Internet Travel Profit Drops In China At eLong.com

Net income dipped sharply for Chinese online travel service provider eLong Inc. as it reported its unaudited financial results for the third quarter ended September 30, 2010.

Net income for the third quarter of 2010 was CNY1.2 million, compared to net income of CNY7.5 million during the prior year quarter. Net income per ADS and diluted net income per ADS for the third quarter of 2010 were CNY0.04, compared to net income per ADS and diluted net income per ADS for the prior year quarter of CNY0.32 and CNY0.30, respectively.

Gross margin in the third quarter of 2010 was 73% compared to 70% in the prior year quarter of 2009, mainly due to the more rapid growth of eLong.com’s hotel business than its air business, an increased proportion of online bookings and improved air revenue per segment.

Net revenues increased 42% to CNY137.8 million, compared to CNY97.2 million in the third quarter of 2009. Income from operations increased 104% to CNY12.0 million, compared to CNY5.9 million in the third quarter of 2009. Operating margin was 8.7% compared to 6.1% in the third quarter of 2009.

Hotel room nights booked through eLong grew 60% to 1.9 million room nights compared to 1.2 million in the third quarter of 2009. Domestic hotel coverage network expanded 54% to 14,300 domestic hotels as of September 30, 2010, and more than 15,000 domestic hotels as of October 31, 2010, compared to 9,300 as of September 30, 2009.

Hotel commission revenue increased 46% for the third quarter of 2010 compared to the prior year quarter, primarily due to higher volume, which was partially offset by lower commission per room night. Commission per room night decreased 9% year-on-year, primarily due to the company’s eCoupon program and the more rapid growth of lower average daily rate hotels. Room nights booked through eLong in the third quarter increased 60% year-on-year to 1.9 million.

Air ticketing commission revenue increased 31% for the third quarter of 2010 compared to the prior year quarter, driven by a 4% increase in air segments to 629,000 and an increase in commission per segment. Commission per segment increased 26%, due to a 21% increase in average ticket price and an increase in air commission rates compared to the same quarter of the prior year.

Other revenue increased 37% year-on-year for the third quarter of 2010. Other revenue is primarily derived from advertising on our websites, travel insurance and packages. Other revenue was 9% of total revenues in the third quarter of 2010 which was the same as the prior year quarter.

Total operating expenses increased 43% for the third quarter of 2010 compared to the third quarter of 2009. Total operating expenses were 64% of net revenues, which was the same as the prior year quarter.

eLong currently expects net revenues for the fourth quarter of 2010 to be within the range of CNY116 million to CNY126 million, equal to an increase of 15% to 25% compared to the fourth quarter of 2009.