51job, Inc.
Q2 2006 Earnings Call Transcript

Published: 8 Aug 2006

[Operator:]

Good day, ladies and gentlemen, welcome to the 51job, Inc., second quarter 2006 conference call. (Operator instructions) Now I'd like to turn the conference over to your host, Ms. Linda Chien, Investor Relations Director of 51job. Please go ahead, ma’am.

[Linda Chien:]

Thank you, Sarah and thank you all for attending this teleconference with 51job management. With me on today’s call are CEO Rick Yan and CFO Kathleen Chien who will discuss unaudited financial results for the second quarter ended June 30, 2006. A press release containing second quarter results was issued earlier today, and a copy may be obtained through our website at ir.51job.com. Before we begin, I would like to remind you that during this call, statements regarding targets for the third quarter of 2006, future business and operating results constitute forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933 as amended, and Section 21-E of the Securities Exchange Act of 1934 as amended, and as defined in the Private Securities Litigation Reform Act of 1995. These statements are based upon management’s current expectations, and actual results could differ materially. Among the factors that could cause actual results to differ are

[Rick Yan:]

Thank you for joining us on today’s call. I will begin the conference with highlights for the second quarter and then Kathleen will go through our financial results in greater detail. Following her comments, I will discuss current operating conditions and provide our outlook for the third quarter of 2006. Finally, we will open the call to your questions. We are pleased that second quarter results came in within our expectations. Total revenues were RMB173 million, or approximately $21.7 million. Fully diluted earnings per common share were RMB0.62 and at the top end of our guidance range. Our Q2 performance was driven primarily by continued growth of our online recruitment services business. Over the past year, we have seen higher overall employer awareness and usage of online recruitment services. We believe this has been due to a number of factors, including greater advertising spending by industry players; growth in the number of Internet users in China; and increased user acceptance of online media for recruitment. In the second quarter, we further benefited from these growing trends by acquiring new customers through solid sales execution and superior customer service. We continue to gain the trust of employers of all sizes by consistently delivering quality candidates and results. The number of unique employers who purchased our online recruitment services in the second quarter increased to approximately 44,000 compared with 38,000 in Q1 2006 and 31,000 in Q2 2005. In mid-July, we launched a new version of our website with a new look and feel, as well as improvements to user friendliness and functionality enhancements. We also introduced a number of new online packages and products to meet the diverse needs of employers. We are continuing to undertake initiatives to innovate our online platform and maintain our position at the forefront of the industry. Another highlight of the second quarter was our continued margin improvement. Through the combination of economies of scale, greater efficiency, higher pricing in print, and record growth of the online business, our Q2 gross margin reached a record level of 56%. Despite operating a larger number of offices and incurring significantly higher stock-based compensation expenses compared to the year ago quarter, Q2 operating margin increased to 18% from 13% in the second quarter of 2005. We are especially pleased with this margin expansion, as it is concurrent to a number of investments of management time and resources we are undertaking to strengthen our leading market position and business for the long term. Our second quarter results reflect another quarter of profitable growth and diligent, day-to-day execution of our strategic priorities. We believe we are well-positioned to capture growth opportunities over the remainder of the year. Now, I will turn the call over to Kathleen for a more detailed Q2 financial review.

[Kathleen Chien:]

