Tuniu - Earnings Call - Q3 2024

Transcript

Operator (participant)

Hello, and thank you for standing by for Tuniu's 2024 third quarter earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference call, Director of Investor Relations, Mary.

Mary Chen (Head of Investor Relations)

Thank you, and welcome to our 2024 third quarter earnings conference call. Joining me on the call today are Dunde Yu, Tuniu's founder, chairman, and Chief Executive Officer, and Anqiang Chen, Tuniu's Financial Controller. For today's agenda, management will discuss business updates, operation highlights, and financial performance for the third quarter of 2024. Before we continue, I refer you to our safe harbor statement in the earnings press release, which applies to this call, as we will make forward-looking statements. Also, this call includes discussions of certain Non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of Non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that, unless otherwise stated, all figures mentioned during this conference call are in RMB. I would now like to turn the call over to our founder, chairman, and Chief Executive Officer, Dunde Yu.

Donald Yu (CEO)

Thank you, Mary. Good day, everyone. Welcome to our third quarter 2024 earnings conference call. In the third quarter, our revenues and profits continued to grow, with GAAP net income reaching a record high since our listing, up to RMB 43.9 million. And our net income for the first three quarters of this year exceeded RMB 100 million. On a Non-GAAP basis, we have achieved profitability for six consecutive quarters. During the seasonally strong third quarter, the market demonstrated robust demand. With more new products introduced compared to last summer, particularly for outbound travel, our product range was significantly enriched for customers. The transaction volume of our outbound travel products achieved a double-digit year-over-year growth in the quarter. As travel increasingly becomes essential for more people, we have noticed a growing diversification in customer demands, ranging from destination choices to products and services.

Additionally, as methods and channels for reaching customers evolve, more advanced and diverse needs are emerging, such as in-depth single-destination tours, private tours, live streaming, and short videos. Recognizing this trend, we aim to create differentiated products and services to meet the varied demands of customers. In terms of products, we are further strengthening our in-house product development, optimizing our product lines, and offering tailored solutions for various customer segments to meet the broad demand for vacation travel. Meanwhile, we continue to collaborate with third-party suppliers to introduce a wider range of diverse products to meet customer demands, such as niche products and destinations. During the third quarter, we further optimized our in-house product lines. Our Niu Tour products continue to follow a high-quality approach, aiming to deliver industry-leading travel experiences.

In addition to our zero-shopping policy for Niu Tour itineraries, we are offering more small groups and private tours covering a broader range of destinations, such as South America and the polar regions, which are often considered once-in-a-lifetime destinations. Our Niu Tour products are customized for travel fans, families, and repeat customers who prioritize travel unique experiences and are open to exploring new products and destinations. In the first three quarters of this year, the transaction volume of Niu Tour products increased over 30% year-over-year. Additionally, Niu Tour products maintain a remarkable 98% customer satisfaction rate, with some newly launched in-depth outbound travel products, such as those to Thailand and Bali, achieving a perfect 100% satisfaction rate.

During the third quarter, responding to the surge in travel enthusiasm from customers in lower-tier cities and the rise of checklist-style travel among young people, we launched our in-house Niu Select products, representing the core of Tuniu's organized tour product line. Niu Select products include most classic routes at highly competitive prices. Niu Select products further diversify the price range of Tuniu's in-house offerings and are an excellent choice for those visiting a destination for the first time. For product promotion, we embraced popular live streaming channels to attract more new customers. We are pleased to see the Niu Select products that we have launched for popular domestic and outbound destinations have received very positive responses during the summer vacation. During the quarter, we further explored travel live streaming shows.

The total payment volume from our live streaming shows increased by nearly 100% year-over-year, while verification volume increased by over 100%, with the verification rate further improving. Additionally, we once again achieved profitability through a single channel. During the summer, our product offerings have become more diverse and better selected. We capitalized on the demand for family tours by increasing sales of theme park-related travel products. We also expanded coverage of outbound destinations, such as the Maldives and Europe, to meet demand, and introduced cost-effective products like Niu Select for a diverse consumer base. Additionally, we offered more flexible organized tour options, such as one-day tours, to attract more self-guided tour customers. In addition, our team has become more experienced. We strengthened the setup of our in-house live streaming studios, staffed entirely by our employees who are more familiar with our products and systems, resulting in higher efficiency.

