Ctrip.com International, Ltd. (ADR) (CTRP), Baidu.com, Inc. (ADR) (BIDU), eLong, Inc. (ADR) (LONG): Why the Biggest Chinese Online Travel Agency Will Keep Growing

What about profit margins?

Well, Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP)’s recovery has not been caused by a decrease of competitors. Competition remains fierce and this keeps hurting profitability, although the decrease in margins has been controlled. As a result, operating margin was 16% for the second quarter compared to 17% in the same period of 2012, a minor decrease.

Competitors, competitors… and more competitors

So who are these competitors? One of the strongest is Qunar.com, backed up by Baidu.com, Inc. (ADR) (NASDAQ:BIDU) and other venture capitalists. Having Baidu on your side is a great advantage. In 2011, Baidu integrated Qunar’s search results into Baidu’s travel vertical, to increase traffic and prepare the road for a successful IPO. According to Tech In Asia, Qunar is aiming to rake in $160 million in revenue this year, still far away from Ctrip’s $668 million in 2012. Baidu.com, Inc. (ADR) (NASDAQ:BIDU) has invested a lot on Qunar, $306 million in 2011 and a second round in April, but a successful IPO valuing Qunar.com at 15 times annual revenue (a $2.4 billion market cap) could finally bring meaningful returns to the Chinese giant.

Backed up by giants Tencent and Expedia Inc (NASDAQ:EXPE), eLong, Inc. (ADR) (NASDAQ:LONG) is another important competitor. In 2012, eLong, Inc. (ADR) (NASDAQ:LONG) held an important 16.2% of the total market. Yet, its (quarterly) revenue growth rate is much higher: 44.08% for the first quarter. The downside? Gross margin is 56.1%, while operating margin is -9.4% and net margin is -1.1%.

The bottom line

Although the scenario is highly competitive, I keep a bullish view for Ctrip. With a strong brand, it’s the largest travel agent and has more than 12 years in the business. As the biggest travel agency, Ctrip enjoys bargaining power and economies of scale. Also, considering the high correlation between Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP)’s stock price and the overall Chinese economic performance, I predict a further increase in price, backed up by improvements in private consumption and better market sentiment.

The article Why the Biggest Chinese Online Travel Agency Will Keep Growing originally appeared on Fool.com and is written by Adrian Campos.

Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Ctrip.com International. The Motley Fool owns shares of Ctrip.com International. Adrian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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