Tongcheng Travel Holdings Limited (780) Earnings Call Transcript & Summary

Thank you. Good morning, and good evening, everyone. Welcome to Tongcheng-Elong's 2020 Fourth Quarter and Annual Results Conference Call. I'm Kylie Yeung, Investor Relations Director of the company. Joining us today on the conference call are Mr. Heping Ma, Executive Director and CEO; Mr. Julian Fan, CFO; and Miss Joyce Li, VP and Head of Capital Markets. For today's call, our management team will provide a review of the company's performance in the fourth quarter. Heping will walk us through the company's business performance for the past quarter. Joyce will discuss our operational highlights. And then Julian will address the details of financial performance accordingly. We will take your questions during the Q&A session that follows. As always, our presentation contains forward-looking statements. Such statements are based on management's current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, which may cause the company's actual results, performance or achievements to differ from those in the forward-looking statements. This presentation also contains some unaudited non-IFRS financial measures. They should be considered in addition to, but not as a substitute for measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of non-IFRS measures, please refer to our disclosure documents in the IR section of our website. It is now my pleasure to introduce our CEO, Hep. Hep, please go ahead.

Thank you, Kylie, and good evening, everyone. Thank you for joining our fourth quarter and annual earnings call. The past year was quite difficult and challenging for us as the COVID-19 pandemic caused prolonged [ challenges ] to the travel industry. However, we responded quickly to external changes with our strong execution capabilities to seize recovery opportunities as well as capturing and meeting users post-COVID demand. As such, we managed to deliver solid results for 4 consecutive quarters and even strengthened our market position in the online travel industry, especially in lower tier city. In the past year, our annual paying users increased by 1.8% to around 155 million compared with 152 million in 2019. Mainly thanks to our effective offline users acquisition initiatives, more efficient operating online platforms and enhanced products and services supported by our advanced technology. As mentioned in our previous calls, we saw the COVID crisis as a stepping stone from which we become a stronger company. The pandemic allowed us to reaffirm our strategic focus, and rethink our long-term brand strategy. In that effort, we launched campaigns to reshape our brand in an effort to build closer bonds with a younger generation of users. We believe the post-COVID period provides us with the best opportunity to strengthen our market position in lower-tier cities and strengthen our position as the leading travel brand there having a distinctive place in users' minds. Since the third quarter, we have been increasing investments in branding and marketing, and we will continue to increase such investments in 2021. For the past quarters, our strategic focus on lower-tier cities has helped us weather through the storm. And we believe it will continuously add to our growth for the coming years, given the resilience and growth potential that lower-tier cities have demonstrated in the midst of the epidemic. In the fourth quarter of 2020, our accommodation business maintained its leading growth momentum and continued to expand its market share in lower-tier cities. As we acted quickly to seize user's emerging demand for local and short-haul travel as well as exploring and responding to alternative consumption scenarios. In October, we combined our tourist attraction and accommodation business in the hope of achieving better synergies by further digging into users' changing needs after the pandemic. In addition, we have taken effective measures to acquire new hotel users from offline in the past quarters, which played a key role in our accommodation business expansion. We cooperated with the hotels to encourage their booking -- to book rooms via our platforms so as to convert offline users to online and bring offline users into our ecosystem. We also leveraged our huge transportation traffic to market our hotel products, which enhance the cross sales. These 2 measures effectively drove the user growth in our accommodation business. For the fourth quarter, our domestic room night saw an accelerated year-over-year growth of 21%, with an increase of more than 30% year-over-year in the lower-tier cities. In addition, by further digging into the underlying needs of our users and suppliers, we continuously developed and innovated our products and services, thus leading to an increasing contribution from value-add products and services in our accommodation