51job, Inc.
Q3 2006 Earnings Call Transcript

Published: 10 Nov 2006

[Operator:]

Good day, ladies and gentlemen. Welcome to 51job Incorporated third quarter 2006 conference call. At this time, all participants are in a listen-only mode. Following today’s presentation, instructions will be given for the question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded. Now I would like to turn the conference over to your host, Ms. Linda Chien, Investor Relations Director of 51job. Please go ahead.

[Linda Chien:]

Thank you, Operator, 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, and we will discuss unaudited financial results for the third quarter ended September 30, 2006. A press release containing our third quarter results was issued earlier today and a copy may be obtained through out website at ir.51job.com. Before we begin, I would like to remind you that during this call, statements regarding targets for the fourth quarter of 2006, future business and operating results constitute forward-looking statements within the meaning of Section 27(NYSE

[Rick Yan:]

Thank you, Linda. Thank you for joining us on this conference call. I will begin today’s discussion with highlights of the third quarter, 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 fourth quarter of 2006. Finally, we will open the call to your questions. We continue to execute our strategy of profitable growth in the third quarter. Total revenues for quarter three were RMB 181 million, or approximately $22.9 million. While revenues were within our expectations, we are pleased that quarter three profitability exceeded our forecast. Non-GAAP earnings per common share for the quarter were RMB 0.67 and about 12% higher than the upper end of our guidance range. The improvement in our bottom line continues to be driven by gross margin expansion. Through our ongoing efforts to increase efficiency and the advantage of economies of scale, quarter three gross margin reached a record 56.2%. This was 750 basis points higher than the level in the first quarter of 2005, and includes the impact of higher share-based compensation expense in costs of services in 2006. We believe this progress is especially significant within the backdrop of the slower revenue growth environment we have seen since the beginning of 2005. I want to be clear that this focus on improving profitability is not coming at the expense of growth initiatives and investments to drive the longer term development of the company. During the third quarter, we increased spending on marketing and promotional activities and also had some additional G&A costs associated with our new office facilities. We also continued to invest resources in technologies and product development, particularly in our online services. Despite these additional costs, we are pleased that we meaningfully exceeded our profit expectation in the third quarter. We saw solid growth in our online business in quarter three with revenues growing approximately 30% year over year. We continue to observe growing awareness of online recruitment services among job seekers and HR managers. Our website leads all the other recruitment websites in China with greater than 50 million registered users and over 10 million resumes. According to Alexa, our daily page views on average are about twice of that of our nearest competitor. In September, we realized a corporate milestone by completing the move of our headquarters to a new office complex in Zhangjiang. The new complex currently houses more than 800 employees, including our national online operations center. We believe the complex will be sufficient to support our growing operations for several years, and also result in cost savings from rent over the longer term. Now, I will turn the call over to Kathleen for a detailed third quarter financial review.

[Kathleen Chien:]

