Trip.com Group Limited (TCOM) Q2 2019 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome to the Second Quarter 2019 Ctrip.com International Limited Earnings Conference Call. All participants are in a listen-only mode. There’ll be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Michelle Qi, Senior IR Director. Please go ahead.

Thank you, Jennifer. Thank you, everyone, for joining us call this morning. Good morning, and welcome to Ctrip’s 2019 Q2 earnings conference call. Joining me today on the call are Mr. Jim Liang, Executive Chairman of the Board; Ms. Jane Sun, Chief Executive Officer; and Ms. Cindy Wang, Chief Financial Officer. During this call, we will discuss our future outlook and performance, which are forward-looking statements made under the Safe Harbor provision of the U.S. Private Security 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 at Ctrip’s public filings with the Security and Exchange Commission. Ctrip does not undertake any obligation to update any forward-looking statement, except as required under applicable law. James, Jane and Cindy will share our strategy and the business updates, operating highlights and financial performance for the second quarter of 2019, as well as outlook for the third quarter of 2019. After the prepared remarks, we will have a Q&A session. With that, I will turn the call over to James. James, please?

Thank you, Michelle. Thank you, everyone, for joining us on the call today. Now, let's begin with a quick update on our business growth and performance. We’re pleased to report solid results for the second quarter of 2019. Net revenue grew 19% year-over-year, reaching RMB8.7 billion. We have increased our share in the domestic travel market with GMV growth rate for both domestic hotels and air ticketing are accelerating, even against the backdrop of a softer market environment. Our international business is also seeing great performance with a growth rate for international hotels and air ticket more than doubling that of China outbound traffic growth in the same period. As we continue to evolve as an industry leader in China, we have great opportunities ahead to realize our global vision. Ctrip has developed the key competencies to provide excellent services to travelers in China and around the world, including a one-stop platform that covers more than 60 products globally. Such a one-stop product offering in power of mobile platforms without superior mobile app accounting well of over 80% of features total bookings. Furthermore, we are continuously making investments in technology, including an open platform that ensures the competitiveness of each product and collaboration between product lines. Nowadays, our open platform connects several 100,000 direct intermediate suppliers ranging from individual professionals to worldwide travel leaders. Today, we also announced a proposal to change the company name to Trip.com Group Limited. The new name reflects the services of products we provide and it can be easily remembered by global users. Trip.com Group includes a range of brands, including Ctrip, Qunar, Trip.com, Skyscanner, and many more. In October, we’ll celebrate the 20th anniversary of the company. In our first two decades, we have become the leader in China travel industry. Over the next decade, we’ll strive to become one of the most innovative and respected companies in the global travel industry. With that, I'll turn the call to Jane for our operating highlights.

