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eLong, Inc. (NASDAQ:LONG)

Q3 2009 Earnings Call Transcript

November 23, 2009 7:00 pm ET

Executives

Mike Doyle – CFO

Guangfu Cui – CEO

Analysts

Eddie Leung – Bank of America/Merrill Lynch

Ming Zhao – Susquehanna Financial Group, LLLP

Zim Yin – Wisco Research

James Sullivan [ph] – Millennium Capital

Question-and-Answer Session

Operator

At this time, we have a question from Mr. Eddie Leung. Please go ahead, sir.

Eddie Leung – Bank of America/Merrill Lynch

Good morning, gentlemen. I have a couple of questions. First one is related to your decrease in commission rates on the air side in the third quarter, could you elaborate on this front? Are we going to see a downtrend in commission rates because airlines actually are cutting back their commission rates, or is it just a seasonality effect?

Mike Doyle

We did see a slight decline in air commission rates in the quarter. Our air commission per segment was relatively flat year on year. What we found is found the airlines in China seemingly managed to a revenue per segment target, so as ATDs, our average selling prices increased in the quarter, commission rates declined a bit. And this is a similar impact as we have seen in other quarters with commission rates offsetting changes in average ticket value.

Eddie Leung – Bank of America/Merrill Lynch

Understood. My second question is related to the recent snowstorm situation in China, have you guys seen any negative impact materially on your business? Thanks.

Guangfu Cui

Eddie, this is Guangfu. Basically what we have seen is a strong October. However, the demand from November did jump a little bit. So we aren't really kind of 100% sure contribute that to the storm but I think it does have some level impact. Thanks.

Eddie Leung – Bank of America/Merrill Lynch

Understood. I'll go back to the queue. Thanks.

Operator

Mr. Ming Zhao, please go ahead, sir.

Ming Zhao – Susquehanna Financial Group, LLLP

Okay. Hi, thank you for taking my questions. Good morning, Guangfu and Mike, congratulations on the continued profitability in the quarter. My first question is on the sales and marketing expense in the quarter. It seems like the percentage of revenue, it was up versus the second quarter. My question is how do you look at this ratio going forward, is this because of the eCoupon project you rolled out in the September month?

Guangfu Cui

Ming, this is Guangfu. Yes, we did increase our marketing spending this quarter versus the quarter two, the reason is twofold. First that July and August, we see a peak in demand especially for the summer holidays. So we increased our spending during this period. Second is that we launched eCoupon in September which really is a great promotion and we see a tremendous kind of response to this promotion. Once again as we see, once we give consumer meaningful saving and incentive, and customers respond very well for our promotion. So that is the key reason that we see the 4% increase in sales and marketing expense. Thank you.

Ming Zhao – Susquehanna Financial Group, LLLP

Then how should we look at percentage going forward? Do you have a goal in terms of the marketing and sales expense as a percentage of revenue?

Guangfu Cui

We want to maintain – right now, we see that we do need to invest in sales and marketing due to our brand awareness top of mind related our competitors. So we need to maintain a proper level of marketing expenditure. So we will manage our marketing channels very prudently so that we will be only investing those channels and programs that will generate meaningful returns for us. So that is our discipline going forward, but we don't have kind of a fixed percentage per se for sales and marketing. Thank you.

Ming Zhao – Susquehanna Financial Group, LLLP

Okay, understood. And then my second question is, Guangfu, you talked about your strategy to strengthen your power from the online bookings, can you give us an update about what is the percentage of your business that was from online and the percentage from off-line, how does that compare to the let's say the previous quarter versus the year ago quarter? Thank you.

Guangfu Cui

The online growth is a lot faster than the off-line and online percentage is about one-third right now approximately. And we think we will focus on going forward number one is to completely upgrade our website. You probably have seen that we have upgraded our homepage already and you have seen that you can see now eLong website is a lot faster than in the past, and our goal is for the remaining several quarters is to kind of continue to upgrade each and every single channels of our website, and make sure that our website is, the speed is within 3 seconds, loading time, and trying also to increase our availability time. So in the next two quarters, you will continue to see us kind of continue increase the consumer experience, transactions with our website is going to be faster, reliable and providing more information. So that is number one.

Number two is that we will continue to provide travel destination information, we have formed a great team to update our distribution channel. If you look at our website, we have a lot better travel information now versus before. And again in the next several quarters, you will see that our travel destination information will be more meaningful, more relevant, more intelligent, and tailor-made for our travelers. So that is our plan going forward to encourage customers to go to our website, search for information, transaction with us. And what is more, we will continue our coupon promotion to incent consumers transact with us online.

Our goal is very simple, to become the largest online travel company in China, not call center, but online travel company in China. Thank you.

Ming Zhao – Susquehanna Financial Group, LLLP

Thank you.

Operator

Our next question will come from Mr. Zim Yin from Wisco Research. Please go ahead, sir.

Zim Yin – Wisco Research

Good morning. My first question is, could you just talk about how much – profit margins of your hotel and air segments respectively, and would you see that margin will decrease because you continue to offer a discount coupon program? This is my first question.

Mike Doyle

Good morning. I will take that question. We haven't seen any material changes in our, in the commission rate on either of our products. Our hotel commission is in the range of 15% to 16% and our air commission the range of 5% to 6%. Even with our continued mix shift to the budget sector hotels, that actually does not provide, create any pressure on our hotel commission rate. Though the ADR is lower, the commission rate is in line with that of our broader hotel portfolio.

