ETFMG Travel Tech ETF
Q2 2015 Earnings Call Transcript

Published: 5 Aug 2015

[Operator:]

Greetings, and welcome to the HomeAway's Second Quarter 2015 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jen Ford, Senior Director of Investor Relations for HomeAway. Please go ahead.

[Jen Ford:]

Thank you, and welcome to HomeAway's second quarter 2015 financial results conference call. By now, everyone should have access to the earnings press release, which was distributed today at approximately 4

[Brian Sharples:]

Thanks you, Jen. Good afternoon. I am happy to report that we've had another strong financial quarter punctuated by hitting a milestone of having now 50% of our listings online bookable at quarter end compared to approximately 29% at the end of the second quarter in 2014. This brings us closer to our goal of making nearly all of our listings online bookable by the end of 2016 and sets HomeAway up nicely for long-term monetization from ecommerce initiatives in the coming years. In addition, we've had a successful launch of our integrated marketing campaign, it started late in Q1 and drove positive results into traffic growth and brand metrics during Q2. I'll talk more about those marketing results in just a few minutes. But first, I'll recap our quarterly financial and operating results. Revenue came in at the high-end of our expectations at a $126 million, up 19% FX neutral. EBITDA was $24 million with an expected decline from last year reflecting our planned increase in marketing and the impact of foreign exchange. Free cash flow continues to be strong relative to EBITDA with $34 million of free cash flow generated during the quarter. On a trailing 12-month basis, free cash flow was up 7% to $122 million. Our balance sheet also remained strong with over $900 million of cash and investments at the end of June and over $500 million net of debt. Total listings of $1,185,000 were up 14% versus a year ago. As you remember, we added a very large number of pay-per booking listings in the second quarter of last year, making it a pretty tough comp for listing growth this quarter. In addition, we completely transitioned out of our pay-per-lead product now, which has been and will continue to be a headwind for year-over-year listing growth for the next couple of quarters. As a result, we're very pleased with the growth in listings which were up 53% over the last two years. This growth in our listing count is driven by a performance-based listings, consistent with the last few quarters. We continue to see a shift among our new listings towards our pay-per-booking product. While this trend is helpful to our online booking objectives and should be positive in the long run, it does have the impact of delaying revenue deliver revenue from new listings and reducing growth in subscription listings. As a result, we encourage investors to put more focus on total listings growth and ultimately the overall monetization of our listing base. With pay-per-booking listings in particular, it will be important for us to have listings that generate solid bookings than simply adding non-performing listings to our marketplace. That said, we've discussed in past quarters that we've been disappointment with conversion rates on our integrated property manager listings in Europe. I'm pleased to finally report that due to the efforts of our conversion teams at HomeAway, we/ with now that these listings converting it, rates roughly equal to our platform listings in Europe. However, there is still substantial upside on conversion, especially in Europe. Our overall conversion rates remained lower than in the U.S. and in general we believe that improvements to conversion represent one of the biggest financial leverage in our business going forward. Additionally, we're continuing to work harder to offer pay-per-booking to our existing customers, were at risk of leaving the network as non-renewals. These efforts added 130 basis points of overall subscriber retention or renewal rate compared to 70 basis points in the first quarter adjusting for listings that we move moved from subscription to pay-per-booking. Retention rates in Q2 were actually higher than in Q1 and so we're pleased to see that. In our core subscription business, monetization of our listings continues to improve with average subscription revenue per listing increasing 15% year-over-year FX neutral and as more of these listings become online bookable, we'll have opportunities for further monetization growth from ancillary products provided to travelers. Also during the second quarter, we successfully completed migration of OwnersDirect in the UK and we're pleased that OwnersDirect customers now have access to important and very popular features like pay-per-booking, tiers, and e-commerce. We now have 91% of our global listings on a common backend platform and as we indicated last quarter, we placed additional focus on customer service after some of the challenges we experienced with the Homelidays migration. The net result is that the migration this time is a bit smoother than Homelidays and Homelidays itself has stabilized since the last quarter, and OwnersDirect is now performing in line with our expectations, so no big surprises there. Just note that in the short term the OwnersDirect migration as with all these migrations will be a headwind to both traffic and renewals in the short term. Now on to some longer term strategic objectives. Our company as you know is transitioning from a classified model to a transactional e-commerce marketplace and therefore we're focusing on initiatives to improve both the owner and traveler experience with a goal of obviously increasing bookings. At the same time, we seek to improve overall monetization of transactions from both performance-based commissions on the supply side and revenue from travelers in the sale of ancillary products and services. One of the major initiatives in this regard is improving our conversion rate from traffic to bookings. As I've already mentioned, we've seen progress here among our integrated property managers in Europe due to improvements in our integration efforts and targeted programs to help improve the overall quality of their listings. For our platform suppliers more generally, improvements in response rate and adoption of online booking both now factored into sort order are big wins to traveler experience and net promoter score and we feel confident that these will pay off our shareholders long term. On the marketing front, we've also stepped up our retargeting efforts to convert lookers-to-bookers with very positive early results. The combination of these efforts led to a modest overall booking conversion increase in Q2 versus the prior quarter. Despite that we will continue to be challenged by growing mobile traffic which like many other e-commerce sites converts at lower rates than desktop. We saw a record level of visits this quarter on smartphone and so we are increasing our investment to improve the mobile experience for our travelers and suppliers. We've seen very positive early results from these efforts with booking conversion on our mobile devices up a 150% year-over-year in Q2 and we still think there is a lot of run way ahead to improve this further. Marketing as you know has been another key focus for this year and Q2 in particular and as I mention at the beginning of the call, we've been pleased so far with the results. Over the first half of 2015 our marketing expense totaled $51 million up almost 70% compared to the first half of 2014. Our integrated marketing approach has been multiple channels both online and offline, it's intended to increase awareness of the HomeAway brand, drive more customers to our sites and increased efficiency of our online marketing and ultimately of course increased bookings for our suppliers. Given the scope of this effort, I want to take a few minutes to share what we've done differently compared to prior years, some of the results we're seeing and where we're focused going forward. With regard to our brand marketing efforts, we launched our first fully integrated global marketing campaign in our history, it was comprised primarily of digital spend but also included TV, CRM and investments in social marketing. First, the brand positioning of the whole house, the whole family, a whole vacation and a related creative was very well-received. We've observed more clarity with customers and the press around our positioning relative to competition and believe this campaign is reinforcing HomeAway as the first choice for families and groups looking for home rentals while on vacation. From a metrics perspective, the results were positive with brand awareness and branded search to our sites accelerating in the second quarter. Branded search for example to advertise brands grew significantly faster than generic vacation rental search terms as much as 2x to 7x depending on the country and traffic from other measured sources were up substantially in particular, traffic in social was up 83% year-over-year, e-mail 56% year-over-year and page search including display advertising was up 42%, and that's traffic from those sources. We've also seen a 50% growth in weekly mobile app downloads since we started the campaign and this will be a continuing focus of our efforts going forward. Last and most importantly, the net results of our marketing efforts help to accelerate global traffic growth from 17% in Q1 to 20% in Q2. Our commitment to integrated marketing over the long run is an important one and we expect to continue driving leverage from other parts of the business to fund these efforts. Our data continues to indicate that the majority of family and group travelers are still mostly consider hotel. So there is a huge growth opportunity from driving continued awareness of our service and our global brands and obviously that is a long-term proposition for us as a company. With that, I'll now turn it over to Lynn. And she'll discuss the details of our second quarter results and provide and outlook for our Q3 and the rest of the year. Lynn?

