eLong's CEO Discusses Q3 2011 Results - Earnings Call Transcript

| About: eLong, Inc. (LONG)

eLong, Inc. (NASDAQ:LONG)

Q3 2011 Earnings Call

November 14, 2011 7:00 PM ET

Executives

Guangfu Cui – CEO

Mike Doyle – CFO

Philip Yang - IR

Analysts

James Li – CLSA

Eddie Leung – Merrill Lynch

Ming Zhao – SIG

Fawne Jiang – Brean Murray

Muzhi Li – Mizuho Securities

Alicia Yap – Barclays Capital

Wendy Huang – RBS

Catherine Leung – Goldman Sachs

Operator

Good day to everyone and welcome to eLong's Third Quarter 2011 earnings report conference call. (Operator Instructions) I will now hand over the line to Philip Yang and I will be standing by for the Q&A session. Please go ahead, thank you.

Philip Yang

Hello everyone, thank you for joining eLong’s third quarter 2011 conference call.

Today, Guangfu Cui, our CEO, will make some remarks about the company’s performance in the third quarter 2011 followed by Mike Doyle, our CFO, who will provide additional detail on our financial results. Following their prepared remarks, Guangfu and Mike 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 current views and expectations with respect to future events and are not a guarantee of future performance. Furthermore, 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, which will be furnished to the SEC in connection with our press release and this call, for discussion of some of the important factors that could affect future results.

I will now turn the call over to our CEO, Guangfu Cui.

Guangfu Cui

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

In the third quarter, we continued to see our customers respond strongly to our market leading hotel network, easy-to-use hotel website, online eCoupon and new initiatives such as hotel Group Buying and hotel Last-Minute booking. Approximately sixty percent of our customers now book online at eLong.com and through our mobile applications.

We recorded a 42% year over year growth in hotel room nights to 2.7 million compared to 1.9 million in the third quarter of 2010. In addition, our net revenue year over year growth rate increased to 19% to RMB164 million during a quarter of difficult year on year comparison due to World Expo.

Our domestic hotel coverage network expanded 61% to over 23,000 domestic hotels as of September 30, 2011, compared to 14,300 as of September 30, 2010. In addition, eLong.com offers customers 145,000 hotels worldwide through our interface with Expedia. eLong.com continues to offer the largest number of domestic and international hotels for direct online booking in China. During the quarter, we launched a last-minute hotel booking model and upgraded our mobile phone offering with Hong Kong and Macao hotel inventory and train schedule information. In addition, we continued to promote group buying hotel products and our coupon program. To compete and win, we must provide customers with a broad variety of hotel products at competitive prices coupled with an outstanding user experience.

And, we have been improving our customer experience both online and offline. In the third quarter, we continued to upgrade our website and our call center continued its high quality service including receiving the China Best Contact Center award for the fifth consecutive year.

Four years ago, when I became eLong CEO, my leadership team refocused the company on hotel business and shifted marketing online. It involved into what we now call online hotel strategy. Over the past four years, we stick to this strategy and turn around the company.

As we think about our plans for 2012, we will continue to execute our online hotel strategy. We will continue to focus on hotel business, and continue to focus online marketing. Specifically, we plan to:

offer more competitively priced hotel products via innovative selling methods;

offer more domestic hotels;

aggressively attract online customers while striving to improve marketing efficiency; and finally

improve the online booking experience and overall customer service quality.

We remain confident and committed to our plans, and focused on achieving online hotel booking leadership in China.

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

Mike Doyle

Thank you, Guangfu. In the third quarter, strong online hotel performance drove an acceleration in our year-on-year net revenue growth to 19%.

Our hotel business benefitted from our continued investment in adding new hotel inventory, launching new booking models such as group buying, mobile and last minute and ongoing website improvements. Room nights booked through eLong increased 42% year-on-year to 2.7 million.

Hotel volume growth drove a 25% year on year increase in hotel revenue, partially offset by lower average commission per room night. Commission per room night decreased 12% year-on-year primarily due to lower hotel average daily rates as prices fell compared to higher ADRs achieved during Shanghai World Expo a year ago, the impact of continued mix shift to lower average daily rate hotels and the growth of our coupon program. Hotel revenue now represents 72% of our total revenues, which is an increase from 69% in the third quarter of 2010.