Thank you, Rick. Third quarter total revenues were RMB 181 million, a 12.5% increase over Q3 of 2005. Our print advertising revenues increased approximately 6% year over year, primarily due to a combination of greater page counts and also higher average revenue per page. The estimated number of print advertising pages in the third quarter was 3,200 pages compared with 3,100 pages in the same period last year. Pricing was also slightly up by about 2%, to average 30,000 per page. Online recruitment services revenues grew 30% to approximately RMB 58 million in Q3. The increase was primarily the result of a higher number of employers using our online services. Unique employers using our online recruitment services were approximately 45,000 in the third quarter, compared with 34,000 the same time last year. Revenues for our executive search business were RMB 4.9 million, compared with RMB 6.3 million in Q3 of last year. Revenues for other HR services increased 18% year over year to approximately RMB 20 million in the third quarter of 2006. Gross margin, as Rick mentioned earlier, increased to 56.2% from 54.7% for Q3 of 2005. This was primarily driven by increased efficiency, economies of scale, and the increase in revenue contribution from online services. Included in costs of services were share-based compensation expenses of approximately RMB 1.2 million versus RMB 360,000 in Q3 of 2005. Sales and marketing expenses were RMB 35.5 million compared with RMB 28 million in Q3 of 2005. The increase was primarily driven by an increase in employee salaries and benefits, greater spending on marketing and promotion activities, and also higher share-based compensation expenses. Share-based compensation expenses included in sales and marketing expenses were RMB 1 million compared with RMB 360,000 in Q3 of 2005. G&A expenses for the third quarter were RMB 30 million. The increase over Q3 of 2005 was primarily due to higher share-based compensation expenses, greater depreciation expenses, and moving and renovation expenses for our new offices in Shanghai and also higher professional services fees. Share-based compensation expenses included in G&A were approximately RMB 5.2 million compared with RMB 2.9 million last year. Depreciation expenses for the third quarter was approximately RMB 3.5 million compared with RMB 2 million for Q3 of 2005. Operating income was approximately RMB 31 million compared with RMB 30 million for Q3 of 2005. Excluding share-based compensation expenses, operating margin was 22.4% compared with 22.1% in the third quarter of last year. Our effective tax rate for the third quarter was 28.4% compared with 31.7% of last year. The decrease was due to tax exemptions that we have received for certain entities and in terms of these, exemptions are generally for one or two years. We continue to undertake tax planning measures and have discussions with relevant government authorities. Net income for the third quarter was RMB 27 million versus RMB 19 million in Q3 of 2005. Fully diluted earnings were RMB 0.48 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 third quarter of 2006 increased 21% year over year to RMB 37.6 million. Non-GAAP adjusted fully diluted earnings per common share for Q3 were RMB 0.67, which is the equivalent to $0.17 per ADS. Our cash balance at September 30 of this year was approximately RMB 826 million, compared with RMB 812 million at the end of June, and RMB 831 million at the end of the year 2005. The balance sheet at the end of the quarter of Q3 reflects the completion of all payments associated with the properties in Zhangjiang and Wen Xin Plaza. Both of these offices have been classified under property and equipment on our balance sheet. Now I will turn the call back over to Rick for his comments on our current operating condition.

[Rick Yan:]

Thank you, Kat. Unlike the U.S., Europe and Japan, we believe that the Chinese HR services market remains in the early stage of development. We strongly believe in the potential of this market, and that our business model of providing integrated HR solutions across online and offline media is best-positioned to capture this ongoing market development. We closely monitor the competitive landscape in both print and online through our internal tracking system. Although we have seen intensifying competition in both print and online segments in the past two years, our market positions in both segments have not changed. We continue to be the clear market leader in both print and online segments. As a result, we have an unparalleled reach across 26 cities in China that uniquely positions us to serve customers locally and nationally. That being said, our competitive strength is not defined merely by our reach. We believe that job seekers and corporate customers choose our site for the quality and depth of information we provide. According to Alexa, page view per 51job user is two to four times greater than that of other competitor sites. We believe this validates our belief that users spend more time searching through our jobs database and submit more resumes through our system. As China’s current employment market is primarily a recruiter’s market, it is even more important that our services meet the needs of our corporate customers. A key difference between traditional brand advertising and recruitment advertising is that our type of services is easily measurable. After placing a print ad or posting a job online, HR managers can easily gauge the effectiveness of the placement in the media platform. The constant feedback we receive from HR managers continues to indicate that our recruitment products, whether print ads or online services, are generating superior results and attracting more, better qualified candidates. As the HR industry grows and evolves in China, quality and effectiveness will become increasingly more important to customers. We aim to further differentiate our services through product innovation and strengthen the value proposition of our services. We believe this will benefit both our customers and shareholders over the long-term. Since quarter three, we have started to step up our investment in both sales and marketing, and in technology, both hardware and software. In preparation for the Chinese New Year period in the first quarter of 2007, we are expanding our sales team in selected geographies and for targeted customer segments. Also, we are increasing our marketing spend on customer events and other promotional activities. In addition, we are making new investments in both hardware and software to further enhance the features and user experience for our website. Beginning with 2004, we have observed a seasonal pattern of sequential revenue decline from the third to the fourth quarter. We have attributed this pattern primarily to hiring managers taking holidays at the end of the year and to HR departments depleting their budget earlier in the year. We saw this similar pattern in 2005 and have factored in this trend into our fourth quarter 2006 guidance. Based on current market and operating conditions, our total revenue target for quarter four is in the range of RMB 165 million to RMB 175 million. Our non-GAAP fully diluted EPS target for the fourth quarter of 2006 is between RMB 0.40 to RMB 0.50. Please note that this non-GAAP EPS range does not include share-based compensation expense or the impact of foreign currency translation losses or gains. Looking forward to 2007, we will focus on day-to-day execution of our business plan. We will continue to be disciplined and deliver profitability in returns in the near-term while further investing in our growth for the longer term. That concludes our presentation. We will be happy to take your questions at this time. Operator.

