Tongcheng Travel Holdings Ltd

HKEX:780

Earnings Call Transcript 2019-Q4

[Kylie Yeung, executive]

Thank you. Good morning, and good evening, everyone. Welcome to Tongcheng-Elong's 2019 Fourth Quarter and Annual Results Conference Call. I'm Kylie Yeung, Investor Relations Director of the company. Joining us today on the conference call are Mr. Heping Ma, Executive Director and CEO; Mr. Julian Fan, CFO; and Ms. Joyce Li, VP and Head of Capital Markets.

For today's call, our management team will provide a review of the company in 2019. Hep will kick off with a short overview and walk through the company strategy. Joyce will discuss our business highlights of 2019, and then Julian will address the details of financial performance accordingly. We'll take your questions during the Q&A sessions that follow.

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.

It is now my pleasure to introduce our CEO, Hep. Hep, please go ahead.

[Heping Ma, executive]

Okay, thanks, Kylie. First of all, I'd like to thank you all for attending our 2019 annual results conference call. It's my pleasure to share with you our achievements in 2019.

In the past few years, by leveraging our technology innovation, we continue to deepen cooperation with our suppliers as well as enriching and improving our products and services so as to seize every opportunity in the travel markets. We also made every endeavor to acquire more users through our diversified traffic channels, and meanwhile, managed to enhance customer loyalty and user retention. All these efforts led to further increases in both business volume and monetization capability.

During the reporting period, our GMV maintained a rapid growth and increased by 26% year-over-year to the RMB 166 billion. During the year under review, with our continuous efforts to explore traffic on the Weixin platform and to invest more in our native app and other quick apps, our user base maintained double-digit growth in spite of its large scale. Our average MAUs reached 205 million for 2019, ranking #1 in the industry with a year-over-year increase of 17%. Furthermore, our MAUs from Weixin Wallet and the mini program drop-down bar realized impressive year-over-year growth of 53%, which was a result of the effective execution of our all-in mini program strategy and accumulate the efforts of advertisement and social sharing, which have fostered user behaviors.

Our MPUs have maintained rapid growth since we shifted our strategic focus to enhancing conversion rates rather than only focus on active user acquisition from the beginning of 2019. The average MPUs for the year stated 26 million with a year-over-year increase of 34.5%. Our paying ratio increased to 13% in 2019 from 11% in 2018 as our traffic with higher efficiency and higher conversion rates continued to expand. This was mainly because we continued to deepen our understanding of the actual leads of our users to develop user-friendly transaction processes and to provide users with higher-quality travel products and services in different travel cases.

For example, our Huixing system intelligent travel solution was invented to meet users' unsatisfied travel needs. Our air ticket booking system product evolved to provide users with more tellers and seamless transaction processing experience. At the same time, our intelligent hotel initiative allows the user to enjoy the benefits of advanced technologies in our pilot hotels.

We also tapped into niche areas and provided [ lower tiers ] of services so as to better serve our users. Furthermore, we launched relatively aggressive our membership program with various kinds of benefits and privileges to increase existing users' loyalty and value. In early 2019, we rolled out a paid membership program named Black Whale [Foreign Language] aimed at evoluting users retention. Benefiting from the initiative above, our annual paying users hit a record high of 152 million, a year-over-year rise of 35%. The expansion of our user base and the business volume has brought decent growth in financials.

Revenue for the year increased by 21.4% to RMB 7.4 billion from RMB 6.1 billion in 2018. Adjusted net profit reached RMB 1.54 billion, representing a year-over-year growth of 35.4%, while adjusted net margin climbed further to 20.9% compared to 18.7% in 2018. The great results achieved are attributable to further implementation of business strategies and improvement in user retention and value by enhancing products and services with our technology. It was also the combined results of the synergies achieved after the merger as well as the scaling effect with our growing business.

During the year, we continued to implement our cross-selling strategy by developing the massive traffic from our transportation ticketing business to business segments with higher margins such as accommodation and advertisement. This greatly enhanced not only our monetization capability but also our business volume.

To sum up for the year, we tapped further into lower-tier cities and continued to capitalize on the unleashing of travel demand in this city, driven by improved transportation infrastructure. Our market preparation in lower-tier cities was reinforced with the help of Weixin's low-cost, efficient traffic and our effective marketing strategy. Around 86% of our registered users resided in non-first-tier cities, while about 63% of our newly acquired paying users in Weixin were from Tier 3 or below cities. The growth of our accommodation business spoke well of our strong position in these cities.

