Tongcheng Travel Holdings Ltd

HKEX:780

Earnings Call Transcript 2021-Q3

[Operator]

Welcome to Tongcheng-Elong's 2021 Third Quarter Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] And now I'd like to hand the conference over to Ms. Kylie Yeung, IR Director of Tongcheng-Elong. Thank you. Please go ahead.

[Kylie Yeung, executive]

Thank you, operator. Good morning and good evening, everyone. Welcome to Tongcheng-Elong's 2021 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, Mr. Hep Ma; our CFO, Mr. Julian Fan; and our VP of Capital Markets, Ms. Joyce Li.

For today's call, our management team will provide a review of the company's performance for the first quarter. Hep will walk us through the company's business performance for the third quarter, Joyce will discuss our operational highlights, and then Julian will address the details of financial performance accordingly. We'll take your questions during the Q&A 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 financial measures, please refer to our disclosure documents in the IR section of our website. Now let me introduce our CEO, Hep. Hep, please go ahead.

[Heping Ma, executive]

Thank you. Thank you, Kylie. Good evening, everyone. Welcome to our third quarter earnings call. It's very nice to have you with us again. And thank you all for your continued support in the past quarters. Since the first outbreak of COVID in early 2020, China's travel industry has seen profound changes from the demand end to the supply end. Consumers have already become customer to the uncertainties brought by COVID and accordingly have switched to a more flexible travel mode. They are now more inclined to online booking and short-haul travels with low specific plans. Meanwhile, the supply end is seeing a speed up in digitalization to adapt to a new normal under the impact of COVID.

These have not only posed challenges to all industry players, but more meaningfully also creating opportunities for the industry. In the face of these challenges, we have realized that a more resilient and acute organizational structure will allow us to build a deeper mode and that will enable us to better address the new challenges as well as capturing the emerging opportunities. In September this year, we initiated and quickly completed organizational restructuring aiming to lay a more solid foundation for the upcoming challenges and opportunities.

On the new structure, the Accommodation and Local Consumption Business Group was set up to better serve users' emerging needs surrounding short-haul travel and local consumption. Transportation Business will consolidate as one business group to seek better internal synergies and higher efficiency. While the Content and Leisure Travel Business Group was newly set up to explore the attention economy and certain users decision-making process by building travel content and providing diversified products and services. This year so far, the travel industry has been undergoing ups and downs as the coronavirus continues to evolve and uncertainties [indiscernible].

Throughout the year, we maintained our flexible operational strategy, constantly demonstrating the resilience of our business amid market fluctuations. With [indiscernible] efforts in saving recovery opportunities when demand was [indiscernible] and scaled down marketing investments when demand was lessened by the resurgence of COVID. With aforementioned flexible operational strategy, [indiscernible] business model and strong execution capability, we continuously led the market to recovery and delivered solid results to get back[indiscernible] hurdles, trust and support.

In the past quarter, our Accommodation business, [indiscernible] under the shadow of COVID resurgence, maintained its recovery momentum. And we further penetrated the lower-tier cities and continued to increase market presence there. During the quarter, we [indiscernible] into users' potential needs under various scenarios and operated precisely to absorb this corresponding demand, which added to the growth of our accommodation business.

Meanwhile, cross sales continued to play a key role in the growth of the business. At the same time, we consistently pushed ahead with our offline user acquisition initiatives by increasing hotel coverage and exploring more offline scenarios.

For the third quarter, our Domestic Room Nights sort of maintained a decent year-over-year growth of around 25% compared with 2019, with nearly 45% growth in lower-tier cities. Although the resurgence of COVID suppressed the runniness and demand for travel. We still managed to get the better out of the hardship and consistently outperformed industry peers.

As for our air ticketing business, we made continuous efforts to reinforce our market position in some advantageous regions as well as attracting new users through tailored products and services. Our air ticket volume, however, saw a single-digit decrease over 2019 level, mainly as a result of reduced long-haul travel during the summer vacation period as strict travel restrictions were imposed nation-wide to contain the spread of virus in Nanjing. Considering our train ticket business, we remained focused on enhancing user value. We provided users with customized VAS products and services to meet their needs on the tighter supply control during the pandemic as well as providing a better travel experience to train users.

