Trip.com Group Limited (NASDAQ:TCOM) Q4 2022 Earnings Call Transcript

Trip.com Group Limited (NASDAQ:TCOM) Q4 2022 Earnings Call Transcript March 6, 2023

Operator: Good day and thank you for standing by. Welcome to Trip.com Group 2022 Q4 Earnings Conference Call. Please be advised that today’s conference is being recorded. I’d now like to hand the call over to your first speaker today, Ms. Michelle Qi, Senior IR Director. Thank you. Please go ahead.

Michelle Qi: Thank you. Good morning and welcome to Trip.com Group’s fourth quarter of 2022 earnings conference call. Joining me today on the call are Mr. James Liang, Executive Chairman of the Board; Ms. Jane Sun, Chief Executive Officer; and Ms. Cindy Wang, Chief Financial Officer. During this call, we will discuss our future outlook and performance which are forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in Trip.com Group’s public filings with the Securities and Exchange Commission.

Trip.com Group does not undertake any obligation to update any forward-looking statements, except as required under applicable law. James, Jane and Cindy will share our strategy and business updates, operating highlights and financial performance for the fourth quarter of 2022 as well as the outlook of the first quarter of 2023. After the prepared remarks, we will have a Q&A session. With that, I will turn the call over to James. James, please.

James Liang: Thank you, Michelle. Thank you everyone for joining us on the call today. This 2022 market aimed to 3-year cost utilities rate of COVID-19 pandemic Trip.com Group has once again successfully overcome the difficulties and China crisis into opportunity, just like what we did 20 years ago with SARS. In the fourth quarter, while China’s domestic travel market was still overshadowed by pandemic resurgence in the fourth quarter, I am delighted to see steady improvements in overseas markets. Overall, hotel bookings on our global platform, has outperformed the pre-pandemic level for four consecutive quarters. On a constant currency basis, overall air ticketing revenue for our global platforms in Q4 has also fully recovered to the pre-pandemic level.

Demand for China’s outbound travel surged in Q4. Searches for outbound flights departing from Mainland China hit a 3-year peak following the downgrade of COVID-19 to a Class B infectious disease and China’s reopening in December. Such encouraging data reveals increasing consumer confidence in the travel industry globally. Again, since the announcement of China’s reopening, we have seen strong travel demands across our various business lines. Our domestic hotel bookings and air bookings have already surpassed the 2019 level. Outbound travel bookings have recovered to more than 40% of pre-pandemic levels despite capacity limitation. While airlines now running international flights at a pre-pandemic level could be a short-term bottleneck, we believe China’s outbound travel will start to pickup in Q2 when flight capacity gradually recovers.

Europe and the U.S. have already been making good progress towards post-pandemic recovery of global travel. This year, when China fully reopens and the whole Asia-Pacific region catching up rapidly, 2023 is projected to be an exciting year of recovery and growth. The future is bright. We are well prepared and remain committed to helping travelers explore even the furthest corners of the planet so to bring the world closer together. With that, I will turn the call over to Jane for the operational highlights.

Jane Sun: Thank you, James. Good morning, everyone. As a quick overview, in Q4, despite the outbreak of the pandemic, our total net revenue grew by 7% year-over-year. We saw steady improvement in our overseas business, which have outgrown the pre-pandemic level. For the full year of 2022, our total net revenue remained stable year-over-year. Our adjusted EBITDA stayed positive for the past 3 years despite pandemic challenges. Thanks to our team’s efforts and our effective cost control and efficiency improvements. Now, I would like to share what we have seen in each region. First, in the China market €“ for China market, the fourth quarter of 2022 was the darkness before dawn. While domestic travel performance was soft in October and November due to viral resurgence and a strict pandemic controlling measures the announcement of dropping quarantine requirement and the reopening of country’s border in December was the key turning point in China’s travel recovery.

Overall, despite China domestic travel market being largely impacted by pandemic, we continue to adapt our strategy to outperform the market. Our same-city staycation hotel bookings in this quarter, grew by 10% above 2019 pre-COVID level and was 40% higher than the pre-pandemic level for the full year of 2022. Our domestic air ticketing booking was also recovering faster than the market. Quarter-to-date, we are glad to see that the long-haul travel bookings have strongly recovered and have already surpassed 2019 pre-COVID level and the short-haul travel growth remained robust and has nearly doubled its 2019 pre-COVID level. With both long-haul and short-haul travel demands coming back, we anticipate our domestic business to remain on the strong growth trajectory for the rest of 2023.

