Price war effect showed Chengying 20% net profit fell 40%

Daily economic News (blog, Weibo) reporter xiabing from Shanghai

Recently, Ctrip (NASDAQ:CTRP) released the three quarter (Q3) earnings show that the quarterly company net revenue reached 1.17 billion yuan, an increase of 20%, net profit of 194 million yuan, down 40% per cent year-on-year.

The third quarter was the largest in the domestic online travel market. Ctrip Q3 Financial Results show that the hotel booking business, air ticket booking business, tourism business, business Travel management revenue year-on-year growth. Among them, the hotel booking business to achieve revenue of 457 million yuan, an increase of 11%. The growth was mainly from a 40% per cent increase in hotel bookings, according to earnings reports.

In July this year began to join the price war Ctrip, three seasons fully highlight its competitive advantage. In an interview with the Daily economic news, analysts said the rate of hotel bookings increased to 40% in a quarter. Since the base is large, the increase in this growth rate is likely to be the highest in the previous major OTA (online travel distributors). Analysts pointed out that Ctrip through the price war to maintain market share, the price is huge, the return amount is equivalent to the OTA from the hotel to get most of the Commission to the user, the profit will naturally fall sharply.

The cost of holding shares is huge.

2012 Q1, Q2, Ctrip's net profit fell 28% and 55% respectively. Beginning in July this year, Ctrip announced full participation in the price war, will be online self-help subscribers to the 30~200 per single yuan, and declared that the Board authorized a maximum of 500 million U.S. dollars of promotional quotas.

"Revenue growth of 20% per cent is not low in the industry, but the decline in profits is due to increased marketing costs," he said. Said Eric Kingston, the consulting analyst.

Ctrip Management said: "In exchange for short-term profits for the overall market share of the growth is worth, in the current price war under the situation of Ctrip can still remain profitable, but the following opponents will be a big loss, some weak opponents will quit, the last industry will be from the big chaos to Zhi." ”

"The cost of preserving market share through a price war is also huge." "In the interview, Wu Sanmao, a senior analyst at Snowball Financial Tourism hotel industry, said.

Reporters noted that the earnings also predicted that Ctrip's net revenue growth rate of about 15%~20%, the fourth quarter profit growth 20%~25%. "This is just the figure we are currently anticipating, and the current situation is likely to fall." Overall, there are many factors that affect profitability, such as product development, manpower, electronic coupons and sales marketing. These are also the main factors affecting quarterly profits, but the specific expenditure will be different. According to past experience, the fourth quarter profit quarter-on-quarter decrease by about 3%. "Ctrip COO Sun in reading the earnings points, said," from the outside, Ctrip is now taking the market, whether through sales marketing or price strategy, from the internal view, the company has been adhering to strict cost control. ”

Price war or continuation for 1-3 years

Ctrip's top two business is airfare and hotel bookings, which contribute nearly 80% of the revenue. But starting in 2011, Ctrip Hotel and ticket booking growth began to slow down, 2011 Hotel Reservation Volume growth rate of only 15%, 2012 the first half also only 20%, while the competition of Art dragon through rebates, rebates and other promotional measures to the same period of growth reached 44% and 65%, significantly accelerated the catch-up momentum of Ctrip.

Under such pressure, Ctrip announced in July this year full participation in the price war to maintain its market share. As the price war is a price war for hotel reservations, it has little impact on airfare and holiday business. In this quarter, Ctrip's hotel booking business has grown dramatically, which also directly leads to year-on-year revenue growth.

Wu Sanmao pointed out that the price war in the hotel booking business only accounted for 40% of Ctrip's total revenue, and consumers only through online booking to receive concessions, online booking volume in the total booking volume accounted for only a little more than 50%, so the price war on the Ctrip online hotel reservations Bring the 20% revenue impact.

In the three quarter, China's online travel market traded at 48.81 billion yuan, an increase of 27.8% per cent, according to the latest data. Among them, OTA market revenue scale up to 2.63 billion yuan, an increase of 16.7%. Ctrip, Art dragon, the same process to 46.3%, 7.9% and 5.3% of the market share ranked top three.

Reporter noted that the price war 3 months later, as the veteran Ota, Ctrip three quarters still with 46.3% of the market share ranked China's online tourism industry first.

Ctrip management revealed that, since the price war will not end so soon, according to this, the plan may continue for 1 or even 3 years.