BOOKING : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

The following discussion should be read in conjunction with our Consolidated
Financial Statements, including the notes to those statements, included
elsewhere in this Annual Report on Form 10-K, and the Section entitled "Special
Note Regarding Forward-Looking Statements" in this Annual Report on Form 10-K.
As discussed in more detail in the Section entitled "Special Note Regarding
Forward-Looking Statements," this discussion contains forward-looking
statements, which involve risks and uncertainties.  Our actual results may
differ materially from the results discussed in the forward-looking statements.
Factors that might cause those differences include those discussed in "Risk
Factors" and elsewhere in this Annual Report on Form 10-K.

We evaluate certain operating and financial measures on both an as-reported and
constant-currency basis. We calculate constant currency by converting our
current-year period operating and financial results for transactions recorded in
currencies other than U.S. Dollars using the corresponding prior-year period
monthly average exchange rates rather than the current-year period monthly
average exchange rates.

Overview

Our mission is to make it easier for everyone to experience the world. We seek
to empower people to cut through travel barriers, such as money, time, language
and overwhelming options, so they can use our services to easily and confidently
go where they want to go, stay where they want to stay, dine where they want to
dine, pay how they want to pay and experience what they want to experience. We
connect consumers wishing to make travel reservations with providers of travel
services around the world through our online platforms. Through one or more of
our brands, consumers can: book a broad array of accommodations (including
hotels, motels, resorts, homes, apartments, bed and breakfasts, hostels and
other properties); make a car rental reservation or arrange for an airport taxi;
make a dinner reservation; or book a flight, cruise, vacation package, tour or
activity. Consumers can also use our meta-search services to easily compare
travel reservation information, such as airline ticket, hotel reservation and
rental car reservation information, from hundreds of online travel platforms at
once. In addition, we offer various other services to consumers and partners,
such as certain travel-related insurance products and restaurant management
services to restaurants.

  We offer these services through six primary consumer-facing brands:
Booking.com, Priceline, agoda, Rentalcars.com, KAYAK and OpenTable. While
historically our brands operated on a largely independent basis and many of them
focused on a particular service (e.g., accommodation reservations) or geography,
we are increasing the collaboration, cooperation and interdependency among our
brands in our efforts to provide consumers with the best and most comprehensive
services. We also seek to maximize the benefits of our scale by sharing
resources and technological innovations, co-developing new services and
coordinating activities in key markets among our brands. For example,
Booking.com, the world's leading brand for booking online accommodation
reservations (based on room nights booked), offers rental car and other ground
transportation services, flights, tours and activities reservations, restaurant
reservations and other services, many of which are supported by our other
brands. Similarly, hotel reservations available through Booking.com are also
generally available through agoda and Priceline. See Note 2 to the Consolidated
Financial Statements - Segment Reporting for information on our operating
segments.

We refer to our company and all of our subsidiaries and brands collectively as "Booking Holdings," the "Company," "we," "our" or "us."

  Our business is driven primarily by international results, which consist of
the results of Booking.com, agoda and Rentalcars.com in their entirety and the
international businesses of KAYAK and OpenTable. This classification is
independent of where the consumer resides, where the consumer is physically
located while using our services or the location of the travel service provider
or restaurant. For example, a reservation made through Booking.com (which is
domiciled in the Netherlands) at a hotel in New York by a consumer in the United
States is part of our international results. In 2020, our international business
(the substantial majority of which is generated by Booking.com) represented
approximately 88% of our consolidated revenues. A significant majority of our
revenues, including a significant majority of our international revenues, is
earned in connection with facilitating accommodation reservations. See Note 18
to the Consolidated Financial Statements for more geographic information.

  We derive substantially all of our revenues from enabling consumers to make
travel service reservations. We also earn revenues from credit card processing
rebates and customer processing fees, advertising services, restaurant
reservations and restaurant management services, and various other services,
such as travel-related insurance revenues.

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Trends

In response to the outbreak of the novel strain of the coronavirus, COVID-19
(the "COVID-19 pandemic"), many governments around the world have implemented,
and continue to implement, a variety of measures to reduce the spread of
COVID-19, including travel restrictions and bans, instructions to residents to
practice social distancing, curfews, quarantine advisories, shelter-in-place
orders and required closures of non-essential businesses. These government
mandates have forced many of the partners on whom our business relies, including
hotels and other accommodation providers, airlines and restaurants, to seek
government support in order to continue operating, to curtail drastically their
service offerings or to cease operations entirely. Further, these measures have
materially adversely affected, and may further adversely affect, consumer
sentiment and discretionary spending patterns, economies and financial markets,
and our workforce, operations and customers. The COVID-19 pandemic and the
resulting economic conditions and government orders have resulted in a material
decrease in consumer spending and an unprecedented decline in travel and
restaurant activities and consumer demand for related services. Our financial
results and prospects are almost entirely dependent on the sale of
travel-related services. Our results for the year ended December 31, 2020 have
been materially and negatively impacted, with a material decline in gross travel
bookings, room nights booked, total revenues, net income and cash flow from
operations as compared to the year ended December 31, 2019. Newly-booked room
night reservations, excluding the impact of cancellations, declined rapidly as
the COVID-19 pandemic spread in the first quarter and the beginning of the
second quarter of 2020, but then steadily improved through the end of the second
quarter and into the summer travel period in the third quarter of 2020. However,
in the fourth quarter of 2020, we saw an increased decline in newly-booked room
night reservations, due in part to increased COVID-19 case counts and reimposed
or additional government-imposed travel restrictions, particularly in Europe. In
September 2020, a variant of COVID-19 that spreads more easily and quickly than
other variants was first discovered in the United Kingdom, and has since spread
across the country and to other countries, including the United States and in
Europe. Another variant of COVID-19 that also appears to spread more easily and
quickly than other variants was detected in South Africa in October 2020. In the
fourth quarter of 2020, multiple COVID-19 vaccines were approved for widespread
distribution throughout various parts of the world, including the United States
and in Europe. While this news is encouraging, it is still unknown when these
vaccines will be available to broader populations and whether they will be as
effective against variants of COVID-19, including the variants mentioned above.
We believe that as effective vaccines become widely distributed, people will
feel it is safe to travel again and government restrictions will be relaxed,
although the timing remains uncertain.

Since April 2020, we have seen a substantial year-over-year increase in the
share of newly booked room nights booked for domestic travel (travelers booking
a stay within their own country) while bookings for international travel have
remained very limited throughout the pandemic. Over this same time period, we
have seen a year-over-year increase in the share of our newly-booked room nights
made on a mobile device. Also, while we saw an increase in the share of
newly-booked room nights for alternative accommodation properties in the early
months of the pandemic, more recently the share has been consistent with
pre-pandemic levels. In addition, we have observed an improvement in
cancellation rates since the high in April, though we have seen additional
periods of highly elevated cancellation rates typically coinciding with newly
imposed travel restrictions. The overall improvement in cancellation rates since
April benefits our room nights booked including cancellations but does not
impact newly-booked room nights.

Our revenue decline in 2020 was impacted to a greater extent than newly-booked
room night growth due to the impact of higher cancellations and lower
accommodation average daily rates ("ADRs") as compared to 2019. We expect to
continue to see severely reduced new travel and restaurant reservation bookings
as compared to 2019 levels for the foreseeable future, which will have a
materially adverse impact on our business, financial condition, results of
operations and cash flows. Further, given the volatility in the global travel
industry and the financial difficulties faced by many of our travel service
provider and restaurant partners, we have increased our provision for expected
credit losses on receivables from and cash advances made to our travel service
provider and restaurant partners.

Due to the uncertain and rapidly evolving nature of current conditions around
the world, we are unable to predict accurately the impact that the COVID-19
pandemic will have on our business going forward. The approval and distribution
of COVID-19 vaccines throughout the world is encouraging, however, the COVID-19
pandemic continues to impact global travel and travel restrictions remain in
place, particularly in Europe. In the fourth quarter of 2020, we saw room nights
decline further, as well as an increase in cancellation rates, in each case as
compared to the third quarter of 2020. In January 2021, room nights declined
slightly more than the decline in the fourth quarter of 2020, however, we have
seen some improvement in these booking trends in recent weeks. If these recent
trends were to continue, we currently expect that room nights and gross bookings
in the first quarter of 2021 will decline relative to the first quarter of 2019
by a few percentage points less than those metrics declined in the fourth
quarter of 2020 relative to the fourth quarter of 2019. We currently expect
revenue in the first quarter of 2021 to decline by a similar amount as our
expected decline in gross bookings in the first quarter of 2021, both relative
to the first quarter of 2019. The comparison of the first quarter of 2021 to the
first quarter of 2019 avoids the distortion created from comparing to the
initial spread of the COVID-19 pandemic late in the first quarter of 2020. In
addition, we
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currently expect that we will experience a greater operating loss in the first
quarter of 2021 as compared to the fourth quarter of 2020. With the continued
spread of COVID-19 throughout the world, we expect the pandemic and its effects
to continue to have a significant adverse impact on our business for the
duration of the pandemic, during any resurgences of the pandemic and during the
subsequent economic recovery, which could be an extended period of time. For
more information, see Part II, Item 1A, Risk Factors - "The COVID-19 pandemic
has materially adversely affected, and may further adversely impact, our
business and financial performance."

In response to the COVID-19 pandemic, we have taken and are taking various actions to address the impact of the pandemic on our business. Among other actions, we have:

•Raised $4.1 billion in debt and negotiated amendments to our revolving credit
facility to provide additional financial flexibility
•Undertaken restructuring activities at all of our brands
•Participated in certain government aid programs, including employee wage
support programs
•Suspended general share repurchases
•Eliminated non-essential business travel
•Canceled internal company events and offsites
•Significantly reduced marketing spend worldwide
•Implemented a general temporary company-wide hiring freeze for much of 2020
•Sold investments in government debt securities, corporate debt securities and
Trip.com Group American Depositary
Shares ("ADSs")

Further, our Chief Executive Officer and the Chief Executive Officers of our
brands voluntarily declined their salaries, certain other senior managers
voluntarily reduced their salaries and our non-employee Directors voluntarily
waived their cash fees for most of 2020.

In response to the reduction in our business volumes as a result of the impact
of the COVID-19 pandemic, during the year ended December 31, 2020, we took
actions at all of our brands to reduce the size of our workforce to optimize
efficiency and reduce costs, which we expect to result in annualized cost
savings of approximately $370 million in personnel-related expenses. In addition
to the restructuring expenses recorded during the year ended December 31, 2020
and included in "Restructuring and other exit costs" in the Consolidated
Statements of Operations, we estimate that we will record approximately
$40 million of additional restructuring expenses in early 2021 (see Note 20 to
our Consolidated Financial Statements). Our headcount decreased 23%
year-over-year as of December 31, 2020, primarily due to the restructuring
activities and attrition.

We have also been working with travelers and our travel service provider
partners to deal with reservation cancellations and other disruptions arising
from the impact of the pandemic. For example, when the pandemic started,
Booking.com committed to allow cancellations of certain non-refundable bookings
that were impacted by government travel restrictions and OpenTable has waived
fees payable by restaurants for diners seated through OpenTable's online
reservation service and subscription fees for many restaurants. The impacts of
the COVID-19 pandemic are wide-ranging and affect all aspects of our business.
As a result, the pandemic has negatively affected our financial results and
condition as described throughout this Annual Report on Form 10-K. We anticipate
that we will continue to make decisions and take actions to address the impacts
of the pandemic on our business, including additional efforts to reduce costs
while preserving our ability to offer valuable services to consumers and
partners when the industry recovers. The full impact of the pandemic on our
business is impossible to predict, and therefore we may recognize additional
negative impacts to our operating results and financial condition in future
periods as a result of the pandemic.

Certain governments have passed or are considering modifying legislation to help
businesses during the COVID-19 pandemic through loans, wage subsidies, tax
relief or other financial aid, and some of these governments have extended or
are considering extending these programs. We have participated in several of
these programs, including the Netherlands' wage subsidy program and the United
Kingdom's job retention scheme. In addition, certain governments have extended
support for the travel and tourism industry through special programs whereby
discounts are extended to travelers through travel service providers or through
travel agents for reservations facilitated by them. We have participated in
Japan's Go To Travel program and Thailand's We Travel Together program.

