Tongcheng Travel Holdings Ltd

HKEX:780

Earnings Call Transcript 2024-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Tongcheng Travel 2024 Third Quarter Results Earnings Release Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kylie Yeung. Please go ahead.

[Kylie Yeung, executive]

Thank you. Good morning, and good evening, everyone. Welcome to Tongcheng Travel's 2024 First 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 Chief Capital Officer, Ms. Joyce Li.

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

As always, our presentation contains forward-looking statements. Such statements are based on management's current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, which may cause the company's actual results, performance or achievements to differ from those in the forward-looking statements. This presentation also contains some unaudited non-IFRS financial measures. They should be considered in addition to, but not as a substitute for measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of non-IFRS measures, please refer to our disclosure documents in the IR section of our website. Now let me introduce our CEO, Ho. Please go ahead.

[Heping Ma, executive]

[Foreign Language] Good evening, everyone. Welcome to our 2024 third quarter earnings call. During the recent summer travel season, China's domestic travel market remained vibrant with consumer demands becoming increasingly diverse and showing a growing preference towards experiential consumption. This shift has infused new growth momentum into the industry, driving continuous innovation in travel products and services to meet the diverse preferences and needs of different consumer groups. In response to this trend, we proactively pushed forward with the expansion of both domestic and international business.

For our domestic business, we continue to increase our market share by broadening our reach in the mass market and diversifying our product and service offering. In addition, we explored the potential of the travel industry chain to further solidify our market position. We also improved user value by gaining deeper insight into their needs and enhancing interactions with users. Moreover, through meticulous operations and optimization of our organizational structure, we significantly improved our operating efficiency and reduced costs. Beyond our rapid growth in domestic market, we also actively expanded our international business.

By focusing on efficient market expansion strategies and optimizing supply chain management, we have continuously broadened our presence in the global market and achieved substantial growth in our business volume. Since the beginning of this year, the steady market growth and our outstanding business performance have further strengthened my confidence in the company's future.

Additionally, the Chinese government introduced a series of policies, including the addition of national statutory holidays. These policies have not only boosted market confidence, but also provided new momentum for both the industry and our company. During the recent National Day Golden Week, we once again witnessed strong growth in the travel industry. User enthusiasm for travel remains strong with consumption preferences steadily evolving towards more diverse, personalized and high-quality experiences.

As a leading travel platform in China, we stand at a new starting point for high-quality development in the travel industry. We recognize the positive impact of the industry upgrades and are acutely aware of the new challenges presented by the evolving consumer demand. At this new starting point, we will spare no effort to seize growth opportunities, optimize and innovate our products and services and enhance user value to drive core business growth.

Meanwhile, we will continue to implement our domestic and international expansion strategies to increase market share and expand our industry chain coverage, thus promoting the company's long-term and stable growth. Moreover, we're committed to sustainable development, aiming to achieve business growth while bringing benefits to society, thereby creating greater value for our stakeholders. Next, I'll hand over the call to Joyce. She will share with you our business and operational highlights of the third quarter of 2024. Joyce, please go ahead.

[Joyce Li, executive]

Thank you. In the third quarter of the year, China's travel industry maintained its upward trend with sustained demand for both domestic and international travel. As a leading player in the industry, we capitalized on our market position and moved proactively to seize growth opportunities. As a result, both our quarterly revenue and net profit achieved record highs for the past quarter, once again showcasing the excellence in our strategic and organizational capabilities.

Our transportation business, one of the key pillars driving the company's growth, continued to see expansion in its scale and achieved a record high in quarterly revenue for the third quarter. Notably, the air ticketing business sustained its momentum in gaining market share with both volume and revenue reaching new highs during the period.

Over the 3 months, by launching more customized marketing activities, we further strengthened interaction with younger users and our mind share among this target group has further enhanced. Meanwhile, more emphasis was placed on differentiated service to improve user experience and their loyalty. During the quarter, the total air ticketing volume grew over 20% year-over-year, far surpassing the industry growth.

