Good day, and thank you for attending. Welcome to Tongcheng Travel Holdings Limited 2025 second quarter and interim results announcement conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I'd like to hand the conference over to Ms. Kylie Yeung, Investor Relations Director. Please go ahead, Ms. Yeung.
Thank you. Good morning and good evening, everyone. Welcome to Tongcheng Travel's 2025 second quarter and interim results conference call. I'm Kylie Yeung, Investor Relations Director of the company. Joining us today on the conference call are our Executive Director and CEO, Mr. Heping Ma, our CFO, Mr. Julian Fang, and our Chief Capital Officer, Ms. Joyce Li. For today's call, our management team will provide a review of the company's performance in the second quarter. Heping will brief us on the company's strategies. Joyce will discuss our business and operational highlights, and then Julian will address the details of financial performance accordingly. We'll take your questions during the Q&A session that follows. 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 a substitute for, measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of non-IFRS financial measures, please refer to our disclosure documents in the relevant section of our website. Now, let me introduce our CEO, Heping. Heping will be presenting in Mandarin, and our colleague will provide the English translation afterwards. Heping, please go ahead.
[Foreign language] .
Thank you and good evening, everyone. Welcome to our 2025 second quarter earnings call. In the second quarter of 2025, China's travel industry maintained its trajectory of high-quality development, with robust market demand driving strong growth across the sector. During the May Day holiday, sustained consumer enthusiasm drove improvements in both the scale and quality of the industry. Amid this changing market environment, we proactively seized market opportunities, actively propelled our domestic and international expansion strategies, and strategically deepened our industrial chain exploration. For our domestic business, we focused on the mass market, consolidating our position through diversified product offerings and acute user insights. For our outbound business, we actively expanded the supply of our outbound travel products while deepening our presence in key markets to accelerate our second growth engine.
Regarding our industry chain deployment, we assertively explored the potential of the travel industry chain to capture more growth opportunities and drive the company's future development. Over the past quarter, the company delivered steady year-over-year growth in both revenue and adjusted net profit, reaffirming our ability to accurately capture market demand and execute strategies with operational excellence. With the summer travel season underway, consumer demand has continued to diversify with an increasing focus on experience-oriented consumption. Building on this trend, we spared no effort to seize new growth opportunities, enhance our products and services, and strive to address the diverse needs of our user segments. Leveraging our profound industry expertise, extensive product offerings, and advanced technology, we will continue to drive product upgrades and technological innovation, enhancing user experience while propelling technological advancement across the industry.
Facing new opportunities and an evolving landscape in the industry, as China's leading integrated travel platform, we will proactively respond to market dynamics and refine our operational strategies. With our robust organizational capabilities, we're positioned to navigate challenges and embrace opportunities, thereby achieving long-term sustainable development while generating greater value for our stakeholders. Next, I will hand over the call to Joyce, who will share with you our business and operational highlights of the second quarter of 2025. Joyce, please go ahead.
Thank you. Over the past quarter, China's travel market continued to show its vitality, and it was marked by a growing appetite for experiential travel, with younger consumers seeking unique and immersive experiences, both domestically and internationally. Capitalizing on this tailwind, with a vast outgrowth strategy with discipline and focus, and it delivered another quarter of strong results, underscoring the entrenched strengths of our platform and the unwavering dedication of our team in a dynamic marketing environment. As a key growth driver for the company, our accommodation reservation services business maintains robust growth momentum in the second quarter and recorded new highs in its daily room life. Growth was fueled by an increasingly diverse range of travel scenarios, such as weekend getaways, concerts, and sports events, in addition to traditional holidays and business trips.
During the quarter, we intensified our efforts to expand our presence in lower-tier cities by targeting high-value users, which led to increased market share and further solidified our competitiveness in these regions. In the meantime, we reinforced our value for money proposition for taxi users through our membership program, enabling our users, especially high-tier members, to seamlessly redeem their points as cash on our platform, which is significant to increase purchase frequency. As for our international accommodation reservation services business, it remains focused on deepening its cooperation with global suppliers and strengthening its presence in regions which are popular among Chinese travelers. Over the quarter, Hong Kong, Macau, Japan, and Southeast Asia countries remain the most popular destinations on our platform.
