Earnings Call: Q1 2021

May 17, 2021

Thank you. Good morning and good evening, everyone. Welcome to Tongtanyi Long's 2021 First Quarter Results Conference Call. I'm Kylie Young, Investor Relations Director of the company. Joining us today on the conference call are Mr. Hope Ma, Executive Director and CEO Mr. Julian Feng, CFO and Ms. Joyce Li, VP and Head of Capital Markets. For today's call, our management team will provide a review of the company's performance in the Q1. Bob will walk us through the company's business performance for the past quarter. Joyce will discuss our operational highlights, and then Julian will address the details of financial performance accordingly. We'll take your questions during the Q and A session that follow. As always, our presentation contains forward looking statements. Such statements are based on management's current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, which may cause the company's actual results, performance or achievements to differ from those in the forward looking statements. This presentation also contains some unaudited non IFRS financial measures. They should be considered in addition to, but not as substantive for, measure of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of non IFRS measures, please refer to our disclosure documents in the IR section of our website. Now, let me introduce our CEO, Ho. Ho, please go ahead. Thanks, Kylie. Good evening, everyone, and welcome to our Q1 earnings call. The first half of the last quarter was quite disturbing as the resurgence of COVID cases in Northern China again hit the travel industry, and all the market players were inevitably impacted. However, travel demand such as delayed hometown visits, business travel and leisure travel started to pick up from March, and we moved fast and acutely seized the recovery opportunities by riding on our strong operational capability and further enhanced efficiency. As a result, we continued to outperform the industry in the past quarter. Moreover, the recent two holidays, the Qiming Festival and the Labor Day have shown remarkable response in travel demand with all our business segments leading the industry growth, which added to our confidence for the year ahead. In spite of fluctuations caused by virus resurgence in Northern China, Our accommodation business, which is positioned as the growth engine for the company, saw striking growth in the Q1 as we continued to build up market presence in lower tier cities by tapping into the different needs of different user groups with in-depth consumer insights. Over the past quarter, we further expanded our offline traffic sources. Apart from cooperation with hotels, we also partnered with other offline traffic hubs to acquire more offline users and bring them into our ecosystem. Furthermore, we continuously leveraged the immense traffic from our transportation business to promote our accommodation products and services to drive further growth in the accommodation sector. For the Q1, our domestic room nights showed just a substantial growth of 45% compared with 2019. Wireless sold in lower tier cities saw an accelerated growth of more than 70% on base of 2019. Meanwhile, we made continuous efforts in developing and innovating our value added products and services, creating new growth catalysts for the accommodation business. Although the stay put during spring festival policy had adversely impacted our transportation business, we still managed to get the better of the hardship and upshine others. We continued to strengthen our market position in our advantageous regions as well as making more efforts in attracting potential users by learning more about their preference and consumption patterns with the help of our outstanding advertising capability. In the Q1, our domestic air ticket volume witnessed a decent increase of 20% when compared to 2019. As for our train ticketing business, we mainly focused on enhancing user value by diverting traffic to other business segments, as well as innovating products and services so as to better serve our users' needs. Moreover, the business saw faster recovery in revenue in the past quarter as users were more willing to purchase our innovative value added products and services, which we perfectly designed to meet their needs when there was a shortage of supply. In the following quarter, we will continue to work on user value to drive train ticketing growth. We have been emphasizing many times the role of our bus ticketing business within the company as a vital instrument to grow our user base given its enormous market capacity but extremely low online penetration level. Throughout the past quarter, we continued to roll out bus ticket vending machines across the country, covering more than 270 cities and having nearly 9,000 machines installed by the end of March. As a result, our bus ticket volume saw a brilliant growth of 150% in the Q1 compared to the same period in 2019. With extensive rollout of vending machines, we further penetrated lower tier cities and even into some counties and townships. In late March, we launched an innovative product called blind box of air tickets amid the backdrop of an accelerated release of pent up demand. This blind box, which symbolized uncertainties, rapidly evolved into a caliber for younger users and went viral across social media platforms in China, creating a phenomenal marketing campaign for the company and equaling our ambition to build a younger image for our brand. We see greater opportunities