[Lynn Atchison:]

Thank you, Brian. For the second quarter, total revenue of $125.8 million was 19.2% higher than the comparable quarter last year on an FX neutral basis. Second quarter listing revenue of $99.8 million was up 16% FX neutral and benefited from higher average subscription revenue per listing and increased performance based revenue. Other revenue of $26 million for the quarter reflected an increase of 34.4% FX neutral over last year and growth in this category was driven largely by revenues from ancillary product as more transactions occurred on our platform. We ended the quarter with approximately 1,185 million listings, up 13.9% over last year. Compared to last year, our subscription listings are down by 1.6% while we saw a 53% increase in the number of performance base listing. As Brian mentioned, subscription listing growth was impacted by the popularity of pay-per-booking particularly for supplier who are new to the network. During the quarter, we added 11,000 listings from our partnership with CanadaStays, most of these are performance based listings and so far we have been pleased with the demand from travelers for these properties. As we've discussed previously, bringing our brands on a single backend platform is important to our network strategy, to our efficiency and development and to our pace of product innovation. But these migrations impact our customers and our metrics so I want to take a few minutes to provide an update. In anticipation of our migration of Stay to our global platform in the future would decommission the shopping cart on HomeAway Australia, eliminating the ability to purchase or renew subscriptions on that website, while still maintaining a traveler basing website. This allows us to direct owners and managers to Stays the leading vacation rental site in Australia and to focus our resources on a single Australian business. For the HomeAway Australia customers, it also had a Stay listing, which allows them to management listing in one place, while still benefiting from the benefit of exposure on the HomeAway Australia website. Because no renewals will occur on HomeAway Australia, the context of renewal rate is not applicable to this business going forward. Accordingly, we've provided a renewal rate calculation that excludes HomeAway Australia, beginning in Q2 of 2015 and we'll do so going forward. This affect changes the reported Q2, 2015 renewal rate from 71.3% to 71.8%. Q1 2015 renewal rate would have been 72% excluding HomeAway Australia. And to put things in perspective, this site generated approximately a $1 million in subscription revenue annually and had about 19,000 listings at the end of the first quarter. Additionally, this change will likely to be a headwind for our paid listening count over the next three quarters, as listing expire and cannot be renewed. Turning to expenses, total operating expenses for the quarter increased 22.3% compared to the same quarter last year. We aimed to drive leverage in many areas of the business, while we significantly engage more in marketing. Total sales marketing expense was at 35% compared to the same quarter last year. Direct marketing spend was $28 million, 78% higher than the second quarter last year and over a 150% higher than two years ago. We ended the quarter with 1,940 employees, an increase of 235 employees year-over-year and an increase of 114 sequentially. Adjusted EBITDA in the second quarter was $24.1 million down 27% from last year due to foreign exchange headwinds, as well as the increased investment in marketing in 2015. Our marketing investment is heavier in the first half of the year due to the seasonality of our business and we anticipate that the second quarter will be the peak for direct spend in 2015. Other expense of $3.8 million for the quarter was comprised primarily of the non-cash amortization of the imputed debt discount associated with our convertible debt partially offset by interest income. Despite our net loss before tax, we had tax expense of $552,000 due to income earned in taxable jurisdictions which was not offset by losses in other jurisdictions. As a reminder, we operate in 12 countries around the world. Accounting rules require that we record tax expense where we have book income such as the U.S., but prohibit offsetting that tax expense with credit from entities with a history of losses and projected to be in a loss position, such as some in Europe and Asia. The timing and location of our marketing spend are impacting this accounting outcome due primarily to the timing of our marketing spend. For the second quarter we had a net loss attributable to HomeAway of $2.4 million or $0.03 per share. Now moving onto our balance sheet and cash flow. At June 30th, cash equivalents and short term investments totaled $905 million. For the quarter, we generated free cash flow of $34 million, resulting in $122 million of free cash flows on a trailing 12-month basis, 7% higher than the same period last year. We generated $43.8 million of cash during the quarter from operations and add $9.2 million in capital expenditures. We ended the quarter with $210 million in deferred revenue, which is up 18.1% over last year on an FX neutral basis. Now