To The Moon

$Trip.com Group Limited(TCOM)$ announced Q3 earnings before the market on Nov 18th and rose more than 3% in subsequent U.S. trading, and $TRIP.COM-S(09961)$ rose more than 5% on Nov 19th Hong Kong stock open.The market is relatively receptive to its results.

The overall performance was good, but the actual outperformance was not significant compared to the company's previously given guidance.Since Ctrip was the Chinese stock with relatively strong overall performance over the past year, investors' expectations were also relatively high.

Since domestic demand for alcohol travel is not particularly buoyant at the moment, it is also relatively difficult to expect significant growth on the revenue side, relying solely on foreign Trip.com.But the likelihood of a similarly significant turnaround is also very low, so the odds are that growth will remain solid in the year ahead.

Performance Review

On the revenue side, the company recorded revenue of 15.9 billion yuan in Q3, up 15.6% year-on-year, an improvement from 13.6% in Q2, and above the company's previous guidance of 13% to 14%.

On the expense side, marketing expenses of 3.38 billion yuan in Q3 increased by about 22.6% year-on-year, significantly higher than the revenue growth rate.Due to the slowdown in the domestic business, while overseas (low margins) and immigration business under the expansion of the demand for marketing expenditure is relatively large.However, R&D expenses and administrative expenses increased by only 1.8% and 1.7% year-on-year, respectively, and the overall expense ratio decreased, resulting in a larger operating margin year-on-year.

In terms of profit, operating margin increased to 31.6% from 28.4% last year, with net profit of 6.8 billion yuan ($970 million), up 47% from the same period last year, and adjusted EBITDA of 5.7 billion yuan ($808 million), compared to 4.6 billion yuan in the same period in 2023.

In terms of the performance of different businesses, the international business segments showed rapid growth, with outbound hotel and airfare bookings having fully recovered to 120% of their pre-2019 pre-epidemic levels for the same period

• Hotel booking business: revenue for the quarter amounted to RMB6.8 billion, representing a year-on-year growth of 21.7%, with the growth rate picking up and the hotel booking market remaining active.

• Transportation Ticketing Business: Revenue was RMB5.7 billion, up 5.5% year-over-year.Despite the improvement, the growth rate was still low, mainly affected by the decline in airfares and the Company's adjustment of its bundled sales strategy.

• Business travel management business: Revenue was RMB656 million, up 11% year-on-year, but slower than the 115% and 105% growth in the previous two quarters, indicating a possible softening in demand for business travel.

• Travel & Vacation Business: Revenue was $1.6 billion, up 17% year-over-year, indicating some market potential, but still not back to pre-epidemic levels.

• Advertising and other revenues: year-on-year growth of 79%, although still higher than the same period last year, was significantly lower than the 114% growth rate in the previous quarter, reflecting the impact of the macroeconomic environment on the willingness to advertise.

Investment Highlights

Beats

1. Rebound in travel demand: Ctrip benefited from the recovery of domestic and international travel markets as travel demand picked up after the epidemic.The summer peak season drove an increase in travel bookings.

2. International business growth: although cross-border air passenger traffic has not fully recovered, Ctrip's international hotel and airfare bookings have recovered to 80% of the same period in 2019.This trend shows a strong rebound in international travel demand.

3. Technological innovation: Ctrip launched an AI travel assistant, TripGenie, to improve user experience and service efficiency, which in part drove customer engagement and sales growth.

Miss

1. Slower growth in transportation ticketing revenue: Despite overall revenue growth, the growth rate of transportation ticketing business was only 6%, which may be affected by the less-than-expected recovery of flights and fluctuations in ticket prices.

2. Increased market competition: as the travel market recovers, competitors are also aggressively capturing market share, which may affect Ctrip's market share and profitability.For example, Shake Shack also has considerable volume in the wine travel market.

Looking ahead, Ctrip faces the challenge of a possible slowdown in domestic demand for wine travel, but with the State Council's new vacation policy and the continued recovery of the international travel market, the company is still expected to maintain solid growth.Ctrip's continued investment in technological innovation and globalization strategy will support its long-term growth.