chinacontact’s posterous

SeekinAlpha thinks Ctrip cannot maintain it's past performance. Some good points but I think profit margins will not be squeezed as much as the article fears.  

"Ctrip.com fits the “optimistic” category as the stock is currently nearly 40 times the estimates for this year. The high valuation is largely justified by the expected growth as CTRP continues to capture market share and is expected to grow earnings by 28% next year. 

The company also recently made a stock purchase of Home Inns & Hotels Management Inc. (HMIN) to increase its stake in the company from 9.52% to 18.25%. The purchase was made at a price of $13.31 (Total value of $50 million) which has quickly produced a 24% unrealized gain. As long as HMIN continues to trade higher, that investment appears to be a wise move. However, HMIN has some of the same dangers as CTRP and could simply leverage the risks already associated with the company.

During the first quarter, Ctrip realized a healthy if not expected growth in both revenue and earnings. However, it appears the company is having to work harder and harder in order to manufacture these attractive numbers. Revenues from hotel bookings account for 43% of total revenues for the company. While the category saw sales increase by 9%, the total increase in volume was 17%. This means that margins on hotel bookings were significantly lower as a weak economy resulted in low pricing power.

Similarly air ticketing revenue (which also accounts for 43% of total revenues) increased by 16%. But in order to outpace the weak pricing, the company actually had to sell 40% more tickets. The obvious question (although I haven’t hear too many people asking it) is what happens when the company is only able to sell 10 to 15% more tickets and the price continues to drop. The result could quickly become lower sales which would set off alarms for institutional and retail investors alike."