eLong's (LONG) CEO Guangfu Cui on Q1 2014 Results - Earnings Call Transcript

May.15.14 | About: eLong, Inc. (LONG)

eLong, Inc.(NASDAQ:LONG)

Q1 2014 Earnings Conference Call

May 14 2014, 8:30 PM ET

Executives

Guangfu Cui - CEO

Rong Luo – CFO

Echo Yan - Investor Relations

Analysts

Alicia Yap – Barclays

Wendy Huang – Standard Chartered

Tian Hou – T.H. Capital

Fawne Jiang – Brean Capital

Yi Chen – Aegis Capital

Dick Wei – Credit Suisse

Roger Gu – SWS Research

Jiong Shao – Macquarie Securities

Eddie Leong – Bank of America Merrill Lynch

Shirley Li - 86 Research

Operator

Good day to everyone and welcome to eLong's First Quarter 2014 earnings report conference call. (Operator Instructions) I will now hand over the line to Echo Yan and I will be standing by for the Q&A session. Please go ahead, thank you.

Echo Yan

Hello everyone, thank you for joining our call. Joining me today, we have Guangfu Cui, our CEO; Luo Rong, our CFO; and Philip Yang, our Chief Accounting Officer. Guangfu will speak about the company’s performance, followed by Luo Rong who will discuss our financial results. After their prepared remarks, Guangfu, Luo Rong and Philip will be available to take your questions.

Before the management presentations, please allow me to read our Safe Harbor Statement. During this call representatives of the company will make certain forward-looking statements within the meaning of the U.S. Securities Act and the Securities Exchange Act. These statements are based upon management’s views and expectations as of today with respect to future events and are not a guarantee of future performance. These statements are, by their nature, subject to a large number of risks and uncertainties that could cause actual performance and results to differ materially from those discussed in the forward-looking statements as a result of a wide variety of factors. eLong undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise. Please refer to the risk factors described in our Annual Report on Form 20-F, as well as the full text of the Safe Harbor Statement in our Form 6-K, containing our first quarter unaudited financial results, for discussion of some of the important factors that could affect future results.

In addition, we encourage you to refer to any disclosures regarding eLong which may be made, from time to time, by our controlling shareholder, Expedia, Inc., which is a separately listed company on the Nasdaq Stock Exchange. Expedia files current, quarterly and annual reports with the SEC pursuant to the rules applicable to US domestic issuers, and Expedia filings can be found in the Investor Relations section of the Expedia website, www.expediainc.com/ir.

I will now turn the call over to Guangfu.

Guangfu Cui

Thank you, Echo. Hello everyone, thank you for being on this call.

In the first quarter, hotel room nights increased by 43% year on year to7.0million, and net revenues increased by 13% to RMB246million. Excluding hotel groupbuy business, our hotel room nights increased by more than 50% year on year. Hotel groupbuy business, as we have discussed with you in previous quarters, continues to face strong competitive pressures.

We continued to execute mobile hotel strategy in the first quarter. We have expanded leading domestic hotel network, which surpassed the 100,000 hotel milestone in April. In addition, we offer approximately 200,000 international hotels through direct connection with Expedia.

Mobile bookings were our largest hotel booking channel in the first quarter, comprised more than 40% of eLong brand room nights. Based on current trends, we anticipate them becoming the majority of total eLong brand bookings this year. Our cumulative mobile app downloads have now reached more than 60 million, and we believe we achieved more than 50,000 mobile hotel bookings on a single day in early May.

In the first quarter, we increased investment in product supply and technology teams. We also continued to invest in companies that improve our customer experience as well as that of our supply partners. An example of this is the Zhuzhe. Zhuzhe provides free cloud-based property management system for small and medium-sized hotels. Zhuzhe PMS provides direct connection capability with OTAs and other hotel distribution partners.

As some of you may know, most of hotels in China do not have a PMS to manage their business. Or if they have, the PMS is single PC based, cannot be accessed via mobile and other devices, the PMS cannot directly connect with OTA. We believe Zhuzhe will become a revolutionary force in the market to improve hotel management efficiency.

For the remainder of 2014, we will continue focused execution of our mobile hotel strategy. Our goal of market leadership in hotel bookings in China is unchanged.

