AI And Regulatory Pressures Will Challenge Travel Platform Before Long Term Inbound Recovery

Catalysts

About Trip.com Group

Trip.com Group operates a global online travel platform that connects travelers with accommodation, transportation, tours and related services.

What are the underlying business or industry changes driving this perspective?

• Although Trip.com Group is seeing sustained interest in inbound travel to China and is targeting 200 million inbound travelers over 5 years, the heavy reliance on favorable visa policies and air connectivity means any policy reversals or capacity constraints could limit inbound volumes and cap revenue from this higher value segment.
• While the company is integrating AI into search, customer service and supplier tools to improve discovery and conversion, the rapid rise of third party AI platforms creates a risk that Trip.com Group becomes more of a back end provider with less direct user access. This could pressure take rates and eventually net margins if distribution costs rise.
• Although global travel demand across APAC, Europe and the U.S. has supported gross bookings and international OTA revenue, higher airfares, energy costs and geopolitical disruptions are already moderating growth expectations and could lead to softer long haul traffic. This may limit revenue growth and put earnings under pressure.
• While Trip.com Group is expanding content rich, experience focused products such as small group tours, entertainment driven travel and silver generation offerings, these segments often require higher service and marketing spend. If consumer preferences shift or price sensitivity increases, the company could face rising acquisition costs and compressed operating margins.
• Although regulatory frameworks around ticketing, platform governance and compliance are intended to support a healthier travel ecosystem, Trip.com Group is already adjusting rail related value added services and wider business practices. Further regulatory tightening could weigh on monetization across transportation and ancillary products, limiting revenue contribution and near term earnings growth.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more pessimistic perspective on Trip.com Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Trip.com Group's revenue will grow by 8.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 48.6% today to 15.5% in 3 years time.
• The bearish analysts expect earnings to reach CN¥12.7 billion (and earnings per share of CN¥19.35) by about July 2029, down from CN¥31.5 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as CN¥20.6 billion.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 18.4x on those 2029 earnings, up from 5.7x today. This future PE is lower than the current PE for the US Hospitality industry at 24.0x.
• The bearish analysts expect the number of shares outstanding to decline by 1.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.45%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Trip.com Group is tying a large part of its long-term story to inbound travel to China, including an ambition to serve 200 million inbound travelers over 5 years. Any reversal in currently favorable visa rules, payment accessibility or air capacity could restrict inbound flows and reduce higher value international bookings, which would weigh on revenue and earnings.
• Management is investing heavily in AI capabilities and opening Trip.com Group to third party AI agents. If generalized AI assistants become the primary interface for trip planning and prioritize other suppliers or compress commissions, Trip.com Group could end up with weaker direct traffic and pricing power, which would pressure take rates, net margins and ultimately earnings.
• Regulatory scrutiny of large platforms is increasing, including ongoing reviews and new train ticketing rules that already require changes to value added rail services. If compliance requirements continue to tighten across transport, pricing and platform governance, monetization of key products could be limited, which would restrict revenue while raising operating costs and putting net margins under strain.
• Trip.com Group is leaning into experience heavy segments such as small group tours, entertainment travel, silver generation products and content driven marketing, which structurally require higher sales, marketing and service investment. If consumer demand normalizes or becomes more price sensitive over time, acquisition costs may stay elevated relative to booking value, compressing operating margins and earnings.
• The business remains exposed to external shocks, including higher energy prices, tighter airline capacity, geopolitical disruptions and macro fluctuations that are already moderating net revenue growth guidance to 3% to 8% in Q2 2026. If such pressures persist over a longer period, they could dampen cross border travel, reduce high value long haul and inbound traffic and limit growth in revenue and profit.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Trip.com Group is $43.95, which represents up to two standard deviations below the consensus price target of $60.57. This valuation is based on what can be assumed as the expectations of Trip.com Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $75.24, and the most bearish reporting a price target of just $42.07.
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be CN¥82.1 billion, earnings will come to CN¥12.7 billion, and it would be trading on a PE ratio of 18.4x, assuming you use a discount rate of 8.4%.
• Given the current share price of $42.41, the analyst price target of $43.95 is 3.5% 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.