Where is the loss, what is the value of 15 billion yuan?

where the Nasdaq-listed NASDAQ:QUNR last November was a controversial company, because it had not been profitable and had no hope of making a profit in the short term, with a market capitalisation of as much as $ more than 15 billion trillion-a market value after a sharp correction this year. Where to go is not an isolated case, a similar phenomenon is common in the Internet industry. For example, the recently listed Jingdong Mall (NASDAQ:JD) is also a loss-making company, in the short term there is no hope of profit, but in accordance with the first day of the market price calculated as high as 27.5 billion U.S. dollars. Interestingly, the founders and CEOs of two companies emphasized that corporate profitability was unimportant. So why are investors still chasing them? Below I will try to understand the investment logic of the internet industry by analyzing where to go.

"Money" in the online tourism industry

Let's take a look where the online travel industry is located.

China's tourism industry earned as much as 2.57 trillion in 2012, a 14.2% increase from 2011, according to China National Tourism Administration. China's tourism industry will earn up to 3.76 trillion by 2016, according to Iris. That means the compound growth rate for the industry in 2013-2016 will be 9.7%. Although Ctrip, where is the focus of media attention companies, but in fact, online tourism accounted for the tourism industry market share but 6.6% (2012). According to Iris Consulting estimates, the income of online tourism will reach 444 billion yuan in 2016, accounting for tourism industry's overall income ratio of 11.8%, 2013-2016 composite growth rate of 26.7%.

China's online travel market is also attractive compared to the US. In 2012, China's tourism industry accounted for about 5% of GDP, while the U.S. tourism industry accounted for 10% of GDP, twice times that of China. Meanwhile, the market share of AOL tourism has reached 40%. The World Tourism Organization's research shows that when per capita GDP reaches 3000 U.S. dollars, tourism demand will explode, and when the per capita GDP reaches 5000 dollars, the mature vacation tourism economy, leisure demand and consumption ability is increasing and will appear diversification trend. In 2012, China's GDP per capita was 6000 U.S. dollars and entered a period of diversified tourism development.

Priceline, America's top-rated online travel company, has a market capitalisation of $ more than 62 billion, and the second-ranked online travel company, TripAdvisor, has a market capitalisation of more than $13 billion. Clearly, China's huge and fast-growing online tourism industry offers enough room to imagine where to go. In fact, the online tourism industry has become a battleground, bat has been in a positive layout: Baidu 2011 will go to where to take under the company, Alibaba launched Taobao Tourism, Tencent has invested in Art Dragon Net, the same way network.

Where to go business model

Now that online travel has become the coveted right and wrong place for internet giants, where to attract investors? First of all have to mention where itself backed by China's search giant Baidu. 2005 the establishment of where to go, a start positioning in the tourism industry Meta Search service. In October 2009, the report said that the total number of quarterly visits to the market was ranked first in 33.7%. June 2011, where to get Baidu strategic investment of 306 million U.S. dollars. Baidu became the first big institutional shareholder, accounting for 62.01%.

The U.S. tourism industry's vertical search engine company Kayak2012 1.8 billion dollars to be Priceline acquisition. Before the takeover, Kayak had continued to make a profit, and as mentioned earlier, the US online travel market is already very mature and the market is much larger than China. It is hard to wonder where the same tourist-industry vertical search in China is going to get a higher market value than Kayak's acquisition price. Sure, where to start with kayak is doing vertical search, but according to the special situation of the Chinese market, where the business model has a significant improvement. To put it simply, go where is the meta search SaaS for one-stop travel service provider.