In the fourth quarter, we achieved marketing-leading growth of over 50% in room nights sold on our online platform. In particular, our room nights sold in lower-tier cities recorded more than 70% growth compared to 40% in higher-tier cities.

Now I'd like to talk about the impact of COVID-19 outbreak in early 2020. It has weighed on not only the travel industry but also on the whole economy in China and even globally. We are undoubtedly affected by the epidemic. As a socially responsible and accountable enterprise, we launched a dynamic set of initiatives immediately upon the COVID-19 outbreak in an effort to fulfill our responsibilities towards our users, employees, suppliers and the society.

Here, I'd like to extend my sincere gratitude to our employees, especially the customer service team and the R&D team, who have been fighting day and night to deal with the changing situation since the outbreak began.

In face of short-term depressed travel demand, we turn to improving our operating capability, optimizing the cost structure as well as enhancing our management efficiency. More importantly, we continue to advance our products and services to satisfy the unfulfilled needs of our users.

I believe in the long run, the demand for travel remains unchanged and the travel industry in China is bound to prosper. As a major OTA player in China, we see more opportunities in the long run. We will focus on our core strategy, operate on cost-saving model, act on uncertainty and hunger for opportunities. We, of course, feel that the company will go through these difficulties and grow into a stronger one.

COVID-19 is an impassable threshold for those who hesitate to move forward in the face of difficulties, but it is a stepping stone for those who strive to make a success of themselves when facing challenges. I do believe the current situation provides the best chance to empower our team, and I have faith that our win-win partnership with suppliers, our remarkable product innovation capability, our solid cash position and efficient operating work enable us to sail through the storm and seize every opportunity brought by the challenges.

I will now hand over the call to Joyce for our business strategy and highlights as well as the measures we have taken to tackle the epidemic. Joyce, please?

[Joyce Li, executive]

Thank you, Hep. Hi, everyone. It's my pleasure to share our annual performance with you. Let me start with our traffic growth. During the year, we further leveraged on Weixin's cost-effective traffic as well as put more resources in directing our direct channels. We're also cooperating with hotels, airports and bus operators to our off-line users. All these efforts led to an impressive growth of average MAUs in 2019.

Especially in the fourth quarter, our average MAUs continued to stand by 18% year-over-year on a high base as we launched effective marketing campaigns both on and off-line with sponsorship of popular online platforms like [Foreign Language] a drama series in which we directly educate users how to place orders within Weixin. With this successful media placement, we did not only write our brand awareness among the younger generation but also increased our MAU in Weixin.

We also increased our off-line advertisement in airlines, high-speed trains, universities and buildings. Besides, with more marketing and R&D resources devoted since last summer, the traffic of our 2 native apps and a quick app achieved more than 30% year-over-year growth in the fourth quarter.

Now let's turn to our business segments. In 2019, revenue from accommodation business rose by 27.6% year-over-year on a combined basis to RMB 2.4 billion while revenue growth on our own platform recorded an industry-leading rate of more than 40%, demonstrating robust growth and strong monetization capability.

One of the main reasons for the rapid growth of our accommodation business is that we continue to leverage our low-cost, high-efficient user creation channels with unique advantage in low-tier cities through our mini program. In addition, we kept on pushing our cross-selling strategy during the year. We continue to direct and stimulate our transportation users to try accommodation products and services in order to efficiently utilize our market traffic.

Moreover, in order to further penetrate into lower-tier cities and accelerate our strategic layout in the cities, we established cooperation with hotels in order to transform off-line usage online. That is the main reason why our room nights experienced rapid growth in the fourth quarter.

Meanwhile, we have further developed accommodation that such as cancellation insurance and advertisements for hotels, which to some extent improved our blended take rate. All these efforts for our revenue sources and enhanced our monetization opportunities.

Now let's take a look at the transportation ticketing business. The revenue for transportation business increased by 12.2% year-on-year on a combined basis to RMB 4.5 billion. The revenue momentum remained intact, thanks to persistent and robust growth of our user base and also the continued product and service innovation.

For example, our intelligent Huixing system is designed to meet users' unfulfilled travel needs. When transportation tickets sell out or when schedules are not available, it will recommend reliable and highly suitable alternative routes, which may cover a combination of railway, flight and bus, according to user's preference, whether they're price-sensitive or time-pressed. It helps users to arrive at a destination with availability, affordability and achievability.

The system not only enhance user experience but also optimize our monetization transportation. In particular, our Huixing system played a key role during the coronavirus outbreak. When supply and shopping decreased as main train routes were halted as part of the government's precaution measures, Huixing system provided them with available routes and was widely used during this critical period.

