Ctrip and Qunar Go to Wide Castle?

Qunar and Ctrip.com may be talking merger.

Apr 8, 2014 at 11:26AM

If the sources chatting things up with Bloomberg are spot-on, two of China's leading travel sites are about to get a lot cozier. The sources claim that Qunar (NASDAQ:QUNR) and Ctrip.com (NASDAQ:CTRP) are in early talks that would result in something as simple as a partnership to something as meaty as a merger between the two titans of travel.

Shares of Qunar, Ctrip, and Baidu (NASDAQ:BIDU) all opened higher this morning on the report. Why Baidu? Well, China's leading search engine spun off Qunar last year, but it still retains a 58.6% stake in the fast-growing travel portal. What's good for Qunar and Ctrip is also good for Baidu.

A combination would make sense. Qunar is strictly a Web-based platform for folks seeking hotel and airline reservations, but Ctrip mans call centers that still account for more than a third of its travel bookings. The two companies are also in different stages of their growth cycle. Qunar is generating a lot less revenue than Ctrip, but it's growing substantially faster. Analysts see Ctrip growing its top line 28% this year to $1.14 billion. They see Qunar's revenue soaring 66% this year to $233.8 million.

The two companies also differ on the bottom line. Ctrip is consistently profitable, though margins have been known to fluctuate. Qunar is still posting quarterly deficits, and analysts don't see it turning the corner until next year at the earliest. If the two companies were to hook up, there would clearly be a lot of cost savings to be realized as redundancies are trimmed away. There would also be some sharp synergies as the larger Ctrip takes advantage of Qunar's tech and Baidu's standing as China's largest search provider.

If two leading stateside travel portals would combine, the merger's benefits would be clear. Now transplant that sentiment in China, where the economy is growing a lot faster. There are certainly challenges in the world's most populous nation, and its economy isn't growing as quickly as it has in years past. However, the logic of two popular and growing related companies potentially tying the knot is sound. Online travel is still in its infancy in China, but as its middle class widens and corporate travel becomes more necessary, it's certainly a compelling niche for investors. A physical combination -- if that is the resulting fruit of these early-stage negotiations -- would give investors one fewer stock to buy in playing China's inevitable online travel boom, but it would serve up a single superior investment with an even wider moat.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Ctrip.com International. It recommends and owns shares of Baidu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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