Ctrip (CTRP) Management Sandbagging Margins - Piper Jaffray

Ctrip.com (NASDAQ: CTRP) reported strong Q3 revenue and EPS; op margins exceeded our estimate by approx 300 bps. The company guided Q4 revenue growth to 45-50% (vs. Street at 41%) and Q4 PF op margin outlook is calling for a range of 7-10%. Ctrip's investment in other China travel players (Qunar & eLong) is reducing competition and favorably impacting margins leading Piper analyst, Mike Olson, to believe the margin guidance is conservative. He believes the company intends to return to a 20%-30% full year PF op margin medium-term (2-3 yrs), accompanied by multi-year revenue growth of >30%.

Ctrip reported 49% net revenue growth to $501M vs. consensus at $490.6M; this was the highest quarterly y/y growth in >5 years. Hotel reservation volume growth was 50% y/y vs. 55% in Q2, and transportation ticketing volume grew 150% y/y in the quarter, up from 106% in Q2. Non-GAAP op margin in the quarter came in at 17%.

The analyst believes, CTRP shares do not reflect the long-term profitability and value of Ctrip's position in the Chinese travel market. While pinpointing the timing around significant margin expansion (above the 20% + FY level) is difficult, he believes that long-term investors should own CTRP as the company is making the right investments to successfully take further share of Chinese travel.

The firm reiterated an Overweight rating and raised his price target to $125.00 (from $115.00).

For an analyst ratings summary and ratings history on Ctrip.com click here. For more ratings news on Ctrip.com click here.

Shares of Ctrip.com closed at $95.07 yesterday.

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