Qunar Reports Second Quarter 2014 Financial Results

Revenue Growth Accelerates for Fourth Consecutive Quarter

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| Source: Qunar Cayman Islands Limited

BEIJING, Aug. 21, 2014 (GLOBE NEWSWIRE) -- Qunar Cayman Islands Limited (Nasdaq:QUNR) ("Qunar" or the "Company"), China's leading search-based travel commerce platform, today announced its unaudited financial results for the second quarter ended June 30, 2014.

Highlights for the Second Quarter of 2014

  • Total revenues for the second quarter of 2014 were RMB400.4 million (US$64.5 million), an increase of 127.3% year-on-year, the highest revenue growth rate in ten quarters.
  • Mobile revenues for the second quarter of 2014 were RMB142.3 million (US$22.9 million), an increase of 511.8% year-on-year, representing 35.5% of total revenues, compared to 13.2% in the corresponding period of 2013.
  • Total Estimated Flight Ticket volume (TEFT) and Total Estimated Hotel Room-night volume (TEHR) for the second quarter of 2014 were 19.1 million and 7.3 million, respectively, an increase of 66.1% and 105.2% year-on-year.

"We witnessed another strong quarter of accelerating revenue growth and impressive volume growth across our business units, driven by market share gains and pricing leverage. Returns on our investments have been coming in earlier and quicker than we had expected," said Chenchao (CC) Zhuang, chief executive officer and co-founder of Qunar. "Flight revenue per ticket grew 46% year-on-year, a testament to our growing market position and to the superior value proposition Qunar brings to travel service providers.

"We remain focused on providing consumers with the most comprehensive product offerings and best deals in the industry," Mr. Zhuang added. "In the second quarter alone, we signed over 72,000 hotels, taking our direct sales network to over 165,000 hotels. We also consolidated our position as the platform of choice for mobile users. Tour package GMV maintained its rapid momentum, expanding by more than five times year-on-year."

"We are pleased to see our investments in technology and product sourcing continue to drive strong growth right across the business," said Sam Sun, chief financial officer of Qunar. "Given the positive results of our investment up to this point, we will continue our investment to ensure we capture the enormous market opportunities ahead."

Second Quarter 2014 Financial Results

Total revenues for the second quarter of 2014 were RMB400.4 million (US$64.5 million), an increase of 127.3% year-on-year and 19.4% quarter-on-quarter. Mobile revenues for the second quarter of 2014 were RMB142.3 million (US$22.9 million), an increase of 511.8% year-on-year, representing 35.5% of total revenues. Pay-for-performance ("P4P") revenues for the second quarter of 2014 were RMB378.6 million (US$61.0 million), an increase of 137.4% year-on-year and 18.7% quarter-on-quarter.

Among the P4P revenues, flight and flight related revenues for the second quarter of 2014 were RMB279.4 million (US$45.0 million), an increase of 143.3% year-on-year. Year-on-year P4P flight revenue growth was primarily due to a 66.1% increase in TEFT and a 46.4% increase in revenue per ticket.

P4P hotel revenues were RMB71.5 million (US$11.5 million), an increase of 79.5% year-on-year. Year-on-year P4P hotel revenue growth was primarily due to a 105.2% increase in TEHR and was slightly offset by a 12.5% decrease in revenue per room night, mainly as a result of coupon-related promotional costs and a decrease in average daily room rates.

Gross profit for the second quarter of 2014 was RMB294.7 million (US$47.5 million), an increase of 114.1% year-on-year. Gross margin for the second quarter of 2014 was 73.6%, compared to 78.2% for the corresponding period of 2013 and 78.1% for the first quarter of 2014. The year-on-year increase in gross profit during the quarter was primarily due to the significant increase in total revenues, and was partially offset by an increase in online payment processing fees recorded in cost of revenues. Gross profit grew on an accelerated basis, compared to previous quarters.

Product development expenses for the second quarter of 2014 were RMB181.6 million (US$29.3 million), an increase of 181.6% year-on-year, primarily due to an increase in salary, welfare and other expenses associated with headcount increases. Excluding share-based compensation expenses, product development expenses accounted for 41.8% of total revenues, compared to 34.5% for the corresponding period of 2013 and 31.6% for the first quarter of 2014.

