In 2023, the rapid recovery of the service industries such as catering and tourism has become the brightest undertone of the consumer market. Despite the high base number from the previous year, the further strong growth of service consumption this year has greatly exceeded market expectations. Looking at the data, in terms of price, the tourism price index in the first quarter of this year has seen a year-over-year increase of 10%, the highest since 2015. In terms of volume, the total output value of China’s accommodation and catering industry, and the transportation, storage, and postal industry increased by 7.3% year over year in the first quarter, also outpacing the GDP growth rate.
Under the positive macroeconomic backdrop, Ctrip, which plays the "shovel-seller" role within the industry, delivered an earnings report that surprised the market even more. In Q1 of last year, as the first full quarter after the complete lifting of post-pandemic restrictions, domestic travel demand bounced back strongly, which led to a 124% growth in Ctrip's revenues in the first quarter of 2023. Under last year's high base number, whether Ctrip could maintain its growth this year became a key point for the capital market to verify Ctrip's growth potential. Ctrip's Q1 earnings report undeniably proved its intrinsic growth capability.
According to the financial report disclosed by Ctrip, in the first quarter of 2024, the company achieved a net operating income of 11.9 billion yuan, a year-over-year increase of 29%, and a sequential increase of 15%. Profit-wise, Ctrip achieved a net profit of 4.3 billion yuan in the first quarter, up 26.5% year over year, with adjusted EBITDA reaching 4 billion, a year-over-year increase of over 40%.
Ctrip's performance in the first quarter of this year not only outperformed the broader travel and accommodation industry but was also a particularly bright presence among all Chinese concept internet companies. The consistently positive performance has made Ctrip a darling of the capital markets, with its stock price in Hong Kong appreciating by more than 250% during the 2022-2024 period.
Under a high base number, growth remained strong. Divided by business platform, Ctrip's main divisions include Ctrip, Qunar, Trip.com, and Skyscanner, with Trip.com and Skyscanner mainly targeting the international market. Categorized by business scenario, Ctrip's revenues primarily comprise five major segments: accommodation booking, transportation ticket booking, travel vacation, corporate travel management (To B business), and other services. Accommodation booking and transportation ticket booking are core income sources for Ctrip, with Q1 2024 revenues for these two services reaching 4.5 billion yuan and 5 billion yuan respectively, up 29% and 20% year over year.
Accommodation and transportation are intrinsically complementary; thus, revenues and growth rates for these two segments have been largely consistent over the years for Ctrip.
Currently, the tourism industry is characterized by an increase in the number of trips and a decrease in per capita spending, coinciding with the "cost-effectiveness" trend in physical consumption. On the other hand, the growth rate of inbound and outbound travel far exceeds that of domestic tourism, becoming a major opportunity for market expansion. Therefore, Ctrip offered a solution similar to the manufacturing industry: going overseas. According to Ctrip's financial report, in Q1 of 2024, domestic hotel and ticket bookings grew by more than 20% year over year, while bookings for outbound flights and hotels increased by over 100%, outperforming the industry average.
To further enhance its inbound tourism business, in the first quarter of this year, Ctrip utilized the advantages of its international online travel agency platform Trip.com to launch more innovative products and services. Trip.com now provides online reservation services for more than 600 top domestic attractions. In addition, the platform also supports over 20 different languages and payment options, significantly optimizing the booking experience for overseas tourists. The outstanding performance of these overseas businesses is also reflected in Ctrip's financial statements. According to data released by Ctrip, in the first quarter of this year, Trip.com's total revenue saw a year-over-year surge of about 80%. It was mentioned in the company's earnings call that Trip.com's revenue currently accounts for about 10% of Ctrip's total revenue.
Tourism and vacations witnessed the fastest growth this quarter at Trip.com. In the first quarter of 2024, Trip.com's tourism and vacation revenue reached 883 million yuan, surging by 129% year-on-year. As disclosed in the company's earnings call, this was primarily driven by a multi-fold increase in the number of outbound travel activities. Even during holidays such as the Chinese New Year, corporate travel services saw a modest increase in revenue, which went up by 15% year-on-year, reaching 511 million yuan. In other areas, Trip.com's miscellaneous business income for the quarter grew by about 39% compared to the same period last year's 744 million yuan, reaching 1.031 billion yuan, marking another impressive performance.
