Tongcheng Travel Holdings Ltd

HKEX:780

Earnings Call Transcript 2021-Q2

[Kylie Yeung, executive]

Thank you. Good morning, and good evening, everyone. Welcome to Tongcheng-Elong's 2021 Second Quarter and Interim Results Conference Call. I'm Kylie Yeung, Investor Relations Director of the company. Joining us today on the conference call are Mr. Hep Ma, Executive Director and CEO; Mr. Julian Fan, CFO; and Ms. Joyce Li, VP and Head of Capital Markets. For today's call, our management team will provide a review of the company's performance for the second quarter. Hep will walk us through the company's business performance for the quarter. Joyce will discuss our operational highlights, and then Julian will address the details of our financial performance accordingly.

We'll take your questions during the Q&A section that follows. As always, our presentation contains forward-looking statements. Such statements are based on management's current expectations and current market operating conditions and related to events that both known and unknown risks, uncertainties and other factors, which may cause the company's actual results performance or achievements to differ from those in the forward-looking statements.

This presentation also contains some unaudited non-IFRS financial measures. They should be considered in addition to, but not as a substitute for measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of non-IFRS measures, please refer to our disclosure documents in the IR section of our website.

Now let me introduce our CEO, Hep. Hep, please go ahead.

[Heping Ma, executive]

Thank you, Kylie. Good evening, everyone. Thank you for joining our 2021 Second Quarter Earnings call. The past quarter was fundamentally encouraging for China's domestic travel industry. In April and May, we saw a strong recovery momentum in the sector with enhanced willingness and demand for travel in late May. However, we saw a slowdown in the industry recovery as stricter travel restrictions were imposed to contain a new outbreak of COVID in Guangdong Province.

All the market players were inevitably impacted. But thanks to our strong operational capability and excellent market adoptability, we overcame all the difficulties and delivered outstanding results for the second quarter and continuously outshine the market. Moreover, we were awarded the Best-Mini Program for the first half of 2021 by availing third-party mini-program monitor Aladdin for our exceptional performance in the first half of the year.

Even under the shadow of the regional outbreak, our accommodation business, a key growth driver for the company, maintained its robust growth momentum in the second quarter as we made continuous efforts to step up investments in low-tier cities and build up our market influence there. Over the past quarter, we increased our efforts in leveraging the enormous traffic from our train and air ticketing business to drive cross-sales to our hotel products and services, which added to the decent growth in our accommodation business.

Moreover, we further pushed ahead with our offline user acquisition initiatives by cooperating, not only with hotels, but also with other offline traffic hubs so as to acquire more users. For the second quarter, our domestic room nights saw an impressive year-over-year growth of our 65% compared with 2019. While the room nights sold in lower-tier cities adjusted and accelerated growth of more than 100% over 2019 levels. In addition, we continuously developed and innovated our value-added products and services by digging into the underlying needs of users and suppliers, expanding new revenue authorities and improving monetization for the accommodation business.

Despite of uncertainties caused by COVID, resurgence in Guangdong province, our transportation business position as the backbone of the company. They saw solid growth in the second quarter and outperformed the industry of several consecutive quarters. Our domestic air ticket volume for the quarter witnessed a satisfying growth of nearly 30% when compared to 2019, mainly attributable to our solid market position in lower-tier cities and our strategic focus on younger generations as well as effective cross-sale initiatives.

In late March, we launched an innovative product called Blind Box of Air Tickets, which was overwhelmingly welcomed by younger users. And as a result, boost our brand recognition. As for our train ticketing business, we remained focused on enhancing user value. Throughout the second quarter, we made greater efforts in diverting the traffic to our air ticketing business by tapping deeper into users' needs in an attempted to increase the value of train traffic.

We continuously developed and innovated our value-added products and services to better fulfill our users' needs and make their journey easier and more convenient, meanwhile, we kept refining the infrastructure of our intelligent Huixing system to further enhance ticketing and refund efficiency for the sake of users convenience. As an effective channel for the company to expand the user base, our bus ticketing business has shown extremely value growth since last year.

