Good times bring success.

On August 27, Ctrip released its second-quarter financial report for 2024, reporting revenue of 12.8 billion yuan, up 14% year-on-year and 7% quarter-on-quarter. Net profit reached 3.9 billion yuan, up 51.85% year-on-year but down 9.3% quarter-on-quarter.

No money for sketches, but plenty for AI agents.

At the financial report meeting, Ctrip Group Chairman James Liang and CEO Sun Jie made their debut as AI agents. From appearing in comedy sketches and live streaming sales as an emperor to donning a white suit and becoming a digital business leader, James Liang's past four years have been extraordinary. They have also marked a new business cycle for Ctrip, which has seen ups and downs before bouncing back.

It is noteworthy that Ctrip's second-quarter financial report shows that even in a highly competitive market environment, its strong performance in the accommodation business has once again stabilized its current situation.

However, due to the high expectations placed on its international business, whose revenue scale has yet to be disclosed, Ctrip is currently in uncharted waters, and the true outcome remains uncertain.

Ctrip is more profitable than LV

Four years ago, in Xuchang, with a shaved head, James Liang launched Ctrip's "BOSS Live: Central Plains Special". Under the camera, he donned armor, wielded a stick, broke bricks with one hand, and negotiated hard bargains.

Four years later, James Liang, who has often delved into sensitive social issues and presented himself as a demographer, has transformed into a digital avatar, marking yet another transformation.

Four years ago, Ctrip's revenue nearly halved. Four years later, Ctrip began to consistently turn a profit: in 2023, its net profit reached 9.92 billion yuan, a new high. This trend continues unabated.

Ctrip's second-quarter financial report for 2024 shows revenue of 12.8 billion yuan, up 14% year-on-year and 7% quarter-on-quarter. Adjusted EBITDA was 4.4 billion yuan, an increase of 0.7 billion yuan from the same period last year. Although Ctrip's net profit fell 9.3% quarter-on-quarter to 3.9 billion yuan, it largely maintained the 4.3 billion yuan profit from the first quarter.

Based on this calculation, Ctrip earned more than 1.3 billion yuan per month in the first half of 2024, a stark contrast to just a few years ago when even the company's top executives were live streaming sales.

In terms of costs, Ctrip's operating costs for the second quarter increased by 15% year-on-year to 2.3 billion yuan, roughly in line with revenue growth, accounting for 18% of total revenue. Additionally, Ctrip's product research and development expenses increased by 1% year-on-year to 3 billion yuan. General and administrative expenses were 1.1 billion yuan, up 13% year-on-year.

Notably, Ctrip's sales and marketing expenses for the second quarter increased by 20% year-on-year and 23% quarter-on-quarter to 2.8 billion yuan, outpacing revenue growth and accounting for 22% of total revenue. This means that in addition to R&D investments, Ctrip's spending on marketing exceeded its human resources, operating costs, and administrative expenses.

Despite this, Ctrip remains a top performer among Chinese internet companies in terms of profitability.

In the second quarter of 2024, Ctrip's gross profit reached 10.46 billion yuan, up 13% year-on-year, with a gross profit margin of a staggering 82%.

Looking back, Ctrip's gross profit margins were 79.58%, 79.33%, 77.99%, 77.04%, and 77.48% from 2018 to 2022, respectively. In 2023, both revenue and profit grew, maintaining a high gross profit margin of over 80% throughout the year.

This means that even during the toughest pandemic times, Ctrip's gross profit margin approached 80%. Such profitability is comparable to that of luxury brand LV. In fact, LV's gross margin has only been around 70% in recent years.

Moreover, even compared to the human-efficiency machine Pinduoduo, which had a gross margin of 62% in 2023, Ctrip's performance in this quarter held its own.

"Ctrip's DNA is profitability," James Liang once said years ago.

