Business Context and Reporting Period
Company: Ctrip.com International, Ltd. (Nasdaq: CTRP)
Filing Type: Form 6-K (Press Release)
Reporting Period: Fourth Quarter and Full Year ended December 31, 2006
Business Overview: A leading travel service provider in China offering hotel accommodations, airline tickets, and packaged tours. The company targets business and leisure travelers.
Key Financial Metrics
Fourth Quarter 2006 (vs. Q4 2005)
- Net Revenues: RMB226 million (US$29 million), up 45% year-over-year.
- Gross Margin: 80% (down from 81% in Q4 2005).
- Operating Income (GAAP): RMB75 million (US$10 million).
- Operating Income (Non-GAAP): RMB89 million (US$11 million), up 44% year-over-year.
- Net Income (GAAP): RMB67 million (US$9 million).
- Net Income (Non-GAAP): RMB81 million (US$10 million), up 28% year-over-year.
- Diluted EPS (GAAP): RMB2.00 (US$0.26).
- Diluted EPS (Non-GAAP): RMB2.41 (US$0.31).
Full Year 2006 (vs. Full Year 2005)
- Net Revenues: RMB780 million (US$100 million), up 49% year-over-year.
- Gross Margin: 80% (down from 83% in 2005).
- Operating Income (GAAP): RMB255 million (US$33 million).
- Operating Income (Non-GAAP): RMB310 million (US$40 million), up 38% year-over-year.
- Net Income (GAAP): RMB241 million (US$31 million).
- Net Income (Non-GAAP): RMB295 million (US$38 million), up 31% year-over-year.
- Diluted EPS (GAAP): RMB7.23 (US$0.93).
- Diluted EPS (Non-GAAP): RMB8.87 (US$1.14).
Liquidity and Balance Sheet (as of Dec 31, 2006)
- Cash and Restricted Cash: RMB851 million (US$109 million), compared to RMB742 million in 2005.
- Total Assets: RMB1.45 billion (US$186 million).
- Total Liabilities: RMB423 million (US$54 million).
- Shareholders' Equity: RMB1.03 billion (US$132 million).
Material Changes and Drivers
- Revenue Growth: Driven by significant increases in air ticketing (up 83% for full year) and hotel reservations (up 31% for full year). Air ticketing revenue share grew to 36% of total revenue from 30% in 2005.
- Margin Compression: Gross margin declined from 83% to 80% due to higher cost of services associated with the increased mix of air ticketing and packaged tours.
- Expense Increases: Operating expenses rose significantly due to personnel growth and the adoption of FAS123R (share-based compensation).
- Product development expenses increased 83% year-over-year.
- Sales and marketing expenses increased 53% year-over-year.
- General and administrative expenses increased 118% year-over-year, largely due to RMB55 million in share-based compensation charges.
- Share-Based Compensation: The adoption of FAS123R resulted in RMB55 million (US$7 million) in charges for the full year, accounting for 7% of net revenues.
Guidance, Outlook, and Risks
Management Commentary and Outlook
Management expressed satisfaction with solid results, citing strengthened brand position and new product offerings. For the full year 2007, Ctrip expects:
- Year-over-year net revenue growth of approximately 30%.
- Operating margin (excluding share-based compensation) of approximately 35%.
Risks and Contingencies
The filing includes a Safe Harbor statement noting risks that could cause actual results to differ from forward-looking statements, including:
- Declines or disruptions in the travel industry.
- Outbreaks of serious contagious diseases (e.g., SARS, avian flu).
- Reliance on relationships with hotel and airline suppliers.
- Competition and regulatory changes in China regarding internet content providers.
Investor Verification Checklist
- Verify the sustainability of the 30% revenue growth guidance for 2007 given the 49% growth in 2006.
- Monitor the impact of the changing revenue mix (higher air ticketing) on long-term gross margins.
- Assess the recurring nature of share-based compensation charges under FAS123R and their effect on future GAAP profitability.
- Review the company's reliance on third-party suppliers (hotels and airlines) for potential margin pressure or service disruptions.
- Confirm the accuracy of the ADS conversion ratio change (1 ADS = 1 ordinary share) in historical comparisons.