and growth potential in China's travel industry, especially in lower tier cities post COVID. And we will spare low efforts to grow as bigger and stronger. Looking towards the rest of the year, we are more confident than ever that we will have a fruitful year by riding on our superior execution capability, current customer oriented mindset, and last but not least, on our strategic focus on lower tier cities as well as on empowering the travel industry with our pro element technology solutions. With that, let me turn over the call to Joyce for our operational highlights in the Q1. Joyce, please. Thank you, Hope. Restrictive travel restrictions during the time during the Chinese New Year did cause fluctuations in the travel industry, but the pent up demand gradually released as the regional virus outbreak was quickly controlled and eliminated after spring festival. Since March, we have seen increasing demand in the travel industry with us leading the industry growth. As an innovative online travel player in China, we always put our user at the center of our business. Every innovation in our products and services comes from our deep dive into users' needs and preference. In the past month, our blind box of air tickets, tailor made for younger users given their preference for a threat of uncertainties, caused wider ranging discussions of the social media platforms. By purchasing the blind box, users can get a one way etiquette with a designated departure city, but a randomly assigned destination on a random date within 3 to 30 days. This innovative product not only provides our brand awareness among younger generations, but also made a momentous contribution to our MAUs in April. For the Q1 of 2021, we continued to deepen cooperation with Tencent so as to become more involved in Tencent ecosystem. We joined hands with Tencent Maps to offer child products and services. Tencent Maps users can have great access to our conversation products and air and train ticketing service in our mini program embedded within its app. To better seize the amount of generation fee, we optimize our operations on QQ Wallet by taking into consideration of the total different consumption patterns of the younger generation. This greatly enhanced the younger user experience and hence boosting the volume of orders within QQ Wallet. Besides, we continued to explore traffic within Tencent Ecosystem. In addition to QQ Music and Tencent Video, we also drive users to our Weixinib program from QQ Browser. Apart from the Tencent ecosystem, we also endeavor to seek new online traffic to diversify our traffic sources as well as serving more users. In the Q1, we commenced the cooperation with leading e commerce platform in China through which our top production service is available on the platform. In the following, we launched more tailored product service to better accommodate the needs of users on e commerce platform. Since last year, we have built strong partnership with China's major handset vendors and continue to reinforce cooperation in the past quarter. We achieved in-depth sharing of membership benefits. We co launched marketing campaigns during Chinese New Year to have our brand highly exposed. By product innovation and operation optimization, the commercial rate on the handset vendors have impressively improved. As a result, the MAUs of our pick apps saw phenomenal growth in the past quarter. Furthermore, we are devoted to our offline user acquisition initiatives. For our accommodation business, we explored more consumption scenarios in addition to hotels to see more offline users, especially in low tier cities. Driving on our strong execution capability and strengthened relationship with upstream suppliers, we rolled out more bus ticket vending machines and attraction ticket vending machines across China and further penetrating to low tier cities where bus is the primary vehicle for travel. These three initiatives not only helped accelerate online penetration level of the traditional industries, but also brought a sizable amount of paying users in a cost effective way. With efforts aforementioned, our average MAUs for the Q1 posted a decent growth of 17.5% when compared with 2019 at around 234,200,000 largely driven by the stable traffic from Weixin platform and explosive growth in other channels. Meanwhile, our average MPUs maintained growth momentum and reached an accelerated growth of 18.2% on the basis of 2019, reaching 27,300,000 in the past quarter. Furthermore, our TWD users recorded 169,300,000 in the past quarter, an increase of 40.9% compared to 2019. The growth in paying users was mainly thanks to our effective offline integration initiatives and highly efficient operating capability. In our last call we mentioned we aim to build as the leading travel brand in low tier cities to seize opportunities post COVID. During the Q1 of the year, we stepped up our investments in our branding campaigns to boost brand awareness and recognition among our targeted users. We placed pre roll adverts in several popular TV shows to increase our brand presence among the younger generations. In the meantime, we continue to roll out our advertisement placement at the railway stations and airports in low tier cities as well as on high speed trains and airlines covering Southern Western, Northern and Central China. Moreover, our membership program has made a great leap during the past quarter with an accumulated number of Black Whale members exceeding 7,000,000 by the end of March. During the quarter, we