Tongcheng Travel Holdings Ltd

HKEX:780

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, good afternoon and good evening, ladies and gentlemen, welcome to the conference call, our Chairperson today is Kylie Yeung. Kylie, please begin your call and I'll be standing by for the Q&A. Thank you.

[Kylie Yeung, executive]

Thank you. Good morning and good evening, everyone. Welcome to the Tongcheng Travel's 2023 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. Heping Ma; our CFO, Mr. Julian Fan; and our VP and Head of Capital Markets, Ms. Joyce Li.

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

As always, our presentation contains forward-looking statements. Such statements are based on management's current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, which will 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 necessity for measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of non-IFRS measures, please refer to our disclosure documents in the IR section of our website.

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

[Heping Ma, executive]

Thank you, Kylie. Good evening, everyone. Thank you for joining our third quarter earnings call. In the past quarter, we went through a quite uneven and mixed market situation, in both July and August we saw pent-up demand being greatly relieved with encouraging travel segments. However, entering September, we saw demand again being marginally suppressed with strict travel restrictions, and imposed nation-wide to fight against the rekindling of Omicron. In the midst of huge fluctuations, we maintained our flexible operations -- operating model, while proactively seizing the bond opportunities with the market was picking up. As always, we managed to deliver solid performance, again, improving the great resilience of our business and the excellent execution capability of our team.

Our accommodation business, though under the deep shadow of wide volatility, showed greater resilience and posted record higher revenue in the quarter. As we [indiscernible] recovery opportunities, driven by the emerging demand for local and short-haul travel. During the provident quarter, we continued to penetrate lower-tier cities, especially those in southern part of the country, which usually have a greater resilience during the epidemic. After nearly 3 years of persistent penetration, we have built solid market presence in lower-tier cities, which to a great extent have facilitated our recovery for the past year.

During the past quarter, the transportation industry remained under huge pressure as the prolonged travel restrictions was imposed nation-wide to contain the highly transmissible Omicron, which led to substantial decreases in long-haul and business trips. And despite of the consistent [ restricts ], we still managed to get it better out the hardship and consistently outperformed the industry peers.

For the past 3 years, we have strengthened our position in some regions, as well as having gained footholds in some untapped markets. As a result, our market share has risen not only in these regions. Meanwhile, we have also tapped into the short haul and the local travel markets by increasing efforts in our bus ticketing and car-hailing businesses, which maintained impressive growth in the past quarter. And to some extent, met up the shortfall caused by the decreases in long-haul travel.

And further following, we had continued to innovate our products and services in the transportation business and provide our users with convenience during their journeys. Over the past 3 years, we have reduced all the difficulties and they emerged stronger in the midst of COVID. Even under the extreme pressure in the second quarter, we still managed to put through and needed a industry recovery.

For the short run, the uncertainties will continue to weigh on the travel industry and on our business. However, as I have been seeing for the past years, I still have deep faith in our ability to grow bigger and stronger, as well as in the resilient China's travel industry possesses. Though this year has turned out to be the most challenging one for the travel industry since the first after break of COVID in 2020. I believe we will soon see the light at the end of the tunnel.

And with that, I will hand over the call to Joyce. She will walk you through our operational highlights in the third quarter. Joyce, please go ahead.

[Joyce Li, executive]

Thank you, Hep. The market in the past quarter was quite volatile. For the first 2 months, we had a relatively promising rebound, as restrictions were relaxed nationwide, and travel sentiment improved. However, in September, we had a big turnaround as COVID playup led to another round of travel restrictions and again, the travel sentiment staggered.

Fortunately, riding on our flexible operational strategy, we again pulled through difficulties, and continuously delivered reliable results. Over the last quarter, as usual, we explored innovative marketing methods in the Tencent ecosystem to have closer bonds with the younger users. e-Sports had been the key for us to get connected with the younger generations. This year so far, we've successfully launched several e-Sports events in several different cities by leveraging IPs entitled by Tencent, which gained huge popularity among young people as well as tourist destinations. We have also sponsored professional e-Sports games to have outrun highly exposed among e-Sports and [indiscernible], which we think is an effective way to communicate with a younger generation.

