Tuniu Corp (TOUR) 2014 Q3 法說會逐字稿

Hello and thank you for standing by for Tuniu's third quarter 2014 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 conference over to your host for today, Maria.

Thank you and welcome to our third quarter 2014 earnings conference call. Joining me on the call today are Donald Yu, Co-Founder and Chief Executive Officer; Alex Yan, Co-Founder and Chief Operating Officer and Conor Yang, Chief Financial Officer. For today's agenda, management will discuss highlights for the third quarter 2014.

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 the figures mentioned during this conference call are in renminbi.

I would now like to turn the call over to our Co-Founder and Chief Executive Officer, Donald Yu.

Thank you, Maria. Good day, everyone. Welcome to our third quarter 2014 earnings conference call. I am pleased to report that we delivered excellent top-line growth of 86% year over year in the third quarter as more Chinese travelers turned to Tuniu to book packaged tours. This result demonstrates the success of our strategy to build market share by offering a broad portfolio of leisure travel products and industry-leading customer service, combined with competitive pricing.

The third quarter is seasonally the strongest of the year as it coincides with summer school holidays and we reported gross bookings of RMB1.78b, up 70% compared to the year ago period. This was primarily driven by strong demand for outbound tours to Europe, North America, Japan and South Korea.

Now I will outline some of the progress that we have been making in the key areas of our business over the quarter. A clear point of differentiation between Tuniu and our online and offline peers is providing first-class customer service. And expanding our customer service network is the central tenet of our strategy to access new customers in Tier 2 and 3 cities.

After adding 10 regional service centers during the third quarter and a further 20 since then, we now have 50 service centers across the country. This has contributed to the rapid expansion of our customer base and revenues. [The five] cities where we opened the service centers in the second quarter of this year signed over 70 times gross bookings than the year-ago period.

We also leveraged the network to further integrate our online and offline platforms and provide localized services to Chinese leisure travelers.

In November, we established a team of Cantonese-speaking tour advisors to enable us to better serve local customers in Guangdong. The regional service centers also sought to develop new supplier relationships for Tuniu, improving our ability to source local travel products and enrich our product portfolio.

We are also looking at ways to make travel easier for Chinese tourists. For example, visa applications for travel to certain countries require individuals to deposit RMB50,000 or more for the duration of their travel. Tuniu and our business partner have recently provided a low-cost service that satisfies this requirement for a minimal fee.

A core part of our value proposition is providing Chinese leisure travelers with a constantly expanding selection of travel alternatives. One way that we achieve this is by bringing our existing product portfolio to customers in more regions. In the third quarter, we expanded the number of departure cities to 95 from 83 in the second quarter. This immediately opens a world of possibilities for leisure travelers in Tier 2 and 3 cities and we will continue to extend our products and services to new markets in coming quarters.

Another way that we do this is by expanding and deepening our supplier relationships. In the third quarter, we increased our supplier base to 5,000 suppliers from roughly 4,000 suppliers in the prior quarter.

We also formed strategic alliance with high quality suppliers globally to lower our procurement cost, add exclusive product offerings and secure sufficient inventory in the peak season.

At the same time, our strategic suppliers benefit from our relationship in a number of ways. For example, we collaborate with the commercial banks to provide supply chain financing which helps suppliers overcome short-term cash flow issues. We share customer preferences so that suppliers can develop more attractive travel products. And as our business rapidly grows, we direct additional volume to our suppliers so that they can scale their business in tandem with Tuniu.

Product expansion initiatives led to an increase in organized tour SKUs from 200,000 at the end of the second quarter to 250,000 at the end of the third quarter and an increase of self-guided tour SKUs from 120,000 to 200,000 over the same period.

Strengthening our brand awareness among leisure travelers' brands is critical to Tuniu's success and we continue to invest in this aspect of our business. This is particularly important given that Tuniu has a high average order size compared to the average e-commerce and online travel transaction in China.