launched a monthly Blackwell membership program to better cater to user needs, which led to a marvelous increase in purchasing rate of the membership. In addition, we pined down certain hotel users to give out our VIP lounge service at railway stations, which greatly enhanced user satisfaction and recognition of our brand. The virus resurgence in Northern China, which led to strict travel restrictions during the past Chinese New Year holiday did impact our business in the past quarter. Lpezoid adhered to our cross selling strategy and continued to divert traffic from the trend heating segment to our air ticketing, accommodation and the trash heating business by leveraging our big data capability to better predict user consumption patterns and their underlying needs. Aiming to transport from OTA to ITA, we focus on enhancing both internal and external efficiency through technology. On one hand, we are committed in powering our partners' business by our internet technology and expertise with an aim to create a highly efficient and resilient travel ecosystem. In the past quarter, we signed a strategic cooperation agreement with the Shen Airport to facilitate development as an intelligent airport. We not only have the airport to direct the mission program, but also have in-depth cooperation concerning product innovation to attract passengers for the airport by riding on our algorithm and innovation capabilities. Besides, we have devoted comprehensive SaaS solutions to help individual hotels and small chain hotels with respect to daily operations as well as management of the inventory, revenues and marketing. On the other hand, we are devoted to respecting our users' experience through the technology innovation. We are preferred in optimizing the travel solution provided by our intelligent Huixin system so to better fulfill our user needs. We strive to not only enhance our algorithm capability, but also seek to increase user value by digging into their underlying needs. Our Huixin system continued to demonstrate its exceptional value in the first half of the quarter, while many groups were halted to detect the spread of the virus. In addition, we have successfully developed an intelligent on-site command system for the customer service team, which is capable of predicting upcoming customer service requests and scheduling work shift in corresponding way. This has greatly enhanced the labor efficiency in the customer service center. With this, I will hand over the call to our CFO, Julian, who will walk you through our detailed financial results in the Q1 of the year. Julian, please go ahead. Thank you, Joyce. Good evening, everyone. For the Q1 of 2021, we reported net revenue of RMB1.6 billion, representing a 61% year over year increase from the same period of 2020, or a 9% year over year decrease from the same period of 2019. The decrease from 2019 was mainly due to 3 factors: number 1, the international travel is still frozen and 2, the purchase business is substantially reduced for risk control and 3, the domestic market was under pressure in the first half due to stricter travel restrictions before and during the Chinese New Year holiday in 2021, following virus restrictions in the winter. Benefiting from the improvement of operational efficiency and prompt cost control of sales and marketing in January February, we achieved RMB296 1,000,000 adjusted net profit with 18.4 percent net margin compared with 16.9% net margin in quarter 4, 2020. We booked RMB33.3 billion in the Q1 of 2021, with an 83% year over year increase compared with 2020 or a 7% decrease from 2019, mainly due to substantially reduced purchase business and a softer international travel, as I mentioned. Besides, the ADR and ATV were still negatively impacted in January February by the COVID resurgence. However, the negative impact was partially offset by the significant growth in room night and air ticket volume, which was attributable to our audacious measures to seize growth opportunities when top up demand was quickly released in March. As we mentioned, we saw a very clear demand jump in March with more than 80% growth in accommodation room nights, 40% growth in air ticket volume and more than 2 50% growth in bus ticket volume compared with 2019 in March. Without hesitation, we enlarged the marketing investment since March to aggressively cash the market share in every product line, especially in lower tier cities. Accommodation reservation revenue achieved RMB 4 59,000,000, representing a 100% increase compared with 2020 or a 6% decrease compared with 2019, mainly impacted by protest international travel and reduced repurchase business. Domestic room nights growth in the past quarter accelerated to 45%, supported by the short haul traveling and local consumption since Chinese New Year. Geographically, the room nights grew over 30% and more than 70%, respectively, in higher tier cities and lower tier cities, thanks to the effective execution of our strategic priorities such as cross selling and offline user acquisition. ADR was still dropped in the past quarter, which was caused by the short term tax rate by the hotel industry as well as our strategy to further penetrate into lower tier cities. The take rate was flat compared with that of 2019, as we put more resources in Kubernetes since March to capture the market recovery. However, the increase of VAS contribution in accommodation segment offset part of the impact of the increase in Kubernetes. Transportation ticketing revenue for the Q1 of 