Now, I would like to hand the call over to LuoRong for a review of our financial results.

Rong Luo

Thank you, Guangfu. In the first quarter of 2014, our year-on-year net revenue growth was 13%, compared with the first quarter of 2013.

In the first quarter, hotel revenue grew by 14% year-on-year, driven by 43% room night volume growth, partially offset by lower average commission per room night. First quarter commission per room night decreased 21% year-on-year, primarily due to growth of our coupon program and growth of lower average daily rate hotel room nights. In Q1, we continued to be aggressive with our hotel coupon program.

Hotel revenue was 78% of total revenues, consistent with the prior year quarter.

In Q1 2014, air ticketing commission revenue increased 12% compared to the prior year quarter, driven by an 8% increase in air segment volume and a 4% increase in commission per segment. Air revenue was 14% of total revenues, consistent with the prior year quarter.

Other revenue, which is primarily derived from advertising and travel insurance, increased 16% year-on-year for the first quarter of 2014. Other revenue was 8% of total revenues, consistent with the prior year quarter.

Gross margin in the first quarter of 2014 was 73%, compared to 75% in the first quarter of 2013. Gross margin decline was primarily due to a decrease in hotel commission revenue per room night.

Total operating expenses increased 32% or RMB54.4 million for the first quarter of 2014 compared to the first quarter of 2013, and increased to 92% of net revenues from 79% in the prior year period.

Service development expenses increased 51% in the first quarter of 2014, mainly driven by increased personnel expenses. Service development expenses increased to 22% of net revenues in the first quarter of 2014, compared to 17% in the same quarter of the prior year.

Sales and marketing expenses for the first quarter of 2014 increased 21% over the first quarter of last year, driven primarily by marketing expenses and increased hotel commission payments to affiliates. Sales and marketing expenses increased to 55% of net revenues in the first quarter of 2014 from 52% in the same quarter of the prior year.

First quarter general and administrative expenses increased 54% compared to the first quarter of 2013. General and administrative expenses were 14% of net revenues, an increase from 10% in the same quarter of the prior year. The increase in G&A expense was due to higher share-based compensation charges; excluding SBC, our G&A expenses declined on a year on year basis.

Net loss for the first quarter was RMB35.4 million, compared to net income of RMB2.8 million in the first quarter of 2013.

Turning to the Balance Sheet, I’d like to mention that as of March 31, 2014, eLong held cash and cash equivalents, short-term investments and restricted cash of RMB1.9 billion or approximately $309 million US dollars, substantially all of which was held in RMB.

Looking ahead to Q2 2014, we expect year on year net revenue growth of 10% to 20%.

This concludes my remarks; and, Guangfu and I look forward to your questions.

Moderator, please open the call for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin our question-and-answer session (Operator Instructions). We have a question from Ms. Alicia Yap from Barclays. Ma’am you may begin.

Alicia Yap – Barclays

Hi good morning Guangfu and Rong, thanks for taking my questions. I have a couple of questions. Number one is that can you clarify a little bit on your comment on for the first quarter the growth of the coupon program that contribute – is one of the reasons that contribute to the year-over-year declines on the commission per room night? And also you comment in to second quarter scene that you will be continue more aggressive on the coupon program. So can you elaborate a little bit, is it more on the amount of the discount or is it more on the wider scope? Thank you.

Guangfu Cui

Alisha I will take your question. This is Guangfu. What I am referring to is groupbuy business is facing competitive pressures, not the coupon. I think you have mixed the coupon with the groupbuy. The groupbuy business last year was, in first quarter was 15% of our business and this year was down to 10% of business. So that is a kind of a decrease year-over-year. So that’s slowing down the growth of our business. So going forward we still are foreseeing the pressure on the groupbuy business but as you can see groupbuy business is now a smaller portion of our business.

And I probably give you more color about the coupon, because in Q1 we saw the growth of our coupon program compared to one year ago, including the average coupon values and an increase in the number of coupon transactions in Q1 we have seen more coupons then last year. About specifics for Q2 which is more dynamic we probably we will adjust our coupon strategy based on the market competition so we cannot say that we are going worse or even going better. So we definitely will try our best to meet our profit hurdle we will be very competitive in [business].

