Ctrip Results: Investing for the Future 携程未雨绸缪提高未来竞争力

By newsdoug on February 21, 2012

Ctrip (Nasdaq: CTRP) has just released an earnings report that has left investors unsure of what to think of this travel bellwether, though I’m guardedly encouraged by signs that show it is preparing for a future of growing competition. Its latest results show that revenue grew 18 percent in the fourth quarter and is expected to maintain that rate in the current period, but that operating and net profit both fell by similar amounts — not exactly encouraging signs for an industry leader. (company announcement; Chinese article) The culprit behind the so-so results seems to be ballooning expenses, which rose 46 percent in the fourth quarter due to a number of initiatives, including expansion of the company’s headquarters in Shanghai and procurement of new land in the interior city of Chengdu for expansion there as well. Ctrip also purchased the remaining 10 percent of Wing On Travel it didn’t already own, making it the full owner of the popular Hong Kong travel agency. Investors were a bit unsure what to think of the results, initially bidding up Ctrip shares slightly after the results came out, only to change their mind and ultimately bid the shares down by 1 percent. Clearly no one likes to see revenue growth stalling and profits falling, but I’ve always considered this company a strong innovator and leader in its core travel services space, and its latest jump in costs look to me like it’s making solid moves to build for the future. That could be important, as chief rival eLong (Nasdaq: LONG) saw its longtime stakeholder Expedia (Nasdaq: EXPE) become its controlling stakeholder late last year, indicating the leading US online travel services firm may be preparing an aggressive push into the China market. (previous post) What’s more, another up-and-coming player named Qunar got a major boost last year when it received a $300 million investment from leading online search firm Baidu (Nasdaq: BIDU). (previous post) Ctrip has always been a strong innovator, and its Shanghai and Chengdu expansions reflect its growing needs for workers and space as it adds interesting new products and services to its lineup. I also like the Wing On initiative, as that could position Ctrip for growth in the lucrative Hong Kong market and also provide a springboard into other foreign markets. On the whole, these latest results look relatively encouraging, though Ctrip will need to show that its increased spending can ultimately lead to stronger revenue gains and a return to bottom line growth.

Bottom line: Ctrip’s latest results show a company that is investing heavily for a future of stiffer competition, but it will soon need to show some returns on those new investments.

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