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Prior to the COVID-19 pandemic, we experienced many years of significant growth
in our accommodation reservation services. We believe this growth was the result
of, among other things, the broader shift of travel purchases from offline to
online, the widespread adoption of mobile devices and the growth of travel
overall. We also believe this growth was the result of the continued innovation
and execution by our teams around the world to increase the number and the
variety of accommodations we offer consumers, increase and improve content,
build distribution and improve the consumer experience on our online platforms,
as well as consistently and effectively marketing our brands through performance
and brand marketing efforts. Prior to the COVID-19 pandemic, these
year-over-year growth rates generally decelerated due to the size of our
accommodation reservation business and the generally slowing growth rate of the
online travel market. As the travel market recovers from the impact of the
COVID-19 pandemic, we expect to see higher than pre-COVID-19 pandemic growth
rates until we return to the level of travel market demand that we observed
prior to the COVID-19 pandemic, after which we expect prior trends to generally
resume.

We are a global business, and online travel growth rates vary across the world
depending on numerous factors, including local and regional economic conditions,
individual disposable income, access to the internet and adoption of e-commerce.
Over the last several years, and prior to the COVID-19 pandemic, online travel
growth rates had generally slowed in markets such as North America and Europe
where online activity was high and consumers had been engaging in e-commerce
transactions for many years, while online travel growth rates remained
relatively high in markets such as Asia-Pacific where incomes were rising more
quickly and the increased availability and use of mobile devices had accelerated
the growth of internet usage and travel e-commerce transactions. Over the long
term, we expect the broader global economy and online travel market to recover
from the COVID-19 pandemic, and following the recovery of the travel industry to
the level of pre-COVID-19 pandemic demand, we would expect online travel growth
rates will slow as markets continue to mature. However, we believe that the
opportunity to grow our business beyond pre-COVID-19 pandemic levels exists for
the markets in which we operate, including in both mature and less mature
markets. Further, we believe that this opportunity for growth exists because we
believe we provide significant value to travel service providers, regardless of
size or geography, due to our global reach and marketing expertise. For example,
we believe that accommodation providers of all sizes, from large hotel chains to
small, independent hotels and alternative accommodations such as homes and
apartments, benefit from using our services, which enable them to reach a
broader audience of potential customers.

Historically, our growth has primarily been generated by the worldwide
accommodation reservation business of Booking.com, which is our most significant
brand, and has been due, in part, to the availability of a large number of
properties through Booking.com. Booking.com included approximately 2,373,000
properties on its website at December 31, 2020, consisting of approximately
434,000 hotels, motels and resorts and approximately 1,939,000 homes, apartments
and other unique places to stay, compared to approximately 2,580,000 properties
(including approximately 460,000 hotels, motels and resorts and approximately
2,120,000 homes, apartments, and other unique places to stay) at December 31,
2019. Booking.com categorizes properties listed on its website as either (a)
hotels, motels and resorts, which groups together more traditional accommodation
types (including hostels and inns), or (b) homes, apartments and other unique
places to stay, also referred to as alternative accommodations, which
encompasses all other types of accommodations, including bed and breakfasts,
villas, apart-hotels and beyond.

We intend to continue to improve the accommodation choices available for
reservation on our platforms, however, the number of accommodations on our
platforms may vary in part as a result of removing accommodations from time to
time. At December 31, 2020, we saw a year-over-year decrease in the number of
properties on Booking.com's website, as compared to December 31, 2019, driven by
an elevated number of accommodations removed from the platform due primarily to
the properties not providing availability on our platforms, non-payment of
invoices, or property closures. We have continued to see a year-over-year
increase in the number of accommodations removed from our platform during the
COVID-19 pandemic, and we expect to see further accommodation removals in the
future due to increases in property closures or changes in ownership.

Many of the newer accommodations we add to our travel reservation services,
especially in highly-penetrated markets, may have fewer rooms or higher credit
risk and may appeal to a smaller subset of consumers (e.g., hostels and bed and
breakfasts). Because alternative accommodations are often either a single unit
or a small collection of independent units, these properties generally represent
more limited booking opportunities than hotels, motels and resorts, which
generally have more units to rent per property. Further, alternative
accommodations in general may be subject to increased seasonality due to local
tourism seasons or other factors or may not be available at peak times due to
use by the property owners. We may also experience lower profit margins with
respect to these properties due to certain additional costs, such as increased
customer service costs, related to offering these accommodations on our
platforms. As our alternative accommodation business has grown, these different
characteristics have negatively impacted our profit margins and we expect this
trend to continue. Further, to the extent that these properties represent an
increasing percentage of the properties on our platforms, the number of
reservations per property will likely continue to decrease since alternative
accommodation properties typically have fewer
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booking opportunities per property. We believe that continuing to improve the choices of accommodations available through our services, in particular Booking.com, will help us to continue to grow our accommodation reservation business.

We are constantly innovating to grow our business by, among other things,
providing a best-in-class user experience with intuitive, easy-to-use online
platforms (i.e., websites and mobile apps) to ensure that we are meeting the
needs of online consumers while aiming to exceed their expectations. As part of
these ongoing efforts, we have a long-term strategy to build a more integrated
offering of multiple elements of travel, which we refer to as the "Connected
Trip", and we expect these efforts to increase room night growth and revenue
growth over time. Although we expect our efforts to build the Connected Trip
will increase revenue growth over time, we may see a negative impact on our
operating margins in the near term as we incur the expenses associated with
these investments. Further, to the extent our non-accommodation services grow
faster than our accommodation services, whether as part of the Connected Trip or
otherwise, our operating margins may be negatively affected if we experience an
increasing mix of revenues from lower-margin services.

As part of our strategy to provide more payment options to consumers and travel
service providers, increase the number and variety of accommodations available
on Booking.com and enable the growth of our in-destination activities
businesses, Booking.com is increasingly processing transactions on a merchant
basis, where it facilitates payments from travelers for the services provided.
This allows Booking.com to process transactions for travel service providers and
to increase its ability to offer secure and flexible transaction terms to
consumers, such as the form and timing of payment. We believe that adding these
types of service offerings will benefit consumers and travel service providers,
as well as our gross bookings, room night and earnings growth rates. However,
this results in additional expenses for personnel, payment processing, customer
chargebacks (including those related to fraud) and other expenses related to
these transactions, which are recorded in "Personnel" and "Sales and other
expenses" in our Consolidated Statements of Operations, as well as associated
incremental revenues in the form of credit card rebates, for example, which are
recorded in "Merchant revenues." To the extent more of our business is generated
on a merchant basis, we will incur a greater level of these merchant-related
expenses, which would negatively impact our operating margins despite increases
in associated incremental revenues. Components of revenues and expenses related
to our merchant business may be recognized in different periods. These timing
factors could impact our operating margins as well as the relationship between
our gross bookings and revenues in a particular period, especially as our
merchant business increases as a percentage of our overall business.

We compete globally with both online and traditional providers of travel and
restaurant reservation and related services. The markets for the services we
offer are intensely competitive, constantly evolving and subject to rapid
change, and current and new competitors can launch new services at relatively
low cost. Some of our current and potential competitors, such as Google, Apple,
Alibaba, Tencent, Amazon and Facebook, have significantly more customers or
users, consumer data and financial and other resources than we do, and they may
be able to leverage other aspects of their businesses (e.g., search or mobile
device businesses) to enable them to compete more effectively with us. For
example, Google has entered various aspects of the online travel market and has
grown rapidly in this area, including by offering a flight meta-search product
(Google Flights), a hotel meta-search product (Google Hotel Ads), a vacation
rental meta-search product, its "Book on Google" reservation functionality,
Google Travel, a planning tool that aggregates its flight, hotel and packages
products in one website and by integrating its hotel meta-search products and
restaurant information and reservation products into its Google Maps app.
Moreover, as the economy and the travel industry recover from the impact of the
COVID-19 pandemic, the structure of the travel industry could change in
unexpected ways, which could advantage or disadvantage us and benefit certain of
our existing competitors or new entrants. As a result, our historical strengths
may not provide the competitive advantages that they did prior to the pandemic.
If we are unable to successfully adapt to any changes in how the travel industry
operates or to changes in the ways in which consumers purchase travel services,
our ability to compete, and therefore our business and results of operations,
would be adversely affected.

Our markets are also subject to rapidly changing conditions, including
technological developments, consumer behavior changes, regulatory changes and
travel service provider consolidation. We expect these trends to continue. For
example, we have experienced a significant shift of both direct and indirect
business to mobile platforms and our advertising partners are also seeing a
rapid shift of traffic to mobile platforms. In addition, the revenue earned on a
mobile transaction may be less than a typical desktop transaction due to
different consumer purchasing patterns. For example, accommodation reservations
made on a mobile device typically are for shorter lengths of stay, have lower
accommodation ADRs and are not made as far in advance. We observed an
increasingly higher share of our newly-booked room nights made on a mobile
device throughout 2020, as compared to the corresponding periods in 2019. For
more detail regarding the competitive trends and risks we face, see Part I, Item
1, Business - "Competition," Part I, Item 1A, Risk Factors - "Intense
competition could reduce our market share and harm our financial performance."
and "Consumer adoption and use of mobile devices creates challenges and may
enable device companies such as Google and Apple to compete directly with us."
and "We may not be able to keep up with rapid technological or other market
changes."

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Although we believe that providing an extensive collection of properties,
excellent customer service and an intuitive, easy-to-use consumer experience are
important factors influencing a consumer's decision to make a reservation, for
many consumers, particularly in certain markets, the price of the travel service
is the primary factor determining whether a consumer will book a reservation. As
a result, it is increasingly important to offer travel services, such as
accommodation reservations, at competitive prices, whether through discounts,
coupons, closed-user group rates or loyalty programs, or otherwise. These
initiatives have resulted and in the future may result in lower ADRs and lower
revenue as a percentage of gross bookings. Discounting and couponing coupled
with a high degree of consumer shopping behavior is particularly common in Asian
markets. In some cases, our competitors are willing to make little or no profit
on a transaction, or offer travel services at a loss, in order to gain market
share.

We have experienced a meaningful decline in constant-currency accommodation ADRs
since the outbreak of the COVID-19 pandemic and it is uncertain how long the
COVID-19 pandemic will impact our ADRs. These declining ADR trends have resulted
in and may continue to result in our gross bookings growing at a lower rate of
growth than our accommodation room nights. Prior to the outbreak, we observed a
trend of declining constant-currency accommodation ADRs. We believe the trend of
declining ADRs, observed prior to the outbreak, was partially driven by the
negative impact of the changing geographical mix of our business (e.g., lower
ADR regions like Asia-Pacific are generally growing faster than higher ADR
regions like Western Europe) as well as pricing pressures within local markets
from time to time which resulted from competitive conditions, weakening economic
conditions or changes in travel patterns. As the travel market recovers from the
impact of the COVID-19 pandemic, we expect travel industry ADRs generally to
increase and, as a result, we expect our ADRs similarly to increase during the
recovery, however, it is uncertain whether industry ADRs will improve at the
same pace as travel demand. In addition, we expect the ADR trends we observed
before the COVID-19 pandemic will generally resume after the recovery, which
would negatively pressure our ADRs, however, there may also be periods of stable
or increasing ADRs.

We have established widely used and recognized e-commerce brands through
marketing and promotional campaigns. Historically, our marketing expenses
increased significantly, however, we experienced more moderate growth rates in
recent years, and since the COVID-19 pandemic, our marketing expenses have
declined significantly. Our marketing expense is comprised of performance
marketing and brand marketing expenses. Our performance marketing expense, which
represents a substantial majority of our marketing expense, is primarily related
to the use of online search engines (primarily Google), meta-search and travel
research services and affiliate marketing to generate traffic to our websites.
Our brand marketing expense is primarily related to costs associated with
producing and airing television advertising, online video advertising (for
example, on YouTube and Facebook), online display advertising and other brand
marketing. Total marketing expenses were $2.2 billion and $5.0 billion for the
years ended December 31, 2020 and 2019, respectively. We expect that our
marketing expenses in 2021 will remain significantly below 2019 levels.