After years of rapid expansion, our transportation ticketing services business has solidified its position as a key player in the industry, achieving a prominent market share, especially in the southwestern region. Over the last quarter, our transportation ticketing services sector continued to display its resilience and caused steady growth. In the air ticketing business, we focused on expanding our reach among younger users by launching a variety of interactive activities to further strengthen our influence within this key demographic. In the meantime, our growth strategies for the international air ticketing segment have paid off, successfully increasing market share and strengthening user loyalty among our target audience. In addition, consistent efforts were made to improve the monetization capabilities for international operations, ensuring a balanced and sustainable growth trajectory between volume and revenue. During the second quarter, our international air ticketing volume reached a historical high, delivering nearly 30% year-over-year growth.
In the transit business, we remain steadfast in prioritizing user value by continuously enhancing and refining our intelligent tuition system, designed to provide more accessible, efficient, and user-centric travel solutions tailored to meet diverse user needs. Throughout the quarter, monetization capabilities of the segment further improved, supported by our refined and targeted operational strategies. The hotel management business is one of the key initiatives where we have been investing to seek a second growth driver for the company. During years of strategic expansion, we have built a wide-ranging portfolio of hotel brands, spanning from economy to upscale, supported by robust operational enablers such as TMS, centralized reservation system, and a hotel supplier's platform. In the past quarter, our hotel management business sustained a healthy expansion trajectory, with the total number of hotels in operation exceeding 2,700 by the end of June and nearly 1,500 in the pipeline.
According to the 2024 list of the top hotel groups in China, released by the China Hospitality Association, we have ascended to number eight in terms of room count, underscoring our leadership and influence in the industry. In April, we announced the acquisition of a 100% stake in Wanda Hotel Management. While the deal is still in process, we're confident that the addition of Wanda Hotel Management will further diversify our brand metrics, strengthen our market presence, and accelerate sustainable growth within the segment. We remain fully devoted to expanding our asset-light hotel management business through franchise-based partnerships, with an aim to achieve leadership in China's hotel industry. Traffic growth has been the cornerstone for our success. Over the past decade, we have cultivated a profound and enduring partnership with Tencent.
Through which ecosystem, we have reached a broad and diverse user base across China and remain a vital channel for our user engagement and interaction. During the last quarter, we've continued to improve our operational efficiency within the ecosystem while enhancing our engagement with users. At the same time, our standalone app continues to be a core pillar for quite new users. By targeting younger demographics, we launched a series of entertaining marketing campaigns centered on trending social events, further reinforcing our mindset among target users. As a result, it's clear during the quarter continued to exhibit strong growth, reaching a record high before the May Day holiday. Additionally, we intensified our efforts to expand our social media platforms to reach younger, experience-driven travelers. Through collaborations with influencers and the creation of high-quality, engaging content, we amplified our brand visibility and broadened our user reach.
By delivering tangible value and exclusive benefits to our users, we are deepening user loyalty while simultaneously enhancing user value on our platform. In the second quarter, we made a significant upgrade to our service, particularly for high-value users. We set an exclusive hotline and a dedicated customer service team to enhance response to user inquiries and ensure prompt and efficient resolution of their issues. In the meantime, we expanded user privileges and benefits such as exclusive discounts and free cancellations. These efforts continue to be a marked improvement in user retention and loyalty. Additionally, we capitalized on high-impact cultural events such as the Su Super League and Amateur Football Tournament within Jiangsu Province that has drawn nation-wide attention and ignited a widespread enthusiasm for sports, so as to deepen engagement with younger cohorts, further enhancing our brand appeal to experience-driven travelers.
