51job, Inc.
Q3 2014 Earnings Call Transcript

Published: 7 Nov 2014

[Operator:]

Good morning, afternoon and evening. Ladies and gentlemen, thank you for holding. Welcome to the 51job, Inc.'s Third Quarter 2014 Conference Call. [Operator Instructions] I will now hand the conference over to Linda Chien, Vice President and Head of Investor Relations. Thank you. Please go ahead.

[Linda Chien:]

Thank you, Nadia [ph], and thank you all for attending this teleconference to discuss unaudited financial results for the third quarter ended September 30th, 2014. With me for today’s call are Rick Yan, President and Chief Executive Officer, and Kathleen Chien, Chief Operating Officer and Acting Chief Financial Officer. A press release containing third quarter 2014 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 fourth quarter of 2014, future business and operating results constitute forward-looking statements within the meaning of Section 21E 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 expectation and actual results could differ materially. Among the factors that could cause actual results to differ are the number of recruitment advertisements placed, sales orders received and customer contracts executed during the remaining weeks of the fourth quarter of 2014; any accounting adjustments that may occur during the quarterly close; fluctuations in the value of the renminbi against the U.S. dollar and other currencies; behavioral and operational changes of customers in meeting their human resource needs as they respond to evolving social, economic, regulatory and political changes in China as well as stock market volatility; introduction by competitors of new or enhanced products or services; price competition in the market for the various human resource services that the company provides in China; acceptance of new products and services developed or introduced by the company outside of the human resources industry; and fluctuations in general economic conditions. For additional information on these and other factors that may affect the company’s financial results, please refer to the Risk Factors section of the company’s filings with the Securities and Exchange Commission. 51job undertakes no obligation to update targets prior to announcing final results for the fourth quarter of 2014 or as a result of new information, future events or otherwise. Also I would like to remind you that during the course of this call we will discuss non-GAAP measures. Reconciliation to the most directly comparable GAAP financial measures are provided in the tables appended to the press release. This conference call is being broadcast on the internet and is available through our website at ir.51job.com. I’ll turn the call over to Rick.

[Rick Yan:]

Thank you, Linda, and welcome to today's call. I will begin with a summary of the third quarter and an assessment of current market and operating conditions. Then Kathleen will follow with a detailed review of our financial results and provide our guidance for the fourth quarter. Finally, we'll open the call to your questions. With market demand maintaining a positive tone during the third quarter, we continue to push ahead on executing our strategic plan and our businesses performed well. Coming in ahead of expectations, we achieved total revenues of RMB474 million and non-GAAP EPS of RMB2.52 million. Despite absorbing a full quarter's impact of the VAT policy change, our online business remained on a steady upward trajectory in the third quarter, with revenues increasing by 14%. We continue to focus on our number one priority of driving customer acquisition, and the number of unique employers increased 19% compared to the year-ago period, to over 283,000 corporates. During the quarter, we also stayed on course with our sales force expansion initiative. A net add of about 300 staff to the sales and account management function strengthens our direct coverage team to nearly 3,500 people. On the jobseeker side, similar to past quarters, we continue to attract users to our platform by adding more than 2 million members in the three-month period. We ended the September quarter with an accumulated 82 million user accounts, 73 million resumes, and nearly 80 million download activations of our mobile apps. On the other HR services front, we saw solid revenue growth of 18% in the third quarter. We are very pleased with the success we have had in cross-selling our training and other value-added services this year. This is especially encouraging given the operational adjustments we are currently undergoing in our BPO services that have affected the pace of new client adoption. A key 51job competitive strength is our ability to consistently engage corporate customers utilizing a large, comprehensive portfolio of HR solutions. And this is a prime example of our multi-product strategy at work. Regarding the BPO adjustment, we are on track in streamlining our systems, processes and procedures to prepare the business for the next stage of growth and development. While we have not incurred significant additional costs, we have had to redirect greater staff resources to institute changes to our service delivery infrastructure and to assist existing customers [Audio Gap] adjustments will be completed soon and then we'll need some more time to familiarize our customers with these changes. We remain confident about the long-term prospect of the BPO market in China and we believe that we will emerge from this transition with an even more scalable and efficient model to serve customers for the future. Turning now to current market conditions. Based on feedback from employers, we expect hiring activities to remain on a positive trend throughout the rest of 2014. We continue to hear from employers about the need for more staff to meet business expansion, about how difficult it is to attract and retain good talent, and an increased willingness to invest in talent -- in a talent pipeline for future growth. These remarks from corporate customers make us optimistic that a favorable market tone will persist. In September, 51job passed a major milestone in our corporate history as we celebrated the 10th year anniversary of our IPO. I want to take this opportunity to [Audio Gap] to continue this journey together to build the most effective and compelling HR services platform in China. We stay true to our vision and remain confident that the progress we have made in these years of investment positions us to extend our market leadership, to capture greater opportunities in the HR space, and to deliver sustainable, profitable returns to our shareholders over the long term. I will now turn the call over to Kathleen for a detailed financial discussion of the quarter.