I'd like to take a few minutes to look forward. We're reiterating our full-year FX neutral revenue growth estimate and are updating our outlook to reflect current FX trend, which overall has improved modestly since our April call. Our full-year 2015 revenue outlook of $496 million to $503 million reflects FX neutral growth of approximately 19% to 21%. And actual FX growth rates are approximately 11% to 12.5%. Our 2015 outlook reflects the euro rate of $1.08 for each U.S. dollar going forward. Our full-year adjusted EBITDA outlook for a $119.5 million to a $123.5 million reflects adjusted EBITDA margin of 24.1% to 24.6% also consistent with our previous outlook. For the third quarter of 2015, our revenue range of a $128 million, so $131 million reflects FX neutral growth of approximately 20% at the midpoint. The acceleration in revenue growth sequentially reflects the seasonality of the paper booking business. Our adjusted EBITDA range of $36.5 million to $38 million for Q3 of 2015 reflects EBITDA margin of 28.8% at the midpoint. And as a reminder our marketing investment have been more frontend loaded in 2015. Other assumptions to help you model. Amortization and intangibles is expected to be a $11.5 million to $12.5 million for the full-year. Depreciation is expected to be $22 million to $24 million for the full-year and $6 million to $6.5 million for the third quarter. Interest expense associated with our convertible notes is expected to be approximately $4.7 million for the third quarter and $19 million for the full-year. Full-year effected tax rate is now expected to be 55% to 65%, which is subject to fluctuation due to even minor changes in profit or loss expectations in certain entities. We are not assuming any R&D credit benefit and are expected to generate lower profits or losses in the jurisdictions where we have the lowest rates. Cash tax is expected to be approximately $5 million for the full year. Non-cash stock compensation expense for the full year is expected to be in the range of $50 million to $55 million, slightly lower than what we communicated in April. Basic share account for the third quarter and full year to be in the range of 95 million to 97 million. Our fully diluted weighted average share account for the full year to be in the range of 96 million to 98 million and for the third quarter 97 million to 99 million shares. Capital expenditures increased by about a $1 million and are expected to be in the range of $34 million to $37 million for the full year. Foreign exchange hedging costs related to our intercompany debt structure and other related items are projected to be approximately $1 million for the full year. That concludes our prepared remarks. Thank you for your continued support of HomeAway.

[Operator:]

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Lloyd Walmsley from Deutsche Bank. Please proceed with your question.

[Lloyd Walmsley:]

Hello, thanks. I had a couple of questions around that I guess the performance listings, it sounds like pushing good improvements in conversion on PPP. I guess it would be helpful to understand what you are doing to try specifically to try conversion up in Europe and then as a kind of follow up to that. It looks like the actual performance listings did grow nicely sequentially, but we did see the, I guess [indiscernible] revenue excluding subscription down slightly Q-over-Q which similar to last year, but I would expect to start to ramp as you have the listing. Should we expect a lot of that, to see a lot of that in the third quarter, just kind of one seasonality. Should we, is that a lot of the sequential growth in the guide. Thanks.

[Brian Sharples:]

Sure, Lloyd. I mean a big chunk of that and the last question has to do with Stays and you have to realize that we also had a huge FX hit in Australia almost 17% of revenue. So there is an impact there plus the stage business in general isn't growing as fast as the overall business, which on the PPP front is growing still very quickly. Related to your question in Europe, about IPM listings where we saw a nice gain, most of that has to do just with technology integrations that we've been doing. So, we've gotten just a number of technical issues that have been related to calendars and date search and turn nights and things of that nature, and the teams have just gotten on those with our big IPMs and gotten them fixed and it's good to see that there isn't some structural issue with the properties they represent, but there is, there seems to be as much potential with those listings as with others. So, we're pleased to see that, on the division front. We also have some pretty big wins on the mobile front, in particular almost a 150% increase year-over-year in conversion on mobile or even putting a lot of effort behind that as well now. Some of that has to do with us, getting book a buttons live on mobile and doing nice implementation of that which a year ago we didn't have, but it's still been kind of nice headwind on the conversion front for the company.

[Lloyd Walmsley:]

Okay. Great. Thank you, guys.

[Operator:]

Thank you. Our next question today is coming from Heath Terry from Goldman Sachs. Please proceed with your question.