Thank you, Rick. Second quarter total revenues were RMB173 million, an 18% increase over Q2 2005. Our print advertising revenues increased 7% year-over-year, primarily due to the higher average revenue per page. The price discounts we offer were generally lower in most cities compared to the year ago quarter, and also, in some cases, our prices for certain print products were higher than the second quarter of 2005. As a result, average revenue per page increased 11.5% year-over-year. Compared to Q1 of 2006, during which customers tended to choose more prominent print advertising for the post-Chinese New Year period, average revenue per page declined sequentially due to a decrease in the number of our more expensive, glossy paper advertisements versus Q2 of 2006. The estimated number of print advertising pages in the second quarter was relatively unchanged from the same period last year. Online recruitment services revenues grew 42% to RMB 55 million in Q2. The increase was primarily the result of a higher number of employers using our online services. In fact, unique employers using online recruitment services were approximately 44,000 in the second quarter compared with just 31,000 in Q2 of 2005. Revenues for executive search business were RMB 4.5 million compared with RMB 7 million in Q2 of 2005, while revenues for other HR services increased 52% from the second quarter of 2006, to approximately RMB 17 million. Our gross margins increased to 56% from 50% for Q2 of 2006, and as Rick mentioned earlier, this is primarily driven by the economies of scale, the higher prices that we charged for our print product, and the increase in revenue contribution from our online services. Included in the cost of services was also share-based compensation expenses of approximately RMB 1.3 million, compared with RMB 400,000 in Q2 of 2005. Our sales and marketing expenses were RMB 31 million, compared with RMB 27 million in Q2 of 2005. The increase was primarily due to an increase in our salaries and bonuses and higher share-based compensation expenses. Share-based compensation expenses included in sales and marketing expenses was RMB 1.1 million, compared with RMB 400,000 in Q2 of 2005. Our G&A expenses for the second quarter were RMB 31 million. The increase over Q2 of 2005 was primarily due to the higher professional services fees associated with Sarbanes Oxley compliance, the additional costs from operating more offices, the higher share-based compensation expenses, and the greater depreciation expenses that we are incurring following the purchase of the new Zhangjiang office complex in April. Our share-based compensation expenses included in G&A was approximately RMB 5.6 million, compared with RMB 3 million in Q2 of 2005. We expect G&A expenses to further increase in the third quarter due to the higher depreciation expenses association with the Zhangjiang purchase and also because of the completed purchase of the 21st floor of the Wen Xin Plaza, which is where our principal executive offices are currently located. We expect to also incur additional moving related expenses due to these properties in this quarter. After the transition for the rest of this year, we do expect that the move will actually generate cost savings for the company in the longer term, and be a growth platform to accommodate our expansion going forward. Operating income was RMB 29 million compared with RMB 18 million for Q2 of 2005. Our operating margins improved to 18% in the second quarter of 2006, up from 13% in the second quarter of 2005. Our effective tax rate for the second quarter was 22% compared with 31% in Q2 of 2005, and the decrease was due to the tax exemption that we were able to receive for certain legal entity. The terms of these exemptions tends to be one to two years in length, and we are continuing to undertake additional tax planning measures. Net income for the second quarter was RMB 26 million versus RMB 16 million in Q2 of 2005. Fully diluted earnings were RMB 0.46 per common share, which is equivalent to $0.12 per ADS. Excluding share-based compensation expense and foreign currency translation laws, our non-GAAP adjusted net income for the second quarter of 2006 was RMB 35 million, and our non-GAAP adjusted, fully diluted earnings per common share were RMB 0.62. In terms of U.S. dollars ADS’, our non-GAAP adjusted fully diluted earnings per ADS were $0.16. Our cash balance at June 30, 2006, was RMB 812 million compared with RMB 786 million as of March 31, 2006. In July, we completed the purchase of the 21st floor at Wen Xin Plaza for approximately RMB 27 million, and again, please note that additional depreciation expenses associated with this purchase have been factored into our Q3 guidance. I will turn the call back over to Rick for his comments on current market conditions.

