Tuniu Corporation — FY2017 Form 20-F
Period: Fiscal year ended December 31, 2017. This annual filing does not provide standalone fourth-quarter results. Financial statements are audited and prepared under U.S. GAAP; amounts below are RMB unless stated otherwise.
Business context and reporting period
Tuniu operates an online leisure-travel platform in China, selling organized and self-guided packaged tours and other travel services. Overseas destinations represented over 67.1% of packaged-tour gross bookings in 2017; over 90% of online orders were placed through its mobile platform.
Comparisons require care: effective January 2017, Tuniu generally shifted from principal to agent for organized tours, recording most related revenue net of supplier payments and recognizing it when tours depart. It also adopted ASC 606 retrospectively. Thus, reported revenue and gross-margin comparisons with 2016 are not like-for-like.
Financial performance and liquidity
| Metric | FY2016 | FY2017 |
|---|---|---|
| Net revenue | RMB10,530.9 million | RMB2,192.1 million (US$336.9 million) |
| Gross profit | RMB639.2 million | RMB1,167.9 million |
| Operating loss | RMB2,499.1 million | RMB883.4 million |
| Net loss | RMB2,422.3 million | RMB771.3 million (US$118.6 million) |
| Net cash used in operating activities | RMB2,239.4 million | RMB418.6 million |
| Cash, restricted cash and short-term investments | RMB4,813.3 million | RMB3,660.5 million |
- Reported revenue fell sharply because of the principal-to-agent accounting change, not simply a comparable contraction. On management’s comparable net basis, total net revenue rose from RMB1,430.3 million in 2016 to RMB2,192.1 million in 2017; packaged-tour revenue increased 49.8% on a comparable basis.
- Gross margin was 53.3% in 2017 versus 6.1% in 2016, but the change in revenue presentation materially limits direct comparison. Operating expenses fell 34.6% to RMB2,051.3 million, mainly as sales and marketing spending declined 53.0%.
- Investing cash flow was positive RMB648.3 million, mainly reflecting maturities of short-term investments; financing cash flow was negative RMB784.8 million, including repayment of yield-enhancement product balances and share repurchases.
- Year-end cash and cash equivalents were RMB484.1 million; short-term investments were RMB3,084.6 million and restricted cash RMB91.8 million. Total current assets were RMB5,089.3 million and current liabilities RMB2,921.3 million. Total liabilities were RMB2,963.8 million. The company reported no short- or long-term bank borrowings outstanding.
Material changes, outlook, and risks
- Management said available cash, cash equivalents, short-term investments and expected operating cash generation should cover working capital and capital expenditure needs for at least the next 12 months. It cautioned that additional capital may be needed if conditions change. No specific earnings or revenue guidance was provided.
- Management aimed to keep sales and marketing costs stable or lower as a share of net revenue through efficiency improvements and expected no significant increase in research and product development expenses.
- Tuniu remained loss-making and had an accumulated deficit of RMB5,505.9 million. Operating cash use improved year over year but remained negative.
- Key exposures include the PRC variable-interest-entity structure and uncertainty around its enforceability and regulation; travel-demand shocks, competition, supplier service and availability, customer claims, and online-platform/security risks; and foreign-exchange, financing and liquidity constraints.
- In 2017, Tuniu stopped granting loans to individuals and terminated lending-related cooperation agreements with Black Fish Financial Group, founded by a Tuniu director. Black Fish charged RMB155.9 million in service fees and purchased related loan receivables for RMB140.0 million. Tuniu also disposed of several deficit subsidiaries to Black Fish for nominal consideration.
- The company repurchased 2,995,351 ADSs in 2017 for an average US$8.12 each. A further authorization for repurchases of up to US$100 million was approved in January 2018. Tuniu reported no plan to pay dividends in the near future.
- Management and the auditor concluded that internal control over financial reporting was effective as of year-end. The filing also describes uncertainty over PCAOB inspection access to the auditor in China.
Important facts for investors to verify
- Assess underlying booking and revenue growth using the comparable net-basis figures, and distinguish those from reported gross-to-net revenue changes under the 2017 agency model.
- Review the audited cash-flow and balance-sheet details, including the composition, liquidity and restrictions of short-term investments and the decline in liquid resources.
- Examine the Black Fish related-party arrangements, loan-receivable sale, subsidiary disposals and remaining exposure to consumer and supplier credit risk.
- Monitor the VIE structure, required licenses, PRC remittance restrictions and the ability of PRC entities to fund the offshore holding company.
- Check the subsequent status and terms of the January 2018 repurchase authorization, as well as the company’s progress toward reducing losses and operating cash use.