Second, outbound, China outbound travel has seen the demand has been robust, especially after the announcement of the border opening in December. In Q4, outbound air ticket bookings on Trip.com Group platform increased by over 200% year-over-year, and outbound hotel bookings increased by 140% year-over-year. Demand for outbound travel continued to surge in the first two quarters €“ 2 months of 2023, with outbound travel bookings increased by more than 300% compared to the same period in 2022. Back in 2019, Mainland China was the largest outbound travel market in the world, with Chinese travelers taking over more than 150 million trips overseas. We are pleased to see them gaining confidence in traveling and are eager to explore the world again after 3 years.

Right now, the bottleneck lies in outbound flight capacity, which is currently only at 15% to 20% of pre-COVID level and is largely limiting the overall recovery pace of China’s outbound travel. We anticipate that the aviation industry will set in motion plans to restore flight capacity and that outbound travel will pickup the pace in the coming quarters. Third, global markets. On the international front, the Europe and American markets continue to show steady improvements, while the opening up of the Asia region further accelerated the recovery in APAC market. For flight performance, the overall air ticket booking on our global platforms have achieved over 80% year-over-year growth. Air ticket bookings in EMEA and American market continued to show strong growth.

The APAC region was also picking up the pace and growing at over 300% year-over-year. Over on the consistent currency basis, overall air ticket revenue from the global platform, have already fully recovered to the pre-pandemic level. For hotel business, overall hotel bookings on our global platform hit a record high, and it was above pre COVID level for four consecutive quarters with domestic hotel bookings in non-China market increased by 140% versus 2019. Now, I would like to give strategic highlights on the following items. First, accommodation, over the past 3 years, we have viewed a strong use case in China on short-haul and continue to remain at our advantage in long-haul travel. In order to serve our evolving needs for the customers and create value for our partners.

We continue to press ahead with improvements in product coverage, innovation, inspiration, and the recommendation in the past quarter. With the hotel market, we have seen hotel evolving into destination in themselves, with travelers emphasizing the quality of their accommodation. Package deals cover 70% more properties than 2021 in the more than 7,000 high end properties joining hands with us to help our customers to get the best value for money. Over 240,000 hotels also join our TripPLUS program to gain access and provide extra benefits to high-quality loyal customers. In Q4, over 50% of our TripPLUS reservation, come from high end hotels. In the low tier city, we continue to leverage our gateway products to acquire new customers. As we continue to strengthen our dynamic pricing strategy.

Co-branded membership program also help expanded our reach to over 30 million joint members, which is 6x the number in 2019 pre COVID level. Second, global business. We remain confident in our China customers desire to venture overseas, especially with COVID fading away and the world embracing normalcy. We stayed focus on tightening connections with our international partners and a strengthening engagement with our Chinese customers. As one of the very few companies invested heavily in global suppliers relationship even during the pandemic period. We are well positioned to capture the strong pent-up demand for outbound travel. In addition to the resumption of China outbound travel, yet another great opportunity lies in the acceleration of travel recovery in APAC region.

Strong propensity to travel is in the region provide a good opportunity for us to capture more bookings. While we conclude our year with the strong growth, International hotel and air ticket to business, our overseas activity business has also delivered great performance with GMV increased by over 130% year-over-year, we will continue to source for unique offerings and localize our campaigns to gain trajectory for local demands, while improving our competitiveness and a service capability to win over the local mindset. Third, content platform. Following the report of the global travel activities demand for inspirational destination continue to increase we are seeing customers coming to our platform not only to book air tickets or hotel room, but also to get inspired for their next trip.

In the fourth quarter, our content generation pipeline and the users’ engagement capabilities continued to improve, the number of KOLs increased by 47% year-over-year. In 2022, user generated content also increased by 33% compared to the previous year. Average number of the content viewed per user also continued to increase. In line with our commitment to innovation, we have also launched our experimental AI chatbot TripGen, on our Trip.com platform. TripGen is a generative AI chatbot integrated with our open AI API and is designed to provide travelers with live assistance and provide the most relevant and authentic travel recommendations to our customers. First, corporate responsibility. While strengthening our capabilities to inspire and serve customers to explore the world, we remain committed to pushing forward with our corporate responsibility.

First, common prosperity, regarding our rural revitalization initiatives, our plan is to roll out 10 high-quality country retreats to empower 100 rural destinations and nurture 10,000 rural tourism talents within 5 years. Over the past year, 30 new Trip.com country retreats were built, making a total of 21 country retreats currently in operation. Right now, 80% of the staffs come from the local and their average income was increased by around RMB7,000 per year. We are delighted to be able to empower the locals and help pursue the common prosperity. Second, on sustainability. We announced our long-term green tourism goals, which include launching over 10,000 low carbon travel products, promoting sustainable travel and engage 100 million travelers in carbon €“ low carbon practices, and aiming to further reduce carbon emissions across its operation.

