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China's largest online travel agency (OTA) reported second-quarter earnings this week, and it was just about what the market expected. Ctrip.com's (CTRP +0.15%) popularity continues to grow as it captures more and more market share in this fast-growing industry. At the same time, the company isn't resting on its laurels as it continues to aggressively reinvest in its business.
The headline numbers were what most investors were expecting. The midpoint of management's expectations called for $655 million in revenue. The top line actually grew to $664 million, representing 75% year-over-year growth. Earnings came in at a loss of $0.17 per share, but the loss is largely due to the fact that the company acquired a controlling stake in rival Qunar (QUNR +0.00%).
Here's how the company's various divisions performed relative to expectations set out by management.
Division |
Expected Growth |
Actual Growth |
Total Revenue |
---|---|---|---|
Accommodations |
70%-75% |
61% |
$267M |
Transportation |
95%-100% |
90% |
$301M |
Packaged Tours |
45%-50% |
44% |
$71M |
As you can see, management actually over-estimated growth from all three divisions -- the first time this has happened in quite some time. In fact, Ctrip founder and CEO James Liang had developed a reputation for low-balling estimates to effectively manage investor expectations.
That being said, neither management nor any of the analysts on the conference call were too worried about this, so it's tough to tell what may have been behind the over-estimation.
Liang spent the first part of the conference call diving into three specific areas he thinks investors should be aware of.
For the third quarter of 2016, management once again expects revenue growth to clock in at 70% to 75%. Broken down by segment, here's what is expected:
Division |
Expected Growth |
---|---|
Transportation |
90% to 95% |
Accommodations |
50% to 55% |
Packaged Tours |
35% to 40% |
Corporate Travel |
10% to 20% |
Data source: Ctrip conference call.
Overall, this was a solid quarter for the company. Investors should keep a close eye on two things in the quarter ahead. First, check and see if the miss on revenue growth by division was an anomaly or the start of a pattern of overestimation. Second, while operating margin expansion from the current 4% might take time, keep an eye out to make sure it's at least moving in the right direction by the end of the third quarter.