Motley Fool on eLong, Ctrip, Home Inn and more in China

It is definitely China week here are the BOOT. Two posts on Ctrip last week one on an interview with their CFO Jane Jie Sun and one on their acquisition war chest plans.

This week I came across another interesting post for China watches to read. Rick Munarriz over at the Motley Fool site published a post titled "Panoramic View of Chinese Travel Plays" In the story Muarriz discusses the performance of online travel company eLong (Nasdaq: LONG) , budget hotel chain Home Inn (Nasdaq: HMIN) (interesting side bar - Home Inn was founded by CTRIP founder) as well as Ctrip (Nasdaq: CTRP) itself and even Priceline (Nasdaq: PCLN) and AirMedia (Nasdaq: AMCN).

Good comparison on performance of eLong and Ctrip. Worth a read. Interesting note on eLong. Though it is profitable, more than half its market cap is explained by the $139mm in cash in the bank.

thanks to steve webel for the great photo care of flickr

Rumour - Expedia buys into India with $17million investment in TravelGuru - is there a scary eLong parallel here

contentSutra has a story (in conjunction with VCCircle) that Expedia has spent $17mm to gain a stake in the number four indian player TravelGuru. Intial reports put the valuation at around $30 million giving Expedia a majority stake. An update in contentSutra puts the valuation at closer to $75mm - though the headline still claims that Expedia has a majority stake.

UPDATE - CEO Ashwin Dameria has written to Medianama.com with the following comment

I’m disappointed that mere speculation is being published in the form of a “story”. Many people have called me based on this hearsay and what they have read online.

There are many inaccuracies in these reports – the biggest being – there has been no deal signed! (my emphasis)

What more is there to deny?

Warm regards,

Ashwin

He does not say "no negotiations are under way" or "no chance". Rather says "no deal signed". Assuming there is a deal - here is my analysis.

I did a background piece on the India market a few months ago. In researching that piece it became clear that TravelGuru was very well funded - having raised as much as $25mm from Sequoia and Battery. First round was $10mm with just Sequoia and then a combined Sequoia and Battery second round of $15mm. TravelGuru has used some of this to do acquisitions of their own picking up Desiya for around $25 mm (Rs. 100 crores). While well funded and used to acquisitions, the research put TravelGuru in fourth place in the market with around $80mm in TTV planned for 2008 (up from $42 in 2007). This puts them behind Makemytrip on around $280 TTV, Yatra on $210 and Cleartrip (>$100). More in this post here.

I am trying to understand this play by Expedia. Using acquisition as an market entry technique is not typical Expedia behaviour (on the leisure side). Of course in France there was the original joint venture with SNCF and there have been a string of investments by TripAdvisor. But the entry of the Expedia brand into a market has usual followed a organic path of launch hotel/destination services while the air engine is localised. Then a year or so after brand launch they bring on the air engine and ramp up the marketing. In the case of India with have the hotel only launch of Expedia.co.in and then four months later the investment - but not full buyout - of a local player. The obvious and scary parallel for Expedia is their entry into the Chinese market through a majority investment in eLong (August 2004). This has proven to be a disaster for Expedia. eLong is onto its third CEO since the investment (fourth if you include the interim work of Expedia Asia Pacific President Henrik Kjellberg) and the stock is near a two year low of around $7 only just above the investment price of $6.21 (though it would be fair to say that I should keep comments about poorly performing online travel stocks to a minimum). Much like eLong and its market standing compared to ctrip, TravelGuru currently lives in the shadow of larger rivals.

It has taken Expedia 4 years to ready themselves for another part investment in an emerging market. I am sure they are hoping that they have learnt a lot from the lessons of eLong.

Just a rumour at present as the CEO TravelGuru Ashwin Dameria has (sort of) issued a denial. Either way - the Indian market is continuing to heat up.

Airline Industry - Singapore Airlines cancels deal to buy a slice of China Eastern - parable for online travel in China

A little bit off the online track but I enjoyed reading a recent Wharton Article called "Turbulence in the Skies: The Ongoing Saga of China Eastern Airline, Air China and Singapore Airlines". Very quickly - SIA was going to buy 24% of China Eastern for HK$7.16 billion (US$918 million). Everything was announced and ready to go. But at the last minute the deal is off (see update below). Air China and a related company (China National Aviation Corporation or CNAC) swooped in and took the deal away from SIA.

What I particularly found interesting about the story was that it is a parable for a lot of online travel and investment activities in China.

The "once great" Cendant Corporation entered China online though a joint venture with government owned CYTS to form AoYou (English site China Travel Depot). Descendants of Cendant had to pull out.

