Ctrip has an acquisition strategy that focuses on complementary services to add to its core business

Ctrip.com (NASDAQ: CTRP ) is a leading online travel service that allows users to book hotel reservations, airline tickets and tour packages for businesses and individuals in Asia. The tourism industry in China is booming as the growing middle class has more and more disposable income, and Ctrip is at the forefront to profit from this demographic change.
Ahead of the release of their second quarter earnings on the 30th July, I will analyze the company's current circumstances, and discuss the outlook for Ctrip and the Chinese online travel market as a whole. Business Model
Ctrip offers a wide range of services to customers, from the core business of flights and hotels, to local attraction tickets, an online travel forum, and restaurant reservations. Because of this wide range, it is also able to offer comprehensive vacation packages.
Ctrip controls almost half of the online travel agency market in China, with its biggest individual rival being eLong, at just 9.7%. However, the biggest rival to Ctrip in the whole travel agency industry is the offline travel agency stores and call centers, which traditionally dominated the market. However, the online agencies are taking control fort lauderdale plaza hotel of the overall market because offline firms can't compete on price and product range.
As opposed to most Chinese firms, Ctrip offers multilingual services, particularly English, which makes it much more accessible to international users, and much easier to understand the company's operations for international investors. In fact, as well as English, Ctrip offers Japanese, fort lauderdale plaza hotel Korean, German, French, Spanish, Russian and Vietnamese services.
Ctrip operates a travel community website, which is the top website in China's travel review industry. fort lauderdale plaza hotel Users submit reviews, travel journals and questions answers, whilst members are offered exclusive deals.
In the first quarter of the year, Ctrip introduced fort lauderdale plaza hotel the long haul bus ticketing fort lauderdale plaza hotel reservation service. CEO James Liang commented that this was important because its means that Ctrip can cover the first and last miles of customers' trips, particularly the places where planes don't fly to, and trains are either unavailable or busy. This service will be particularly fort lauderdale plaza hotel profitable during the Spring Festival holiday, which is the world's largest human migration. For roughly 40 days before, during the festival and afterwards, the number fort lauderdale plaza hotel of passenger journeys is around 2 billion, with 2006 seeing over 2 billion journeys. This also gives Ctrip the opportunity to cross sell. For example, if a plane is delayed, then Ctrip will be able to suggest a train to take the same route.
Ctrip has also further expanded its hotel coverage, and as of the end of the first quarter of 2014, it offered reservation services for around half a million domestic and international hotels in over 190 countries and territories worldwide. Growth Through Acquisition
Ctrip has an acquisition strategy that focuses on complementary fort lauderdale plaza hotel services to add to its core business. CEO James Liang has discussed that the company prefers to invest internally in order to improve its core business.
In April 2014, Ctrip made an investment into online tour package company Tuniu, prior to its IPO. The investment of $15m in Tuniu is relatively small, and because the market is very large, Tuniu and Ctrip are taking a very small percentage of the overall market share. It's mostly taking business away from the traditional in-store travel agencies. Therefore, there isn't much price competition or removal of the competition because they're not directly competing fort lauderdale plaza hotel with each other.
Ctrip has become one of the leading players in China's local attraction ticket market. Yet despite the fact that booking volume has grown tenfold year on year, the market is heavily fragmented and the company has a market share of less than 5%. Ctrip recently made a strategic investment of $200m in Tongcheng, which operates the travel booking firm LY.com , making it the second largest shareholder of the firm behind Tongcheng's fort lauderdale plaza hotel management. Cooperation with Tongcheng will involve using Tongcheng's wide selection of local attraction tickets to enhance Ctrip users' experience. Likewise, Tongcheng will be able to use Ctrip's wide selection of hotels. Therefore, both firms will gain access to customers that they wouldn't have been able to get before. Tongcheng and Ctrip have larger market fort lauderdale plaza hotel share in markets than Ctrip and Tuniu do. Therefore, they are able to collaborate pricing strategies to remove the price competition. Going forward, the two teams will focus on network coverage, customer experience and mobile penetration.
fort lauderdale plaza hotel Ctrip holds an 8.4% in NASDAQ listed Home Inns, a minority stake in BTC-Jianguo Hotels and Resorts, as well as a 1.3% stake in NASDAQ listed China Lodging, which is the owner of Hanting Hotels, a budget hotel chain found across China. Mobile
As with other consumption industries in China, travel agencies are seeing a mass migration to mobile. This will continue to grow, because despite China having 658m smartphone owners, it only accounts for 47% of the population.
