Tongcheng Travel Holdings Ltd

HKEX:780

Earnings Call Analysis

Strong Revenue Growth and Stable Margins in Q2 2024

In Q2 2024, our net revenue surged by 48% year-over-year to RMB 4.2 billion, driven by a 23% increase in core OTA business revenue and a 17% rise in transportation ticketing revenue. Our adjusted net profit reached RMB 657 million with a margin of 15.5%, up from 14.4% in the last quarter. Despite adverse weather, our business outperformed industry averages, particularly in air ticketing. Looking ahead, we aim for balanced and healthy growth, enhancing marketing efficiency and organizational agility, while expanding both domestic and international markets.

Steady Growth Amid Weather Disruptions

In the second quarter of 2024, the company saw a net revenue increase of 48% year-over-year to RMB 4.2 billion, despite severe weather disruptions. Notably, the core OTA business achieved a 23% year-over-year revenue growth, reaching RMB 3.5 billion, setting a new record for quarterly revenue. The transportation ticketing segment, crucial to this growth, posted a 17% increase compared to the same period last year, driven by high demand across various travel scenarios.

Operational Efficiency and Profitability Improvements

The company focused on operational efficiency to drive profitability. Gross profit increased by 27% year-over-year to RMB 2.7 billion, while the gross margin was stable at 64.6%. Operating profit for the core OTA business improved from 22.6% to 24.3% quarter-over-quarter. Adjusted EBITDA rose by 13% year-over-year to RMB 930 million, and the adjusted net profit margin increased to 15.5% from 14.4% in the previous quarter.

Strategic Investments and Growth Initiatives

The management emphasized ongoing investments in technology, product development, and new market expansions. They plan to leverage their existing core business while growing complementary sectors such as international and outbound business. These strategic investments are expected to support long-term growth and operational efficiency.

User Base Expansion and Engagement

The company saw significant growth in user engagement, especially among younger demographics. They implemented various marketing activities, such as sponsoring music festivals and launching travel-themed events, to attract new users. The Black-Whale membership program expanded to nearly 65 million members, with ARPU 2.1x that of general members, indicating strong user retention and value.

Outlook and Future Plans

Looking ahead to the second half of the year, the company aims for balanced and healthy growth with decent profitability. They have adopted a disciplined approach to marketing investments and enhanced organizational efficiency. The focus will be on strengthening the core OTA business, expanding outbound operations, and developing the hotel and tourism business, all while driving sustainable growth through ESG initiatives.

Weather Impact and Market Dynamics

Adverse weather conditions have affected some travel demand, but the company continues to outperform the industry, particularly in the air-ticketing segment, which showed robust growth despite these challenges. The management remains optimistic about the travel market's growth potential and is committed to capturing market opportunities while maintaining profitability.

Guidance and Market Positioning

The company expects higher margins in the second half of the year compared to historical highs in 2019. They've optimized sales and marketing investments to improve ROI and profitability. The international business saw impressive growth, exceeding 140% year-over-year in July and August, and management believes it will become a major growth driver in the coming years.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the Tongcheng Travel 2024 Second Quarter and Interim Results Earnings Release Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Kylie Yeung, Investor Relations Director. Please go ahead.

[Kylie Yeung, executive]

Thank you. Good morning and good evening, everyone. Welcome to Tongcheng Travel 2024 Second Quarter and Interim Results Conference Call. I'm Kylie Yeung, Investor Relations Director of the company. Joining us today on the conference call are our Executive Director and CEO, Mr. Hep Ma; our CFO, Mr. Julian Fan; and our Chief Capital Officer, Ms. Joyce Li.

For today's call, our management team will provide a review of the company's performance in the second quarter. Hep will update us on the company strategy. Joyce will discuss our business and operation highlights, and then Julian will address the details of our financial performance accordingly. We will take your questions during the Q&A session 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 as 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, Ho. Ho, please go ahead.

[Heping Ma, executive]

[Foreign Language] Thank you. The year 2024 is poised to be a year full of opportunities for both China's travel industry and our company. In the second quarter, we witnessed steady growth in the domestic travel market and the continued release of diversified travel demand. The nationwide travel surged during in the Labor Day holidays and Dragon Boat festival inject a new vitality into the market.