Over the past quarter, its volume almost tripled when compared with 2019. As we rolled out more bus ticket vending machines to further penetrate lower-tier cities and even villages and towns, we also enhanced the geographic layout of the vending machines to strive for higher user acquisition efficiency. By the end of June, we had more than 9,000 machines installed across almost 300 cities. For the current stage, given the extremely low online penetration rate of the market, we will remain focused on meeting user base, and we will make gradual efforts to leverage the bus traffic.

In the past quarter, we had made a preliminary attempt in cross-selling other products to bus ticketing users so as to enhance our monetization capability. As for our other businesses, they also saw rapid growth in the past quarter, largely thanks to stronger recovery in the advertising business, addition of corporate travel as well as a quick expansion of paid membership program.

Going into the third quarter, we were pleased to see stronger travel demand rebound at the beginning of July. However, later in July, the Guangzhou was sequentially struck by natural disasters, first in -- once in millennium torrential rain in central city of Zhengzhou. Then a formidable typhoon that caused massive damages in the Eastern region, which was a [ late ] outbreak of COVID in Nanjing spread to several cities across the country.

All those have caused severe disruption to the economy and the travel in those regions. As a socially responsible enterprise, we reacted swiftly and immediately introduced a no penalty cancellation policy for the sake of our users. Meanwhile, together with the Tencent Map, we co-launched a map of goodwill hotels, through which users in Zhengzhou can easily locate hotels that provide rest areas, drinking water and other relief services free of charge. Furthermore, this map also enables users to track flooding conditions in different areas, which help them plan travel routes.

The resurgence of COVID in the end of July and in August throughout the country again, under regions, which has put a pause on the emerging travel demand, and that caused a big fluctuations in our business. However, we are equipped to handle all the difficulties and uncertainties since we are experienced in coping with market changes caused by COVID.

As you may have seen over the past few quarters, we adopted flexible operational strategies and implement the stringent cost control amid COVID to alleviate the adverse impact and still managed to meet the industry recovery. Since the outbreak of the COVID pandemic in early 2020, China's travel industry has been undergoing dramatic changes. From use of the highway to the supply end, users are more inclined to ad-hoc travel and online bookings. Smart technologies are being widely adopted by industrial players. All these changes, although causing challenges for the traditional industry, has also created a great opportunities for all industry players. More importantly, the Chinese government has been making continuous efforts to promote the development of the industry, especially after COVID as travel is the basic need for everyone and it brings happiness and satisfaction to people.

Before closing my speech, I would like to reiterate our optimistic stance for China's travel industry, especially the market in low-tier cities, where we see greater opportunities and a huge growth potential. Although facing uncertainties in the short run, we remain confident that with our strong execution capability, flexible operational strategy and more importantly, our strategic focus on lower-tier cities as well as empowering the travel industry with our technology, we will overcome all the challenges and emerge as a stronger company.

We will consistently need industry growth and whatever it need to promote the development of the country thus, creating value for society. With that, I will turn the call to Joyce. She will walk you through our operational highlights for the second quarter. Joyce, please go ahead.

[Joyce Li, executive]

Thank you, Hep. The resurgence of COVID in Guangdong Province put a break on the robust recovery in China's travel industry in the past quarter. As a veteran in industry, we quickly responded and calibrated our operational strategies to adapt to the ever-changing market conditions and managed to outperform the industry for another consecutive quarter.

In the second quarter, we continued to set up investments in our branding campaigns to strengthen our brand influence in low-tier cities and among younger generations. Our innovative and phenomenal product Blind Box of Air Ticket, debuted in later March, has demonstrated popularity among younger users and has successfully seen robust opportunities in Qingming and Labor Day holiday, contributing greatly to our MAU growth for the third quarter. We joined hands with the China's most influential beer brand to launch [ right ] making activity during summer vacation to enhance our brand presence among targeted users. Recently, we also launched an innovating marketing campaign, called 48 Hours, aiming to build a branded short-haul travel product so as to better serve emerging needs for short-haul journey post-COVID.

As part of the 48 Hours initiative, we launched Blind Box containing hotel coupon, COVID crashing ticket and a transportation ticket. As for next step, we will have tourist destinations on board to co-launch more marketing activities targeting younger users so as to further enrich our 48 Hours campaign. In addition, our paid membership loyalty program continues to expand rapidly with the number of cumulative Black Whale members approaching 9 million as of the end of June, since we get deeper into users' needs and launched different membership versions tackling different user cohorts.

