Trip.com (TCOM US) is a leading global online travel agency with strong performance in its first quarter of 2024, reporting net income of 119 billion yuan, marking a year-over-year increase of 29.4%, surpassing both the company's prediction and Bloomberg's consensus by 3%. This success is attributed to better-than-expected revenues from accommodation bookings and other sectors, as well as improved Gross Profit Margin (GPM), scale economies, and controlled marketing expenses guided by Return on Investment (ROI) targets.
The report highlights that while the surge in tourism demand has been substantial, investors should focus on Trip.com's global expansion potential. With its one-stop business model, excellent mobile app experience, superior customer service capabilities, and enhanced supply chain, the company is poised to penetrate underserved online travel markets in Asia beyond China.
Given the better-than-expected quarterly earnings and Trip.com's promising global expansion prospects, the research firm has increased its Discounted Cash Flow (DCF) target price to 65.8 USD ($49 USD), reflecting a multiple of 24x and 20x earnings for fiscal years ending in 2024 and 2025 respectively.
For the second quarter of 2024, the company anticipates revenue growth to remain robust despite a higher base, thanks to continued strong growth in domestic travel bookings, which outperformed industry trends, and a strong performance in international travel bookings, contributing more than 10% to group revenue.
In terms of international expansion, Trip.com aims to support long-term revenue and profit growth by tapping into the Asian market's total addressable market, which is estimated to be about 1.5 times larger than China's but with notably lower online penetration rates. The company plans to leverage its one-stop business approach, strong mobile presence, and exceptional customer service to capture growing online penetration opportunities and gain market share.
Regarding sales and marketing expenditures, Trip.com surpassed expectations, contributing to a higher Operating Profit Margin (OPM). The management intends to maintain effective spending focused on ROI and stable revenue growth, even with a high base, which should help sustain a stable non-GAAP OPM.
Overall, the research suggests that Trip.com is well-positioned for future growth through its strategic focus on global expansion and efficient management practices, supported by a strong financial performance in the recent quarter.
