Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Qunar Cayman Islands Limited (NASDAQ:QUNR)

Q4 2013 Earnings Conference Call

February 27, 2014 8:00 p.m. ET

Executives

Jenna Qian – Head of Communications and IR

Chenchao (CC) Zhuang – CEO

Sam Hanhui Sun – CFO

Analysts

Vivian Hao – Deutsche Bank

Yuheng Fan – China Renaissance

George Askew – Stifel

Wendy Huang – Standard Chartered

Tian Hou – T.H. Capital

Piyush Mubayi – Goldman Sachs

Yang Zhao [ph] – CICC

Alicia Yap – Barclays

Henry Guo – ABR Investments

Jiong Shao – Macquarie

Operator

Hello and welcome to Qunar's Fourth Quarter and Full Year 2013 Earnings Conference Call.

[Operator Instructions]

I would now like to turn the meeting over to your host for today's conference, Ms. Jenna Qian, Qunar's Head of Communications and Investor Relations. Please go ahead.

Jenna Qian

Thank you. Good day ladies and gentlemen. Thank you all for attending Qunar’s fourth quarter and full year 2013 earnings conference. Qunar distributed its earnings release earlier today and you can find a copy on our website as well as on newswire services.

Joining me today, we have Mr. CC Zhuang, Co-Founder and Chief Executive Officer, and Mr. Sam Sun, Chief Financial Officer. CC and Sam will share our business updates, financial and operating highlights, and our brief outlook for the first quarter of 2014. After their prepared remarks, CC and Sam will open up the call for your questions.

Before we continue, I should note that the conversation today will contain forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. For an explanation of forward-looking statements, please refer to the section titled “Forward-looking Statements” in the press release we issued earlier today. Any remarks by the management on today’s call are made as of today, and Qunar undertakes no duty to update any forward-looking statements made on today’s call, except as required under applicable law.

As a reminder, this conference is being recorded. A webcast of this conference call will also be available on Qunar's IR website, investor.qunar.com or ir.qunar.com.

Now I would like to turn the call over to Qunar’s Co-Founder and CEO, CC Zhuang.

Chenchao (CC) Zhuang

Thanks, Jenna. Good day everyone. Thank you for joining Qunar's fourth quarter and full year 2013 earnings conference call.

I'm pleased to report that Qunar finished 2013 with another strong quarter of significant year-on-year growth across all of our business areas, with revenue growth accelerating to over 70% year over year.

From day one we set out to become the best travel platform in China. As a travel information aggregator with an open platform, we are leading the growth of the online travel segment, and we are naturally positioned to be the go-to site for the best product offerings and the most competitive price for Chinese travelers. Throughout the year we worked tirelessly to broaden our offerings and further enhance our service quality. As a user-centric company, Qunar puts our user right of choice at the heart of our business.

Providing user the most comprehensive product coverage continues to be our focus. Our product that's not -- for the products that's not online yet, we use our star system to bring them online. Because of that, we are able to offer the best travel deals in almost every product category. In 2013 we made a striking progress on that front. We now have over 84,000 hotels signed up directly on our sales platform, up from 70,000 in Q3 and 17,000 in Q4 last year. On mobile, we have over 100,000 hotels in total on site [ph]. Overall our search scope covers over 450,000 hotels. Travelers now have access to over 12,000 expert hotel reviews. Combined, our expert and user-generated reviews now cover 110,000 hotels in China and abroad.

We also launched a premium flight ticketing service called the Yushuan [ph] to meet most service-oriented travelers' needs. Yushuan [ph] offers speedy ticket confirmation in three minutes and 24/7 customer service. In addition, we recently established the new business unit for travel destination service, with the aim of building an efficient product sourcing network and continue to accumulate the essential content for travelers.

Our data and technology driven approach allow us to improve service quality for users in a more targeted and effective way. In our flight business, 58% of cancellations and refund can now be processed automatically. And we plan to increase this percentage further this year. We will apply the same approach to our other business line on a step-by-step basis.

We have seen great business results because of our focus on comprehensive product offerings, competitive pricing and high quality of service. In 2013, both flight and hotel revenue increased significantly, with TEHR at 16.1 million room nights and TEFT at 51.1 million, up 117% and 108% year over year, respectively. In particular, our international flight booking tripled last year. We are now the leading online booking platform for international flights in China.

