Ctrip: Traveling "Hi" overseas, but afraid of feeling lonely at the top

On the morning of May 21st, Ctrip Group released its first-quarter report for the 2024 fiscal year after the U.S. stock market closed. In summary, due to strong growth in outbound business and lower-than-expected marketing expenses, profit release significantly exceeded expectations. The key points are as follows:

In terms of overall revenue, Ctrip's revenue for this quarter was 11.9 billion RMB, a year-on-year increase of 29.4%, higher than the company's previous guidance of 26%, with an absolute revenue amount exceeding expectations by 3 billion RMB. Looking at the more critical business aspects:

① Domestic hotel and flight bookings increased by 20% compared to the same period in 2023, which, although not strong given the low base of the previous year's first quarter, the 20% growth is not considered robust. Despite the high level of domestic travel demand, the explosive recovery phase has essentially ended.

② The outbound tourism business, which has not yet fully recovered to the scale of 2019, has taken over the growth baton, with hotel and flight bookings for this quarter increasing by over 100% year-on-year. With the favorable factors of increased international flight volume and recent visa-free policies in many countries, there is still considerable room for recovery in outbound business in 2024. In addition, Trip.com's pure overseas orders this quarter also grew by over 80%. After the recovery period in outbound tourism, pure overseas business will be the main driver of medium to long-term growth.

In other businesses, both package tour products and corporate travel services did not show particularly significant improvement. However, advertising revenue has continued to rise steadily, doubling compared to the same period in 2019. With a low base, this should also contribute to incremental revenue and profit in the future.

On the expense side, another highlight of this quarter is that marketing expenses were about 300 million RMB lower than expected. Due to the slowing growth of domestic travel demand and the balance of supply and demand, the growth of Ctrip's overseas business also requires early investment. The market originally expected a significant increase in marketing expenses this quarter (as seen in Huazhu covered by Dolphin Research). However, the actual expenditure this quarter remained at around 2.3 billion RMB, less than the expected 2.6 billion RMB.

Although research and development and management expenses increased in absolute terms compared to the previous quarter, the overall management expense ratio still decreased by 2.2 percentage points due to the dilution effect of revenue. Therefore, the final achieved Non-GAAP operating profit was 3.77 billion RMB, approximately 600 million RMB higher than the expected 3.14 billion RMB (20%), indicating that profit release still significantly exceeded expectations.

Dolphin Research's Viewpoint:

Ctrip's financial report for this quarter, with unexpected contributions of 3 billion RMB each in revenue and sales expenses, still achieved a 20% higher profit than the not-so-low expectations, which is undoubtedly a strong performance. From a business perspective, it also aligns with our previous prediction - even though the domestic travel demand in China has passed the peak stage, the subsequent growth will gradually return to normal. However, the recovery of overseas, especially outbound travel business, will continue to drive Ctrip's overall revenue growth to remain relatively high. And due to higher commission/monetization potential for outbound flights and travel, the elasticity of profit contribution will be higher than revenue contribution. This quarter is a perfect validation of this logic. Therefore, we believe that Ctrip's performance will continue to be impressive at least until the end of 2024.

The only issue lies in the valuation aspect. With the current market cap slightly exceeding 260 billion, assuming a valuation of 20x PE, the implied requirement for operating profit in 2024 is around 16 billion. Judging from the trend this quarter, achieving 16 billion this year is not very challenging, but significantly exceeding expectations may not be easy. Moreover, the time window for the recovery of outbound travel is likely to end after this year, and the subsequent growth will eventually return to normal. Therefore, although we believe this year's performance is commendable, the current situation is not a cost-effective opportunity.

Here is a detailed analysis:

1. Outbound Travel Taking the Lead

In terms of overall performance, this quarter Ctrip achieved a net revenue of 11.9 billion yuan (excluding business tax), which, compared to the company's guidance of 26% growth, actually increased by 29% year-on-year, exceeding expectations by about 300 million in revenue.

The two main pillars of revenue sources, hotel bookings and ticketing business revenue, grew by approximately 29% and 20% year-on-year, respectively. We are more concerned about the regional growth perspective:

Domestic hotel and flight bookings increased by 20% compared to the same period in 2023, as the first quarter of last year was gradually recovering from the impact of the epidemic, and the base was not very high. The additional 20% growth on top of this base reflects that while domestic travel demand is still strong, the explosive recovery period has ended.