[Rick Yan:]

Thank you, Kathleen. Over the past six quarters, we have observed an overall increase in customer awareness and acceptance of the Internet media for recruitment advertising. We believe that this trend has been primarily driven by rapid growth in a number of Internet users in China, and greater advertising spend by the industry to promote the use of online recruitment. Although our competitors have conducted the majority of the mass media advertising activities, we do not believe that there has been any material impact to our leading market position in the online space. 51job.com remains the industry leader by all measures, including the number of registered users, resumes, daily page views, and job positions available. While we have been enjoying consistently high growth in the online segment in recent years, we are also seeing that the differential growth rates between online and print has widened. In fact, in early 2004, growth rates in print were actually higher than those of online. However, growth rates in the print segment have declined significantly in the past two years. We continue to monitor the print market development and competitive dynamics on a weekly basis. We continue to find that our leading market position in the print market has not changed, and we continue to be market leaders in both the print and online markets. We are disappointed with the decline in growth rates in the print market and are looking at ways to stimulate market growth, including the experience that Recruit, our strategic partner, has in the Japanese market. The growth of our business is inherently related to the continued development of the Chinese economy. Over the past few weeks, there has been increasingly positive government authorities are introducing a range of posterity measures to prevent an overheating of the Chinese economy. We are closely monitoring the impact of these measures on our customers and what changes, if any, may affect the HR budgets and recruitment plans. As we cannot control the pace of economic development, or of a certain impact on market demand for recruitment services, we continue to focus our efforts on executing our strategic imperatives of profitable growth, improving productivity, and strengthening our market position. Turning to our guidance for the third quarter, based on current market and operating conditions, our total revenue target for quarter three is in the range of RMB 173 million to RMB 183 million. Our non-GAAP fully diluted EPS target for the third quarter of 2006 is between RMB 0.50 and RMB 0.60. Please note that this non-GAAP EPS range does not include share-based compensation expense, or the impact of foreign exchange translation losses or gains. Looking forward, we will continue to focus on execution and taking steps to build our business for the long term. One of these steps is the move of our corporate headquarters to Zhangjiang in Shanghai’s Pudong area. Starting this month, we will begin the transition of employees and operations to the Zhangjiang office complex. We estimate that this new complex will satisfy our growing office space requirement for several years, and also result in cost savings on office rent in the longer term. In summary, we are pleased with our second quarter results. We believe that we are well-positioned competitively and financially for the remainder of 2006 and beyond. That concludes our presentation. We will be happy to take your questions at this time. Operator.

[Operator:]

(Operator Instructions) Our first question will come from Jason Brueschke with Citigroup.

[Jason Brueschke:]

Thank you. Good morning, Rick and Kathleen. Let me start with maybe a couple of questions around what is going on with the print business. You indicated what I think is apparent from looking at the model; business has declined. You say over the last two years, certainly it seems over the last three quarters we have seen maybe a little bit of an acceleration. Could you give us some color on what you think is going on there? Are you losing market share to the local newspapers or some of the other, let’s say more traditional, job identification sources such as job fairs? Or is there some overall decline going on in how employers are using traditional print-based recruiting services? Because you certainly are not seeing any slowdown in what’s going on online. Thanks.

[Rick Yan:]

Jason, let’s try to break it into two parts. On the competitive landscape, we have not seen any changes to our market position. If anything, our market position is again edging up. As you know, we monitor market dynamics as well as competitive activities every week. We do not believe that we are losing market share to any other print competitors. In terms of whether the print market itself, if customers are going to other media like job fairs, I don’t think we have enough data on the job fairs to confirm that, but that is not what we are hearing from our discussions with customers. One thing that we do notice, as you can tell from Kathleen’s remarks, is we do have more customers now choosing the lower-priced options, print products. For example, in Q1 our print pricing was higher because more people were choosing glossy paper, front page type of higher-priced advertising products. But we are now seeing that I think the trend has been, as more medium and smaller-sized advertisers are using print recruitment advertising, and there are times they choose more basic and lower-priced products.

[Jason Brueschke:]

Rick, can I just follow up? Are you seeing any particular slowdown in the print by geography? Is this a Beijing/Shanghai, the big four cities type of slowdown? Is it across the board or is it more limited to some of your second and third tier cities?

[Rick Yan:]

I think it is probably fair to say that the differential growth rates between print and online is higher in the larger cities, meaning that online is growing faster, much faster, than the print segment or print market in the larger cities.