At the same time, we utilized the long-tail KOLs in Weixin Video Accounts in a cost effective way to have an alternative interaction with the users, as well as enhance our brand influence. In addition, we routinely push ahead our cooperation with QQ Wallet and QQ Browser to target the MD generation. With all the innovative efforts we made in the year, we were again awarded the Best of the Year in 2022 Tencent IN Innovative Marketing award.

On the other side, efforts will step up in short video platforms during the quarter, which turned out to be efficacious as the conversion rates recently improved. While cooperation with handset vendors, it's remain concrete and solid, we continuously work together on enhancing user experience, membership benefits, sharing and brand exposure at retail stores. Our offline user acquisition initiatives play a vital role in acquiring new users and have brought a considerable amount to our paying users to the company.

Last quarter, we further broadened the mobility scenarios and tap into public transit, such as metro and intra-city bus in several cities. In such alternative traffic sources, this has contributed greatly to the growth of our paying users in the quarter. At the same time, we firmly pushed ahead with our branding strategy during the turbine times to further elevate our brand influence among younger generations. Over the summer vacation, we joined hands with the Shanxi Provincial Tourism Bureau and co-launched a marketing campaigns for university campers, which lightened the passion of college students for travel to Shanxi.

More creatively, we have launched a series of FT attractions, being the tourist attraction to our destinations, museum replicas and e-Sports in an effort to establish closer connection with Generation Z and create a distinct place in their mind. Besides, we continue to rollout advertisements, both online and offline, but in a more cost-effective way such as ad inserts in big-hit TV dramas and ads on airplanes. In addition, our Blackwhale membership program continued to grow in the third quarter in spite of the vast fluctuations caused by COVID. As of the end of September 2022, the cumulative amount of members exceeded 15 million as we consistently enrich membership benefits with a more optimized operations.

With aforementioned efforts, the amount of users on our platform have hit all-time highs against the backdrop of massive wins. Our average MAUs again achieved a new high of 281.5 million in the third quarter, a nearly 2% increase from same period last year. Coincidentally, our average NPUs in the quarter also climbed to an all-time high of 36.8 million with a solid growth of around 10% versus 2021 set our stable online traffic and effective off-line user acquisition initiatives, in particular, our penetration in public transit.

Besides, our 12-month rolling paying users was back to 200.5 million as of the end of September, representing an increase of 2.2% from the same period last year. As an innovative player in the industry, we are determined to transform from OTA to ITA. That said, we are the voted best in user experience and offering them a more joyful and convenient journey by embracing new technologies. During the quarter, we further upgraded our intelligent questioning system, which enables users to find a more suitable and a satisfied travel solutions. Moreover, our AI-driven customer service is now able to fully handle the frequently encountered problems, which help enhancing customer service efficiency as problems can be quickly settled.

On the other hand, we are committed to empowering the travel industry with our Internet expertise and advanced technology. Over the last quarter, we further expanded strategic cooperation with airports. In addition to Xi'an International Airport, we were joined by 4 more airports on the China West Apple Group. In the future, we'll have comprehensive cooperation, evolved digitalization, construction, product and service development, as well as marketing activities. Moreover, we build ours elf a bus ticking system and smart ticketing equipment nationwide to facilitate the digitalization of the bus ticketing business.

Besides, we provide SaaS solutions not only to the individual, small and medium chain hotels, but also to alternative accommodations, which help enhance their daily operations. As always, we place emphasis on the social and corporate sustainability. We are determined to contribute to the travel industry, as well as society. To help our partner better cope with destructs caused by COVID, we offer to help them digital systems by leveraging our Internet expertise and technology.

Also, we upgraded our cooperation within local governments and other regional governments to promote local produce by leveraging our industry expertise and traffic, so as to help rejuvenate local areas and support local economy. Besides, we further roll out our Tongcheng [indiscernible] plan to more hotels and cities, which offer outdoor workers water and shade, had helped alleviate them the harm of extreme heat during the past summer. The project will also provide shelters for outdoor workers if there is extremely cold in this winter.

On the other hand, we have been making efforts to improve our ESG performance and disclosure. In September we were upgraded from A to AA by MSCI in terms of ESG rating in recognition of the achievements we have made in governance and labor management. Currently, this is the highest ESG rating received by global hotel and the travel industry players. We will continue to improve our ESG practices and create more value for our stakeholders.

