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

Good day, and thank you for standing by. Welcome to the Tongcheng Travel 2024 Fourth Quarter and Annual Results Announcement Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kylie Yeung. Please go ahead.

Okay. Thank you. Good morning, and good evening, everyone. Welcome to Tongcheng Travel's 2024 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 our Executive Director and CEO, Mr. Heping Ma; our CFO, Mr. Julian Fan; and our Chief Capital Officer, Ms. Joyce Li. For today's call, our management team will provide a review of the company's performance in the fourth quarter. Hep will brief us on the company's strategies. Joyce will discuss our business and operational highlights, and then Julian, will address the details of our 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 relates 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. Now let me introduce our CEO, Hep. Hep will be presenting in Mandarin, and our colleague will provide the English translation afterwards. Hep please go ahead.

[Interpreted] Good evening, everyone. Welcome to our fourth quarter and annual earnings call. 2024 was a pivotal year for China's travel industry and our company so with both opportunities and challenges. Throughout the year, we observed the continued increase in domestic travel demand and a growing trend towards demand diversification. Driving this momentum, our company has these opportunities and once again achieved rapid growth. We worked tirelessly with determination and strive for excellence during the past year, as a result of our company's revenue and adjusted net profit both experienced significant year-over-year growth, reaching historical highs. These achievements were made possible by the diligent efforts and efficient collaboration of our team, which fully demonstrated our exceptional capabilities in strategic execution and organizational strength. Meanwhile, the amount of our annual paying users set a new record and reached 240 million, reflecting the ongoing improvement in our service quality and user experience, as well as our increasing competitiveness and brand influence in the market. Over the past year, we accurately identified the trend of diversified user behavior and the substantial growth in demand for experiential consumption. In response to the evolving market, we achieved breakthrough through a dual-track strategy. On one hand, we deepen our penetration into the domestic mass market by focusing on building comprehensive user life cycle management system, aiming to expand our user base, while enhancing its value. We also built in the domestic supply chain opportunities to strengthen our competitive edge. On the other hand, we see the opportunity presented by the recovery of both demand and supply in outbound travel market. Through market expansion and supply chain optimization, we significantly improved the efficiency of our international business penetration and enable financial growth in our outbound business. We are highly confident about the future development of the travel industry as well as our company supported by the sustained travel enthusiasm and demand. At the same time, with the government's efforts to promote high-quality development of the travel industry, China travel sector is actively working to enhance its supplies and diversify consumption scenarios, so as to meet emerging and diverse consumer demand. As we enter 2025, in the recent Chinese New Year holiday, enthusiasm for travel remains strong, and the tourism consumption market continued to unleash vitality. Looking ahead, we firmly believe that with the continued prosperity of the domestic travel market and the full recovery of the outbound travel market, our company will unlock even greater growth opportunities. We will continue to deepen our presence in the domestic market, solely explore user demand, while accelerate the execution of our internationalization strategy to seize the golden opportunities presented by the growth of the outbound travel market. In terms of operations, we will further optimize our traffic operation strategies while leveraging technological innovation and product upgrades to provide users with an even better service experience, continuously enhancing its value. Leveraging the accelerated penetration and the broad application of AI technology, we will concentrate on personalized services, such as intelligent itinerary planning and real-time booking system. By driving the optimization of the service chain through AI, we aim to accelerate the scalable commercialization of these solutions. We are well aware that the future market environment will be full of changes and challenges, but we also firmly believe that with our teams in depth market insight, relentless pursuit of innovation, and excellent execution, our company will achieve greater breakthroughs in the year ahead, create long-term value for stakeholders, and contribute more to the high-quality development of the travel industry. Next, I will hand over the call to Joyce, who will share with you our business and operational highlights of the fourth quarter and the full year of 2024. Joyce, please go ahead.