To build Tuniu's brand recognition and trust, we leverage a comprehensive suite of offline, online and mobile marketing and advertising channels. Among these, localized marketing events are effective in building positive brand and customer interactions. This enables the customer to interact directly with our representatives and experience our exceptional customer service first hand.

Our investment in marketing initiatives has driven rapid growth in traffic from both PC and mobile, with traffic roughly doubling from a year ago. And we will continue to develop innovative solutions for Tuniu customers to build stronger brand loyalty.

Turning to technology, during the third quarter, we increased our investment in our technology platforms to improve user experience and help our business scale with lower marginal cost. In the third quarter, we launched a promotion program to sell attraction tickets with minimal or even zero profit. We believe we can leverage the cost by our system and sell the low ASP and high standardized products with lower marginal cost going forward.

Ongoing investment in our mobile platform combined with targeted advertising has translated into a rapid increase in mobile traffic to Tuniu. Mobile contributions to total traffic and total orders increased to over 50% and 35% respectively during the third quarter, up from roughly 35% and 30% respectively in the second quarter this year.

Looking forward we are excited about the potential for growth. China's President Xi Jinping recently stated that within five years there will be over 500m outbound tourist trips from China. Tuniu is well placed to serving this growing market.

We will maintain our focus on bringing a broader range of competitively priced products to our growing customer base. We will continue to invest in marketing initiatives to build a trusted brand. And we will expand and refine our customer service platform so that we can take the complexity out of travel.

We are confident that these three strategies will enable us to continue to expand market share and build our leadership position in the online leisure travel market.

I will now turn the call over to Conor Yang, Tuniu's CFO.

Thank you, Donald. Hello, everyone. We are pleased to deliver a strong quarter as we continued to gain market share within the rapidly growing China leisure travel market.

Now I'll walk you through our financial results in greater detail. Please note that all the monetary amounts are in RMB unless stated otherwise. You can find the US dollar equivalents of this quarter's numbers in our earnings release.

For the third quarter, net revenues were RMB1.31b, representing 86% growth year on year. Revenue from organized tours, which are recognized on a gross basis, were up 85.6% year over year to RMB1.29b and accounted for 97.5% of our total revenues for the quarter.

The number of trips of organized tours excluding local tours increased by 89.5% year over year to over 263,000 and the number of trips of local tours increased by 53% year over year to over 399,000.

Revenues from self-guided tours, which are recognized on a net basis, were up 58% year over year to RMB25.2m and accounted for 2% of our total revenue. This was primarily due to the growth in travel to the Maldives and domestic destinations.

Gross bookings for self-guided tours increased 39% year over to RMB492.4m in the third quarter. The number of trips of self-guided tours increased 81% year over year to 131,000 in the third quarter of 2014.

Other revenues were up 43% year over year to RMB7.6m primarily due to a rise in service fees received from insurance companies and revenues from tourist attraction tickets.

Gross margin for the third quarter of 2014 was 6.1% compared to 6.5% in the year-ago period. The decline in gross margin was primarily due to Tuniu's competitive pricing strategy and higher costs associated with new branch office, new product lines and newly added second and third tier departure cities.

Operating expenses for the third quarter of 2014 were RMB193.1m, up 196% year over year. Excluding share based compensation, non-GAAP operating expenses were RMB184m representing a year-over-year increase of 182%.

Research and product development expenses for the third quarter of 2014 were RMB27.7m, up 198% year over year. The increase was primarily due to investments in new products offerings and mobile related initiatives.

Sales and marketing expenses for the third quarter of 2014 were RMB120.7m, up 206% year over year. The increase was primarily due to branding campaigns and advertisements for our mobile platforms.

General and administrative expenses were RMB46.1m in the third quarter of 2014, up 171% year on year. The increase was primarily due to the expansion of Tuniu's business including the increased headcount related to regional expansion and the increase in the professional service fees associated with being a public company.