Meanwhile, our intelligent Huixing System, which is [indiscernible] of our intelligent transportation architecture provides more customized travel solutions for users as we continued to optimize its algorithm and underlying supplies. Furthermore, we continuously [indiscernible] to users' underlying needs and constantly enriched value-added products and services to provide them with convenience and comfort during their journeys. Our bus ticketing business, a key instrument for us to grow user base, maintained its streaming growth over the third quarter. And we further rolled out our ticketing vending machines across the country as well as exploring more offline scenarios. By the end of September, we had more than 10,000 machines installed in almost all cities across Mainland China. As a result, our bus ticket volume registered nearly 250% growth in the third quarter when compared with 2019.

Over the last quarter, we also made more efforts in [indiscernible] considering other travel products to our bus ticketing users as a way to enhance monetization capability. The cross sales rate in the bus ticketing sector improved quarter-over-quarter as we optimized the booking and the transaction flows to better present products and services. In the following, we will remain focused on growing our user base, while gradually stepping up efforts in better serving the sizable uses of our bus ticketing business. Throughout the year, the road to recovery has been rough and bumpy amid the uncertainties caused by sporadic outbreaks of COVID. In the short run, the fluctuations will continue and the road ahead remains uneven. However, [indiscernible] withstanding from that, China's travel industry has huge opportunities and growth potentials, especially in the market in lower-tier cities. And where we will spare no efforts to grow bigger and stronger. We will proactively engage in boosting digitalization of China's travel industry through our advanced technology and Internet advertise.

Meanwhile, we will continue to pursue our core corporate value, customers come first, as always, and provide users with easier and more joyful journeys. Last but not least, we will make greater efforts to fulfill our social responsibilities to create value for the society. With that, let me turn over the call to Joyce. She will walk you through our operational highlights for the third quarter. Joyce, please go ahead.

[Joyce Li, executive]

Thank you, Hep. The past quarter was like riding a roller coaster. At the beginning of the [indiscernible] with the demand being quickly released with increasing willingness for travel in early to mid-July, our MAUs also hit record high for the month. However, once strict travel restrictions were imposed nation-wide as Delta virus spread from Nanjing to other regions in China, we saw demand being greatly depressed, and the travel industry dunked into new lows in August. Later, it gradually bounced out in early September as soon as restrictions were relaxed. However, fluctuations persisted as confirmed cases continued to occur from time to time. Facing the huge fluctuations over the third quarter, we once again demonstrated resilience of our business and managed to outperform industry peers for another consecutive quarter.

In later July, we successfully renewed our contract with Tencent for another 3 years with an additional 3-year renewal priority thereafter, which enables us to continue providing hundreds of millions of Internet users with our quality travel products and services by 2 entry points in Weixin Pay Interface. Over the past quarter, we continuously sought deeper cooperation with Tencent to attract more users at different scenarios. We once again joined hands with the QQ Browser and launched tailor-made content feeds to stimulate interest and [indiscernible] of the younger generation. Meanwhile, we were entitled to more [indiscernible] IP rights by Tencent through which we're able to establish closer bonds with the younger users as these IP rights are enormously popular among younger generation.

Worth mentioning, we were awarded the best of the year in 2021, Tencent Innovative Marketing Award in recognition of the originality of our phenomenal product, Blind Box of Air Tickets, which caused a widespread discussion over the online communities.

During the quarter, we made continuous efforts to diversify our traffic sources by cooperating with multiple online platforms in addition to Tencent Ecosystem. Our [indiscernible] app has got featured on App Store for our innovative product Blind Box and successfully attracted more users for downloads and installations. Since last year, we built a solid partnership with China's major handset vendors and have achieved a deeper cooperation with each other in multiple fronts. For the third quarter, we further deepened the cooperation with one of the influential handset vendors and have our travel product services available on smart card system through which we try to create diverse booking scenarios for users, enhanced improving user experience. Moreover, through product innovation and operation optimization, our conversion rate on handset vendor is on a steady uptrend. And as a result, our operation in Quick App is well recognized by handset vendors and is deemed as industry benchmark.

At the same time, we firmly push ahead with our offline user acquisition initiatives to further penetrate low-tier cities and enhance our brand awareness. With our strong execution capability and well-built relationship with suppliers, we continue to roll out bus ticket vending machines across China, and further increase geographical coverage in low-tier cities where bus is a dominant vehicle for travel. Meanwhile, we replaced attraction ticketing vending machines with QR code scanning placards at tourist attractions to improve user acquisition efficiency. Moreover, we kept seeking new offline scenarios to capture more offline users. This initiative has brought us considerable amount to paying users in a cost-effective way, in particular, the bus ticketing vending machines.

