Ctrip: Another increase in revenue without profit growth, even the top student is facing challenges?

On May 20th, Beijing time, after the US stock market closed, $Trip.com(TCOM.US) announced its Q1 financial report for the fiscal year 2025, with the key points as follows:

1. Overall, the total net revenue of Trip.com this season was 13.8 billion yuan (excluding business tax), a year-on-year increase of 16%, which is almost completely in line with market expectations. In terms of profit, after adding back stock incentive expenses, the adjusted operating profit was 4.04 billion yuan, a year-on-year increase of only 7%, slightly exceeding expectations by less than 300 million.

2. From a business perspective, bookings for inbound travel increased by over 100% year-on-year, and outbound travel bookings for flights and hotels exceeded 120% of the same period in 2019, consistent with the previous quarter's disclosure, indicating that the demand for inbound and outbound travel remains good, but has not further strengthened (of course, it has not worsened either).

Bookings for purely overseas business increased by 60% year-on-year, slightly down from 70% disclosed in the previous quarter. However, entering a high base period, a growth rate of still over 30% is still quite good.

In terms of financial metrics, among the two major pillar businesses, hotel business revenue increased by nearly 23% year-on-year, although the sequential growth rate has significantly decreased, but it is 1.4 percentage points higher than market expectations. Combined with the company's previous guidance, due to a single-digit percentage decline in domestic hotel travel average transaction price year-on-year, the revenue growth rate for domestic hotels may slow to 10%~15%, driven by stronger outbound and purely overseas business.

The revenue growth rate for the ticketing business was 8.4%, falling back to single-digit growth, but within market expectations. This is mainly because the prices of domestic and outbound flight tickets have declined by about 10%~15% year-on-year, dragging down revenue growth.

4. Among the three smaller businesses, the revenue from packaged travel products has again fallen to 91% of the revenue in the same period of 2019, showing a rather weak performance. On one hand, travelers are more inclined towards independent travel (or budget travel) due to long-term habit changes. On the other hand, competition from Meituan, Douyin, and others in destination ticketing is also a contributing factor.

Other revenue primarily from advertising grew by 33% year-on-year, showing a strong growth momentum. The continued increase in advertising penetration and the operation of Trip.com's platform in strategy sharing, personal travel notes, and other travel community functions should continue to promote decent growth in this revenue segment.

In terms of costs and expenses, Trip.com's gross profit margin this season was 80.4%, lower than the expected 81%, and also contracted year-on-year, performing below expectations. On one hand, the revenue structure has a higher proportion of lower-margin overseas business. On the other hand, the average transaction prices for hotels and flight tickets have declined year-on-year, which should also have a drag on the gross profit margin In terms of expenses, this quarter's marketing expenditure was 3 billion, a year-on-year increase of 30%, significantly higher than the revenue growth rate. However, the market expected a higher expenditure of 3.3 billion, which resulted in an additional profit of 300 million from the perspective of the expectation gap.

In other expenses, R&D expenses and management expenses increased by 14.2% and 11.7% year-on-year, both growth rates lower than the revenue growth rate, showing no significant expansion.

Overall, the combined total of the three expenses accounted for an increase of 1.6 percentage points year-on-year in relation to revenue (mainly due to the expansion of marketing expense ratio). Combined with a year-on-year decrease of 0.8 percentage points in gross profit margin, this led to a significant contraction in operating profit margin this quarter. Therefore, although total revenue still grew by 16%, operating profit only increased by 7% year-on-year. However, since marketing expenses were lower than expected, the absolute profit growth, while not good, was slightly more than 300 million compared to expectations.

Dolphin Research's Perspective:

Overall, from the perspective of expectation gaps, Ctrip's performance this quarter remained stable, or one could say flat. From the perspective of expectation gaps, revenue growth was completely in line with expectations. In terms of profit, due to the company's relatively conservative guidance, the market's expectations for expense input were too high, resulting in operating profit being higher than expected. In absolute terms, on one hand, despite not being a low base, there was still over 15% revenue growth, which is still above average in the entire Chinese concept internet industry. On the other hand, although the company has guided that this year's profit growth is not good, with actual profit growth only in the single digits, it cannot be considered good in any case.

