Trip.com Group Ltd (TCOM) Report Interpretation

Overview

Morgan Stanley's review of Trip.com's 2Q26 results concludes that near-term revenue visibility has weakened, particularly in domestic travel, but that stronger-than-expected margins provide downside protection. The report maintains Overweight and an unchanged US$52 DCF-derived target, while shifting forecasts toward higher 2026 profit and lower 2027-28 revenue.

Core views

Near-term revenue momentum is muted, but Morgan Stanley believes the weakness is substantially reflected in expectations and that margins remain more resilient than previously assumed. Management guided to 1-6% year-on-year revenue growth in 3Q26, down from 5.5% in 2Q26. Domestic revenue is expected to be broadly flat or slightly lower because of extreme weather, weak consumption and hotel take-rate volatility. Outbound transportation revenue is also expected to be flat, while outbound accommodation should continue growing at a high-single-digit rate. The Trip.com international platform is expected to remain the primary growth engine, with revenue growth above 50% year on year. The margin outlook is the main near-term positive. Morgan Stanley sees the possibility of a broadly stable gross margin as Trip.com improves customer-service efficiency, while sales and marketing expenses should grow only mildly because of savings in the domestic operation and better efficiency at the international platform. These factors support a projected 3Q26 operating margin of 31-31.5%, above Morgan Stanley's and consensus' previous 29% expectation. The report therefore raises its 2026 non-GAAP operating-profit forecast by 6.1% to RMB17,811 million. Its full-year non-GAAP operating-margin estimates are 26.7% for 2026 and 25.1% for both 2027 and 2028. Visibility nevertheless remains limited. Hotel take rates may fluctuate while Trip.com and hotel partners adapt to the rebuilt commission system; long-haul travel is sensitive to fuel prices; and the rising contribution from the international Trip.com platform has a mixed near-term effect as rapid growth and improving efficiency develop at different speeds. Management expects 4Q26 revenue growth to slow further sequentially and operating profit to continue declining year on year. Even so, adjusted EPS for full-year 2026 is expected to remain positive year on year because repurchases have reduced the share count. Morgan Stanley lowers its 2027 and 2028 revenue forecasts by 3.6% and 5.7% to RMB69,478 million and RMB73,837 million, mainly because regulatory adjustments reduce hotel-revenue assumptions and the outlook for other revenue, particularly advertising, is softer. Segment revisions for 2026, 2027 and 2028 are respectively -1.4%, -4.5% and -6.7% for accommodation; +1.6%, -0.9% and -1.4% for transportation; 0.0%, +1.9% and +2.8% for packaged tours; -3.9%, -7.4% and -8.2% for corporate travel; and +2.7%, -9.3% and -16.3% for other revenue. The resulting 2027 and 2028 non-GAAP operating-profit forecasts fall 1.0% and 3.6% to RMB17,454 million and RMB18,500 million. The share-repurchase program partly offsets the weaker operating forecasts at the per-share level. Morgan Stanley's consensus-basis EPS estimates rise 17.2%, 8.4% and 5.4% for 2026-28 to RMB26.49, RMB28.91 and RMB30.49. The DCF model assumes diluted ADS count falls from 698 million in 2025 to 632 million in 2026 and 604 million from 2027. This lower share count also offsets the earnings revisions in the valuation, leaving the DCF-derived target unchanged at US$52. The base-case DCF uses a 12.5% WACC, 3.0% terminal growth and RMB6.80 per US dollar, with a target date of June 30, 2027. The target equates to 12 times 2027 estimated P/E. The model projects unlevered free cash flow of RMB7,146 million in 2026, RMB12,006 million in 2027 and RMB11,433 million in 2028. Morgan Stanley's bull, base and bear values are US$78, US$52 and US$33, corresponding to 15, 12 and 9 times 2027 estimated P/E. The bull case assumes revenue growth 2 percentage points above the base case due to a stronger macro environment and outbound travel, while the bear case assumes growth 3 percentage points below the base case because of weaker macro conditions. The base case expects 7% revenue growth in 2026, led by outbound and international travel. Longer term, the report argues that Trip.com's core drivers remain intact or are strengthening: a strong value proposition to hotel partners, a dominant position in China, rising overseas market share, rapid overseas and inbound-travel growth through the Trip.com platform, and further scale and AI-related efficiency gains. The regulatory settlement is viewed as removing a long-tail risk, although the associated adjustments still weigh on hotel forecasts and create transition uncertainty. Morgan Stanley considers the current 2027 valuation attractive in light of these structural advantages, while identifying weak domestic consumption, extreme weather, high fuel prices and competition from Tongcheng Travel and Meituan as continuing risks.

Analysis framework

Morgan Stanley starts with 2Q26 results and management's 3Q26 guidance, separates domestic, outbound and international revenue trends, and then models gross margin and operating expenses to estimate the earnings effect. It revises segment-level revenue, operating profit and EPS forecasts, incorporates the reduced share count from repurchases, and values the company through a DCF supported by bull, base and bear P/E scenarios. Options-implied probabilities are used separately to frame the likelihood of reaching scenario prices.

