On May 3, Booking, Expedia and other international OTA platforms released their Q1 2024 quarterly financial reports. From a performance standpoint, both companies exceeded expectations. Booking's total revenue for the period was $4.4 billion, and Expedia's total revenue was $2.9 billion.

In fact, due to the relaxation of control measures in most European and American countries from 2021, the two major OTA platforms in Europe and America were able to achieve performance recovery ahead of their Asia-Pacific counterparts. This also made Booking and Expedia the reference objects of secondary market investment in Asia-Pacific OTA platforms after cross-border travel in the Asia-Pacific region gradually resumed in 2023.

Similar to the post-epidemic performance surge of these two giants, domestic OTA platform such as tuniu (TOUR.US) also ushered in their own moment of glory in the first quarter of this year after the "blood return-style recovery" in 2023.

The logic behind the 'revenge growth' in performance

Zhijun finance app has learned that Tuniu achieved revenue of RMB 108 million in Q1 2024, a year-on-year increase of 70.9%; gross profit was RMB 82 million, a year-on-year increase of 111.0%; at the same time, the company's net profit for the period was RMB 21.9 million, and adjusted net profit was RMB 27.7 million, both year-on-year profits. This is also the first single-season profit achieved by Tuniu since its listing.

The reason why Tuniu was able to turn around its performance in Q1 of this year was due to the gradual recovery of the domestic tourism industry and the blood transfusion for online travel OTA enterprises, which proved as a new lease of life and death for Tuniu. Before 2020, in order to win the online OTA market share war, Tuniu successively cooperated with many popular variety shows and movies, spending a large amount of advertising fees. However, due to the subsequent impact of the epidemic, Tuniu's investment did not achieve profit conversion.

This is reflected in Tuniu's financial reports in recent years. Zhijun finance app has learned that in 2018-2019, Tuniu's marketing expenses accounted for 34.7% and 40.5% of total revenue, respectively. As of 2022, Tuniu has accumulated losses of about RMB 7.7 billion since its listing. Before 2020, the company only achieved single-season profits in Q3 2018.

But this phenomenon seems to have changed in 2023. In the Q3 quarter of last year, Tuniu successfully turned its year-on-year losses into profits, and this was also its second consecutive quarter of profitability after the Q2 quarter of last year. Although it failed to maintain profitability in last year's annual report, judging from the year-on-year growth of net profit in the past, Tuniu's net profit has been clearly improving since Q1 2022 quarter.

This is partly due to Tuniu's cost control strategy, and partly due to the revenue growth brought by the market's recovery. From the figure below, it is easy to see that from 2021 to 2023, the domestic OTA market is in a low point. Tuniu has adopted a relatively strict cost control strategy. In Q1 of 2023, its marketing and management expenses totaled RMB 42.306 million, a 47.22% decrease from the same period in 2021.

At the same time as the market recovery trend pushed revenue growth, Tuniu's cost control also began to shift from an overall tightening to a targeted approach from 2023, which showed significant growth this year.

The reason for the above-mentioned change in cost control strategy is ultimately due to the overall recovery of the Asia-Pacific cross-border tourism industry and the domestic tourism industry.

According to IATA statistics, in 2023, the Asia-Pacific cross-border passenger transport volume (RPK) had recovered to 73% of the same period in 2019, a recovery rate similar to that of Europe and the United States in 2022 of 75% and 79%, respectively. In 2023, cross-border travel between Europe and the United States has basically fully recovered, with North America recovering from 34% in 2021 to 101% in 2023 and Europe from 32% in 2021 to 93% in 2023. It can be seen that cross-border travel between Europe and America in 2023 has recovered to 90-100%, and this path can be used as a reference for the recovery of inbound and outbound travel in Asia-Pacific in 2024.

In the domestic market, due to more complete infrastructure in mobile payments and more significant improvement in online travel penetration, data from Fastdata's '2023 China Tourism Industry Recovery Trend Report' show that in Q1 2023, online travel transaction volume accounted for more than 60%, with online travel penetration increasing from 38.8% in Q1 2019 to 60.6% in Q1 2023, which is higher than the global average. Based on this, domestic OTA travel RPK data rebounded rapidly in the first half of last year, exceeding the pre-epidemic high point.

