Tuniu Corp (TOUR) 2014 Q4 法說會逐字稿

Good morning or good evening, and welcome to the Tuniu Corporation fourth-quarter 2014 earnings conference call. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Maria Xin. Please go ahead.

Thank you, and welcome to our fourth-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 fourth quarter 2014 and the fiscal year 2014.

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 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.

Thanks, Maria. Good day, everyone. Welcome to our fourth-quarter and full-year 2014 earnings conference call.

I am pleased to report that we ended the quarter with a solid topline growth of 91% year over year. As we continued to expand market share rapidly, Tuniu was ranked the number one online organizer tour provider in China with over 20.4% market share in 2014, up from 17.8% in 2013, according to a recent report. Our growth and market share expansion in 2014 were driven by our ability to aggressively capture outbound and domestic opportunities.

Within the fast-growing online outbound travel market, Tuniu grew our market share from 16% in 2013 to 20% in 2014. We saw strong demand for tours to Europe, Japan and South Korea. Tuniu remains the market leader in Maldives, and tours booked through Tuniu accounted for 17.4% of the overall travel market in China in the fourth quarter of 2014.

We also made solid progress in the Japan market, as tours booked through Tuniu accounted for 3% to 4% of the overall online and offline travel market in China in 2014. These were both impressive achievements, considering that online leisure travel market only accounted for around 10% of overall leisure travel market in China in 2014.

Within the online domestic travel market, Tuniu's gross booking for domestic tours in 2014 grew more than (technical difficulty) over year, thanks to our ongoing supply chain enhancement effort, which focused on direct procurement and a closer cooperation with local operators to provide the best value and flexibility to Chinese leisure travelers.

Now I would like to walk you through Tuniu's strong competitiveness in five key areas which we believe have formed an effective barrier to entry and is difficult for our peers to replicate. They are broad regional coverage, effective supply chain enhancement, rich product offering, high brand awareness and industry leading customer service.

Let's start from our regional coverage. We are committed to providing more Chinese leisure travelers across the country with more choices when it comes to booking a tour. As such, during the fourth quarter, we opened 45 additional regional service centers in second and third tier cities, broadening our presence to the total of 75 service centers in 73 cities at the end of 2014.

As we execute on our regional expansion strategy, we are particularly pleased to see strong growth momentum from 80 -- from 58 cities with newly added regional centers in 2014, with their aggregate gross booking from the newly added cities already contributing to 5.7% -- 8.7% of the Company's total gross bookings in the fourth quarter and over 12% in January and February, compared with 1.8% in the fourth quarter 2013.

Looking to supply chain enhancement, over the past year, we enhanced our supply chain management through deepening cooperation with strategic suppliers and continuing transition into direct procurement relationships with suppliers. These initiatives are vital components of our plans to improve the quality and variety of our products, to provide better pricing and greater flexibility for our customers, and to enhance Tuniu's price competitiveness.

We are increasingly working directly with local tour operators to enhance efficiencies and service level to our customers. Taking our Sanya tour as an example, in the past, we had to gather around 20 people in one single departure city to qualify for an organized tour to Sanya. But through direct cooperation with local tour operators, we can pool tourists across multiple departure cities, fly them to Sanya, and offer organized tours locally in Sanya.

This model was an important driver of topline growth for our domestic tour business in 2014 and significantly improved efficiencies, while lowering the procurement cost. By the end of 2014, over 50% of our domestic tours involved packaging airline tickets with services from local tour operators. In 2014, we plan to further optimize our supply chain and expand this business model to outbound tours to certain destinations.

In terms of product offerings, in 2014, we added over 60 additional destination countries and regions, bringing our total outbound destinations to over 140 by the end of last year. We also grew the number of departure cities to 120 by the end of 2014, from 64 by the time of our IPO in May 2014. This brought our organized tour SKUs to 300,000 from 100,000 and self-guided tour SKUs to 250,000 from 100,000 over the same period.

We have divided our broad range of product offerings into different product segments, tailoring to different needs and requirements of Chinese leisure travelers. We offer price competitive products to the mass market, while at the same time meeting the needs of mid to high end leisure travelers by offering different product lines such as Tuniu designed tours. For many destinations, we are also seeing a growing trend of customers upgrading their tour packages as Chinese leisure travelers are becoming more discerning and looking for higher quality experiences.

Moving on to our branding initiatives, one of our biggest assets is our brand, and we want to ensure that our customers recognize and trust the Tuniu brand. This is particularly crucial given the high average price per order in our business. In the past year, we have invested in building Tuniu's brand via comprehensive marketing and advertising channels, including online and offline branding campaigns, mobile (technical difficulty) and localized marketing events.