As you know, over the last couple of quarters we have invested aggressively in mobile and expanding our range of service. New innovations like voice recognition for air and hotel search, a capability we co-developed with Baidu, are providing users with more intuitive way to engage with the Qunar platform. As a result, mobile's contribution to total P4P flight and hotel revenue increased to 18% and 36%, respectively, in Q4. We are also currently testing prioritized listing for high-quality travel service providers while ensure the best user experience.

As you may have seen in our press release, we also recently signed a US$300 million revolving credit facility with Baidu. Leveraging Baidu's knowledge and experience, we have already collaborated on a number of exciting initiatives in 2013 such as Zhixin and voice recognition. This credit facility is a further testament to Baidu's commitment as a long-term investment supporter of Qunar and will boost our liquidity when we need it. Sam will speak about this in greater detail in a moment.

In China rapid growing yet highly fragmented travel industry, our leading technology platform gives us a huge structural [ph] advantage. In addition, China online travel market penetration is still far below that of developed countries. These factors combined represents a tremendous opportunity for Qunar.

Our focus on developing the most efficient automated system and product sourcing allow us to offer high-quality service as well as greater selection of availability of travel service to users at the best possible rate. Our powerful open platform, for example, not only enables us to deliver high-quality user experience, it also gives us a structure cost advantage as more and more service migration. This cost advantage and our unique business model allows us to make healthy margin on our flight business and hotel business.

China's online travel industry is still taking off and we will continue to lay down the groundwork to become the clear champion in this industry. Therefore, as we head into 2014, we will invest more aggressively doing R&D infrastructure, our product sourcing network, and improved service quality through increasing the speed and flexibility of bookings.

For the foreseeable future we expect the market to remain highly competitive. I believe that our competitive leverage, clear strategic vision and relentless commitment to creating value to our users will help ensure our long-term success in this environment. I am confident that we have the right strategy and resource in place to maintain the strength of Qunar's leadership position and capitalization on the great opportunity before us.

With that, I will now turn the call over to Sam for the financial highlights.

Sam Hanhui Sun

Thank you, CC. And thank you again everyone for joining us for this call.

As CC noted, 2013 was a year of heavy investment in R&D headcount as we focused on expanding our offerings and service quality. In 2014 we will maintain this approach and invest even more aggressively than last year in R&D infrastructure and product sourcing network development to increase product comprehensiveness and improve service quality. With our already strong cash position, this US$300 million equivalent RMB three-year revolving credit facility agreement with Baidu that we announced today gives us liquidity on favorable terms to deploy in the areas I just mentioned where we may need it.

The credit facility includes a put option which gives us the option to repay the outstanding amount either in cash or in Qunar shares at the prevailing share price at maturity. The interest rate is calculated as 90% of the benchmark lending rate published by the People's Bank of China. Along with the Zhixin project, this is another example of how we are able to work closely with Baidu to further amplify our strategic advantages in the market.

I will now go through some select key financial highlights for the period. For our full financial disclosure, please refer to the press release issued earlier today.

For the fourth quarter of 2013, our total revenues were RMB251 million, up 74.2% year on year, primarily driven by P4P revenue growth. Total revenues for 2013 were RMB850.9 million, up 69.6% from 2012. P4P revenues for the fourth quarter were RMB222.7 million, up 83.8% year on year. P4P revenues for 2013 were RMB749.7 million, up 77.6% from 2012.

P4P flight and flight-related revenue for the fourth quarter increased by 77.6% year on year, reaching RMB159.4 million. This year-on-year growth was mainly driven by a 94.3% increase in TEFT, the estimated flight ticketing volume, and an 8.6% decrease in revenue per ticket. P4P flight and flight-related revenue for fiscal year 2013 increased by 79% from 2012, mainly driven by a 107.8% increase in TEFT and a 13.8% decrease in revenue per ticket.

P4P hotel revenues for the fourth quarter of 2013 increased 83.6% year on year, reaching RMB53.4 million. This year-on-year growth was primarily due to a 99% increase in TEHR, total estimated hotel room nights, and a 7.8% decrease in revenue per room night due to the launch of the company's hotel coupon program in January 2013. P4P hotel revenues for 2013 increased by 59.3% from 2012, primarily due to a 117.2% increase in TEHR and a 26.6% decrease in revenue per room night due to the hotel coupon program launched in January 2013.

Gross margin increased 0.5 percentage points to 79.8% for the fourth quarter of 2013, from 79.3% in the corresponding period of 2012. Gross margin for full year 2013 decreased 1.3 percentage points to 79.6%, mainly due to the increase in sales tax rate.