Ota (online travel service) in the United States early development, the tourism industry vertical search engine development is relatively late, but because the tourism industry is a very strong purpose of a consumption, to price as the selling point of the vertical search engine always has its existence value. This is why kayak can get the space to develop and ultimately succeed in selling its own high price to Priceline. For the characteristics of the tourism industry, where to go Network CEO Zhungchengsu early in a small party has had a wonderful analysis: "We found that, in fact, online travel users, although from the absolute number (many), but the absolute number of the same moment is very small ... Many portals can easily reach tens of millions of of the UV (independent traffic), and even a day hundreds of millions of UV, but I have never seen an online travel site to reach this size. Online travel sites can reach 3 million of users a day is already a relatively large number, but the online travel site has a feature, each month coverage and quarterly coverage is very very high. Generally an online travel site can cover 30% to 40% of the Internet population in a quarter ... The vast majority of consumers have travel plans will be on the (travel) site. ”

Therefore, even if only do vertical search service, where there will be a space for it to live, and if only do vertical search, where to go should have been profitable already (2010 did realize the non-accepted accounting standards in the sense of profit).

However, where to enter the Chinese online tourism market, found that the market is still at a very early stage of development, online tourism in the entire industry accounted for less than 10%. This situation is likely to inspire the management of greater ambition or ambition, no longer satisfied with the mere provision of price information, but to the depth of the involvement of tourism products trading links. So where to go the SaaS platform has been launched since 2010 to provide SaaS services to offline travel agents or travel product providers free of charge. SAAS is the acronym for Software-as-a-service, the software as a service. Where are we going? Free SaaS platform software for offline travel products suppliers and services to them free of charge (P4P charges) based on performance performance for these vendors. There are two kinds of p4p charging methods: One is click (CPC), one is the final transaction (CPS).

In addition to the low penetration rate of online tourism in China, the fragmented tourism market in China offers opportunities to develop one-stop tourism services. According to the National Tourism Administration, there are more than 24,000 travel agencies in China in 2012, with traditional travel agencies occupying 61.6% of the market share (Iris data). China's hotel market is more fragmented, according to Euromonitor data, as of 2012 there are 310,000 hotels in China, of which 27,000 chain hotels, 75,000 independent hotels, 210,000 other accommodation units. The top five hotel groups have a 12.3% market share, well below the 54.3% in the United States. Moreover, more than 50% of the hotels in China are independent, non-star hotels. China's Travel service provider (TSP) is very traditional, most of which do not use the ability of network marketing. If you don't go to a place like this, the company will continue to erode the market share of these traditional travel service providers as consumers ' living scenarios become increasingly networked and mobile. Where to appear, is undoubtedly the gospel of these traditional tsp. It is said that the cost of using the SaaS platform is only 30% to 50% of the cost of using OTA. Where to go on the market, it is hoped that with two years of effort, two-thirds of China's independent hotels will be attracted to their own SaaS platform. Because of the above price advantage, this does not seem to be impossible to complete the task.

However, in order to serve these traditional TSP, it is necessary to invest a lot of manpower. Now it's a technical service provider to some extent, such as the education, training and technical support services for the TSP SaaS platform, so it's not like a vertical search engine that requires hundreds of technicians. The difference between kayak and where to go is clear: kayak, set up in 2004, had only 185 full-time workers and 61 contract workers in 2012, while the number of employees in 2013 was 1,699, and 3,869 in the first quarter of 2014 years. Obviously, where to go after the listing should be to increase the effort to promote the SaaS platform online.

From the above analysis, where to go completely break the vertical search engine business model, through the search SaaS to provide consumers with one-stop service, it also provides TPS one-stop service. In the language of where to say that is TTS (total Travel Solution), literal translation as "comprehensive tourism solution." More directly, where to go actually for the offline TSP provides a bypass OTA to do online marketing channels.

The good side of this approach is: from the consumer intuitive sense of perspective, from where to set the price of tourism products will generally be cheaper than through OTA, does bring benefits to consumers. I have compared the prices of Beijing and suburban hotels to where to go and another major OTA site in China, where they can always be cheaper than OTA more than 10 yuan or a few yuan. Therefore, to the price sensitive tourists, where the appeal is self-evident. The downside is that there will have to be a backlash against China's main Ota. In the two quarter of 2013, two major OTA once refused to cooperate with where to go. Although they quickly reached a compromise with where to go, there was an increase in the readiness to go. So far, on the wireless side, there is no way to work with the two major OTA--which makes it necessary to go to the dry work of OTA has done, that is, a home and offline TSP contract. It is still a question mark as to where the work can be done.