Moreover, we further expanded cooperation with third parties to enrich our paid member privileges to a great extend. Throughout the second quarter, we continue to seek cooperation within the Tencent eco-system to attribute a stronger bond with our users. We're entitled to several IP rights by Tencent, which enable our user to enjoy user privileges at our corporated hotels as well as helping our partners attract more traffic. This Tencent partnership has not only helped increase our brand awareness among younger generation, but also reinforce our influence in the hotel's time chain.

Besides, we joined hands with Weixin Pay to launch promotional campaigns to enhance our online user acquisition efficiency. More importantly, we successfully renewed our agreement with Tencent in late July, through which we continue to have 2 entry points in Weixin Payment space. In the future, we will put exploration ecosystem to build deeper engagement with our [ direct ] users.

Apart from the Tencent ecosystem, we also explored cooperation with other traffic platforms. Since last year, we have established solid partnership with China's major handset vendors and have continuously deepened the mutual cooperation. In the past quarter, we co-launched a marketing campaign with one of influential handset vendors and had our brand highly exposed at their tens of thousands of bricks and mortar stores, which are mainly located in low-tier cities.

Meanwhile, to provide the users with seamless experience, we cooperated with one of the handset vendors to create assets for users to check their travel orders on their smart watches. With our continuous efforts in diversifying our traffic channels, the MAU or our quick app continue to grow tremendously in the past quarter. At the same time, we continue to push forward with our offline acquisition initiative to further penetrated low-tier cities and enhance our market presence there.

Apart from hotels, we keep seeking cooperation with other offline traffic hubs to see if more offline users for low-tier cities. We also extended roll out of bus and ticketing and vending machines across the country with the help of our strong circulation execution capability and work established relationships with the upstream suppliers. This initiative kept bringing up a considerable amount of paying users in the past few quarters and will continue to serve as an effective instrument for us to enlarge our user base.

With above efforts we have made, our average MAU for the last quarter reaches a record high of RMB 277.9 million, a notable growth of 53% compared to the same period of 2019. Our average MPUs for the quarter also hit historical highs of RMB 33.4 million, a decent growth of 20% on the basis of 2019, mainly thanks to our comprehensive product service offerings, outstanding capability to enhance conversion and the state offline location initiatives. Moreover, our 12 months rolling paying users maintenance growth momentum and reached RMB 181.9 million at the end of June, representing a robust increase of 39% when compared with the same period in 2019.

Cross-selling has been a crucial tactic for the company to leverage our huge traffic in the transportation sector. In the last 3 months, with a [ clear ] strategy and have made more aggressive efforts to enhance efficiency within the transportation segment as well as diversing the traffic to our accommodation and attraction ticketing business. Thus, even under the shadow of COVID outbreak in Guangdong province, our 1 trip cross-selling rates returned to a high level in the second quarter, which was also dented by strict restrictions in the first quarter.

As a customer-oriented company aiming to transport from OTA to ITA, we are dedicated to enhancing not only our information efficiency, but also the efficiency in the travel industry. On one hand, we proactively adopt technology innovation to consistently perfect users' experience and make their journey easy and more joyful.

During the last quarter, we successfully developed and launched an intelligent customer experience platform, which can automatically analyze users' concerns and their underlying sentiment changes, hence enabling our customer service team to promptly respond to compliance and optimize our service. This not only improved customer service satisfaction, but also enhance our customer service efficiency.

Besides, we can optimize our intelligent travel solution, Huixing system, to enhance the user experience. We further optimized the fundamental functions within the system in the last 3 months, and greatly elevate our ticketing and response efficiency. On the other hand, we're devoted to empowering the business of our partners with our Internet expertise and technology solutions so as to build a more resilient and highly efficient travel ecosystem.

We have comprehensive SaaS solution to assist individual hotels and small chain hotels in daily operations and the management of inventory, revenue and marketing. Besides, we provide technology solutions to airports with our well-built big data capability to help them enhance operational efficiency.

In the last quarter, we deepened our strategic cooperation with Xi'an Airport. Apart from developing mini program for the airport, we've built a more effective data analytics system to help it improve its internal efficiency. Furthermore, we joined hands with the Beijing Daxing International Airport to establish structured cooperation to provide users with more privileges. The 2 of us will have in-depth cooperation concerning product innovation to attract more passengers for the airport as well as sharing our membership benefits. With this, I will hand over the call to our CFO, Julian. He will talk through our financial highlights for the second quarter of the year. Julian, please go ahead.

