Is Tuniu’s IPO a Ponzi Scheme? Let’s Take a Close Look at its Financial Figures.
imageTuniu.com Mr. Yu Dunde (于敦德), founder of Tuniu.com
imageInternet photo Tuniu outdoor ad poster

Compared with other competitors in the same industry, the gross profit margin of Tuniu is extremely low in the market. And Tuniu recognized revenues from organized tours on gross basis, which is different from other companies. The reason to take unusual way to recognize net revenue is to prepare for going public. By correcting the financial data, we cannot be optimistic about the future of Tuniu.

Chinese travel service Tuniu has filed for $120 million funds with the US Securities and Exchange Commission via China Renaissance, Credit Suisse and Morgan Stanley.

The company reported in offering documents that they offer packaged tours sourced from over 3,000 travel suppliers, covering over 70 countries as well as all popular tourist attractions in China. Their product portfolio consists of over 100,000 stock-keeping units, or SKUs, of organized tours, over 100,000 SKUs of self-guided tours, and tickets for over 1,000 domestic and overseas tourist attractions. In addition, their net revenues increased from ¥765.5 million in 2011 to ¥1,112.9 million in 2012 and further to ¥1,949.7 million (US$322.1 million) in 2013, representing a CAGR of 59.6%.

Compared with other competitors in the same industry, the gross profit margin of Tuniu is extremely low in the market.

image

The research and development expenses of the Internet companys are necessary, including the market cost and administrative costs. The gross margin of Ctrip (NASDAQ:CTRP), eLong (NASDAQ:LONG) is 70% or more.

The low gross profit margin may cause some problems of the profit pattern. Having explored in the industry for 8 years, Tuniu still has less than 8% gross margin.

There is a problem on the sales confirmation. Other online travel companies treat paid-in commission as revenue. For example, Ctrip said very clearly :

As we generally do not take ownership of the products and services being sold and act as an agent in substantially all of our transactions, our risk of loss due to obligations for cancelled hotel and airline ticket reservations is minimal. Accordingly, we recognize revenues primarily based on commissions earned rather than transaction value.

Tuniu uses similar method to recognize revenue from self-guided tours, However, when comes to the recognition of revenue from organized tours, Tuniu uses different method: revenues from organized tours are recognized on gross basis, which represent amounts received from customers.

The reason to take unusual way to recognize net revenue is to prepare for going public. Because net loss was more than ¥100 million during three consecutive years 2011, 2012 and 2013. In this situation, Tuniu only can use PS (revenue divided by total market capitalization), instead of PE sales ratio to valuate the company. Qunar.com, whose market capitalization is $ 3 billion and PS is 22, is still not profitable. The PS of Ctrip is only 7, even its market capitalization is over 60 billion dollars. The net revenue of Tuniu packed is $320 million and the PS ration is 7, according to PS ratio Ctrip estimated. The market capitalization becomes more than $2 billion.

Why do we say that Tuniu overreached itself? There are two reasons. First of all, it distorts all the financial data, such as calculation of expenses and revenue. The second problem is about tax. Based on offering documents, Tuniu emphasis the reasonability of Gross basis (exclude suppliers’ cost). However, when comes to tax, the company use net amount to calculate the taxable income. It looks like the company was misleading the investors.

image

According to the industry’s general revenue recognition methods and after correcting data reduction, revenue of Tuniu fell to 201 million yuan from 1.962 billion in 2013, revenue fell to 104 million yuan from 1.12 billion yuan in 2012 and revenue fell to 74 million yuan from 765 million in 2010.

By correcting the financial data, we cannot be optimistic about the future of Tuniu.

The first reason is that Tuniu is not efficient to convert expenses to revenue. In 2013, the market cost was more than ¥110 million, while net revenue was only ¥201 million.

Secondly, gross margin was significantly lower than the average in the industry, which indicates the lack of bargaining power. In addition, the current market share of Tuniu is comparably small. Tuniu had 850,000 transactions in 2012 and 1.28 million transactions in 2013. Compared to Qunaer, which sold 118,000 tickets and 24,000 rooms per day. In 2013, Ctrip invested 1.245 billion for reaseach and development, while Tuniu only spent 38,994,000 yuan doe the research and development costs.

Even Tuniu got 120 million dollars after going public, it is still possible that the company cannot improve after that.

To be honest, perhaps the significance of Tuniu to go public is to make the new shareholders to pay for the investment paid by the old shareholders and let the old shareholders get out of trouble.

Original post on Huxiu

Advertising