Air ticketing commission revenue increased 2% for the third quarter of 2011 compared to the third quarter of 2010, driven by an increase in commission per segment, which was partially offset by a 6% year-on-year decrease in air segment volume to 591,000. Commission per segment increased 8%, due to increase in air commission rates and an increase in the percentage of international air tickets compared to the same quarter of the prior year.

Other revenue is primarily derived from advertising on our websites and travel insurance and it increased 21% year-on-year for the third quarter of 2011. Other revenue was 9% of total revenues, consistent with the third quarter of 2010.

Gross margin in the third quarter of 2011 was 73%, which was flat compared to the third quarter of 2010, as improvements from revenue mix shift to hotel and online fulfillments were offset by rising personnel expenses and lower hotel revenue per room night.

Total operating expenses increased 22% or RMB19.7 million for the third quarter of 2011 compared to the third quarter of 2010. Total operating expenses increased to 66% of net revenues in the third quarter of 2011 from 64% in the third quarter of 2010.

Service development expenses increased 24% in the third quarter of 2011 compared to 2010, mainly driven by an increase in personnel expenses. We continue to invest in improving our online user experience and technology systems, as well as to expand our hotel coverage. Service development expenses increased to 16% of net revenues in the third quarter of 2011 from 15% in the same quarter of the prior year.

Sales and marketing expenses for the third quarter of 2011 increased 27% or RMB14.5 million over the third quarter of last year, mainly driven by higher online marketing expenses and increased hotel commission payments to third-party affiliates and distribution partners. Sales and marketing expenses increased to 42% of net revenues in the third quarter of 2011 from 40% in the same quarter of the prior year. We continue to invest aggressively in order to acquire new customers and promote our brand online.

General and administrative expenses for the third quarter of 2011 increased 2% compared to the third quarter of 2010, mainly driven by higher share-based compensation charges. General and administrative expenses decreased to 8% of net revenues in the third quarter of 2011 from 9% in the same quarter of the prior year.

Other Income in the third quarter of 2011 was RMB0.9 million, compared to Other Expense of RMB8.3 million in the third quarter of 2010. Other Income was comprised primarily of interest income of RMB7.2 million, partially offset by RMB5.9 million foreign exchange losses.

Income tax expense in the third quarter of 2011 was RMB2.9 million, compared to income tax expense of RMB2.6 million in the third quarter of 2010.

Net income for the third quarter was RMB9.4 million, compared to net income of RMB1.2 million in the third quarter of 2010.

Moving to our Balance Sheet, I’d like to mention that as of September 30, 2011, eLong held cash and cash equivalents, short-term investments and restricted cash of RMB1.9 billion or approximately US$291 million. Of this balance as of September 30, 2011, 86% was held in Renminbi and 14% was held in US dollars.

And finally, let me share with you our Business Outlook for the fourth quarter of 2011. We expect Q4 net revenues, net of business tax and surcharges, to be within the range of RMB143 to RMB155 million, an increase of 15% to 25% compared to the fourth quarter of 2010.

Ths concludes my remarks; and, Guangfu and I look forward to any questions you may have. Moderator, if you would now open the call for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from James Li, company from CLSA. You may go ahead and begin.

James Li – CLSA

Thanks for taking my questions. I was wondering how long do you guys plan to keep to keep on the coupon promotions going since I guess having a lot of success in that?

And also secondly, is there any way you can give us more color on success of the program? Are you seeing more success by certain geography, certain hotel segments, and I was just curious how you guys are doing into the repeating customer using a coupon? In other words, when the first time someone use the coupon, do they come back and use the coupon again? Thanks so much.

Guangfu Cui

Thank you. This is Guangfu. I’ll take you question, and Mike if you want to add later. The primary motivation behind our coupon program is to provide customers value by saving their money and introducing them to our market leading network of 23,000 domestic hotels, and continually enhance hotel booking websites. So this is where they kind of plan to encourage customer booking online. If they book online, then they save us in terms of call center operation costs. So, we want to incent customer’s direct behavior. So, this is a primary kind of motivation power to launch the program.

And we plan to continue to refine our coupon program to better serve the needs of our customers. For any marketing program eLong run, we want to measure on the marketing efficiency. And so far, we like to provide and – we have seen 60% of our customer book online now. We attribute part of this success to e-coupon.

