed airline ticket service in June 2007;




Transaction revenue from our price-disclosed merchant hotel room service;




Global distribution system (“GDS”) reservation booking fees related to both our Name Your Own Price ® airline ticket, hotel room and rental car services, and price-disclosed airline tickets and rental car services; and




Other revenues derived primarily from selling advertising on our websites.


Over the last several years, our business has transitioned from one driven primarily by domestic results to one driven primarily by international results. Prior to 2004, substantially all of our revenues were generated within the United States. In September 2004, we acquired Booking.com Limited, a U.K.-based online hotel service, in July 2005, we acquired Booking.com B.V., a Netherlands-based online hotel service, and in November 2007, we acquired Agoda Company, Ltd. (“Agoda”) and AGIP LLC (“AGIP,” and together with Agoda, the “Agoda Companies”), an online hotel service with operations in Singapore and Thailand. During the year ended December 31, 2007, our international business — the significant majority of which is currently generated by our European operations — represented approximately 55% of our gross bookings, and contributed more than two-thirds of our consolidated operating income during that period. We expect that throughout 2008 and beyond, our international business will represent a growing percentage of our total gross bookings and operating income.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations



Three and Six Months Ended June 30, 2008 compared to the Three and Six Months Ended June 30, 2007



Operating and Statistical Metrics



Our financial results are driven by certain operating metrics that encompass the booking activity generated by our travel services. Specifically, reservations of hotel room nights, rental car days and airline tickets capture the volume of units purchased by our customers. Gross bookings is an operating and statistical metric that captures the total dollar value inclusive of taxes and fees of all travel services booked by our customers. International gross bookings reflect gross bookings generated principally by websites owned by, operated by, or dedicated to providing gross bookings for our international brands and operations, and domestic gross bookings reflect gross bookings generated principally by websites owned by, operated by, or dedicated to providing gross bookings by our domestic operations, in each case without regard to the location of the travel or the customer purchasing the travel.

Gross bookings increased by 70.9% and 73.2% for the three and six months ended June 30, 2008, respectively, compared to the same periods in 2007. The increase in the three and six month periods was primarily attributable to growth of 80.1% and 88.5%, respectively, in our international gross bookings, virtually all of which relates to retail hotel room night sales (including the $167 million and $294 million favorable impact of foreign currency exchange rates in the three and six month periods, respectively). Domestic gross bookings increased in the three and six months ended June 30, 2008, by 59.2% and 55.2%, respectively, primarily due in part to growth in the sale of retail airline tickets due to the elimination of booking fees in June of 2007, Name Your Own Price ® hotel room nights, price-disclosed hotel room nights and Name Your Own Price ® airline tickets.



Agency gross bookings increased 80.2% and 85.7% for the three and six months ended June 30, 2008, respectively, compared to the same periods in 2007, due to growth in our international hotel operations and in the sale of retail airline tickets due in part to the elimination of booking fees in June of 2007. Merchant gross bookings increased 43.6% and 39.4% for the three and six months ended June 30, 2008, respectively, compared to the same periods in 2007, due to an increase in the sale of Name Your Own Price ® hotel room nights, the inclusion of room nights sold by Agoda, which was acquired in November 2007, Name Your Own Price ® airline tickets and domestic merchant price-disclosed hotel room nights. Agoda gross bookings amounted to $24.2 million and $48.8 million for the three and six months ended June 30, 2008, respectively.

Hotel room nights sold increased by 50.2% and 53.5% for the three and six months ended June 30, 2008, respectively, over the same periods in 2007, primarily due to an increase in the sale of agency room nights in connection with our international operations, an increase in the sale of Name Your Own Price ® and price-disclosed hotel room nights in the United States and the inclusion of room nights sold by Agoda, which was acquired in November 2007.



Rental car days sold increased by 23.7% and 26.8% for the three and six months ended June 30, 2008, respectively, over the same periods in 2007, due to increases in sales of both our price-disclosed and Name Your Own Price ® rental car services.



Airline tickets sold increased by 98.2% and 90.8% for the three and six months ended June 30, 2008, respectively, over the same periods in 2007, due primarily to an increase in the sale of price-disclosed airline tickets due in part to our elimination of booking fees in June 2007 and increased marketing support.



