Earnings Call: Q3 2018

Nov 8, 2018

Earnings release

Ladies and gentlemen, welcome to the Third Quarter 2018 Sweetship .com International Limited Earnings Conference Call. My name is Edward, and I will be the moderator for today. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. As a reminder, this conference is being recorded for replay purposes. Now, I will hand the call to Chief Communications Officer, Mr. Victor Zhang. Please begin. Thank you. Thank you. Good morning, and welcome to Ctrip's Q3 2018 earnings conference call. Joining me today on the call are Mr. James Liang, Executive Chairman of the Board Ms. Jing Sun, Chief Executive Officer and Ms. Cindy Wang, Chief Financial Officer. During this call, we will discuss our future outlook and performance, which are forward looking statements made under the Safe Harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in Ctrip's public filings with the Securities and Exchange Commission. Ctrip does not undertake any obligation to update any forward looking statement except as required under applicable law. James, Jane and Cindy will share our strategy and business updates, operating highlights and financial performance for the Q3 of 2018 as well as the outlook for the Q4 of 2018. After the prepared remarks, we will have a Q and A session. With that, I will turn the call over to James. James, please? Thank you, Victor, and thanks to everyone for joining us on the call today. Ctrip continued making solid progress on every front of our business in the Q3 of 2018. Despite the softer growth of the overall market during the quarter, we increased the multiple by which we are outpacing the industry's average growth. We remain confident and enthusiastic about the huge long term opportunity represented by both China's and the global travel industry and are working hard to further extend our market position. To start, I would like to share some of our thoughts on China's macro economy. We believe China will continue to be one of the fastest growing economies in the world going to the next decade, driven by technology, advances, continued urbanization and the evolution to and service led growth model. This will sustain the growth of China's middle class over the long term. Travel industry will naturally benefit from China's sustained economic growth. There are a couple of drivers that I'm particularly excited about going forward for China's travel industry. 1, China has the largest network of high speed rail expanding over 25,000 kilometers, twice that of the European system. By 2020, the high speed rail will connect more than 80% of Chinese cities with a population over 1,000,000. This is helping make domestic travel very accessible and economical. In fact, when we recently launched the first high speed rail tour channel on Ctrip app, within the 1st month, daily orders reached as high as 100,000. 2, China's commitments to its open economic strategy will continue to drive the growth of international travel. China's outbound travel base is already the world's largest, spending over US200 $1,000,000,000 overseas last year, but currently accounts for less than 10% of total Chinese population. In past years, China's new passport issuance maintained annual growth of approximately 20%. Moreover, the Chinese passport can now allow Chinese to travel to 74 countries and territories around the world with no visa or visa on arrival requirements. In spite of the short term fluctuation in the outbound travel growth, Ctrip is dedicated to expand our core competencies in international destination to meet the long term demand of Chinese international travelers. Furthermore, leveraging China's advantage as the world's largest tourism source market, we are strengthening our global supply chain capability for non Chinese users booking through trip.com and Skyscanner. 3rd, foreigners traveling to China accounts for fewer than 30,000,000 overnight trips once you take out visitors from Hong Kong, Taiwan and Macau. According to the Ministry of Cultural Tourism, there is a vast potential to increase its volume when compared to United States, which has over 75,000,000 inbound tour visitors every year. And according to global research from Euromonitor in the recent report, China is set to become the world's number one tourist destination by 2,030. Our global brands, trip.com and Skyscanner, representing over 90,000,000 monthly active global users, are in the prime position to capitalize on the opportunity to bring more foreigners to China. As such, we are excited about the opportunities in China travel industry that lie ahead. And as historically, we have outpaced China growth GDP growth by over 4 times, Ctrip is set to continue strengthening our market leadership position. Next month, we will celebrate the 15th anniversary of our IPO on NASDAQ. We have established a strong track record and are committed to continuing riding the travel growth wave. During the high tides, we can boost our scale and profitability. During low tides, we can extend our