Alicia Yap – Barclays

I see, that’s very helpful. And my second question is on, I think related to your recent announcement with the Tongcheng partnerships and I think that’s on the exclusivity that both of you will be cross selling each other products. So is there any change with from in the latter when Ctrip make an investment into Tongcheng, will there be any change in the future? And how long is this exclusive partnership that we actually signed on?

Guangfu Cui

Alicia, this is Guangfu the agreement is for a period of three years and it does not provide a contractual right of early termination. If there is a material breach of the contract then there is a damage cost providing for payment of RMB 30 million by the breaching party to the non-breaching party. We do recognize the risk created by Ctrip’s investment but we intend to fully implement the contract as of now. At the same time we continue to faithfully implement our portion of the contract with Tongcheng and monitor the situation.

So far Tongcheng has implemented the contracts. The cooperation has been live in mid-April and so the first step is Tongcheng has connected with our hotel inventory and we will – we are working to connect with Tongcheng’s attraction tickets and expect to launch it within the second quarter or end of the second quarter. So, so far that’s the development of the cooperation with Tongcheng. Thank you.

Alicia Yap – Barclays

I see. And can I just follow up on that. So with the connections on the attraction tickets and so they are connecting to our hotel inventory, is there any expectation that we expect that should bring into near the mid-year and starting in the second half of this year?

Guangfu Cui

Sorry, Alicia can you ask your question again?

Alicia Yap – Barclays

Yeah so I think with the benefit that we are now connecting on the hotel inventory, also the attraction tickets will we expect any benefit, that means increase of the volume for our hotel inventory volume coming from the Tongcheng partnership, is there anything baked into the second quarter guidance and should we expect anything more in the second half this year?

Guangfu Cui

Yeah so as the cooperation is live mid-April so far the Tongcheng hotel bookings have generated around 10% of our hotel bookings and our guidance for the second quarter already includes Tongcheng’s figure. Thank you.

Alicia Yap – Barclays

I see. Okay great. I will get back to the queue. Thank you.

Operator

Our next question is coming from Ms. Wendy Huang of Standard Chartered. Ma’am you may begin.

Wendy Huang – Standard Chartered

Thank you. My question is also about your partnership with other companies. Can you give us some update on your corporation with Tencent and also we noted that Tencent has opened up the level one access for this [inaudible] mobile traffic to lot of their industries. So are you actually getting the same access to Tencent traffic and the resources?

And secondly I noticed that your second quarter year-over-year guidance seems weaker than some of your major competitors, I just wondered is that more company’s specific reason or are you trying to be more conservative to may be affecting certain macro environment and related to that are you actually seeing the travel demand recently affected by any a macro impact such as secular downturn that’s going on in China at the moment? Thank you.

Rong Luo

Thanks Wendy I will take your question about the guidance and Guangfu will talk about our cooperation with Tencent. So our guidance today actually is quite our assessment, we have including a number of factors especially we have seen a continued decline of our hotel groupbuy business in Q2, and since then also seen more intensified competition environment in China mobile and online markets.

And as Guangfu mentioned just now we also have considered the contribution for our pass Q2 of our cooperation with Tongcheng. So our guidance in general is kind of our judgment based on what we know today. Well, probably I will hand over to Guangfu to talk about that Tencent cooperation.

Guangfu Cui

Yeah Wendy, I think you asked about the macro economy. I think our business is more impacted by the competition, market dynamics rather than the overall market economy. So I hope that answers your question about the overall economy impact for our business. Then regarding the cooperation with Tencent we, as of now we don’t have the level one access to Tencent’s WeChat of mobile business.

However, we do value Tencent’s investment in our business and continue to receive Tencent’s support in a number of areas, for example we advertise on a number of Tencent’s properties to drive mobile and online traffic. At the same time as you know Tencent has investment in many business as its own strategy evolves over time. We continue to explore new initiatives with Tencent. So that is all I can share with you as of now. Thank you Wendy.

Wendy Huang – Standard Chartered

Thanks Guangfu and Rong Luo.

