Trip.com Group Limited — FY2019 Form 20-F
Reporting period: Year ended December 31, 2019. This is an annual report, not a standalone 2019 fourth-quarter filing; the filing does not provide a clear Q4-only financial summary. Financial figures below are in RMB unless stated otherwise. Trip.com reports under U.S. GAAP.
Business context and financial performance
Trip.com is a travel-services platform focused on accommodation reservations, transportation ticketing, packaged tours, and corporate travel. It generates most revenue in Greater China and presents substantially all revenue net because it generally acts as an agent. Mobile transactions represented over 80% of transaction orders in 2019.
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net revenue | RMB35.666 billion (US$5.122 billion), up 15% | RMB30.965 billion |
| Gross profit / margin | RMB28.294 billion / approximately 79% | RMB24.641 billion / approximately 80% |
| Operating income / margin | RMB5.040 billion / approximately 14% | RMB2.605 billion / approximately 8% |
| Net income attributable to Trip.com shareholders | RMB7.011 billion (US$1.006 billion) | RMB1.112 billion |
| Basic / diluted EPS per ADS | US$12.35 / US$11.50 | US$2.03 / US$1.96 |
| Operating cash flow | RMB7.333 billion | RMB7.115 billion |
Revenue mix in 2019: accommodation reservations 38%, transportation ticketing 39%, packaged tours 13%, corporate travel 4%, and other businesses 6%. Segment revenue grew year over year by 17%, 8%, 20%, 28%, and 35%, respectively.
Liquidity, debt, and balance sheet
- Cash and cash equivalents were RMB19.923 billion; restricted cash was RMB1.824 billion; short-term investments were RMB23.058 billion. These balances totaled RMB44.805 billion, although restricted cash is not freely available.
- Current assets were RMB67.955 billion versus current liabilities of RMB69.182 billion. The current ratio was approximately 0.98.
- Total liabilities were RMB93.324 billion and total assets were RMB200.169 billion. Shareholders’ equity was RMB105.703 billion.
- Current debt and current portions of long-term debt totaled RMB30.516 billion; long-term debt was RMB19.537 billion. The filing also reports outstanding convertible notes with aggregate principal of approximately US$2.4 billion and substantial bank borrowings.
- Net cash used in investing activities was RMB2.413 billion, compared with RMB14.078 billion used in 2018. Net cash used in financing activities was RMB9.256 billion, mainly reflecting cash settlements of convertible notes. No dividends were paid.
Material changes and unusual items
- Net income rose sharply, but the increase was substantially influenced by non-operating and investment-related items. Other income was RMB3.630 billion in 2019, versus other expense of RMB1.075 billion in 2018; this included a RMB2.334 billion fair-value gain on equity securities, compared with a RMB3.064 billion fair-value loss in 2018. 2019 also included a RMB603 million settlement of provisions and contingent liabilities related to an investment.
- Operating income increased as revenue growth and lower sales and marketing expense more than offset higher product-development and general and administrative costs. Product-development expense was RMB10.670 billion; sales and marketing expense was RMB9.295 billion.
- Investments increased to RMB51.278 billion from RMB26.874 billion, including the MakeMyTrip share-exchange transaction with Naspers. Trip.com issued 4,108,831 ordinary shares, valued at approximately US$1.1 billion, as consideration; it received no cash proceeds from this transaction.
- Trip.com repurchased US$924 million principal amount of its 2022 Notes in 2019 and redeemed US$500 million principal amount of 2019 Booking Notes. A subsidiary issued redeemable preferred shares recorded as RMB1.142 billion of redeemable non-controlling interests; the shares carry a 10% annual redemption return under specified circumstances.
- Adoption of the new lease standard added RMB1.207 billion of right-of-use assets and RMB1.187 billion of lease liabilities at year-end; management said the standard did not materially affect income or cash flows.
Outlook, commentary, and risks
- COVID-19: The filing, signed April 9, 2020, reports a significant decline in travel demand from January 2020, cancellations and refund requests, reduced orders, and operating disruption. Management expected material adverse effects on first-half 2020 financial condition, results, and cash flows, potentially continuing thereafter.
- Management’s preliminary estimate was that first-quarter 2020 net revenue would decline approximately 45%–50% year over year; it cautioned this estimate was subject to change. The duration and total financial impact were not reasonably estimable.
- The company noted possible slower receivable collections, higher doubtful-account provisions, and impairment of goodwill or long-term investments if pandemic impacts proved other than temporary. Goodwill was RMB58.308 billion at year-end; no goodwill impairment was recorded for 2017–2019.
- Management stated that operating cash flow and financing proceeds were expected to cover anticipated cash needs for the foreseeable future and at least 12 months after filing, while also warning that pandemic impacts could materially affect cash flows.
- Other significant risks include dependence on travel suppliers and discretionary travel demand; competition and seasonality; substantial debt and refinancing obligations; foreign-exchange exposure; PRC regulatory uncertainty and contractual VIE structure; data privacy and cybersecurity; and the inability of the PCAOB to inspect the company’s China-based auditor at the time of filing.
- Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2019. The auditor issued an unqualified opinion on the financial statements and controls and identified valuation of Level 3 investments as a critical audit matter.
Important facts for investors to verify
- Review subsequent reported results against the preliminary Q1 2020 revenue-decline estimate and management’s first-half COVID-19 commentary.
- Assess how much of 2019 earnings growth came from recurring operations versus fair-value gains, investment settlements, subsidies, and other non-operating items.
- Reconcile debt maturities, convertible-note put or repayment rights, facility availability, and unrestricted liquidity; distinguish cash from restricted cash and investments.
- Examine the valuation assumptions and sensitivity of the large investment portfolio, goodwill, and intangible assets, including Level 3 investment estimates.
- Assess receivable aging, allowance adequacy, and the sustainability of operating cash flow given increases in receivables and prepayments.
- Review VIE enforceability and regulatory developments in China, as well as supplier relationships and the effects of travel restrictions on demand and service capacity.