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Chinese Internet Travel Firm eLong.com Posts Widening Net Loss, Expects Slowdown

Chinese Internet travel website eLong.com (LONG) reported its unaudited financial results for the third quarter ended September 30, 2008 and stated that while total gross revenues increased 7% year-on-year to CNY90.0 million and net revenues increased 6% year-on-year to CNY84.1 million, the company also recorded a widening operating loss and expanding net loss.

Guangfu Cui, CEO of eLong, stated: "Although we expect the near term environment to be challenging, we believe we are making the right strategic moves and we will continue to set our company on a path to long-term growth."

The company's operating loss increased year-on-year by CNY10.6 million to CNY19.9 million, driven primarily by greater service development, and sales and marketing expenses. Net loss from continuing operations increased year-on-year by CNY8.1 million to CNY15.5 million. The company is bracing for a slowdown as it expects net revenues, net of business tax and surcharges, for the fourth quarter of 2008 to be within the range of CNY83 million to CNY92 million, or an increase of 1% to 12% compared to the fourth quarter of 2007.

"In light of the current environment, we intend to balance prudent expense management against investments for growth in 2009, and are taking steps to streamline our costs," added Chris Chan, CFO of eLong. "We believe that our increased but focused investment in marketing, technology, and our product competitiveness will pay off over time while the reduced cost base relative to the business growth opportunity will help protect the bottom line and drive a higher efficiency."

Hotel commissions increased 1% for the third quarter of 2008 when compared to the prior year quarter, primarily due to higher room volume which was offset by lower commission per room night. Room nights booked through eLong increased 4% year-on-year to 1,050,000, while commission per room night of CNY62 was lower than the commission per room night of CNY64 in the prior year quarter. Air ticketing commissions increased 28% for the third quarter of 2008, driven by a 31% year-on-year increase in air segments to 484,000, and an increase of 66 basis points in the average percent commission to 5.4%, offset partially by a lower average ticket price, which decreased by 14% to CNY764 when compared to the prior year quarter.

Gross margin in the third quarter was 71% compared to 74% in the prior year quarter driven primarily by the higher growth of lower margin air revenue relative to hotel revenue and the lower average ticket price compared to the prior year quarter.

Total operating expenses increased 17% for the third quarter of 2008 compared to the third quarter of 2007. Operating expenses were 94% of net revenues, an increase of 9% compared to the prior year quarter.

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