Net loss attributable to Qunar's shareholders was RMB121.6 million for the fourth quarter of 2013 versus a net loss of RMB18.6 million in Q4 last year and a loss of RMB48.8 million last quarter. The increase in net loss was primarily due to continued investment in product development and sales and marketing in order to drive business growth. Net loss attributable to Qunar shareholders for fiscal year 2013 was RMB187.3 million versus a net loss of RMB91.1 million in 2012.

Non-GAAP EBITDA, defined as net loss before income taxes, interest expenses, depreciation and amortization, further adjusted to exclude share-based compensation expense and non-cash expense relating to free user traffic contributed by Baidu, was a negative RMB46.5 million, equivalent US$7.7 million, for the fourth quarter of 2013. This can be compared to negative RMB1.7 million in the corresponding period of 2012 and a negative RMB18.8 million in the previous quarter of 2013. Adjusted EBITDA for fiscal year 2013 was negative RMB51.7 million, compared to negative RMB24 million in 2012.

As of December 31, 2013, cash and cash equivalents and short-term investments totaled RMB1.87 billion.

For the first quarter of 2014 we expect total revenue growth to be in the range of 65% to 70%. For your reference, Q1 2013 revenues were RMB182.7 million. This forecast reflects Qunar's current and preliminary view which is subject to change.

With that, we will now open the lines for questions.

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. [Operator Instructions]

Your first question comes from Vivian Hao, Deutsche Bank. Please go ahead.

Vivian Hao – Deutsche Bank

Thanks. Congratulations on a great quarter. I have three questions actually. The first one is, o the -- could you please give us an update on your group buying business and how the group buying room contribution to our total hotel volume? And also, do we have a target on that?

And second question is, what is the major components of RMB10 million other P4P revenue this quarter?

Third question is, the mobile contribution from both flight and hotel volume, if possible we can have a breakdown. Thank you.

Sam Hanhui Sun

Okay. For the group buying business, I think for Q4 it's still a small portion of the business. First, we mainly focus on the hotel group buying. That's today the, in terms of the room nights, hotel group buying is about 10% of our total hotel room nights.

For the other P4P revenue, those are mainly -- because the major P4P revenue line is flight, hotel and tour package and others. So when you refer to the other P4P revenue about RMB10 million, those are mainly tour packages and destination tickets for P4P revenues.

And lastly, for the mobile, in terms of the mobile revenue contribution, CC mentioned that on the flight business 18% of the revenues come from mobile, on the hotel business 36% of the revenue coming from mobile.

I can share with you a little more -- a little bit more information about the mobile. On the flight ticketing volume, in Q4 2013, the mobile contribution is 24%. On the hotel side, the, in terms of the room night, the mobile contribution is 37%.

Chenchao (CC) Zhuang

So about group buy, first of all, group buy is just a supplementary format for our hotel booking method, so it's just a small percent of our hotel room nights.

Second of all, we did hire a person from our group buy side and we organized ground sales force. But that ground sales force is not primarily focused on group buy. Group buy is just a format of the sales. This team is actually going to focus on the signing the merchants on destination area for destination service, since in last year Qunar never did a large-scale signing up of our merchants on the ground, and our sales platform has been developed to a stage that we decide to lay down more sales team on the ground to invite the merchants into our ecosystem. So that team is going to sign up with the local service on different formats, and group is just one of the formats.

Vivian Hao – Deutsche Bank

Great. Very helpful. Thank you very much.

Operator

Your next question comes from Yuheng Fan from China Renaissance. Please go ahead.

Yuheng Fan – China Renaissance

Hi, good morning. Thanks for taking my question, and congrats on the results. My first question is regarding the churn of the TEFT and the TEHR. It looks like TEFT growth has been -- accelerated in Q4. I wonder what the reason you have the acceleration. And secondly, for the TEHR, I understand there's seasonality over there, but it looks like from a hotel room night for Ctrip and eLong, their hotel room nights seem just down a little bit on Q4. I wonder if your bigger seasonality is because of your less coupon program during the Q4. Then I have a follow-up. Thank you.

Sam Hanhui Sun

So for the TEFT, I think it shows our platform power, with our technology and the business model, even we are already leading in the ticketing volume, we'll still be able to grow 100% in terms of the volume. And we certainly see in certain extent a sign of acceleration. I think that just shows how powerful our platform and technology advantage is. This is the actual result.