[Operator:]

(Operator Instructions) We will go first to Safa Rashtchy with Piper Jaffray.

[Safa Rashtchy:]

Hi, this is Judy in for Safa Rashtchy. Two questions, one is for the online recruiting segment. Can you tell us how much of the growth came from new customers and how much of it came from existing customers converting from the print segment to the online segment? The second question is, with the increased competitive landscape, are you feeling any pricing pressure at all? Thank you.

[Operator:]

Sir, did you hear the question?

[Linda Chien:]

Hello?

[Operator:]

Did you hear the question?

[Linda Chien:]

Yes, can you hear us?

[Operator:]

No, we could not. Please go ahead.

[Kathleen Chien:]

For us, I do not think there has been meaningful change in terms of the trend of conversion of customers from print to online, or acquiring new customers online exclusively. I think the pattern has not changed, so I would say that it has been a very good mix of the two. We do not have the numbers in front of us, but that is something that we just feel has not had a meaningful change in the trend. What we observed though is that there are some differences in geographies, if you will. I think with the coastal cities and some of the larger cities where Internet penetration is higher, there are more instances of customers coming directly into the online business for us, whereas in some of the smaller cities and inland cities, the conversion from print to online as a percentage of new customers is a larger percentage.

[Rick Yan:]

Also, I think it is not a black and white decision. As we mentioned in the last conference call in the last quarter, we do see that some customers are allocating a little bit more of their budget to online, so it is not a switch that they just no longer spend money on print and they just move all their budget to online. It is more an ongoing process that they are allocating more or a higher percent of their budget from print to online. On the second question, in terms of the competitive landscape, we monitor that very closely for our internal tracking system. We track a number of parameters, including for example the number of job postings in our site and also on competitor websites. We also look at Alexa like everybody else and we also look at resumes and registered users. If we look at all those metrics, we have not seen any change in our competitive position. For example, our job posting is still more than twice that of our nearest competitor. If you look at Alexa traffic, our traffic averages again about twice of our competitor, and if you look at the number of page views per user, we are two to four times higher than the next competitor. From all the operating metrics that we have, we have not seen any change in the competitive position.

[Operator:]

We will now go to Jason Brueschke with Citigroup.

[Jason Brueschke:]

Thank you. My question is about Rick said something at the end about stepping up some of your sales and marketing investment, expanding your sales teams. One of the things that you said at the beginning of the year was that part of your growth is going to need to or want to come from deeper penetration, I think specifically in some of the big eastern cities. Could you maybe comment on how that process has gone year-to-date? Are these additional sales teams meant to address some of the increased competition that you are seeing throughout the first nine months in those big cities? And kind of what your expectations are for the results of these new sales teams. Thank you.

[Rick Yan:]

Jason, thanks for your question. If you look at our numbers historically, Chinese New Year is a peak season for us in the recruitment business. Every year around fourth quarter, we tend to increase or expand our sales team so that we have more capacity to serve customers in the period after Chinese New Year. It is a normal practice that we expand the sales team towards the end of the year. In terms of customer penetration, yes, this year we are actually doing more projects, including campus recruitment projects with our customers, so we do have more projects, larger project sales with customers, but obviously those are mostly with the larger customers and it is not a -- we are doing more large projects, but there are not a lot of large projects out there, let’s put it that way. The sales team is important to continue to expand our customer reach. For example, if you look at the number of online customers we served this quarter, it is close to 45,000, and I think you do need, in the Chinese recruitment market, you do need a sales team to call on customers so that we can continue to expand and acquire new customers for our business for the longer term.