The volume of outbound hotel and flight bookings increased by 100% year-on-year, and has not yet fully recovered to the level of outbound travel in 2019. With the favorable policies of visa-free entry in many countries, there is still considerable room for recovery in outbound business in 2024.

Pure overseas business (mainly Trip.com and Skyscanner) bookings increased by 80% year-on-year, further accelerating from the 70% growth in the previous quarter. We believe that pure overseas business will likely be the main source of growth after 2024.

2. Other Businesses: Advertising Revenue Continues to Rise, Already Doubled Compared to 2019 Apart from the two core businesses, among Ctrip's other three businesses:

The corporate travel business grew by approximately 15% year-on-year. As one of the company's main focus areas, the revenue scale has exceeded pre-pandemic levels. However, due to the slower recovery of corporate travel compared to leisure travel, the absolute incremental growth is not high compared to pure overseas business.

Although the growth rate of package tour products has reached as high as 20% year-on-year, it has not yet returned to the scale of the same period in 2019.

The other revenue mainly from advertising has performed well. Since Q1 2021, the revenue scale has continued to grow, doubling compared to the same period in 2019. The high profit margin of the advertising business means that this business can also make a significant contribution to the company's current and future profit growth.

Third, marketing expenses are significantly lower than expected, another major highlight

In terms of profitability, this quarter, Ctrip's gross profit margin rebounded by about 0.7 percentage points compared to the previous quarter after slipping. Dolphin Research speculates that this may be due to the high-profit outbound business and advertising business contributions. In terms of absolute gross profit amount, because the revenue was already 3 billion higher than expected, the gross profit margin was slightly higher than expected, and the final gross profit amount was also about 3 to 4 billion higher than expected.

On the expense side, the biggest highlight this quarter is that marketing expenses were about 300 million yuan lower than expected. Due to the slowing growth of domestic hotel and travel demand, and the supply and demand approaching balance, the growth of Ctrip's overseas business also requires early investment.

The market originally expected a significant increase in marketing expenses this quarter (as seen in Dolphin Research's coverage of Huazhu). However, the actual expenditure this quarter remained at around 2.3 billion, the same as the previous quarter, which is less than the expected 2.6 billion.

Although research and development and management expenses have increased in absolute terms compared to the previous quarter, the combined expense ratio has still decreased by 2.2 percentage points due to the dilution effect of revenue.

In the end, due to revenue exceeding expectations by about 3 billion and marketing expenses being 3 billion lower than expected, the final achieved Non-GAAP operating profit was 3.77 billion, about 600 million (20%) higher than the expected 3.14 billion.

Dolphin Research's Previous Analysis on Ctrip:

Telephone Conference on February 22, 2024: "Ctrip: International Business, Inbound Tourism, AI - 3 Major Strategic Directions"

Financial Report Review on February 22, 2024: "Ctrip: Can it Hold Steady Domestically in 2024, Can Overseas Take Over?"

Telephone Conference on November 21, 2023: "Ctrip: 15% Growth Next Year, Outbound & Overseas are the Driving Forces"

Financial Report Review on November 21, 2023: "After Violent Recovery, How Far Can Ctrip Go?"

Telephone Conference on September 5, 2023: "Ctrip: Leisure Travel Trend Will Continue, Overseas Expansion is Key"

Financial Report Review on September 5, 2023: "Another Explosion! Is Ctrip a Rainbow After the Rain or a Long Rainbow After the Rain?"

Telephone Conference on June 8, 2023: "Ctrip Minutes: 'Trends Remain Unchanged, Demand Recovery Still Strong'"

Financial Report Review on June 8, 2023: "Ctrip: Surviving the Great Difficulties, Good Fortune Will Follow"

Telephone Conference on March 8, 2023: "Ctrip: How Far Has Travel Recovery Come?"

Financial Report Review on March 8, 2023: "Ctrip's 'Spring' Has Finally Arrived, But Stock Price Has Run Ahead Too Fast"

Risk Disclosure and Statement for this Article: Dolphin Research Disclaimer and General Disclosure