Article/Sina Financial Opinion Leader (WeChat official account kopleader) columnist Berry Research
Compared with the 52 week high, Ctrip's share price has dropped by one-third, which may be a good time to buy, because Skyscanner will help Ctrip continue to grow in the larger and more profitable international market.
At the end of 2016, Ctrip acquired the European travel search platform Skyscanner for 1.74 billion dollars. Skyscanner is similar to its U.S. competitor, the travel search site Kayak. This move aims to support Ctrip's international expansion plan, so that Ctrip has a solid foothold outside China, especially in Europe. But how does it behave?
In the latest quarter, Skyscanner's revenue from targeted booking projects increased by about 600% year on year. From anyone's point of view, this is a very outstanding performance.
Skyscanner According to the report, its monthly active users have increased since last year 30% , total more than eight thousand Ten thousand. The application is widely praised for its simple installation, powerful functions and ease of use. The application is fast, and only takes five minutes from installation to flight reservation.
The public deeply agrees with this, and Skyscanner's Android application rating has left its competitors behind.
This is good. Ctrip has global ambitions, so it must compete on the world-class stage, especially with the two largest tourism companies, namely, BKNG (formerly Priceline) and Expedia (EXPE). But the intensity of competition is slightly lower than it seems at first.
In 2012, Priceline and Ctrip cooperated to share their hotel business. Two years later, Priceline invested in Ctrip bonds, and then held equity in 2015. Priceline currently owns about 4% of Ctrip and Kayak. Baidu (BIDU) owns 25% of Ctrip, while Tencent (TCEHY) and Ctrip both own shares of tourism website LY.com.
This complex partial direct shareholding network means that the price war is not good for any participant. This also means that Ctrip does not have to go through another price war as it did a few years ago, when the profit margin dropped from 18% to 3%. Ctrip has acquired the shares of competitors Qunar and eLong, which helps to curb competition and enable Ctrip to regain healthy profit margins. This acquisition of Skyscanner should be similar.
It's not just about domestic consumers
Chinese people are increasingly interested in overseas tourism. Ctrip will certainly benefit from it, but the global opportunities are much greater. As shown in the figure below, China's income is approaching a certain level, so consumers begin to spend enough money to travel overseas. This is great, because for Ctrip, overseas tourism is more profitable.
Of course, this will not significantly reduce domestic opportunities. Ctrip has achieved tremendous growth in China's second tier cities - its sales increased by 40% in the latest quarter. China's aviation industry is booming. From 2010 to 2017, the passenger volume of the three major airlines increased by 70%.
A leading online travel agency in China has carried out a study, which shows that leisure tourism grows rapidly when the per capita GDP exceeds 4000 dollars. When the per capita GDP exceeds 8000 US dollars, the tourism industry starts to take off.
But it is much more important to serve foreign customers, because the foreign market is becoming larger and more mature. This is why initiatives such as the acquisition of Skyscanner are so important because This acquisition makes Ctrip enter five point three Trillion dollar global tourism market And provide space for growth.
At present, Ctrip provides air ticket products in 3600 international cities, covering 8 million routes, 500000 Chinese hotels and 750000 overseas hotels. However, even with such a huge network, Ctrip's global market share is still small. Of course, Ctrip is still growing rapidly. Last quarter, excluding Skyscanner Business, Ctrip International hotel and aviation business grew 40% 。
While cultivating the domestic market, Ctrip can also seek to grow in developed international markets. At present, only about 9% of Chinese citizens hold passports, while in the United States, 42% hold passports. In Europe, the proportion is even higher.
With the trend of online travel booking, development opportunities still exist. In the United States, only about 45% of travel is arranged online, so there is still significant room for growth and market share for new entrants. In contrast, China's figure is only 17%.
Is Ctrip worth buying?
In 2017, Ctrip's free cash flow was close to $1 billion, with $8.3 billion in cash on its balance sheet, offsetting its total debt of $8.2 billion. In the past few years, Ctrip's free cash flow has soared.
Ctrip's current valuation level is equivalent to twenty Times free cash flow. In an absolute sense, this is not cheap, but it is a reasonable price compared with the excellent growth of the company. The management predicts that the sales growth in 2018 will be between 13% and 18%, so the cash flow should continue to grow strongly. And fifty-two Compared with the weekly high, Ctrip's share price has dropped by one-third, which may be a good time to buy because Skyscanner It will help Ctrip continue to grow in the larger and more profitable international market.
(The author of this article introduces that an investment research institution with a history of 20 years provides the most cutting-edge analysis report for US equity investors.)