[Heath Terry:]

Great. Thanks. I was hoping if you could give us a sense Brian I realize this sort of limited data set at this point, but as you migrated some of these - some listings over to online booking, what kind of conversion rates are you seeing and what they are telling you about the implied 3% take rate that you felt like, where you guys have talked about HomeAway having in the past, does that math holdup, now that you're getting or is it implied sort of higher or lower numbers now that you're - now that you're actually seeing real conversion across a significant segment of your inventory?

[Brian Sharples:]

Heath the math holds up, it really has - it really has a lot to do in the short-term with how much traffic exposure those listing to get. So as I talked about last quarter, every quarter we get a little bit more aggressive about taking those PPB listings and moving them up in sort. But they are still overall very under exposed, I mean our subscription listings get five times to 10 times the exposure that our PPB listing do and PPB still represents a pretty good chunk of our listings, you would imagine our per-listing base is still pretty small. So the potential for monetization is there, it has a lot to do with exposure, we do still have the objectives of supporting our subscription listings. We've been working very hard on making sure in Europe, in particular where we have a lot of PPB that we turn the situation around there and Europe's a situation where over the last year and half we added a lot of listings and while we have added demand, it hasn't been at the rate listings have been added and I think it's a classic situation, where everybody like likes to see us put up big listing growth numbers, but this is a marketplace business where you got to keep supply and demand in balance and we got a little ahead of ourselves on listings in Europe. So for the time being we continue to - grossly favor subscription listings over those PPB listings, but we can certainly see as we're now starting to move the demand engine we saw traffic growth this quarter. We obviously plan to be very committed on the marketing front for years to come that the monetization of PPB is something we do feel very good about and we do think it's going to help take grade in our business absolutely over the next few years.

[Heath Terry:]

So, Brian that's helpful. But actually to be clear, what I was trying to get at was last PPB and more subscription businesses where you're allowing for online, more subscription listing, sorry if you're allowing for online booking?

[Brian Sharples:]

Well, those listings actually monetized quite well with traveler products we have today. So that the subscription listings that use online booking just from the traveler component actually generate numbers that are in the range of what a PPB listing generates on its own. Actually in most cases better right now, because they have a lot more exposure. So yes, we are feeling very good about our ability to monetize the traveler side as PPB grows on the subscription front, it looks very good.

[Heath Terry:]

Great. Thank you.

[Brian Sharples:]

I think PPB - [indiscernible] we are finding that by increasing conversion of the overall site, really is this producing more bookings for our customers, I'm very excited about that. So all of the different measures that we have which are either actual bookings we see or enquires or other levels of engagements. All of those are really encouraging to us as we get more and more of our listings online bookable.

[Lynn Atchison:]

Yeah, I mean, we obviously have to make estimates about total bookings. We can see actually bookings on the PPB properties and then we've got to make estimates on the others, but if when we look at PPB alone, I mean the bookings growth is very high. Overall, it looks like right now, I think our current estimate is that in 2015 we should finish the year somewhere in $14 billion to $16 billion range on total bookings, and we think a lot of that growth from the last time we gave an estimate is really driven by the fact that we have more PPB properties and that's increasing our overall booking rate as a business. Yeah?

[Heath Terry:]

Great. Thank you.

[Operator:]

Thank you. Our next question today is coming from Robert Peck from SunTrust. Please proceed with your question.

[Unidentified Analyst:]

Hi, thanks. This is Kunal for Bob. Can you discuss how - what you're seeing on the Expedia platform and any timeline on Kayak integration? Thank you.

[Brian Sharples:]

Sure. Yeah, the partnership continues to go well with Expedia and that we're working together well as companies. Probably the biggest news there is that we just went live with Expedia in Europe and I think we've talked about that in the last couple of quarters that a big chunk of our PPB properties are actually European properties that have been on their U.S. side and we've been waiting with baited breasts to get those on the European version of Expedia. So that is actually happening right now and so we feel optimistic that that should perform better than what we've seen in the U.S. in the next couple of quarters but, they continue to be very much in a test mode and it's not having a big impact on our revenue today. If it did, we would certainly talk about it. With respect to Kayak, we had talked last quarter about the Kayak deal and the fact that we expected that to land sometime around the end of the year. I think we will be ahead of schedule on that so the teams are hard at work at Kayak trying to get those listings up as soon as they can. We don't have an actual date yet, but I do think it would be slightly ahead of what we have expected and talked about last quarter.

[Unidentified Analyst:]

Great. Thank you.

[Operator:]

Thank you. Our next question today is coming from Chris Merwin from Barclays. Please proceed with your question.

[Chris Merwin:]

Great. Thank you. I don't know if some of the competitors I guess have been charging gas fees. And I know in the past you've mentioned how not having to see is a competitive advantage for you all just in terms of keeping the demand side of the platform free, but as there's more adoption for that, I guess, industry wide do you see an opportunity there over time? Thanks.

[Brian Sharples:]

It's certainly something we're looking at. I talked about last quarter that we still believe that we're under monetized as a business. So I just talked about an estimate this year of $14 billion to $16 billion in bookings. And if you look at our revenue estimates, you can calculate monetization is still relatively low versus our competitors and a lot of competitors do make up for that difference on the travelers' side. We do have a number of options that we're looking at. Traveler fees would be one, traveler products would be another, different kinds of pricing paradigms for owners were another. We are not prepared to discuss the answer on it yet, because we don't have it and we're certainly going to let people know as soon as we do, but something we're looking at very closely.