Thanks, James. Today, I would like to start with why we are aiming at the international market. In the domestic market, we have already grown to become the undisputed leaders across all travel segments from accommodation to transportation. We are confident in the continued sustainable growth and profitability of our business in China. At the same time, China has become the largest source market for international travel. Taking advantage of this, Ctrip has built a comprehensive and extensive product network and developed global service capabilities to serve outbound travelers, where we will leverage our existing products, services and technologies to serve travelers outside of Mainland China, especially in the Asia Pacific region. In the long run, this will enhance our scalability, reduce seasonality and diversify our potential risk from geo uncertainties. Our efforts in global product expansion, service quality and brand development, setting the base to realize this long-term goal. I would like to share some of the recent highlights in this area. Firstly, our global product expansion. In the second quarter, our product coverage continues to expand in scope and depth. As we know from experience, transportation is typically the first step for our customers when they book their trips. We therefore work hard to provide comprehensive cost effective and convenient transportation solution and believe this will help our customers to boost customers’ acquisition efficiency and cross-sell to the other products. The company recently launched a strategic partnership with East Japan Railway Company. The partnership allows us to purchase Japan rail tickets, in addition to enjoy services, such as airport, ticket pickups and hotel delivery. Today, our international train product covers train ticket, high-speed rail, and airport link services in more than 50 countries and regions across the world. Global users can access international train services through the Ctrip, Trip.com and TrainPal mobile platform. We have also launched an oversea ride-hauling service, which integrated mainstream local right hauling services onto our own platforms. The service is currently available in over 785 cities across 47 countries in Southeast Asia, in the United States and in Europe. Ctrip users will also enjoy 24/7 customer services and translation services. Ctrip launched the hotel mode program in 2018, where hotels can sell non-room offerings, such as meals, spar sessions, pickup and drop off services, meeting room bookings and more. So far, a large majority of the high star hotels on Ctrip platform have opened up their relative hotel mode, and we have received encouraging feedback from our customers. Secondly, we continue to focus on service quality. We see improving net promotion scores across all of our product lines in the second quarter. This reflects our consistent effort in upgrading our services. One of the many initiatives we have rolling out recently is the tiered cancellation policy for hotel bookings. So far, hundreds and thousands of the hotels have participated in our program. And this program has benefited more than 3 million Ctrip customers. We're committed to upholding to our customer-centric principles in every market we operate and to extend high quality customer services to the global travelers. Today, all of our overseas call centers are in operations. As we continue to scale our call center to serve growing needs of the respective markets, we expect operation efficiencies to improve in the coming years. Thirdly, looking at the growth of the main brands. Due to the strength of our products and services, we continue to gain market share across our key business areas and widen our gap with the other domestic competitors in China. Domestic revenue maintained a solid growth rate that outpace the industry at a higher multiple. International revenue accounted for over 35% of the total revenues in the second quarter of 2019, with the rapid growth of our bond travel and our global brands. We expect this to become 40% to 50% in the next three to five full years. Our hotel and a flight ticket sale for cross-border travel activities maintain faster growth during the quarter, more than doubling the growth of China's outbound trips. Although the recent fluctuation in some destinations will Q3 outbound travel figures. Historically, we have gained market share when faced the macro headwinds. In the long run, we remain optimistic about China outbound tourism market. For Trip.com, air ticket volume delivered triple digits year-over-year growth for the 11th consecutive quarter and hotel growth is accelerating. We are extremely pleased to see direct users for Trip.com’s first batch. Our focus to market are increasing in numbers, confirming the efficiency of our local brand strategy. In South Korea, Trip.com was named the Brand of the Year in the travel category by Korea Customer Council. Skyscanner continues healthy momentum with its direct booking business, maintaining triple digits growth. It has generated great synergies in many markets with Trip.com, mainly through their direct booking initiatives. We expect to replicate such success across more international markets going forward. Our other facilities, we completed our share transactions with Naspers Limited and become the largest shareholders of MakeMyTrip, a leading online travel company in India. We will give a full support to MakeMyTrip team and we're confident that MakeMyTrip will continue its success in the years to come. To conclude, we’re encouraged by our results across all the business lines in the market. Today, we're confident and excited about the long-term future for the travel industry in China and in the world. We are focused on our mission to provide the best products and services for global travelers, while creating long-term value for business partners, employees and shareholders. With that, I will now turn the call to Cindy.

