Trip.com Group Limited (TCOM) Q1 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2014 Ctrip.com Earnings Conference Call. My name is Derrick [ph] and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Ms. Michelle Qi, Senior IR Manager. Please proceed.

Thank you, Derrick [ph]. Thank you all for attending Ctrip’s first quarter 2014 earnings conference call. Joining me on the call today we have Mr. James Liang, Chairman of the Board and Chief Executive Officer; Mr. Min Fan, Vice Chairman of the Board and President; Ms. Jane Sun, Chief Operating Officer; Ms. Jenny Wu, Chief Strategy Officer; and Ms. Cindy Wang, Chief Financial Officer. We may during this call discuss our future outlook and performance which are forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in Ctrip’s public filings with the Securities and Exchange Commission. Ctrip does not undertake any obligation to update any forward-looking statements except as required under applicable law. James, Min, Jane, Jenny and Cindy will share our strategy and business updates, operating highlights and financial performance for first quarter of 2014, as well as outlook for the second quarter of 2014. We will also have a Q&A session towards the end of this call. With that, I will turn to James for our business update. James, please.

Thanks, Michelle. Thanks everyone for joining us today. We are pleased to report great results in the first quarter of 2014. Net revenues grew by 36% year over year, primarily driven by strong volume growth. Our accommodation reservation business, which covers all accommodation facilities such as hotels, hostels, vacation rentals achieved 67% year-over-year growth in room nights, a record-high in past 10 years. Following the recent formation of the accommodation reservation business, we also expanded our traditional air ticketing services to the transportation air-ticketing business which includes ticketing services for flights, trains and long-haul buses. This newly organized business brings together fast-growing transportation segment, moving travelers around the world. The total volume growth for the transportation ticketing services reached 71% year over year in the first quarter. This remarkable performance reflects our improved overall competitiveness in a highly competitive market, thanks to the great efforts made by Ctrip team over the past several years. Starting from 2014, we have stepped up our investment in mobile internet, technology, product innovation and services aiming to expand Ctrip's leadership in China's online travel market at a fast pace. According to a recent focused Wright [ph] report, 47% of total China's population owns a smartphone. The portability of smartphones creates unprecedented opportunities for online travel agencies to provide end-to-end personalized services throughout travel lifecycle. Our mobile team strives to provide customers with the most comprehensive product offerings and the best user experience on the Ctrip travel app by rolling out upgraded versions on a frequent basis. With the latest Ctrip travel app, travelers can research destinations, book a variety of accommodation and transportation, make changes and cancellations, reserve flight seats, find airport gates, buy attraction tickets or get group buying deals for hotels, restaurants, local activities anytime anywhere. Mobile is already the primary platform for the majority of Ctrip's products and services. At the end of the first quarter, the number of cumulative downloads for Ctrip app was about 120 million. During the first quarter of 2014, over 70% of Ctrip's total transactions booked through online and mobile channels, compared to about 60% -- 55% a year ago. Total mobile transaction value for the first quarter of 2014 was more than 400% of the same period last year, with the peak daily transaction volume reaching about RMB150 million. While our accommodation reservation business PC-based internet contributed about 35% of the total transaction and mobile had surpassed the PC-based internet to become the most important booking platform, contributing over 40% of our hotel transactions during the quarter and the peak daily level being over 60%. For our transaction ticketing business -- for our transportation ticketing business, PC-based internet contributed about 40% of total transaction and mobile internet contributed about 30% to the peak daily level. Mobile internet contributed about 30%, with the peak daily level being around 40%. Mobile contributes around half of the total bookings for many of our new businesses like [indiscernible] car rentals and local attraction tickets. Over 50% of our reviews was submitted through our mobile channel. Mobile now is definitely the core of our overall business, which serves as a powerful engine to lead development in our technology product and services. Supported by our centralized operating system, we will continue to upgrade the products and services offers among our platforms to provide customers with a consistent and seamless experience across multiple service channels. Our new business performed impressively in the first quarter. The Ctrip travel community website is the top site in China's travel review industry, leading the industry on multiple points. For example, its average daily unique visitors reached over 1 million, quadrupling from the level a year ago. The number of reviews was about 30 million. Our focus is on building an effective website for users to research, plan and share their travel tips and experiences. Over 70% of user-generated travel diaries are structured to enable automatic matching against the list of places of interest around the world. Ctrip has become one of the leading players in China's local attraction ticket market. Our booking volume has grown over 10 times year over year. The market is heavily fragmented with less than 5% of online penetration. Based on our estimates, we recently made a strategic investment in LY.com. Going forward, the two teams will focus on network coverage, customer experience and mobile penetration to further expand our leadership together. In Q1 2014, we launched our long-haul bus ticketing reservation services. The expanded the transportation ticketing business will effectively serve our travelers from the beginning to the last mile of their trips. We can even help travelers more between small towns and villages where no flights or trains reach. Bus travel is a giant market in 2013. Chinese people made over 30 billion bus trips compared with over 2 billion transits and over 300 [ph] air trips. We're confident that Ctrip has the best chance in the industry to put every piece of trip together in an efficient way and to ultimately support our door-to-door one-stop trip planning and booking services for our customers. According to Millward Brown's 2014 Brands Report, Ctrip ranked top 100 most valuable China brands and top three most trusted Chinese brands, with brand value lifted 47% from the previous year, Ctrip's vision is to build a one-stop travel service platform with the most comprehensive travel product, the most competitive price and the most convenient services. We'll continue to invest in key areas so that we can effectively build and sustain our industry leadership. At the same time, we'll continue to measure our ROI to encourage more entrepreneurs and to create an innovative culture to embrace this new era in travel business. With that, I will turn to Min for the industry highlights and the investment updates.

