China Finance Online Co. Limited
Q1 2016 Earnings Call Transcript

Published: 1 Jun 2016

[Operator:]

Welcome to the China Finance Online First Quarter 2016 Earnings Conference Call. [Operator Instructions] I must advise that this conference is being recorded today, June 1, 2016. I would like to hand the conference over to your first speaker today, Ms. Julie Zhu. Thank you. Please go ahead.

[Julie Zhu:]

Thank you, operator. Welcome to China Finance Online’s first quarter of 2016 earnings conference call. With us today are Mr. Zhiwei Zhao, Chairman and CEO; Mr. Jeff Wang, Director and CFO; and Mr. David Tang, Vice President of Strategy and Finance. Before we begin, I will remind all listeners that throughout this call, we may present statements that may contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. The words believe, estimate, plan, expect, anticipate, project, 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 information in the future. At this time, I would now like to turn the conference call over to Mr. Zhao.

[Zhiwei Zhao:]

[Foreign Language] Good day, everyone, and thank you for joining today’s call. We had a very strong [first quarter of] the year, with net revenues increasing 124.2% year-over-year to $30.7 million. In particular, our financial services and financial information and advisory businesses grew significantly, increasing 181.8% and 46.3%, respectively, on a year-over-year basis. In the first quarter, financial services, which include commodity brokerage services, grew significantly. Our gross margin also expanded to 84.3% as a result of financial services. We continued to focus on providing Chinese retail investors with a wide array of industry-leading tools that will allow them to make independent investment decisions. iTouGu continued to gain traction in the market, with 4.4 million activated users as of March 2016, which I believe demonstrates the value of our services and platforms provided to investors, who are increasingly turning to us for professional advice and information during periods of market volatility. To further diversify our FinTech strategy during the quarter, we began developing a robo-advisor investment service, which provides automated, customizable investment solutions based on proprietary algorithms and investment strategies. We believe that with the right corporate strategy and team, this technology will allow us to set the pace in developing a low-cost, high-efficiency and personalized wealth management service in China. Going forward, we will continue to integrate our traditional business lines, including our financial portals, commodities trading services, database systems and brokerage-related business, with our new growth drivers, like iTouGu and Yinglibao to transform our platform into a more transaction-based business model. I’m confident that our current strategy will lead us to a successful transition and create long-term value for our shareholders. With that, I now turn the call to our CFO, Jeff Wang, to go over the financial details for this quarter. Thank you.

[Jun Jeff Wang:]

Thank you, Zhiwei. Let me walk you through our major items for the first quarter. Please note that all financial numbers are presented in US dollars, and rounded to one decimal point for approximation. Net revenues were $30.7 million, an increase of 124.2% from $13.7 million during the first quarter of 2015, a decrease of 8.7% from $33.6 million during the fourth quarter of 2015. During the first quarter of 2016, revenues from financial services, financial information, and advisory business, and advertising services contributed 87%, 10%, and 2% of the net revenues, respectively, compared with 69%, 16%, and 15%, respectively, for the corresponding period in 2015. Revenues from financial services were $26.8 million, an increase of 181.8%, from $9.5 million during the first quarter of 2015 and 3.4% from $25.9 million during the fourth quarter of 2015. Revenues from financial services comprised of equity and commodities brokerage services, the year-over-year increase was mainly due to a significant increase in revenues from the company’s commodities brokerage services. Revenues from financial information and advisory business were $3.2 million, an increase of 46.3% from $2.2 million in the fourth quarter of 2015 and a decrease of 47.1% from $6 million in the fourth quarter of 2015. Revenues from financial information and advisory business comprised of subscription services from individual and institutional customers. As of March 31, 2016, iTouGu, the company’s social-driven stock selection platform, had over 4.4 million activated users. Revenues from advertising were $0.6 million, a decrease of 70.8% from $2 million in the first quarter of 2015 and 66.4% from $1.8 million in the fourth quarter of 2015. Gross profit was $25.9 million, an increase of 152.1% from $10.3 million in the first quarter of 2015 and a decrease of 5.8% from $27.5 million in the fourth quarter of 2015. Gross margin in the first quarter of 2016 was 84.3% compared with 75% in the first quarter of 2015 and 81.8% in the fourth quarter of 2015. The year-over-year increase in gross margin was mainly due to revenues from financial services, which typically have higher gross margins accounting for a larger proportion of total revenues. General and administrative expenses were $4.9 million, an increase of 66.1%, from $3 million in the first quarter of 2015 and a decrease of 13.9% from $5.7 million in the fourth quarter of 2015. The year-over-year increase was mainly attributable to an increase in share-based compensation expenses. Sales and marketing expenses were $11.8 million, an increase of 44.7% from $8.1 million in the first quarter of 2015 and a decrease of 28% from $16.4 million in the fourth quarter of 2015. The year-over-year increase was primarily due to an increase in sales bonus and staff-related expenses. Research and development expenses were $2.7 million, a decrease of 4.5% from $2.8 million in the first quarter of 2015, and flat with the fourth quarter of 2015. Income from operations was $7 million, compared with a loss from operations of $3.5 million in the first quarter of 2015 and an income from operations of $2.5 million in the fourth quarter of 2015. Net income attributable to China Finance Online was $2 million compared with a net loss of $1.3 million in the first quarter of 2015 and a net income of $10 million in the fourth quarter of 2015. Fully diluted earnings per ADS attributable to China Finance Online $0.08 in the first quarter of 2016 compared with a fully diluted loss per ADS of $0.06 in the first quarter of 2015 and fully diluted earnings per ADS of $0.40 for the fourth quarter of 2015. Basic and diluted weighted average numbers of ADS for the first quarter of 2016 were 22.6 million and 25.4 million, respectively. Each ADS represents five ordinary shares of the company. As of March 31, 2016, total cash and cash equivalents were $89.7 million compared with $85.7 million as of December 31, 2015. Total shareholders’ equity of China Finance Online was $91.5 million as of March 31, 2016 compared with $88 million as of December 31, 2015. With that, operator, we are ready to begin the Q&A session.

[Operator:]

[Operator Instructions] Our first question comes from the line of [Stefan Harris from Parque Capital].

[Unidentified Analyst:]

I was wondering if you could give us a bit more color on your robo-advisor investor service, if you could talk a bit more about that, please.

[David Tang:]

For the past 12 months, we have been dedicating important resources in developing quantitative strategies and algorithms for the investments for individual investors in China. In the first quarter this year, our robo-advisor service was set internally as a new and a key product line. Our robo-advisor service is similar to that of Wealthfront and especially Charles Schwab intelligent portfolios in the States, if you have already known these names. And it will be launched in the foreseeable future. Our investors will soon enjoy the benefits of intelligent and personalized tier portfolios. We hope to be the leadership in robo-advisor services, along with our iTouGu, which is our online person-to-person investment advisory service to suit the different needs of investors. With the combination of our robo-advisor service, iTouGu, and Yinglibao, we aim to be a syntax pioneer in wealth management technology in China.

[Operator:]

Thank you. There is no further question at this time. I would like to hand the conference back to our presenters. Please continue.

[Zhiwei Zhao:]

Thank you for joining today’s call. This ends the call.

[Operator:]

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