Revenues



We classify our revenue into three categories:



• Merchant revenues are derived from transactions where we are the merchant of record and are responsible for, among other things, collecting receipts from our customers, selecting suppliers and remitting payments to our suppliers. Merchant revenues include (1) transaction revenues representing the selling price of Name Your Own Price ® hotel rooms, rental cars and airline tickets and price-disclosed vacation packages; (2) transaction revenues representing the amount charged to a customer, less the amount charged by suppliers in connection with the hotel rooms provided through our merchant price-disclosed hotel service; (3) customer processing fees charged in connection with the sale of Name Your Own Price ® airline tickets, hotel rooms and rental cars and merchant price-disclosed hotels; and (4) ancillary fees, including GDS reservation booking fees related to certain of the aforementioned transactions.



• Agency revenues are derived from travel related transactions where we are not the merchant of record and where the prices of our services are determined by third parties. Agency revenues include travel commissions, customer processing fees and GDS reservation booking fees related to certain of the aforementioned transactions and are reported at the net amounts received, without any associated cost of revenue. In June 2007, we eliminated processing fees on the priceline.com price-disclosed airline ticket service.



• Other revenues are derived primarily from advertising on our websites.



We continue to experience a shift in the mix of our travel business from a business historically focused exclusively on the sale of domestic point-of-sale travel services to a business that includes significant sales of international point-of-sale hotel services, a significant majority of which are currently generated in Europe. Because our domestic services include merchant Name Your Own Price ® travel services, which are reported on a “gross” basis, while both our domestic and international retail travel services are primarily recorded on a “net” basis, revenue increases and decreases are impacted by changes in the mix of the sale of merchant and retail travel services and, consequently, gross profit has become an increasingly important measure of evaluating growth in our business. Our international operations contributed approximately $164.5 million and $268.7 million to our revenues for the three and six months ended June 30, 2008, respectively, which compares to $90.4 million and $138.3 million for the same periods in 2007, respectively. Approximately $14.5 million and $23.4 million, respectively, of this increase is due to fluctuations in currency exchange rates.

Merchant Revenues



Merchant revenues for the three and six months ended June 30, 2008 increased 31.9% and 24.8%, respectively, compared to the same periods in 2007, primarily due to an increase in the sale of Name Your Own Price ® hotel room nights, airline tickets and rental car days and the inclusion of revenues generated by Agoda, which was acquired in November 2007. In the three and six months ended June 30, 2007, merchant revenues were positively impacted by the excise tax refund of $2.3 million and $18.2 million, respectively (see Note 14 to our Unaudited Consolidated Financial Statements). Our international operations contributed approximately $4.4 million and $9.5 million to our merchant revenues for the three and six months ended June 30, 2008, respectively, which compares to $0.9 million and $1.8 million for the same periods in 2007, respectively. Agoda contributed approximately $3.4 million and $7.5 million of the merchant revenue attributable to our international operations for the three and six months ended June 30, 2008, respectively.



Agency Revenues



Agency revenues for the three and six months ended June 30, 2008 increased 76.2% and 85.3%, respectively, compared to the same periods in 2007, primarily as a result of growth in our international operations, which contributed $160.1 million and $89.5 million of agency revenue for the three months ended June 30, 2008 and 2007, respectively, and $259.2 million and $136.5 million of agency revenue for the six months ended June 30, 2008 and 2007, respectively. Approximately $14.5 million and $23.4 million of the increase over the three and six months ended June 30, 2008, respectively, is due to fluctuations in currency exchange rates.



Other Revenues



Other revenues during the three and six months ended June 30, 2008 consisted primarily of advertising. Other revenues for the three and six months ended June 30, 2008 increased 71.2% and 145.8%, respectively, compared to the same periods in 2007, primarily as a result of higher online advertising revenues due to new advertising partner relationships initiated in 2007 and the revenue generated by an online advertising company acquired in December 2007.

CONF CALL

Jeffery H. Boyd

Welcome to Priceline's second quarter conference call. I am here with Priceline CFO Bob Mylod. Priceline reported consolidated gross bookings for the second quarter of $2.1 billion, up 71% year over year. Pro forma gross profit of $254 million was up 64%. Pro forma EBITDA was $101 million, up 75%, and pro forma net income was $78.5 million, or $1.55 per share, up 40% on a higher year-over-year share count.

