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eLong, Inc. (LONG)
Q2 2011 Earnings Call
August 8, 2011 8:00 PM ET
Mike Doyle – CFO
Guangfu Cui – CEO
Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Mr. Leung. Sir, you may proceed.
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Eddie, this is Mike. On sales and marketing expense we have continued to see an increase in cost per clicks, though the increases have moderated based on what we were seeing even a year ago. I think the expense – the increase in expense that you see on the sales and marketing line is due to just a more aggressive pursuit of acquiring customers online across all channels it includes traditional keyword hitting on search engines, our use of vertical search as well as a number of other marketing channels including our affiliate business.
Got that. And then the margin outlook?
We don’t provide guidance on margin. We saw a decent pick up in gross margin for the quarter based on two strong trends, which is mix shift to our higher-margin hotel business from air, and also to our online fulfillments channel. We expect both of those trends to continue. But we are also experiencing some increase in transaction cost due to increases in labor cost in the market.
Got that. And then my last question is, yes, on your custom pull-outs. After you guys rolled out certain initiatives in terms of promotional strategy, in terms of shifting your focus from hotel to air, have we seen the user pull value in terms of demographics, geographical coverage, et cetera changing in the past a year or so? Thanks.
We don’t regularly track the demographics by customer segment. It’s not something that we shared. We have shared certainly geographic mix on these calls and we haven’t seen as significant change in the composition of our room night mix. We’re still about 40% of our room nights coming the four Tier-1 cities, so we have seen a faster rated growth in Tier 2 and Tier 3 just not a material shift yet in mix. I think – it’s early to the mix of leisure and business customers. Again not at the profile that we regularly track, but we do believe that our growth is coming very strongly from the leisure segment.
Got it. I’ll go back to the queue. Thanks.
Our next question comes from (inaudible). Ma’am you may proceed.
Hi good morning Guangfu and Mike. My first question is actually regarding your pricing trends in the second quarter both on hotels as well as on the air sites. On the hotel side, since the commission per room night that has seen largest year-over-year decline ever, just wonder what contribute to that decline also what’s your current exposure to budget hotel sector? Going forward in terms are we going to see similar level of the commission per room night cut in the third quarter?
Okay. Let me respond. This is Mike. We have continued to see similar trends in revenue per room night with one exception. So in prior quarters call, the majority of the revenue per room night decline was related to fewer trends, one was mix shift to budget hotels and the other was the increasing popularity of our coupon program. Both of those two trends continued in Q2 but in addition we saw year-on-year decline in ADRs based on a higher average daily rates realized during the Shanghai World Expo last year. So in the past while we have also called out on these calls that ADR has declined it was almost entirely related to mix shift to budget hotels, this quarter we had a third factor which was absolutely ADR declines across the most star categories.
You asked about the – the mix of budget hotel room nights, we’re at now 38% of our total nights up from 35% a year ago.
Got it. Regarding the average data ADR decline or (inaudible) segments of the hotel, I guess like the budget forecast do you have it has the sharpest decline?
Yeah, that’s correct. So we track ADRs across all star categories and saw decline in all start categories with the exception of five stars, and the ADR decline was largest in the budget hotel space.
Got it. Regarding the pricing for the air, see you have a pretty good year-over-year promotion per segment increase, just wonder how much of that was going to driven by shut in the international travel, how was as a result of ADR and average ticket price increase?
So we saw a pretty healthy increase in average ticket value among our domestic tickets. We actually saw a decrease in average ticket value with our international tickets, but given the mix shift international it was still enough to result in a positive year-on-year trend for the overall air business and that is the primary driver the blend of average ticket value and the higher commission per segments, the actual commission rate for a segment was not changed significantly.