Monday, January 10, 2011 10:25:52 AM
UTA - first, nice to have you aboard Natty. You write great stuff on SA. I figured my post might get a response from you 
My initial concerns with UTA were (1) serial dilution - UTA has diluted multiple times at extremely low valuations despite having a reasonable cash balance, (2) the possibility of earnings exaggeration - UTA does not currently have a quality auditor, and has definitely done the auditor shuffle over the last few years. The recent resignation was certainly a yellow flag. (3) the website - both the us and the chinese versions were sub par IMO.
The first two concerns have seen been alleviated by the CFO's insider purchase. $250K speaks for itself. Very bullish. So we are left with (3).
"UTA's overweight emphasis on offline vs. online is not a weakness, but a strength. 80% of all China domestic travel business is offline transactions."
That's because the Chinese internet economy is young and still developing. The question for an investor to ask is not "where are we?", but rather "where are we headed?" Clearly, online travel transactions is where China is headed. That's where the developed economies have all moved, and there's no reason to believe that China will somehow be an exception.
One could make the same argument that you've made about neewspapers in China. The paper print media is remains quite successful right now in China, particularly in the rural parts of the country. Does that mean that newspaper investing is a good way to play the increased purchasing power of the Chinese consumer? I don't think so. As the rural regions develop and gain increasing purchasing power, they are going to move away from getting their news from newspapers and towards the use of the internet like the rest of China (and the world).
"Sure, the online segment will increase for both companies as China consumer spending behavior changes, but we are talking 5-10 years in the future before online is the majority way that the Chinese transact travel purchases and the offline segment will still be huge in this growing sector and economy. UTA is not naive to this and is taking steps to prepare their infrastructure and business relationships for that future."
If you look at alexa volume, they are way behind the curve wrt both Ctrip and E-long. Their website functionality is also behind the curve. That matters in a market that's going to gravitate around the eventual winner. In fact, it's everything.
It didn't do any good for infoseek or altavista to brag in 2000 that they were growing. They were behind Google and Yahoo. And now they are irrelevant.
If I were a UTA investor, I wouldn't be as focused on P/E ratios, EPS growth, or revenue growth in the traditional offline market. I would be focused on online sales volume. How many people each month are hopping on the web and putting orders in through UTA? That's what will determine whether UTA becomes a Yahoo or an altavista. When all is said and done, there really be much room for an in-between.
"Don't forget that UTA is a partner with Priceline via their Agoda subsidiary."
Valid point. The association will make the website appear more upscale. However, by my understanding, the deal benefits Agoda more than it benefits UTA. UTA web traffic will be encouraged to surf to Agoda, but not vice versa. I may be wrong, maybe you can elaborate.
"FYI, my UTA position is only slightly less than my CCME. Love both going into 2011."
A question for you: what do you think UTA's multiple should be and what do you think CCME's multiple should be and why?
I will agree that UTA is undervalued right here, but I don't think the multiple is that far off from where it should be. Maybe an 8 or 9 multiple. But nothing substantially higher IMO. They are in a very competitive environment, and if they can't gain ground on the more sophisticated and better capitalized competition that is already ahead of them in terms of volume, they may not even be around 10 years from now. That's the risk.
To reiterate, it's great to have you on the board and I look forward to hearing about more of your CGS ideas.
My initial concerns with UTA were (1) serial dilution - UTA has diluted multiple times at extremely low valuations despite having a reasonable cash balance, (2) the possibility of earnings exaggeration - UTA does not currently have a quality auditor, and has definitely done the auditor shuffle over the last few years. The recent resignation was certainly a yellow flag. (3) the website - both the us and the chinese versions were sub par IMO.
The first two concerns have seen been alleviated by the CFO's insider purchase. $250K speaks for itself. Very bullish. So we are left with (3).
"UTA's overweight emphasis on offline vs. online is not a weakness, but a strength. 80% of all China domestic travel business is offline transactions."
That's because the Chinese internet economy is young and still developing. The question for an investor to ask is not "where are we?", but rather "where are we headed?" Clearly, online travel transactions is where China is headed. That's where the developed economies have all moved, and there's no reason to believe that China will somehow be an exception.
One could make the same argument that you've made about neewspapers in China. The paper print media is remains quite successful right now in China, particularly in the rural parts of the country. Does that mean that newspaper investing is a good way to play the increased purchasing power of the Chinese consumer? I don't think so. As the rural regions develop and gain increasing purchasing power, they are going to move away from getting their news from newspapers and towards the use of the internet like the rest of China (and the world).
"Sure, the online segment will increase for both companies as China consumer spending behavior changes, but we are talking 5-10 years in the future before online is the majority way that the Chinese transact travel purchases and the offline segment will still be huge in this growing sector and economy. UTA is not naive to this and is taking steps to prepare their infrastructure and business relationships for that future."
If you look at alexa volume, they are way behind the curve wrt both Ctrip and E-long. Their website functionality is also behind the curve. That matters in a market that's going to gravitate around the eventual winner. In fact, it's everything.
It didn't do any good for infoseek or altavista to brag in 2000 that they were growing. They were behind Google and Yahoo. And now they are irrelevant.
If I were a UTA investor, I wouldn't be as focused on P/E ratios, EPS growth, or revenue growth in the traditional offline market. I would be focused on online sales volume. How many people each month are hopping on the web and putting orders in through UTA? That's what will determine whether UTA becomes a Yahoo or an altavista. When all is said and done, there really be much room for an in-between.
"Don't forget that UTA is a partner with Priceline via their Agoda subsidiary."
Valid point. The association will make the website appear more upscale. However, by my understanding, the deal benefits Agoda more than it benefits UTA. UTA web traffic will be encouraged to surf to Agoda, but not vice versa. I may be wrong, maybe you can elaborate.
"FYI, my UTA position is only slightly less than my CCME. Love both going into 2011."
A question for you: what do you think UTA's multiple should be and what do you think CCME's multiple should be and why?
I will agree that UTA is undervalued right here, but I don't think the multiple is that far off from where it should be. Maybe an 8 or 9 multiple. But nothing substantially higher IMO. They are in a very competitive environment, and if they can't gain ground on the more sophisticated and better capitalized competition that is already ahead of them in terms of volume, they may not even be around 10 years from now. That's the risk.
To reiterate, it's great to have you on the board and I look forward to hearing about more of your CGS ideas.
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