[Kathleen Chien:]

Thank you, Rick. In my following presentation, please be aware that all financial numbers are in the reporting currency of the Chinese renminbi unless otherwise stated. Also, please note that all growth rates are on a year-over-year basis as compared to the third quarter of 2013, unless otherwise indicated. Our total revenues for the third quarter of 2014 were RMB474 million, above our forecast range and representing a 13% increase. Beginning on June 1st of 2014, we ceased paying a 3% business tax on gross revenues received from value-added telecom services and instead became subject to a VAT rate of 6%. This policy change principally affects our online services business, which reduces the amount of revenues we recognize and impacting the comparability of revenue figures before and after June 1st. Including the impact of the VAT policy change, our online revenues for the third quarter grew 14% to RMB315 million. Unique employers using our online services increased 19% to over 283,000 companies in the third quarter of 2014. While pricing was generally unchanged over the past year, our ARPU decreased 5% in the quarter for two main reasons. First of all, as expected and in line with our strategic efforts to acquire new customers, first-time users who typically purchase basic lower price packages dragged down the overall average spend. And secondly, the VAT policy change decreased revenues in the third quarter, and therefore, also ARPU. However, as compared to the second quarter of 2014, our ARPU levels were fairly flat despite the full quarter impact of the VAT. Revenues for other HR services increased 18% to RMB157 million. The growth was primarily driven by usage of our outsourcing and training services. Our BPO business saw increased revenues despite the operational adjustments, and we benefited from another record quarter for our training business. We expect our BPO services to remain on a measured revenue growth pace through the rest of 2014. Our print revenues decreased 78% to RMB2 million. While we will maintain a publication in the City of Xian through the end of 2014, its contribution and financial impact will be negligible to our overall results going forward. Gross profit grew 15% to RMB334 million and gross margin was 73%. Included in cost of services in the third quarter was higher share-based compensation expense in the amount of RMB3.4 million. Sales and marketing expenses increased 20% to RMB144 million in the third quarter, primarily due to additional sales headcount, higher employee compensation expenses, and greater advertising expenditures. Included in sales and marketing expenses was share-based compensation expense of RMB3 million in the third quarter. Sales and marketing expenses as a percentage of net revenues increased by 170 basis points, driven higher primarily due to the impact of the VAT change on the third quarter of 2014 which reduced revenues. Per our usual practice, we do expect that sales and marketing expenses to increase in absolute terms, as well as a percentage of net revenues in the fourth quarter. Because in line with what we have done in the past, we will be hosting a number of yearend customer events and also adding staff in preparation for the post Chinese New Year peak recruitment season in 2015. Our G&A expenses for the third quarter were RMB62 million, an increase of 8% due to higher employee compensation expenses, including share-based compensation, as well as greater office and depreciation expenses. Our share-based compensation expense included in G&A increased to RMB15 million in the third quarter of 2014, compared with RMB13 million in the same quarter of the prior year. As a percentage of net revenues, our G&A expenses decreased by 70 basis points compared with the year-ago quarter. Operating income for the third quarter of 2014 increased 12% to RMB128 million. Due primarily to the increased spending on sales and marketing activities as well as the VAT policy change, our operating margin was 27.9% compared with 28.4% in the same quarter of the prior year. Excluding share-based compensation expense, operating margin would be 32.6%, compared with 32.9% in the year-ago quarter. In April, we completed an offering of convertible senior notes. Under mark-to-market accounting, we recognized a gain of RMB58 million in the third quarter associated with the change in the fair value of these notes. Including the fair value gain, our net income for the third quarter increased to RMB187 million, compared with RMB117 million in the same quarter of 2013. Under the if-converted method, our fully diluted EPS was RMB2.17, which excluded the impact of certain P&L items related to the convertible notes on the numerator of the net income and included the maximum number of potentially converted shares to the denominator of common shares. Following the ratio change of common shares to ADSs that took place on August 8th of this year, one common share now equals one ADS, and earnings per share are equivalent to earnings per ADS beginning with the third quarter of 2014. So please be aware of this change, which will affect the comparability of earnings per ADS to prior reporting period. Excluding share-based compensation expense, loss from foreign currency translation and change in the fair value of the notes, in addition to the related tax impact of these items, our non-GAAP adjusted net income increased 10% to RMB150 million in third quarter. Under the if-converted method, our non-GAAP adjusted fully diluted EPS was RMB2.52 or USD0.41 per share. Regarding our balance sheet, we ended the September period with cash and short-term investments totaling RMB4.3 billion, equivalent to approximately USD708 million. During the third quarter, we repurchased about 451,000 ADSs from the open market, for an aggregated consideration of approximately USD14.5 million. Turning to now our guidance. Based on current market conditions and factoring in the VAT policy change, our total revenues target for the fourth quarter of 2014 is in the estimated range of RMB515 million to RMB530 million. For the non-GAAP fully diluted EPS target, our estimated range is between RMB2.6 to RMB2.8 per share under the if-converted method. Please note that this non-GAAP EPS range does not include share-based compensation expense, the impact of foreign currency translation, any mark-to-market adjustment for the convertible notes, nor the related tax effect of these items. Our total share-based compensation expense is expected to be between RMB21 million and RMB22 million for the fourth quarter. And similar to last year, we do expect the receipt of some financial subsidies from local government of approximately RMB16 million under other income for the fourth quarter. This guidance reflects our current forecast which is subject to change. That concludes our presentation. We will be happy to take your questions at this time. Operator?