business. We believe that -- we believe accelerating online penetration in lower-tier cities along with our strategic market positioning will help us mainly in a rapid growth position in the accommodation sector. The resurgence of COVID-19 cases in Northern China in late November have impacted our transportation business in the past quarter. However, we still managed to outperform the industry for the fourth consecutive quarter. Our air ticketing business saw around 5% year-on-year growth in domestic volume in the first quarter, mainly thanks to our continuous efforts in reinforcing our market position investing in the southwestern regions as well as in expanding user demographics such as students and business workers. As for our train ticketing business, we further refined our intelligent Huixing system by incorporating additional travel scenarios such as intracity travel needs, which required advanced technological capability as well as deeper cooperation with the supplier end throughout the year. Our Huixing system has demonstrated its superb value to users, especially at a time when the suppliers were intentionally reduced to combat the spread of COVID-19 pandemic. In the past quarters, we have seen strengthening volume growth in the bus ticketing business as we actively rolled out bus ticket vending machines across the country. In the fourth quarter, the growth further accelerated and the volume almost tripled year-over-year. Here, I would like to reemphasize the bus ticketing strategy -- positioning within the company. We see the bus ticketing business as a key channel to grow our user base, giving its sizable market capacity, but extremely low online penetration rate. We also see, it was an effective way to help us further penetrate lower-tier cities even into some countries. By the end of December, we had already brought out about 8,000 machines across the country. For the following quarters, we will focus on expanding our user base, fostering online purchase behaviors as well as improving purchase frequency via cross training. The COVID-19 has caused accelerating digitalization in various industries, especially in the traditional ones, which has created opportunities for internet platform like us. In the past quarters, we joined hand with many local governments and travel service providers to help them develop and operate online booking and service platforms so as to have them reconnect with tourists after COVID-19 and promote local economies by rejuvenating the tourism industry. In the meantime, we have observed that many companies became more aware of cash flow management and the expense control after the pandemic. With our well-developed technology and deepened relationship with TSPs, we believe we are well positioned to seize opportunities in the sector of corporate travel. Thus, we acquired corporate travel business in the fourth quarter and will develop it in the coming years with our extensive product offerings and technology expertise. The first quarter of 2021 has been very much impacted by the resurgence of COVID-19 cases in Northern China, which led to strict travel restrictions nationwide during the Chinese New Year. However, the bright side is the stricter travel restrictions and the countermeasures are conducive to containing the spread of the virus, and thus accelerating the release of pent-up demand for the following quarters. In the past year and the recent quarter, we saw local and short-haul travel has evolved into people's travel preference when restrictions are imposed to combat the virus, which, in turn, serve as a major catalyst for the growth of our hotel and tourist attraction business. Since the second half of February, we have seen an encouraging rebound in our business and the recovery is trending upwards. As pent-up demand is being greatly released with migrant workers returning to workspace and students returning to schools. Looking towards the year ahead, we are absolutely optimistic that this market rebound will accelerate in the second quarter, and we are well positioned to meet the industry growth with our strong execution capability, flexible operational strategy and more importantly, our strategic focus on lower-tier cities as well as empowering the travel industry with our advanced technology solutions. Before closing my speech, I'd like to thank our users for their unswerving support throughout the pandemic, our partners for sticking with us to conquer these difficulties and our diverse employees and management for their dedication and contributions during such a bumpy year. Last, but not least, I'm also deeply grateful to our shareholders for their strong support for us, and the confidence in our future. With that, I will hand over the call to Joyce. She will walk you through our operational highlights for the fourth quarter. Joyce, please.