Thank you. 2024 turns out to be another constructive year for us. For the second consecutive year, we achieved record highs in both user base and this scale, with the further elevated market influence in domestic market and the fastest expanding market share in the outbound travel market. All these accomplishments showed our excellence in strategic execution as well as the strength of our organizational capabilities. Our transportation business, which serves not only as a traffic hub, but also the pillar of revenue and the profit of the company continued to spend in scale in the fourth quarter and hit a historical high in its annual revenue for 2024. As for the air ticketing business, it maintained its faster than industry growth rate throughout the year, achieving a record high volume with more than 20% year-over-year growth in 2024. Meanwhile, our international air ticketing business continued its rapid expansion driven by a competitive pricing strategy and effective marketing investment. As such, our international air ticketing volume for the year recorded a remarkable growth of over 130%, more than doubling the size of 2019's level. As the business scales up, progressive efforts have been made to enhance monetization capabilities through a more targeted user incentive policies and a healthy revenue structure. Consequently, we saw substantial improvement in the efficiency of the business during the second half of the year. As for the train ticketing business, we've already built a very strong mind share with a focus on delivering differentiated services so as to better meet users' underlying needs. Our algorithm-driven Weixin system, provide users with a variable and access for travel solutions beyond a single ticket, which has facilitated a cross-sell within the transportation business as well as greater enhancing monetization capabilities. In terms of our accommodation business, both room night sold and the revenue hit new highs in 2024, driven by continuous efforts to increase penetration in the mass market in China, aiming the resilient demand. Throughout the year, we put more emphasis on user experience. We offer the best value for money products and services. We prioritized the display of hotels with add-on service to provide users with easy access to their preferred hotel options. We also provide more timely and fast response to user requests. In the meantime, we strengthened our partnership with suppliers and work together to offer users with differentiated products and services in an effort to enhance our product competitiveness. All these efforts contributed to strengthening user mind share and a record high in room nights sold in 2024. As for international business, consistent efforts were made to enrich prudent services offering by partnering with more international suppliers. Throughout the year, the business continued to outgrow the industry as a whole, with room nights sold register more than 110% year-over-year growth in 2024. Since 2023, China travel industry has shown great resilience and a sustained demand. We've been strategically investing within the industry trends to see the growth opportunities. Our hotel management business has grown rapidly over the past years. And its store network has almost tripled since 2022. At the end of 2024, it has nearly 2,300 hotels in operation with 1,400 hotels in the pipeline. Strong traffic is a key component of OTA operations. We have obtained a profound and stable partnership with Tencent for almost a decade. Through our Weixin mini program, we have successfully reached widespread users for China and to remain the crucial traffic channel for us. In the meantime, we have been diversifying our traffic sources with our stand-alone app rising to strategic significance through which we intend to reach new users cohorts. During the year, with this app investments in our standalone app and launched a variety of tailor-made marketing activities to track new users. As such, the DAU of our standalone app more than doubled during the year. Prioritizing user value, we have been actively investing in our royalty program. By offering comprehensive travel products and services, our OTA membership allows users to simulate mileage points across variety of travel products, which can be redeemed as a cash voucher for future bookings. This flexibility makes our program more attractive and rewarding. Besides, premium members enjoy customized benefits such as price protection, recancellation, VIP lounge, and exclusive customer services. Furthermore, our Black Whale members also have access to travel benefits around social events, such as concerts and music festivals. As of the end of 2024, the cumulated number of Black Whale members approach 90 million, a big leap of 86% from last year. So distinct user engagement initiatives and precise marketing campaigns, we have accumulated the largest user base in China's OTA industry. For the 12 months ended December, our annual paying user recorded a historical high and approached to 240 million, with the cumulative number of travelers served by our platform reached 1.93 billion. This indicates that our average each user purchased more than 8x on platform in 2024, a big jump from 5.5x in 2019. More significantly, our ARPU grew dramatically by 44% year-over-year and reached RMB 33 in 2024 -- RMB 73 in 2024, mainly thanks to our efforts to enhance user value. Besides our MPUs maintained growth momentum throughout the year and increased by 9% year-over-year to 41 million for the 3 months ended December. As a tech-driven company, we are adept at [ reshaping ] our business by advancing the application of frontier technologies. We proactively embrace new technologies to enhance efficiency as well as increase user experience. We have built our own tourism-specific generative AI, Chengxin, which recently has been upgraded by adding DeepSeek to its large language models. It not only help users plan travel itinerary, but it can also recommend travel products based on their instructions. It also features a comparison tool that facilitate users' decision in selecting hotels when they have difficulty in making choices. In the upcoming future, users may directly turn to booking once they find satisfying recommendations on Chengxin, which we believe will enhance user satisfaction as well as order conversion. Furthermore, through Chengxin, we have developed a digital assistant for several tourist destinations to enable human-like interaction with their tourists and recommended local distinctive tours. On top of that, Chengxin has also been embedded in several generative AI agents, such as [Foreign Language] as well our mobile phones, such as [indiscernible] and Vivo reach out to more users. Besides, efforts are also made to explore future applications of generative AI across various aspects of our business. We believe it won't be long before we fully realize the original vision of the company being an intelligent travel assistant. In pursuit of the best-in-class ESG practice globally, we have made a great progress in enhancing our ESG performance over the past few years. In 2024, we have received AA for our MSCI ESG rating for a third consecutive year. We have been included in S&P Global Sustainability Yearbook (China) for the second year in a row. In addition, we were also awarded the best ESG program among small and middle cap by an institutional investor in 2024. All this demonstrates our leadership among global peers and our determination to excel in ESG. I will stop here and give the call to our CFO, Julian. He will share with you the detailed financials in the fourth quarter and for the whole year. Julian, your turn.

