China’s online travel agency, Ctrip.com International Ltd.’s (CTRP - Free Report) shares plunged 9.0% to $40.49 on Jan 9, 2014 from $44.51 as of Jan 8, 2014 due to stiff competition and aggressive investments made by the company in 2013 that might hurt margins, going forward.
A leading Chinese online travel agency Qunar Cayman Islands Ltd is posing stiff competition for Ctrip.com’s airline ticketing business of late. Per a survey, Qunar’s ticket-booking apps are frequently used for booking air tickets, train tickets and other travel related bookings, which might hurt the company’s business. The entry of companies like Qunar is expected to intensify competition for Ctrip.com and compel it to offer discounts, thereby eroding profits.
In order to survive in this competitive environment, Ctrip has been making aggressive investments, which is also a matter of concern. Recently, the company announced that it will spend $100.0 million for the purchase of ToursForFun, a rival Chinese-language travel site. In 2013, the company purchased eHi Car Services, a privately held car rental company; a car rental business Yongche and travel search engine Kuxun.
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.
In fact, we note that the Chinese financial markets have not had a great start to 2014, following a slowdown in manufacturing and service activities as well as a lack of liquidity. (Read: China ETFs Tumble to Start 2014). Given the scenario, Chinese stocks declined, lowering the benchmark index to its lowest level over the past five months on Jan 5, 2014.
Ctrip.com International Ltd. currently has a Zacks Rank #1 (Strong Buy). Other players in the industry, which look attractive at current levels, include Bitauto Holdings Ltd (BITA - Free Report) and Vipshop Holdings Ltd (VIPS - Free Report) . Both these stocks carry the same Zacks Rank as Ctrip.com.