competitive advantage and accelerate market share gain. We will continue to work hard to extend the advantage of the scale, while seizing the opportunities presented by the globalization to drive Ctrip's long term success. With that, I will turn the call over to Jay. Thanks, Dave. Hello, everyone. Teachers reported solid results in the Q3 of 2018. In particular, accommodation revenue grew 21 percent year over year, mainly driven by volume growth. In the mid to high end hotel segment, we have extended our leadership over our peers with the growth that doubled the hotel industry rate. In the lower end hotel segment, Ctrip brand volume growth further accelerated to around 50% year over year. Transportation volume grew 6% year over year. We continued to see strong volume growth across transportation product categories, while revenue growth was still impacted by the domestic air ticketing booking adjustments that we initiated in the second half of the fourth quarter last year. For the trailing 12 months ending September 30, 2018, GMV, excluding Skyscanner, increased by approximately 30% year over year, reaching RMB690 1,000,000,000. Non GAAP operating margin reached 20%, continuing its consistent improvement from previous quarter. Today, I would like to share updates on 4 points: Ctrip's customer base, user engagement, supplier network and international development. First, on customer base. Ctrip has a large, growing and loyal customer base, which includes 110,000,000 monthly active users in China and more than 90,000,000 outside of China across a portfolio of trusted brands, Ctrip, Chunar, trip.com and Skyscanner. In total, this brings us over 200,000,000 users, making Ctrip 1 of the largest travel focused companies in the world. Ctrip and China brand alone generate 130,000,000 annual transacting customers in China that spend more than RMB 5,000 per year on our platform. Despite the large scale in China, there is still huge potential for us to expand our customer base. According to a recent study, China's middle class population will grow from 430,000,000 in 2017 to 780,000,000 in the next 5 to 10 years. We have seen that when customer have a real travel demand, they prefer to use Ctrip to provide their to provide them with not only comprehensive travel products, but also the most reliable services. 70% of our customers are under the age of 35 over the next past 5 years. Within this number, young generation users under the age of 29 continues to grow from 30 percent to almost 50%, which represents the fastest growing age group in our portfolio. In addition, our customer have demonstrated strong loyalty and fitness on our platform. This is primarily due to our one stop shopping solution and superior service capability. Once our customer experience Ctrip services, our annual repurchase ratio is 40% to 50%, while biannual repurchase ratio increased to 70% to 80%. Just as importantly, according to our cohort data, we have been able to also increase their average travel spending each year by multiple folds, resulting in our repeating customer accounted for around 80% of total transactions. 2nd, our user engagement. The Ctrip app has become the go to platform for Chinese travelers. We make it a super app for travel users. Our users are engaging with us more and more throughout their travel research, reservation process and in destination funnel. Our app covers over 60 Toggle related products and services, meaning we offer 1 of the most comprehensive selection and are capable of covering all demand of a typical customer travel itinerary. We have around 6,000,000 points of interest that include travel destination information, attraction tickets, restaurants, etcetera. And those points of interest are supported by a vast number of user reviews to assist our users in finding, selecting and booking in destination products. As a result, 30% to 40% of our app traffic during peak travel season is generated from our users while they are in destination. Ctrip's domestic in destination activity transaction grew 60% year over year and international in destination transactions grew 120% year over year for international activity during the Q3. 3rd, expanding our Shanghai network and strengthening partnership. As we continue expand our hotel under network, the number of the hotels with guaranteed allotment increased by 160% year over year with in China. We have launched flagship stores for 4 highest and are already seeing and already seeing thousands of incremental daily room nights for the 2 brands being booked through our flagship stores. We have we are currently further expanding this initiative with more flagship stores currently under development. By leveraging our unique insights into our travel market, Ctrip is helping our partners to better utilize our platform to understand our customers. To date, 70,000 hotel managers are taking training courses at Ctrip Hotel University and witnessed a good boost in booking volume post the training. For airline partners, Ctrip also committed to helping airlines to improve operating efficiency and to developing innovative membership service systems. For example, last month, Ctrip and KLA signed a strategic partner agreement to deepen the mutually beneficial cooperation. 