Ctrip.com International Ltd. surged to a record after it purchased a 38 percent stake in Elong Inc., improving the outlook for pricing and profits in China’s increasingly competitive online travel-booking industry.
Both companies’ profit margins have been hurt in recent years as they increased marketing spending to lure customers in China’s burgeoning travel industry with promotions including discount coupons. Ctrip, which operates the country’s biggest travel-booking website, bought the Elong stake from U.S.-based Expedia Inc., becoming its biggest shareholder.
Ctrip’s American depositary receipts rallied 18 percent to $84.63 in New York Friday, the highest since its December 2003 trading debut. Elong jumped 8.7 percent to $22.44. A Bloomberg gauge of the most-traded Chinese stocks in the U.S. advanced 2 percent.
“By taking a stake, clearly there is incentive for both to find ways to work together as opposed to the type of competition they’ve been engaged in for years,” Jeff Papp, a senior analyst at Oberweis Asset Management Inc., which oversees about $1.9 billion, said by e-mail Friday. “The pricing competition in this segment will become more rational. Together, they may also get some more bargaining power against the airlines.”
Elong hasn’t been profitable since 2011 amid ballooning marketing expenses. Ctrip’s net income margin dropped to an 11-year low in 2014, data compiled by Bloomberg show. Together, they will control 75 percent of the market share for high-end hotel booking, putting them in a better position to negotiate with vendors, according to 86Research Ltd.
The Bloomberg China-US Equity Index increased to 136.01, also a record. The gauge followed benchmarks in Shanghai and Hong Kong higher.
U.S.-traded Chinese stocks rallied after regulators said in a joint statement that China and Hong Kong will start cross-border sales of funds on July 1, with an initial quota of 600 billion yuan ($97 billion). The announcement, coming six months after the start of a cross-border stock link program, opens a new channel for foreign asset-management firms to tap household savings of around $8 trillion in China.