On Tuesday, Citi has increased its price target on NASDAQ:TCOM, the stock of Trip.com Group Limited, to $73.00 from $72.00 while maintaining a Buy rating. The adjustment comes after Trip.com reported robust third-quarter results, surpassing revenue expectations primarily due to a significant performance in transportation and other revenues. The latter is believed to have been bolstered by an increase in advertising spending by business partners on the Trip.com platform.
The firm anticipates that revenue momentum will continue to accelerate into the fourth quarter of 2024, driven by solid market share gains amid healthy competition and an outperformance in domestic hotel Average Daily Rates (ADR) on the Trip.com platform compared to the industry. Additionally, transportation revenues are expected to see an uptick due to normalized comparative figures for take rate.
Despite these positive indicators, Citi notes that the fourth quarter's margin could contract year-over-year due to bonus payments, increased marketing expenditures, and a rising contribution from Trip.com. However, the potential for upside remains, supported by strong revenue momentum.
In light of the third-quarter performance, Citi has raised its earnings estimates for 2024, 2025, and 2026 by 6%, 2%, and 2%, respectively. The firm's endorsement of maintaining a Buy rating is based on the impressive top-line momentum, domestic market share gains, and the structural narrative surrounding Trip.com.
In other recent news, Trip.com has been experiencing robust growth, as evidenced by its Q3 results and subsequent analyst upgrades. The company reported a notable 16% year-over-year increase in net revenue, reaching RMB 15.9 billion. The company's adjusted EBITDA was at RMB 5.7 billion, showcasing a strong cash position with RMB 86.9 billion.
Analysts from TD (TSX:TD) Cowen and Benchmark have shown confidence in Trip.com's performance, raising their respective stock price targets to $71 and $80, while maintaining a Buy rating. These adjustments come after the company's Q3 revenue report, which showed a 15.5% increase year-over-year, primarily due to robust advertising revenue.
Revenue for the current quarter is trending upwards at a rate of 17-20%, partially due to smaller declines in the average daily rate for domestic hotels. In light of these developments, TD Cowen has raised its 2025 revenue forecast for Trip.com by 2% in RMB terms.
Trip.com's future growth is expected to be driven by various factors, including deeper market penetration, demographic expansion, and a shift in consumer spending towards experiences. The company is also focusing on integrating AI to enhance user experiences and operational efficiency.
InvestingPro Insights
Trip.com Group Limited's (NASDAQ:TCOM) strong performance, as highlighted in Citi's analysis, is further supported by recent InvestingPro data. The company's revenue growth of 50.61% over the last twelve months aligns with Citi's expectations of continued revenue momentum. This growth is complemented by an impressive gross profit margin of 81.48%, which InvestingPro Tips identify as one of the company's strengths.
The market seems to recognize Trip.com's potential, with the stock showing a robust 72.98% return over the past year. This performance is particularly noteworthy given that the company is trading at a P/E ratio of 16.1, which InvestingPro Tips suggest is low relative to its near-term earnings growth. This valuation metric could indicate further upside potential, supporting Citi's bullish stance.
For investors seeking a deeper understanding of Trip.com's financial health and market position, InvestingPro offers additional insights with 10 more tips available, providing a comprehensive view of the company's prospects in the dynamic travel industry.
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