[Jason Brueschke:]

I guess the follow-up question would be, could you maybe just discuss, is your sales force split into hunters and gatherers? Meaning that you have people whose specific job is to go out and bring in absolute new customers and you have a group that are designed to service and maybe win back customers. The easiest way for a competitor to win a new customer for them is to go to your job site, see who is advertising, and then go and try to win that customer from you. I would think that you have two basically pressures to grow absolutely new customers but to keep your existing customers. I am curious how you have set up to handle that.

[Rick Yan:]

This is actually an interesting question. We have talked about that for the past probably two to three years, and we have decided not to use a hunter/farmer model. First of all, I think in previous meetings we mentioned that the core of our sales management system is customer defection, meaning that every day we track customers posting on competitor products, either newspaper or websites. Every morning every day, we track our competitor products and look at customers that post jobs there. Once that information comes in, we will analyze whether that is an existing customer or it is a new customer, and immediately our sales team will go and follow-up. Our model is you can argue that we basically have the whole sales team, the whole of our sales team are hunters, put it this way. We manage them using customer defection as the key tool. In terms of customer penetration, we prefer to have senior management, or sales management as well as senior management involved in terms of penetrating existing accounts, as well as when a customer defection happens, our sales manager as well as a senior manager will get involved to get that account back. The way we manage our business is we have every single sales person in our sales team measured and monitored based on customer defection, so all of them are hunters, put it this way. They are also responsible or they have targets for acquiring certain new customers every month. We have talked about a hunter/farmer model for two or three years, and we have decided not to do that because that is the way we manage our business.

[Jason Brueschke:]

Great. Thank you.

[Operator:]

We will now hear from Nate Swanson with ThinkEquity Partners.

[Nate Swanson:]

Hi, Rick, Kathleen. Can you hear me okay?

[Kathleen Chien:]

Yes.

[Nate Swanson:]

First, just a question on the Q4 seasonality that you have seen in the past. Should we expect that to hit the print business more so than the online? What other kind of guidance can you give us in terms of what you have seen in the past two years?

[Kathleen Chien:]

Nate, if you refer to Q4 of 2004 and also Q4 of 2005, it actually hits both segments, if you will. It is likely that print might be a little bit more than the online. That is probably the pattern we have seen in the past.

[Nate Swanson:]

Then, one of the questions that came up last quarter was in terms of the transition from print to online, the question of what is the online equivalent of a dollar of print advertising? Does a dollar to print equal a dollar of online, or is it $0.75 or $0.50? Have you done any more work, or what are your thoughts about that, having another quarter of the transition under your belts?

[Kathleen Chien:]

I do not think it is easy for us to say a dollar is equal to $0.50 online and whatever, because actually it is pretty specific to each customer. Like I said, I think what we saw was that for certain accounts, they made a conscious decision to allocate a higher percentage overall of their budget to online versus offline. But it is hard for us to make that sort of dollar offline versus dollar online kind of translation.

[Rick Yan:]

Part of the challenge is if a customer uses our print product, let’s say they advertise a quarter of the page. Some people put in one position for a quarter of a page. Some people put in 20 or 30 positions for a quarter of a page. So it is hard to do it on a job posting basis. Also, for online, the range of services and the related pricing is pretty wide. Some people can do a very basic posting in our system which is pretty low cost, but also if you go to our homepage, there are a lot of people paying meaningful money to get visibility. It also depends on how much money they are willing to spend to get visibility, to get the advertising benefit for the corporate image, as well as how much additional online services that they might buy. It is hard to do a dollar-for-dollar analysis of print versus online, because it really depends on how the customer allocates their budget and how they want to spend their budget.