We value clients' needs and experience as well as sustainable growth with our suppliers. Empowered by the big data, we establish in-depth cooperation with numerous suppliers by providing them with technology and marketing plans.

In 2019, we continued to cooperate with local airports by providing precise marketing services based on our big data advantages. This helped airports to attract more traffic and improve their throughput and also improve our brand awareness. We also developed a marketing system to promote transit routes for airports on a strategic cooperation. We collaborated with dozens of airlines and rolled out a series of campus promotion activities to approach the younger generation.

During the reporting period, we also cooperated with multiple bus service providers to improve the operational efficiency and online penetration rate of bus tickets.

Other business has achieved a rapid growth in 2019 as well. Revenue increased by 137.3% year-over-year to RMB 517 million mainly due to the revenue growth from our attraction ticketing advertisement. We acquired the attraction ticketing business last year so as to stress the quality control, enhance one-stop shop strategy and increase cross-selling opportunities. With our huge traffic, we developed advertising business during the year to enhance our value proposition to suppliers and extend our revenue stock.

We've been emphasizing the importance of user requirements and experience. Our long-term goal is to better serve our users and elevate user stickiness and value. We have invested more resources in the membership program as the number of members in OTAs kept climbing. During the reporting period, we incorporated membership program for Air China, China Airlines and China Travel Service enable members to use their credits to redeem cash discounts for products and services on our platform.

Our Black Whale membership program further enhanced user stickiness and the retention rate. At the end of 2019, the number of our Black Whale members have reached more than 500,000 with monthly average repurchase rate reached 4x that of general members in the fourth quarter and ARPU reached 2.7x that of the general members.

As the company aim to transform OTA to ITA, we proactively embrace the technology innovation and industry evolution. In addition to Huixing, Buddha system and intelligent hotel Hep had mentioned above, in 2019, we successfully developed a revenue management system for small-scale airlines, becoming the first OTA possessing such a technology that was long monopolized by foreign companies with a far lower cost. We continue to improve our customer service with technology by perfecting our customer self-service system. We also improved the intelligent voice recognition system, which not only shortened users' waiting time but also enhanced our customer service efficiency.

We all know that the beginning of 2020 has been challenging with outbreak of coronavirus. However, we reacted swiftly to tackle this [ outbreak situation ] and launched a series of measures to protect our users, employees and suppliers as well as taking our social responsibility. Our users and employees over the [indiscernible] valuable to us. Upon outbreak, we moved as fast as possible in the launch of policies of refund and changes without penalties so as to safeguard our users' benefit. Those policies will update every 24 hours and the coverage was still extended to all products on our platform, echoing government's precaution measures and suppliers' policies.

To timely respond to users' needs and in continued user experience, we soon opened our self-service online cancellation function to fast-track refund and changes as well as to help alleviate the burden of our customer service team. To reduce user losses, we set up an emergency fund and extended the validity of our membership. In fact, we provided COVID-19 with insurance free of charge for users with travel needs. We gave our Black Whale membership to all medical workers across Mainland China for free to pay tribute to them.

By leveraging our big data capability, we integrated the right information source rollout and intelligent inquiry service to facilitate users to understand the latest trends and to plan their travel time and their route. In order to maximize protection to our users to help improve efficiency, we also launched an inquiry system and a message alert function for users to check whether there are any COVID-19-diagnosed patients in the train or plane they took so that they can take necessary precaution accordingly. We also work with an online medical platform, joining hands with 200 hands-on doctors in public hospitals across the country to provide online medical consultation for free.

To facilitate resumption of work across China, we initiated a return-to-work platform to provide a customized bus transport service for enterprises for their returning workers. To protect our employees, we started an online safety reporting system to track health data of our employees to evaluate the situation within the company. We extended holiday and launched a work-from-home policy. We provide our employee with COVID-19-related insurance and medical consultation free of charge.

As one of the market leaders, we also joined hands with our suppliers to face a challenging -- as they go through the hard time. We launched a Safe Room initiative to ensure the safety of hotel guests. In addition, we commissioned our airlines protected spot for members within the airline free of charge. Our airlines allow consumers to enjoy a rich and comfortable culture life or tourist destinations at home through online video and virtual reality technology.

With the effective control measures of the Chinese government and the dedication of medical staff, the epidemic has been effectively controlled recently. We see the recent trend of business recovery and accordingly launched a set of initiative, which encourage users to make sensible travel plans under the premise that they travel safe. Furthermore, we joined hands with a client to revive the whole epidemic travel market by continue supporting technology and cooperation for their services.