Moreover, our international business kept its rapid growth momentum and saw its market share further increased with volume registering more than 110% year-over-year. To our delight, we also saw meaningful improvement in efficiency of our international business flowing buildup efforts in revenue management and more precise subsidy policy. With regard to the train ticketing business, we, as usual, remain focused on enhancing its monetization capability and continue to see a fast growth in revenue.

Over the quarter, our intelligent “Huixing” system remained pivotal in contributing to the growth of both volume and revenue as consistent efforts were made to introduce more viable travel solutions by utilizing our suppliers and algorithm.

In terms of the accommodation business, we have entrenched the competitive edges in the mass market after years of preemptive efforts. For the past quarter, both volume and revenue of the business reached record highs in the backdrop of resilient demand as we remained focused on the target market and seize growth opportunities accordingly.

Despite a high base during the same period last year, our total room nights sold continued to demonstrate year-over-year growth momentum. In the meantime, we continuously push ahead with our cross-selling strategy to better capture user demand. As such, our 15-day cross-sell rate grew to 12% from 10% last year. For the international business, consistent efforts were made to bring more high-quality suppliers, especially those in the Asian countries and regions.

Besides, we launched our signature marketing campaign to attract younger users and strengthen engagement with them. As such, our international room nights sold sustained extraordinary growth and increased by more than 130% year-over-year. We see huge potential in China's travel industry and have been expanding our footprint on the industry chain to drive the long-term growth of the company. Our hotel management business, where we have been investing for several years, has been growing rapidly across China, driven by relative support of traffic, digital infrastructure and finance our franchisees.

As of the end of September, network of our hotel stores on the eLong hotel technology platform further expanded as the number of hotels in operation increased to more than 2,100 with nearly 1,200 stores in the pipeline. On the other side, our packaged tour business saw encouraging growth year-over-year in the backdrop of industry recovery, especially the reviving in outbound travel. Over the period, we focused on refining our product services to enhance value proposition for our users.

Meanwhile, the network of offline travel agency stores continue to expand and reached more than 900 as of the end of the quarter. By leveraging our user acquisition and engagement initiatives, not only have we accumulated the most extensive user base in the industry, but also have enhanced user value. For the 3 months ended September, our MPUs maintained expansion momentum and increased by 5% to a historical high of 46 million, while our 12-month paying users rose by 3% to 232 million.

More meaningfully, the 12-month accumulated number of travelers served by our platform grew significantly by 20% year-over-year to 1.88 billion, with average purchasing frequency climbing to more than 8x per user. Besides, our annual ARPU climbed further to around RMB 70, reflecting an exceptional growth of 53% compared with the same period in 2023 and significantly surpassed 2019's level.

Over the period, we continued to diversify our traffic sources while placing more emphasis on efficiency. Tencent ecosystem, in particular, the Weixin Mini program remain a vital traffic channel for us. During the quarter, we further increased efficiency in operation and user acquisition within the ecosystem. Our standalone app, which has risen to strategic importance, maintained a remarkable growth in the past quarter with DAU hitting another all-time high of more than 3 million before the National Day holiday. By launching innovative marketing activities and more tailor-made products and services, our standalone app has attracted a considerable amount of young people. Besides, we increased efforts in content platforms to strengthen interaction with existing and potential users.

Since last year, we've been pushing for user value enhancement. Our Black Whale members program, a key part of the drive to enhance user value, consistently exhibited solid growth over the period as continuous efforts were made to optimize operations and enrich user benefits and privileges. Following rising demand in outbound travel, the program expanded to offer additional access to travel benefits in certain regions and cities globally.

By the end of September, the cumulative number of Black Whale members surpassed 78 million, an increase of 13 million quarter-over-quarter, while its ARPU was more than 2.7x that of the general members. As an OTA veteran, we aspire to empower our partners by exporting our technology and Internet expertise to build a highly efficient and resilient ecosystem.

Airports are our crucial partners, and we've established strategic cooperation with numerous airports across China. During the past quarter, we have signed strategic agreements with Hainan Airport Group and Jining Airport Group through which we will help them develop big data and marketing solutions. More encouragingly, we developed a customized air rail combined transport technology for Nanning Airport to help with the airport enhancing capability as well as efficiency. We prioritize user experience and aim to deliver superior travel experience for our users.