2021 was RMB1023 1,000,000, representing a 49% increase compared with 2020 or a 19% decrease compared with the same period in 2019. The gap to the pre COVID level was primarily caused by unfilled international travel and the Stap Hu during Spring Festival policy, which severely impacted the back to home traveling demand in the first half of quarter 1, as we mentioned above. However, as the COVID cases were well controlled in every short time, very short time, the pent up demand was surprisingly released since March, and we moved fast to see the recovery opportunities. In March, both our air ticketing and bus ticketing visits saw a very remarkable year over year growth in volume when compared with 2019. Other air visits revenue achieved RMB132 1,000,000 in the 1st quarter, representing a 48% increase compared with the same period of 2020 or a 2 73% increase compared with 2019. The increase was mainly contributed by the new initiatives such as hotel advertisement, hotel PMF, TMC visits and membership cards. Gross margin was 74.7% for the Q1 of 2021, increased from 72.1% for the same period in 2019 and 73.7% for the previous quarter. The continuous margin improvement was mainly helped by our streamlined operations, intelligent serviceability and a revenue mix change in the past year. In the Q1 of 2021, our adjusted EBITDA achieved RMB470 1,000,000, with margin increase to 25.9% from 24.3% quarter over quarter. Adjusted net profit achieved RMB296 1,000,000 with margin increased to 18.4% from 16.9% quarter over quarter. Service development and administrative expenses in the Q1 of 2021 decreased by 37% for the same period of 2019 and decreased by 26% from previous quarter. The decrease was mainly driven by FPC expenditure reduction and operational efficiency improvement. Excluding share based compensation charges, service development and administrative expenses in total accounted for 22.7 percent of revenue in the Q1, compared with 23.0 percent of revenue in the same period of 2019 and 22.5% of revenue in previous quarter. Sales and marketing expenses in the Q1 of 2021 increased by 32% from the same period of 2019 and decreased by 17% from previous quarter. We tightly controlled the marketing spending in the first half of the past quarter, but promptly shifted to an investment mode in the second half to aggressively seize the recovery opportunity. We increased the investment in offline advertisement and user acquisition initiatives in lower tier cities, such as bus ticket and attraction ticket vending machine, as well as in online user promotions to accelerate cross selling and enhance the frequency and the users' value in the long run. We also launched innovative marketing initiatives such as Blind Box of Air tickets to closely engage our target users, as Joy Op mentioned. Excluding share based compensation charges, selling and marketing expenses accounted for 37 0.9% of revenue in the Q1, compared with 24.9% of revenue in the same period of 2019 and 39.9% of revenue in previous quarter. As of March 31, 2021, the balance of cash, cash equivalents, restricted cash and short term investments was RMB6.4 billion. Following the rebound trend in March, the release of pent up demand was astonishing and further accelerated in Qumin Festival and Labor Day holiday. We have broken the historical record of volumes in each product line during the Labor Day holiday, with a mixed demand for long haul, short haul leisure traveling and hometown visits. After almost a 1 year cultivation and preparation, we are now in the best position to capture the opportunities in the travel industry involving every travel scenario by winning new users in lower tier cities and thus gaining market share. The remarkable rebound in quarter 2 has once again demonstrated that traveling is an important and essential activity in our daily lives. We demand for various purposes, including business, leisure, adventure, family reunions or friends gatherings. Adhering to all our strategic priorities, we are very confident to lead industry growth with decent profitability, thus generating more value for our users, suppliers, employees and shareholders. We will persistently focus on our mission to make every travel smart and joyful for our users. Operator, we are ready to take questions now. Thank you. Your first question is from Brian Kong from Citigroup. Please ask your question. Thanks management for taking my question. Congratulations on very, very solid results and outlook. And I have two questions. The first question is about during the Labor Day, China travel traffic reached positive growth, but I think the industry revenue only recorded around 77% of 2019 level. So just want to see management's view on this. What factors makes the industry revenue still not fully recovered yet? And when do you think it will get the full recovery? And my second question is about the outlook and recent does management see any impact of recent small outbreaks of COVID in Anhui? And how does management look at the outlook for the summer session coming soon? Thank you. Thank you, Ryan. I will take the first question. Asset revenue for the whole industry was only 77 of that in the same period of 2019. But from our company side, we're not quite sure about what is including the definition of the revenue for the whole industry. But we can share what we observed from this holiday. And I think the changes in the consumption of the travelers may contribute to the gap. First of all, some of the travelers who are going back to their