eLong, Inc., Q2 2009 Earnings Call Q&A Transcript

| About: eLong, Inc. (LONG)

eLong Inc. (NASDAQ:LONG)

Q2 2009 Earnings Call

August 26, 2009 8:00 pm ET

Executives

Guangfu Cui - CEO

Mike Doyle - CFO

Analysts

Eddie Leung - Banc of America/Merrill Lynch

Catherine Leung - Citigroup

Question-and-Answer Session

Operator

(Operator Instructions). We have a question coming from the line of Eddie Leung, Banc of America/Merrill Lynch.

Eddie Leung - Banc of America/Merrill Lynch

Good morning, Guangfu and Mike. Just a couple of questions; the first one is regarding the increase in hotel commission rate. Could you give us a sense of the magnitude of the change? Are we talking about say, one percentage points or like more than that? I'm just trying to get a sense of the improvement in commission rate. Thanks.

Mike Doyle

Thank you. This is Mike. We haven't disclosed our commission rates revenue margin on the hotel product, but I can share with you that the increase has been around 1% that you mentioned, slightly less than a 100 basis points, that's how we track it. This is due to two things. One is improved relationships and negotiations with our hotel suppliers and the other is in some channels our commission per room night is negotiated on a fixed RMB basis. So as ADRs have fallen, the commission rate has increased.

Eddie Leung - Banc of America/Merrill Lynch

The second question is on the cost savings. I guess the management must be doing a very good job, however, when we look at the accumulations of platform or product development cost as well as sales and marketing. Are we seeing a sustainable level going forward or should we expect an increase in discrete items down the road when revenues improve?

Mike Doyle

I'll take that one, as well. I think the cost cutting and improved efficiencies that we've seen over the last couple of quarters are a function of two things. One is a very deliberate disciplined approach to cutting costs, so eliminating expenses where we don't see a pay-off. The other is from achieving operating leverage. So being able to support a larger business, a larger top-line with the same size installed base company infrastructure.

Definitely the early cost cutting is certainly easiest and we feel like we've done that. I think there are additional costs to be cut from our expense base, but more importantly any improved efficiencies going forward will come from improved operating leverage, so being able to do more with less being able to support a larger top-line. I do think we continued to demonstrate our willingness to invest. We are continuing to invest in our technology platform and we will continue to invest in growth of top-line through marketing investment initiatives.

Guangfu Cui

This is Guangfu. I also want to make couple of points here. First all, the cost cutting is mainly the savings from (inaudible) mainly from the elimination of the traditional membership card distribution locations. As I mentioned to you guys that over the past two years we have been removing most of this traditional card [decision] locations, so that we were able to save tremendous amount of money and we were able to move that money online, doing online marketing, while with the cost saving we have seen.

The other savings also really kind of make sure that our investment in this online marketing has good measures in term of efficiency, so we were able to control the efficiency. As a matter of fact that our total customer acquisition cost has been down significantly, so we were happy about that.

Operator

(Operator Instructions). Next question is coming from the line of Catherine Leung of Citigroup. Please go ahead.

Catherine Leung - Citigroup

I was wondering if you could discuss with us more on a competitive landscape, if you're observing any particular impact from various hotel alliances. That seems to be able to aggregate some inventory and help start-up some of the smaller travel agencies?

Guangfu Cui

Catherine, I'm not so sure about your question about this hotel alliances are you talking about GDS. Are you talking about like hotel group going direct by themselves?

Catherine Leung - Citigroup

As more kind of along the GDS type business model?

Guangfu Cui

In China, we haven't seen kind of a good pick-up in the GDS business because in China, if you look at eLong and Ctrip that we see occurring [closer to let say nicer] than hotel, but we don't see a lot of GDS they are occurring as many as hotel that we do. Because GDS require technology kind of connection with the hotels, however the deeper you go, the poor technology you'll get from the hotels. So it's very hard for GDS to connect with those hotels and to ensure the connection quality. So I haven't seen any kind of a good pick-up or momentum from the GDS. So that's my answer to your GDS kind of related competitive landscape.

Operator

(Operator Instructions). We have another question coming from the lines of Catherine Leung.

Catherine Leung - Citigroup

I also want to ask if you could share with us some of your latest thoughts on how the overall hotel industry in China is involving and what you see in terms of the capacity growth, particular for the (inaudible) cities like Beijing and Shanghai because, obviously, we've had some major international events there. What is kind of the near-term outlook, in particular for those cities and whether you'd see some natural kind of longer term pressure on hotel rates as a result of this pretty massive build of capacity in the recent two to three years?

Guangfu Cui

In Beijing, we do see that the high-end hotels build up slows down meaning that there are not so many new hotels being built at the high-end hotels. However, the budget hotels, let's say the high end than budget hotels, for example, the [eBis type of world] start to kind of build up and I will say that that we'll continue to build up in Beijing and in Shanghai. So the budget and also rightly speaking good business travel hotels, such as, [eBis type of world] will continue to expand in China. And, I think, there is still a lot space for them to expand.

In Shanghai, there are few new hotels at the hand being built up and that is prepared for the upcoming World Expo, which is targeted to attract 70 million visitors to Shanghai in 2010.

So in Shanghai, we are still seeing the new upscale hotel being built and in the rest of China, budget hotels is still being expanded and each chain is claiming to add 100 to 200 new hotels a year, as that was the plan shared by the top five chains.

Then in the third tier cities there are good hotels still being built and we're still seeing expansion in the third tier cities. So in China, it's quite different that I think in the upcoming so years there will be continued expansion of hotels, especially in the third tier cities and in the tourist destination cities. Thank you.

Operator

Thank you. We have another question coming from the line of Eddie Leung. Please go ahead.

Eddie Leung - Banc of America/Merrill Lynch

Just a follow-up on the customer number, could you share with us the customer number. I also want to see whether the reductions in sales and marketing has affected the increase in customer specs?

Guangfu Cui

We (inaudible), we don't share number of customers we acquired, but worth to say a year ago we have about in the same quarter comparison, we have 40% growth in new customers.

Operator

(Operator Instructions). There are no further questions at this time. I would like to turn the call back to the eLong management team.

Guangfu Cui

Thank you. We don’t have any further comments. Thank you for being on this call. Bye.

Operator

That concludes today's conference call. Once again on behalf of eLong, I would like to thank you all for your participation; you may now disconnect your lines. Thank you.

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