Prospectus Summary
PROSPECTUS SUMMARY This summary highlights information appearing elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. You should carefully read this entire prospectus, including the “Risk Factors” section and the financial statements and the related notes, before deciding whether to invest in our ADSs.Our Business
We are the leading search-based commerce platform for the travel industry in China. We enable people to find best-value deals by aggregating and processing highly fragmented travel product information from tens of thousands of travel service providers, or TSPs, into an organized and user-friendly display through our proprietary technology. According to iResearch, we ranked No. 1 among all non-state-owned online travel companies in China in terms of monthly unique visitors since November 2010. We were the most visited travel website in China among online travel users, according to a report released by Nielsen in June 2012.
We optimize users’ travel experience by enabling them to easily identify and compare their desired travel products anytime and anywhere through our website and mobile applications. We retrieve and display real-time information about air tickets, hotels, vacation packages and other travel products based on user search queries. Our comprehensive and accurate search results are sourced from third-party travel websites as well as our proprietary software-as-a-service, or SaaS, system, on which we host the web outlets for a large and growing number of TSPs. Our platform is designed to facilitate and enhance convenience, data accuracy, and transaction security for our users. As a result of our focus on user experience, we have attracted a large and rapidly expanding user base. The number of our web users grew from 71.7 million in 2010 to 187.3 million in 2012. The number of our web users was 203.2 million in the 12-month period ended June 30, 2013. In addition, the number of our mobile users grew from 0.2 million in 2010 to 21.9 million in 2012. The number of our mobile users was 39.6 million in the 12-month period ended June 30, 2013.
Our customers include TSPs and display advertisers. Leveraging our large user base and our advanced technologies, we provide an attractive value proposition to our customers.
We are a technology-driven company. Our industry experts, product managers and software engineers collaborate closely to drive our product development efforts to better serve our users. Our superior search capabilities are at the core of our technological competence. We processed approximately 1.8 billion web and mobile search queries in 2012 and approximately 1.4 billion web and mobile search queries in the first six months in 2013 for air tickets and hotels. We are able to instantly extract targeted data from a massive number of online sources with different formats. Unlike general search engines, our search results must be current and accurate for users to proceed with their transactions. We maintain a dynamic data cache which is constantly verified and refreshed to ensure up-to-date, accurate and fast search results. Our platform also powers natural language fuzzy search, which significantly broadens permissible search parameters and optimizes search results by analyzing and organizing unstructured information from the Internet. The key word database for our search service utilizes an intelligent “machine learning” technology, allowing it to automatically improve itself with the injection of new data. As a result, our search results become more relevant and accurate over time.
We have achieved substantial growth since the commencement of our operations in 2005. Our revenues increased from RMB123.9 million in 2010 to RMB262.4 million in 2011 and to RMB501.7 million (US$81.7 million) in 2012, and from RMB204.6 million in the six months ended June 30, 2012 to RMB358.8 million (US$58.5 million) in the six months ended June 30, 2013. We recorded net losses of RMB4.4 million, RMB46.0 million, RMB91.1 million (US$14.8 million), RMB64.1 million and RMB16.9 million (US$2.8 million) in 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, respectively. Our adjusted EBITDA was RMB4.0 million and RMB2.8 million in 2010 and 2011, respectively, and we recorded negative adjusted EBITDA of RMB24.0 million (US$3.9 million) in 2012. Our adjusted EBITDA was RMB13.7 million (US$2.2 million) in the six months ended June 30, 2013, compared to negative adjusted EBITDA of RMB27.2 million in the six months ended June 30, 2012. For information regarding adjusted EBITDA, see “Summary Consolidated Financial Data—Non-GAAP Financial Measures.”