Given this ongoing market momentum, we see opportunities by actively exploring new direction and advancing our domestic and international business expansion strategies aiming to achieve a new engine growth.

For our domestic business, we focused on expanding market coverage and increasing user value in the mass market to capture more growth opportunities. For our international business, we capitalized on a rapid increase in outbound travel demand, deepening our presence in key regions and establishing a second growth curve for the company.

Moreover, we continuously drive the diversification of our company by expanding the breadth of our products and services, delving into the potential of the travel industry chain and implementing more profound strategic initiatives. These efforts are propelling our company towards excellence. Over the past quarter, our revenue and business volume once again experienced significant growth, further demonstrating our robust development momentum and very exceptional operational capabilities.

As industry embarks on a base of high-quality development, we're presented with new opportunities and the new landscape. As a leading travel platform in China, we does need to take proactive actions to pursue innovative improvements. Through organizational optimization, we integrated resources and further enhanced operational efficiency.

We actively responded to market dynamics by swiftly adjusting our strategies and optimizing our products and services, demonstrating the resilience of our company. In a new phase of industry development, user demands of the company increasingly diversify. In response to this trend, we will strive for excellence by continuously enriching our products and services and enhance user value, so as to geographic growth of our core business.

At the same time, we unwaveringly execute our expansion strategy, focus on establishing and deepening our presence across the industry value chain and further amplify our competitive advantage to achieve rapid growth.

Next, I will hand over the call to Joyce, who will share with you our business and operational highlights of the second quarter of 2024. Joyce, please go ahead.

[Joyce Li, executive]

Thank you. Throughout the second quarter, we continue to see strengthened demand across variety of travel scenarios, in particular, [indiscernible] for entertainment. Aiming upward sentiment, we spend no efforts to expand our business and manage delivering decent growth for the past quarter, in spite of the high base last year.

As an experienced player in the OTA industry, we have accumulated significant expertise in the transportation sector and have built unshaken competitive edges. For the past quarter, our transportation business, which serves as a pillar of our revenue and profit, maintains growth momentum and further entrench its market position.

The air ticketing business, a key part of the segment continue to gain market share and again hit record high in it's quarterly revenue. By launching more interactive marketing campaign, we not only attract new users but also strengthen our connection with existing users.

For the second quarter, our total air ticket volume is better than industry growth and posted nearly 20% year-over-year growth. Meanwhile, we steadily advanced our international expansion plans with a focus on enriching suppliers as well as on implementing a competitive pricing strategy to reach out to more users.

To our trial, our international air ticketing volume achieved a new high and it reached an incredibly growth of more than 150% year-over-year while exceeding the recovery rate of the industry.

As for our train ticketing business, we continue to focus on providing users with customized travel solutions and a joyful travel experience, which led to further enhance monetization capability. Over the period, we consistently iterated our Huixing system and added more rival travel solution through advanced algorithm so as to better satisfy users' needs.

Through value for money positioning and mass market focus, our accommodation business has established a unique market presence in lower-tier cities and has grown significantly in terms of volumes and revenues in the past few years. And in the resilient demand during the quarter, the business achieved new high in its quarterly revenue with increased efforts in pursuing healthy growth against the backdrop of high base last year.

With that ourselves into exploring brighter scenarios for hotel space, such as demand generated by entertainment, exhibition, as well as emerging popularity of some niche tourism destinations.

At the same time, we continuously push ahead with our cross-sell strategy and a place to emphasize with efficiency. As such, our 15-day cross-sell rate further increased almost 12%. For the past quarter, our total room nights reached a solid year-on-year growth of 10%.

Our international accommodations business continued to expand rapidly with increased efforts to enrich hotel suppliers as well as optimizing product structures. As such, our international room nights sold posted a remarkable growth of around 140% year-over-year in the second quarter.

We put emphasis on long-term growth and have been seeking opportunities vertically along the travel industry to drive further development of company. Our hotel management business, an essential part of this strategy operates on an asset-light model and maintain rapid expansion in geographical coverage across China driven by comprehensive support to franchisees.

With regard to technology, operations, finance and suppliers. By the end of June, the number of hotel stores in operation on the eLong Hotel technology platform has further increased around 1,900 with more than 1,000 stores in the pipeline.

