Tuniu Corporation (TOUR) on Q2 2021 Results - Earnings Call Transcript
Operator: Hello. And thank you for standing by for Tuniu's 2021 Second Quarter Earnings Conference Call. At t this time, all participants are in a listen-only mode. After management's prepared remarks there will be a question-and-answer session. Today's conference is being recorded. I would now like to turn the meeting over to your host for today's conference call, Director of Investor Relations, Mary. Mary Chen: Thank you. And welcome to our 2021 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 2021. 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 2021 earnings conference call. The overall domestic tourism industry saw a clear trend towards full recovery in the second quarter. Year-on-year, our net revenues increased by 373% with revenue from packaged tours, up by over 900%. This is the first quarter in which we achieved positive growth since the COVID-19 outbreak last year and benefiting from our strict cost control measures, operating expenses decreased by 40% year-over-year and our quarterly loss was the lowest since the pandemic outbreak. In the second quarter, with epidemic stabilized, the warm weather and holiday further demand for travel. While last year, most people choose to take local tours during the public holiday, this year, the proportion of travelers taking inter-provincial tours has steadily increased. Also in line with the high standing demand for high quality tour products, the proportion consumption of inter-provincial tours has increased compared with the same period last year. We continue to emphasize the development of our core tax tour business with special focus on demand stagnation to continuously upgrade our product and the level of service. This allows us to rapidly recover our business by exciting opportunities during industry upstream. Our core competitiveness and protective mode is our commitment to providing the high quality products and services to our customers. Based on customer demand, Tuniu's travel rules are designed to satisfy and even exceed customer expectations. Our new tour product designers have more than 5 years of experience in production or asset mission. Our high quality products are subject to strict internal procurement and production procedures. Both our - for new tool would go through logical interviews and the training before they are officially on the job. Our products also have been impacted by our customers ensuring that they meet their requirements before being launched. The satisfaction rate of our new product is to reach 98% before they can be launched, and we are proud that satisfaction rate for our new tour products has reached 97%. We always strive to upgrade our products through product innovations, creating new destination sections and the itineraries to bring fresh travel experience to customers. In addition, we also focus on selected market segments and customers and launched same tour products to attract top customer growth. While standard products remain popular with customers, we also see that demand for customized tours is increasing. Due to considerations of travel cities and the overall experience, more tourist are thrilling to travel with their families and frame in the form of priority towards a small group tours that may take a few as to people providing the freedom of self guided tour with the convenience and services of organized tours. Also, amid China's stabilized pandemic situation and economic recovery, we are seeing an increase in demand for customized tools for business travel around conferences and team building activities. As an adherence travel service provider with an extensive service network across China, Tuniu is able to offer business clients customized tour travel products with competitive prices and outstanding service. In the second quarter our customized tour achieved a record growth since the pandemic with generally increasing by more than 200% quarter-on-quarter. Good products require good service. Our self-operated local tour operators create a crucial role in improving customer experience through excellent service. This year, we launched zero complaint initiative for our local tour operators with six of our local tour operators maintaining zero complaint records. We will continue to work hard to maintain and achieve this record. Through our efforts, we are pleased to report that in the second quarter, GMV of local tour operator products increased over 200% quarter-over-quarter and the overall satisfaction rate of our local tour operator service reached 98%. Several and expected events have occurred since the beginning of this year, including regional pandemic outbreak and natural disasters. Our self-operated local tour operators have become our most powerful supporting during this time. In response to emergency situations, our local tour operators have helped to ensure the city of tourists, lives and property and that we always get some simply. While our local tour staff have difficulties, they have successfully carried out their duties, receiving recognition and pre-response our guest. By providing excellent products and service, we have built a large and loyal customer base. Tuniu host a member day every month where we launched special products and discounts for our members. In the second quarter, member day sales continuously reached new highs. In July, our member's day single day sales in cities RMB 40 million with the transaction volume of packaged tour products increasing 5 times over the same period last year. In terms of technology, we have continued to automate fixed workflows and further replace soft daily task with automated project flow such as order processing and inventory management. In order to leverage our employees and investing in more creative work, we have also strengthened internal information, data and risk management and conducted self-audit to ensure technical security and compliance. In July, China experienced several pandemic outbreaks, which may impact summer travel. We remain, however, optimistic about the domestic travel tourist market. Our industry has overcome many challenges since the COVID-19 outbreak last year. And we are confident that we will overcome any temporary difficulties. With ongoing vaccination roll-out and the enhancement of personnel protection measures, domestic tourism should continue to retaining a strong recovery. We will continue to work hard and provide high quality products and services to meet the demand of our customers. I will now turn the call over to Anqiang, our Financial Controller, for the financial highlights. Anqiang Chen: Thank you, Donald. Hello, everyone. Now I'll walk you through our second quarter of 2021 financial results