Furthermore, we continued to launch broad marketing activities to elevate our brand influence, both in supply and user end. In the third quarter, we further enriched our innovative marketing campaign, 48 hours, targeting younger users to better serve their emerging needs for short-haul travel post-COVID. We joined hands with Shandong Tourism Bureau and introduced a special session to promote local tourist resources and culturally created products, which can attract a handsome amount of younger users. Meanwhile, we had the Macao Tourism Bureau on board to help revitalize its post-COVID travel market by introducing Blind Boxes containing hotel coupons and tourist attraction tickets. Besides, our Black Whale membership program continued to grow in the third quarter as we made a deeper dive into users' underlying demand and introduced more tailor-made versions with more diversified privileges.

The cumulative number on the royalty programs further increased to around RMB 11 million over the past quarter. To better engage with the younger users, we initiated a royalty program called Campus Card, targeting university and vocational school students to enhance our brand awareness in the potential user group. With aforementioned efforts, our average MAUs maintained growth momentum in the third quarter, even under the shadow of COVID re-emergence. With a decent growth of 8.3% (sic) [ 18.3% ] over 2019 level at around 276.9 million. Our average MPUs for the quarter stayed a record high of 33.6 million, with a year-over-year growth of 12.8% versus 2019, mainly attributed to our effective online and offline acquisition initiative, user-oriented product services and outstanding operational capability.

More significantly, our 12 month rolling paying users continued to spend and hit a new high of 196.1 million as of the end of September, representing a robust increase of 45% over 2019 level. Since the merge in 2018, we have been pressing ahead with the cross-selling strategy to enhance traffic value and thus seeking internal synergies. Over the past years, our [indiscernible] cross-selling rate has greatly increased to double digits from a very low single digit.

In the third quarter, we continued to leverage the traffic from the train ticketing business to nourish our air ticketing, accommodation, and attractions ticketing business, although travel demand was eroded by strict travel restrictions. Again, aiming to transport [indiscernible] OTA to ITA, we are dedicated to enhance both internal and external efficiency of our technology. For [indiscernible] brand, we're committed to empowering the business of our suppliers through our technology solutions and internet expertise.

In the third quarter, we continued to expand strategic partners with airports. We signed a structured cooperation agreement with Guangzhou Civil Aviation Airport group, in addition to Shiyan Airport and Daxing Airport to help them build intelligent airports, riding our good algorithm capability and technology solutions, to provide tourists with the best experience in destinations and short-haul travels as well as supporting smart travel development of Shanxi province. We worked together with the local tourism bureau and launched an intelligent tourism platform that contains functions such as online shopping service, visual maps, and select route recommendations.

Moreover, we acquired a TMS company in the last quarter to further enhance our technological and service capabilities. This enables us to build closer ties with supply end by providing our comprehensive solutions to more small and medium sized hotels in lower-tier cities to enhance their daily operational efficiency and ultimately elevating the online penetration rate and digitalization of the travel industry. On the other hand, we consistently stepped up investments in technology to perfect users' experience and offer them a more joyful journey. We continued to optimize our intelligent Huixing System in terms of underlying supply and algorithm capability to have high efficiency and better booking experience.

Going deeper, this intelligent system is also capable of helping the government utilize the national transport network more efficiently by providing combined transport solutions. In addition, more functions were added to our AI customer service system to enhance customer service efficiency. The new functions enable the intelligent system to identify customer service demand and then respond spontaneously. As a socially responsible company, we place emphasis on the well-being of society as well as the natural environment. We recognize and understand the increased importance of sustainable development. Lately, we set up a board-level ESG committee and a corporate level ESG and data security committee, respectively, in an endeavor to seek sustainable growth that benefits both the company and society.

Under the committee, we have several task forces to further improve our ESG initiatives and help us better fulfill our corporate social responsibilities. We have task force responsible for the data security, which will focus on optimizing our data protection and security mechanisms, so as to build an impactable network firewall and better compliant with the evolving regulations, and now better protect users' personal information interests.

We always put our users' interest first and strive to protect their rights. While the pandemic was causing large-scale uncertainty of travel, we acted swiftly to the changing conditions and launched a series of measures, including non-penalty refund policy, to help them plan their trips and protect their safety. We also launched a special booking interface that is tailor-made for the elderly in the past quarter. This simplified booking portal aims to facilitate online booking for the elderly and provide them with a more convenient and a joyful experience.

