To The Moon

$Trip.com Group Limited(TCOM)$ released its unaudited financial results for the third quarter of fiscal year 2025, ending September 30, 2025, in the U.S. after-hours trading session on November 18.

Overall, Ctrip delivered solid performance this quarter, with both revenue and profit slightly exceeding market expectations. The group's total net revenue grew 15.4% year-over-year (slightly decelerating quarter-over-quarter), reflecting stable domestic travel demand. Meanwhile, the sustained robust recovery of overseas operations and outbound travel served as key drivers. However, the financial report also hints at structural concerns, including narrowing gross margins and expanding expense investments, causing profit growth to continue underperforming revenue growth, though the rate of decline has begun to narrow. Specifically, this performance can be characterized as solid with a positive bias, with key highlights being robust growth in overseas operations and accelerated recovery in outbound travel. Potential shortcomings lie in slowing growth in core pillar businesses and persistent margin pressures.

Q3 results reflect the recovery in China's tourism demand and the initial success of the company's global expansion strategy. However, underlying concerns include a slight decline in gross profit margin (driven by a higher proportion of low-margin overseas operations), a 27% surge in marketing expenses that pressured the expense ratio, and packaged tour sales growth of only 3%, indicating that domestic vacation products still require further stimulus.

Key Financial Metrics

1. Net revenue of RMB 18.3 billion (+15.4% YoY, +24% QoQ): Key drivers included accelerated recovery in outbound travel (improved international flight capacity + visa facilitation), 60% booking growth on overseas platform Trip.com, and doubled inbound travel; slightly exceeded market expectations, demonstrating demand resilience stronger than seasonal fluctuations, with overseas revenue share further increasing in business structure (now forming a second growth curve).

2. Adjusted EBITDA of RMB 6.3 billion (+13% YoY): Profitability improved quarter-over-quarter, though growth lagged behind revenue primarily due to a 27% surge in marketing expenses (gaining overseas market share + AI content distribution). This exceeded the company's own guidance (RMB 5.8-5.9 billion), reflecting operational efficiency surpassing management's conservative expectations.

3. Hotel booking revenue reached approximately RMB 8 billion (+18% YoY): Benefiting from increased direct booking rates at high-star hotels and surging demand for overseas accommodations, revenue approached the upper end of guidance. While domestic average revenue per customer slightly declined, room nights remained robust. Overseas hotels contributed a larger share, reflecting a more internationalized revenue structure.

4. Transportation ticket revenue reached approximately 6.3 billion yuan (+11.4% YoY): Outbound air ticket recovery led the industry, amplified by last year's low base (reduced bundled ticket sales). The significant sequential acceleration indicates aviation supply bottlenecks are gradually easing.

5. GAAP net profit of RMB 19.9 billion (primarily including RMB 17 billion in equity disposal gains): Operating net profit excluding one-off items was approximately RMB 3 billion, showing steady performance but falling short of expectations; cash reserves stood at RMB 107.7 billion, indicating exceptionally strong financial health.

Guidance

Management's outlook for the next quarter/full year is relatively limited in the financial report, but based on its operational activities and disclosed information:

• Outlook Tone: Management's communication logic leans toward pragmatism, highlighting the rapid growth of overseas operations and the sustained recovery of outbound travel, while maintaining a cautiously stable assessment of the domestic market.

• Core Logic: The company's primary growth potential hinges on when its overseas operations (Trip.com) will enter a phase of profit realization.

• Judgment: Given that Q3 expenses continue to expand and pressure on domestic core business growth persists, we believe the company's guidance for the next quarter may be neutral or slightly conservative to maintain sufficient performance margin and continue prioritizing resources toward high-growth overseas markets.

Key Investment Highlight

Our view is that Ctrip's fundamentals remain solid, but its growth structure is undergoing profound changes. The core driver is shifting from cyclical recovery in the domestic market to the global expansion of its overseas business.

Health of the volume-price structure. After a prolonged decline, the average transaction value per domestic wine traveler has recently shown signs of stabilization, contributing to the stability of domestic operations. Meanwhile, the "revenue growth without profit growth" pattern in overseas business suggests that short-term profit margins still require improvement. Volume is healthy, but the margin contribution from pricing has yet to be fully realized.

The sustainable long-term growth track primarily lies in overseas platforms + inbound/outbound travel, benefiting from rising global online penetration, the maturing travel habits of Asia-Pacific middle-class consumers, and Ctrip's supply chain barriers (over 50% direct sourcing + multilingual customer service). While domestic hotel and travel services are mature, they remain cash cows, with business travel management offering high customer stickiness. Short-term trends rely on packaged vacation products (only +3%), which are susceptible to fluctuations in macroeconomic consumer confidence. Post-pandemic "revenge travel" has gradually normalized.

The current market capitalization corresponds to approximately 18 times adjusted operating profit for 2026, implying a 15-20% CAGR expectation. This aligns with revenue growth while avoiding excessive anticipation of overseas potential. Market pricing appears relatively reasonable without significant overvaluation. Compared to $Booking Holdings (BKNG)$ (PE 22-25x, pure overseas operations with high margins) and $Expedia(EXPE)$ (PE 15-18x, primarily North American), Ctrip's undervaluation stems from its overseas business profits not yet being fully realized (currently dragging down gross margins). Once Trip.com reaches breakeven, the valuation benchmark is expected to shift upward to 20-22x, similar to Airbnb's early globalization phase.

Management strategy shows no significant missteps; AI content and global expansion are on the right track. However, the sharp increase in marketing expenses (27%) appears somewhat aggressive and could be appropriately scaled back toward efficiency-driven spending. The key signal to amplify is the platformization strategy—manifested through an open ecosystem, AI travel assistant penetration, and deep partnerships with destination governments/airlines. This signals a shift from a "transactional OTA" to a "one-stop travel platform," while horizontal expansion (Middle East/Latin America) is accelerating.

Investors should continuously monitor the proportion of overseas GMV & Trip.com's profit margin (targeting levels close to domestic operations), the recovery rate of outbound flight and hotel bookings (with a 150%+ rebound relative to 2019 serving as a catalyst), and the combination of domestic high-star hotel room nights and average revenue per customer. Warning signs include renewed disruptions to international flight supply and negative growth in packaged tours due to further declines in domestic consumption. Positive catalysts include increased AI product penetration (content conversion rates) and potential announcements regarding new equity disposals/buybacks.