Tongcheng Travel Holdings Ltd

HKEX:780

Earnings Call Transcript 2021-Q1

[Kylie Yeung, executive]

Thank you. Good morning, and good evening, everyone. Welcome to Tongcheng-Elong's 2021 First Quarter Results Conference Call. I'm Kylie Yeung, Investor Relations Director of the company. Joining us today on the conference call are Mr. Hep Ma, Executive Director and CEO; Mr. Julian Fan, CFO; and Ms. Joyce Li, VP and Head of Capital Market.

For today's call, our management team will provide a review of the company's performance in the first quarter. Hep will walk us through the company's business performance for the past quarter. Joyce will discuss our operational highlights. And then Julian will address the details of financial performance accordingly. We'll take your questions during the Q&A section that follows.

As always, our presentation contains forward-looking statements. Such statements are based on management's current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, which may cause the company's actual results, performance or achievements to differ from those in the forward-looking statements.

This presentation also contains some unaudited non-IFRS financial measures. They should be considered in addition to but not a substitute for measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of non-IFRS measures, please refer to our disclosure documents in the IR section of our website.

Now let me introduce our CEO, Hep. Hep, please go ahead.

[Heping Ma, executive]

Thanks, Kylie. Good evening, everyone, and welcome to our the first quarter earnings call. The first half of the last quarter was quite disturbing as the resurgence of COVID cases in Northern China again ceased the travel industry, and all the market players were inevitably impacted. However, travel demand such as delayed Hong Kong visits, business travel and the leisure travel started to pick up from March. And we moved fast and acutely seized the recovery opportunities by riding on our strong operational capability and further enhanced efficiency.

As a result, we continued to outperform the industry in the past quarter. Moreover, the recent 2 holidays, the Qingming Festival and the Labor Day, have shown remarkable rebound in travel demand, with all our business segments leading the industry growth, which added to our confidence for the year ahead. In spite of fluctuations caused by virus resurgence in Northern China, our accommodation business, which is positioned as the growth engine for the company, saw striking growth in the first quarter as we continued to build up market presence in lower-tier cities by tapping into the different needs of different user groups with in-depth consumer insights.

Over the past quarter, we further expanded our offline traffic sources. Apart from cooperation with hotels, we also partnered with other offline traffic hubs to acquire more offline users and bring them into our ecosystem. Furthermore, we continuously leveraged the immense traffic from our transportation business to promote our accommodation products and services to drive further growth in the accommodation sector.

For the first quarter, our domestic room nights saw just a substantial growth of 45% compared with 2019, while those sold in lower-tier cities saw an accelerated growth of more than 70% on that of 2019. Meanwhile, we made continuous efforts in developing and elevating our value-added products and services, creating new growth confidence for the accommodation business. Although the Stay Put During Spring Festival policy had adversely impacted our transportation business, we still managed to get the better of the hardship and outshined others.

We continued to strengthen our market position in our advantageous regions as well as making more efforts in attracting potential users by learning more about their preference and consumption patterns with the help of our outstanding algorithm capability. In the first quarter, our domestic air ticket volume witnessed a decent increase of 20% when compared to 2019. As for our train ticketing business, we mainly focused on enhancing user value by diverting traffic to other business segments as well as innovating products and services so as to better serve our users' needs. Moreover, the businesses saw a faster recovery in revenue in the past quarter, as users were more willing to purchase our innovative, value-added products and services, which were perfectly designed to meet their needs when there was a shortage of supply.

In the following quarter, we will continue to work on user value to drive train ticketing growth. We have been emphasizing many times the role of our bus ticketing business within the company as a wider instrument to grow our user base given its enormous market capacity but extremely low online penetration level. Throughout the past quarter, we continued to roll out bus ticketing vending machines across the country, covering more than 217 cities and having nearly 9,000 machines installed by the end of March. As a result, our bus ticketing volumes saw brilliant growth of 150% in the first quarter compared to the same period in 2019.

With the extensive rollout of the vending machines, we further penetrated lower-tier cities and even into some counties and townships. In late March, we launched an innovative product called Blind Box of Air Tickets amid the backdrop of an accelerated release of pent-up demand. This Blind Box, which symbolized uncertainties, rapidly evolved into a caliber for younger users and went viral across social media platforms in China, creating a phenomenal marketing campaign for the company and [ opening ] our ambition to build a younger image for our brand.