[Lei Fan, executive]

Thank you, Joyce. Good evening, everyone. For the second quarter of 2021, we still use the number of quarter 2 2019 as the main basis of comparison due to the COVID in 2020. In the second quarter, we reported a net revenue of RMB 2.14 billion, representing a 34% year-over-year increase from the same period of 2019 or a 78% year-over-year increase from the same period of 2020. If we don't consider the impact of the growth of international travel and the reduced prepurchase business, the like-for-like net revenue achieved 45% growth compared with 2019. We are very satisfied to set another record in terms of the revenue this quarter. Meanwhile, we achieved RMB 398 million adjusted net profit, with 18.6% net margin compared with 18.4% net margin in quarter 1 2021.

The resurgence of COVID-19 in Guangdong in late May and June had limited -- very limited impact on our operations and financials thanks to our strategic focus on lower-tier cities and our geographically balanced revenue contribution across Mainland China. At the same time, our management team, as always, kept monitoring COVID situation to timely adjust the market execution in different channels and different areas so as to minimize the impact by COVID as well as pursuing a hyper growth and a better ROI.

In the second quarter, we took RMB 43.9 billion GMV with a 6% year-over-year increase compared with 2019, or a 96% increase from 2020. The growth rate of our net revenue in this quarter surpassed that of the GMV when compared with 2019, mainly benefiting from larger proportion of high take rate products such as accommodation as well as higher VAS attach rates. However, the ADR and ATV were still down when compared with 2019.

Accommodation reservation revenue achieved RMB 743 million, representing a 34% increase compared with 2019 or 93% increase compared with 2020. If we don't consider the negative impact of international travel and prepurchase business, like-for-like accommodation reservation revenue recorded a 44% growth compared with 2019. Domestic room nights growth in the second quarter further accelerated to more than 65% compared with 2019.

And geographically, room nights sold grew over 50% and more than 100%, respectively, in high-tier cities and low-tier cities. Thanks to the booming demand for staycation and short-haul travel in the weekends, Qingming, Labor Day and Dragon Boat Festival. In this quarter, we further strengthened our efforts in air-train cross-sell execution, offline QR code scanning at hotels and online promotions to bring more users to our accommodation segment as well as improving the conversion and repurchase rates.

We also made initial efforts in leveraging the traffic from the bus ticketing business to cross-sell other products to improve the value of users that we got from bus ticket vending machines. ADR still dropped compared with 2019 due to short-term headwinds faced by the hotel industry as well as our strategy to further penetrate lower-tier cities. The take rate slightly improved if we compare with that of 2019, as the VAS revenue contribution continued to increase along with the effective implementation of our accommodation one-stop shop strategy.

Transportation ticketing revenue for the second quarter of 2021 was RMB 1,235 million, representing a 32% increase compared with 2019 or a 70% increase compared with the same period in 2020. Bus ticket volume achieved more than 270% growth compared with 2019 as a result of our strategic focus on and investment in bus tickets vending machine across the country. Domestic air ticket volume increased by nearly 30% compared with 2019, which significantly beat overall market growth.

Other business revenue achieved RMB 161 million in the second quarter, representing a 60% increase compared with the same period of 2019 or a 78% increase compared with 2020. The increase was mainly contributed by new initiatives such as hotel advertisement, hotel PMS, TMC business and paid membership cards. Gross margin was 76.4% for the second quarter of 2021 increased from 64.7% for the same period in 2019 and 74.6% for the previous quarter. The continuous margin improvement was mainly driven by our streamlined operations, intelligent customer serviceability and revenue mix change in the past year.

In the second quarter of 2021, our adjusted EBITDA achieved RMB 530 million, with 24.8% EBITDA margin, slightly decreased from 25.9% quarter-over-quarter as we invested more in marketing in this quarter to pursue user growth more aggressively. Adjusted net profit achieved RMB 398 million, with margins increased to 18.6% from 18.4% quarter-over-quarter.