4th, on international development. Skyscanner is already one of the largest travel platforms in the world. And in the Q3, its global MAU increased by 26% year over year. Direct booking grew approximately 2 50% year over year, contributing around 10% of Skyscanner's total worldwide booking. In late September, we officially launched a real app for international train for TrainPal. This is also our first product aimed at international audience to come out of our Baby Tiger program, which is an internal program that has fostered many internal travel innovations and businesses for Ctrip throughout the year. TrainPal utilizes technologies to sort through all the available routes and provide cheapest fare for our users. To date, TwinTao users have on average saved nearly 40% on train tickets when using TwinPao. The long term vision for the app is a one stop shop for global rail booking, allowing our users in any geographic to book rail system anywhere in the world. In summary, we are seeing our large growing and loyal base continue to increase their engagement on Ctrip platform. We are selling more travel products across our customers' travel itinerary, And we have become increasingly diversified with revenue coming from our international businesses. We have historically outpaced China's GDP growth by a factor of With our strong foundation in travel industry, despite the ongoing macro uncertainty, we are confident that we are the best travel company to capture more travel opportunity and share the growth going forward. With that, I will turn the call to Cindy. She will walk you through the details of our financial results. Thanks, Tim. Thanks, everyone. For the Q3 of 2018, Detrev reported net revenue of RMB9.4 billion, representing a 15% increase from the same period in 2017. Accommodation reservation revenue for the Q3 of 2018 was RMB3.6 billion, up 21% year on year, primarily driven by increase in accommodation reservation volume. We further expanded our total global hotel coverage by over 20% year on year, reaching 1,400,000 properties. International hotels continued to outperform in the industry, more than doubling the industry growth rate. Transportation ticketing revenue for the Q3 of 2018 was rmb3.6 billion, representing a 6% increase from the same period in 2017. Air ticketing maintained strong volume growth, particularly our international air ticketing growth almost tripled outbound industry growth. Similar to the first half of the year, revenue growth was offset by the decrease of per air ticket segment revenue, which is related to the operating adjustments we discussed in previous quarters. We expect the situation will improve in the following quarters with comparatively easier comps. Trip.com continued to perform exceptionally well in the Q3 and achieved double digit growth in air ticketing volume for the 8th consecutive quarter. Strong transportation, including train ticketing, bus ticketing, ferry ticketing and car services, continued its strong performance. In September, we launched Trainpal, a rail ticketing app for the international market to help local users find the cheapest railway ticket. Petit's tour revenue for the Q3 of 2018 was RMB1.4 billion, up 28% year on year, primarily driven by increase in volume growth of both organized tour and self guided tour. By the end of the Q3, we have over 7,000 offline stores covering more than 200 cities in China. Gross transaction value through offline stores increased over 80% year on year. Going forward, we will open more stores to increase our penetration in targeted lower end cities. Customized tours also delivered exceptional performance with gross bookings increased by 65% year on year. In the Q3, the 1st class of graduates from our customized tour training camp went into the business. We are thrilled that the conversion rate from inquiry to booking will increase 4x for these tour planners. Corporate travel revenue for the Q3 of 2018 was RMB267 1,000,000, up 31% year on year. The growth in corporate travel business was primarily driven by the expansion of our travel product coverage. Over 70% of our corporate travel users are making bookings, approving orders and changing itineraries via Ctrip based mobile app. Other business, including advertisement, financial services and others, increased by 6 6% year on year in the Q3 of 2018, reaching RMB503 1,000,000. The deceleration of growth compared to previous quarter, mainly related to the high advertisement revenue base in the Q3 of 2017. Gross margin was 79% for the Q3 of 2018 compared to 84% in the same period in 2017 80% in the previous quarter. The year over year decrease in gross margin was mainly due to the decrease of per ticket per air ticket revenue due to operating adjustments. The sequential decrease in gross margin was mainly related to higher