Ctrip.com International Ltd. is poised to strengthen its position as China’s largest travel website as it teams up with Tencent Holdings Ltd. to stave off competition, according to Morgan Stanley and Summit Research.
Shanghai-based Ctrip is the biggest shareholder in Elong Inc., an online trip-booking service, which on Monday received an offer to take it private from Tencent, owner of some of China’s most popular social-media platforms including WeChat. Ctrip’s shares climbed 1.2 percent to a two-month high of $79.50 in New York Wednesday after surging 10 percent on Tuesday following the Elong deal announcement and a better-than- estimated earnings report.
Ctrip sees opportunities to “work closely” with Tencent to drive more online traffic to its travel site, Chief Operating Officer Jane Sun said on a conference call with investors. Tencent’s bid for Beijing-based Elong may further improve Ctrip’s position in China’s growing leisure industry, Morgan Stanley analysts led by Amanda Chen wrote in a note Tuesday.
“People see the potential for Tencent and Ctrip to get closer together through their holdings in Elong,” Jeff Papp, a senior analyst at Oberweis Asset Management Inc, which oversees about $1.9 billion, said by phone Tuesday. “Tencent’s social- media users can generate a lot of traffic on mobile.”
Tencent, China’s second-largest Internet company which already owns about 16 percent of Elong, will take the travel site private by offering investors $18 per ADR, a 20 percent premium over the 30-day average stock price before the announcement, according to a statement on Monday. Ctrip has a 38 percent stake in Elong after investing about $400 million in May, buying the shares from U.S.-based Expedia Inc.
While Ctrip’s investment in Elong has cooled a pricing war eating into profit margins, it still competes with Qunar Cayman Islands Ltd., which strives to expand market share by adding more off-line travel service providers to its online trip search engine. Qunar said in a June 1 statement it rejected an unsolicited takeover bid from Ctrip.
The buyout plan is “a positive for Ctrip as the company can leverage Tencent’s dominance and expertise in mobile and social networks,” Henry Guo, a San Fransisco-based analyst at Summit Research wrote in a note on Tuesday.
Tencent’s WeChat instant messaging application had 549 million monthly active users as of March, and the mobile version of its QQ messaging tool had 603 million users, the company said in a May statement.
Ctrip reported second-quarter adjusted net income that exceeded analysts’ average estimate by 73 percent on Monday. Its revenue growth forecast of as much as 50 percent for the three months through September compared with an average projection for a 47 percent increase, according to analysts surveyed by Bloomberg.
“People had worried increasing spending by Ctrip’s major competitor would impact its profit, but the earnings and revenue guidance eased that concern,” Papp at Oberweis said.
Morgan Stanley upgraded its rating on Ctrip to a buy equivalent, citing faster profit and revenue growth.
Elong slipped 0.1 percent to $17.08 on Wednesday after rallying 20 percent on Tuesday. Ctrip and Elong are among the best performers on a Bloomberg index of the most-traded Chinese companies in the U.S. in the past week. The gauge advanced 1 percent to 122.31 in a second day of gains.
This article was written by Belinda Cao from Bloomberg and was legally licensed through the NewsCred publisher network.