Thanks, James. Due to the country's fast economic growth and the emergence of a large middle class, China's travel market can experience rapid growth and has become the largest travel market in the Asia Pacific region since 2012. This booming market has attracted many new talents and entrepreneurs. According to a Focus Wright [ph] statistic, the number of the Asia travel startups quadrupled [ph] during the period from 2011 through 2013, compared to the previous year -- previous three years, and more than one in four of these startups were located in China. We have strong confidence in the great potential of the travel industry in China. We feel the responsibility to lead and encourage [ph] the industry evolution. In addition to our efforts to proactively cultivate, create business initiatives internally, we're also actively exploring opportunities to work with leading peers in the industry. Most recently we invested in Tongcheng who operates LY.com, a leading local attraction ticket service provider and the third largest OTA in China, to become its second largest shareholder. We're also one of the anchor [ph] investors for the recent IPO of Tuniu.com, a solid player in the leisure package tour market. We believe these investments will help create great value for customers and also boost the healthy development of the Chinese travel industry. With that, I will turn to Jane for the operating highlights.

Thanks, James and Min. Thanks everyone. I'm very pleased to share the updates for Ctrip's main business with you. Ctrip has further expanded its hotel coverage. As of the end of the first quarter, we offer reservation services for around 500,000 domestic and international hotels in over 190 countries and territories worldwide. Room night growth further accelerated to 67% year over year in the first quarter of 2014, a record-high in the past decade. International hotel rooms grew approximately 80% year over year. In Q1, the total volume growth for our newly expanded transportation business unit reached 71% year over year, with air ticket contributing to majority of the volume. Technology improvements have been the foundation [ph] for this business growth. Recently we expanded our international ticket platform to support complex flight ticket search and book between different countries. In the first quarter of 2014, international air tickets grew over 70% in the first quarter, accounting for around 15% of the total volume. We will keep improving our platform with intelligent technology and user data mining to provide customers with the best personalized international travel recommendations. We believe such support is the core value of what Ctrip can offer our travelers. In the first quarter of 2014, our packaged tour volume grew over 50% year over year. Many of our new businesses made great progress. For example, gross reservation grew over 100% from the previous year. We are now the number one player in cruise reservation business in terms of transaction value and customer volume. We are making intensive investments to improve the experience for both customers and partners, raising the bar for the industry standards. Starting from the first quarter, we equipped each of the Ctrip outbound travel group with free Wi-Fi hotspots to keep connected -- to keep our customer connect to internet during their entire trip. This practice was warmly welcomed by the travelers and quickly become our standard among outbound travel packages. For our open platform partners, we made great efforts to support their operations and business, such as our user-friendly platform and timely settlement cycle. Ctrip's corporate travel services maintained a strong growth of 39% in the first quarter of 2014. Migration to online and mobile booking again to accelerate during the past several quarters. We have continued adding more functions to our corporate travel mobile service since our first launch in 2013. Now over 40% of our corporate travel bookings are made through online and mobile channels, compared to 29% a year ago. We are proud to see that Ctrip team once again proved their strong execution. We will work hard to deliver long-term market leader growth in the future. Now I will turn to Jenny for the financial highlights.