Expedia jumped into China and jumped up and down about its investment in the permanently Ctrip chasing eLong. Fours CEOs (include one interim), untold number of secondees from Seattle and a lot of red ink later and this business is still losing ground to Ctrip. I am sure descendants of that deal wish they could pull out also.

China is tough. Culture and developing market issues aside. Online in China is more offline than online with more than 70% of the so called online volume going through enormous call centres. Regulatory environments mean it almost requires a different ticketing licence from each regional governments. Not to mention the security issues around famil trips.

If you want to keep more of a track of the online travel market in China I suggest you subscribe to Roy Gaff's China travel industry blog.

UPDATE - an informed reader tells me that an investment by SIA into China Eastern is not deal it is just very complicated and will take a lot of time.

China heading to $1billion online travel revenues (well sort of and I think it already did)

Thanks to China Industry Travel Blog and Seeking Alpha I came across some online travel numbers for the China market.

The Data Center of the China Internet (DCCI) released its 2008 China Internet Survey including the following commentary on online travel.

Revenue of China's online travel and hotel reservation services climbed 65.4 percent year-on-year to RMB 2.25 billion ($309.1 million). Revenue of the sector is expected to hit RMB 3.84 billion ($527.5 million) in 2008 and RMB 7.32 billion ($1 billion) in 2009, driven by the Olympics and the further opening of China's tourism market.

Ctrip remains the leader in China's online travel and hotel reservation market, followed by Elong, Auyou and MangoCity.

Important point is as I have said before most of what is online in China is actually offline.

Also PhoCusWright are already reporting China at above the $1billion mark.

China News - eLong down, Ctrip up and Qunar in the money

Round of news coming out of the online travel scene in China tells and interesting story:

1. Number 2 player eLong posted its Q3 results. Good news started and ended with an reported increase in revenue. Bad news was that revenue was only up 12% and losses have widened from RMB2.7mm (USD365k) in Q3 06 to RMB 7.4mm (USD1mm) in Q3 07. Stock is almost half it was a year ago. New CEO Cui Guangfu has a big job ahead of them to catch up with...
2. Ctrip posted a great result this quarter - beating expectations - announcing an almost doubling of profits to USD15mm for the quarter on revenues of $46mm. In a clear dig at eLong, Ctrip attributed a lot of the credit for the results to rising travel demand. Shares are similarly moving the opposite direction to eLong. But any possible conflict in signals about the market from the different results between number one and number two in China did not dissuade...
3. Lehman Brothers Private Equity Partners dropped $10mm into local meta search player Qunar.com. It was Qunar's second round of funding. First round was in the $2-3mm range with Mayfield leading that round. UPDATE - here is the alarm:clock story including information that Qunar founders Douglas Khoo, CC Zhuang, and Fritz Demopoulos had previously founded and sold the CSEEK search engine to News Corporation and founded and sold the Shawei.com portal to The Tom Group.

Busy days in China.

The turning point for eLong

Business blog Seeking Alpha's Shane Farley is convinced that the hiring of Chinese born Guangufu Cui as the new CEO is just what eLong need to reinvigorate its campaign to take on Ctrip and to bolster its comparatively flagging share price. Farely provides some interesting financial analysis of eLong particularly pointing out that while eLong has not been matching Ctrip's profitability growth it is sitting on a cash pile of $156mm and no debt. That plus a new boss, Farely argues, should be enough to help be competitive again. More of the article here.

New boss for eLong - Guangfu Cui

5 months after the departure of Tom SooHoo, eLong have announced the appointment of a new CEO - Guangfu Cui. Press release here.

Here is how they describe his background

Prior to joining eLong, Guangfu Cui was the Managing Director for FedEx Kinko's China. Under his leadership, Mr. Cui positioned the company as market leader in digital printing industry in China with 16 centers and 300 employees within four years after he joined FedEx Kinko's.

Prior to joining FedEx Kinko's, Guangfu Cui worked for Procter & Gamble China for over 12 years, including two and half years working in the United States. He was instrumental in building Procter & Gamble China's distribution network and retail coverage system.

Guangfu Cui is 38 years old, holds an MBA from Kellogg School of Management at Northwestern University and a BA in Law from Peking University.

This allows Expedia Asia Pac president Henrik Kjellberg to give up the role of interim CEO and get back to his day job(s).

BusinessWeek on online travel in Asia (with a China bias)

Nice read from BusinessWeek called "Asian Tourists Love to Click and Go". Interesting fact that I took from it was.

In China...Ctrip and eLong enjoy a combined market share of 72%...

We all suspected as much. Of course the article does not talk about how most of what is online in China is actually offline but still interesting.