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Trip.com Group Limited (TCOM)

Q4 2023 Earnings Call· Wed, Feb 21, 2024

$52.47

-1.37%

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Transcript

Operator

Operator

Good day and thank you for standing by. Welcome to the Trip.com Group 2023 Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I’ll now like to hand the conference over to your first speaker today, Michelle Qi, Senior IR Director. Please go ahead.

Michelle Qi

Analyst

Thank you. Good morning, and welcome to Trip.com group’s fourth quarter and full year of 2023 earnings conference call. Joining me today on the call are Mr. James 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 provisions 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 in Trip.com Group’s public filings with the Securities and Exchange Commission. Trip.com Group does not undertake any obligation to update any forward-looking statements, except as required under applicable law. James, Jane and Cindy will share our strategy and business updates, operating highlights, and financial performance for the fourth quarter of 2023, and the full year for 2023, as well as outlook for the first quarter of 2024. And then we will have a Q&A session, after the prepared remarks. With that, I will turn the call over to James. James, please.

James Liang

Analyst

Thank you, Michelle. And thanks everyone for joining us on the call today. China's border reopening in 2003 has ignited a global travel search. Our enhanced leadership in product and service has empowered us to significantly outperform the market. In 2023, our total OTA business reached a record high achieving a GMV of approximately RMB1.1 trillion or USD $160 billion [ph]. This marks the year-over-year increase of 130% and growth about 30% compared to 2019. Currently, our total net revenue also grew by 122% year-over-year, and a 25% compared to 2019. We significantly improved our adjusted EBITDA margin to 31% in 2023, which is the highest level over the past decade. In September 2023 we begin buying back our own stock using the existing quota. Additionally, the Board has approved the 2024 capital return program, further increasing our overall quota to a total of USD $581 million. This decision demonstrates our strong confidence in the long term value potential of the company. The China town market has been growing significantly, with outbound travel playing an increasingly large role due to easier visa access and the gradual resumption of international flights. Our global business is also thriving, particularly in the APAC region, reflecting a strengthened market presence and improve the product competitiveness. Expanding our international operations with diversified products worldwide remains a key priority for us. As travel demand rises, we also recognized the increasing importance of enhancing our service. Through exceptional customer service, AI technology and the reliable content, we continue to invest in improving user experience. Our commitment to globalization and great quality collectively now as our digital strategy drives us to continuously innovate and improve. The year 2023 mark the China's reopening to the world, and 2024 will be a year of consolidating and expanding global tourism. I'm holding our digital strategy we aim to become a leading player in Asia market and a global market in a three to five years. With that I'll turn the call over to Jane, for operational highlights.

Jane Sun

Analyst

Thank you, James. Good morning, everyone. As a quick overview, our net revenue in Q4 grew by 104% year-over-year and increased by 24% compared to 2019. During this period, the travel industry witnessed a strong momentum. As rising travel sentiment drove growth and supply side constraints continued to ease. Both, our hotel and air reservations grew by approximately 130% year-over-year. For the full year of 2023, our total net revenue achieved year-over-year growth of 122% and 25% compared to 2019. This outstanding result was due to the robust release of travel demand and the exceptional performance across all of our business segments. Additionally, our adjusted EBITDA margin in 2023 significantly improved to 31%, reflecting the successful optimization of our cost structure and overall productivity enhancement. Now let me walk you through different market performance. First, China Domestic. In Q4, the China domestic market continued to exhibit robust growth. Our domestic hotel bookings witnessed a year-over-year growth of over 130% or more than 60% compared to 2019. Demand for travel showed no signs of slowing down during the winter season. Popular destinations such as Harbin in the northern part of the country, experienced a surge in visitors. Notably, individuals have been prioritizing travel expenditures over other daily expenses, indicating a shift towards experiential spending. This change in consumer behavior has significantly favored travel industry as more people allocate their resources towards exploring new places and creating memorable experiences. We have continued to expand our user base among the elderly demographics through the deep integration of product integration, content generation and marketing efforts. In Q4, the number of the users over 50 years old, increased by more than 90% compared to 2019. And this is just a beginning to capitalize on the market opportunity for retired community, which has been in power…

