Unfazed by JD.com's entry to disrupt the market, Trip.com remains an excellent performer.

On August 28th, after the U.S. stock market closed, $Trip.com(TCOM.US) released its Q2 FY2025 financial report, showing another solid and stable performance this season. Revenue maintained a stable high growth rate, slightly exceeding expectations, while profit performance was even more impressive. Specifically:

1. In terms of major figures, this season Trip.com Group achieved a net revenue of 14.8 billion yuan (excluding business tax), representing a year-on-year growth of 16%, with the quarter-on-quarter growth rate not slowing down compared to the previous quarter, slightly above market expectations. In terms of profit, after adding back stock-based compensation, the adjusted operating profit was 4.67 billion yuan, up 10.4% year-on-year, exceeding market expectations by about 390 million yuan (equivalent to 9%), indicating a recovery in profit growth.

2. From a business perspective, inbound travel bookings grew 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. As it gradually enters a high base period, inbound travel continues to grow rapidly. However, outbound travel demand appears to be less robust.

Pure overseas business bookings grew by 60% year-on-year, consistent with the previous quarter. Despite the high base of a 60% year-on-year growth in the same period last year, growth remains quite impressive.

3. From a financial perspective, among the two major pillar businesses, hotel booking revenue grew by nearly 21% year-on-year, with a slight quarter-on-quarter slowdown of 2 percentage points, but performed more resiliently than the company's guidance and market expectations. Although the domestic hotel and travel market remains in a downward trend, Trip.com, as a leading platform, demonstrates resilience against headwinds, with high growth in overseas business also contributing.

Ticketing revenue grew by 10.8% year-on-year this season, accelerating by over 2 percentage points quarter-on-quarter, slightly exceeding expectations. On one hand, domestic air passenger volume and ticket prices saw good growth in April and May, while also entering a low base period in Q2 last year due to reduced bundled ticket sales.

4. This season, Trip.com's gross margin was 81%, as expected, rebounding quarter-on-quarter, but contracted by 0.9 percentage points year-on-year. According to the company's disclosure, the quarter-on-quarter rebound in gross margin was contributed by the recovery in hotel average selling prices and air ticket prices. However, due to the increasing proportion of lower-margin pure overseas business, the gross margin structurally declined year-on-year. Gross profit amounted to 12 billion yuan, up 15% year-on-year, slightly below the revenue growth rate.

5. On the expense side, this season's marketing expenses were 3.33 billion yuan, up 17% year-on-year, although the year-on-year growth rate is still not low, it has significantly slowed compared to the 30%-40% growth in the previous two quarters. The ratio of marketing expenses to revenue was 22.1%, significantly lower than the guidance of 24%.

R&D expenses and administrative expenses increased by approximately 17% and 2% year-on-year, respectively, with R&D spending also seeing high growth, but partly benefiting from reduced stock-based compensation expenses, nearly zero growth in administrative expenses also helped squeeze out some profit.

Overall, the total expenditure of the three expenses was 7.56 billion yuan, about 360 million yuan lower than market expectations, which is the main source of profit exceeding expectations this season.

6. Beyond performance, the company announced that since the stock repurchase plan was announced in February this year until today's financial report release, it has repurchased company stock worth $400 million. It also announced an increase in the stock repurchase amount to $5 billion (though the duration of this repurchase plan was not specified).

Dolphin Research View:

As seen from the above, Trip.com's performance still clearly reflects the company's underlying color as the most visible and relatively growth-oriented large-cap Chinese concept asset. Although the domestic hotel and travel market has not been particularly favorable recently, the company has delivered a decent growth of around 15% for several consecutive quarters, benefiting from policy-favored inbound business and the company's strategically visionary overseas business layout.

Meanwhile, in the previous two quarters, due to weakened domestic demand, increased investment demand, and the need for investment in overseas business expansion, the issue of revenue growth without profit growth caused by expense expansion has improved with the reduction in expense spending this season.

Looking ahead, 1) According to high-frequency data, since June, compared to the still decent April-May, there are signs of weakening in the domestic hotel and travel market again. As the third quarter during the summer is the peak for annual revenue and profit, the performance during the summer is particularly important, and attention should be paid to management's guidance for Q3.

