Saturday, 19 Jan 2019

Ctrip is not the last stop of China's distressed train

There was first Baidu Inc. and Alibaba Group Holding Ltd.

From now on, International Ltd. joins the group of Chinese Internet companies unable to avoid economic slowdowns.

No one thought that the 40% growth rates would last forever, but investors were clearly surprised by the lukewarm fourth quarter forecasts of the online travel agency.

Thursday morning in Asia, the company released third-quarter revenue higher than estimates. But growth expectations of 15% to 20% during this period disappointed investors and encouraged analysts on the sellers' side to start reducing their own forecasts. At least five brokerages downgraded the stock.

The result: a 19% fall in New York on Thursday, the highest rate since its IPO in 2003.

Investors surprised by the weakness did not pay attention.

Alibaba has already cut its forecasts for the whole year. Baidu even cited several discretionary categories for its weaker prospects for the fourth quarter, including lifestyle, interior decoration and online commerce.

Travel is one of the most discretionary categories – often the first from the moment consumers start saving. Ctrip aggravated the situation by providing a non-GAAP operating margin of 0% to 1%.

This is a huge drop from 20% in the third quarter. It is also important to note that Ctrip saw its figure increase by 16% in the second quarter, mainly because of its "operational efficiency", a sophisticated word to reduce costs. So this better profitability has not been optimized, and there are limits to reducing expenses.

Investors who were not prepared for the weakness of Ctrip must take into account that Tencent Holdings Ltd. announced next week and Xiaomi Corp. what follows. NetEase Inc., Sina Corp. and Inc. are also on this list.

If you think things are going bad now, you have not seen anything yet.

To contact the author of this story: Tim Culpan at

To contact the editor responsible for this story: Rachel Rosenthal at

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is an editorialist of Bloomberg Opinion on Technology. He previously covered technology for Bloomberg News.

© 2018 Bloomberg L.P.


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