Ctrip Q3 2014 Earnings Preview

  • Ctrip is scheduled to announce its Q3 earnings number on November 25, 2014.
  • Ctrip’s topline is likely to continue its growth momentum on the back of growth in Chinese market and its partnership with Priceline.
  • Ctrip’s profitability is likely to worsen with analysts estimating 50% drop on Year on Year basis.

Ctrip (NASDAQ:CTRP), china’s major online travel agency (OTA), is scheduled to announce its Q3 2014 earnings on 25th November. The company has posted 39% YoY growth in revenues in first half of 2014. However operating margin has declined from 14% in first half of 2013 to 5% in first half of 2014. The decline in margins was mainly due to increase in promotional expenditure and investments. Ctrip is likely to continue the same trend in Q3 2014 with revenues increasing while margins decline. Ctrip stock is trading at $58.57, down from its high of $68.7 in September due to profitability and valuation concerns.

Performance History

The company has a solid performance history. Ctrip has delivered earnings surprise in last four quarters.
ctrip earnings history
In Q2 2014, Ctrip reported a revenue of $278 million or 1.7 billion Yuan, an increase of 38% over last year same quarter. Revenue growth was higher than management guidance of 30%-35% growth. Revenue from accommodation segment grew by 47% to $121 million and revenues from travel grew by 39% to $117 million. However company’s margins have declined 36% YoY to $22 million. The decline was primarily due to increase in product development and sales and marketing related expenditure.

Focus on Revenues

Ctrip will continue to focus on revenue growth. The company believes that once significant market share is acquired, profitability will follow. China’s travel industry is growing and more number of Chinese are using internet to book travel tickets and accommodation. According to China Internet Watch 57% of Chinese have made travel booking online. China is also set to become the largest market for business travel.

Ctrip has made huge investments in product development, sales and marketing to capture revenues from growing market. In the first half of the current year, product development, sales and marketing expenses increased by 60% from a year ago to $294 million. Increasing expenditure in product development and marketing is bound to suppress margins. Ctrip’s investment in mobile platform is also bearing fruit. In its Q2 earnings call the company has announced that the accumulated downloads for its Ctrip travel app reached 200 million. Total mobile transaction value for Q2 2014 tripled from a year ago. To further boost its revenue Ctrip has entered two tier and three tier cities.

Ctrip Revenue chart
Source: Ctrip Revenue chart

Partnership with Priceline

The partnership between Ctrip and Priceline (NASDAQ:PCLN) has broadened, enabling Ctrip’s customers to access 500,000 of Priceline’s global accommodations. China’s outbound travel has been consistently growing and is likely to continue its growth in the future. According to US Department of Commerce tourists from China will increase by 172% between 2013 and 2019. Partnership with Priceline will help Ctrip to capture a significant chunk of this growth.

Expected performance

According to iResearch, China’s online travel GMV grew to 72.4 billion Yuan in Q3 2014, 20% growth from Q2 2013. According to iResearch’s estimate Ctrip accounted for 55.9% of total GMV from 48.9% last year, indicating a strong performance. Ctrip has given a guidance of 30%-35% increase in revenues in Q3 2014. Analysts estimate an EPS of $0.2 on a revenue of $336.1 million in Q3 2014. Analyst estimates reflect a 33% rise in revenue but 50% drop in profitability from Q3 2013.


CTRP stockchart
Source: Ctrip PE ratio comparison with peers Exedia and Priceline

The company trades at a P/E ratio of 62 which is much higher than industry average of 56. Ctrip’s PE is higher even when compared with its competitors Expedia (NASDAQ:EXPE) and Priceline. Ctrip’s PS of 8.5 is also higher than industry’s PS of 2.6.

Ctrip continues to focus on revenue growth with its Q3 2014 revenues forecasted to grow by 33% YoY. However focus on growth has impaired company’s profitability. Erosion of profit clubbed with high valuation multiples has made Ctrip’s valuation riskier.

Kumar Abhishek Kumar Abhishek   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

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