Thank you, Joyce. Good evening, everyone. As 2024 to close, the travel industry has demonstrated resilience throughout the fourth quarter. Marked by power growing pursuit of culturally enriching experience across both traditional festival destinations and emerging locals. Building on this momentum, we have not only kept the pace with -- but consistently outperform evolving industry trends, thanks to our foresight in addressing the evolving priorities of travelers. In the fourth quarter of 2024, we achieved outstanding results for both top line and bottom line. We reported net revenue of RMB 4.2 billion, representing a 35% year-over-year increase from the same period of 2023. We proactively prepared for the 2025 Chinese New Year through effective marketing campaigns and advertisement, while maintaining disciplined cost control to ensure financial prudence. Despite the impact of the consolidation of our tourism business, we achieved a remarkable adjusted net profit of RMB 660 million with an adjusted net margin of 15.6%. This performance was notably attributed to enhanced operational efficiency and effective execution of refined marketing strategies. Our core OTA business revenue registered a strong growth of 20% year-over-year and recorded RMB 3.5 billion driven by growth across our transportation ticketing, accommodation reservations, and other business segments. Our transportation ticketing business registered significant growth has achieved RMB 1.7 billion in revenue, representing a 13% increase compared with the same period of 2023. This growth was mainly driven by the increase in both domestic and outbound ticketing volume, a testament to our persistent efforts to expanding our market share. Our outbound business continues to maintain strong growth momentum and now accounted for more than 5% of our total transportation ticketing revenue. Additionally, we drove revenue growth by continuously optimizing our VAS offerings and enhancing monetization capabilities through efficient cross-selling strategies, which unlocked the more diverse demand among our users. Our accommodation and reservation revenue stood at RMB 1.1 billion for the fourth quarter of 2024, representing a 29% increase from the same period in 2023. We continue to execute our cross-selling strategy and further diverted traffic from our transportation business to develop our accommodation segment. Besides, our international accommodation business also experienced substantial expansion, adding to the growth of the business segment. Our ADR demonstrated strong resilience and remained stable in the fourth quarter of 2024, mainly thanks to our extensive presence in China's mass market. Our blended take rate saw a year-over-year increase, largely driven by more precise and effective marketing strategies. Our other business segment once again delivered solid performance with revenue reaching RMB 599 million in the fourth quarter, representing a growth of 15% year-over-year. This growth was mainly propelled by the robust growth of our hotel management and online packaged tour business. Our tourism business achieved a revenue of RMB 780 million, thanks to the continuous recovery of the industry and our efforts to seize the market opportunity. In terms of profitability, our gross profit rose by 24% year-over-year, reaching RMB 2.7 billion with a gross margin of 63.5%. Although the integration of tourism business had an impact on our overall margin on a year-over-year basis, we further improved the margin profile of our core OTA business. In the fourth quarter of 2024, our core OTA business achieved an operating profit of RMB 983 million with a margin of 28.4%. This reflected a great improvement from 23.6% year-over-year. The margin expansion was primarily driven by our effective execution in enhancing the efficiency of sales and marketing investments. The operating profit for the tourism business achieved RMB 18 million with 2.3% margin. Our adjusted EBITDA increased by 39% year-over-year and reached RMB 997 million, representing an adjusted EBITDA margin of 23.5%. Adjusted net profit improved by 37% year-over-year to RMB 660 million with a 15.6% margin. Service development and administrative expenses in the fourth quarter of 2024 increased by 36% from the same period of 2023. Excluding share-based compensation targets, service development, and administrative expenses in total