Product sourcing expenses for the second quarter of 2014 were RMB67.7 million (US$10.9 million), an increase of 416.1% year-on-year, primarily due to an increase in product sourcing headcount. Excluding share-based compensation expenses, product sourcing expenses increased 428.5% year-on-year, and accounted for 16.9% of total revenues, compared to 7.3% for the corresponding period of 2013 and 11.4% for the first quarter of 2014.

Sales and marketing expenses for the second quarter of 2014 were RMB215.0 million (US$34.7 million), an increase of 212.4% year-on-year, primarily due to an increase in salary and welfare expenses as a result of increased headcount, as well as an increase in online marketing expenses. Excluding share-based compensation, sales and marketing expenses increased 211.4% year-on-year, accounting for 52.9% of total revenues, compared to 38.6% for the corresponding period of 2013 and 38.4% for the first quarter of 2014.

Online marketing expenses for the Company's Baidu Zhixin Cooperation for the second quarter of 2014 were RMB147.6 million (US$23.8 million), an increase of 120.5% quarter-on-quarter. The increase was primarily due to a significant increase in Zhixin-related page views acquired during the period. Online marketing expenses from the Zhixin Cooperation Agreement were recognized ratably over the period of service required to earn each tranche of warrants based upon the estimated exercisable number of the Baidu warrants and the fair value of the warrants at each reporting date.

General and administrative expenses for the second quarter of 2014 were RMB111.8 million (US$18.0 million), an increase of 432.9% year-on-year, primarily due to an increase in share-based compensation, salary and welfare expenses as a result of an increase in headcount and average salary. Excluding share-based compensation expenses, general and administrative expenses accounted for 13.3% of total revenues, compared to 10.8% for the corresponding period of 2013 and 11.0% for the first quarter of 2014. The increase was largely due to an increase in costs associated with being a public company.

Operating loss for the second quarter of 2014 was RMB429.0 million (US$69.1 million), compared to RMB29.7 million in the corresponding period of 2013 and RMB174.1 million in the first quarter of 2014. On a non-GAAP basis, which excludes online marketing expenses from the Zhixin Cooperation Agreement of RMB147.6 million, share-based compensation expenses of RMB76.0 million, and non-cash expenses relating to free user traffic contributed by Baidu of RMB1.5 million, operating loss for the second quarter of 2014 was RMB203.8 million (US$32.9 million). Operating margin (non-GAAP) for the second quarter of 2014 was negative 50.9%, compared to negative 12.2% in the corresponding period of 2013 and negative 13.8% in the first quarter of 2014.

Net loss attributable to Qunar's shareholders for the second quarter of 2014 was RMB421.6 million (US$68.0 million), compared to RMB41.2 million in the corresponding period of 2013 and RMB183.6 million in the first quarter of 2014. The increase in net loss attributable to Qunar's shareholders was primarily due to continued investment in product development and sourcing, marketing efforts to drive business growth, and an increase in share-based compensation expenses. Basic and diluted net loss per ADS for the second quarter of 2014 was RMB3.60 (US$0.57).

Adjusted net loss (non-GAAP), defined as net loss excluding online marketing expenses from the Zhixin Cooperation Agreement, share-based compensation expenses and non-cash expenses relating to free user traffic contributed by Baidu, Inc., was RMB196.5 million (US$31.7 million), compared to adjusted net loss of RMB33.0 million in the corresponding period of 2013 and adjusted net loss of RMB55.7 million in the first quarter of 2014.

Adjusted EBITDA (non-GAAP), defined as net loss before income taxes, interest expenses, depreciation and amortization, further adjusted to exclude online marketing expenses from the Zhixin Cooperation Agreement, share-based compensation expenses and non-cash expenses relating to free user traffic contributed by Baidu, Inc., for the second quarter of 2014 was negative RMB183.2 million (US$29.5 million), compared to negative RMB14.8 million in the corresponding period of 2013 and negative RMB45.8 million in the first quarter of 2014.

As of June 30, 2014, Qunar had cash, cash equivalents and short-term investments of RMB1.3 billion (US$ 211.0 million). As of July 31, 2014, Qunar had 255,070,668 Class A ordinary shares and 100,631,019 Class B ordinary shares outstanding.

