eLong, Inc. (LONG)

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eLong, Inc. (LONG)

Q2 2011 Earnings Call

August 8, 2011 8:00 PM ET

Executives

Mike Doyle – CFO

Guangfu Cui – CEO

Analysts

Eddie Leung

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Mr. Leung. Sir, you may proceed.

Eddie Leung

Hey, good morning Mike and Guangfu. Just a couple of questions. The first one is when I looked at the increase in marketing costs, I’m wondering that you know could you share with us how much is the recruitment cost going up on an year-to-year basis because we’ve heard a lot of stories about inflation especially on the online advertising side? And could you also provide us the outlook in terms of margins, let’s say for the upcoming quarter? Thanks.

Mike Doyle

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.

Eddie Leung

Got that. And then the margin outlook?

Mike Doyle

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.

Eddie Leung

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.

Mike Doyle

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.

Eddie Leung

Got it. I’ll go back to the queue. Thanks.

Operator

Our next question comes from (inaudible). Ma’am you may proceed.

Unidentified Analyst

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?

Mike Doyle

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.

Unidentified Analyst

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?

Guangfu Cui

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.

Unidentified Analyst

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?

Guangfu Cui

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.

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