[Operator:]

Thank you. [Operator Instructions] Your first question comes from Jiong Shao from Macquarie. Your line is open, please go ahead.

[Alice Yang:]

Hi everyone. I'm Alice Yang from Macquarie calling on behalf of Jiong. Thanks for taking my question I have some questions on the online recruitment part. We see that the number of unique employers, growth of this actually a little bit slowed down compared with the last quarter and the quarter before last quarter. And we understand the company has already dedicated a lot of money spending in increase the sales force and marketing. So my first question is about when we can see kind of an accelerated growth rate in terms of unique -- number of unique employers. And I may have some follow-up. Thank you.

[Kathleen Chien:]

I think, yes, it is true that in the third quarter, that the growth rate versus prior couple of quarters are slightly down, but I think that it's still in the 20% range. So I do believe that we're still on track and that, you know, just taking our sales people, the new people, if you will, a little bit of time to get up to speed, which is something that we hopefully can expedite, if you want to call it that. But we do believe that we're still on track. It is actually slightly lower than previous couple of quarters, but I think at the 20% range, we do believe that that is actually in line with our sales headcount addition overall.

[Alice Yang:]

Okay. So are we expecting a ramp, say, in the second half of 2015 or 2016, that the growth rate can kind of pick up?

[Kathleen Chien:]

We hope that, you know, obviously with our productivity of the newer guys will actually increase over time as they get more familiar with the company and the product and their customer base, if you will, that we'll be seeing more benefit of that in the coming years rather than this year and certainly last year as well.

[Alice Yang:]

Understand. Thank you. And may I also kind of add on the ARPU? We see that ARPU has been on a declining trend, which is very understandable because of VAT fact and also more SMEs in your mix, and so when would you expect this kind of decline can kind of turn around to be positive growth?

[Kathleen Chien:]

Well, to be honest, I think in the situation right now where I think our customer growth is actually fairly high, I do not expect that ARPU will be increasing in the short term. So I think for now, I think the focus is much more on the customer growth rather than looking at ARPU, because I think we've always believed that it's very important to get everybody in the door first, and then I think we can always have methodologies and ways to upsell and cross-sell. But that comes over time and that is not our focus at this time.