To emphasize here how to stimulate consumption after the epidemic, the Chinese government recently published a policy regarding expansion and upgrade of consumption, in which [ travel-related ] issue were emphasized. Moreover, local governments begun to remove restrictions on some tourism projects and meanwhile launched policies to encourage travel after the epidemic. The government's efforts will accelerate the recovery of consumers' decreased travel demand, and we believe we're in a good position to capture opportunities.

That's all I want to share with you for now and I will pass it on to Julian. He will share with us the financial results of the fourth quarter and the full year of 2019. Julian, please.

[Lei Fan, executive]

Thank you, Joyce. I would like to review the results for the fourth quarter and full year of 2019 and then discuss our thoughts for the first quarter of 2020.

For the fourth quarter of 2019, Tongcheng-Elong reported a net revenue of RMB 1.96 billion, representing a 24.4% year-over-year increase from the same period of 2018. Our MAU growth rate accelerated to 19% year-over-year and reached 206 million in the fourth quarter mainly because of the effective marketing campaign, as Joyce mentioned. Our MPU in the fourth quarter achieved RMB 27.1 million, representing a 21% year-over-year growth and a paying ratio of 13.2% compared with 12.9% for the same period of 2018. The paying ratio year-over-year improvement was slowing down in this quarter mainly offset by the accelerated MAU growth from online program and off-line advertisement. GMV reached RMB 41.3 billion in the fourth quarter of 2019 with a growth rate at 20% year-over-year compared with the same period of last year.

Accommodation reservation revenue increased to RMB 622 million with a growth rate accelerating to 46.6% in the fourth quarter, exceeding the high end of our guidance range mainly because the room night volume rocket up with over 50% growth compared with the same quarter last year for domestic business.

And geographic-wise, we continue to lead the industry growth in both lower-tier cities and high-tier cities with 70% and 40% growth, respectively. On one hand, we further solidified and implemented low-tier city penetration strategy. On the other, our cross-selling rate further improved to over 28% in the fourth quarter of 2019 and more than 8% of the cross purchase happened in the same [ tiers ] of the users, which obviously contributed to the room night consumption on our platform.

Meanwhile, as the take rate of accommodation business was slightly increased year-over-year, more subsidies in low-tier cities got offset by higher non-user revenue contribution. Transportation ticketing revenue for the fourth quarter of 2019 was RMB 1.18 billion, representing a 10.2% increase from the same period of 2018, in line with our guidance range mainly driven by the increase in air ticketing volume and the full recovery of blended take rate of ground transportation.

Air ticketing business continued to outperform the domestic industry and was more than triple the industry growth in this quarter. Blended take rate of air ticketing business was at the same level compared with last year. Ground transportation ticketing volume was growing at the same pace as the industry because we are starting to pursue a growth from users who are more willing to pay for the app since December. The blended take rate of ground transportation fully recovered to the same level of last year mainly benefited by Huixing contributions and express ticketing.

Other business, including advertisement, attraction ticketing and membership card business, increased by 101.9% to RMB 153 million in the fourth quarter. Advertisement business contributed more than RMB 60 million in this quarter as we continually optimized their algorithm to allocate and utilize the traffic from ground transportation, which made the total monetization capability even higher.

Gross margin was 70.6% for the fourth quarter of 2019 compared with 64.6% in the same period of 2018 and recovered from 66.9% in the previous quarter. Adjusted EBITDA increased by 47.7% year-over-year to RMB 415 million in the fourth quarter. Adjusted EBITDA margin increased to 21.2% from 17.9% period-over-period. Adjusted net profit increased by 67.7% year-over-year to RMB 331 million in the fourth quarter. Adjusted net margin increased to 16.9% from 12.6% in the same quarter last year.

Excluding share-based compensation charges, cost accounting for 29.1% of revenue in the fourth quarter compared with 34.5% in the same period of 2018 and 33% of revenue in the previous quarter mainly because the blended take rate of transportation fully recovered. Excluding share-based compensation charges, total non-IFRS OpEx accounted for 61.2% of revenue in the fourth quarter compared with 63.7% in the same period of 2018 with 2.5 points year-over-year improvement.

Sales and marketing spending accounted for 37% of revenue in the fourth quarter compared with 34% in the same period of last year and 30% in the previous quarter. We invested in more marketing dollars on brand advertisement such as TV and off-line advertisement, new user promotion and our native app traffic. At the same time, we keep monitoring the ROI and guarantee a long-term return for each investment.