Meanwhile, the traditional packaged tour business in December last year is another attempt by the company to expand its footprint around the travel industry. Over the last quarter of the business, which mainly consists of self-direct packaged tours and operates through offline travel agency stores, focused outstanding product offerings and off-line stores at home while we're building connections with overseas TSPs.

By the end of the quarter, the number of our travel agent stores have climbed to more than 800. Through effective use of creating initiative and efficient engagement program, we've build the most extensive user base in China's OTA industry.

By the end of June, our 12 months [indiscernible] paying users increased by 5% year-over-year to RMB 228 million, while our MPUs for the quarter edged up to RMB 42.5 million.

Since 2023, we've gradually shifted our focus from pure increasing user volumes to enhancing user value. For the past quarter, we're delighted to see our 12 months accumulated travelers serve the further expanded by 30% to RMB 1.86 billion, with average purchase frequency up to 8.1x per user. Moreover, our 12-month ARPU also increased to nearly RMB 64 exceeding the level of 2019 by 31%.

During the quarter, we consistently strive to diversify our traffic sources by increasing interaction with the users at multiple fronts. Over the last quarter, we continued to explore bright scenarios within reaching ecosystem with increased stress on efficiency and user experience.

In the meantime, our Standalone app maintained astonishing growth for the past 3 months with its DAU hitting historical high during Mayday holiday, almost tripling last year's peak.

By comprehensive fine products and launching the active marketing activities, we've started a great proportion of younger users to our platform.

Moreover, our cooperation with the [indiscernible] has been further deepened beyond embedding our product and service in its intelligent assistant interface. We've also worked together to adapt travel service in Harmony operating system, which may add to further expansion of our user base in the future.

The younger generation has been the core of our user profile and we've been making persistent efforts to build a close bond with this demographic.

With the rising popularity of music festivals and concerts, we once again joined hands with the Tencent Music and sponsored music festival in Macau later July to enhance our brand recognition among younger users. We also, for the first time, created our own travel festival, Let's travel with the [indiscernible] to increase interaction with the users.

By launching creative and viral content, we have to reinforce our fun and entertaining brand personality among the targeted users. Besides, our Black-Whale membership program is a crucial part of our drive to enhance user value. With efforts focused on optimizing operations as well as enhancing interaction with members through social events, the program continue to act as a strong growth over the last quarter.

As of the end of June, the accumulated number of Black-Whale members zoomed the larger to almost 65 million more than double the size in the same period of last year. ARPU was also 2.1x that of general members.

Customers' comfort has been entwined in our corporate culture and we are determined to deliver supreme travel experience by embracing technology. Our algorithm-driven Huixing system provides variable solutions by combining different transport means, which makes travel more accessible and convenient. Meanwhile, by consistently introducing intelligent features and automation function, the efficiency of our customer service has been further increased.

As usual, we strive to encourage industry partners for our profound Internet expertise and advanced technologies in a drive to promote sustainable growth in the travel industry.

Over the quarter, we persistently pushed for cooperation with airports. We joined hands with Capital Airport holding in June and signed a strategic agreement through which the two of us will collaborate on big data application, product development and enhancement of travel experience.

Besides we'll establish a strategic cooperation with a tourist destination in Shandong province to help increase its [indiscernible] as well as product development.

Over the years, we've been persistently pursuing better yield performance to align with high national standards. Our efforts have been rewarded. We were for the second consecutive year, recognizing S&P Global Sustainability Yearbook 2024 China, affirming our leadership in sustainability practice.

Moreover, we were also awarded the best ESG program among small and mid-cap by institutional investors. Looking ahead, we will remain devoted to improving our such practice and thus creating more value for our stakeholders.

I will stop here and give the call to our CFO, Julian. He will share with you our detailed financial results for the second quarter. Julian, please go ahead.

[Lei Fan, executive]

Thank you, Joyce. Good evening, everyone. During the past quarter, China's travel industry has continued its upward trajectory with travel into the [indiscernible]. More than travelers are seeking diversified options and unique experiences showing increasing interest in exploring of the [indiscernible] destinations and engaging in activities that foster deeper connections to local culture and environment. We successfully captured opportunities across various travel scenarios once again delivering satisfying results.

Our core business achieved impressive growth, while our tourism sector maintained its momentum, infusing new vitality into our company. In the second quarter of 2024, we obtained outstanding outcomes for both top line and bottom line. We reported a net revenue of RMB 4.2 billion, representing a 48% increase from the same period of 2023.