2) Recently, as JD.com announced its entry into the hotel and travel OTA industry while launching a food delivery war, Alibaba also integrated Fliggy into its China e-commerce business unit, merging Fliggy with Taobao, indicating an intention to focus on the hotel and travel industry. Currently, due to the excessive resource occupation by the food delivery war, JD.com and Meituan have nearly exhausted all profits, so JD.com and Alibaba's efforts in the hotel and travel business are likely to be quite limited. This may also be one of the reasons why Trip.com can reduce marketing investment.

However, it is still necessary to pay attention to whether JD.com and Alibaba will make more aggressive investments after reducing food delivery investment, which may also shake the current hotel and travel OTA market structure. (Of course, the impact should be far less exaggerated than food delivery).

3) On the policy front, the Ministry of Commerce recently announced that it will release policies to stimulate service consumption in September, paying attention to whether it will bring considerable incremental demand, similar to the substantial new inbound travel demand brought by the continuous relaxation of entry and exit policies since the second half of last year. Meanwhile, the pure overseas Trip.com business continues to maintain double-digit growth, continuing to expand rapidly, and with the manifestation of scale effects, it is expected to gradually turn losses into profits. The release of profit and valuation from pure overseas business can be said to be an important driving factor for Trip.com's continued market value increase.

From a valuation perspective, based on the current profit growth expectations, Trip.com's current market value corresponds to a valuation multiple of approximately 22x of the adjusted operating profit after tax for 2025. Recently, as the market may have anticipated the strong performance this season, the stock price has already seen a significant recovery, and the valuation has returned to a neutral to slightly higher level. Factors driving further market value increase may include the company continuing to enhance shareholder returns, releasing approximately 94 billion yuan of cash value on the company's books; or subsequent domestic service consumption stimulus policies exceeding expectations, or Trip.com turning losses into profits and starting to release valuation.

Below is a detailed commentary:

I. Revenue Maintains Impressive Growth

This season, Trip.com Group achieved a net revenue of 14.8 billion yuan (excluding business tax), representing a year-on-year growth of 16%, with the quarter-on-quarter growth rate completely consistent with the previous quarter, not slowing down, slightly above market expectations. Within the current range of Chinese concept assets, being able to maintain a stable total revenue growth of around 15% over the long term, Trip.com once again verifies its high visibility as a relatively growth stock.

According to the company's disclosure, from a business perspective, inbound travel bookings grew by over 100% year-on-year, and outbound travel bookings for flights and hotels exceeded 120% of the same period in 2019, with these two indicators completely consistent with the previous quarter's disclosure.

From these two indicators, domestic outbound travel demand is not strong, with no further increase in growth compared to the same period in 2019 for several consecutive quarters. Inbound travel, under policy benefits, continues to grow strongly despite gradually entering a high base period.

Pure overseas business bookings grew by 60% year-on-year, also consistent with the previous quarter, maintaining high growth despite a 60% growth rate in the same period last year.

From a financial perspective, this quarter, Trip.com's hotel booking revenue grew by nearly 21% year-on-year, with a slight quarter-on-quarter slowdown of 2 percentage points, performing more resiliently than the company's original guidance and market expectations. Although the performance of hotel and travel companies like Huazhu shows that domestic hotel and travel average selling prices and occupancy rates are still in a year-on-year decline trend, Trip.com's hotel and travel revenue remains resilient, demonstrating its resilience as a leading platform, with high growth in overseas business also contributing.

Meanwhile, ticketing revenue grew by 10.8% year-on-year this season, accelerating by over 2 percentage points quarter-on-quarter, slightly exceeding expectations. According to data disclosed by the Civil Aviation Administration, the year-on-year growth rate of civil aviation passenger volume in April and May reached over 8%, significantly accelerating. At the same time, we are entering a low base period in Q2 last year due to the company's proactive reduction in bundled ticket sales, and ticketing revenue growth may continue to slightly recover in the second half of the year.