On the other hand, we endeavor to contribute more to society with our industry expertise. We joined hands with a local government in Suzhou and co-built a rural resort community to revitalize the local travel industry, which was well recognized and selected as a paradigm for rural revitalization. To facilitate the recovery of local economies, we're also working with several local governments to help promote local produce and culturally creative products through our platform by utilizing our huge traffic and internet expertise. By leveraging our brand influence and technology, we will continuously participate in the social activities to better contribute to our supply team. With that, I will hand over the call to our CFO, Julian. He will share with you our detailed financial results for the third quarter. Julian, please go ahead.

[Lei Fan, executive]

Thank you, Joyce. Good evening, everyone. In the third quarter of 2021, we reported a net revenue of RMB 1.94 billion, representing a 1.3% year-over-year increase from the same period of 2020 or a 94% recovery over 2019 level. If we exclude the impact of the frosted international travel and the reduced [indiscernible] business, the like-for-like net revenue achieved 4% growth compared with the third quarter of 2019. In the past quarter, as Hep and Joyce mentioned, we have undergone tremendous fluctuations amid virus resurgence in many provinces, massive flooding in Henan province and terrifying typhoon in Eastern China. However, with flat demand for local travel in low-tier cities remained resilient as those markets were less impacted by COVID, which, to a great extent, prompted up the recovery of our business.

For the third quarter, our MAUs, MPUs, [indiscernible] volumes continued to stay high. We are convinced that our every effort we made in low-tier cities was deserving. Looking at the bottom line, we achieved RMB 351 million adjusted net profit with 18.1% net margin, compared with 18.6% net margin in quarter 2 2021. Our management team, as always, kept monitoring COVID situation to timely adjust the marketing strategy in different channels and in different areas, so as to minimize the impact of COVID on our business as well as pursuing a decent growth while keeping a better ROI.

In the third quarter, we recorded RMB 41.1 billion in GMV with a 3% year-over-year increase compared with 2020 or an 86% recovery from 2019 level. The growth rate of our net revenue in this quarter did pass that of the GMV when compared with 2019, mainly due to higher VAS [indiscernible] rate in both accommodation and transportation segment as well as the well-executed one-stop shop strategy.

The ADR and ATV still dropped when compared with '19. Accommodation reservation revenue achieved RMB 645 million, representing a 6% decrease from 2020 or a 7% decrease from 2019. If we exclude the negative impact of international travel and prepurchase business, the like-for-like accommodation reservation revenue recorded a 2% growth compared with 2019. Even under such a hard time in the past quarter, Domestic Room Nights still booked around 25% growth compared with the same period of 2019, significantly beats the industry gross.

Geographically, Room Nights sold grew over 10% and nearly 45%, respectively, in higher-tier cities and lower-tier cities, thanks to the booming demand for staycations and short-haul travel in this summer. The strong execution of cross-selling within the company and the accurate offline and online marketing strategies. The ADR still dropped compared with 2019 due to short-term headwinds faced by the hotel industry as well as our strategy to further penetrate lower-tier cities.

The take rate continuously improved compared with that of 2019 as a result of increased revenue contribution from VAS, which was attributable to the effective implementation of our accommodation one-stop shop strategy. Transportation ticketing revenue for the third quarter of 2021 was RMB 1.125 billion, representing a 7% increase compared with the same period of 2020 or a 1.3% decrease compared with the same period of 2019. The revenue almost recovered to pre-COVID level, mainly due to users' enhanced willingness to purchase our VAS products and services, in particular, when supplies were in shortage. The recovery of air and train volumes was much better than the industry and the bus ticket volume achieved nearly 250% growth compared with 2019, mainly due to our strategic focus, our investments in offline bus ticketing vending machine across the country.

Other business revenue was RMB 170 million in the third quarter, representing a 3% decrease from 2020 or a 26% decrease from 2019. During the past quarter, the TMC business and advertisement business were negatively impacted by COVID resurgence. Gross margin was 73.9% for the third quarter of 2021, increased from 72% for the same period in 2020 and 66.9% for the same period in 2019. The continuous margin improvement was mainly driven by our streamlined operations, intelligent customer service ability and revenue mix change in the past 3 years. In the third quarter of 2021, our adjusted EBITDA achieved RMB 526 million with 27.1% EBITDA margin, improved from 24.8% quarter-over-quarter and from 26.1% year-over-year.

