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Tuniu Corporation (TOUR -8.40%)
Q3 2020 Earnings Call
Dec 1, 2020, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Hello, and thank you for standing by for Tuniu's 2020 Third Quarter Earnings Conference Call. [Operator Instructions] After management's prepared remarks, there will be a question-and-answer session. [Operator Instructions] If you have any objections, you may disconnect at this time.
I would now like to turn the meeting over to your host for today's conference call, Director of Investor Relations, Mary. Please go ahead.
Mary Chen -- Director, Investor Relations
Thank you, and welcome to our 2020 third quarter earnings conference call. Joining me on the call today are Donald Yu, Tuniu's Founder, Chairman and Chief Executive Officer; and Anqiang Chen, Tuniu's Financial Controller. For today's agenda, management will discuss business updates, operation highlights and financial performance for the third quarter of 2020.
Before we continue, I refer you to our Safe Harbor statement in earnings press release, which applies to this call, as we will make forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB.
I would now like to turn the call over to our Founder, Chairman and Chief Executive Officer, Donald Yu.
Donald Dunde Yu -- Founder, Chairman and Chief Executive Officer
Thank you, Mary. Good day, everyone. Welcome to our 2020 third quarter earnings conference call. We are glad to see that in the third quarter while operating expenses continue to decline. Our net revenue increased more than 200% over the second quarter and GMV maintained an upward monthly growth trend through July, August and September.
Our operating cash flow also began to turn positive this quarter. The recovery of the domestic travel industry was evident. According to China's Ministry of Culture and Tourism, a total of 637 million tourists traveled within China during the October National Day holiday, almost returning to 80% of 2019 levels. We are positive on the domestic markets, which contributed to the improvements of our business.
And here I would like to share our efforts made on sales and products during the quarter. For Tuniu's sales network dedicated to our customer-first principle, we have built a wide and solid customer base. We have established a unique customer service system in our industry, with tour advisors to guide customers in booking services and dedicated customer service representatives to maintain customer relationships.
In addition, we have extended our services to handle customer needs after they reach their destination and have established our own local tour operators. During the epidemic, our customer service and the local tour operators provided timely service for customers, who made great contributions to the recovery of our business in the post epidemic era.
Following the outbreak of COVID-19, we quickly refunded or altered previously purchased packages in order to maintain customer interest and guarantee experience. Owing to our timely response, we've earned long-term trust and support from our customers. As the domestic travel market resumed, we'll be rewarded with a group of loyal customers who have made an important contribution to Tuniu's recovery.
Our social marketing tool, Taiko has also been playing an important role in our sales efforts. In the third quarter, sales GMV from Taiko increased by over 20 times compared with the second quarter. This is an innovative sales model that combines the store owner's network of trusted relationships with the ability to significantly increase customer stickiness. With the support of our Taiko app, owners can more conveniently promote our products and definitions to customers.
In April, Tuniu started hosting live streaming shows on a weekly basis. We have been testing various type of products and different live streaming strategies to determine what works best in terms of product sales. For example, we have launched a series of special priced products during our live stream shows. That clearly sells out quickly after they go online. We will continue to explore methods to attract new customers. We are now more focused on general based channels such as high traffic online platforms, Tuniu [Phonetic] Sports and the cross-industry cooperation, in order to gradually form a multiple channel network for acquiring new customers.
I would now like to give an update on our products. China has a lot of excellent travel destinations and we find that more customer -- much of customer -- consumers demand for outbound travel can be shifted to the domestic market. Many tourists who originally and to travel abroad did not cut their planned trip budget due to epidemic restrictions. Instead, they have tended to use the same budget for traveling within China. This has created a perfect opportunity to further develop high quality products and services for domestic travel market.
Tuniu's leaders are experience in the industry help guide the rapid recovery of our business. We have been deeply involved in China's leisure travel market for more than a decade. Since 2014, we have implemented a direct procurement strategy and incorporated with a number of local tour bureaus. This allowed us to adopt the centralized purchasing strategies to consolidate quality or quantity, advantage and achieve better prices.