Our AI-driven customer service system not only helps improve customer service efficiency, but also alleviate staff burden in manual handling. For the third quarter, we continue to introduce intelligent features and automation functions into the system to further enhance user experience. In the meantime, continuous efforts were made to iterate our algorithm-driven equation system. More feasible and convenient travel solutions, in particular, on the [indiscernible] of no drag routes are available on our platform.

For years, we've been devoted to advancing our ESG performance in an attempt to keep up with the best global practice. In September, our ESG performance was again rated AA by MSCI for the third consecutive year. Moreover, our S&P ESG score improved greatly this year and achieved an industry-leading level as a result of enhanced organizational capability and better governance.

All this signified our commitment to ESG as well as our capability to enhance the company's ESG performance, establishing us a leader among global peers in ESG performance. Looking ahead, we will persistently aim for better ESG performance by aligning with high international standards, striving to deliver great value to society and our stakeholders.

I will stop here and hand over the call to our CFO, Julian. He will walk you through our detailed financials in the third quarter. Julian, your turn.

[Lei Fan, executive]

Thank you, Joyce. Good evening, everyone. In the past quarter, China's travel industry continued to exhibit growth momentum with the summer season sparking a wave of travel enthusiasm. We have observed a very strong demand for a wide range of travel experiences from city explorations to rural retreats, reflecting a growing interest in diverse destinations and activities. Our performance has once again surpassed the industry, thanks to our strategic focus on enhancing customer experience and broadening our service offerings to capture these evolving and diverse travel needs.

Our core OTA business has sustained a strong upward trajectory, while our tourism business continued to contribute to our company's growth. In the third quarter of 2024, we achieved excellent results for both top line and bottom line. We reported a record high quarterly revenue of RMB 5.0 billion, representing a 51% increase from the same period of 2023. During this quarter, our adjusted net profit reached a quarterly historical high of RMB 910 million with our adjusted net profit margin grew quarter-over-quarter to 18.2%. This improvement was primarily attributed to the optimization of our marketing strategies and the increased efficiency of our domestic and international business operations. Our core OTA business revenue registered an outstanding growth of 22% year-over-year and recorded RMB 4 billion, driven by growth across our accommodation reservation, transportation ticketing and other business segments.

Our transportation ticketing business registered significant growth and achieved a record high revenue of RMB 2 billion, representing a 21% increase compared with the same period of 2023. The growth was primarily due to the substantial increase in both domestic and outbound ticketing volume spurred by robust travel demand across diverse scenarios throughout the summer holidays.

Our outbound business has sustained its growth momentum and now accounts for nearly 5% of our total transportation ticketing revenue. Moreover, we further enhanced the monetization by optimizing our VA app offerings. Our accommodation reservation business also set a new revenue record, achieving RMB 1.4 billion for the third quarter of 2024 representing a 22% increase from the same period in 2023.

The successful execution of cross-selling strategy was instrumental in sustaining the growth of our accommodation business. In the third quarter of 2024, our extensive presence in the mass market of China enabled us to sustain a relatively resilient ADR despite the downward pressure on industry overall ADR. We strictly adjusted our marketing strategies to adopt a more disciplined investment approach. As a result, our blended net take rate improved year-over-year becoming a key driver of our revenue growth.

Our other business segment continued to expand, generating revenue of RMB 609 million in the third quarter, which is a 24% increase year-over-year. This growth was primarily fueled by the outstanding performance of our hotel management and online package tour business.

While the overall growth was partially offset by the flat year-over-year growth in our advertising business and the corporate travel business, we remain confident that our other businesses will continue to contribute to our company's future growth. Tourism business has maintained its upward trajectory with revenue reaching RMB 979 million in the past quarter. This achievement reflects our efforts in capitalizing on market recovery opportunities and our effective execution to enhance operational efficiency.

