Tongcheng Travel Holdings Ltd

HKEX:780

Earnings Call Transcript 2020-Q3

[Kylie Yeung, executive]

Good morning, and good evening, everyone. Welcome to Tongcheng-Elong's 2020 Third Quarter 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, Hep Ma; our CFO, Julian Fan; and our Vice President of Capital Market, Joyce Li.

For today's call, our management team will provide the view of the company's performance in the first quarter of 2020. Hep will walk us through our business performance for the period; Joyce will discuss our operational highlights for the third quarter; and lastly, Julian will address the details of our financial performance. 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 relates 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 I'll turn the call to our CEO, Hep Ma. Hep, please go ahead.

[Heping Ma, executive]

Hello. Thank you. Thank you, Kylie, and good evening, everyone. Thank you for joining us today. 2021 is 1 month away, and I know it's not been easy for many of us this year because of the disruptions caused by the COVID-19 pandemic. In earlier February, when the number of confirmed COVID-19 cases picked in Mainland China, we had the worst time of the year. But we acted swiftly and turned to our flexible operational mode based on external changes. We cut unnecessary expenditures, streamlined operations and optimized our internal structure.

In March, when people began to return to work, we moved fast to capture the recovery opportunities, and subsequently, our business steadily picked up. This recovery trend maintained its momentum in the second quarter and accelerated in the third quarter. And we, once again, managed to lead the industry recovery. This time for the third quarter in a row. Although, uncertainties [ inked ] as new cases were confirmed in some areas.

In the past quarter, our accommodation business saw an accelerated recovery and performed better than the industry average in terms of room nights sold. As we further penetrate the lower-tier cities and seized every recovery opportunity there, the room nights sold on our platform reflected double-digit growth for the third quarter, with nearly 30% growth in lower-tier cities.

In October, we made an organizational change and incorporated our tourist attraction ticketing business into the accommodation sector as we see potential synergies in the combination of the 2. We believe this will not only enhance internal efficiency but will also allow us to develop innovative products to better serve our users' changing needs.

Our air ticketing business saw over 20% growth in domestic volume in the third quarter, partly thanks to our solidified position in some regions where the virus had a net impact, and partly thanks to low air ticket prices, which made taking flights more affordable. As for our train ticketing business, since the intelligent Huixing system continues to demonstrate its superior value and served as a growth engine for that area of the business.

Considering our bus ticketing business, it's volume witnessed streaming growth for the past quarter, as we continued to roll out bus ticketing vending machines across the country. And the volume growth further accelerated during the national holiday period with year-over-year surge of 100%. This service machines serves as a cost-effective way to not only help us gain of offline users who are completely new to our platform, but also help us further penetrate lower-tier cities.

We see vast growth potential in the bus ticketing business as its online penetration level is extremely low compared to that in the train and air ticketing sectors. In the future, we will make more efforts to presell other travel products and services to rose unit acquired users for us to increase their value to our platform. One of the major changes brought by the pandemic is accelerating migration to the Internet, especially in lower-tier cities. This certainly benefits Internet enterprises like us.

During the previous quarters, we have been thinking new online traffic sources in an effort to diversify our traffic channels. And have reached extensive cooperation with multiple traffic platforms, including short video platforms and handset vendors. This sped up online penetration in the travel sector and sees the momentum of increasing digitalization. We started our offline user acquisition initiatives in the second quarter and pushed forward the initiative -- in the initiatives with more investments in lower-tier city for the third quarter. We joined hands with hotels, best operators and tourist attracting operators to transform offline booking habits to online patterns. These initiatives served as effective channels for us to acquire new users.

In September, we took an explorative step and signed a strategic partnership agreement with LINE in Thailand through which we gained 3 exclusive porters online pay to provide local type people with travel products and services. This is our first attempt to explore a new international market, and we aim to reproduce our business success on the LINE platform, by levering our extensive experience in running our Weixin mini program.

As a market leader, we are directed to building a disciplined and transparent environment for the travel industry to provide users with a supreme travel experience as well as offering a fair and level playing field for suppliers. In October, together with 4 of our peer companies we formulated and signed a safety [indiscernible] for the better development of the online travel industry in an effort to better protect users' interest.

In the following quarters, we continued to step up investment to further capture first recovery opportunities, especially those in lower-tier cities, so as to enhance our market share in the online travel industry to [ take ] our brand upgrading in late April. We have been increasing investments in branding and marketing in an endeavor to build as the #1 travel brand in lower-tier cities.

