Tuniu Corporation (TOUR) on Q2 2022 Results - Earnings Call Transcript
Operator: Hello, and thank you for standing by for Tuniu's 2022 Second Quarter Earnings Conference Call. After management's prepared remarks, there will be a question-and-answer session. Todayâs 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. Please go ahead. Mary Chen: Thank you, operator. And welcome to our 2022 second 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 second quarter of 2022. Before we continue, I refer you to our Safe Harbor statement in 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. Donald Yu: Thank you, Mary. Good day, everyone. Welcome to our second quarter 2022 earnings conference call. During the second quarter, while in April and May, tourism was impacted by most severe resurgence of COVID-19. Since the initial breakout in 2020. In June, we saw a rapid recovery as outbreaks were better controlled. The industry also benefited from variable policies, such as more relaxed travel restrictions. The enthusiasm for travel among the public remained high with demand increasing since the first half of the year. Tuniuâs total travel GMV growth exceeded 100% month-over-month during June and July, despite the setback in the second quarter. With the peak travel season starting in July booking volume for several popular destinations increased significantly with Tuniuâs booking volume doubling in July compared to the previous month. By keeping our focus on providing high quality products and services during times of external challenges, we are able to weather industry downturns and recover quickly during the rebound. In terms of our product new tool our core self-operated product continues to offer a high level of standard services to meet diverse customer demand. Since it was first launched over a decade ago, new tools production ecosystem has developed its own operating process and standards for product design, resource selection, customer service, and evaluation. Tuniuâs high quality products are the key to our high customer retention rate with the contribution of our repeat customers to overall GMV remaining at over 70%, since the pandemic broke out. Leveraging Tuniuâs high quality products and the reputation we aim to develop more popular products to meet the high market demand during the peak seasons. Taking one of our new tool products designed for Xinjiang as an example, we increased the number of the tour groups to meet the high demand in July with the sales of the product, exceeding RMB3 million in a single month. In terms of product innovation, during the second quarter, we continue to explore village tour products as customer demand continues to become more diversified. In addition to traditional tours the experiential tours have become more popular and help to provide opportunities for the high quality development of village tourism and boutique band beat. Tuniu also collaborates with the several village tourism projects on operation and management, in addition to their product development and promotion by leveraging our advantages and funds in the industrial chain. Tuniuâs self-operated B&B in changing has been experiencing increase in occupancy since it was opened the May last year with revenue growth of over 200% year-on-year in both June and July of this year. We will continue to explore rural tourism and B&B with an asset-light model in order to support the utilization and the development of the local tourism industry and enrich Tuniuâs product offerings for our guests. Live streaming shows are becoming more and more pretty balanced in customersâ daily life, and are now a key channel for Tuniuâs sales promotions and customer acquisitions. Tuniu features different types of live streaming shows focused on product sales and introduction of various destinations, as well as recommendations for destination-based activities and products such as the camping equipment. As a company we have deep experience in tourism. Tuniu has clear advantages in producing tourism-related live streaming shows. In April, we launched a live streaming show on Douyin and the show ranked at the top hotel and the travel live streaming show in Eastern China in May and June. With the total GMV of the live streaming show exceeding RMB8 million in June. As one of our core competencies Tuniu is committed to focusing on customer demand and providing high quality service. Despite the changes to the external environment. Under the current COVID-19 control measures Tuniu launched additional services including speed reforms up to 24 hours before departure day. And new click beta testing in some of our organizer tour products. Our guests can get a four refund for local tour operator services up to 24 hours before their departure day, which provides worry-free guarantee. New click beta testing service are offered to the guests throughout the tours at the destination, with a assistance from our staff to provide a better travel experience for the guests. Our customer service team and local staff destinations aim to provide a full cycle service network to ensure that our guests enjoy their trip. In terms of technology, we continue to improve efficiency and quality through digitalization, as we optimize our internal operations and external customer experience. For internal operations, we have further automated type our inventory management and product launching processes, as well as display and maintenance to reduce labor costs. In terms of enhancing customer experience, we are leveraging AI technology to replace some of the simple manual customer service tasks, such as the reception of guests on their first visit, as well as recommendations for products and live streaming shows, further reducing the burden on manual customer service and improving the response speed and for customer service request. Guests who purchase our advanced booking products can complete their order confirmation online, which is both faster and more convenient. Tuniu will continue to provide technical support to internal departments, including our product and customer service teams to further improve their efficiency and quality of their daily work. In conclusion, despite the recent pandemic outbreak, domestic tourism is set to continue to benefit from positive process and the increasing travel demand. And we remain optimistic for the long-term development of the industry. In order to consolidate and expand our customer base and create greater value for our customers we will remain committed to developing high quality products and services, while we see the momentum of the industry rebound to serve more guests. I now turn the call over to Anqiang Chen, our Financial Controller for the financial highlights. Anqiang Chen : Thank you, Donald. Hello everyone. Now I walk you through our second quarter 2022 financial results in greater detail. Please note that