On July 30, the company announced the renewal of the strategic cooperation and marketing promotion framework agreement with Tencent. The main points are as follows:
1) During the 2024/1-2027/1 period, the company paid a total of 6.554 billion yuan of service fees to Tencent for traffic services & advertising and marketing, an increase of 67% over the same period 2021/1-2024/7. Among them, the upper limits of traffic service/advertising and marketing service fees were 2.535/4.019 billion yuan respectively, an increase of 50%/80% over the same period from 2021/1-2024/7.
2) During the 2024/1-2027/7 period, Tencent paid the company a total of 0.306 billion yuan in service fees for advertising and marketing and promotion services, an increase of 20% over the same period 2021/1-2024/7.
3) From 2021/1-2024/7, the company's actual traffic service & advertising marketing service fee usage rate was 78.3%, of which traffic and marketing were 89.7%/69.7%, respectively.
Is the increase in the service fee ceiling reasonable?
The increase in the upper limit of service fees should be linked to the increase in MAU. 2023H1 compared to the end of 2020, the company's MAU increased by 42.4%. If we assume that the company's MAU growth rate in 2024 is slightly lower than the revenue growth rate, then the MAU increase in 2024 compared to the end of 2020 is about 63.6%, close to the overall increase of 67% at the upper limit of the contract, that is, the increase in unit price is limited.
As far as MPU & GMV is concerned, although these two indicators involve user payments and customer unit prices, they are the core of measuring the effectiveness of service fees. At the end of 2023 compared to the end of 2019 (considering the impact of the pandemic), the company's MPU/GMV increased by 54%/45%, respectively, and 63%/60% compared to 2019 based on the 2024 forecast.
What is the difference between traffic services and advertising and marketing limit increase?
The company attaches importance to traffic monetization efficiency. After large-scale upgrading was completed, it switched to a “increase in customer unit price for existing customers”. Typical measures achieved good results in transportation-accommodation cross-sales. The traffic limit increased by 50% versus the company's current strategic “expansion of outbound travel business” and increased marketing, which led to an 80% increase in marketing and promotion expenses.
Previously, the market had some concerns about the renewal of cooperation agreements. The boom in the outbound travel chain and the investment of marketing expenses for new businesses also disrupted profit margins. The contract has now been renewed. Although the upper limit increase is high, it is mainly related to business volume and strategy, and the unit price increase is limited. The logic that the increase in low-tier penetration rate drives a higher growth rate than the OTA market is still strong. Against the backdrop of increased competition in the low-tier market, investment in new businesses may disrupt profits in the short term, but it is beneficial to long-term development. It is recommended to pay attention to industry trends, increase customer unit prices for the company's existing customers, and the pace of investment in new business marketing.
Profit forecast and investment suggestions: The company has the advantage of low-cost customer acquisition and asset-light operation. It has demonstrated resilience in performance during the pandemic, and the dividends will remain deep after the pandemic. Considering the company's acquisition of Beijing Tongcheng Travel Group, the estimated revenue for 24-26 will be 17.9/21.4/25.3 billion yuan, up 51%/20%/18% year on year, and net profit of 2.1/2.7/3.4 billion yuan, up 35%/29% 24%/adjusted net profit 2.7/3.4/ 4.1 billion yuan, up 24%/25%/20% year over year, maintaining the “recommended” rating.
Risk warning: risk of macroeconomic fluctuations, risk of outbound travel recovery falling short of expectations, risk of new business growth falling short of expectations.