[Jason Brueschke:]

With respect to the slowdown, are we seeing a pronounced slowdown in the second and third tier cities? Because I understand the differential, it is actually really favorable to your overall business model and your leverage, but is it an actual drop off in demand that we are seeing in second and third tier cities? Because there is clearly a deceleration in the year-over-year growth in the print business.

[Rick Yan:]

I think the declining growth rates is more significant in the larger cities. The smaller cities we are still seeing growth, but not as fast as what we saw before.

[Jason Brueschke:]

And if I could switch gears and ask one final, but related, question. We have seen ChinaHR, from our vantage point they seem to have spent a lot on marketing in the second quarter. You reference that in your prepared remarks that they have helped evangelize or educate the overall market. I remember on the Q4 conference call you had indicated that there was a possibility, in anticipation of the big increase in marketing spend from ChinaHR and other competitors, that you might sometime during this year feel compelled to match, or at least counter, those moves by increasing your sales and marketing as well. From what you’ve seen as to the effectiveness of this marketing campaign by ChinaHR or some other competitors, at this point do you feel you need to do anything different on your own sales and marketing front to counter this, or do you have such a strong market position and lead that you feel you can continue to do business basically the way you have been doing it recently?

[Rick Yan:]

So far this year we have seen a lot of advertising spend by ChinaHR on TV and other media. We have been monitoring their customers and also job postings, again on a weekly basis, very closely. We have not seen any meaningful change in our market position. In other words, I think our sales driven strategy proves to be very effective in terms of capturing additional demand or customers that might switch to online after seeing their ad, but actually the customer might actually place an ad with us rather than our competitors. So I think at this stage we have no intention to match the – let me call the “above the line” -- advertising spend that our competitors are doing. We will continue with our sales-driven strategy and continue that. Now obviously, there might be a time lag between the impact of an advertising spend, we don’t know. But so far, up to now we have not seen a meaningful impact from the advertising spend that ChinaHR has done. We will continue to stick to our current strategy.

[Jason Brueschke:]

Great. I will get back at the end of the queue. Thanks.

[Rick Yan:]

Thank you, Jason.

[Operator:]

Our next question comes from Safa Rashtchy – Piper Jaffray.

[Safa Rashtchy:]

Good morning, Rick and Kathleen. I am just wondering about the reason for the advertiser pullback? I believe you said that the advertisers are seeking cheaper alternatives for the offline, and I assume that is partly connected with slower growth in the offline advertising. Over the past year-and-a-half so, you have been somewhat cautious about what might happen with China’s economy. The economy seems to have been growing fairly well and there hasn’t been any sign of slowdown. I am wondering, what are your own thoughts as to what is happening, at least in the offline part of your business, that is causing the advertisers to pull back?

[Rick Yan:]

Safa, I don’t think we indicated that the advertisers are pulling back. I think we observed two phenomena. One is that the differential growth rates between online and print has widened, and more significantly in the larger cities, meaning that online is growing faster and faster; print has been growing slower and slower in the larger cities. The second thing is in terms of the print customers, as we are getting more and more medium and smaller-sized customers, again, those customers tend to choose the lower-priced products. In terms of the number of customers, it might not have changed that much; but in terms of the product they buy, the product and the pricing that they chose to by, it has another impact in terms of our revenue growth on the top line.

[Safa Rashtchy:]

Right. But if I can follow up on that, you have mentioned that you haven’t seen any competitive market share losses to others. You have maintained your share, and yet the shift from offline to online has not been fast enough to compensate for the slower growth in the offline business. In other words, your overall business hasn’t been growing as fast as you expected at the top end of the guidance. So I am wondering if there is another trend that is happening, since the economy seems to be going okay, the market shares are fairly stable, and yet is the market just not as big enough, or some other trends are happening?