During the quarter, we maintained efficient operations while proactively capturing business opportunities through effective marketing campaigns and advertisement. We achieved a solid adjusted net profit amounting to RMB 657 million. Our adjusted net profit margin increased quarter-over-quarter to 15.5%. The improvement was primarily attributed to the enhanced efficiency of our international business investments.

Despite severe weather disruptions that significantly impacted the travel industry across China during the second quarter, our core OTA business revenue still demonstrated a remarkable 23% year-over-year growth reaching RMB 3.5 billion and setting another record for the quarterly revenue in our history.

Our transportation ticketing revenue for the second quarter was RMB 1.7 billion, representing a 17% increase compared with the same period of last year. In the past quarter, we witnessed the revolver to travel into the [indiscernible] across the country and periods of strong demand across diverse travel scenarios, which substantially boosted our ticketing volumes.

Additionally, we remain committed to refining our [indiscernible] offerings to improve monetization. This growth highlights our operational excellence and successful market share acquisition strategies.

Our accommodation reservation business achieved RMB 1.2 billion for the second quarter of 2024, representing a 13% increase from the same period of last year. Our total room nights sold increased by 10% compared to last year. We continue to implement our cross-selling strategy and leverage substantial traffic from our transportation business to further grow our accommodation segment.

In the second quarter of 2024, although the ADR in the accommodation industry faced widespread pressure, our ADR remains resilient thanks to our exposure in the mass market. Our blended take rate increased year-over-year primarily due to more disciplined investment strategies.

Other business once again delivered stellar performance with revenue reaching RMB 592 million in the second quarter, representing a growth of 87% year-over-year. The significant leap in our performance is primarily driven by the rapid expansion of our advertising business as hotel merchants increasingly seek advertising solutions to capture -- capitalize on market opportunities.

Furthermore, the ongoing expansion of our Black-Whale membership program, has also contributed meaningfully to the overall growth. Looking ahead, we are confident that these segments will continue to deliver robust and sustainable growth.

Our tourism business continued its remarkable recovery pace with revenue achieving RMB 720 million, demonstrating our success to capture market recovery opportunities and our constant efforts to enhance operational efficiency. In terms of the profitability, our gross profit increased by 27% year-over-year to RMB 2.7 billion while gross margin maintained stable at 64.6% quarter-over-quarter.

In the second quarter of 2024, our operating profit for the core OTA business achieved RMB 858 million with 24.3% margin, improved from 22.6% quarter-over-quarter as we have enhanced the efficiency of our sales marketing investments.

The operating profit for the tourism business achieved RMB 0.7 million, reaching breakeven in the [indiscernible] season. Our adjusted EBITDA increased by 13% year-over-year and reached RMB 930 million representing an improvement in adjusted EBITDA margin from 21.2% to 21.5% quarter-over-quarter. Adjusted net profit grew by 11% year-over-year to RMB 657 million. We achieved a 15.5% adjusted net profit margin, which represents an improvement from 14.4% in the previous quarter.

Service development and administrative expenses in the second quarter of 2024 increased by 21% from the same period of 2023. Excluding share-based compensation charges, service development and administrative expenses in total accounted for 15.9% of revenue in the second quarter compared with 19.8% of revenue in the same period last year.

Selling and marketing expenses in the second quarter of 2024 increased by 36% from the same period of last year. Excluding share-based compensation charges, selling and marketing expenses accounted for 35.1% of revenue in the second quarter compared with 38.4% of revenue in the same period of 2023.

As of June 30, 2024, the balance of cash and cash equivalents, restricted cash and short-term investment was RMB 10 billion. Despite unprecedented high last year, China's travel market has continued its growth momentum into the first half of this year.

As we enter July, the travel market continued to keep up with beverage cover setting out on their summer journey. The summer season has sparked the continued interest in exploring new horizons and engaging in diverse experience. Family, friends and solo adventures alike are seeking our novel way to make the most of their summer break.

Looking ahead to the second half of the year, we will not only pursue market opportunities but also aim for more balanced and healthy growth with decent profitability. We have adopted a more disciplined approach to bolster the efficiency of our marketing investments.