As I emphasized in previous calls, the whole business environment is still haunted by uncertainties and challenges, but I'm confident that we are well equipped to cope with uncertainties as our asset light business model, further streamlined operations, strong execution capability and quicker response to external changes allow us to easily adapt to changes.

Looking back to the beginning of the year, the travel industry were badly hit by the virus, but we made it through and emerged as much stronger -- as a much stronger company. Looking towards the future, we are dedicated to building a more sustainable and efficient travel ecosystem by empowering supplies business and enhancing user experience through technologic innovation.

And with that, I will hand the call over to Joyce. She will brief you on our operational highlights for the second quarter. Joyce, please?

[Joyce Li, executive]

Thanks, Hep. In the past quarter, the travel industry in China has shown encouraging recovery with improving consumer confidence and demand. And we set up efforts to capture the gradually released demand and managed to outperform industry average for third consecutive quarter. Despite uncertainties [indiscernible] around, as more scale outbreak of coronavirus still occur in some regions in China.

During the past quarter, we further explored the cooperation with Tencent to enhance user experience at different user scenarios. We expanded cooperation with Weixin, our searching portal, through which Weixin users have direct access to our air and bus ticketing service in addition to our train ticketing service, which is accessible since the second quarter. By targeting relevant keywords at Weixin searching portals, our search volume as a search portal saw a significant increase in September.

In the following, we'll further tap into Weixin searching portal and co-build search plus travel ecosystem with Weixin, by providing expertise and experience in the travel industry. Meanwhile, we joined hand with Tencent's online game platform to launch market campaigns in an effort to increase brand awareness among younger generations.

We are also entitled as to one of Tencent's most popular online game IP rights. The walk-in guests at our operator hotels are entitled to game gift packages. This partnership has not only helped attract younger users for us but also strengthen our bargaining power with the hotel side. Moreover, in this year, we've reached extensive cooperation with the China's major handset vendors. Users can directly access to our travel products and services on mobile devices, such as mobile phones and smart watches.

In the third quarter, we further rolled out price market initiatives with these handset vendors, and the cooperation proved fruitful with our [ MA ] using Quick App, which is explosive growth for the quarter. Despite our efforts to provide users with seamless experience have received recognition, we were awarded the most popular Quick App for 2020, an innovative partner by one of the most eminent handset vendors in China.

In the past quarter, we also launched a series of offline marketing campaigns to enhance our brand influence and recognition. We joined hand with local popular restaurant brands to have our brand expose among tourists who are our target users. We cooperated with a widening health and beauty retailer by exchange membership benefits through which our brand was highly exposed in thousands of our partners' retail stores.

Moreover, our paid membership program has made a great progress in the past quarter. The cumulative number of our Black Whale members reached a record high of more than 3 million at the end of September, as we categorized the membership cost into different types to cater to users' needs. In early September, we launched a [ new ] version of Black Whale Membership card, targeting users aged from 16 to 23. By far, the conversion rate across [indiscernible] of such registered users are quite impressive.

Next, we'll further expand the target group by launching marketing campaigns at campus to strengthen our brand awareness in the younger generation. As Hep mentioned, we intensified our efforts in offline user acquisition initiatives for the third quarter to solidify our presence in low-tier cities. As for the accommodation business, we rolled out initiative in more cities and have more hotels join us to help acquire offline users, especially in our targeted markets. Driving on our established relationship with upstream suppliers will further increase our ticketing vending machines and mobile stations and tourist attractions.

So the 3 offline initiatives were aimed to accelerate on our penetration level of the travel industry in low-tier cities, so as to a provide high-quality travel product service to more users. Meanwhile, empowering the business of travel suppliers, and thus, enhancing the efficiency of the whole travel industry. Besides, these offline initiatives have also brought us a handsome amount of paying users. They were the top contributor to our MPU recovery in the third quarter. In addition, this offline initiatives tally much with our low-tier city strategy and the majority of the users acquired for these initiatives, live in Tier 3 or below cities.