Marketing efficiency, expressed as marketing expense as a percentage of total
revenues, is impacted by a number of factors that are subject to variability and
that are, in some cases, outside of our control, including ADRs, costs per
click, cancellation rates, foreign currency exchange rates, our ability to
convert paid traffic to booking customers, the timing difference between when
revenue is recognized and when marketing expense is recorded, the timing and
effectiveness of our brand marketing campaigns and the extent to which consumers
come directly to our platforms for bookings. For example, competition for
desired rankings in search results and/or a decline in ad clicks by consumers
could increase our costs per click and reduce our marketing efficiency. Changes
by Google or any of our other search or meta-search partners in how it presents
travel search results, including, if applicable, by placing its own offerings at
or near the top of search results, or the manner in which it conducts the
auction for placement among search results may be competitively disadvantageous
to us and may impact our ability to efficiently generate traffic to our
websites.

We have observed a long-term trend of decreasing performance marketing returns
on investment ("ROIs"), however, in recent years, we observed periods of stable
or increasing ROIs. During the first several months of the COVID-19 pandemic, we
experienced large year-over-year declines in ROIs driven by a significant
increase in cancellation rates. While we have observed year-over-year decreases
in ROIs for the year ended December 31, 2020, ROIs have improved since the early
months of the pandemic, though we expect volatility in our ROIs for the duration
of the pandemic. When evaluating our performance marketing spend, we typically
consider several factors for each channel, such as the customer experience on
the advertising platform, the incrementality of the traffic we receive and the
anticipated repeat rate from a particular platform, as well as other factors.
However, with the significant decrease in demand due to the COVID-19 pandemic,
our performance marketing spend is highly influenced by expected cancellation
rates in addition to the other factors listed above. The amount of business we
obtain through each performance marketing channel is impacted by numerous
factors, including the level of consumer demand for travel, bidding decisions by
us and our competitors (including decisions to optimize performance marketing
ROIs) and the marketing efforts and success of those channels to attract
consumers and generate demand. See Part I, Item 1A, Risk Factors - "We rely on
marketing channels to generate a significant amount of traffic to our platforms
and grow our business." and "Our
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business could be negatively affected by changes in online search and meta-search algorithms and dynamics or traffic-generating arrangements."

In recent years, we experienced significant increases in our cancellation rates,
which negatively affected our marketing efficiency and results of operations.
However, from the third quarter of 2018 until the fourth quarter of 2019, our
cancellation rates generally decreased, which benefited our marketing efficiency
and results of operations. Since the COVID-19 pandemic we have experienced
unprecedented increases in cancellation rates, which negatively impacted our
marketing efficiency and results of operations. For example, increased
cancellations, especially early in the pandemic, have resulted in increased
customer service costs, as well as higher than normal cash outlays to refund
consumers for prepaid reservations. However, in the second and third quarters of
2020, we saw a steady improvement in cancellation rates, which trended towards
levels that we observed prior to the COVID-19 pandemic. In the fourth quarter of
2020, we saw a reversal of the improving cancellation rate trend. We expect to
continue to see volatility in cancellation rates due to any resurgences of the
pandemic leading to reinstituted or additional travel restrictions,
shelter-in-place rules and reduced willingness to travel. Further, in the fourth
quarter of 2020, a higher share of our newly-booked room night reservations were
made with flexible cancellation policies, as compared to the corresponding
period in 2019, which could result in higher than normal cancellation rates in
future quarters.

Perceived or actual adverse economic conditions, including slow, slowing or
negative economic growth, high or rising unemployment rates, inflation and
weakening currencies, and concerns over government responses such as higher
taxes or tariffs and reduced government spending have impaired and could, in the
future, impair consumer spending and adversely affect travel demand. We expect
the lingering concerns of consumers around the safety of traveling as well as
reduced discretionary incomes could negatively impact leisure travel demand for
an extended period of time. Further, political uncertainty, conditions or
events, such as the variety of measures implemented by many governments around
the world to reduce the spread of COVID-19, including travel restrictions and
bans, instructions to residents to practice social distancing, quarantine
advisories, shelter-in-place orders and required closures of non-essential
businesses can also negatively affect consumer spending and adversely affect
travel demand. At times, we have experienced volatility in transaction growth
rates, increased cancellation rates and weaker trends in ADRs across many
regions of the world, particularly in those countries that appear to be most
affected by economic and political uncertainties, which we believe are due at
least in part to these macro-economic conditions and concerns. For more detail,
see Part I, Item 1A, Risk Factors - "The COVID-19 pandemic has materially
adversely affected, and may further adversely impact, our business and financial
performance" and "Declines or disruptions in the travel industry could adversely
affect our business and financial performance."

These and other macro-economic uncertainties, such as geopolitical tensions and
differing central bank monetary policies, have led to periods of significant
volatility in the exchange rates between the U.S. Dollar and the Euro, the
British Pound Sterling and other currencies. Significant fluctuations in foreign
currency exchange rates, stock markets and oil prices can also impact consumer
travel behavior.
As noted earlier, our international business represents a substantial majority
of our financial results. Therefore, because we report our results in U.S.
Dollars, we face exposure to movements in foreign currency exchange rates as the
financial results and the financial condition of our international businesses
are translated from local currency (principally Euros and British Pounds
Sterling) into U.S. Dollars. As a result, both the absolute amounts of and
percentage changes in our foreign-currency-denominated net assets, gross
bookings, revenues, operating expenses and net income as expressed in U.S.
Dollars are affected by foreign currency exchange rate changes. However, for the
year ended December 31, 2020, movements in foreign currency exchange rates had
little to no impact on our performance metrics and financial results.  Since our
expenses are generally denominated in foreign currencies on a basis similar to
our revenues, our operating margins have not been significantly impacted by
currency fluctuations. We designate certain portions of the aggregate principal
value of our Euro-denominated debt as a hedge against the impact of foreign
currency exchange rate fluctuations on the net assets of one of our Euro
functional currency subsidiaries. Foreign currency transaction gains or losses
on the Euro-denominated debt that is not designated as a hedging instrument for
accounting purposes are recognized in "Other income (expense), net" in the
Consolidated Statements of Operations (see Note 12 to our Consolidated Financial
Statements). Such foreign currency transaction gains or losses are dependent on
the amount of net assets of the Euro functional currency subsidiary, the amount
of the Euro-denominated debt that is designated as a hedge and fluctuations in
foreign currency exchange rates. For more information, see Part I, Item 1A, Risk
Factors - "We are exposed to fluctuations in foreign currency exchange rates."

We generally enter into derivative instruments to minimize the impact of foreign
currency exchange rate fluctuations on our transactional balances denominated in
currencies other than the functional currency. In periods prior to the second
quarter of 2020, we also entered into derivative instruments to minimize the
impact of short-term foreign currency exchange rate fluctuations on the
translation of our consolidated operating results into U.S. Dollars. However,
these instruments were short-term in nature and not designed to hedge against
currency fluctuations that could impact growth rates for our gross bookings or
revenues. Since the first quarter of 2020, we have not entered into such
derivative instruments as the impact of the
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COVID-19 pandemic on our operating results are highly uncertain. We will
continue to evaluate the use of derivative instruments in the future. See Note 6
to our Consolidated Financial Statements for additional information related to
our derivative contracts.

Many taxing authorities are increasingly focused on ways to increase tax
revenues and have targeted large multinational technology companies in these
efforts.  As a result, many countries have implemented or are considering the
adoption of a digital services tax that imposes a tax on revenue earned from
digital advertisements and the use of online platforms, even when there is no
physical presence in the jurisdiction.  Currently, rates for this tax range from
1.5% to 7.5% of revenue deemed generated in the jurisdiction. The digital
services taxes currently in effect, which we record in "General and
administrative" expense in Consolidated Statements of Operations, have
negatively impacted our results of operations and if many other countries pass
similar legislation, the collective impact of all of these measures could have a
materially adverse impact on our results of operations and cash flows. For more
information, see Part I, Item 1A, Risk Factors - "We may have exposure to
additional tax liabilities."

Many national governments have conducted or are conducting investigations into
competitive practices within the online travel industry, and we may be involved
or affected by such investigations and their results. Some countries have
adopted or proposed legislation that could also affect business practices within
the online travel industry. For example, France, Italy, Belgium and Austria have
passed legislation prohibiting parity contract clauses in their entirety. Also,
a number of governments are investigating or conducting information-gathering
exercises with respect to compliance by online travel companies ("OTCs") with
consumer protection laws, including practices related to the display of search
results and search ranking algorithms, claims regarding discounts, disclosure of
charges and availability, and similar messaging. In December 2020, the European
Commission proposed the Digital Markets Act and the Digital Services Act, which
are expected to give regulators more instruments to investigate digital
businesses and impose new rules on certain digital platforms if they are
determined to be "gatekeepers." The proposed legislation is not final and it is
not known what the laws will look like in their final forms if adopted. If the
regulators were to determine that we are a gatekeeper under the proposed
legislation, we could be subject to additional rules and regulations not
applicable to all our competitors and our business could be harmed. For more
information on these investigations and their potential effects on our business,
see Note 16 to our Consolidated Financial Statements and Part I, Item 1A, Risk
Factors - "Our business is subject to various competition/anti-trust, consumer
protection and online commerce laws, rules and regulations around the world, and
as the size of our business grows, scrutiny of our business by legislators and
regulators in these areas may intensify." In addition to the price parity and
consumer protection investigations, from time to time national competition
authorities, other governmental agencies, trade associations and private parties
take legal actions, including commencing legal proceedings, that may affect our
operations.  In general, increased regulatory focus on online businesses,
including online travel businesses like ours, could result in increased
compliance costs or otherwise adversely affect our business.

Seasonality and Other Timing Factors

In recent years, the majority of our gross bookings have been generated in the
first half of the year, as consumers planned and reserved their spring and
summer vacations in Europe and North America. However, we would generally
recognize revenue from these bookings when the travel begins (at "check-in"),
which can be in a quarter other than when the associated reservations are
booked. In contrast, we expensed the substantial majority of our marketing
activities as the expense is incurred, which, in the case of marketing in
particular, is typically in the quarter in which associated reservations were
booked. As a result of this timing difference between when we recorded marketing
expense and when we recognized associated revenue, we have experienced our
highest levels of profitability in the third quarter of the year, which is when
we experienced the highest levels of accommodation check-ins for the year for
our European and North American markets. The first quarter of the year was
typically the quarter in which we recognized the lowest amount of revenue as
well as the lowest level of profitability and highest level of volatility in
earnings growth rates due to these seasonal timing factors. The COVID-19
pandemic impacted seasonality in 2020; for example, we witnessed a higher share
of travel being booked during the second and third quarters as well as a higher
share of stays during the third quarter than in prior years. We cannot currently
predict travel patterns given the COVID-19 pandemic, and we may not experience
typical seasonality effects on our business in 2021.

For several years, we experienced an expansion of the booking window (the
average time between the booking of a travel reservation and when the travel
begins), which impacts the relationship between our gross bookings (recognized
at the time of booking) and our revenues (recognized at the time of check-in).
However, we saw a contraction of the booking window throughout 2018 and 2019.
Due to the impact of the COVID-19 pandemic on our booking trends, we saw an
initial expansion in the booking window in the second quarter versus the
comparable prior-year period as an increased percentage of newly-booked room
nights were made for travel occurring in the third quarter. However, in the
third and fourth quarters, we saw a significant contraction of the booking
window versus the comparable prior-year period as an increased percentage of
newly-
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booked room nights were made for travel that was to occur close to the time of
booking. We expect that the length of the booking window will be volatile and
difficult to predict throughout the duration of the COVID-19 pandemic. Future
changes in the length of the booking window will affect the degree to which our
gross bookings and revenues occur in the same period and, as a result, whether
our gross bookings growth rates and revenue growth rates converge or diverge.

In addition, the date on which certain holidays fall can have an impact on our
quarterly results. For example, in 2019, Easter fell on April 21 and
Easter-related travel began in the second quarter, when the associated revenue
was recognized. By comparison, in 2018, Easter was on April 1 and a meaningful
amount of Easter-related travel began in the week leading up to the holiday with
the associated revenue being recognized in the first quarter of 2018.  As a
result of the shift in Easter timing relative to 2018, our first quarter 2019
year-over-year growth rates in revenue, operating income and operating margins
were negatively impacted and our second quarter 2019 year-over-year growth rates
were positively impacted.  In 2020, Easter fell on April 12, in the second
quarter as it did in 2019, and as a result we did not experience a meaningful
impact to our year-over-year growth rates in 2020 from the Easter holiday. Due
to the significant reduction in travel demand related to the COVID-19 pandemic,
we do not expect the timing of the Easter holiday to have a meaningful impact on
our growth rates in 2021. The timing of other holidays such as Ramadan can also
impact our quarterly year-over-year growth rates.