service costs as we upgraded service quality to be more customer centric and efforts in expanding our international service team and increased revenue mix from certain lower gross margin business that we consolidated in previous years. Excluding share based compensation charges, total non GAAP operating expenses grew 13% year on year and 18% quarter over quarter in the Q3 of 2018. Product and development expenses and G and A expenses delivered continued operating leverage as we achieved a higher scale economy with a steady headcount. Sales and marketing efficiency continued to improve through product innovation for targeting customers and an improved cross selling ratio. On average, the acquisition cost per user is only a very small fraction of their average annual revenue contribution to Ctrip, even as many of these new customers are coming from lower tier cities. Non GAAP operating profit in the quarter was RMB1.9 billion, compared to RMB2 1,000,000,000 in the same period in 2017 and RMB1.2 billion in the previous quarter. Non GAAP operating margin for the 3rd quarter was 20%, increasing from 16% in the previous quarters, mainly related to the operating efficiency improvement. The company adopted the new financial instrument accounting standard from January 1, 2018, and measured its available for sale equity securities at fair value with gain or losses recorded through the income statements. The impact of applying this new standard for the Q3 of 2018 resulted in a loss of approximately RMB2.5 billion in net income, net of tax. Diluted loss per ADS were RMB2.08 or $0.30 for the Q3 of 2018. Excluding share based compensation charges and fair value changes of equity securities investment. Non GAAP diluted earnings per ADS were RMB2.88 or $0.42 for the Q3 of 2018. As of September 30, 2018, the balance of cash and cash equivalents, restricted cash and short term investments was RMB63.3 billion or US9.2 billion dollars On October 15, 2018, the company has elected to pay back US476 million dollars in cash in connection with its outstanding convertible senior notes due 2018, including interest, instead of a potential dilution of more than 1,500,000 ordinary shares. Now turning to the outlook. For the Q4 of 2018, the company expects the net revenue growth to continue at a year on year rate of approximately 15% to 20%, which is calculated on the estimated net revenue of the Q4 of 2018 under the new revenue recognition standard, and the net revenue of the Q4 of 2017, respectively adjusted. This forecast reflects Ctrip's current and preliminary view, which is subject to change. That concludes our prepared remarks. Operator, now please open the line for questions. We will now begin the question and answer session. Please note this session is only open to sell side analysts due to time restrictions. An analyst is only allowed to ask one question each time. If you have additional questions, please join back to the queue. Good morning, James, Jane and Cindy. Thank you for taking my question. Hi, James. My first question is on the macro headwinds. Would you please kindly share with us how the travel industry, both domestic and outbound travels, have been affected by challenging macro conditions and also renminbi depreciation, which could negatively affect the outbound travels? Also being an industry leader with growing outbound revenue contribution, how do you see we can weather through these macro headwinds? And my second question is just a housekeeping question on the revenue guide of 4Q of 15% to 20%. Any color on the growth by segment? Thank you. Those are my 2 questions. Thank you. First on the macro condition, I think despite the short term fluctuation due to the sentiment and the trade friction, The long term prospect of China's economy is still very positive. Actually, I wrote a few articles commenting on that. The argument is that China's per capita GDP is still lagged by a wide margin. The its potential measured by technology capability, measured by infrastructure or human capital level. So China should have been much richer, given all these factors. For example, China should be there's no reason China should be poorer than Greece and Argentina, which is almost double China's current per cattle level. The reason Chinese are still much poorer than it should be is because China's low urbanization rate. China's urbanization rate is currently is only 50%. If you compare to other countries with similar level of development, it should be 70% to 80%. So in the next 10 or 20 years, China still has potential to further urbanize by 20% to 30%. That's you're talking about 1% to 3% 1% to 2% a year. That itself is going to generate 3%, 4% annual growth per year. So the next 10, 20 years, China is still going to be one of the fastest growing major economies in the world. And they will certainly benefit all sectors, especially travel. And particularly for travel, China Chinese probably will be the most traveled compared to other countries because, as I said, the infrastructure in China is actually