With the efforts we made, our average MAUs for the third quarter further improved from the second quarter and post a year-over-year growth of 5% to a record high of CNY 245.8 million. This was mainly driven by the improved consumer demand, stable traffic from Weixin ecosystem, contribution from the offline initiatives and explosive growth in Quick Apps. Our average MPU is fully recovered to last year's level at around CNY 29.8 million for the past quarter, managed [indiscernible] release of pent-up demand and our offline user acquisition initiatives. The total GMV improved greatly from second quarter and decreased by 15.6% (sic) [ 16.6% ] year-over-year to RMB 39.7 billion, mainly due to price drops in air tickets and hotel rooms.

During the quarter, we continued to push forward with our cross-sell strategy. We've demonstrated our capabilities to improve the value of our traffic. As we mentioned before, the transportation ticketing is not only our main business, but also serves as a traffic engine for the company. In the past quarter, our one trip cross-selling rate improved greatly, hitting a record high of 11% compared with around 6% in the same period last year.

Furthermore, we continued to develop and upgrade our accommodation value-added product service so as to improve the monetization capability of our accommodation business. This contributed to a remarkable recovery in our accommodation business in the past quarter. Besides, our endeavor to see this recovery opportunity in low-tier cities has solidified our position in targeted markets and has strengthened our monetization capability for the past quarters.

As a technology-driven company, we are dedicated to empowering our supplies business as part of our efforts to transfer from OTA to ITA. We have deepened the cooperation with airports and airlines by providing technology solutions for them. We have worked with best operators and best stations to help increase digitalization of this traditional and fragmented industry, so attribute a more efficient and a consumer-friendly ecosystem. We have joined hands with tourist attraction operators to help develop online booking system and increase our penetration in the industry. We helped develop property management system to help individual hotels to organize, schedule and manage their daily operations in an efficient way.

On the other hand, we are devoted to perfecting users' travel experience by technological innovation. We have continuously optimized algorithm and business insights of our intelligent Weixin system, which provide users with affordable and available travel solutions when tickets are not available. For the past 3 quarters, Weixin has demonstrated exceptional value for the users, especially in depth of the pandemic, where many routes were halted to contain the spread of the virus. Meanwhile, we constantly apply new technology in our customer service center.

In the previous quarter, we upgraded our AI-driven customer service. Our AI robot can automatically detect users' underlying problems and proactively reach out to users to get problems solved. This greatly enhanced our customer service efficiency and provide timely feedback to users’ demands.

With that, I'll turn the call to our CFO, Julian. He will share with you our detailed financial results for the third quarter.

[Lei Fan, executive]

Okay. Thank you, Joyce. I would like to review the results for the third quarter of 2020 and then share our thoughts on the forecast for the last quarter this year. For the third quarter of 2020, Tongcheng-Elong reported a net revenue of RMB 1.91 billion, representing a 7.2% year-over-year decrease from the same period of last year and 60% quarter-over-quarter increase. As Joyce mentioned, we are closely cooperated with Weixin search portal, Quick Apps and other new traffic channels. And as a result, our MAU achieved a 5% year-over-year growth to CNY 246 million in the third quarter, hitting a record high even under such challenged environment.

Moreover, our MPU fully recovered during the quarter and returned to our historic high of CNY 29.8 million, with a paying ratio of 12.1% compared with 12.7% for the same period of last year and 10.7% for the second quarter of this year. We are very happy to see a noticeable recovery of the paying ratio, which was mainly driven by the following factors: one, the release of pent-up traveling demand; and two, the success of our one-stop shop positioning and enhanced cross-selling capabilities; three, our offline user acquisition initiatives. The MPU acquired from offline initiatives, such as hotel from the QR scanning and web ticketing vending machines reached over CNY 3.5 million in the third quarter or more than 11% contribution to our total MPU for this quarter.

GMV was RMB 39.7 billion in the third quarter of 2020, and the year-over-year decrease was narrowed to 16.7% (sic) [ 16.6% ], mainly due to the decrease in hotel ADR and air ATV. Accommodation reservation revenue almost flattened at RMB 684.6 million, with only 1% year-over-year decrease and 78% quarter-over-quarter increase in the third quarter of 2020, way better than our expectations. This was mainly driven by the significantly improved cross-selling capabilities and revenue contributions from VAS accommodation.

Domestic room night revolved very fast with over 15% growth. Geographically, we achieved around 10% and nearly 30% room nights rose in high-tier cities and low-tier cities, respectively, in this quarter, mainly because: one, the growth -- the one trip cross-selling rate accelerated to 11% compared with 6% in the same period of last year and contributing nearly 20% of the room nights sold in the third quarter of 2020; and two, we kept increasing investment in online marketing resources so as to accelerate the conversion from MAU to MPU; and three, we continue to ramp up our offline user acquisition initiatives, which contributed more than 8% to the room nights sold in the past quarter.