First quarter results surpassed the high-end of our guidance and First Call consensus estimates of $1.41 per share due to better-than-forecast results in Europe and the United States.

Our international business had an excellent quarter, with 80% gross bookings growth. International gross bookings benefited from robust demand, growth in new markets, continued favorable currency exchange rates, and results from Agoda, the Asia hotel reservation business we acquired last year, which added gross bookings of $24 million in the quarter.

Priceline's domestic year-over-year growth rate accelerated to 59% in the second quarter from 51% in Q1. Year over year growth of 98% in airline ticket sales clearly propelled bookings growth. Domestic merchant gross bookings growth accelerated to 36% in the second quarter, a significant sequential improvement from 26% in Q1.

Improving merchant results were attributable to growth in sales in our opaque hotel and air services and growth in packaged services and retail hotel merchant room night sales.

Our international business showed good second quarter growth rates in the large continental markets and the results from new markets are making a larger contribution to overall growth as the total size of these fast growth markets becomes more meaningful.

Booking.com now has over 52,000 hotels in over 65 countries, and continues to add inventory and build new destinations. We continue to benefit from growing repeat business to booking.com and other booking.com branded sites and we’re able to maintain our marketing efficiencies, which is creating better-than-forecast operating margins.

Priceline's domestic business showed 59% year-over-year growth in the second quarter. Consistent with our forecast expectations, growth it retail ticket sales has slowed now that we have passed the anniversary of the June 2007 removal of booking fees.

Despite this anniversary, we continue to see attractive domestic growth rates, which we believe are supported by consumer demand for travel deals in a weak economic setting, attractive inventory from airlines and hotels using our services to round out demand and protect yields, and effective online marketing and brand promotions, including fee reductions in retail hotels and our sunshine guarantee.

We believe the negotiator ad campaign has provided a versatile platform for effectively communicating our value proposition and strengthening our brand.

Our consolidated results again showed better than forecast earnings leverage in the quarter, with upside in Europe derived from attractive marketing ROIs and growing brand loyalty. Accordingly, our current outlook for the second half of the year reflects operating leverage that is more consistent with first half trends and represents what we believe is a good balance of investing in the business and driving earnings growth.

As most publicly traded travel companies have reported, economic uncertainty and high fuel prices are affecting the broad travel market and significant airline capacity reductions in the fall will also have a negative impact. These conditions are not confined to the United States but are in evidence in Europe and other international regions.

The positive fundamentals driving our business have overshadowed these negative factors in the first half. We believe these positive fundamentals position Priceline well for future growth and that our brands and services are particularly attractive to customers and suppliers in times of economic stress. It is of course possible that the category and our business could suffer in future months to an extent that creates risk to industry forecasts and our own forecast. However, we do not believe that economic cycles or persistently high oil prices materially undermine the outstanding long-term opportunity that exists for Priceline to build out our international business by building share and brand in our core markets and achieving meaningful market share in new markets we are pursing.

I will now turn the call over to Bob for the detailed financial review.

Robert J. Mylod Jr.

Thanks, Jeff. I’m going to begin by touching on a few important financial highlights from the second quarter and then I’ll finish with some forward guidance. I don’t intend to go over each line item of our income statement, as I think they are very well covered in our press release and our statistical supplement. Instead, I want to simply focus on the factors which affected our three most important profit drivers, namely gross bookings, gross profit, and operating expenses.

I’ll start with gross bookings, which grew by 71% on a year-over-year basis and came in right in the middle of our range of guidance. We arrived at this growth rate by coming in slightly ahead of the high-end of our range of guidance for our domestic business and coming in right at the low-end of our guidance for our international business.

I think Jeff pretty much covered all the reasons for our upside in domestic gross bookings, so I don’t intend to reiterate them here. I did, however, want to spend a little more time discussing some of the variables that impacted our international gross bookings, which grew by 80% relative to our 80% to 90% guidance.

We believe that one important variable has to do with the fact that the Easter holiday season, which typically takes place in Q2, occurred in Q1 this year. I mentioned on our last earnings call that this anomaly in the calendar would represent an additional forecasting challenge for us and indeed, we do think that part of our results relative to forecast were driven by this Easter effect.