The adjusted net profit achieved RMB 351 million, with margins slightly decreased to 18.1% from 18.6% quarter-over-quarter and from 19.5% year-over-year. Moreover, the impact driven by contract renewal for the 2 entry points in Weixin has been considered since this quarter and was fully offset by the enhancement of marketing efficiency and operating leverage. Service development and administrative expenses in the third quarter of 2021 decreased by 4% from the same period of 2019. Excluding share-based compensation charges, service development and administrative expenses in total accounted for 19.9% of revenue in the third quarter compared with 18.6% of revenue in the same period of 2020 and 19.4% of revenue in previous quarters.

Selling and marketing expenses in the third quarter of 2021 increased by 25% from the same period of 2019, and decreased by 11% from the previous quarter. During this quarter, we strategically increased the investment in marketing campaigns to seize the recovery opportunity in July. Meanwhile, we closely monitored the market and COVID situation and promptly reduced some of the marketing investments in August to make the investment more effective, aiming for better ROI. Excluding share-based compensation charges, selling and marketing expenses accounted for 40.2% of revenue in the third quarter compared with 37.6% of revenue in the same period of 2020 and 41.1% of revenue in previous quarters. As of September 30, 2021, the balance of cash, cash equivalents, restricted cash, and short-term investments was RMB 6.3 billion.

Now let's turn to our expectations for the final quarter of 2021. [indiscernible] into the winter and strict travel restrictions remain imposed. For the fourth quarter, we still see various challenges and uncertainties caused by COVID. Based on the current situation, we are now expecting our revenue to decrease by 5% to 10% over 2019 level or to be in the range of 3% decrease to 2% increase compared with the same quarter of 2020. Our adjusted net profit is expected to be in the range of RMB 220 million to RMB 270 million. This forecast reflects our current and preliminary view, which is subject to changes.

In the short run, we are still faced by various uncertainties caused by COVID. However, we remain confident that the company, after almost 2 years of consideration and preparation, is now in the best position to capture the post-COVID recovery opportunities and will continue to outperform the market, whatever challenges we encounter and have. With that, operator, we are ready to take questions now.

[Operator]

[Operator Instructions] Our first question comes from the line of Brian Gong from Citigroup.

[Brian Gong, analyst]

So my first question is about, with recent resurgence gradually under control, have we seen any travel [indiscernible] recovery? And how should we look at growth for next year given a low base for this year? And my second question is, with strong increase in bus ticketing volume, may I know what's your latest [indiscernible] rate, and can management share their latest cross-selling rate for those cross-spending users?

[Lei Fan, executive]

Hi, Brian. Thank you for the question. Before I would like to put some comments on the next year's guidance or next year's growth and bottom line guidance, I would like to share more color on the recent industry situation. Actually, getting to October, as more cases resurged in several regions, it is believed that China will continue with very strict control measures, especially during the Olympic Winter Games preparation in February next year or even later next year. We would rather be more prudent to the market uncertainties due to the stricter restrictions, especially on business travel and in metropolis like Beijing. Just in last week, I think, Beijing announced very strict travel restrictions than ever to control the pandemic situation and lots of flights and trains to and from Beijing were totally canceled.

Actually, for the overall market or the industry data, the air passenger traffic in October was around 30% lower than the same period in 2019. And the number of passengers by train in October also declined by about 25% when compared with the same period in 2019. Nevertheless, we were still able to record better than the industry business volume in October. But other markets got worse and worse since the end of October. The latest industry data has not been announced yet, but so far in November, we have observed a 25% decline and 30% decline in volume for flights and trains versus 2019 for our company, respectively, due to long-haul and business travel was very negatively impacted by the restrictions, especially the Beijing restrictions, just like what I mentioned. However, the room nights sold and bus tickets, our volume drivers, still record growth versus 2019 in this very challenging environment, benefiting from local and short-haul travel in lower-tier cities and towns.

So thanks to our investment and business development in low-tier cities all over the country. So that is why we still lead the travel market in a difficult time. As mentioned in the prepared remarks, we are forecasting the revenue to be nearly flat year-over-year compared with 2020 or over 90% recovery compared with 2019 or pre-COVID level. Meanwhile, as usual, we promptly reduced some of the marketing investments as the demand has been suppressed. But lastly, as a kind reminder, quarter 4 is usually a slack season for travel and the major season for marketing investments for Spring Festival preparation in travel industry. So that is why our net margin in quarter 4 may be relatively lower than the rest of the year.