To meet increase the demand for sustainable travel options our Trip.com brand launched its carbon offset option for travelers to address their flight emission by supporting a portfolio of trusted high impact climate projects in line with the UN sustainability development goals. In October Trip.com Group has officially joined the Global Sustainable Tourism Council GSTC as a member to promote sustainable tourism standard in the travel and tourism sector. Finally, during the quarter Trip.com was named Contact Center Of The Year 2022 at the International Customer Relationship Excellence Awards, and a Champion For Good in Singapore, demonstrating the recognition of our brand for its service excellence and a focus on local commitment. In conclusion, we are encouraged by our results and the reason to strong recovery in the market.

I would like to thank our team for their dedicated efforts in maintaining quality services during the past 3 years. As we look into the future triple count group looks forward to working more closely with our global partners across the global market to shape our products and services around the customer needs and a pursuit for value. Working together, we will be able to deliver memorable trips for travelers wherever they choose to explore and visit in 2023 and beyond. With that, I would now turn the call to Cindy.

Cindy Wang: Thanks, Jane. Good morning, everyone. For the first quarter of 2022 Trip.com Group recorded a net revenue of RMB5 billion representing a 7% increase from the same period last year and a 27% decrease from the previous quarter, primarily due to viral resurgence and strict pandemic control in the China domestic market during the first 2 months of the quarter. For the full year of 2022 net revenue was RMB20 billion, which remained stable year-over-year, mainly driven by recovery in the overseas market, and partially offset by a soft performance in the China domestic market. Accommodation reservation revenue for the fourth quarter of 2022 was RMB1.7 billion, representing a 12% decrease year-over-year, and a 42% decrease quarter over quarter recovering to 57% of the 2019 level.

For the full year of 2022 accommodation reservation revenue was RMB7.4 billion, representing a 9% decrease from the 2021. In the fourth quarter, the China domestic market was largely impacted by the viral resurgence as strict pandemic control and limiting the hotel businesses performance. On the other hand, hotel booking on our international platforms remain robust and above the pre COVID level. Transportation ticketing revenue for the fourth quarter of 2022 was RMB2.2 billion, representing a 45% increase year-over-year and a 16% decrease quarter-over-quarter recovering to 64% of the 2019 level. For the full year of 2022 transportation ticketing revenue was RMB8.3 billion, representing a 20% increase from 2021. Domestic transportation recovery momentum was disrupted by the resurgence of COVID cases for the fourth quarter, while our international air saw the sequential improvement compared to the previous quarter, mainly driven by the steady improvements in the Europe and U.S. markets and the robust recovery in the Asia-Pacific markets.

Packaged tour revenue for the fourth quarter of 2022 was RMB164 million, representing a 7% decrease year-over-year and a 58% decrease quarter-over-quarter recovering to 21% of the 2019 level. For the full year of 2022 packaged tour revenue was RMB797 million, representing a 28% decrease from 2021. Corporate travel revenue for the fourth quarter of 2022 was RMB277 million representing a 25% decrease year-over-year and the 25% decrease quarter-over-quarter recovering to 74% of the 2019 level. For the full year of 2022, corporate travel revenue was RMB1.1 billion, representing a 20% decrease from 2021. Air ticketing bookings on our corporate travel platform was impacted by the pandemic control measures and the limited flight capacity. While accommodation booking continue to gain momentum, despite pandemic challenges and was double the 2019 level.

Excluding share-based compensation charges, our total adjusted operating expenses were 15% lower than the previous quarter, and it was a saving of 33% compared with the same period in 2019. For the full year of 2022 total adjusted operating expenses was 34% lower than the 2019 level. This reflects our effective cost control and efficient operating management across business lines. Adjusted product development expenses for the fourth quarter decreased by 16% from the previous quarter and was the saving of 20% compared with the same period in 2019. Adjusted G&A expenses for the fourth quarter remained flattish, compared to the previous quarter and to the same period in 2019. For the full year of 2022, adjusted product development expenses, and adjusted G&A expenses were 20% and 11% lower than the 2019 level respectively.