well ahead of its peers because due to high speed railways and because the amount of money continue going to the infrastructure and because China the location of China, you have more a lot more interesting destinations around China and within China compared to the current leader in traveling the United States. So I think if you're talking about like the percentage of GDP people to travel, China is probably one of the, I think, on the high end. So that's why I'm still very positive about the overall economic growth and the potential for travel. And Ctrip certainly will leverage the scale of the Chinese travelers, the largest source of travelers and to not only to capture the Chinese traveling market, but also international travel market, including inbound market and other markets in other countries. So Ctrip is very strategically well positioned to capitalize on all these factors. Thank you. Yes. I will walk you through the revenue funnel for each. So our total net revenue is expected to grow at around 15% to 20% year on year. For each line item, accommodation reservation is expected to grow at about 20% to 25% and transportation and transportation revenues will grow at about 10% to 15% year over year. Packaged tour business will continue to have a healthy growth at around 25% to 30%. And corporate travel business will continue to grow at around 20% to 25%. Thank you. Thank you. Thank you for management. Very clear. Thank you. Ronald Turn from Goldman Sachs. Please go ahead. Thank you. Hi, James, Jane, Cindy and Victor, and congratulations on a very solid set of results. My question after revenue with your margins, can you share with us sort of your margin outlook for the Q4? And just really if you could share a bit of the color for 2019, given your mid term margin of 20% to 30% non GAAP target in 1 to 2 years? Just want to hear the latest thoughts on the margin outlook. Thank you. Thank you. In the Q4, we expect our non GAAP operating profit will be in the range of 0 to RMB100 1,000,000, implying a was mainly due to a couple of reasons. 1st, was mainly due to a couple of reasons. First, a worsened seasonality resulted from the new revenue accounting standard, because October holiday revenue previously recognized in the 4th quarter, but now largely in the Q3 already. And the second reason is also because of the macro slowdown, which impacted our revenue growth year over year. And also non GAAP operating expenses will be relatively stable, similar to the year 2015 2016 as opposed to the 2017 as opposed to the Q4 of 2017, which we had an unfortunate PR incident. So that's why we actually intentionally cut down our sales marketing spending about 15% quarter over quarter last year. So we will slightly increase our sales and marketing expenses in the 4th quarter to capture more market share. And in terms of our guidance for the 2019, maybe because with Ctrip app, customers' book a trip is now becoming very easier. The booking window for our customer is now becoming very short. And plus there also will be some short term uncertainty on the macro next year. So it's very, very difficult for us to provide a clear picture as to the absolute growth rate for next year at this moment. However, as James said, our clear is very our strategy is very clear. We have confidence in the long term growth of China's economy. Therefore, we will continuously make investments in our service and technologies as well as cost efficient sales marketing channels to further extend our competitive advantages and accelerate market share gaming, especially during the low tide. Thank you. Thank you. Mr. Gregory Zhao, go ahead, sir. Hi, James, Jane, Cindy and Victor. Thanks for taking my question. So first one is last night price line earnings sorry, bookings earnings conference call. The CEO mentioned he loves China and described how important China is for their growth. And he also mentioned your stake in Ctrip, Meituan and the recent investment in Didi. So have you seen any changes of your partnership with bookings or some changes or updates to the competitive landscape? And my second question is, can you give us some updates of the hotel take rate, so especially in the higher tier cities and the low end hotels, respectively? And was the industry trend of the take rate? Thank you. Thanks for your questions. For the price line investment in Ctrip and our partnership with them, we always highly respect our partner. I think in the past, working with the best in the industry in the hotel business really help our team to learn from the best and our partnership with them always are very engaging, and we have very high respect for them. And going forward, I think our team will also use our strength, which is a one stop shopping platform and also the excellent customer services to further penetrate into the market we have. And regarding the take rate, I think it's holding very steady. Thank you very much. Thank you. Ms. Alicia Yang from Citigroup. Please go ahead. Hi, thank you. Good morning, James, Jane, Cindy, Victor. Thanks