Thank you, Hep. Normally, the fourth quarter is last season for industry compared with third quarter. After national holiday period, we usually see a natural slowdown curve. Moreover, the resurgence of COVID-19 cases in Northern China, which evolved into regional outbreak in December, had put a break on the recovery trend. Nonetheless, we still managed to outperform industry for the fourth consecutive quarter. In the past quarter, we continued to explore cooperation with Tencent to increase engagement with the users at different scenarios. Within the Weixin platform, our 2 portals in Weixin Payment will arrange on the category of travel plus transportation, which is more convenient for user to recognize, given the clearer visibility. Furthermore, we deepened the cooperation with Tencent exploring traffic within its ecosystem. We were the first one in OT industry to direct users to Weixin Mini Program from other platforms within Tencent ecosystem such as Tencent Music and Tencent Video. To reach out to Z-generation, we joined hands with QQ Weather for the first time and launched market campaigns to increase interaction with them. Through the weather portal QQ users can get access to our train and air ticketing services as well as hotel booking service in Weixin mini program. Besides, during the past quarters, we've been seeking new online traffic sources to diversify our traffic channels and have reached extensive cooperation with the China's major handset vendors and short-video platforms. In the first quarter, we further deepened the cooperation with the handset vendors and had our brand more exposed among their users, which have led to an exponential growth in MAUs of our quick APPs. We also signed a strategic cooperation agreement with one of the largest short-video platforms to explore [Audio Gap] plus live stream opportunities. To speed up on our penetration in the travel industry and to capture accelerating digitalizing trend post COVID-19, we resumed our offline user acquisition initiatives in the second quarter, and continued to push initiative forward in low-tier cities with increased investments. We're working with hotels, bus operators and tourist attraction operators to transform offline booking habits to online patterns. This initiative serves as effective channels for us to acquire new users and we are the top drivers for our NPS growth in the fourth quarter. For the next stage, we will make more efforts to cross-sell other trial products and services to these newly acquired users by digging into their underlying needs with our big data and comprehensive product services. For the last quarter of 2020, our average MAUs post a slight year-over-year decrease of 4.8% at 196 million, mainly impacted by the stricter travel restrictions due to resurgence of COVID-19 cases in Northern China as well as the seasonality caused by the late Chinese New Year in 2021. However, our average MPUs maintained its recovery momentum and reached its year-over-year growth of 6% to 28.7 million in the quarter, mainly thanks to our effective offline user acquisition initiatives. As Hep mentioned in his speech, we aim to build a leading travel brand in low tier cities. Since the third quarter, we've been increasing investments in branding and marketing. In fourth quarter, we sponsored a popular online program, [Foreign Language], in which our innovative branding video has been viewed for more than 200 million times. Meanwhile, we increased our offline advertisement placement at railway stations and airports as well as on high-speed trains and airplanes. With this effective media placement, we enhanced our brand awareness and recognition among the younger generations. Moreover, our paid membership program made great progress in the past quarter. The cumulative number of our Black Whale members has reached more than 5 million by the end of December as we reached out to more diversified demographic and enriched membership privileges. Besides, the program further enhanced the user loyalty and the retention rate with annual purchase frequency more than 3x that of general members and ARPU almost twice that of general members. As in the past quarters, we continuously pushed ahead with our cross-selling strategy to divert traffic from transportation business to our accommodation and attraction ticketing business. In the first quarter, our one-trip cross-selling rate stood at a high level of 11% compared to 8.5% for the fourth quarter of 2019. This proved our excellent ability to increase monetization of our traffic. To better serve our users' evolving needs and to further in-house monetization, we constantly get new products with our outstanding innovation capability. In the depth of pandemic, we launched COVID-19 related insurance and hotel cancellation insurance, which were well received by our users. To alleviate user safety concerns, we offered disposable hotel amendments to our users. We also upgraded our car rental and airport pickup and the drop-off services to provide our users with a reassuring travel experience during the pandemic. As a company committed to transforming from OTA to ITA, we proactively embraced the technological innovation to enhance our user travel experience. We continue to enhance the algorithm of our Huixing system and further integrate underlying suppliers so that to provide users with more combination for various travel scenarios. In the past quarters, Huixing has provided extraordinary value to users, especially in the depth of the pandemic while many routes were halted to control the spread of the virus. Moreover, in the past quarter, we successfully developed our own intelligent robot for customer service, which not only enhanced our customer service efficiency, but also reduced our operational costs. On the other hand, we are devoted to empowering our suppliers' business through our internet expertise and technology, so as to build a more resilient and highly efficient travel ecosystem. We provided technology solutions to airports and airlines to help them better reach out to their passengers. We placed vending machines at bus stations and tourist attractions and helped develop online booking system to increase the digitalization of the 2 traditional industries. We joined hand with the local governments to help them build online travel platform in an effort to help promote local tourist resources with our well-build big data capability, we provide advertising solutions for hotels to help them efficiently reach out to their targeted users and develop value-added services to expand the revenue stream of hotels. Furthermore, we have developed comprehensive set solutions to assist individual and small chain hotels in the management of their daily operations as well as for the management of inventory, revenues and marketing. For 2021, we are quite optimistic about the travel industry bond and will be fully devoted to our strategic priorities. We will allocate more marketing resources to occupy a distinctive place in the mind of users in low-tier cities and built as leading travel brand there with a target of 200 million annual paying users for the year. Accommodation will be the growth driver for us in 2021. We target high room net growth for the year compared to 2019, which will be driven by stable online traffic conversion, further enhance cross-selling capability and bringing forth offline initiatives. Bus ticketing and attraction ticketing business will serve as our traffic acquisition engine. They will continue to contribute enormous amounts of new paying users to the company. Air ticketing and the train ticketing business as a backbone of the company, which provide huge traffic to other business sectors while generating stable profit. The IT proposition plays a role as a powerhouse. Driving our prominent capability in big data analysis, we're able to have a deeper understanding of our users, thus formulating effective marketing strategy, which will enhance effectiveness of user acquisition as well as help increase repurchase and ARPU. Leveraging our internet expertise and technology, we also have accelerated digitalization of the travel industry, which will enhance our market position. With that, I'll now hand over to our CFO, Julian, who'll share with us the detailed financial performance for the fourth quarter for the year of 2020.