Zim Yin – Wisco Research

Okay, thanks. So my second question is that would you consider entering other segments of the travel industry such as package tours going forward? Or would you rather focus on air ticketing and hotel segments?

Guangfu Cui

In this quarter, we will continue our effort to make sure that we improve the customer experience in hotel and air bookings. But we do have plans in place to launch, we call it air ticket plus hotel room package, I wouldn't call it a group tour type of package, rather it is air ticket plus hotel room package. We do have plans to launch that in the next few quarters. Thank you.

Zim Yin – Wisco Research

So that means the expansion will focus on individual travelers?

Guangfu Cui

Exactly, what we call the frequent individual travelers. And it is very easy to book the air ticket plus hotel room package, there is not a lot of grand accommodations coming with it, such as the tour guide, offering meals, or whatever, local transportation, we don't do that. We just want to focus on line and focus providing customer a saving when they buy air ticket and hotel room product together from us.

Zim Yin – Wisco Research

Okay, great. Thank you so much. Have a good day, thanks.

Operator

And we have another question from Mr. Ming Zhao, please go ahead sir.

Ming Zhao – Susquehanna Financial Group, LLLP

All right, thank you. I have a few follow up questions, so the first one is, Guangfu, we noticed a lot of changes made by Expedia in their expansionary strategy, can you comment how those strategies helped eLong or vice versa?

Guangfu Cui

Yes, Ming. This is Guangfu. And related to Expedia strategy in China, as they are our controlling shareholder, we are not as management of the company, we're not in a position to comment their strategy here in China. But what I can tell you is that the recent acquisition Expedia of Kuxun, we view that as a positive for eLong because we can now work with another good company which is specialized in the metasearch area, and our marketing. And so we have already worked with them in the past and we will continue to work with them apparently more closely. We welcome that move from Expedia, and that will help eLong business going forward. So I think that is just good for eLong. Thank you.

Ming Zhao – Susquehanna Financial Group, LLLP

Okay, thanks.

Operator

No more further questions at this point. Pardon me, sir, we still have Mr. Eddie Leung from Bank Of America. Please go ahead sir.

Eddie Leung – Bank of America/Merrill Lynch

Hi guys. Just one question about the outlook, you guys mentioned the tick up in pricing trends on a year on year basis qualitatively, could you also talk a little bit about the pricing trends, both on air and hotel relative to the third quarter? Thanks.

Mike Doyle

Eddie, this is Mike. I'll take that question. So I did mention that we were expecting some improvements in the year on year declines in ADRs. Based on our current estimation of Q4 ADRs, that would represent an improvement, a positive improvement year on year – sorry, quarter on quarter versus Q3. And with our ACV, while we are seeing a positive year on year trend because of the spike in Q3, it is actually a negative quarter on quarter trend.

Eddie Leung – Bank of America/Merrill Lynch

Got it. Thank you much. Thank you.

Operator

Our next question will come from Mr. James Sullivan [ph] of Millennium Capital. Please go ahead, sir.

James Sullivan – Millennium Capital

Hi, good morning and thank you for the time to ask questions. We have seen a couple of the news reports as well as some comments from some of the education companies in China indicating that we are still seeing incremental school closures from H1N1. I was wondering if broadly speaking if you could give us an overview of what you're seeing right now and what the potential impact on your business is going forward, either positive, because it is getting better, or otherwise. Thanks?

Guangfu Cui

This is Guangfu, thank you for your question. Right now the situation is getting worse in terms of H1N1. And we haven't really seen a lot of school closures at large scale, but we do see that kind of spot, I would say like, if there is one student contracted H1N1, that class will be closed right now, and not the entire school. So that is what we have seen. So this type of handling is a little bit different what was before that one person contracted the flu, then the whole school shutting down.

So but we are monitoring the situation very closely and we are taking measures ourselves to prevent that type of situation happening in the company, but the flu situation does get worse versus previous quarter. And how that will impact the travel is remaining to be seen, but we do see, coupled with this snowstorm and also the H1N1 concern, what we have seen affecting in the market is November demand is significantly lower than the October demand, which we have seen a peak in October then is falling down. So we're kind of still monitoring the situation and hope that the situation is getting better and we will have another good month in December. Thank you.

James Sullivan – Millennium Capital

Thank you very much.

Mike Doyle

Moderator, any further questions?

Operator

Thank you, sir. There appears to be no further questions at this point. I would like to hand the call over to the eLong management team. Go ahead.

Guangfu Cui

This is Guangfu, and I would like to make a few kind of closing remarks. Thank you very much for supporting us, and I would like to reiterate the eLong's brand proposition. We have positioned ourselves as elong.com with (inaudible). And our target consumer will be generation young, so you will see us in the future moving most of our, pitting our products to made the demand of young generation. And the young generation, we think to attract them, we will be transacting online, and acquiring them online and retaining them online.

And as a result, we will see that we will continue our product offerings which is tailored to the needs of young consumers, being more competitive in the pricing and being – bringing more savings to the consumers. And with that said, that strategy going forward, which we are planning and we are trying harder online, and we are aiming and we are working very hard, and our goal is the same, we want to become the largest online travel company in China.

Thank you and bye, bye. Moderator, now we can close to call, thank you.

Operator

Thank you. And that concludes today's conference call. We would like to thank everyone for participating in today's conference. All lines may disconnect now, and good day to you all. Thank you.

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