for taking my questions. I have some follow-up questions on the margins. So Cindy, if you can clarify that 79% gross margin, is that a new norm? And should we actually expect a little bit lower into the Q4 given your step up kind of like customer service quality? And how should we think about this line on gross margin? Should we actually expect that to gradually rebound? And then I think Jane on prepared remarks on the margin when you talk about the trailing 12 months GMV, you also talk about the non GAAP OP margins of 20%. Just wanted to clarify, are you referring to trailing 12 months, Ctrip actually achieved that 20% margin. And can we also expect that in 2019, we could also achieve Thank you. Thank you, Alicia. Yes, let me first clarify about the margin. So we are actually Jane actually talking about the 1,000,000,000,000 12 months GMV, which grow the growth rate is around 30% to the level of RMB690 1,000,000,000 level. And the margin non GAAP operating margin of 20% is only for the Q3 of 2018. In terms of the gross margin, so the decrease of gross margin is mainly due to a couple of reasons. The first is our service cost in relation with our customer centric initiatives to further enhance our service quality. And the second is because we opened a few new international call center this year to serve the increasing customer demand from our international market for trip.com and Skyscanner. And the third reason is mainly because of the seasonality reason. Given its peak season, especially for our packaged tour business, which has a comparatively lower gross margin and increasing revenue mix from certain packaged support business that we consolidated in the previous year also dragged down some of our gross margins in the Q3. In the future, we will continuously invest in service related technology and gradually improve our operational efficiency in the service center for both our domestic markets as well as trip dot com, especially after trip.com can achieve certain level of scalability in the newly established call center. However, it takes some time. So in the next couple of quarters, we forecast our gross margin will be in the range of 75% to 80%. Thank you. Thank you. Thank you. Billy Leung from Haitong International. Please go ahead. Hi, management. Thanks for taking my question. I just wanted to go into detail of our operating leverage. I mean, we've done well in quarter 3, but could we just go into detail of what we are doing to actually improve this operating margin? I mean, what kind of initiatives we're doing? That will be great. Thanks. We actually closely monitor our operational efficiency across all our expenses line items. For example, in the sales marketing channels, we have a very, very consistent strategy that we will look at investment ROI for each of the channels. So that's why make Ctrip when we acquire new users, our mobile customer acquisition cost actually is only a very small fraction of our customers' annual revenue contribution to Ctrip. Even though in the last couple of quarters, a lot a large portion of our newly acquired customer actually are coming from the lower tier cities. And we will our team will continue to work very hard to streamline our operation efficiency going forward. Thank you. Thanks. Thank you very much. Ms. Natalie Wu from CICC, go ahead please. Hello, Ms. Natalie Wu from CICC. Please go ahead with your question. Yes. Can you hear me? Yes. Yes. We can hear you, Natalie. Great. Thank you. Thanks for taking my question. Cindy, you just mentioned for the Q4, you expect 10% to 15% growth for the transportation business. But I thought about your transportation, 15% to 20% comes from ground ticketing, 20% from Skyscanner and about 20% from international flight excluding Skyscanner, all of the above growing at about like 30% year on year. So does that mean you expect no growth for your domestic flight business in the Q4? But as I recall, the change for the boundary rule for your domestic flight business actually took place in the Q3. So there should be no like a comparison issue for the year on year growth for that in the Q4, right? So just wondering what's happening here and how should we see the business going forward? And also my second question is about the recent hotel cancellation rule. I just saw you announced the cancellation rule last week. Wondering is there any impact on your P and L or the complete impact could be shifted to the hotel operators? Thank you. Thank you, Natalie. For the domestic air ticket, yes, we still although we have some negative impact on the revenues per ticket because of the change of our operation rules. We actually still see a quite healthy volume growth in the last couple of quarters. And we already for the domestic air ticket, our goal is to further strengthen our partnership with all the airlines. And at the same time, we see domestic air ticketing now becoming traffic source as opposed to our revenue contributor. For the second question regarding the cancellation rule, yes, Ctrip, although