Thanks, Jane. Thanks everyone. For the first quarter this year, Ctrip's total revenue increased 36% year on year and 10% Q-on-Q. Accommodation reservation revenues increased 2% Q-on-Q and 46% year on year. The year-on-year growth was mainly driven by an increase of 67% in transaction volume and partially offset by the decrease of commission per room night. Transportation ticketing revenues increased 12% Q-on-Q and 43% year on year. The year-on-year growth was mainly thanks to an increase of 71% in ticketing volume. Packaged tour revenues climbed to 34% Q-on-Q and 10% year on year, due to the increase of leisure travel volume. Corporate travel revenues grew 39% year on year, driven by the increased corporate travel demand from business activities. Corporate travel revenue decreased 9% Q-on-Q due to seasonality. Net revenues increased 36% year on year and 10% Q-on-Q. Gross margin was 72% versus 74% a year ago and 73% a quarter ago. Product development expenses increased 32% Q-on-Q and 65% year on year, primarily due to an increase in product development personnel related expenses. On a non-GAAP basis, which excluded share-based compensation charges, product development expenses accounted for 25% of net revenues, versus 20% a year ago and 21% a quarter ago. Sales and marketing expenses were up 40% Q-on-Q and 61% year on year, largely due to an increase in sales and marketing related activities and personnel related expenses. On a non-GAAP basis, sales and marketing expenses accounted for 26% of net revenues versus 22% a year ago and 25% a quarter ago. G&A expenses grew 24% Q-on-Q and 19% year on year, due to an increase in administrative and personnel related expenses. On a non-GAAP basis, G&A expenses were 8% of net revenues, staying flattish year on year and up 2 percentage points Q-on-Q. Operating income decreased 61% Q-on-Q and 56% year on year. On a non-GAAP basis, operating income decreased 33% Q-on-Q and 29% year on year. Operating margin was 4%, versus 14% a year ago and 13% a quarter ago. On a non-GAAP basis, operating margin was 12% versus 23% a year ago and 20% a quarter ago. The effective tax rate was 40%, versus 32% a year ago and 26% a quarter ago, primarily due to the increase in the amount of non-tax deductible share-based compensation charges as a percentage to our income as a whole. Net income attributable to Ctrip shareholders decreased 25% year on year and 56% Q-on-Q. On a non-GAAP basis, net income attributable to Ctrip shareholders decreased 11% year on year and 36% Q-on-Q. Diluted earnings per ADS were USD0.12 or, on a non-GAAP basis, USD0.24. As of 1Q, the balance of cash and cash equivalents, restricted cash and short-term investments was USD1.9 billion. As of May 6, Ctrip had purchased about 18.6 million ADS in aggregate, with a total consideration of USD351 million. Finally, for the business outlook. For the second quarter, the company expects to continue net revenue growth year on year at a rate of approximately 30% to 35%. This forecast reflects Ctrip's current and preliminary view, which is subject to change. With that, operator, please open the line for questions. Thank you.

Certainly. [Operator Instructions] Our first question will be from the line of Philip Wan, Morgan Stanley. Philip Wan – Morgan Stanley: Hi. Good morning, James, Min, Jane and Jenny. Congratulations on the very strong quarter, and thanks for taking my question. My question is about your ticketing business. We saw a very huge jump in terms of volume growth, and then Jane also mentioned majority of the volume is from air ticketing. I wonder, what has been the driver for this quarter particular? And then what has differed during the quarter as when you talk about the guidance of volume growth for this quarter? Thank you.

Sure. I think in Q1 this year, we have established our transportation reservation department, which includes the coverage not only for air ticketing but also for the other transportation method such as train tickets, et cetera. The market to take customers from cities to cities, from town to town, the coverage has been expanded in our radar screen. So this department is in charge of all the transportation methods which move our travelers from one place to another. So for example, if the weather is not good and the customers try to book air tickets, if the flight is delayed, then our system will automatically push the train tickets to them. So that cross-sell efforts help us to satisfy customers' needs and help us to increase the ticket volume. The majority of the volume still is from the main transportation method, such as airlines.

And overall--

Sorry. Yes.

And overall the volume -- we see very strong revenue growth, which is, as you mentioned, mainly boosted by the March higher volume growth. And it went up [indiscernible] the future guidance, and I think for the second quarter what we can guide is that, for the top line we expect the total revenue may grow 30% to 35% year on year. And again this is largely boosted by the strong volume growth. And for the hotel, we expect the total volume growth will be around 50% to 60% year on year. And for the overall transportation volume, the tickets volume, also grow about 50% to 60%. And then for the revenue for hotel and accommodation reservation, it was largely around 30% to 35%. And for the transportation business, it's also 30% to 35%. And on top of that, we also see the solid growth for packaged tours, revenue growth may grow about 10% to 20%. And the corporate travel may grow about 30% to 35% in revenue also. And so together we expect to see the total net revenue will grow about 30% to 35% on a year-on-year basis.

Your next question will be from the line of Dick Wei, Credit Suisse. Please proceed. Dick Wei – Credit Suisse: Hi. Thank you for taking my question. Would you please update on the couponing situation on both the mobile front and on the PC front? Thank you.

Sure. I think we have seen the market has been stabilized. Our strategy is still the same, which is to make sure we do everything we can to gain the market share. And whatever is the competitive pricing structure of our peers, we'll match up to them dollar for dollar. But so far I think the coupon has been stabilized, which is reflected in our financials.

Your next question will be from the line of Jiong Shao, Macquarie. Jiong Shao – Macquarie: Thank you for taking my question, and let me add my congrats to the very strong results as well. I'd like to ask a very topical question about industry consolidation or potential consolidation. I understand management may have expressed some views perhaps internally. I was hoping you can share with us your thoughts on, you know, tied up with one of your competitors. And related to that, maybe perhaps you can expand a bit more on your overall acquisition strategy particularly following your recent investments in Tongcheng and Tuniu. Thank you.