Admit it, deny it or not, where it has actually become the main competitor of China's largest OTA ctrip. Rumours of a merger of two companies at the end of the year were finally dismissed. The CEOs of two companies have solemnly expressed their views on the merger rumours within the company or to the media. I suspect that the rumors of the merger of two companies are not unfounded, in fact, they have many common investors. For investors, the merger of two of the industry's leading rivals is certainly something they would love to see--although there are few successful acquisitions, Goldman Sachs has not already pointed out that mergers and acquisitions by industry oligarchs are the best?

Behind the giant Baidu

Not only is Baidu a major shareholder, but it still holds a 54.1% stake and is the closest partner. Before listing, where to go with Baidu reached a cooperation agreement, called "Intimate Cooperation Agreement" (zhixin Cooperation Agreement). It leads directly to where to go before 2016 it is impossible to achieve the value of GAAP (generally accepted accounting standards) in the sense of profitability. Given the many questions about the intimate agreement, let's take a look at the main contents of the agreement. The agreement stipulates that the period of cooperation from 2014 to 2016, including:

Exclusive business rights: Baidu agreed to where to "cooperation platform" tourism-related search results of the exclusive right to operate, including links to a variety of tourism products such as air tickets, hotels and other tourism products. According to the agreement, Baidu will receive 76% of its revenue from the benchmark, after it reaches the benchmark amount (the benchmark for the agreement's initial period is 1.9 billion yuan).

--Flow assurance: Baidu agreed to ensure that 2014 and 2015 the smallest annual browse volume of 2.19 billion, 2016 browse volume is not less than 2.196 billion. And if there is no benchmark revenue to go to, or Baidu can not achieve the minimum guaranteed flow of 90%, then the grant of convertible B common stock warrants to adjust accordingly.

-Granted Baidu warrants: where to go to the network to agree to issue B-class common shares to Baidu, Baidu through the subscription warrants to obtain them, the calculation is the equivalent of 229 million U.S. dollars of advertising fees to go where the IPO when the 15 U.S. dollars per ADS to go to where 15.3 million ads. Baidu can exercise 25% warrants on January 15, 2015, 35% warrants on January 15, 2015 and 40% warrants on January 15, 2017. All warrants will expire on December 31, 2019.

The agreement with Baidu guarantees where to go on the PC-side traffic. Where to go before the listing, Baidu also gave it a guide to flow, but there is no charge. The following figure shows where to go with Baidu cooperation before and after the change of Access volume:

Data Source: Eric Consulting

Can see, and Baidu cooperation, where to visit the volume is already the industry's first. After cooperation, further widened the gap with competitors. It is accused of where to go is relying on Baidu this tree has today's status, where to go to the CFO Sun Ganghui also refuted. According to Sun revealed, where to go to the PC end of the traffic from Baidu less than 20%, and the mobile end is where its own traffic, the first quarter of this year from the mobile end of the income has accounted for the company's overall income of more than 30%.

To where to shareholders, the bad side of the deal with Baidu is, if go where the price rises, the company issued to Baidu the value of the warrants will rise, resulting in this piece of costs rise, will eventually make the company in accordance with generally accepted accounting standards calculated profit decline. After the first quarter of this year's results, Sun Ganghui in the investor community snowball on this specific explanation, think that this part of the cost of the company's shares diluted 12% to 13% more appropriate.