Thanks, Jane. Thanks, everyone, for the second quarter of 2019. Ctrip reported net revenue of RMB8.7 billion, representing a 19% increase from the same period in 2018. Net revenue for the second quarter of 2019 increased by 6% from the previous quarter. Accommodation reservation revenue for the second quarter of 2019 was RMB3.4 billion, representing a 21% increase from the same period in 2018. This was primarily due to the strong execution in increasing accommodation choices and quality of services that we offer for our customers. During the second quarter, Ctrip branded low star hotel room nights increased over 50% year-on-year. This directly reflects the effectiveness of our promotions in this segment. In addition, we observed a continual increase of the travel consumption from customers we acquired through this low – comparatively lower-end hotel segment. We will continue to extend our promotions in this segment, as long as we see good return on investment. In the domestic mid to high-end hotel segment, our growth rate accelerated sequentially. Growth in our International Hotel segment was more than twice as far as the China outbound traffic growth rate. Transportation ticketing revenue for the second quarter of 2019 was RMB3.4 billion, representing a 13% increase from the same period in 2018. This was primarily driven by fast growth in international travel demand and an increase in ground transportation. The international air ticket business maintained strong growth. Specifically, Trip.com’s air ticketing volume recorded triple-digit growth for the 11th consecutive quarter. Ground transportation registered healthy volume growth this quarter. International train ticket volume grew more than seven times year-over-year. Packaged-tour revenue for the second quarter of 2019 was RMB1.1 billion, representing a 25% increase from the same period in 2018. In the second quarter, GMV for our offline stores continued to see strong growth, with the daily transaction value peaking at RMB120 million. We are delighted that the large majority of our offline stores become profitable within 12 months. Customized tours and dynamic packages also delivered outstanding performance. Corporate travel revenue for the second quarter of 2019 was RMB309 million, representing a 21% increase from the same period in 2018. This was primarily driven by extension in our corporate customer base, as well as the trend for more mixed products and packages. Revenues for other business increased by 22% year-on-year in the second quarter of 2019, reaching RMB524 million. This was primarily driven by strong growth in our advertisement and financial services business. Gross margin was 79% for the second quarter of 2019, compared to 80% in the same period in 2018, and to remain consistent with the previous quarter. Excluding share-based compensation charges, total non-GAAP operating expenses grew 11% year-on-year and 1% quarter-over-quarter in the second quarter of 2019. Total headcount in IT, supplier management and administration was largely consistent with the previous quarter, Marketing efficiency continued to improve. This was due to our online-driven marketing strategy and continued efforts in customer services, product cross-selling and content building. Despite the sequential decrease in our marketing investment, we were able to maintain stable growth in both MAU traffic and in the acquisition of new transacting customers. We also saw steady improvement in the cross-sell ratio between product lines. Non-GAAP operating profit in the quarter was RMB1.7 billion, grow 43% year-on-year and 26% quarter-over-quarter. Non-GAAP operating margin for the second quarter was 20%, increasing about 16% in the same period of 2018 and 17% in the previous quarter. This increase was mainly due to improvements in operational efficiency. Diluted loss per ADS was RMB0.73, or US$0.11 for the second quarter of 2019. The net loss was primarily due to the loss recorded for fair value changes of equity securities investments. Excluding share-based compensation charges and fair value change of equity security investments, non-GAAP diluted earnings per ADS were RMB2.25, or US$0.33 for the second quarter of 2019. As of June 30, 2019, the balance of cash and cash equivalents, restricted cash and short-term investments held to maturity, deposit and financial products was RMB67.8 billion, or US$9.9 billion. In July, the company announced a transferable term loan facility of up to US$2 billion equivalent, with a greenshoe option of up to US$500 million. In August, the company repaid US$500 million of convertible notes on maturity, which reduced the potential dilution of approximately 1.5 million ordinary shares. We also announced the [puts right] notification for 1.25% convertible senior note due 2022. If all our outstanding notes are surrendered for repurchase through the exercise of [puts right], the aggregate purchase price will be US$975 million, which will further reduce potential dilution of approximately 1.9 million ordinary shares. On August 30, the company completed our share exchange transaction with Naspers Limited. Following the transfer, Ctrip host ordinary shares and Class B shares, representing approximately 49% of MakeMyTrip outstanding voting security. Ctrip will apply for the equity methods of accounting to pick-up the gain/loss of MakeMyTrip from August 30 on a one quarter lag basis. Now, turning to the future outlook. For the third quarter of 2019, the company expects net revenue growth to continue at year-over-year rate of approximately 10% to 15%. This forecast reflects potential impact of about 400 to 500 basis points on the growth rate due to short-term macro and industry headwinds. Excluding share-based compensation, the company expects non-GAAP operating income will be in the range of RMB2.3 billion to RMB2.6 billion. For the rest of the year, the company expects to outperform the market, while delivering continuous operating leverage compared with the previous year. 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. We will now begin the question-and-answer session. Please note, this session is only open to sell-side analysts due to time restriction and each analyst is only allowed to ask one question each time. If you have additional questions, please join back to the queue. [Operator Instructions] Your first question comes from Thomas Chong from Jefferies. Please go ahead.

Hi, good morning, James, Jane, Cindy, and Michelle, thanks for taking my question. Can you comment about the short-term, as well as the long-term impact of macro and industry headwinds? How would Ctrip mitigate such impact? Thanks.

Thanks.

Yes. Thank you for the question. Yes, we see headwind in some of the Asia markets due to the difficult geopolitical situation. So, I think these are short-term impact as people will rearrange the plan to travel later this year in the future for their holidays. Overall, in the long run, I think, particularly in Asia, we're still very positive, because China is still going to be the fastest-growing – one of the fastest-growing large economies in the world and overall Asia is still going to be remaining the fastest-growing economical region in the world. And Ctrip with our strong presence in Asia, we are very well-positioned to take advantage of that. So, in the long run, we're still very positive about our growth prospect in China and internationally, because Ctrip has a strong presence in the fastest-growing Asia market. Thank you.