Yes. Ctrip has a very large cash reserve, so we want to make the best use of this money. So there's a lot of startups, very creative firms on the market, given China's travel market is a very -- has a very high growth potential. So, some companies over the years have emerged to be leaders in particular types of products or particular market segments. So we are, first of all, interested to share the growth or the future financial gain from these companies. Second, there are companies that have complementary services and products with Ctrip, so with this investment we'll be able to expand our product coverage and also to have other types of synergies with these types of companies. That's our overall investment strategy, yeah.

Your next question will be from the line of Ella Ji, Oppenheimer. Ella Ji – Oppenheimer: Good morning, management, and congratulations on a strong quarter. My question is relating to the revenue growth at packaged tour segment. I mean your volume growth has been much higher than your revenue growth because I think you're pricing aggressively. With this new strategic investment in Tongcheng and Tuniu, I think you're still guiding 10% to 20% revenue growth for this segment in 2Q. So should we think -- how should we think of your pricing strategy going forward? It seems that you'll continue to price aggressively, even with your strategic investment in these two companies. Is this fair to say that? Can you help explain? Thank you.

I think the volume growth for Ctrip is very strong in Q1, which is over 50% year over year. And pricing, we have to make sure customer receive these packages and are willing to travel. In Q1, I think the market was very soft, where in Thailand, which is a top -- one of the top travel destinations, the political uncertainty which deters many people from traveling, and also what happened in Malaysia Airlines also caused a lot of people to cancel their trips. So in order to offset the market softness, we have to be very aggressive in order to win market share. So that's our strategy. Again in the long term, maintaining a strong market leadership is the first priority. And then only when you have a strong market leadership, then revenue will be ascertained. So our first priority as always is do whatever we can to be a market leader. With that premise [ph], we will maximize our revenue.

Your next question is from the line of Alicia Yap, Barclays. Alicia Yap – Barclays Capital: Hi. Good morning everyone and congrats on the good results. My question is a follow-up question on the air ticketing -- I mean the transportation volume growth. So I think, Jane, you mentioned that the international air volume grew about 70%. So if you can share how fast is the domestic air volume growth. And also given the revenue is only growing like 40-plus percent, I wanted to know how much of the offsetting factor is driven by the ASP being lower because of some of the train prices, and what about the air ASP, are they lower than before, and also, any coupon discount into it? And then lastly, related to that, is that your bus ticketing reservation, is you mentioned that you started in 1Q, and how much of the bus volume is factored into the 71% growth? Thank you.

Sure. We saw the huge market in the transportation department, because people use interchangeable transportation methods when they travel from cities to cities. So in Q1 we have organized our team to cover our transportation, not only on air side but also on the train, et cetera. So the product can be cross-sell with each other. And the result was very strong. I think when, as we discussed, when the weather was not very good, when the plane was delayed, then the alternative becomes a viable choice for our customer. So that propels the strong growth in the volume. In terms of ASP, train -- the ticket price is about RMB100 to RMB200, and air ticket is about RMB800 to RMB1000. So it's -- the average price is a little bit different. But I think for Ctrip, due to our ability to provide all the travel-related products in one app, in one website, the cross-sell efficiency is very strong. So that this has been proven a very successful initiative for our business in Q1. The market is big, but it's very small, immaterial at this moment.

Sure. Just to add one more color on that, among our transportation ticketing business segment, the air ticketing business is still the -- contributes the majority of the volume and the growth. And we see for air ticketing itself, the volume growth in 1Q is still over like 30% to 40%, largely three times the industry average. So we clearly continue to gain market share. And for the ASP trend for the air ticketing, it's actually increased by about 5% year on year, and we see a very slight impact from like coupon impact, which overall impact to our business is immaterial. And the commission rate is still very stable. So that's what we can share here. And we expect to, over the long run, both train and air ticket and the long-haul buses will continue to be like the -- achieve solid growth. Especially in the past several quarters, for air ticketing alone, you can see we're already on accelerating track.

Your next question is from the line of Fawne Jiang, Brean Capital. Fawne Jiang – Brean Capital: Good morning. Thank you for taking the question. My question, regarding the margin profile going forward. It seems like first quarter, despite relatively lower [indiscernible] on the revenue side, I think the margin came in still above expectation. Just wondering, how should we look at all the key investment or expending going forward, whether we should continue to see the margin improvement throughout the year, and what's the full-year margin outlook. You may have the visibility so far.