Thank you, Joyce. Good evening, and good morning. I will review the financial and operating results for the fourth quarter and fiscal year 2020, then provide some color on the trends that we have seen so far in the first quarter of 2021. All metrics for 2020 and 2021 are relative to comparable periods in 2019, unless otherwise indicated. Information regarding the reconciliation between the non-IFRS and IFRS results can be found in our earnings release. Let's start from our quarter 4 performance. We reported a net revenue of RMB 1.8 billion, representing a 7.3% year-over-year decrease from the same period of 2019. This was mainly impacted by resurgence of COVID cases in late November, which led to stricter travel restrictions in Beijing and other northern cities. Furthermore, the government encouraged people to stay and spend the Chinese New Year holiday in their working cities so as to reduce the risk nationwide resurgence, which stimulated local and short-distance consumptions, but seriously depressed the nationwide traveling demand in Spring Festival. However, we still managed to outperform the market for the fourth consecutive quarters as we responded promptly and turned to a cost saving mode. As a result, we achieved a RMB 307 million adjusted net profit with 16.9% net margin, which was the same level of quarter 4 2019. What's more, our adjusted EBITDA margin achieved 24.3% in the fourth quarter compared with 21.2% in the same period of 2019. As for our GMV, it was RMB 36.1 billion in the fourth quarter of 2020, and the year-over-year decrease narrowed down to 12.6%. The ADR and ATV remained below pre-COVID level, resulting in slower recovery in our GMV compared with that in our room nights and ticket volume. However, our monetization rate continued to increase year-over-year in the past quarter, thanks to the execution of one-stop shop strategy, improvement of cross-selling capability and stable VAS attach rate. This also led to a faster revenue recovery than that of the GMV. Accommodation revenue -- accommodation reservation revenue recorded a 4.1% year-over-year increase at RMB 647 million despite the resurgence of COVID cases in quarter 4. Domestic room nights growth accelerated to 21%. Geographically, the room nights grew over 10% and more than 30%, respectively, in higher-tier cities and lower-tier cities. We've been emphasizing a lot of times that the hyper growth in accommodation business is one of our priorities. The primary growth catalysts are our increasingly strengthened position in lower-tier cities, large user base with diversified traffic sources and enhance the cross-selling capabilities. In the past quarter, our one trip cross-selling rate achieved 11%, as Joyce just mentioned, contributing over 20% room nights in the fourth quarter. Offline user acquisition initiatives continued to ramp up and contributed more than 7% of the total room nights. The ADR year-over-year decrease narrowed to 16%, which was still impacted by the macro environment, but the good news is that the accommodation GMV has truly recovered in this quarter and the monetization rate kept increasing year-over-year as VAS took up more than 10% of the total accommodation revenue, which was a result of our strong execution of one-stop shop strategy in accommodation. Transportation ticketing revenue for the fourth quarter of 2020 was RMB 1,003 million, representing a 15% decrease from the same period in 2019. The traveling restrictions since late November and the official encouragement of staying in working cities during the Spring Festival imposed a negative impact on Transportation segment in this quarter. The efforts in rolling out bus ticket vending machine nationwide was quite fruitful and booked 180% year-over-year increase in bus ticket volume in quarter 4. The blended take rate of transportation business was flat year-over-year, thanks to the stable attach rate in this quarter. Other business, including attraction ticketing, advertisement, TMC business and paid membership card increased by 6.2% to RMB 162 million in the fourth quarter. The increase was mainly from faster recovery in attraction ticketing business driven by the release of local and short distance travel demand, as I mentioned above. Gross margin was 73.7% for the fourth quarter of 2020 compared with 70.6% in the same period of 2019 and 72% in the previous quarter, which hit a record high since 2018. Benefiting from our streamlined operations in the past year and flexible operation strategy and there's uncertainties, our adjusted EBITDA achieved RMB 441 million, an increase of 6.2% year-over-year, with margin jumping to 24.3% -- at 1.2%. Adjusted net margin achieved 16.9%, returning to the same level of last year. Cost of revenue, which was highly related to volume and GMV, decreased by 17% year-over-year, attributable to decreases in order processing fee and prepurchased business as well as efficiency improvement from call center automation. Excluding SBC charges, cost of revenue accounted for 25.9% of revenue in the fourth quarter compared with 29.1% of revenue in the same period of last