We see greater opportunities and growth potential in China's travel industry, especially in lower-tier cities post COVID. And we will spare no efforts to grow as bigger and stronger. Looking towards to the rest of the year, we are more confident than ever that we will have a fruitful year by riding on our superior execution capability, current customer-oriented mindset and, last but not least, on our strategic focus on lower-tier cities as well as on empowering the travel industry with our advanced technology solutions.

With that, let me turn over the call to Joyce for our operational highlights in the first quarter. Joyce, please?

[Joyce Li, executive]

Thank you, Hep. The strict travel restriction [Technical Difficulty] did, of course, fluctuations in the travel industry, but the pent-up demand gradually lift as original virus outbreak was quickly controlled or eliminated after Spring Festival. Since March, we have seen increasing demand in the travel industry with a leading industry growth. As an innovative online travel player in China, we always put our users at the center of our business. Every innovation in our product and services comes from our deep dive into users' needs and preference.

In the past month, our Blind Box of Air Tickets tailor-made for younger users given their preference for real uncertainties caused wide ranging discussion over the social media platforms. By purchasing a Blind Box, users can get a 1-way air ticket with a designated departure city but a randomly assigned destination on a random date within 3 to 30 days. This innovative product have not only rise our brand awareness among younger generations but also made a momentous contribution to our MAUs in April.

For the first quarter of 2021, we continued to deepen cooperation with Tencent so as to become more informed in Tencent ecosystem. We joined hands with the Tencent Map to offer travel products and services. Tencent Map users can have great access to our accommodation products and air and transiting service in our mini program embedded within its app. To better seize the amount of generation fee, we optimized our operations on QQ Wallet by taking into consideration of the total different consumption patterns of the younger generation. This greatly enhanced younger user experience and has boosted the volume of others within QQ Wallet.

Besides, we continued to explore traffic within Tencent ecosystem. In addition to QQ Music and Tencent Video, we also direct users to our Weixin mini program on QQ browser. Apart from the Tencent ecosystem, we also endeavor to seek new online traffic to diversify our traffic sources as well as earning more users. In the first quarter, we commenced cooperation with a leading e-commerce platform in China, through which our travel products and services are available on the platform. In following, we launched more tailored product service to better accommodate the needs of users on e-commerce platforms.

Since last year, we have used strong partnership with China's major handset vendors and continued to reinforce cooperation in the past quarter. We achieved in-depth sharing on membership benefits. We co-launched marketing campaigns during Chinese New Year to have our brand highly exposed. By product innovation and operational optimization, the conversion rate on handset vendors have impressively improved. As a result, the MAU level pickup saw phenomenal growth in the past quarter.

Furthermore, we are devoted to our offline user acquisition initiative. For accommodation business, we explored more consumption scenarios in addition to hotels to seize more offline users, especially in low-tier cities. Riding on our strong execution capability and strengthened relationship with upstream suppliers, we rolled out more bus ticket vending machines and attraction ticketing vending machines across China and further penetrating to low-tier cities where bus is the primary vehicle for travel. These 3 initiatives not only helped accelerate the online penetration level of the traditional industries, but also brought a sizable amount of paying users in a cost effective way.

With efforts aforementioned, our average MAUs for the first quarter posted a decent growth of 17.5% when compared with 2019 at around 234.2 million, largely driven by the stable traffic from Weixin platform and explosive growth in other channels. Meanwhile, Our average MPU maintained growth momentum and reached an accelerated growth of 18.2% on base of 2019, reaching 27.3 million in the past quarter. Furthermore, Our 12-month rolling paying users recorded 169.3 million in the past quarter, an increase of 40.9% compared to 2019. The growth in paying users was mainly thanks to our effective offline user creation initiatives and highly efficient operating capability.

In our last call, we mentioned we aim to build as a leading travel brand in low-tier cities to seize opportunities post COVID. During the first quarter of the year, we stepped up our investments in our branding campaigns to boost brand awareness and recognition among our targeted users. We placed pretty low adverts in several popular TV shows to increase our brand presence among younger generations. In the meantime, we continued to roll out our advertisement placement at the railway stations and airport in lower-tier cities as well as on high-speed trains and airplanes covering South, Western, Northern and Central China.

Moreover, our membership program has made a great leap during the past quarter with an accumulated number of Black Whale members exceeding 7 million by the end of March. During the quarter, we launched monthly Black Whale membership program to better cater to user needs, which led to a marvelous increase in purchasing rate of the membership. In addition, we've primed down certain hotel users to give out our VIP lounge service at railway stations, which greatly enhance the user satisfaction and recognition of our brand.