At the same time, we have steered towards more streamlined business operations as well as enhance organizational efficiency. These efforts elevated our agility in responding to market dynamics and have enabled us to achieve greater profitability. For a long-term perspective, we maintain our optimism about the growth potential of China's travel market.

We will strengthen our core OTA business by enhancing our service offerings and improving user value. Simultaneously, we will focus on expanding our outbound business to capture new market opportunities and strengthen our global presence.

Additionally, we are committed to robustly developing our hotel management and tourism business leveraging our experience and resources to create multiple growth engines.

Additionally, we anticipate a steady improvement in our profit margins over time, driven by increased operating leverage and positive margin impact from our new initiatives, including user acquisitions through our app and international business expansion. We will adhere to our strategic vision and intensify our ESG efforts to drive the sustainable development of the company.

With that, operator, we are ready to take the questions now. Thank you.

[Operator]

[Operator Instructions] Our first question comes from the line of Simon Cheung from Goldman Sachs.

[Simon Cheung, analyst]

I got 2 questions. One, I think we well understand that the travel demand, there was some concern that going into the third quarter or even second half of the year, there might be some slowdown. We also understand that the base is getting quite tough in the third quarter. So based on what you observed so far, perhaps you can share with us what you observed in the third quarter? And is there any indication that whether your full year guidance would be unchanged? That's the first question.

The second question is, I think obviously, there has been some concern about you investing a bit more into the overseas business that you brought some of the margin that we have seen in the first quarter. Nice to see that your margin for the -- EBIT margin for the core OTA actually narrow at a smaller pace, I think down 2% versus almost 4% in the first quarter.

To what extent do you feel that going into the second half, there's some sort of flexibility that you might adjust your overseas expansion or you would still be very keen to continue your expansion, such that the margin deterioration or impact would be ongoing into the second half of the year?

[Lei Fan, executive]

Okay. Thank you, Simon. I will address the first question and then pass the second one to Joyce to explain the overseas business development. First, about the guidance for the quarter 3 and the full year. So first, I would like to address the top line one. In July and August, we still observed a solid growth in the domestic growth travel market as various travelers were enthusiastic about enjoying their summer vacation. But however, some of the travel demand had been affected by the adverse weather and embarrassed areas such as extreme heat and the rain storms this year.

Nevertheless, our business continued to outperform the industry, particularly in the air ticketing segment which consistently achieved a very strong growth compared with the average industry. Regarding the recent decreases in hotel ADR and air ticket traffic in the market, we believe they are mainly due to the high base caused by the limited supply last year, However, we mentioned a lot of times, our ADR for the company only appears slight declined compared with the industry average, thanks to our strong presence in the mass market.

Besides our international air ticketing and accommodation business is seriously having impressive year-over-year growth, of over, I think, 140% in July and August, becoming one of the major growth drivers for us. Other than the strong growth of our international business, we also have made continued efforts in executing our multichannel traffic strategy.

Our standalone app continued to grow during the summer holidays with the CAU increasing significantly year-over-year, demonstrating a solid additional driver of the future growth of our user base and top line revenue.

So that is what I want to say about the -- I want to comment on the top line, although the industry has some kind of headwind because of the high base and also the weather, but still our company has grown several multiples compared with the average -- the industry average.

In terms of the bottom line, actually, for our core OTA business, which I would like to address first, we have observed a weaker growth, as I mentioned, weaker growth trends since the end of the quarter 2 of this year. In response, we immediately started reducing our sales and marketing investment and streamlined our organization and administration.

All these optimization efforts were carried out with the priority to maintain market share gains, like what I mentioned, while monitoring the changes in the market situation.

During the quarter 3, we focused more on significantly improving ROI and sales and marketing extensive reduction. As a result, we expect a noticeable reduction in the expenses rate across various expenditure lines of the company leading to a year-to-year increase in net margin in quarter 3 for our OTA business, which has already returned to the high margin level as in 2019 pre-COVID level. We think our net margin in quarter 3 will even higher than our pre-COVID level for OTA business.

Given the current macro environment, we will continue to leverage our competitive advantages and emphasize on balancing growth and profitability for our core OTA business in the mid- to long term to reach a balance between our market share gain and also the profitability improvement.

In terms of the overseas development, I think Joyce will give you more color on that.

