Tuniu Corp

NASDAQ:TOUR

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Hello, and thank you for standing by for Tuniu's 2023 Third Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the meeting over to your host for today's conference call, Director of Investor Relations, Mary.

[Mary Chen, executive]

Thank you, and welcome to our 2023 third quarter earnings conference call. Joining me on the call today are Donald Yu, Tuniu's Founder, Chairman and Chief Executive Officer; and Anqiang Chen, Tuniu's Financial Controller. For today's agenda, management will discuss business updates, operation highlights and financial performance for the third quarter of 2023. Before we continue, I refer you to our safe harbor statement in the earnings press release, which applies to this call as we will make forward-looking statements.

Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB. I would now like to turn the call over to our Founder, Chairman and Chief Executive Officer, Donald Yu.

[Dunde Yu, executive]

Thank you, Mary. Good day, everyone. Welcome to our third quarter 2023 earnings conference call. Tuniu delivered a stronger performance in the third quarter as compared to the second quarter, our top line results continued to recover rapidly with net revenues growing year-over-year by 129%, including 262% increase in revenues from packets. Our profitability also improved with gross margin increasing to 64%, up from 58% during the same period last year. Our net income continued to increase to over RMB 39 million, marking the highest quarterly GAAP net income since our rating. We also maintained a positive operating cash flow for the third quarter for the third consecutive quarter. This indicates that as external challenges gradually diminished the inherent strength of the company are being parent, bringing us closer to achieving our long-term profitability goals.

The third quarter is China's fixed travel season. We have seen a surge in domestic tourism. Additionally, in August, a third batch of countries opened up for outbound tourism heightened the public increase and enthusiasm for travel and further accelerated the recovery of outbound travel market.

Leading the opportunity presented by the rapid market recovery, we leveraged new strengths to achieve rapid business drive movement and further consolidate our market position. Influenced by external factors, domestic travel continue to dominate the vacation-type market during the summer by leveraging our strength in the upstream segment of our industry chain, we were able to secure a plenty for supply of products for the peak season. Tuniu's core travel destinations, we leveraged the advantages of centralized procurement to ensure the availability of our in-house products and enhance our price competitiveness. In addition, we deepened our collaboration with suppliers to offer products covering a wider range of destinations and themes for customers. Tuniu remains committed to achieving high-quality development while upholding our service quality during both low and peak seasons.

For instance, we have proactively incorporated additional roles within our in-house new tool products, eliminating plan shopping activities that may affect the customer experience. This strategic move has substantially elevated the overall travel experience for our customers. And to ensure service quality during the peak season, we play special emphasis of refining the detail of the travel experience that can significantly impact the customer satisfaction.

For example, we have been deploying dedicated service personnel to popular and more complex destinations to help confirm hotel reservations, verify information about attractions and dining options and assist the customers with the any unforeseen issues. As a result, our new tool products achieved an impressive 98% customer satisfaction rate during the summer.

With several classic travel roads achieving a profit 100% satisfaction rate. For our suppliers' products, we strictly implement our strategy of eliminating or improving low satisfaction products. Furthermore, Tuniu is committed to conducting customer directly when disputes occur, rather than leaving it to [indiscernible] and the supplier to solve the problem on their own. The outbound travel market also continued to recover in the third quarter. As more outbound destinations gradually open up, we are further expanding our supply chain and product offerings to meet the growing demand from customers.

We actively cooperated with the destination suppliers and leverage our procurement advantage to accept high-quality resources and provide an improved selection of options for our customers. We have also introduced the new to our products, for Tuniu long-haul international destinations, such as New Zealand, Spain and Portugal, which have gained popularity among our customers. For example, the transaction volume of New Zealand as a stand-alone destination in the third quarter has recovered and exceeded the levels we saw in 2019.

Moreover, as air travel resources are not yet fully restored. International flight departures ports are relatively concentrated in certain cities. Leveraging the advantages of domestic connecting flights, we not only secure more favorable airfare prices, but also expanding the number of departure cities, enabling customers from a broader range of cities across the country, especially those in lower-tier cities to access a wider array of outbound travel products. Tuniu's sales growth could not have been achieved without the dedicated efforts of our customer service team. During the year's peak season, we achieved an increase of 129% in net revenues despite minimal increases in our sales personal.