[Nate Swanson:]

Okay, last question -- could you just give us an update on your partnership with Recruit, and what areas have you been working on with them, and how have you seen that impact your business thus far? Thank you.

[Rick Yan:]

We might have mentioned this in the last conference call. They have around a dozen people sitting our office, working with us on various projects. Some of the projects relate to our core business. For example, we are seriously looking at introducing additional value-added services to our recruiting customers. That is one of the areas that they have done a lot more in Japan than China. In China, most customers today come to us and put a posting on our print or online products and then they get resumes. We are not heavily involved in the process after they receive the resumes. In Japan, recruiters have done a lot of value-added service, or provide a lot of value-added services for resume screening and candidate coordination and those types of activities. We are actually looking at that and we are actually piloting some of the value-added services with Japanese customers in China. In addition to our core business, we are also looking at other information services opportunities in China. As you know, Recruit in Japan has a range of other information services businesses, such as people magazines, car magazines, housing magazines. We have not made any decisions in terms of launching those products, but we are seriously looking at some of those opportunities and determining whether that is something that we can pursue in China.

[Nate Swanson:]

Great. Thank you.

[Operator:]

We will go to Richard Ji from Morgan Stanley.

[Richard Ji:]

Hello, Rick, Kathleen. I have two questions. The first is regarding your other services. Clearly this is one of your bright spots over the past two quarters, and currently a breakdown on [inaudible] is already more than 11% of your total sales, and also growth at 20% to 30% compounded over the past two quarters. It appears to me that your other services, including the human resource training, seems to be less seasonal. Could you give us a little more color in that category as well? Going forward, would you expect this growth is sustainable?

[Rick Yan:]

I think in the other HR services, there are two major components. One is the corporate training services. The other one is HR outsourcing. For the training business, it is kind of traditional, short-term management training products that we are offering. Given our customer reach, given our vast customer base, it is relatively easy to sell additional training services, given the customer contact that we already established. That has been growing steadily, so that is an advantage we have, is a nice adjacency that we can easily move into, given the recruitment platform that we already have in place. The other one is the HR outsourcing. HR outsourcing is also interesting because that could be a pretty big business in the longer-term. It is already a big business in Japan, in the U.S., and in Europe. Given the regulations in China, the services that we can provide today are more limited than what other staffing companies are providing in the rest of the world. I think training is a more mature model, put it this way, that we are leveraging our customer platform, selling additional services to the same customer base and increasing our share of their wallet. I would characterize that as a steady growth business. The HR outsourcing is a relatively new business. The business model could change depending on the regulatory environment in China. We are also enjoying meaningful growth in that business because we know that in the longer term, the market potential for that is meaningful, but today we have to swim within the regulatory boundaries.

[Richard Ji:]

The second area I am interested in is your print advertisement. Clearly while your online recruitment is developing at a healthy pace and your print recruitment appears to be a little soft, literally grew a single digit year over year. I am just curious about your initiative and efforts to revamp your print recruiting business.

[Rick Yan:]

I think on the print business, I think there are probably two things that we are focusing on. One is although online penetration is increasing in the coastal areas, if you go to the more inland provinces or the smaller secondary or even tertiary cities, you will find that most of the market is still print in nature today. One of the things that we are doing is stepping up our sales and marketing effort in some of the smaller cities, and for those cities, the print is an important product that we need to have if we want to be successful in the smaller cities. I think that is the first initiative. The second initiative that we are doing is we are looking at potentially segmenting the print business, having more focus on different segments. If you look at Recruit in Japan, they have six to seven different magazines for the Tokyo area. They have done a much more sophisticated job in terms of segmentation. The value or the advantage of segmentation is to have your distribution more targeted to the audience so that it increased the cost effectiveness of the print publication. Obviously the operating environment in China is different from that of Japan, but we are looking at some of the stuff that Recruit is doing in Japan and try to see whether some of the business model approach that they are taking, whether that could be applicable in China.

[Richard Ji:]

Thank you.

[Operator:]

Next is Kit Low from Goldman Sachs.

