Trip.com Group Limited $TCOM Deep Dive

Executive Summary:

Trip.com Group Limited is a leading online travel company founded in 1999. The company owns popular travel platforms like Trip.com, Ctrip, Skyscanner, and Qunar. Through these platforms, they offer travelers a one-stop shop to compare and book flights, hotels, trains, and other travel essentials, all while leveraging data and AI to provide users with the best possible experience.

Trip.com Group Limited reported its earnings per share (EPS) of $0.87, surpassing analysts’ expectations of $0.65 by $0.22. The revenue for the quarter was $1.76 billion, which fell short of the consensus estimate of $1.80 billion.

Stock Overview: 

Company background:

Trip.com Group Limited, a travel giant, boasts a rich history dating back to June 1999. Founded in New York by James Liang, Neil Shen, Min Fan, and Qi Ji, the company has since established itself as China’s leading online travel agency. It wasn’t until 2003 that Trip.com Group, then known as Ctrip.com International.

It operates a powerful portfolio of travel brands, including Ctrip, Qunar, Trip.com, and the popular metasearch engine Skyscanner. Through these platforms, travelers can access a comprehensive suite of travel services. They can compare and book flights, hotels, trains, and other travel essentials, all in one place. The company leverages data and AI to personalize user experiences and offer the best deals.

Headquartered in Shanghai, China, Trip.com Group Limited has a global presence. Its websites operate in roughly 40 languages, catering to travelers in over 200 countries. This vast reach translates to fierce competition. Key rivals include Booking.com, Expedia Group, and regional players like MakeMyTrip (India) which Trip.com Group actually acquired. Despite the competition, Trip.com Group Limited continues to be a driving force in the online travel industry.

Recent Earnings:

Trip.com Group Limited recently announced a net revenue of RMB 12.8 billion (approximately $1.8 billion), which marks a 14% increase year-over-year and a 7% increase from the previous quarter. This growth was primarily driven by a robust recovery in domestic and international travel markets, with accommodation reservation revenue rising by 20% year-over-year to RMB 5.1 billion. The company reported that outbound hotel bookings have fully recovered to pre-pandemic levels, indicating strong demand for travel services as restrictions ease and consumer confidence returns.

Trip.com reported a diluted earnings per share (EPS) of RMB 5.57 (around $0.77), which exceeded analysts’ expectations of RMB 4.50 by approximately 24%. The adjusted EBITDA for the quarter was RMB 4.4 billion, reflecting a margin of 35%, an improvement from 33% in the same period last year. This indicates not only effective cost management but also a significant recovery in operational efficiency as travel demand surged.

Trip.com outperformed in both revenue and EPS metrics. Analysts had projected revenues of about RMB 12.5 billion, making the actual results a notable positive surprise. Its corporate travel revenue saw an increase of 8% year-over-year, further underscoring the company’s recovery trajectory.

Trip.com provided optimistic forward guidance, anticipating continued growth in its operational metrics as travel demand remains strong. The company expects that both domestic and international travel will continue to bolster its revenue streams, particularly with ongoing investments in marketing and technology aimed at enhancing customer experience and operational capabilities.

The Market, Industry, and Competitors:

Trip.com Group Limited operates in the booming online travel booking market. This market is expected to reach a staggering USD 1,178.64 billion by 2030, reflecting a Compound Annual Growth Rate (CAGR) of 9.7% from 2024 onwards:

• Rising disposable incomes: As economies develop globally, people have more money to spend on travel.
• Increased internet penetration: Easier access to the internet makes online travel booking more convenient and accessible for a wider audience.
• Shifting travel preferences: Travelers are increasingly booking trips online, seeking personalized experiences and competitive deals.

Trip.com Group Limited is well-positioned to capitalize on this growth. Their acquisition of Skyscanner strengthens their presence in the metasearch engine segment, further solidifying their position in the online travel landscape.

They forecast a 14% CAGR in group revenue for the next few years, driven by the rebounding Chinese outbound travel market and the company’s international expansion efforts. Trip.com Group Limited is poised to benefit significantly from the projected growth of the online travel booking market.

Unique differentiation:

Global Giants:

• Booking Holdings (Booking.com, Kayak, Priceline): This behemoth holds the largest market share globally, offering a vast selection of hotels and flights. Their user-friendly interface and strong brand recognition make them a formidable opponent.
• Expedia Group (Expedia, Vrbo, Hotels.com): Another major player, Expedia Group boasts a diverse portfolio of travel booking platforms, catering to different traveler needs and budgets. Their focus on vacation rentals and bundled packages poses a significant challenge.