By the end of 2019, our total headcount dropped 13% compared with the headcount by the end of 2018, further benefiting from the merger synergy and improved efficiency. Amortization of intangible assets from Tongcheng-Elong acquisition was included in the OpEx I mentioned above, reached to 3.6% of the revenue in the fourth quarter of 2019 and 4.2% in the same period of 2018.

Now let us move to a result summary for the full year of 2019. The year-over-year comparison is based on a combined basis. GMV and revenue grew to RMB 166.1 billion and RMB 7.39 billion, respectively, representing a 26% and 21% year-over-year increase from the same period of 2018. The revenue from our own platform achieved more than 25% year-over-year growth continuously beat the market and industry growth. The revenue from our own platform segment achieved more than 40% and 12% growth for accommodation business and transportation business, respectively.

Gross margin slightly dropped by 1 point to 69% from 70% year-over-year, hit by the short-term blended take rate fluctuation from ground transportation in the middle of the year. Adjusted EBITDA increased by 36.2% year-over-year to RMB 2,019 million. Adjusted EBITDA margin increased to 27.3% from 24.3% in the same period of 2018. Adjusted net profit for the period increased by 35.4% year-over-year to RMB 1,544 million. Adjusted net margin increased to 20.9% from 18.7% in the same period of 2018.

What is more, the persistence on our key strategic initiatives not only that to our strong financial performance but also make a fruitful expansion and upgrade on our valuable user base. The total paying user or transaction users in our platform achieved 152 million, representing a 35% year-over-year growth. Among those users, more than 45% were new users and around 62% of new paying Weixin users were from lower-tier cities. On average, each user contributed more than 5.5x purchase in the past year. So we successfully realized both user volume growth and user value growth in 2019. As of December 31, 2019, the balance of cash, cash equivalents, restricted cash and short-term investment was RMB 7.0 billion.

Last, turning to our expectation for the first quarter of 2020, as everyone knows, the coronavirus outbreak in China since the Chinese New Year has brought negative impacts on tourism, traveling and lodging industry in the large scale. At the very beginning of the outbreak, as Hep and Joyce mentioned, the company, on one hand, initiatively helped to reduce the loss of users and suppliers, immediately provided a variety of functions to ensure user safety during their travel. On the other hand, we immediately started a cost-saving mode to operate internally. Based on where we are in this quarter and considering the impact of the coronavirus, now we are forecasting our quarter 1 net revenue to decline 42% to 47%.

Excluding share-based compensation and amortization of intangible assets from Tongcheng-Elong merger, the company expects non-IFRS net profit or adjusted net profit will be in the range of breakeven to RMB 50 million. Thanks to what we did for cost savings in this quarter.

This forecast reflects our current and preliminary view, which is subject to change. Although we didn't have further growth in the beginning of 2020, we are fully prepared to outperform the industry, running on the highest efficiency to keep profitable, staying with uncertainties and hunger for opportunities. We will continuously focus on our core strategies and outpace the market and in the rebound later in 2020.

Okay. Operator, we are ready to take the questions. Thank you.

[Operator]

[Operator Instructions] Your first question comes from Alex Poon from Morgan Stanley.

[Chun Poon, analyst]

Congrats on the hotel. Very strong hotel growth in Q4 and also the cost control in Q1. My question is can we say the worst is over? And what are you expecting the pace of recovery in the coming quarters? And as I think going back to 100% of the normal is very difficult, so as, let's say, by summer in Q3, what percentage of your volume of last year do you expect to recover? And my second question is how will the competition landscape change around this time and also after the virus when things are normalized?

[Lei Fan, executive]

Okay. Alex, I would like Joyce to first introduce our knowledge about the macro and the industry change during the coronavirus and what does the competition look like around the coronavirus. And then I would like to share more details on our own data.

[Joyce Li, executive]

Okay. Thank you, Alex. So considering your first question, as [ ongoing COVID outbreak ] has significant impact on travel industry, it is too difficult to predict duration of the whole impact for now. But as the epidemic has been effectively controlled in China recently, we think that the domestic travel market has bottomed in February and is showing clear recovery starting in March. That's why we launched the Hit the Road initiative to revitalize epidemic travel market.

And more importantly, as we all believe the epidemic impact will be short-term and we're less affected, because firstly, the proportion of transportation ticketing in our business is higher and transportation was relatively less affected in quarter 1 after resumption work. Especially when there's a limited supply of tickets, more users are willing to purchase that. Besides, we managed our [ products ], which we believe will rebound faster than package tours as there are still government restrictions on package tours.