With this, I will hand over the call to our CFO, Julian, who 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 2022, we reported a net revenue of RMB 2.05 billion, representing a 5.6% year-over-year increase from the same period of 2021 or a 100% recovery from 2019 levels. Over the past quarter, the release of pent-up demand was so strong in the first half with demand from students to business groups, from local and short-haul travel to long haul and family tours, which significantly benefited our accommodation, bus ticketing and car-hailing businesses.

We also found demand for local travel in lower-tier cities was quite encouraging at those markets were best impacted by COVID, which, to a great extent, prompted up the recovery of our business. As a result, we have again broken the historical record of our MPUs in July and August. However, since late August, the new Omicron virus resurgence started in some regions and then spread nationwide in September and October. The corresponding controlling measures limited the mobility in a large scale.

Looking at the bottom line, we achieved RMB 252 million adjusted net profit, was 12.3% net margin compared with 8.5% net margin in quarter 2 this year and 17.7% net margin in quarter 3 last year. The temporary margin drop year-over-year was mainly because we were optimistic about a recovery in mid-autumn and national holiday and thus, increased the marketing and advertisement investment in September and in several regions, which were less impacted by the COVID, leading to a drop in ROI in the short term.

Though facing a challenging environment in September, our accommodation reservation business remained resilient and achieved RMB 819 million for the third quarter of 2020, representing a 26.9% increase from the same period of 2021 or an 18% increase from the same period in 2019. During the third quarter, we continuously deep-dive into long-haul demand for hotel stays and launched various featured products such as taxi in the hotels to better serve users' needs. Efforts were also stepped up to diversify value-added products and services to provide pleasant stays for users, as well as marketing tools to help hotels have easier access to users on our platform.

In addition, we further rolled out our cooperation with hotels concerning offline user acquisition and engaged more chain hotel combos, which added to the growth of the business. Our room nights registered around 5% year-over-year growth or 28% growth versus the same quarter in 2019, with 10% year-over-year increase in lower-tier cities compared with last year, far better than the overall market performance. Thanks to the rising demand for vacation and short-haul travel in this summer and the accurate offline and online marketing strategies.

Blended take-rate stayed high in quarter 3, mainly due to disciplined couponing policy and additional contribution from VAS revenue, as mentioned above, which ramped up to more than 15% total accommodation reservation revenue. Transportation ticketing revenue for the third quarter of 2022 was RMB 987 million, representing a 12% decrease compared with the same period of last year or a 13% decrease compared with the same quarter of 2019.

As mentioned before, the recovery in long-haul transportation like air and train lagged behind that of the short-haul transportation such as bus and car-hailing. However, the impact on our business was relatively limited compared with the whole industry. As for our air ticketing business, we continuously diversified our user mix by adding more frequent business travelers, as well as deepening interaction with college students. And more efforts were made in the last quarter to provide users with warm and caring customer services, so as to establish solid connection with users and boost users' loyalty.

With regard to our train ticketing business, we remain focused on enhancing user experience by digging deeper into the problems faced by users during their travel. We developed and launched various value-added products and services, covering all possible travel scenarios, for the sake of their comforts and convenience. As always, we worked persistently to further optimize our intelligent Huixing system to provide users with more customized travel solution based on their preference and actual needs.

On the other hand, our bus ticketing and car-hailing business maintained impressive growth during the past quarter against the backdrop of vast turbulence. Thanks to the rising demand for local and short-haul travel. In terms of the bus ticketing business, we continuously pushed forward with our lower tier cities penetration strategy with even more cost-effective matters to tap into underpenetrated regions, thus enhancing our market share.

As volume even ended the volatile quarter, maintained exceptional growth with more than 100% increase year-over-year. At the same time, efforts were stepped up to develop the value-added products and services surrounding travel by bus, still have to enhance the monetization capability of this business. In the following years, we will place more emphasis on the monetization and ARPU of the business, while continuing to grow user base.

On the other hand, as a one-stop shop travel platform, we aim to cover all travel scenarios to provide users with seamless and supreme experience. To further penetrate local and short-haul travel market, we ramped up efforts in our car-hailing business and introduced more car-hailing service providers to our platform, so as to better serve our users. For the third quarter, the volume of the business registered a glamorous growth of more than 90% compared to the same period of last year. We believe the short-haul transportation business will become additional revenue driver for the company in the post-COVID period. Moreover, the enhanced supply and resources of short-haul transportation will enrich our Huixing systems through selections to provide our users with abundant options and different travel scenarios.