The impact of seasonality can be exaggerated in the short term by the gross
bookings growth rate of the business. For example, in periods where our gross
bookings growth rate substantially decelerates, our operating margins typically
benefit from relatively less variable marketing expense. In addition, revenue
growth is typically less impacted by decelerating gross bookings growth in the
near term due to the benefit of revenue related to reservations booked in
previous quarters, but any such deceleration would negatively impact revenue
growth in subsequent periods. Conversely, in periods where our gross bookings
growth rate accelerates, our operating margins are typically negatively impacted
by relatively more variable marketing expense. In addition, revenue growth is
typically less impacted by accelerating gross bookings growth in the near term,
but any such acceleration would positively impact revenue growth in subsequent
periods as a portion of the revenue recognized from such gross bookings will
occur in future quarters. As the travel market recovers from the impact of the
COVID-19 pandemic, we expect to see higher than pre-COVID-19 pandemic growth
rates, which will likely result in periods where our operating margins are
negatively impacted due to the timing difference of when marketing expense is
recorded and when revenue is recognized.

Other Factors

We believe that our future success depends in large part on our ability to
continue to profitably grow our brands worldwide, and, over time, to offer other
travel and travel-related services. Factors beyond our control, such as oil
prices, stock market volatility, terrorist attacks, unusual or extreme weather
or natural disasters such as earthquakes, hurricanes, tsunamis, floods, fires,
droughts and volcanic eruptions, travel-related health concerns including
pandemics and epidemics such as COVID-19 and other coronaviruses, Ebola and
Zika, political instability, changes in economic conditions, wars and regional
hostilities, imposition of taxes, tariffs or surcharges by regulatory
authorities, changes in trade policies or trade disputes, changes in immigration
policies or travel-related accidents or increased focus on the environmental
impact of travel, can disrupt travel, limit the ability or willingness of
travelers to visit certain locations or otherwise result in declines in travel
demand. These kinds of events have negatively affected our business and results
of operations in the past and may do so again in the future. Because these
events or concerns, and the full impact of their effects, are largely
unpredictable, they can dramatically and suddenly affect travel behavior by
consumers, and therefore demand for our services and our relationships with
travel service providers and other partners, any of which can adversely affect
our business and results of operations. See Part I, Item 1A, Risk Factors - "The
COVID-19 pandemic has materially adversely affected, and may further adversely
impact, our business and financial performance" and "Declines or disruptions in
the travel industry could adversely affect our business and financial
performance."

The extent of the effects of the COVID-19 pandemic on our business, results of
operations, cash flows and growth prospects is highly uncertain and will
ultimately depend on future developments. We expect the pandemic and its effects
to continue to have a significant adverse impact on our business for the
duration of the pandemic and during the subsequent economic recovery, which
could be an extended period of time. Over the long-term, we intend to continue
to invest in marketing and promotion, technology and personnel within parameters
consistent with attempts to improve long-term operating results, even if those
expenditures create pressure on operating margins. In recent years, we have
experienced pressure on operating margins as we invested in initiatives to drive
future growth. We also intend to broaden the scope of our business, and to that
end, we explore strategic alternatives from time to time in the form of, among
other things, acquisitions. We believe competitive pressure to innovate will
encompass a wider range of services and technologies, including services and
technologies that may be outside of our historical core business, and our
ability to keep pace may slow. Potential competitors, such as emerging
start-ups, may be able to innovate and focus on developing a particularly new
product or service faster than we can or may foresee consumer need for new
services or technologies before us. Some of our larger competitors or potential
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competitors have more resources or more established or diversified relationships
with consumers than we do, and they could use these advantages in ways that
could affect our competitive position, including by making acquisitions,
entering or investing in travel reservation businesses, investing in research
and development, and competing aggressively for highly-skilled employees. For
example, because consumers often utilize other online services more frequently
than online travel services, a competitor or potential competitor that has
established other, more frequent online interactions with consumers may be able
to more easily or cost-effectively acquire customers for its online travel
services than we can. Our goal is to grow revenue and achieve healthy operating
margins in an effort to maintain profitability. The uncertain and highly
competitive environment in which we operate makes the prediction of future
results of operations difficult, and accordingly, we may not be able to return
to the levels of revenue growth and profitability we experienced prior to the
COVID-19 pandemic.

Critical Accounting Policies and Estimates

Management's Discussion and Analysis of Financial Condition and Results of
Operations is based upon our Consolidated Financial Statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States ("U.S. GAAP"). Our significant accounting policies and estimates
are more fully described in Note 2 to our Consolidated Financial Statements.
Certain of our accounting estimates are particularly important to our financial
position and results of operations and require us to make difficult and
subjective judgments, often as a result of the need to make estimates of matters
that are inherently uncertain. Our management uses its judgment to determine the
appropriate assumptions to be used in the determination of certain estimates. We
evaluate our estimates on an ongoing basis. Estimates are based on, among other
things, historical experience, terms of existing contracts, our observance of
trends in the travel industry and on various other assumptions that we believe
to be reasonable under the circumstances. Our actual results may differ from
these estimates under different assumptions or conditions. Our critical
accounting policies that involve significant estimates and judgments of
management include the following:

Valuation of Goodwill and Other Long-lived Assets

The application of the acquisition accounting for business combinations requires
the use of significant estimates and assumptions to determine the fair value of
the assets acquired and liabilities assumed. Our estimates of the fair value are
based upon assumptions that we believe are reasonable. When we deem appropriate,
we utilize assistance from a third-party valuation firm. The consideration
transferred is allocated to the assets acquired and liabilities assumed based on
their respective fair values at the acquisition date. The excess of the
consideration transferred over the net of the amounts allocated to the
identifiable assets acquired and liabilities assumed is recognized as goodwill.
Goodwill is assigned to reporting units that are expected to benefit from the
synergies of the business combination as of the acquisition date.

A substantial portion of our intangible assets and goodwill relates to the acquisitions of OpenTable and KAYAK.

We review long-lived assets whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable.  The assessment of
possible impairment is based upon the ability to recover the carrying value of
the assets from the estimated undiscounted future net cash flows, before
interest and taxes, of the related asset group.

Due to the significant and negative financial impact of the COVID-19 pandemic,
we performed the recoverability test of our long-lived assets and concluded
there was no impairment at March 31, 2020. For OpenTable and KAYAK, we tested
the recoverability of the long-lived assets and concluded there was no
impairment at September 30, 2020. We did not identify any additional impairment
indicators for our long-lived assets at December 31, 2020.

We test goodwill for impairment annually and whenever an event occurs or
circumstances change that would more likely than not reduce the fair value of a
reporting unit below its carrying amount. We test goodwill at a reporting unit
level. Our annual goodwill impairment tests are performed as of September 30.

Interim Goodwill Impairment Test

Due to the significant and negative financial impact of the COVID-19 pandemic,
we performed an interim period goodwill impairment test at March 31, 2020. Under
the current goodwill impairment standard adopted in the first quarter of 2020, a
goodwill impairment loss is measured at the amount by which a reporting unit's
carrying amount exceeds its fair value, not to exceed the carrying amount of
goodwill (see Note 2 to our Consolidated Financial Statements).

As of March 31, 2020, the estimated fair value of each of our reporting units,
except the OpenTable and KAYAK reporting unit, substantially exceeded its
respective carrying value. For the OpenTable and KAYAK reporting unit, we
recognized a goodwill impairment charge of $489 million for the three months
ended March 31, 2020, which is not tax-
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deductible, resulting in an adjusted carrying value of goodwill for OpenTable
and KAYAK of $1.5 billion at March 31, 2020. The goodwill impairment was
primarily driven by a significant reduction in the forecasted near-term cash
flows of OpenTable and KAYAK as well as the significant decline in comparable
companies' market values as a result of the COVID-19 pandemic.

The estimated fair value of OpenTable and KAYAK was determined using a
combination of standard valuation techniques, including an income approach
(discounted cash flows) and a market approach (applying the recent decline in
enterprise values of comparable publicly-traded companies to the recently
calculated fair value for OpenTable and KAYAK as well as applying comparable
company multiples).

The income approach estimates fair value utilizing long-term growth rates and
discount rates applied to the cash flow projections. In the cash flow
projections, we assumed that OpenTable and KAYAK will experience a significant
decline in near-term cash flows with a recovery to 2019 levels of financial
performance (including profitability) occurring in 2023. The shape and timing of
the recovery was a key assumption in our fair value calculation (both in the
income and market approaches).

Annual Goodwill Impairment Test

As of September 30, 2020, we performed our annual goodwill impairment test. Other than the OpenTable and KAYAK reporting unit, the fair values of our reporting units substantially exceeded their respective carrying values.

For the OpenTable and KAYAK reporting unit, we recognized a goodwill impairment
charge of $573 million for the three months ended September 30, 2020, which is
not tax-deductible, resulting in an adjusted carrying value of goodwill for
OpenTable and KAYAK of $1.0 billion at September 30, 2020. The goodwill
impairment was primarily driven by a significant reduction in the forecasted
cash flows of OpenTable and KAYAK, reflecting a longer assumed recovery period
to 2019 levels of profitability, mainly due to the continued material adverse
impact of the COVID-19 pandemic, including its impact on the flight vertical at
KAYAK, and the lowered outlook for monetization opportunities in restaurant
reservation services.

The estimated fair value of OpenTable and KAYAK was determined using a combination of standard valuation techniques, including an income approach (discounted cash flows) and a market approach (applying comparable company multiples).

The income approach estimates fair value utilizing long-term growth rates and
discount rates applied to the cash flow projections. The income approach,
applied as of September 30, 2020, reflected a reduction in the forecasted cash
flows of OpenTable and KAYAK and a longer assumed recovery period to 2019 levels
of profitability, driven primarily by a lowered outlook for monetization
opportunities in restaurant reservation services and slower than previously
expected recovery trends for airline travel, which is a key vertical for KAYAK.
For the interim goodwill impairment test at March 31, 2020, we expected a
recovery to 2019 levels of financial performance occurring in 2023 for OpenTable
and KAYAK. Based on our evaluation of all relevant information available as of
September 30, 2020 for the annual goodwill impairment test, we expected that
OpenTable and KAYAK would not return to the 2019 level of profitability within
the next five years, and that it was uncertain whether the shape of the recovery
would ultimately match our expectations. An increase or decrease of one
percentage point to the profitability growth rates used in the cash flow
projections would result in an increase or decrease of approximately $100
million to the estimated fair value of OpenTable and KAYAK at September 30,
2020. The discount rate is determined based on the reporting unit's estimated
weighted-average cost of capital and adjusted to reflect the risks inherent in
its cash flows, which requires significant judgments. The discount rate used for
the annual goodwill impairment test as of September 30, 2020 is higher than the
discount rate used for the interim goodwill impairment test as of March 31,
2020. If the discount rate used in the income approach increases or decreases by
0.5%, the impact to the estimated fair value of OpenTable and KAYAK, at
September 30, 2020, ranges from a decrease of approximately $65 million to an
increase of approximately $70 million.

The estimation of fair value reflects numerous assumptions that are subject to
various risks and uncertainties, including key assumptions regarding OpenTable
and KAYAK's expected growth rates and operating margin, expected length and
severity of the impact from the COVID-19 pandemic, the shape and timing of the
subsequent recovery and the competitive environment, as well as other key
assumptions with respect to matters outside of our control, such as discount
rates and market comparables. It requires significant judgments and estimates
and actual results could be materially different than the judgments and
estimates used to estimate fair value. Future events and changing market
conditions may lead us to re-evaluate the assumptions reflected in the current
forecast disclosed above, particularly the assumptions related to the length and
severity of the COVID-19 pandemic and the shape and timing of the subsequent
recovery, which may result in a need to recognize an additional goodwill
impairment charge that could have a material adverse effect on our results of
operations.
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No additional impairment indicators were identified as of December 31, 2020.

Valuation of Investments in Private Companies

See Note 5 to our Consolidated Financial Statements for additional information
related to the investments in private companies. The fair value of these
investments are measured using unobservable inputs when little or no market data
is available ("Level 3 inputs"). See Note 6 to our Consolidated Financial
Statements for additional information.