We’ve also been highlighting for quite some time that our forecasts are highly influenced by two variables over which we have almost no control -- namely, FX exchange rates and average selling price of hotel room nights. I want to briefly discuss how these two items affected our results relative to our prior guidance. I’ll start with the FX impact.

Our gross bookings guidance was based upon an assumption that the Euro to dollar exchange ratio would remain at 1.54 for the remainder of Q2. The actual exchange rate was about 1.3% more favorable than forecasted during the quarter.

As for average selling price, our Q2 forecast was based upon an assumption that our average international selling prices would remain roughly flat on a year-over-year basis, consistent with where we finished Q1. Actual average selling prices came in 1.5% below prior year levels, which more than offset the positive effect that FX had on actual gross bookings results relative to forecast. So there was a net negative impact with respect to the combined effect of FX and average selling price on gross bookings relative to forecast.

Of course, the most important metric is hotel room night unit sales, and while this number was generally consistent with our forecast, we actually believe that unit sales were somewhat artificially depressed in June, especially in continental Europe, because of softness in demand associated with the Euro Cup soccer tournament.

We also saw an increase in our reservation cancellation rate during the quarter, which also knocked several percentage points off of our hotel room night growth.

While we think the impact from the Euro Cup is obviously temporary, we are watching the average selling price and cancel rate very carefully because we think both numbers could potentially be driven by what appears to be softening economic conditions in our core markets.

With all that said, we are generally pleased with what we have seen so far in Q3 with respect to international gross bookings, and I’ll give more detail in a moment when we give guidance.

As for gross profit, we had another very strong quarter with gross profit growing at 63.8% and coming in above the high-end of our guidance. This over-performance was driven by stable to improving core margins, both domestically and internationally, and also we saw a slight decrease in the average number of days that elapsed between the reservation booking date and the reservation consumption date, which in turned caused a greater amount of gross profit to be recognized in the quarter, as compared to plan.

Finally, I want to talk about operating expenses, which came in substantially lower than our prior guidance, almost entirely driven by positive variances in our international online advertising expenditures.

We mentioned on our last earnings call that we expected some of the efficiencies that we had achieved to date in our online advertising to reverse and diminish for the remainder of Q2 based upon various competitive factors. In fact, this didn’t happen and we were able to maintain our advertising ROIs throughout the quarter. Moreover, we saw a healthy increase in the percentage of our business that comes to booking.com on an organic basis.

The result of these two factors caused our online ad spend to come in well below plan, which in turn drove significant upside relative to our guidance.

As is the case in most businesses, there is an interplay between the amount of ad spend on the one hand and the amount of top line on the other, and of course our business is no different. This is especially true at booking.com, given that our entire advertising budget is online and therefore more variable in nature.

In Q2, we spend far less than planned on online advertising, and while this certainly had some marginal effect on our gross bookings growth, our decision still resulted in market-leading top line growth during the quarter and another quarterly sequential improvement in operating leverage. We believe the business is now striking a good balance between market leading top line growth rates on the one hand and operating leverage on the other. And based upon results to date, we are forecasting that we can maintain that balance for the remainder of the year without deteriorating marketing efficiency.

We have continued to invest in the new supply distribution and geographic expansion for booking.com, and we will continue to do so going forward.

That pretty much covers the highlights of our earnings and before I move on to guidance, I will just share a few cash and cash flow items that are not covered in the press release.

During Q2, we generated approximately $89.9 million in operating cash flow, up 126% year over year after adjusting for several one-time items from last year that actually make our reported OCF growth rate even higher than the adjusted number.

As for our cash balances, we began the quarter with $560 million of cash and marketable securities and we closed the quarter with $569 million of cash and marketable securities, representing a $9 million increase during the quarter.

Keep in mind that our cash balances were impacted by a couple of investing and financing activities during the quarter. First, during the quarter we invested approximately $30 million to buy back a portion of our minority interest in Priceline Europe; second, we used approximately $50 million of our cash to repay a portion of the principal amount of our outstanding convertible notes during the quarter. As a result, our convertible debt balance has dropped from $570 million at the start of the quarter to $520 million at the end of the quarter.

We expect there to be more repayments of our convertible bonds during Q3 and beyond, as our convertible note holders elect to convert their notes, or if and when we elect to call the notes.