accounting for 18.7% of revenue in the fourth quarter compared with 16.9% of revenue in the same period of 2023. The increase in the expense ratio was primarily driven by the consolidation of our tourism business due to different business models and cost structure. However, it is important to highlight that the efficiency of our core OTA business will continue to improve during this period. Selling and marketing expenses in the fourth quarter of 2024 increased by 14% from the same period of 2023. Excluding share-based compensation targets, selling and marketing expenses accounted for 30.2% of revenue in the fourth quarter, compared with 35.4% of revenue in the same period of 2023. As of December 31, 2024, the balance of cash and cash equivalents, restricted cash and short-term investments was RMB 11.1 billion. We value our shareholders' continued support and remain committed to delivering sustainable shareholders' capital returns. Our Board of Directors has approved the proposed payment of final cash dividend of HKD 0.18 per share, making a 20% increase from last year. Now let's move to our results for the fiscal year 2024. Our net revenue in 2024 achieved RMB 17.3 billion, representing a 46% year-over-year increase. The core OTA revenue achieved RMB 14.2 billion, representing a 22% year-over-year increase. Our transportation ticketing revenue reached RMB 7.2 billion, representing a 20% year-over-year increase. Our accommodation reservation revenue was RMB 4.7 billion in 2024, representing a 20% year-over-year increase. Other business revenue for 2024 achieved RMB 2.3 billion, representing a 36% year-over-year increase. Our Tourism revenue for 2024 reached RMB 3.1 billion. In terms of profitability, our gross margin in 2024 was 64.1% compared with 73.5% in 2023, primarily due to the integration of tourism business. The operating profit for our core OTA business reached RMB 3.8 billion, with a margin of 26.9% compared to 25.4% in 2023. The tourism business contributed an operating profit of RMB 87 million with a margin of 2.8%. Adjusted EBITDA for 2024 improved by 30% year-over-year to RMB 4.1 billion, resulting in a adjusted EBITDA margin of 23.4% in 2024. Meanwhile, adjusted net profit for 2024 increased by 27% year-over-year to RMB 2.8 billion, representing an adjusted net margin of 16.1% in 2024. Looking ahead, we will continue to invest in traffic diversification and global expansion to drive business growth, while placing an even stronger emphasis of improving efficiency, laying a solid foundation for long-term margin improvement. Over the past year, China's travel industry has seen a clear trend towards diversification and personalization. Consumers are increasingly seeking unique and authentic experiences that go beyond traditional tourist attractions, driving the creation of more diverse travel scenario. At the same time, the Chinese government has introduced a series of supportive policies to expand the supply of travel products and enrich consumption experiences, aligned with the goal of establishing the travel industry as a key pillar of the national economy. Given these factors, we remain optimistic about the long-term development of travel industry. As we move into 2025, the appetite for travel remains robust nationwide. During the Chinese New Year holiday, we saw strong travel demand on our platform. Domestic destinations, such as Yunnan, Beijing, and Guangzhou remain at top favorite among users. While outbound travel destinations, including Japan and Southeast Asia also proved highly popular. We found ourselves at the heart of vibrant and evolving era in the travel industry. We are committed to strengthening our core OTA business by enriching our service offerings and delivering greater value to our users. At the same time, we will prioritize the expansion of our outbound business to seize emerging market opportunities and bolster our global footprint. We will also continue to advance our footprint within the industry to strengthen our influence and competitive cash. Furthermore, we will continuously seize the opportunities of technological revolution and utilize cutting-edge innovation to become a bellwether of change in the industry. Through this strategic initiatives, we aim to achieve sustainable growth and deliver long-term profitability for our stakeholders. With that, operator, we are ready to take questions now.