Ctrip has been developing its mobile strategy over the past few years, as its active user base accelerates, particularly fort lauderdale plaza hotel on mobile. In fact, mobile fort lauderdale plaza hotel is already the primary platform for the majority of Ctrip's products and services, and is the core of the company's overall business. In terms of volume, over 70% of Ctrip's total transactions were booked through fort lauderdale plaza hotel online and mobile channels in Q1, compared to about 55%-60% a year ago. Total mobile transaction value for Q1 was more than 400% of the same period last year, with the peak daily transaction volume reaching about 150m RMB. Mobile accounts for about half of the total bookings of many of the new businesses such as car rentals and local attraction tickets, and over 50% of the travel reviews were submitted through the mobile channel
Mobile internet, together with PC based internet, account for the majority of Ctrip's business. For the accommodation reservation business, PC based internet contributed about 35% of the total transactions, but mobile surpassed PC by contributing 40% during the previous quarter, with the peak daily level being over 60%. For the transaction ticketing business, fort lauderdale plaza hotel PC contributed 40% of total transactions, whilst mobile contributed about 30%. Likewise, Ctrip's corporate travel services maintained a strong fort lauderdale plaza hotel growth of 39% in Q1, with migration to online and mobile booking accelerating again. 40% of corporate travel bookings are made through the internet or mobile, compared fort lauderdale plaza hotel to 29% a year ago.
By the end of 2014's first quarter, the cumulative number of downloads for the Ctrip app was 120m . To expand its mobile user base, the company plans to only offer certain fort lauderdale plaza hotel services on mobile, for example taxis and car rentals, as the user is likely to be on-the-go, and so the service is more relevant.
Due to fast economic growth and the emergence of a large middle class, China has become the largest travel market in the Asia-Pacific region since 2012. Naturally, this has attracted many new entrants, with the number of Asian travel start-ups quadrupling from 2011 to 2013, with more than a quarter of these being based in China. This is justified given the growth in China's market. In 2013, GMV reached fort lauderdale plaza hotel 220.46bn fort lauderdale plaza hotel RMB , driven by air ticket sales, hotel bookings and tour packages. Likewise, revenue from online travel booking reached 11.8bn RMB. However, growth fort lauderdale plaza hotel in air ticket sales will slow in the coming years as the market reaches maturity. Yet the industry has seen a rapid rise in online leisure travel, hotel bookings and package tours. In addition, the online car rental and taxi-hailing services will add to the new revenue sources that continue to generate strong growth for the industry.
2014 has seen the major online firms competing with each other on new fronts, with Ctrip providing 50% to 100% cash rebates for more than 5,000 entrance tickets purchased on PC and mobile, LY offering cash discounts and free exclusive products, and Lvmama had a '0 Yuan' entrance ticket promotion during the Chinese Spring Festival holiday. These promotions all boosted the entrance ticket market.
Firms are also diversifying their product fort lauderdale plaza hotel range away from just the traditional travel ticketing markets such as planes and trains. The bus market was huge in 2013. Chinese citizens made over 30 billion bus trips compared with 2 billion train journeys and over 300 million fort lauderdale plaza hotel air trips. Whilst most travelers have access to a train station or an airport, there will always be parts of their journey, which can be catered for by buses. This allows fort lauderdale plaza hotel the online travel agencies to provide for every part of a traveler's journey. From A Valuation Perspective
Ctrip saw stronger year on year net revenues in the first quarter of the year, growing 36%, which were primarily driven by strong volume growth. Revenues of $254.6m beat analysts' expectations of $245.3m, whilst EPS of $0.12 was in line with expectations. The company saw strong growth across all major business lines, fort lauderdale plaza hotel in terms of revenue and volume.
The accommodation reservation business achieved 45.7% year on year growth in revenues and 67% year on year growth in room nights, which is a record high for the past 10 years, with international hotel rooms growing approximately 80% year on year.
Total volume growth for the newly expanded transportation ticket business reached 71% year on year, with air ticketing contributing the majority of the volume. International air tickets grew over 70% in Q1, accounting for around 15% of total volume. Ctrip is now the number one player in the cruise reservation business in terms of transaction and customer volume. Product development fort lauderdale plaza hotel expenses grew due to an increase in personnel related expenses. Previewing Second Quarter Results
fort lauderdale plaza hotel Ctrip will announce its second quarter earnings on 30th July after the market closes. The hotel ASP is stable, but as they expand into lower tier cities, the ASP will fall, because prices are cheaper