Ctrip.Com (NASDAQ:CTRP), which is essentially China’s version of Expedia (NASDAQ:EXPE) or Tripadvisor (NASDAQ:TRIP), pulled off a standout fourth quarter. Somehow the company has been able to manage through the slowdown in the economy. So on the earnings news, Ctrip stock spiked by 15%. This puts the year-to-date return at 45%.
Here’s a look at the quarter: Net revenues jumped by 22% to RMB7.6 billion and earnings came to 9 cents a share. As for the Wall Street consensus, it called for RMB7.19 and a loss of 24 cents a share. So yes, it was a convincing beat.
Consider that there was strength in the accommodation reservation segment, with lots of traction in the low-end hotel market. Air ticketing was also robust and the international business was a nice source of growth.
In terms of the user base, it remains healthy. The transacting users for Ctrip and Qunar came to 135 million, up by a CAGR (compound annual growth rate) of 25% over the past two years. Interestingly enough, the demographics of the base continues to skew younger, with about 50% at under 30. This compares to a third in 2013. This is an encouraging indication that the Ctrip brand remains relevant.
CTRP Stock and New Initiatives
To help boost engagement, Ctrip launched Trip Moments in December. It’s a social media platform for customers to communicate about travel. Already Trip Moments has logged near one million posts about more than 6,000 destinations.
But yes, there have been other important changes. In fact, for the past year, the company has been focused on a restructuring. One of the priorities has been to become more customer centric. To this end, the company has increased transparency and invested more in customer service.
Keep in mind that Ctrip receives more than one million phone calls and ten million instant messages every day; they are answered within 20 seconds on average and closed at first contact 90% of the time. As a result, Ctrip has seen an impressive 35% increase in the Net Promoter Score (NPS).
Next, CTRP has developed a new version of its platform, which now includes more small and medium size suppliers. This has meant more opportunities for monetization.
Finally, there has been more emphasis on brick-and-mortar stores. Note that there are more than 7,000 franchises across 200 cities in China and a majority are in lower-tier cities.
Bottom Line on CTRP Stock
When it comes to Ctrip stock, the long-term prospects do look promising. This is what CEO James Jianzhang Liang said on the earnings call:
“From a macro perspective, it is projected that urbanization rate in China will increase to 70% to 80% from the current 50% within 10 years to 20 years, reaching the level of most middle-income countries. This translates to 10 million to 20 million predominantly young people moving to cities to live and work each year, and indicates that there is a huge consumption capacity still to be unlocked.”
But the short-term may be another matter for CTRP stock. Just this week the Chinese government announced that it was reducing the 2019 growth rate forecast for GDP from 6.5% to 6%. This is despite higher spending and lower taxes.
Besides, CTRP stock is no longer cheap. After the big-run up since mid-December, the forward price-to-earnings multiple is at 34X. What’s more, Wall Street’s price target on CTRP stock is at $34.44, which is at a 14% discount to current price.
Given all this, it’s probably best to wait on this. It does look like much of the good news is already baked into the valuation.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.