[Kit Low:]

Good morning, Rick, Kathleen, and Linda. Thanks for taking my questions. I will start with a simple question in terms of your guidance. It looks like your guidance is implying on your margin basis that the -- on an operating level, probably closer to 12% to 13% for 4Q. I am just trying to understand, was that mainly coming from the higher spend on the marketing as a percentage of revenue, or is that mainly coming from a tighter margin on the gross margin line?

[Kathleen Chien:]

We believe actually that it is going to be more related to investments that we are going to make for Q4 on the sales and marketing front, because we mentioned earlier on the call, our year-end is actually a very important time for us to lay the foundations for the post-Chinese New Year boom, so there are actually a lot of activities and plans that we have, both in terms of the marketing spend to customers and also in terms of additional headcount for sales push. So I would say that is actually a little bit more related to that. In addition, we also mentioned the fact that we are also looking at actually stepping up investments on the technology front, so that will probably have some impact on the cost side as well. So it is a little bit of both, but I would say the sales and marketing is going to be a key driver in our minds.

[Kit Low:]

That is very helpful. On the technology side, where would that be focused? Mainly in G&A or is that going to be cost of services?

[Kathleen Chien:]

That will be under cost of services.

[Kit Low:]

Thank you. In terms of my next question, it relates to basically your pricing trend in Q3. It looks like trends, on an ASP basis, is down on a quarter over quarter basis. Can you shed some light on that? Is that basically average price coming down for penetrating in second-tier cities, or is it something else that is causing it?

[Kathleen Chien:]

Actually, QoverQ, it is not that significant, it is a few percent. These swings are I think within our normal business activity, if you will. But certainly as we mentioned earlier, the smaller cities, if the contributions are higher, that will actually take down the average sales price per page. That is the trend. But I think QonQ, there has been actually no change in terms of our pricing policies. That is just within the fluctuation of the different types of things people buy, more black and white or different specs versus more glossy, or something like that.

[Kit Low:]

That makes sense. So it is fair to say you would be getting more penetration into the second-tier cities now than before on a quarter over quarter basis?

[Kathleen Chien:]

I think for us, print will be a more meaningful product in the smaller cities over the long term than we believe for the larger cities.

[Kit Low:]

Lastly on the online side, in terms of your percentage of revenue, I am sure you don’t disclose that, but I’m trying to get a sense of as a percentage of revenue coming from the top-tier cities, i.e. Shanghai, Beijing, Guangzhou, perhaps adding [inaudible] in there, is that percentage increasing over the last few quarters, or is the trend about the same or has it been declining? I am just trying to get a sense of it.

[Kathleen Chien:]

I think it has actually been pretty much the same, because we are seeing pretty healthy pick up across all cities on the online side.

[Kit Low:]

Thank you.

[Operator:]

Next we will hear from Ashish Thadhani from Gilford Securities.

[Ashish Thadhani:]

Good morning, a few questions. In the online segment, year-on-year revenue growth has slowed and it also remains a little bit below what Monster and Seek have recently disclosed about their units. Any observations from you? And an outlook would be very helpful.

[Rick Yan:]

For the online revenue, the growth is 30% year over year, but if you look at the past, I think we have now 13 quarters of published data. It ranges from 20% to 60%. I think in every year, online growth is around 40% to 50% year over year, but the fluctuation from 20% to 60%. So I think the 30% is probably just a normal business fluctuation. I think I would also say that as I mentioned earlier in this call, that if you look at the other metrics that we monitor, including number of job postings, traffic, page view per user, registered users, resumes -- if we look at all of those metrics, we remain the clear leader. If you look at the trend, our market position has not changed. We did observe that in terms of job postings, that the number two competitor is gaining a little bit of market share from the third and also the smaller competitors. But for 51job our market position actually has not changed in the past couple of quarters. I think you might also notice that if you look at the Q4 guidance midpoint, it is actually around 6% down from Q3. That is a slightly slower drop than previous years. If you look at 2004 and 2005, Q4 was around 10% down from Q3. So we actually are seeing a little bit more pick up in Q4. I think the 30% growth in online, I would call that a normal fluctuation in terms of the quarter to quarter revenues.