Other business kept a very strong growth momentum, and the revenue achieved RMB 243 million in the third quarter, representing a 43% increase from the same period of 2021. Among the diversified revenue streams, the major contributions were from advertisement, Blackwhale membership card, hotel PMS and TMC business. We are very confident that those businesses will make further contribution to the growth of the company in the following quarters.

Gross margin was 75.4% for the third quarter of 2022, increased from 73.9% for the same period in 2021 and 70.9% quarter-over-quarter. The continuous gross margin improvement was mainly driven by our streamlined operations, intelligent customer service ability and a revenue mix change in the past year. In the third quarter of 2022, our adjusted EBITDA achieved RMB 462 million, with 22.6% margin improved from 22.2% quarter-over-quarter and decreased from 26.7% year-over-year.

Adjusted net profit achieved RMB 252 million, with margin improved to 12.3% from 8.5% quarter-over-quarter, but decreased from 17.7% year-over-year. As I mentioned above, the temporary margin drop was due to the decrease in ROI of our sales and marketing spending and the stricter control measures towards COVID situation. We will still tightly monitor the market and COVID situation to make the marketing investments more effective, aiming for a better ROI.

Service development and administrative expenses in the third quarter of 2022 increased by 26.2% from the same period of 2021. Excluding share-based compensation charges, service development and administrative expenses in total accounted for 21.4% of revenue in the third quarter compared with 19.9% of revenue in the same period of 2021 and 28.4% of revenue in the previous quarter.

Selling and marketing expenses in the third quarter of 2022 increased by 19% from the same period of 2021, excluding share-based compensation charges, selling and marketing expenses accounted for 45.1% of revenue in the third quarter compared with 40.2% of revenue in the same period of 2021 and 42.7% of revenue in the previous quarter. As of September 30, 2022, the balance of cash, cash equivalents, restricted cash and short-term investment was RMB 5.5 billion. The adverse [indiscernible] in October and November was unexpected and even worse than that in the first half of 2020 and quarter 2 this year. Daily confirmed cases across the country exceeded 10,000 for the first time this year, led by Guizhou and Inner Mongolia, and Beijing. Hard mode last into this winter and strict travel restrictions remain imposed.

For the fourth quarter, we see another unprecedented challenging facing the whole industry amid uncertainties caused by COVID. In the short run, we are still faced with uncertainties caused by COVID. However, expectations for relaxation are ramping up in mid-November, the government introduced a new COVID policy and eased its control measures. According to the renewed policy, quarantine time is reduced by 2 days for inbound travelers and closed contacts of COVID infections. While identification of secondary closed contacts is no longer required. Moreover, local governments are not allowed to randomly use now lockdown to contain the virus.

Turning to a long-term perspective. We will definitely reemerge stronger in the wake of COVID-19 after persistent efforts in operational optimization and business expansion amid uncertainties. We are very confident that we will continue to outperform the industry with travel challenges we will encounter [indiscernible].

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

[Operator]

Thank you. [Operator Instructions] And our first question comes from Brian Gong of Citi.

[Brian Gong, analyst]

I have 2 questions. First is, can management share your expectation for the first quarter 2022 and next year, our performance, including top line and margin? And also, how do you view the possibility of China to change COVID policy ahead? And how should we expect the travel market to perform next year?

And the second question is that, we previously mentioned some plans to improve monetization. Can management share the progress on these regards and when can we see some material progress? Thank you.

[Heping Ma, executive]

Brian, I will put some more comments and details for your first question about the latest performance and our views in 2023. So let's start in the performance in the quarter 3 and then moves to the October and November. Actually, as we mentioned in our prepared remarks, we have really [ pierced ] very strong, very strong recovery in July and August. I think that is the only time that we found a recovery this year for the whole year in July and August due to the improved market sentiment.