Our investments measured using Level 3 inputs primarily consist of preferred
stock investments in privately-held companies that are classified as either debt
securities or equity securities without readily determinable fair values. Fair
values of privately held securities are estimated using a variety of valuation
methodologies, including both market and income approaches. We have used
valuation techniques appropriate for the type of investment and the information
available about the investee as of the valuation date to determine fair value.
Recent financing transactions in the investee, such as new investments in
preferred stock, are generally considered the best indication of the enterprise
value and therefore used as a basis to estimate fair value. However, based on a
number of factors, such as the proximity in timing to the valuation date or the
volume or other terms of these financing transactions, we may also use other
valuation techniques to supplement this data, including the income approach. In
addition, an option-pricing model ("OPM") is utilized to allocate value to the
various classes of securities of the investee, including the class owned by us.
The model includes assumptions around the investees' expected time to liquidity
and volatility.

Our investment in Grab, which is classified as a debt security for accounting
purposes, had an aggregate estimated fair value of $200 million at December 31,
2020 and 2019. We measured this investment using "Level 3" inputs and
management's estimates that incorporate current market participant expectations
of future cash flows considered alongside recent financing transactions of the
investee and other relevant information.

We performed an impairment analysis on the investment in Didi Chuxing at March
31, 2020 considering the impact of the COVID-19 pandemic, which resulted in an
adjusted carrying value of $400 million at March 31, 2020 and December 31, 2020.
No additional impairment indicators were identified as of December 31, 2020. As
discussed below, we used unobservable inputs in order to determine fair value.
We used an income approach in estimating the fair value of Didi Chuxing as of
March 31, 2020. The income approach estimates value based on the expectation of
future cash flows that a company will generate. These future cash flows are
discounted to their present values using a discount rate based on a company's
weighted- average cost of capital, and is adjusted to reflect the risks inherent
in its cash flows. The key unobservable inputs and ranges used include the
weighted average cost of capital (12%-14%), terminal Earnings before interest,
taxes, depreciation and amortization ("EBITDA") multiple (13x-15x), volatility
(60%-70%) and an estimated time to liquidity of 4 years. Significant changes in
any of these inputs in isolation would result in significantly different fair
value measurements. Generally, a change in the assumption used for terminal
EBITDA multiples would result in a directionally similar change in the fair
value and a change in the assumption used for weighted average cost of capital
or volatility would result in a directionally opposite change in the fair value.

The determination of the fair values of investments, where we are a minority
shareholder and have access to limited information from the investee, reflects
numerous assumptions that are subject to various risks and uncertainties,
including key assumptions regarding the investee's expected growth rates and
operating margin, expected length and severity of the impact of the COVID-19
pandemic on the investee and the shape and timing of the subsequent recovery, as
well as other key assumptions with respect to matters outside of our control,
such as discount rates and market comparables. It requires significant judgments
and estimates and actual results could be materially different than those
judgments and estimates utilized in the fair value estimate. Future events and
changing market conditions may lead us to re-evaluate the assumptions reflected
in our valuation, particularly the assumptions related to the length and
severity of the COVID-19 pandemic and the shape and timing of the subsequent
recovery and the overall impact on the investee's business, which may result in
a need to recognize an additional impairment charge that could have a material
adverse effect on our results of operations.

Income Taxes

We determine our tax expense based on our income and statutory tax rates
applicable in the various jurisdictions in which we operate. Due to the complex
nature of tax legislation and frequent changes with such associated legislation,
significant judgment is required in computing our tax expense and determining
our tax positions. The U.S. Tax Cuts and Jobs Act (the "Tax Act") enacted in
December 2017 made significant changes to U.S. federal tax law, including a
reduction in the U.S. federal statutory tax rate from 35% to 21%, effective
January 1, 2018. The Tax Act imposed a one-time deemed repatriation tax on
accumulated unremitted international earnings, to be paid over eight years.

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We do not intend to indefinitely reinvest our international earnings that were subject to U.S. taxation pursuant to the mandatory deemed repatriation or subject to U.S. taxation as GILTI.

We regularly review our deferred tax assets for recoverability considering
historical profitability, projected future taxable income, the expected timing
of the reversals of temporary differences and tax planning strategies and record
valuation allowances as required.

We are subject to ongoing tax examinations and assessments in various
jurisdictions. We have been audited in many jurisdictions and, from time to
time, face challenges from the tax authorities regarding the amount of taxes
due. These challenges include questions regarding the timing and amount of
deductions that we have taken on our tax returns. Although we believe that our
tax filing positions are reasonable and comply with applicable law, we regularly
review our tax filing positions, especially in light of tax law or business
practice changes, and we may change our positions or determine that previous
positions should be amended, either of which could result in additional tax
liabilities. The final determination of tax audits or tax disputes may be
different from what is reflected in our historical income tax provisions and
accruals.

The evaluation of tax positions and recognition of income tax benefits require
significant judgment and we consult with external tax and legal counsel, as
appropriate. We consider the technical merits of our tax positions along with
the applicable tax statutes, related interpretations and precedents and our
expectation of the outcome of proceedings (or negotiations) with tax
authorities. We recognize liabilities when we believe that uncertain positions
may not be fully sustained upon audit by the tax authorities, including any
related appeals or litigation processes. Liabilities recognized for uncertain
tax positions are based on a two-step approach for recognition and measurement.
First, we evaluate the tax position for recognition by determining if the weight
of available evidence indicates it is more likely than not that the position
will be sustained based on its technical merits. Second, we measure the tax
benefit as the largest amount that is more than 50% likely of being realized
upon ultimate settlement. Interest and penalties attributable to uncertain tax
positions, if any, are recognized as a component of income tax expense. The tax
benefits ultimately realized by us may be different than what is recorded in the
financial statements due to future events such as our settling the matter with
the tax authorities and our success in sustaining our tax positions.

See Notes 15 and 16 to our Consolidated Financial Statements for further information.

Contingencies

Loss contingencies (other than income tax-related contingencies disclosed above)
arise from actual or possible claims and assessments and pending or threatened
litigation that may be brought against us by individuals, governments or other
entities. Based on our assessment of loss contingencies at each balance sheet
date, a loss is recorded in the financial statements if it is probable that an
asset has been impaired or a liability has been incurred and the amount of the
loss can be reasonably estimated. If the amount of the loss cannot be reasonably
estimated, we disclose information about the contingency in the financial
statements. We also disclose information in our financial statements about
reasonably possible loss contingencies.

The determination of whether a loss is probable and whether the amount of the
loss can be reasonably estimated requires significant judgment and evaluation of
all the underlying facts and circumstances, including judgments about the
potential actions of third-party claimants, regulatory authorities and courts.
Claims, assessments and litigations involve significant uncertainties such as
the complexity of the facts, the legal theories involved, the nature of the
claims, the judgment of the courts, the applicable methodology for determining
potential damages and, in the case of class actions, whether a class action can
be certified, the extent to which members of a class would or would not file a
claim and the uncertainty inherent in class actions.

On a quarterly basis, we update our analysis and estimates considering all
available information, including the impact of negotiations, settlements,
rulings and advice of legal counsel. Changes in our assessment of whether a loss
is probable, our estimate of the loss, or our determination of whether the
amount of loss can be reasonably estimated could have a material impact on our
results of operations and financial position. Changes in our assumptions
regarding a particular matter or the effectiveness of our strategies related to
legal and other proceedings could also have a material impact on our results of
operations and financial position. For all loss contingencies, until a matter is
finally resolved, there may be an exposure to loss in excess of the liability
accrued for the matter and such amounts could be material.

See Note 16 to our Consolidated Financial Statements for further information.

Recent Accounting Pronouncements - See Note 2 to our Consolidated Financial Statements for details, which is incorporated into this Item 7 by reference thereto.

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Results of Operations

Year Ended December 31, 2020 compared to Year Ended December 31, 2019

We evaluate certain operating and financial measures on both an as-reported and
constant-currency basis. We calculate constant currency by converting our
current-year period operating and financial results for transactions recorded in
currencies other than U.S. Dollars using the corresponding prior-year period
monthly average exchange rates rather than the current-year period monthly
average exchange rates.

Operating and Statistical Metrics

Our financial results are driven by certain operating metrics that encompass the
booking and other business activity generated by our travel and travel-related
services.  Specifically, reservations of accommodation room nights, rental car
days and airline tickets capture the volume of units booked through our OTC
brands by our travel reservation services customers.  Gross bookings is an
operating and statistical metric that captures the total dollar value, generally
inclusive of taxes and fees, of all travel services booked through our OTC
brands by our customers, net of cancellations, and is widely used in the travel
business. Our non-OTC brands (KAYAK and OpenTable) have different business
metrics from those of our OTC brands and therefore search queries through KAYAK
and restaurant reservations through OpenTable do not contribute to our gross
bookings.

Accommodation room nights, rental car days and airline tickets reserved through
our services for the years ended December 31, 2020 and 2019 were as follows:
                                 Year Ended December 31,
                                      (in millions)
                                2020                   2019       Increase (Decrease)
           Room nights          355                     845                   (58.0) %
           Rental car days       31                      77                   (59.8) %
           Airline tickets        6                       7                   (21.6) %



Accommodation room nights, rental car days and airline tickets reserved through
our services each declined for the year ended December 31, 2020, compared to the
year ended December 31, 2019, due to the COVID-19 pandemic, which drove a
substantial decline in new travel bookings and increased cancellation rates.

Gross bookings resulting from reservations of accommodation room nights, rental
car days and airline tickets made through our agency and merchant models for the
years ended December 31, 2020 and 2019 were as follows (numbers may not total
due to rounding):

                 Year Ended December 31,
                      (in millions)
                    2020                2019        Increase (Decrease)
Agency     $      24,475             $ 70,651                   (65.4) %
Merchant          10,920               25,791                   (57.7) %
Total      $      35,395             $ 96,443                   (63.3) %



Gross bookings decreased by 63.3% for the year ended December 31, 2020, compared
to the year ended December 31, 2019 (decreased on a constant-currency basis by
approximately 63%), almost entirely due to the 58.0% decline in accommodation
room night reservations, as well as a decline in accommodation ADRs of
approximately 14% on a constant-currency basis for the year ended December 31,
2020, compared to the year ended December 31, 2019. We believe that unit growth
rates and growth in total gross bookings on a constant-currency basis, which
excludes the impact of foreign currency exchange rate fluctuations, are
important measures to understand the fundamental performance of the business.

Agency gross bookings are derived from travel-related transactions where we do
not facilitate payments from travelers for the travel services provided. Agency
gross bookings decreased by 65.4% for the year ended December 31, 2020, compared
to the year ended December 31, 2019, almost entirely due to a decrease in gross
bookings from agency accommodation room night reservations at Booking.com.
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Merchant gross bookings are derived from services where we facilitate payments
from travelers for the travel services provided. Merchant gross bookings
decreased by 57.7% for the year ended December 31, 2020, compared to the year
ended December 31, 2019, principally due to a decrease in gross bookings from
our merchant accommodation reservation services at Booking.com, agoda and
Priceline. Merchant gross bookings for the year ended December 31, 2020,
compared to the year ended December 31, 2019, declined less than agency gross
bookings due to the stronger growth of merchant gross bookings early in the year
as Booking.com had been expanding its merchant accommodation reservation
services prior to the COVID-19 pandemic, as well as due to relatively better
performance from our merchant travel reservation services at Priceline.

Revenues

Online travel reservation services

Substantially all of our revenues are generated by providing online travel reservation services, which facilitate online travel purchases between travel service providers and travelers.

Revenues from online travel reservation services are classified into two categories:

•Agency. Agency revenues are derived from travel-related transactions where we
do not facilitate payments from travelers for the services provided. Agency
revenues consist almost entirely of travel reservation commissions.
Substantially all of our agency revenue is from Booking.com agency accommodation
reservations.

•Merchant. Merchant revenues are derived from travel-related transactions where
we facilitate payments from travelers for the services provided, generally at
the time of booking. Merchant revenues include (1) travel reservation
commissions and transaction net revenues (i.e., the amount charged to travelers
less the amount owed to travel service providers) in connection with our
merchant reservation services; (2) credit card processing rebates and customer
processing fees; and (3) ancillary fees, including travel-related insurance
revenues. Substantially all merchant revenues are derived from transactions
where travelers book accommodation reservations or rental car reservations.