[Chris Merwin:]

Thank you.

[Operator:]

Thank you. Our next question today is coming from Kyle Evans from Stephens. Please proceed with your question.

[Kyle Evans:]

Hi. Thanks for taking my questions. It looks like the paper booking is driving the transition to online bookable and if I do the math, the or you the math the subscription side of the business looks like it's less than 20% converted to online bookable. Is there anything you can do there besides placement and listing quality score and send that conversion.

[Lynn Atchison:]

Yeah. We're still in a situation where you can only get an online booking button if your payments are enabled and so about - about I think 30% to 35% of our base came and enabled and about 25% of our subscription base as online booking. So you got roughly 75% of the people payment enable that use it today. So there is about a 25% GAAP opportunity just based in the existing model. We are still planning to launch what we call offline payments, which will allow people to use whatever payment method they want and still get a Book it button, that's currently scheduled to happen in the fourth quarter. We remain on track with doing that and that's going to be kind of the next level of unlock that will take those numbers higher. But at the moment, we are a bit constrained just by the percentage of people who use our payment platform.

[Kyle Evans:]

Got you. And then as a follow-up, could you comment on the competitive landscape with particular commentary on Flipkey and Airbnb and talk about maybe the U.S. versus Europe dynamics? Thank you.

[Brian Sharples:]

Yeah, I mean Airbnb certainly had a busy quarter, they launched a new campaign, which we actually liked quite a bit, because I think it very much helped the positioning that we're trying to driven in the marketplace. It's being the vocational company for families and groups. They obviously completed the big financing, whatever that means and they started in the U.S. some efforts against property managers. Although, we don't really have any indications of that's been successful yet with respect to booking.com and booking.com talked about in the quarter, adding HomeStays/rooms to their site which looks a little bit B&B like. You may not know this but we operate the largest B&B site in the United States as well called bedandbreakfast.com and then TripAdvisor also appears to be adding rooms to its site now. It seems like Trip has changed their strategy, several times in the past few years, they appeared to be trying to move much more towards an Airbnb type model. Those are the primary changes we saw in the quarter competitively we didn't feel any different level of pressure from any of those competitors and we continue to look at people who don't renew on HomeAway sites, we tend to find in places like Europe that people go to sites that our are competitors that are local and aren't always Europe B and B, some people do go Europe B and B some people go to Booking, but the biggest losses are always to local websites that typically compete with us on a price basis with classified types of models. And so I think the only other piece I talked about last quarter, we've been doing some research in the U.S. and looking at property overlap for their B and B, we are surprised that how low it was, we actually did a very thorough job of looking at that and so think about that kind of in the 10% range in the U.S., we're doing a similar study in Europe, we do have an expectation the overlap will be higher in Europe probably not substantially so maybe at the outset could be 2X of to that maybe 20%. So there is a difference Europe is a much more competitive market where people are much more willing to use multiples sites than what we find in the United States, but other than that there haven't been any real big changes since last quarter.

[Kyle Evans:]

Okay. Thank you.

[Operator:]

Thank you. Our next question today is coming from Rohit Kulkarni from RBC Capital Markets. Please proceed with your question.

[Rohit Kulkarni:]

Great. Thank you. Sorry I jumped on the call late. Did you give any updates on the platform migration as in Homelidays, OwnersDirect. Any updates regarding how the churn rates or retention rates for those specific listings have been trending and any planned migration for your Australian, New Zealand website, I think those are the only ones that probably remain on a different platform Stays and book a batch and I have a couple follow ups.

[Brian Sharples:]

Yeah. So, we have seen some signs of stability that Homelidays which is good. The tail-end of the quarter we actually saw renewal sales up from last year for the first time, we saw positive traffic growth on the site and obviously it took a big negative hit in the last couple of quarters and so we feel great about that. With respect to OwnersDirect, because of the Homelidays migration we talked about last quarter managing that a lot more tightly we did things for example like make sure the algorithms didn't change as dramatically as they did at Homelidays. We also put a massive customer service effort on our owners to try to prevent renewal rates from dipping as low as what we saw at Homelidays, and it has a desired effect, it was a much smoother migration, obviously not without the typical issues we always see which is traffic down renewal rates down but nothing outside of what we forecast. So I did mention in the call that the renewals surprises there, I think it was very well manage and we're in much better shape with OwnersDirect than we were with Homelidays. In terms of future migrations, we're looking at that now, we're in the product planning cycle here in the third quarter and fourth quarter this year, and trying to determine whether those migrations will take place in 2016 or 2017. We may take a bit of a pause on the migration front still yet to be determined we're looking at a number of other projects and priorities we have underway and unfortunately I can't really tell you today exactly when we expect those to happen. But very much still our plan for those to happen at some point, just to be clear.

[Rohit Kulkarni:]

Okay. Okay. Thanks, Brian. And in terms of your marketing, can I spend in channel mix within your planned uptick of end marketing spend this year. Can you - did you share me results with regards to how you're unaided brand awareness or whatever your targets you had set at the beginning of this year, how that has been trending? Any positive or negative surprises with regards to how that has trended, particularly in light of what you're seeing with Airbnb probably focusing on a brand image which is complimentary complementary to you?

