AI Integration And International Expansion Will Transform The Future Of The Travel Industry

Key Takeaways

• Resilient domestic and cross-border travel, combined with personalized experiences, will enhance Trip.com's revenue growth and potentially improve margins.
  
• AI integration and expansion in international markets, especially in APAC, highlight Trip.com's potential for increased earnings and operational efficiency.
  
• The company's reliance on China's travel market and international expansion faces risks from economic challenges, competition, geopolitical tensions, and technological implementation issues.

Catalysts

Through its subsidiaries, operates as a travel service provider for accommodation reservation, transportation ticketing, packaged tours and in-destination, corporate travel management, and other travel-related services in China and internationally.

• The China travel market's demonstrated resilience, particularly in domestic and cross-border travel, along with growing consumer confidence and enthusiasm for travel, is expected to boost Trip.com Group's future revenue growth.
  
• The increasing demand for diversified and personalized travel experiences, especially among young people seeking events like concerts and sporting events, is anticipated to positively impact Trip.com Group's revenue growth and potentially improve net margins through higher-margin offerings.
  
• The integration of AI to enhance the travel experience, streamline planning, and provide personalized solutions can lead to improved operational efficiency and customer satisfaction, supporting better earnings and net margins.
  
• Strong growth in international markets, with APAC regions showing over 70% growth in bookings, suggests a significant potential impact on future revenue growth as Trip.com continues expanding its market presence globally.
  
• The growing travel demand from the senior population, who exhibit higher spending habits and preferences for customized trips, presents an opportunity for Trip.com Group to capture additional revenue and improve earnings through targeted products and services.

Trip.com Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Trip.com Group's revenue will grow by 14.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 31.9% today to 29.5% in 3 years time.
• Analysts expect earnings to reach CN¥22.7 billion (and earnings per share of CN¥33.59) by about December 2027, up from CN¥16.2 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as CN¥15.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 2.8x on those 2027 earnings, down from 21.8x today. This future PE is lower than the current PE for the US Hospitality industry at 23.6x.
• Analysts expect the number of shares outstanding to grow by 1.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.64%, as per the Simply Wall St company report.

Trip.com Group Future Earnings Per Share Growth

Risks

• The reliance on the Chinese travel market's resilience and domestic travel momentum might pose a risk, as any economic slowdown or decline in consumer confidence could impact revenue and net margins negatively.
  
• The focus on international expansion, particularly in the APAC region, introduces execution risks such as increased competition and geopolitical tensions, which could impact earnings and market share growth.
  
• The dependence on AI and technological advancements for enhancing customer experiences and operational efficiencies brings inherent risks such as implementation challenges or cybersecurity issues, potentially affecting cost structures and profitability.
  
• While investments in ESG initiatives are commendable, they require allocation of resources that could potentially divert funds from direct revenue-generating activities, impacting net margins and financial returns.
  
• The fluctuations in hotel prices and airline capacity, along with the impact of global economic policies and travel regulations, could influence booking trends and pricing strategies, thus affecting revenue stability and growth projections.

Valuation

• The analysts have a consensus price target of CN¥75.91 for Trip.com Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CN¥99.76, and the most bearish reporting a price target of just CN¥51.35.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be CN¥77.1 billion, earnings will come to CN¥22.7 billion, and it would be trading on a PE ratio of 2.8x, assuming you use a discount rate of 7.6%.
• Given the current share price of CN¥74.61, the analyst's price target of CN¥75.91 is 1.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.