Yes, Thomas, for the next quarter, our forecast is to expect the potential impact of about 400 to 500 basis points on the growth rate, mainly due to the short-term macro uncertainties and industry headwinds, which mainly come from recent slowdown of Hong Kong and Taiwan, together with a slight price decrease. So, in the first-half of this year, outbound travel to Hong Kong and Taiwan accounted for about one-third of total Chinese outbound travelers. Therefore, we included some negative impact from these two markets in our Q3 guidance. And in addition, based on the TravelSky report, average price of outbound air tickets dropped about 750 basis points year-over-year in July, as a result of softer demand and macro uncertainty. However, in the mid to long-term, as James said, not only the most comprehensive extensive destination offerings, but also our expansion into the other global markets will help us to reduce or even mitigate risks for certain geographic uncertainties. Therefore, we are still very confident that as long as we continue to invest in our products and services, Ctrip will be able to further strengthen our market leadership and market positions in the China, not only the China market, but also the global travel market, especially during the macro slowdown as we always achieve in the past 20 years. Thank you.

Thank you. Your next question comes from Binnie Wong from HSBC. Please go ahead.

Hi, good morning, management. Thank you for taking my question. My question is on outbound strategy. So, as it become a more significant contribution to us, can you comment on are we competing more on pricing, partnership with local partners or will it be some more in organic investments? Just want to see how does it impact our margin trend? And also, as it relates to our operating margin improvement, we also see solid improvement this quarter, both Y-o-Y and Q-on-Q basis and hitting 20% this quarter. So, would that be mainly contributed by rising contribution from higher-margin outbound, and how should we expect this continuing? Thank you.

Thanks, Binnie. For outbound business, yes, we are doubling the industry growth and has gained a lot of market share, the high-end customers continuously to travel outbound. In Q3, there are certain regions displayed certain uncertainty. However, our product offerings are with a comprehensive product composition to really attract our customers to use our brand in products and to go over the world. And for our international business outside of Asia, the Trip.com also is focusing on mainly the international air ticket, which has showed three-digit growth for the past two years, more than two – past two years. So, we're confident that outbound, as well as for our international tickets, will be the future drive for our business. And, Cindy, your comment on the margin.

Yes. Our operating margin were continuously to improve through the operational efficiency gaining, not only from the outbound business, of course, outbound is more towards the mid to high-end of the market, because the average selling price is much higher compared with domestic product. But even our domestic product, we see continuous operating efficiency gaining across all the business unit. Thank you.

Thank you. Your next question comes from Ronald Keung from Goldman Sachs. Please go ahead.

Thank you, James, Jane, Cindy and Michelle. So, my question would be on margins as well just seeing how your third quarter guidance seems to already be suggesting 20% – 22% to 25%. So, just want to hear any color that management could share on your cost control mostly on the OpEx side given the slower revenue. Can you share some color how this will play out for the fourth quarter, given last year you invested heavily in the fourth quarter 2018 and whether we are still sticking to the 20% 2020 EBIT margin target now that I think the first nine months, even for 2019, you’re exceeding that quite already. So, would like to hear your sharing on that. Thank you.

Thank you, Ronald. We will provide guidance for the fourth quarter in the next quarter. But overall speaking, we are – although, there's some macro slowdowns on the macros, which will impact our top line growth, but our target is to continuously outpace the industry growth. And at the same time, as we already achieved, we achieved significant operational efficiencies across all expense line items. So, we are still quite confident that we can achieve our 20-plus percent non-GAAP operating margin in the medium-term. Thank you.

Thank you. Your next question comes from James Lee from Mizuho Securities. Please go ahead.

Thanks for taking my questions here. Cindy, first, did you actually provide an upper income guidance for 3Q 2019? I'm not quite sure I heard that. And also, can you provide segment guidance for your revenues? And also, for Jane, specifically, can you provide us an update on competition with [made one] specifically last quarter sort of indicated things are stabilizing here. Are you seeing any changes there? Thanks.

Thank you. We – I’ll provide the revenue guidance for each business line item. So, in the second – in the third quarter 2019, our accommodation revenue will grow at about 13% to 18% year-on-year and the transportation revenue will grow about 3% to 8% year-over-year, and packaged tour revenue will continue to grow at a healthy rate of 15% to 20% year-on-year, corporate travel will grow at about 20% to 25%. So, here comes the total revenue will grow about 10% to 15%.