Through effective and innovative user engagement, our total MAU and paying users for the quarter maintained a healthy growth momentum and climbed to a new high of more than 250 million by the end of June, representing a 10% year-over-year increase. Meanwhile, the cumulative number of passengers served on our platform reached 2 billion, suggesting a stable user purchase frequency of 8x per year. Furthermore, our NPUs for the second quarter also displayed solid growth on live segment and rose to 46.4 million. On top of that, our 12-month rolling ARPU further increased to CNY 33 in the quarter, CNY 73 in the quarter, representing a 40% year-over-year growth. We remain fully dedicated to transforming our business through the adoption of boundless technologies such as generative AI.
Back in March, we launched our AI-powered itinerary planner, DeepTrip, which combines the supply chain capabilities on our platform with the reasoning capabilities of Deep Seek. Over the past quarter, we advanced its application in some business scenarios to improve our operational efficiency. For tailor-made tours, we integrated DeepTrip into the workflow to streamline the consulting phase, which enabled users to access comprehensive destination information more easily, thus reducing consulting time and enhancing user experience. Meanwhile, we leveraged DeepTrip to deliver marketing activities to users inquiring about travel itineraries to facilitate their decision-making process. Furthermore, we continue to iterate its functions based on deeper user insights. By allowing users to upload self-developed travel itineraries, DeepTrip provides instant access to relevant travel resources, significantly reducing search time and supporting quick reservation.
In customer service, generative AI now handles more than 50% of our online consultations related to accommodation reservation services and more than 70% of the internet phone consulting workload, with further enhanced accuracy and efficiency. Besides, we've also deployed standard AI agents to assist our customer service staff, reducing the handling time by 10%. Looking ahead, we will continue to explore AI applications in our business process and accelerate the transformation of our operations. All these highlight our commitment to leveraging technology to drive growth, improve user experience, and optimize operational efficiency. I'll stop here and give the call to our CFO, Julian . He will share with you the detailed financials in the second quarter. Julian, please.
Thank you, Joyce. Good evening, everyone. Over the past quarter, consumer demand continued to diversify with a wide array of travel scenarios emerging to energize the Chinese travel market. Against this backdrop, we closely monitored industry dynamics, accurately captured user needs, and continuously enhanced our products and services to improve user experience and strengthen user engagement. This operational excellence translated into solid momentum for our core OTA business, which once again outpaced the industry. In the second quarter of 2025, we delivered outstanding results for both top line and bottom line. We reported a net revenue of RMB 4.7 billion, marking a 10.0% year-over-year increase from the same period of 2024. During this quarter, our adjusted net profit rose to RMB 775 million, reflecting an 18.0% year-over-year growth, with adjusted net margin expanding to 16.6% compared to 15.5% in the same period of last year.
This uplift was principally fueled by efficient marketing initiatives and optimized operations of our core OTA business. Despite extreme weather conditions in some regions that significantly impacted the Chinese travel industry in June, our core OTA business maintained steady growth, achieving a 13.7% year-over-year increase to RMB 4.0 billion during the second quarter of 2025. Our accommodation reservation services achieved RMB 1.4 billion for the second quarter of 2025, representing a 15.2% increase from the same period in 2024. We actively tapped into emerging accommodation reservation scenarios to capture market opportunities, driving sustained year-over-year growth in hotel room nights sold during the second quarter. Amid vigorous outbound travel demand, we enhanced the marketing investment efficiency of our international accommodation business, achieving an effective balance between business expansion and profitability improvement.
During the second quarter, our users demonstrated preferences for high-quality hotel products, which drove a year-over-year growth in our ADR as well, continuously outperforming the industry trend. Concurrently, the blended tech rate maintained its upward trajectory through more precise and disciplined marketing strategies. These combined factors collectively contributed to the outstanding growth of our accommodation revenue. Our transportation ticketing services revenue for the second quarter reached RMB 1.9 billion, marking a 7.9% year-over-year increase compared with the same period of last year. During the past quarter, we continue to refine our VAS offerings to improve monetization and remain committed to enhancing the efficiency of our user subsidy strategies. Additionally, our international air ticketing business maintains strong growth momentum, now accounting for more than 6% of our total transportation ticketing revenue, with a year-over-year increase of almost 2 percentage points, demonstrating the effectiveness of our global expansion strategy.
