Chinese Travel Sites Ctrip And eLong: Q3 Earnings Preview

Includes: CTRP, LONG
by: Jiang Zhang

Ctrip (NASDAQ:CTRP) reports Q3 results on November 5th.

The Street expects:

  • Revenue: $181 million
  • EPS: $0.17 per share
  • Q4 revenue guide: $171 million

Ctrip's smaller rival eLong (NASDAQ:LONG) reports on November 15th.

The Street expects:

  • Revenue: $31 million
  • EPS: $0.03 per share
  • Q4 revenue guide: $31 million

Heading into the earnings, investors can expect continued headwind on margins from the Online Travel Agents (OTAs) price war despite positive industry data.

In Q3, we saw positive air traffic data from three major careers increase by 7% y/y, compared with 3% in Q2. While China's overall travel market is healthy, the coupon wars between OTAs are putting pressure on the companies' margins and profits. Despite both Ctrip and eLong scaling back on the coupon offerings since mid-August, coupon wars will likely to continue in the near-term as it is the most preferred customer acquisition strategy for price-sensitive travelers.

One key difference between the coupon strategy of Ctrip and eLong is that while Ctrip offers more discounts in absolute value than eLong, eLong has more absolute coupon offers than Ctrip. In my view, eLong is more likely to win the coupon war because:

  1. eLong's abundant coupon offers is attractive to travelers who are more likely to find discounts on their preferred hotels than they would on Ctrip
  2. eLong does not attach conditions to its coupons (eg. Submitting reviews), whereas Ctrip attach such conditions, which many travelers do not find attractive and hence end up dropping the coupon program and switch to eLong to receive the coupon discount

Compared with eLong, Ctrip also has a higher cost structure given its 5,000+ employees in its call centers. On the other hand, eLong only has a little over 1,000 employees in its call centers and continues to migrate most of its business online. I note that 60% of transactions were done online for eLong compared with around 50% on Ctrip.

Aside from competition among the OTAs, both Ctrip and eLong are facing competitive pressure from vertical search sites, such as Qunar, which is owned by Baidu (NASDAQ:BIDU). As I mentioned in my prior notes, Qunar is gaining traction in China's online travel sites as an online travel information aggregator. From a user's perspective, Qunar delivers superior user experience compared with competing OTA sites because it is a more intuitive and comprehensive online travel information platform. As a result, Qunar leads China's OTA sites in terms of traffic over 40% market share as of the end of last year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Tagged: , China, Earnings
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