Business Outlook

For the third quarter of 2014, the Company expects year-on-year revenue growth in the range of 90% to 95%. This forecast reflects Qunar's current and preliminary view, which is subject to change.

Conference Call

Qunar's management team will host an earnings conference call at 8:00PM on August 21, 2014, U.S. Eastern Time (08:00AM on August 22, 2014, Beijing Time).

The dial-in details for the live conference call are as follows:

International: +65-6823-2299
U.S.: +1-631-514-2526
UK: +44-20-3078-7622 
Hong Kong: +852-5808-3202
Mainland China: 400-120-0539
   
Passcode for all regions: 4665131

A replay of the conference call may be accessed by phone at the following number until August 28, 2014:

International: +61-2-9641-7900
Passcode: 1592698

Additionally, a live and archived webcast of this conference call will be available at http://investor.qunar.com.

Forward-looking Statements

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Among other things, quotations from management and the Business Outlook section in this press release, as well as Qunar's strategic and operational plans, contain forward-looking statements. Qunar may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Qunar's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: the Company's goals and strategies; its future business development, financial condition and results of operations; the expected growth of the online travel markets in China; the Company's expectations regarding demand for and market acceptance of its products and services; its expectations regarding our relationships with users and travel service providers; the execution of the business cooperation framework agreement with Baidu; its plans to invest in the technology platform; competition in our industry; fluctuations in general economic and business conditions in China; and relevant government policies and regulations relating to our industry. Further information regarding these and other risks is included in our prospectus and other documents filed with the Securities and Exchange Commission. All information provided in this press release and in the attachments is as of the date of the press release, and Qunar undertakes no duty to update such information, except as required under applicable law.

About Non-GAAP Financial Measures

To supplement Qunar's consolidated financial results presented in accordance with United Statements Generally Accepted Accounting Principles ("GAAP"), Qunar also uses Adjusted net income/(loss) and Adjusted EBITDA as additional non-GAAP financial measures. These non-GAAP financial measures enable management to assess the Company's operating results without considering the impact of noncash charges, including share-based payments, depreciation and amortization, expenses relating to free user traffic contributed by Baidu, Inc., and online marketing expenses from the Zhixin Cooperation Agreement. Furthermore, these non-GAAP financial measures eliminate the impact of items that Qunar does not consider indicative of the performance of its business.

Qunar presents these non-GAAP financial measures because they are used by management to evaluate its operating performance, formulate business plans, and make strategic decisions on capital allocation. Qunar also believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating its operating performance and consolidated results of operations in the same manner as management and in comparing financial results across accounting periods and to those of its peer companies. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. A limitation of using these non-GAAP financial measures is that these non-GAAP measures do not include all items that impact the Company's results of operations for the period. The table captioned "Reconciliations of GAAP and non-GAAP Measures" has more details on the reconciliations between GAAP financial measures that are most directly comparable to the non-GAAP financial measures.

Currency Convenience Translation

The United States dollar (US$) amounts disclosed in this press release are presented solely for the convenience of the reader. The conversion of Renminbi (RMB) into U.S. dollars is based on the exchange rate set forth in the H.10 statistical release of the Federal Reserve Bank of New York on June 30, 2014, which was RMB6.2036 to US$1.00. The Company makes no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all. The percentages stated are calculated based on the RMB amounts.

About Qunar

Qunar Cayman Islands Limited is the leading search-based commerce platform for the travel industry in China. Qunar's goal is to empower Chinese travelers to define their travel experience. Founded in May 2005 and headquartered in Beijing, Qunar is committed to providing travelers with a one-stop travel information source on both PC and mobile devices. The Company enables travelers to find the best-value deals by aggregating and processing highly fragmented travel product information from tens of thousands of travel service providers into an organized and user-friendly display through its proprietary technology. According to research firm iResearch, Qunar has ranked No. 1 among all non-state-owned online travel companies in China in terms of monthly unique visitors since November 2010. Qunar's mobile application "Qunar Travel" was ranked the most frequently used mobile travel application in China by China Internet Network Information Center in September 2012.

Leveraging its large user base and advanced technologies, the Company provides an attractive value proposition to its customers, which include travel service providers and display advertisers.