[Brian Sharples:]

Yeah, I don't - I mean we certainly see nothing negatively. As you recall, advertising in four countries including U.S., and in the U.S., we were in seven DMAs. So we went to all over the country, we were in specific places. And all the places we advertise, we saw a very positive effects on both brand awareness and branded search, which is a very hard metric you can look out in terms of people who come and look at the site. In fact on the branded search front, I mentioned in the prepared remarks that depending on where we advertised, we saw branded search for the brand that we advertised in that market, anywhere between 2x and 7x, the growth rate of what we saw in just overall search terms in that marketplace. And so we hadn't seen a lot of movement in HomeAway brands and branded search in the last couple of years, because we haven't done any branded advertising, it's been flat. In some cases, it's gone down, because like Airbnb has captured some of those positions. And so we have brand awareness and branded search growing again, at least so far with this brand campaign. We're not giving out specific numbers for competitive reasons, but that's all been positive so far.

[Rohit Kulkarni:]

Okay, great. Thanks Brian

[Operator:]

Thank you. Our next question today is coming from Eric Sheridan from UBS. Please proceed with your question.

[Eric Sheridan:]

Thanks for taking the questions. One, Brian, I appreciated the color on Europe conversion getting better. Is there any way to quantify the gap that still remains in conversion between Europe and the U.S. and how we should be thinking about that gap closing over time and what might drive closing that GAAP. And second following up on the last question with respect to marketing, I'm just curious again maybe to follow up on where you might be seeing sort of improvements in ROI on the marketing spend that you haven't anticipated and how some of the learning's from the marketing standpoint might influence the way you think about marketing both in the back half of this year and even more into 2016 and beyond? Thanks.

[Brian Sharples:]

Yeah, I mean, on the marketing front you take that first in terms of incremental dollars being spent going forward. We certainly, it's hard with brand investments to see immediate ROI something we're committed to over the longer-term. And we do see impacts and things like brand awareness and brand at search, but from an incremental dollar perspective, we get the highest ROI and PTC right now, and we had a great quarter in terms of both PTC and display, which were up 42%, and so in the back half of the year, lot of our spending is going to be focused digitally. So, we're still going to be implementing a global campaign. I think number two to that would be CRM for us, where we're seeing some really good ROI and investments made there and we still have a number of investments to go and then the first question...

[Eric Sheridan:]

Given the conversion in Europe and...

[Brian Sharples:]

Yeah, so the difference is fairly substantial, I think it is almost a 2x between the two. Now we have anecdotal evidence from other OTAs and people in the travel business that's fairly typical that you have a higher conversion rate in U.S. and Europe, I'm not sure exactly why and maybe that people are just shop around a lot more in Europe. So, part of that is probably structural to help people travel and how people book and how hard people shop. In general, I would say it's also we're just in a much more competitive situation in Europe where there are a far more businesses that you can go check to look for vacation rental inventory in terms of the including in company, in-country sites as well as pan-European sites. I think there is a big gap for us to close there still I mean it's a great opportunity when we can see we have the ability to potentially double those rates in Europe. I think generally our teams feel like we are in the first or second inning on the conversion front with this business that we continue to make investments every quarter we continue to see conversion go up and I mentioned in the prepared remarks that I see it as huge financial upside to the business to get that right. Also understand that a big part of conversion too is finally is the ability to put the right property in front of the right traveler at the right time. We certainly have some constraints because of our tier structure, but we also do have a lot of attitude within that tier structure to be able to do things in the future like use, personalization techniques and really look at the patterns of how people search and where they're coming from and geographic locations are coming from price sensitivity and most of that stuff we're not doing today and so I think the teams here feel like there is substantial opportunity to improve whether we'll close the gap between U.S and Europe, I don't know if we ever will but I think overall that's a company we're going to get a lot better added.

[Eric Sheridan:]

Thanks for the color, Brian.

[Operator:]

Thank you. Our next question today is coming from Mike Olson from Piper Jaffray. Please proceed with your question.

[Samuel Kemp:]

Thanks, this is Sam on for Mike. Can you talk about any impact your marketing campaign is having on attracting new singles. And then regarding the impact of PPB on stemming some of the churn in your subscription business. Can you just talk about the profile of the subscriber that's churning up of a subscription into PPB Thanks.

[Brian Sharples:]

Well. Typically on the last, I'll take the last one first. People churn off or say either because they sold their property or getting out of the rental business or the performance for them isn't good enough to justify what they're typically paying, and so you'll typically see people maybe who have lower ASPs maybe don't have their houses available as often as others who will find that it may not be worth them trying to compete at our subscription prices on the site and then they tend to churn off or go to lower price sites to be able to make a higher ROI and so those are great candidates when they flip off our sites for our sales teams to call them up and say listen Stay on the site, you can be on the site for free, we'd love to continue to deliver you bookings and so we're seeing a lot of success doing that and we get better at it every quarter which is why you see almost kind of double the impact on renewal rate this quarter than the quarter before and the first question.

[Lynn Atchison:]

Was - everything marketing drive new listing also chime in that there's part of the ROI that we use and looking at our marketing is a combination of traveler’s new listings, renewals et cetera. So certainly the marketing is contributing to new registrations and I think particularly on the display side and that help us drive more paper booking.

[Brian Sharples:]

Yeah one of the big differences between what we've done on the performance front a year ago versus this year is we have added a big component of display, and in fact display growth was kind of in the triple digit range and those display ads do serve a dual purpose they certainly help for their brand image and they also do drive registrations to our site - on the supplier side. So yes, we have seen a positive impact.