in greater detail. Please note that all the monetary amounts are in RMB, unless otherwise stated. You can find the US dollar equivalence of the numbers in our earnings release. For the second quarter of 2021, net revenues were RMB 161 million, representing a year-over-year increase of 373% from the corresponding period in 2020. The increase was primarily due to the growth in revenues from packaged tours. Revenues from packaged tours were up 907% year-over-year to RMB 126.5 million and accounted for 79% of our total net revenues for the quarter. The increase was primarily due to the growth in demand for domestic tours. Other revenues were up 61% year-over-year to RMB 34.5 million and accounted for 21% of our total net revenue. The increase was primarily due to a rise in commission fees received from other travel-related products and service fees received from insurance companies. Gross profit for the second quarter of 2021 was RMB 69 million, up 792% year-over-year. Operating expenses for the second quarter of 2021 were RMB 95.1 million, down 40% year-over-year. Excluding share-based compensation expenses and amortization of acquired intangible assets, non-GAAP operating expenses were RMB 89.6 million, representing a year-over-year decrease of 36%. Research and product development expenses for the second quarter of 2021 were RMB 13.8 million, down 33% year-over-year. The decrease was primarily due to the decrease in research and product development personnel related expenses. Sales and marketing expenses for the second quarter of 2021 were RMB 44.8 million, down 47% year-over-year. The decrease was primarily due to the decrease in sales and marketing personnel related expenses and amortization of acquired intangible assets. General and administrative expenses for the second quarter of 2020 (sic) were RMB 41.5 million, down 32% year-over-year. The decrease was primarily due to the decrease in general and administrative personnel related expenses. Net loss attributable to shareholders was RMB 13.1 million in the second quarter of 2021. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses and amortization of acquired intangible assets was RMB 7.4 million in the second quarter of 2021. As of June 30, 2021, the Company had cash and cash equivalents, restricted cash and short-term investments of RMB 1.1 billion. Cash flow generated from operations for the second quarter of 2021 was RMB 55.7 million. Capital expenditures for the second quarter of 2021 were RMB 2.9 million. For the third quarter of 2021, the company expects to generate RMB 111.2 million to RMB 123.5 million of net revenues, which represents 0% to 10% decrease year-over-year. Please note that the forecast reflects Tuniu's current and preliminary view on the industry and its operations, which is subject to change, particularly as tourist uncertainties brought by the impact of COVID-19. Thank you for listening. We are now ready for your questions. Operator? Operator: Thank you. We can now take the first question from Tina Bide who is a Private Investor. Please go ahead. Unidentified Analyst: Thank you. This is Tina Bide speaking of Hi, management. Congratulations on the strong recovery of the second quarter. Would you please share with us your core destinations? And my second question is regarding the recent coronavirus outbreak in several cities across China, how does it impact your performance in the third quarter? And what is your view towards the mid to long-term development of the travel industry? Thank you. Donald Yu: Thank you for the question. In the second quarter, the external environment was very positive for the recovery of travel industry. In fact, we report the sales strengthening ever since the resumption of inter-province travel in last July. We've adapted the four life cycle customer management method to gain and retain customers. Also, our tour advisers in more training such as on destination knowledge and customized services to add to - enhance their serviceability, part from traditional online channels will also provide our sales staff with new channels such as Taiko app, our social media and live streaming show. As a result, our revenues, especially the revenues from packaged tours grew largely during the quarter. In terms of the packaged tour GMV, our best destination for the culture was Hainan, one of the most popular leisure travel destinations in China, followed by Shanghai and Guandong both of which have famous theme parks and good for families with children. And then were Guangzhou and Sichuan boosted by short holidays during the quarter. Other destinations included the popular site in Yunnan and Xinjiang. For the second question, yes, the recent COVID-19 outbreaks in several cities across China had negative impact on the travel industry during the peak season. In fact, the travel market showed rapid growth due to the summer vacation before the outbreak in late July. Our tour generally in July increased both year-over-year and quarter-over-quarter basis. However, considering the safety issue some provinces have ceased inter-province travel since mid-July. Therefore, we expect the net revenue for the third quarter to align with the same period last year or decrease up to 10% year-over-year. After the outbreak of virus in July, our first priority is to ensure the safety and the interest of our customers, having been done refund and reschedule their trips. We also upgraded our destination service, including customers with new, clean of ATG testing. Our employees, both in the headquarter and at destinations worked in shifts around the clock to help our customers with any emergencies and try to send them on earlier and safer. For products, we launched the products without a fixed departure date, which means the customer may book the itinerary now enjoying the current favorable price and departing in two or three months time when the external environment gets better or they have a vaccine. The customer only needs to make second confirmation about the exact departure date in advance, then we will arrange their trips accordingly. They can also cancel orders at any time with a full refund, if they change their trip plan. The economical and flexible product is welcomed by all customers, especially the younger generation. In general, we are still positive about the industry, for the demand its always there, despite the short term recession during this January and February, we experienced record rebound since March. With the pandemic being under control, the market will get better and better. Thank you. Operator: It appears at this time, there are no further questions. I'd like to now turn the call back over to Mary Chen for any additional or 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.