Although numbers of new confirmed COVID cases increased in August, but actually, at that time, 70% of them were just in Hainan in one province. So, however, since late August, COVID virus resurgence appeared in some regions and started to spread nationwide in September and October, especially first in Sichuan, Guizhou and then Guangdong, Tibet, Inner Mongolia and nowadays in Beijing, leading to a persistent implementation of ZERO COVID policy and strict travel restrictions. So turning into September, the travel sentiment was severely damaged.

During the national holiday, the pandemic situation rebounced in most provinces and the industry has actually experienced a very challenging national holiday with air and train passenger numbers. For air and train passengers, the industry both declined by nearly 50% year-over-year compared with last year and declined nearly 70% compared with 2019. So entering into November, new confirmed cases surged again and even exceeded that in the August and travel segment continued to be weaker and weaker.

However, I think, 11th November, the government announced a series of measures easing COVID-19 rules, just like what I mentioned in the prepared remarks, but actually after the announcement on the easing COVID-19 policy, we have already observed a rapid execution of new policies and the guidance in different cities across the country, for example, Beijing, more perfectly managed the policy will pop-up notification and greatly eased the mobility restrictions in and out Beijing after the announcement.

But those easing measures reviewed very positive signals, actually yes, reviewed very positive signals for the recovery of the economy and the travel industry, but the impact on the travel sentiment is yet to be seen because it still take some time to educate the public, especially after 3 years stringent restriction in some time to educate the public, educate the citizen. It will also need more time to continue promoting vaccination, especially among the elderly, as well as stocking of necessary managing essentials. In addition, November and December a very low season for travel. So the demand will not be released immediately in these 2 months. However, we are actually very optimistic that the public confidence to travel will continue to warm up during the next few months, which will pave the way for the full recovery.

The pent-up demand may release or even well keep up in the coming spring festival, Ching Ming and labor holiday, Labor Day in the first half of next year. Thus, without any hesitation, we will adhere to our key strategic priorities and invest in advertising and marketing campaigns to strive for bigger market share during the recovery period. We believe dome of home lies ahead.

In terms of the performance expectation for quarter 4, we can see that the market is still changing every day in November and December since the new policies announced and the user's booking window becomes extremely short after COVID. With the uncertainties brought by the resurgence of the COVID cases, it is very difficult for us now to give a concrete guidance at this moment. But as we mentioned earlier, the dome of hope lies ahead.

At this moment, we would rather be relatively aggressive than conservative in front of the market opportunities. Thus, in the short term, our margin may still face some pressure because, on one hand, top line revenue may still need some time to fully recover to the pre-COVID level. On the other, we need to invest in advertising and marketing campaigns as we are getting more optimistic about the industry recovery in the coming months after the government ease the mobility restrictions recently.

We need to prepare -- we also need to prepare for the coming spring festival or even a dramatic rebound of the whole industry after 3 years of pandemic. So we are confident that our business will be able to recover faster than industry and outperform other players as proven from our results in the past.

In terms of the monetization, Joyce, please.

[Joyce Li, executive]

Thank you, Brian. Let me address the second question concerning the monetization improvement. Firstly, for the main business we have, like the air accommodation, trend business, we have been developing the different kinds of best products and services to fulfill the users' needs. For example, current users are getting more aware of the safety and hedging during the pandemic. So we have offered a new VAS such as insurance and disposable supplies. This new products and services are well received by our users.

And on the other hand, when hotels suffered from the pandemic, the hotels are very eager in encounter their opportunities to monetize. So we worked with hotels to explore the revenue stream from in-store consumption cases such as dining or -- and hotel facilities. This new initiative has made more revenue contribution for our accommodation business and enabled us to enjoy the higher take rates. In quarter 3, the VAS products contributed over 15% of the accommodation revenue. We believe that this kind of VAS will be the long-term needs for the users and suppliers as well. So we expect the contribution from the non-room VAS product service will further increase, that's enhancing our monetization on the main business.

The secondly is the cross-sell improvement, as we mentioned a lot of times before, we dedicated to utilize a huge traffic we have gained from the transportation side and cross-sell to the hotel business, which will in turn improve our monetization as well. And for the new business, like the bus ticketing business, in the past quarter, even under the challenging market environment, you can see that our bus ticketing volume in the quarter 3 have continued to increase significantly by over 100% when compared with 2021. As in this business, we receive commissions from the best operators, and we can also sell our value-added products and service to bus ticketing users.

