Qunar Poised for 4Q15 Results: Which Analysts Should We Believe?
Analyst estimates
For 4Q15, analysts are estimating that Qunar Cayman Islands (QUNR) will have an EBITDA (earnings before interest, tax, depreciation, and amortization) loss of $81 million. For 2015, EBITDA loss is estimated to be $316 million compared to an EBITDA loss of $280 million in 2014.
Qunar is expected to continue having EBITDA losses for the first two quarters of 2016 and turn EBITDA positive in the third and fourth quarters of 2016. EBITDA loss for the first two quarters is estimated to be $81 million and $59 million, respectively. For the third and fourth quarters of 2016, EBITDA is expected to be $9 and $19 million, respectively. This is mainly due to synergies from the Ctrip.com investment, which we’ll cover in a later article, and reduced price wars.
Priceline’s (PCLN) EBITDA margins are expected to increase to 41% in 2016 from 40% in 2015. TripAdvisor’s (TRIP) margins are expected to be constant at 31%, and Expedia’s (EXPE) margins are expected to increase to 19% in 2016 from 17.5% in 2015.
Rising expenses
As seen in the previous articles, Qunar has seen tremendous growth in revenues in the past year. However, this growth has come at the cost of margins. Qunar has been making sustained investments in product development and sourcing in order to drive growth. This has resulted in both operating and EBITDA losses for the company.
Price wars
China has seen tremendous growth in its online travel industry and is expected to continue growing in 2016. This has led to intense price wars as companies try to get a bigger share of the pie, thus leading to declining margins.
Outlook
QUNR is expected to continue making investments to achieve revenue growth, which will impact profitability. However, industry consolidation will help keep pricing wars at bay, offsetting some of the adverse impact.
Qunar management is positive about turning the company around. Two major factors leading to this confidence are cost discipline and future economies of scale.
Investors can gain exposure to the Chinese OTA (online travel agency) market by investing in the PowerShares Golden Dragon Halter USX China ETF (PGJ).
Next, we’ll look at why investors could be worried about Qunar’s balance sheet.
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