In terms of the profitability, although the integration of our tourism business has impacted our overall margin, we still achieved a large improvement in the margin profile for our core OTA business. Our gross profit increased by 29% year-over-year to RMB 3.2 billion while gross margin slightly decreased to 63.4% quarter-over-quarter. In the third quarter of 2024, our operating profit for the core OTA business achieved RMB 1.2 billion, with 31.1% margin improved from 24.3% quarter-over-quarter and also an obvious improvement from 25.2% year-over-year. This improvement is attributed to our increased efforts to optimize the efficiency of our sales marketing investments. The operating profit for the tourism business achieved RMB 24 million with 2.4% margin, representing an improvement in operating margin from breakeven quarter-over-quarter. Our adjusted EBITDA increased by 52% year-over-year and reached RMB 1.3 billion, representing an improvement in adjusted EBITDA margin from 21.5% to 26.4% quarter-over-quarter. Adjusted net profit improved by 47% year-over-year to RMB 910 million, with an 18.2% margin compared to 15.5% margin in the previous quarter.

Service development and administrative expenses in the third quarter of 2024 increased by 26% from the same period last year, excluding share-based compensation charges, service development and administrative expenses in total accounted for 14.7% of revenue in the third quarter compared with 18.4% of revenue in the same period of last year. Selling and marketing expenses in the third quarter of 2024 increased by 15% from the same period of 2023, excluding share-based compensation charges, selling and marketing expenses accounted for 29.2% of revenue in the third quarter compared with 38.3% of revenue in the same period of 2023.

As of September 30, 2024, the balance of cash, cash equivalents, restricted cash and short-term investments was RMB 8.9 billion. Despite the substantial rebound and high base set by China's travel market in 2023, we have witnessed sustained growth and resilience in 2024. Consumers enduring enthusiasm for travel continued to be evident. The recent National Day holiday further showcased the remarkable vitality of travel market as vast crowds of travelers explored destinations nationwide.

Moreover, a notable shift towards new travel experience, such as concert and engagement with intangible culture heritage, implying significant potential for future industry growth. Heading into the fourth quarter and the year ahead, we are committed to a dual focus on market expansion and profitability enhancement. We will achieve this through more efficient market investments and streamline operations. This balanced strategy will not only help us capitalize on emerging opportunities, but also navigate market changes.

From a long-term perspective, we maintain a positive outlook on the development of China's travel market. This optimism is underpinned by the recent supportive policies introduced by the Chinese government to stimulate economy expansion as well as the increasing consumer demand. We will continue to advance our core OTA business by enhancing user value while actively developing our outbound business to expand our global market reach. We will also focus on strengthening our competitive edge in the travel industry and continue to grow our hotel management and the tourism business. Guided by our strategic vision, we aim for sustained growth and improved profitability in the long run. With that, operator, we are ready to take questions now. Thank you.

[Operator]

[Operator Instructions] Our first question comes from the line of Wei Xiong from UBS.

[Wei Xiong, analyst]

I wanted to -- I noticed that our MPU and APU growth seems to be decelerated a little bit in the past few quarters. So I was wondering, could you please elaborate? Does it mean that our current large user scale has approximately reached maybe the near-term ceiling of the total travel user base in China? And could management share what's your target for the APU and MPU growth for this year?

[Joyce Li, executive]

Thank you, Joe. As I mentioned before, our strategic priorities, starting from this year is to focus on enhancing user value and user purchase frequency rather than purely enlarge our user base. So by the end of September, our user purchase frequency increased to over 8x a year, which is significant improvement from around 5.5x a year in 2019. And our ARPU for 12 months ended also increased from less than RMB 15 in 2019 to over RMB 70. We prefer not to set a target or boundary in terms of our user volume, but we are confident that the number of paying users will continue to expand as we have consistently explored the various user acquisition channels. For example, we have established a very huge user base, which can be further cultivated in reaching ecosystem, and we now still see significant potential for further growth within them. By leveraging both the natural growth and targeted advertising efforts, we strive to attract more paying users to our service in the future.

And we will continue to promote our standalone app with effective market campaigns to cultivate more loyal users. We will reallocate some of our sales and marketing expense to explore the traffic from our standalone app. So the pre installation of mobile phones and promotions in app stores. And besides we also continue to actively explore new traffic channels, including cooperation with handset vendors, short video platforms, location-based apps like Golden map and Baidu map.