Ctrip's cash cow

At the financial report meeting, digital avatar James Liang also introduced Ctrip's new AI achievements: one is an AI-driven "travel hotspot" that integrates user search data and real reviews, and the other is Ctrip's reputation list.

He stated that looking forward, Ctrip will leverage AI to innovate in the tourism industry.

However, the businesses that currently support Ctrip's high gross margins have remained unchanged for many years.

Generally speaking, Ctrip's main businesses are divided into accommodation, transportation, travel and vacation packages, and business travel management, plus financial services as other businesses.

The financial report shows that in the second quarter of 2024, Ctrip's accommodation business revenue was 5.1 billion yuan, up 20% year-on-year and 14% quarter-on-quarter. Affected by airfare fluctuations, Ctrip's transportation ticketing revenue fell 3% quarter-on-quarter to 4.9 billion yuan. Additionally, Ctrip's travel and vacation business revenue was 1 billion yuan, up 42% year-on-year and 16% quarter-on-quarter; business travel management revenue was 633 million yuan, up 8% year-on-year and 24% quarter-on-quarter.

The "transportation + accommodation" business forms the core of Ctrip's operations, accounting for roughly 80% of total revenue.

However, these two businesses operate differently: Ctrip's high-frequency, low-margin ticketing services drive its low-frequency, high-margin accommodation business. The former generates traffic, while the latter is Ctrip's true source of profit. As an OTA platform not known for its content, these two businesses complement each other and are indispensable.

Although Ctrip's financial report did not disclose the gross profit margins for each business. According to industry estimates, after the "direct booking and commission reduction" policy for air tickets, the airline commission rates for OTA companies remain around 2%. For train tickets, due to the well-established 12306 pricing system, industry commissions are even lower. However, in accommodation, industry commission rates can reach 15% or higher.

It is reported that Ctrip's prepaid hotel commission rates are divided into three tiers: 10%, 12%, and 15%, with pay-at-stay rates being even higher. Among them, 12% and 15% correspond to two types of branding: Gold and Premium. Gold branding signifies close cooperation with Ctrip, while Premium branding indicates exclusive cooperation. Listed hotels enjoy preferential ranking on Ctrip's platform.

Previously, according to calculations by Everbright Securities, Meituan generated only 13.3 yuan per room night in commission income, while Ctrip generated 42.6 yuan per room night.

In fact, through recent integrations, Ctrip has acquired high-end hotel resources that other OTA platforms cannot match. Currently, Ctrip, together with Qunar, holds over 50% of the market share. When Tongcheng Travel is added, the combined market share approaches 70%.

Data shows that in 2022, Ctrip covered over 8,000 high-end (four- and five-star) hotels. As early as 2012, Ctrip established partnerships with domestic high-end hotels such as Marriott, Junlan, CTS Harbour Plaza, Hainan Airlines, Guangdong Tourism Investment, OCT, and Shuxiang. According to data, high-end hotels account for nearly 80% of Ctrip's hotel revenue. As a result, the higher the average check per room, the larger the profit margin, and the more commission Ctrip can extract.

This directly leads to the fact that Ctrip is actually a company highly susceptible to industry cycles. For example, during the pandemic, Ctrip's annual revenue fell 48.6% year-on-year from 35.67 billion yuan in 2019 to 18.32 billion yuan in 2020. In 2021 and 2022, revenue hovered around 20 billion yuan.

Therefore, during the initial years when the accommodation business was impacted and the fundamentals were shaken, James Liang traveled extensively across China within three months, conducting 14 "Ctrip BOSS" live streams. From Guan Zhong and Qin Shi Huang to Xu Xian, James Liang's energetic performances generated over one million room nights for thousands of high-end hotels, diligently maintaining relationships and interests with these hotels.

Furthermore, in the first three months of 2020, James Liang decided that Ctrip would advance nearly 100 billion yuan in "refund fees" to airlines and hotels.

Merchant conflicts and fierce competition

Although Ctrip enjoys a near-monopoly in the mid-to-high-end hotel sector, where its profits are heavily dependent, long-term profit distribution often leads to conflicts with partners.