[Joyce Li, executive]

Sure. Thank you, Simon, for the question. First, I would also like to address our business development in terms of our progress made for our international business. As I mentioned before, we have achieved fast growth in our business in the first half of the year with outstanding performance in destinations such as Thailand, Japan, Malaysia, Korea, Hong Kong and Macau.

I think the growth of outbound business has outperformed the industry significantly, as I mentioned. I think we believe that the ease of Visa access and the gradual resumption of international flight capacity will provide immerse market opportunities for us.

Given our substantial growth in the user base over the past few years with these users as a cornerstone cloud expansion into outbound travel market. And since the second half of last year, we have intensified our efforts to pursue the growth of our international business.

We continue to expand our product service offerings for outbound travel by forging partnerships with the leading international OTAs, wholesalers, airlines and variety of overseas TSPs. We also allocated more resources to the research and development to strengthen our service capability.

And as we mentioned previously, we also have aggressively invested in our international business by implementing a competitive pricing strategy to charge more users since the second half of last year. We believe our effective marketing initiatives have been successfully boosted to user awareness, driving outstanding volume growth for both international air ticket and accommodation business.

And now as we have gained more experience and a better understanding of our user behavior for our travelers. We are now placing great emphasis on efficiency in our international investments.

This approach ensures optimal user of resources and allow us to achieve a better ROI for our outbound business. As such, the margin impact caused by international business investment has been narrowed down, which is reflected in the quarter-on-quarter improvement of operating margin of OTA business in the second quarter. And in the coming few quarters, we will continue to capitalize on the rapid increase in outbound travel demand and a target to deepen our presence in the key regions.

Simultaneously, we will also place more emphasis on enhancing the efficiency of our international business investments. We believe that we will be able to minimize the margin impact of this investment in the near term and should ultimately achieve a better margin than the domestic business once it's mature.

[Operator]

Our next question comes from the line of Wei Xiong from UBS.

[Wei Xiong, analyst]

I also have 2 follow-up questions. First, I want to ask about the domestic travel side. If we look at slightly longer term, how should we think about your core OTA growth for the next few years? And I'm wondering could management share any thoughts on any change in the travel behaviors that you have observed on your platform, just given the current macro headwinds in terms of their travel frequency and spending?

And second, I also want to follow up on the outbound business side. Just wondering, could the management also share your thoughts on the industry outlook for the second half of this year as well as next year, given we have improvement on the supply side on one hand, but also uncertainties around China macro?

And also, I understand Joyce has shared the recent business development in this area. I'm curious to also learn about your latest thoughts on the -- maybe competitive change in the next few years? And any update in the internal target in terms of financials for the new business in the next couple of years as well.

[Lei Fan, executive]

Thank you, Xiong Wei. First, actually, I cannot put too much comments on the long-term growth rate. But like what I mentioned, we have observed some recent pressure on the trans consumer markets recently. However, we remain optimistic about the demand in trans travel market as consumers continue to prioritize spending on travel and experiential consumption over physical views.

Despite current challenges, we are still confident in the mid- to long-term effects of China's travel industry given its resilience and significant potential, but actually I cannot put comments on numbers.

But I can explain some methodology for the company, how we manage the performance and how we manage the industry change. Actually, our primary focus is still on gaining the market share. But one of the greatest advantages of our company is our flexible operational capabilities, which enable us to absolutely adapt to changes.

In a challenging macroeconomic environment, we will closely monitor the situation and swiftly adjust our strategies to maintain a well balance between growth and profitability, like what I mentioned, by optimizing our sales and marketing investments and also our headcount from reorganization, we aim to improve -- largely improve our ROI as net margin when the macroeconomics has [indiscernible] period.

Regarding the revenue growth target for the next several years, we will actually adjust it based on market changes, as what I mentioned and the company's actual situation. We will focus more on being flexible to market changes to ensure sustainable development.

We are confident that we can sustain a strong market presence and continue our growth trajectory by maintaining flexible and efficient operations, driving continuous innovation enhancing service quality and also optimizing user experience. In terms of the new initiatives -- Joyce, you can continue.

[Joyce Li, executive]

For your follow-up questions concerning the international business, as I mentioned in answers for the last question, because I think for the [indiscernible] access and the assumption of interpret has been gradually sort of the bottleneck for the outbound travel business. So we hold firmly that the outbound business will further improve, especially for the summer holiday, which is a peak time for the outbound travel.