Lastly, about our customer service and Tuniu's commitment to providing Chinese leisure travelers with unparalleled customer service experience. Over the past eight years our management, including myself, have read customers' feedback and especially complaints every day to listen to their concerns and their needs, through which we accumulated valuable experience in handling various problems customers might face during their trips, and factored the solutions into our product design to preempt these issues. We are proud that Tuniu's name is now synonymous with industry leading quality of customer service.

By the end of 2014, we had over 650 tour advisors, mainly in our Nanjing headquarters, with a team of Cantonese speaking advisors in Guangdong as well as 150 employees of call centers, providing customers with services ranging from advisory to assistance pre, post and during a trip. This, together with all the other strategies and efforts mentioned earlier in this call, are an integral and crucial part for Tuniu to maintain our customer service leadership in the industry.

Looking forward, we will continue to invest in the following areas to strengthen our long-term market leadership position: regional expansion, product offerings, branding, as well as mobile and technology. We will open more regional service centers to further integrate our online to offline customer service and improve the local marketing and sourcing capabilities. We expect to open 45 regional service centers, achieving a total of 120 regional service centers in 2015.

As we expand and enhance our offering to make Tuniu a one-stop travel solution provider, we will continue to increase our product variety and price advantage through direct procurement, expand our departure cities and destination coverage and develop new premium service products that meet the needs of Chinese customers, such as our Tuniu designed destination travel services, car rental services and free WiFi services.

Regarding branding, we will invest in marketing and advertising campaigns to strengthen our brand awareness. In the first quarter of 2015, we sponsored popular TV shows Super Brain and I Am a Singer.

Lastly, regarding mobile and the technology development. In the fourth quarter, our mobile contributes to over 65% of total online traffic and 45% of total orders, up from 50% and 35%, respectively, from the previous quarter.

We saw rampant growth from our mobile orders, especially in standard products with lower ASPs. In the last month, our mobile orders contributed 70% in tour attraction tickets, 55% in local tours, 81% in train tickets and 57% in cruise lines. As more customers rely on mobile, we will make ongoing investments to refine our platform to ensure customers have a seamless experience.

In the fourth quarter, we also unveiled our dynamic package system, which enables travelers to customize their own travel products tailored to each individual's needs. This system is able to combine trip components from different suppliers to provide truly customized trips, automating and placing in the hands of our customers a function that was previously performed manually. This unprecedented technology is unique to Tuniu and provides customers with more flexibility and wider choices.

I will now turn the call to Conor Yang, our CFO.

Thank you, Donald. Hello, everyone.

We are pleased to deliver a strong quarter with the net revenue exceeding both our guidance and market expectation, as we continue to gain market share within the rapid growing China leisure travel market.

Now I will walk you through our fourth-quarter and full-year 2014 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 the numbers in our earnings release.

Starting from the fourth quarter of 2014, overall gross bookings for the quarter increased by around 70% year over year to over RMB1.4b. Organized tours accounted for 72% and outbound tours accounted for about 67% of the overall gross bookings in this quarter. For the fourth quarter, net revenues were RMB928.7m, representing 91% year-over-year growth.

Revenues from organized tours, which are recognized on a gross basis, were up 88.7% year over year to RMB896m and accounted for 96.5% of the total net revenues for the quarter. The increase was primarily due to the rapid growth in demand for travel to certain international destinations, such as Europe, North America, South Korea and Japan, and for domestic tours. The number of trips for organized tours, excluding local tours, increased by 140% year over year to over 192,000, and the number of trips of local tours increased by 62.8% year over year to over 250,000.

Revenues from self-guided tours, which are recognized on a net basis, were up 293% year over year to RMB28.6m, and accounted for 3.1% of our total net revenues. The increase in revenues was primarily due to margin improvement in Maldives and certain domestic tours. The number of trips of self-guided tours increased by 83.7% year over year to over 116,000 in the fourth quarter of 2014.

Other revenues were up 26.8% year over year to RMB8.9m, primarily due to a rise in revenues from service fees received from insurance companies and tourism boards and bureaus, which are recognized on a net basis.

Gross margin for the fourth quarter of 2014 was 6.6%, compared to 3.6% in the same period in 2013. The increase in gross margin was primarily due to cost savings from economies of scale and increasing direct procurement, as well as less price competition for Maldives product lines.