In fact, as the Matthew effect becomes more pronounced in the mid-to-high-end hotel sector, hotel chains are gaining increasing influence.

Data shows that the hotel chain rate in China was only 26% in 2019, rising to nearly 40% by 2023. According to the "2024 China Hotel Industry Development Report," the hotel chain rate increased from 38.75% in 2022 to 40.95%, with mid-range and luxury hotels exceeding 55% in chain rates.

Moreover, hotel groups are gradually expanding their mid-to-high-end hotel businesses. For example, by the end of the first quarter of 2024, Huazhu Hotels Group had 686 mid-to-high-end hotels in operation, a 28% year-on-year increase. There were 430 hotels awaiting opening, an 81% year-on-year increase. Globally, Marriott International signed nearly 100 new local hotels in China in 2023. By the end of 2023, Marriott had 8,785 hotels worldwide with over 1.597 million rooms, representing a net annual increase of 4.7%.

According to calculations by CITIC Securities, China's hotel chain rate is expected to increase to a level between Europe (50%) and the United States (70%), indicating significant room for growth. This means that as hotel chains expand, conflicts between OTA platforms and merchants may only escalate.

In fact, to avoid intermediaries and increase profits, major hotel chains have already begun building their own channels and enhancing customer service and after-sales support to directly connect with consumers, increase repeat purchases, and counter OTA platforms.

For example, by the beginning of 2023, Jinjiang Hotels and Huazhu Hotels had over 180 million and 190 million members, respectively. Huazhu, seeking to reduce its reliance on OTA platforms like Ctrip, has been building its own sales channels. In 2022, 87% of its room nights were sold through its own channels, while only 13% were sold through OTAs.

Moreover, in the face of significant industry profits, Ctrip's potential competitors are becoming increasingly dense. According to Guohai Securities estimates, the local lifestyle market size will increase from 968 billion yuan in 2021 to 1.8128 trillion yuan in 2025, with the hotel and travel market reaching 1.0637 trillion yuan in 2025, accounting for over 50% of the local lifestyle market.

As a result, Ctrip may face even more intense competition. The core issue is that the new round of competitors adopts more diverse strategies compared to traditional OTA platforms. For example, Meituan leverages its high-frequency takeout and food ordering services to gradually redirect high-traffic, large-scale user groups to low-frequency hotel consumption through ground promotion.

By 2019, Meituan's hotel room nights had surpassed the combined totals of Ctrip, Qunar, and Tongcheng, becoming the world's top OTA platform in terms of room nights that year. In 2022, Meituan's on-site hotel and travel revenue exceeded 30 billion yuan. In the first quarter of this year, the GTV (gross transaction value) of its on-site hotel and travel business increased by over 60% year-on-year, with annual transaction user numbers growing by over 37% year-on-year.

Furthermore, more "content+" enterprises are beginning to penetrate Ctrip's core business. For example, platforms like Douyin and Xiaohongshu are leveraging their larger user bases and stronger content capabilities to promote "content-driven" tourism. According to the "2023 Tourism Consumption Content Research Report," over 80% of tourists prepare detailed travel plans before setting out.

Data shows that the number of active hotel and travel merchants on Douyin increased nearly sevenfold year-on-year in 2023, with GMV (gross merchandise volume) surging over 300 times. Specifically, GMV from hotel and travel live streams grew over 200 times. BOCOM International estimates that Douyin's hotel and travel GMV reached 60 billion yuan in 2023 and is expected to increase to 90 billion yuan in 2024.

Under such impacts, Ctrip's current market share is gradually declining.

According to BOCOM International data, Ctrip's market share was as high as 67% in 2019 but has since declined, with an estimated drop to 57% by 2024, a decrease of 10 percentage points over five years.

International business: Can Sun Jie break through?