Other business segments continue to expand, with revenue reaching RMB 755 million in the second quarter, marking a growth of 27.5% year-over-year. The performance was principally attributable to the exceptional development demonstrated by our hotel management and Black Whale membership business. Our tourism business achieved a revenue of RMB 662 million, representing an 8.0% decrease from the same period in 2024. This decline was primarily attributable to our strategic reduction of pre-purchased visits to mitigate operational risks. Furthermore, persistent safety concerns in Southeast Asia regions continue to exert downward pressure on travel demand. In terms of the profitability, our gross profit increased by 10.6% year-over-year to RMB 3.0 billion, with gross margins rising slightly to 65.0% for the second quarter of 2025. Our operating profits for the core OTA business achieved RMB 1.1 billion, with 26.7% margin in the second quarter of 2025, increasing from 24.3% year-over-year.
This improvement demonstrates the market effectiveness of our initiatives to enhance the ROI of sales and marketing investments and the operational efficiency. The operating profits for the tourism business achieved RMB 4.4 million with 0.7% margin. Our adjusted EBITDA increased by 29.7% and reached RMB 1.2 billion, with a 25.4% margin compared to a 21.5% margin in the same period last year. Adjusted net profit grew by 18.0% to RMB 775 million, with a 16.6% margin compared to a 15.5% margin in the second quarter of last year. Service development and administrative expenses in the second quarter of 2025 increased by 2.1% from the same period of 2024. Excluding share-based compensation charges, service development and administrative expenses in total accounted for 15.4% of revenue in the second quarter compared with 15.9% of revenue in the same period of last year.
Selling and marketing expenses in the second quarter of 2025 increased by 2.4% for the same period of 2024. Excluding share-based compensation charges, selling and marketing expenses accounted for 32.8% of revenue in the second quarter compared with 35.1% of revenue in the same period of last year. As of June 30, 2025, the balance of cash, cash equivalents, restricted cash, and short-term investments was RMB 13.5 billion. The Chinese travel market saw robust growth in the first half of 2025, with innovative and diversified consumption scenarios infusing sustained vitality into the market. As we entered July, travel demand continued to heat up, and the market is prone to usher in the peak summer travel season. Notably, tourist preferences are shifting beyond traditional leisure-focused itineraries towards deeper experiential engagement and cultural immersion. Such changes catalyze emerging travel scenarios, unlocking new growth drivers for our business expansion.
Looking ahead to the second half of the year, we are well positioned to deliver steady year-over-year growth in both top line and bottom line, driven by our acute operational capabilities and disciplined strategic execution. We remain highly committed to growing our core OTA business by expanding its market share and enhancing its brand awareness. While solidifying our domestic market position, we will further expand outbound visits to seize global opportunities. In parallel with business expansion, we will rigorously monitor the ROI of our sales marketing investments, striking an optimal balance between revenue growth and profit margin expansion to fortify the foundation for long-term sustainable development. Furthermore, we'll uphold our strategic focus across the industry chain, advancing our hotel management business to capture new opportunities, new growth opportunities. Finally, we remain dedicated to elevating our ESG performance, striving to deliver greater value to society and all stakeholders.
With that, operator, we're ready to take questions now. Thank you.
Thank you. As a reminder to answer questions, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please limit to no more than two questions at a time. If you have further questions, please request to rejoin the queue again. Once again, that's star one one for questions. We will now take our first question from the line of Wei Xiong from UBS. Please ask your question, Wei.
Sure, thank you. Good evening, management. Thank you for taking my questions. I have two questions. First is regarding our accommodation business. Could management provide more color regarding the volume growth, ADR, and take rate, and how these metrics are trending? Also, considering the domestic hotel market still faces the oversupply issue and our ADR and take rate seem to be quite resilient, could management elaborate what are the drivers behind and how should we think about the industry outlook next year? Second, we can see the company keeps exploring new business opportunities beyond the core OTA business. I wonder how do we balance the strategic resource allocation between core OTA and pursuing a diverse business portfolio? In terms of future M&A plans, which areas are we paying close attention to and what are the key criteria to evaluate such opportunities? Thank you.
