Chinese online travel giant Trip.com warned that its first-quarter revenue could fall by as much as half as a result of travel suspensions brought on by Covid-19 in its fourth quarter financial earnings release.
Why it matters: Trip.com is the latest of a series of technology companies around the globe which have issued stark performance warnings as a result of the coronavirus pandemic.
- While the outbreak has weighed on the financial performance for all Chinese tech majors from Alibaba to Baidu, travel-oriented platforms were among the worst-hit.
- Work resumption since Feb. 10 has driven business travel demand up while leisure travelers remain cautious about trips, though pent-up demand is high.
- China Tourism Academy expects full-year 2020 revenue from tourism to drop by RMB 1.18 trillion (around $167.72 billion)—a 21% decline.
“During the recent novel coronavirus outbreak, we took immediate actions to take care of our customers and partners, while taking on necessary financial impact in the near term. We firmly believe it was the right thing to do for us as the industry leader, and look forward to coming back even stronger after the outbreak is contained.”
—James Liang, Trip.com executive chairman
Details: As a result of the coronavirus outbreak, the company said that it expects net revenue to decrease by approximately 45% to 50% year over year in Q1.
- Trip.com, formerly known as Ctrip, recorded solid Q4 results prior to the warning, with net revenue rising 10% year on year to RMB 8.3 billion to the average analyst estimate of RMB 8.27 billion compiled by Yahoo Finance.
- The company’s business in international markets and China’s lower-tier cities drove growth, the company said, amid fierce competition from rivals like service platform Meituan and Alibaba’s Fliggy online travel platform.
- The company’s shares traded 6.4% lower to close at $21.63 each on Wednesday, falling 43.7% from a six-month peak in mid-January.
Context: Arriving ahead of China’s busiest travel season before the Chinese New Year Festival, the Covid-19 lockdown forced China’s major travel booking platforms, including Trip.com, Qunar, Fliggy, and Mafengwo, to revise policies, offering free rescheduling and cancellation services to users who booked their services before the holiday.
- To help offset revenue losses, Trip.com chairman James Liang and chief executive officer Jane Sun stopped receiving salaries beginning in March to last until the travel industry recovers, while members of senior management will take pay cuts of up to half.
- Trip.com is reportedly looking to raise $1.2 billion loan from domestic and international banks to refinance and fund working capital, according to Bloomberg.