[Operator Instructions] The question come from the line of Wei Xiong from UBS.

Two questions here. First is, I noticed the GMV and revenue growth showed a meaningful gap again this quarter, which implies continued improvement in the take rate. So could management help us to understand the drivers behind? And how should we think about the take rate trend of our ticketing and hotel businesses going forward? And second, it's great to see sales and marketing expense ratio continue to optimize on better marketing efficiency. So could management please elaborate on our marketing strategy, key focuses and investment plan for the year and how much leverage we could see from this line to drive margin expansion?

Thanks for the question. So the first question is about the gap between the GMV growth and the revenue growth. I think the reason actually is the same as we talked in quarter 3. In the quarter 3 this year -- since the quarter 3 this year, hotel ADR and also the air ticket ATV faced an extremely downward pressure due to a high base effect from the previous year 2023 because at that time, the demand is still huge, but the summer vacation and the National Holiday in 2023, the supplies still have some shortage. So at that time, it drove the ADR and also ATV, the price up. So that means that is the key reason why the ADR and ATV dropped a lot since quarter 3. And also in quarter 4, the ADR decline has already narrowed to middle to high single digits for the market. And as we mentioned in our conference call, for the ADR in our platform, is quite stable. It's just a very, very single, low single-digit drop compared with 2023. But for ATV, the drop still follow the total market, still have 5 to 10 points year-over-year drop for the ATV in the quarter 4. So that is why you can see that our GMV growth is still not very huge compared with our revenue. Because for hotel side, we are starting the accurate marketing and also the coupon reduction since the very early after 2023 and 2024. Nowadays, we still keep our very prudent investment on our company. We pay the coupon very accurate users by users. So that is why you can see our blended take rate for hotels is increasing quarter-to-quarter since -- I think the second half of 2023. And also for ATV for the air revenues, air ticket revenues, the revenue is not related to the ATVs volatility because the [ VA ] and also the service -- additional service and product [ take ] rate is quite stable quarter-over-quarter. So that is why although the ATV dropped, our blended take rate increased for the air ticket as well. So that is why the GMV and revenue growth showed a gap in quarter 3 and also in quarter 4. And also in terms of the sales and marketing expenses ratio, yes, it has been dropped for the expense ratio as of revenue, I think, since quarter 3 because as we mentioned in the very beginning of 2024, we launched a sales and marketing spending investment reallocation program. We invest more on our existing user marketing instead of the new user acquisition, because the new user acquisition is very expensive and the ROI is relatively low -- lower than the existing user marketing. For example, the cross-selling, we mentioned a lot of times to improve the frequency and also improve the ARPU. And also Joyce also mentioned our ARPU increased 50% year-over-year from only RMB 50 per person to RMB 73 per person. So that also helped our sales and marketing dollar ratio -- expense ratio as revenue dropped a lot. So that is the first reason. And the second reason is our outbound and international investments. Since quarter 3 and quarter 4, we -- our air tickets and also the accommodation room nights, outbound room nights, and outbound tickets has already scaled up. So since the second half of past year, we pay more attention of the ROI improvement for the outbound and international investment. So that helped a lot for our margin improvement and help a lot for our sales and marketing efficiency optimization. So this is the 2 questions of my answers. Thank you.