The bus ticketing business itself generated revenue for the company, but the main purpose of the bus ticketing business is to quickly acquire the offline users in a very cost-effective way, because of the user acquisition cost is very low.

Now with our success with execution of offline user acquisition initiatives, especially for this business, our annual paying user continue to grow even under the challenges of COVID, which made us the #1 market in terms of paying users in OT market. So our offline user acquisition strategy was also proven to be successful as our growth in paying user has all the industry players in the past 2 years.

Now in the next stage, we will strive to improve the cross-sell and the monetization of this business segment. We hope we can achieve break-even for the bus ticketing business next year. Thank you.

[Operator]

[Operator Instructions] And our next question comes from Simon Cheung with Goldman Sachs.

[Simon Cheung, analyst]

I have 2 questions as well. Just going back to, Julian, your comment that you're going to be continuing to invest in the next 1 to 2 quarters just to prepare that for the reopening. Can you give us a sense how should we think about it? Like on the sales and marketing, obviously, we can compare with the revenue percentage or absolute 900 million per quarter kind of a trend? Or how should we -- and then also on the take rate, I remember in the last 1 or 2 quarters, you have seen a bit of a recovery on take rate, because the scale back of some of the commissions. So on those 2 fronts, how should we think about the trend in the next 1 or 2 quarters, whether it's absolute dollars or as a percent of revenue because you're emphasizing that there's a flexibility in terms of adjusting that? That's the first question.

And then the second question more related to, I guess, the lower-tier city, which is something that you are obviously very proud of having a lot of exposure over there. I wanted to get a sense over the last, call it, 2 years, we got a sense that lower tier cities, travel have been a lot more resilient than the higher tier city. And now that we have travel restrictions going to lifted, it's going to be lifted. So how are you preparing maybe just maybe getting a bit more aggressive in maybe even a bit high tier cities? Or are we just thinking the lower tier cities, is still your bread and butter, there's not going to be any strategy change?

[Lei Fan, executive]

Yes. First, I would like to put some color on the sales and marketing spending and also the take rate trends. For the sales and marketing dollars, as you mentioned in the question, actually, in this quarter, quarter 3 -- in last quarter, quarter 3 and this quarter, actually our sales and marketing spending as of revenue is really abnormal. It's like 40% to 45%. I think it's like historical high in our performance. That is absolutely abnormal. Because as we mentioned, in quarter 3 and quarter 4, we think there is a very clear rebound opportunities, very clear signals for the opening of the travel industry in the future -- in the near future. So we don't want to cut our sales and marketing dollars too much, like what we did in 2020 and 2021.

And actually, in this July and August, the market is so strong. So at that time, we think it's -- the same situation will happen in middle autumn and also the national holiday. So we still put more sales and marketing dollars in the end of August and also the September. But the choice is that the performance was impacted by the COVID resurgence in September and October. So we don't reached enough top line, but we already spent on the sales and marketing dollar.

So that is why, as I mentioned, our ROI is relatively dropped -- is dropped in the quarter 3. And also in quarter 4, because next spring festival, just like what I mentioned, it's very earlier, it's in the middle of January. So we have to put more efforts on the advertisement and sales and marketing dollar in the December to do some preparation in advance. So that is why we will have a high sales and marketing spending as of revenue like 40% to 45% in quarter 4 as well. But that is really abnormal.

For the next year, when the market is recover a little bit, when our scale can back to like 2021 level. We are pretty sure that our sales and marketing can be controlled like 35% to 40% as of our total revenue. And also for our sales and marketing dollars, I think that is very mature. We will invest more on the cross-sell on the monetization, but not the new user acquisition, because in the past 1 year or 2 years, we have already accumulated like 200 million annual paying users. And also we have accumulated 400 annual paying users in our history. So nowadays, we don't want to put too much sales and marketing dollars for the new user acquisition, but we will allocate more of our sales and marketing dollars for the cross-sell for our old users.

We want to cross-sell the transportation to accommodation. We want to cross-sell the train ticket, bus ticket, which have a very low take rate to other matters, other approach, for example, the car-hailing et cetera, for a bigger take rates. So that will also explain why our take rates both for the accommodation and also for the transportation, step-by-step improved in this year, and I believe will continually improve in next year.