Methodology notes

• Valuation methodsDCF (Discounted Cash Flow)

  Discounted cash-flow valuation

  The report discounts projected free cash flows using a 12.5% WACC, applies 3.0% terminal growth and converts value at RMB6.80 per US dollar to derive the US$52 target.

• Valuation methodsP/E and PEG Valuation

  2027 estimated P/E scenario valuation

  Morgan Stanley cross-checks its valuation with 15 times, 12 times and 9 times 2027 estimated earnings for the bull, base and bear cases.

• Industry AnalysisVolume-price decomposition

  Demand, take-rate and segment-growth decomposition

  The report separates travel demand, hotel take-rate changes and growth across accommodation, transportation, packaged tours, corporate travel and other revenue to explain the top-line revisions.

• Corporate Fundamentals and FinanceOperating and Financial Leverage Analysis

  Revenue-mix and operating-efficiency analysis

  Gross-margin resilience, domestic marketing savings, international-platform efficiency and scale benefits are used to explain why operating margin can outperform despite slower revenue.

• Valuation methods

  Bull, base and bear scenario analysis

  The report varies revenue growth against the base case and translates the resulting outlook into US$78, US$52 and US$33 valuation outcomes.

• Event-Driven and Behavioral Finance

  Options-implied risk-neutral probabilities

  Options-market implied volatility as of September 15, 2026 is used to estimate approximate risk-neutral probabilities of the stock moving beyond each scenario price over three months or one year.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Trip.com Group Ltd (TCOM.US)

  Primary covered company; Morgan Stanley maintains Overweight with an unchanged US$52 target.

  Strengths

  Dominant position in China, rapidly rising overseas market share, international-platform growth above 50%, strong value proposition to hotel partners and further scale and AI efficiency potential.

  Weaknesses

  Muted domestic demand, hotel take-rate volatility, weaker advertising assumptions and limited near-term revenue visibility.

  Comparison

  The report identifies Tongcheng Travel and Meituan as sources of rising domestic competition.

  Risks

  Weak consumption, extreme weather, high fuel prices, commission-system transition and slower-than-expected travel demand could pressure revenue and valuation.

Key data

• 3Q26 revenue-growth guidance1-6% YoYCompared with 5.5% growth in 2Q26.
• Expected 3Q26 operating margin31-31.5%Above Morgan Stanley's and consensus' previous 29% expectation.
• Trip.com platform revenue growth>50% YoYExpected to remain the company's primary growth driver.
• 2026 non-GAAP operating-profit revision+6.1% to RMB17,811 millionReflects a better gross-margin outlook.
• 2027-28 revenue revisions-3.6% and -5.7%New forecasts are RMB69,478 million and RMB73,837 million.
• 2027-28 non-GAAP operating-profit revisions-1.0% and -3.6%New forecasts are RMB17,454 million and RMB18,500 million.
• 2026-28 consensus-basis EPS revisions+17.2%, +8.4%, +5.4%New estimates are RMB26.49, RMB28.91 and RMB30.49, supported by the lower share count.
• Price targetUS$52.00Unchanged DCF-derived target, equivalent to 12 times 2027 estimated P/E.
• Current price and implied upsideUS$39.25 and 32%Closing price on September 15, 2026.
• Bull/base/bear valuesUS$78 / US$52 / US$33Based on 15 times / 12 times / 9 times 2027 estimated P/E.
• DCF assumptions12.5% WACC; 3.0% terminal growth; RMB6.80/US$Price-target date is June 30, 2027.
• 2026 net-revenue forecastRMB66,584 millionEquivalent to approximately 6.7%, or 7% rounded, year-on-year growth.
• 52-week price rangeUS$78.99-US$38.04Market snapshot in the report.

Impact & implications

The report sees stronger margins and buyback-supported EPS as a buffer against the near-term slowdown in domestic and hotel-related revenue. Its unchanged target indicates that lower longer-dated revenue assumptions are offset by better 2026 profitability and fewer shares, while the longer-term thesis continues to depend on overseas share gains, inbound travel and efficiency improvements.

Risks

• Weak domestic consumption and extreme weather could further reduce travel demand.
• Hotel take rates may remain volatile while Trip.com and hotel partners adapt to the rebuilt commission system.
• High or volatile fuel prices could weaken long-haul and outbound travel demand.
• Competition from Tongcheng Travel and Meituan could pressure Trip.com's domestic position.
• Other revenue, particularly advertising, may grow more slowly than expected.
• A weaker macroeconomic environment could produce revenue growth 3 percentage points below the base case.

What to watch

• Track whether 3Q26 revenue growth lands within management's 1-6% guidance and operating margin reaches 31-31.5%.
• Watch the expected further sequential slowdown in 4Q26 revenue growth and continued year-on-year operating-profit decline.
• Monitor hotel take-rate stabilization as the platform and hotel partners adapt to the new commission system.
• Track whether the Trip.com international platform sustains revenue growth above 50% and continues improving efficiency.
• Monitor outbound accommodation growth, fuel prices and any recovery in domestic consumption.
• Watch macroeconomic growth and RMB recovery as potential supports for outbound travel.