Having analyzed Ctrip.com (NASDAQ:CTRP), eLong Inc (NASDAQ:LONG) is very much similar in terms of business model.
Unlike CTRP, LONG reported a sad Q3. Although revenues continued to increase, LONG experienced a net loss of $5 millio or RMB0.81/share.
This slump in earnings came from various fronts. First of all, investment in air-ticketing business (which has lower gross margins than the hotel business) has sent the gross margins down YoY. Operating expenses, including service development, sales and marketing, and general and administrative expenses, increased as well, the Company explained that they invested in long-term growth opportunities, which I think is not totally sensible. Thirdly, eLong made a one-time non cash writedown of goodwill and intangibles of RMB17.5 million (US$2.2 million), which related to Ray Time, the company acquired in November 2004. And finally and probably the worst, the unrealized foreign exchange loss of RMB23.4 million (US$2.9 million) as a result of revaluation of the Renminbi which was partly offset by interest income of RMB8.4 million (US$1.0 million). They described it as "unrealized", which means they haven't pulled out the deposits. Based on the current revaluation trend of RMB, they may expect more forex loss in the future.
Indeed, the Company expected an increase in operating loss in the fourth quarter of 2005 compared to the third quarter of 2005.
Looking at its ratios, because of its negative earnings, the P/E is NA, and profitability and management efficiency ratios are all negative.
Referring to its chart, 50DMA crossed below 100DMA, and is heading south. Price is also below the SMAs. RSI is in negative territory and is heading down. MACD is negatve as well, and MACD(12,26) is about to cross below MACD EMA(9).
LONG was established after CTRP. CTRP is currently the biggest player in this sector in China. LONG should invest more in order to get more market share, compete for customer sources, and establish characterized services and distribution channels.
Overall, my recommendation is SELL.
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