Advertising and other revenues

Advertising and other revenues are derived primarily from (1) revenues earned by
KAYAK for (a) sending referrals to OTCs and travel service providers and (b)
advertising placements on its platforms; and (2) revenues earned by OpenTable
for (a) restaurant reservation services (fees paid by restaurants for diners
seated through OpenTable's online reservation service) and (b) subscription fees
for restaurant management services.

                                        Year Ended December 31,
                                             (in millions)
                                           2020                2019        Increase (Decrease)
 Agency revenues                  $      4,314              $ 10,117                   (57.4) %
 Merchant revenues                       2,117                 3,830                   (44.7) %
 Advertising and other revenues            365                 1,119                   (67.3) %
 Total revenues                   $      6,796              $ 15,066                   (54.9) %



Total revenues for the year ended December 31, 2020, as compared to the year
ended December 31, 2019, respectively, decreased by 54.9% (decreased on a
constant-currency basis by approximately 55%). A significant majority of the
year-over-year decrease was related to revenues from our accommodation
reservation services. Total revenues for the year ended December 31, 2020 were
negatively impacted by a reduction in revenue of $44 million for refunds paid or
estimated to be payable to travelers as a result of the COVID-19 pandemic where
we agreed to provide free cancellation for certain non-refundable reservations
without a corresponding estimated expected recovery from the travel service
providers (see Notes 2 and 3 to the Consolidated Financial Statements). In
addition, total revenues for the year ended December 31, 2020 were negatively
impacted by additional rebates of approximately $100 million offered to travel
service providers meeting certain eligibility requirements under an incentive
program that ended in 2020 (see Note 3 to the Consolidated Financial
Statements).

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Agency revenues decreased by 57.4% for the year ended December 31, 2020, compared to the year ended December 31, 2019, due to the ongoing impacts of the COVID-19 pandemic.

Merchant revenues decreased by 44.7% for the year ended December 31, 2020, compared to the year ended December 31, 2019, due primarily to decreases in gross bookings from our merchant accommodation reservation services and merchant rental car reservation services due to the ongoing impacts of the COVID-19 pandemic.

Advertising and other revenues decreased by 67.3% for the year ended
December 31, 2020, compared to the year ended December 31, 2019, primarily due
to the COVID-19 pandemic, which resulted in a decline in consumer demand for the
travel and restaurant-related services offered by KAYAK and OpenTable. In
addition, advertising and other revenue related to OpenTable has been further
impacted by a program that waived fees payable by restaurants for diners seated
through OpenTable's online reservation service and subscription fees for many
restaurants.

Total revenues as a percentage of gross bookings was 19.2% for the year ended
December 31, 2020 as compared to 15.6% for the year ended December 31, 2019 due
primarily to timing of booking versus travel as revenue benefited from travel
early in the year ended December 31, 2020 before the COVID-19 pandemic, while
gross bookings were negatively impacted by cancellations of bookings made in
2019.

Our international businesses accounted for approximately $6.0 billion of our
total revenues for the year ended December 31, 2020, compared to $13.5 billion
for the year ended December 31, 2019. Total revenues attributable to our
international businesses for the year ended December 31, 2020 decreased by
55.6%, compared to the year ended December 31, 2019 (decreased on a
constant-currency basis by approximately 55%). Total revenues attributable to
our U.S. businesses decreased 49.0% for the year ended December 31, 2020
compared to the year ended December 31, 2019.

Operating Expenses

Marketing expenses
                                   Year Ended December 31,
                                        (in millions)
                                  2020                    2019        Increase (Decrease)
       Marketing expenses    $     2,179               $ 4,967                    (56.1) %
       % of Total revenues          32.1   %              33.0  %



We rely on marketing channels to generate a significant amount of traffic to our
websites. Marketing expenses consist primarily of the costs of: (1) search
engine keyword purchases; (2) referrals from meta-search and travel research
websites; (3) affiliate programs; (4) offline and online brand marketing; and
(5) other performance-based marketing and incentives. For the year ended
December 31, 2020, our marketing expense declined significantly due to reduced
travel demand as a result of the COVID-19 pandemic. We adjust our marketing
spend based on our growth and profitability objectives, as well as the travel
demand and expected ROIs in our marketing channels. Marketing expenses as a
percentage of total revenues decreased for the year ended December 31, 2020,
compared to the year ended December 31, 2019, primarily due to actions we took
to reduce our brand and performance marketing spend in response to the reduced
travel demand.

Sales and Other Expenses
                                      Year Ended December 31,
                                           (in millions)
                                    2020                      2019       Increase (Decrease)
    Sales and other expenses   $      755                   $ 955                    (20.8) %
    % of Total revenues              11.1   %                 6.3  %



Sales and other expenses consist primarily of: (1) credit card and other payment
processing fees associated with merchant transactions; (2) provisions for
expected credit losses, primarily related to accommodation commission
receivables and prepayments to certain customers; (3) fees paid to third parties
that provide call center, website content translations and other services; (4)
customer relations costs; and (5) customer chargeback provisions and fraud
prevention expenses associated with merchant transactions. For the year ended
December 31, 2020, sales and other expenses, which are substantially variable in
nature, decreased compared to the year ended December 31, 2019, due primarily to
decreases in expenses related to
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transactions processed on a merchant basis, partially offset by an increase in
expected credit loss expenses of $161 million primarily resulting from the
impact of the COVID-19 pandemic (see Notes 2 and 7 to the Consolidated Financial
Statements).

Personnel
                                   Year Ended December 31,
                                        (in millions)
                                  2020                    2019        Increase (Decrease)
       Personnel             $     1,944               $ 2,248                    (13.5) %
       % of Total revenues          28.6   %              14.9  %



Personnel expenses consist of compensation to our personnel, including salaries,
stock-based compensation, bonuses, payroll taxes, and employee health and other
benefits. Personnel expenses decreased during the year ended December 31, 2020,
compared to the year ended December 31, 2019, primarily due to $126 million of
government aid benefit and approximately $110 million of savings resulting from
restructuring activities at all our brands, as well as a decrease in stock-based
compensation expense and lower bonus accruals, both of which were impacted by
reduced financial performance and reduced headcount as a result of the COVID-19
pandemic. Stock-based compensation expense was $233 million for the year ended
December 31, 2020, compared to $308 million for the year ended December 31,
2019. Headcount decreased 23% year-over-year to approximately 20,300 as of
December 31, 2020, compared to approximately 26,400 as of December 31, 2019,
primarily due to restructuring actions and attrition, as well as a general
temporary company-wide hiring freeze. Given the timing of our restructuring
actions, the average quarter-end headcount for 2020 only decreased 6% compared
to 2019.

General and Administrative
                                    Year Ended December 31,
                                         (in millions)
                                  2020                      2019       Increase (Decrease)
General and administrative   $      581                   $ 797                    (27.1) %
% of Total revenues                 8.6   %                 5.3  %



General and administrative expenses consist primarily of: (1) occupancy and
office expenses; (2) fees for outside professionals, including litigation
expenses; (3) indirect taxes such as travel transaction taxes and digital
services taxes; and (4) personnel-related expenses such as travel, relocation,
recruiting and training expenses. General and administrative expenses decreased
during the year ended December 31, 2020, compared to the year ended December 31,
2019, due to lower personnel-related expenses associated with a general
company-wide freeze on non-essential travel and entertainment and employee
hiring due to the COVID-19 pandemic, lower office and occupancy expenses due to
employees working remotely, and lower professional service fees.

Information Technology
                                     Year Ended December 31,
                                          (in millions)
                                   2020                      2019       Increase (Decrease)
     Information technology   $      299                   $ 285                      4.9  %
     % of Total revenues             4.4   %                 1.9  %



Information technology expenses consist primarily of: (1) software license and
system maintenance fees; (2) outsourced data center and cloud computing costs;
(3) payments to contractors; and (4) data communications and other expenses
associated with operating our services. Information technology expenses
increased during the year ended December 31, 2020, compared to the year ended
December 31, 2019, due to increased software license fees related to cyber
security and data privacy software, as well as increased outsourced data center
costs.

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Depreciation and Amortization

                                        Year Ended December 31,
                                             (in millions)
                                      2020                      2019       

Increase (Decrease)

 Depreciation and amortization   $      458                   $ 469                     (2.4) %
 % of Total revenues                    6.7   %                 3.1  %



Depreciation and amortization expenses consist of: (1) amortization of
intangible assets with determinable lives; (2) depreciation of computer
equipment; (3) amortization of internally-developed and purchased software; and
(4) depreciation of leasehold improvements, furniture and fixtures and office
equipment. Depreciation and amortization expenses decreased during the year
ended December 31, 2020, compared to the year ended December 31, 2019, as a
result of decreased depreciation of computer equipment, amortization of
intangible assets and depreciation of leasehold improvements, partially offset
by increased internally-developed software amortization expenses.

Restructuring and other exit costs

                                                                    Year Ended December 31,
                                                                         (in millions)
                                                                   2020                   2019             Increase (Decrease)
Restructuring and other exit costs                          $          149            $        -                            N/A
% of Total revenues                                                    2.2    %                 N/A



During the year ended December 31, 2020, we took restructuring actions at all
our brands in response to the impact of the COVID-19 pandemic on our business,
and as a result incurred restructuring charges amounting to $149 million. These
restructuring charges are primarily related to employee severance and benefits
(see Note 20 to the Consolidated Financial Statements).

Impairment of Goodwill
                                     Year Ended December 31,
                                          (in millions)
                                   2020                          2019      Increase (Decrease)
  Impairment of Goodwill   $          1,062                     $  -                        N/A
  % of Total revenues                  15.6    %                   N/A



During the year ended December 31, 2020, we recorded impairment charges to
goodwill related to OpenTable and KAYAK, which are not tax-deductible, of $1.1
billion (see Note 11 to our Consolidated Financial Statements and Critical
Accounting Policies and Estimates included in this Management's Discussion and
Analysis of Financial Condition and Results of Operations).

Interest expense
                                 Year Ended December 31,
                                      (in millions)
                                2020                   2019       Increase (Decrease)

          Interest expense     (356)                   (266)                   33.8  %



Interest expense increased for the year ended December 31, 2020, compared to the
year ended December 31, 2019, primarily due to interest expense attributable to
our Senior Notes and Convertible Senior Notes issued in April 2020.

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Other income (expense), net

                                       Year Ended December 31,
                                            (in millions)
                                      2020                   2019       Increase (Decrease)

     Other income (expense), net    1,554                     879                    76.8  %

The following table sets forth the breakdown of "Other income (expense), net" for the years ended December 31, 2020 and 2019:

                                                    Year Ended December 31,
                                                         (in millions)
                                                        2020                

2019

Interest and dividend income                 $           54                 $ 152
Net gains on marketable equity securities             1,811                 

745

Impairment of investment                               (100)                

-

Foreign currency transaction losses                    (207)                  (31)
Other                                                    (4)                   13
Other income (expense), net                  $        1,554                 $ 879



Interest and dividend income decreased for the year ended December 31, 2020,
compared to the year ended December 31, 2019, primarily due to lower average
invested balances and lower yields as well as increased usage of investments
classified as cash equivalents.

Net gains on marketable equity securities for the years ended December 31, 2020
and 2019 primarily related to the unrealized gains on our equity investment in
Meituan (see Note 5 to our Consolidated Financial Statements for additional
information).

Impairment of investment for the year ended December 31, 2020 related to our investment in Didi Chuxing (see Notes 5 and 6 to our Consolidated Financial Statements and Critical Accounting Policies and Estimates included in this Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information).

Foreign currency transaction losses include losses of $200 million and gains of
$7 million related to the portion of our Euro-denominated debt that was not
designated as a net investment hedge and foreign currency losses on derivative
contracts of $31 million and $19 million for the years ended December 31, 2020
and 2019, respectively.