The domestic ADR decreased, further narrowed to 16% year-over-year as the macro economy recovered in summer. Meanwhile, the take rate of accommodation business kept increasing year-over-year and quarter-over-quarter. Asset value-added services took up nearly 10% of the total accommodation revenue, benefiting from our strong strategic execution of one-stop shop in accommodation.

Transportation ticketing revenue for the third quarter of 2020 rebounded to RMB 1,055 million, representing a 7.4% decrease from the same period in 2019 and 45% increase from the second quarter of this year, slightly below our previous guidance, mainly because we focused on diverting traffic from ground transportation to accommodation, as Joyce mentioned.

Meanwhile, we achieved a higher growth of over 80% in the bus ticketing volume and more than 20% growth in the domestic air ticketing volume in the past third quarter. While train ticketing volumes slightly dropped year-over-year as the industry have not fully recovered yet and we were more focused on increasing the value of the traffic. The take rate of transportation business increased year-over-year as users are more willing to purchase VAS, such as insurance during the pandemic. The revenue of transportation decrease was mainly due to halted international travel. We believe this negative impact will continue as we haven't observed any recovery sign in the international traveling.

Other business, including advertisement, attractive ticketing and paid membership card decreased by 23.6% to RMB 175 million in the third quarter, mainly impacted by the decrease in advertisement revenue. Gross margin was 72.0% for the third quarter of 2020 compared with 66.9% in the same period of last year and 72.3% in the previous quarter. Profitability has almost recovered to the last year's level in the third quarter. Adjusted EBITDA achieved RMB 499.3 million and the year-over-year decrease was narrowed to 8.8% in the third quarter from 39.3% in the second quarter of 2020.

Adjusted EBITDA margin recovered to 26.1%, almost flat year-over-year. Adjusted net profit achieved RMB 372.5 million and a year-over-year decrease was narrowed to 11.2% in the third quarter from 43.2% in the second quarter of 2020. Adjusted net margin slightly decreased to 19.5% from 20.3% in the same quarter last year. Cost of revenue was RMB 535.3 million in the third quarter of 2020, with a 22% savings year-over-year, mainly due to GMV decreases, intentional reduction in prepurchase business and efficiency improvement from call center automation. Excluding share-based compensation charges, cost of revenue accounted for 27.8% of revenue in the third quarter compared with 33.0% of revenue in the same period of 2019. Service development expenses was RMB 301.8 million in the third quarter of 2020, with a 16% savings year-over-year, mainly driven by the operations efficiency improvement.

Excluding share-based compensation charges, service development expenses accounted for 14.9% of revenue in the third quarter compared with 16.4% of revenue in the same period of last year. Administrative expenses was RMB 101.4 million in the third quarter of 2020, with a 5% increase year-over-year. Excluding share-based compensation charges, administrative expenses accounted for 3.7% of revenue in the third quarter compared with 3.5% of revenue in the same period of last year.

Selling and marketing expenses was RMB 724.9 million in the third quarter of 2020 with 15% increase year-over-year, mainly driven by our investment in offline user acquisition and online promotion post the COVID-19. As a result, we achieved faster growth in both MPUs and room nights. Excluding service compensation charges, selling and marketing expenses accounted for 37.6% of revenue in the third quarter compared with 30.1% of revenue in the same period of last year. As of September 30, 2020, the balance of cash and cash equivalents, restricted cash and short-term investment was RMB 6.6 billion.

Now let's turn to our estimates for the last quarter of this year. The past national holiday was a carnival for the domestic traveling, during which the enormous national traveling demand was greatly released. During the holiday, room nights sold in our platform set another record high and achieved a more than 35% year-over-year growth for low-tier cities. Bus ticketing volume on our platform doubled year-over-year, demonstrating a successful execution of our offline user acquisition strategy, including Hotel front desk user acquisition and bus ticketing vending machine placement. We will maintain this strategy and aggressively capture market share in low-tier cities in the following quarters.

Considering the impact of coronavirus, especially that on the international travel and based on where we are in this quarter, we expect our quarter 4 net revenue to decrease by 5% to 0% year-over-year. However, if we execute the impact of the international business, which has been down to 0 and the impact of last year's prepurchase of accommodation and air ticketing products, which was largely reduced this year for risk control, the like-for-like net revenue growth for our domestic business in quarter 4 could be in the range of 3% to 8% increase.