Net loss attributable to ordinary shareholders was RMB103.4m in the third quarter of 2014. Non-GAAP net loss attributable to ordinary shareholders which excludes share based compensation expenses was RMB94.2m in the third quarter of 2013.

Now moving to our balance sheet. As of September 30, 2014, the Company had cash, cash equivalents, restricted cash and short-term investments of RMB1.5b. In the third quarter, cash conversion cycle was negative 37 days compared to negative 42 days in the corresponding period last year. Capital expenditures for the third quarter of this year were RMB21.5m.

Now let me provide top-line guidance for the fourth quarter of 2014. Tuniu currently expects to generate revenues in the range of RMB851.2m to RMB875.5m in the fourth quarter of 2014, representing a 75% to 80% year-over-year increase. Please note that this forecast reflects Tuniu's current and preliminary view on the industry and its operations which is subject to change.

Thank you for listening. We are now ready for the questions. Operator.

(Operator Instructions). Amanda Chen, Morgan Stanley.

Hi. Thank you for taking my question and congratulations on the strong quarter. First of all, could you please share -- hello, can you hear me?

Yes, yes. Amanda, yes.

Sorry. Hi. I have three questions. Firstly is about the strategy of penetrating into lower tier cities. Could you please share any achievement you've got so far in market share penetration rate to revenue contribution? Anything that could show the development in the lower tier cities would be helpful. Thank you.

To answer your question, our strategy is to continue to expand into lower tier cities. For example, in the second quarter we have opened five new regional centers. Just in a quarter time it has already contributed close to 3%, adds on 3% of our total revenue. And remember it just started for a quarter.

So all the regional service centers we have opened, for the first year probably it starts to lose money to begin with and we're looking to like break even in a year's time and it will contribute more meaningful revenue on the next year. Currently, we have added some 30 more regional service centers from the last one quarter. So we have about 50 in total.

Got it, thank you. And my second one is about the new customers. Can we know how much revenue or number of trips now is contributed by the new customers? Because we spent a lot of money in customer acquisitions, so we want to see how the ROI is so far. Thank you.

On the [second] quarter, the total revenue contributed from the new customers is about 70%. And we do see that our traffic especially on mobile side plus the PC altogether has more than doubled compared to same period one year ago. And eventually that this translates into 86% year over year on the top line. And so out of those there's about 70% contributed from new customers.

Okay, thank you. That's impressive. And the final one is about your ASP for your self-guided tour. We noticed that the ASP for self-guided tour was down by 23% year on year. And we understand that maybe there's some reason because there is some increase in the local tours which has lower ASP. But can you share how much is contributed by the increase of the local tour and how much is because of the pricing strategy?

Yes, we do see our price increasing year over year on our local self-guided tours -- from self-guided tours. Overall, still that we have seen more mid to low end products being offered for our self-guided tours. And we also grow faster on the non-Maldives part of the self-guided tours which has a lower ASP than Maldives. Therefore, overall mix that has caused the 23% drop in ASP on self-guided tours. But encouragingly now we have seen overall ASP in organized tour has increased. So overall that we still feel comfortable.

Thank you. Maybe I want to clarify my question. Actually it's ASP for the self-guided tour because there is some contributions from the domestic tours which has lower ASP right?

Right.

And there is also some price competition in the self-guided tour area. So I just want to know how much is caused -- how much of the decrease of ASP is caused by the competition and how much is caused by the (multiple speakers).

It's not that much of competition. It's like we -- also there's two components of this. Firstly, that under our self-guided tours the non-local self-guided tours that the component other than Maldives that grows faster than Maldives overall. Therefore Maldives has higher ASP, so the other part grows faster, so overall it pulled down a little bit.

And the other component or the other contributor is that in Maldives for example we offer like mid to high end product for the most part. And we start to offer, to increase low-end product on Maldives in our product portfolio. So overall, this too contributes the drop of the ASP in the self-guided tours.

Got it, thank you. Thank you very much, very helpful.

Tian Hou, TH Capital.