Sure. For 1Q the margin is slightly better than we previously guided, which is largely due to two factors. First one, hotel coupon expense came out a little bit lower than expected. The total hotel coupon expenses is around -- contributes [ph] roughly 18% of our hotel commission revenues, compared to 20% as guided. And secondly, we enjoyed some operating leverage which was further lifted by the stronger than expected revenue growth. For example, like for the product development, the overall margin erosion is about 5 percentage points year on year, versus 7 percentage points as we previously guided. And also for the sales and marketing expenses as a percentage of total revenues, the overall impact is also modestly better than what we initially thought. And regarding the future quarters' margins, firstly, for second quarter, non-GAAP OP margin is likely to stay flattish Q-on-Q. We expect the hotel coupon impact is stabilized around 1Q level. And both product development and sales and marketing expenses as a percentage of net revenues will be largely around the 1Q level also. And just to add one more color -- more color here. As we have mentioned before, we target 2014 as another important investment year for us. Our top priority is to grab the golden industry opportunities and to gain more market share at a faster pace. Since Q1 we have further stacked up our investment on several key areas, especially on IT and mobile internet, brand-building, product promotion, open platform, and several new business. We will continue those efforts in Q2 and beyond. From Q1 result, we are very pleased to see the investment efforts have already started to take some positive impact. However, most of this investment are more related to our long-term growth targets rather than directly associated with the top line revenue growth in the current quarter. We believe through those efforts we can effectively build up higher entry barriers and extend our market leadership. The long-term value will be definitely much more significant. And if we talk about the rest of the year, what we can share is that normally Q3 is -- has better seasonality. And even if the competition remains at the current level and there's no like one-time event impact, we could expect some modest margin expansion in Q3. And Q4 usually a floor season. Margin will trend down again from the peak level in Q3. Nevertheless, given the dynamics of our business, the market and the competition, our visibility for the future quarters margin is quite low and we will continue to guide our investors on a quarterly basis when we move into that quarter and have more visibility. And finally, we're seeing, will be for sure, we want to mention -- we want to highlight that, along with those investments in those, we [indiscernible] to implement technology and innovative method to improve our overall operational efficiency and conduct tight cost control. Through those efforts we can try to avoid wasting any pennies, and hopefully can deliver as good a result as we can.

Your next question will be from the line of Fei Fang, Goldman Sachs. Fei Fang – Goldman Sachs : Hi. Thanks for taking my question. Your hotel volume growth has accelerated from 20% in the pre-coupon years to 40% as mobile internet kicked in, to now 67% year on year, despite a very large base. How should we think about the trend? Surely at some point the growth rate will stabilize and gravity will kick in. When do you think that will be the inflection point? And also for your hotel volume growth, does it incorporate any B2B wholesale volume? Thanks.

I think our investment in the previous two years have been generating good results. So it's a concerted effort which resulted on strong volume growth. And currently we are making strong investment in the future years as well, including the technology investment, to make mobile as strong as possible. And also on the pricing, we'll do whatever we can to make sure our pricing is the most competitive in the China market. And also the service level is kept at very high level. So if we keep our efforts in the technology investment in the future years, in the mobile investment, in pricing and in services, I think the volume growth can be kept at a very healthy and strong level going forward. Fei Fang – Goldman Sachs : Thanks, Jane. Does your hotel volume incorporate any wholesale volume?

Yes, a little bit, but not significant.

Your next question is from the line of Tian Hou, T.H. Capital. Tian Hou – T.H. Capital: Good morning. I have a question related to your margin. So as you invested in your peers or your competitors like Tongcheng, Tuniu, you know, I wonder what's the margin, on the operating side, look like going forward, since the competition, particularly price competition, with those vendors are going to be removed? The second one is really connected to this. You're investing in those companies, but those companies are still operated on a separate level and each team has their own KPIs. How can you cooperate and make sure two teams work together and does not have any irrational price competition occur? So that's the question.

Okay. First of all, Tuniu is on the packaged tour business, that's why our investment is relatively small. And the market is actually very large. So, Tuniu and us are taking very small percentage of the overall market share -- share of the overall market. So it's mostly taking away business from traditional travel agencies. So the price competition is not really between us, it's between us and the traditional travel agencies. So I think this we consider a huge potential. I don't see any change from that for our pricing strategy. For the Tongcheng, some of the markets we share with Tongcheng. We still have the same situation, so we are still very small, very early in the overall market. And there are some markets where Tongcheng and us have relatively large market share. That's the areas that we may be able to see some less price competition.

Your next question is from the line of Alex Yao, JPMorgan. Alex Yao – JPMorgan: Hi. Good morning everyone. Thank you for taking my question, and congratulations on the strong quarter. Can you share with your traffic acquisition strategy both PC and mobile? And also, can you share with us the active customer base in the quarter versus one year ago? Thank you.