Next, in terms of the outlook for next year, 2022, we believe every time when stricter travel restrictions are implemented during this hard time, that implies a better opening or even more big growth rebound later when the restrictions are loosened and the pent-up demand is released. We also deeply felt that the life was very energetic and dynamic in the cities and towns that were less affected by the COVID in the past few months. Management team visited and studied a lot of low-tier cities and towns in August and September and the confidence on local and leisure travel opportunities was stronger than ever. Thus, we are still very confident on the overall market and our performance in 2022, specifically, the hyper growth of accommodations and but tickets, the significant revenue contributions from flights and trains and additional revenue sources from new business and product lines after our organization restructuring.

So nowadays, the management team focuses on the pax [indiscernible], for example, we focus to proactively understand the behavior change of the travelers to aggressively capture those opportunities in our target markets and target users. And also, we proactively lead industry upgrade and revolutions. For example, promoting online penetration to give users more convenience during travel, the supply chain digitalization to improve the overall operational efficiency of the industry. So we believe we'll become stronger in the competitive landscape next year.

For the bottom line or the margin next year, we will persist on flexible and lean management in this environment, on one hand focusing on the ROI for every penny of our marketing investment and on the other keeping improving our operational efficiencies. Meanwhile, we will utilize the savings from efficiency improvement to enrich our product portfolio for better monetization in the long run, and we'll also be devoted to the sustainable development of the company so as to create more value on the whole society. So that is my comment on the next year's situation in terms of the bus ticket business performance. Joyce, please.

[Joyce Li, executive]

Okay. Thank you, Brian, for your questions. The offline acquisition continues to be very important for our MPU growth. So during the third quarter, we have consistently pushed ahead with our offline acquisition initiative and explored more offline scenarios, as I mentioned before. And in the last quarter, around 11% of our MPU was contributed by the offline user acquisition, where the majority was contributed by the bus ticketing business. And the investment per user of bus vending machine was very limited. Well, still we can see now that currently around 25% of the bus ticketing users acquired from vending machines, they repurchased within 3 months.

And we have also started to cross-sell as a top product to our business taking users, so as to enhance the monetization capability since the second quarter of 2021. The cross-sell rate improved as we optimized the booking and transaction flows to better present products and services. But at this stage, we will remain focused on growing our user base while leveraging our capability in data analysis and innovation to develop suitable product for these users and dig out more value for this business. Thank you.

[Operator]

Our next question comes from Alex Poon from Morgan Stanley.

[Chun Poon, analyst]

Congrats on the very strong cost control and user metrics despite the COVID-19 impact. My first question is regarding our short-haul business, staycation, the bucket of revenue that is less impacted by COVID, that is still driving growth. Can management share how much of the GMV is contributed by short-haul travel in overall speaking? And how should we think about this? How much of this business is growing versus 2019? That's my first question. And second question is, recently, there has been discussion about Hong Kong and China reopening. And can management share your view on how we can benefit from the reopening?

[Joyce Li, executive]

Thank you, Alex. First is your question concerning the local travel, staycation. I think we can see that the percentage of room nights sold during the weekend in quarter 3, which is also representative of the users' habits to the choice for the local travel staycation. They have increased by 5 percentage points when compared with the same period in 2019. And I mentioned that in quarter 3, we have further enriched our innovative marketing campaign called 48 hours, which is also targeting for the young users to better serve their emerging needs for the short-haul travel post COVID.

And we also joined hands with several tourism bureaus to help revitalize the travel market by introducing the innovative products and promoting local tour resources. Moreover, recently, we have completed an organizational structure to better capture the emerging opportunities. Under the new structure, the Accommodation and Local Consumption Business Group was set up to better serve users' emerging needs surrounding the short-haul travel and local consumption. I think in the future, we will continue to strengthen this business group by launching the innovative product services as well as seeking best synergy of hotel and local consuming business to capture the opportunities driven by the upsurge of the local travel and staycations.

[Lei Fan, executive]

Yes. For the second question that's about the international business after the borders reopen. We believe, actually, the international business accounted for, I think, around 5% of our revenue before COVID. So when the international border reopens, we will also be benefited as we have already established a relationship with various international suppliers. What is more, we are different. During the past 2 years, we have already provided excellent products and services for nearly 200 million paying users in a year, of which 40% of the users were totally new to our platform. Back to, I think, 2019, we had only just over 100 million paying users in a year.

