Chinese eWhispers - August 2009 Update

Step Forward for Online Payment Processing in China

Chinese B2B e-commerce group Alibaba and the Bank of China have signed a comprehensive strategic cooperative agreement to jointly provide e-commerce value-added services to customers.

They have announced that under the agreement, the two parties will implement cooperation for online payments; international business expansion; financing for small and medium-sized enterprises; and digital marketing. Bank of China will provide support to Alibaba Group and its online payment subsidiary Alipay.

The signing of this agreement marks a new stage of the two parties' cooperation in areas such as building of a credit system, credit card innovation, and international business innovation.

The latest statistics published by China Internet Network Information Center, by June 30, 2009, have the number of netizens in China T 338 million.

As one of the largest e-payment platforms in China, Alipay had gained over 200 million users by July 6, 2009, and Taobao.com, Alibaba's Internet shopping subsidiary, realized sales of CNY99.96 billion in 2008.

Ctrip Announces Expanded Internet Travel Revenue From China

Chinese Internet travel company Ctrip.com International Ltd. has announced its unaudited financial results for the quarter ended June 30, 2009, and has reported total revenues of CNY508 million, representing a 26% increase from the same period in 2008 and an 18% increase from the previous quarter.

Hotel reservation revenues amounted to CNY227 million for the second quarter of 2009, representing a 16% increase year-on-year, and a 21% increase quarter-on-quarter. Excluding revenues attributable to ezTravel, a Taiwan-based online travel subsidiary, Ctrip.com's hotel reservation revenues were CNY223 million, representing a 14% increase year-on-year, primarily driven by a 26% increase in hotel reservation volume, which was partially offset by a decrease in commission per room. Excluding revenues attributable to ezTravel, Ctrip's hotel reservation revenues increased by 19% quarter-on-quarter, primarily driven by a 24% increase in hotel room reservation volume, which was partially offset by a decrease in commission per room.

Air-ticketing revenues for the second quarter of 2009 were CNY222 million, representing a 32% increase year-on-year, and a 20% increase quarter-on-quarter. Excluding revenues attributable to ezTravel, Ctrip's air-ticketing revenues were CNY215 million for the second quarter of 2009, representing a 27% increase year-on-year, primarily driven by a 42% increase in air-ticketing sales volume, which was partially offset by a decrease in commission per ticket.

Packaged-tour revenues for the second quarter of 2009 were CNY36 million, representing a 51% increase year-on-year, and a 5% decrease quarter-on-quarter. Excluding revenues attributable to ezTravel, Ctrip's packaged-tour revenues for the second quarter of 2009 increased by 13% year-on-year, due to the increase in the leisure travel volume. Excluding revenues attributable to ezTravel, Ctrip's packaged-tour revenues decreased by 28% quarter-on-quarter, primarily due to the impact of H1N1 flu and the seasonality of leisure travel.

Product development expenses for the second quarter of 2009 increased by 34% to CNY76 million from the same period in 2008, and by 20% from the previous quarter, primarily due to the increase in product development personnel. Sales and marketing expenses for the second quarter of 2009 increased by 21% to CNY83 million from the same period in 2008 and by 17% from the previous quarter primarily due to the increase in sales and marketing activities and personnel. General and administrative expenses for the second quarter of 2009 increased by 6% to CNY45 million from the same period in 2008 and 10% from the previous quarter primarily due to the increase in personnel.

Income from operations for the second quarter of 2009 was CNY164 million, representing a 29% increase from the same period in 2008 and a 21% increase from the previous quarter. Operating margin was 34% in the second quarter of 2009, remaining consistent with the second quarter of 2008 and that of the previous quarter.

Importantly, the effective tax rate for the second quarter of 2009 decreased to 18%, compared to 26% in the same period of 2008 due to the application of the High and New Technology Enterprise preferential treatment to certain of Ctrip's mainland China subsidiaries. The effective tax rate for the second quarter of 2009 remained consistent with that in the previous quarter.

As of June 30, 2009, the balance of cash and short-term investment was CNY1.2 billion.