And regarding the competitive landscape, so our goal is for high-end, we will double industry growth rate and continuously to serve as high-end customers very well with our high qualitative services, comprehensive products. And for lower tier cities, we will – Ctrip brand will deliver about 50% year-over-year growth. So, the trajectory is very strong and we will keep up with our strong investment, both online and offline to make sure we stay ahead of the game. Thank you.

Thank you. Your next question comes from Natalie Wu from CICC. Please go ahead.

Hi, good morning. Thanks for taking my question. Just curious, does management see any impacts of train ticket take rate, so those take rate are GMV growth this year, given the [indiscernible] initiative? Thank you.

Thank you, Natalie. So, Ctrip starting from one to two years ago, we started to diversify our revenue source, including a global train ticket product to not only just cover the Asia Pacific region, but we also cover almost all the European countries. We also launched TrainPal which targeted to the European customers, who can book the train ticket through the mobile app. And so, we see very healthy growth and actually exponential growth opportunity in the global train ticket market. The International train grow about seven times year-over-year. And in addition, we also introduced the high-speed train travel channel, which help us to book – help our customers to book train, high-speed rail, train travel, especially during the weekend. So, by putting all these efforts, we will make sure that Ctrip will continue to provide the best user experience in the – in this industry. And most importantly, we can cross-sell a variety of other products together with the huge traffic that coming from the train business. Thank you.

Thank you. Your next question comes from Gregory Zhao from Barclays. Please go ahead.

Hi, management, thanks for taking my question. The first one is a follow-up question on your margin guidance. So, just want to understand what's your operating income and operating margin would be for, if not – if no macro and Hong Kong headwind in Q3? And the second question [indiscernible] side, the 4% to 5% growth has slowed down in Q3. Is it only due to the geopolitical issue or also affecting some other factors like the foreign currency and the macro slowdown? Or would put it in another way to what’s Hong Kong and Taiwan’s contribution to our total revenue, so just want to make sure the 4% to 5% slowdown assumption is not, I mean, over [comparative]. Thank you.

Thank you. So, as we already achieved the triple, our whole team, we're working very hard to increase our operational efficiency across all expense line items across all business unit. So, to make sure that during the macro slowdown of uncertainty, we can still achieve very profitable operating – operation results. And regarding your questions on the Hong Kong and Taiwan – Hong Kong and Taiwan, in the first-half of this year, the outbound travel to these two destinations accounted for about one-third of the total Chinese outbound travelers. So, it's a very significant portion of the total market. That's why you see these two markets because of the uncertainties in these two markets, Ctrip, we baked in some conservative and negative impact. But yes, of course, all the currencies or the macro uncertainties like the trade war between U.S. and China also put some pressures for us in the short-term. And, in addition, actually, based on the TravelSky report, the average price of the outbound air ticket also dropped about 750 basis points year-over-year, which we believe also because of the short-term macro uncertainties. But as always, our management always strongly believe that, during this slowdown period, it always is the best opportunity as a market leader to continuously to gain a market share during this period. Thank you.

Thanks.

Thank you. The next question comes from Billy Leung from Haitong International. Please go ahead. Pardon me. We have just lost that questioner. We’ll go to the next one. Your next questioner is Joyce Ju from Bank of America. Please go ahead.

Good morning, James, Jane, Cindy and Michelle, thanks for taking my question. My question is actually related to the – is also the outbound – travel destinations. Just try to understand because James earlier mentioned that he expects like most of the Chinese leisure or travelers would actually substitute those dangers or like destinations with problems with other destinations? Is it – could you elaborate more to help us understand isn’t more likely to substitute them with like other outbound destinations or it means like we were actually replaced by on some domestic destinations, which probably have lower ASP?

Thanks for the question. Different customers will react differently. In the history of our business, we noticed there are a couple of factors that's very important when our customers make their decision as to where they want to go. The first thing is, the visa, the easiness of the visa application. Whatever country give the most easiest way to apply for visa normally will attract lots of customers, particularly for these busy customers will have the last-minute changes on their agenda. The second thing is direct flight, whichever city offers direct flight, again, will attract a lot of customers, because they save time going there. The third thing we feel is the friendliness of the destination. So, historically, countries such as Thailand, always receive very good incoming customers, because the hospitality business in Thailand is very well developed. So, factoring all these things, different customers who take different approaches are during their own vacation, customers tend to go to the long haul, for example, Europe, Australia and New Zealand are quite attractive this year. And then some customers will tend to convert their overseas plan on tour domestic plan. But because Ctrip’s product covers both domestically in Asia, in the rest of the world, and our product will be suitable for different customers depending on their preference. Thank you.