Looking ahead, 1) The previously observed signs of weakening domestic hotel and travel prosperity have continued and been confirmed this quarter. Although there is the issue of last year's high base, this quarter's hotel average daily rate and ticket prices both experienced negative year-on-year growth; and in recent macro data, service consumption has no significant growth advantage over goods consumption. If no stimulus policies are introduced domestically, it is highly likely that the domestic hotel and travel prosperity will continue to show a marginal steady decline.

Therefore, whether pure overseas business and inbound business benefiting from the domestic visa-free policy can continue to maintain high growth to drive the overall growth of the group is the main factor determining whether Ctrip can continue to perform relatively well among Chinese concept assets.

From this quarter's performance, both inbound and pure overseas businesses still maintained triple-digit and large double-digit growth, and the absolute performance is still very strong. However, from a marginal perspective, the growth of these two businesses did not accelerate further this quarter. Looking ahead, as the base increases, and the impact of Trump's tariffs on cross-border travel may be greater than that on domestic travel, maintaining the current growth rate and steadily slowing down would still be considered good.

In terms of profit, on one hand, due to the weakening domestic prosperity, more customer acquisition investment is needed; on the other hand, the rapid expansion of overseas business also requires more investment. Furthermore, the pure overseas business led by Trip.com is still hovering around the breakeven point, and its increasing proportion will naturally drag down the overall profit level of the group From a short to medium-term perspective, Trip.com’s profit growth is indeed unlikely to stand out.

From a valuation perspective, based on the current profit growth expectations, Trip.com’s current market value corresponds to an estimated valuation multiple of around 20x for the adjusted operating profit after tax in 2025. This is undoubtedly relatively high within the scope of Chinese concept assets, reflecting the market's high expectations and preferences. Therefore, from a short to medium-term perspective, it is not a very good time given that Trip.com’s performance is expected to show steady but declining growth, with weak profit growth. From a long-term perspective, potential surprises may depend on how much Trip.com’s scale can grow and what level of profitability can be achieved in a steady state.

Here are the detailed comments:

1. Stable revenue growth expectations, domestic weakness, overseas taking the lead

This quarter, Trip.com Group achieved a net revenue of 13.8 billion yuan (excluding business tax), a year-on-year increase of 16%. In relative performance, this is almost completely in line with market expectations; in absolute performance, with last year's not low base, there is still a growth rate of over 15% (high-teens), which is undoubtedly above average in the entire Chinese concept internet industry.

This quarter, the bookings for inbound travel increased by over 100% year-on-year, and the bookings for outbound travel exceeded 120% of the same period in 2019. These two indicators are completely consistent with those disclosed in the previous quarter, indicating that the demand for inbound and outbound travel remains good, but has not further strengthened (of course, it has not worsened either).

The bookings for pure overseas business increased by 60% year-on-year, slightly down from 70% when disclosed last season. Of course, after gradually entering a high base period, still achieving a growth rate of several tens is obviously good.

From a financial perspective, this quarter, Trip.com’s hotel booking business revenue increased by nearly 23% year-on-year, although there was a significant decline compared to the previous quarter (due to seasonal effects), but it was 1.4 percentage points higher than market expectations. Combined with the company's previous guidance, in the first quarter, due to a simultaneous decline in domestic hotel prices in the single digits, the growth rate of domestic hotel revenue fell to 10%~15%, relying on stronger outbound and pure overseas business to drive overall growth.

The revenue growth rate for the ticketing business was 8.4%, falling back to single-digit growth, but within market expectations. This is mainly because the prices of domestic and outbound air tickets have declined by about 10%~15% year-on-year, dragging down revenue growth II. Other Businesses: Content Revenue Grows by 33%, Will It Be the Future Star?