Moreover, we also further enhanced our operation in [indiscernible] mini program to expand our reach and attract new paying user to our platform. What's more, we will continue to expand our user base through offline aquisition, especially for business with low online penetration rates, which will also contribute to our paying user network and the paying ratio.

And with that, with regard to our user app and purchase frequency improvement, I would like to mention that our ongoing focus is continuing to enhancing it. Because we have already established a huge user base, so we were focused on enhancing the user engagement and increase apps through the price methods. Firstly, we will refine our recommendation algorithms and use tailored promotions to encourage cross-selling within different business segments aiming to increase the revenue per transaction and the overall take rate.

Secondly, we'll also continue to prompt our vast product services that cater to our user travel needs. For example, we will further optimize our intelligent travel solutions, the Weixin system, so as to improve our monetization. Moreover, we will also continue to introduce innovative products services across different scenarios to improve our user satisfaction. Thirdly, we will continue to expand our product service offerings on our platform to enhance user purchase frequency and user value on our platform.

Furthermore, as I mentioned, the Black Whale members program has proved effective in increasing our overall app and purchase frequency. So we're also like to continue to promote this program to foster the great loyalty among our users.

[Operator]

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

[Brian Gong, analyst]

So 2 questions. First is regarding outlook, top line outlook. How should we look at our first quarter and next year performance for both domestic and outbound business? Could you elaborate a little bit more on hotel and transportation 2 segments, respectively?

And the second question is regarding margin. Our margin in the third quarter was pretty decent and driven by core OTA business, right? So how should we think about the future trend? And how much further room we can -- how much room we can further optimize our spending?

[Lei Fan, executive]

Thank you, Brian. First, I would like to address the question about the outlook in quarter 4 and next year. Actually, during the past Golden Week of National holiday in the early October, the China travel market continued its very growth momentum. According to the Ministry of Culture and Tourism, the number of domestic tourists reached around 800 million during the Golden Week holiday, representing an increase of around 6% year-over-year. According to the data from the Ministry of Transport, the total national passenger throughput throughout data during the 7-day holiday recorded around 4% year-over-year growth, with railway and airline recorded around 11% year-over-year growth, respectively.

In terms of our business, actually, our business continued to outperform the industry during the national holiday with several multiples for both room nights sold and air ticketing volume sold during the National Holiday achieved a double-digit growth, high teens growth in the National Day holiday. In particular, outbound accommodation and air ticketing business continued to maintain a very significant volume growth over 100% year-over-year during the National Day holiday.

Besides with our multichannel traffic strategy that we emphasized a lot of times this year, our standalone app maintained remarkable growth, reaching another all-time high of more than 3 million DAU before the National Day holiday. We remain very optimistic about the prospects of China's travel industry. Consumers across different age groups are consistently prioritizing spending on travel and experiences such as concert, music festivals, sports events or over physical goods, as we mentioned a lot of times.

Additionally, we are seeing more diverse travel preferences and different booking scenarios, presenting further opportunities for growth in the industry. Moreover, as we mentioned in the prepared remarks, the Chinese government has recently introduced several initiatives aimed at supporting economic development, which we believe will also benefit travel industry with better consumer sentiment.

On the other hand, we recognize significant growth potential in outbound travel and international markets with increasingly favorable visa-free policies for Chinese travelers and also rising desire for overseas travels. We anticipate a sustained growth for outbound travel market. To seize this opportunity, we are enhancing our product and service offerings, improving service quality and implementing efficient market initiatives.

So looking forward to quarter 4 and next year, we will adhere to our strategy to capturing business opportunities while focusing on achieving a more balanced and healthy growth with decent profitability. We have adopted a more disciplined approach for our marketing investment strategy since the past quarter. We have also streamlined business operations and enhanced organizational efficiency. These actions enable us to achieve a higher margin. In particular, for example, the OP margin of our core OTA improved nearly 6 percentage points to 31% year-over-year compared with last quarter -- compared with the same quarter last year.