Operator

Our next question is coming from Mr. Tian Hou of T.H. Capital. You may begin.

Tian Hou – T.H. Capital

Hi, Guangfu and Rong, thanks for taking my questions. A couple of questions. One question is related to the – okay sorry about this. You launched a hotel management system and cooperate with the vendor, Jiuyou. So I wonder if you could elaborate on that. And also the sales and marketing as a percent of revenue seems like an increased amount in Q1 and also other type of operating expenses. I wonder if you could give us some kind of guidance about the future how you are going to manage your operating expense, is it going to be much higher than last year because you are going to investing in mobile in groupbuy or is it going to be under some kind of control?

Guangfu Cui

Yeah let me answer your first question about regarding Jiuyou eLong has signed up 100,000 hotels and when we are working with their hotels most time our confirmation with the hotel is via fax or phone. As a matter of fact 50% of, 50,000 hotels eLong is the company to put this company online, the first time meaning that it has the digital like their information, they don’t have website, they don’t have a system and their contents are not available over the Internet. So we were – we are the first company to bring them online to sell them online.

However the connection with them is via a menu. So then we work with Jiuyou as we invest in Jiuyou and trying to improve the hotel management system. And so that eLong will be able to direct connect with the hotel and improve the confirmation speed to improve our customer experiences at the same time to revolutionize the hotel industry which is a very outdated and no system or very poor system. All the system cost the hotel a lot so then they work with Jiuyou and provide a cloud based property management system and which it can be accessed by market devices and Jiuyou has the mobile apps, the owner of the hotel can manage their inventory pricing and confirmation all that stuff via PC, tablets and mobile.

So it’s just market access so the hotel owner can manage their business anytime anywhere not just sitting in front of the hotel desk. And also that the PMS we’re able to support the hotel to not only doing the third-party distribution business but also enable hotels with sales direct because we have a better inventory better hotels management system and we can sell via WeChat with [inaudible] and other selling vehicles.

So this is from my point of view it’s going to be revolutionary to the hotel, small and medium sized hotel. And this stuff PMS not only it can manage one hotel but can manage a hotel chain. So a few hotel chains are already using this PMS system. In the past a hotel used to pay to use Jiuyou system but after eLong investment we want to give it to hotels free. So that’s the background for us to invest in Jiuyou and I think this is going to be a very good thing for the hotel and for the hotel industry.

So we happen opened it not only to connect with eLong but also make it available to other distribution partners like the FreeTrip, Qunar all players in the market it is going to be open PMS for all the hotels to use. So that’s the background for us to invest in Jiuyou and I think this is going to be a very good think for the hotel and for the hotel industry. So we happened to open it not only to connect with eLong but also make it available for other distribution partners like the FreeTrip, Qunar or all players in the market. It is going to be open PMS for all the hotels to use...

Rong Luo

And concerning to your question about our operating expenses, so thank you so much deploying our exchanges. So I – let me repeat it again for service and fee revenue we grow 61% in Q1 for sales and marketing expenses we increased 31% which is 55% net revenue compared to last year’s Q4 at 62%. So I think we have mentioned again our goal is to become number one hotel booking.

But we are in a very competitive market. That’s why we invest in our brand, product development and technology, all obviously are key focus. We are committed to building the eLong brand over the long-term and to expanding the status, we will remain competitive in this market spot and in general for Q2 we did not disclose any guidance on operating expenses but again we will make sure our spending trend can make our company remains competitive in market.

Tian Hou – T.H. Capital

Okay. So a follow up question on the first Jiuyou. So Guangfu among the 100,000 hotels out there and how many of them have already signed up with your Jiuyou system and how many of them are you are expecting to be on board. And what’s your goal at the end of the year.

Rong Luo

So right now because we just acquired this company and we just invested in this company and after our investment we will work with the management to make this system free and as a free system we will also simplify all the interaction so that, so far we have over 3,000 hotels signed up since that we have announced that this system is going to be free and we immediately say a lot of applications for this system. And I think the free is very helpful to the hotel industry and in fact for the small and medium hotel owners. And we expect back to sign up 10,000 hotels at the end of this year.

Tian Hou – T.H. Capital

That’s very helpful. Thank you.