Service development and administrative expenses in the second quarter of 2021 increased by 1% from the same period of 2019. Excluding share-based compensation charges, service development and administrative expenses in total accounted for 19.4% of revenue in the second quarter compared with 24.5% of revenue in the same period of 2019 and 22.7% of revenue in previous quarter.

Selling and marketing expenses in the second quarter of 2021 increased by 117% from the same period of 2019 and increased by 43% from previous quarter. In this quarter, we aggressively increased investments in marketing campaigns to see the clear recovery opportunities. We expanded advertisement placement at different offline scenarios. We heightened our efforts in offline user acquisition initiatives in lower-tier cities through our bus ticket and attraction ticket vending machines.

We also stepped up investments in online promotions to accelerate cross-selling, all the efforts also mentioned are aimed at enhancing the purchase frequency at user value for the long run.

We also successfully launched the innovative marketing initiatives [indiscernible] ticket, to closely engage with younger generations, which contributed about -- around 10% of our total MAUs in this quarter. Excluding share-based compensation charges, selling and marketing expenses accounted for 41.1% of revenue in the second quarter compared with [Technical Difficulty] revenue in the same period of 2019 and 37.9% of revenue in the previous quarter. As of June 30, 2021, the balance of cash, cash equivalents, restricted cash and short-term investment was RMB 6.4 billion.

Now let's turn to our estimate for the third quarter of 2021. The resurgence of COVID in the city of Nanjing, Hunan province and some other areas is more severe than that occurred in Guangzhou in quarter 2. Meanwhile the flood in Henan province in July were one of the worst natural disaster in China in many years. Followed by a powerful typhoon in Eastern China that caused a massive cancellations of flights and trades in the region.

Consequently, the traveling demand in summer is being held back and our performance in quarter 3 is unavoidably impacted. However, with the increasing vaccination rates in Mainland China and effective control of matter by the government. We believe the new COVID outbreak will be quickly contained and the impact will be temporary. After 1 year contribution and preparation, the whole company is now in the best position to capture the post-COVID recovery opportunities and outperform the market no matter what challenges that we would encounter.

Based on the situation in the first half of quarter 3, we are now expecting our net revenue to decrease by 10% to 5% compared with 2019, or as similar as quarter 3 2020 level. If we don't consider the impact of international travel and prepurchase business reduction, like-for-like revenue is expected to grow by 0% to 5% if we compare it with 2019. Our adjusted net profit is expected to be in the range of RMB 300 million to RMB 350 million. This forecast reflects our current and preliminary view, which is subject to change. With that, operator, we are ready to take questions now. Thank you.

[Operator]

[Operator Instructions] Your first question is from Brian Gong of Citigroup.

[Brian Gong, analyst]

Congratulations on the decent second quarter results. So I have 2 questions. I know -- first one is about second half top line expectation. I know it may be too early to say, but given like round of outbreak almost under control in China right now, how does management see that the paramount during the national Day? And do you think there will be some travel restriction during the National Day?

My second question is on the margin trend in the second half and next year. We just renewed the contract with Tencent and I know [Technical Difficulty]. But how should we see marketing expense trend and the margin trend year?

[Lei Fan, executive]

Thanks, Brian. First, I would like to explain the recent situation after the regional outbreak of the COVID and what the -- things look like in the second half of this year for both of the top line and the bottom line. And then I will put more comments -- colors on the COVID structure and the marketing side for this year and in the future.

Actually, as we talked in the prepared remarks, we -- all of us can see that the travel demand rocket up when COVID was basically under control and the travel restrictions was loosened in quarter 2. The -- I think the enthusiasm of leisure travel and also the necessity of business travel were astonishing released in the past quarter, which give us a very strong confidence more than ever in the China domestic travel industry in the long run, along with the -- I think, the stronger consumption power and also the infrastructure improvement especially in lower-tier cities.

However, as your question, the COVID virus changed to the new Delta -- new Data variant in the past quarters. and cause, I think, more severe impact on travel industry during this summer vacation, which is the hottest season -- peak season of the travel industry. First, appeared in Nanjing in the middle of July, and then spread to Hunan province and finally got Beijing and Shanghai in early August.

