LONG: eLong Struggles to Earn its Share of $82 billion Chinese Travel Market Pie

This is Part 3 of How to Invest in 2008 Beijing Olympics Series.

Our 3rd Chinese company is Elong, Inc (LONG), an online Chinese travel service provider in China.

Elong, Inc Company Report

eLong, Inc. is an online travel service provider in China. The Company utilizes a centralized modern call center and Web-based distribution technologies to provide its services. Through its nationwide 24-hour, toll-free call center, Chinese and English language Websites and extensive reseller network, eLong provides its customers with consolidated travel information and the ability to book rooms at discounted rates at over 3,000 hotels in more than 278 cities across China and air tickets in over 50 cities across China. The majority of the Company's hotel suppliers are three-, four- or five-star hotels catering to higher-end travelers. The Company also offers vacation packages.

eLong and Ctrip.com both compete for similar consumer travel markets, but eLong has undergone management changes since CEO Tom Soohoo resigned on April 16th, 2007. With the crucial setting of the 2008 World Olympics in Beijing ahead, eLong struggles while Ctrip and HMIN are doing quite well.

Will eLong be able to grab a piece of the $82.6 billion Chinese travel market pie? Maybe, but competition is stiff.

eLong brings in sales of $36 million and earned $0 EPS in Q1 '07. These number are not what you would expect from a Chinese travel service provider. When compared to Ctrip's $112 million in sales and $0.26 EPS, Ctrip appears like the stronger play. eLong looks scary right now.

There are so many questions to ask like: What caused Soohoo's resignation? What are 5-year net profit margins at -10%? Where is this company heading?

Key Information to Remember about eLong

While the exterior looks awful, there are a few positives to take away from the eLong story:

  • earnings are projected to grow at 25% for the next 5 years
  • EPS has grown 100% YOY in Q1 '07
  • Stock has bottomed at $9.20
  • Extra 2008 Olympics buzz may bring in new customers and business

I do not think this stock is a buy, now. We need to see some more of the smoke clear to make that determination. But any Olympic catalyst could send these depressed eLong shares through the roof. If I were to buy eLong, it would be strictly a trade.

If you want to invest in a Chinese travel service provider over the long run, do homework on CTRP instead.

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