Regional Powerhouses:

• MakeMyTrip (India): Acquired by Trip.com Group in 2016, MakeMyTrip dominates the online travel market in India, a region with immense growth potential. However, their regional focus can also pose competition to Trip.com Group’s broader Asian market strategy.
• CTrip.com (China): While now part of Trip.com Group, Ctrip was once a major competitor, particularly in mainland China. Despite the merger, regional competitors like Alibaba’s Fliggy and Tencent-backed Traveloka (Southeast Asia) continue to vie for market share in specific regions.

Focus on the Asian Market: Trip.com Group boasts a dominant position in the fast-growing Asia Pacific region, the world’s leader in online travel booking growth. They understand the nuances of Asian travel preferences and cater to them through localized platforms and offerings.  

Focus on Mobile Booking: Recognizing the growing importance of mobile travel booking, Trip.com Group prioritizes user-friendly mobile apps for all their platforms. This caters to the on-the-go nature of modern travel and sets them apart from competitors who might not have as robust mobile solutions.

Strategic Acquisitions: Acquisitions like MakeMyTrip in India and investments in regional players strengthen their presence in key markets and provide valuable insights into local travel trends.

Management & Employees:

• James Jianzhang Liang (Co-founder, Executive Chairman of the Board): A visionary leader, Liang co-founded Trip.com Group and currently guides the company’s overall strategy.
• Jane Jie Sun (Chief Executive Officer, Director): As CEO, Sun spearheads the company’s growth initiatives and steers its overall direction.
• JP Gan (Independent Director): Provides valuable financial expertise.
• Neil Nanpeng Shen (Co-founder, Independent Director): Another co-founder, Shen offers strategic insights.
• Qi Ji (Co-founder, Independent Director): Ji contributes to the board with his founding experience.

Financials:

Trip.com Group Limited has reported a revenue of approximately RMB 35.7 billion, which plummeted to about RMB 20 billion in 2020 due to travel restrictions. The company rebounded strongly, with revenues reaching RMB 44.5 billion in 2023, reflecting a compound annual growth rate (CAGR) of approximately 17% from 2020 to 2023.

Trip.com faced substantial losses in 2020, reporting a net income of RMB -3.2 billion. The company had turned its fortunes around with a net income of approximately RMB 9.9 billion, resulting in an impressive CAGR of around 75% over the same period.

The company reported total assets of approximately RMB 50 billion, with a healthy cash position that allows for continued investment in growth initiatives. The debt-to-equity ratio has remained stable, indicating prudent financial management and a focus on maintaining liquidity while expanding operations.

Trip.com will continue to grow its revenue at an annual rate of approximately 11.9% and earnings at about 8.8% per year over the next few years. This optimistic outlook is supported by strong operational metrics, including increased bookings and enhanced customer engagement through digital platforms. As travel demand continues to recover and evolve post-pandemic, Trip.com is well-positioned to leverage its market leadership and capitalize on emerging opportunities in both domestic and international travel segments.

Technical Analysis:

The stock is in a stage 4 markdown (bearish) on the monthly and weekly chart. The daily chart is in stage 2 (bullish) but very weak, indicating a lot of resistance in the $15.5 zone with more resistance in the $18 zone. We would not be buyers until it crosses $15.5 to head to the $18s.

Bull Case:

Rebounding Travel Industry: The global travel industry is experiencing a strong recovery post-pandemic. As travel restrictions ease and consumer confidence rises, demand for online travel booking platforms like Trip.com Group is expected to surge. This translates to increased revenue and profitability for the company.  

Diversified Platform Portfolio: Unlike some competitors, Trip.com Group offers a diverse portfolio with brands like Ctrip, Qunar, Trip.com, and Skyscanner. This allows them to cater to different segments of the travel market, attracting a wider audience and maximizing revenue opportunities.   

Bear Case:

Macroeconomic Slowdown: A global economic slowdown could dampen consumer spending on travel, leading to a decrease in bookings for Trip.com Group. Rising inflation and interest rates could further restrict travel budgets.  

Dependence on Chinese Market: A large portion of Trip.com Group’s revenue comes from China. Any economic or regulatory changes in China could negatively impact their business. Geopolitical tensions could also affect travel demand in the region.  

Reliance on Travel Suppliers: Trip.com Group relies on partnerships with travel suppliers like airlines and hotels. Any disruptions in these partnerships could negatively affect their ability to offer competitive deals and fulfill bookings.