all the monetary amounts are in RMB unless otherwise dated. You can find the U.S. equivalent of the numbers in our earnings release. For the second quarter of 2022 net revenues were RMB37.0 million representing a year-over-year decrease of 77% from the corresponding period in 2021. The decrease was primarily due to the negative impact brought by the resurgence and spread of COVID-19. Revenue from packaged tours were down 92% year-over-year to RMB 9.5 million and accounted for 26% of total net revenue for the quarter. The decrease was primarily due to the restrictions of COVID-19 in certain regions in China. Other revenues were down 20% year-over-year to RMB 27.4 million and accounting for 74% in our total net revenues. The decrease was primarily due to the decrease in the fees and for advertising services provided to tourism boards and bureaus and commission fees received from other travel-related products. Gross margin was 45% in the second quarter of 2022, compared to a gross margin of 43% in the second quarter of 2021. Operating expenses for second quarter of 2022 were RMB 139.4 million, up 46% year-over-year. Among it, gain on disposals of subsidiaries, which was recorded in other operating income were RMB 32.8 million. Impairment of goodwill, which was recorded due to the severer adverse impact of COVID-19 on the Company's business in this quarter with potential continuous impact in subsequent periodâs, was RMB 112.1 million. Excluded share-based compensation expenses amortization of acquired intangible assets, gain on disposals of subsidiaries and impairment of goodwill, non-GAAP operating expenses were RMB 55.7 million, down 38% year-over-year. Research and product development expenses for second quarter of 2022 were RMB 14 million, up 1% year-over-year. The increase was primarily due to the increase in research and product development personnel related expenses. Sales and marketing expenses for the second quarter of 2022 were RMB 24.5 million, down 45% year-over-year. The decrease was primarily due to the decrease in promotion expenses and sales and marketing personnel related expenses. General and administrative expenses for the second quarter of 2022 were RMB 23.9 million, down 43% year-over-year. The decrease were primarily due to the decrease in general and administrative personnel related expenses and the reversal of allowance for doubtful accounts. Net loss attributable to ordinary shareholders was RMB 126.5 million in the second quarter of 2022. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses, amortization of acquired intangible assets, gain on disposals of subsidiaries and impairment of goodwill was RMB 42.6 million in the second quarter of 2022. As of June 30, 2022, the Company had cash and cash equivalents, restricted cash and short-term investments of RMB 1 billion. Capital expenditures for the second quarter of 2022 were RMB 0.4 million. For the third quarter of 2022, the Company expects to generate RMB 74.5 million to RMB 80.2 million of net revenues, which represents a 30% to 35% decrease year-over-year. Please note that this forecast reflects Tuniu's current and preliminary view on the industry and its operations, which is subject to change, particularly as to the uncertainties brought back by the impact of COVID-19. Thank you for listening. We are now ready for your questions. Operator? Operator: The first question is from Su Wong , a Private Investor. Please go ahead. Unidentified Analyst: Thank you, operator. Hi management. As we can see the second quarter saw significant increasing loss. Could you specify the courses and in the context of the recent recovery of tourism industry how has your business recovered in recent month, especially during the summer vacation? Thank you. Donald Yu: Thank you for the question. In the past quarter the travel industry has experienced the hardest time ever since the outbreak of COVID-19/2020. The resurgence our pandemic has prohibited many trips, especially zero travels. This greatly harmed our net revenues and revenues from packaged tours in particular for the second quarter. In terms of expenses, considering the continued influence of COVID-19 and uncertainty of the future market company did a goodwill impairment assessment and determined to record over RMB 100 million of goodwill impairment this quarter. Apart from this impairment, our non-GAAP operating system â our non-GAAP operating expenses decreased over 30% year-over-year. As summer vacation comes, the travel market is boosted by incentives such as relaxed restriction policies, increasing demand and peak season deferred from previous quarter; long-distance tours are preferred compared to local tours during summer vacation. According to our data, the average travel duration exceeded three days in July which were longer than those during spring festival and May Day holidays. Products for families with children are always popular during summer vacations. Apart from traditional theme parks and seaside trips, we launched the entertainment travel products, which promote children's participation and experience during the trips. Besides due to the hot weather this year, travelers had increased the demands for enjoying the cool and health-related services. In terms of destinations, Yunnan, Hainan and Xinjiang were Top 3 destinations in July. We showed a positive GMV growth compared to the same month last year. But Eastern China, which used to be one of the most popular departure and the definition district, was still on the way to recover due to the outbreak of COVID-19 in the previous quarter. In August, there were outbreaks in some popular destinations, which brought negative impact on the travel industry in the short-term. However, since the travel restriction scope was further narrowed the two countries the pressure on travel market was more moderate than before. From our data we see definitions without severe pandemic outbreak was still growing. For example, the order amount from Guangdong Province remained increase in August compared to July. To ensure good customer experience and current circumstances will increase the flexibility of our travel products. Customers may book in advance and later confirm departure city â departure date in online, or get for refund upon cancellation. For certain products event so the trip is confirmed. Our customers can cancel it and get a full refund for local tour operator services up to 24 hours before their departure date. Despite the current resurgence of the pandemic, looking ahead with the implementation of the precise and differentiate aided strategies in the prevention and control of COVID-19 domestic trips will be smoother and the industry will continue to recover. Thank you Operator: There are no other questions. 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: 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. Good day.