As Julian had shared our international activity and accommodation business bearing an impressive year-on-year growth of over 140% in July and August, it is becoming one of the major growth drivers for us. And you can see the demand has been continuing to be very strong compared to the second quarter this year.

And in terms of the revenue contribution, we think about in the early stage of divesting our international business, we expect that it will account for less than 5% of our core OTA revenue this year but we believe that our international business will grow rapidly and revenue contribution will continue to grow in the following 2 to 3 years.

And we were keeping our priority to boost the international business volume and cultivate a large user base. We think that it will become an important growth driver for the company in the next few years. And as I said before, it will achieve a better margin than the domestic business was to become a mature business.

[Lei Fan, executive]

I would like to add one thing in terms of the competition for the international and outbound business. Actually, you know the outbound business and the international business, the business market size is so huge. And for our company, we -- nowadays, it's very small our outbound revenue and outbound international penetration is very small. So in this stage, we do not feel too much competition because still, we have a lot of business opportunities that we can cooperate and we can develop.

And in the first half of this year, and I think the second -- since the quarter 3 last year or the second half of last year and the first half of this year, of course, we invest some of our money to capture or to advertise our outbound and international business in several channels. And also, we set a very aggressive couponing strategy to capture more volumes for the air ticket and also for the room nights. And -- as a result, you can see the result is very successful.

The air ticket volume and also room night volume is doubling or tripling quarter-to-quarter. But in the coming few quarters, actually, we will continue to capitalize on the rapid increase in outbound travel demand because we still have a small base and target to deepen our success in some of the key reasons.

But simultaneously, we will place more emphasis on enhancing the efficiency of our international business investments as well. Like Joyce mentioned, we believe that we were able to minimize the margin impact of these investments in the near term and should ultimately achieve a better margin than the domestic business once mature, I think, in a very short-term future. Thank you.

[Operator]

Our next question comes from the line of Brian Gong from Citi.

[Brian Gong, analyst]

Congratulations on decent results first. So I have 2 questions. Firstly is regarding our self-developed app. Can you share more about the latest progress and how this will contribute to our core OTA business in the second half of this year and how is the ROI for the user acquisition for our self-owned app?

And the second question is the GMV growth. I noticed our GMV growth kind of slowed down in the second quarter. Can you share the reasons behind this slowdown? And should we expect this growth to improve in the second half?

[Joyce Li, executive]

Thank you, Brian. I will answer questions concerning our Standalone app and Julian will address the GMV growth. For our standalone app for the past several quarters, we have been observing the difference in the user portfolio and the behaviors between the Huixing platform and our app platform.

For example, we noticed that the users who use apps for bookings tend to be more high-end, high-frequency travelers. While we have been gaining users in Huixing for many years, it is quite clear that users on our app represents pure incremental area for us.

In order to penetrate this market, we will expand our cooperation with mobile phone standards and pre-install our app on mobile phones. We have been cooperated with several leading mobile phone vendors in China and being our app pre-installed in certain amount of their new phones. We have observed a continued increase in activation rate of our pre-install app with a significant conversion orders.

Besides, we also put more efforts in gaining new users through promotions in app stores and social sharing. We will also continue to invest in brand promotion and marketing activities to enhancing brand awareness and cultivate to all users on our app.

For example, I mentioned, we for the first time launched our own travel festival, Let's travel with the [indiscernible] to enhance interaction with the users. We also joined hands with the Tencent Music and sponsored the music festival in Macau. This allowed us to becoming one of the most popular apps in the travel category.

We have achieved a remarkable progress in exploring traffic on our Standalone app right now. During the summer holidays, the DAU on our Standalone app continued to increase significantly year-over-year. This indicates a strong additional driver for the future expansion of our user base and top line revenues.

In that case, we will internally adjust our selling and marketing expenses and allocated resources for user position of Standalone app as Julian has mentioned for our marketing strategy right now. So our overall sales marketing spend for our user position will remain relatively stable.

The [indiscernible] cost will be higher comparing to [indiscernible], but the payback period will be longer. So in the longer term, the app [indiscernible] to yield a decent return. We will persistently invest in this area for the longer term. Meanwhile, we will also continue to improve the ROI of average tropical channels in order to maintain the decent growth in our margin.