So nowadays, the user amount has been doubling. So we believe as the border reopens and the consumption power continues to enhance, we could also fulfill the additional needs of traveling around the world by those younger generations. So that is why we firmly believe that the whole travel market is eager for travelers, especially for the younger generations, younger Chinese users. The company has a very large user base, as I just mentioned, which will also help us to restart our international business. So we will also make efforts to prepare for the reopening of the international travel next year. Thank you, Alex.

[Operator]

Our next question comes from D. S. Kim from JPMorgan.

[D. S. Kim, analyst]

Congrats on very respectable print again. My first question is related to our agreement with Tencent a couple of months ago. Could you help us understand how we account the portal fee in our P&L? I mean, do we still amortize the off-run payment in our sales and marketing. And if that's the case, can I check if we have already paid for the 3 full year access and how much of that is booked in 3Q?

[Lei Fan, executive]

Yes. Actually, that is the financial things. The Tencent portal fee is amortized in our sales and marketing dollar line. Actually, we will pay Tencent actually year-by-year, but last time we paid Tencent for the 5 years in one time. But this time, we will pay Tencent 1 year by 1 year. But financially, we booked spending as amortization in the sales and marketing dollar.

[D. S. Kim, analyst]

Got it. Can I just double check, have you already paid during third quarter?

[Lei Fan, executive]

No, we did not pay the money in the third quarter, but we have already booked the spending month-by-month in the sales and marketing dollar amortization line. We will pay the -- yes, the cash will go out in this quarter.

[D. S. Kim, analyst]

Got it. And if I'm not mistaken, we renewed end of July or beginning of August. So that means we have booked about 4 months’ worth of amortization already, right?

[Lei Fan, executive]

Correct.

[D. S. Kim, analyst]

Okay. And I would treat that as one question. I have one quick follow-up. In terms of our accommodation business, which is extremely strong, may I check how big is our low-tier city contribution in terms of total room nights and booking revenues. And I know you may not discuss our market share, but just roughly, it was just so impressive to see our volumes growing in 40-plus percent in lower-tier cities, just roughly, do we have a sense on how much market share we have in the low-tier city today versus, say, pre-COVID 2019. Just want to get the momentum, if I can. And that's all for me.

[Lei Fan, executive]

Okay. First, I will share some color on the contribution for the low-tier cities room nights. I think back to 2019, the low-tier cities, means now tier 1, now tier 2 cities contribute like 40% to 45% of the total room nights in 2019. But nowadays, it has already contributed like 60% of the total room nights in this year. In terms of the GMV, of course, the GMV contribution is less than the room night contribution, just around 50%, because the ADR is relatively lower in the low-tier cities. For the market share, actually, we don't have the exact number of the industry, because we don't have the total room night amount for the whole industry. But we believe we have a lot of market share gain, especially from the offline, because I think I remember last year or before COVID, we mentioned that the total online penetration for low-tier cities is around 20%. But nowadays, we believe that our penetration will be at 25% to 30%. So that 5% to 10% market share is capped by Tongcheng-Elong and other online players.

[Operator]

Thank you. Our next question comes from Thomas Chong from Jefferies.

[Thomas Chong, analyst]

I have a question regarding our take rate trend in accommodation and leisure. Given that we have launched a lot of innovative products and value-added service offerings in the accommodation segment, despite we are seeing uncertainties on COVID or macro uncertainties in 2022, how should we think about our take rate trend? [indiscernible] monetize from the customers? And then a very quick follow-up is about the accommodation. We read about the pricing trend. How should we think about the pricing trend in top and lower-tier cities?

And then my second question is about our annual paying users. Given that we have done so well, already reached close to 200 million paying users, just want to get some color about how we think about 2022 or a few years later about our total annual paying users?

[Lei Fan, executive]

Yes. Actually, Thomas, we are very happy to see that the blended take rate for the accommodation segment for our company continually improved since 2020, benefiting from 2 things; one, most of the online players are very disinclined to invest on the planning. And two, our VAS revenue contribution increased time to time, quarter-to-quarter and year-on-year. So for quarter 3, I think our accommodation VAS has already contributed like 11% of our total revenue for the accommodations. And we believe this trend will continue in several quarters following.

I just want to share more color on what kind of things we provide on the accommodation one-stop shop strategy. So we have been developing a lot of different kinds of VAS products and services to fulfill the users' long-term needs. For example, users are getting more aware of the safety and hygiene during the pandemic. So we offered some new VAS such as insurance and disposable supplies. And these new products and services are well received by our users. On the other hand, when the hotels suffered by the pandemic, hotels are very eager to enhance their opportunities to monetize. So we work with hotels to explore revenue stream from in-store consumption such as dining, bar, and other hotel facilities. This new initiative to make more revenue contributions for our accommodation business and enable us to enjoy higher take rates. So we believe these kind of would be long-term needs for users and hotels as well. And we believe our blended take rate will be improved in 2020 and in the long run. And for the annual paying user things, I think Joyce may give you more comments.