As we continued to run lean and maintain a stable headcount. Adjusted sales and marketing expenses for the fourth quarter decreased by 21% from the previous quarter, and 55% compared with the same period of 2019. For the full year of 2022, adjusted sales and marketing expenses were 55% lower than the 2019 level. As we continue to stick with our stringent cost control protocol. Adjusted EBITDA was RMB286 million for the fourth quarter, compared with RMB64 million in the same period last year, and RMB1.4 billion in the previous quarter. Adjusted EBITDA margin was 6% for the fourth quarter, compared with 1% in the same period last year, and 21% in the previous quarter. Diluted earnings for ordinary shares and for ADS were RMB3.12 or $0.45 for the fourth quarter of 2022 and RMB2.14 or $0.31 for the full year of 2022.

Excluding share-based compensation charges and fair value changes of equity securities investment exchangeable senior notes, non-GAAP diluted earnings per ordinary share and per ADS were RMB0.76 or $0.11 for the fourth quarter and RMB1.97 or $0.29 for the full year of 2022. As of December 31, 2022, the balance of cash and cash equivalents, restricted cash, short-term investment, held to maturity time deposit and financial products, was RMB60 billion or $8.6 billion. Now turning to the first quarter of 2023, we would like to share some colors of our business. Since the lifting of COVID related travel restrictions, China domestic travel market has seen very strong release of pent-up demand in the first 2 months of 2023, with industry level air passenger volumes recovered to around 80% of 2019 level and hotel RevPAR fully recovered in recent weeks.

The international flight capacity also recovered to 15% to 20% of the pre-pandemic level and continues to moving up. Quarter-to-date, we are glad to deliver strong results across our business lines. First, for our domestic hotel and air bookings have already surpassed the 2019 level. Second, our outbound travel bookings have grown by more than 300% compared to the same period last year and our hotel and air ticketing bookings on our global platforms continues to grow by triple-digits year-over-year. To conclude, the lifting of pandemic-related restrictions and reopening of country border have been an important driver to the recovery of global travel and our businesses. We acknowledge the uncertainty regarding potential looming new wave of COVID that may disrupt the recovery trends.

However, we are confident in travelers’ strong desire for travel and ability to handle challenges. We will keep the operation lean and continuously to enhance efficiency and invest to seize opportunities in the coming future. With that, operator, please open the line for questions.

See also 15 Countries with Highest Inflation Rates and 20 Most Important Companies in the World.

Q&A Session

Operator: Thank you. First questions we have the line from Brian Gong from Citi. Please ask your question.

Brian Gong: Good morning, James, Jane, Cindy and Michelle. Thanks for taking my questions. So management just mentioned we have seen decent recovery for the industrial in our business, so just wonder can management share a bit more color and the details on the performance for our domestic outbound and international platforms respectively in recent weeks? Thank you.

Jane Sun: Yes, thank you, Brian. Our performance for domestic outbound and also international are very strong. For domestic business, we have already see hotel and air tickets surpassed pre-COVID level. For outbound business, we have seen 300% quarter-to-date growth compared to last year although the air ticket capacity has not fully recovered yet. Certainly, on the platform €“ for global platform, we have seen three-digits growth in the regions. So we are confident that we can work hard to capitalize the opportunity in 2023. Thank you.

Operator: Thank you for the questions. Next question is from the line of Alex Poon from Morgan Stanley. Please go ahead.

Alex Poon: Thank you. Congratulation management on extremely strong results and year-to-date performance.

Jane Sun: Thank you.

Alex Poon: My question is related to our expectation for the rest of the year in 2023, will total revenue fully recovers to the pre-COVID level sometime this year? Thank you very much.

Jane Sun: Thank you, Alex. Despite very limited visibility due to comparatively short booking windows compared with pre-COVID period, we expect that the recovery momentum of the China domestic travel will remain robust and that of the outbound travel will continuously to improve with increasing cross-border flight capacity in a healthy macro environment. With regard to our international brands, they are all on the right track to gain market share in respective markets and we expect to maintain the growth momentum in this year. So in summary, we were working very hard to make sure that we are going to continuously to gaining market share both for the China market, including China domestic and China outbound as well as for the international market, which will help us €“ help our revenue hopefully to go almost back to the normalized level. Thank you.

Operator: Thank you for the questions. Our next question comes from Jiong Shao from Barclays. Please ask your question.

Jiong Shao: Thank you very much for taking my question and congrats on the very strong result and outlook. My question is around margins. You have sort of optimized your cost structure during the pandemic. Now the demand is recovering. Your pipeline is growing very fast, but you also need to balance keeps kind of cost efficiency while investing enough to capture the growth. So I was wondering how you balance that and I will remember around pre-COVID your op margin was around 20% and sort of how we should think about getting to that level or even exceeding that level by end of the year? I think your longer term guidance on the margins is around 20% to 30% if I am not mistaken. Thank you.