From the profit perspective, Trip.com's adjusted EBITDA for the first quarter of 2024 reached 4 billion yuan, with a year-on-year growth rate exceeding 40%. The reason why profit growth outpaced revenue is mainly due to the increase in EBITDA profit margin from 31% in the same period last year to 33% this quarter. According to analysis, the rise in EBITDA profit margins is largely due to the expansion in business scale resulting in a year-on-year decrease of about 3 percentage points in R&D expense ratio and 1.9 percentage points in the management expense ratio.
Regarding competitive advantages, estimates from Guohai Securities show that from 2021 to 2025, the market size of local lifestyle services is expected to grow from 968 billion yuan to 1.8128 trillion yuan, of which the tourism and hotel market is projected to reach 1.0637 trillion yuan by 2025, accounting for more than half of the local lifestyle services market share. It is noticeable that despite the fierce competition in the local lifestyle services market with numerous players in recent years, the competition is concentrated in other fields such as catering, with limited impact on the tourism and hotel market. The underlying reason is that OTA platforms have built strong competitive barriers by constructing a complete supply chain and service system. The tourism and hotel industry has always been content-driven with diversified demands. From the perspective of demand, customers not only value a broad supply and competitive prices but also lay great emphasis on the professionalism of businesses.
As a leader in the online travel platform sector, Trip.com has gained a deep understanding of consumer demands and supply optimization through long-term active investment in the industry. This is not easily matched by other enterprises venturing into the tourism and hotel business in the short term. During this year's Chinese New Year, Trip.com collaborated with tourism destinations in nearly 20 provinces, autonomous regions, and direct-administered municipalities to launch the Spring Festival Cultural Tourism Consumption Coupons, aiming to stimulate the local cultural and tourism market consumption. This measure not only responded to policy calls but also brought benefits to consumers, and at the same time, promoted the growth of the company's performance, achieving a win-win situation for all parties.
Cultural and tourism ecology development has become increasingly significant in contemporary society. In this respect, Trip.com's innovative "performance ticket + hotel accommodation" package has become a representative of innovation. This initiative combines entertainment and lodging services, addressing the difficulty consumers face in obtaining performance tickets and providing cost-effective services. For example, during the concerts of Jay Chou and JJ Lin, Tianjin Cultural Tourism promoted this package in cooperation with Trip.com, not only easing the ticketing challenges but also offering consumers reasonably priced options for tickets and hotels.
On the road to market expansion, Ctrip actively establishes cooperative relationships with more county-level destinations and third-tier and fourth-tier cities, striving to optimize the supply of tourism products and enhance brand influence. Just in the first quarter of this year, Ctrip has established partnerships with the cultural and tourism departments of several regions, including Rongjiang and Taijiang in Guizhou, some counties in Jiangxi, as well as Kunshan in Jiangsu. By providing hotel training, attracting investments, and integrated marketing services, Ctrip has helped to improve the quality of tourism supply in these sinking markets.
Entering the digital economy era, Ctrip continuously increases its investment in AI technology. They have launched the vertical big model "Ctrip Wenda" and the AI travel assistant TripGenie, offering users more personalized itinerary arrangements and instant booking services. This large model technology has been applied in multiple aspects, such as search, recommendation, quality checking, customer service, and product operations. With the support of intelligent customer service, over 70% of the issues users encounter with Ctrip's air ticket and hotel services can be resolved independently, significantly enhancing the user experience.
It is evident, whether it's offering a wide range of tourism and hotel supplies, customizing traditional services meticulously, focusing on sinking markets and county-level tourism strategies, or supporting the digital upgrade of hotels and scenic areas, Ctrip shows its unique experience and advantages. Ctrip's current market value assessment has attracted much attention. Observing the history of Ctrip's stock prices and the change in price-to-sales ratios (PS), it is evident that stock price increases are often driven by performance. Since 2019, Ctrip's stock price has mostly fluctuated around 5 times PS. This year, Ctrip's performance in the Hong Kong and US stock markets has been strong, with a nearly 60% increase. The current PS value is about 6 times, which is 20% higher than the valuation pivot, proportional to Ctrip's 29% revenue growth rate in the first quarter. According to predictions by Wind, Ctrip's revenue is expected to exceed 60 billion by 2024, and its forward PS value is also around 5 times, indicating that the company's valuation is in a reasonable range.
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