For TEHR, yes, we also, you know, hotel room nights have been down a little bit in Q4, that's the seasonality. At the same time, we still keep a very high growth rate.

I think the cash coupon has a very slight impact on our room nights because majority of our room nights are generally from the search business model, and the search business model is actually the benefit from the coupon price war, because consumer just did more comparison on different coupons and they just did more search and more click through our platform.

Yuheng Fan – China Renaissance

Thank you, that's helpful. And my -- I just also want to follow on your [indiscernible] business unit. You mentioned that you're hiring more sales force on the ground to source different service deal. I wonder if you can elaborate what's your pace for this investment this year and what kind of size for your sales team you are looking for. And other than the hotel group buy service, what other like local service you are looking for -- to expand into? Thank you.

Chenchao (CC) Zhuang

First of all, signing the local merchants including the hotel accommodations and also some, you know, like for example, theme parks, destination tickets, even certain restaurants in the destination area, like Lidja [ph] and Xiamen, those particular cities [indiscernible] for traveler services. I think we just want to provide a fuller type of service for travelers online, to be able to use our mobile kind -- all kinds of travel service if they needed. So that's our target.

And in terms of the size and investment pace, I think this year it's primarily investment cycle, we are going to add sales people to add content, and also we're going to develop some system to adapt to the destination service for the consumers.

I don't think it will contribute a bit in the revenue, but I think it will add a lot of content to our expectations and ecosystem, increase our mobile adoption ratio, and increase our mobile DAUs and AUs as well.

Yuheng Fan – China Renaissance

Thank you. That's very helpful. Congrats again.

Operator

Your next question comes from George Askew from Stifel Capital. Please go ahead.

George Askew – Stifel

Hi. Yes. Thanks. Congrats on a very strong quarter. Really two questions. One, can you just sort of talk about revenue per query type trends you're seeing both mobile and web?

And then secondly -- and secondly, the -- on the credit deal that you've got with Baidu, did you shop that deal at all with -- I mean obviously they're phenomenal terms, but I wondered if, you know, what sort of was the origination of that deal? Were you guys in the market for something or did Baidu approach you? And when do you realistically think you might draw it down, if at all? Thank you.

Sam Hanhui Sun

George, this is Sam. Regarding the revenue per thousand queries, for Q4 we have seen, generally speaking, increase of revenue per thousand queries in every sector except for the flight web. For the flight web, the revenue per thousand queries decreased a little bit from RMB251 in Q3 to RMB233 in Q4. For flight mobile, increased to RMB140, revenue per thousand queries. So flight mobile -- mobile flight is still lower than the web flight in terms of the revenue per thousand queries.

On the hotel side, web hotel revenue per thousand queries in Q4 was RMB886. And on the mobile side, mobile hotel revenue per thousand queries was RMB354. And we will -- actually for the revenue per thousand queries, such information, we understand that you guys are interested in such information, we will upload some key financial and operating data to our IR website afterwards.

Chenchao (CC) Zhuang

So for the credit facility, this is a deal approached by Baidu, and we indeed consulted some professional service firm in the market, and we don't think any other institution is going to provide us these favorable terms. I think that this just shows Baidu's support to our business and the long-term confidence to our future.

In terms of the draw-down expectation, I think we are operating in a strong financial balance sheet mode, so this is more likely to make us feel very confident to facing [ph] the further development of our business. And we currently do not have an expectation.

George Askew – Stifel

Got it. Thanks very much.

Operator

Your next question comes from Wendy Huang from Standard Chartered. Please go ahead.

Wendy Huang – Standard Chartered

Hi. First I want to get some clarification on your hotel inventory access. So out of the 250,000 hotels in your network, so what percentage do you have a direct inventory access? And also is there any difference in terms of the hotel inventory access on mobile in hotel? And in terms of the hotel booking on the mobile platform, have you able to actually compare your responding time versus other OTAs' mobile apps? Thanks.

Chenchao (CC) Zhuang

First of all, in terms of the inventory access, I think we have to define inventory access very carefully. Inventory access means we'd be able to book the hotel and have the reservation number. I think we'd be able to do that with -- by ourselves, direct connection, or with third party sort of OTAs. So with that, we have 100% coverage of those 250,000 hotel which we searched. All the hotels we search should be able to -- 250,000 hotels be able to book. So we have 100% inventory access.

And in terms of the inventory access quality in terms of confirmation speed, with our direct to sales [ph] platform, we are very fast. It's actually we can benchmark almost the first tier in the market with the mobile and PC almost the same.

