Ctrip Q4 2014 Earnings Review: Top Line Soars With The Pull of Investments And Acquisitions, While Shares Rise in Tandem

March 20th, 2015 by Trefis Team
CTRP: Ctrip logo
CTRP
Ctrip

Shares of Ctrip International (NASDAQ: CTRP) shares are up nearly 10% after the announcement of its Q4 2014 earnings on March 19th. [1] The company displayed above guidance top line growth, though the bottom line remained dampened. At $308 million, net revenues for Q4 2014 grew by 33% year on year , exceeding company guidance of 30% growth. The main contributors to this growth were accommodation (contributing to 44% of the revenue) and transportation ticketing (contributing 40%).

The revenue boost came at the cost of bottom line erosion, due to increased investment in product development and marketing efforts. In Q4 2014, product development expenses were $127 million reflecting a 137% year-on-year growth, and sales and marketing expenses increased by 88% to $114 million. As a result, net loss attributable to Ctrip’s shareholders was $36 million, as against a net income of $43 million in the same prior year period. [2]

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By the end of 2014, Ctrip’s platform contained 650,000 hotels (in 100,000 destinations), 3 million restaurants and 30 million reviews. Its air ticketing platform expanded to 5000 destinations across 200 countries. Ctrip’s mobile application has been downloaded more than 600 million times by year-end 2014. [3]

Ctrip has guided to a net revenue growth of 40-50% for Q1 2015. Ctrip admitted that currently the Chinese online travel market environment is aggressively competitive. However, with its innovation, technological advances, alliances, and open platform development, the company plans to emerge ahead of this competition. Ctrip is planing  for strong bottom line growth by the year 2020, with 20%-30% operating margins.

We are in the process of updating our price estimate of $43 for Ctrip.

See Our Complete Analysis For Ctrip International

Ctrip Merged Some Of Its Key Subsidiaries

In Q1 2015, Ctrip merged its key subsidiaries to form Joint Wisdom Information Technology Co., Ltd. (Joint Wisdom). The merging included Brandwisdom.cn, a leading Chinese hotel big data mining company, and Ctrip Beijing China Software Hotel Information System Co., Ltd., a prominent property management company in China. The combined entity would provide the entire gamut of property management solutions, while encompassing 60,000 Chinese hotels ranging from hostels to high starred hotels. Joint Wisdom integrated big data and cloud-based technology in three areas: software, information stream, and data intelligence products. It will provide hotels with an exhaustive array of solutions to improve their operating efficiency. [2]

Open Platform Lead To Pricing Transparency And Expansive Product Range

Ctrip is focusing on the development of an open platform which will enable it to consolidate all its partner operations on a single platform. Consequently, this will lead to more pricing transparency and a greater array of available products. Ctrip’s partners and users alike will benefit from this seamless offering and competitive pricing, thus generating greater sales for Ctrip. Though this open platform is still in its early stages, it generated business worth $163 million in Q3 2014. Open platform offers an entire gamut of travel related products, from small hotels to whole sellers, all in a single platform. During Q4 2014 total transactions across open platform witnessed a 10% year-on-year growth. [3]

Ctrip Developed Strategic Alliances In Diverse Travel Related Avenues To Maximize Growth

  • Ctrip Will Soon Launch “Golden Era” With Royal Caribbean

In November 2014, Ctrip announced a partnership with Royal Caribbean Cruises Ltd., a leading global cruise vacation company. Ctrip launched a new cruise booking platform in September 2014, with which it became the world’s largest cruise reservation platform in Chinese language.

Royal Caribbean and Ctrip’s first vessel Golden Era will launch its first sail on May 2015. The cruise business is still in nascent stage in China. Ctrip has observed a huge surge in demand from this segment which implied that there is significant potential for growth. [3]

  • Ctrip Taps International Markets With The “Low Cost” Advantage Of Travelfusion

In January, Ctrip International (NASDAQ: CTRP) acquired a majority stake in Travelfusion, a U.K. based travel distribution system that operates from London and Shanghai.

Travelfusion’s platform aggregates more than 200 low cost carriers (LCCs), as well as, full service carriers (FSCs), rail operators and 30+ hotel consolidators. Travelfusion’s Direct Connect distribution platform helps travel agents, as well as travel search  and mobile travel service providers with their search related services. Travel professionals can search the bundled feeds and, eventually, the booking is completed through either Travelfusion’s API (i.e., Application Program Interface), or an alternative Internet booking engine technology.

  • According to Ctrip’s management, Travelfusion’s advanced technological framework will help strengthen Ctrip’s technological infrastructure.
  • Secondly, Travelfusion’s client base mostly comprises of low cost airlines and Ctrip wants to utilize the fact that low cost airlines generally witness higher volumes of sales. Ctrip’s strategy is to gain a significant share of the international travel market through low cost, yet high volume of travel transactions. [3]

Chinese outbound travel traffic crossed 100 million in the first 11 months of 2014. [4]. This signifies over 100% growth from 2009 (47.7 million). The number is predicted to surpass 160 million by 2018. China’s total outbound expenditure for 2013 was $129 billion and Chinese travelers are presently considered to be the top contributors to global tourism spending. China’s economic growth, despite slowing more recently, is expected to recover and display a healthy trend in the next half decade. This recovery, along with increased urbanization, point towards a greater propensity for the Chinese to travel in the coming years. [5]

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Notes:
  1. Ctrip.com Surge 8% As Q4 Results Top View, Guides Q1 Revenue Growth Above View, RTT News, March 19, 2015 [↩]
  2. Ctrip Reports Unaudited Fourth Quarter and Full Year 2014 Financial Results, Ctrip Investor Relations, March 19, 2015 [↩] [↩]
  3. Ctrip.com International (CTRP) Q4 2014 Results – Earnings Call Webcast, Seeking Alpha, March 19, 2015 [↩] [↩] [↩] [↩]
  4. The Top Chinese Travel Trends to Watch for in 2015, Skift, December 2014 [↩]
  5. The State of Chinese Outbound Travel in 2014, Skift, September 2014 [↩]