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Why Ctrip.com's Shares Went on Clearance Today

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July 25, 2012 | Comments (1)

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese travel agency Ctrip.com (Nasdaq: CTRP  ) fell 12% today after it reported disappointing revenue in the second quarter.

So what: Revenue fell 8% from the previous quarter to $153 million, about $1.8 million below estimates. Earnings, however, came in at $0.13 per share, $0.04 above estimates.

Now what: This was more a reaction to potential problems than just a response to the numbers from today. Investors are worried that the Chinese economy is slowing down, and when a company like this misses revenue estimates, even by a small margin, investors get concerned. Shares still trade at 17 times earnings, so I wouldn't go out and rush into shares considering the negative momentum of revenue.

Interested in more info on Ctrip.com? Add it to your watchlist by clicking here.

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  • Report this Comment On July 26, 2012, at 9:57 PM, NoahHudson wrote:

    "So what: Revenue fell 8% from the previous quarter to $153 million."

    According to Ctrip’s filing, 1 quarter 2012 net revenue was US$144.6 million. 2 Quarter 2012 net revenue was, as you said US$153 million, which is about 6% higher than 1Q12 net revenue, not lower. Also, 2Q 2012 US$ net revenue was about 18.9% (16.9% looking at CNY) higher than a year ago in 2Q 2011 (2Q 2011 net revenue was US$128.9 million). How can anyone trust your analysis when the basic facts are not correct? But anyhow, on to the analysis …..

    “when a company like this misses revenue estimates, even by a small margin, investors get concerned.”

    Although 2Q 2012 net revenue was slightly (1.8% based on Bloomberg consensus) below estimates, it was within Ctrip’s previous guidance range (given in their 1Q 2012 results announcement) of net revenue growth of 15%-20% compared with 1Q 2011. In fact, it’s in the upper range of their guidance.

    I have never met an investor who would be concerned about a slight miss in actual revenue compared with analysts’ estimates, especially when the actual revenue was in the upper range of management’s guidance.

    “I wouldn't go out and rush into shares considering the negative momentum of revenue.”

    2Q 2012 year-over-year net revenue grew 18.9% (based on US$).Year-over-year net revenue growth for 1Q 2011, 2Q 2011, 3Q 2011, 4Q2011 and 1Q 2012 were 30.3%, 19.8%, 20.0%, 17.6% and 19.1%, respectivley. Seems like pretty solid revenue growth to me.

    Ctrip’s problem is not revenue growth. The problem is decreasing operating profit margin. Year-over-year GAAP operating profit margin for 2Q 2011, 3Q 2011, 4Q2011, 1Q 2012 and 2Q 2012 were 32.2%, 31.2%, 24.9%, 19.4% and 17.3%, respectivley. That is what negative momentum looks like. Additionally, as per Ctrip’s July 24 conference call (the transcript of which can be found on Bloomberg), Ctrip lowered their guidance for non-GAAP 2012 operating income margin from 30% previously, to 25%-30% currently. This is most likely the reason Ctrip’s share price fell, not because of concerns about revenue.

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