The virus resurgence in Northern China, which led to strict COVID restrictions during the past Chinese New Year holiday, did impact our business in past quarter. Albeit that, we adhere to our cross-selling strategy and continue to divert traffic from the transiting segment to our air ticketing, accommodation and attraction ticketing business. By leveraging our big data capability to better predict user consumption patterns and their underlying needs, aiming to transform from OTA to ITA with focus on enhancing both internal and external efficiency through technology.

On one hand, we are committed in powering our primary business by our Internet technology and expertise with an aim to create a highly efficient and resilient travel ecosystem. In the past quarter, we signed a strategic cooperation agreement with the Xi'an Airport to facilitate its development as an intelligent airport. We not only have an airport to develop Weixin mini program but also had in-depth cooperation concerning product innovation to attract passengers for the airport by running our algorithm and innovation capabilities.

Besides, we have devoted the comprehensive SaaS solutions to help individual hotels and small chain hotels with respect to daily operations as well as management of the inventory, revenues and marketing. On the other hand, we are devoted to affecting our users' experience through the technology innovation. We pressed forward in optimizing the travel solutions provided by our intelligent Huixing system so as to better fulfill our user needs. We strive to not only enhance our algorithm capability but also seek to increase user value by digging into their underlying needs.

Our operating system continued to demonstrate its exceptional value in the first half of the quarter, while many routes were halted to suppress the spread of the virus. In addition, we have successfully developed an intelligent on-site command systems for the customer service team, which is capable of predicting upcoming customer service requests and scheduling work shift increased volume way. This has greatly enhanced the labor efficiency in the customer service center.

With this, I'll hand over the call to our CFO, Julian, who will walk you through our detailed financial results in the first quarter of the year. Julian, please go ahead.

[Lei Fan, executive]

Thank you, Joyce. Good evening, everyone. For the first quarter of 2021, we reported net revenue of RMB 1.6 billion, representing a 61% year-over-year increase from the same period of 2020 or a 9% year-over-year decrease from the same period of 2019. The decrease from 2019 was mainly due to 3 factors: number one, the international travel is still frozen; and two, the prepurchase business is substantially reduced for risk control; and three, domestic market was under pressure in the first half due to stricter travel restriction before and during the Chinese New Year holiday in 2021 following virus resurgence in the winter.

Benefiting from the improvement of operational efficiency and prompt cost control of sales and marketing in January and February, we achieved RMB 296 million adjusted net profit with 18.4% net margin compared with 16.9% net margin in quarter 4 2020. We booked RMB 33.3 billion GMV in the first quarter of 2021 with an 83% year-over-year increase compared with 2020 or a 7% decrease from 2019, mainly due to substantially reduced prepurchase business and disrupted international travel, as I mentioned. Besides, the ADR and ATV was still negatively impacted in January and February by the COVID resurgence.

However, the negative impact was partially offset by the significant growth in room nights and air ticket volume, which was attributable to our audacious measures to seize growth opportunities when pent-up demand was quickly released in March. As we mentioned, we saw a very clear demand jump in March with more than 80% growth in accommodation room nights, 40% growth in air ticket volume and more than 250% growth in bus ticket volume compared with 2019 in March. Without hesitation, we enlarged the marketing investment since March to aggressively catch the market share in every product line, especially in lower-tier cities.

Accommodation reservation revenue achieved RMB 459 million, representing a 100% increase compared with 2020 or a 6% decrease compared with 2019, mainly impacted by reduced international travel and reduced prepurchase business. Domestic room nights growth in the past quarter accelerated to 45%, supported by the shortfall in traveling and local consumption since Chinese New Year. Geographically, room nights grew over 30% and more than 70%, respectively, in higher tier city and lower tier cities, thanks to the effective execution of our strategic priorities such as cross-selling and offline user acquisition.

ADR was still dropped in the past quarter, which was caused by the short-term headwinds faced by the hotel industry as well as our strategy to further penetrate into lower-tier cities. The take rate was flat compared with that of 2019 as we put more resources in couponing since March to capture the market recovery. However, the increase of VAS contribution in accommodation segment offset part of the impact of the increase in couponing.

Transportation ticketing revenue for the first quarter of 2021 was RMB 1,023 million, representing a 49% increase compared with 2020 or a 19% decrease compared with the same period in 2019. The gap to the pre-COVID level was primarily caused by both international travel and the Stay Put During Spring Festival policy, which severely impacted the back-to-home traveling demand in the first half of quarter 1, as we mentioned above. However, as the COVID cases were well controlled in very short time, the pent-up demand was surprisingly relieved since March, and we moved fast to seize the recovery opportunities.