In addition, Ctrip's international business, which featured prominently in its second-quarter financial report, has a more complex performance.

Data shows that from January to July this year, China's national ports handled 341 million entries and exits, up 62.34% year-on-year. There were 17.254 million foreign arrivals, up 129.9% year-on-year, which is expected to drive consumption exceeding 100 billion yuan.

Driven by this trend, Ctrip's second-quarter 2024 financial report shows that its outbound hotel and flight bookings have recovered to 2019 levels. Moreover, inbound tourism bookings increased nearly twofold year-on-year in the first half of 2024, contributing 25% of Ctrip's overseas platform revenue. Overall, Ctrip's international OTA platform revenue increased by approximately 70% year-on-year.

This wave of opportunity has been hard-won for Ctrip. James Liang noted that cross-border tourism is a key driver of Ctrip's profitability.

However, it is noteworthy that the revenue scale of the international business, which is highly anticipated as Ctrip's "second growth curve," was not disclosed in the financial report.

However, combining Ctrip's financial reports for the four quarters of 2023, outbound hotel and flight bookings recovered to 40%, 60%, 80%, and 80% of 2019 levels, respectively. In the first quarter of 2019, Ctrip stated that its international business revenue accounted for 35% of its total revenue of 8.2 billion yuan.

Extrapolating from this, we can estimate that Ctrip's international revenue for each quarter of 2023 was approximately 1.2 billion yuan, 1.8 billion yuan, 2.9 billion yuan, and 2.3 billion yuan, respectively, accounting for 13%, 16%, 21%, and 22% of total revenue for that quarter.

Combining the latest second-quarter 2024 financial report, which states that "the company's total international OTA platform revenue increased by approximately 70% year-on-year." Based on the estimated revenue of 1.8 billion yuan for the same period in 2023, Ctrip's international revenue for the second quarter of 2024 is roughly 3 billion yuan, accounting for 23.9% of total revenue.

From this perspective, for the international business to truly become Ctrip's second growth curve, its current growth rate and scale may still be insufficient.

Meanwhile, compared to Ctrip's dominant domestic business, its international business does not have the scale advantage of platforms like Booking.com and Expedia, which offer broader coverage, better value-for-money, and superior services.

Furthermore, in the United States, the top six hotel groups, led by Marriott, Hilton, and Wyndham, account for 56% of the market share. Many of these hotels' loyal customers book directly rather than through OTA platforms.

Therefore, to compete for a larger market share, Ctrip will need to invest heavily in marketing and promotion when tackling its international business, which may inevitably compress its profitability.

Previously, James Liang placed high hopes on Sun Jie, describing her as "sensitive and meticulous like a woman, yet decisive and rational like a male leader." As Ctrip's chief housekeeper, Sun Jie has been focusing on the company's "inbound and outbound tourism" segment and leading its international expansion efforts.

However, at Ctrip's Global Partner Summit in October 2023, Sun Jie acknowledged that while China's inbound tourism potential is significant, it still faces challenges such as visa issues, payment difficulties, and a lack of foreign language services, which are weaknesses in cross-border tourism.",

It is reported that at that time, in order to pay in advance for the supplier's payment and user's order refund, Sun Jie and Liang Jianzhang had made countless phone calls to the bank to borrow money. Ctrip refunded more than 100 billion yuan in orders for tourists, sliding from profit to loss.

As the situation improves in 2023, Sun Jie restarted the "G2 strategy" again. By 2024, Sun Jie put forward "one core goal and three innovation points", that is, starting from 2024, all business lines will achieve overall leadership in the next 3-5 years, and Ctrip Group will become the leading online travel platform in Asia and the world's leading online transportation ticketing platform. At the same time, we should adhere to AI innovation, content innovation and ESG innovation to help the group become a world-renowned tourism brand.

However, if Ctrip wants to win the international battle, it may just be the beginning.

And this time, without any major environmental factors, victory or defeat is a straight line with no other reasons.