Operator

Our next question comes from Ms. Fawne Jiang of Brean Capital. Ma’am you may begin.

Fawne Jiang – Brean Capital

Thank you for taking my questions. Good morning Guangfu and Rong Luo. First question regarding the pricing trends for both air and hotel, I think the commission for room nights for the fourth quarter on the hotel side was down 21%, so a fairly sharp decline and you mentioned that as a company saw that increased coupon and also a shift. I just wondered that can you give us any more color in terms of how much is roughly from the incremental coupon increase and how much is more from the mix shift to lower tier city and if there is any other factors driving higher deeper pricing decline year-on-year?

Guangfu Cui

Okay. So for the revenue per room night declined 21% in Q1 the majority of the revenue will come in from our coupon program. And we have also seen the reduction of ADR in Q1 is also around 2% down compared to 2% up in Q4. So that will be carried at the same time but as also mentioned we have some decline in the groupbuy business which is also part of the reason we have a 21% revenue per room decline, such though in Q2 all the same we are taking that change to our guidance. We’re also seeing our coupon program in Q2 [inaudible] and then it’s all those things have being considered we have released the 10% to 20% guidance up.

Rong Luo

So let me just add one more thing that if you look at our four star hotel and five star hotels we actually increased the mix by two percentage points year-over-year for the same quarter. So the mix to the lower end is no longer a major factor impacting the, either the revenue or the ADR, so it’s really kind of the overall decrease of ADR or the increase usage of coupon.

Fawne Jiang – Brean Capital

Got it. Just a quick clarification on that, you mentioned that the groupbuy bookings as a percentage of overall bookings especially declined to 10% versus 15% last year. As far as I am aware I think groupbuy business conventionally revenue wise tend to be smaller than the regular, I mean the hotel booking. So from that perspective I think a smaller groupbuy business should they help your overall pricing or just wonder where that this kind of – whether I am wrong in that assumption?

Guangfu Cui

Right. So yeah generally coupon out there, the group, the smaller the groupbuy business it tends to help our overall revenues per room night. However there are two trends working against us there is general reduction of the commissions for the budget hotel, so year-over-year and also there is increased usage of coupon, increase level of coupon in so for the – as a matter of fact we’ve observed quite aggressive couponing in the first quarter. So that’s why the revenue per room night is decreased.

Fawne Jiang – Brean Capital

Got it. On the air side as far as we’re tracking it seems like you have continued to run the air coupons throughout first quarter. However your air pricing was actually trending up year-on-year. Just wonder what has helped commissions per segment on the air side?

Guangfu Cui

Okay, so for air coupon we’re running relatively aggressively in the first half of the quarter. At the same time we have more air overruns in Q1, so that’s why they have helped us to increase a little in our air commissions in that segment.

Rong Luo

And also I think I want to add one point regarding the revenue per room night. We’re expanding our hotel network very aggressively. Compared with last year we actually doubled our hotel network. So the new hotels we’ve signed are mostly the lower ADR hotels. So that also in some degree contributes to this lower revenue per room night. Thank you.

Fawne Jiang – Brean Capital

Got it. Thanks Guangfu and Rong Luo. Second question is just regarding your overall, I think promotional or marketing effort this year and Rong Luo mentioned you will continue, that your committed and given the general competitive environment just wondered what kind of specific channel or resource you will allocate towards. Are we continuing to run the brand campaign or the resource were still largely more towards the coupon program?

Guangfu Cui

Yeah. So let me take a step back and explain how the management’s focus this year. So this year we’re investing a lot in the product and technology team and then we are also investing the sales and marketing. In terms of sales and marketing we’re investing in the mobile app download market which is one of the most important marketing channels for us now. And then we are still doing the online marketing like SEM with Baidu and work with search with the players in the market and we’re also running the offline marketing from time to time based on the seasonality and other factors. Thank you, Fawne.

Fawne Jiang – Brean Capital

Thank you, Guangfu. Last question is regarding your international business. Just wonder if there are any updates on your international hotel growth, any color will be helpful?