In March, both our air ticketing and bus ticketing business saw a very remarkable year-over-year growth in volume when compared with 2019. Other business revenue achieved RMB 132 million in the first quarter, representing a 48% increase compared with the same period of 2020 or a 273% increase compared with 2019. The increase was mainly contributed by the new initiatives such as hotel advertisement, hotel PMS, TMC business and membership cards.

Gross margin was 74.7% for the first quarter of 2021, increased from 72.1% for the same period in 2019 and 73.7% for the previous quarter. The continuous margin improvement was mainly helped by our streamlined operations, intelligent service ability and a revenue mix change in the half year. In the first quarter of 2021, our adjusted EBITDA achieved RMB 470 million with margin increase to 25.9% from 24.3% quarter-over-quarter. Adjusted net profit achieved RMB 296 million with margin increase to 18.4% from 16.9% quarter-over-quarter.

Service development and administrative expenses in the first quarter of 2021 decreased by 37% for the same period of 2019 and decreased by 26% from previous quarter. The decrease was mainly driven by FBC expenditure reduction and operational efficiency improvement. Excluding share-based compensation charges, service development and administrative expenses in total accounted for 22.7% of revenue in the first quarter compared with 23.0% of revenue in the same period of 2019 and 22.5% of revenue in previous quarter.

Sales and marketing expenses in the first quarter of 2021 increased by 32% from the same period of 2019 and decreased by 17% from previous quarter. We tightly controlled the marketing spending in the first half of the past quarter but promptly shifted to investor mode in the second half to aggressively seize the recovery opportunities. We increased the investment in offline advertisement and user acquisition initiatives in lower-tier cities such as bus ticket and attraction ticket vending machine as well as in online user promotions to accelerate cross-selling to -- and enhance frequency and the user's value in the long run.

We also launched the innovative marketing initiatives such as Blind Box of Air Tickets to closely engage our target users, as Joyce mentioned. Excluding share-based compensation charges, selling and marketing expenses accounted for 37.9% of revenue in the first quarter compared with 24.9% of revenue in the same period of 2019 and 39.9% of revenue in previous quarter. As of March 31, 2021, the balance of cash, cash equivalents, restricted cash and short-term investment was RMB 6.4 billion.

Now let's turn to the quarter 2 forecast. Following the rebound trends in March, the release of pent-up demand was astonishing and further accelerated in Qingming Festival and Labor Day holiday. We have broken the historical record of volumes in each product line during the Labor Day holiday with a mixed demand for long haul, short haul leisure traveling and hometown visits. Based on the latest rebound situation and business progress, we are now expecting our net revenue in quarter 2 to increase by 30% to 35% year-over-year compared with 2019 or increase by 70% to 80% compared with 2020. Our adjusted net profit is expected to be in the range of RMB 350 million to RMB 400 million. This forecast reflects our current and preliminary view, which is subject to change.

After almost a 1-year calibration and preparation, we are now in a best position to capture the opportunities in the travel industry involving every travel scenario by winning new users in lower-tier cities and just gaining market share. The remarkable rebounds in quarter 2 has once again demonstrated that traveling is as important and essential activity in our daily life with demand for various purpose, including business, leisure, adventure, family reunions or friend gatherings. Adhering to all our strategic priorities, we are very confident to lead industry growth with decent profitability, thus, generating more value for our users, suppliers, employees and shareholders. We will persistently focus on our mission to make every travel smart and joyful for our users.

Operator, we are ready to take questions now. Thank you.

[Operator]

[Operator Instructions] Your first question is from Brian Gong from Citigroup.

[Brian Gong, analyst]

Congratulations on very solid results and outlook. And I have 2 questions. The first question is about during the Labor Day, China travel traffic reached positive growth other than the industry revenue only recorded around 77% of 2019 level. So just want to see management's view on this. What factors makes the industry revenue still not fully recovered yet? And when do you think it will get to full recovery? And my second question is about the outlook and recent -- does management see any impact of recent small outbreaks of COVID in Anhui? And how does management look at the outlook for the summer session coming soon?

[Joyce Li, executive]

Thank you, Brian. I will take the first question. I said revenue for the whole industry was only 77% of that in the same period 2019. But from our company side, we're not quite sure about what is including in the definition of the revenues for the whole industry. But we can share what we observed from this holiday. And I think the changes in the consumption pattern of the travelers may contribute to the gap. First of all, some of the travelers who were going back to their hometown to be with their family, so they won't have too much spending for the trips during the Labor Day holiday.