For the third-party inventory, through OTAs including Ctrip and eLong, that's their performance, that also represents to our consumer experience.

Wendy Huang – Standard Chartered

Okay. And also on your mobile booking volume, I noticed that you have the official accounts on WeChat type of platform as well, and also you are working with Dianping [ph] type of platform. So I just wonder if there's any mobile booking volume breakdown between the bookings from your native app and also bookings from other mobile apps that you're working with.

Chenchao (CC) Zhuang

We never work with any mobile app actually. It's all the native app.

Wendy Huang – Standard Chartered

Okay. And finally, could you maybe share your thoughts on the call center or the custom service, what kind of effort will Qunar make going forward to improve that front? Thank you.

Chenchao (CC) Zhuang

So in last quarter we actually increased our investment on the technology platform, our call center. Currently we still have like 300 people call center to serve all this volume. And then our pick-up [ph] ratio on phone call is actually pretty high, it's like above 95%. And we developed all those systems, like auto cancellation, auto ticketing and auto refunding system to improve our consumer's experience and service quality.

As I mentioned in my previous script, we have already 50% of the refunds and cancellation has been conducted automatically. This significantly reduced our call center workload and improved our consumer experience.

And then this year we are going to continually to improve this automation percentage. We hopefully, most of the work in the end of 2015 will be conducted by the machines, not by human beings.

Wendy Huang – Standard Chartered

Okay. Thank you for that then. Just want to follow up on that. So can you maybe give us some update in that front, how do you compare to the global peer like Kayak [ph]?

Chenchao (CC) Zhuang

We are way advanced than them. I don't think they are comparable partners.

Wendy Huang – Standard Chartered

Okay. Thank you, CC.

Operator

[Operator Instructions] Your next question comes from Tian Hou, T.H. Capital. Please go ahead.

Tian Hou – T.H. Capital

Hi, CC, Sam. Congratulations on the good quarter. So I have several questions and I'm going to ask them one by one.

The first one is regarding your investment in 2014, so you mentioned that you're going to invest significantly in 2014 and from IT and R&D part and also investing in some business. So I wonder if you could give us some, you know, shed some light in that area. So what are specifically the area you're going to spend your money? And how much money you're going to spend? And after you spend all this money, what is the operating expense as a percentage of revenue going to look like in 2014?

Chenchao (CC) Zhuang

In terms of the spending direction, I think majority of the money we're spending on the tech knowledge and product sourcing network. And the primary target is to land grab. We would like to continue our high growth rate on the ticketing volume and the room nights and also our GMV on the total platform. So this is number one priority for our business.

Number two is going to be the revenue. I think in this early stage of the Chinese online travel business, we just want to make sure we are not under-invested. We want full investment mode to capture opportunity.

And in terms of the direction, number one is tech knowledge, since we will be investing heavily on sourcing more products on our platform and also to automate service which I mentioned in the previous Q&A, we are going to automate most of the service in 2014, hopefully can reduce our workload on the call center with much higher volume. So engineer side is number one direction to invest.

And second of all, we're starting to hire more sales people on the ground to add service provider on our sales platform, and this is the second direction we are going to invest. We are not going to invest largely on marketing because we think our products speak for themselves. So as you see, our marketing cost versus percentage of revenue has decreased year over year. I think this trend is going to continue this year. The most money we invest is going to be on product.

Tian Hou – T.H. Capital

I got it. So the second question is related to your mobile traffic. So I wonder, is there any mobile traffic coming from Baidu Maps or any Baidu mobile related product? That's -- and also how many total Qunar's mobile app downloads are there in the Android system, in the iOS system?

Chenchao (CC) Zhuang

First of all, we did get some traffic from the Baidu Maps, but that's very significant because majority of our traffic is mobile native app. And for native app, there's no traffic sourcing, it's all organic traffic. So primary of the mobile traffic is all organic.

Second of all, we don't think actually mobile download is an accurate data, so we never use it. It's only coming from some third party. The reason is actually no company can accurately know how much download they have unless consumers activated.

We did announce the mobile activated numbers.

Sam Hanhui Sun

Yeah, for our -- by the end of Q4 2013, the cumulative total activation for Qunar apps was 65.8 million. And of course we also discussed our total mobile users in our press release which is 53.8 million for the 12 months period ended December 31, 2013.