year. Service development expenses saved 4.2% year-over-year, mainly driven by the headcount decrease and operation efficiency improvement. Excluding SBC charges, service development expenses accounted for 16.7% of revenue in the fourth quarter compared with 17.2% of revenue in the same period of 2019. Administrative expenses in the fourth quarter increased by 21.5% year-over-year, mainly driven by SBC charges. Excluding SBC charges, administrative expenses accounted for 5.9% of revenue in the fourth quarter compared with 5.4% of revenues in the same period of 2019. Selling and marketing expenses in the fourth quarter were flattish year-over-year, mainly driven by increasing investments in offline user acquisition initiatives and branding with an ambition to build as the leading travel brand in lower-tier cities, as Hep and Joyce mentioned. However, we withdrew some of the performance-based marketing spending promptly when COVID cases reemerged since end of November. Excluding SBC charges, selling and marketing expenses accounted for 39.9% of revenue in the fourth quarter compared with 36.9% of revenue in the same period of 2019. As of December 31, 2020, the balance of cash and cash equivalents, restricted cash and short-term investment was RMB 6.8 billion. Now let's move to our results in fiscal year 2020, the full year. As Hep said, it was an extremely difficult and challenging year for the whole traveling industry, but we managed to weather through the storm and became a stronger one. Net revenue in 2020 achieved RMB 5.9 billion, representing a 20% decrease year-over-year under this tough -- very tough environment, and we turned to flexible operations strategy during the year to accommodate the challenging situation. We scaled down our marketing expenses when the volatility intensified, and we stepped up investments in the marketing when uncertainties abated. As such, we successfully gained market share in each of our product line. Our domestic accommodation room nights for the whole year of 2020 still booked a positive increase year-over-year, and the bus ticket volume booked over 60% increase year-over-year in 2020. Meanwhile, we optimized our cost structure in 2020 and made our business model slimmer and lighter. Excluding SBC charges, cost of revenue saved 27% year-over-year; service development saved 15% year-over-year; and the sales and marketing saved 5% year-over-year. We reinvested the savings from our efficiency improvement in branding and offline marketing to strengthen our mid- to long-term competitiveness. By the end of 2020, our headcount booked 4,813, a decrease of 12% year-over-year. As a result, we achieved RMB 1.4 billion adjusted EBITDA in the whole year with 27% margin, and RMB 954 million adjusted net profit with 16% margin in 2020. Due to some user care and service during the pandemic, we booked a total of RMB 140 million impairment losses in 2020 without this kind of one-time expense. Our adjusted EBITDA margin and adjusted net margin would be at 25.3% and 18.3%, respectively. Our slimmer cost structure may be a result of internal efficiency improvement and nonessential expenditure cuts will enable us to aggressively grab market shares, yet maintain a stable profitability in the next several years. Due to the strict travel restrictions before and during the Chinese New Year holiday, the demand was far below our expectation in January and the first half of February in 2021. However, we are quite sanguine about the recovery. We saw a demand jump in short distance and local travel with more than 30% growth for accommodation room nights in low-tier cities and more than 80% growth for attraction tickets during the Chinese New Year holiday compared with the same period of 2019. Beside it, the release of pent-up demand has accelerated since the second half of February, and we are very confident that the demand for traveling, including long-distance leisure and go back to hometown remains intact. All these needs will be released once restrictions are relaxed. Quarter 2 this year might be even better and become a peak season during Qingming, Labor Day and Dragon Boat Festival. Now let's turn to our quarter 1 forecast in detail. Based on where we are in the first quarter and considering the impact of COVID, we expect our quarter 1 net revenue to decrease by 10% to 15% year-over-year compared with 2019, or increase by 50% to 60% compared with 2020. Since we did a very good job in controlling the costs during the past period, we expect our non-IFRS net profit or adjusted net profit will be in the range of RMB 220 million to RMB 270 million, with the same level of margin as quarter 4 2020. This forecast reflects our current and preliminary view, which is subject to change. In conclusion, we are unprecedentedly confident that through all those strategic priorities that Joyce has mentioned, we will cash now or never opportunities post the COVID to increase the market shares in our targeted market and generate more value to our users, suppliers, employees and our shareholders. Okay. Operator, we are ready to take questions now. Thank you.