Finally, total capital expenditures in the second quarter were approximately $4.2 million. This amount includes all money spent on capital equipment and internally developed software. As you can see, our operating cash flow, as well as our operating cash flow minus CapEx, have been running at very high annual growth rates which is reflective of the low capital intensity of our business model and excellent execution, especially at booking.com, with respect to receivables management and collection.

Accordingly, we expect to deliver another year of very strong growth rates in both OCF as well as OCF minus CapEx for the full year 2008.

And now for a few comments on guidance -- I’ll start with some fairly specific line item guidance for the third quarter and then finish with some broader guidance for full year 2008.

We’re looking for total third quarter gross bookings to grow by approximately 44% to 54% on a year-over-year basis, with international gross bookings growing approximately 58% to 68% on a year-over-year basis and domestic gross bookings growing by approximately 30%.

The international growth rates are consistent with a continuation of the year-over-year growth rate declines that we saw in Q1 and Q2, although we are calling for a slight flattening in the rate of decline in Q3, given some of the items I discussed earlier, which we think depressed unit sales in Q2 at more than what the normal rate might indicate.

And in fact, our July international gross bookings growth rate actually showed an increase compared to June. July also represents the single biggest month of the quarter, so we have slightly more visibility to full quarter gross bookings results as compared to last quarter.

We also expect that our markets outside of our core European markets, most notably our booking.com business in Eastern Europe, the U.S., and Asia, as well as the Agoda business in Asia, will represent an increasing share of our international gross bookings during the remainder of the year. And because these markets are growing at substantially faster rates than the average international gross bookings growth rate, we expect these newer markets to have a slightly offsetting effect to the decline in overall international gross bookings growth rates.

We believe that this in turn should cause the rate of decline in the international gross bookings growth rate to flatten as the remainder of 2008 unfolds.

As for domestic, you can see that our guidance calls for a fairly steep quarterly sequential decline in the gross bookings growth rate, as we are now fully anniversarying last year’s launch of our no fee retail airline ticket initiative, thereby making our comps much more challenging.

We are also seeing significant headwinds in our rental car service due to supply challenges. Specifically, our rental car suppliers have managed their fleets significantly downward versus last year in anticipation of softer demand and airline capacity reductions, which has hurt our ability to fulfill continued strong fundamental demand, especially in our opaque rental car business.

Finally, there’s a great deal of industry wide uncertainty as to how and to what degree the upcoming reductions in domestic airline capacity will impact travel demand in general. We share this uncertainty and we point out that it makes our opaque airline business, which thus far has actually performed relatively well in the face of airline capacity reductions to date, more difficult to forecast than usual.

Having said all of that, we believe that if our forecast is achieved, it will result in a continuation of market-leading growth rates and total domestic gross bookings for the remainder of the year.

We expect pro forma revenue to grow by approximately 30% to 35% on a year-over-year basis. We expect pro forma gross profit dollars to grow by approximately 52% to 57% on a year-over-year basis.

As for Q3 operating expenses, we are targeting consolidated advertising expenses of approximately $93 million to $98 million, with approximately 92% of that amount being spent on online advertising.

We expect sales and marketing expense of between $21.5 million and $22.5 million. We expect personnel costs, excluding stock-based compensation, to come in between $34 million and $36 million. We expect G&A expenses of approximately $13 million to $14 million, information technology costs of approximately $6 million to $6.5 million, and depreciation and amortization expense, excluding acquisition amortization, of approximately $4 million.

We expect total below-the-line negative impact of approximately $600,000, which is comprised of net interest income, foreign exchange hedging income or expense, equity and income of Priceline mortgage and minority interest expense.

We are targeting pro forma EBITDA of between $133 million and $143 million and we are targeting pro forma EPS of approximately $2.00 to $2.15 per share.

Our pro forma EPS forecast includes an estimated cash income tax of approximately $30 million, comprised of international income taxes and alternative minimum tax in the United States.

Our pro forma EPS guidance is based upon a pro forma diluted share count of approximately 49.8 million shares, which is based on last night’s closing stock price of $111.72 per share.

As for expected GAAP results, we expect to report a GAAP EPS of $1.50 to $1.65 per share. The difference between our GAAP and pro forma results will be driven primarily by the inclusion of acquisition related amortizations, stock-based compensation, and certain income tax expenses, all of which are non-cash in nature.