[Kathleen Chien:]

Safa, I will add something to what Rick said. I think part of what we observed is that if you look at the customer spectrum, there are the larger customers, the medium customers and smaller customers. With some of the larger customers, I would say it is fair to say that they did some adjustments in terms of the budget allocation to the print and the online, if you will. I would say it is fair to say that the larger customers have actually increased the portion of money spent online. So therefore, for the same amount of revenue that we generate on the print side, what it has made up of is actually more of the smaller customers, if you will. So I don’t think that has helped the overall growth in the print segment, although the number of customers may not have declined, if you understand what I am getting at.

[Safa Rashtchy:]

Yes, I see. So the customer mix has also changed and that has impacted growth.

[Kathleen Chien:]

That’s correct. That is what Rick was trying to refer to.

[Safa Rashtchy:]

Thanks.

[Rick Yan:]

Thank you.

[Operator:]

Our next question comes from Albert Lee – Maxim Group.

[Albert Lee:]

In light of the slowdown in the print ad business, do you anticipate that the generally higher pricing environment that you noted is likely to sustain itself here thus far in the quarter and into Q4? Have you seen any evidence of this in the quarter?

[Kathleen Chien:]

Albert, I am sorry, we couldn’t hear the question very well. Can you repeat that?

[Albert Lee:]

Sure. In light of the slowdown in the print advertising business, do you expect or anticipate that the generally higher pricing environment that you noted in the release is likely to sustain itself here into the second half of the year? Have you seen any evidence of this sustaining itself into Q3?

[Rick Yan:]

Albert, I think if you look at our financials and our pricing on the print front in the past four or give quarters, we have been reducing discounts and in certain cases, have been increasing prices. We have not seen a change in terms of the environment that would not allow us to do that. I would say I think we have done a lot of the – let me put it this way. We will probably get some of the low-hanging fruit in terms of reducing discounts and increasing prices. Given our continued market-leading position in the print, we don’t see pressure to move our price in the other direction. At least we will continue to look at price optimization opportunities and I think we will fine-tune our pricing as we move forward.

[Albert Lee:]

Okay, great. Finally, just to make sure, the Company did not reauthorize the buyback program, right? Following the June expiration? Is this correct?

[Kathleen Chien:]

That’s correct.

[Albert Lee:]

Okay. What kind of a tax rate should we be building in to our models, since it doesn’t look like this rate is ever going to really dip this low. Any additional tax exemptions that you are anticipating that would take this tax rate down to the low 20’s for the second half of the year? What kind of tax rate should we be modeling in here?

[Kathleen Chien:]

Through the second quarter of the year, our overall tax rate is about 25%. I think we are looking at trying to lower that somewhat for the rest of the year, but I would imagine that it would still be in the 20’s.

[Albert Lee:]

Thank you.

[Operator:]

Our next question comes from Richard Ji – Morgan Stanley.

[Richard Ji:]

Hi Rick and Kathleen.

[Kathleen Chien:]

Hi, Richard.

[Richard Ji:]

The first question, on your print. Obviously print advertising is only 7% versus 40% plus online. Can you give us some color regarding the average discount you are currently giving away versus a year ago? Also, how much price increase you have raised over the past year?

[Rick Yan:]

You mean on the print, what is our pricing in the past year? Was that your question, Richard?

[Richard Ji:]

Price increase over the past year for your print business.

[Rick Yan:]

In the second quarter, our average revenue per page were up 11.5%. Last quarter, Q1 2006, average revenue per page were up 16.2%.

[Kathleen Chien:]

Year-over-year, Richard, we were up about 11% on the pricing side.

[Richard Ji:]

What about average discount you are taking this quarter versus a year ago?

[Rick Yan:]

This is the revenue generated, the revenue divided by the number of advertising pages, so that includes pricing and discount and everything. That is the effective price that we are charging.

[Richard Ji:]

So the organic growth actually came down, excluding the advertising rate increase and the scaling back –

[Rick Yan:]

I think if you look at the volume growth, which you can do that using the number of print pages, that has declined by around 3% versus Q2 2005. As we explained earlier, we are seeing more and more medium and smaller-sized customers who are buying smaller space and more in the cheaper sections of our newspaper, like the black-and-white, inside pages and the like.