As for the performance of the other three small-scale businesses:

Business travel revenue reached 570 million, a year-on-year increase of 12.1%, which is relatively good growth.
The revenue from packaged travel products has once again fallen to 91% of the same period in 2019, showing a rather weak performance. On one hand, this reflects a long-term change in traveler preferences towards independent travel (or budget travel) in the post-pandemic era; on the other hand, competition from platforms like Meituan and Douyin in destination ticketing is also a contributing factor.
Other revenue primarily from advertising grew by 33%, showing a strong growth momentum. With continued improvement in advertising penetration and the operation of Ctrip's platform in strategy sharing and personal travel diaries within the travel community, this part of revenue should continue to maintain good growth.

III. As Expected, "Growth Without Profit," but Marketing Expenses Were Not as High as Anticipated

In terms of profitability, Ctrip's gross margin for this quarter was 80.4%, lower than the expected 81% and down 0.8 percentage points year-on-year, performing below expectations. According to the company's explanation, this is partly due to the increasing proportion of lower-margin overseas business revenue in the revenue structure, and partly due to a significant decline in hotel average daily rates and flight prices this quarter, which likely also dragged down the gross margin.

In terms of expenses, marketing expenses for this quarter were 3 billion, a year-on-year increase of 30%, significantly higher than the revenue growth rate. The company had previously guided that due to relatively weak domestic demand and customer acquisition needs in overseas and inbound/outbound businesses, they are currently in a phase of increased expenditure. However, market expectations for spending were higher at 3.3 billion, squeezing out an additional profit of 300 million from the expected difference.

In other expenses, R&D expenses and management expenses increased by 14.2% and 11.7% year-on-year, both growing at a rate lower than revenue growth, meaning that these two expense inputs did not expand significantly.

Overall, the combined proportion of the three expenses to revenue increased by 1.6 percentage points year-on-year (mainly due to the expansion of marketing expenses), and combined with a year-on-year decline in gross margin of 0.8 percentage points, this led to a significant contraction in operating profit margin for this quarter.

Under GAAP standards, due to a year-on-year contraction in profit margin of 2.4 percentage points to 29.2%, although total revenue still saw a 16% increase, operating profit was 3.56 billion, with only a 7% year-on-year growth. From the perspective of expected differences, since marketing expenses were 300 million less than expected, the final profit was also about 300 million more than anticipated.

Adding back stock-based compensation, under Non-GAAP standards, the adjusted net profit was 4.04 billion, a year-on-year increase of 7.4%, exceeding the expected 3.79 billion.

Dolphin Research's past analysis on [Ctrip]:

November 19, 2024 earnings report commentary “Playing Out of the Country, Ctrip Still Performs Well” link

November 19, 2024 conference call “Ctrip: Will There Be Surprises in 2025? (3Q24 Conference Call)” link

August 27, 2024 conference call “Ctrip: How Did Domestic and Inbound/Outbound Business Perform During the Summer?” link

August 27, 2024 earnings report commentary “Ctrip: Between Underperformance and Madness, Chinese Concepts Finally Have a Normal One!” link

May 21, 2024 conference call “Ctrip: Seizing Overseas Markets and Inbound/Outbound Travel” link

May 21, 2024 earnings report commentary “Ctrip: Traveling ‘High’ Overseas, But Afraid of the Heights” link

February 22, 2024 conference call “Ctrip: International Business, Inbound Travel, AI-- Three Strategic Directions for 2024” [link](https://longportapp.com/zh-CN/topics/11690918? app_id=longbridge)》

February 22, 2024 Financial Report Review: Trip.com: Can it stabilize domestically in 2024, and can overseas markets take over?

November 21, 2023 Conference Call: Trip.com: 15% growth next year, outbound & overseas are the main drivers

November 21, 2023 Financial Report Review: After the violent recovery, how far can Trip.com continue to go?

September 5, 2023 Conference Call: Trip.com: The trend of leisure travel will continue, with growth coming from overseas

September 5, 2023 Financial Report Review: It's exploded again! Is Trip.com a "rainbow" after the rain or a "long rainbow" after the rain?

June 8, 2023 Conference Call: Trip.com Minutes: "The trend remains unchanged, and demand recovery is still very strong"

June 8, 2023 Financial Report Review: Trip.com: Surviving a great disaster will surely bring blessings

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