[Alice Yang:]

Understand. Great. So you said not in the near term. Near term means two years or three years?

[Kathleen Chien:]

Maybe near term is a little bit shorter than what you've said, but it's something that certainly in the next few quarters.

[Alice Yang:]

Okay. I have the last question if I may. I understand that you increased the sales force. So my question is that, whether you'll put the new sales force in the similar like traditional business of online recruitment or you have some new areas to develop for them, say, other verticals or kind of expansion out of your traditional business, for the new sales force. Thank you.

[Kathleen Chien:]

Our sales force are actually not organized by product, they're organized by customers, if you will, so they are no different than our existing sales force. Obviously I think the company has been looking at broadening our portfolio of products that we can sell to customers, but all sales would be actually -- have equal access to them. So they're not organized by product lines, if you will.

[Alice Yang:]

Understand. Very helpful. Thank you.

[Kathleen Chien:]

Thank you.

[Operator:]

Your next question comes from the line of Joyce Zhou from Barclays Bank. Your line is open, please go ahead.

[Joyce Zhou:]

Hi, good morning. Could you please comment on the overall competitive landscape in the online recruitment sector? Do you see any changes during past few months, and what the expectations for the competition for next year? Thank you.

[Rick Yan:]

We have not seen any measurable changes in the competitive landscape. We probably have seen a little bit more startups focusing on certain niche and verticals. We expect that trend to continue, and we'll be continuing to expand our product portfolio to respond to that.

[Joyce Zhou:]

Thanks. So, are you -- the new startups focusing on new verticals, you mean those like high-end [ph] recruitment or focusing on certain sectors, right?

[Rick Yan:]

Potentially certain industries or potentially different models, but none of them are getting meaningful traction or scale at this stage.

[Joyce Zhou:]

Okay, thank you. My second question is on your customer acquisition strategy. Since the company put the customer acquisition as the top priority, so, could you comment on the key strategies for customer acquisition? And what's our key competence versus our peers on the customer acquisition? Thank you.

[Kathleen Chien:]

Yeah, I think the most important thing is really sort of the sales force expansion and management. And that's why I think in the last several quarters that's what we've been focused on. I think you do need to have a sales force on the ground that actually has established relationship with departments. And then once you have that in place if you will, the ability to cross-sell and upsell all the different products within that major [ph] services line that we have, is something that will yield us good results. So I think we're leading with sort of sales force expansion and getting them up to speed and making sure that they develop good relationship with customers. And then on top of that, we're actually layering in more products so that each sales person would be actually able to tap a bigger sort of share of wallet of the HR customer that he or she is serving. So that is what we focus on.

[Joyce Zhou:]

Okay, thanks. Maybe my last question. So, can you update with the current sales force size and what's your hiring plan for next year? Thank you.

[Kathleen Chien:]

We have been very aggressive actually on hiring sales people, so we've actually exceeded the -- we're about 3,500 at this point in time, in terms of our sales headcount, you know, 3,500 out of 6,000 roughly in terms of total headcount. So that is kind of the size and scale we're at. To give you a sense of where we were at the end of last year, that we're about 2,900. So, year to date, we've actually been able to add about over 500 sales people, which is I think a pretty good clip growth rate.

[Joyce Zhou:]

Okay. Thank you very much.

[Kathleen Chien:]

Yeah. I was going to actually just finish the sentence by adding, just in terms of 2015, we will continue to monitor market conditions, especially after Chinese New Year, see what the trajectory is, but I think if market sentiment continues to be solid, we do believe that again sales force expansion is a very key part of our growth and we will be -- continue to look at opportunities to expand there.

[Joyce Zhou:]

Okay, thank you very much.

[Operator:]

Your next question comes from the line of Evan Zhou from Credit Suisse. Your line is open, please go ahead.

[Evan Zhou:]

Hi, good morning, Rick, Kathleen, Linda. Thank you for taking my questions. First question is regarding -- maybe could you give us an update on the vertical breakdowns probably by revenue or by number of customers? Say, did you foresee any specific verticals that are registering relatively better growth compared to other specific verticals, or are we entering some specific like new verticals or sub-verticals that you seem to get better ropes?

