Valuation for Qunar: What’s Priced In?
Qunar Poised for 4Q15 Results: Which Analysts Should We Believe?
Forward EV-to-sales
Ideally, we would value an online travel player using the forward price-to-earnings multiple. However, since Qunar (QUNR) is still experiencing a loss at the EBITDA (earnings before interest, tax, depreciation, and amortization) level, we’ll value the company on a forward EV (enterprise value)-to-sales multiple.
Current valuation
Qunar (QUNR) is currently trading at a forward EV-to-sales multiple of 4.2x. This is half its average valuation of 8.5x since November 2013. However, this is because sales have been growing at an exponential rate. While sales growth is expected to remain high, the company is not expected to clock the three-digit growth in revenue that it was clocking earlier.
Valuation for Qunar is also lower than Ctrip.com’s (CTRP) multiple of 5.8x. It is, however, higher than eLong’s multiple of 2x.
Priceline (PCLN) enjoys a higher multiple compared to Qunar, with a forward EV-to-sales multiple of 6.2x Expedia is valued lower than QUNR at a multiple of 2x. TripAdvisor (TRIP) is trading at a multiple of 5.3x. These players are, however, not strictly comparable.
Qunar’s sales are expected to grow by 71% in 2016. Ctrip.com’s revenue is expected to grow by 65% in 2016. The market is expecting Expedia’s (EXPE) sales to grow by 38% in 2016. Rival PCLN’s sales are expected to grow at a much slower rate of 21% in 2016.
Our analysis
Valuation multiples help us understand the market’s perception of risk, growth, and investor willingness to pay.
Here are a few macro factors working in favor of Qunar:
growing consumer disposable income that’s driving the China travel growth
consumer spends shifting from offline to online
industry consolidation, which will reduce pricing wars
However, investors also need to track Qunar’s own fundamentals closely. High investments cannot be sustained forever. QUNR’s increasing leverage, despite operating loss, is another risk.
Investors can gain exposure to the Chinese OTA (online travel agency) market by investing in the PowerShares Golden Dragon Halter USX China ETF (PGJ).
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