The success can be attributed to our strategic implementation of system automation throughout the sales process to see on manpower and time on tasks such as product management and order processing. This strategic approach has allowed our customer service team to focus more on communication with customers and as a result, secure more orders. Tuniu's repaid customer continued to make a strong contribution to overall transaction volume with the reopening of outbound travel many loyal customers have opted for single destination in-depth travel experiences of products between niche destinations. These offerings typically come with a higher average selling price. Some senior travelers prefer to high-end products such as around the world cruises.

This decisions are largely influenced by their positive past experiences with Tuniu's products and services. As well as the ongoing efforts of customer service in maintaining positive customer relationships, during the quarter, our live streaming business maintained its leading position with doing hotel and travel services category.

Alongside our ongoing collaboration with over 10,000 experienced external influencers, Tuniu's MCN agency has taken proactive approach by initiating the training and the development of our own emerging influencers. In conjunction with the agencies strengthened travel products supply chain and optional capabilities, operational capabilities, we will further promote our travel products.

As of now, our MCN agency have successfully incubated over 100 emerging influencers. This has significantly enhanced our capabilities in live streaming shows, allowing us -- allowing our products to reach more customers. We continue to deepen cooperation with our distribution partners during the quarter. The B2B distribution channel has helped us with the sale of inventory products while insisting the advantage of our centralized procurement strategy.

Our offline partner stores contributed to product sales, showcasing to new and expanding the difference of our product brands such as new tour. Tuniu will continue to provide our partners with both in terms of products, systems and management. [indiscernible] mutually beneficial and cooperation relationship.

Looking to technology. We successfully implemented the system automation across our sales operation including marketing, booking and order processing helping us to reduce internal labor costs. In the third quarter, our operating expenses amounted to 47% as a percentage of net revenue, down from [ 17.6% ] during the same period last year. As the next step, we plan to further extend our automation capabilities into supply chain management and provide more accessibility to see functions for our suppliers and off-line stores.

This will empower our partners to be more efficient in managing product orders and marketing campaigns online. Tuniu will also leverage technical tools and further improve customer experience, creating a more convenient booking experience for our customers. In the third quarter, while we achieved a rapid sales growth, our bottom line also improved significantly compared to both the same period last year and the previous quarter. We will continue to execute our strategies for business development and internal management.

We remain committed to providing high-quality products and suites while controlling costs. I'm confident that our efforts to enhance overall efficiency and competitive needs will continue to position Tuniu for long-term sustainable growth. I will now turn the call over to Anqiang, our Financial Controller, for the financial highlights.

[Anqiang Chen, executive]

Thank you, Dunde. Hello, everyone. Now I will walk you through our third quarter of 2023 financial results in greater detail. Please note that all monetary amounts are in RMB, unless otherwise stated. You can find the U.S. dollar equivalents of the numbers in our earnings release.

For the third quarter of 2023, net revenues were RMB 178.2 million, representing a year-over-year increase of 129% from the corresponding period in 2022. The increase was primarily due to the growth of packaged tour and the travel market recovers. Revenue from package tours, were up 262% year-over-year to RMB 150.1 million and accounted for 84% of our total net revenues for the quarter.

The increase was primarily due to the growth of organized tours. Other revenues were down 23% year-over-year to RMB 28.1 million and accounted for 16% of total net revenues. The decrease was primarily due to the decrease in commission fees received from other travel-related products and revenues generated from financial services. Gross profit for the third quarter of 2023 was RMB 114.8 million, up 155% year-over-year.

Operating expenses for the third quarter of 2023 were RMB 83.1 million, up 40% year-over-year. Research and product development expenses for the third quarter of 2023 were RMB 18.4 million, up 89% year-over-year. The increase was primarily due to the increase in research and product development personnel-related expenses.

Research and product development expenses as a percentage of net revenue were 10%, down from 12% during the same period last year. Sales and Marketing expenses in the third quarter of 2023 were RMB 39.6 million, up 49% year-over-year. The increase was primarily due to the increase in promotion expenses. Sales and marketing expenses as a percentage of net revenues were 22% down from 34% during the same period last year. General and administrative expenses for the third quarter of 2023 were RMB 27.1 million, up 12% year-over-year. The increase was primarily due to the increase in share-based compensation expenses.