Thank you. Your next question comes from Alex Poon from Morgan Stanley. Please go ahead.

Hi, James, Jane, Cindy, and Michelle, thanks for taking my question. I have a question regarding your margin. We recall you have reiterated margin guidance, non-GAAP OPM of 20% in 2020. Since your headcount is not growing, your revenue is still growing, what margin do you plan to achieve at the steady state before you start investing more, if next year modest do 20%? And for specifically for transport business, that guidance growth rate of 3% to 8% year-over-year, if I have to break it down into domestic and international business, the domestic business should be a little bit slower. In case that is in the negative growth territory, is there any negative offering leverage should we expect at the same time your margin also expands? Thank you very much.

Yes. In some of the segment of the domestic market, given our existing market share, we probably would not expect exponential growth opportunities in terms of the market share, but we will still make sure that we will continuously making – gaining more market share by offering the best user experience in the market. We actually created a lot of value not only in the Transportation segment, not only the air ticket, but also like train ticket, the bus ticket, et cetera. And in terms of the margin, yes, we will achieve operational efficiencies across all business units, not only the outbound travel-related business, but also the domestic business as well. So, yes, we are quite confident that we can achieve the 20-plus above non-GAAP operating margin in the next one to two years. Thank you.

Thanks.

Thank you. Your next question comes from Alicia Yap from Citigroup. Please go ahead.

Hi. Good morning, James, Jane, Cindy and Michelle, thanks for taking my questions. I have couple of follow-up questions regarding the guidance. Can you actually walk us through a little bit given, I think, the packaged tour guidance was actually holding up quite strong, and given the outbound travel that you mentioned one-third is actually coming from Hong Kong and Taiwan market versus I think your hotel and air ticketing revenue guidance is a bit soft. So, can you quantify these 400 to 500 basis point impact from Hong Kong and Taiwan? Is it mainly related to the hotel and air ticketing rather than the packaged tour? And then just a follow-up on Trip.com, should not be a counter in the outbound, right? So, just wondering how much the Hong Kong and Taiwan revenue is coming from this Trip.com? Thank you.

So, for the – thank you, Alicia. For the packaged tour business, because it – there are two parts. One is the group tour and the second one is like the packaged – dynamic package product to bundle hotel and air tickets together. So, majority of the packaged tour business contributed from the group tour, because Ctrip and most of the Ctrip customer towards the mid to high-end. So, when they choose the destination like Hong Kong and Taiwan, they tend to use – they tend to travel independently rather than travel with a group. This is one of the reasons why you see a less impact of the – these two destinations from the packaged tour versus the other accommodation and transportation business. For the Trip.com, yes, it's mainly customer almost all – almost most of the customers of Trip.com, they are coming from the market other than domestic China market. And Hong Kong is one of the focused markets for Trip.com. But the targeted customer of Trip.com mainly is the Hong Kongese travel to China or to the world, which is less impacted by the recent event. Thank you, Alicia.

Thanks.

Thank you. Your next question comes from Jerry Liu from UBS. Please go ahead.

Hi, thank you. I have two questions. The first is, if we look long-term on the operating margin profile as Trip.com going to capture the demand of those local travelers. What kind of impact do we see on margins? Is there an investment period? And secondarily is corporate travel? If we look at the corporate travel revenues, it looks pretty healthy. So, can we just get some comments on the B side and to the C side, seems like there's less impact on geopolitics and these are the headwinds? Thank you.

For the Trip.com business, we covered and I believe more than 20 markets in the world that mainly focused at – currently mainly focused in the Asia Pacific region. So, we will still for each individual market, we will look at the operating margin. And based on the development stage, we will look at – we will set ROI threshold for each individual market. For the more matured market, for example, the Hong Kong market, we already achieved quite sustainable profitability in that market. And for the, for example, the Korea and the Japanese market, we are very close to the break-even point already. But again, for the Trip.com, we are still in the very early stage of expanding our market share in outside world. So, we are still expecting some investment in the – not only the marketing, but more importantly, in the product development side to make sure that we have the best product to serve the local market. In corporate travel, yes, I think within China, corporate travel for Ctrip that is doing very well, our – if our business is leading the second player by wide margin. In addition to that globally, we will also try to extend our strength in corporate travel from the China market to Hong Kong, Taiwan and the rest of Asia and try to serve our customers not only within China, but along the way, when they – wherever they travel, we’ll be happy to offer our products and services to follow their footsteps. Thank you.