For accommodation, we have already emphasized a lot of times, we will strengthen our one-stop shop strategy, and we will provide more products and services to improve our VAS sales, that will also increase our blended take rate for commendation. We have already realized a bit more than 15% of total revenue, VAS revenue in accommodation segment. But that is -- I think that is -- still have a lot of space to improve, still have a lot of product service that we could provide to our users to fulfill their long-term needs. And meanwhile, to increase our monetization, increase our take rates, blended take rates on accommodations.

And for transportation, that is the same logic to improve the take rate, the cross-sell. We want to cross-sell from off-line to online. I think we have emphasized that a lot of time, because you know, for example, the bus ticketing vending machine, in offline, that is very useful when we acquire new users, but you know the offline scenarios, we have a very, very low take rate or nothing. We don't have a -- we have 0 take rate for the offline scenarios. But for the online scenarios, for example, the bus ticket, we have like 5% to 6% of the take rate. So that is why we want to cross-sell from offline to online for the bus ticket in the following quarters. And also, we want to cross-sell the train tickets to our air ticket, especially for the long haul because air tickets have a very high -- have the highest take rates in our order approach of transportation.

And also, we want to cross-sell the train, but tickets to the car-hailing business, especially for the short-haul travelling, because the car-hailing business, we have like 10% of the take rates for the short haul transportation. So that is why we think the take rates still have improvement base. And we believe next year, we will have a higher take rate, both for accommodation and transportation. And also, like your question, our sales and marketing dollars will be back to normal next year when the scale is back to normal. So that is the first question.

And the second question…

[Joyce Li, executive]

Okay. For a second question, let me start from the changes, what we have to build after the COVID. Because versus the uncertainties of the pandemic, nowadays users prefer the very instant booking. So the booking window of the user is getting shorter. This practice has become a new normal for the travelers. And with the right controlling measures, comparing to pre-COVID, the users frequency has been improved because they prefer the short-haul travels and vacations. So more people will go for local travel during the weekend. This kind of new demand have benefited to the travel industry in China, that also contributes the improvement of our accommodation business last quarter.

In terms of customer behavior, now the users prefer non-touch booking and service after dynamic. So they find it convenient to change, follow-up and cancel their orders through online bookings. The pandemic has brought new trends to the travel business, such as more online bookings and increasing popularity of QR code scanning for the traction places, more leveraging on the content and social sharing platforms, et cetera. So we believe that it will also increase our penetration rate of travel industry, especially in the low-tier cities.

So since outbreak of the COVID pandemic in early 2020, the smart technology has been widely adopted by the industry players. The online penetration rate of the travel industry has been accelerated. So I think all these changes have created a great opportunity for OTAs. For us, since the outbreak of COVID, we have been dedicating, promoting the low-tier cities on our penetration, especially in the accommodation business and the bus ticketing business. We have been further beginning to the low-tier city market, as always, by leveraging our strength in the traffic channels and our understanding of the users' needs and behaviors.

As I mentioned it before, we are aiming to become the leading travel brand for users in low-tier cities. And at the same time, we also have further big opportunities in the car-hailing and the public transports business, as we mentioned before, that capture the opportunities in local and short-haul travel. So we will further invest in the technology to provide non-touch bookings and capture opportunities brought by the new booking habits. Thank you.

[Operator]

And our next question comes from Wei Xiong with UBS.

[Wei Xiong, analyst]

I also have 2 questions. My first question is on our growth strategy for next year. So given our APU has exceeded 200 million, how should we think about your user growth target for next year, if any? And could you please maybe elaborate on how we can balance the growth between user acquisition and the better monetization that you mentioned just now for your existing user base?

And second, just want to follow-up on the margin side. Given the cost planning around selling and marketing next year that you just shared, how should we think about the margin level for next year?

[Lei Fan, executive]

Yes, like what I mentioned in last questions. Our annual paying user already reached 200 million in 2021 and also in this year. And we have already accumulated more than 400 million paying users in our history in all of our platforms, both for WeChat and for apps and also for our PCs. So next year, actually, we don't think the revenue drivers would be done by the new user acquisition, because the Chinese people will only have -- for the whole population, we'll only have a 1.4 billion, nowadays we have already accumulated 400 million users, especially for traveling users in our platform. So we don't think there's a too much space for the addition of new users or additional valuable users outside our platform. So next year, for the sales and marketing dollar allocation, we will allocate less money on the new user acquisitions.

