Ctrip.com Q3 Profits Up, Weak Outlook Sinks Shares

Orlando, FL 11/14/11 (StreetBeat) --Ctrip.com International (Nasdaq: CTRP) shares are trading sharply lower this morning after the China-based online travel company provided disappointing guidance for the fourth quarter, and showed signs of eroding margins.

For Q3, the company reported revenue of $153 million, above the Street consensus at $150.8 million. Non-GAAP profits of 43 cents a share topped the Street at 31 cents. Gross margin was 77%, down from 78% a year ago; non-GAAP operating margin was 41%, down from 45% a year ago.

For the fourth quarter, the company is projecting revenue growth of 15%-20%, below the Street consensus estimate for 25.3% growth.

Brean Murray analyst Fawne Jiang this morning cut her rating on the stock to Hold from Buy. She notes that while EPS appeared to top estimates, profits included $8.5 million in government subsidies, equal to six cents a share; without that factor, the company would have missed.

Jiang asserts that the company’s considerable off-line business – it has 6,500 call center staff – is pressuring margins. She notes that China has hit an inflection point in labor costs, with increases likely to continue, and she says the company has had to boost sales and marketing expenses to go after the consumer travel market. She says profit growth is likely to be muted in Q4 and beyond.

CTRP is down $5.37, or 15.67%, to $28.90.

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