And secondly, I think the inter-provisional or local travel was still the major travel choices for the travelers. So it was quite common that people choose self-drive towards -- with nearby cities attractions. We believe this also affects the revenue of the whole travel industry. And you can see that we still achieved remarkable rebounds in all business segments during the Labor Day holiday. We realized 66% growth in room nights sold during the holiday, 47% growth in air ticketing volumes and around 150% growth in tourist and attraction ticketing volumes. So -- which, again, I think we have successfully outpaced the industry again. So from what we can see so far, the growth momentum our business has delivered is still quite positive.

[Heping Ma, executive]

Yes. And in terms of the impact from recent small breaks in Anhui, we think the impact will be very, very limited because, first, It's just happening in some very small cities but not like Beijing, Shanghai, like last winter. And the second, the government have very fruitful experience of faster control of the resurgence -- any resurgence of the COVID. And the third thing is the vaccination. And now the vaccination has, I think, take like 20% to 30% of the total population and after recognition has been taken more and more. Some of the scientists have expected there would be like 80% vaccination taken in China by the end of this year. We believe all of the impacts will not happen again in China for the COVID.

And in terms of the -- what does the performance looks like for summer season or golden week, actually, as we mentioned a lot of times, the booking window currently in our platform is very short. So we cannot provide any clear views for the very long term. But actually, I can share some latest business performance in April and May. For example, for user side, the pent up demand release boosted in the industry recovery in April and May. Meanwhile, we already increased our sales and marketing investment to capture the market rebound opportunity as well to achieve a very strong growth in traffic and user acquisitions, which continue to lead the market -- lead the whole industry.

Users from our own apps and other channels such as quick APPs grew much stronger, benefiting from our marketing campaigns and pioneer products such as the Blind Box of Air Ticket. Other than business travel and long-haul travel demand, the short-haul travel and staycation recovered during the COVID and getting more and more popular in the weekend after that. So as we observed actually the traveling frequency of users increase obviously when compared with the same period in 2019.

And for our accommodations in these 2 months, room night growth further accelerated in April and May, as we mentioned. For the quarter 2, we believe the growth rate for room nights will even higher accelerate than that of in quarter 1. For the ATR of our accommodation business, just slightly dropped when compared with quarter 2 in 2019 because the change in our product mix has volume contribution from lower-tier cities continue to increase. But actually, the ADR decrease have been largely narrowed down within, I think, 5%.

Meanwhile, the hotel owners actually are more willing to place advertisement in our platform to capture the new opportunities and improve their part. So that creates additional revenue for our platform, the hotel advertisement as well. For transportation, as we mentioned in prepared remarks, we keep strengthening our advantages in air and train tickets as well as offline service of bus ticketing, especially in lower-tier cities, to capture the new demand for short-haul traveling within provinces.

As the ticketing maintained its growth -- air ticketing maintained its growth momentum because of our regional advantage in our targeted market -- target markets. Ground transportation, as always, took the role of traffic and new user engine in the company -- within the company. In quarter 2, to increase the user value other than -- actually other than cross-selling from ground transportation to hotel, we'll put more efforts to direct the ground ticket users to become our air ticket users.

According to the market statistics, about -- I think about 1 billion of people -- of Chinese people still haven't got any flight experience. That represents enhanced opportunities for the industry. With our Huixing -- intelligent Huixing system, users could find that some of the air tickets were even cheaper than the train tickets for the same routes at the same time. This not only improved our total conversion rate but also improved the cross-sell from ground to air and also the take rates for air is higher -- far more higher than the ground, contributing to the hyper growth in air tickets as well when compared with 2019 and also beat the market growth.

Meanwhile, the upward trends for staycations is also generating new opportunities in our attraction and ticketing business. So we're prepared to invest more on offline vending machines at the tourist attractions as what we did for the bus ticketing business to accelerate our new users' acquisition from offline channels. Okay. Thank you. That's our comments.

[Operator]

Your next question is from D. S. Kim from JPMorgan.

[D. S. Kim, analyst]

Congrats on good results and a very strong guidance. Well, my first question is about bus ticketing and other offline channels. So far, how big of a contribution did this bring in terms of users and paying users, if you can comment? And based on our observation, which of our new traffic channels, including like offline and these video streaming and whatnot, give us the best return on investment? And could you also comment on customer acquisition cost by major channels, if possible? And I have a couple of follow-ups.