Guangfu Cui

Yeah. So our international hotel growth is very healthy and very strong. So we have world class international hotel inventory from our partner Expedia. We’re also over 10% of our international hotel product which is very competitive in terms of pricing in the market. However we don’t provide the numbers in the international hotel business as of now. So as it keeps growing at the time we’re ready to share with you the exact breakdown of the international hotel. Thank you.

Fawne Jiang – Brean Capital

Got it. Thank you.

Operator

Our next question comes from Mr. Yi Chen of Aegis Capital. Sir you may begin.

Yi Chen – Aegis Capital

Hi. Thanks for taking my question. Now that the rumored merger of the Ctrip and Qunar are – looks like it’s unlikely to come to any fruition any time soon. And Ctrip has been investing in several companies who are usually perceived as their competitors including Tongcheng and Tuniu. Do you think likely Ctrip might be interested in investing in you and if they are interested are you willing to take their cash?

Guangfu Cui

Yeah. I think we better question – this is Guangfu. We don’t comment on mergers rumors or speculation. As a team we’re 100% focused on executing our strategy to grow our business spheres and have managed, we remain excited and confident about the future of our business. I believe our current strategy is working. And the question regarding about our capital structure and ownership is best left to our controlling shareholder Expedia. I think they are in the best position to answer your question. Thank you.

Yi Chen – Aegis Capital

My second question is could you update us on the status of the legal dispute between you and Qunar?

Guangfu Cui

Yes. Regarding the legal dispute with Qunar, in April the Beijing’s first Intermediate Court have hearing of the merits in the Qunar case. We are waiting the court’s ruling and so that becomes better. Thank you.

Yi Chen – Aegis Capital

Thank you.

Operator

Our next question comes from Mr. Dick Wei of CS Company. Sir you may proceed.

Dick Wei – Credit Suisse

Hi, thank you for taking my questions. I have two questions, first question if you can give more details about your second quarter guidance, may be in terms of volume growth and the pricing trend as well as the coupon level what are your base case assumptions? That will be helpful and then I have follow-up thank you.

Guangfu Cui

Okay. So for the Q2 guidance I’ll try to provide very brief information. In the ADR perspective I have mentioned just now in Q1 we are seeing 2% decline and in Q2 it’s quarter-to-date similarly we are showing a similar trend with a little higher decline in the ADR side, all the factors are taken into our consideration. In the coupon we have answered just now that is quite anemic. We are [based] on our market competition to make changes. So we cannot give for any guidance of we are growing better operating growth. All of – when we look into our total guidance let me repeat my key consideration over here. We have factored in our continued decline of groupbuy and we have factored in the contribution from the cooperation with Tongcheng and we are also factoring the intense competition in this market. So that is our judgment based on what we know today.

Dick Wei – Credit Suisse

Okay, great thanks. And then secondly is that I guess you mentioned earlier about some of the spending in terms of the sales and marketing this year and I wonder may be some – if you can share may be from a traffic acquisition cost perspective per consumer do you see it more, is it cheaper or more expensive between a PCM Mobile, do we see any of the leverage maybe going forward as we move more into the to more of the mobile booking down the road like to towards the latter part of this year? Thank you.

Guangfu Cui

Yeah. So the trends that may go into mobile and as I’ve mentioned that 40% of eLong brands booking are coming from mobile now. As a matter of fact it’s more than 40% and we are seeing continued upward trend for mobile bookings. We expect that mobile booking will be more than 50% of our total eLong brand hotel bookings. So certainly the marketing dollars are allocating to drive download of the mobile app. And so that’s probably the only thing I can tell you that I couldn’t give you more of the percentage of our marketing dollars. Thank you.

Dick Wei – Credit Suisse

Okay. Thank you.

Operator

Our next question comes from Mr. Roger Gu of SWS Research. Sir you may proceed.

Roger Gu – SWS Research

Hi management, thanks for taking my question. Recently when I searched a hotel in Qunar website eLong’s cash coupon was not displayed in the results. But actually eLong provides the cash coupon in your own website. So I am just wondering what’s kind of reason behind it? And are there any changes with the cooperation with Qunar? Thank you.