We -- our intention is to build very extensive online, offline and mobile platform distribution channels. So you'll see for us we have like literally working with all the channels and try [indiscernible] in the market. And for us, we see, for example, for our offline business, it contributes roughly 30% of our total transaction revenues now. That's pretty much the customer, they come to us directly. And those customer acquisition is due to our years of brand-building and the great customer services and where the most impact. And also we have a very large amount of like Step Up [ph] branding campaigns in the recent quarters. And for the mobile side, it's roughly contributed 30% -- 30%, 40% -- of our total transactions, where our team working very hard to make sure we explore all the possible channels and all the possible matters, we can reach customer effectively. And among all the efforts, we still believe the product is still the key and the service is still the key to attract our customers. Whereas our comprehensive product offering and the most user experience -- best user experience through our mobile apps, we gradually build very strong brand recognition and brand awareness. So that from mobile side we see increasingly new net adds from the brand-new customers. On the mobile, on the PC side, we also have very extensive mobile channels. And roughly one-third of the customers, they come to our website like by their own, and they type in our address in the URL and come to us directly. Again that's demonstrated very strong brand recognition among the customers. And then search engine is not a second important channel for us, but the overall contribution to Ctrip online/offline together only like roughly 10%. And we also build very extensive [indiscernible] and over like ten [ph] smaller websites that were working with us closely. So in a word, we have been trying extremely hard to make sure we can reach customer everywhere they go, and no matter who they are, they can find and they can -- they can find Ctrip and they can reach us in very effective way. And once they come here, our team will work very hard to provide them best experience and to retain them and to make sure they become like a very loyal customer. That's why so far we still see over 80% of the repeated customer ratio. And for the active user base, and for that one we see on a year-on-year basis it's -- the growth rate itself has continued to accelerate, and especially for the mobile side. And we expect this very healthy momentum can continue in the -- actually we believe we are actually on the -- just at the early stage of this acceleration stage, and we will expect more to come in the coming years.

Your next question is from the line of Michael Olson, Piper Jaffray. Michael Olson – Piper Jaffray: Hey, good morning. You talked about your investment in Tuniu and you're obviously making a lot of other investments in other categories as well. Are there any major kind of travel verticals or other kind of currently underserved geographies that you're missing right now and that we could potentially see an investment in going forward? And then second, can you just repeat for me what you said mobile was as a percent of bookings in Q1 compared to Q1 of last year? Thanks.

Yes. For our investment strategy, I think Ctrip has been very disciplined. In China market, there are many opportunities which you can make money, but our company's philosophy has been always focused on travel-related investment. So first of all, anything strengthen our core business, we will make internal investments. And if there are good candidates in the market that are willing to work with us, we will be happy to take a look at them. So this core business includes our main business lines and also technology and also our core competence. And secondly, it's industry leaders in the market. I think in the past we have made certain investments in economic chain hotel to strengthen our penetration into the market. And thirdly is the geographic expansion, and I think in the past we made our investment in Hong Kong and Greater China area, again is to expand our coverage to better serve our customers. Now in the future, the strategy is always the same. First of all, I think we look at the industry leaders. And secondly, this investment has to increase our either product line or competence or geographic coverage. And thirdly, the investment price needs to be reasonable. So we will wait for the right time for us to make the right investment and strengthen our competitiveness. So that's our general philosophy. And Mike, you had a second question? Michael Olson – Piper Jaffray: Yes, it was -- sorry to make you repeat this, but the mobile as a percent of bookings in Q1 compared to Q1 of last year. I just missed what you said there.

This quarter the total mobile contribution is roughly over like 40% mobile, and a year -- last quarter is only like roughly 30%, and a year ago it's only like roughly 10%. For the air ticketing and also on the peak day, the peak level or the peak daily level for the hotel is already over like 60%. And we see definitely this mobile has become the primary and number one booking platform for our customers. And for the air ticketing, the mobile contribution now is roughly over 30%, and a year ago again it's very small, and a quarter ago is roughly 20%. So we see the accelerating growth for the both business. And for many -- and for our corporate travel, again this mobile contribution is already like roughly over 20%, 30%. And for our many [ph] new business, mobile also become like the very important and the number one booking platform for people to reach us, like for our train tickets, for our local attraction tickets and car rentals. So we see the great opportunity to attract and Ctrip is positioned as the best [indiscernible] player to capture this industry momentum.

Your next question is from the line of Wendy Huang, Standard Chartered. Wendy Huang – Standard Chartered Bank: Thank you. My question is mainly about commission rates. Can you give us update on the commission rates for the hotel booking, air ticketing? And also, can you tell us, is there any difference between the commission rate for the mobile and the PC booking? And what kind of long-term margin impact we're going to see the difference -- on this different commission rate? Thank you.

Margin has been very stable, I think for the commission rate, has been very stable. I think in our revenue, we take out the cash rebate program, but other than that, I think very stabilized.

Yeah. Wendy Huang – Standard Chartered Bank: Okay.

Your next question is from the line of Yu Fan, China Renaissance. Yu-Heng Fan – China Renaissance: Hello?

Yes. Yu-Heng Fan – China Renaissance: Good morning. Thanks for taking my question. I just want to follow up the level of your advertising spending for this quarter, if you can back out into the branding and the people build-up, that'd be great. And also the trend for the rest of the year. Thank you.