II. Advertising and Other Revenue Continue to Grow Rapidly by 31%

In terms of the performance of the other three small-scale businesses:

1) Business travel revenue was 570 million yuan, up 9.3% year-on-year, with a quarter-on-quarter slowdown of nearly 3 percentage points, domestic business travel demand remains weak;

2) Packaged tour product revenue slightly exceeded the same period in 2019 by 2.7%, in the post-pandemic era, sales of packaged tour products remain very poor.

3) Revenue from advertising and other sources grew by 31% year-on-year, maintaining strong growth momentum. With the continued increase in advertising penetration and the operation of Trip.com's platform in travel community functions such as strategy sharing and personal travelogues, this part of the revenue should continue to maintain good growth.

III. Gross Margin Recovers as Expected, Actual Expense Spending Less, Squeezing Out Excess Profit

On the profitability side, this season, Trip.com's gross margin was 81%, as expected, rebounding quarter-on-quarter, but contracted by 0.9 percentage points year-on-year. According to the company's previous disclosure, the quarter-on-quarter rebound in gross margin was contributed by the recovery in hotel average selling prices and air ticket prices, but due to the increasing proportion of lower-margin pure overseas business, the gross margin structurally declined year-on-year.

This resulted in a gross profit of 12 billion yuan, up 15% year-on-year, slightly below the revenue growth rate.

On the expense side, this season's marketing expenses were 3.33 billion yuan, up 17% year-on-year, although the year-on-year growth rate is still not low, it has significantly slowed compared to the 30%-40% growth in the previous two quarters. The ratio of marketing expenses to revenue was 22.1%, significantly lower than the guidance of 24% in the previous quarter's performance. It is evident that the company optimized the actual investment intensity.

In terms of other expenses, R&D expenses and administrative expenses increased by approximately 17% and 2% year-on-year, respectively, with R&D spending also seeing high growth, but partly benefiting from reduced stock-based compensation expenses, administrative expenses also helped squeeze out some profit.

Under GAAP, due to revenue slightly exceeding expectations and gross margin rebounding as expected quarter-on-quarter, while lower-than-expected expense spending squeezed out considerable profit, operating profit this season was 4.1 billion yuan, up 15% year-on-year.

After adding back stock-based compensation, under Non-GAAP, adjusted operating profit was 4.67 billion yuan, up 10.4% year-on-year (stock-based compensation was lower this season, so adjusted profit growth was lower), exceeding market expectations by about 390 million yuan (mainly contributed by lower-than-expected expenses). Although profit growth this season still slightly lagged behind revenue growth, it has improved compared to the single-digit growth in the previous two quarters.

Past Dolphin Research [Trip.com] Analysis:

May 20, 2025, Financial Report Commentary《Trip.com: Another Revenue Growth Without Profit Growth, Even Top Students Face Challenges?》

May 20, 2025, Minutes《Trip.com (Minutes): Stable Hotel and Travel Demand, Will Continue to Increase Marketing Investment》

February 25, 2025, Financial Report Commentary《Trip.com: Can Inbound Travel 'Turn the Tide' Under High Investment?》

February 25, 2025, Minutes《Trip.com (Minutes): Huge Overseas Space, No Limit on 25-Year Profit》

November 19, 2024, Financial Report Commentary《'Playing Out' of the Country, Trip.com Still Doing Well》

November 19, 2024, Conference Call《Trip.com: Any Surprises in 2025? (3Q24 Conference Call)》

August 27, 2024, Conference Call《Trip.com: How Did Local and Inbound/Outbound Business Perform During the Summer?》

August 27, 2024, Financial Report Commentary《Trip.com: Between Underperformance and Madness, Finally a Normal Chinese Concept!》

May 21, 2024, Conference Call《Trip.com: Grasping Overseas Markets and Inbound Travel》

May 21, 2024, Financial Report Commentary《Trip.com: Traveling 'High' Overseas, But Fear of Heights》

February 22, 2024, Conference Call《Trip.com: International Business, Inbound Travel, AI--Three Strategic Directions for 2024》

February 22, 2024, Financial Report Commentary《Trip.com: Can Domestic Stability Be Maintained in 2024, Can Overseas Take Over?》

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