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Can Ctrip and Despegar.com Bounce Back After Last Week's Drop?

By Rick Munarriz - Oct 22, 2017 at 12:20PM

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Travel portals in China and Latin America take a step back for different reasons

It was a rough week for a couple of international travel portals. Shares of China's Ctrip (TCOM -2.33%) and Argentina's Despegar.com (DESP -3.08%) declined 12% and 11%, respectively, last week, but the slides were not related.

Despegar moved lower despite a bullish analyst initiation to kick off the week. There was no material news out of Ctrip, but Brightwire is reporting that its chairman is considering charging for flight bookings, a move that would increase revenue but possibly at the expense of nudging more users to book directly with airlines. 

A Despegar.com booking screen showing a trip from Argentina to Mexico.

Image source: Despegar.com.

Every takeoff has its landing

Despegar went public at $26 last month, and it had moved higher in three of its first four weeks on the market before last week's descent. Despegar's namesake site is the leading online travel agency in Latin America. It operates in Brazil as Decolar.com. Despegar and Decolar mean "take off" in Spanish and Portuguese, respectively. 

Growth investors flocking to Despegar in search of the next dot-com darling may be disappointed to learn that revenue actually declined slightly in 2016, weighed down by a dip in air ticketing revenue. Things have turned around so far in 2017, with revenue rising 28% through the first half of the year. Despegar turned profitable last year, and it remains in the black so far this year. 

Latin America will have its ups and downs, and the upside is clear. Euromonitor International sees the market for online travel bookings in Latin America growing from $29.7 billion last year to $47.6 billion come 2020. However, it's also fair to say that there will be inflationary, political, and economic hiccups in the region along the way. 

Brad Erickson at KeyBanc initiated coverage on Despegar last week, setting a price target of $40. KeyBanc was one of the underwriters involved in taking Despegar public last week, so its bullishness isn't a surprise, but it's still nice to see a price goal well above September's IPO price. Erickson thinks the driver here will be growth in hotel and vacation package bookings. 

Ctrip's no rookie. The Chinese speedster is working on its fourth consecutive year of revenue growth north of 30%. There are certainly risks in betting on China's travel industry, but it's been a good bet given the country's expanding middle class and booming economy. 

Despegar and Ctrip took big hits last week, but the upside is substantial for both stocks. As long as the fundamentals continue to hold up the double-digit percentage declines last week have all the makings of a buying opportunity.

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Stocks Mentioned

Trip.com Group Limited Stock Quote
Trip.com Group Limited
TCOM
$27.25 (-2.33%) $0.65
Despegar.com Stock Quote
Despegar.com
DESP
$8.19 (-3.08%) $0.26

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