there may be some macro uncertainties, but what we observed is that Ctrip actually compared with the industry, Ctrip Business is much more resilient than the industry average for a couple of years. First, as I said, we have a very consistent and efficient customer acquisition strategy. And the second is, thanks to the best service platform we built, Ctrip's existing customer base actually is more toward mid to high end. And what we observed is our high end or higher tier city users hold up spending much better than lower tier cities, especially during macro slowdown. Therefore, Ctrip will continuously make investments in our service and related technology to further strengthening our leadership and very strong branding to be the best service provider. That's the background that we promote the cancellation rules. It definitely will have and already have some negative impact on our gross margin. As you see, our gross margin actually decreased a bit compared with last year. But we think this initiative is actually helping us to build a more solid foundation for our future growth. Thank you. Great. Thank you. Thank you. Ms. Wendy Huang from Macquarie. Please go ahead. Hi, management. So, couple of years ago, you talked about your long term, medium term GMV growth and also RAN growth can be at 30%. Yet, in past the 2 years, although as Jie mentioned earlier, the GMV growth remained healthy 30% rate, but the revenue growth has been persistently low, probably due to a dilution of the take rate. So is it fair to think that actually your long term revenue growth will be persistently low as 20% despite of the 30% of GMV growth outlook? And secondly, how will you kind of balance your spending amid the increasing, I would say, the macro uncertainties as well as the need for the long term growth sustainability? Thank you. Thank you, Wendy. Yes, in terms of the growth trajectory, mid to long term growth, although we actually had PR incident in Q4 last year and domestic air ticket revenue adjustment in the 1st 3 quarters this year. But yes, our 1,000,000,000,000,000 12 months GMV still grow at about 30% level. So at our top priority from now to the year 2020 will still be more aggressively outpace industry growth and gaining market share, given the huge travel 2020 GMV target is still we think is still achievable. And as I said, we will continuously to although there might be some macro slowdown or uncertainties ahead of us, but our strategy is clear. We see huge potential. We are optimistic on the future growth of China's economy. So that's why we will continuously to make investment in service, technology marketing channels to further expand our leadership in the market in travel market. Thank you. Thank you very much. Mr. James Lee from Mizuho Securities. Please go ahead. Thanks for taking my questions. Jane, I was wondering maybe you can talk about competition with Meituan a little bit And maybe you can talk about from their perspective, the subsidy strategy in high star hotels. Where are they now? Do you see a need to respond? And just curious why and why not? And can you also talk about your own strategy in the Lone Star Hotels? Kind of where are you now versus Meituan and do you need to step up the gas here? Thanks. Sure. I think we focus mainly on what our customer is looking for and develop our strategy really circling around our customer. So what we have seen is on our platform, our customers' age right now, 70% of our customers are below 35 years old. And the loyalty and stickiness have been increasing every year. And included in this portfolio, the customers that below 29 have been increasing from the original 30% to around 50% right now. So that is a very healthy migration from a pure business customer to a more diversified customers. So our number in the results also reflected our focus. So for Ctrip, our high and reliable service attract the business travelers very well as well as the middle to high end customers very well. And their contribution to our platform every year has increasing. Right now, we have seen on average 5,000 per year per person on our spending. And that number has been increasing year over year. That's a reflection of our strength. Secondly, our marketing strategy is also not only focused on the stronghold for Ctrip in the 1st tier cities and economic development cities. We also look at the other 3rd tier, 4th tier cities. So on Ctrip brand, as we disclosed, the year over year growth for volume is more than 50% in these low end hotels. So for us, the high end customers and 1st tier cities, we really win because of our one stop shopping platform and a strong customer service capability. For the 4th tier, 5th tier cities, we win really because we are very aggressive in penetrating into these new areas and we have seen very good results from these areas. And thirdly, I think our product is also very innovative. We sold such a comprehensive offer of different products. So when we launch high speed railway packages, these high speed tickets enable us