We consider brand awareness as one of the most important factors to attract customers, which become even more important for us to attract mobile customers. And we see Ctrip usually has very high brand recognition among the middle to high end people and in the top-tier cities. Now our vision is to expand the customer spectrum to cover all major other segments and make further penetration into the lower-tier cities. So it's very important for us to further enhance our branding campaign to lift our brand awareness. And we already, like in 4Q, you already see we hired a movie star to represent us. We have very intense branding campaign in the major cities. And we see very positive feedback from customers. For example, for the Baidu Index, we see the increasing for Ctrip brand record -- rank. And also, just as Jane just mentioned from [indiscernible] our brand value increased about 47% on a year-on-year basis. And in 1Q we monitor the overall spending closely and actively see the very positive impact the way expense our branding campaign for the print to cover more cities and increase the overall money spent. And the impact to us is also very positive. We see the increasing new addition from the brand-new customers and they're coming to Ctrip and gradually become very loyal customers. And so for us, we will continue these efforts and we believe brand-building should not be just like one-time or one-off event. And we'll see like other great companies like the Coca-Cola or Amazon or like Walmart, given they are very premium brands already, they still spend heavily every year to promote their brands. So that will be also our strategy. We will continue to try the most cost-effective way to make sure we can have like very broad brand recognition. And on the other hand, our team has been -- our deeply rooted corporate culture, our team, for everything we are doing, we are carefully design and carefully monitor the impact, and to make sure we can have the best overall achievement. So, so far we see pro forma Q1 margin you see the sales and marketing expense as net revenues actually came lower than we initially expected. That's largely due to our team's very effective execution. And we will continue on that front to make sure for every money we are spending, we can have the -- we can maximize the ROI and to make sure we have the best results.

Your next question is from the line of Ada Yu, CICC. Ada Yu – CICC: Hi. Good morning everyone. Congratulations for the great quarter. And my question is regarding your mobile business. As Jane mentioned earlier, increasing usage frequency is one of the top priorities for your mobile business. And as I understand that's different from the PC traffic. Mobile end traffic is actually mainly [indiscernible]. So can you add more color about the -- how you're going to design the product different from the PC side -- I mean in mobile that is different from the PC side, to continue to increase the usage frequency? And how are you going to balance these two channels going forward? Thanks.

For mobile side, mobile product, obviously very different from PC product. The screen is smaller, the customer is usually on the move. And actually some types of services will do probably only through mobile, for example, some of the car rental, taxi services, things like that. Well, in terms of pricing, I think we're going to, as we have done, some of the mobile-only prices, but those mostly are driven by other prices. Some suppliers are willing to give more discounts to this new channel. They view this as being able to track new customers. So you see there are some mobile-only discounts on the mobile [indiscernible]. So I think, overall, I think we want to ensure that mobile will have the best experience, probably better experience than some of the PC products, even with the smaller screen.

Your next question will be from the line of Wang Bin, Bank of America. Wang Bin – Bank of America Merrill Lynch: Hello. Thank you for taking my question. I would like to hear more from management whether on the hotel -- ASP trends of the hotels and also any color on the group competition we have seen so far. Thank you.

Sure. I think for the existing hotel, the ASP is very stabilized. But we will be very aggressive moving into the second-tier, third-tier and fourth-tier cities. As you're moving into these cities, the ASP will be lower. But I think it's important for us to be very aggressive to gain market share. On the net-net basis, I think the absolute dollar amount for us to expand into the new market share will generate positive revenue accretion on the top line. Wang Bin – Bank of America Merrill Lynch: Okay.

Your next question is from the line of Roger Gu, SWS Research. Roger Gu – SWS Research: Hi, good morning, and thanks for taking my question. Regarding the partnership with Tongcheng, could you please elaborate more about how Ctrip will cooperate with Tongcheng in local attraction tickets business? And my second question is that, what percentage of hotel booking volume comes from Qunar right now? And what kind of trend do you see in last several quarters? Thank you.

Sure. I think with Tongcheng, I think if we have a good cooperation, it's a win-win for both companies. Tongcheng has very good selection in local attraction tickets, which we can use and enhance our users' experience. And Ctrip has the best hotel selection. So Tongcheng will be able to use our inventory for their customer. And with that allowing us -- I think we can reach out to the customers we originally do not have any ability to reach. So the market share will be expanded quickly as well. So we will work hard to make sure the alliance will be a win-win approach for both companies.

Your next question will be from the line of Chao Wang, Nomura. Chao Wang – Nomura: Hi. Thanks for taking my question. A very quick one. I just wonder if your hotel volume now includes the B2B or wholesale business since you have acquired two hotel wholesaler [ph]? And if so, I wonder if it's significant. Thank you.

No, it's not significant, very small. Chao Wang – Nomura: Thank you.

Your next question will be from the line of Ming Zhao, 86Research. Ming Zhao – 86Research: Okay. Thank you. I have two questions. First question is about the accommodation and the ticketing. I know you changed the metrics. So if we want to do the apple-to-apple comparison, so last quarter the room night grew 55%, what is that figure for Q1? Also for air ticketing, I believe you said 30% to 40%. So if you could give us apple-to-apple comparison, that will help us do our work. The second question I had is really about product development expense. So if I looked at the absolute dollar amount, it basically increased about RMB100 million. So I wonder, what is that money spend on? If so it didn't change, that means the headcount has a big increase. Was there anything else in it? Thank you.