Thanks for the question, Wei Xiong. I will address the first question and I think Joyce will do more color on the second one. As you mentioned, we have achieved a very successful execution for the accommodation in the first half year and achieved outstanding results as well. For the hotel industry, as you know, in the industry information, the domestic ADR has largely stabilized year- over- year in the past quarter, the quarter two. Our domestic ADR already turned positive in the second quarter as well and is expected to continue to grow in the coming quarters. This kind of improvement is driven by two factors. One is, of course, the recovery of ADR across the industry since quarter two.
The second one is more important, the shift in user behavior in our platform, as users increasingly prefer higher quality products, which has resulted in a shift from 2- star below hotels to 3- star or above hotel bookings. For example, in quarter two, the proportion of our 3- star hotel bookings on our platform increased by 4% year- over- year. Given the strength, we expect that the growth in ADR will be a positive factor contributing to accommodation segment revenue growth for the second quarter and also for the second half of this year. Meanwhile, we have adopted a more disciplined and targeted approach for user subsidy. We have already done this for at least 1 year. This approach has helped us to maintain our net take rate at a decent level, ensuring a balanced focus on both expansion of top line and profitability.
Our outstanding performance in accommodation business in the first half of 2025 demonstrated that the pricing pressures of the industry had rather limited impact on our revenue, as ADR on our platform remained relatively resilient thanks to our extensive exposure in the mass market and also our ability to swiftly seize the market opportunities. The second question, I think Joyce, please.
Sure. Thank you for your questions. You would say that as a company still in a growth phase, the capital allocation remains focused on both organic and inorganic expansion to strengthen our competitive position and the long-term value creation. I believe that investing in business expansion, product innovation, and platform development will deliver sustainable shareholder value over time. I'd like to emphasize that our core OTA business remains the foundation and the strategic focus of our operations. While we continue to deepen our OTA capabilities in the domestic market, expanding our outbound business, domestically, we'll continue to invest in new technologies, introduce innovative products and services, expand into new markets, and enhance the operational efficiency. We're also expanding into businesses that are complementary to our corporation, such as outbound travel and hotel management.
To achieve this, we must pursue organic growth opportunities, including strategic investments in other companies or machinery submissions. In terms of our M&A strategy, we will remain selective and focus on evaluating strategic investment and acquisition opportunities that enhance our core OTA traffic, user base, and oversee supply chains with valuable and synergy effects. The offline tourist attractions are not our primary focus. They are small in scale and are made solely for the purpose of value transfer operation. In terms of the criteria, I would say that the first investments will be highly selective and based on our strategic logic, financial discipline, and the long-term shareholder value creation. Thank you.
Thank you.
Understood. Thank you, management.
Thank you. Our next question comes from Brian Gong from Citi. Please ask your question, Brian.
Yeah, thanks, management, for taking the questions. Very quick, two questions. First one is, I think you might notice that during the summer break, younger growth on domestic airline ticketing volume, which seems a little bit slow. What reasons could result in this low growth in management's view? Do you think the travel demand is weakening? How should we think about the fourth quarter overall travel demand? The second question is, can management share more details on our performance on outbound travel during the summer break and also the overall outbound travel demand? Thank you.
Thank you for the question, Brian. Yeah, as you mentioned, the Chinese travel market continued to demonstrate resilience in the past few months.
For the hotel industry, actually, the decline, as we mentioned, the decline in ADR has been narrowed down over the past few months, signifying a more stable demand and supply industry environment for accommodations. For the domestic air travel industry, air ticket price stabilized, whereas the industry volume growth normalized from mid to high single-digit growth in April and May to drop to low single-digit in June. Especially in the summer vacation, after experiencing two exceptionally strong summer holiday seasons in 2023 and 2024, driven by pent-up demand relief after, I think, the COVID-19 pandemic, the industry has already returned to a normalized growth trajectory in the summer for air tickets. Recently, the transportation industry has shown low single-digit growth at the same situation in June.
