After trading as high as $50 in early 2011, Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) continues to languish in the low $20s. Even with a growing revenue base, the company faces margin pressures from online entrants to the travel market in China and a general lack of interest in Chinese stocks.
Ctrip is a leading travel service provider of hotel accommodations, airline tickets, packaged tours, and corporate travel management in China. It recently replaced the CEO due to the weak results even as revenue for the full year rose 19%.
Q4 2012 highlights
Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) provided the following operational highlights for Q4 2012:
Net revenues were $177 million for the fourth quarter of 2012, up 19% year-on-year, versus our fourth quarter net revenue guidance of 15-20% year-on-year.
Gross margin was 74% for the fourth quarter of 2012, compared to 76% in the same period in 2011.
Income from operations was $19 million for the fourth quarter of 2012, down 48% year-on-year. Excluding share-based compensation charges (non-GAAP), income from operations was $38 million, down 28% year-on-year.
Operating margin was 11% for the fourth quarter of 2012, compared to 25% in the same period in 2011. Excluding share-based compensation charges (non-GAAP), operating margin was 21%, compared to 35% in the same period in 2011.
Net income attributable to Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP)’s shareholders was $31 million) for the fourth quarter of 2012, down 24% year-on-year. Excluding share-based compensation charges (non-GAAP), net income attributable to Ctrip’s shareholders was $49 million, down 12% year-on-year.
Diluted earnings per ADS were $0.22 for the fourth quarter of 2012. Excluding share-based compensation charges (non-GAAP), diluted earnings per ADS were $0.35 for the fourth quarter of 2012.
What sticks out with this story is the complete erosion of the margin base. The operating margin plunged from 35% last year to only 21% in Q4 this year. Maybe in fairness to the old CEO that level of operating margin is unsustainable. What operating margin is the world online travel leader achieving?
With the 19% increase in revenue, Ctrip only saw a 12% decline in net income even with the massive margin decline. The earnings did surge beyond the analyst’s estimates. Oddly, analysts use GAAP numbers for Ctrip.com and expected only $0.11, which the company doubled. In fairness share-based compensation charges are extremely high for the company, but those numbers should filter through to higher share counts.
For 2013, analysts expect earnings to slightly drop from the $1.28 earned last year.
Priceline.com Inc (NASDAQ:PCLN) growing faster
Priceline.com is the unquestioned global leader in online travel with a market cap approaching $35 billion and a revenue base of $6.5 billion. The company had operating margins of over 31% for Q4 2012 suggesting the past numbers from Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) had the ability to be sustainable with a shift to online technology.
Priceline also forecast revenues to increase over 20% year over year in Q1 2013. Again, another sign that Ctrip is missing out on the opportunities to grow when a much larger firm is surpassing its growth rate.
