Ctrip Q2 2015 Earnings Preview: Strategic Developments And Open Platform In Focus

CTRP: Ctrip logo
CTRP
Ctrip

Ctrip International (NASDAQ: CTRP), the leading Chinese online travel agency (OTA), is set to release its Q2 2015 earnings on August 3rd. Ctrip reported $373 million in revenues for the first quarter of 2015, displaying a 46% year-on-year growth. The growth drivers were accommodation and transport ticketing, which together contributed to over 80% of revenues. However, due to higher spends in product development and marketing efforts, like 2014, Ctrip’s bottom line remained severely dampened in Q1 2015, as well. The net loss attributable to Ctrip’s shareholders amounted to $20 million in Q1 2015, as against a net income of $19 million in the same prior-year period. [1] We expect the same trends of strong topline growth at the cost of bottomline erosion to persist in the second quarter as well. Currently, Ctrip is concentrating on expanding its presence in the lower tier Chinese cities. A significant reason why the company is suffering from bottomline erosion is because of the aggressive competition in China’s online travel market, which makes discounts and coupons necessary to lure customers. However, with increased investments from international OTA giants such as Priceline and Expedia, and with over 50% revenue share on China’s online travel market, we believe Ctrip’s growth path is a sustainable one for the long run. For Q2 2015, Ctrip has guided to a net revenue growth of 45-50%.

We are in the process of updating our price estimate of $66 for Ctrip post the second quarter earnings results.

See Our Complete Analysis For Ctrip International

Relevant Articles
  1. Will Johnson & Johnson Stock Rebound To Its Pre-Inflation Shock Highs of $185?
  2. Should You Pick Eli Lilly Stock After A 4x Rise In Three Years?
  3. Down 9% This Year, What’s Next For Lululemon’s Stock Past Q4 Results?
  4. Down 14% In The Last Trading Session, Where Is Adobe Stock Headed?
  5. Will Higher Federal Government Spending, Gen AI Drive Digital Security Stocks Like CrowdStrike Higher?
  6. Up 30% In A Year Is FedEx Stock A Better Pick Over UPS?

Strategic Developments Over The Past Few Months And Their Likely Impacts

A few of the strategic developments that took place in the last couple of months that might have a significant impact on Ctrip’s Q2 2015 earnings are mentioned below:

1. Ctrip announced a $1 billion convertible debt offering in June 2015. This fund is expected to fulfill the company’s general corporate expenses and aid in the concurrent repurchase of its ADRs. The general corporate purposes might include expenses related to strategic takeovers or alliances, or expenses for product or technological development. [2]

2. Also in June, Ctrip in collaboration with other investors, made a $1 billion offer to buy HomeInns, China’s prominent economy hotel chain. The offer is still under consideration by HomeInns. [2]

3. In May, Ctrip bought a 40% stake in eLong, one of its chief rivals in China. Expedia sold out its 62% eLong stake to Ctrip and other Chinese investors. Ctrip’s erstwhile rivals in China included Qunar and eLong. [3] [4] Post the transaction, Ctrip and Expedia have entered into an alliance to share inventory in certain geographies, mainly in the air and packaged tours segment. [4] (Read details of the deal here.)

4. Shortly after the eLong deal, Priceline increased its investment in the Ctrip by an additional $250 million. Post the deal, Priceline could gain up to a 15% stake in Ctrip. Priceline will remain Ctrip’s primary non-China hotel partner. [5] (Read details of the deal here.)

5. However, one of the setbacks for Ctrip amidst all the gains, was the failure to takeover Qunar, one of its chief rivals in the China OTA market. In June, Qunar made an announcement that it rejected a buyout offer from Ctrip. Silver Lake, an equity investor, invested $330 million in Qunar and another undisclosed investor invested $170 million. [6]

Ctrip might have consolidated its position in China with a 40% stake in eLong and a takeover of Qunar. The collaboration of the chief rivals could reduce the competition in the Chinese online travel landscape. However, competition might not slow down too soon with the fresh rounds of investments in Qunar, which according to some, is gearing up its technological capabilities to strengthen its competitive advantage.

This might not bode well for Ctrip’s bottom line growth in the near future. In its Q1 2015 earnings call, Ctrip’s management admitted that the company was aggressive in matching the coupon rates or discounts offered by its competitors. Ctrip’s GAAP operating margin in 2014 was a negative 2% due to its investments and its coupon discounts. Ctrip had projected that its coupon expenses will account for 20% of its hotel commissions in 2015. [7]

Ctrip’s Open Platform Was A Major Growth Driver In The First Quarter And Might Continue In Q2 2015

Ctrip’s open platform integrates all its partners on a single platform. This results in more competitive pricing as a vast array of products–from small hotels to wholesellers–are available to all through a common medium. Open Platform makes it more convenient for hotel partners as well as buyers to transact across a common platform with better pricing transparency. Hence, Ctrip’s network expands as a result of these increased transactions.Though the pricing transparency might lead to reduced margins in the short run, yet it helps in creating a strong brand value that will aid Ctrip in its long-term growth plan. In Q1 2015, Open Platform included 5,000 third party partners and played an important part in growing the volumes of hotels and air tickets sales through the Ctrip network. Open Platform’s hotel volume growth was thrice that of Q1 2014. [8] We expect the growth driven by Open Platform to further increase in the second quarter given the fact Ctrip had further developed Open Platform post the first quarter.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

Notes:
  1. Ctrip Reports Unaudited First Quarter of 2015 Financial Results, Ctrip Investor Relations, May 13, 2015 []
  2. Ctrip turns to market to raise $1 billion, tnooz, June 18, 2015 [] []
  3. Expedia sells stake in eLong to Ctrip and others for $671 million, tnooz, May 22, 2015 []
  4. Expedia Reverses Course and Sells eLong Stake, Priceline Snubbed, Skift, May 22, 2015 [] []
  5. The Priceline Group Announces Additional Investment in Ctrip, Priceline Press Release, May 26, 2015 []
  6. Chinese Booking Site Qunar Bulks Up With $500 Million Investment Led by Silver Lake, Skift, June 1, 2015 []
  7. Ctrip Leaders Say Discounts Are Killing the Chinese Travel Industry, Skift, March 24, 2015 []
  8. Ctrip.com International (CTRP) Q1 2015 Results – Earnings Call Webcast, Seeking Alpha, May 13, 2015 []