However, we think we expect that our OTA business, and both for accommodation and transportation, will once again outpace the overall market in several multiples growth because of the successful execution of our strategic priorities, which include improvement in user value or expansion into outbound travel, as well as robust growth of our hotel management business. Our business continued to outperform the industry throughout the summer holiday periods, like what I mentioned, with particularly strong growth in the accommodation segment, I think. While the hotel ADR has shown a continuous increase since quarter two, it has consistently outpaced the industry average ADR trend in quarter three for our platform, like what I mentioned in the past questions. This success can be attributed to our ability to adapt to shifting user demand as users increasingly prioritize higher quality accommodations when they travel. We have effectively captured this trend.
Our transportation ticketing services business also continued to outpace the industry growth with improving monetization during the summer holiday. Besides, our targeted and effective marketing initiatives allowed us to engage outbound travelers as well, with improved efficiency, enabling us to capture market opportunity and strengthen our competitive position in the outbound business segment. I think Joyce will give you more color on the outbound, and I would like to address the domestic one first. We remain positive about the future of China's travel industry as we look ahead to the second half of 2025. Travelers are evolving, prioritizing unique and meaningful travel experiences, overspending money on traditional physical good products. At the same time, people are now seeking more unique experiences beyond just visiting popular destinations. They are keen on traveling for specialized activities like concerts, music festivals, and sporting events in the summer.
This shift clearly positions travel as more than just a trip. It is becoming an integral part of modern lifestyle choices. Besides, the Chinese government continues to recognize tourism as a key driver for economic growth, actively rolling out policies that support its long-term sustainable development. Altogether, these changes underscore the tremendous opportunities available in China's travel market. Looking forward to the next few quarters or the second half of this year, we plan to firmly adhere to our strategy of capturing new business opportunities while focusing on steady growth with healthy profitability. One of our priorities will be still increasing the output by improving cross-selling efforts, encouraging more frequent purchases, and providing more comprehensive value-added products and services to address long-term needs. At the same time, we will adopt a more disciplined approach with our sales marketing spending, making sure it delivers optimal returns for every dollar.
For outbound travel performance, I think Joyce may give you more information.
In terms of our outbound business, in the past few quarters, we have achieved significant growth in both international air ticketing and accommodation volumes, driven by the competitive pricing strategies and targeted marketing initiatives. Notably, as I mentioned, in the second quarter, our international air ticketing volume reached a record high, achieving nearly 30% year-over-year growth. Now, with a deeper understanding of outbound travelers' behavior, we have shifted our focus towards executing more precise and efficient promotional strategies. Building on this progress, we have implemented the margin improvement program for our outbound business, focusing on marketing and promotional effects with a stronger emphasis on ROI. As such, we expect the outbound business to break even and turn profitable this year.
Currently, the revenue for our outbound air ticketing business has already accounted for over 6% of our total transportation ticketing revenue. We are also starting to explore the opportunity of cross-selling from outbound air tickets to accommodation that drive both revenue and profit growth. At the same time, we will continue to enhance our outbound travel offerings through strategic partnerships with leading global OTAs, hotels, airlines, and various overseas GSPs. Additionally, we will also plan to increase our investment in research and development to strengthen the service capabilities and ensure a seamless booking experience for our outbound travelers. We anticipate the rapid growth in the outbound business segment with its contribution to total revenue projected to continue to improve within this timeframe. We are confident that this segment will become a major growth driver for the company, offering higher margins than our domestic business in the long run. Thank you.
Thank you.
Thank you. Our next question comes from Qiwei Liu from CITIC. Please ask your question, Qiwei.
Hi, management. This is Qiwei from CITIC. I have two questions. Firstly, how do you view GB and BABA's investments in the OTA market? Will these investments change the competitive landscape of the industry? Secondly, as we see, the company's profit margin has been steadily rising. How do you expect the short-term and long-term margins of OTA? Thanks.
