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Why Qunar Cayman Islands Ltd. Stock Popped Today

By Steve Symington - Jan 13, 2016 at 12:17PM

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The Chinese travel site is receiving a significant new investment from Ctrip.

What: Shares of Qunar Cayman Islands, Ltd. (QUNR) rose as much as 20% early Wednesday, then settled to trade up around 11.7% as of 11:00 a.m. after (TCOM -1.95%) announced it would make a significant investment in the Chinese online travel site.

So what: For perspective, in late October Ctrip completed a share swap with Baidu in exchange for shares representing around 45% of Qunar's voting interest.

But today, Ctrip announced it "has agreed to make certain investments, in the form of limited partnership capital contribution or other financing arrangements, in several non-U.S. investment entities [...] dedicated to investing in businesses in China." More specifically, Ctrip is authorized to invest roughly $1.3 billion in cash and issue a total of 5.4 million ordinary shares to these entities.

As for Qunar, Ctrip also stated it "is aware that these investment entities will acquire a significant minority stake of Qunar Cayman Islands Limited [...] from Qunar's shareholders through privately negotiated transactions, using cash and/or Ctrip's ordinary shares as purchase consideration."

Now what: This represents an encouraging vote of confidence in Qunar, which has endured multiple significant drops already in 2016 amid both a broader Chinese stock market pullback and as the company unveiled sweeping management changes in the wake of the partnership. In any case, while Ctrip's increased support should make Qunar's road to sustained profitability easier -- it is still, after all, churning out continued quarterly operating losses as it invests heavily for top-line growth -- I'll reiterate my previous stance that Qunar investors would do well to focus first on the fundamentals driving its business.

Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Baidu. The Motley Fool recommends International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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