[Lei Fan, executive]

In terms of your second question about the GMV, actually the GMV in our second quarter is the growth of the GMV is lag behind of the growth of the revenue for our quality business, like what I mentioned, the transportation have 17% of the growth rate in the second quarter and also the accommodation have 13% of the growth rate in the second quarter.

But our GMV only have like 5% -- around 5%. So there is a 10% gap on our GMV to the revenue growth. Actually, that is a really good signal to show that the company, our revenue have a little impact on the industry headwind or the industry pressure. Like what we mentioned a lot of times during the last year, there's a supply shortage, both for the hotel side and also for the [indiscernible] side.

So last year, the quarter 2 and quarter 3, we have extremely high ADR and extremely high ATV. And for this year, all of the supplies and have that normal, but also the demand side has some kind of pressure in quarter 2 and quarter 3. So if you look at the industry, of course, the ADR dropped more than 10% compared to last year. And the ATV also dropped more than 10% of last year.

But that is not related to the key business of our company. Because, first, in terms of the ADR, like we mentioned, the most hotels that impact on the ADR is the 5 stars and 4 stars. Actually, the economic and the low-tier, low-end hotels ADR have some smaller impact on the industry pressure. So our company has a very balanced business on the high-tier and low-tier and high-end and low-end. So that is why our ADR dropped only less than 5% compared with the 10% in the industry.

And also, when we see the macro have some kind of pressure, we're also very disciplined on our company. And also, we are very disciplined on that investment. So that is why our take rate, blended take rates also have some kind of increase in the second quarter for the accommodation.

And for the ATV, it's the same story. There's no relationship between the ATV and our revenue. Our revenue is related to the tax rate, the [indiscernible] tax rate and we don't see any drop on our [indiscernible] attachment. So that is why our revenue is very strong and also our take rate from air tickets and train ticket is increasing year-over-year. So that is why there is a gap between the GMV growth and also the revenue growth.

[Operator]

Our next question comes from the line of [indiscernible] from Morgan Stanley.

[Unknown Analyst]

I have 2 questions. The first one is about the margin. So do you have any like cost saving measures to protect margin, especially among these like macro headwinds, especially when you -- in the last quarter, you mentioned you -- in the last question, you mentioned you're still investing in native apps and internalization and also like hotel management business. So would you revisit the strategy to protect the margin.

And my second question is about the capital returns. So are you considering to increase the capital return or considering the buyback?

[Lei Fan, executive]

Yes. In terms of the margin, actually, I have also already answered a lot of times for the margin improvement in quarter 3 and quarter 4. For OTA business, we win the macro, we have some pressure. We have already sweep to the balance between the top line growth and also the profitability improvement.

So we reduced a lot of headcount setting and also reduced a lot of sales marketing spending and focus on the ROI improvement for our core OTA business. And also for our new initiatives, that means that the outbound and international. I also mentioned that in the second half year, we focused on the monetization and focused on the ROI improvement for our outbound as well.

So the impact on our outbound investment -- the margin impact on our outbound investment was very, very limited. So as a whole, our margin expectation for quarter 3, quarter 4, the second half of the year, will be higher than the same quarter of last year and also will be higher than the same quarter in 2019. 2019 is our historical high-margin period.

So that is the way the methodology, the management -- how the management controls or manage the performance of our company. When the macro has some pressure, when the macro has some headwind, we will focus on the ROI improvement and we'll focus on the profitability and focus on the efficiency improvement.

[Joyce Li, executive]

In terms of the capital return, I would like to further address our capital allocation strategy. First of all, we will still prioritize investing capital in our business operations. I think the investments will support our ongoing efforts to grow organically by developing new technologies, introducing new products or services, extending into new markets and improving our operational efficiency.

And the second will involve directing resources towards developing business that are complementary to our existing operations. For example, international business, outbound business, hotel management business through investments in other companies or mergers and acquisitions.

But last but not least, we appreciate the support of our stakeholders and we'll also allocate capital to improve our shareholders' return. Thank you.

[Operator]

Thank you. There are no further questions at this time, so I'll hand the call back to Kylie for closing remarks.

[Kylie Yeung, executive]

Thank you. 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.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.