So, our – that probably is the main purpose. We don’t want to comment competitor’s kind of actions on this. Mike you have anything to add?

Mike Doyle

We’re not prepared just to share the details with the coupon program by segment at this time.

James Li – CLSA

Okay. And Mike maybe this is as a follow-up. Is there anyway can help us on coupon versus the standard price. And also a different question, the last minute bookings. Is there any way you can help us understand which segment you’re seeing more traction, is the more the high-end or the low-end. People are seeing more interest and what kind of yield are you seeing versus regular booking?

Mike Doyle

On the first question on average discount on the coupon, we are constantly adjusting the coupon that we offer based on number of different factors and customer response. So I’d say it’s difficult to put an average there. On the last minute hotel booking, the last minute hotel booking is a new program for us. And so we’re currently in the stage now of adding significant amount of inventory. And so we’ve – we’re still expanding that network and it’s early to evaluate which segment is most appealing to.

James Li – CLSA

And Mike pricing on last minute booking versus regular?

Mike Doyle

No, it’s I think early to start talking about the averages during the Last-Minute hotel booking, but they are significant given the distressed nature of the inventory. So I think if there is a strong value proposition here, both for the customers receiving a big discount on the day on check-in, as well as a good benefit for our hotel suppliers helping them to distribute otherwise distressed inventory. The savings are significant.

James Li – CLSA

Great. Thanks so much.

Operator

Thank you. (Operator Instructions) Our next question comes from Eddie Leung and that he will be coming from Merrill Lynch. You may go ahead and begin.

Eddie Leung – Merrill Lynch

Hey good morning Mike and Guangfu. I have a couple of questions. The first one is could you guys give us more color on your Group Buying business, any operating metrics for example your number of deals, the proportion of geographic news coming from Group Buying? And then my second question is in addition to your Coupon program, any other marketing campaigns you guys are considering to do in the upcoming in the upcoming, let’s say in the upcoming months or in the upcoming year? Thanks.

Mike Doyle

I will take the question Eddie. The Group Buying products, we like it. And so when we launched Group Buying products, we also trying to eliminate some of the record package business. We have a small package business in the past where consumers can buy the, our products by themselves plus hotel.

So when we do the Group Buying, we limit these programs because we think Group Buying is a direct competition versus packaged business. So we focus on Group Buying. We launched the Group Buying business in Q1 and expanded offering in Q2 and Q3. Right now, we have close to more than 400 hotels on sale for every single day. And so we are a leading player in the group by product in China. Customer responding well to this proposition because normally the group by product systems somewhere around 30% to 50% discount.

And this is a secondary plan to continue the investment – invest behind. Current volume is small but quickly. And we have distribution partners with – which is a part of agenda. So we continue – we want to continue investing group buy, we want to become the leader for hotel group by product in China. The second question is talking about the other marketing, the other marketing we want to drive in 2012 are number one is trying to do to be more active in social network webcast.

So far eLong is a number one in terms of followers across all companies in China. So we have over 1 million followers in block, macro blog. We have over 1.4 million followers in tencent macro blog. We also have close to 2 million in part of tencent. So we have more than 12 million followers in China while the largest corporate follower in terms of follower member.

So we will continue to stress the as soon as marketing to get our learning’s and also trying to engage customers. We are micro microblog, Qzone et cetera and then we also want to invest heavily behind the mobile, trying to encourage customer with downloads and because this tool marking efforts, is another channel beyond the search we have been doing in the past four years. That’s all thank you Eddie.

Eddie Leung – Merrill Lynch

Thank you.

Operator

Thank you. Our next question would come from Ming Zhao of SIG. You may go ahead and begin.

Ming Zhao – SIG

Thank you. Good morning gentlemen, so I have one question about your the fourth guidance, so compared with third quarter you had a 12% decrease in ASP for the hotel because of the tough comparison, is this 12% disappearing into the fourth quarter, so that the major growth is coming from the volume that’s my question.

Mike Doyle

This is Mike. The 12% decline was in revenue per room-night, not in average daily rate. The decline in revenue per room-night was a result of three factors, so one was a decline in ADR as we count high prices during the Shanghai World Expo last year. But the other two are related to mixed shift to budget hotels and also the increased popularity of the coupon program.