Cindy Wang

Analyst

Thanks, Jane. Good morning, everyone. For the fourth quarter of 2023 Trip.com Group, reported a net revenue of RMB10.3 billion, representing a 105% increase year-over-year and a 25% decrease quarter-over-quarter. Despite this sequential decrease, which was mainly due to normal seasonality, the revenue was still 24% higher than the 2019 level. For the full year of 2023, net revenue reached RMB 44.5 billion, representing a 122% increase year-over-year and a 25% increase from 2019. This growth was mainly driven by the strong release of travel demand, following China's reopening at the beginning of the year. Accommodation reservation revenue for the fourth quarter reached RMB3.9 billion, representing a 131% increase year-over-year and a 32% growth compared to the 2019 level. In the fourth quarter, China market continue to demonstrate robust growth. Domestic hotel booking grew over 60% above the pre-pandemic level. And outbound hotel booking remained at more than 80% of the pre-pandemic level. In addition, hotel bookings, our overseas platform continued to show triple digit growth. For the full year of 2023, accommodation reservation revenue totaled to RMB17.3 billion, marking a 133% increase from 2022, and a 28% increase from 2019. Transportation ticketing revenue for the fourth quarter was RMB4.1 billion, representing an 86% increase year-over-year and an 18% growth compared to 2019. For the full year of 202, transportation ticketing revenue was RMB18.4 billion, representing a 123% increase from 2022 and a 32% increase from 2019. The growth was mainly due to the strong growth in our domestic and global air ticketing business and robust recovery in outbound -- of outbound air ticketing bookings. Package tour revenue for the fourth quarter was RMB 704 million, representing a 329% increase year-over-year and recovering to 88% of the 2019 level. In the fourth quarter, domestic package tour continues to outgrow the…

Operator

Operator

[Operator Instructions] Our first question comes from the line of Joyce Ju, from Bank of America. Your line is open.

Joyce Ju

Analyst

Good morning James, Jane and Cindy, congrats on those strong results and thanks for taking my question. This quarter, the company's international platform Trip.com actually saw another robust quarter and the management also mentioned a lot in your opening remarks, that the globalization is actually our important, like, long term goal. Could you kindly elaborate a little bit more on this front? What's the Trip.com’s current achievement, more details any color what we find? And the near term midterm even longer term goals and also their consequence, like, strategies to achieve that. How would your digital strategy help to reach this goal? Thanks a lot.

James Liang

Analyst

Thank you very much for the question. Our digital strategy focuses on globalization and a great quality. We believe our long term growth relies on the progression of our globalization strategy, which aims to build global products supply chains, services and technology for our worldwide users. Asia is a top travel destination for travelers from China and other parts of the region. By leveraging our strong supply chain, diverse product offering an industry leading service and technology, we strive to provide exceptional service for users in Asia and subsequently around the world. With respect to great quality, our mission is to provide the best travel experience with the best technology. For example, we have introduced TripGenie, an AI based travel assistant, to enhance the travel planning experience. We're also using AI to improve the efficiency of our customer service, content generation and IT operations. Thank you

Operator

Operator

Thank you. One moment for our next question. And our next question comes from line of Alex Poon from Morgan Stanley. Your line is open.

Alex Poon

Analyst

Good morning. Congratulation management for very strong quarter. My question is regarding our recent business performance, particularly around Chinese New Year, and after four different segments, including domestic, outbound and Trip.com. And how should we elaborate or extrapolate from this strong CMI [ph] performance into Q1 and the rest of the year? Thank you so much.

