Analyst Sees Ctrip's Deal With eLong-Tencent 'Too Much For Qunar And Allies To Overcome'

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In a report published Tuesday, WR Hambrecht analyst Henry Guo maintained a Buy rating on
Ctrip.com International, Ltd. (ADR)CTRP
, with a price target of $122, after reports of a potential deal between eLong and Tencent. Analyst Henry Guo pointed out that while Ctrip reported robust quarterly results, all attention was on news of eLong receiving a going-private offer from Tencent. Guo believes that a potential deal allows Ctrip, eLong and Tencent to pursue opportunities in the China online travel market, while having a negative impact on
Qunar Cayman Islands LtdQUNR
. In the report WR Hambrecht noted, "…this deal reinforces our belief that the China online travel space is a highly attractive market and now Tencent officially walks onto the center stage in order to get full exposure of its huge growth potential. As of now, Tencent just small minority owns some online travel players such as eLong and Tongcheng." Since Ctrip owns 38 percent of eLong and holds 47 percent of the latter's voting power, it will remain the leading shareholder of eLong even after the latter goes private. This will allow Ctrip to influence eLong's operations, Guo said, while adding, "In other words, we don't believe the potential synergy between Ctrip and eLong which investors expected before will be diminished or discounted after this going-private transaction." Tencent's mobile dominance and strong financial base are expected to allow eLong to act aggressively and intensify the competitive pressure faced by Qunar, the report noted. Ctrip is also expected to benefit from the deal in terms of more cooperation with Tencent, thus allowing it to leverage the latter's dominance and expertise in mobile and social networks. Ctrip.com's growth prospects are expected to be driven by strength in the company's core business, increasing synergy with eLong, leverage opportunity from the potential deal and promising momentum in newer segments, such as packaged tours.
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Posted In: Analyst ColorReiterationAnalyst RatingsWR Hambrecht
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