So, moving into Q4 the only one of those three that goes away is the ADR comp with Shanghai World Expo, so we would expect to still see some pressure on revenue per room-night in the fourth quarter.

Ming Zhao – SIG

All right, okay. Thank you very much.

Operator

Thank you. Our next question comes from Fawne Jiang of Brean Murray. You may go ahead and begin.

Fawne Jiang – Brean Murray

Good morning Guangfu and Mike. My first question is regarding your margin profile. In the past few quarters we have been seeing pretty healthy margin expansion. For the third quarter, we see a little bit gross margin decline from Q2. Just wonder what’s the factor attributed to that? Also how should we look at gross margin going forward? Second question is regarding your sales margin expenses, uptake in sales marketing in the quarter. Also wonder what has driven that and was the company’s sales and marketing budget for fourth quarter and potentially for 2012?

Mike Doyle

Let me take the first question on gross margins. So over the past few quarters we have seen gross margin expansion on the back of two positive trends in our business, mix shift to higher gross margin hotel revenue way from (inaudible) and mix shift to online way from offline.

In this quarter, actually over the last several quarters we have always, also seeing an offsetting factors from increased wages and lower hotel revenue per room night. Over the past several quarters, the positive trends of mix shift to hotel and online are more than enough to offset the wage increase and the decline in hotel revenue per room night.

In the third quarter, they were about equally offsetting our gross margin year-on-year was unchanged. The quarter-on- quarter gross margin at the same factors of late, but there’s also some seasonality in Q3 as we ramp up, the staffing in the call center exempts of the October holiday.

Fawne Jiang – Brean Murray

Got it. How much is the sales and marketing expenses are going forward? Also what has driven to the higher sales and marketing expenses in 3Q?

Mike Doyle

Yes. In the third quarter, we continue to see the increasing costs in the competitive environment in most of the channels to participate in. We also saw an increase in our commission space to affiliates to distribute our hotel products. And we’re seeing some of our fastest rates of growth in some of the more expensive marketing channels, but we remained very committed to our strategy of acquiring customers online, and we’re going to continue to spend heavily in driving online demand.

Fawne Jiang – Brean Murray

Got it, thanks. Got it, thanks Mike. Second question regarding your partnership with Tencent, also your partnership with (inaudible) on the Tencent side, like what’s the update on your current status? When do you expect like the volume or reservation from Tencent side could be materialized?

Guangfu Cui

Yeah, (inaudible). This is Guangfu. I’ll take your question. In third quarter, we started to cooperation with Tencent. We launched several key initiatives with the Tencent. The first line is to full integration of eLong hotel inventory on go.qq.com. This has finished and we started seeing orders coming in from this channel, and we worked together on group by product and that’s putting eLong hotel group by product added that into go.qq.com. We also see good orders coming from this channel. The third one is that the traffic from QQ.com travel tab redirected to trip.elong.com, this is been finished and fourth one is to cross promoting each other on microblog and for attracting followers in Qzone, this is also ongoing.

Next, we will start to cooperate mobile in fourth quarter on the QQ mobile platform; we have a lot of expectation, higher expectations for this mobile corporation going forward. So far, the volume is not matured yet, but we’ve continued forge ahead on corporation for our areas and we will keep you updated on our progress.

Regarding (inaudible), we have paid a very good and successful co-operation on group buy products and we’ve added eLong hotel group buy products into Nomi setting platform and got very good rewarding out of Nomi. We are always looking for new ways to cooperate with all our shareholders and trade partners and all kinds of partners. We will share more when we have new initiatives launched, thank you.

Fawne Jiang – Brean Murray

Got it. Thank you very much Guangfu. Last question, it’s actually regarding the information or revenue per air ticket. Just wonder, what’s the air ticket pricing track you see in October, as was seen early November and how that impact your information presentment in four Q.

Mike Doyle

I will take that, first comment on Q3 where we started pretty flat ticket prices year on year. There is some difference between domestic and international, but the net for the business was flat. We haven’t seen any significant change in our ticketing prices in October. So there is no really impact in Q4 based on ticket prices. I will identify that – last year in November, we made strategic decision to eliminate cash as a payment option in our Air business. And during Q4 this year, we will come out from under the year-on-year comp of that headwind.