But as I mentioned, we will allocate more on the cross-sell, on the monetization. For example, for accommodation, our one-stop-shop strategy in accommodation segment, which increased the VAS revenue contribution and also cross-sell from transportation to accommodation for better monetization and higher take rates. And also converting offline users of bus ticketing business to long-term online users, and also cross-selling from transportation business with a lower take rate. For example, the offline bus ticketing and public transport, like Joyce mentioned, to transportation business with higher tickets, for example, the car-hailing.

And also, we want to have more monetization opportunities from membership card and advertisement business et cetera. So we will invest in more sales and marketing dollars on this area for our existing customers for their first try on other products in our platform, other services in our platform. So that is what -- that is the strategic priorities for our next year to invest for sales and marketing dollar. And other than this half year, we will still invest like 4% to 5% as of our total revenues, advertisement for the awareness, user awareness due to building the long-term awareness and also build their loyalty in our platform.

And last, I think -- but still very important, we will invest more sales and marketing dollars to promote our new product and service development in the next year. So that is how we balance our user acquisition, how we spend our sales and marketing dollars in next year.

In terms of the margin, I think the question -- the answer is very easy. The margin -- our margin, the most important impact is the sales and marketing dollar. In quarter 3, quarter 4, we have a short-term pressure on our margin. That is because our sales and marketing dollar reached its highest period like 40% to 45%. But we are pretty sure that we could control it under 35% to 40% back to normal, like what I mentioned, when our revenue scale back to normal, when the economy and also the travel industry recover a little bit, but not still -- this year, we have more than 10 months, we have made more than 10 months impacted by the COVID.

We don't believe next year, we will still have a so long time restrictions. So when the revenue scale back and also when the industry recover, we are pretty sure that our sales and marketing dollar will drop to 35% to 40%. In the long run, actually, we still will tightly monitor our sales and marketing investment and we'll tightly monitor our ROI and make it more effective and optimization. Thank you.

[Operator]

Our next question comes from Melody Chan of Jefferies.

[Melody Chan, analyst]

[indiscernible]

[Joyce Li, executive]

Thank you, Melody. Let me address these questions. We believe that pandemic has driving the acceleration of penetration of the travel industry, creating the ample opportunity for the large platforms like us to gain market share from small scale platforms that are offline. So for the Tencent ecosystem, we believe there are still a lot of potential for us to further develop. In the past quarters, you can see that we have further deepened the cooperation with Tencent to engage new users at different scenarios, which allow us to gain more users continuously. We also increased our advertising investment in Weixin to reach out to the enormous potential user group.

At the same time, we have put extra efforts invest in other channels, including quick apps and offline user acquisition and have achieved outstanding results. For the offline user acquisition, we joined hands with hotels, bus operators and tourist attraction operators, to transform offline booking habit to online patent. These offline initiatives has served as a very effective channel to acquire new users, which is demonstrated in the past quarter results.

We believe that our addressable market is still very huge. The online penetration rate for the low-tier city hotels is only 25%. And the online penetration rate for the bus is still at very low single digits. And for the users that we acquired from smart bus ticketing equipment, as Julian had mentioned, majority was completely newer to our platform. It is a golden time for us to dig into the offline market and accelerate digitalization and on penetration. So, in addition, we will also strive to capture the opportunities of the international market as the board reopens as we have already established the relationship with various international suppliers before COVID. This will also bring us more users who look for the domestic and international travel product service in the future.

So you can see that our MAUs, MPUs have hit record high in 2021 even on the impact of pandemic and still continued to record another historical high in the past quarter. It is a proof that there is still a huge potential for us to further penetrate the market. So in the long run, we are very confident to grow our business further. Thank you.

[Operator]

I would now like to pass the call back to Kylie for closing remarks. Kylie, please.

[Kylie Yeung, executive]

Thank you. We're closing the call now because of the time constraint. If you wish to check out our presentation and other financial information, please visit the IR section of our company's website. Thank you and see you next quarter.

[Operator]

Thank you. Thank you for your participation. This concludes the conference. Goodbye.