Operating expenses for the fourth quarter 2014 were RMB238m, up 211% year over year. Exceeding share based -- excluding share-based compensation, non-GAAP operating expenses were RMB227.2m, representing a year-over-year increase of 197%.

Research and product development expenses for the fourth quarter of 2014 were RMB38.7m, up 177% year over year. The increase was primarily due to investments in technology personnel for mobile related initiatives and new product lines, such as dynamic packaging, destination services and regional services.

Sales and marketing expenses for the fourth quarter 2014 were RMB143m, up 273% year over year. The increase was primarily due to branding campaigns and advertisements for our mobile business expansion.

General and administrative expenses were RMB59.2m in the fourth quarter of 2014, up 141% year over year. The increase was primarily due to growing headcount of personnel as a result of our business expansion, and an increase of the professional service fees associated with being a public company.

Net loss attributable to ordinary shareholders was RMB168m in the fourth quarter of 2014. Non-GAAP net loss attributable to ordinary shareholders, which excludes share-based compensation expenses, was RMB157m in the fourth quarter of 2014.

As of December 31, 2014, the Company had cash and cash equivalents, restricted cash and short-term investments of around RMB2b.

In the fourth quarter, cash conversion cycle was negative 44 days compared to negative 54 days in the corresponding period last year. Capital expenditures for the fourth quarter this year was RMB30.9m.

Now, moving to our full-year 2014 results, in 2014, net revenues were RMB3.5b, representing an 81.3% increase from 2013.

Revenues from organized tours, which are recognized on a net (sic - see press release "gross") basis, were RMB3.4b in 2014, representing an increase of 81.4% from 2013. In 2014, the number of trips of organized tours, excluding local tours, increased by 94% to 711,000, up from 367,000 in 2013, and the number of trips of local tours increased by 56% to over 1m, up from 687,000 in 2013.

Revenues from self-guided tours, which are recognized on a net basis, were RMB93m in the full year of 2014, representing a 90.4% increase from 2013. The number of trips for self-guided tours increased by 78.7% to over 395,000 in 2014, up from 221,000 in 2013.

Other revenues were RMB28.8m in 2014, representing a 38.6% increase from 2013.

Gross margin was 6.4% in 2014, compared to 6.2% in 2013.

Operating expenses were RMB699m in 2014, representing a 222% increase from 2013. Share-based compensation expenses, which are allocated to related operating expenses line items, were RMB38.4m in 2014. Non-GAAP operating expenses, which excluded share-based compensation expenses, were RMB661m in 2014, up 204% from 2013.

Research and product development expenses were RMB105m in 2014, representing a 169% increase from 2013. The increase was primarily due to investments in new product offerings and mobile related initiatives, and the rise in technology and product development personnel related expenses.

Sales and marketing expenses were RMB434.2m in 2014, a 295% increase from 2013. The increase was primarily due to branding campaigns and advertisements for our mobile business expansion.

General and administrative expenses were RMB167m in 2014, representing a 140% increase from 2013. The increase was primarily due to an increase in headcount of our personnel as a result of our business expansion and an increase in the professional service fees associated with being a public company.

Net loss attributable to ordinary shareholders was RMB463.5m in 2014. Non-GAAP net loss attributable to ordinary shareholders, which excluded share-based compensation expenses, was RMB424.3m in 2014.

In 2014, cash conversion cycle was negative 34 days compared to negative 40 days in 2013. Capital expenditure for 2014 was RMB64.4m.

Now, let me provide topline guidance for the first quarter of 2015. We are confident about the outlook for the first quarter of 2015 and expect the trend of the accelerated growth in our top line to continue, as our investment in regional expansion, product offering and marketing initiatives started to pay off.

Tuniu currently expects to generate revenues in the range of RMB1.13b to RMB1.16b in the first quarter of 2015, representing a 95% to 100% 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 your questions.

(Operator Instructions). Amanda Chen, Morgan Stanley.

Hi. Good evening. Thank you, management. Thank you for taking my question. My first question is regarding Company's sales and marketing expenses. May we know if you already have an initial budget plan for 2015? If yes, could you please share if that percentage of total revenue will increase further, and also how much of it will be used for branding advertising and how much will be used for mobile promotion? That's my first question. Thank you.

Yes, Amanda. Sales and marketing will -- branding campaign is a long-term investment, so we invest in -- our plan is to invest two years, in 2014 and 2015. Therefore, the percentage of sales and marketing will be similar to 2014, and then out of which probably 40-something-percent will be offline versus online. Mobile will be increasing percentage spending. Out of the online, the mobile marketing expenses will exceed the PC side. Thank you.