Meanwhile, we should take one more factor into consideration for quarter 4 recovery. The spring festival of 2021 is 2 weeks later than that of 2020, which will have a positive impact on our 2021 quarter 1 results, but negative impact on our quarter 4 results since most of the business for spring festival will be booked in quarter 1 next year. Executing share-based compensation and amortization from Tongcheng-Elong merger, the company expects non-effort net profit or adjusted net profit will be in the range of RMB 300 million to RMB 360 million. This forecast reflects our current and preliminary view, which is subject to changes.

Overall, traffic is a basic need for people, and we believe the growth potential is huge, especially in low-tier cities in China. In the past third quarter, we have seen delightful recovery in Chinese travel industry as the virus has been effectively contained in China. And subsequently, pent-up demand was gradually being released. The worst of time of the year has passed, and we are entering a postrecovery period in which we see now or never opportunities and accelerate the online penetration -- to accelerate the online penetration and increase our market share in the travel industry. We will consistently pursue the growth of our business by further reinforcing our presence in target markets.

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

[Operator]

[Operator Instructions] We have the first questions comes from the line of Alex Poon from Morgan Stanley.

[Chun Poon, analyst]

Congrats on a very strong recovery and cost control. My first question is related to your offline strategy. So now you have 11% of pay users through offline strategy in Q3. How their repurchase rates have been tracking in the last couple of quarters? This is my first question. Second question is related to your product strategies. Given now a lot of customers and users are not taking less ground ticketing compared to air, they're doing more short-term travel compared to long-haul travel. What are your key product strategies going into 2021?

[Joyce Li, executive]

Thank you, Alex. I think for the offline initiatives, you could see that it already contributed a lot to our hotel room night and ticketing vending machines. And concerning prepurchase rate, because we just started initiatives in the second quarter of this year and the main target of our business from offline initiatives is mainly to acquire more offline users to online, cultivate their online behavior. And I would like to address more about the bus ticketing business, especially, you can see that we have made great progress in concerning of the volume growth in the bus ticketing market.

And I think that the bus ticketing market had an ample room for development in the future. Because firstly, the sector has more than 3x that market capacity in terms of volume compared to the train ticketing sector. And also, the APP line is very fragmented. They have very fragmented supply end and the lack of our approach. We have already seen the vast growth potential in the bus ticketing business as its online penetration level is extremely low compared to that in the train and air ticketing sectors.

And I think that average daily volume for the bus ticket has already been increased to over 300,000 in September. The volume from offline user acquisition has contributed over 50% of the bus ticketing volume on our platform in quarter 3. And even during the national holiday, our bus ticketing volume doubled year-on-year. So I think in the year of 2021, we will increase our investment in the offline initiative in bus ticketing sector. And you can see that we will continue to perform in the online penetration rate of this industry.

[Lei Fan, executive]

Yes. In terms of the product strategy, as you mentioned, Alex, we have also observed a lot of user behavior change after the COVID-19. So we somewhat changed our product strategy as well. For example, after the pandemic, we observed that consumers prefer nontouch booking and service, which will benefit online penetration of the travel industry. And also because of the uncertainties of the pandemic nowadays, customers or users usually make instant booking instead of advanced bookings as restrictions may change from time to time. This will also benefit the platforms providing convenience services like this.

And also, some of the customers now prefer self-guided tour instead of a group tour, which is more flexible and safer. This would also benefit the platform selling standard and individual travel product letters as well. And also, that is for leisure travelers. For the business travelers, we think that online meeting or conference can temporarily help us to improve our efficiency and response timely, especially when there is a travel restriction. But online meeting cannot fully replace face-to-face meeting and contacts. It has a bigger impact on high-end business travel, but not much impact on mid- to low-end business travel, considering the cost needed, and that face-to-face meeting are still preferred for many industries, such as construction, wholesale, service industry, also why business traveler in low-tier cities recovered much faster.

So based on those kind of user behavior change, so next year, just like Joyce mentioned, we would like to strengthen our bus ticketing vending machine business to make the supply end more digitalized and to provide the nontouchable bookings. And also, we will also try to explore the corporate travel business, especially in low-tier cities, as the market is very fragmented right now and also the low-tier cities business traveling needs is booming as well.