Actually, the travel restriction in Beijing and Shanghai was a very important signal of negative atmosphere of the whole travel industry, which implied a pause on reemerging travel demand. So our business this quarter was very fluctuated. But however, on the good side, the government was very experienced and quickly responded to stop the spread of Delta and the situation was basically under control. The numbers of new cases was reduced in the middle of the -- I think in the middle of August or just within 2 weeks.

And what's more, according to today's news, Beijing has already cleared all the middle to high risk areas. So currently, we are eagerly looking forward to the carnival of domestic travel industry in the mid-autumn festival in September and the National Day in October. As we experienced for the past quarters, travel demand could be paused and come up, but it will be -- I think it will be released later in a strong -- a far more stronger way.

In terms of the margin side, actually, in the past several quarters, our -- I think our cost and expense structure were relatively stable and became more and more competitive than before. Selling and marketing spending as of revenue kept increasing to pursue an accelerated penetration in our target users and target areas post-COVID and to support our hyper growth, which outpaced the industry in several dimensions. While our GP margin kept improving, benefited from the change in revenue structure, just like what I mentioned, since revenue contribution from accommodation side increased a lot, and our continuous improvement in operational efficiency.

At the same time, and very important point, our headcount, the total headcount of the company was relatively stable. So that service development and general administrative spending as of revenue job driven by the scaling effect when our revenue recovered and increased. The selling and the marketing spending actually what the -- nowadays is the biggest portion in our cost structure.

And -- but it could be flexible, adjusted and controlled by adopting different operation tactics by the management team according to the market situation and COVID situation. In this quarter, in quarter 3, as I mentioned in prepared remarks, we promptly reduced the sales and marketing investments in all kinds of channels and scenarios after the resurgence of COVID cases since the end of July. So actually, we saved a lot of bullet for the rebound in National Day. Based on the situation that we have seen -- actually, we are expected to achieve the $300 million to $350 million adjusted net profit in quarter 3, which means we are capable to maintain a very stable net margin during this difficult period caused by COVID resurgence compared with the first half of this year, very stable margin.

And what is more, the renewed price, of which in total has already been fully considered in our estimation, in the long run, post -- I think post the pandemic, the main target of the company is still to maintain a sustainable growth with our dedication to provide better products and services to our users and contribute to the digitalization of the travel industry in the future. So I think that is my comments for your questions.

[Operator]

Your next question is from Alex Poon of Morgan Stanley.

[Chun Poon, analyst]

Congratulations on very strong execution. I have 2 questions. My first question is regarding MAUs. Apart from Tencent MAUs, the non-Tencent part grew by around 86% year-over-year to more than RMB 60 million. It's a very strong number. Can we explain the driver behind it? And how should we forecast its MAU in future and the house and monetization of these users going?

My second question is regarding a very strong gross margin, again, record high at 76%, from third quarter onwards, should we expect this level to maintain or even increase a little bit further?

[Joyce Li, executive]

Thank you, Alex. I will take the first question and then Julian will take the second. The first question I think is considered the MAU from the Weixin platform that you can see we have enjoyed that growth year-over-year. I think it can contribute to our strategy that we keep diversing by our traffic channels. In the second quarter, the MAU, our own app also increased significantly because of innovative ramp-up of air tickets.

We have achieved overwhelming response this initiative. And then now we have positioned this as an effective way for our brand building, and we'll continue to develop the new products and service to attract the users. And in fact, I think we have been exploring brand user condition channels even under the impact of the COVID.

So in addition to Weixin and the stand-alone apps, we also have a online channels such as the quick app and the mini programs and so on. We also continue to step up our efforts in the offline user acquisition, especially in the low-tier cities with an aim to diversify our traffic channels and the user base. So later, we will also see the rebound opportunity from the travel industry and increase our investments in different channels to further up our business.

[Lei Fan, executive]

Yes. In terms of the GP trends -- GP margin trend, Alex, actually, in the past, I think in the past 2 years, our GP margins have already improved a lot since 2019, like what I said, mainly because the revenue structure improvement and also our continuous improvement in operational efficiency, especially the automation in our call center.

In the long run, I think there's some -- there must be some room to improve for the GP margin because the accommodation segment is the most important part of the company to pursue a hyper growth. So I believe the revenue structure, the revenue structure will shift to accommodation side more in the following quarters as well. And also, there is also some space to improve the operational efficiency as well.