Got it. Thank you. And my second question is regarding the new (inaudible) product. Do you have any operating metrics that you can share with us, such as GMV contribution, gross margin, compared with regular products? And anything you can share with us would be helpful. Thank you.

Yes. The Tuniu design product GMV contributes to about 10% plus, and this year we will be more focusing on this. We'll try to increase to like 20% of the GMV. And the gross margin for this product line will be higher than our other product lines.

So, did you see that maybe tourists for new (inaudible) product, they prefer some destination markets different from the regular tourists? Do they have any destination preference compared to your regular customers?

(Spoken in Chinese).

Right. In (technical difficulty) that we have more focusing on the Tuniu designed products or domestic package tours, European, Thailand, Japan and Korea products.

Got it. Thank you. And the final question is regarding the competition. We notice that the 4Q competition may be not as intense as we previously estimated, so the gross margin improved a lot year on year. Now I think 1Q already almost over, so did management see the competition maybe not that intense either, or do you see the competition will increase in 2015? Thank you.

Right. In first quarter, we do see some of our peers are new entrants of this market, because the online leisure travel is growing very fast and therefore attracting some of the smaller players in this market, and they have been very, very aggressive. We are determined to fight against these new competitors, if necessary with more aggressive pricing. So first quarter we do see that happening, but on the other side we are happy to see our market share continue to increase.

Got it. Thank you. A very quick follow-up question, actually it's for housekeeping. Can you share with us your gross booking for fourth quarter?

In my script, I did mention that the total Company gross booking for fourth quarter was about over RMB1.4b.

Great. Thank you.

Evan Zhou, Credit Suisse.

Hi. Good evening. (Spoken in Chinese). Conor, congratulations for the strong quarter. I've got two questions. First one is could you maybe provide some more color on gross margin for this quarter? I know this has been a very stand-out quarter for the gross margin line, and other than the relatively benign competitive environment, how do we attribute the effect from more contribution from the direct sourcing for the gross margin? And if there's any color that you can give us for the gross margin trajectory in 2015, that would be very helpful. Thank you.

Right. Well, direct procurement is our direction that we started from 2014 and we'll continue to increase the portion of the direct procurement of our overall product. By doing so, at least the gross margin can improve several percentage points, so that also helped on the fourth quarter.

And regarding to the 2015 gross margin, again, just like what we say in the past, in 2014 our top priority is the topline growth. We'll do investment in terms of the branding, in terms of the regional expansion, in terms of the pricing, to grow our top line, to gain more market share. We believe by expanding our market share that the economies of scale will come, and also that more and more we can go to direct procurement.

And sorry, we do not really give specific guidance on the gross margin numbers. Thank you.

Got it. Understood. Second question is regarding our marketing spend and customer retention profile. So I think we've been investing in our marketing and brand building for around two to three quarters already, so have we seen any improvement or any maybe customer cohort metrics that you can share with us along the way for the past couple of quarters?

And also, regarding your spending focuses, do you see any specific areas that you think is more effective compared to the other channels? So any color would be helpful. Thanks.

(Spoken in Chinese).

Right. After we spent on the more marketing on the branding, we do see that our daily unique visitors has increased. Mobile plus PC, altogether, like a year-over-year increase over 200%. And also, if we check in the Baidu Index of Tuniu, has also increased significantly. Therefore, these are all the effects or the feedback of the investment. And also, we do see the mobile component continues to increase. That is also reflecting the effectiveness of our marketing.

In terms of which area is more effective, the offline, for example, the popular TV investment is more like long term; therefore, it's hard to measure what kind of GMV they bring into our business, but it is reflected, as I said, the BAU or the traffic increase over 200%. But overall, that mobile investment advertising is currently more effective than the PC side overall.

(Spoken in Chinese).

Right. The branding campaign also helps our mobile app download. By now, that we have accumulated over 120m app downloads for mobile. Thank you.

Thank you.

Juan Lin, 86Research. Please go ahead.

Good evening. Congratulations on very strong guidance and thank you very much for taking my question. My first question is regarding your guidance. You have guided -- you have indicated a growth acceleration starting from the first quarter. What is the main growth driver in terms of product formatting, organized tour, self-guided tour? Or in terms of the operating metrics, is that mainly volume growth or take rate improvement? Any particular destinations that contribute to the strong topline guidance? Also, does it reflect the full-year growth pattern for 2015? And I have a follow-up question.