Thank you. Your next question comes from Tian Hou from T.H. Capital. Please go ahead.

Yes, good morning management. My question is, we have already entered the last month of 3Q. So, the guidance is the 10% to 15% year-on-year. So, if we look at the travelers, most of time, they – most of customers plan ahead. So, in your system, when you give this guidance, the 5-percentage points gap. So, under what kind of circumstances, you guys see the lower-end? Under the what kind of circumstances of September, you will accomplish the high-end of the guidance? So, what makes the key factor of this win? Thank you.

Across the booking window, we – in the last 20 years, Ctrip have managed to build the most comprehensive product offerings and compared with very competitive pricing. And especially, now over 80% of our bookings coming from the mobile app. So, the booking window really is very short. More than 70% of our customer book our products within five days. So, it's really hard for us as we already explained it to all the analysts that it's very difficult for us to provide a very precise guidance for the, for example, for the fourth quarter or even the full-year. Yes, again, and we will – our Ctrip team were working very hard to achieve as high growth rate as possible. But again, we cannot promise, which low-end or high-end just because of the short booking window, but we will work very hard to achieve the higher one.

Thank you.

Thank you. Your next question comes from Jialong Shi from Nomura. Please go ahead.

Hi, good morning, management. Thanks for taking my question. My question is about your international business. So, I just wonder how much of your revenue is contributed by the international business? And if we further break down the international business, how much of the international revenue is coming from the Chinese up on travel? And how much of that is contributed by pure overseas markets, i.e., serving long Chinese travelers? And if we top out your international business, what was the growth rate in Q2 for our international revenue that includes Skyscanner, Trip.com and Chinese up on travel? And what is the margin profile for this business? Thank you.

In terms of the International contribution, for the hotel accommodation business, international revenue contributed about 20% to 25% of our total revenues. And in the – for the air business, international has already contributed about 40% to 45% of our total air ticket revenue. And in packaged tour, mainly contributed from the outbound travel. And the international one – the international revenue contributed about 40% to 50% of the total packaged tour revenue. So, if – regarding the question about the split of outbound versus international, outbound contribute about 20% to 25% overall of our total revenue and the pure international, including Skyscanner and the Trip.com contribute about the low-teen, 10% to low-teen percentage of total revenue. And the margin profile, as I said, outbound because of the average selling price is much higher than compared with the domestic one. So, in terms of a margin, it contributes higher margin, compared with our average margin level. And for the pure international business, especially Trip.com, we are still in the stage of early investment. But again, we will closely monitor the margin profile for each individual market based on their different growth stage. Thank you.

Thanks.

Thank you. Your next question comes from Billy Leung from Haitong International. Please go ahead.

Hi, thank you management for taking my question, and sorry, I got cut off earlier. Just one question. I just wanted to ask management if they could share their thoughts on international expansion. What kind of difficulties or hurdles have we faced when we go overseas? Is that a pricing issue? Is it dealing with local partners, or integrating our international brands? Just to share your thoughts on difficulties or hurdles in international business? Thanks.

International business represents a great opportunity for us. However, in order to grow that business, we need to recruit talent at local level. So, we are putting concerted efforts to identify and recruit and train our team in each market. So that we can build a strong team, understand our customers and build our product offerings that is suitable for the local customers and move methodically into each region. So, the business that is – has great potential and we're moving as quickly as possible, mainly the people will make the business penetrate further into each region. Thank you.

Thank you. Your next question comes from Jamie Shen from BOCI. Please go ahead.

Hi. I just had a very quick follow-up on the third quarter margin, because historically, like margin will trend up quite [indiscernible] quarter-on-quarter during the peak season. But for this year, given the weaker than expected revenue trend, shall we still be expecting margin expansion quarter-on-quarter? Thank you.

Thank you. We provide the margin guidance of this third quarter, excluding share-based compensation. We expect our non-GAAP operating income will be in the range of RMB2.3 billion to RMB2.6 billion. Thank you.

Thank you. There are no further questions at this time. I'll now hand back to Michelle Qi for closing remarks.

Thank you, everyone, for joining us today. You can find a transcript and a webcast of today's call on ir.ctrip.com. We look forward to speaking with you on our third quarter 2019 earnings call. Thank you, and have a good day.

Thank you very much.

Thank you.