And at the same time, we will further invest in technology so as to increase our revenue by providing innovative products and services to our users and also to our value proposition to the [indiscernible] to our supply there. For example, we will have the hotel to strengthen its capability. Our revenue and inventory management, consumable e-commerce, fast and nontouchable check-in and checkout process. And we also provided big data analysis and industry insights to our TSPs to enhance their marketing capability and also improve their operation efficiency to support their strategy as well.

[Operator]

The next question comes from the line of Thomas Chong from Jefferies.

[Thomas Chong, analyst]

Congratulations on a very solid set of results. My questions is more about on the accommodation side. How should we think about the competitive landscape in 2021 after COVID is over? And also how we should think about the take rate that we should anticipate for next year?

[Joyce Li, executive]

In concerning about the market competition, especially in the accommodation side, customers think the market competition has been very stable right now. And I think the market players are more cautious during the pandemic. But we are already on the right track of the recovery. We have led the market growth and the success with capture of rebound opportunities. And regarding the market capacity, I think we all know that approximately about 70% of the China's population is in Tier 3 or below cities. And with increasing urbanization and consumption power as well as the further development of infrastructure, such as airports and high-speed trains, we believe that the people in the low-tier cities will have more opportunities for the domestic travel.

So we have already seen that it's a good chance to accelerate our penetration with travel business, especially in the low-tier cities. And we are well positioned to enjoy the above trend without solid market position in the low-tier cities. And I want to mention that the hyper growth in the hotel business is one of our most important strategies in the coming years. We have been cultivating this industry for over 20 years. So we are not afraid of any market changes or competition. I think we will continue to closely monitor the market dynamics and ensure we offer the price competitive product to our users. And we also will increase our marketing spend to gain market share more aggressively.

Besides, I think the cost saving mode that we have operated for this year have been provided the company more flexibility to capture the growth momentum. So we are very confident to continue to outperform the industry.

[Lei Fan, executive]

In terms of the revenue growth for accommodations, I would like to mention 2 things: one is the cross-selling and the other is VAS, the value added service, in accommodation. And that is why we insist on the one-stop shop strategy of the accommodation. So I think everyone has observed that in quarter 3, the revenue from accommodation is far beyond our expectations. And also because of these 2 reasons, one is the cross-sell rocketed up and the other is the VAS nearly contributed 10% of our accommodation revenue.

For the cross-selling trends in the future, actually, we have already accumulated a huge user base for rail and also for bus transportation from this year. To accelerate the cross-selling strategy, we have optimized our internal resources in the summer -- from this summer, actually, and further enhanced the cooperation of 2 business units to achieve even better synergy and ensure an effective execution of the strategy. The result was perfect that our one trip cross-selling rate quickly raised to 11% with continued momentum, and around 20% room night was contributed from cross-sell, from the rail transportation and also from bus transportation. That is why we want to very aggressively develop the bus ticketing vending machine since the beginning of this year.

And also the revenue from accommodation was largely beyond our -- so that is why the revenue from our accommodation was largely beyond our expectation. What is more, the total revenue and the monetization will improve as we expected, and it will continue in the following quarters.

In the summer, actually, we also further enhanced our algorithm and the transaction process as well as designing different attractive marketing promotions so as to approach our users with precise recommendations and promotions to boost our cross-selling rate. These are especially effective during summer vacation. In the future, other than cross-selling from train ticket, air ticket and from transportation tickets to accommodation, we will also create more scenarios for cross sell, for example, from hotel to tourist attractions, from air ticket to car pickup. So that is the driver for our room night growth, I think, in the following several quarters.

And the drivers for the take rate increase. Actually, as I mentioned, the blended take rate of accommodation in the last -- in the quarter 3 improved year-over-year and also improved quarter-to-quarter and this trend will continue. The take rate will go up comparing to last year and to last quarter, mainly because of nonrooms VAS contributions, which will be a main driver to support our accommodation revenue and the monetization goal for next year.

Nowadays, the base take rate is quite stable. And also the competition for the pricing is also very stable for this quarter and also post-COVID-19. So the opportunity to increase our take rate is mainly from the VAS sales. So to some extent, it's kind of -- I think it's kind of aggressive momentum in the quarter 4 and also for the next year.

[Operator]

The next question comes from the line of Brian Gong from Citi Group.