[Kathleen Chien:]

Any specific vertical that is actually -- you know, because we're not very concentrated in terms of the customers we serve, in types of industries or -- and whatnot. So I don't think that it's something that has meaningfully changed in the last quarter certainly. At this time we also don't see that we don't, you know, we don't forecast that to change anytime in the future as well, because I think that we're focused on recruiting the, let's say, entry-level to midlevel management mostly in terms of the demographics, the 20 to 30-year-old on our platform, and that is actually applicable to all industries, and so we do not see that there's any sort of meaningful changes in terms of the verticals or industries we serve. And again we don't expect that to change in the coming quarters either.

[Evan Zhou:]

Got it. Thanks, Kathleen. So, second question is, maybe Rick, can I ask you to bring, say, what are the kind of the strategic priorities you are looking at for 2015? What are the likes of the top to-do list on your agenda at this point?

[Rick Yan:]

Well, strategically our business is pretty simple. It's about expanding our customer base or getting new customer acquisitions. So as Kathleen mentioned earlier on, it's about sales force expansion and management, making sure that we're adding more people and making sure that they are productive. And then secondly, I think we have been working hard on new product development both internally and potentially through cooperations and M&A approaches. So we are working very hard to get more products in our pipeline. And yes, those are the two strategic priorities on my list, getting more customers and then getting more products to sell to that customer base.

[Evan Zhou:]

Got it. So can I have a follow-up? You also mentioned some new product that you may have to address the new emerging startups or like new business models. Can you maybe share with us some more like [indiscernible] on that and what kind of the new models or new product we are working on at this point?

[Rick Yan:]

Yeah. We're looking at very different dimensions of growth in terms of -- you know, first of all, 51job is really kind of focused on the white collar sector and we are looking to move up and also looking to move down, and we're looking at different verticals. So we're actually looking in a number of directions. And there are a number of initiatives that we're working on. And we will report to all of you when we are kind of ready to report.

[Evan Zhou:]

Got it. Understood. Thanks, Rick.

[Rick Yan:]

Thank you.

[Operator:]

Your next question comes from the line of Zhao Ming from 86Resaerch. Your line is open, please go ahead.

[Juan Lin:]

Hi, good morning. This is Juan Lin asking on behalf of Ming Zhao. Thank you for taking my questions. My first question is, for the third quarter, your total number of unique customers stayed flattish over the second quarter. And if we exclude the full quarter impact of VAT on your revenue, on ARPU, I noticed ARPU actually increasing a little bit from the second quarter. According to your previous comments, you are not expecting ARPU to grow for the next few quarters. Does it imply that we're going to see a growth recovery of total number of customers for the next few quarters? Thank you very much.

[Kathleen Chien:]

I can't -- I don't think of it in those terms, the way you kind of phrased it, but I do think that, again, the number one priority is to focus on customer. That's why we always look at that first. So, yes, it is true that we're not looking at raising prices or doing things on that front. So, yes, the focus will be on customer growth. And I guess you can extrapolate from the comments to what you think the customer growth rates will be in the next few quarters, but I think, you know, that is our focus, yes.

[Juan Lin:]

Thank you. And my second question is that, as you mentioned before, you're considering some M&A opportunities. So what are the consideration to influence your M&A decision?

[Kathleen Chien:]

I think we've been, you know, to just maybe follow up a little bit on what Rick just said earlier about the different verticals or high-end, low-end, I do think that, again, we've had a very defined universe in terms of the customers and the demographic of jobseekers that we serve on 51job. I do think that there are other demographics that we can target and get closer to, if you will, which cannot necessarily be fully served and better served by 51job. So, obviously what's been talked about a lot in the marketplace is perhaps going higher-end, that would be maybe serving more recruiters and more sort of the passive jobseekers, maybe see some sort of -- more of a business or social networking type of option. Or there would be situation where, you know, you go much more lower-end which is I guess a marketplace that's much more covered by local agents and then maybe served right now to some degree by a 58 or a Gangqi [ph] which is very low-end, blue-collar type of job. So we're just looking at the different segments of the marketplace and we'll be looking for partners or potential targets where they would actually be very focused in one group, people, a certain demographic, and hoping to work with them or to acquire them, if you will. And that's how we will look at, you know, how we scour the base [ph]. And I think the benefits that we believe that we will be bringing to the table, very importantly, will be again our sales force, which is a very big part of anyone's kind of growth strategy in China, and we do believe that we have a very strong sales force that we've been focusing a lot in terms of growing in size further. And that would be a good leverage point for us.