And secondly, we have observed that the recovery of low-tier cities is faster probably because the government control measures in high-tier cities are deemed more strict at this moment and the low-tier cities market is one of our main markets.

Certainly, with the effective control of spread of virus in China when the virus become an epidemic internationally, we believe that the domestic travel will be the first sector to rebound and the domestic travel is our major business. That's why we remain optimistic about the growth of our travel industry in China and continue to be confident about our long-term growth perspective.

Now I will let Julian to explain more details in terms of financials.

[Lei Fan, executive]

Yes. Alex, actually, for better understanding on what happened in the past months, I would like to try to give more color on specific view by month to review the impact of the coronavirus.

So yes, in the prepared remarks, we are forecasting revenue to decline like 42% to 47% in the first quarter year-on-year. Based on the data that we have on hand, which is very preliminary and unaudited, the revenue in January hit by like 5% to 10% year-over-year since the virus operates around 20s in January. And at that moment, domestic hit more than international because the outbreak started in China.

As a matter of fact, in February, things got worse in February. The revenue further declined like 80% year-over-year in February. In fact, in the first half of February, the business was even down to 0, near to 0, with very limited new orders added to -- added by the Chinese New Year and back-to-work cancellation. While in the second half of February, the business started to revive and the decline trends recovered to like 60%, 70% year-over-year along with the back-to-work initiation. In March, back-to-work initiation -- and also, the business traveling started in low-tier city, in some kind of low-tier cities by the second half of February. In March, yes, for the best estimation until now, the revenue may decline like 40% to 50% year-over-year.

As the market trend is still changing rapidly every week, the guidance range may reflect the 2 things: one, whether the business traveling recover -- will be fully recovered or will start to recover for first-tier cities like Beijing and Shanghai in last week of March; and second, we have to further observe the change in holiday reservation for leisure traveling, what kind of behavior for the reservation behavior in the last week of March.

Yes, and for the middle to long-run forecast out for 2020, like to your question, we -- actually, we cannot put any qualified color at this moment. However, the management are very confident on the recovery for quarter 2 and quarter 3 because of, I think, several advantage of the company.

Let me go through details. The first one is, like Joyce mentioned, the quick and the effective control of the virus by Chinese government, aided by the booming market of Chinese traveling industry. We believe the domestic -- the Chinese domestic business will be fully recovered very soon. And because the company, we have more than 95% of the business was domestic business. So the impact to the company in 2020 might be very limited.

And two, because the company nowadays, we have a very balanced revenue sources and we develop the product line very balanced. Now we have more than 30% of the revenue contribution from air and 30% revenue contribution from ground transportation and 30% from accommodation, other 10% from advertisement and schedule. So we don't rely on just the one product line. For example, in this March, transportation come back very, very fast due to back-to-work and the business traveler. I think more than 60% of the recovery for the transportation and it also benefits for the total company's revenue trends. And also for last year, just like you mentioned, our accommodation had very aggressive growth especially in some low-tier cities. And in turn, it also benefited total revenues growth of the company.

And the third one thing I want to mention is due to the different situation on virus control, some of the low-tier cities now have already been returned to normal condition especially in some southern or eastern part of China. And our team have tightly monitored those trends and opportunities day to day and will be very aggressive to invest and penetrate the market share since the late March and April. We are quite optimistic to make the online penetration rate in those areas speed up, which was very consistent with our low-tier cities strategy, actually.

And the last one I want to mention is the impact actually hit more on very low-end products such as the single hotels like Airbnb hotels and apartments. Actually, our product lines are very diversified in the price band, all kinds of price band. With advantage -- we have advantage on the high end and middle end and also middle to low end.

On the other hand, we will very actively catch opportunity on hotel chain management in China. I think the coronavirus could be -- could be very likely to make the Chinese single hotels more consolidated with higher hotel franchise rate after the virus in the future.

So yes, in sum, domestic business, the balance of the product development and the low-tier city penetration and the franchise model development, we're very confident we will see a better one in 2020 and in the future. So I think -- I hope this will be helpful.

[Operator]

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

[Brian Gong, analyst]

My question is about on [ delayed travel ] situation, what our marketing strategy and the budget line for 2020 now? And then my second question is regarding the renewing contracts with Tencent and the Trip.com announced for any progress. And any thoughts on the change in the outlook of the renewal given the current environment?

[Joyce Li, executive]

Thank you, Brian. On the first question, as Julian has touched, we believe that it has a great chance for the travel market in China by increasing our penetration rate of different travel products especially in low-tier cities as they find it convenient to change, pull out or cancel their orders through online booking.

