China's largest online travel platform, Trip.com, posted better-than-expected third-quarter earnings as domestic travel demand recovered. But TCOM stock sank Tuesday after an analyst downgraded the stock, citing concerns about the outlook for travel growth.
For the quarter ending Sept. 30, Trip.com reported adjusted earnings of $1 per share on $1.9 billion in third-quarter sales. On average, analysts polled by FactSet expected Trip.com to earn 67 cents per share on $1.8 billion in sales for the quarter that ended in September. Earnings per share more than tripled from the same quarter last year and sales increased 99% in local currency.
Trip.com offers online booking for hotels, air travel, tours and other travel services. The company's business is focused in China, with brands that operate globally such as Trip.com and Skyscanner.
"Throughout the third quarter of 2023, both domestic and international travel experienced a remarkable rebound, thanks to the robust summer travel demands," said James Liang, Trip.com executive chairman, in a news release.
On the stock market today, TCOM stock fell 10.6% to 32.78. Analysts with Nomura downgraded the stock to neutral from buy following the earnings report.
Watching Outbound Travel
In downgrading TCOM stock, Nomura analysts said they are concerned growth for domestic tour packages may have already peaked after a surge from pent-up demand, according to Seeking Alpha.
Packaged tour revenue climbed 243% year over year in local currency, to $182 million in the third quarter. The growth was powered by a "substantial recovery" in the travel market, the company said.
Domestic hotel bookings are up more than 70% from pre-Covid levels, the company said. Outbound hotel and air reservations are recovered to about 80% of pre-Covid levels.
Trip.com Chief Executive Jane Sun said demand for outbound travel has exceeded pre-Covid levels. But she also said visa applications have been delayed in Europe and other markets, while flight capacity has yet to fully recover.
On the other hand, Mizuho analyst James Lee maintained a buy rating for TCOM stock following the report.
"Although outbound travel from an industry perspective has been slower than anticipated, it is due to supply constraint — slow visa processing and flight capacity added — not consumer demand," Lee wrote in a client note Tuesday. "That said, we expect the activity to pick up as the supply bottleneck gets resolved."
Lee called TCOM a "best-in-class (online travel agency) globally due to easing competitive pressures within China and outbound travel opportunities with limited competition."
TCOM Stock: Drop Pushes Shares Negative For 2023
Coming into earnings late Monday, Trip.com's Nasdaq-listed TCOM shares had gained about 6% this year, compared to a roughly 18% gain for the S&P 500. But with the fall Tuesday, shares are off about 5% from the start of the year.
Shares also sank below the company's 50-day moving average.
Still, TCOM stock has an IBD Composite Rating of 96 out of 99, according to IBD Stock Checkup. IBD's Composite Rating combines fundamental and technical metrics for an overview of a stock's strengths. The best-rated growth stocks have a Composite Rating of 90 or better.