Thank you, Qiwei. For the competitive landscape, as we have mentioned several times before, as the leading OTA, we have an extensive network of industry resources and well-established ties with our GSPs, which takes significant time for newcomers to replicate. Managing hotel supply efficiently requires a comprehensive system and seamless communication with hotels, particularly enhanced price fluctuations and limited room availability. With over 20 years of experience in the industry, our established hotel supply chain and a strong relationship with GSPs allow us to maintain the advantageous position against new entrants. The purchase of travel products and services tends to be low frequency and involves longer, more complicated decision-making processes. Therefore, converting users into paying customers can be particularly challenging as it demands a deeper understanding of user preference and behaviors. That’s why it’s unclear whether the e-commerce platforms can effectively convert their users to buyers of OTA products.
As the OTA, we focus on delivering unparalleled service and exceptional user experience. We prioritize investment in our products and services, continuously innovating value-added solutions tailored to evolving market demands and user preference. Additionally, our dedicated customer service team is devoted to swiftly addressing user needs. We believe these are the areas where new entrants are difficult to replicate. We strongly believe that the Chinese travel market presents a notably bright future, so it’s possible that some companies may want to enter this market. Still, we want to emphasize that the OTA market is highly complex and requires substantial time and resources to build the competitive advantages. As such, we expect the competition landscape to remain relatively stable in the near term. We are currently maintaining our original strategy of improving our sales and marketing efficiency, and our profit expectations for this year remain unchanged.
Nevertheless, we’ll also closely monitor the market situation and make any necessary adjustments accordingly if needed. I think Julian will address the second question.
Yeah, in terms of the margin, actually, the margin of our core OTA business is expected to show steady year-over-year improvement both for short-term and long-term. That's very confident. There are mainly three drivers. One is the reduction in our sales and marketing expense rate ratio, along with the ARPU improvement, thanks to the enhanced ROI and more targeted marketing investment. The second reason is the ratios for COGS and G&A expenses are expected to decline as a result of the increased operational efficiency and the benefits of scaling. The third reason is the margin improvement from our new initiatives, such as outbound travel and hotel management, because we have already initiated the profit improvement executions since the first half of this year. These initiatives are expected to further drive overall margin expansion for our core OTA operations in the future. Thank you.
Thank you. We will now take our next question from Yang Liu from Morgan Stanley. Please ask your question, Yang.
Thanks for the opportunity. Could management please share the latest development plan of your hotel management business? What is the revenue contribution for the past quarter? What is your ultimate goal for this business? As an investor, when should we expect this business to contribute profit to the company? Thank you.
Thank you, Liu, for the questions. By the end of June, as I mentioned, we have already operated 2,700 hotels with more than 1,500 stores in the pipeline, already making us one of the top 10 hotel management groups in China. We have a brand portfolio of like 12 major hotel brands, ranging from economy hotels to middle to high-end hotels. In 2025, at the end of this year, we'll continue to grow the hotel management business and target to over 3,000 hotels in operation. I think we have addressed our competitive strengths before, so I would move to the revenue contribution. The revenue from the hotel chain management has increased by over 60% and has already accounted for over 25% of our other revenue in the second quarter. The revenue of the hotel chain business mainly consists of the franchise, brand usage fee, management fee, renovation, consulting fee, etc.
Also, these hotels and our management will use our PMS system, which will contribute to our revenue and strengthen our market position in the PMS industry. We are running the business mainly by a franchise model, pursuing synergy and mutual benefit with hotels. At this early stage, our focus remains on enhancing quality, strengthening brand recognition, and expanding our network. With increasing scale and improvement in operational efficiency, we believe the revenue of our hotel management business will continue to achieve strong growth in the following three years. We would like to address the ultimate goal of our positioning of the hotel management business. As the comprehensive travel platform, we are committed to enhancing our influence across the industry chain to support our sustainable growth. Hotels represent critical components of the travel industry in China.
