"Playing out" of the country, Trip.com is still doing great

On November 19th, Beijing time, after the US stock market closed, $ Trip.com.US and $ TRIP.COM-S.HK announced their Q3 financial report for the fiscal year 2024. In summary, it belongs to a good performance cycle with both revenue growth and profit margin improvement, although the beat compared to the company's previous guidance is not significant. The key points are as follows:

1. Overall performance, this season Trip.com achieved a net revenue of 15.9 billion yuan (excluding business tax), a year-on-year increase of 15.6%, which is an improvement from the previous quarter's low growth rate of 13.6%, and also higher than the company's prior guidance of 13%~14% growth. The performance is good . From our perspective, under the favorable conditions of multiple countries lifting visa-free policies, the enthusiasm for inbound and outbound tourism has significantly increased.

According to Trip.com's disclosure, the booking volume for outbound travel has recovered to 120% of the same period in 2019 (compared to 100% last quarter), and the booking volume for pure overseas business is also maintaining a high-speed growth of 60% (compared to 70% last quarter). It can be seen that the very strong outbound and international tourism business is the main contributor to the overall growth of the group this season.

2. According to the revenue standards disclosed in the financial report, this season, Trip.com's hotel booking business revenue increased by nearly 21.7% year-on-year, with a rebound of 1.8 percentage points from the previous quarter's growth rate, maintaining a stable and high growth. The revenue growth rate for ticketing business was 5.5%, which has improved somewhat compared to the previous quarter, but still remains low. The year-on-year decline in average ticket prices and the company's proactive reduction of bundled sales items such as flight insurance have also not yet completed their impact on revenue growth.

3. Trip.com's other three smaller businesses, the business travel segment grew about 95.8% compared to the same period in 2019, but has continued to decline from the increases of 115% and 105% in the first two quarters of 2024. This seems to indicate a weakening demand for business travel.

The packaged travel products are still 4.9% lower than the same period in 2019, as travelers' preference for independent travel has increased, the sales of packaged tours are still quite strong.

In terms of other revenues primarily from advertising, the growth rate compared to the same period in 2019 was 79%, which also significantly decreased from the previous quarter's 114%. Although the year-on-year growth rate is still about 41% . This also seems to reflect a weaker macro environment (the average price of domestic hotel and travel has decreased year-on-year), indicating a decline in the willingness and ability to invest in hotel and travel advertising.

Combining the above three businesses, the growth compared to the same period in 2019 has somewhat slowed down, indicating that domestic hotel and travel demand in Q3 seems to be weakening.

4. In terms of expenses, this quarter marketing expenses amounted to 3.38 billion, a year-on-year increase of approximately 22.6%, significantly higher than the revenue growth rate. Under the circumstances of slowing domestic business and the demand for expansion in overseas and inbound & outbound businesses, the demand for marketing expenditure is relatively large.

However, other expenses remain relatively cautious. R&D expenses and management expenses increased by only 1.8% and 1.7% year-on-year, nearly stagnant and further diluted by the revenue increase. Therefore, overall, the combined proportion of the three expenses to revenue has decreased by 2.8 percentage points year-on-year. Ctrip's profit margin continues to rise, from 28.4% last year to 31.6%.

5. From a profit perspective, under GAAP standards, although the gross profit differs little from expectations (slightly more by 100 million), with decent expense control (about 300 million less than expected), the actual operating profit is 5.02 billion, exceeding expectations by about 300 million.

Adding back stock-based compensation, under Non-GAAP standards, the adjusted operating profit is 5.45 billion, also slightly exceeding the company's previous guidance range of 5.1 to 5.3 billion.

Dolphin Investment Research Perspective:

Overall, Ctrip's performance this quarter, driven by strong outbound and overseas business, has continued to accelerate revenue growth after a significant decline in the previous quarter. The profit margin has also continued to rise due to the increased proportion of high-margin overseas business and overall cautious expense spending (mainly in R&D and management). This undoubtedly belongs to an excellent performance cycle of dual improvement in growth and profit.

However, compared to the already decent guidance provided by the company after the last performance, the actual performance this quarter beats expectations but not by a large margin. It is good performance but cannot be considered an "unexpected surprise."

Ctrip is one of the few stocks that have seen almost no pullback since the significant rebound at the end of September. According to Dolphin Investment Research's calculations, the market value at that time corresponded to about 15x PE of the 2025 GAAP net profit. In the medium to long term, we believe Ctrip can achieve a revenue CAGR of about 10% and a profit CAGR of 15%, which is quite a good expectation. The current valuation is at least neutral and cannot be considered cheap.