[Operator Instructions] Your first question is from Alex Poon of Morgan Stanley.

Congratulations on very strong control -- cost control. My first question is regarding the booking window and the forward booking in April and May so far. Is there anything you can highlight in a forward booking in April and May, although we are still early, but it looks like we are seeing some very strong v-shape rebound since February. So wondering if there is any color you can share regarding the upcoming holidays? Is it possible that we could go back to positive year-over-year growth in second quarter versus second quarter 2019?

Actually, we have already mentioned a lot of times, the booking window is very short in our platform for accommodation and also the ticket booking. So it's -- we have only very limited visibility to the performance in Qingming and also the Labor Day. But anyway, I can provide you some color on the recovery in March. Actually, just like what we mentioned before and during the Chinese New Year, the performance in our platform -- the performance of the traveling is very depressed. It's very disappointed and below our expectation due to the strict travel restrictions, but we believe that is the best way. That is the best and efficient way to control -- faster control the COVID spread all over the country. So for March, actually, just after the lock-ups, things recover very fast, far better than our expectation. I can share you some numbers. In March, we have monitored a 80% year-over-year growth for accommodation room nights, and over 40% year-over-year growth for air tickets and more than 200% year-over-year growth for bus ticket compared with 2019. And also for the net revenue of the company, it also shows a 10% to 15% year-over-year growth for the total net revenue compared with 2019, 10% to 15% growth. So as the spread of virus has been well contained and the popularity of vaccination continue to increase, we are 100% sure that the pent-up demand will be further released in quarter 2 and the following quarters in Qingming, in Labor Day and also the Dragon Boat Festival, as I mentioned. So we are very confident in the performance of the company for this year as well. Thank you.

My second question is regarding the user channel. We have many, many different user acquisition channels, including hotels, bus, attraction ticketing and a lot of offline advertisements. Can you give us some color on the user retention and payback period for each of these channels? Which one is performing better than the other so far? And how are you adjusting your resources across so many different channels?

Thank you, Alex. We actually have took the initiatives to penetrate the low-tier cities offline from the hotel front end scanning and also the bus vending machine and attraction ticketing at vending machine. Until now, for example, for bus ticket vending machine, the user acquired from this channel actually, we have already acquired users for like 6 months to 9 months through this kind of channel. The acquisition cost is very limited. It's just around RMB 3 to RMB 4, and the focus of the company last year is to fast acquire the users, but not polish the cross-sell for the users from this channel to other product lines. So actually, for the frequency, we can find the frequency is okay. For example, there is a 25 -- more than 25% of the customer will repurchase the bus ticket product within 3 months, but only, I think 3% to 4% will cross-sell to other products because -- that is because we don't put too much results to stimulate the cross-sell from bus ticket to other product lines. But for this year, actually, that is one of our main tact, we have to find a balance. One is to acquire the offline users from bus ticketing vending machine, and the other, we will find some way or to put more investment -- sales and marketing investment to stimulate the cross-sell from bus ticketing vending machine customer to other product lines. So that is the bus ticket. And the customer from the offline hotel front end scanning, the QR code scanning, the customer is quite expensive. The acquisition cost is like RMB 40 to RMB 50 for each, but actually, the customer is more valuable. And ARPU is far more higher than any other customer from other channels. The frequency, the repurchase rate is like 30% to 35% within 3 months. And also, we find it quite easy to cross-sell to other product lines, such as the car picking, car hiring and also the attraction tickets, et cetera. So that is why -- although it's more expensive to acquire user in this channel, but we will continue to do this year.

Our next question comes from the line of Brian Gong of Citigroup.

Congratulations on the results, especially considering the small outbreaks in the first quarter -- in the end of fourth quarter and first quarter this year. So I have 2 questions. The first question is still about how about the contract renewal with Tencent? Have we started negotiation? And if so, what stage right now it is for this negotiation? And my second question is about take rate accommodation. The take rate was pretty good during 2020, partially due to higher value-added service contribution and also probably low ADR. So along with the recovery of travel gear amount and more normalizing ADR, what take rate we should expect after the normalization?

Thank you, Brian. I will take the first question, concerning about the portal agreement with the Tencent. Currently, we have had preliminary discussion with the Tencent, but currently there is no information to be disclosed. We will disclose to market as soon as we could. But as we mentioned many times before, we are the role model to operate in Tencent ecosystem. So we focus on working with the Tencent in providing the users with extensive and high-quality top products and services to fulfill the Tencent ecosystem. And you can see that in the past year, we have already first explored cooperation with Tencent to engage new users at different scenarios, including the corporation in switching portal and also the cooperation with the Tencent Music, Tencent Video and QQ Weather were all served as a pioneer to explore the potential in Tencent ecosystem. And as we mentioned many times before, we -- apart from the user engagement, we also contributed to Tencent to advertisement costs and other processing fees. So that's mainly from the business and economic side. And then I'll let Julian to take your second question about the change of the take rate?

