Ctrip Continues Solid Topline Growth In Q1 2015 With Open Platform Growth & Technological Advancements


Ctrip International (NASDAQ:CTRP), the leading Chinese online travel agency (OTA), announced its Q1 2015 earnings on May 13th. The company displayed top-line growth towards the higher end of management guidance, though the bottom line remained dampened. At $373 million, net revenues for Q1 2015 grew by 46% year on year. The main contributors to this growth were accommodation (contributing to 41% of the revenue) and transportation ticketing (contributing 41%). Accommodation reservation volume increased 60% year on year and revenues from accommodation reservation increased 45% year on year to reach $154 million. Transportation ticketing volume increased 104% year on year and revenues from transportation ticketing increased 46% year on year reaching $153 million.

The revenue boost came at the cost of bottom line erosion due to increased investment in product development and marketing efforts. In Q1 2015, product development expenses were $130 million, reflecting 83% year-on-year growth, and sales and marketing expenses increased by 68% to $117 million. As a result, net loss attributable to Ctrip’s shareholders was $20 million, as against net income of $19 million in the same prior-year period. [1]

The company is focusing on branding in the lower tier cities in order to expand its presence and increase market penetration. In Q1 2015, Ctrip’s mobile application downloads totaled 800 million downloads, 550% year on year growth. Mobile channels accounted for almost 70% of total transactions undertaken on the Ctrip platform.

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Ctrip has guided to net revenue growth of 45-50% for Q2 2015.

We are in the process of updating our price estimate of $50 for Ctrip.

See Our Complete Analysis For Ctrip International

Ctrip’s Open Platform Was A Major Growth Driver

Ctrip’s open platform enables it to consolidate all its partner operations on a single platform. Consequently, it leads to more pricing transparency and a greater array of available products. Open platform offers an entire gamut of travel related products, from small hotels to whole sellers, all in a single platform.

Open Platform fosters more transactions through the Ctrip network due to pricing transparencies and convenience of all partners being on the same platform. On the flipside, pricing transparency could dampen margins even further in the short run. However, the brand value created through the platform will aid Ctrip’s long-term growth. In Q1 2015, Open Platform included 5,000 third party partners. It played a crucial role in volume growth of hotels and air tickets on the Ctrip network. Open Platform’s hotel volume growth was thrice that of Q1 2014. [2]

Ctrip’s Success Strategies In The Competitive Chinese Market

China is currently the second largest travel market in the world. Currently, Ctrip is the only Chinese OTA maintaining solid growth figures. Ctrip’s management expects the aggressive top line growth to continue in the future. Additionally, Ctrip’s scalability and aggressive investments in technology would lead to operational efficiencies, in turn resulting in solid margin growth in the long run.

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 planning  for strong bottom line growth by the year 2020, with 20%-30% operating margins. [3]

Ctrip’s Domestic Hotel Coverage Growth

Ctrip’s domestic hotel coverage increased to 270,000 in Q1 2015, triple the amount from Q1 2014. China’s hotel market is fragmented and Ctrip is trying to consolidate the hotels on its platforms with an aggressive increase in coverage. For volume growth, Ctrip is targeting the lower tier cities with its low-end and low-priced hotels. Along with the increase in coverage, this is also aiding in market penetration for the company. [2]

Growth Of Air Ticketing Volume

Ctrip’s air ticketing volume growth was more than 60%, exceeding management guidance of 50%. The driving force behind this were [2]:

  • Huge investments in the mobile platform and technology that in turn made the booking process smoother for the users.
  • Creation of the open platform, from where Ctrip derived 60% to 70% of its air ticketing sales.
  • The company also targeted lower tier cities with enormous growth potential.
  • Ctrip ate into the market share of traditional offline booking channels, as well.

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http://seekingalpha.com/article/3170836-ctrip-com-international-ctrp-q1-2015-results-earnings-call-webcast
Notes:
  1. Ctrip Reports Unaudited First Quarter of 2015 Financial Results, Ctrip Investor Relations, May 13, 2015 []
  2. Ctrip.com International (CTRP) Q1 2015 Results – Earnings Call Webcast, Seeking Alpha, May 13, 2015 [] [] []
  3. Ctrip.com International (CTRP) Q4 2014 Results – Earnings Call Webcast, Seeking Alpha, March 19, 2015 []