Fawne Jiang – Brean Murray

Got it. Thank you very much.

Mike Doyle

Thank you.

Operator

Thank you. Our next question comes from Muzhi Li of Mizuho Securities. You may go ahead and begin.

Muzhi Li – Mizuho Securities

Hi Guangfu and Mike. Thank you for taking my questions. First question is – can you (inaudible) about the last minute booking price, how much percentage of the hotel network has been drawing this program, and how would you like to further launch this without going to conflict with the group buying network. Thank you.

Mike Doyle

Yeah, let me take your question. The last minute hotel product is very unique, that you can only book the product via our mobile applications and via call center. You can’t see the price on website, so that hotel has a channel to really kind of sell their distract inventory at the last minute nature. So normally hotel start to sell the last minute inventory from either 12 o’clock noon or 4 o’clock or 6 o’clock depends on the hotel.

So it’s not available if you book in advance, which is like most time they’re group by product nature of that people are actually finding a leisure travel to a destination they want book they have to first buy the group buy and then also book online. So then for the last minute it’ likes you’re arriving at you haven’t really booked your hotel yet, all you’re seeing that same city a big city like Beijing that is you work late and you’re going back to your home, which will take long time then you want to stay in a hotel. So it’s that pretty encouraged that same basic consumption, which just attract a new customer demand into the hotel product.

So overall the last minute has a strong value proposition that is customer get up to 30% to 50% off there are normal price, the hotels was able to sell their distressed inventory otherwise they got zero inventories, zero revenue out. So it’s a strong value proposition to customer and to hotels and eLong is the first one launched its product in China with unit, so far we have more than 1,200 hotels participating we try to refine the product so that we can tailor to the customer needs for the last minute nature demand in terms of group buy while the feature you eLong launched, which is the really first one eLong again innovated in this space that customer no longer need to talk to hotel to reserve or book the group buy product, they actually can book, eLong provide online booking feature for the group buy product eLong launched, eLong is the only one in the market doing that so customer don’t need to connect with the hotel, they can just go to eLong group buy product website and book online.

So the group buy nature is really going into the leisure destination you book at about , but you don’t provide very convenient booking methods for your, so it makes your travel very easy, we simple and save you a lot of money. So these are really two different products and we like both products and we want to continue invest behind it.

Muzhi Li – Mizuho Securities

Thank you very much for that very detailed introduction. I would also like to ask a follow-up question on the Last-Minute booking. How much entry barrier do you think that this Last-Minute booking you can enjoy in the future? For example what if other competitors start to roll out similar issues, what is entry barrier? And also how many hotels has joined this network?

Mike Doyle

Yes, we have more than 1,200 hotels already joining the Last-Minute program and we want to keep adding hotels and in terms of the entry barrier the eLong strength really there are several costs eLong enjoy, number one, we have a large sales force in the field so that we know the hotels better and we know the inventory, we know which hotel has events they wish to sell, we know that, what kind of products sells for the best of the consumer.

And that’s what we launched the Group-Buy and several payers also do Group-Buy. But eLong did the best because our largest hotel network, the relationship we’ve built over the years and the strong sales force and to manage sales force, sales people we put (inaudible) closer to the partners. And another thing is that we really focused on the customer bookings period.

We took to heart, about the customer experience and that’s why we launched the online direct booking for the Group-Buy product and it’s a very dynamic market , there are a lot of players are trying to compete with us but the execution will be keen to the innovative set of methods we launched and so far we have been versatile group buy we have strong confidence we will be again leading the last minute that in China. That’s no doubt maybe just very confident about our ability to execute new innovative product in the market. Thank you.

Muzhi Li – Mizuho Securities

Great thank you very much. And keep up the good work.

Mike Doyle

Thank you.

Operator

Thank you. Our next question comes from (inaudible) of OZ Capital. You may go ahead and begin.

Unidentified Analyst

Hi, good morning. Thanks for taking my question. I have two questions regarding to your hotel rates, first is with the 12% decline in hotel commission. Would you be able to break it down how much is it driven expo. Gary over is that how much by the actual lower 80 out from venturing into a lower price rooms. And how much of that, is that from the cause of coupons. And second would you be able to discuss the average coupon cause as a percentage of the hotel revenue. And what was the actual coupon redemption ratio with the presumably you only put the cost when the coupon is actually relieved? Thank you.

