Ctrip (CTRP) will report 2Q15 earnings on August 3. Consensus expects $0.01 in EPS and $407m, +27% y/y, in revenue. The stock has traded off, down 14%, since acquiring a strategic stake in rival eLong (LONG) from Expedia (EXPE) in mid-May. Heading into the print, I expect the company to deliver another solid set of results driven by multiple new products and margin improvement from revenue leverage and potential easing of the competitive environment.
Long-term, CTRP remains the leading consolidator of China's fragmented online travel market. After the recent stake in eLong, CTRP has over 60% of China's hotel booking market and this significantly improves its hotel offering, historically a weaker area when compared with LONG. Additionally, potential expansion and/or M&A into outbound tourism could be another catalyst for the stock.
New product driving revenue upside; margin profile likely to improve
CTRP conducted an internal restructuring earlier this year by classifying the business segments into Transportation and Accommodation to offer more comprehensive products and convenience to consumers. Because CTRP is becoming more of a one-stop shop for online travel, consumer acceptance has been positive and this is a primary reason behind the solid results we saw in Q1 and I expect this trend to remain consistent in Q2.
As for margins, we could see a slight improvement due to easing of competitive environment and revenue leverage. However, the shift toward lower tier cities could weigh in on margins so most of the margin recovery will depend on top-line growth.
The leading consolidator
Post eLong's stake, CTRP has a balanced offering in both hotel and air ticketing, solidifying its standing as the leading OTA site in China. LONG's stake addresses CTRP's prior weakness in hotels and now CTRP commands 80% market share in the four and five-star hotel segment and I believe this could give CTRP significant leverage in pushing its corporate travel bundles.
Besides dominating hotels and air ticketing, outbound tourism is another key area where CTRP will likely expand. CTRP's plan is to develop both domestic and international leisure travel businesses by targeting lower tier cities where outbound travel is gradually picking up on the back of rising discretionary spending. Although the company looks to grow this segment organically, and via strategic stakes in Tongcheng and Tuniu (TOUR), I expect CTRP to eventually consolidate this sub-segment of online travel by acquiring TOUR to fill in the gap.
