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Just another curious mind in this fascinating financial universe.
  • Can Ctrip survive the join attack by Alibaba/Tencent/Qunar? 4 comments
    May 18, 2011 5:15 AM | about stocks: CTRP, LONG

    After listening to the latest Ctrip conference call, I realized most analysts covering this company are either incompetent or unwilling to challenge the management with real meaningful questions. Therefore, I decided to put together some of the latest happenings with Ctrip in this blog article. Basically, a join attack by Alibaba/Tencent/Qunar on Ctrip's core revenue generating markets may totally change the long term growth potential of Ctrip.

    1.Alibaba's Entry into Air-Ticket Sales Market.
    Alibaba Group has been taking step by step measures into travel market.

    First it formed a strategic alliance with China Eastern Airline in 2009 and started to allow CEA to sell tickets via its consumer e-business platform --

    Then Alibaba's, which probably is the largest B2C/C2C website in the world, has entered air ticket sales market.

    According to the information from Taobao, the sales volume of a single day on December 28, 2010, was over 26,000, which set the highest record for online ticket sales.

    Taobao, with its enormous user base, has enjoyed unprecedented barging power more than anyone probably can ever demand. And it has never hesitate to wager price war to the extreme level when it has to. The reason is simple, it can. Remember how eBay had to surrender and retreat from the Chinese market after Taobao launched the "Commission Free" attack? There is absolutely no doubt that Taobao will be as aggressive in its newly entered travel market.

    It was reported that from January 10 to 14, Taobao Travel has started a special promotion by offering a 50 percent discount on top of the original discount. Remember, this is right when millions of Chinese were making travel plans for the most important annual event, the Chinese New Year.

    Taobao's entry totally changed the online air ticket sales business. Around end of March and early April, right before another traditional Chinese holiday, air tickets were on sale for as much as 70% off original prices. This is never before seen. Since Taobao is still a private-held company, it's not easy to locate the exact sales data, but it definitely is something huge.

    2.Tencent's Investment in long time rival eLong.

    It has been thoroughly discussed and no need to repeat.

    3.An almost equal-sized competitor nobody heard of. (In Chinese Qunar means Where Are You Going) is another competitor that is pretty much unheard of outside China. But the fact is that it has grown so much that can't be ignored.
    The link below is the "About US" from its website. It's very straight forward.

    Qunar is operating using Kayak's business model and work basically as a travel search engine. It generates revenue via charging service fee on successful transactions through its website. The 4% service fee is much lower than the usual commission fee Ctrip charges (15% for hotel reservation and 6%-11% for air ticket). Because Qunar is a search engine, it has a much lower cost structure than Ctrip, therefore it has the ability to maintain that low fee structure and attract more business. It is estimated that by end of 2011, daily transaction volume will surpass Ctrip.

    4.Attack by the (Groupon)Clones.
    This is something still at very early stage and can't find data to conduct more detailed discussion. However, it's still worth mentioning since this is a field that has been growing very fast and will definitely have impact on travel market in the long run.

    It has been reported that there are literally hundreds if not thousands Groupon clones competing in the Chinese group shopping business, including Groupon itself. One of the most popular products offered is hotel reservation. So however this battle of the hundreds may end, it won't bode well for Ctrip. Because whoever the winner may be, it only means that this new player will dominate the group shopping market and enjoy much greater bargain power.

    5.Already showing signs of slowing down.

    A picture is worth a thousand words. Here are a few diagrams showing Ctrip's revenue/income growth. One does not need to be fluent in Chinese to understand them, they shall speak for themselves. In all the diagrams below, pink dots are QoQ growth and yellow dots are YoY growth.

    Figure 1 -- Total Revenue, all segments.

    Figure 2 -- Revenue from Hotel Reservation Sales.

    Figure 3 -- Revenue from Air Ticket Sales.

    Figure 4 -- Net Income.

    It's pretty much clear as crystal that the higher growth rate Ctrip has enjoyed since its inception probably has reached a turning point. I have no doubt that overall travel market will continue to grow in China. However, with future competition that is guaranteed to get more fierce, there is no reason for Ctrip to enjoy its current premium valuation over other Chinese Internet companies.

    On a non-relevant note (wink), the above diagrams are originally published on, which is the main portal website by Tencent. Curious? Case rested. 

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: CTRP, LONG
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Comments (4)
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  • AdamISZ
    , contributor
    Comments (6) | Send Message
    I live in China and can confirm that qunar is the first place my Chinese friends and colleagues go to look for airline tickets. It has very wide acceptance and is much cheaper than elong or ctrip.
    22 May 2011, 12:45 PM Reply Like
  • mmurray1999
    , contributor
    Comments (4) | Send Message
    Author’s reply » Great to have some first-hand experience. Thanks for sharing.
    23 May 2011, 10:22 AM Reply Like
  • pone
    , contributor
    Comments (707) | Send Message
    You would do the market a great service to update your charts once after each quarter is reported, and also upgrade this to a full article. You will get a lot of criticism from the CTRP bulls, but you have enough hard data that your viewpoint should be seen by the wider market.
    29 Jun 2011, 03:23 AM Reply Like
  • mmurray1999
    , contributor
    Comments (4) | Send Message
    Author’s reply » I will do my best to follow up on this. Thanks for the suggestion and happy trading!
    29 Jun 2011, 08:34 AM Reply Like
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