Booking Gains With Chinese Online Travel

Nearly 80% of the US population uses the Internet, but people are just beginning to venture online in many developing countries. Companies levered to this trend offer tremendous growth potential, especially companies operating in China. This online travel company is your ticket to booking a gain.

China is the fastest-growing developing country in the world. With a population of 1.3 billion, the Middle Kingdom accounts for almost 20% of the world’s population.

Yet Internet access and usage has plenty of room to grow. According to the China Internet Network Information Center, the number of Internet users totaled 22.5 million in 2000, or a paltry 1.7% of China’s population. Over the past decade this number has increased 161%; China had 384 million Internet users in 2009, 28.7% of the country’s population.

The rapid growth in Internet usage has benefited online travel firm International (NASDAQ:CTRP).

Travel booking was one of the first businesses to offer services online. Now, 60% of travel is booked online in the US, though in China only 7.9% of Internet users book trips online. But Chinese consumers will increasingly go online for these services, especially as household incomes and Internet access go up. is well positioned to profit from these trends. is the country’s largest online travel company and provides hotel accommodations, airline tickets and packaged tours. Since its initial public offering in 2003, the firm has grown its market share to the point that its revenues represent half of the market. And this market leadership makes it easier for to expand its customer base.

Although weakness in the global economy has dampened travel spending, posted solid results in the fourth quarter and for 2009. Fourth-quarter revenue surged 43% from a year ago to USD83 million, while income from operations soared 62% to USD28 million. Revenues climbed in each business line: Hotel accommodation revenues grew 33%, air tickets grew 45% and packaged-tour revenue advanced 62%.

Full-year results were also impressive. Net revenue shot up 34% to USD291 billion, and income from operations grew 49% to USD101 million. Revenue for all three business segments grew a minimum of 25%, indicating strong traffic flows. This momentum should continue in 2010; management expects revenue to increase 30% next year. maintains a healthy balance sheet with plenty of cash, enabling the firm to explore expansion options. The company agreed to acquire 90% of Hong Kong-based Wing on Travel’s travel service business for USD88 million. This acquisition is expected to boost’s profits by 5% annually as the company expands its footprint in Hong Kong.

Shares of have consistently outperformed the Morgan Stanley Internet Index, a benchmark of leading companies that benefit from expanding Internet access. is the best way for investors to gain exposure to China’s rapidly growing online travel industry.

Disclosure: No positions