Where is eLong Headed?

eLong (LONG), a web and call centered based travel service provider in China, has seen a noticeable increase in trading volumes over the past 2 weeks. More than 5 times the average number of shares have traded fairly consistently over the past 10 days. This coincides with the hiring of a new CEO and rumors that Expedia (EXPE) is looking to sell their 52% stake in eLong according to Pacific Epoch.

eLong is a rather unique story in that they are an Internet focused company in China who's stock has been stuck in a rut for the better part of a year. So why isn't this stock flying like the rest? That's a good question. The company's balance sheet is wonderful with $156 million in cash and no debt. Their market capitalization is just $250 million. This means you can buy the whole company for an enterprise value of just $94 million or so. In other words, you get over $6 a share in cash. With a $10 stock price this provides investors with a nice cushion. eLong is not a small company either. They are regularly identified as the #2 player in the travel space in China behind the $3.4 billion market cap Ctrip (CTRP). eLong reports over 1,800 employees versus Ctrip's 5,500. Their revenue has grown 20% or more a year since they IPO'd and should approach $50 million in the coming 12 months. Expedia's ownership in eLong has obviously created a bit of an overhang for the stock as nobody really knows their plans. Still, the company is in the fastest growing Internet market in the world where the world will be visiting next year with the Beijing Olympics some 10 months away. From this, the country expects a prolonged up-tick in tourism. China is treating the Olympics as an economic and social coming out party to the world. A truly wonderful and vast country.

Where will this one go from here? To start, eLong needs to find its cultural identity again. Non-Chinese Expedia management have been too involved in the decision making. The hiring of their new Chinese born CEO Guangufu Cui is a step in the right direction. He is 38 and is about the same age as eLong's founder Justin Tang who still serves on their board of directors. He knows and understands the Chinese economy very well. Guangfu Cui was previously the Managing Director of Fed Ex Kinkos China. After better establishing deep and experienced Chinese management eLong then needs to execute and let the great market fundamentals drive the business. China is on the verge of having 200 million web users. One of the most popular industries searched on Baidu.com (BIDU) is travel related and eLong is bound to get a lot of clicks to their site. Last year less than 10 million people used the services of eLong and Ctrip combined. This leaves around 1.29 billion potential Chinese customers to market to.

Disclosures: Author has a long position in LONG

Comments

[calvino]

You filthy little piece of human excrement. Shi Tao is in prison for two years, hundreds of millions of people have the images of the Tiannamen massacre seared in their minds, and you are saying this is a 'truly wonderful country.' Wipe your nose and go rot in a sewer.