to reach to the cities, which will take in the old days, maybe 4, 5 hours to reach. Now within 1 hour, 2 hours, our customer will be able to reach. So that gave us anchor for us to use our product as an anchor to effectively convert these customers onto Ctrip's platform. And we also have seen great results for that. So in summary, I think again Ctrip's strength is always technology investment, 1 stop shop platform, product innovation and strong customer service reliability. So these items year in, year out represent Ctrip's strength and will compete by utilizing these strengths. Thank you. And just a quick follow-up question, Jane. Thanks for your answer. So it sounds like you don't need to change your subsidy strategy or discounting strategy very meaningfully for high star hotels because you have a stronghold in that market in the low tier low star hotels because you have a strong value proposition there. Is that a fair assumption? And also secondly, maybe help us understand how your call center assets are actually very important and competitive advantage in high star hotels? Thanks. Yes. I think our team is very angel. We monitor the market very carefully, but we always compete on our strengths, which is we talked about the product offering, one stop shop, penetrate into the loan market through our product innovation. I think year in, year out, ever since we start our business, there were lots of competitors. And using price competition can weigh market share, but cannot weigh in the long term. So I think the we again, we will win the market and customer loyalty based on our strength of customer service, technology, investment, product innovation and service. Great. Thanks so much. Thanks. Thank you. Ms. Tian Hu from T. H. Capital. Please go ahead. Good morning, James and Jane, Cindy and Victor. My question is related to the accessibility of your services. Like James said, China urbanization is still has long way to go. And also, we have a lot of population to grow, 2nd baby, 3rd baby. And C chip services actually mainly are in the major cities. And like what we all know when we go to lower tier cities, you ask people what is the Ctrip, they may say in Chinese is the more of the shoes. So I wonder how Ctrip is going to making services accessible by those lower tier cities. And you have been doing some efforts in that front. I wonder if you can give us some elaboration or introduction in about your past efforts and the results as well as your future steps to increase your access in ability towards the existing population and the future growing population? Thank you. Thank you, Tian. So in the lower end of the market, given online penetration is still quite low. So at the current stage, yes, Ctrip's top priority in this segment was more aggressively as gaining market share. Even in the short term, it might be at the expense of taking lower take rate. As Jane explained, Ctrip actually our one of the competitive advantage for us now is to already build a travel super app in the China market. We have the most comprehensive product offerings, not only to cover the mid to high end of the market, but also we have like a ferry ticket, bus ticket, all kind of product that fits perfectly for those targeted lower end of the customer need. And Ctrip app now and according to our cohort data, we have been able to also increase on average travel spending for each year by multiple folds, resulting in our repeating customer accounts for more than 80 percent of the total transactions. And this one stop shopping center model, the super app model also significantly help us in terms of user acquisitions. So our mobile customer acquisition cost is only a very, very small fraction of our average annual commission we earned per user, even though most of the new users actually already coming from the lower tier cities, thanks to the very comprehensive product offerings that fits their demand. Yes, James? Let me just add one more thing. I think for lower tier cities, train high speed railway will be the most important transportation tool and the Ctrip is very well positioned to leverage strength in train products and the recently launched high speed rail tour products. As you know, Ttrip has the highest market share and fastest is still very fast growth high speed train, we launched high speed train tour product. Thank you. So, I think Okay. Go on. So in summary, by adding all travel related products and services into our Super Travel app, we will make sure that once our customer have the real travel demand, they will definitely find either Ctrip or ChunA will be their first choice. Thank you. Thank you very much. I will now hand the session back to Victor Feng for closing remarks. Please go ahead, sir. Thanks to everyone for joining us today. You can find a transcript and webcast of today's call on ir. Ctrip.com. We look forward to speaking with you on the Q4 2018 earnings call. Thank you, and have a good day. Thank you. Thank you. Bye. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Thank you.