Therefore, looking solely at the 3Q performance, the effect on driving the market to adjust expectations is relatively limited, and more attention should be paid to the company's guidance for 4Q, especially for inbound & outbound and pure overseas businesses.

However, recently the State Council announced the addition of two more holidays, and the recovery of inbound & outbound and international tourism is still ongoing. Dolphin Investment Research believes that looking ahead to next year, while the domestic hotel and travel demand may not see a significant increase, the possibility of a notable cooling is also very low, and it is likely to maintain steady and slightly slower growth. The incremental growth from overseas has not yet been fully released. Therefore, from a stock price perspective, while it cannot be said to have obvious cost-effectiveness, Ctrip's continued improvement in performance, namely profit growth, may still bring relatively good investment returns

The following is a detailed commentary:

1. Strong outbound and overseas travel, accelerating growth again

In terms of overall performance, Trip.com achieved a net revenue of 15.9 billion yuan (excluding business tax), a year-on-year increase of 15.6%, which is an improvement compared to the low growth rate of 13.6% in the previous quarter, and also higher than the company's previous guidance of 13% to 14% growth. The performance is good . Combined with supportive government policies and company disclosures, it should mainly be driven by inbound and outbound travel and pure overseas business.

Specifically, in this quarter, the booking volume for outbound travel has recovered to 120% of the same period in 2019 (compared to 100% in the previous quarter), and the booking volume for pure overseas business is also maintaining a high growth rate of 60% (compared to 70% in the previous quarter). It is evident that the growth of outbound and pure overseas business remains very strong and is a major contributor to the overall growth of the group.

From a financial perspective, the revenue from Trip.com's hotel booking business grew nearly 21.7% year-on-year this quarter, with a rebound of 1.8 percentage points compared to the previous quarter, maintaining a stable and high growth rate.

The revenue growth rate for ticketing business is 5.5%, which has improved somewhat compared to the previous quarter , but still remains low. On one hand, the average ticket price is still declining year-on-year, and on the other hand, the company's proactive reduction of bundled sales items such as insurance tied to tickets has not yet completed its impact on revenue growth.

2. Other businesses seem to continue pointing to a decline in domestic demand?

Aside from the two pillar businesses, in Trip.com's other three smaller businesses:

1) The business travel segment has grown about 95.8% compared to the same period in 2019, but has continued to decline from the increases of 115% and 105% in the first two quarters of 2024. As a new business that the company is focusing on, the size of the business travel segment has doubled compared to pre-pandemic levels. However, the continuous decline in growth over two consecutive quarters seems to indicate some weakening in business travel demand.

2) The packaged travel products are still down 4.9% compared to the same period in 2019, as travelers' preference for independent travel has increased, and sales of packaged travel are still quite strong.

3) Other revenues mainly from advertising have reached a growth rate of 79% compared to the same period in 2019, a significant drop from 114% in the previous quarter. Although the year-on-year growth rate is still about 41% . This also seems to reflect that under a weaker macro environment (the average price of domestic hotel and travel is declining year-on-year), the willingness and ability to invest in hotel and travel advertising have declined.

Combining the above three businesses, the overall weakening of growth compared to 2019 seems to indicate a decline in domestic hotel and travel demand in the third quarter.

3. Marketing expenses are considerable, but overall still focused on cost control and efficiency improvement

In terms of profitability, this quarter, Ctrip's gross margin increased by 0.4 percentage points year-on-year to 82.4%, continuing to rise for four consecutive quarters. Driven by the increase in the proportion of high-margin overseas business, the group's overall profitability continues to improve. However, the market's expectations for the improvement in gross margin are relatively sufficient, and the actual gross profit of 13.08 billion is not much different from the expected 12.93 billion.

In terms of expenses, this quarter, marketing expenses amounted to 3.38 billion, a year-on-year increase of about 22.6%, significantly higher than the revenue growth rate, indicating a strong demand for marketing expenditures amid the slowdown in domestic business and the expansion needs of overseas and inbound & outbound businesses.

However, other expenses remain relatively cautious. R&D expenses and management expenses increased by only 1.8% and 1.7% year-on-year, nearly stagnant and further diluted by the revenue growth.

Overall, although there is considerable pressure on sales expenses, the combined proportion of the three expenses relative to revenue still decreased by 2.8 percentage points year-on-year, thus the profit margin continues to rise, from 28.4% last year to 31.6%.

Under GAAP standards, although the gross profit is not much different from expectations (slightly more by 100 million), with decent expense control (about 300 million less than expected), the actual operating profit is 5.02 billion, exceeding expectations by about 300 million.