[Samuel Kemp:]

Great. Thanks.

[Operator:]

Thank you. Our next question today is coming from Kevin Kopelman from Cowen & Co. Please proceed with your question.

[Kevin Kopelman:]

Hi. Thanks a lot. First could you help us understand the trajectory of the subscription business a little bit, it seems like the stage transition is messing with listings number. So what impact did that have exactly? And then my other question is how are you thinking about the positioning of the VRBO brand given it's a very large - largest brand in the U.S. But the marketing position seems like it's more on the HomeAway brand. Thanks.

[Lynn Atchison:]

Sure this is Lynn. I'll take the first one. So, there's some puts - different things that are backing listing growth. The Stays that you mentioned is a - we essentially are shutting down the ability to renew on HomeAway Australia and some of those customers are already customers in on Stay. And so I think - I've mentioned that has been a headwind for listing growth going forward. Never a headwind, it's really from the growth rate standpoint is termination of our pay pr lead program. So those are the things that are going against overall listing counts which are structural in our business. In terms of the subscription business itself. So that's total listing. We're down a little bit from last year and that's essentially due to the renewal rate and that the renewal rate pressures there are predominantly in Europe and as far we're seeing that in Europe, they are favoring the pay per booking product. So given what we are seeing in terms of trends, I think that we are expecting this trend to essentially continue. We're not sure of the pace and timing of it, but certainly in Europe, they're preferring the pay per booking product which puts pressures on subscription.

[Brian Sharples:]

Relatively a question about VRBO, and by the way it's an issue in a lot of countries where we support HomeAway brand an alternative brand. If you look at our marketing mix, the majority of what we do does apply to all brands. So we certainly do PPC, SCO, CRM all that even display advertising and things that we do for all the brands in our portfolio. The one big difference is when you start running - spending significant money on brand marketing campaigns doing things on TV and whatnot. It is certainly sensible to support one brand not multiple brands. Part and parcel to our strategy was multiple brands is making sure our property show up on all of them and so we're somewhat in different, if there's somebody who lifts and goes in the door on VRBO versus somebody goes in the door on HomeAway us promoting the HomeAway brand and driving more traffic to HomeAway, still benefits you as a customer. You signed up to VRBO you're going to feel like you're more successful because of it because you're going to see more business and more volume. And so for us, do not create market confusion or a competitor to ourselves, we're obviously going to pick the global brand and that's HomeAway. It is important to note that, our traffic growth is 20% this quarter, and it was almost 50% higher where we advertised the leading brand that advertised during this campaign. So yes we are driving higher traffic growth in general for the brands that we embrace with this global marketing campaign but again all the properties benefit because all the properties do show up now on the majority of [indiscernible].

[Kevin Kopelman:]

Thanks a lot.

[Operator:]

Thank you. Our next question today is coming from [indiscernible] from Oppenheimer. Please proceed with your question.

[Unidentified Analyst:]

Hi, thanks for taking my question. In terms of expanding globally, can you provide color around the acquisition environment or the current valuations make it more advantageous for partners to have since it's the one with our CanadaStays? Thank you.

[Brian Sharples:]

Yeah, I mean if you look at we've been doing for the last year and a half most of them have been investments in partnership. So I think it's safe to say that the reported valuations of Airbnb have gone to the heads of every small entrepreneur in the world that has something that looks like a vacation around site. So when we go and look at new growth businesses that seem to be exciting in our category, it used to be very easy for us, because we're essentially the only buyer and we could buy on the basis of a multiple of cash flow. Most of the young companies in new geographies, A don't have positive cash flow and B have very high valuation expectation. So I think for the foreseeable future unless something changes, you will be finding us doing more of the same, future investments in partnerships were it make sense. Typically, with some kind of optionality going forward to acquire the sites, at a time in a future, when we think perhaps the price is favorable relative to the economics.

[Unidentified Analyst:]

Thanks a lot.

[Operator:]

Thank you. Our next question today is coming from Nat Schindler from Bank of America Merrill Lynch. Please proceed with your question.

[Nat Schindler:]

Yes. Hi, guys thank you for taking my questions. Two quick questions, one could you characterize what percent of your PPB listings, do you think are really unique to your site versus other competitors? And a second question is, you mentioned monetizing travelers and hinted that something similar to Airbnb does or a booking fee on the traveler side would be possible? Would you do that for a subscription site as well as PPB or that only be for PPB listings?

[Brian Sharples:]

Well, we are not prepare to comment on that, because we haven't made any decisions yet, I would say, everything is on the table. We are looking at a number of different options here with respect to monetization. It would be, I'll just make one comment that would be very difficult for us to make a huge impact in monetization, if we didn't do something on the subscription side. Because if the subscription side is very much as bringing the monetization numbers down within the company and then the first one...

[Lynn Atchison:]

Well and then also, as we get more and more of our subscribers on online booking, I mean that is enhances with our ability to monetize travelers for those customers through the sale of ancillary services. So that is still some great opportunity for us in the future and the first question was how many of our pay-per booking customers do we really think are unique?

