Ctrip Profit Slows Amid Online Travel Rush 在线旅游热潮中携程利润放缓

By newsdoug on May 17, 2012

Ctrip faces growing competition A number of interesting news bits are coming from the online travel space, led by the latest quarterly results from industry leader Ctrip (Nasdaq: CTRP) that show competition is rapidly heating up in this space, where another up-and-comer named Tujia.com has just received new venture funding. After dominating China’s online travel space for years, Ctrip and eLong (Nasdaq: LONG) are getting a recent wave of new competition from others finally waking up to the potential of the online travel sector, fueled by demand from more and more Chinese who have extra money and time to spend on travel. That demand has helped to propel a new field of rivals, including online travel site Qunar, which itself received a major investment from online search leader Baidu (Nasdaq: BIDU) late last year. (previous post) Others moving aggressively into the space include e-commerce giant 360Buy, which also calls itself Jingdong Mall, and now Tujia.com, which specializes in vacation packages. (previous post) Let’s take a quick look at Ctrip’s results, which show the company’s revenue grew a respectable 19 percent in the first quarter, even as profit tumbled 28 percent. (results announcement) A look at the numbers shows that reduced commissions are partly behind the profit decline, as hotels and airlines come under pressure to boost their own profits and also have more platforms to sell their products from. But the big reason for Ctrip’s profit decline appears to be sales and marketing expenses, which jumped nearly 50 percent and now account for more than one-fifth of total revenue. Clearly Ctrip is having to spend a lot more to maintain its growth than it did in the past, reflecting the growing competition in the market that is only likely to get worse, putting further pressure on profits. For the moment at least, investors seem to like what they see in these latest results, initially bidding up Ctrip shares as much as 5 percent after the report came out, though now they are up only 2 percent in after-hours trade. From my perspective, this kind of increased sales and marketing spending will be critical for Ctrip to maintain its market-leading position, and for that reason I wouldn’t be too concerned just yet by this profit erosion. But at some point the company will have to return to profit growth, or risk being abandoned by investors. Meantime, Tujia has just landed a new round of venture funding, with Ctrip itself as one of the investors, along with US travel site operator HomeAway (Nasdaq: AWAY) and US investment firms Lightspeed Venture Partners and CDH Investments. (announcement) No terms were given in the announcement, but I would expect this round is probably in the $10-$20 million range, and the presence of so many high-profile investors means that Tujia should be well positioned to grow in its niche area of providing vacation packages, and could make a New York IPO in the next couple of years. With all these fast-rising players in the market, look for everyone to feel the heat in terms of falling margins, and perhaps even a merger or 2 involving one or more of the big names in the next couple of years.

Bottom line: Ctrip’s latest results reflect intensifying competition in the online travel space, with some consolidation likely in the next 2 years.

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