The questions come from the line of Brian Gong from Citi.

Congratulations on the solid results. So I have 2 questions. First one is regarding our top line outlook. So regarding year-to-date travel demand, do we see the whole industry demand performance in line with our expectation or slightly weaker or better than our expectations? And how has our performance been? And what's our expectation for the core OTA revenue growth for this year? And the second is regarding the margin for core OTA business, which was pretty decent in the fourth quarter, how should we think about trajectory for first quarter and 2025 full year? And we know that in the first half, 2025, we may still have easier comps because of the risk take rate and do marketing spending optimization since, I think, probably mid of last year. But beyond that, any other drivers could continue to drop our margin expansion?

Thank you, Brian. In terms of the YTD performance of the total industry of the market, I think during the first of quarter or even -- especially on the Chinese New Year's holiday, because there's a lot of news and data in the market. The China travel market continued to demonstrate a very resilient growth. According to the Ministry of Culture and the Tourism, the travel traffic and industry revenues increased by 6% and 7% year-over-year during the Chinese New Year holidays. Besides the Ministry of Transport reported a 6% year-over-year growth in national passenger throughput. In terms of the expectation of the performance in our platform in the first quarter of 2025, we expected a continued growth momentum across all segments of our core OTA business. And as usual, the growth rate will doubling to triple of the market growth. Within the core OTA business, we anticipate that the accommodation business will grow even faster. This will be driven by the strong room nights sold, supported by a new channel contributions, for example, the [indiscernible] Red book and also the cross-selling initiatives. Alongside a continued improvement integrate year-over-year, as I mentioned in the past questions due to the prudent control over user subsidies. ADR on our platform in this quarter is expected to be very resilient and remained flat year-over-year. For the transportation business performance in the first quarter, we expect its revenue to maintain a very solid growth, we continue to expand our market share for air ticketing and anticipate significant volume growth in outbound air ticket just like what we -- just like the result for the year 2024. Additionally, we are also focused on optimizing our VES offerings and enhancing monetization for transportation business. Meanwhile, we started to put more efforts to drive cross-selling from long-haul transportation to a wider range of short-haul travel options, offering users comprehensive travel combo solutions. For Other business segment growth, we also grew nicely, mainly contributed from our Hotel Management business and Membership business, which also helped drive the total OTA revenue growth. For the full year of 2025, while the short booking window limits our visibility into long-term performance, but we remain highly confident that the strong growth momentum observed in quarter 1 will carry through the whole year. In terms of the margin outlook, as your question, the second question. As we have already highlighted at this time and in the conference call of past several quarters, the margin of core OTA is expected to consistently improve in quarter 1 and throughout the whole year of 2025, aligned with our improvement in ARPU. And also, our sales marketing expense ratio will be continued reduced due to the ROI improvement and precise marketing investments. Meanwhile, our COGS and G&E expense ratio will also decrease due to the improvement in operational efficiency and scaling effect. Additionally, very important, our strategic execution of standalone app and outbound business development has been very successful over the past year to 2024. We have already launched a margin improvement program for these 2 business since the beginning of 2025, as we promised. This initiative will further support the overall margin expansion for our core OTA business. And what's more, one thing I would like to mention, we will expect a breakeven or profitable for the whole Outbound business for this year. after we launched the margin improvement program. So that is the expectation for our margin side. Thank you for the question.

The questions come from the line of Yang Liu from Morgan Stanley.