In terms of products, Tuniu has continued to innovate and upgrade our products based on customer demand. We have established our Tuniu brands product Niu Tour, which is positioned in the market as a high quality organizing tool and has received a 97% satisfaction rate on average. Niu Tour product established a series of service standards for improving the customer experience and has become the benchmark for the industry. In order to meet the demand for better and safer products by domestic travelers, we upgraded the service standards of Niu Tour after the outbreak of the epidemic.
We launched the new logo for our Niu Tour, which aim to give a fresh image to our customers. The number of smaller size packages tours and customized tours have continued to grow with consumers becoming increasingly focused on high quality personalized tourism products. Our customized tour GMV in the third quarter increased by 8 times compared with the second quarter.
In addition, we are also paying more attention to integrating current popular teams with the younger generation into our tour products, such as sports recommended by online influencers and seasonal hotspots in order to attract more customers. For example, with the coming of winter and the popularity of local tools, we launch products such as hot spring vacations, featuring a mid-to-high end hot spring hotels and the popular B&B.
In terms of service, we have over 30 local tour operators in China, providing services for tourists directly. Since the COVID-19 outbreak, we have not closed down any of our local tour operators. And recently, we are establishing new ones in Suqian. Suqian has recovered directly when domestic market reopened. After we set up the local tour operators, we can better service tourists from Tuniu, as well as attract more tourists in the destination.
In terms of product design, we have taken the transportation plus destination based tour model to the next level, as tourists focus more on destination experiences in the post COVID-19 era. We believe that the Hotel Plus X product model is ideal for destination based tour products. By segmenting local tour services into more details services, including attraction tickets, one day or multiple day tours and other destination based activities, we are able to identify the best resources to meet customer demand.
Also, we raised the standards of product launch again after the outbreak of the epidemic. In the past products with 75% or high satisfaction rate could be launched on our websites and apps. Last year, we reached to 80% and this year to 85%. High quality services and the products have additional values to our customers and help us maintain and attract them.
With the gradual recovery of the domestic travel industry, we are looking forward to the upcoming quarters. We also expect that the outbound travel market may start to open up due to the recent developments of an effective COVID vaccine. Overall, the epidemic has brought us both opportunities and the challenges. It has also accelerated the long term process of upgrading the travel industry's products and services. Tuniu success is rooted in leading the industry is creating products and services trends that address rapidly changing customer demands and we look forward to more opportunities that lie ahead.
I will now turn the call over to Anqiang Chen, our Financial Controller for financial highlights.
Anqiang Chen -- Financial Controller
Thank you, Donald. Hello, everyone. Now I'll walk you through our third quarter 2020 financial results in greater detail. Please note that all the monetary amounts are in RMB unless otherwise stated. You can find the US dollar equivalents of the numbers in our earnings release. For the third quarter of 2020, net revenues were RMB123.5 million, representing a year-over-year decrease of 86% from the corresponding period in 2019. The decrease was primarily due to the negative impact brought by the outbreak and spread of COVID-19.
Revenues from packaged tours were down 88% year-over-year to RMB86.4 million and accounted for 70% of our total net revenues for the quarter. The decrease was primarily due to the decline in travel to international destinations impacted by the outbreak and spread of COVID-19. Other revenues were down 65% year-over-year to RMB37.1 million and accounted for 30% of our total net revenues. The decrease was primarily due to the decline in service fees received from insurance companies and revenues generated from financial services.
Gross margin was 53% in the third quarter of 2020, compared to a gross margin of 45% in the third quarter of 2019. Operating expenses for third quarter of 2020 were RMB127.8 million, down 71% year-over-year. Excluding share based compensation expenses and amortization of acquired intangible assets. Non-GAAP operating expenses were RMB118.2 million, representing a year-over-year decrease of 69%.
Research and product development expenses for the third quarter of 2020 were RMB16 million, down 75% year-over-year. The decrease was primarily due to the decrease in research and product development personnel related expenses. Sales and marketing expenses for the third quarter of 2020 were RMB49.9 million, down 79% year-over-year. The decrease was primarily due to the decrease in promotion expenses and sales and marketing personnel related expenses.