First, I would like to put some comments on the ADR in 2021, the trend of ADR. We expect that ADR may still decline compared with '19, but it will be quite stable compared with 2020 for quarter 1 and the whole year of 2021. Since nowadays, the room nights from low-tier cities has already contributed more than 60% of our total room nights. In addition, we expect that industry ADR will steadily recover through the year post the COVID. And in terms of the take rate, we are very confident for the revenue growth of the accommodations compared with '19, mainly driven by the hyper growth of room nights and the increase in blended take rates attributable by the noncommission revenue. And it could be fully offset the impact by the drop in ADR when compared with '19. In terms of the noncommission revenues, actually, we have been developing different kinds of VAS products and services to fulfill users' need. We have talked about this a lot of times. For example, users are getting more aware of safety and hygiene during the pandemic. So we offered new VAS, such as the insurance and disposal supplies, and these new products and services are well received by our accommodation customers. So that is on one side. And on the other, on the supplier side, when hotels are suffered by the pandemic, they want to get more traffic from OTAs. So that's why our advertising revenue for hotels contribute a lot to increase over the past few quarters. At the same time, hotels are also very eager to enhance the opportunity to monetize. So we worked with the hotels to explore revenue stream from in-store consumptions, such as dining, spa, the hotel facilities, et cetera. It contributes the hotel's revenue and also contribute revenue to our platform as well. I just mentioned that for the VAS revenue in accommodation has already take like 10% of the total accommodation revenue in past the quarter, and in this quarter, it will reach a 15% of contributions for the accommodation business. But actually, the revenue will be booked, both in the accommodation -- part of the revenue will booked in the accommodation segment and part of the revenue will be booked on the other revenue because advertisement revenue will book in the other revenues. So you will see in the quarter 1 and quarter 2, there will be a hyper growth in other business as well. Thank you.

Your next question comes from the line of Ronald Keung of Goldman Sachs.

And congratulations on the strong results. Two questions. I think we mentioned about our first quarter trends, where we -- versus 2019, there was slight decline. But as we head towards the full year, how do we see our kind of comparisons versus 2019, particularly with March now, you're kind of 10%, 15% higher than 2019 in the same period. So for the full year and now kind of sales and marketing investment trends, how should we think about on the margin side? While the first quarter is lower than first quarter '19, how should we think about the subsequent quarters? Or on a full year basis, do we think we can return back to, say, 2019 margin levels?

Okay. Ronald, before I talk about the margin side, I still would like to mention the strategic priorities that we focus in 2020 is the paying users. Actually, that is the first one, first task that we have to realize, the hyper growth in our paying users. So actually, we have mentioned to the market that the first goal that we will achieve in 2020 is 200 million annual paying users. For last year, it's 156 million, yes. So even under the very challenging environment in the past year, we're still able to increase our annual paying users. That is the good news. That is the show traveling actually the basic and the fundamental demand of people. So this year, we are more confident to realize that this hyper growth in paying users when the traveling industry rebound in China, and also, we have a lot of approach to execute. Firstly, we will continue to promote our offline users acquisition initiatives by cooperating with hotels and also setting up vending machines at bus stations and tourist attractions like we mentioned in prepared remarks. Especially, we believe our bus ticketing volume will increase and bring a significant amount of paying users in 2021 like last year. Of course, at the same time, we will monitor the ROI and adjust our coverage of hotels and locations of vending machines to improve the efficiency. And then secondly, we'll enhance the operation on online platforms, such as the mini program, our own app, quick APPs with more precise marketing and tailor-made recommendation to users. And then we will invest more on the branding in low-tier cities, such as the bus station, train station, in the train, airport, et cetera. And lastly, we will further enhance our products and service to fulfill users' ever changing needs, long tail needs with our technology innovation. So we are pretty sure that we will achieve the hyper growth in our paying users, but at the same time, we will also invest more on the sales and marketing dollar to make sure each of our strategic priorities is on the right track. In the past quarters, quarter 3 and quarter 4 proves very efficient and valuable for our sales and marketing investment for each cent of the sales and marketing investments have been quickly accumulated and convert the paying users in our target market in the second half of last year. So for the scale of sales and marketing investment, it'll be at the same level or more higher than the second -- than the investment in the second half of last year. And specifically, we will put more resources in the setup of our offline digitalization, device branding in our targeted market and membership privilege in 2021. And we'll also invest more marketing dollar in the corporation with some pioneered channels, like we also -- like the live streaming, like Kuaishou handset vendors, e-commerce platform such as Pinduoduo to pursue a multi traffic channel strategy. Meanwhile, we will still invest the performance-based marketing and also user subsidies, but more precisely, from the algorithm update -- upgrade. And we will highly monitor and control the ROI in this area. So for the bottom line, the margin side, actually, we think we will get at least the same amount, the same amount adjusted net profit compared with '19. But for the margin side, it will slightly drop from the '19 to make sure all of our strategic priorities to -- on the right track and achieve a hypergrowth in paying users and also hyper growth in room nights. Thank you.