Congratulation on a following growth. Two questions from my side. The first one is regarding the recent cut of the domestic flight volume going to the second and third quarter or the spring summer session. How will this impact Tongcheng's business from this kind of airline domestic volume cut? And my second question is regarding the outbound. It has been growing nicely. And also you just mentioned it will have a margin breakeven target this year. But could you please update us in terms of what we expect in terms of growth last year, is almost like triple-digit volume growth, what should we expect for 2025?

Okay. Thank you for the question. And first question, we also observed that the flight volume or the supply end has been cut since the end of March. But as we always mentioned, that, that may cause the ATV going up because the supply end is maybe causes some kind of a shortage. So the ATV may be going up. But as we mentioned a lot of times, the ATV is not related to the revenue because more than 50% of our revenue is from the VAS, the value-added service and product, and also the take rate is fixed amount from the air companies. So that may have very limited impact on the performance for the transportation one. And in terms of the Outbound business, I think Joyce may have more color.

Sure. Thank you for the question. I think we have mentioned a lot of time before. So over the past years, we have accumulated the expansion of our international business. So continue enhancing our outbound travel offering through the strategic partnerships within the leading global OT, hotelers, airlines and various overseas TSPs. We have been already significantly strengthened our supply network. And additionally, we have increased the investment in the research and development to improve service capabilities and provide a seamless booking experience for our outbound travelers. With a well-established user base, we are actively capturing the increasing demand for the outbound travel. Our primary focus has been on International Air Tickets, where we employed the competitive pricing strategy to expand market reach, attract new more users and reinforce their brand association with our platform. We see significant opportunities to further develop this leisure and business travel market, which remain relatively underpenetrated. Additionally, a notable portion of our outbound users consist of workers and international students. We are leveraging various marketing channels to offering tailored travel products that meet their unique demand. And given that a large portion of our users are based in lower-tier cities, we have launched a specialized international transport solution in the fourth quarter to improve the connectivity between different transportation modes. This includes as a seamless transfers between flights and high-speed rails as well as domestic and international flight combinations, making it more convenient for users to access to the major airports. This initiative aim to enhancing the overall travel experience and address a key pain point for outbound travelers from these regions. So our Outbound segment has delivered expansion of growth, consistently outperforming the industry. In the fourth quarter last year, we saw particularly strong demand in key destinations such as Japan, Korea, Malaysia and Singapore. For the fourth quarter of 2024, the revenue from our outbound air ticketing business accounted more than 5% of our total transportation ticketing revenue. And starting in 2025, we have implemented a margin improvement program for our outbound business, as Julian has mentioned several times before. And additionally, the cross-selling from outbound transportation to accommodation this year presents another opportunity to drive both revenue and profit growth. So looking ahead to next 2 to 3 years, our priority remains on scaling business volume and building a solid user base, while also focusing on profitability. We're confident that this segment will become a major growth driver for the company and ultimately achieve higher margins than our domestic business. Thank you.

The questions come from the line of Leo You from CLSA.

This is Leo from CLSA. I have 2 questions. First is on the AI and how do you think AI will transform your daily business and your OTA industry in our view? And in order to capture the increment, the current opportunity, how much incremental investments will spend on AI, and how do you evaluate the ROI of such investment? This is the AI question. And my second question is on the user strategy for 2025. We thought that the transaction frequency has reached about 8x, and do you see further room for the user transaction frequency growth? And how would it translate [indiscernible] growth going forward?