So first question, in hotel volume, with or without the hotel volume, I think the trend is still the same, the number is still very close to above 60%, 65%. In terms of the air ticket, I think the majority of the volume still comes from the air tickets. In terms of product development line, it includes, namely, the IT investment, because we spent a lot of money to invest into future, to make sure our platform and our mobile apps is robust. So that's a majority of the spending. And also we have people to develop new products, that are working diligently with the hotels, penetrating into the second-tier, third-tier cities, working with the airlines. That is also captured in the product development line. Ming Zhao – 86Research: So, Jane, I'm not asking about the wholesale volume. If I do my math, it seems like train tickets and other tickets had a volume about 3 million in the quarter. It just sounds very huge. Could you elaborate on that?

Yeah, the growth for the other tickets is very strong. That is why we, in Q1, we saw the opportunity. That's why we made an organization to cover all these new opportunities. It's a huge number. I think the train market is almost ten times as big as the air ticketing market.

Ming, just to add one more point, you are quite right, for our air ticketing business, the performance is still very strong and we continued the very strong secular growth itself. In 1Q, the volume growth could be above 30% to 40%, which is roughly three times industry average. This growth momentum is still intact. And as Jane mentioned, now we grow like train tickets, the air flights and the buses business together to make sure we can have the best operation efficiency and the most effective cross-selling opportunities. And then we could further boost the volume from not only each segment but overall volumes for the combined entity.

We have a follow-up question from the line of Fawne Jiang, Brean Capital. Fawne Jiang – Brean Capital: Thank you for taking my question. Just a quick follow-up on the hotel side. You guided for second quarter volume up 50% to 60% and -- but revenue up like 30% to 35%. So it's implying a pricing down 20% to 25% year on year. It seems like the coupon has been stabilized year on year. Just wonder where the big -- I understand there's a mix towards lower-tier cities, but in the past quarter the mix had a negative 5% year on year. So just wonder why there's such a big gap on the pricing side. And with that, I just also want to check, for the first quarter, because you changed hotel booking into accommodation, is there any category in terms of competition options that are not -- were not there last -- first quarter last year, is included first quarter this year.

Hi, Fawne. Here I think the calculation goes like in 4Q our volume growth may grow by 50% to 60% and revenue growth will be about 30% to 35%. That implies the commission per room night will decline by roughly 15% on a year-on-year basis. And half of this decline is largely due to the ADR continue to trend down, which is due to the -- our mix change with -- along with our efforts to make further penetration into the lower-tier cities and the lower-end hotels. And this trend has been like that since last several quarters, and may continue in the foreseeable quarters. And the other half of this commission per room night decline is due to the coupon impact. On the year-on-year basis, the impact is zero here. And just a reminder, 2Q last year, coupon expenses contributed roughly 15% of our hotel commission revenues, which is like roughly two-third of that booked as counter [ph] revenue. And in current second quarter, this coupon has been stabilized on the Q-on-Q basis. That means it will be largely around like 18% of our hotel commission revenues. And almost all of that were booked counter [ph] revenue. So even you do the mathematics, you will see there is still some decent impact in this quarter. Yeah. And for the accommodation, the business, the volume here and the scope here is largely similar. And actually we have been booking like the traditional hotel business and the contribution from new business like the [indiscernible] and like the hostel and vacation rentals into the segment like in the past year. All right? So I think there's not much new add and new additional things have been grouped into this segment for the current quarter. And for our -- the main postpaid model is still the major -- the volume contribution and also the major growth driver here. And we are very happy to see Ctrip make very remarkable breakthrough in many new business. And for example, now we are definitely the leader in China's vacation rental industry. And we see that although the market and industry still at very early stage, but we see the good performance and the potential here.

The next follow-up question is from the line of Philip Wan, Morgan Stanley. Philip Wan – Morgan Stanley: Okay. Thanks for taking my follow-up question. Just a quick one here. Could you remind us currently how much of your PC traffic is coming from Baidu? And then also how much of your booking is going through Qunar. Thank you.

For our PC website, Baidu's contribution is usually around like 20% to 25%. And just a reminder, roughly one-third of our PC traffic is still from the customers directly typing to our URL and look for Ctrip. And for the Qunar and all the other single channels, their single contribution is very small. And for Qunar, the contribution is only like 2% to 3% for the time being.

And ladies and gentlemen, this will conclude the Q&A session due to time constraints. I would like to turn the conference back over to Ms. Michelle Qi for any closing remarks.

Thank you, Derrick [ph]. Thank you everyone for joining us on the call today. A replay of this call will be available as usual on the IR website shortly after the call. We appreciate your interest in Ctrip and look forward to convening with you again next quarter.

Thank you.

Thank you.

Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.