Right. The accelerated growth topline guidance is a result of our continued long-term investment in branding and regional expansion and technology. We see that the very strong topline growth from our continuing European product line, Thailand, South East Asia is recovering. Organized tours still are growing very strong. Actually, we have seen pretty much across board strong growth of our product line.

And we expect that with the more relaxing visa application process for Chinese people, for example the US visa, for example Japanese visa, these will be helpful to contribute more topline growth in 2015. Thank you.

Thank you, Conor. And my second question is regarding the revenue split and take rate. So, out of the organized tour, what is the revenue contributed by local tour and what are the take rates in Q4 for organized tour, local tour and self-guided tour?

Yes. Take rate remained quite stable. The overall organized tour is around 7% -- between 7% to 8%, and self-guided tours about 5% to 6% overall. And our overall business, we do see that our package tour for organized tours are growing faster than the local tours. We have disclosed the number of trips for local tours, and the ASPs for local tours are (technical difficulty) RMB, so we can (technical difficulty) the numbers.

Thank you very much. I have my final question, if I may. What is the cash flow from operating activity for the fourth quarter?

Okay. This quarter, due to the loss, we have a negative operating cash flow. And also, through our more direct procurement, for example, we're dealing with Maldives, for example, dealing directly with airlines, dealing directly with the upstream resources, especially like airlines, we need to do some prepay. Therefore, in our balance sheet you can see that the prepayment and other current assets has been increased quite a bit. Therefore it's causing -- together with the loss, it's causing a negative cash flow from operating activities.

Thank you very much. That's all my questions.

Thank you.

(Operator Instructions). Tian Hou, TH Capital.

Good evening, management. Congratulations on the strong topline growth. I have a couple of questions. One is related to your direct procurement initiative. So for this business, can you give us some color on either what's the target for how much you can grow this part of the business? That's number one.

Number two, also for the direct procurement, isn't there a potential risk to cause conflict with the services provider or product provider on your platform, since you are also doing direct procurement? That is number one question. I have another follow-up.

(Spoken in Chinese).

Right. In terms of our domestic product, about 50% of the domestic package tours already do the direct procurement, but in 2014, there was a very small portion on the outbound, other than Maldives. This year it will be increased more on the outbound package tour for direct procurement, and also continuing increase the overall percentage.

In terms of the conflicting with suppliers, our direct procurement, mostly, for example, we use for a Tuniu design product or others is kind of differentiated, targeted to more like mid to high end customers' needs, rather than more mass market from suppliers. But since we are growing at a very high growth rate year over year, the amount increased could be allocated to direct procurement, but as our supply (technical difficulty) do enjoy doing business with Tuniu. Thank you.

Okay. So a follow-up on that, Conor. So what is the margin profile on the direct procurement product, the gross margin? (Multiple speakers).

Typically, we do that direct procurement will enhance like 2%, 3%, or even -- it depends on product line, but overall that's a couple of percentage points higher than we purchase from suppliers, like wholesale suppliers.

So, by the end of the year, what percentage of your total GMV do you envision coming from direct procurement?

Yes. I think that overall, of our GMV, I think that will be over 30% of our GMV will come from direct procurement for 2015.

Okay. Very helpful. Last question is related to sales and marketing. And can you break down the composition of the sales and marketing, how much is from the brand advertising, how much you spend on staff and traffic? And going forward, what's your plan in the different components?

Again, in 2014, on the offline advertising, mostly for campaign -- branding campaign, it's about close to 40-something-percent of our overall marketing expenditures. And the online portion is slightly above 50%. I think this year will pretty much remain a similar portion, online versus offline.

But the difference will be last year, in the online portion, the first three quarters we spent more on like PC, on online advertising, more than the mobile side. But the later part of the last year, the mobile advertising spending has already surpassed PC, and we expect this trend to continue, of spend more on mobile for our online portion of advertising. Thank you.

Okay. Thank you for answering my question.

Ida Yu, CICC.

Hi. Good evening. Thank you for taking my questions. My first question is in regard of your organized tour. And as we see that based on my estimation, correct me if I'm wrong, I see the average price down 19% year over year, and is this due to the competition or change in destination mix? And what do you see the trend going forward?

Yes. For organized tour, the ASP dropped year over year a little bit because of the product mix. Again, as we mentioned, this year in domestic product package tour we go more direct to direct procurement. So therefore, as Donald mentioned, that in certain package in the past we had to gather 20 people in departing city. Now, we can spread around in multiple departing cities and get people into their destination.

