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While Ctrip.com (CTRP +0.02%) may have been the first major online travel agency (OTA) in China, it wasn't the only one. For much of the last five years, the company competed with eLong and Baidu (BIDU +3.90%)-backed Qunar (QUNR +0.00%). That meant a vicious price war that kept earnings down industrywide, while the major players jockeyed for market share of a growing pie.
But that all changed last year, as the company began a tie-up with eLong, and essentially acquired Qunar. In the post-consolidation world of China's OTAs, Ctrip is the undisputed top dog. So what can investors expect in the company's second-quarter earnings report on Aug. 31?
The bare-bones numbers
While I'm not too concerned with any company meeting analyst expectations, I do expect results to come in close to management's expectations. For the last couple of quarters, the company has exceeded these benchmarks -- a good sign that it understands its place in the industry.
Overall, revenue is expected to show growth of 70% to 75%, which would equate to roughly $655 million. Here's a breakdown by major subsection:
- Accommodation gross revenues are expected to grow by 70% to 75%.
- Transportation gross revenues are expected to grow by 95% to 100%.
- Packaged-tour sales are expected to grow by 45% to 50%.
Digging a little deeper
Beyond those headline numbers, there are a few key things that investors should keep an eye on. The first is within the transportation division. While airline fares have historically made up the bulk of revenue here, Ctrip has been working very hard to capture market share for both train and bus tickets as well. While these are still relatively small parts of the overall transportation pie, they are growing very quickly.
Furthermore, CEO and co-founder James Liang stated on the last conference call that Ctrip would begin focusing more on -- and devoting significant resources to -- outbound travel. This is crucial: As the Chinese middle class grows, their desire to travel beyond the borders of the Middle Kingdom grows as well. If Ctrip can capture a bigger and bigger slice of that growing outbound-travel pie, it would be a huge win for the company.
Finally, I will be paying close attention on the conference call to both the company's gross margins, and any talk of couponing. Full-year gross margins fell from a high of 78.3% in 2010 to a low -- during the height of the price wars -- of 71.4% in 2014. They have since begun to recover, and last year they stood at 72.1%. The main benefit of a consolidated industry should be the ability to abandon couponing and continue seeing an uptick in gross margins.
It's important to remember that the Chinese OTA market is still relatively young. While Ctrip might experience hiccups along the way, it is now the biggest player in an industry that will likely be very important for decades to come.
