In order to maintain the trend of returning wealth to its shareholders, the board of directors of Chinese online travel agency, Ctrip.com International Ltd. (CTRP - Snapshot Report) recently approved a new share repurchase program. The company can now buy back additional American depositary shares (ADS) for a value of up to $600.0 million. The increase reflects the company’s confidence in its fundamentals and its strong liquidity position.
The company intends to use its existing cash balance, which includes cash generated from operations and the cash received from convertible bonds that were issued in 2012 and 2013, to repurchase shares. In Sep 2012 and Oct 2013, the company completed senior notes offerings worth $180.0 million due 2017 and $800.0 million due 2018, respectively.
Since 2008, the company has been returning wealth to its shareholders with the help of its share repurchase program. The company last approved a share repurchase program worth $300.0 million in Jun 2012. Though it did not repurchase any shares during 2013, as of Dec 31, 2013, it repurchased 17.5 million ADS worth approximately $298.5 million from the open market.
The share buyback program will help the company reduce outstanding share count, thereby increasing earnings per share and return on equity. Meanwhile, this strategy to return wealth to shareholders would keep the stock attractive as it demonstrates the company’s growth potential and stable liquidity position.
Given the company’s strong balance sheet, we believe that the decision to make additional share repurchases is justified. As of Dec 31, 2013, cash and cash equivalents were $1.18 billion, up from $0.57 billion as of Dec 31, 2012.
This Zacks Rank #3 (Hold) company posted strong fourth quarter results in Feb 2014 with earnings and revenue beating the Zacks Consensus Estimate owing to its leisure travel products, better pricing and developed mobile technology.
However, huge investments made by the company pose a concern. In 2013, the company purchased eHi Car Services, a privately-held car rental company; Yongche, a car rental business and travel search engine Kuxun. It also invested $100.0 million to buy ToursForFun, a rival Chinese-language travel site.
Besides investing in an e-commerce tourism ticket platform, the company is also spending on promoting its mobile booking service and mobile apps. Though these investments are expected to benefit the company in the long run, these could be an overhang on earnings and margins in the near term.
Some better-ranked stocks in the Internet services industry include Vipshop Holdings Limited (VIPS - Snapshot Report), Asure Software, Inc. (ASUR - Snapshot Report) and E-Commerce China Dangdang Inc. (DANG - Snapshot Report). While Vipshop Holdings sports a Zacks Rank #1 (Strong Buy), Asure Software and E-Commerce China hold a Zacks Rank #2 (Buy).