Tuniu Corporation's Financial Performance and Competitive Analysis
- Tuniu Corporation (NASDAQ:TOUR) is struggling to generate returns above its cost of capital with a ROIC of -4.36% and a WACC of 10.78%.
- Among its peers, Xunlei Limited (XNET) stands out with a positive ROIC to WACC ratio, indicating better capital efficiency and potential for growth.
- The majority of Tuniu's competitors, including Cheetah Mobile Inc. (CMCM) and Phoenix New Media Limited (FENG), also show negative ROIC to WACC ratios, highlighting industry-wide challenges in generating profitable returns.
Tuniu Corporation (NASDAQ:TOUR) is a Chinese online leisure travel company that offers a wide range of travel-related services, including packaged tours, accommodation reservations, and transportation ticketing. The company operates primarily through its online platform, catering to the growing demand for travel services in China. Tuniu faces competition from other travel service providers and online platforms in the region.
The analysis of Tuniu's financial performance, particularly its Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC), reveals some concerns. Tuniu's ROIC is -4.36%, while its WACC is 10.78%, resulting in a ROIC to WACC ratio of -0.40. This negative ratio indicates that Tuniu is not generating returns above its cost of capital, which can be a red flag for investors.
When comparing Tuniu to its peers, Cheetah Mobile Inc. (CMCM) has a ROIC of -13.34% and a WACC of 11.17%, leading to a ROIC to WACC ratio of -1.19. Leju Holdings Limited (LEJU) shows a ROIC of -0.07% and an exceptionally high WACC of 366.63%, resulting in a ROIC to WACC ratio of -0.00019. Both companies, like Tuniu, are struggling to generate returns above their cost of capital.
Xunlei Limited (XNET) stands out among the peers with a positive ROIC of 0.86% and a WACC of 8.95%, resulting in a ROIC to WACC ratio of 0.096. This indicates that Xunlei is the only company in the group generating returns above its cost of capital, suggesting better capital efficiency and potential for growth. Investors may find Xunlei more attractive based on this metric.
Phoenix New Media Limited (FENG) also shows a negative ROIC of -7.19% against a WACC of 6.70%, leading to a ROIC to WACC ratio of -1.07. This further highlights the challenges faced by Tuniu and its peers in achieving profitability above their respective costs of capital. The analysis suggests that Xunlei Limited is currently the most efficient in generating returns relative to its cost of capital.
Tuniu Corporation's Financial Efficiency in the Competitive Online Travel Industry
- Tuniu Corporation (NASDAQ:TOUR) has a negative ROIC/WACC ratio, indicating inefficiency in generating returns above its cost of capital.
- Xunlei Limited (NASDAQ:XNET) stands out with a positive ROIC/WACC ratio, showcasing its efficiency in value creation for investors.
- Comparative analysis reveals Tuniu's need for strategic adjustments to improve its financial health and operational efficiency.
Tuniu Corporation (NASDAQ:TOUR) operates in the highly competitive online travel industry, offering a broad range of travel-related services. This sector is known for its tight margins and intense competition, not just from direct peers but also from larger, diversified companies with travel divisions. Understanding the financial health and efficiency of Tuniu Corporation requires a comparison with its closest peers, particularly through metrics like Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC). These metrics are vital as they provide insight into how well a company is using its capital to generate returns, a crucial aspect for investors.
Tuniu's ROIC stands at -4.33%, with a WACC of 9.48%, resulting in a ROIC/WACC ratio of -0.457. This negative ratio indicates that Tuniu is currently not generating returns above its cost of capital. In the competitive landscape of online travel agencies, where efficient capital utilization is key to sustaining operations and achieving growth, this places Tuniu at a disadvantage. It suggests that the company is struggling to use its invested capital efficiently to create value, a situation that requires strategic adjustments to improve its financial health.
When compared to its peers, Tuniu's position is somewhat in the middle of the pack. For instance, Xunlei Limited (NASDAQ:XNET) showcases a positive ROIC/WACC ratio of 0.045, the only company among the compared peers to generate a return above its cost of capital. This indicates that Xunlei Limited is more efficient at creating value for its investors, making it a potentially more attractive investment opportunity based on this metric alone. On the other hand, companies like Cheetah Mobile Inc. (NYSE:CMCM) and Phoenix New Media Limited (NYSE:FENG) have even lower ratios than Tuniu, highlighting greater challenges in generating value over their cost of capital.
The analysis of these companies, especially in the context of their ROIC and WACC ratios, is crucial for investors looking to understand which companies are efficiently managing and utilizing their capital to generate returns. While Tuniu Corporation is not at the bottom of the list, its negative ROIC/WACC ratio signals a need for improvement in its operations and financial strategies to enhance its value creation capabilities. This comparison sheds light on the competitive dynamics within the online travel industry and highlights the importance of financial efficiency in sustaining business growth and investor confidence.