The PRC government extensively regulates, through licensing and permit requirements, foreign ownership of companies that provide Internet-based services. We derive most of our revenues from Beijing Qunar Software Technology Company Limited, a wholly foreign owned enterprise, or WFOE, and its subsidiaries in the PRC. To comply with certain licensing and permit requirements imposed by applicable PRC laws and regulations, we also conduct part of our business through Qunar.com Beijing Information Technology Company Limited, a variable interest entity, or VIE. We face risks and uncertainties associated with our corporate structure, as our control over our VIE and its subsidiaries is based on contractual arrangements rather than equity ownership. See “Risk Factors—Risks Related to Our Corporate Structure” and “History and Corporate Structure—Our Corporate Structure—Contractual Arrangements with our VIE and its shareholders.”
Our Industry
The travel industry in China has undergone rapid growth driven by several trends such as the rising disposable income, an expanding middle class, growing consumer demand for travel, rising car ownership, new emerging travel transportation means such as high speed rail, and supportive government policies. Total revenue of China’s travel industry grew from RMB1.16 trillion in 2008 to RMB2.57 trillion in 2012, representing a compound annual growth rate, or CAGR, of 22.0%, according to iResearch. The online travel market in China grew from RMB48.6 billion in 2008 to RMB170.9 billion in 2012, representing a CAGR of 36.9%, and shows significant growth potential driven by a growing number of Internet users and increasing use of the Internet for travelers to search and purchase travel products, according to iResearch.
Although advancements with the Internet have greatly improved the travel industry’s ability to distribute information and process transactions, the travel distribution system in China remains fragmented, complex and technologically underdeveloped. As a result, Chinese travelers, especially leisure travelers, are significantly underserved and TSPs’ ability to improve yield management is considerably hindered.
We believe we are uniquely positioned in China’s travel industry and we are transforming the way Chinese people shop for travel online. We have developed a search-based travel commerce platform to solve the challenges faced by different participants in China’s travel industry by aggregating highly fragmented travel information for travelers and connecting TSPs directly to consumers, thereby creating a more transparent, efficient distribution system for travel products.
Our Strengths
We believe the following strengths have contributed to our success and allowed us to achieve our market leading position:
Our Strategies
Our goal is to empower Chinese travelers to define their travel experience. We intend to achieve this goal by pursuing the following strategies:
Our Challenges
Our ability to achieve our goal and execute our strategies is subject to risks and uncertainties, including the following:
You should refer to “Risk Factors”, beginning on page 14, for a more detailed discussion of the risks involved in investing in our ADSs.
History and Corporate Structure
Mr. Frederick Demopoulos, Mr. Chenchao (CC) Zhuang and Mr. Douglas Khoo launched www.qunar.com, which was then registered under Mr. Zhuang’s personal name, in May 2005 to provide online travel search services. In March 2006, the VIE was established in the PRC and commenced operations of online travel search business. In July 2006, Qunar Cayman Islands Limited, or Qunar Cayman, was incorporated in the Cayman Islands.
We are a holding company and we conduct our operations primarily through our subsidiaries and affiliated entities in China. PRC laws, regulations and rules currently restrict foreign-invested entities from engaging in the operation of Internet-related businesses in China. To comply with PRC laws, regulations and rules, we operate our www.qunar.com website through the VIE. In October 2006, through the WFOE, we entered into certain contractual arrangements (as amended and restated in October 2012) with the VIE and its shareholders, through which we obtained effective control over the operations of the VIE.
The contractual arrangements in connection with our VIE include (i) a Restated Exclusive Technical Consulting and Services Agreement which will continue to be in effect until terminated by the WFOE, (ii) a Restated Loan Agreement which will continue indefinitely until such time as (a) the Baidu nominee and Mr. Chenchao (CC) Zhuang receive a repayment notice from the WFOE and the Baidu nominee and Mr. Chenchao (CC) Zhuang fully repay the loans, or (b) an event of default (as defined therein) occurs unless the WFOE sends a notice indicating otherwise within 15 calendar days after it becomes aware of such event, (iii) a Restated Equity Option Agreement which will remain effective with respect to each of the VIE’s shareholders until all of his or her equity interest has been transferred or we terminate the agreement unilaterally with a 30-day prior written notice, (iv) an Equity Interest Pledge Agreement which became effective upon registration and will expire when all obligations under the aforementioned loan agreement, equity option agreement and exclusive technical consulting and services agreement have been satisfied, or the pledgor completes a transfer of equity interest pursuant to the aforementioned equity option agreement so that it no longer holds any equity interest in the VIE, and (v) Powers of Attorney which will remain in force until the Baidu nominee or Mr. Chenchao (CC) Zhuang, as the case may be, no longer holds any equity interest in the VIE. Please refer to “History and Corporate Structure—Our Corporate Structure” for more details about such contractual arrangements.
