We came across a bullish thesis on Trip.com Group Limited (TCOM) on Substack by Acid Investments. In this article, we will summarize the bulls’ thesis on TCOM. Trip.com Group Limited (TCOM)'s share was trading at $57.20 as of Feb 27^th. TCOM’s trailing and forward P/E were 16.73 and 16.58 respectively according to Yahoo Finance.

Trip.com (TCOM) is a premier online travel agency (OTA) that has seen a sharp sell-off despite posting strong earnings. The stock correction comes at a time when global travel trends have shifted away from luxury goods and toward experiences, making TCOM a prime beneficiary of this secular change. The company operates under two primary brands: C-Trip, which dominates the Chinese travel market, and Trip.com, its rapidly expanding international arm. Despite growing revenue and maintaining high margins, TCOM’s aggressive reinvestment into sales and marketing has raised investor concerns, contributing to the recent pullback. However, a historical comparison to Booking Holdings (BKNG) suggests that this reinvestment strategy could yield significant long-term benefits.

Since COVID, demand for travel has surged, with global OTAs like BKNG and Expedia (EXPE) benefiting from strong top-line and bottom-line beats. Given this backdrop, TCOM’s double beat on earnings should have been met with optimism. However, the stock was hit hard, dropping into the mid-$50s, despite delivering 23.5% revenue growth in Q4 2024 and 19.8% growth for the full year. While gross margins slightly declined, they remain above 80%, underscoring the business's profitability. The primary driver of the sell-off appears to be TCOM’s ballooning sales and marketing (S&M) expenses, which grew 44.5% YoY in Q4 and 29.3% for FY24. This increase led to a decline in EBITDA margins from 28% in Q4 2023 to 23% in Q4 2024. While some view this as a negative, it reflects TCOM’s commitment to capturing market share. The company has been offering aggressive discounts on bookings, absorbing a portion of costs to provide the lowest prices relative to competitors like Agoda. This strategy mirrors BKNG’s early expansion phase when it spent heavily on customer acquisition, growing its revenue by 29.1% in 2013 while increasing advertising costs by 47.1%.

TCOM’s reinvestment strategy extends beyond marketing. Its total reinvestment in S&M and product development reached 46.9% of revenue in FY24, compared to BKNG’s 43.8%. While TCOM’s EBIT margin stands at 26.5%, lower than BKNG’s 31.8%, much of this gap is due to TCOM’s higher general and administrative (G&A) expenses, which remain at 7.6% versus BKNG’s 4.4%. As the company scales, these costs could normalize, driving margin expansion. The key difference between the two firms is that BKNG optimized its cost structure early, allowing it to book an impressive 35% EBIT margin at a similar stage of growth. TCOM, on the other hand, is prioritizing reinvestment over short-term profitability, a decision that could pay off in the long run as it strengthens its international presence.

The international segment is where TCOM has seen explosive growth, with revenue up 70% YoY. This expansion is crucial, as investors tend to value international revenue streams at a premium compared to Chinese earnings. China’s improved visa policies have boosted inbound travel, further supporting domestic bookings. However, the market appears overly focused on the sequential revenue decline in Q4, a seasonal trend common among OTAs due to the summer travel boom in Q3. The sell-off seems unjustified given the company’s long-term trajectory, making the stock an attractive buying opportunity.

Despite near-term headwinds, TCOM remains one of the best plays on the Chinese consumer and the global travel rebound. The company’s aggressive reinvestment strategy, while impacting short-term margins, is a long-term value driver. Historical precedents from BKNG suggest that early-stage reinvestment in marketing and technology can lead to outsized gains once scale efficiencies kick in. Analysts may prefer immediate margin expansion, but TCOM’s management appears focused on solidifying its competitive position. If the international business continues its current growth trajectory, the stock is poised for a significant rerating. The current pullback presents an opportunity for investors willing to hold through volatility, as TCOM’s long-term fundamentals remain intact.

Trip.com Group Limited (TCOM) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 51 hedge fund portfolios held TCOM at the end of the third quarter which was 50 in the previous quarter. While we acknowledge the risk and potential of TCOM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TCOM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.