Guangfu Cui

Yes, Qunar you know we have a legal dispute with them. They can as a market they can decide what they can display or what they don’t want to display. So we are working with them to display our coupon and apparently they have based on that kind of conditions we continue to work with them. But it’s not for eLong to display the coupon value in Qunar’s website. Thank you.

Roger Gu – SWS Research

Okay. So what’s the trend do you see from the competition at [Qunar] in last several quarters?

Guangfu Cui

Yeah so the business for Qunar has been, is to make from Qunar, the competition from Qunar is decreased year-over-year. So now Qunar is about 5% of our business and it used to be higher than that but it’s trending down in recent quarter. Thank you.

Roger Gu – SWS Research

Okay. Thank you it’s very helpful.

Operator

Our next question comes from Mr. Jiong Shao of Macquarie. Sir you may proceed.

Jiong Shao – Macquarie Securities

Good morning. Thank you for taking my questions, and I have couple sort of overall industry question. As you know the industry is changing very rapidly and there is consolidation talks between major players in recent months and also some of your peers having invested in as mentioned already in Tongcheng, in Tuniu and so Guangfu, I was just hoping you can share with us your view.

What kind of role would eLong play in the whole industry consolidation or investment in some of the smaller players? What kind of role will we play? And what’s your view as three years term from now what the landscape for the industry will look like? Do we still have more players or you feel like we have the right numbers just may be different players specialized in different sub segments and any thoughts would be very helpful, that’s my first question.

Guangfu Cui

Thank you. This is really my personal view but as long as we do invest, any technology at its early stage will still work; we are top players but as technology evolves the verticals become more attractive to consumers. So I would expect there will be [one] top players in the market and vertical either in the key vertical area in the travel industry. At eLong we have always aimed to become the number one in hotel booking in China. And if you look at competition it’s far formidable, you’ll have competitors that are terrific bigger, than you know or they have – their size of people or resources are better than eLong.

However if you look at the consumer experience in hotel booking it hasn’t really changed a lot over this past several years. So the consumer experience can be improved significantly by looking at the whole supply trend to make more efficient and so that’s why eLong invests in this company called Jiuyou and also other companies to enthuse the hotel industry by giving them better management support and that will enable them to sell – to connect roughly with OTH as we improved our efficiency to roll that cost and also to improve consumer experiences. So there is a lot to do in this area, so that when we look into that we see a lot of opportunities. And so we have as management team we have been monitoring the competition but we want to keep our eyes on consumers and serve our consumers better and also keep our eyes on the suppliers that would help and make their life easier.

So as long as we can improve consumer experience and also make our partners’ life better and ensure that we are providing unique value in the market and that we will bring in the revenue. Thank you.

Jiong Shao – Macquarie Securities

Okay. Thanks Guangfu, my question actually now is a follow-up on your answer then so, does that mean so going forward eLong probably will not focus too much on some of your like car rental, cruise or now on sort of hotel and to leverage perhaps some of your partnership partners to go after some of this peripheral travel related areas then?

Guangfu Cui

Yeah I think you are right that eLong is what I call it as two way open platform in that eLong will be this hotel focused, vertical focused on hotels, we will be the expert in hotel business in China and the we’ll provide our hotel inventory to all targets who to redistribute the hotel such as may be [inaudible] et cetera, et cetera, so that whoever wants to sell our inventory we would provide our inventory to them. And the way as we’ve also open our platform to accomplish the vertical standards such as Tongcheng sell attracting tickets, we also connect and sell the train tickets in our mobile app which is provided by a third party.

And we also plan to connect with taxi service, [inaudible] service and other periphery kind of survey in travel business. So that’s how we are thinking our business but our key focus we will invest our people resources marketing dollars to promote the hotel business. Thank you.

Jiong Shao – Macquarie Securities

Thank you, Guangfu for your thoughts.

Operator

Our next question comes from Mr. Eddie Leong of Merrill Lynch. Sir you may proceed.

Eddie Leong – Bank of America Merrill Lynch

Hi, good morning thank you for taking my questions. Two questions, the first one is more about your competitive strategy. Guangfu I remember when you launched that the coupon program one region among many it seems like company believes that consumers in China are still pretty price sensitive when they book for hotels.