[Ashish Thadhani:]

It is below what you would consider a normalized trend?

[Rick Yan:]

If I look at the past 13 quarters, I would say online has been growing around 40% to 50%, that has been the trend if you look at the past two-and-a-half years.

[Ashish Thadhani:]

Moving to the print advertising segment, your year-on-year pricing has improved anywhere from 2% to 16% in the last four quarters. What should we expect going forward?

[Rick Yan:]

I think we mentioned at the beginning of the year that we have implemented a number of price increases in some of our print markets. At this stage, we do not have further plans to change our pricing at this stage, so I think at this stage pricing will probably remain stable, but the revenue per page will fluctuate, as Kathleen mentioned, based on the mix of cities.

[Ashish Thadhani:]

Can you provide some color on the operating profitability in the main business segments? For instance, if the overall operating margin was 18% in the quarter, where might print and online fall in variable terms?

[Rick Yan:]

There is a lot of cost sharing between the two businesses. For example, the most important thing is where one sales team is selling both products to the same customer base. So we do not have profitability by segment. I think in past communications, we did indicate that we expect higher margin from online than from print. I think we mentioned in the past that our longer term operating margin target for print is more than 30% and for online it is more than 40%. So as you can tell, we expect higher margin for the online business versus print.

[Ashish Thadhani:]

So that still stands?

[Rick Yan:]

That still stands, yes.

[Ashish Thadhani:]

And a few items, if you could briefly go over the outlook? I think you talked about sales and marketing, so we can skip that. But a little more color on the incremental moving expenses this quarter and next, as well as the future tax rate, would be helpful.

[Kathleen Chien:]

In terms of the moving-related expenses, because of the move we are in transition, we will complete all of the moves in Shanghai by the end of the year. So by next year, we expect that we will start enjoying some rental savings, because we will be vacating certain premises that we will no longer be occupying next year. In terms of the tax rate, I think that is an area that we continue to push on very hard, because I think we have been paying a higher tax rate than our Chinese peers certainly, so I think we hope that we will continue to be able to maintain or perhaps even make some small gains next year. The timing of these things are uncertain, but we are hopeful that next year we will be able to enjoy some savings again.

[Ashish Thadhani:]

Relative to where this year would fall out, right?

[Kathleen Chien:]

Relative to where we are this year, for the full year, for the nine months we are about 24%, 23.5% or so. So we hope for some slight savings next year if we can achieve certain status as for a certain entity.

[Ashish Thadhani:]

And Q4 would be more like Q3 or closer to the 23.5%?

[Kathleen Chien:]

At this point in time, we will have to see what happens, but hopefully it will be lower than the yearly average, if you will. That is more in the 23% to 24% range right now.

[Ashish Thadhani:]

I have a final question, I hope you don’t mind my asking. I am curious as to why the company did not buy back stock in the quarter, since the CEO’s actions in an individual capacity suggest that the price levels were attractive?

[Kathleen Chien:]

I am not sure that we could actually make that decision just as a management group. I think the CEO’s decision is a personal decision. I think the company had a buyback program that was authorized last year that ran for one year, which ended at the end of May. At the company’s annual shareholders meeting, we did not initiate another plan, so at this point in time we are not authorized to do so.

[Ashish Thadhani:]

Thank you very much.

[Operator:]

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

[Jason Brueschke:]

A very nitty housekeeping question. Rick, is the guidance for Q4, the revenue, is that gross or net?

[Kathleen Chien:]

Gross.

[Jason Brueschke:]

Gross. Okay, thanks. That was it.

[Operator:]

There appear to be no other questions at this time. Mr. Yan, I will turn the conference back to you for any closing or additional remarks.

[Rick Yan:]

Thank you for joining us today. We look forward to updating you on our achievements next quarter. We appreciate your continued interest and support of 51job. Thank you. Bye-bye. .

[Operator:]

Again, that does conclude our conference. Thank you for joining us.