We're confident that deepening our presence in this sector will further strengthen our positioning in the Chinese travel industry. We're already seeing immense opportunity in the hotel management industry, which we believe has the potential to become a major growth driver for the company, playing a key role in our long-term development. Thank you.
Thank you.
Thank you. In the interest of time, we'll take our last question from the line of Thomas Chong of Jefferies. Please go ahead, Thomas.
Hi, good evening. Thanks, management, for taking my question. My first question is about our standalone app. Can management comment on our target for this year in terms of the user base as well as the revenue contribution? My second question is about AI. Can management comment about how the evolution of AI agents will pose opportunities and challenges on this front and whether AI agents are more like a cooperation or competition with us in the future? Thank you.
Okay, thanks for the question, Thomas. I would like to give you more information about our app development. For the AI, I think Joyce may give you a detailed explanation. Over the past year, we have actually diversified our traffic sources, placing a strategic emphasis on expanding our standalone app. Due to the distinct user behaviors between the web platform and app-based platforms, there is a minimal overlap between the two user bases. This ensures that our efforts to grow the app channel are focused on attracting incremental users rather than slowly shifting existing ones from web to app. In the past quarter, we have strengthened partnerships with major vendors to pre-install our app to select its new devices. We have also ramped up efforts to acquire users through app store promotions and social sharing campaigns, further broadening our reach.
In addition, we have also bolstered our brand promotion and marketing strategies to improve user engagement and loyalty. By launching creative campaigns and offering tailored services, we have successfully captured the interest of younger generations. These initiatives have led to a steady rise in activation rates and also a promising conversion of new users. As a result, our app achieved a major milestone right before the May Day holiday, with MAU exceeding 4 million, marking a significant achievement in our growth journey. To support the growth of our standalone app, we have reallocated our sales marketing budget to acquire app users while maintaining relatively stable overall sales marketing expenses at the same level. While the user acquisition cost for apps is higher than that for Weixin and the payback period is longer, we believe the higher ARPU and stronger user loyalty for app users will yield substantial long-term returns.
Our data shows that the app users expect higher purchase frequency and spending, with their spending being approximately 2.5x that of the Weixin users. The contribution of our app to revenue has been growing steadily. In quarter two, our app accounted for over 8% of our core OTA revenue. We remain committed to this strategy and are confident that the revenue share from our standalone app will continue to rise in the future. In terms of the AI, I think Joyce, please.
Sure. Thank you for the questions. In terms of AI application in the travel industry, I believe we are the pioneer in terms of using new technologies. Take DeepTrip as a vivid example. It is a specialized virtual application within the travel domain rather than a standalone product that users proactively use. Given the travel plan is reaching low-frequency activity, we focus on integrating DeepTrip into the boarding business environments, positioning it as an integration app component of the seamless travel ecosystem. We continue to refine DeepTrip's features based on the deeper user insights. By allowing users to upload their own travel itineraries, as I mentioned, it now offers instant access to relevant travel resources, significantly reducing the search time and enabling quick reservations. DeepTrip benefits from our extensive resources, including a comprehensive portfolio of online travel products.
While the general purpose large models can generate travel guides, they often lack the ability to match recommendations with actual real-time travel resources and availability. Our DeepTrip provides a more practical and actionable solution by directly integrating travel products into the planning and booking process. Our strong connections and a close relationship with supply chains enable us to secure the competitive pricing and high-quality products to satisfy the diversified travel needs. Besides, we believe our advanced and extensive travel insights play a crucial role in delivering accurate and personalized recommendations to users. DeepTrip's guides are grounded in real-world data and resources from our platform. This ensures the travel guides and recommendations have high reliability and practical value, offering users accurate insights that can be implemented. Apart from the application in terms of the user level, as I mentioned, the application of AI has already improved our operational efficiency internally.
Thank you.
Thank you. We have now reached the end of the question and answer session. I'll now turn the conference back to Ms. Kylie Yeung for closing comments.
Thank you. 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.
This concludes today's conference call. Thank you for participating. You may now disconnect your line.