Chinese online travel agency (OTA) Ctrip.com (TCOM -2.70%) reported earnings Wednesday night and they showed the company continues to eat up large swaths of the growing market for travel in China. The company's forecast, however, calls for slower growth.
While that was inevitable on some level, the question now becomes: How quickly will growth slow, and how much will widening margins help make up the difference?
Image source: Getty Images
Ctrip.com earnings: The raw numbers
Before we get into answering those questions, it's worth looking at the headline numbers.
|
Metric |
Q2 2016 |
Q2 2017 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$664 million |
$953 million |
44% |
|
EPS |
$0.02 |
$0.22 |
1,000% |
Data source: SEC filings. Figures represent USD equivalents at time that each quarter was reported. Earnings per share (EPS) presented on non-GAAP basis.
Clearly, there's still a lot of positive momentum. The company was able to grow earnings at such an impressive clip because of marked improvement in operating leverage. Gross profit margins expanded by over 1,000 basis points, to 82.5%. And while revenue jumped 44%, non-GAAP operating expenses rallied just 35%, to $607 million.
If we break it down by operating segment, we can see that the real strength came from the company's transportation division.
|
Division |
Q2 2016 |
Q2 2017 |
Year-Over-Year Growth |
|---|---|---|---|
|
Transportation |
$301 million |
$441 million |
47% |
|
Accommodation |
$267 million |
$341 million |
28% |
|
Packaged tour |
$71 million |
$90 million |
27% |
|
Corporate |
$22 million |
$29 million |
32% |
Data source: SEC filings. Figures represent USD equivalents at time that each quarter was reported.
The growth in the last three segments was almost entirely organic, while transportation benefited from the acquisition of Skyscanner, which closed at the end of last year.
What else happened during the quarter?
- Management reported that the company's presence in lower-tiered cities "improved significantly in the second quarter." Traffic in second-tier cities was up 50% over last year.
- Through acquisitions and its own development, Ctrip plans to have 6,500 offline travel agencies throughout China by the end of the year, though the franchise model should significantly reduce costs for the company.
- Direct booking via Skyscanner increased 50% year over year.
Looking ahead
For the coming quarter, management expects revenue to grow between 35% and 40%. To put those growth rates in perspective, look at how the company has performed over the past 10 quarters.
Data source: E*Trade.
The major jump in 2016 coincides with the company's acquisition of Qunar. While there may very well be acquisitions in the future, the focus is definitely shifting. Sales growth is still important, but there's little doubt that Ctrip will continue to benefit from the network effects of being the top dog OTA in China.
Instead, many will now be looking to see if Ctrip's dominant online presence, combined with its franchise offline model, can create the type of profit margins that we currently see in Priceline, which hovered at almost 24% last quarter -- and significantly ahead of Ctrip's 18%.
