Trip.com Earnings: Increasing Fair Value by 22% As International Revenue Begins to Ramp Aggressively

We raise our fair value estimate for Trip.com to USD 44 (HKD 352) from USD 36 (HKD 290) after the firm said on its fourth-quarter earnings call that it will aggressively expand its overseas platform. The aim is for the platform to increase its contribution to overall revenue to 15%-20%, from the 6% currently, in the span of 3-5 years. The company also reiterated a long-term non-GAAP operating margin target of 25%-30%—or a GAAP operating margin of 20%-26%—including stock compensation expenses. This may imply that it may not have to sacrifice significant profitability while expanding its business. Trip.com’s international outbound revenue has also recovered to about 90% of prepandemic levels, above the industry average of 70%, which should suggest market share gains on the nondomestic end. Our new fair value estimate reflects a more favorable outlook for international travel and assumes that international revenue can grow at a 23% CAGR from 2023-28, revised from 18% previously. We expect only minor changes to our domestic revenue growth forecast as Trip.com again expects it should decelerate to the high teens year over year in 2024, from 103% growth in 2023. Despite our fair value increase, we view the shares as fairly valued, but suggest position accumulation upon a pullback as China’s travel sector remains resilient amid the country's macroeconomic headwinds.