General and administrative expenses for the third quarter of 2020 were RMB69.8 million, down 50% year-over-year. The decrease was primarily due to the decrease in general and administrative personnel related expenses. Net loss attributable to ordinary shareholders was RMB56.9 million in the third quarter of 2020. Non-GAAP net loss attributable to ordinary shareholders, which excluded share based compensation expenses and amortization of acquired intangible assets was RMB47.2 million in the third quarter of 2020.
As of September 30, 2020, the company had cash and cash equivalents, restricted cash and short-term investments of RMB1.6 billion. Cash flow generated from operations for the third quarter of 2020 was RMB5.5 million. Capital expenditures for the third quarter of 2020 were RMB3.5 million. Tuniu's business has been significantly and negatively impacted by the outbreak and spread of COVID-19 since January 2020.
As a result of the continued influence by COVID-19, for the fourth quarter of 2020, the company expects to generate RMB112.8 million to RMB135.4 million of net revenues, which represents 70% to 75% decrease year-over-year. Please note that this forecast reflects Tuniu's current and preliminary view on the industry and its operations, which is subject to change, particularly as to the uncertainties brought upon by the impact of COVID-19.
Thank you for listening. We are now ready for your questions. Operator?
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Tracy Wong, a Private Investor. Please go ahead.
Tracy Wong -- Private Investor -- Analyst
Thank you for taking my question. Hi, management. Recently, we have see news such as a positive COVID-19 vaccine trial data that favors the travel industry. Would you please share with us your view on the recovery of the industry and what's your strategy to catch the recovery momentum? Thanks.
Donald Dunde Yu -- Founder, Chairman and Chief Executive Officer
Thank you for the question. Yes. It's very encouraging to hear the recent developments of effective COVID vaccines in both China and Western countries. That's good news for all human beings. Also the Chinese authorities recently announced to keep 2021 Labor Day holiday as five days long. This news boosted the further recovery of domestic tourism. In fact, we are always confident for the long term prospects for the travel industry. The domestic market is getting better and better. During the past National Day holiday, both the industry and the company showed good recovery. Owing to our deep involvement in the leader travel market, solid customer base, as well as the efforts made by our employees, Tuniu has been among the fastest to recover among China's travel agencies.
In short-term, we are still focusing on the domestic travel market, while the outbound travel still remains uncertainty. On the product side, we always commit to customer first, one of our core values. Our product teams are trying to find different itineraries, as well as various destination based activities to satisfy the needs of both organized tour and self guided tour customers. Our customer representatives and the tour guides are working hard to provide the best service to our customers. On the sales side, we are grateful to our loyal customers as the repeated customer contribution reached new highs in the third quarter. Our dedication to the improvement of products and services helped us increased the repurchase rate.
We reached the standard of our product launch again this year, so as to meet the customer needs for better and safer products. Taiko app is one of our new channels of acquiring customers compared to traditional ones. GMV generated from Taiko app also saw in the third quarter. One of the major advantages of Taiko is to acquire customers using the store owners network of trusted relationships. These customers really have higher stickness. On the product side, recently we launched the upgraded Hotel Plus App product model, which is ideal for the changing needs of domestic travelers in the post-pandemic era.
With the core resource hotel, we add different segments resources to form various products. Based on our direct procurement strategy and dynamic packaging system, we were able to find excellent resources and package them at discounted prices. In terms of outbound travel, although it's currently available, we are positive to the long-term prospect. Oversea leisure travel is one of our core strengths. We will maintain as a core team and kept them trained theoretically. We were confident that Tuniu will be among the first to recover outbound travel business when travel restrictions are relieved. Thank you.
Tracy Wong -- Private Investor -- Analyst
Thank you. I have no further questions. Thanks.
Operator
[Operator Instructions] There appears to be no further questions. We are approaching the end of the conference call. I will now turn the call over to Tuniu's Director of Investor Relations, Mary for any closing remarks.
Mary Chen -- Director, Investor Relations
Once, again, thank you for joining us today. Please don't hesitate to contact us if you have any further questions. Thank you for your continued support and we look forward to speaking with you in the coming months.
Operator
[Operator Closing Remarks]
Duration: 25 minutes
Call participants:
Mary Chen -- Director, Investor Relations
Donald Dunde Yu -- Founder, Chairman and Chief Executive Officer
Anqiang Chen -- Financial Controller
Tracy Wong -- Private Investor -- Analyst
