eLong, Inc. (LONG)

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eLong, Inc.(ELONG)

Q4 2011 and Full Year 2011 Earnings Call

Feb 23, 2012, 7:00 pm ET

Executives

Guangfu Cui - CEO

Mike Doyle – CFO

Philip Yang - Investor Relations

Analysts

James Lee – CLSA

Fawne Jiang – Brean Murray

Catherine Leung – Goldman Sachs

Alicia Yap – Barclays Capital

Eddie Leung – Merrill Lynch

Lawrence Auriana – Kaufmann Fund

Presentation

Operator

Good day to everyone and welcome to eLong's Fourth Quarter and Full Year 2011 earnings report conference call. (Operator Instructions) I will now hand over the line to Philip Yang and I will be standing by for the Q&A session. Please go ahead, thank you.

Philip Yang

Hello everyone, thank you for joining eLong’s fourth quarter 2011 conference call.

Today, Guangfu Cui, our CEO, will make some remarks about the company’s performance in the fourth quarter 2011 and full year 2011 followed by Mike Doyle, our CFO, who will provide additional detail on our financial results. Following their prepared remarks, Guangfu and Mike will be available to take your questions.

Before the management presentations, please allow me to read our Safe Harbor Statement. During this call representatives of the company will make certain forward-looking statements within the meaning of the U.S. Securities Act and the Securities Exchange Act. These statements are based upon management’s current views and expectations with respect to future events and are not a guarantee of future performance. Furthermore, these statements are, by their nature, subject to a large number of risks and uncertainties that could cause actual performance and results to differ materially from those discussed in the forward-looking statements as a result of a wide variety of factors. eLong undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise. Please refer to the risk factors described in our Annual Report on Form 20-F, as well as the full text of the Safe Harbor Statement in our Form 6-K, which will be furnished to the SEC in connection with our press release and this call, for discussion of some of the important factors that could affect future results.

I will now turn the call over to our CEO, Guangfu Cui.

Guangfu Cui

Thank you, Philip. Hello everyone, thank you for being on this call.

In the fourth quarter, we continued to see customers respond strongly to our market leading hotel network, easy-to-use hotel website, coupon program, and hotel group buy product. Hotel room nights grew 50% year over year to 2.6 million. Approximately sixty-three percent of our customers now book online at eLong.com and through our mobile applications. As a result, we believe we are gaining market share in the online hotel booking segment.

The highlight for 2011 was that hotel room nights grew 44% to 9.2 million room nights compared to 6.4 million in the prior year. We are very pleased to see that we are making good progress in our core business.

Our domestic hotel coverage network expanded 48% to over 25,500 domestic hotels as of December 31, 2011, and our international hotel coverage totals 149,000 through our affiliation with Expedia giving eLong the largest selection of online direct booking options in China. In 2011, eLong invested heavily in hotel product innovation and launched several new products. Our hotel group buy product exceeded 100,000 booked room nights for the first time in December. eLong group buy is a heavily discounted hotel product and the customer prepays eLong to get electronic voucher that is redeemable for a future hotel stay. We expanded our last minute hotel product available on our mobile phone applications. We have also recently released the updated versions of our iPhone and Android applications as well.

To compete and win, we must continue to provide customers with broad hotel product choices at competitive prices and an outstanding user experience. In 2012, we plan to continue executing on our online hotel strategy. We will execute the following initiatives:

1) offer more competitively priced hotel products via innovative selling methods;

2) offer more domestic hotels;

3) aggressively attract online customers while striving to improve marketing efficiency;

4) improve the online booking experience and overall customer service quality; and finally

5) make IT infrastructure investments to support our growing business and improve website performance.

There is no doubt that competition is intensifying in China’s online travel market. However, we have been executing a consistent online-hotel strategy for over four years. We believe that the knowledge gained during this period and our continued sharp strategic focus will serve us well in responding to the efforts of any competitors which may attempt to copy us.

Now, I would like to hand the call over to Mike for a review of our financial results.

Mike Doyle

Thank you, Guangfu.

In the fourth quarter, strong online hotel performance drove an acceleration in our year-on-year net revenue growth to 27%.

Our hotel business benefited from our continued product investment and innovation. We added new hotel inventory, launched new booking models such as group buy and mobile, as well as ongoing website improvements. Room nights booked through eLong increased 50% year-on-year to 2.6 million, which was an increase from the 42% year-on-year that we saw in Q3.

In the fourth quarter, hotel revenue grew by 39% year on year due to increased room night volume and a change to our coupon program, partially offset by lower average commission per room night. Commission per room night decreased 7% year-on-year primarily due to lower ADRs which were a result of mix shift to budget and group buy hotels which together now represent more than 40% of our room night volume. A challenging Shanghai World Expo comparable in October and the success of our coupon program also led to a decrease in commission per room night. During Q4, in an effort to improve our coupon program, we eliminated the RMB50 minimum threshold that customers had been required to meet before they could use their cash rebates. As a result, under US GAAP, we no longer defer additional hotel revenue from our future coupon transactions but only book hotel deferred revenue as coupon usage occurs. Approximately RMB5.9 million in hotel deferred revenue was released to hotel revenue in Q4 as a result to this change, and the year-on-year growth in hotel revenue would have been 32% without this change. Hotel revenue now represents 76% of our total revenues, which is an increase from 69% in the fourth quarter of 2010.

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