But the other thing is that, for this quarter and the last quarter, the prepurchase business is very limited. But if we increase the prepurchase business after the COVID, the post-COVID period, I think, next year or in the long run, I think the GP margin might be slightly dropped due to this reason, but it's not impacted on the bottom line. Thank you.

[Operator]

Next question is from Thomas Chong of Jefferies.

[Thomas Chong, analyst]

I have 2 questions. The first one is about our annual paying user. So our annual paying users has reached over RMB 180 million in second quarter. So can you share some color on the long-term annual paying user trend? And do we have any target on that?

And my second question is on the take rate for the accommodation. Can management share the trend of the take rate in top-tier city and the low-tier cities?

[Joyce Li, executive]

Thank you for your questions. I will take the first question about the annual paying users. We all can see that our addressable market is still very huge. So our penetration rate for the low-tier cities, for example, for the hotels, is only 25% and the online penetration rate for the bus ticketing is still very low. It's just low single digits, although we have achieved hyper growth last year.

And for the users that we can find from the bus vending machines, still more than 50% are completely new to our platform. After the pandemic, I think it's a golden time for us to dig into the offline market, accelerate digitalization and online penetration. So we have previously mentioned we have a target to achieve the goal of 200 million annual paying users for the year of 2021. Although there is still uncertainties of the COVID ahead, we think we will stick to our strategy here. We will strive to increase our annual paying users through the strategies.

Firstly, we will continue to prompt our offline user acquisition initiative by operating with the hotels to acquire user offline and send as many machines at bus stations, tourist attractions and other offline hubs. Especially, we believe our bus ticketing volume will increase and bring a significant amount of paying users in 2021. And we will keep in mind the ROI and just our coverage of hotels and locations of the vending machine to improve the internal efficiency.

And secondly, we will enhance operation on our online platform, which has Weixin mini program, our own app, quick apps we have mentioned, we've more precise marketing and tailor made recommendations to our users. And certainly, we will try to acquire the traffic through the new channels, such as we have initiated the cooperation with handset vendors since last year. We work with location-based app and short video platform to attract new traffic.

And moreover, we will further enhance our products and services. For example, you can see that we have launched innovative products like the Black Box of air tickets to fulfill the users ever changing needs. And recently, the 48 Hour initiatives also helped us to capture the need for the short-haul travel during the COVID.

So our paying user in a 12-month period ended June has already reached 181.9 million. I think the number will further increase in July before the virus will outbreak in Nanjing. So with our effective user acquisition initiative, efficient operational on the online platform, as well as our enhanced product and service innovation capability supported by our advanced technology. We are very confident to further expand our user base.

[Lei Fan, executive]

Okay. Then let's talk about the take rate from the accommodation side. Actually, I think people are caring about the take rate very much for the accommodation because I think that is a very important signal for the competition level of the OTA area and also, I think it's a signal of the relationship between OTA and hotels, actually, in the past, I think, 3 years, from '18 to nowadays. The take rate of accommodation is very, very stable. It's very stable, no matter the high-tier cities and low-tier cities.

There's only some kind of slight fluctuation recently for the take rate -- for the accommodation take rate. It depends on the COVID situation. When the COVID is under -- well under control, I think most of the players would like to invest more on the coupon side to appeal more and more users. So the take rate might be slightly dropped. But when the COVID is mostly severe, for example, this quarter in August, the players are more and more disciplined to investment on the couponing side. But anyway, generally speaking, it's quite stable. I think -- I believe, will be stable in the future.

What is more, for us, our planning take rate -- I mean, planning take rate for the accommodation is steadily improved, I think, since last year. That is because the one-stop shop strategy of the accommodation, which provide more and more VAS on accommodation side. So in past quarter, I think in quarter 2, the VAS revenue contribution has already take like more than 12% of our total accommodation revenue. So that is another reason why our accommodation planning take rate has increased quarter-to-quarter and year-on-year. I think the trends might be continued for, I think, the following several quarters as well. Thank you.

[Operator]

At this stage, I would now like to hand the call back to Kylie Yeung for the closing remarks.

[Kylie Yeung, executive]

Thank you. And with the time constraint, we are closing the call now. If you wish to check out our presentation and other financial information, please visit the IR section of our company website. Thank you, and see you next quarter.

[Operator]

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.