Income Taxes
                                                            Year Ended December 31,
                                                                 (in millions)
                                                            2020                2019           Increase (Decrease)
Income tax expense                                     $      508           $   1,093                      (53.5) %
% of Earnings before income taxes                            89.5   %       

18.3 %

Our 2020 effective tax rate differs from the U.S. federal statutory tax rate of
21%, primarily due to the non-deductible goodwill impairment charges related to
OpenTable and KAYAK, U.S. federal tax associated with our 2020 international
earnings, and an increase in unrecognized tax benefits, partially offset by the
benefit of the Netherlands Innovation Box Tax (discussed below). Our 2019
effective tax rate differs from the U.S. federal statutory tax rate of 21%,
primarily due to the benefit of the Netherlands Innovation Box Tax, partially
offset by the effect of higher international tax rates and U.S. federal and
state tax associated with our 2019 international earnings, resulting from the
enactment of the Tax Act, as well as certain non-deductible expenses.

Our effective tax rate was higher for the year ended December 31, 2020, compared
to the year ended December 31, 2019, primarily due to the non-deductible
goodwill impairment charges related to OpenTable and KAYAK, an increase in U.S.
federal tax associated with our 2020 international earnings, and an increase in
unrecognized tax benefits.
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According to Dutch corporate income tax law, income generated from qualifying
innovative activities is taxed at a rate of 7% ("Innovation Box Tax") rather
than the Dutch statutory rate of 25%. A portion of Booking.com's earnings during
the years ended December 31, 2020 and 2019 qualified for Innovation Box Tax
treatment, which had a significant beneficial impact on our effective tax rates
for those periods. In 2020, the Dutch government approved an increase in the
Innovation Box Tax rate from 7% to 9%, effective January 2021. While we expect
Booking.com to continue to qualify for Innovation Box Tax treatment with respect
to a portion of its earnings for the foreseeable future, the loss of the
Innovation Box Tax benefit, whether due to a change in tax law or a
determination by the Dutch government that Booking.com's activities are not
innovative or for any other reason, could substantially increase our effective
tax rate and adversely impact our results of operations and cash flows in future
periods. See Part I, Item 1A, Risk Factors - "We may not be able to maintain our
'Innovation Box Tax' benefit."

Results of Operations

Year Ended December 31, 2019 compared to Year Ended December 31, 2018

  For a comparison of our results of operations for the fiscal years ended
December 31, 2019 and 2018, see   Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations  , of our Annual Report on Form
10-K for the fiscal year ended December 31, 2019, filed with the SEC on February
26, 2020.
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Liquidity and Capital Resources

The COVID-19 pandemic and the resulting economic conditions and government
orders have resulted in a material decrease in consumer spending and an
unprecedented decline in travel and restaurant activities and consumer demand
for related services. Our financial results and prospects are almost entirely
dependent on the sale of travel-related services.

The extent of the effects of the COVID-19 pandemic on our business, results of
operations, cash flows and growth prospects is highly uncertain and will
ultimately depend on future developments. These include, but are not limited to,
the severity, extent and duration of the COVID-19 pandemic, including as a
result of any new variants of COVID-19 and any resurgences of the pandemic, and
its impact on the travel and restaurant industries and consumer spending more
broadly. Even if economic and operating conditions for our business improve, we
cannot predict the long-term effects of the pandemic on our business or the
travel and restaurant industries as a whole. If the travel and restaurant
industries are fundamentally changed by the COVID-19 pandemic in ways that are
detrimental to our operating model, our business may continue to be adversely
affected even as the broader global economy recovers.

Our continued access to sources of liquidity depends on multiple factors,
including global economic conditions, the condition of global financial markets,
the availability of sufficient amounts of financing, our ability to meet debt
covenant requirements, our operating performance and our credit ratings. If our
credit ratings were to be downgraded, or financing sources were to ascribe
higher risk to our rating levels or our industry, our access to capital and the
cost of any financing would be negatively impacted. There is no guarantee that
additional debt financing will be available in the future to fund our
obligations, or that it will be available on commercially reasonable terms, in
which case we may need to seek other sources of funding. In addition, the terms
of future debt agreements could include more restrictive covenants than those we
are currently subject to, which could restrict our business operations. For more
information, see Part I, Item 1A, Risk Factors - "Our liquidity, credit ratings
and ongoing access to capital could be materially and negatively affected by the
impacts of the COVID-19 pandemic."

At December 31, 2020, we had $14.8 billion in cash, cash equivalents and
short-term and long-term investments, of which approximately $6.0 billion is
held by our international subsidiaries. Cash, cash equivalents and long-term
investments held by our international subsidiaries are denominated primarily in
Hong Kong Dollars, U.S. Dollars and Euros. Cash equivalents and short-term and
long-term investments are principally comprised of money market funds, time
deposits and certificates of deposit, convertible debt securities of Trip.com
Group, Meituan equity securities and our investments in private companies (see
Notes 5 and 6 to the Consolidated Financial Statements). In May 2020, our May
2015 investment of $250 million in Trip.com Group's convertible senior notes was
repaid upon maturity. We have the option to redeem our December 2015 investment
of $500 million in Trip.com Group's convertible senior notes in December 2021,
which we expect to exercise (see Note 5 to our Consolidated Financial
Statements).

During the year ended December 31, 2020, we realized $2.2 billion in cash from
sales and maturities of our investments in government and corporate debt
securities. In addition, we sold our entire investment in Trip.com Group ADSs,
with a cost basis of $655 million for $525 million.

At December 31, 2020, we had a remaining transition tax liability of $1.0
billion as a result of the Tax Act, which included $923 million reported as
"Long-term U.S. transition tax liability" and $90 million included in "Accrued
expenses and other current liabilities" in the Consolidated Balance Sheet. This
liability will be paid over the next six years. In accordance with the Tax Act,
generally, future repatriation of our international cash will not be subject to
a U.S. federal income tax liability as a dividend, but will be subject to U.S.
state income taxes and international withholding taxes, which have been accrued
by us.

In August 2019, we entered into a $2.0 billion five-year unsecured revolving
credit facility with a group of lenders. The revolving credit facility provides
for the issuance of up to $80 million of letters of credit as well as borrowings
of up to $100 million on same-day notice, referred to as swingline loans. The
proceeds of loans made under the facility can be used for working capital and
general corporate purposes, including acquisitions, share repurchases and debt
repayments. At December 31, 2020, there were no borrowings outstanding and
$4 million of letters of credit issued under the facility. The revolving credit
facility contains a maximum leverage ratio covenant, compliance with which is a
condition to our ability to borrow thereunder. In April 2020, we amended the
revolving credit facility, pursuant to which the maximum leverage ratio covenant
was suspended through and including the three months ending March 31, 2021, and
was replaced with a $4.5 billion minimum liquidity covenant based on
unrestricted cash, cash equivalents, short-term investments and unused capacity
under the revolving credit facility. In October 2020, we further amended the
revolving credit facility to extend the suspension of the maximum leverage ratio
covenant and the related replacement with the minimum liquidity covenant through
and including the three months ending March 31, 2022 and increase the permitted
maximum leverage ratio from and including the three months ending June 30, 2022
through and including the three months ending March 31, 2023. We agreed not to
declare or make any cash distribution and not to repurchase any of our shares
(with certain exceptions including in connection with tax withholding
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related to shares issued to employees) unless (i) prior to the delivery of
financial statements for the three months ending June 30, 2022, we have at least
$6.0 billion of liquidity on a pro forma basis, based on unrestricted cash, cash
equivalents, short-term investments and unused capacity under this revolving
credit facility and (ii) after the delivery of financial statements for the
three months ending June 30, 2022, we are in compliance on a pro forma basis
with the maximum leverage ratio covenant then in effect. Such restriction ends
upon delivery of financial statements required for the three months ending June
30, 2023, or we have the ability to terminate this restriction earlier if we
demonstrate compliance with the original maximum leverage ratio covenant in the
revolving credit facility. Beginning with the quarter ending June 30, 2022, the
minimum liquidity covenant will cease to apply and the maximum leverage ratio
covenant, as increased, will again be in effect. At December 31, 2020, we were
in compliance with the minimum liquidity covenant. There can be no assurance
that we will be able to meet either the minimum liquidity covenant or the
maximum leverage ratio covenant, as applicable, at any particular time, and our
ability to borrow under the revolving credit facility depends on compliance with
the applicable covenant. Further, the lenders have the right to require
repayment of any amounts borrowed under the facility if we are not in compliance
with the applicable covenant (see Note 12 to the Consolidated Financial
Statements).

In June 2020, in connection with the maturity of our Convertible Senior Notes
due June 2020, we paid $1.0 billion to satisfy the aggregate principal amount
due and paid an additional $245 million in satisfaction of the conversion value
in excess of the principal amount. In addition, the holders of our Convertible
Senior Notes due September 2021 will have the right to convert all or any
portion of the Notes beginning on June 15, 2021, regardless of our stock price
(see Note 12 to our Consolidated Financial Statements).

In April 2020, we issued Senior Notes due April 13, 2025 with an interest rate
of 4.10% for an aggregate principal amount of $1.0 billion, Senior Notes due
April 13, 2027 with an interest rate of 4.50% for an aggregate principal amount
of $750 million and Senior Notes due April 13, 2030 with an interest rate of
4.625% for an aggregate principal amount of $1.5 billion. In addition, in April
2020, we issued $863 million aggregate principal amount of Convertible Senior
Notes due May 1, 2025 with an interest rate of 0.75%. The proceeds from the
issuance of these Senior Notes and Convertible Senior Notes can be used for
general corporate purposes, which may include repayment of debt, including the
repayment, at maturity or upon conversion prior thereto, of our outstanding
Convertible Senior Notes (see Note 12 to the Consolidated Financial Statements).

At December 31, 2020 and December 31, 2019, there were $14.0 billion and $9.6
billion, respectively, of payment obligations related to the aggregate principal
of our outstanding senior notes outstanding and cumulative interest to maturity.
See Note 12 to the Consolidated Financial Statements for information related to
the Company's debt including principal, interest rates and maturity dates.

During the year ended December 31, 2020, we repurchased 684,827 shares of our
common stock for an aggregate cost of $1.3 billion. At December 31, 2020, we had
a remaining aggregate amount of $10.4 billion authorized by our Board of
Directors to repurchase our common stock. We have not repurchased any shares
since March 2020 under this stock repurchase authorization and do not intend to
initiate any repurchases under this authorization until we have better
visibility into the shape and timing of a recovery from the COVID-19 pandemic.
See Note 12 to the Consolidated Financial Statements for a description of the
impact of the October 2020 credit facility amendment on our ability to
repurchase shares.

In September 2016, we signed a turnkey agreement to construct an office building
for Booking.com's future headquarters in the Netherlands for 270 million Euros
($331 million). Upon signing this agreement, we paid 43 million Euros ($48
million) for the acquired land-use rights. In addition, since signing the
turnkey agreement we have made several progress payments principally related to
the construction of the building. At December 31, 2020, we had a remaining
obligation of 56 million Euros ($68 million) related to the turnkey agreement.
This remaining obligation will be paid through 2022, when we anticipate
construction will be complete. In addition to the turnkey agreement, we have a
remaining obligation at December 31, 2020 to pay 70 million Euros ($86 million)
over the remaining initial term of the acquired land lease, which expires in
2065. At December 31, 2020, we had 29 million Euros ($35 million) of outstanding
commitments to vendors to fit out and furnish the office space. See Note 16 to
our Consolidated Financial Statements for additional information related to our
commitments and contingencies.

We have taken and are taking actions to improve our liquidity including, but not
limited to, raising additional capital through the issuance of Senior Notes and
Convertible Senior Notes as disclosed above, reducing capital expenditures and
operating expenses by significantly reducing marketing spend worldwide and
working to eliminate non-essential operating costs, monitoring the financial
health of our partners, suppliers and other third-party relationships,
implementing a general temporary company-wide hiring freeze for much of 2020 and
undertaking certain personnel actions such as furloughs and workforce
reductions. We believe that our existing cash balances and liquid resources will
be sufficient to fund our operating activities, capital expenditures and other
obligations through at least the next twelve months. However, whether as a
result of the COVID-19 pandemic or otherwise, if we are not successful in
generating sufficient cash flow from operations or in raising additional capital
when required in sufficient amounts and on terms acceptable to us, we may be
required to reduce our planned capital expenditures and scale back the scope of
our business plans, either of which could have a material adverse effect on our
business, our ability to compete or our future growth prospects, financial
condition and results of operations. If additional funds were raised through the
issuance of equity securities, the percentage ownership of our then current
stockholders would be diluted. We may not generate sufficient cash flow from
operations in the future, revenue growth or sustained profitability may not be
realized, and future borrowings or equity sales may not be available in amounts
sufficient to make anticipated capital expenditures, finance our strategies or
repay our indebtedness.
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Cash Flow Analysis

Net cash provided by operating activities decreased for the year ended
December 31, 2020, compared to the year ended December 31, 2019, primarily due
to the negative impact of the COVID-19 pandemic to our businesses and financial
results, partially offset by the impact of the payment of $403 million in 2019
to French tax authorities to preserve our right to contest certain tax
assessments in court (see Note 16 to our Consolidated Financial Statements).