And on the other hand, the hotel churn rates may be accelerated as individual hotels may be difficult to face the change alone. And the epidemic profoundly changed the consumer consumption concept, the users are having higher requirements for the quality of products and services. That might be marketing [ to population or a virtual catch-up ] after outbreak, creating opportunities for stronger and more competitive players to further extend.

So we believe that the changes after the epidemic will also bring the new trend to this industry. And besides, there may be minor changes such as more advanced bookings, increasing popularity of QR code scanning for traction, more leverage on content and social sharing platform.

We think we're well-positioned and have sufficient resource to capture the trend. So in that case, after the outbreak, we have more investment in quarantined low-tier city online penetration rate especially in accommodation segment. We will also have more investment in more hotel management pilot to stimulate the development of hotel chain in China.

[Lei Fan, executive]

In terms of the Tencent hotel corporation, actually, it's too early to negotiate the price. It's 10 years relationship with 10 years cooperation and divide by 2 5 years. The first one is '16 to '21. And the second one is the middle of '21 to '26, so it's still very early. We were initially -- we'll start the negotiation, I think, in the quarter 3 to quarter 4.

But I can share some kind of data that shows us the path of cooperation with Tencent within their mini program. Last year, I think they have announced that their GMVs from mini program, yes, is over, I think, CNY 800 billion and our GMV on Weixin platform is more than -- I think more than CNY 100 billion. It's like 15 -- around 15% of the total mini program GMV is from us. So that is a win-win situation between our company and Tencent. So hope this could be helpful. Thank you.

[Operator]

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

[Thomas Chong, analyst]

My question is about the trend in terms of the take rate and the -- in hotel, in the hotel segment. We notice that you have been acquiring like users through the cooperation with hotel and provide some incentive for them to acquire users from off-line. How should we think about the trend in terms of the take rate in Q1 as well as in the remaining quarters?

And then may I have a follow-up question? It's about the trend in air ticketing and ground transportation. In particular, how should we think about the trend in take rate and the ASP?

[Lei Fan, executive]

Okay. That's related to the take rate. Okay. Actually, for the accommodation business, the blended take rate in quarter 4 slightly increased -- still slightly increased year-over-year to 8.3% even we have initiated the off-line user acquisition in quarter 4.

So actually, we invested more subsidies in low-tier cities such as the off-line user acquisition. But still, it's been offset by more contribution from non-user revenues such as cancellation reinsurance and through the entertainment in hotel and also the advertisement in hotel [ schedule ].

So in terms of the trends, we think after the coronavirus, we may put more subsidies still in low-tier cities because we...

[Technical Difficulty]

[Operator]

Ladies and gentlemen, please remain on the line. The conference will continue -- resume shortly.

[Lei Fan, executive]

Okay. Let me continue to explain the transportation business. The blended take rate actually recovered to like 3.5% in the first -- in the fourth quarter of 2019 and compared with 3.6% year-over-year in 2018. So actually, for both transportation and ground transportation, air transportation and ground transportation are quite stable year-over-year especially for the ground transportation having increased from 3.0% to 3.5% from quarter 3 to quarter 4 mainly because the ticket contribution from our Weixin system in ground transport cities is more than 25% in ticket-wise. In revenue-wise, it contributed more than, I think, 30% contribution on ground. In terms of the quarter 1 and the following, we don't see any fluctuation on this area. So hope we could be helpful for you. Thank you.

[Operator]

Your next question comes from the line of Sally Chan from CLSA.

[Sally Chan, analyst]

I have a follow-up question on the margin guidance, actually, because I think management just said despite the revenue decline we're going to see in the first quarter, we're actually expecting -- we have at least a breakeven for the quarter. I actually noticed the company actually offers a lot of supportive measures for the industry during this time. You also like a RMB 100 million like cancellation provisions fund. On the other side, we also began a cost-saving mode, like management just talked about.

So I'm just wondering if management could provide more color on how we should think about the cost saving or each OpEx line? What have we done exactly in terms of cost cutting? And then how much variable costs we could actually cut during the period? And then given we already see some recovery in the domestic travel, will we be exiting the cost-cutting mode and then increasing our investments for our many new initiatives for the year probably in the second quarter?

[Lei Fan, executive]

Sally, I will take your question. Yes, for the first quarter, yes. As we mentioned, both our team promptly started to operate in a cost-saving mode right after the outbreak, including immediately halted all kind of marketing activities, investments both on channel side and promotion side in January and February. Very tightly managed the personnel spending such as traveling spending, miscellaneous spending and also the bonus, the performance-based bonus as always.