Jane Sun

Analyst

Thank you, Alex. As of 2023, our business has fully rebounded to pre-COVID levels. From this year forward, we will stop using 2019 as a benchmark, I would say except for our outbound travel segment. With regard to the recent performance, let me starting with the market performance. The China travel market has shown strong momentum, quarter-to-date, especially during the Chinese New Year. Number of domestic tourists grow by 34% year-over-year, or 19% above the 2019 level. And outbound travel continues to recover with flight capacity during the Chinese New Year holiday, reaching around 70% of the 2019 level. And we are very happy to see that the several -- see that several countries have not offering Visa free entry for Chinese travelers. With regard to our own performance, our company continues to outpace the market growth, solidify our position and gaining a significant market share. During the recent Chinese New Year holiday, our domestic hotel and air reservations have increased by more than 60% and 50% year-over-year respectively. And our outbound hotel and air reservation have both surpassed the 2019 level. At January of 2023, including the Chinese New Year holiday was a low base for travel activities and the travel momentum only started to pick up after the Chinese New Year. Therefore, we anticipate stronger year-over-year growth in the first half of Q1 this year and followed by a comparatively softer second half just because of the [indiscernible]. And with regard to the international market, our Trip.com business has maintained a mid to high double digit year-over-year growth. Therefore, we continuously to see a very strong growth in the travel market. Thank you.

Operator

Operator

Thank you. One moment for our next question. And our next question will come from Alex Yao from JP Morgan, your line is open.

Alex Yao

Analyst

Thank you, management, for taking my question. So the Civil Aviation Administration of China, I see, it has projected that the outbound flight capacity will reach 80% of pre COVID levels by the end of 2024. This seems relatively slow considering the capacity has already reached 70% during the Chinese New Year holiday. From your perspective, what factors might contribute to this slow recovery? When does management anticipate a full recovery in the outbound travel sector? Thank you.

Jane Sun

Analyst

Thank you, Alex. We hold a very strong confidence in the full recovery of outbound travel. Firstly, our platform has observed a significant surge interest in the outbound travel, which indicates a robust demand for our users. Furthermore, China is becoming increasingly open to attract inbound tourism, which forms a part of the demand for travel related international travel. Secondly, the market supplier situation is improving, we have noticed a steady recovery in the number of inbound and outbound flights. Additionally, visa policy has become increasingly favorable. For instance, we observed that the markets offering visa free policies to Chinese travelers showed much better recovery during the Chinese New Year period, compared to other destinations. Lastly, it's important to know that the most markets outside of China, are project to require two to three years to fully recover their international travel. Even the 70% to 80% recovery of outbound passenger volume in 2024, will indicate a year-over-year growth of approximately 65% to 90%. This clearly illustrates the potential for the strong growth in outbound travel in the coming year. And with our own data, during the recent Chinese New Year holiday, our group already saw our air and hotel reservations fully bounced back and beyond the 2019 level. Thank you.

Operator

Operator

Thank you. One moment for our next question. And our next question comes from the line of Jiong Shao from Barclays. Your line is open.

Jiong Shao

Analyst

Thank you very much for taking my question. And firstly, Happy New Year to you all.

Jane Sun

Analyst

Thank you.

Jiong Shao

Analyst

Yeah. So there are a lot of cross currency in the Chinese economy today, as you know, I mean, the property market, the stock market are doing terribly. People's confidence is very low. Economy is kind of soft. You have put up very, very strong results and congrats on that. I was just wondering, in Q4, and so far in Q1, what have you seen in terms your travelers spending behavior, leisure travel, or business travel, are they spending less, spending the same? Or in terms of changes in destination? Anything you can share will be great.

Jane Sun

Analyst

Thank you for your question. China is a very big country, there are a lot of different segments. We have seen that certain segments, such as entertainment, music festivals, wellness, and travel, these segments are doing very well. We have seen customers have increased their travel demand based on our search volume on our platform. Many customers are going to different places, both domestically and to the rest of the world. The interests for our customers to explore different regions in the world has been enhanced compared to pre-COVID level. With the easiness of travel restrictions, and also gradual recovery for the visa applications and flight capacity, we're hoping 2024 will be the year that we can take more customers to travel within China and to the rest of the world. So the travel demand is very strong and we are very committed to provide the best service and products to our customers. Thank you.

Operator

Operator

Thank you. One moment for our next question. And our next question comes from Simon Cheung from Goldman Sachs. Your line is open.