Qunar means "where to go" in Mandarin Chinese.

Qunar Cayman Islands Limited
Condensed Consolidated Balance Sheets
       
(In thousands except for number of shares and per share data) December 31,
2013
RMB
June 30,
2014
RMB
June 30,
2014
USD
  Audited Unaudited Unaudited
ASSETS      
Current assets:      
Cash and cash equivalents 980,129 1,057,832 170,519
Restricted cash 163,506 222,837 35,921
Funds receivable 241,122 250,144 40,322
Short-term investments 485,945 251,328 40,513
Accounts receivable, net 99,892 108,005 17,410
Due from related parties 10,000 25,429 4,099
Prepayments and other current assets 66,104 141,879 22,871
Deferred tax assets, current 8,436 2,624 423
Total current assets 2,055,134 2,060,078 332,078
       
Non-current assets:      
Property and equipment, net 45,690 76,327 12,304
Long-term Investment  --  18,613 3,000
Other non-current assets 23,951 57,293 9,235
Total non-current assets 69,641 152,233 24,539
       
Total assets 2,124,775 2,212,311 356,617
       
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
       
Current liabilities:      
Customer advances and deposits 164,679 209,009 33,692
Due to related parties 4,492 368 59
Accounts payable 5,087 11,425 1,842
Salaries and welfare payable 85,977 99,973 16,115
Income tax payable 5,764 1,941 313
Accrued expenses and other current liabilities 438,486 676,263 109,011
Warrant liability  --   213,745 34,455
Total current liabilities 704,485 1,212,724 195,487
       
Non-current liabilities:      
Non-current liabilities 57,863 61,552 9,922
Total non-current liabilities 57,863 61,552 9,922
       
Total liabilities 762,348 1,274,276 205,409
       
Shareholders' equity:      
Class A ordinary shares 1,914 1,651 266
Class B ordinary shares 240 587 95
Additional paid-in capital 1,788,167 1,932,882 311,574
Accumulated other comprehensive (loss) income (28,476) 7,531 1,214
Accumulated deficit (399,418) (1,004,616) (161,941)
Total shareholders' equity 1,362,427 938,035 151,208
       
Total liabilities and shareholders' equity 2,124,775 2,212,311 356,617
 
Qunar Cayman Islands Limited
Condensed Consolidated Statements of Operations
   Three Months Ended 
(In thousands except for number of shares and per share(ADS) data) June 30,
2013
RMB
March 31,
2014
RMB
June 30,
2014
RMB
June 30,
2014
USD
   Unaudited   Unaudited   Unaudited   Unaudited 
Revenues        
Pay-for-performance services(*) 159,461 319,097 378,639 61,035
Display advertising services 14,183 15,566 21,221 3,421
Other services(*) 2,485 809 538 87
Total revenues 176,129 335,472 400,398 64,543
Cost of Revenues (38,455) (73,347) (105,653) (17,031)
Gross profit 137,674 262,125 294,745 47,512
Operating expenses:        
Product developments (Note 1) (64,478) (121,278) (181,584) (29,271)
Product sourcing (Note 1)(**) (13,112) (38,919) (67,665) (10,907)
Sales and marketing (Note 1)(**) (68,833) (130,788) (215,012) (34,660)
General and administrative (Note 1) (20,980) (78,324) (111,795) (18,021)
Online marketing expense for Baidu Zhixin Cooperation  --  (66,946) (147,642) (23,799)
Operating loss (29,729) (174,130) (428,953) (69,146)
Interest income, net 305 10,087 9,642 1,555
Foreign exchange loss, net (344) (17,423) (308) (50)
Other income, net 295 191 1,591 256
Loss before income taxes (29,473) (181,275) (418,028) (67,385)
Income tax expense (11,734) (2,304) (3,591) (579)
Net loss attributable to ordinary shareholders (41,207) (183,579) (421,619) (67,964)
         
         
 Loss per share for ordinary shares:         
 Net loss per ordinary share—basic   (0.14)  (0.54)  (1.20) (0.19)
 Net loss per ordinary share—diluted   (0.14)  (0.54)  (1.20) (0.19)
         