Yes, management congratulations on a good quarter. I have a couple of questions related to your outbound destinations. So the different places have a different growth rate. And from your original place or original strength in the Maldives to other regions, I wonder what are the reasons -- regions are the highest growth regions? And so for different regions, do they contribute differently to your gross margin?

And also what's the strategy to develop the rapid growth regions? That's my first question. I will have a follow up.

(Interpreted). So we see the strongest growth areas coming out from Europe as well as Japan and Korea. And this week, the APAC in Beijing we see that the Prime Minister of Japan has visited China and met with President Xi Jinping. So the two country relationship has start to get better and better. So we believe that in this region we'll continue to have good growth rates.

To answer your question on the margin there's no fixed answer to say which area has the high margin. Even in Europe, you have different kind of portfolio. We have the mid end, we have high end and low end products, therefore it's a mix. And it also depends on the market situation. So our (inaudible) has shown that no particular region that has higher margin than others.

But overall we have a customized group in our Company that because we customize the trip for the customer, therefore, it overall has a higher margin. But in terms of the outbound destinations versus domestic, that's not necessary one area is higher than the other.

Okay. So you have already opened 10 and then further opened another 10 centers. So I wonder how you decided which part of China you go to open your center.

So what's the responsibility for those regional centers? How do you measure them? How do you measure success of those centers? And so last 10 centers contribute to about 3%. What do you think the contribution would be in the future in the ideal situation?

(Interpreted). We choose our regional service to expand from the various metrics including the population, GDP and including whether there's an airport for departing to various countries. And the regional service centers, other than service our existing customers, mostly many new customers for the first time they would like to visit a place to sign contracts. So therefore it's very important for the new customers to start with. And also we have our local procurement team going forward in the regional service center that will also strengthen our product portfolio.

In terms of the revenue contribution from the regional service centers, I mentioned that the five newly opened has contributed 3%. There would be various level, for example tier two city versus tier three city. Like this time we are expanding to 50 cities altogether. Newly expanded mostly are like the third tier some of -- next year it will be like the fourth tier cities. So different tiers of the city, the contribution will be different.

The idea is really capture those customers that they have seen our branding campaign, they have go to our website, they have attend to our mobile. But if we don't go there how to provide products to them and how to service them. Therefore we want to monetize our campaign advertising by expanding more regional service centers.

So I have one more question. Regarding the self-guided tours the take rate. So Q1 was about 7% and Q2 is about 5.9%, and Q3 is 5.1%. So -- last year -- so last year Q3 was 4.5% so in this year we are looking at a downward trend. So what could be the future for the take rate of the self-guided tour?

(Interpreted). At the current stage as we continue to expand more market share that we would like to price more aggressively and in the longer term, as we scale up in many of the destinations we'll start to go to [upstream] resources mainly airline companies directly and hotels directly to have a higher margin. So we believe that in the current level is our market -- our pricing strategy and going in the longer term definitely we'll be able to improve.

Okay thank you. That's all my questions.

[Yuhang Fan], China Renaissance.

Hi, good evening. Thank you for taking my questions. My first question is regarding your branding strategy. This year the Company has been quite actively in branding via either spokesperson or TV campaign. I wonder if management can share with us your investment strategy for branding in next year both in terms of the level of spending or the format for the next year?

Secondly, we've seen some industry consolidation in the wholesalers space. I just wonder -- you mentioned some of the supplier collaboration in your prepared remarks. I wonder if management can share your observation in the wholesaler and supplier space? Thank you.

We are selling a high-ASP product and the [trust] branding is quite important and we will continue to invest in branding as we expand into more regional service centers.

I think that this year you can see we have opened many regional service centers and we'll continue to open more next year. Therefore, to cope with this network expansion strategy we will invest continually on the -- continuously on the branding next year.

