Why Ctrip.com Is Expected To Expand Revenue By 30%

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Ctrip.com (NASDAQ:CTRP) is set to report FQ4 2013 earnings before the market opens on Wednesday, February 12th. Ctrip.com is a travel site focused on mainland China. Ctrip's stock has been falling since October and was down sharply in January as Chinese stocks were hit particularly hard by the month of selling. Despite the concern over a slowing Chinese economy, analysts are expecting Ctrip to grow revenue by 30% compared to FQ4 last year.

In December Ctrip invested $100 million in eHi Auto Services, a Chinese car rental service. Ctrip is betting that this aggressive investment will help the company provide more comprehensive travel packages and act as a 1 stop shop for travel needs. Customers will now be able to book airfare and train tickets, hotel lodging, and auto rentals through Ctrip affiliated businesses. eHi Auto Services operates in 80 cities and should help Ctrip to expand in upcoming years. Here's what investors expect CTRP to report this quarter.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors. image

(Click Here to see All Estimates for Ctrip)

The current Wall Street consensus expectation is for DE to report 27c EPS and $229.51M revenue while the current Estimize.com consensus from Buy Side and Independent contributing analysts is 27c EPS and $231.76M revenue. This quarter the buy-side as represented by the Estimize.com community is expecting DE to beat the Wall Street consensus on both EPS and revenue.

Throughout the previous 6 quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting DE's profit everytime and has been more accurate in predicting revenue 5 times. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing an average differential compared to previous quarters.image

This quarter analysts are expecting profit to decline but for revenue to be up 30% compared to FQ4 last year. The distribution of estimates published by analysts on the Estimize.com platform range from 24c to 34c EPS and $227.57M to $242.34M in revenues. This quarter we're seeing a slightly wider distribution of estimates for CTRP compared to recent quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings.image

Throughout the quarter the EPS consensus from Wall Street slipped from 25c to 24c, while the Estimize EPS consensus inched higher from 26c to 27c. Over the same time period Wall Street raised its revenue expectation from $223.07M to $229.51M ,while the Estimize forecast also increased from $228.46M to $231.76M. Timeliness is correlated with accuracy and upward analyst revisions going into a report are often a bullish indicator.image

The analyst with the highest estimate confidence rating this quarter is ali, who projects 26c EPS and $227.57M in revenue. In the Winter 2014 season ali rated as the 57th best analyst and is ranked 71st overall among over 3,800 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case ali is expecting CTRP to beat the Street on profit but report less revenue than predicted.

Over the past 2 years Ctrip.com has been growing profit and revenue rapidly. However, this quarter analysts are expecting profit to be down compared to the much better than expected FQ4 number reported last year. With that being said, contributing analysts on the Estimize.com platform are expecting a 31% increase in year over year revenue. Expanding revenue and Ctrip's recent investment in eHi Auto Services should help the company continue to grow and position itself to benefit from an expanding middle class in China.