Skift Take

Ctrip's revenue growth has remained in line with forecasts, but its costs are rising. More interestingly, the online travel giant has branched out into hotel management by providing data services and marketing support to franchisees for a new brand, Rezen.

Ctrip continues to deliver revenue growth in line with its forecasts. But executives said the online travel giant’s margins may modestly contract in upcoming months as it invests for long-term growth.

Ctrip reported its third-quarter revenue growth of 15 percent, year-on-year, to $1.4 billion. Net loss was $165 million, compared to net income, or a profit, of $190 million for the same period in 2017.

Interestingly, talk of a simmering U.S.-China trade war and its possible impact on Chinese discretionary spending was barely mentioned on management’s call with investors, and there was little discussion of rising competition from Meituan, which debuted on the public market in September and offers food delivery online booking of hotels.

Expansion Into Hotel Management

Another potentially important development not highlighted was Ctrip’s recent business announcement last month that it had debuted a hotel management brand, Rezen Hotels Group. Ctrip will provide data analytics to help hotel managers, while it will work with franchise partners and operators, such as Shanghai Jinmao Hotel Management, to develop and operate the properties.

The group will offer three brands, including full-service upscale brand Rezen Hotels, luxury brand Rezen Ruixuan, and limited service brand Rezen Huating. Three Rezen Hotels properties are operational, and that brand will focus on upscale properties in China’s first- and second-tier cities.

Meanwhile, after the earnings announcement, shares in the Shanghai-based conglomerate fell by about 18 percent to $28. Since June, when the margin pressure first materialized, investors have wiped 46 percent off the share price.

On Thursday, investors appeared to be alarmed at both operating expenses growing 12 percent, year-over-year, to $857 million, and at comments from management that the company’s margins would tighten by a small, though unspecified, degree in the near-term.

Tightening Margins

The company blamed a small sequential decline in its gross margin partly on the cost of improving its customer service, such as by hiring call center workers in Scotland for its internationally focused brand.

Another factor contributing to the contracting growth margin was due to the third quarter being a peak travel season, which meant a higher-than-usual number of packaged tour transactions. They usually have lower margins han some of Ctrip’s other products.

A third factor was product development, which saw expenses rise in the third quarter by 14 percent, year-over-year, to $363 million.

“Our team will continue to work very hard to streamline our operational efficiency going forward,” said Cindy Xiaofan Wang, chief financial officer, during a call with investors.

Looking ahead, Ctrip executives said they planned to slightly increase their sales and marketing expenses in the fourth quarter, relative to the same period a year earlier, to capture more market share.

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Tags: china, ctrip, earnings, meituan, online travel agencies

Photo credit: Shown here is CEO Jane Sun of Ctrip, an online travel agency. On Thursday, Ctrip reported its third-quarter 2018 financial results showing it had beat investor expectations for revenue despite competitive pressures. 277024

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