Ctrip.com International (NASDAQ:TCOM), China's largest online travel service provider, reported second-quarter results that largely underwhelmed investors. The company swung to a net loss of $59 million after generating $360 million in profits a year ago. On a GAAP basis, earnings per share of a loss of $0.11 fell well short of analyst expectations of $0.18. Management cited a decline in the fair value of its equity investments as a primary reason for the loss.
Non-GAAP earnings (adjusted for non-recurring costs and stock option expenses) were $0.33 per share, higher than Wall Street's estimate of $0.30 and the $0.29 reported in the same period last year. Revenue of $1.27 billion slightly topped the consensus estimate of $1.25 billion, marking a 19% increase year over year. Despite the mixed results, CEO Jane Sun expressed optimism in the earnings call: "We are confident and excited about the long-term future for the travel industry in China and the world."
Geopolitical pressures weigh on third-quarter guidance
Ctrip offered tepid guidance for its next quarter, with new projections of net revenue growth of 10% to 15%. At the midpoint, this marks a deceleration from the 15% growth witnessed last year. Management estimated a 4% to 5% negative effect on the growth rate because of short-term macroeconomic and industry headwinds. The soft guidance makes sense given the ongoing overhang of several political issues, not the least of which is the trade dispute between the U.S. and China that has hampered demand for travel in and around China. The political upheaval in Hong Kong and Beijing's tensions with Taiwan are also expected to have an effect on business and leisure travel in the region. While the company expects the international side of the business to be a growth catalyst over the longer term, some clouds of uncertainty will need to lift for this to take hold.
Trip.com name change designed to present a global brand
In what has become a trend among online travel agencies, management at Ctrip.com International also announced that the company's name will change to Trip.com Group Limited. The purpose of the change, to be voted on Oct. 25 at Ctrip's annual general meeting, is to establish the brand as a global travel service that caters to both domestic and international travel-seekers. Management anticipates that international travel revenue will increase to between 40% and 50% from 35% of total revenue within the next three to five years as international operations and marketing expand.
The rebranding will encompass all of the company's major travel-agency and search brands, including Ctrip, Qunar, and Skyscanner. It may come as a surprise that the Trip.com name was available; interestingly, Ctrip acquired the domain through its 2017 acquisition of Gogobot, which previously bought the name from Expedia (NASDAQ:EXPE). "The new name reflects the services and products we provide and can easily be understood by global users," Ctrip.com executive chairman James Jianzhang Liang said.
Turbulence ahead, but long-haul prospects look bright
Investors who own Ctrip should brace for some near-term volatility related to the ongoing macroeconomic issues that are swirling around the country. Those considering starting a position in China's online travel leader, may be better off waiting until political uncertainties in China, Hong Kong, and Taiwan dissipate. That said, Ctrip undoubtedly has a bright itinerary ahead of it and should be a consideration for the long-term growth investor.