Traveling to China? You'll likely use the company's English-language page. Image:

CEOs take note: This is how you manage investor expectations. One year ago, (NASDAQ:TCOM) founder and CEO James Liang told investors that the company would be focusing on grabbing as much market share as possible. In the process, this would force margins to compress, as competition was fierce for China's online travel agencies.

Since then, Liang has blown far through the expectations that his company routinely sets for both bookings and revenue growth. The company's latest earnings release on Nov. 18 was no exception.

Just the numbers
Ctrip has made a regular habit of blowing by its own guidance -- as well as expectations of analysts -- and they were able to keep that streak going this quarter.





$490 million



$501 million


Source: E*Trade, SEC filings

Obviously, the revenue beat is nice, but the earnings beat was absolutely astronomical. In fact, on an non-GAAP basis, earnings came in even higher, at $2.20 per share.

Key development of the quarter
The biggest development over the past quarter was the agreement to allow Baidu (NASDAQ:BIDU) to purchase a 25% controlling interest in Ctrip, while allowing Ctrip to purchase a 45% controlling interest in rival Qunar (NASDAQ:QUNR), which was also beneficially owned by Baidu.

It appears that the race to the bottom on pricing has finally taken its toll, and consolidation has begun to set in. "This milestone transaction will enable us to focus on providing the best travel products and services to our travelers. We believe this will create greater value to our customers, partners and shareholders in the future," Liang said in an October press release. [Emphasis is the company's.]

That means operating margins will finally start rising significantly. That's great news, because even without the benefit of the Baidu-Qunar tie-up, operating margins improved markedly over the last quarter. During the same time last year, they stood at 3.9%. This year, they expanded by over 800 basis points to 12%.

That's remarkable, and due to two main factors. One, resulting from the deconsolidation of its Tujia subsidiary, was one-off in nature and not too important to long-term investors. But the other factor was that operating expenses increased only 33% while revenue jumped 49%. That's great news for long-term investors.

Breaking it down by segment
There are lots of irons that Ctrip has in the online travel fire. Here's a breakdown of how each of its four segments performed during the quarter.


Volume Growth

Revenue Growth

Total Revenue




$216 million




$190 million

Packaged Tours



$93 million

Corporate Travel



$20 million

Source: Ctrip Investor Relations

While it might be concerning to see revenue growing so much slower for transportation than volume, it's important to note that Ctrip is just now starting to penetrate the bus and train ticket markets through its ubiquitous app. These trips bring in less revenue, but have much higher volumes than airfare.

Speaking of airfare, Liang said that trips out of China were booming, which meshes well with his statements last quarter that the company would be focusing on higher-end customers moving forward. "Outbound travel continued to grow at triple digit in the core business segments due to the booming demand this quarter," Liang said.

Looking forward
Obviously, the consolidation of the online travel market is good news for Ctrip and its investors. The race to the bottom is coming to a slow finish, but the growth in both volume and revenue remain impressive. For the next quarter, management sees revenue growing between 45% and 50%, above analyst estimates..