Tuniu Corporation — FY2016 Form 20-F
Reporting period: Fiscal year ended December 31, 2016. This is an annual report, not a standalone fourth-quarter filing; it provides selected quarterly 2016 figures but not a clear quarterly net-loss figure. Financial statements are prepared under U.S. GAAP. Unless otherwise noted, amounts below are RMB.
Business context and reporting period
Tuniu operates an online leisure travel business in China, selling organized and self-guided tours and related services. Organized tours remained the core business. Overseas products accounted for more than 63.8% of packaged-tour gross bookings in 2016, and mobile orders represented approximately 80% of online orders. The company consolidates its China operating affiliate through contractual VIE arrangements.
Financial and operating performance
| Metric | FY2016 | FY2015 |
|---|---|---|
| Total revenue | RMB10,565.6 million | RMB7,680.8 million |
| Net revenue | RMB10,548.3 million | RMB7,645.3 million |
| Gross profit / margin | RMB627.0 million / 5.9% | RMB370.6 million / 4.8% |
| Operating loss | RMB2,519.3 million | RMB1,455.0 million |
| Net loss | RMB2,442.6 million | RMB1,462.4 million |
| Net loss per ordinary share, basic and diluted | RMB6.50 | RMB5.88 |
| Cash used in operating activities | RMB2,239.4 million | RMB514.7 million |
| Cash used in investing activities | RMB2,514.2 million | RMB1,915.2 million |
| Cash provided by financing activities | RMB3,627.1 million | RMB3,005.8 million |
- Total revenue increased 37.6% year over year. Organized-tour revenue rose 34.9%; self-guided-tour revenue rose 30.5%; other revenue rose 201.9%, from a smaller base.
- Cost of revenue was 94.1% of net revenue, versus 95.2% in 2015. Operating expenses rose 72.3% to RMB3,146.3 million and increased to 29.8% of net revenue from 23.9%. Sales and marketing expense reached RMB1,908.4 million; research and product development expense was RMB601.4 million.
- At year-end, cash and cash equivalents were RMB1,085.2 million, restricted cash RMB124.6 million, and short-term investments RMB3,603.5 million. Together these totaled RMB4,813.3 million. Current assets were RMB7,505.8 million and current liabilities RMB4,528.9 million.
- Total liabilities were RMB4,583.9 million and shareholders’ equity RMB4,482.4 million. The company reported no short- or long-term bank borrowings outstanding at December 31, 2016. It did, however, report RMB871.9 million due to individual investors in connection with yield-enhancement products.
- Customer advances rose to RMB1,951.8 million and accounts payable to RMB879.4 million. Prepayments and other current assets were RMB1,632.3 million, including RMB1,369.0 million of supplier prepayments.
Material changes and unusual items
- Losses widened substantially as operating expenses grew faster than revenue. Management attributed higher spending to expansion, branding and advertising, mobile initiatives, technology and product development, staffing, and regional service centers.
- Operating cash outflow increased sharply. The filing attributes this to supplier payments, marketing and other operating costs, employee-related payments, and increased working-capital needs.
- In January 2016, Tuniu completed a US$500 million HNA share investment. Net private-placement proceeds were RMB3,275.8 million. The company also repurchased 328,433 ADSs during 2016 for approximately US$2.9 million.
- Beginning January 1, 2017, Tuniu planned to adopt ASC 606 retrospectively and described changes in its role in organized-tour arrangements from principal to agent. It expected most organized-tour revenue to be presented net rather than gross, and packaged-tour revenue timing to shift from tour completion to departure. Its illustrative 2016 full-year presentation under the new basis reduced net revenue from RMB10,548.3 million to RMB1,430.3 million and increased gross profit from RMB627.0 million to RMB645.1 million; this was a presentation adjustment, not a change in underlying economics.
- The filing presents illustrative fourth-quarter 2016 GAAP total revenue of RMB2,106.7 million and gross profit of RMB183.9 million. On the filing’s adjusted basis reflecting the anticipated 2017 net presentation and timing, fourth-quarter net revenue was RMB321.7 million and gross profit RMB168.2 million. These adjusted figures are not reported GAAP results for 2016.
- One travel agency was acquired in 2016 for stated consideration of RMB28.1 million, including contingent consideration. The company recorded RMB147.6 million of goodwill at year-end, with no goodwill impairment reported.
Outlook, risks and contingencies
- Management said available cash, cash equivalents, short-term investments and anticipated operating cash flows were expected to cover working-capital and capital needs for at least 12 months. It also expected operating expenses, including research and development and share-based compensation, to continue increasing in absolute terms, and warned that it might continue to incur losses.
- Key business risks include intense competition and promotional spending, continued high customer-acquisition costs, supplier quality and availability, committed-tour inventory risk, travel-industry seasonality, and exposure to overseas travel disruptions. The filing notes that 2016 demand in certain destinations was affected by geopolitical events.
- Financial services were a relatively new business and expose Tuniu to credit, asset-quality, funding and liquidity risks. The company also held yield-enhancement products and had related obligations to individual investors.
- The VIE structure is subject to uncertainty in PRC law and regulation. A challenge to the contractual arrangements could impair the company’s control of, or ability to consolidate, its China operating affiliate. Other China-related risks include foreign-exchange controls, restrictions on fund transfers and dividends, licensing and data/privacy regulation, and possible tax consequences.
- The company reported no material legal or administrative proceeding then pending. It disclosed RMB218.6 million of future operating-lease commitments and RMB9.7 million of purchase commitments at year-end, as well as bank letters of guarantee totaling RMB199 million that used credit facilities. Management stated that ordinary-course claims were not expected to have a material adverse effect, while acknowledging litigation uncertainty.
- Management and the auditor concluded that internal control over financial reporting was effective as of December 31, 2016. One acquired travel agency, representing 0.5% of assets and 1.8% of revenue, was excluded from that assessment and the auditor’s internal-control audit.
Most important facts for investors to verify
- Reconcile the reported operating cash outflow: the cash-flow statement reports RMB2,239.4 million, while a note on liquidity refers to RMB2,257.5 million.
- Assess cash burn and liquidity quality, including the maturity, liquidity and credit exposure of short-term and yield-enhancement products, restricted cash, and related investor obligations.
- Track the impact of ASC 606 and the principal-to-agent change on reported revenue, gross margin, comparability and the timing of recognition.
- Review whether revenue growth can outpace operating-expense growth and reduce recurring losses and operating cash use.
- Monitor VIE-related regulatory developments, the company’s ability to move funds from China, and the terms and performance of related-party arrangements with HNA, JD.com and Ctrip.