Opportunities brought by changes in the tourism supply side

At present, the industry's overall recovery has been reflected in Tuniu's business revenue for the current period. The financial report shows that in Q1 of this year, due to the growth of group tour business, Tuniu's packaged tourism product revenue was RMB 83 million, a year-on-year increase of 106.7%; other revenue was RMB 25 million, an increase of 8.5% from the same period in 2023.

Behind it, the new business models brought by changes in the tourism supply side are worth paying attention to. According to the Zhijun finance app, after the public health incident, the supply of domestic tourism products has shown a trend of more diversified development, from the 'entering Zibo for grilling' and special forces tourism during the May Day holiday last year, to Citwwalk, cultural and tourist sites, and performing arts tourism in recent years throughout the country, as well as the Asian Games in Hangzhou and the ice and snow frenzy in Harbin. In 2023, China's tourism market showed development characteristics that were completely different from those before the epidemic.

The platform has started launching a brand new OTA service targeting the new market demands mentioned above. One of the services mentioned in the financial report is Tuniu Travel Live.

According to the data, in Q1 this year, Tuniu live broadcast transactions exceeded 440 million yuan, an increase of 71% year-on-year. The verification rate of current live broadcast products has increased significantly, with a year-on-year increase of 138%. From January to May this year, the verification amount of Tuniu live broadcast products increased by more than 400% year-on-year. As of the end of May this year, the transaction volume and verification amount of Tuniu live broadcast both exceeded the full year of 2023.

In addition to the changes in the supply of tourism products, the active primary investment and financing market is also further pushing up the heat of the domestic tourism market. The data shows that in the first quarter of this year, the trend of financing recovery in the domestic tourism industry is evident. The year-on-year change in the number of monthly financing projects in the domestic tourism industry from January to March was 28.6%, 8.7%, and 18.8%, respectively. The year-on-year change in the amount of monthly financing is 40.6%, 72.3%, and 16.4%, respectively. From the perspective of the financing scale, all achieved positive growth. It can be seen that the strong recovery of the domestic tourism consumer market and the emergence of tourist hotspots in many places have played a significant role in boosting the confidence of the capital market.

Data shows that in Q1 this year, the recovery trend of financing in the domestic tourism industry is obvious. The year-on-year changes in the number of monthly financing projects in the domestic tourism industry from January to March are 28.6%, 8.7%, and 18.8%, respectively. The year-on-year change in the amount of monthly financing is 40.6%, 72.3%, and 16.4%, respectively. From the financing scale, all showed positive growth. Therefore, it is evident that the strong recovery of domestic tourism consumption market and the emergence of tourist hotspots in many places have played a significant role in boosting the confidence of the capital market.

For Tuniu, the hot consumer market and primary investment and financing market have raised the company's expectations for market recovery. As mentioned earlier, Tuniu has gradually increased its marketing investment in the market since the first quarter of this year. However, this may also cause concerns among investors: Faced with a market that is recovering, will Tuniu return to burning money for marketing as it did before the epidemic, leading to another loss?

From the changes in Tuniu's income and the proportion of business income before and after the epidemic, it is not difficult to see that due to the fact that group tours have always been Tuniu's advantageous business, it has become a differentiated presence in the online travel agency industry.

From the perspective of service supply, the core of the operation of outbound group tour business lies in the company's ability to establish a 'full-chain' capability from supplier to sales and service delivery. This also means that in order to run this business, companies need to continue to invest a considerable amount of financial resources.

From the perspective of service demand, the group tour has a longer periodicity, higher unit prices, and relatively low repurchase rate. The most straightforward and effective way for companies to expand the user base on the demand side is to increase marketing investment. According to the Q1 financial report, Tuniu's marketing expenses have begun to increase in promotion investment, which is different from before the epidemic. The high input-output ratio in Q1 this year also indirectly confirms its operational efficiency improvement. However, it is still unknown whether the company will significantly increase its promotion efforts in the future.

In addition, another issue of Tuniu is the singularity of its business. As seen in this financial report, after the recovery of the tourism market, Tuniu's income from outbound group tours has greatly increased and has become the core source of the company's income, realizing a significant year-on-year increase, while the increase in other business income of the company is only in the single digit percentage. How to continue to expand the business will undoubtedly be a crucial issue for Tuniu's continued growth.

However, Wall Street investors are clearly more pleased with Tuniu's current performance. After bottoming out at $0.59 in intraday trading on March 20 this year, Tuniu's stock price began to rebound, and as of intraday on June 4, it had reached a high of $1.26. The cumulative increase in more than two months has reached 113.56%.