 Loss per ADS(each ADS represents three class B ordinary shares):       
 Net loss per ADS—basic  (0.42) (1.62)  (3.60) (0.57)
 Net loss per ADS—diluted  (0.42) (1.62) (3.60) (0.57)
         
 Weighted average number of ordinary shares:         
Ordinary shares        
 Basic   303,344,804 ----  -- ----
 Diluted   303,344,804 ----  -- ----
         
Class A ordinary shares        
 Basic  ----  302,850,254  274,644,550  274,644,550
 Diluted  ----  302,850,254  274,644,550  274,644,550
         
Class B ordinary shares        
 Basic  ----  39,332,950  75,723,943  75,723,943
 Diluted  ----  342,183,204  350,368,493  350,368,493
         
Note 1: Includes share-based compensation expenses as follows:      
Product developments (3,726) (15,384) (14,133) (2,278)
Product sourcing (313) (620) (26) (4)
Sales and marketing (809) (2,063) (3,204) (516)
General and administrative (1,913) (41,417) (58,663) (9,457)
Total share-based compensation expenses (6,761) (59,484) (76,026) (12,255)
         
*Also includes revenue from group-buying business, which was reclassified from "other revenue", as the commission is earned on pay-for-performance basis. Comparative amounts for the prior periods have been reclassified to conform to the current period presentation.
         
**Starting from year 2014, certain expenses we incur to develop, maintain and monitor our suppliers relationship were reclassified from "Sales and marketing expenses" to "Product sourcing expenses". Comparative amounts for the prior periods have been reclassified to conform to the current period presentation.
         
Reconciliations of GAAP and non-GAAP measures (in thousands)        
   Three Months Ended 
  June 30,
2013
RMB
March 31,
2014
RMB
June 30,
2014
RMB
June 30,
2014
USD
   Unaudited   Unaudited   Unaudited   Unaudited 
 Net loss attributable to ordinary shareholders  (41,207) (183,579) (421,619) (67,964)
 Add:         
 Share-based compensation expenses  6,761 59,484 76,026 12,255
 Non-cash expenses relating to free user traffic contributed by Baidu  1,480 1,490 1,490 241
 Online marketing expense for Baidu Zhixin Cooperation   --   66,946 147,642 23,799
 Adjusted net loss (non-GAAP)(*)  (32,966) (55,659) (196,461) (31,669)
Income tax expense 11,734  2,304 3,591 579
Depreciation and amortization 5,388  7,580  9,692 1,562
Interest expense 1,059  --   --   -- 
Adjusted EBITDA (non-GAAP) (**) (14,785) (45,775) (183,178) (29,528)
         
Operating loss (29,729) (174,130) (428,953) (69,146)
Share-based compensation expenses  6,761 59,484 76,026 12,255
Non-cash expenses relating to free user traffic contributed by Baidu  1,480 1,490 1,490 241
Online marketing expense for Baidu Zhixin Cooperation  --  66,946 147,642 23,799
Adjusted operating loss(non-GAAP)(***) (21,488) (46,210) (203,795) (32,851)
         
*Adjusted net loss (non-GAAP), defined as net loss excluding share-based compensation expenses, non-cash expenses relating to free user traffic contributed by Baidu, Inc. and online marketing expenses for Baidu Zhixin Cooperation.
** Adjusted EBITDA (non-GAAP), defined as net loss before income taxes, interest expenses, depreciation and amortization, further adjusted to exclude share-based compensation expense, non-cash expenses relating to free user traffic contributed by Baidu, Inc. and online marketing expenses for Baidu Zhixin Cooperation.
*** Adjusted operating income (loss)(non-GAAP), defined as operating income (loss) excluding share-based compensation expenses, non-cash expenses relating to free user traffic contributed by Baidu, Inc. and online marketing expenses for Baidu Zhixin Cooperation.
CONTACT: For more information, please contact:

         China
         Jenna Qian
         Qunar
         Tel: 8610 5760 3609
         ir@qunar.com / press@qunar.com

         Nick Beswick
         Brunswick Group
         Tel: +86-10-5960-8600
         Email: qunar@brunswickgroup.com
         
         U.S.
         Cindy Zheng
         Brunswick Group
         Tel: +1-212-333-3810
         Email: qunar@brunswickgroup.com