Understood. That's very clear. And just a very quick second question on your corporate travel investment. How do we see that? How big is this business that I think we consolidated in the fourth quarter? And how do we think our business will -- corporate travel will play a role in our business mix in the medium term?

Thank you, Ronald. Actually after COVID-19, we observed that more companies are more aware of their cash flow management and internal control expense. They are now more eager to use corporate travel service provided by the travel management company. So we believe that with our well-developed technology and a close relationship with the TSPs, we can provide a wide range of products and services to help these companies to build the systems for the business trips arrangement and reimbursements for relevant expenses. In addition, I think the market capacity of corporate travel in China is the largest in the world, but still, the market is very fragmented. We think that currently it is less than 10% of the corporate travel management penetration. So we think that there will be an ample room for development in this market, especially in the low-tier cities, where we have a very strong market position. The acquisition consideration for the corporate travel business is not material currently. And it may not bring us immediately strong revenue in 2021 as we just started developing in this market. And the businesses still are relatively small when compared with other business segments within our company. But we think that this is a business with potential and its contribution will be more significant in the future. Thank you.

Your next question comes from the line of Thomas Chong of Jefferies.

May I ask about the trend in train ticketing volume as well as the take rate outlook for this year?

Yes. Actually, like what we mentioned for the -- during the Chinese New Year and before the Chinese New Year, the transportation, especially for the air and the long-distance train tickets hurt very much because of the restriction -- traveling restrictions. But just after the lockdown in March, our air tickets recovered very fast. It has been 40% -- the tickets wise, it has been 40% year-over-year growth compared with '19. And also for bus tickets, there was a 20% -- 200% of year-over-year growth from bus ticket. And also for the take rate, actually, it will be quite stable year-over-year because we find the VAS, the attach rate of the value-added service and product is very stable year-over-year compared with '19. Thank you.

We'll move on to our final question from Ellie Jiang of Macquarie.

I have 2 questions. First, it seems like we are prioritizing paying user growth in near term. So previously, we have kind of segmented our growth phase from first expanding the user base and eventually accelerating to convert them into paying users and eventually, cross-sell into the -- our multi-category products. So just kind of want to get a sense of how should we think about the pace for moving into different stages in the next few years? That's the first question, and I'll follow-up.

Yes. That's really a good question. I can share some colors for the cross-sell from train ticket to accommodation room night. Actually, at the very beginning of our merger, I think, back to 2018, I think, 2 years ago, the cross-selling rate is very, very limited. It's less than, I think, 1% for the one trip cross-sell. One trip cross-sell means after we book the tickets within 14 days, you book room nights or attraction tickets. But after 2 years, it never -- the cross-selling rate has already increased to 11%. And also the momentum, the quarter-to-quarter momentum is still there. So I think for this year, we target an even higher for the cross-sell from train ticket to accommodation. For example, 14% to 15% that will generate a huge number of room nights for the platform because for -- nowadays, each day, every day, we have around 1.5 million train boarders, nowadays. So just a 1% cross-sell from train to room night, it will bring like [ 150,000 ] room nights. So that is huge. So that's the strength. And also, for last year, we start our initiatives for the bus ticket vending machine. But just like what I mentioned, it's still very early stage. We will focus on the user base enlargement from this channel, but this year, we will find a balance. We will put some efforts. We will invest some money on the cross-sell promotion. That is still need to put some sales and marketing dollars to convert the users from bus ticket to accommodation. So we get the curve may like the train to accommodation, but of course, the -- from the demand side, for the bus ticketing customer may have less demand than the train, but actually, the curve may be the same. Thank you.

Very helpful. Also I have a follow-up. So we have worked with Kuaishou for nearly, I think, a year now. So how much of our new users are contributed by Kuaishou channel? Also the management shared about our multi traffic channel strategy. So what would be the ultimate kind of user mix among different channels?

Actually the work with the short-video platform as we saw now with Kuaishou Cooperation was less than one year because we just started the corporation in the middle of the year in 2020. And these channels will be more like the branding and marketing channels for us. If we look at the user patterns, the users are more like to get engaged or get aware of our brand or our client services, our short-video platforms. And we are working to convert them to our paying users right now.

At this point, I would now like to hand the conference back to Kylie for any closing remarks.

Thank you. We are closing the call now. If you wish to check out our presentation and other financial information, please visit the IR section of our company website. Thank you and see you next quarter. Goodbye.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.