Scramble for Mobile End

In the past two years, the mobile internet has gradually become a more and more important field of competition for the internet giants from the previous concept stage. Whether Tencent, Baidu or Ali, the mobile Internet to maintain a high degree of concern, frequent movements. Where to go earlier to see Mobile internet for the online tourism industry, the important value of the mobile end in the first-mover advantage position. By the first quarter of 2014, where to go mobile end users have reached 60.3 million, an increase of 86.1%. And where the mobile end has contributed 31.7% of the revenue in the first quarter of this year. According to a September 2012 survey by CNNIC, where to go wireless client downloads the industry first, the download ratio reached 54.8%; Ctrip ranked second, download ratio of 44.2%; The download of Taobao tourism is ranked third, download ratio of 25%. The download ratio of the tour app is as follows:

Data Source: CNNIC

The ability Circle (Abilitycircle) believes that the future mobile end will become increasingly important for the online travel industry. Mobile phone terminals seem to be particularly suited to the tourism industry, because on the one hand it has location information, on the other hand can be used anytime. Tourism products are time-sensitive, fast decay, the two very fit. Moreover, tourism products generally do not need to pay immediately, so to some extent, reduce the use of mobile phone booking threshold. I believe that as the user's life scene changes, they will increasingly be booking travel products via smartphones. This, China's online tourism providers should also be aware of, so the mobile side to promote the effort. Zhungchengsu said in a recent interview that there should be 80% of the income from the mobile end of the next 3 years. He argues that trading shifts are mainly driven by user scenarios, and many applications are more suitable for wireless use.

The investment logic of the Internet

Finally, sum up where to go the loss company by what market value of 15 billion yuan. First of all, it is positioned in a very imaginative space of the online tourism market; second, it has achieved a leading position on the user's scale; Thirdly, its business model is unique, and it has some advantages in the tourism industry which is fragmented in China and has low penetration rate in online tourism. Four, in the wireless internet market, the company has achieved the first advantage position; Its management shows a deep understanding of the industry, foresight, and strong strategic implementation.

In addition to the above to where their own factors, the Internet industry a unique law also have to mention. A common phenomenon in this industry is the winner-all, a field that often has only one winner. and an internet company in the client market position is often the first indicator of competition, especially for investors. Therefore, it is not surprising that many Internet companies do not hesitate to take a long-term loss in order to gain an absolute leading position in the user market. After the market position is firm, only then starts to turn the superiority to win the potential, starts to make money for the shareholder. The Internet industry investment of this characteristic, is called "first pay, after receiving goods" mode, of course, the biggest risk is to pay a lot of money, and finally did not receive the goods!

Zhungchengsu recently interviewed by the media, that the value of a company, the most important thing is to see its GMV (gross merchandise Volume, trading), or business complexity in the operation of GDP is indispensable. What a familiar saying! This theory, whether in the Amazon, Alibaba or Jingdong Mall seems to exist more or less. He said: "If there is a 1 trillion yuan GMV, even if the company does not make money, it also has a very high market value." Under this market value, what losses today tens of millions of, hundreds of millions of dollars, is a peanut (very little money) ... The question is whether you can live to that day. In the long run, if you are in this position, you must be profitable, the profit is uncontrollable, because people will need you very much. ”

specifically to where to go to the net, in fact, to make money is not difficult, as long as the reduction of capital expenditure can be. But where to go in the short term it is unlikely to cut back on investment, as it is still seeking a solid first place in the industry. If you go where the management is looking forward to achieving that position, then the profit will have a rapid growth period. Where to go to the gross margin of 80% or so, once the break-even, means that every more than a dollar of income eight cents is pre-tax profit. This phenomenon also exists in the traditional industry, such as the restaurant's gross profit margin of 60% or so, once the break-even, then every increase in the income of a piece of money, six cents are pre-tax profits. I think investors are probably looking at where there is a chance of reaching 1 trillion of the deal, and giving it more than 15 billion of its market capitalisation at a time of years of losses--that's the logic of Internet investment. Believe it or not.

Zhou Zhanhong Capital investment director, the original "Fortune" magazine on behalf of the Executive editor. The amateur runs a micro-credit public number (abilitycircle). His statement: The company mentioned in the article may or may not have invested. Investment is risky and this article does not constitute an investment proposition for anyone.

This article starts in "financial world" magazine