(Interpreted). While even the wholesaler we have seen some consolidation in the industry, we believe both on the wholesaler side, as well as on the retail side, the leisure travel market will both grow rapidly. This consolidation we don't see particular impact to our business. As we grow faster and faster by ourselves, we'll be more and more important to the wholesalers

and we'll continue to have leverage over the wholesalers on the pricing side.

Thank you, that's helpful. I have a follow up, if I could. You mentioned that you -- the Company will provide a low-cost deposit to your customer as well as work with a commercial bank to provide the supplier financing. I'd appreciate if management can offer some details in this one. Thank you.

Well, we have -- yes, we have worked with several commercial banks, such as Ping An, China Merchant, and [Guangdong Bank], to provide the vendor financing. There are various ways, like accounts receivable -- account-receivable financing, as well as the credit financing. Because the suppliers -- our suppliers (inaudible) history dealing with Tuniu, therefore even though Tuniu, we don't have to -- we don't guarantee them. But through our understanding about our suppliers, the banks are willing to provide financing to our suppliers.

I think this is a very much value-added service to our suppliers that we continue to strengthen the importance and our value proposition to the suppliers.

For the customers that we also provide, if the customer needed, for example, deposit in order to go to certain countries. In the past the customer had to put in money in that account to fulfill the deposit. Now we can offer like a P2P opportunity for our customers to do financing if they need it.

We will continue to -- going forward, continue to offer more products for our suppliers for financing, as well as for our customers, for their needs. Thank you.

Thank you very much. That's all my questions for now, thank you.

Okay, and thank you.

Thank you. Evan Zhou, Credit Suisse.

Hi, good evening. Thanks for taking my questions. First question is regarding our supply chain. So we -- I think we already started doing some more direct sourcing from more upper-stream suppliers, to have better economics in our gross margin. So can I have an update on that, say approximately how much of our [GMV] are coming -- directly sourced from upper stream, and what kind of the gross-margin improvement that we can foresee down the road? Thanks.

Well, I -- last year we did not have procurement directly with upstream resources. This year we start to do that and now the portion of the direct -- very direct procurement -- this part is about 15% to 20% of our total GMV and, as we grow faster and bigger this percentage should increase.

And of course we have a lower procurement cost but, on the other side, we offer a more aggressive selling price to the market. Therefore, in terms of the gross margin, currently what we can is what we are offering additional to the customers for this year.

Fine, understood. My second question is regarding -- how is the -- our -- the relationship with the major -- other major platforms and partners, such as like Ctrip, Qunar and maybe [Alitrip]. Can we have -- have a more holistic, strategic view on that front? Thanks.

(Interpreted). Yes, our relationship with the Alitrip from Alibaba and also Ctrip as well as Qunar, is more like a cooperational relationship. We also have a product offering on the retail side in Alibaba's travel platform, as well as Qunar.

And also on the Ctrip we have -- in operation with the hotel side of procurement from Ctrip, again that we are not in direct competition with Ctrip. We offer a differentiated product, we have different product segment, different clientele. Therefore, we will continue to find opportunity to work together.

Got it, thank you. And finally can we have an update on your latest headcounts, and maybe if you can break it down -- just in a ballpark basis -- how many is in the R&D, how many in the tour advisor, in sales and marketing? That would be really helpful. Thank you.

Yes, at the end of -- third quarter we have about 2,300 people altogether, right. And tour advisor we have about -- close to 600 of those. Research and product research we have about 874 altogether. Product development versus plus research and mobile staff. And the -- the call-center rep is about 150 something -- and others are G&A and sales and marketing. So altogether we have about 2,300 people end of the third quarter, compared to a year ago about 1,400.

Got it, got it, thanks. That's very helpful, thanks.

(Multiple speakers).

Thank you. Ida Yu, CICC.

Hi, good evening. Thank you for taking my questions. I have two questions. Can you give us a latest update about the revenue breakdown by destination, and also what are your thoughts of top revenue contributions in terms of the destination as well?

And the second one is about margin trend going forward. Can you give us some -- just some more update or more colors on what the sales and the marketing were going forward, given the competition, for example the Alitrip? And what is the revenue -- what is the proper expectations from the management? Thanks.

