Model Portfolio mkoza:TGF

UTA is one of my top stock picks, trading at a cash-adjusted PE of 1.3.

Recently, problems with the English language version of UTA's main online airline/hotel booking website, cnutg.com, have been exposed. However, it should be understood that, although UTA advertises the availability of tickets to international destinations, UTA primarily serves domestic Chinese travelers. There are no questions regarding the ability to book Chinese domestic travel on the Chinese language version of the website, as long as one realizes that final trip confirmation and payment requires a phone conversation with an agent (unlike Ctrip, which allows complete web-based booking).

The english language version of the cnutg.com website looks like this:

http://en.cnutg.com/

The Chinese language version is here:

http://www.cnutg.com/

As you can see, the Chinese language version has significantly more functionality.

Website cnutg.com's web traffic is about 5-6% of market leader ctrip.com, according to worldwide online web traffic monitor
alexa.com:

http://www.alexa.com/siteinfo/cnutg.com

http://www.alexa.com/siteinfo/ctrip.com

Adjusting for bounces (single page views that do not usually result in a transaction), cnutg.com has about 7-8% of the traffic of ctrip.com.

Per SEC filings, UTA's trip ticketing revenues of $30MM for 2009 are about 11% of Ctrip's $270MM; thus, UTA's revenues appear to be supported by web traffic metrics, given that a greater portion of UTA's transaction time occurs on the phone. Hence, UTA's business is not fictional or overstated, as detractors claim.

Next up - UTA's employee compensation

Comments on Universal Travel Group (UTA) compensation per employee:

Detractors of the stock have stated that UTA's total staff compensation was only about $500,000 in 2009, which translates to only about $700 for each of UTA's 780 employees. This faulty conclusion was used to inspire skepticism of UTA's stated financials and business scale. The detractors only considered staff salaries reported within cost of sales to arrive at their $500K total. UTA's full-time staff consists of 80 administrative employees, 200 marketing employees and approximately 500 call center employees. One would expect that the bulk of the compensation for these employees would appear under Selling, General and Administrative expense line (SG&A). In fact, this is the case. in 2009, UTA reported $3.3 million of "Salary and commission paid" in SG&A. Thus total employee compensation is $3.8 million, not $500 thousand - but we're not done yet. There is another $3.5 million in "Franchise commission paid" reported in cost of sales. Thus total employee compensation expense for 2009 is $7.3 million, or approx. $10K per employee, slightly higher than the detractor's estimate of the average salary in Shenzhen. Thus the claim by detractors that "they don't have the staff or they are very lowly paid or the accounts are wrong" is incorrect, based on the numbers reported to the SEC.