[Richard Ji:]

Your online advertising, what kind of year-over-year growth, to achieve healthier growth, over 40% year-over-year rate? The average spending online. If you could help us to understand better?

[Kathleen Chien:]

Richard, we have always said that this is a very common phenomena because when you bring in a new customer, whether it is online or offline, people start small, so if you look at the average spend per customer it has been hovering around the same level, which is RMB1,200 to RMB1,300 per quarter. Because you are bringing in new customers who might be only giving us a few hundred dollars for their first trial, and then you average that with people that we have been able to upsell, the average may remain the same, where the number of users have grown 40% to 50%. We feel that it has been very consistent in terms of what we have seen in the last two years. So that hasn’t really changed. I would not say that has been a change in trend, this quarter or previous quarters. That has pretty much been the same.

[Richard Ji:]

Thank you.

[Kathleen Chien:]

Thank you.

[Operator:]

Our next question comes from Kit Low – Goldman Sachs.

[Kit Low:]

Hi Rick, hi Kathleen. A question on the relationship that you have with Suzhou and stretching that to working with Shanghai Newspaper Group. How does that work, in terms of the pricing? In terms of the relationship? I would imagine working with the Shanghai Group would be more expensive as a newspaper versus working with the Suzhou one. I am trying to understand the logic behind it, and is this going to be a trend going forward, trying to consolidate nearby cities; the bigger cities into one and making them more scalable from that perspective?

[Rick Yan:]

Thank you, Kit. I would not describe this as a trend. I think we make technical decisions based on the market dynamics in each city. For example, if you look at Guangzhou, our Guangzhou newspaper is also a distributor in a neighboring city called Dongwan. So actually, we share the same publication in both Dongwan and Guangzhou. Guangzhou and Dongwan is around a 45-minute drive, it is very similar to Shanghai to Suzhou. I think the Suzhou situation is similar to our experience in Dongwan because the two cities are so close and a lot of people were actually working in Suzhou that are living in Shanghai. We found that having a combined publication makes a better value proposition for the job seekers as well as for the customers. So it was a very tactical, specific decision for that city. It is not a trend that we are embarking on.

[Kit Low:]

Is it more expensive to work at this place, compared to working as two separate newspaper companies, one in Suzhou and one in Shanghai? Versus moving to Suzhou to Shanghai?

[Rick Yan:]

With two partners, you can imagine, there are two people making money on what you are doing, in terms of total costs I think when you talk about costs it is really the printing and distribution costs. I don’t think that makes a material difference, because if you have five pages in Suzhou you end up having five pages in Shanghai anyway. I don’t think it has fundamentally changed the economics. By the way, Suzhou is not a very big city from our point of view, so I don’t think that will have a meaningful impact on our financials.

[Kit Low:]

Great, thank you.

[Operator:]

Our next question comes from Ashish Thadhani – Gilford Securities.

[Ashish Thadhani:]

Good morning. On your guidance for the next quarter, have you assumed that the page count on the print advertising business will resume growth?

[Rick Yan:]

Yes, I think we have pretty much focused on the current trajectory of our business. I think we have been seeing certain trends and trajectories in our revenue and in different product segments. I think we have not seen any changes to those trends. So we are forecasting based on the same trend.

[Ashish Thadhani:]

So still in negative territory year-over-year?

[Rick Yan:]

We don’t have a breakdown in terms of specific page count or even revenue for the print segment, but I think as I said earlier on, we are seeing a similar trend to what we were seeing last quarter.

[Ashish Thadhani:]

It has been implied in the past that 30% plus operating margin is achievable over time, before stock-based compensation. What sort of timeframe would you have in mind?