hometown to visit their family, so they won't have too much spending for their trips during the Labor Day holiday. And secondly, I think the intra professional or local travel was still the major travel choices for the travelers. So it was quite common that people choose self drive tour to visit nearby cities attractions. We believe this also affects revenue of the whole travel industry. And you can see that we still achieved the remarkable response in all business segments during the Labor Day holiday. We realized 66% growth in room nights sold during the holiday, 47% growth in air ticketing volume and around 150 growth in tourism and charging ticketing volume. So which again I think we have successfully outpaced the industry again. So from what we can see so far, the growth momentum of our business at the Labor Day still had positive. Yes. And in terms of the impact from recent small breaks, we think the impact will be very, very limited because, first, it's just happening in some very small cities, but not like Beijing, Shanghai, like last winter. And the second, the governments have very fruitful experience of faster control of the resurgence, any resurgence of the COVID. And the third thing is the vaccination. And nowadays, the vaccination has, I think, take like 20% to 30% of the total population. And after vaccination has been taken more and more, some of the scientists have expected there would be like 80% vaccination taken in China by the end of this year. We believe all of the impacts will not happen again in China for the COVID. And in terms of the what is the performance looks like for summer season or Golden Week, actually, as we mentioned a lot of times, the booking window currently in our platform is very short. So we cannot provide any clear views for the very long term. But actually, I can share some latest business performance in April May. In April May, For example, for user side, the Pampers demand release boosted in the industry recovery in April May. Meanwhile, we already increased our sales and marketing investment to capture the market rebound opportunity as well to achieve a very strong growth in traffic and user acquisitions, which continue to lead the market lead the whole industry. The users from our own apps and other channels such as QuickCaps grew much stronger, benefiting from our marketing campaigns and pioneer products such as the blind box of air ticket. Other than business travel and the long haul travel demand, the short haul travel and staycations were very popular during the COVID and getting more and more and more popular in the weekend after that. So as we observed, actually, the traveling frequency of users increased, obviously, when compared with the same period in 2019. And for our accommodations in these 2 months, room net growth further accelerated in April May, as we mentioned. For the quarter 2, we believe the growth rate for room nights will even higher accelerated than that of the in quarter 1. For the ADR of our accommodation business, just slightly dropped when compared with the quarter 2 in 2019, because the change in our product mix has volume contribution from lower tier cities continue to increase. But actually, the ADR decrease have been largely narrowed down within, I think, 5%. Meanwhile, the hotel owners actually are more willing to place advertisement in our platform to capture the new opportunity and improve their favorite part. So that creates additional revenue for our platform, the hotel advertisement as well. For transportation, as we mentioned in prepared remarks, we keep strengthening our advantages in air and train ticket as well as offline service of bus ticketing, especially in lower tier cities to capture the new demand for short haul traveling within provinces. As ticketing maintained its growth air ticketing maintained its growth momentum because of our regional advantage in our targeted markets. Ground transportation, as always, took the role of traffic and new users engine in the company within the company. In quarter 2, to increase the user value other than actually other than cross selling from ground transportation to hotel, we put more effort to direct the ground ticket users to become our air ticket users. According to the market statistics, I think above 1,000,000,000 of people, of Chinese people still haven't got any flight experience. That represents an immense opportunities for the industry. With our Huixin, intelligent Huixin system, user could find that some of the air tickets were even cheaper than the train tickets for the same routes at the same time. This not only improved our total conversion rate, but also improved the cross sell from ground to air and also the take rates for air is higher, far more higher than the ground, contributing to the hyper growth in air tickets as well when compared with 2019 and also beat the market growth. Meanwhile, the upward trends for staycations is also generating new opportunities in our attraction ticketing business. So we're prepared to invest more on offline vending machines at the tourist attractions as what we did for the bus ticketing business to accelerate our new users acquisition from offline channels. Okay, thank you. That's our comments. Thank you. That's very helpful. Thank you. Your next question is from D. S. King from JPMorgan. Please ask your question. Hi, Julia and Joyce and everyone. Congrats on good results and very strong guidance. Well, my first question is about bus ticketing and other offline channels. So far, how big