[Juan Lin:]

Thank you very much. My last question is about your 4Q guidance. Could you please provide a breakdown of your 4Q guidance for each business line?

[Kathleen Chien:]

Unfortunately, we do not do that. It is not our norm and it's not our practice. But again you could probably just -- you look at the breakdown, you know, I would just say, look at what the percentages have been in terms of the contribution breakdown versus last year's fourth quarter, because fourth quarter will have seasonal products, for example, like campus recruitment, that will then drive up the percentage of other HR as a percentage of total revenues. So I would just refer to that as a reference guidance in terms of the percentage breakdown on what the contribution by different segments would be.

[Juan Lin:]

Thank you very much. That's all my questions.

[Kathleen Chien:]

Thank you.

[Operator:]

[Operator Instructions] Your next question comes from the line of Wendy Huang from Standard Chartered. Your line is open, please go ahead.

[Wendy Huang:]

Thank you, management, and congratulations on the solid results. You touched upon the cross-selling opportunities among your customers, and Q3 you did a good job in cross-selling the training course and some other HR services. Is it correct to understand that you're current close to 300,000 online recruitment service base -- customer base is actually representative of your total customer base? If that's the case, what percentage of those customers are also using your other services? Thank you.

[Kathleen Chien:]

Thank you for the question, Wendy. I think other HR service combined, including training, outsourcing, everything else in that bucket, would be roughly around 10,000 of our customer -- of the total, if you will.

[Wendy Huang:]

Okay.

[Kathleen Chien:]

So it's a, you know, it's still a small penetration, but I think incrementally, we believe that as we bring everyone across into the different service lines, obviously the contribution per customer increases quite significantly.

[Wendy Huang:]

Okay. And also your largest shareholder Recruit recently went public in Japan. How will that affect their relationship with 51job and potentially your two cooperation in China? Thank you.

[Kathleen Chien:]

At this point we do not expect that there would be any sort of meaningful impact. And Recruit is actually, yeah, they just went public about a month ago, I think, roughly. At this point, I think they're investor in us, they've held us for a long time. And we at this point have not received any indication that they were going to change how they would look at investment on us or that they would actually try to move the position one way or the other. So at this point it's status quo as far as we understand it.

[Wendy Huang:]

Okay. Thanks, Kathleen.

[Kathleen Chien:]

Thank you.

[Operator:]

Your next question comes from the line of Tian Hou from T.H. Capital. Your line is open, please go ahead.

[Tian Hou:]

Good morning, management. I have some questions. The first one is you did mention you have 70 million resumes online. I wonder how many of those resumes were updated, were uploaded within the month, within the six months, within the year. That's the first question. I will have a couple of follow-ups.

[Kathleen Chien:]

I don't keep track of the data maybe quite in a specific kind of the time period you mentioned. But roughly we estimate half of the resumes have been updated within the last two years. A lot of time you don't expect to look at it as short term as one month or even six months, because people get into a job, they don't expect to change jobs as quickly as one month or six months. So it is quite often that people don't update their information as frequently as that, if you will. But about half of that database would be active within -- or updated within the last two years.

[Tian Hou:]

Yeah. That's very helpful. So you also mentioned that the first priority is to increase customer base. So if you look into different segments, like Gangqi [indiscernible] very low-tier, blue-collar job, and you look into white-collar job, certainly segmentation is one way to look at it, but also in terms of channels and platforms, we believe is another way to look at it, and such as LinkedIn China and they almost finish their setup in China, and also the social network-based website called Maimai [ph] is also up and running. So I wonder, beside the segmentation, what do you see in the different channels and platforms? Do you see competition or you see opportunities? If there are some opportunities, what are they? How do you see them?