Mike Doyle

Thank you for your questions. I think on most of those points that’s pretty competitive information to share. I think that what we can share on the revenue for (inaudible) of the same three factors that we have been seeing for several quarters which is mix shift budget decline in average daily rates and increase mix from our coupon program. We would expect the impact from decline in ADR to less than going forward. But are there are any changes in that microeconomic having past the export period.

On the coupon program, we’re not prepared to share the average discounts or the mix of remnants from the coupon program.

Unidentified Analyst

Okay, but would you be able to say now like how many of these coupons giving out actually have been redeemed, because I suppose you managed them incorrectly, you only put the cost against your ASP if the coupon is being used, right. So, I was wondering if there is like discernible difference between the utilization ratio of coupons between your business segment versus your bigger laser segment or otherwise?

Mike Doyle

Regarding the couple distribution and the redemption, our philosophy there is not to make a difficult to get a coupon. So, we want our customers to have the ability to use a coupon when they are ready to transact with eLong. So the redemption rate is not symmetric that we our tracking closely. We had now made is difficult to get a coupon. We do only record the cost when the coupon is used, actually when the customer checks out from the hotel, the order is confirmed and then the value of the coupon’s deposited into to the eLong account. So, yes the distribution of the coupon itself does not incur an expense.

Unidentified Analyst

I see, thank you very much.

Mike Doyle

Thank you.

Operator

Thank you. (Operator Instructions) Our next question comes from Alicia Yap of Barclays Capital. You may go ahead and begin.

Alicia Yap – Barclays Capital

Hi, good morning. Thanks for taking my questions. My question is related to you group buy business with this target you actually have been offering to your customer, wanted just to know if this more a permanent data you will continue to see a decline in the AST on the hotel commission rates for the industry going forward. And how do you see the potential of some of the individual group buy side opportunity in the hotel segment.

Guangfu Cui

Alisha this Guangfu, I will take your question, so for group buy as we have said that the discount is normally 30% to 50% of normal rate and its really depends on the hotel inventory, its again if the demand for the hotel is high and if the hotel has good occupancy rates.

Normally they don’t do this group buy products, so it’s kind of really depends on different hotels and seasonality. But I do see that as we have contracted 23,000 hotels in China and we have plan to keep hiring new hotels and the demand is very uneven spread across different hotels.

We do see the possibility that we are going always run through buy products because of this spread hotel inventory. So that’s the way we see the road and also we see consumers, really like this product, it is simple, there is no obligations ready for them to buy a package or complex we propose that, and lot of commitment really can, they are (inaudible) and normally this option good for one month or three months period and they can round it off very flexibily and they got good deal, so you said of buying tickets that the hotel together to make it cheap and they can really enjoy discounts by only buying a hotel product and buying with a option rather than a fixed commitment.

So which is a great value proposition for customers and great for hotel to sell their inventory. So, we want to continue to invest behind eight months to continue lead on these beyond continued innovates in certain formats.

We are not in a position to comment on other websites, they are individual but we want to partner up with all the people who want to sell hotel inventory in China, we want to make eLong the GDS, if I have to the word, of hotels in China that we want to, we are open platform , we are the vertical platform.

We have the largest hotel network in China, we want to make the inventory available to group buy back business and economy that’s of QQ, tuan.qq.com, like 350 buys those type of websites. They can use our group buy products and they can also use our agency inventories, if they want to make, had the great (inaudible) and for mobile and for hotel products, so, anybody can just plug and play and they don’t need to work with the field with tripping kind of resale in hotels in China, they don’t need to deal with the inventory and they can just be in a selling platform. So, those who want to partner with all these partners and potential partners, that’s what sell our inventory and make our hotel network really available to the hotel suppliers. Thank you.

Alicia Yap – Barclays Capital

Okay, thank you. Can I have one follow up on that you said right now, do you also do the group buy hotel discount for the international hotel and then lastly in terms of, whether you can share if there is any revenue sharing when you partner with like Nomi? Thank you.

