Promoting Inbound Travel And Rural Revitalization In China Will Support Sustainable Long-Term Growth

Key Takeaways

• AI-driven travel tools enhance user engagement, boosting customer acquisition and revenue growth through personalized service experiences.
  
• Strategic capital returns and market expansion strengthen financial health, attract shareholders, and diversify revenue in growth markets, enhancing net margins.
  
• Increased operational costs and regulatory challenges may pressure Trip.com Group's net margins and profitability amidst macroeconomic uncertainties and international expansion efforts.

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.

• Trip.com Group is focusing on AI innovation to enhance user engagement through personalized and efficient travel planning tools, potentially driving increased customer acquisition and retention, which can positively impact revenue growth.
  
• The company's international business expansion, especially in the APAC region, demonstrates significant growth and the potential for revenue diversification, which could improve overall net margins by capturing a larger market share in rapidly growing travel markets.
  
• Trip.com's commitment to promoting inbound travel and rural revitalization aligns with significant market potential in China’s domestic tourism sector, which can support sustainable long-term revenue and earnings growth as these areas become economic cornerstones.
  
• The introduction of strategic capital return initiatives for 2025, including a share repurchase program and a cash dividend, reflects a strong financial position and can enhance earnings per share and shareholder value, making the stock more attractive.
  
• Targeted initiatives for emerging segments, such as the silver generation and younger travelers, could drive increased spending in niche, high-margin segments, positively impacting revenue and net margins by catering to diverse traveler needs with specialized products.

Trip.com Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Trip.com Group's revenue will grow by 13.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 32.0% today to 27.3% in 3 years time.
• Analysts expect earnings to reach CN¥21.5 billion (and earnings per share of CN¥30.37) by about April 2028, up from CN¥17.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥24.2 billion in earnings, and the most bearish expecting CN¥17.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.2x on those 2028 earnings, up from 14.6x today. This future PE is lower than the current PE for the US Hospitality industry at 21.8x.
• Analysts expect the number of shares outstanding to grow by 0.78% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.9%, as per the Simply Wall St company report.

Trip.com Group Future Earnings Per Share Growth

Risks

• The company cautions that forward-looking statements involve inherent risks and uncertainties, which could impact revenue forecasts and the company's ability to meet earnings expectations.
  
• The company reports a 20% sequential decline in net revenue in Q4 compared to the previous quarter, which may suggest challenges in maintaining momentum and could impact earnings stability.
  
• Increased operational costs are noted, with adjusted product development expenses and G&A expenses rising significantly, which could pressure net margins if revenue growth does not keep pace.
  
• The travel industry, while currently resilient, is highly susceptible to macroeconomic factors like exchange rate fluctuations and geopolitical events, which may affect future revenue growth.
  
• With the focus on expanding the international business segment, unanticipated regulatory challenges or intensified competition in new markets could affect future revenue and profitability growth.

Valuation

• The analysts have a consensus price target of $74.11 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 $94.39, and the most bearish reporting a price target of just $56.67.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥78.8 billion, earnings will come to CN¥21.5 billion, and it would be trading on a PE ratio of 21.2x, assuming you use a discount rate of 7.9%.
• Given the current share price of $52.21, the analyst price target of $74.11 is 29.6% higher.
• 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.