Additionally, we have a dedicated verification team to help customers complete verification more quickly. In the third quarter, leveraging our deep understanding of package tour products and the demand of our target customers, we further enhanced our live streaming models. Our influencers left their studios and conducted live streaming shows directly from the destinations, offering customers a more immersive experience. During the in-house in-studio live streaming show, we adopted an encyclopedic approach to introduce destinations, which showcased our professionalism and helped us gain customer trust, leading to a rise in bookings. Furthermore, we remained committed to diversifying into new sales channels that will deliver sustainable growth. In the third quarter, we continued to expand the range of products in our offline stores, helping us provide enhanced services to customers during the peak season.

Through our partnerships with traffic platforms, such as our collaboration with Alipay Transport, we attracted more customers through a streamlined booking process and superior service experience, with monthly growth in air ticket bookings during the quarter. Moreover, we collaborated with the tourism bureaus of several countries, including Thailand, Saudi Arabia, and Australia, leveraging Tuniu's strengths in outbound travel markets to boost their local tourism and enhance travel experiences for Chinese tourists visiting these destinations. In terms of services, during the peak season, in addition to ensuring high-quality travel experiences for our customers, we also focused on maintaining ongoing customer engagement. We maintained regular customer follow-ups, inviting guests to provide feedback on our products, services, and tour guides, allowing us to identify and resolve potential issues promptly. We also promoted zero-shopping policies for our flight tickets, enhancing the booking experience on Tuniu, demonstrating our commitment to integrity and transparency.

We have constantly displayed our product satisfaction rating on Tuniu's website, which currently stands at 94%. Our repeat customers have constantly contributed over 65% of our transaction volume. In November, a new holiday policy was introduced, adding two more public holidays starting next year. This is a positive signal for the tourism industry, especially for the leisure travel sector, reinforcing our confidence in the long-term development of the sector. The Spring Festival holidays will be extended to eight days, which will further boost the public's enthusiasm for travel. We look forward to broadening and enhancing our products and services to meet the needs of our customers. High-quality products and services have always been our core competitive advantages and are an inevitable trend for industry development.

Tuniu remains committed to achieving high-quality development while upholding our service quality, closely monitoring the ever-changing needs of our customers to ensure that our products, services, and promotion channels remain at the forefront of the industry. At the same time, we continue to prioritize efficiency improvement, strict cost control, and optimizing the performance of our sales channels to support the company's long-term healthy growth and profitability. I'll now turn the call over to Anqiang, our Financial Controller, for the financial highlight.

Anqiang Chen (Financial Controller)

Thank you, Donald. Hello, everyone. Now, I'll walk you through our third quarter of 2024 financial results in greater detail. Please note that all nominal amounts are in RMB, unless otherwise stated. You can find the US dollar equivalents of the numbers in our earnings release for the third quarter of 2024. Net revenues were RMB 186 million, representing a year-over-year increase of 4% from the corresponding period in 2023.

Revenues from package tours were up 6% year-over-year to RMB 159.3 million and accounted for 86% of our total net revenue for the quarter. The increase was primarily due to the growth of organized tours. Other revenues were down 5% year-over-year to RMB 26.7 million and accounted for 14% of our total net revenues. The decrease was primarily due to the decrease in the fees for advertising services provided to tourism boards and bureaus. Gross profit for the third quarter of 2024 was RMB 121.8 million, up 6% year-over-year.

Operating expenses for the third quarter of 2024 were RMB 92.6 million, up 11% year-over-year. Research and product development expenses for the third quarter of 2024 were RMB 13.6 million, down 26% year-over-year. The decrease was primarily due to the decrease in research and product development personnel-related expenses. Sales and marketing expenses for the third quarter of 2024 were RMB 60.6 million, up 53% year-over-year.

