Why Universal Travel Is Outperforming Ctrip

Includes: CTRP, UTRA
by: Natty Greene

It has been 66 days since CTRP’s Q3’10 quarter was reported on November 3, 2010, showing an impressive $121 million in revenue and street beat of $.31 in EPS. The company also guided for 30-35% growth in Q4’10.

So why is CTRP down 15%, while at the same time, its China travel sector competitor, UTA, is up 15% - outperforming CTRP by 30%?

My quick answer is because UTA reported revenue of $46 million and an EPS of $.36 for the same period (or 16% higher Q3 EPS than CTRP).

But the most compelling answer lies deeper in the details of CTRPs earnings statement and conference call. And it comes into even clearer view if you understand the business model and growth strategy of UTA.

Simply put, this 30% outperformance divergence is all about packaged tours, the fastest growing segment of China travel, as the rising middle class spreads its wings of discovery and leisure activities.

In CTRP’s most recent conference call (Q3’10), they reported a year over year increase of 161% in packaged tours and a 110% quarter over quarter increase. They also guided for another 100% quarter over quarter increase in Q4’10. This hyper growth is in sharp contrast to the tepid 1% quarter over quarter and 37% year over year growth in corporate travel during the same period.

This is great news for UTA, which specializes in leisure, packaged tour travel in China. Just weeks after CTRP’s Q3 release, UTA reported packaged tour revenue of $82 million for the first 9 months of 2010. Packaged tours account for 75% of UTA’s total revenue reported during that period. For a company so heavily focused on packaged tours, it is no surprise that UTA has outperformed based on CTRP’s bullish confirmation of the strong secular growth trend in leisure, packaged tour travel services in China.

UTA is in the sweet spot of the China travel industry growth right now. And, it has a very cheap valuation (UTA: 2010 P/E of 4 on $1.40 EPS) compared to CTRP (2010 P/E of 45 on $.99 EPS).

It is clear why CTRP’s smaller rival is growing up so quickly and outperforming so dramatically.

Disclosure: I am long UTA.

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