China Finance Online Co. Limited
Q2 2019 Earnings Call Transcript

Published: 27 Sep 2019

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the China Finance Online Report Q2 2019 Earnings Conference Call. My name is Albert and I will be your operator for today. At this time, all participants are in a listen-only mode. Today, we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.I would now like to turn the call over to Dixon Chen. Thank you. Please go ahead.

[Dixon Chen:]

Thank you, operator. Welcome to China Finance Online second quarter and first six months 2019 financial results earnings conference call. With us today are Mr. Zhiwei Zhao, Chairman and CEO; Ms. Julie Zhu, Assistant to the CEO and Director of Investor Relations; and Ms. Nan Zhou, Director of Finance. Mr. Zhao will provide a summary of business dynamics in the quarter, and then Ms. Julie Zhu will review the quarterly financial results. Thereafter, the management will hold a Q&A session. We will provide translations during the Q&A.Before we begin, I’ll remind all listeners that throughout this call, we may present statements that may contain forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. The words believe, estimates, plans, expects, anticipates, projects, targets, optimistic, intend, aim, future, will or similar expressions are intended to identify forward-looking statements.All statements other than historical facts may be deemed forward-looking statements. These forward-looking statements are based on current expectations or beliefs including, but not limited to, statements concerning China Finance Online’s operations, financial performance and conditions. China Finance Online cautions that these statements, by their nature, involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors including those discussed in China Finance Online’s reports filed with the Securities and Exchange Commission from time to time. China Finance Online specifically disclaims any obligation to update the forward-looking statements in the future.At this time, I would like to turn the conference call to Mr. Zhao.

[Zhiwei Zhao:]

Good morning and good evening. Thank you for joining today's call.During the second quarter of 2019, we further compressed our bottom-line losses on a year-over-year basis and the efficiency of our fundamental business is improving.During the 2019 second quarter, the Chinese stock markets suffered a crushing selloff. However, as of early August, the traffic to our flagship website jrj.com.cn bucked the downward market trend and rose to No. 280 on the Alexa's Global Ranking and to No. 44 in China from No. 430 and No. 62, respectively. We remain one of the most trusted financial news hubs with our proprietary content, fact-based journalism, breaking news coverage, analysis on market trends and various product offerings.We made significant inroads in content distribution as well as subscribers of JRJ on TouTiao the most popular news aggregator have been over 2 million and the followers of JRJ on Baidu have also exceeded 1 million, placing us among the most recognized and popular financial media in China. We believe that the enhanced operational metrics paves the way for operation improvement.To strengthen our market leadership and increase monetization of the traffic, we also explored mobile marketing initiatives and formed strategic partnerships with several leading digital advertising platforms and advertising tech companies in China and abroad. In April, we enter a strategic partnership agreement with global mobile advertising tech company InMobi. This partnership exemplifies our pursuit to connect global advertisers with the vast consumer market opportunity in China.Headquartered in Bangalore, India, InMobi is one of the world's largest independent mobile advertising platforms with 1.5 billion monthly average users in Asia-Pacific, Middle East, North America, South America and Europe. InMobi's notable clients include Netflix, Amazon, Samsung, Facebook, Walmart, and BMW, et cetera. In China, InMobi services over 300 advertisers across a broad spectrum of industries such as consumer goods, e-commerce, online gaming, online travel agency, financial services and airlines.We are pleased that our continued investment in fintech capabilities to empower wealth management industry has started bearing fruits. Our i-TAMP stands for Turnkey Asset Management Platform attracted dozens of new professional financial advisors and wealth managers to register and open their online stores on our platform. We continue to position our platform to be the one-stop destination for wealth management professionals when they need better research, premium analytics, and a superior customer management system to support their decision marking and strengthen their client relations.Despite the market weakness in the second quarter, most of our investment advisory and wealth management services posted a year-over-year growth. Well received by more and more brokerage firms, banks and asset management companies, our investment and technology DNA continues to position us as the premier trusted platform, especially in the area of investor education.Lingxi, our Robo-Advisor product provides Chinese retail investors with a wide array of investment combinations and personalized global asset allocations through the Chinese domestic mutual funds. Built upon our development of a proprietary intelligent asset allocation system, Lingxi established a solid track record of balancing performance and risk management since its inception.While 92% of Lingxi users achieved positive returns, nearly 100% of the investors who currently hold Lingxi products for over one year received positive returns on their investment. In 2017, 2018 and 2019, Lingxi's returns of 10.92%, 2.96% and 9.44%, respectively; and superior risk management capabilities also draw serious attention from institutional investors.Looking into the future, we will continue to strengthen our fintech capabilities through optimization and upgrading our services and products, and also turn fintech research findings into scalable revenues. While we are confident about our technology capabilities and emerging market opportunities, we remain focused on further improve the top and bottom lines.With that, I'll turn the call to our, to my assistant and Director of Investor Relations, Julie Zhu to go over the financial details of the quarterly results. Thank you.