[Heping Ma, executive]

Yes. Actually, the total offline users that we acquired have already contributed like 11% to 12% of our total monthly paying users in -- I think in March and April. For the majority, it's still the bus ticketing vending machines. And also, the most efficient channel is, of course, the QR code in front of the hotel front desk. For the ROI and also for the user value, actually, the investment per user of bus vending machine was very limited, as we talked for several times. It's only RMB 3 to RMB 4 for each. While the investment for hotel is higher. It's a little bit higher, like RMB 30 to RMB 40 for each new users, but still relatively lower than user acquisition cost by app -- our app market.

While the user value need to be further dig out as we need some time to get familiar with the user behavior for this new group, especially for the users that we acquired from the bus vending machine, and provide some customized target products and services to cross-sell and to enhance our user value in these target users. The target is to achieve positive ROI within 1 year. And yes, we have already done that. So we would keep investing for the next year and this year and next year and expect a better ROI and user value improves.

In terms of the frequency, actually, we can see that around 25% of the bus ticketing users acquired from vending machines repurchased within 3 months, and 35% -- around 35% of hotel users acquired through QR codes getting repurchase within 3 months. Since I think the second quarter, this quarter, we plan to promote the cross-selling from bus ticketing to other products and services on our platform and to enhance their repurchase rate after we gain certain amount of business of bus ticket users. We can see that there are actually quite a lot of opportunities to improve the monetization.

But of course, we need to invest some kind of sales and marketing dollar to do the promotion and the marketing campaign for that. For example, the VAS product service for bus tickets, the cross-selling to hotels and the tourist attraction, et cetera. We will also leverage on our capability in data analysis and innovation to develop suitable products for these users and dig out more value for this business. So actually, we believe -- of course, we believe the offline user acquisition initiatives will help us to improve our MAU and help the company to faster achieve our target for 200 million APU this year. Thank you.

[D. S. Kim, analyst]

That's really helpful. Can I just follow up on our same trip cross-sales ratio this quarter versus previous few quarters?

[Heping Ma, executive]

Yes. The same trip cross-selling is around 11% in March and April but relatively lower in January and February because of the Stay Put policy impact. It's around, I think, 8% to 9% in January and February. But of course, if you compare to 2019 -- the same period 2019, there's a 6 -- there's like a 5.6 point increase.

[D. S. Kim, analyst]

And finally, is there any update on the Tencent contract at least in terms of the time line? I mean are we going to get something done before the expiry, I think, July of this year? Or is it possible or is that likely for us to have a little bit of extension because of the negotiations and whatnot? And that's it from me.

[Joyce Li, executive]

Thank you, D. S. The agreement about the portal with Tencent is still on negotiation and we will disclose to market as soon as we can. I think the main point is our relation with Tencent getting closer and deeper as we continue to explore our cooperation as a different scenario within the Tencent ecosystem, as we mentioned before. So you can see that in the past year, we have entered cooperation with Weixin on second portal to build the ecosystem within Weixin.

We also deepened our cooperation with Tencent in exploring the traffic within its ecosystem such as Tencent Map, Tencent online game platform, QQ Music, Tencent Video, and the QQ Wallet and QQ Weather. So as we role model the operating Tencent ecosystem, we believe that Tencent would like to be put together with partners to fuel the Tencent ecosystem. So we believe our future special relationship with Tencent will continue and remain stable in the future. Thank you.

[Operator]

[Operator Instructions] And your next questions come from Alex Poon from Morgan Stanley.

[Chun Poon, analyst]

Congratulation on very strong results, every metric, especially the second quarter guidance. Can I ask about the 2021 guidance given the very strong second quarter? And about the margin trend for rest of the year because of very strong revenue growth, are we sticking with the original net margin guidance or we will go for higher margin expansion this year?

[Lei Fan, executive]

Yes. Alex, actually, we cannot -- as I just mentioned, because of the very short booking window, we cannot provide guidance for too long time. But if you ask the GP margin and also our net margin trends, actually, I can give you some comments. The GP margin for several quarters is -- have a very clear improvement trends. And in the future, the GP margin will be stable or even higher contributed by -- quarter-to-quarter even higher for the GP margin contributed by, one, the scaling effect as our revenue back to normal and hyper growth comparison I think, and also the service automation levels and also increasing revenue contribution from accommodation business. That is very important because accommodation business gross margin is far higher than transportation.