We believe that our business strategy and our excellent execution will not only help us capitalize on market opportunities, but also deliver satisfactory results for our stakeholders. In terms of the margin improvement, I would like to provide more color because we have really do a lot of execution in the past quarter and will continue this trend in quarter 4 and also next year. As we disclosed, our quality operating margin and adjusted net margin improved significantly in quarter 3, reaching an all-time high compared with even the pre-COVID level, 2019 level.

Our sales and marketing investments delivered a great efficiency and ROI improvement since we adjusted our strategy from focusing on user volume growth to prioritizing user value growth, just like Joyce mentioned. We allocated more resources to cross-selling promotions and campaigns aimed at increasing purchase frequency among existing users. As a result, our ARPU in the past 12 months improved to over RMB 70, reflecting a 54% increase compared with the end of September in 2023, while the cross-sell rate improved a lot from around 10% to 12% -- more than 12% in quarter 3. Moreover, the successful execution of our user value growth strategy gives me more confidence in the huge potential for further ARPU growth, especially as we observed the increased customer demand and enhanced consumption power.

Meanwhile, we have also maintained strict discipline on headcount and cost management in the past quarter, focusing on improving operation efficiency for our established business and investment payback for new initiatives. Thus, we foresee a very clear path for optimizing sales and marketing efficiency and operational leverage in quarter 4 and next year and expected a continuous year-on-year improvement in both our core OTA operating margin and also the company adjusted net margin in quarter 4 and next year.

[Operator]

Our next question comes from the line of Yang Liu from Morgan Stanley.

[Yang Liu, analyst]

And first, congratulations on the very strong results. I just have one big picture question because I saw the company has a 2.4% GMV growth in the past quarter, but the OTA -- core OTA revenue growth actually is very high at 22%. So I would like to ask management's view on how to understand this very low GMV growth, but very high OTA revenue growth. Is there a significant increase of OTAs position in the whole travel value chain to justify such big gap in terms of revenue and GMV growth? And is that sustainable? Or is there any further room for this kind of monetization to further improve in the value chain?

[Lei Fan, executive]

Thank you for the question, Yang. Yes, actually, our GMV growth in the past quarter do not have very attractive growth. It's only 2% to 3% of the growth rate in the past quarter. That is mainly because of the industry headwind because in the same quarter last year, there's a lot of supply and shortage. So at that time, the ADR and ATV is extremely high. But this year, the ADR and ATV have back to normal, back to the same level compared with the pre-COVID level.

So that caused ADR and ATV drop and caused offset -- GMV offset because we have a very charming growth for the volume for the volume-wise, but offset by the ADR and TV drop. So this GMV only have a 2% growth year-over-year for the company. But our revenue do not have too much impact because as we mentioned a lot of times, for the transportation segment, the revenue is not correlated to the ATV because most of our revenue, more than 60% of our revenue is recognized by the VA app -- by the VA app. So it is more related to the attach rate, how many VA apps attached to the ticket, but not related to the ATV. So that is for the transportation segment. But for the accommodation segment, yes, the ADR dropped slightly like 4% to 5%. But in the past quarter, as we mentioned a lot of times, we are very disciplined on the couponing campaign. And we execute a very accurate marketing campaign for the couponing, and we only invest the coupons on the cross-sell instead of the new user acquisitions in the past quarter. So our ROI and also the marketing efficiency improved a lot. So the couponing level has been -- I think has been limited to the minimum level in our history.

So that is why our net take rate for accommodation improved a lot quarter-over-quarter and also year-over-year. And we think that is sustainable in the future because as we mentioned a lot, we are focusing on the ARPU improvement and focusing on the existing customer frequency improvement instead of the invest a lot of money to acquire the new users because we don't think that is a very efficient way for the company in current period.

[Operator]

Our next question comes from the line of Qichen Wang from CICC.

[Qichen Wang, analyst]

Congratulations on your very strong results. And I have 2 questions on international business. We have observed that we got very strong growth in our outbound air ticketing and hotel booking. What is the total transportation and hotel booking revenue contribution of international business in Q3? And what is our targeted revenue contribution of international business in the next 2 or 3 years?