[Joyce Li, executive]

Thank you, Thomas. I think until the end of September, our rolling 12 month AP has already reached 196 million. And actually till the end of October, this number has further increased, a benefit from our offline acquisition of the bus ticketing business. Given the volatile market situation, I think it's already not an easy task for us. But going to the next year, even under the shadow of the COVID, we're still very confident in the continued high growth on user volumes, but we haven't set an exact number for target right now. I think we have already accumulated sufficient user base from our business and we will continue to explore new growth potentials from the new business. And even though we have successfully penetrated the bus ticketing market and become the leader in online market, we still take very small portion of the total market share because this market was too fragmented as the digitalization of the industry was still in a very early stage.

So with our investment in enhancing the bus ticketing business and implementing the operational and management system for the bus operators, we think it will still pay us back hundreds of millions new users from mass market and the low-tier cities in the following years. And we will also aggressively strengthen our capability for the hotel PMS and digitalization of tourist attractions, on one hand to improve the operational efficiency and digitalization for the business partners and the whole industry, and on the other hand still we can acquire more users in multi scenarios similar to what we have done in the bus ticketing business. So at the same time, I think next year, we will focus on acquiring new users. But at the same time, we also will pay more emphasis on the user value growth on our platform.

[Operator]

Final question tonight comes from Ronald Keung from Goldman Sachs.

[Ronald Keung, analyst]

Thank you, Hep, Joyce, Julian, and team. Two questions. Firstly, given the resurgence in cases kind of back and forth, back and forth recently, and in the December quarter guidance, kind of a similar trend to the third quarter, which is roughly flat revenue change on a year-on-year basis. You did give some of your color and expectations into 2022. But as you said that, if you're expecting strict measures implemented for at least the earlier part of the year, should we expect that trend that we saw in third, fourth quarter may be the trend into first quarter to second quarter next year. Just want to see when are we expecting the hyper growth to return, particularly before the cases that resurged. And second question is on, can you share some of the ADR trends? I think I calculated, should it be roughly down around 10%, 15% on a year-on-year basis versus 2019, and some cross-selling rates, if you have some of those numbers, and how that have improved?

[Lei Fan, executive]

Okay. Thank you, Ronald. In terms of 2022, I think I have already shared some color in the question that Brian asked. But actually, in this quarter 4, because of the strict restrictions, actually, the performance is not very satisfied. Just like what we mentioned, it will be flat year-on-year and 5% to 10% drop from 2019. From the company view, actually, we think this kind of a strict restriction will be continued, I think, in the Spring Festival because of the government prepared on the Olympic Winter Games. So we think the restriction, especially to and from Beijing, will be continued in late February or early March. But after that, after spring, we think now a days from the international perspective, a lot of countries have already reopened for the international travel.

We believe China will also step a step to take the same execution for the border reopen, maybe start from the second quarter next year or I think lately in the summer vacation. So we are very confident that the demand will be totally released after, I think, not March or April of next year. So we still hope for a hyper growth next year, hope for a hyper growth domestically and also hope for the restart of the international traveling next year. So that is why now a days we are still very confident on the hyper growth compared with this year for 2020. So that is the first question.

And the second question is some kind of number things. ADR still dropped, I think, 25% to 30% compared with 2019 in quarter 4. And ADR dropped compared with 2020 -- even compared with 2020, ADR still dropped because we have mentioned a lot of times the October and November is very bad for the total traveling industry, especially for the traveling and also for the hotel industry as well. So the ADR has dropped year-on-year and also dropped compared with 2019.

And the cross-sell for the company. Actually, for the quarter 4, it's quite stable. It's just around 10% to 11%, also because of the travel restrictions. So the leisure travel and also the business travel requirement is blocked to some extent. So that is why our cross-sell is not improved quarter-to-quarter from the quarter 3 to quarter 4. But we believe as the restrictions will be loosened next year and also the international traveling started, our cross-sell will set a record high next year. Thank you.

[Operator]

All right. Thank you. We have reached the end of the question-and-answer session. I would now like to hand the conference back to Ms. Kylie Yeung 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.