[Rick Yan:]

It really depends on the top line growth. I think the reason we believe that we can achieve a sustainable 30% plus operating margin is because if you look at the comparable companies -- for example, our strategic partner, Recruit, they do make more than 30% operating margin, and I think we did work with them and look at our business in a lot of detail and I do not see any differences in terms of the operating leverage that our business has. I think the difference is really on the top-line. When you get bigger, you can capture more economy of scale, so I think a big part of that question is really the growth rates that it takes. If we grow faster, we will get there faster.

[Ashish Thadhani:]

What sort of growth rate will it take then? 25% to 30%, or much higher?

[Rick Yan:]

I think growth rates gets you to a certain scale -- it is the scale that counts. It is not the growth rate that counts. Our operating margin has been improving from last year 13% to 18% now, and we continue to hope to improve our operating margin going forward. If we grow faster, we will get there faster.

[Ashish Thadhani:]

Great. Thank you.

[Operator:]

(Operator Instructions) We will now hear from James Mitchell with Goldman Sachs.

[James Mitchell:]

I am sorry. Kate asked my question already. Thank you.

[Operator:]

(Operator Instructions) We will take a follow-up question from Jason Brueschke of Citigroup.

[Jason Brueschke:]

Thank you. This may have been already asked, or at least answered in bit parts, but I am going to ask it again, because maybe I am a little bit unsure. You talked a lot about that there is in fact a slowdown going on in the print business. Rick, you guys have a large sales force. You have $100 million or so in cash. What are the options for you to step in and reverse the trend? Is it trying to change the mix of customers that you are going after? Is it trying to basically maybe do more of a direct selling effort? Is there really any strategies or any I guess leverage that you guys can pull to go after to reverse this? If so, what would be a timeframe that we should be thinking about your ability to step in and offset what may be a macro trend going on in the market?

[Rick Yan:]

Well, I think, Jason, in today’s call, we have indicated that there is differential growth rate between online and print, meaning that in the larger cities and larger customers, there is a faster shift to online from print. I think that shift eventually would stabilize at some point. We do not believe that print will go away. I do not think print will just disappear. I do not think we have seen any country in the world that print would just disappear overnight. We are also talking about a second trend that when we start getting smaller, medium- and smaller-sized customers, when they go to print, they first start with print, but when they go to print, they choose a smaller, lower-priced package, actually very similar to some of the first-time online customers that we have. I think these are trends that if you look at the underlying growth in customer, we have found that healthy, but that these trends does hurt our top-line revenue growth. Having said that, I do not think we are just sitting here and just waiting for the trend to stabilize. I think, as I mentioned in the comments, we are actively working with Recruit to look at their experience in Japan and look at ways to further penetrate the print market through different initiatives. It could be different products, it could be different segmentation, it could be different initiatives that they have that could have proven to be successful in Japan. In addition, as contemplated by the business alliance agreement, we are looking at additional business opportunities together with Recruit, because we do have a very good infrastructure, a sales and distribution infrastructure that spans 25 cities in China, and we will be looking at an opportunity to leverage that infrastructure to launch additional new businesses together with Recruit. How long this will take and how they would affect our -- certainly not next quarter, I would say, but we are actively looking at ways to improve the value proposition of our print product as well as looking at new business opportunities to leverage our sales and distribution infrastructure.

[Jason Brueschke:]

Thank you. Let me just one final question, and kind of ask this from maybe a completely different perspective. I remember two years ago, you guys received a lot of criticism, and I think in some quarters, you still do, that your print business is so significant relative to your online business. So while this appears to be maybe a little bit of an unexpected transition, in some ways, on the other side of this transition, meaning if as your online revenues continue to grow significantly, if your print ends up falling as a percentage of total revenues, that at the end of this trough there is obviously a point if that continues where you cross over what the majority of revenues will be online, it tends to be much higher revenue. Are we seeing maybe, and I think you have implicitly said this, but are we maybe seeing, at least with respect to the big force or so cities that tend to kind of lead the evolution of these markets in China, are we just seeing the natural evolution away from the legacy print business with respect to the services that you provide to the newer, more efficient, maybe more exciting online services? In a sense, looking longer term, is this not actually a good thing that is actually happening to your business, given the fact that you are the dominant player in the online business as well?