[Brian Sharples:]

Well that yeah, and the answer there is far, far less than on the subscription side. On the subscription side, a very high percentage are unique but if you look at the makeup of PPB listings, first of all a huge chunk of them are integrated property management listings which are big companies typically in Europe and I would say all of those companies display on multiple sites including their own. And then a second big chunk are property managers in general which again property management business doing this. So they're going to be on multiple sites and when you look at individual owners, I would say probably what we're seeing in the data is about 50% of them are unique roughly which is still a very different number than what we see on the subscription side of the house. So overall I would say, I don't know maybe 30% unique something like that.

[Nat Schindler:]

Great. Thank you.

[Operator:]

Thank you. Our next question today is coming from Brian Nowak from Morgan Stanley. Please proceed with your question.

[Brian Nowak:]

Thanks for taking my questions. I have two, the first one, Brian I appreciated the color on the supply overlap with AIRBNB in the U.S. I'm curious, have you done any work on looking at the geographic demand overlap by Airbnb. Now, where are you and your business mix that comes from large cities and major metropolitan areas versus the country side? And how do you see that changing over the next couple of years? And then the second one I'm just trying to get on the advertisement spend. How much was ad spending in 2Q and I think in the past you talked about $60 million for the full year. Is that still the right way to think about this year?

[Brian Sharples:]

I'll let Lynn answer the second question. In terms of traffic mix we're still very heavily skewed towards vacation destinations. We've started doing some testing in cities. We have good traffic in cities. We can use a lot more supply in cities in general but it's still relative to Airbnb I mean I think it's a 90/10 both ways they're going to get 90% of air traffic in cities, we're going to get 90% of our traffic outside of cities. You also - we're competing for a very different kind of traveler when we did the study on the overlap in U.S. business one of the things that was interesting to me is we found, I think it was about 75%, 76% of Airbnb inventory is a one bedroom or less, meaning one bedroom or studio or room of some time, we're obviously in the family and group business and so our numbers are much smaller than that of the bedroom below. So we target very different kinds of people as well with our marketing and of course we're not always perfect how do we target, but in general we're after a family and group travel and it's just a very different demographic. On the city's front we do expect to make some changes in the coming years, mainly on the supply side though, because what we finally look at cities is we tend to have more demand than supply. So it just comes naturally because of our brand recognition and because of our search position. So a lot of our focus right now is on testing ways to bring supply in cities that's consistent with our brand, we could obviously add a lot of rooms if we wanted to, we don't feel that's consistent with our brand, we're looking for a whole houses, good places for families to Stay. We've got several test markets underway where we're looking at doing that still too early to kind of report on the success of those effort, although we are feeling very positive about the impact that will have on the business in years to come.

[Lynn Atchison:]

Great. And Brian, this is Lynn. So the $60 million number that you referred to I think that was last year when we are talking about what we spent last year and we said, if we are going to increase that by 50% so that was really the only color we gave in terms of about what we felt we're going to spend this year. And that still about right - that is somewhat fluid and we manage our spend on quarters closer to $90 million for the full-year. Otherwise in Brian's script he talked about $51 million in the first half of the year of which $28 million was in Q2. So you can tell it's a little bit first half of the year weighted and that's because that follows the seasonality of our business.

[Brian Sharples:]

Yeah. I mean the growth rate in paid media in the second half will be lower than it was in the first half. And consistent with the financial objectives we have been outlining for the last several quarters.

[Brian Nowak:]

Yeah. Great thanks.

[Operator:]

Thank you. Our next question is coming from Justin Patterson from Raymond James. Please proceed with your question.

[Justin Patterson:]

Great. Thanks. Brian it sounded like you had a healthy improvement in mobile conversions this quarter. Could you give us a sense on what the gap between mobile traffic and mobile monetization is today? I believe last quarter you said mobile traffic was around 27% of the total. Typically that's an area where travel company that struggle the close the GAAP. So, curious with your - how you're backing that problem?

[Brian Sharples:]

Yeah, so I mean, mobile continues to go up. We're at about 48% of total traffic is mobile that includes pads as well as smartphones. Pads convert pretty close to desktop, so that's not a big issue, but 31% of our traffic in Q2 is smarphone traffic and that's the highest level that we've certainly seen. So we do have a lot of effort going on, on the conversion front with respect to mobile and as I said it's been paying big dividends for us. Mobile conversion like all e-commerce companies is lower on the smartphone and substantially so - roughly half the level is desktop, but unfortunately like other e-commerce companies we struggle to really understand attribution back to the desktop. This is a category we have got typically considered purchase, people aren't be going in multiple times with multiple family members to look at information before they book something and we don't know today if it takes five visits to our website to secure a booking and it used to be all five were on a desktop, and now two out of the five are on a mobile device, but they're finishing up on a desktop. That's something that we don't know yet we are studying that we do expect in the coming quarters to have a better hands on attribution. So we're not - the difference in conversion I think will always be there, because people spend less time on their phones, the smaller form factor again it's a very expensive purchase. So people are going to be typically close on their phone but we're not freaking out about it yet, because we also know that a lot of those people are going to move over to pair of desktop to finally make that purchase. We don't have a good data on it but our gut - with this kind of shift to mobile traffic and the difference in conversion rate you would expect to see a much bigger financial impact on our business and because we don't see that or feel that our suspicion is we're still getting those customers. It's just a - it's sort of a different mix of traffic on the front end but hopefully we'll have more to say about that in the coming quarters.

[Justin Patterson:]

Great. Thank you.

[Operator:]

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.