In terms of the destination, location, that would -- currently the largest sill is coming out from Europe, and followed by Maldives and later -- next will be Korea and Japan as a group, and very similar for Southeast Asia countries. And Europe is about 15% of our gross GMV and if that -- Maldives is 10% plus, others are single digit.

In terms of the margin, we don't really give the margin guidance, but we would remain similar to this recent quarters on the pricing strategy side.

Okay, so any profit expectation guidance, or no?

We don't give guidance on that. I think we -- our top priorities still continue to grow market share. As Donald mentioned that President Xi Jinping just mentioned in the APEC that there will be 500m tourist trips in the next five years from China. And this is very encouraging statement from the President of China that we are very happy to see that, and tourist industry is also a very -- industry that is encouraged by the government. And we believe there will be preferential policies for the tourist industry.

So overall we believe that [our power] is still very strong; the tourist leisure travel still continue to grow faster. So we'll put market share as our priority for the time being.

Okay, (multiple speakers) thank you.

Thank you.

Thank you. Ella Ji, Oppenheimer.

Yes, thank you for taking my question. My first question is relating to your expansion plan. How many more service centers do you plan to open for next year?

And then I'm looking at the average SKU per city, and now it looks -- per departure city and looks like this ratio is still below 5. It looks like management is pursuing to cover more geographic regions, but also can you talk about your plan to maybe increase the average SKU so that you can increase your market share within your existing city? That's my first question.

(Interpreted). Yes, we will continue to expand the regional service center. I think for next year we will be able to expand above 100 regional service centers, altogether, from current 50 to 100 plus next year.

And in terms of the SKU, Ella, I don't really understand your calculation, because currently we have about 450,000 altogether SKU, and we have about 95 departing cities. So in terms of -- if you see the actually the number of SKU is quite extensive and we look at our -- the SKU from [allied peers] that on a weekly basis that will ensure that we have the most extensive SKU for our cities that we cover. So is that your question.

(Multiple speakers). Yes, yes, yes, yes that may be my miscalculation. Sorry about that. Then can we also talk about -- you mentioned that new users now represent 70% of your total orders. I wonder how many of your new users have visited your local services centers? Is there any data that you can share that can maybe help us -- help illustrate this strategic growth of your service centers?

And also -- can you also talk about your existing customer retention performance? For example, how many -- within your customers last year, how many of them have also used your services this year?

Yes, on the new -- as I mentioned that our regional service center is particularly important for new customers that they want to see before they pay. We have calculations about 30% plus of the new customers actually would have visited our regional service center. So it's very important for our continued customer acquisition and services.

In terms of the customer retention, we do have various level of customer membership and we have -- on the top levels we have a dedicated customer rep to service these VIP customers.

In terms of the return rate, the repeat customers that -- this year we -- no, from previous year we are seeing 50% of the customer will come back to spend on the current year. And this last -- in 2013 that ratio was 50 plus and we believe in 2014 that should further increase on a yearly basis.

Okay, that's very helpful. Thank you. And last, quickly, can you give us an update of your flash-sales business; how much does that account for your total revenue in the quarter?

The flash-sale business has increased rapidly, and the third quarter in total we have doubled the volume from the previous quarter. And currently it's about -- around 3% of our total GMV for the third quarter.

Got it, thank you very much.

Yes, thank you.

Thank you. Henry Guo, JG Capital.

Hey, thanks for taking my question. So a very quick one, so I noticed the step up on the sales and marketing spend in the quarter. So I'm wondering how much of this sales and marketing spend is related to the recent TV sponsorship.

And for Q4, how much -- the TV sponsorship-related expense is going for Q4? Thank you.

Yes, hi. We actually it's -- we don't disclose on particular contract due to competition reason. I hope you can understand our reason. Also in bidding for next year in a similar program, so --.