of a contribution does it bring in terms of users and paying users, if you can comment? And based on our observation, which of our new traffic channels, including like offline and these video streaming and whatnot, give us the best return on investment? And could you also comment on customer acquisition caused by major channels, if possible? I have a couple of follow ups. Yeah. Actually, the total offline users that we acquired have already contributed like 11% to 12% of our total monthly paying users in, I think, in March April. For the majority, it's still the bus ticketing vending machine. And also, the most efficient channel is, of course, the QR code in front of the hotel front desk. For the ROI and also for the user value, actually, the investment per user of vending machine was very limited as we talked for several times. It's only RMB 3 to RMB 4 for each. While the investment for hotel is higher, it's a little bit higher, like RMB 30 to RMB 40 for each new users, but still relatively lower than user acquisition cost of our apps market. While the user value needs to be further dig out as we need some time to get familiar with the user behavior for this new group, especially for the users that we acquired from the bus vending machine and provide some customized target product and services to cross sell and to enhance our user value in this target user. The target is to achieve positive ROI within 1 year. And yes, we have already done that. So we would keep investing for the next year and this year and next year and expect a better ROI and user value improves. In terms of the frequency, actually, we can see that around 25% of the bus ticketing users acquired from vending machines repurchased within 3 months and 35% around 35% of hotel users acquired through QR codes getting repurchased within 3 months. Since I think the Q2 this quarter, we're trying to promote cross selling from bus ticketing to other products and services on our platform and to enhance their repurchase rate after we gain certain amount of bus ticket users. We can see that there are actually quite a lot of opportunities to improve the monetization. But of course, we need to invest some kind of sales and marketing dollars to do the promotion and the marketing campaign for that. For example, the V app product service for bus tickets, the cross selling to hotels and the tourist attractions is excellent. We will also leverage on our capability in data analysis and innovation to develop suitable products for these users and seek out more value for this business. So actually, we believe, of course, we believe that Uplight user acquisition initiatives will help us to improve our MAU and help the company to faster achieve our target for 200,000,000 APU this year. Thank you. Thank you. That's really helpful. Can I just follow-up on our same trip cross sales ratio this quarter versus previous few quarters? Yes. The same freight profiling is around 11% in March April, but relatively lower in January February because of the stay put policy impact. It's around, I think, 8% to 9% in January February. But of course, if you compare to 2019, the same period of 2019, there is like a 5.6.6. Increase. Thank you. And finally, is there any update on Tencent contract at least in terms of the timeline? I mean, are we going to get something done before the expiryasing July of this year? Or is it possible or is that likely for us to have a little bit of extension because of the negotiations and whatnot? And that's it from me. Thank you again. Thank you, Jess. The agreement about the portal fee retention is still on negotiation. We will disclose the market as soon as we can. I think the main point is that our relation with Tencent is getting closer and deeper as we continue to explore our cooperation as a different scenario within Tencent ecosystem as we mentioned before. So you can see that in the past year we have spent the cooperation with Weixin on its search portal to build the ecosystem within Weixin. We also deepened our cooperation with Tencent in growing the traffic within its ecosystem such as Tencent Map, Tencent Online Game Platform, QQ Music, Tencent Video and QQ Wallet and QQ Weather. So as a role model to operate in Tencent ecosystem, we believe that Tencent Lite to work together with partners to view the Tencent ecosystem. So we believe our future beneficial relationship with the Tencent will continue and remain stable in the future. Thank you. Thank you so much. Thank you. And your next questions come from Alex Poon from Morgan Stanley. Please ask your question. Hi, management. Congratulations on very strong results, every metric, especially the 2nd quarter guidance. Can I ask about the 2021 guidance, given the very strong second quarter and about the margin trend for rest of the year because of very strong revenue growth, are we sticking with the original net margin guidance or we will go for a higher margin expansion this year? Thank you. Yeah. Hi, Alex. Actually, we cannot as I just mentioned, because of the very short booking window, we cannot provide the guidance for too long time. But if you add to the GP margin and also our net margin trends, actually, I can give you some comments. The GP margin for several quarters have a very clear improvement trends. And in the future, the GP margin will be stable or even higher, contributed by quarter to quarter, even higher for the GP margin, contributed by, one, the scaling effect as our revenue back to normal and have a higher growth compared with 'nineteen