Trip.com: The Hottest Consumer Market In China

Core Insights - Trip.com is the leading online travel agent in China, holding an estimated 50% market share and expanding in Southeast Asia [3] - The company has experienced rapid profit growth as travel restrictions ease, with a projected increase in earnings per ADS from approximately $2 last year to about $3 this year [4][9] - The Chinese travel market is expected to grow faster than the overall economy, driven by increased discretionary spending [10] Company Performance - In Q2 FY2024, Trip.com reported a revenue increase of approximately 14% year-over-year, with adjusted non-GAAP earnings growing by around 47% [4] - Accommodation reservations are the primary profit driver, while flight prices are moderating as capacity increases [4] - The company generated about $1.6 billion in free cash flow during FY2023, with no dividends paid and limited share buybacks [11] Market Position - Trip.com owns major brands like Ctrip and Qunar, controlling about 36% of the Chinese market, significantly larger than its nearest competitor [7] - The business model is similar to that of Booking and Airbnb, focusing on driving traffic to its platform [7] - Despite competition from platforms like Douyin, Trip.com is expected to maintain a strong market share due to its extensive accommodation options [8] Industry Outlook - The Chinese travel industry is projected to grow at rates exceeding GDP growth, fueled by pent-up demand and increased consumer spending [10][9] - International travel is recovering, with flight capacity reaching 70% of pre-COVID levels, indicating ongoing growth potential [5][6] - The overall economic growth in China is expected to be around 5% in 2024, supporting the services sector, including tourism [9] Valuation and Governance - Trip.com trades at a forward earnings multiple of approximately 14X, which is considered attractive given its growth prospects [11] - Concerns exist regarding corporate governance and shareholder returns, as the company has not initiated significant buybacks or dividends [12][11] - The lack of transparency in capital allocation and potential risks associated with Variable Interest Entities (VIEs) are noted [11][12]