And now for a few comments on full year 2008 -- we are upping the low-end of our prior total gross bookings guidance of between $7.5 billion to $7.9 billion for full-year 2008 to a range of $7.55 billion to $7.9 billion. The midpoint of this range represents an expected annual increase of approximately 60%.

From a profit perspective, we are increasing our range of guidance from our prior range of $340 million to $365 million of pro forma EBITDA to our new expected range of between $360 million and $380 million of pro forma EBITDA.

We expect that our full year pro forma cash tax rate will be approximately 20% in 2008.

As for expected full year pro forma EPS, we are increasing our range of guidance from our prior range of $5.25 to $5.65 per share, to our new expected range of between $5.50 and $5.85 per share. This pro forma EPS forecast would translate to GAAP EPS of between $3.75 per share and $4.10 per share.

Here are a few more clarifying points on the forward guidance I just gave. First, the forecast for both Q3 and the remainder of 2008 assumes that the Euro versus dollar exchange rate remains at the same $1.55 per Euro that exists as of today. Second, our forecast assumes that the average unit selling prices of our domestic hotel service will be flat as compared to 2007 and the average unit selling price of our international hotel service will be down by about 1% to 2% year over year, which is basically where we were in the second quarter.

We don’t anticipate seeing additional declines because of business mix. More specifically, some of booking.com’s fastest growing regions, like for instance, the United States, have higher average selling prices than the average. So while the core average selling prices are expected to be down by more than 1% to 2%, this mix point should have a slightly offsetting positive effect.

Fourth, you can see in the guidance that we are giving that we are no longer forecasting a decline in our operating leverage caused by a reduction in our online advertising efficiencies. This has to do with our increasing belief that we should be able to maintain or come close to maintaining the relationship between online advertising and gross profit. This is definitely a departure from our prior guidance but we’ve experienced many quarters worth of results to now have a level of comfort to believe that the declines in online advertising ROIs in Europe that we have been anticipating should not be as significant as expected. This factor, combined with our increasing organic growth rates, lead us to expect that our operating leverage will remain relatively stable.

I also wanted to repeat and emphasize a general cautionary point that we made on our last earnings call. Up until this point, our businesses have performed very well in the current economic environments both here in the United States and abroad. All of the guidance that I just gave presumes that we will continue to operate in similar economic conditions as exists today.

For instance, as my guidance indicates, we are projecting very strong year-over-year unit growth in both the U.S. and Europe for the remainder of 2008, despite what could potentially be a worsening economic environment.

Our guidance also assumes no deterioration in the average selling prices of our service beyond the specific declines outline in our guidance. While we believe that our forecast assumptions are reasonable, there are broad industry trends within our various supplier networks that could potentially point and lead to further deterioration.

And as you can see from our Q2 results, average selling price and FX, which are two very critical variables over which we have very limited ability to control or forecast, can have significant impacts on our gross bookings.

While our numbers to date give us reason to believe that we should fare better than most other companies in our space, all of which will be affected by the same macro factors, we want to once again stress that we don’t believe that we are immune to or benefit from deteriorating economic factors.

Overall economic pressures that strain our unit sales, our average unit selling prices, or the value of the Euro relative to the dollar would certainly put our forecasts at significant risk.

Before I turn the call over for questions, I wanted to underscore a point that Jeff made at the end of his remarks concerning our long-term outlook, especially as it relates to our future earnings potential. While it is certainly too early to begin discussing our forecasts for 2009 and beyond, I did want to at least mention that we remain very optimistic about our long-term top line and bottom line growth potential.

It appears that in 2008, we will deliver very strong EPS growth despite an extremely difficult comparable driven by a substantial increase in our diluted share count associated with our convertible notes. We believe that our worldwide businesses continue to be poised to deliver market leading top line growth beyond 2008. Some of that growth is expected to come from our core U.S. and European markets, but an increasing share of that growth is expected to come from our newer markets, most of which are growing at very fast top line rates but have not yet reached an inflection point in scale that has allowed them to deliver the kind of operating leverage that we have seen in our more mature markets.

We expect to reach some of those inflection points in 2009 and beyond which, when combined with good growth in our core markets and a much easier share count comparable, should allow us to continue our record of strong earnings growth.

And with that, I’d like to turn it over to questions.

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