Trip.com (9961 HK, HK$323.20, HK$231bn) Global Growth Offsets Domestic Pressure

Trip.com reported 2Q26 revenue of RMB15.7bn (+6% YoY/-3% QoQ) and an adjusted profit of RMB4.8bn (-4% YoY/+23% QoQ). Growth slowed amid softer domestic demand and transportation ticketing sales.  The new hotel partnership model is expected to experience near-term revenue pressure but not likely to affect the stickiness of its user base. By contrast, international operations continued to grow rapidly, at over 50% YoY and inbound travel revenue also increased at a HDG rate YoY. Despite near-term earnings pressure, we believe Trip.com’s core competitive strengths remain intact, and earnings growth will gradually resume.

Accommodation revenue stream will see new norms: segment’s revenue reached RMB6.6bn (+6% YoY/+1% QoQ), accounting for 42% of total revenue. During the period, Trip.com refunded RMB122mn of hotel order deposits and recorded the amount as a revenue reduction.  Excluding this one-off adjustment, revenue grew at a resilient 8% YoY.  Looking ahead, the new partnership with hotels will allocate traffic based on customer reviews, service quality, price competitiveness and historical conversion, while giving hotels greater pricing and operating flexibility. The Mgt expects some revenue volatility during the transition.

Transport ticketing remains under pressure: revenue fell to RMB5.4bn (-1% YoY/-12% QoQ), accounting for 34% of total revenue. Geopolitical disruptions reduced some long-haul flight capacity, while higher energy costs pushed up airline costs and fares and frequent summer rain disrupted travel demand. In addition, compliance driven adjustments to certain railway ancillary services also lower segment’s revenue. The Mgt views the energy and airfare headwinds as largely cyclical, suggesting pressure could ease as flight capacity normalizes and travel costs decline.

Advertising, packaged tours and corporate travel lost momentum: packaged-tour revenue reached RMB1.2bn (+8% YoY/+3% QoQ), while corporate travel revenue rose to RMB771mn (+11% YoY/+12% QoQ). Both experiencing slower growth due to softer underlying travel-demand. Other revenue (mainly advertising) stood at RMB1.8bn (+25% YoY/-2% QoQ) and remained one of the stronger businesses, although growth moderated on a higher base and slower overall travel activity.

Global expansion begins to deliver operating leverage: while domestic momentum weakened, Trip.com’s international business maintained revenue growth of more than 50% YoY, while inbound travel revenue grew at a high-double-digit pace. It continues to cultivate local supply across Asia-Pacific, Europe and the US, while inbound travel connects overseas traffic with Ctrip’s travel-related resources in China, gradually creating a two-way global travel network. International profitability began to benefit from scale, improved marketing efficiency and stronger airline unit economics. Mobile now drives more than 70% of Trip.com traffic, while growing organic traffic reduces reliance on paid acquisition. International operations are expected to shift from investment-led expansion toward simultaneous revenue and earnings growth.

Core profitability remains under pressure: GPM came in at 79.8% (-1.2ppts YoY/+0.2ppts QoQ), reflecting a combination of a rising international mix, pressure on accommodation monetization and lower ancillary ticketing revenue. Excluding the RMB 5.18bn penalty, operating expenses stood at roughly RMB8.8bn (+11% YoY/-2% QoQ). R&D and administrative spending remained relatively controlled, while S&M expenses increased 15% YoY to RMB3.8bn amid continued international expansion and higher competitive spending.

The penalty drove the reported earnings to a loss of RMB2.5bn from a profit of RMB4.8bn in the last corresponding period. Excluding the penalty, attributable profit would have been approximately RMB2.7bn (-44% YoY/+8% QoQ), implying a 17% NPM (-15ppts YoY/+2ppts QoQ). At end-June, Trip.com held a net cash position of about RMB74.1bn which should be ample to fund its international expansion and product investment.

Our views: Softer domestic demand and the revenue model for hotel bookings will pressure Trip.com’s near-term earnings. The new model weakens supply-side control but Trip.com retains a high-value customer base, giving quality hotels a strong incentive to remain on the platform.

International execution has exceeded our expectations, with strong growth partially offsetting domestic weakness and improving scale plus marketing efficiency begins to drive operating leverage. We believe Trip.com will soon adapt to the new revenue model and hotels will eventually reallocate their marketing spending in return for higher occupancy within the competitive market. The counter is trading at 12x FY26E PE.(Research Department)