Simon Cheung

Analyst

Hi, happy new year everyone. Thanks for taking my questions. I just have one quick question in relation to the margins. I think if you look in the prior several years, on a sequential basis, obviously fourth quarter seasonally weaker, we see some solid margin contraction and we have seen that as well in your fourth quarter result. However, I think the magnitude of correction like when I look at quarter-on-quarter the EBIT margins fallen by roughly about 6% to 7% compared to historically, maybe almost like mid-teens. It's seemingly attracting a bit better than anticipated. So I guess the question I have is, we have seen quite a few quarters of sales and marketing expenses, tracking well below the 2019 level. And I just wanted to question how you're thinking about the trend, especially given incrementally there might be more spending to be incurred, maybe in the oversea market, now that you have a more aggressive globalization strategy. Thank you.

Jane Sun

Analyst

Thank you, Simon. With regard to the sales and marketing expenses in the fourth quarter, last year, we have seen a significant improvement in our marketing efficiencies, primarily due to our enhanced conversion, as well as the internal cross selling initiatives. And on top of that, we also make a lot of investment in for example, the content generation, which also significantly help us to improve the marketing efficiency. And our long term goal is to further enhance the marketing efficiencies in both the China as well as our international market by focusing on increasing our direct traffic -- increasing our direct traffic, as well as to improving our cross selling within our platform. But of course, that in the -- for the International Trip.com business, we are also looking at the opportunity to further enhance our brand awareness outside of China market. Thank you.

Operator

Operator

Thank you. One moment for our next question. And our next question will come from the line of Brian Gong from Citi. Your line is open.

Brian Gong

Analyst

Good morning, James, Jane, Cindy and Michelle, Happy New Year. And thanks for taking my question. My question is also regarding our international platform trip.com, which has recorded strong growth. Could you provide a bit more details of Trip.com’s, like global footprint, GMV and the revenue contribution as well as profitability? Also, what our primary markets that Trip.com focus on and what our Trip.com’s key competitive advantages in those markets versus its competitors? Thank you.

Jane Sun

Analyst

Thank you. We anticipate at the Trip.com will contribute 15% to 20% of the group's total revenue over the next two or three to five years, with the mid to high double digit CAGR growth. And we believe that the Trip.com growth is built upon our robust product logistics, supply chain service standard, as well as the technologies that we applied across various to our specific core regions. Our Trip.com, primarily focusing on the Asian market, which is the top outbound destinations for travelers from both China and other parts within the region. It's worth noting that the combined size of the top Asia market, excluding China surpasses that of the mainland China in terms of the growth bookings. Our growth strategy with Trip.com starts with leveraging the strong air traffic from Skyscanner, and then progresses from many search to the mobile app, broadening our offering from air travel to the hotel bookings extends our reach from Asia, hopefully to the rest of the global travel. Meanwhile, and we anticipate that the Trip.com were to be profitable within the same time frame. This will be driven by the scalability, increase the marketing efficiencies through a strong mobile presence and brand name as well as the shift in the revenue mix favorably hotel bookings. With regard to the competitive advantage off our Trip.com platform, I think firstly, Trip.com’s mobile app offers a smooth and user friendly search and booking experience. We also utilize our AI tools to provide personalized recommendations and special offers, which enhancing our user engagement Secondly, our comprehensive one stop mobile remote model covers nearly all travel needs, making it especially attractive to mobile app users. Our extensive experience in China has further solidify our expertise in this area. Thirdly, we offer 24 hours seven days’ customer services, through our mobile calls on our chats or emails, ensuring users have a dependable content points for any issues that they encounter. Lastly, Trip.com provides highly competitive product offering, best to our group strong market presence and well established supplier relationships. Thank you.

Operator

Operator

Thank you. One moment for our next question. And actually, this is all the time we have for Q&A today. And I'll turn it back to Michelle Qi, for any closing remarks.

Michelle Qi

Analyst

Thank you. Thank you, everyone for joining us today. You can find a transcript and a webcast update call on the investors.trip.com. We look forward to speaking with you on our first quarter 2024 earnings call. Thank you and have a good day.

Jane Sun

Analyst

Thank you very much.

Operator

Operator

Thank you for your participation in today's conference. This does conclude the program, you may now disconnect. Everyone have a great day.