Tuniu Travel Network, which focuses on the niche market of online leisure travel, is overtaking competitors during the mobile internet era.
According to its latest disclosed financial data, Tuniu (NASDAQ:TOUR), an online travel service provider set to go public in the U.S. capital markets, maintained rapid revenue growth in the first quarter of this year, achieving strong results in the increasingly important mobile revenue segment.
Although continuous technology investment, strengthened mobile R&D, and marketing efforts have affected Tuniu’s short-term profitability, industry insiders believe these investments will lay a solid foundation for long-term performance.
Overtaking on the curve
Tuniu is still cruising at high speed. The company submitted an amended IPO prospectus to the U.S. Securities and Exchange Commission (SEC) this Tuesday, showing that in the first fiscal quarter ended March 31, 2014, Tuniu’s total revenue was RMB 582 million. Compared to RMB 372 million in the same period last year, the first quarter of this year saw growth of over 56%.
In its main business segments, Tuniu’s group tour business revenue grew 56.9% from RMB 353 million in the first quarter of last year to RMB 554 million in the same period this year. Tuniu’s gross margin improved to 7.3%, up 1.1 percentage points from 6.2% for the full year of 2013. Gross profit surged to RMB 42.3 million, compared to RMB 26.4 million in the same period last year.
This is thanks to the vigorous development of overseas markets.
According to 2013 financial data, overseas travel transactions accounted for about 70% of Tuniu’s total transaction volume. The growing consumer spending power of Chinese residents has supported the expansion of the overseas travel market, benefiting Tuniu and other online travel companies. The rapid rise in demand in overseas markets has allowed Tuniu, which primarily focuses on outbound travel, to thrive.
Although affected by incidents such as the Malaysia Airlines MH370 event, Chinese consumers’ outbound travel demand weakened in the first quarter. However, reports indicate that its contracted amount growth in April has recovered to over 80% year-on-year, resuming high growth.
According to a report by iResearch, the transaction scale of China’s online travel market in 2013 was RMB 220.46 billion, a year-on-year increase of 29.0%; the revenue scale of China’s online travel OTA market was RMB 11.76 billion, a year-on-year increase of 26.2%. In comparison, the growth rate of traditional travel agencies in China during the same period was only 12.6%. The huge market potential of online leisure travel has made this sector a “hot cake” in the eyes of many enterprises.
The day after Tuniu’s financial report was released, Ctrip’s 2014 Q1 financial data was also quickly published. Compared to Tuniu’s 56% year-on-year revenue growth, Ctrip’s travel vacation business revenue in the first quarter of 2014 was RMB 259 million (USD 42 million), with only a 10% year-on-year increase. From another perspective, this may also be the main reason why Ctrip aggressively invested USD 15 million to acquire a stake in Tuniu.
Rapid growth in wireless business
Changes are also taking place internally within the online travel market. Tuniu’s steady and high growth is attributed to its rapid adjustment of business structure.
Relevant information indicates that since July last year, Tuniu Travel Network’s Website Center Wireless Product Department has gone all out to accelerate the development of the mobile website touch version, while also upgrading the features of the “Tuniu Travel” app client. This move has had an immediate effect. According to Tuniu’s online monitoring data, in the following three months, the proportion of users accessing Tuniu’s webpages via iPads and mobile phones peaked at 25%, and this trend continues to rise.
Tuniu consolidated the results of the above “improvements” in the new year. In the first quarter of 2014, orders placed via mobile phones accounted for more than 25% of total orders.
Sacrificing short-term profits for accelerated brand expansion
After years of rapid expansion, it’s time for the online travel market to reshuffle. Every service provider is striving to expand its influence, and Tuniu is no exception.
Tuniu’s brand recognition is gaining increasing acceptance. Tuniu’s investment in brand advertising has led to a significant increase in its “Baidu Index.” The “Baidu Index” is one of the most important statistical analysis platforms in the current internet and even the entire data era. This data can tell users how large the search volume of a certain keyword is on Baidu.
But brand and influence expansion come at a cost, and Tuniu has paid the price of short-term profits.
The amended IPO prospectus submitted by Tuniu to the U.S. Securities and Exchange Commission (SEC) shows that in the first fiscal quarter of 2014, while the company’s total revenue increased by 56.5% year-on-year, its net loss was RMB 62.8 million.
Large-scale promotional expenses have affected the company’s short-term profitability, but industry insiders point out that the current expenditures will lead to long-term benefit growth.
As of the end of 2013, Tuniu held RMB 420 million in cash, providing considerable flexibility for executing its expansion strategy. Furthermore, its planned fundraising of USD 120 million on the Nasdaq market will allow Tuniu to allocate more resources toward “expanding the market, increasing products, strengthening technology investment, and pursuing potential investment opportunities.”