Net cash provided by operating activities for the year ended December 31, 2020
was $85 million, resulting from net income of $59 million and a favorable impact
from adjustments for non-cash items of $1.0 billion, partially offset by an
unfavorable net change in working capital and long-term assets and liabilities
of $1.0 billion. Non-cash items were principally associated with net gains on
marketable equity securities, impairment of goodwill, depreciation and
amortization, provision for expected credit losses and chargebacks, stock-based
compensation expense and other stock-based payments, deferred income tax expense
and unrealized foreign currency transaction losses on Euro-denominated debt. For
the year ended December 31, 2020, prepaid expenses and other current assets
decreased by $161 million, primarily due to a refund for overpayment from a
vendor and lower prepayment to third-party payment processors due to decreases
in business volumes as a result of the COVID-19 pandemic. For the year ended
December 31, 2020, accounts receivable decreased by $891 million and deferred
merchant bookings and other current liabilities decreased by $2.3 billion
primarily due to decreases in business volumes as a result of the COVID-19
pandemic.

Net cash provided by operating activities for the year ended December 31, 2019
was $4.9 billion, resulting from net income of $4.9 billion and a favorable
impact from adjustments for non-cash items of $541 million, partially offset by
an unfavorable net change in working capital and long-term assets and
liabilities of $541 million. Non-cash items were principally associated with net
gains on marketable equity securities, depreciation and amortization,
stock-based compensation expense and other stock-based payments, operating lease
amortization and the provision for expected credit losses and chargebacks. The
changes in working capital for the year ended December 31, 2019, reflecting the
increase in business volumes and growth in Booking.com's merchant transactions,
were primarily related to a $480 million increase in deferred merchant bookings
and other current liabilities, offset by a $323 million increase in accounts
receivable and $263 million increase in prepaid expenses and other current
assets. The net change in long-term assets and liabilities of $435 million was
primarily due to the increase in other long-term assets related to the payment
of $403 million to French tax authorities to preserve our right to contest the
assessments in court (see Note 16 to our Consolidated Financial Statements).

Net cash provided by investing activities for the year ended December 31, 2020
was $2.6 billion, principally resulting from the proceeds from sales and
maturities of investments of $3.0 billion, net of purchases of $74 million. Net
cash provided by investing activities for the year ended December 31, 2019 was
$7.1 billion, principally resulting from the proceeds from sales and maturities
of investments of $8.1 billion, net of purchases of $0.7 billion. Cash invested
in the purchase of property and equipment was $286 million and $368 million for
the years ended December 31, 2020 and 2019, respectively. Cash invested in the
purchase of property and equipment for the years ended December 31, 2020 and
2019 includes payments of $52 million and $51 million, respectively, related to
the turnkey agreement for constructing Booking.com's future headquarters.
Net cash provided by financing activities for the year ended December 31, 2020
was $1.5 billion, almost entirely resulting from the proceeds from the issuance
of long-term debt of $4.1 billion, partially offset by payments for the
repurchase of common stock of $1.3 billion and payments for the conversion of
convertible notes of $1.2 billion. Net cash used in financing activities for the
year ended December 31, 2019 was $8.2 billion, almost entirely resulting from
payments for the repurchase of common stock.

For a discussion of our liquidity and capital resources as of and our cash flow activities for the fiscal year ended December 31, 2018, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations , of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 26, 2020.

Contingencies

French tax authorities conducted audits of Booking.com for the years 2003
through 2012 and years 2013 through 2015 and currently are conducting an audit
for the years 2016 through 2018. In December 2015, the French tax authorities
issued Booking.com assessments for unpaid income and value added taxes ("VAT")
related to tax years 2006 through 2012 for approximately 356 million Euros ($403
million), the majority of which represents penalties and interest.  The
assessments assert that Booking.com had a permanent establishment in France. In
December 2019, the French tax authorities issued an additional assessment of 70
million Euros ($86 million), including interest and penalties, for the 2013 year
asserting that Booking.com had taxable income attributable to a permanent
establishment in France. The French tax authorities also have issued assessments
totaling 39 million Euros ($48 million), including interest and penalties, for
certain tax years between 2011
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and 2015 on Booking.com's French subsidiary asserting that the subsidiary did
not receive sufficient compensation for the services it rendered to Booking.com
in the Netherlands. As a result of a formal demand from the French tax
authorities for payment of the amounts assessed against Booking.com for the
years 2006 through 2012, in January 2019, we paid the assessments of
approximately 356 million Euros ($403 million) in order to preserve our right to
contest those assessments in court. The payment, which is included in "Other
assets, net" in the Consolidated Balance Sheets at December 31, 2020 and 2019,
does not constitute an admission that we owe the taxes and will be refunded
(with interest) to us to the extent we prevail. In December 2019 and October
2020, we initiated court proceedings with respect to certain of the assessments.
Although we believe that Booking.com has been, and continues to be, in
compliance with French tax law, and we are contesting the assessments, during
the three months ended September 30, 2020, we contacted the French tax
authorities regarding the potential to achieve resolution of the matter through
a settlement. After assessing several potential outcomes and potential
settlement amounts and terms, an unrecognized tax benefit in the amount of 50
million Euros ($61 million) has been recorded during the year ended December 31,
2020, of which the majority has been included as a partial reduction to the tax
payment recorded in "Other Assets, net" in the Consolidated Balance Sheet at
December 31, 2020. In December 2020, the French Administrative Court (Conseil
d'Etat) delivered a decision in the "ValueClick" case that could have an impact
on the outcome in our case. After considering the potential impact of the new
decision on the potential outcomes for the Booking.com assessments, we currently
estimate that the reasonably possible loss related to VAT is approximately 20
million Euros ($24 million). Additional assessments could result when the French
tax authorities complete the outstanding audits. For additional information
related to the French tax assessments, see Note 16 to our Consolidated Financial
Statements and Part I, Item 1A, Risk Factors - "We may have exposure to
additional tax liabilities."

Beginning in 2014, Booking.com received several letters from the Netherlands
Pension Fund for the Travel Industry (Reiswerk) ("BPF") claiming that
Booking.com is required to participate in the mandatory pension scheme of the
BPF with retroactive effect to 1999, which has a higher contribution rate than
the pension scheme in which Booking.com is currently participating. BPF
instituted legal proceedings against Booking.com and in 2016 the District Court
of Amsterdam rejected all of BPF's claims. BPF appealed the decision to the
Court of Appeal, and, in May 2019, the Court of Appeal also rejected all of
BPF's claims, in each case by ruling that Booking.com does not meet the
definition of a travel intermediary for purposes of the mandatory pension
scheme. BPF has appealed to the Netherlands Supreme Court. In October 2020, the
Dutch Advocate General issued an opinion to the Supreme Court stating that the
Dutch Advocate General believes the decision of the Court of Appeal to be
incorrect based on her interpretation of the pension scheme requirements. We
have submitted to the Supreme Court a response to the Advocate General's
opinion. While we continue to believe that Booking.com is in compliance with its
pension obligations and that the Dutch Supreme Court should uphold the ruling of
the Court of Appeal, based on the significant influence the Dutch Advocate
General's opinion typically has on the Supreme Court, we have reevaluated the
probability of a loss and believe it is probable that we have incurred a loss
related to this matter. We expect the Dutch Supreme Court to rule in the first
quarter of 2021. In the event the Supreme Court overturns the decision of the
Court of Appeal and remands the case to a lower court, we intend to pursue a
number of defenses in any subsequent proceedings and may ultimately prevail in
whole or in part. We are not able to reasonably estimate a loss or a range of
loss because the litigation is ongoing and there are significant factual and
legal questions yet to be determined. As a result, as of December 31, 2020, we
have not recorded a liability in connection with a potential adverse outcome to
this litigation. However, if Booking.com were to ultimately lose and all of
BPF's claims were to be accepted (including with retroactive effect to 1999), we
estimate that as of December 31, 2020, the maximum loss, not including any
potential interest or penalties, would be approximately $290 million. Such
estimated potential loss increases as Booking.com continues not to contribute to
the BPF and depends on Booking.com's applicable employee compensation after
December 31, 2020.

For additional information related to the pension matter and our other contingent liabilities, see Note 16 to our Consolidated Financial Statements.

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Contractual Obligations and Commercial Commitments

The following table represents our material contractual obligations and commercial commitments at December 31, 2020:

                                                                               By Period (in millions)
                                                                 Less than           1 to 3                                  More than 5
                                                Total             1 Year              Years            3 to 5 Years             Years
Operating lease obligations(1)               $    585          $      168

$ 196 $ 85 $ 136 Building construction obligation(2)

               103                  87                16                      -                   -
Purchase obligations (3)                          193                  77                73                     43                   -
Senior notes(4)                                13,991               1,323             3,225                  4,049               5,394
U.S. transition tax liability                   1,013                  90               212                    453                 258
Letters of credit and bank
guarantees(5)                                     138                 110                 6                      2                  20
Revolving credit facility and other(6)             11                   4                 6                      1                   -
Total(7) (8)                                 $ 16,034          $    1,859          $  3,734          $       4,633          $    5,808




(1)  Includes the land lease for Booking.com's future headquarters. See Notes 10
and 16 to our Consolidated Financial Statements for further details.
(2)  Includes commitments to vendors to fit out and furnish the office space.
See Note 16 to our Consolidated Financial Statements for further details.
(3)  Represents significant noncancellable contractual obligations individually
greater than $10 million. The obligations are primarily related to sponsorship
and cloud hosting arrangements. Purchase obligations included here are those
related to agreements to purchase goods and services that are enforceable and
legally binding, that specify all significant terms, including the quantities to
be purchased, price provisions and the approximate timing of the transaction.
(4)  Represents the aggregate principal amount of our senior notes outstanding
at December 31, 2020 and cumulative interest to maturity of $1.8 billion.
Convertible debt does not reflect the market value in excess of the outstanding
principal amount because we can settle the conversion premium amount in cash or
shares of common stock at our option. See Note 12 to our Consolidated Financial
Statements.
(5)  Standby letters of credit and bank guarantees issued on behalf of the
Company at December 31, 2020 are primarily related to payment guarantees to
third-party payment processors (see Notes 12 and 16 to our Consolidated
Financial Statements).
(6)  Includes commitment fees on undrawn balances available under the revolving
credit facility and fees on outstanding letters of credit at December 31, 2020.
(7)  We reported "Other long-term liabilities" of $111 million in the
Consolidated Balance Sheet at December 31, 2020, the majority of which relates
to unrecognized tax benefits of $57 million (see Note 15 to our Consolidated
Financial Statements). We have excluded these long-term liabilities from the
contractual obligations table above as a variety of factors could affect the
timing of payments for the liabilities; therefore, we cannot reasonably estimate
the timing of such payments.  We believe that these matters will likely not be
resolved in the next twelve months and, accordingly, we have classified the
estimated liability as non-current in the Consolidated Balance Sheet.
(8)  In 2018, we entered into an agreement to sign a future lease related to
approximately 222,000 square feet of office space in the city of Manchester in
the United Kingdom for the future headquarters of Rentalcars.com. Our obligation
to execute the lease is conditional upon the lessor completing certain
activities, which are expected to be completed in 2021. If these activities are
completed, the lease will commence for a term of approximately 13 years and we
will have a lease obligation of approximately 65 million British Pounds Sterling
($88 million), excluding lease incentives. We will also make capital
expenditures to fit out and furnish the office space. The obligation is not
included in the table of contractual obligations presented above.

Off-Balance Sheet Arrangements

At December 31, 2020, we did not have any off-balance sheet arrangements that
have, or are reasonably likely to have, a material current or future effect on
our financial condition, results of operations, liquidity, capital expenditures
or capital resources.
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