So although the whole industry is facing headwinds, we could still, I think, to keep positive adjusted net profit in the first quarter. But the advantage of our very light business model, I think more than 90% of our business model is agent model and light cost structure, very balanced revenue sources and prompt action to start concentrating more operations.

On a year-on-year basis, we cut down like 40% of our marketing spending and 30% of our operation cost and another 20% of personnel expenditure. So that is quite variable.

And in the long run, we are very confident to realize a higher GP margin and higher net margin than last year as the recent COVID-19 allowed us to further optimize our cost structure and enhance our back-end efficiency.

While in the middle term for the rest of 2020, as Hep mentioned, we will keep our strategy unchanged and may still invest more marketing dollars to drive the rapid growth of our accommodation business and gain share in low-tier cities during the rebound streak that meanwhile guarantee each investment was a positive return within 1 year.

And in terms of the loss that -- maybe just to give you some assessment. Just like what I've mentioned, most of our business are agent model such as hotel booking and ticket booking, very light model. At the very beginning after the virus outbreak, we launched the policies of refund and changes without penalty so as to safeguard our users' benefit, protect the safety of our customers and help alleviating the social burden and reducing population movement.

Meanwhile, actually, our supplier and the domestic hotels, airlines and railways have corresponding policies in place, which users can basically get refund without any liability. So this cancellation loss rate is very small for us.

For international business which we just have less than 5% proportion, the cancellation policies from many international suppliers were not in time for our users. But as virus outbreak globally, the international air tickets also followed the policies. And some of international hotel suppliers also support free cancellation and refund.

So the one-off expense for customer care would be, I think, not more than CNY 100 million booked in our operating costs and have already reflected in the forecast. Furthermore, we believe the special care and experience will bring more loyalty and long-term user value for sure. Thank you.

[Operator]

Your last question comes from the line of D.S. Kim from JPMorgan Hong Kong.

[D. S. Kim, analyst]

Most of my questions are actually answered but perhaps a few things. First, when you say customer cancellation fee just now no more than CNY 100 million, how does it feed into our P&L? Is it mainly from lower revenue or actual OpEx that we need to book as a refund fee? And I have a couple of follow-ups.

[Lei Fan, executive]

Yes, this question is quite simple. Part of the loss is booked on our operational cost line and part of the loss is booked on the service development line. And also, the CNY 100 million loss is the maximum one and our team is -- make very few endeavor to negotiate with our suppliers to get a refund.

[D. S. Kim, analyst]

And 2 -- one more thing. Did I hear correctly all year that we are optimistic to see year-over-year recovery in business even as early as to Q3 and 2Q or by third quarter where like year-over-year growth is a little bit too early to talk about at this point? And I have one final question after.

[Lei Fan, executive]

Yes. For this question, I think we have explained in our -- in the early -- and we cannot give you a very quantified answer for quarter 2 and quarter 3. But in the March actually, for our transportation business, the recovery, we have observed 60% of recovery in March for transportation and 50% of the recovery for our accommodation business in March.

[D. S. Kim, analyst]

And final and probably not important question is I think last year, our share-based compensation was about 7% of the revenue or CNY 540 million. Do we have any forward guidance for the 2020 for the SBC?

And finally, I think as you said, we have about CNY 7 billion cash and financial instrument -- investment. Can we discuss a possibility of shareholder return either through dividend or buyback or this $7 billion (sic) [ CNY 7 billion ] is purely earmarked for our growth CapEx going forward?

[Joyce Li, executive]

Thank you, D.S. As to the last question concerning our cash position and dividend policy. As we mentioned, we have implemented our strategies since IPO. And I think after the coronavirus outbreak, we will have more investments to continue low-tier city penetration especially in the accommodation segment. And we have also more target investments in the lighter hotel management pilot to stimulate the development of hotel chains in China.

And concerning the dividend policy, I think management was concerned but currently, we have not decided yet. And we hope that all the cash position and all the resources we have to [ estimate ] our top line growth in the future.

[Lei Fan, executive]

Yes. In terms of the SBC, SBC won't exceed 5% as of revenue in 2020. Thank you, D.S.

[D. S. Kim, analyst]

Thank you so much. I hope you all stay safe and healthy. Thank you again.

[Lei Fan, executive]

Thank you.

[Joyce Li, executive]

Thank you.

[Kylie Yeung, executive]

Due to the time limitation, 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.

We hope everybody stay healthy. Thank you and see you next quarter.