and also the service automation levels and also increasing revenue contribution from accommodation business. That is very important because accommodation business gross margin is far higher than transportation. In terms of the bottom line, I would like to provide some comments on each of our spending expense line and then you can get the result of our net margin trends. So in 2021 or post the pandemic, as we mentioned several times, we will implement a strategy of high investment in sales and marketing dollars and branding dollars to gain a hybrid growth on paying users and volume, which has been proved to be achievable and proper for the company in the current state. But meanwhile, the service development and the G and A spending, which is relatively fixed cost as of revenue dropped 4 to 5 points as the total headcount will be the largest stable in 2021. Thank you. Thank you, Julien. If I can just follow-up on the one more question on hotel take rate. I noticed that on Q1, we might have seen a small drop in hotel take rate to 9% because of more couponing in March. So given the recovery in the hotel travel in the travel industry, how should we expect the hotel tick rate for rest of the year? In terms of couponing, do you think the industry would have some sort of ceiling in terms of the couponing such that our hotel take rate downside protected? Thank you. Actually, we are still very disciplined to invest the hotel couponing in March April and also in quarter 2. There are only 2 purpose that we invest on the couponing for accommodation. The one is that new user acquisition, especially in the offline. We can provide some kind of coupons to users. And the second one is the cross sell. We nowadays, we initiated a lot of cross selling promotions to encourage our existing customers to book different products in our platform. So we will then provide some kind of coupon to this kind of existing users. But in the long run or in this year, I guess our blended take rate for the accommodation will be quite stable compared with the 2019 because the VAS contribution is increasing in this year and will offset the impact of our company level increase. Thank you. Your next question comes from Thomas Chong from Jefferies. Please ask your question. Hi, good evening. Thanks management for taking my questions and congratulations on a very strong quarter. May I ask about our annual paying user outlook? Given that after reaching 200,000,000, can you talk about the long term annual paying users that we should be thinking about? And on the other hand, given that we have a large MAU base and we are also seeing advertising is picking up, how should we think about our strategic priority in advertising in the future? And my last question is about the accommodation side. Can you also comment about the ASP trend? Should we expect ASP to come back to positive year on year growth in the second half? Thank you. Thank you, Thomas. The first question concerning about any paying user. I think we have mentioned that our addressable market is still very huge. The online penetration rate for the logistics hotel is only 25% and the online penetration rate for VASA claim is even low single digit. Although we have achieved very high growth last year. And for the users we acquired from the best vending machine, we can see that more than 60% are completely new to our platform. So as the pandemic is, I think it's a golden time for us to dig into the offline market and establish digitalization and other penetration. So we have mentioned before, we will strive to increase our end paying users through several strategies. I think the first is that we will continue to promote our offline acquisition initiative. As Jill has mentioned before, so we will cooperate with hotels, the best stage operators and the trashing places to further acquire more users from the offline. And secondly, we will also enhance operation on the online platform, which has routine programs, our own app protect, also we work with handset vendors, so that we can have more precise marketing and tailor made recommendations to the users. And moreover, we work further in terms of product services. For example, the innovative product, as I mentioned, the black box air tickets have been very successful to fulfill the user's average user needs. So our paying user in the 12 month period ended in March has already reached 159.3 million. So we are very confident that the target of 200,000,000 users can achieve earlier than the end of 2021. In terms of the cap of our MAU expectation, actually, I would like to add some comments. It's far more higher I think it's far more higher than with previous expectations for the cap of our MAU after we launched the blind boxing air ticket and after we invest on the stream leaving advertisement, etcetera. The blind boxing air tickets in April May drive a striking growth of MAU growth, especially in I think in lower tier cities that have never used the OTA products in the past. In April, just after our blind spots launched, our MAU in April hit a historical high like 300,000,000 in this month. So, we are very confident that our MAU cap will be higher than 400 or even 500 in the future. In terms of the ASP, just like what I mentioned in quarter 2, as the hotel industry back to normal, our ADR or ASP for the hotel also back to normal, just like a 5% down 5% decrease compared with 2019. That is because our low tier city penetration strategy and nowadays our room nights from low tier cities have contributed more