Chenchao (CC) Zhuang

As I mentioned, the company can only collect active device number, no company would be able to collect actually the download numbers. That's just impossible.

Tian Hou – T.H. Capital

Okay, got that one. So one more question, is regarding your headcount increase, and Q4 was like 2,585 versus 2Q and 3Q. And it seems like, particularly in -- versus 2Q. So I wonder, in the last two quarters, the headcount increase, was that purely due to your on-the-ground sales guys to recruit merchants?

Chenchao (CC) Zhuang

Actually the headcount increase is across the board and engineer is still the majority source of the increase. It's primarily due to the market landscape changes. And we think it's the online -- Chinese online travel penetration is speeding up and I think we should go aggressively to capture the market share, so we decided to increase headcount to capture it.

Sam Hanhui Sun

Yes. And also, Tian, for that one, of course for last two quarters the headcount increase was across the board for technology and engineers, for product managers, for sales people, et cetera. And looking into 2014, we expect that we will also increase the headcount to -- across the board including engineers, products people and sales people, in order to grab all the growth opportunities that may exist in the market.

Tian Hou – T.H. Capital

Okay. So one more question, is related to the cooperation between you guys and WeChat Payments. So do you mind giving us some update on the progress of -- on that front?

Chenchao (CC) Zhuang

We connected with WeChat Payments. WeChat Payment has great user experience. But our own payment gateway is still the primary payment method for our users. Both WeChat and Alipay contribute a small percent of our total payment method.

Tian Hou – T.H. Capital

I got it.

Chenchao (CC) Zhuang

By the way -- sorry. By the way, for our activated mobile devices, it's actually we're the number one in the market. The reason we did not say downloads is, I said, download is not accurate number. But if you measure any mobile KPIs by any aspect, we are always number one in the market.

Tian Hou – T.H. Capital

Okay, CC. Got it.

Operator

Your next question comes from Piyush Mubayi from Goldman Sachs. Please go ahead.

Piyush Mubayi – Goldman Sachs

Thank you. CC, Sam, congratulations on your numbers and your guidance for the first quarter. I have several questions to ask so I'll just go through them one by one.

The first is, could you give us some color around revenues from your OTA partners please?

Chenchao (CC) Zhuang

Piyush, for that one, I don't think there is any significant change compared to Q3. On the flight side, the revenues, there are mainly two types of revenues, revenue from OTA and revenue from airline direct. Revenue from OTAs are still majority, 70% to 80% of the total flight P4P revenue.

On the hotel side, we work with hotel direct, we also work with the OTAs. So for that one, the revenue from the OTAs again is still the majority part, which should be over 60% of the hotel P4P revenue.

And if we look specifically to the two biggest OTAs which are Ctrip and eLong, in Q4 their contribution to our revenue, each of them contributes less than 4% of the total revenue. And combined, they are less than 7% of Qunar's total revenue for Q4.

Piyush Mubayi – Goldman Sachs

Thank you. My second question has to do with the Zhixin cooperation agreement. Any color around that would be appreciated in terms of where you are, the sort of traffic you're getting from that. And also if I could extend that and if I could ask you about how much traffic you're getting or you've gotten from Baidu in fourth quarter. Thank you.

Chenchao (CC) Zhuang

Piyush, I will answer the second part. Regarding how much traffic we get from Baidu, well, first of course today, because mobile traffic is becoming more and more significant, so today, for Q4, mobile traffic accounted for 30.5% of the total traffic. So basically that means about 30% of our total traffic coming from mobile, almost all of them are organic, not really relating to Baidu that much.

Then we look at the PC traffic or the web traffic, that's only 70% of our total traffic. And for that part, we still need to buy traffic from Baidu. And the bought traffic we get from Baidu is about 10% of the total web traffic. And of course for other traffic from Baidu, we believe those are more brand-related because Qunar enjoys a good brand name and Baidu anyway needs to deliver us those traffic regardless of the investment from Baidu.

So we think the meaningful number here is we bought about 10% of the total web traffic from Baidu.

Sam Hanhui Sun

So Zhixin platform, it's average is on track. Baidu has delivered a portion of the traffic to us, and so far the traffic quality is great. We are happy with the results. We are continuing to working with Baidu to implement the Zhixin platform across the rest of the product category. And hopefully we will be able to fully deliver traffic near term.