This has greatly enhanced the possibility of forming a group. In the past, many tours, because there were not enough people, therefore trip got cancelled. So the growth rate of our domestic package tour increased quite fast this year, and the ASP of domestic is smaller than the outbound organized tour. Therefore, we do see that happening.

Okay. And my second question is in regard of the self-guided tour. In terms of the gross booking, can you share more operating data with us? And what are the destinations now included and what is the proportion of the domestic trips in the self-guided tour? Thanks.

Yes. For the self-guided tour, again, overall that half is Maldives. On the domestic side, that's pretty even spreading around those most popular destinations, such as Sanya, Lijiang. Xiamen is also quite popular.

Okay. So what is the percentage of the domestic trips in terms of GMV?

Domestic trip, overall for our Company it's about -- the outbound is about 67%, so domestic is about 30-something.

Okay. Thank you. That's very helpful.

Ella Ji, Oppenheimer.

Yes. Congratulations on a strong quarter. First, also a question relating to the direct purchases -- direct procurement. So, Conor, you mentioned that in 2015 you target to cover over 30% of total GMV. So long term, do you think you can eventually make 100% of all your tours all from direct procurement, or do you think, especially for some overseas tours, maybe there is something that you have to still rely on third parties?

(Spoken in Chinese).

Yes. In the past, direct procurement percentage was too low. Now, as we scale up in many destinations, our scale is enough for us to go direct procurement. So that's a natural evolvement. But in terms of the overall mix, we believe that direct procurement will continue to increase to a certain optimal level.

But the suppliers, like wholesale suppliers are still quite important because many of them they are good at certain destinations or a certain departing city to certain destinations. Therefore, by working with them, they can still broaden the product offerings. And there are different types of grade of product, for example more like mass market from wholesale suppliers and mid to high end products from our Tuniu branded products. Therefore, there will be a combination of suppliers and also the direct procurement going forward.

Thank you. Would you mind just providing your estimate of, over the long term, what's the optimum level of the mix?

(Spoken in Chinese).

Yes. We think that a 50%/50% mix of direct procurement versus wholesale suppliers will be probably the situation.

Got it. Thank you. My second question is relating to the competition level on the market. So over the past years, online travel has been a very competitive sub-segment and almost all companies are losing money. So, Donald, I wonder if you can comment on the competition level as we enter 2015. And do you think it's stabilizing, or do you think it's getting worse?

We start to see in some other areas, such as perhaps [Houling], people consolidate instead of compete with each other. So I wonder if you can comment, in the online travel segment, do you expect the M&A activities will also pick up in 2015? Thank you.

(Spoken in Chinese).

Right. We believe that in 2015 -- we have experienced the very fast growing in this online leisure travel market. The penetration rate increased from [7.7%] in 2013 to 10% in 2014, and we believe we'll continue this trend going forward. Therefore, eventually it will attract lots of competitors, but we will continue to maintain our -- to widen our leading position in this area. In any certain area or segment that we see more crazy competitors, we are determined to fight against them to grab market share and gain market leadership.

And in terms of the M&A, yes, we are looking. As we continue to increase our market share, we will look for suitable target (technical difficulty) we might acquire them, because this industry is still very fragmented. Thank you.

Thank you. That's very helpful. A housekeeping question now. How big is your flash sales in 4Q?

Still around 5% of GMV for the last minute sale, flash sale, like big promotion products.

Okay. So in 2015, do you expect this mix to remain stable at around 5%?

Actually, we give all our product lines a good chance to run ahead, but we do not target specifically in favor of this one or others. If market opportunity is there, we will continue to see very fast growth of our flash sales. But we believe we have achieved the market leadership of this area. We're happy to see that we'll continue to be the leader in this area.

Got it. Thank you very much.

Thank you.

Henry Guo, JG Capital.

Hey. Thanks for taking my questions. A very quick one. So I know the Company started the TV sponsorship last year Q3, Q4, which incurred significant sales and marketing spending here. So what's your plans for the first half of 2015? Are you guys going to continue to spend money on the TV sponsorships, or what is the budget for 2015 for that? Thank you.

(Spoken in Chinese).

Right. Our product line has a very high ASP in nature. And also, to cope with our regional expansion, we'll continue to invest in branding campaign. We believe that by the end of this year we should have enough -- we should have quite a lot above in terms of the regional expansion, and the offline marketing campaign will go together for the regional expansion. Then going to -- after that, probably we will see the shrinking budget percentage for marketing.

Thank you.

Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Conor Yang, Chief Financial Officer, 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 continued support, and we look forward to talking with you in the coming months. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.