Bottom line: Ctrip’s explanation for a recent major share sale by top executives looks reasonable and shouldn’t be cause for concern, while Tuniu won’t gain any short-term advantage from its new war with Tongcheng.
A couple of news bits are cruising through the online travel space this first week, with industry leader Ctrip (Nasdaq: CTRP) and recently listed Tuniu (Nasdaq: TOUR) both engaged in new strategic moves. In the former case, Ctrip is explaining a recent wave of selling of its shares by top company executives, saying the move was prompted by their need for cash for a new strategic investment. The latter case has Tuniu reportedly engaged in an entertaining behind-the-scenes battle with unlisted rival Tongcheng for the lucrative and fast-growing overseas travel market.
Investors have turned decidedly bearish on Ctrip these last few months, even as the company remains the clear industry leader and has plenty of cash for new investments. Ctrip shares are down 21 percent since a September peak, as investors worry about its falling profits due to stiff competition. The company last week reported its profit fell about 40 percent in the third quarter, even as its revenue rose by a similar amount, reflecting the difficult market right now. (company announcement)
As the competition intensified, some of Ctrip’s investors recently became concerned when they learned through public filings that top executives were selling off major stakes in the company. Such selling is never a good sign, as it’s often seen as reflecting pessimism in a company’s near-term prospects. Among the company’s top executives, CEO James Liang had sold nearly 250 million yuan ($40 million) worth of shares, according to an August disclosure, while President Fan Min had sold more than 110 million yuan worth. (Chinese article)
Now Ctrip is coming out to explain the big share sales, saying the executives were seeking to raise cash for personal new investments in the cruise industry, which has been booming in China lately. In September, Ctrip announced its own major new initiative to move into the industry, with plans to purchase a cruise liner from US operator Royal Caribbean (NYSE: RCL). (previous post)
Ctrip said its executives’ share sales were related to the Royal Caribbean tie-up, though the reports aren’t more specific. Under the previously announced deal, Ctrip purchased a cruise liner from Royal Caribbean, which said it would continue to manage the ship. I previously voiced my skepticism about this kind of asset ownership for a service company like Ctrip; but in this case I would also tend to believe the explanation that the executives’ recent stake sales are related to the cruise ship purchase and probably aren’t cause for concern.
Next let’s look at Tuniu, which is reportedly engaged in a war with Tongcheng in a battle for China’s legions of tourists traveling overseas. Both Tuniu and Tongcheng use a business model that sees them offer products and services provided by third-party travel agents on their sites.
According to reports, Tuniu is telling those agents to offer lower prices on its site for their products than they offer on Tongcheng, or in some cases to stop providing products on Tongcheng altogether. (Chinese article) Tuniu can probably make that kind of demand because it’s a bigger than Tongcheng, and in this case it doesn’t seem like there’s much that Tongcheng can do to fight back.
Investors seemed to like Tuniu’s aggressive stance, boosting the company’s shares 4.4 percent last Friday, putting them nearly 50 percent of their price from their IPO in May. Of course it’s also worth noting that Tuniu shares were at one time more than double their IPO price, before a broader pull-back in recently listed Chinese Internet companies. This latest campaign by Tuniu is unlikely to have a major impact on its short-term performance, but does reflect an aggressive management style that may help to boost the company over the medium term.