Story Stocks^®

China-based travel giant Trip.com Group (TCOM) is garnering a positive reaction today following another period of sustained travel demand in Q3. In the two weeks leading up to TCOM's report, the stock slid by around 14% as market participants began taking profits, given lingering worries over shaky economic conditions in China. For instance, last week, Chinese e-commerce titans JD.com (JD) and Alibaba (BABA) each registered underwhelming e-commerce growth in SepQ, reflecting pockets of weakness in the region as job losses mount and the real estate market sours.

However, TCOM alleviated fears that economic softness would seep into the historically resilient travel industry, posting healthy inbound, outbound, and domestic travel demand during Q3. While management echoed remarks from others operating in China surrounding recent stimulus measures, noting that it is still too early to determine the policy's direct impact, the company is confident in maintaining its energetic momentum over the long run.

• Revenue growth accelerated sequentially in Q3, improving by 16% yr/yr to RMB 15.9 bln compared to a +14% jump last quarter. During the quarter, outbound hotel and air ticket bookings restored to 120% of pre-pandemic levels. Japan stayed the top destination for outbound travel. At the same time, travelers are expressing increasing interest in long-haul destinations like Europe and the Americas.
  • A positive development supporting a stronger foundation for TCOM is that lower-tier cities, i.e., less economically developed, are starting to venture outside national borders, emerging as a new growth driver in outbound travel. For instance, during China's National Day holiday, travel bookings from Tier 4 and 5 cities surged by 100% and 300%, respectively.
• Domestically, travel patterns are becoming more evenly distributed across China. TCOM continues to partner with hotels to develop package deals and increase awareness for domestic and international markets.
• Inbound hotel bookings roughly doubled yr/yr in Q3. Despite cooling off from an approximately 200% jump yr/yr in Q2, growth remains elevated, underpinning a substantial desire to visit China, particularly after the government's expanded visa-free entry program, where individuals can book leisure stays for around two weeks.
  • While the U.S. has yet to be added, China continues to add more countries to its visa-free policy, recently including nine new nations, such as South Korea and Denmark, potentially assisting TCOM in sustaining its inbound booking growth in future periods. At the same time, TCOM offers complimentary city tours for inbound travelers. Management conveyed notable optimism regarding the long-term health of inbound travel.

TCOM's Q3 report illustrates that within China's borders, individuals prioritize spending on travel despite navigating a wobbly economy. Meanwhile, outside of China, individuals remain excited to take advantage of visa-free entry and explore what the country offers. We mentioned last quarter that TCOM is in a compelling position to mount a broader rally. While government policy has had a pronounced impact on shares of TCOM, producing potentially elevated volatility, we continue to like TCOM's capacity to sustain its upward momentum.