Piyush Mubayi – Goldman Sachs

Thank you very much. And can I ask a third question relating to operating expenses? And this is directed to you, Sam. We saw Baidu talk about a massive increase in cost yesterday on the back of very, very strong top-line growth rates. We're seeing the top-line growth rate for you. Is there any meaningful change in cost patterns we should anticipate or factor in, in our models for you?

Sam Hanhui Sun

Well, as I just discussed, in Q4 and also in the next couple of quarters into 2014, we will invest aggressively in all the aspects. And when we talk about investment, we mainly refer to that we will hire more people, the engineer people, product people and sales people, to grow the business volume and market share as much as possible.

So I think this Q4 and next several quarters we will still see a fast increase of product development expenses, sales and marketing expenses, mainly -- sales and marketing expenses increased mainly due to more and more sales people there, not because we are spending more -- we are spending too much on the traffic acquisition side. And of course proportionately the G&A expense will also increase.

Piyush Mubayi – Goldman Sachs

Thank you very much, and congratulations again.

Operator

Your next question comes from Yang Zhao [ph] from CICC. Please go ahead.

Yang Zhao [ph] – CICC

Hello, Sam and CC, and congratulations to the solid performance in Q4. And I have a couple of questions.

The first is regarding the Zhixin platform, that we see that some cooperation have been brought on to the Baidu Maps, and did the cooperation was considered into Zhixin agreement?

Chenchao (CC) Zhuang

So Baidu Maps, currently it's not covered by Zhixin agreement and we are negotiating the -- we are negotiating the terms on Baidu Maps at this moment. So we will announce that [indiscernible].

Yang Zhao [ph] – CICC

Okay. And can we expect some further cooperation between Qunar and Baidu on other products that Baidu provides such as the wiki sites on some [indiscernible]?

Chenchao (CC) Zhuang

I think we have, you know, working with Baidu extensively. We, as a matter of fact, we have a team sitting at the Baidu office to looking for all sorts of the product integration opportunity with Baidu. If any significant deal is signed, we will announce that publicly.

Yang Zhao [ph] – CICC

Okay, thanks. Got it.

And a follow-up, just a quick follow-up, that is, can you shed some light on some progress on the Zhixin platform, for example, the page views that I think if I get the number correctly and the page views guaranteed by Zhixin platform is about 6 million page views per day, and what's the number now?

Chenchao (CC) Zhuang

Yes, as I mentioned [indiscernible] is on track. This is the beginning -- only the second month of the three-year contract. So the total -- the average page views per day is actually -- should be calculated in a full-year scope. I think the average is on track currently. A portion of the traffic has been delivered. And we have continued to work in order to get the full traffic.

Yang Zhao [ph] – CICC

Okay, got it. Thanks.

Operator

Your next question is from Alicia Yap, please go ahead, from Barclays.

Alicia Yap – Barclays

Hi. Good morning, CC, Sam and Jenna. Thanks for taking my questions. I have a couple of questions. One is that, can you share with us, is there any current transactions volume that is directly -- the access point that is directly coming from Baidu Maps currently? And if there is, are we charging or is there any kind of like revenue that is being generated? That's one question.

And then second is that, I probably might have missed it a little bit, and what are this $300 million line that you are getting from Baidu and what areas of the investment that you are preparing to spend? Is it something that we should look forward to it or is it more something that you want to be more flexible on your cash balance?

Chenchao (CC) Zhuang

So for the first question, currently Baidu has been sending traffic from Baidu Maps to our hotel search result page. So it's not that we have direct access from Baidu to transaction. It still has to go through our search experience. And the number of transaction volume is actually insignificant compared to our total business volume.

And for the second question, for the credit facility, it's just, at this moment, it's just for giving us more flexibility on our cash balance.

Alicia Yap – Barclays

I see, I see. And then if I can just ask last one question, is that, how much of the -- given you guided a very strong 1Q guidance, so just wanted to get a sense, how much of that you think is the benefit coming from the Zhixin agreement has kicked off in January?

Chenchao (CC) Zhuang

Well, I think you see that our Q4 growth is also pretty strong. That is without Zhixin. So I think it's mostly our platform momentum. And keep in mind, in our hotel, we are actually, in hotel direct business, we are also providing pretty aggressive cash-back on hotel direct [indiscernible] and group buy business model. And with considering all of that, we are pretty confident of our guidance.

Alicia Yap – Barclays

I see. Great. Thank you.

Operator

Your next question comes from Henry Guo, ABR Investments. Please go ahead.

