Ctrip is now much more than just Ctrip.com. Image source:
It was a historic year for Chinese online travel agency
. Beyond showing impressive growth numbers from its core lines
of business, Ctrip also began to consolidate the OTA market in
the world's most populous nation.
The company made a strategic investment in rival
early in the year. Later, thanks to a share swap with
Chinese search giant
and a follow-on investment, Ctrip also became the primary
owner of rival
When Ctrip reported Q4 and full-year 2015 earnings this
week, its core business continued to show the type of strength
that helped shares more than double during 2015. But confusing
financials related to all the deals, combined with an implied
slowing of the Chinese OTA market, spooked investors.
First, the good news
On almost all fronts, Ctrip showed that the fourth quarter of
2015 was a strong one. Take a look at trends in both volume and
revenue growth for the company's two largest segments:
accommodations and transportation.
Although the company didn't specify actual volume growth in
Accommodations, it has closely mirrored revenue growth, so the
41% figure I included came from this assumption.
On the transportation front, results bested even the
company's high expectation. Management noted particular
strength from train tickets -- where volume grew by over
But that wasn't the end of the good news: The company was
also able to expand its margins nicely. While revenue grew by
50% during the quarter, product development spending increased
just 9%, while SG&A increased just 23%.
Management said this was mainly due to disciplined cost
controls -- and beneficial effects from prior investments.
And now, the not-so-good news
When Ctrip provided guidance for the first quarter of 2016, it
said that revenue was expected to grow between 75% and 80%.
Normally, for a company that's growing revenue by 50%, such a
bump would be cause for celebration.
But that's not what happened. Management said that the
results from Qunar in its equation, for the very first time.
Several analysts asked CFO Cindy Wang if she could break the
number down and provide color on how the core Ctrip will
perform, and her response was the same every time:
Because Ctrip and our investor company [Qunar] shared some
of the inventory... it will be very difficult for us to
provide a separate guidance for Ctrip alone.
Investors didn't like that. A number of analysts, both on
the call and separately in their own online postings, attempted
to do some back-of-the-envelope math to figure out the implied
growth of the core. The consensus was that it is expected to
show 30% to 35% growth -- healthy, no doubt, but a somewhat
surprising deceleration from what investors have gotten used
Several factors could account for this, including a Chinese
economy that's been showing some weakness lately, as well as
disputes between Chinese airlines and OTAs, particularly with
On that front, management consistently said that, over the
long run, it is in the best financial interests of both the
OTAs and the airlines to work together -- and that any
conflicts are short term in nature.
What we're left with
For long-term investors, this slowdown in revenue growth is
worth noting, but it's probably not cause for panic. There are
several strong tailwinds that could provide a boost to the
company and its stock.
Perhaps most importantly, CEO James Liang referred a number
of times to price "rationality" once again gaining a foothold,
meaning that a pricing race to the bottom was effectively over:
"We have become a strategic investor of some travel-related
companies. These investments enable us to reduce irrational
pricing competition and should, over time, put the industry
back on a healthy and sustainable growth trajectory."
That's big news for investors, as it means that the scale
and dominant market position of Ctrip should allow it to reap
the rewards of a growing Chinese OTA market for years to
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Ctrip.com International, Ltd. (ADR) Grows
Revenue, but Investors Are Worried About a Slowdown
originally appeared on Fool.com.
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