If the VIE or its shareholders fail to perform their obligations under the contractual arrangements, we could be limited in our ability to enforce the contractual arrangements that give us effective control, and if we are unable to maintain effective control over the VIE, we may not be able to continue to consolidate the VIE’s financial results with our financial results. The VIE contributed 16.6%, 22.7%, 13.4% and 9.4% of our total consolidated revenues for the years ended December 31, 2010, 2011 and 2012 and the six months ended June 30, 2013, respectively. For a detailed description of the risks associated with our corporate structure and the contractual arrangements that support our corporate structure, including risks and uncertainties regarding the validity of these contractual arrangements, the control that these contractual arrangements grant us, our relationships with the shareholders of the VIE, the consequences of the VIE’s bankruptcy and adverse tax consequences of these contractual arrangements, see “Risk Factors—Risks Related to Our Corporate Structure.”
As a holding company, our ability to pay dividends depends on dividends paid to us by our WFOE. Pursuant to PRC laws and regulations, (i) our WFOE in China can pay dividends to us only out of its accumulated profits, (ii) our WFOE is required to set aside at least 10% of its after tax profits each year to fund certain statutory reserve funds until the aggregate amount of such reserve funds reaches 50% of its registered capital, and such reserve funds are not distributable as cash dividends, and (iii) any instruments governing our WFOE’s debts may restrict its ability to pay dividends or make other payments to us. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval by complying with certain routine procedural requirements. Therefore, our WFOE is able to pay dividends in foreign currencies to us without prior SAFE approval.
We are incorporated in the Cayman Islands, and conduct substantially all of our operations in China through our WFOE and VIE in China. All of our officers reside outside the United States and some or all of the assets of those persons are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action in the United States against us or against these individuals in the event that you believe that your rights have been infringed under securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. For more information regarding the relevant laws of the Cayman Islands and China, see “Enforceability of Civil Liabilities.”
Since 2006, we have completed various rounds of equity financing. In July 2011, we entered into an agreement with Baidu Holdings Limited, a wholly-owned subsidiary and investment vehicle of Baidu, Inc., a Cayman Islands company listed on the NASDAQ Global Select Market. We refer to Baidu, Inc. and its subsidiaries as Baidu. Pursuant to the agreement, Baidu paid US$306 million to acquire 181,402,116 of our ordinary shares and became our majority shareholder. We continued to operate independently after this transaction with Baidu, or the Baidu Transaction. See “History and Corporate Structure—Baidu Transaction.”
The following diagram illustrates our corporate structure, the places of formation and the ownership interests of our significant subsidiaries, the VIE and its significant subsidiaries immediately following this offering, assuming no exercise of the over-allotment option granted to the underwriters:
For more information about the business operations of each of the subsidiaries and affiliated entities shown in the diagram above, please refer to “History and Corporate Structure—Our significant subsidiaries and affiliated entities.”
Corporate Information
Our principal executive offices are located at 17th Floor, Viva Plaza, Building 18, Yard 29, Suzhou Street, Haidian District, Beijing, People’s Republic of China. Our telephone number at this address is +86 10 5760 3000.
Our registered office in the Cayman Islands is located at Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KYI-1104 Cayman Islands.
Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 400 Madison Avenue, Suite 4D, New York, NY 10017.
Our website can be found at www.qunar.com. The information contained on our website is not a part of this prospectus.