[Brian Gong, analyst]

Congratulations on the solid results. I have 2 questions. First one is that can management update us regarding the progress on the contract renewal with Trip.com and Tencent? Yes. This is my first question. And second question is that how should we look at revenue and marketing costs for 2021? Yes, that's my 2 questions.

[Joyce Li, executive]

I'll take the first question and Julian will take the second. Currently, in agreement with Tencent, we haven't done a term time discussion yet. But we have mentioned many times before, Tencent's our largest shareholder, and we have the mutual beneficial relationship with Tencent since years ago. And this agreement with Tencent is 10-year agreement for the 2 exclusive portals in Weixin payment until 2026. We will have to renegotiate the fee as we have prior to continuing in 2021. I think as the [indiscernible] model to operate mini program in Tencent ecosystem, we have worked with Tencent in providing users with extensive and high-quality product services to fulfill the Tencent ecosystem.

And now you can see that we further explore the cooperation with Tencent to engage new users at different scenarios. We have extended cooperation with Weixin searching portal and co-build the ecosystem with Weixin by providing our expertise and experience in travel industry. And now we have also extended our cooperation with Tencent as a kind of products and services. And we also help our TSPs to develop mini programs so as to bring more participants to Tencent ecosystem. And besides, also, we have mentioned before, we contributed a significant amount of other processing fees and advertising fee to Tencent every year. So that's the situation about the portal and the agreement with Tencent. And about the inventory share agreement with Trip.com, we are still in discussion with Trip.com. But we believe our relationship would be stable as it is also a mutually beneficial agreement for both of us. We will announce once we confirm the details.

[Lei Fan, executive]

Yes. In terms of the trends and guidance for the next year, actually, it's too early. It's a little bit difficult to predict the overall situation in 2021, as the market is still volatile due to the uncertainty of the coronavirus and the government control measures. After the pandemic, booking window, just like what I mentioned, booking window of users are getting shorter and shorter and the visible of our business forecast is very limited. But as the epidemic has been effectively controlled in China recently, the travel industry is recovering well. So we are very optimistic about our business recovery and also during the post-COVID-19 period, we think -- the management team thinks the most important thing for us is to continue to implement our strategy to strive for hypergrowth in MPU, the paying users, and also the accommodation, the room nights. So that is the most important thing post the COVID-19.

And actually, in 2019, if you remember, that year -- the last year, we realized 150 million annual paying user, that means 150 million users will purchase at least one time in our platform in 2019. Now the management team target at least a 200 million annual paying user next year. And we would like to build our #1 travel brand in mass market and the low-tier cities market. We are very confident that this objective is achievable, especially in low-tier cities or the mass market.

By segment, for accommodation business, actually, we have mentioned this a lot of times, the online penetration of hotel reservation in low-tier cities is only 20%. This is a blue ocean market when compared with high-tier cities. We aim at achieving hypergrowth in accommodation business with this enormous opportunities. We will continue to invest more marketing dollar in some target area next year to pursue and even faster market share penetration, both from offline and from online as long as the ROI is positive. We will also continue to develop the VAS product for accommodation business so as to increase our take rate.

And for the transportation, the train ticket business we are still very confident on its growth potential in volume as the government plan to continue increasing the coverage of the railway, especially the high express railway. As such, we will continue to leverage the large volumes of train ticket business to improve our cross-selling to other businesses, especially the accommodation to achieve higher monetization. And also for the bus ticketing business, as Joyce mentioned, we target a doubling growth for the ticket size and also for the paying users in this area.

And last, we also tried to explore the corporate travel, as I mentioned, in the – before, the travel -- corporate travel business as a market is still very fragile right now. So next year, the first index, the first target that we would like to provide to the market is that we would like to achieve above 200 million paying users annually for next year. And we also will disclose this kind of index from next quarter.

[Operator]

The next question comes from the line of Ronald Keung from Goldman Sachs.

[Ronald Keung, analyst]

Two, may I? That -- firstly, Julian you shared that the ADR was around kind of down 15% in the third quarter. Could you share just how that ADR trend has been for the quarter-to-date? And kind of linking to that and my second question is regarding your fourth quarter revenue guidance. You mentioned that underlying domestic growth will be kind of 3% to 8%. Could you just split how the -- how you see the accommodation and transportation will be with that kind of trend that we saw in the third quarter be similar that you focus more on the accommodation? And with that ADL trend, how should we think of the next year on a quarterly kind of progression, given how low the base was for this year?

