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Trip.com’s Vacation Coming to an End?
Stock Analysis & Ideas

Trip.com’s Vacation Coming to an End?

Shares of China-based travel services company Trip.com Group Limited (NASDAQ: TCOM) initially jumped following the company’s fourth-quarter 2021 earnings and revenue beat announced on March 24. A strong travel rebound resulted in elevated bookings on the website, driving the Q4 performance.

Website Trends Remained Strong in Q4

As the company is an online platform that takes care of hotel bookings, airline tickets, packaged tours, corporate travel, property management, and advertising services, tracking the trends of user visits to the website can give us key insights into the performance of the company. Significantly, the customer footfall trends were quite upbeat in Q4.

Trip.com as a website pulled a significant crowd with its improved content platform. “Regular users were also encouraged to start hearing content on our platform. Daily average user-generated content from these new creators grew by over 80% sequentially,” said management in their Q4 earnings call.

Interestingly, this growth in users engaging on the website was reflected in TipRanks’ tool even before the print. The tool showed us that during Q4, there was a 64.89% quarter-over-quarter growth in website visits globally.

Moreover, the travel sector witnessed a strong domestic recovery driven by short-haul travel. This translated into meaningful domestic bookings on the trip.com platform, which also explains the growth in the virtual footfall on the website.

Experts Look at an Uncertain Q1

Nonetheless, after the initial enthusiasm was over, investors quickly realized that the beat was a result of already low expectations with many downsides looming in the horizon.

What followed was a flurry of analysts slashing their earnings and revenue projections for the company and trimming their price targets. CLSA analyst Elinor Leung lowered the price target to $35 from $39 while maintaining a Buy rating on the TCOM stock. Leung believes that although metrics were above expectations, ultimately the company’s Q4 results were weak.

Another expert who seems to agree with Leung is Mizuho analyst James Lee, who also lowered the price target on Trip.com to $32 from $35, while maintaining a Buy rating. Lee pointed out that an unexpectedly strong surge in travel volume and efficient margin management by the company during unsure times led to the company surpassing Street expectations.

However, China’s travel sector took the double whammy of yet another strong wave of omicron infections along with its continued zero-tolerance policy (lockdowns, mass testing, and stringent border quarantines) in February and March. Lee believes that these issues will keep Trip.com’s performance “subdued” in the near-term. Moreover, international travel restrictions are also expected to be an added issue.

Bottom Line

In these two years of grappling the pandemic, economies have proven to be resilient and strong enough to adapt and recover. As Barclays analyst Jiong Shao believes, the pandemic will eventually conclude and most travel restrictions will be a thing of the past. At that point, Shao projects a “sharp and swift” recovery in the China travel market. This is possibly why most of the analysts have reiterated their Buy ratings.

Wall Street is Upbeat

Wall Street is optimistic about Trip.com, with a Strong Buy consensus rating based on seven Buys and two Holds. The TCOM price predictions indicate an average price target of $29.44.

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