Ctrip’s quarterly profit drops 25 pct amid fierce competition
Ctrip.com International, which runs one of China’s major travel booking websites, Wednesday (US time) reported a 25 percent drop year-on-year in the net profit for the quarter through March amid domestic fierce competition in the country’s booming online tourism market.
In the first quarter, the company’s net profit was 115 million yuan ($19 million), falling for three consecutive quarters, according to a financial report posted on the NASDAQ. Its revenue jumped 36 percent year-on-year to 1.6 billion yuan.
Analysts attributed the profit slide to huge spending on promotion and acquisition over the period.
According to the financial report, total operating costs hit 1.06 billion yuan, a surge of 52 percent year-on-year. And expenses on sales and marketing activities in the first quarter increased by 61 percent to 430 million yuan from last year.
“Being confronted with increasingly heated rivalries in China’s online tourism market, Ctrip poured lots of money and effort into marketing so as to maintain its current leading position,” Wei Changren, general manager with Beijing-based Jinlü Consulting, told the Global Times Thursday.
Major Chinese online travel booking websites such as Ctrip, eLong and Qunar started a price war with each other last year, in an attempt to capture a leading position in the promising online tourism market, which is expected to reach 465.01 billion yuan in 2017, more than twice the figure of 220.46 billion yuan in 2013, read a report by Beijing-based market research company iResearch.
In July 2013, Qunar, backed by Baidu, one of China’s leading Internet companies, reportedly announced a promotion for hotel reservations during the summer vacation, offering clients 25 percent discounts on hotel room fees.
In December, Ctrip kicked off a similar activity for the whole month with up to 30 percent discount on room charges.
Ctrip also spent 200 million yuan on promotional efforts for its resort ticket purchase business in the first quarter of 2014, according to media reports.
Despite huge costs in marketing, the company still made a series of investments in its peers recently, indicating that its cash flow is in fairly good condition, Yang Yang, an industry analyst with iResearch, told the Global Times Thursday.
Ctrip is now ly.com’s second largest shareholder with the acquisition of a 30 percent stake in this Suzhou-based attraction ticket service provider for $200 million in late April.
It is also one of the anchor investors for Nanjing-based travel website tuniu.com in connection with its proposed IPO, eyeing tuniu.com’s edge in leisure package tour business.
According to financial reports, Ctrip has never suffered losses after getting listed in the US market, while its major rival Qunar has yet to turn into profitability. The NASDAQ-listed Qunar recorded a loss of 187 million yuan in 2013.
But Yang said that Qunar will threaten Ctrip’s predominant position in the OTA (online tourism agent) segment in the near future, as the former is starting to tap the market and has a stronger ability to bargain with off-line hotels and airlines due to support from Baidu.
Baidu is Qunar’s major shareholder, owning 61.05 percent of the company.
The OTA market, where online tourism websites run businesses like off-line traditional tourism agents, is promising, which was led by Ctrip in the first quarter with 51.9 percent, according to iResearch.
ELong came in second with 9.3 percent, ly.com ranked third with 6.2 percent.
Both Yang and Wei noted that Ctrip’s investment in peers could help it gain access to their user bases and even tap their competitive resources.
But the latter integration and cooperation may not go through smoothly, as its rivals may just want the capital injection and be unwilling to share core resources and technology with Ctrip, Yang said.