The increase was primarily due to the increase in promotion expenses. General and administrative expenses for the third quarter of 2024 were RMB 18.6 million, down 31% year-over-year. The decrease was primarily due to the reversal of allowance for doubtful accounts. Net income attributable to ordinary shareholders of Tuniu Corporation was RMB 44.4 million in the third quarter of 2024. Non-GAAP net income attributable to ordinary shareholders of Tuniu Corporation, which included share-based compensation expenses and amortization of acquired intangible assets, was RMB 46.6 million in the third quarter of 2024. As of September 30, 2024, the company had cash and cash equivalents, restricted cash, and short-term investments of RMB 1.3 billion. Cash flow generated from operations for the third quarter of 2024 was RMB 13 million. Capital expenditures for the third quarter of 2024 were RMB 1.1 million.

For the fourth quarter of 2024, the company is set to generate RMB 100 million-RMB 105 million of net revenues, which represents a 0%-5% increase year-over-year. Please note that this forecast reflects Tuniu's current and preliminary view on the industry and its operations, which is subject to change. Thank you for listening. We are now ready for your questions. Operator.

Operator (participant)

The question-and-answer session of this conference call will start in a moment. To ask a question, please press star, then one on your telephone keypad. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your second question has been answered. The first question today comes from Judy Wong with a private investor. Please go ahead.

Thank you, Operator. Hi, management. Thank you for taking my questions and congratulations on another profit quarter. My questions are about the outlooks for the fourth quarter. Could you please share the reasons for the slowdown of revenue growth and any guidance on the bottom line? Also, can you share some insights on next year's market for both domestic and outbound tours? Thank you.

Donald Yu (CEO)

Thank you for the question. The fourth quarter is an off-season for tourism. Revenues will drop compared to last quarter due to seasonality. On a year-over-year basis, we expect low single-digit growth for our total revenues. For domestic markets, the two main themes for winter travel are ice and snow tourism and heading for the summer. In the north, the ice and snow leisure tourism was very hot last year and has continued its popularity this year.

But for the purpose of avoiding the cold weather, people have more choices this winter. Overseas destinations were fully opened since the fourth quarter of 2023. And this winter, there are more products launched for popular destinations such as Southeast Asia and Australia. Together with favorable visa policy in some Southeast Asia countries, traveling abroad can be as convenient as domestic tours. Generally speaking, last year was a comparatively high base for both domestic and outbound tours due to the release of pent-up demand. For the bottom line, we don't give any specific guidance. As revenues decline due to seasonality in the fourth quarter, limitations in scale effects will lead to lower profits for the period. However, since we have already achieved Non-GAAP profitability for six consecutive quarters, we will try our best to keep the momentum. For the next year, the tourism industry will maintain steady growth.

Also, the launch of a new holiday policy in November will further encourage travel, especially leisure travel during certain holidays. From the demand side, we see continued growth after the pandemic. Travel has become part of the life of more and more people, regardless of their ages and locations. For example, we have many silver generation VIP guests. They travel a lot with Tuniu and Niu Tours. They have more free time and disposable income to enjoy travel. Also, with the widespread popularity of live streaming shows and short videos, travelers from lower-tier cities have increased their bookings through the internet. Many of them go abroad for the first time, and there is very promising growth for outbound travels. With the emergence of more transportation hubs, we may bring more travelers from lower-tier cities to overseas destinations. For domestic markets, customer needs become more diversified.

We need to provide products well varied in destinations, itineraries, activities, group sizes, and prices to catch different customer groups. This trend may continue in the coming year, and we are always prepared to launch new products and services. For outbound travel, it will continue its growth momentum, but the recovery will rise from region to region, depending on the resuming of airlines and supply chains. For example, Southeast Asia recovers faster this year, while North America is behind. Therefore, we see chances for growth of long-distance outbound travel next year. Thank you.

Operator (participant)

We are now approaching the end of the conference call. I will now turn the call back over to Tuniu's Director of Investor Relations, Mary, for closing remarks.

Mary Chen (Head of Investor Relations)

Once again, thank you for joining us today. Please don't hesitate to contact us if you have any further questions.

Thank you for your continued support, and we look forward to speaking with you in the coming months.

Operator (participant)

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.