General and administrative expenses as a percentage of net revenues were 15%, down from 31% during the same period last year. Net income attributable to ordinary shareholders of Tuniu Corporation was RMB 39.4 million in the third quarter of 2023. Non-GAAP net income attributable to ordinary shareholders of Tuniu Corporation, which excluded share based compensation expenses and amortization of acquired intangible assets was RMB 45.8 million in the third quarter of 2023. As of September 30, 2023, the company had cash and cash equivalents, restricted cash and short-term investments of RMB 1.2 billion. Cash flow generated from operations for the third quarter of 2023 was RMB 55.1 million. Capital expenditures for the third quarter of 2023 were RMB 1.7 million. For the fourth quarter of 2023, the company expected to generate RMB 87.4 million to RMB 92.9 million of net revenues, which represents a 220% to 240% increase year-over-year. Please note that this forecast reflects to new current and preliminary view on the industry and its operations, which is subject to change. Thank you for listening.

We are now ready for your questions. Operator?

[Operator]

[Operator Instructions] The first question comes from Alice Lee, a Private Investor.

[Unknown Analyst]

First of all, congratulations on this quarter's performance. And for the third quarter, what are the proportions of domestic and outbound tourism in revenues, respectively, could you specify several top destinations. Another question is about the fourth quarter outlook. How is the business situation in the fourth quarter so far? And for the fourth quarter and full year 2023, do you think you will continue to achieve profitability.

[Dunde Yu, executive]

Thank you for the questions. Firstly, we saw outbound travel continue to recover at a quick pace during the third quarter. In terms of GMV domestic tours contributed to around 80% of our total GMV in this quarter. Outbound tours contributed to another 20% of our total GMV, up from over 10% in the previous quarter. For domestic towards Yunnan and Guangdong provinces were traditional hot destinations during summer location.

Also, historic cities such as Beijing, Nanjing and Chengdu, as well as cities with famous theme parks, such as Shanghai and Guangzhou or popular among families with children. For outbound destinations, Europe ranked #1 in the third quarter in terms of GMV, followed by the Maldives and Southeast Asia. Singapore, Spain, New Zealand and the United Arab Emirates were popular countries among Chinese travelers.

So the second question, in the fourth quarter, our GMV [indiscernible] during the National Day holiday has more than tripled compared to last year's holiday. Due to the boost of leisure travel travels, However, as the fourth quarter is an off-season for tourism. Travels, already fall back after the National Day holiday. Senior citizens are one of our major customer growth during the fourth quarter. Already traveling by organized tours.

We have time to avoid peak season and are encouraged by favorable price during the low season. Besides personal travels, corporate customized tours will also increase when its near year end in the form of annual meeting, incentive travel and team building activities. In terms of definitions, Northeast China has already gained popularity this year for its rich resources in ice and snow tourism.

Looking for products, including ice exhibition and skating are rising. For outbound travel, [ world ] destinations such as Australia and New Zealand in the Southern Hemisphere as well as Southeast Asian countries are really among the wish list of Chinese travelers. Also Northern Europe itineraries attract mid- to high-end travelers due to its unique seasonal scenarios.

However, despite the increased numbers of open up destinations. We still face headwinds at some destinations such as environmental issues in Japan and the security problems in Thailand, which could prolong the recovery process of these destinations. For cost control, although the absolute number of some expenses would increase as our business recovers. We continue to adopt stringent cost control measures in the fourth quarter and will strictly watch the expenses changes as a percentage of our revenues. In all, will make continued efforts to improve our margins and try to achieve profitable yearly results for 2023.

[Operator]

[Operator Instructions] We are now approaching the end of the conference call. I will now turn the call over to Tuniu's Director of Investor Relations, Mary, for closing remarks.

[Mary Chen, executive]

Once again, thank you for joining us today. Please don't hesitate to contact us if you have any further questions. Thank you for your continued support, and we look forward to speaking with you in the coming months. .

[Operator]

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.