than 60% of our total room nights. So that is why our ASP is slightly dropped compared with 2019. But currently, it's quite stable quarter to quarter in this year. Thank you. Your next question comes from Ellie Jiang from Macquarie. Please ask your question. Thank you, management for taking my question. I just have a quick one on the MAU and sales and marketing side. So on back of the strong MAU growth and as well as the successful launch of the promotional product like the blind box we just mentioned, how do we think about retaining these new younger generations within our ecosystem? And if there's any color you can provide on these younger users versus our existing customers in terms of their purchasing behaviors that could be very helpful? And how do we better address the differentiated demand across our user kind of segmentation? How does that play into our sales and marketing strategy to fall into these different quarters and different users? Thank you. Yes. Actually, for the younger gen, how about I put the common size there. After the COVID-nineteen, we think there's some kind of behavior change for the travelers, both for the existing travelers and the younger generation. The first one is the frequency, frequency increase because the shop for traveling in the weekend and the staycation becomes very popular and became very custom for the travelers in 2020 during the COVID. And after that, mixture by the business travel, long haul travel and also the short haul travel and also vacations. So nowadays, we have observed that the frequency for the travelers have been obviously increased compared with 2019. And that creates a lot of opportunities for us to cross sell the customers from one product to another as well. And the second one for the younger generation is the social activities. Actually, for example, the blind box of air tickets, it's just used 1 hour to appeal like 20,000,000 20,000,000 active users within 1 hour just after the promotion or the advertisement of our blind box initiatives, because the younger generation, the young people, they add advertisement by themselves. They will promote these very appealing products to their friends and to their families in a very short period. So that is why we can accumulate that much active users within a very short time. So that is the power of the social media and also the power of the social activities of the younger generation as well. Thank you. Thank you. Your last question comes from Ronald Keung from Somerset. Please ask your question. Thank you. Thank you, management, for taking my question. And just 2 for me. The first question is, I want to ask about our domestic growth and how much do we think the domestic boost has been driven by completely kind of new lower tier cities that never or would not be considering outbound? Or do we think some of the strong demand we see so far may be partially attributed to people in high tier cities cannot travel outbound at this point. Just want to see how do we see that pure domestic that may not be impacted even if outbound opens or how much of do we think maybe more could be related to outbound and are we targeting some of our international products maybe later this year to capture that growth? And then I have a second question. Thank you, Ronald. I think it's hard to analyze from statistics side about how many demand was coming from domestic or international demand convert to domestic. But I think currently you can see the growth of the total industry and you can see our numbers. I think for the past year and also for the Q1 and in the second quarter of this year, we have outpaced industry growth. So, I think for currently the international situation is still volatile. So, in this year, we believe even in 2022, the Chinese people, if they want to travel, so the Mexican travel will be their first choice. Thanks. And my second question, you talked about a very strong MAU, which is RMB300 1,000,000 in April being a record high. Can you just give us sort of split in our mini program kind of contribution and is our own app also has been growing very rapidly? So let's say 2, 3 years down the road, do we expect our own app to be a bigger and bigger portion of our own traffic as well and the mix between different channels? Yes, Ronald. Actually, in the past quarter, we invested more on our apps. For example, for the blind box we launched and we set a special program, special campaign in our app for this kind of product. And also, we invested more on the marketing dollars to in the app markets, both for our app and Android in the past quarters. So in terms of the MAU and also the MPU, the portion from our apps have increased from 2019 2020. Nowadays, for example, for the MAU side, our apps, Quick Apps and other channels have already occupied occupied like 20% to 25%. It's higher than that in 2019. And in terms of the MPU, it also occupied like 25% for the apps and also for other channels. Thank you. And also in the future, that is the one of our focus. We will keep investing to appeal more users to use our apps and other new channels, new initiative channels. For example, the Baidu map, the Gaodu map, etcetera, that is also a very important channel for us to acquire new users. Thank you. I would now like to hand the conference back to your speaker. Please continue. Thank you very much. We are closing the call now. If you wish to check out our presentation and other financial information, please visit the IR section of our company website. Thank you and see you next quarter.