[Kathleen Chien:]

To be honest, I mean social networks have been existent in China for several years, and whether or not they're for business recruitment purposes, professional contacting, or just general entertainment, I mean these are new -- not new concepts in China, if you will. I don't believe that 51job will be run as a social network because it doesn't exist that way and people don't use it that way. But in itself, it's very clear what the sort of the target, what the goal it serves for jobseekers and corporates. And I think that that is a very clear and is a very sort of a defined value proposition that people have found compelling over the years. So I don't see that 51job itself will have to morph to a different model of service, if you will. When we talked earlier about maybe looking at, let's say for example, again, going back to the blue collar example, that is looking at maybe a different demographic users entirely because, again, 51job typically works with much more sort of the [Audio Gap] have obviously a lot of higher education. So that's just a different segment, if you will. I don't think that there is a clear answer in terms of what is the best way to serve that demographic at this point in time [Audio Gap] how we define and, you know, design our products going forward, if you will. For example, one of the things that's been quite interesting certainly in the last few years for everybody is the transition between sort of the PC usage to mobile usage. But that doesn't actually affect everybody similarly across the board, if you will. And so again, you need to really look at how the end-users are using the product and what makes sense for them. For our business, for example, we do not see an HR customer evolving and migrating to a mobile platform because they're at the office, they're in front of a computer, a much larger screen and the ease of processing the information is obviously much higher on the PC versus someone trying to process the information on a mobile screen. So [Audio Gap] they would still be inputting and setting up their account and inputting their resume information on the PC screen but then actually using the mobile for notifications, applications, and very much the one-click functions, that can be done that way. So I think for us, I think again when you -- I guess when we think about channels, we just think about maybe there are different ways to serve different customer groups or user groups slightly differently, but really kind of keeping in mind what makes sense and what their daily usage patterns would be. And so I'm not sure that we would ever go to a more 51job to a completely different model, because I think it does have a very clearly defined and a good value proposition for all users involved already at this point in time.

[Tian Hou:]

Okay. That's very helpful. The last question is related to your cost structure. As you move up to HR-related service, I wonder, what's the cost structure for HR service and how different it is from your online recruitment business?

[Kathleen Chien:]

Well, to us, we run everything as an integrated unit. That has always been the case. I think the way we see the service line is basically you have sales and marketing which is done by one team, which is then leveraged across a bigger base of different product lines. Service elements, I mean whether or not it's an online service or even sometimes an offline, you know, whether or not it's a training course or it's a business process outsourcing, it does require some human interaction. You know, maybe [Audio Gap] training assistant or something, but I think it's just a combination of platform which is needed to run information systems, if you will. And then, you know, coupled with some offline component which is a service [Audio Gap] element [ph]. So I don't think it's run that differently from our perspective. And overall, at the end of the day, the most important thing is having that sales person upfront, you know, fronting that relationship and developing that relationship and then cross-selling and upselling. So I think that's how we look at it.

[Tian Hou:]

It's very helpful. [Audio Gap]

[Unidentified Participant:]

-- regarding the SME customer within the online recruitment services. So, how many unique customer and how much online recruitment services revenue are from SME? And if more customer or more revenue are SME, does it mean an even lower ARPU? Thank you.

[Kathleen Chien:]

I don't have a strict definition to cut off number of customers [Audio Gap] customers will be SMEs, so I do believe that they would actually contribute a significant majority of our total customer base. And it's absolutely right that some SMEs typically, especially the new ones that are actually coming to the fold [Audio Gap] new customers of ours will actually buy lower-priced, simple introductory packages, which is the reason why I think when we talk about the accelerated customer acquisition, that tends to drive down the ARPU which is the average revenue per customer, if you will. So that is really it. But, you know, small customers go and become big over time. I mean if we were to go back a few years, for example, when we started working with Baidu, Baidu was a very small customer. When we started working with Tencent, Tencent was a very small customer. As recently, working with people like Qihoo or YY, [VIP Shop], these customers, when they first started with us, would be very, very small customers, but they had tremendous run over the years to get to where they are. So I think we don't define and think about customers strictly as what their current status is. We just look at what their needs are and try to help them in any way we can.

[Unidentified Participant:]

Thank you.

[Operator:]

There appears to be no further questions. Mr. Rick Yan, please continue.

[Rick Yan:]

Thank you for joining us today. We look forward to speaking with you next quarter and we value your continued support of 51job. Thank you. Bye-bye.

[Operator:]

That does conclude our conference for today. Thank you for participating. You may all disconnect.