[Julie Zhu:]

Thank you, Mr. Zhao. Let me walk you through our major items for the second quarter. Please note that all financial numbers are unaudited and presented in US dollars rounded to one decimal point for approximation.Net revenues were $8.9 million, compared with $12.9 million during the second quarter of 2018 and $9.9 million during the first quarter of 2019. During the second quarter of 2019, revenues from financial services, the financial information and advisory business and advertising services contributed 46.7%, 32.1% and 20.9% of the net revenues, respectively, compared with 46.4%, 43.8% and 9% respectively for the corresponding period in 2018.Revenues from financial services were $4.2 million, a decrease of 30.5%, compared with $6 million during the second quarter of 2018 and $4.5 million during the first quarter of 2019. The year-over-year decrease of revenues from financial services was mainly due to a decline in the equity brokerage business.Revenues from the financial information and advisory business were $2.9 million, compared with $5.7 million during the second quarter of 2018, and $3.2 million in the first quarter of 2019. The year-over-year decrease of revenues from the financial information and advisory business was mainly attributable to the decrease in subscription revenues from individual customers.For the long-term growth prospects of our individual subscription business, we have streamlined our sales team and upgraded our business operations in the second half of 2018. On the other hand, revenues from financial advisory business, a sub part of the financial information and advisory business grew 82.6% year-over-year.Revenues from advertising services were $1.9 million, compared with $1.2 million in the second quarter of 2018 and $2 million in the first quarter of 2019. The increased traffic to our website and readers' recognition of our premium content also helped to elevate our advertising revenues on a year-over-year basis.Gross profit was $5.6 million compared with $8.5 million in the second quarter of 2018 and $6.4 million in the first quarter of 2019. Gross margin in the second quarter of 2019 was 63.1%, compared with 65.5% in the second quarter of 2018 and 64.5% in the first quarter of 2019. The year-over-year and quarter-over-quarter decreases in gross margin were mainly due to the decrease of revenue contribution from individual subscription services.G&A expenses were $2.5 million, a decrease of 16.4% from $3 million in the second quarter of 2018 and a decrease of 6.6% from $2.7 million in the first quarter of 2019. The year-over-year and quarter-over-quarter decreases were mainly due to effective cost control measures and the ongoing streamlining of the operations.Sales and marketing expenses were $3.8 million, a decrease of 41.7% from $6.6 million in the second quarter of 2018 and an increase of 6.9% from $3.6 million in the first quarter of 2019. The year-over-year decrease was mainly attributable to the further streamlining of the sales and marketing division and improved operational efficiency.R&D expenses were $2.6 million, a decrease of 32.2% from $3.8 million in the second quarter of 2018 and with no significant difference from $2.6 million in the first quarter of 2019. The year-over-year decrease was mainly attributable to improved efficiency after the consolidation of the R&D team.The Company continues to maintain a team of senior software engineers, data scientists and capital market professionals to support further development in its fintech capabilities. Total operating expenses were $8.9 million, a decrease of 33.3% from $13.4 million in the second quarter of 2018, and no significant difference from $8.9 million in the first quarter of 2019. The year-over-year decrease was mainly due to improved operational efficiency and effective cost control.Loss from operations was $3.3 million, compared with a loss from operations of $4.9 million in the second quarter of 2018 and a loss from operations of $2.5 million in the first quarter of 2019. Net loss attributable to China Finance Online was $3 million, compared with a net loss of $4.3 million in the second quarter of 2018 and a net loss of $2.8 million in the first quarter of 2019.Fully diluted loss per ADS attributable to China Finance Online was $0.13 for the second quarter of 2019, compared with fully diluted loss per ADS of $0.19 for the second quarter of 2018 and fully diluted loss per ADS of $0.12 for the first quarter of 2019. Basic and diluted weighted average numbers of ADSs for the second quarter of 2019 were 23 million, compared with basic and diluted weighted average number of ADSs of 22.8 million for the second quarter of 2018 and for the first quarter of 2019. Each ADS represents five ordinary shares of the Company.Now, let me walk you through some of the highlights of our first six months financial results. Net revenues for the first six months of 2019 were $18.8 million, compared with $26.2 million in the first six months of 2018. Gross profit for the first six months of 2019 was $12 million, compared with $16.7 million in the first six months of 2018.Net loss attributable to China Finance Online for the first six months of 2019 was $5.7 million, compared to a net loss of $9.5 million in the first six months of 2018. Fully diluted loss per ADS attributable to China Finance Online was $0.25 for the first six months of 2019, compared with fully diluted loss of $0.42 for the first six months of 2018. As of June 30, 2019, total shareholders' equity of China Finance Online was $30.1 million. Total cash and cash equivalents, short-term and long-term investments were $9.6 million.With that, this wraps up my prepared summary. And operator we're ready for questions.