And my second question is that the company has previously mentioned that the negative margin impact from investments in international business will be further reduced in Q3. And could you please update the current process? And what is the expected overall margin impact for the full year? And when can we expect this investment to start to have a positive effect on our margin?

[Joyce Li, executive]

Thank you Qichen for the question. Since last year, we have intensified our effort to drive our international business. We continue to expand our product and service offerings for outbound travel through partnerships with the leading international OTAs, wholesalers, airlines, enterprise, overseas TSPs. Additionally, we are also allocating more resources to research and development to enhance our service capabilities.

We have achieved a significant growth in the user base over the past few years, and we are trying to capture the outbound travel needs of our huge user group. So the primary focus is on our international air ticketing, employing a competitive pricing strategy to expand our reach and build up their mindsets. In third quarter, we continued to invest in the marketing and promotions for international travel products, but we're placing a stronger emphasis on RY right now.

With more experience and better understanding of user behaviors of the outbound travelers, we are also able to optimize our resources and achieve the target promotions with better efficiency. So we are pleased to report meaningful improvements in the efficiency of our international business following our enhanced revenue management efforts and more precise marketing activities.

We have consistently achieved a remarkable growth in our outbound business, particularly in the destinations such as Thailand, Japan, Malaysia, Korea, Hong Kong during the third quarter. The growth of our outbound business outperformed the industry significantly. Like I said, our international air ticketing volume recorded over 110% growth year-on-year, while our international accommodation volume in the quarter 3 saw approximately 130% growth compared to last year.

As we are now still in the early stage of developing our international business, we expect that it will account for around 5% of our core OTA revenue this year, and we said this will be further increased in the following 2 to 3 years. And in terms of the margin impact, as I mentioned, we start to place great emphasis on efficiency in our international investment in quarter 3.

So the margin impact caused by international business investments have been further narrowed down, which also contributed to the quarter-on-quarter improvement in operating margin of our core OTA business. We believe this strategy will minimize the margin impact of these investments in near term and ultimately bring positive margin impact to our core OTA business in the future. Thank you.

[Operator]

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

[Thomas Chong, analyst]

Congratulations on a strong set of results. My question is about our standalone app. How do we plan to increase our traffic from the standalone app as -- and we have started the investment in the installed app a few quarters before. Any initial achievement which can be shared? And how much is our own app contributing to our traffic and revenue?

[Joyce Li, executive]

Thank you Thomas for your questions. As we have mentioned, we continue to diversify our traffic sources with a particular focus on investing in our standalone app starting from last year. We have observed that the app users tend to be high-value users who travel more frequently. So given the difference in user profiles and behavior between the Weixin platform and app platforms, overlapping of Weixin users and app users are very low for us.

Therefore, developing our app channel is expected to attract incremental new users for us. And over the past several quarters, we have expanded our partnerships with mobile phone manufacturers to pre-install our app on their devices. We have collaborated with several leading mobile phone vendors in China and have our app pre-installing certain models with new phones. We have already observed a steady increase in the activation rate of our pre-install app with a growing conversion of users to orders.

Additionally, we are also intensifying our efforts to attract new users through promotions in app stores and social sharing initiatives. Besides, we have continued to invest in brand promotion and marketing activities to enhance brand awareness and build loyalty for our app. By launching innovative marketing campaigns and offering tailored products and services, we have successfully attracted a sustainable amount of young users.

As a result, our standalone app experienced significant growth last quarter with DAU reaching an all-time high of over 3 million just before the National Day holiday, as I just mentioned. We have adjusted our sales and marketing budget and reallocated some resources to enhance user acquisition for our standalone app so that our overall sales and marketing spend for user acquisition will remain relatively stable.

While the user acquisition cost for app is higher than for Weixin and the payback period is longer, we expect that the increased ARPU and user loyalty will yield significant returns in the longer term. We are committed to invest in this area and expect the revenue contribution from the app to continue to grow. And at the same time, of course, we will focus on improving the ROI of our other traffic channels. Thank you.

[Operator]

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

[Kylie Yeung, executive]

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

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.