In terms of the bottom line, I would like to provide some comments on each of the -- our spending digital line, and then you can gather results of our net margin trends. So in 2021 or post pandemic, as we mentioned several times, we will implement a strategy of high investment in sales and marketing dollars and branding dollars to gain hyper growth on paying users and volumes, which has been proved to be achievable and proper for the company in the current space. But meanwhile, the service development and the G&A spending, which is relatively fixed cost as of revenue, dropped 4 to 5 points as the total headcount will be largely stable in 2021.

So in quarter 2, actually, our adjusted net profit is expected to be in the range of CNY 350 million to CNY 400 million, like I mentioned in the prepared remarks. The margin, as we talked, will drop slightly when compared with '19 as a trade-out for aggressive market penetration. But the margins would be better -- of course, be better than 2020 and also better than quarter 1 2021. And in the long run, we are very confident to achieve margin expansion even better than the level of 2019 as the scale effect further manifest it and also the ROI of the sales and marketing dollars improvement from our accurate marketing. Thank you.

[Chun Poon, analyst]

Julian, if I can just follow up on 1 more question on hotel take rates. I noticed that in Q1, we might have seen a small drop in hotel take rates to 9% because of more couponing in March. So given the recovery in the hotel travel -- in the travel industry, how should we expect the hotel take rate for rest of the year? In terms of couponing, do you think the industry would have some sort of ceiling in terms of the couponing such that our hotel take rate downside protected?

[Lei Fan, executive]

Actually, we are still very disciplined to invest the hotel couponing in March and April and also in quarter 2. There is only 2 purposes that we invest on the couponing for accommodation. The 1 is the new user acquisition, especially in the offline. We can provide some kind of coupon to users. And the second one is the cross-sell. We nowadays initiate a lot of cross-selling promotions to encourage the -- our existing customers to book different products in our platform. So we will provide some kind of coupons to this kind of existing users. But in the long run or in this year, I guess our blended take rate for the accommodation will be quite stable compared with 2019 because the VAS contribution is increasing in this year and will offset the impact of our couponing level increase. Thank you.

[Operator]

Your next question comes from Thomas Chong from Jefferies.

[Thomas Chong, analyst]

Congratulations on a very strong quarter. May I ask about our annual paying user outlook. Given that after reaching 200 million, can you talk about the long-term annual paying users that we should be thinking about? And on the other hand, given that we have a large MAU base and we are also seeing advertising is picking up, how should we think about our strategic priority in advertising in the future? And my last question is about accommodation side. Can you also comment about the ASP trend? Should we expect ASP to come back to positive year-on-year growth in the second half?

[Joyce Li, executive]

Thank you, Thomas. The first question concerning about annual paying user, I think we have mentioned that our addressable market is very huge. The online penetration rate for the low tier cities hotel is only 5%, and the online penetration rate for bus ticketing is even below single digits, although we have achieved a very high growth last year. And for the users we acquired from the bus vending machine, we can see that more than 50% are completely new to our platform.

So after pandemic is -- I think it's a golden time for us to dig into the offline market and accelerate digitalization in online penetration. So we have mentioned before, we will strive to increase our annual paying users through several strategies. I think the first is that we will continue to promote our offline acquisition initiative, as Julian has mentioned before. So we will cooperate with the hotels, the bus station operators and attraction places to further acquire more users from the offline.

And secondly, we'll also enhance our operation on our attach growth, which has -- which in Q1, our own app attach also we will work with handset vendors so that we can have more prudent marketing and tailor-made recommendation to the users. And moreover, we will further enhance our product and services. For example, the innovative products, as I mentioned, the Black Box for Air Tickets, have been very successful to fulfill the use of average user needs. So our paying user in the 12-month period ending March has already reached 159.3 million. So we are very confident that the target of 200 million users can be achieved earlier than the end of 2021.

[Heping Ma, executive]

And in terms of the cap of our MAU expectation, actually, I would like to add some comments. It's far more higher. I think it's far more higher than we previous expectation for the cap of our MAU after we launched the Blind Box in (sic) [ of ] Air Tickets and after we invest on this -- the stream living advertisement, et cetera. The Blind Box in (sic) [ of ] Air Tickets in April and May drive -- have striking growth of MAU growth, especially in -- I think in lower-tier cities that have never used that OTA product in the past. In April, after our Blind Box launched, our MAU in April hit a historical high like 300 million in this month. So we are very confident that our MAU cap will be higher, I think, than 400 million or even 500 million in the future.