[Lei Fan, executive]

I will provide a detailed guidance for accommodation and transportation in quarter 4 and the following. Actually, from market data, we can see the travel market has not fully recovered in quarter 4. The uncertainty of COVID-19 has changed the market recovery as well, but we have been outperforming the industry average over the past 3 quarters, and we are very confident to continue to lead the market growth in the future.

As I mentioned, based on our current data, we are forecasting the quarter 4 revenue to decline by 5% to flat year-over-year. But if we exclude the impact of international business and prepurchase products, the like-for-like net revenue growth, as I said, for our domestic business in quarter 4, could be in the range of 3% to 8%. Accommodation reservation revenue will keep accelerating with a forecast of 2% to 7% increase year-over-year. And if we exclude the negative impact of international business and the negative impact of reductions in prepurchase business, the domestic accommodation revenue is expected to increase by 10% to 15%.

In terms of the room nights, we expected the total domestic room nights to have at least a 20% growth for the whole quarter in quarter 4. Mainly driven by the swiftly recovering demand for both business and leisure traveling, the ramp-up of cross-selling and accelerated offline user acquisition. The ADR -- like your question, the ADR will still be challenging, aligned with the hotel industry, but the decline has narrowed down to 15%, the same level as the quarter 3 decline year-over-year.

The blended take rate will go up year-over-year, mainly because of the nonroom VAS contribution, as I've mentioned, which will be a main driver to support our accommodation revenue and increase our monetization next year. For transportation ticketing revenue may decline by 5% to 10% and increase 0% to 5% if we exclude the impact of international business. Actually, the recovery slightly lagged behind that of the accommodation because: one, the VAS revenue transfer from real transportation to accommodation revenue as we further push forward the cross-selling strategy; and two, very important, the time differs of spring festival, which is 2 weeks later than last year. To some extent, the advanced booking will be lapped over from quarter 4 to quarter 1. So that will impact for the transportation but not impact for the accommodation.

And for the quantified, the -- we think the time difference of the 2 weeks may have a 5% to 10% revenue impact for transportation from quarter 4 to quarter 1. And also other business revenue may increase 5% to 10% as the advertisement business come back and more investment and development on new business, such as corporate travel business, as I mentioned. So that is the by segment forecast guidance for quarter 4.

[Operator]

The last question comes from the line of D.S. Kim from JPMorgan.

[D. S. Kim, analyst]

I guess I have 2. I guess my first question is related to your earlier comments on product strategy. Well, now that we are pretty much back to pre-COVID level for domestic tourism industry as a whole, what do you think is the new and sustainable growth run rate from here, like 10%, 15% or even higher per annum for the whole industry for the travel domestic? And how much growth opportunity do you foresee -- Tongcheng can see given our focus on low-tier cities. Can we double the industry momentum that you foresee or even triple? So that's my question. Second is more housekeeping. Could you break down GMV momentum in hotel versus transportation in third quarter? And if possible, let us know what kind of GMV assumptions have you baked in fourth quarter guidance? And congrats on great results.

[Joyce Li, executive]

Thank you, D.S., for your questions. Actually, for the travel business, we can see that by the end of September, based on the official data, actually, domestic air and domestic rail have been recovered to more than 90% and around 80% when compared with last year. And for the domestic accommodation, we also both largely come back of occupancy rate for hotel chains, but the repo is still challenged because ADR dropped. In concerning our long-term strategy, as Julian has mentioned, because we now target to be the #1 travel brand in the low-tier cities.

I couldn't say the accurate number for our growth target about double or triple the whole industry. But as Julian mentioned, we have very specific target to enjoy the hypergrowth in the user numbers and also by acquiring the users from offline, transforming from the offline to online and specifically in the accommodation and the bus ticketing business. And also, you mentioned the GMV split. In quarter 3, I think the accommodation GMV mix was around 15%, 16%. And if you may be wondering the long term GMV split, I think because of effectiveness of cross-selling rate, the revenue contribution and even the GMV contribution from accommodation side will increase.

[Operator]

We have reached the end of the question-and-answer session. I would like to hand the conference back to Kylie for closing remarks.

[Kylie Yeung, executive]

Thank you, operator. 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. Bye-bye.

[Operator]

Ladies and gentlemen, this concludes today's call. Thank you for participating. You may now disconnect.