And then recently we learned that it seems like you mentioned that you guys don’t think groupbuy business, you said attractive, at least for you guys. So my question is why do you think other coupon companies which are older in general look at this trend and they also take smaller commissions, would not take away pieces from more traditional OTA like you guys, if you still believe that consumers in China are price sensitive, it’s my first question.

And then my second question is more about housekeeping you mentioned that the company will continue to invest in R&D and in our talent, right. So just wondering what’s the headcount plan for this year and how many staff you have right now? Thanks.

Guangfu Cui

So I am not so sure I understand your first question, so can you be a little more specific about the, I think you are talking about the groupbuy versus coupon but I couldn’t really saw a direct message….?

Eddie Leong – Bank of America Merrill Lynch

Guangfu when you launched the coupon program one reason you believed is consumers in China are price sensitive right, so coupons would work. Then if you look at the coupon companies they are also offering pretty good terms on the hotel room nights, right? So my question is why do you think the groupbuy companies would not take away pieces from traditional OTAs if you believe that consumers are still price sensitive in China?

Guangfu Cui

Yeah so let me answer you this way that eLong we want to provide the broad-based selection of hotels. We have leading over the years, we have expanded our hotel network. We now offer over 100,000 hotels in China, so that one thing that are competing with.

The other thing we are competing with to provide competitive rates to our consumers. It doesn’t matter if agency that we – it just involved that we provide consumer coupon of groupbuy product we are offering to the consumers of the prepaid hotels rates to consumers. So we are working on all the different ways to improve our site competiveness. So we keep expanding the groupbuy hotel deals and so we are keep investing in this.

However we do recognize that that the competition from general groupbuy players are much more fierce such as the players at Meituan. I think Meituan is not only putting pressure on our hotel business but also a pressure to overall OTA business. So it’s a different business model. They attract different business players, I mean travelers, we are also very strong in the third tier and fourth tier business and very strong in mobile.

So a lot of things they are doing is as a vertical hotel player we feel the pressure, but also in our restaurants business in the movie theatre business and hotel business we all feel pressure from Meituan. So how to work with, to compete with them what we are doing is trying to use three ways of setting to compete with Meituan’s way of setting. We are using prepaid rates, we are using agency type coupon and also the groupbuy deals to compete with Meituan, one model is robust.

So we want to be competitively in terms of pricing but we are not only using one way to compete in business with Meituan. Thank you.

Eddie Leong – Bank of America Merrill Lynch

Got that. And then any update on the headcount plan would be very useful. Thanks.

Rong Luo

Okay. So since last year Q3 actually we have heavily invested in our technology people, PSG people and product people. So we didn’t disclose the exact numbers of that count. What I can tell you is the increase of headcount for technology and IT people in Q1 2014 is very high is much, is many more than what we had in last year Q1.

Eddie Leong – Bank of America Merrill Lynch

Got that, thank you.

Operator

Our next question comes from Mr. Shirley Li of 86Research. Sir you may proceed.

Shirley Li - 86Research

Hello, good morning thanks for taking my questions. I have two questions as well. First one is also regarding the industry consolidation. In particular your competitors acquired some large hotel wholesalers, have unnoticed any impact from your hotel supplier side in pricing negotiation with suppliers? And what is your strategy to deal with such consolidation?

And my second question is on that out of the total hotel booking volume in proportion how much is prepaid hotel versus postpaid hotel and what do you see the trend going forward? Thank you.

Guangfu Cui

Yeah we do see that we do notice that [inaudible] to hotels in the market so we are actually working with a lot of wholesalers in the market. There are many hotels in the market and we are trying to work with the wholesalers on such products and prepaid rate products from them. We don’t breakdown the – we don’t disclose the number of our prepaid hotel volume but we can tell you that prepaid volume are growing very fast in our business. Thank you.

Shirley Li - 86Research

Thank you.

Operator

(Operator Instructions) I will now hand the call over to the eLong management team for the closing remarks.

Guangfu Cui

Thank you and thank you all for being on this call. I don’t have any further comment and I look forward talking to you in the next quarter. Thank you, bye.

Operator

That concludes the eLong first quarter 2014 earnings report conference call. Thank you for participating. You may now disconnect.

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