Henry Guo – ABR Investments

Thanks for taking my questions. Real quick one. I think you guys disclosed on Q3 conference call that you are trending in dollars counter revenue from the hotel coupon rebate, coupon cash-back. So what's the value - what's the number for Q4?

Sam Hanhui Sun

Henry, this is Sam. First, for Q3, that number is -- that number was actually 29 million. That's counter revenue, meaning the hotel cash-back program expenses net of the gross revenue. And in Q4 it was about 10 million.

Henry Guo – ABR Investments

Okay, 10 million. So in Q1, you guys have any plan to increase the magnitude of this hotel coupon pricing kind of model? Because I'm thinking maybe $10 million in Q4, so that's a step-down from Q3 level.

Sam Hanhui Sun

Yes. I think you know, as I mentioned, in Q1 we have -- being aggressive on cash-back coupon and both in the agency model and group buy model. So we will expect the cash-back number will be increased. However, with everything put into consideration, we increased our revenue guidance and we are confident on that.

Henry Guo – ABR Investments

Okay, thank you.

Operator

[Operator Instructions] Your next question comes from Jiong Shao of Macquarie Securities. Please go ahead.

Jiong Shao – Macquarie

Good morning. Thank you for taking my questions. First, just following up on what Sam said about cash-back. Q4 cash-back was a lot lower than Q3. But I thought in Q4 there was double 11, double 12 promotions by some of your competitors. Could you just talk about sort of what were some of the reasons behind lower cash-back in Q4? And if you can broadly comment on just the competitive landscape, that'll be helpful as well. That's my first question.

Chenchao (CC) Zhuang

As I mentioned, we have the platform benefit from our natural [ph] business model, so we are kind of mostly immune from this price war. And we do not believe like double 11 to double 12 is a useful way for travel business, because travel business has a very different nature from the general grocery retail business.

So as Qunar [indiscernible] we never do this kind of things. And our way is to keep low price for 356 days for the year, and we're always the lowest price, very competitive rate, and that's increased our efficiency and automate our service quality to be competitive.

Jiong Shao – Macquarie

Okay, thank you. My second question is, how much of the traffic from Baidu is from Zhixin? Is there a number you can share with us?

Chenchao (CC) Zhuang

As I mentioned, a portion of the Zhixin agreement traffic has been delivered.

Sam Hanhui Sun

Well, Jiong, first, in Q4, Zhixin started from January 1, 2014, so in Q4 there's actually no Zhixin traffic, maybe only testing a few days, so that's really minimal for Q4.

Jiong Shao – Macquarie

Right. Sorry, that wasn't really my question. I was hoping to ask, what's the traffic now from Zhixin, the effect that you have seen over the last two months, how helpful incrementally for you from Zhixin. Is Zhixin already a 10% of the Baidu traffic? Or any rough number would be helpful I think.

Sam Hanhui Sun

Yes. As I mentioned, everything is on track. Baidu has delivered a portion of the traffic on the contract. We did not disclose any detailed numbers.

Jiong Shao – Macquarie

Okay. Thank you. My last question is, I see you are expanding into several travel-related areas or transportation related areas. One area is taxi area. Could you talk about in this areas what's your strategy? Are you -- try to be the platform partnering with the [indiscernible] out there? Or over time you think you may get deeper involved in this area? Thank you.

Chenchao (CC) Zhuang

Yes. I think our view is that we are going to provide full app service for the consumers on the trip. So that will be including many of the service overlap with local service. However, we are not going to be a local service platform and all of our business will focus on travelers' needs.

And particularly, as you know, for the taxi, we are currently working with DDQID [ph] and all sorts of the taxi calling service. At the same time, we actually have much more cities covered than DDQID [ph] because in many cities and small towns, they do not have a very advanced taxi -- local taxi market, but they do have needs for travelers to call taxi or even rent a car to go to the destination site. So we find the drivers directly on those cities.

So if you talk about the city coverage, we're actually much broader than any taxi calling service company. But our service is tailored to fit the travelers' needs. So we have very flexible way to provide the service by partnering with any major local service provider or do the service contract by ourselves.

Jiong Shao – Macquarie

Okay. Thank you, CC and Sam, for your comments.

Operator

We are now approaching the end of the conference call. I will now turn the call over to Mr. CC Zhuang for closing remarks.

Chenchao (CC) Zhuang

So once again, thank you everyone for joining the call today. If you have any further questions, please do not hesitate to get into touch with us. Goodbye.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Goodbye.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Qunar Cayman Islands' CEO Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts