Baidu.com, Inc. (NASDAQ:BIDU) charges into online travel
The biggest issue with Ctrip’s stock is that Baidu.com, Inc. now owns the largest online travel site in Qunar.com. Baidu expects to double revenue to $160 million this year with a rising using of mobile apps.
According to the Bloomberg article, only 15% of Chinese travel is currently booked online favoring strong growth for Qunar.com and questioning whether Ctrip can hit targets with a large focus on call-centers. While the Chinese market will see significant growth, Ctrip needs to show how it can compete with technology leaders such as Baidu. The one encouraging sign is that Baidu targets a profit margin of 40% due to the reduced staffing costs from the use of technology, but the technology is cutting into the commissions of the call-center bookings.
Amazingly over the last year, Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) has actually held up well compared to Priceline.com Inc (NASDAQ:PCLN). When reviewing the results over the last two years, it clearly separates the winner. Both Chinese companies are down over 35% during that period. Whether this is a Chinese issue only or somehow related to the competition in the travel sector isn’t clear. See the chart below:
The company has a substantial cash balance of $899 million and a solidly profitable business though facing declining margins. With an enterprise value of around $2.1 billion, Ctrip is much cheaper than apparent from a casual review of valuations. Combined with the use of non-GAAP earnings, the enterprise value provides an attractive valuation if the company can embrace the online model.
Competing with Baidu.com, Inc. (NASDAQ:BIDU) might be impossible now that it has the lead in the online travel sector and Ctrip has apparently lost its edge. Considering that Baidu is also a cheap stock, investors should invest in the online leader until Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) can show the ability to compete in this medium as well.
The article Will Ctrip’s Stock Ever Fly Again? originally appeared on Fool.com and is written by Mark Holder.
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