Guangfu Cui

We do have a revenue share when we partner with some websites with purely Group Buy website, but 2Q (inaudible) like, that can’t be actually our markets. So they don’t very kind if asset assure revenue, but there is other form of payments incentive on to pay. But anything we want to distribute we want to share the benefit of setting our products while we are talking either through a commission share or other form of marketing costs.

And so that’s number one. Number two for the international supply it will be interesting. You are asking a very good question and it’s an interesting topic we want to study going forward. Thank you.

Alicia Yap – Barclays Capital

Thank you very much.

Operator

Thank you. Our next question comes from Wendy Huang of RBS. Can we go ahead with your question?

Wendy Huang – RBS

Thanks for taking my questions. First of all, can you give us revenue per room night difference among different hotel booking order? That is regular hotel booking order Group Buy and also Last-Minute?

Mike Doyle

Hi Wendy. This is Mike. Our room night per share is our average commission across the portfolio. It’s around 15% and it’s been very constant every time. I know our revenue per room night has been falling over the last several quarters for the factors that I mentioned, mix shift budget, decline in ADR and the expansion of the coupon program and those are the key drivers.

Wendy Huang – RBS

The reason I asked this question because you mentioned that you are trying to attract different kind of users. So I’m trying to get a price difference among three different models to see how different users that you are chatting and also I am trying to gauge the margin impact from negotiate from these three different models. So can you give some more color on that?

Mike Doyle

The GroupWise product it tends to have a lower commission rate that’s for true. And the Last Minute, we are still kind of experimenting the product not kind of finalized yet. So it’s kind of a testing mode and because we will need to fund the demand and what kind of customer like the product and how they buy that be an effort to serve. But for the group buy it’s quite kind of a straightforward and in margins has been stabilized at a certain level it’s lower than the agency hotel. But if we tend to provide less service to these customers it’s purely online and so it’s kind of easier and save us small cost in the operations side that all we share at this moment. Thank you.

Wendy Huang – RBS

Okay. Then for a group buy when you books are revenue, did you book the revenue net of 50% that share of partners or did you book the gross revenue?

Mike Doyle

We are just booking the portion of the revenue that we are keeping.

Wendy Huang – RBS

Okay. And then still regarding your coupon program shall we view it as long-term policy or permanent program from eLong, and also given the changing dynamic of the hotel booking market, do you have any plans to increase or the amount of the coupon that you are giving away?

Mike Doyle

Wendy in the long-term as somebody said, long term we all die, right so basically risk for any marketing program there is nothing permanent, right. So we have to -it’s a (inaudible) market that we understand what was to customers because this is really kind of a buzzed how to provide the best value to customers. If the customer is responding well, we have good marketing efficiency. We continue to do it. It’s passed to certain level of marketing efficiency then we will try to do something out, right. So nothing really kind of say this is going to be permanent. Short term is really based on the market demand and the consumer behavior. Thank you.

Wendy Huang – RBS

Okay. How many hotels covered by this coupon program right now or what percentage of the hotels are included in the program?

Mike Doyle

Right now, it is majority of our hotels, but it changes every time. We are constantly experimenting with the composition of the program, and it’s very much to the customer. I think having now – I have this coupon program for two years, we have been able to develop some pretty deep customer and program insights that we can use always to refine the program and to better serve the needs of the customer, which I think is strong advantage in our execution.

Wendy Huang – RBS

Okay. Finally, just to clarify that in terms of the ways that you recognize cost of coupon, it seems that you are always slightly different from your competitors. Are you recognizing cost of couple at a top line net of revenue?

Mike Doyle

Yes. The cost of the coupon is contra revenue. It has taken out of the revenue line, which has been the reason we’ve mentioned it in the declining revenue per room night metric that we share each quarter.

Wendy Huang – RBS

So, it’s always just affecting the revenue per room night, it will not have any impact on the margins?

Mike Doyle

It hasn’t impacted on revenue per room night. It does impact the margins that the fulfillment cost for transaction are unchanged by whether a coupon is being applied or not, so it does have an impact on margins, but the direct accounting is into revenue.

Wendy Huang – RBS

Okay thanks, that’s very helpful.

Mike Doyle

Thank you.

Operator

Thank you. Our next question comes from Eddie Leung of Merrill Lynch. You may go ahead and begin.