[Operator:]

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Bob Wilson.

[Unidentified Analyst:]

The Company has several products and you're addressing multiple markets. Could you give us a comment on what your growth strategy is?

[Zhiwei Zhou:]

Thank you for your question. In a second quarter, the economic environments and the stock market in China experienced significant fluctuations, which slowed down our pace of business improvement. Given that, our operational metrics continue to improve and our productivity is further strengthened. Our ongoing investment in the fintech area continues to show results.For example, from investment advisory sites, we introduced human plus technology, public market, investment advisory service business model, which fits perfectly in the secular trend of industry-wide recruitment of wealth management appliances. Lingxi is the Robo-Advisor product, fall out of our proprietary asset allocation system, and it's designed to provide individual investor with highly personalized global asset allocation solutions.Since its launch, Lingxi has demonstrated superior returns and risk control performance and generated long-term gains for investors. Like I mentioned earlier, 92% of Lingxi's customers who had products for more than a year received positive returns. 100% of customers who still hold our products for more than a year are having positive returns as well. All these data speaks -- speaks that volume of Lingxi's solid track record in allocating assets.We also developed i-TAMP platform, which is a system enables investor -- investment advisors wealth management professionals to acquire customers, market their services, manage the account, provide training, and many wealth management related activities. We truly provide full line of smart systems support to investment advisors and wealth management professionals to help them to enhance their productivity, professional services. In recent quarters, this platform is attracting more and more investment advisors and wealth managers to open and operate their virtual stores on our site.We are proud that our fintech initiative is empowering wealth management sector, are increasingly recognized by the brokerage firms, banks, asset management companies and other financial institutions especially deepened collaborations in this -- in the area of intelligent investment research and intelligent investor education.We firmly believe that our commitment to use fintech to empower wealth management service sector is the right path for our future growth like you asked earlier. While we are strengthening our fintech capabilities to further improve our productivities, we welcome all partners who share the same vision to join us to the right technological paradigm shift and capture the vast growth opportunity in the Chinese wealth management sector. Thank you.

[Operator:]

[Operator Instructions] Thank you.

[Zhiwei Zhao:]

Thank you. Thank you everyone for attending China Finance Online 2019 second quarter and first six months earnings conference call. We look forward to speaking with you. Thank you.

[Operator:]

Ladies and gentlemen, this does conclude our conference for today. Thank you for participating. You may all disconnect.