Well, that on the third quarter we spent about close to 30% of our total marketing expenses on the offline, 30-something percent on offline. And fourth quarter we have obtained exclusive naming rights for one of the top TV show similar like a dating game -- it's called Fei Cheng Wu Rao. So the fourth quarter the offline advertising percentage will increase from third quarter, yes.

Now overall we found these quite helpful, and we'll continue to use that strategy as it is suitable.

Thank you, great, thank you.

Thank you.

Thank you. Juan Lin, 86Research.

Good evening Donald, Alex, Conor and Maria, and thank you very much for taking my questions. My first question is regarding your Q4 guidance. You achieved over 85% revenue growth for second quarter and third quarter, and you guided 75% to 80% year-over-year growth for Q4. Considering that you had -- you have a relatively easy comp in Q4 compared to last year. Does that indicate business growth deceleration, or are you being conservative in providing guidance? This is my first question.

Yes, we just give you one -- we just think if we recall that last earnings call we say we -- our guidance for third quarter was 70% to 75% year-on-year growth. And the actual result was about 85%, right.

So our current judgment we gave 75% to 80% year-on-year growth rate. This guidance, which is higher than the previous quarters, or the previous quarters, that review -- this reflects our current view of course that -- there's our current judgment. And we want to -- as (inaudible), we want to continue to establish credibility to the market. Thank you.

Thank you. And the second question is regarding take rate for organized tours. Since in the third quarter take rate for organized tours improved from the previous quarter. So what is the reason for the improvement and how do we project take rate going forward?

Well, the organized tour is a mix of many, many products. And currently we have more procurement goes direct to local tour operators, versus selling the whole package in the past. That's helpful.

And also that domestic -- local tours, which has overall even though lower ASP, but higher gross margin because there's no air flight tickets involved also is important part of the overall package. Therefore, that -- the margin on organized tour might fluctuate from time to time but, overall we believe as we continue to expand our scale our bargain power, leverage power over supplier will further increase.

Thank you. My last question is regarding the revenue contribution from lower-tier cities. So how much gross booking is contributed by travelers from tier two, tier three cities, and how does it compare with the previous year level?

Yes, if we look a year ago, Beijing, Shanghai, Shenzhen, Guangzhou, we call first-tier cities, contribute over 60% of the total GMV, and versus third quarter that number came down to about 50%. So that demonstrates the stronger growth rate from the second tier and below, third tier.

That also coincides with our regional expansion strategy. We believe as China overall GDP continue to grow, the smaller cities' demand will continue to be very strong. And these places, their demand for organized tour is also higher than self-guided tours.

Thank you very much, Conor. That's all my questions, and my congratulations again on a very solid result.

I thank you.

Thank you. Gregory Zhao, Barclays.

Thank you for taking my question. My question is also a follow-up question of our sales and marketing expenses. For our name right of Fei Cheng Wu Rao, such kind of offline advertising, do we directly just expense the advertising, or make some amortization? This is my first question.

Then I want to understand more about the sales and marketing of our business. So compared to the brand advertising, so we still -- compared to the brand advertising do you think some higher ROI? And a (technical difficulty) format, like search or other added format. So what's the best way for our -- to promote our products? Thanks.

Well, firstly that we do not amortize those advertising offline. We expense those advertising fee over its advertising period. In terms of the ROI, branding offline is harder to measure because there's no direct link. But overall we do see as we spend on the offline, it demonstrates -- shows the effect that our overall traffic has increased quite rapidly.

In terms of the ROI it would be easier to measure from online advertising methods, such as search or other ways of -- method. But overall that's -- internally we have looked at this ROI. We use over 100 different online measures -- channels and we measure that on a weekly basis and we adjust accordingly, based on the ROI.

Okay, thank you very much.

Thank you.

Thank you. We are now approaching the end of the conference call. I will now turn the call over to Tuniu's CFO, Conor Yang, for any closing remarks.

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 continuous support, and we look forward to talking with you in the coming months. Bye-bye.

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

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.