And in terms of the ASP, just like what I mentioned in quarter 2 as the whole hotel industry is back to normal, our ADR or AFP for the hotel also back to normal, just like 5% down -- 5% decrease compared with '19. That is because our low-tier cities penetration strategy and, nowadays, our room nights from low-tier cities have contributed more than 50% of our total room night. So that is why our AFP is slightly dropped compared with '19. But currently, it's quite stable quarter-to-quarter in this year. Thank you.

[Operator]

Your next questions come from Ellie Jiang from Macquarie.

[Ellie Jiang, analyst]

I just have a quick one on the MAU and sales and marketing side. So on back of the strong MAU growth as well as the successful launch of the promotional product like the Blind Box we just mentioned, how do we think about retaining these new younger generations within our ecosystem? And if there's any color you can provide on these younger users versus our existing customers in terms of their purchasing behaviors, that could be very helpful. And how do we better address the differentiated demand across our user kind of segmentation? How does that play into our sales and marketing strategy to fall into these different quarters and different users?

[Heping Ma, executive]

Yes. Actually, for the younger -- how about I comments like this? After the COVID-19, we think there's some kind of a behavior change for the travelers, both for the existing travelers and the younger generations. The first one is the frequency increase because the shop for traveling in the weekend and the staycation becomes very popular and becomes accustomed for the travelers in 2020 during the COVID. And after that, mixture by the business travel, long-haul travel and also the short-haul travel and also staycations. So nowadays, we have observed that the frequency for the travelers have been obviously increased compared with '19. And that is -- creates a lot of opportunities for us to cross-sell the customers from one product to another as well.

And the second one for the younger generation is the social activities. Actually, for example, the Blind Box of Air Tickets, it just use 1 hour to appeal like 20,000 -- 20 million active users within 1 hour just after the promotion or the advertisement of our Blind Box -- black box initiatives because the younger generation -- the young people, they had advertisement by themselves. They will promote these very appealing product to their friends and to their families in a very short period. So that is why we can accumulate that much active users within a very short time. So that is the power of the social media and also the power of the social activities of the younger generation as well. Thank you.

[Operator]

Your last questions come from Ronald Keung from Goldman Sachs.

[Ronald Keung, analyst]

Just 2 for me. The first question is I want to ask about our domestic growth. And how much do we think the domestic boost has been driven by completely kind of new lower-tier cities that never or would not be considering outbound? Or do we think some of the strong demand we see so far may be partially attributed to people in high-tier cities to cannot travel outbound at this point? I just want to see how do we see that pure domestic that may not be impacted even if outbound opens. Or how much do we think maybe more -- could be related to outbound? And are we targeting some of our international products maybe later this year to capture that growth? And then I have a second question.

[Joyce Li, executive]

Thank you, Ronald. I think it's hard to analyze from statistic site about how many demand will be coming from domestic or international demand convert to domestic. But I think, currently, you can see the growth of the total industry and you can see our numbers. I think for the past year and also for the first quarter and in the second quarter of this year, we have outpaced industry growth. So I think for currently, the international situation is still volatile. So in this year, we believe, even in 2022, the Chinese people -- if they want to travel, the domestic travel will be their first choice.

[Ronald Keung, analyst]

And my second question. You talked about a very strong MAU, which is 300 million in April being a record high. Can you just give us the split in mini program kind of contribution and is our own app also has been growing very rapidly? So let's say, 2, 3 years down the road, do we expect our own app to be a bigger and bigger portion of our own traffic as well and the mix between different channels?

[Heping Ma, executive]

Yes, Ronald. Actually, in the past quarter, we invested more on our apps. For example, for the Blind Box we launched, and we set a special program -- a special campaign in our app for this kind of product. And also, we invested more on the marketing dollars to -- in the app markets both for app and Android in the past quarters. So in terms of MAU and also the MPU, the portion from our app has increased from 2019 and 2020. Nowadays, for example, for the MAU side, our apps, quick APPs and other channels have already occupied like 20% to 25%. It's higher than that in 2019. And in terms of the MPU, it also occupied like 25% for the apps and also for other channels. Thank you. And also in the future, that is the one of our focus. We will keep investing to a few more users to use our apps and other new channels -- new initiative channels. For example, the Map, the Map with Tencent. That is also a very important channel for -- to acquire new users. Thank you.

[Operator]

I would now like to hand the conference back to your speaker. Please continue.

[Kylie Yeung, executive]

Thank you very much. We are closing the call now. If you wish to check out our presentation and other financial information, please visit the IR section of our company website. Thank you, and see you next quarter.