[Kathleen Chien:]

I think at the end of the day, Jason, I mean, for us, whether or not it is print or online, I think one of the very, very important metrics that we always have focus on is actually the number of customers that we serve. I think if for some of the newer guys that we are serving in the print business, we are able to up-sell, just as we have done so in the online business. We still believe that there is actually a very robust market out there for us to continue to tap and grow. Now, whether or not the transitioning between online and offline, I think being positioned as a leader in both segments certainly helps us, and we are -- in a way, I wish that we could be indifferent to that, but I think if you look at the total numbers, that is where people are trying to understand a little bit better whether or not a dollar spent on print, is it still a dollar online or is it $0.75 online? That is the question I think maybe that we are also focusing on and trying to understand better.

[Jason Brueschke:]

Thank you.

[Operator:]

Now, we will take a question from Jenny Wu with Morgan Stanley.

[Jenny Wu:]

Hi, Ricky and Kathleen, how are you? I have questions regarding the gross margin for each business line. Can you give as a breakdown?

[Kathleen Chien:]

There is a lot of shared costs between different businesses, so we do not actually break down the margins by business. Unfortunately, I cannot give you that information.

[Jenny Wu:]

Can we see another way -- do you see the gross margin trend change for online business and for the offline business during the year?

[Kathleen Chien:]

For both online and offline businesses, as the scale continues to grow, we see improvements on both sides, so I do not think that the trends are different by segment in that sense.

[Jenny Wu:]

Second question is can you give us some color about the practices of the online advertisers in terms of the firm size?

[Kathleen Chien:]

I am sorry, Jenny, I could not hear you. You were breaking up there. Can you repeat the question?

[Jenny Wu:]

Can you give us a breakdown of the online advertisers’ firm size and their industry?

[Kathleen Chien:]

To be honest, we serve so many customers, I do not think there is a specific type of customer we only serve online. As mentioned earlier, I think we have a mix of large, medium, small customers that go both online and offline. I think allocation of budget might be slightly different this year for some of the larger customers, but beyond that, I would say that there is nothing specific to online that is very different.

[Jenny Wu:]

Thank you.

[Kathleen Chien:]

Thank you.

[Operator:]

We will take a follow-up question from Ashish Thadhani with Gilford Securities.

[Ashish Thadhani:]

Yes, very quickly with respect to facilities, could you broadly quantify the incremental near-term costs that you alluded to, as well as the longer-term savings?

[Kathleen Chien:]

We believe that we will be incurring approximately RMB 3 million in terms of additional depreciation and related costs for the move. Because for the rest of the year we will actually be sort of, if you will, paying rent or expenses on two locations, those are incremental costs that we will have to absorb for this transitioning period. I think longer-term, we believe that we have about 40% more capacity in the Zhangjiang location versus our current location, so we will have that much more room to expand.

[Ashish Thadhani:]

The 3 million is incremental?

[Kathleen Chien:]

I am sorry, I could not hear you.

[Ashish Thadhani:]

The 3 million incremental costs paid, spread over two quarters?

[Kathleen Chien:]

No, this is each quarter.

[Ashish Thadhani:]

Each quarter.

[Kathleen Chien:]

That is correct.

[Ashish Thadhani:]

Thank you.

[Kathleen Chien:]

Thank you.

[Operator:]

That will conclude our question-and-answer session. I will turn things back over to Mr. Yan for any additional or closing remarks.

[Rick Yan:]

Thank you. We appreciate you joining us today and we look forward to updating you on our achievements next quarter. Again, thank you for your interest and continued support of 51job.

[Operator:]

That does conclude today’s conference call. Thank you everyone for joining us.