Thank you. Very good questions. First, I'll answer the question concerning AI. First, I would say that from our point of view, AI has the potential to create new traffic channels for OTA by becoming the key entry point for users, but we don't think that AI will replace OTAs. First of all, our advanced and extensive travel insights play a very crucial role in delivering accurate and personalized recommendations to users. And secondly, our strong connections and a close relationship with supply and enable us to secure the competitive pricing and high-quality products to satisfy the diversified travel needs. We will stay at the front for AI advancement, continue to strengthen our investment in this area and introducing innovative user-oriented features to enhance the travel experience of our users. So that's why we have our own tourism specific generating AI Chengxin, as I mentioned. Chengxin has been fully integrated with the DeepSeek, making us the first OTA to incorporate the DeepSeek model. As integration, the Chengxin AI are leveraging its powerful reasoning capabilities to further enhancing the precision and intelligence of its decision-making service. DeepSeek's high accuracy answer generative capabilities will help Chengxin overcome the limitations of the traditional travel recommendations. Now our self-developed Chengxin has already been applied in multiple areas, let me elaborate. Chengxin assist users in planning travel itineraries and recommending travel products based on their preference, providing seamless access to a wider range of choice on platform. It also featuring an intelligent hotel comparison tool, as I mentioned, helps users to make the informed decision while selecting accommodation. We continue to optimize the itinerary planning feature with the goal of achieving seamless closed loop booking. Moving forward, this feature will continue to evolve and be updated very quickly. Beyond the user recommendations, Chengxin powers digital travel assistance for various destinations, enabling human-like interactions and suggesting local experience tailored to tourist interest. And thirdly, Chengxin also helps improve our customer service efficiency and reduce manual work. It can provide 24-hour 7-day support by answering frequent ask questions, assisting with the bookings and resolving issues in real-time. It can also detect user needs, place orders and offer humanlike response, enhancing the user experience and lowering the customer service costs. To expand its reach, Chengxin has been integrated into leading generative AI platforms such as [indiscernible] mentioned as well as the mobile ecosystems. So a key advantage of Chengxin is its access to high-quality tourism and cultural industry data, which enables more precise recommendation and enhance user experience. This unique strength allow it to deliver highly relevant travel insights, including both itinerary planning and personalized services. So it's our commitment to technology has been instrumental in enhancing operational efficiency and improve user experience. And in terms of the incremental investment, I think the main investment at the current stage is invest in talent and experts. And so in terms of CapEx operation expense is quite limited. And it's still at a very early stage to evaluate ROI, but we strongly believe that the outcome will be very fruitful. Now I move the best question to Julian.

Okay. In terms of the user strategy, actually, although we have some confidence that the user base, we still have some room to enlarge in next year -- this year and next year. But we think the ARPU improvement for the user value improvement will contribute more, have bigger contribution to our revenue growth in the future. By the end of 2024, as our conference call prepared remarks. Our user purchase frequency exceeded 8x a year, making a significant increase of approximately 45% from around 5.5x a year in 2019. Meanwhile, our ARPU also increased by nearly 50% from less than RMB 50 in 2019 to around RMB 73 in 2024. And we are very confident there is a large room improvement for this number, RMB 73, this number. Notably, the proportion of users with the ARPU over 100 increased from around 7% in 2019 to around 13% in 2024, while the user base grew from 10 million to almost 30 million, highlighting our strong growth in high-value users and also the highest value user ARPU improvement. Why we think there's still a lot of room. Firstly, because we will leverage new technologies, just like Joyce mentioned, the Chengxin AI technology, to enhance user experience. This will drive higher user engagement and encourage repeat transactions ultimately boosting our ARPU. And secondly, we will refine our recommendation algorithms and user tailored promotions to encourage cross-selling within different business segments, especially from transportation to optimization, aiming to increase revenue per transaction and overall take rates. And thirdly, we will continue to promote our VAS products and services that cater to our users' travel needs. For example, we will further optimize our intelligent travel solution Weixin system still as to improve our monetization. Moreover, we will continue to introduce innovative products and services across different scenarios to improve user satisfaction. So we will continue to expand our product and service offerings on our platform, so as to enhance user purchase frequency and also user value on our platform. Thank you for the question.

Because of time limitation, we are closing the call now. If you wish to check out our presentation and other financial information, please visit the IR page on our company website. Thank you, and see you next quarter.

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a great day.