Eddie Leung – Merrill Lynch

Hey guys just a quick follow up. You mention that the (inaudible) in the industries are going up, so just wondering how many (inaudible) you have right now and how big is the call center? Thanks.

Mike Doyle

Yeah, we have around 2,000 employees and that number changes with the needs of the business.

Eddie Leung – Merrill Lynch

Got that. Thanks.

Operator

Thank you. (Operator Instructions) Our next question comes from Catherine Leung of Goldman Sachs. You may go ahead and begin.

Catherine Leung – Goldman Sachs

Hi, good morning. I was just curious as to whether you’ve observed any correlation between your increasing online bookings, as a proportion of you total bookings and customers choosing lower price hotel, presumably as they have more information transparency and I got you’re less able to drive you customers to some of the higher priced hotels or higher commission hotels? Thank you.

Mike Doyle

We can say, we have found that online customers are better in forms and have a different set of purchase criteria, price being a bigger priority for customers online in general.

Catherine Leung – Goldman Sachs

And is there anything that you design into your website or any plan to design into your website, any mechanisms to sort of correct that type of behavior?

Mike Doyle

So basically online customers that the preventative, but I’d rather put it as value representative because we know how much hotel worth really and we have – kind of almost like a standard or benchmark to pay for hotel like, and how much. So, I see that when we see we’re providing a competitive price product at a good value like Group Buy or Last-Minute, a promotion, so they tend to refund very well. So its online customer tends to be younger, better, and better educated.

The online, they’re smart and the kind of – based on their own information searching, planning and they want to be master over their trip right so. They don’t want to be kind of feed information they want to kind of get the information by themselves. So it’s really truly, I’d call this group of customers value since they’ve price sensitive. So that’s the insight we’ve got from the online customer. Thank you.

Catherine Leung – Goldman Sachs

And can I just have a quick follow-up. Does it have any implications for how you’re I guess monetizing your hotels supplier base I mean obviously you have a very large hotel supplier network. Is this type of online behavior helping you to extend the monetization into, I guess for the long-tail and more fragmented hotels or are you seeing some concentration around say like top 20% or 30% of your hotel suppliers?

We’re constantly monitoring, about – the efficiency of all the utility of adding more hotels into the network. So far, we have seen very satisfied, satisfactory kind of result by adding hotels, we keep adding hotels and we’ll add to hotels based on the demand and so, that’s all we can share. Thank you.

Catherine Leung – Goldman Sachs

Okay. Thank you.

Operator

Thank you. Our next question comes from James Li, of CLSA. You may go ahead and begin?

James Li – CLSA

Thanks for taking my follow-up question. I just wanted to dig a little bit deeper customer acquisition cost. I was wondering have you seen any change to your pricing from Baidu and Qunar integration and/or if you haven’t are you anticipating anything in the future. Also any plans to work more closely, we’ll see company cushion for marketing? Thanks.

Mike Doyle

Yeah, thank you. Let me take your question. We after Baidu – kind of acquired a major stake of Qunar. We – as you know, are very concerned about our – the potential for viewers who are the monopoly from the Baidu and Qunar. We have seen Baidu and fairly displayed Qunar in such result and we want to get our message across. Baidu needs to really refrain from this monopoly power and display such results fairly.

We are, eLong is a large customer, both Baidu and Qunar, so they should treat us really fairly and we wish to continue and strengthen our corporation in the future, but we’re also working to diversify our marketing and debt channels including collaboration with other search engine being active social network websites and development of our mobile application to ensure online customers can easily locate our product offerings as – has a bigger percentage of this search volume is you can imagine price so that’s all we can share at this moment. Thank you.

James Li – CLSA

And just as a follow-up any additional collaboration or cooperation with your assisted company?

Mike Doyle

(inaudible) have been closely cooperating with and we having to continue our good cooperation going forward we collaborate not only we try to work with all people who has traffic in the troubled related sectors. Thank you.

James Li – CLSA

Hey great. Thanks.

Operator

(Operator Instructions). At this time, there are no more further questions. I will now turn the call back to the eLong management team.

Guangfu Cui

Thank you, moderator and thank you all the participants. Thank you for all your questions and we have no further comments and look forward to talking to you next quarter. Thank you, bye.

Operator

Thank you for participating in today’s conference call. You may now go ahead and disconnect. Thank you.

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!