Using multiple regression series focused on travel company valuations such as Priceline’s and Ctrip’s to evaluate travel technology and online agency acquisitions in China

1. Page 1 Travel industry financial, risk and decision analysis in uncertain economies Using multiple regression series focused on travel company valuations such as Priceline’s and Ctrip’s to evaluate travel technology and online agency acquisitions in China

2. Page 2 Travel industry financial, risk and decision analysis in uncertain economies The analysis here was designed to help plan critical acquisition and strategic decisions focused on maximizing investor returns to Inform decisions to acquire several travel technology companies in a risky China market 1 Drive capital allocation and shareholder return by using multiple regression analysis to understand how investors assign pricing multiples and value industries 2 Drive business decisions, such as whether to invest in a sales sub-agent network in southern China or invest to relocate call centers from Hong Kong to Guangzhou 3 Account for risks such as foreign currency policy shifts and potential impacts of recession 4

3. Page 3 Travel industry financial, risk and decision analysis in uncertain economies This high-impact approach is based on the fact that any change in P-R or P-E multiples drives the stock price and creates or destroys shareholder value. Understanding how investors assign pricing multiples to different segments in an industry can help drive capital allocation decisions and shareholder returns. As just one practical example, a firm might invest $10 Million in a revenue-driving promotional campaign rather than cut staff to save costs, depending on how investors weigh revenue growth vs. EPS volatility. Investor returns driven by: companies invest to increase sales and profits… …but slight changes in multiples impact market values dramatically Industry valuation drivers are often defined too broadly as “growth” or “profit”… …and companies may miss opportunity to influence increases in the multiples

4. Page 4 Looking at Priceline and Ctrip pricing multiples to set stage Investors often prioritize different metrics in different segments within the same industry, such as online vs offline travel agencies and legacy vs low-cost airlines Sample variables and weightings

5. Page 5 Looking at Priceline and Ctrip pricing multiples to set stage Priceline case – how should it allocate capital over time? The collapse of 2008 and 2009 drove another dip. Key questions include whether Priceline could do anything about its own valuation, as in post-9/11, and whether actions such as excessive job cuts would even impact shareholder value. China Online Travel Agency case – Ctrip – why is it getting astronomical valuations? Trading at an extraordinary P-E of up to 90x in China’s hot economy in 2006 and 2007, one might assume CTRP’s valuation was driven by high revenue growth expectations, dominant market share over eLong, or increasing earnings…

6. Page 6 Looking at Priceline and Ctrip pricing multiples to set stage Multiple regression series identify correlations between multiples and 30+ economic, financial, and operating metrics… …and the regression equation isolates and quantifies the impact of the significant factors For example, the equation calculating Priceline’s P-R multiple from 2005 – 2007 matched the actual multiple very closely: P-R = 18 – (40 * OTA share) + (15 * 1st Std-dev T4Q Revenue) – (2 * Revenue growth)

8. Season-adj Rev growth

9. ROIC and EPS

10. 1 Std-dev T4Q Rev

11. Operating margin %

12. NASDAQ Index

13. US internet penetration

14. Season-adj Rev growth

15. 1 Std-dev T4Q EPS

16. Season-adj Op margin %

17. OTA market share

18. Season-adj Rev growth

19. 1 Std-dev T4Q rev

22. Labor cost savings are helpful, but operating margin is not correlated or rewarded additionally