Why Ctrip's Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese travel expert Ctrip.com (NAS: CTRP) were flying high today, gaining as much as 11% in intraday trading after the company reported first-quarter results.

So what: Getting straight to the numbers, for the first quarter, Ctrip's revenue grew 19% from a year ago, to $145 million, while earnings per share came in at $0.18, which was down about 8% from last year. Per-share earnings just missed the $0.19 expectation of Wall Street analysts. The quarter's top line was driven by an 18% gain in hotel reservation revenue and a 33% jump in packaged-tour revenue. Profit, however, was hit by rapidly expanding costs -- namely, a 51% increase in product development costs, a 47% jump in sales and marketing expenses, and a 57% leap in general and administrative spending.

Now what: The market seems pretty pleased with Ctrip's quarter, but I'm not so sure that I'm on the same page. Top-line growth looks good -- and the company projected further 15% to 20% growth for all of 2012 -- but the growth in costs appears to be absolutely crushing profits. Since 2010, the company's operating margin has steadily fallen, from 36.6% that year, to 26.9% over the past 12 months. For this past quarter it was 19.4%.

Investors attracted by the company's strong growth may want to keep a keen eye on its expenses.

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At the time thisarticle was published The Motley Fool owns shares of Ctrip.com International. Motley Fool newsletter serviceshave recommended buying shares of Ctrip.com International. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributorMatt Koppenhefferhas no financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting hisCAPS portfolio, or you can follow Matt on Twitter,@KoppTheFool, or onFacebook. The Fool'sdisclosure policyprefers dividends over a sharp stick in the eye.

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