China Finance Online Co. Limited
Q3 2015 Earnings Call Transcript

Published: 16 Dec 2015

[Operator:]

Thank you for standing by, ladies and gentlemen, and welcome to the China Finance Third Quarter 2015 Earnings Conference Call. [Operator Instructions] Please also note, today's conference is being recorded. I would now like to hand the conference over to your host speaker, Julie Zhu. Thank you. Please go ahead.

[Julie Zhu:]

Thank you, operator. Welcome to China Finance Online third quarter 2015 earnings conference call. With us today are Mr. Zhiwei Zhao, Chairman and CEO; Mr. Jeff Wang, Director and CFO; and Mr. David Tan, Vice President of Strategy and Finance. 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 the Private Securities Litigation Reform Act of 1995. The words believe, estimate, plans, expect, anticipate, project, target, 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 operation, financial performance and condition. 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:]

[Interpreted] Good day everyone. I am the Chairman and CEO of China Finance Online, Zhiwei Zhao. Thank you for joining today's call. I'm very pleased to report strong third quarter results, with net revenues up 75% year over year and 50% quarter over quarter. Net income increased significantly to $9.7 million from a net loss of $2.4 million during the same period last year. Our online securities investment service platform iTouGu and one-stop mutual fund investment platform Yinglibao have made good progress. iTouGu grew rapidly during this quarter, acquiring over 2,000 securities investment advisors and 3.5 million activated users as of September 30th, 2015. In early September we launched iTouGu's first nationwide investment masters tournament which was just completed. The tournament has increased iTouGu's exposure and attracted a large number of investment advisors from domestic securities firms to our platform. Individual investor response has also been very positive. The Chinese domestic stock market continues to experience extreme volatility [inaudible] retail market individual investors make up the majority of trading volumes in China's Asia market, therefore, individual investors are in desperate need of market information and professional advice from investment advisors to help them make informed trading decisions. Since its official launch in May 2015, I TouGu has gained significant traction among individual investors and has started to generate meaningful revenue. We will continue to focus on increasing its size and scale in the coming year, and as it matures, we will implement further monetization initiatives. Our one-stop mutual fund investment platform, which integrates cash management solution and mutual fund distribution, is still in the early stages of development. Its performance and growth are so far in line with our expectations as we continue to invest in its development to provide alternative investment opportunities for our massive users. To further streamline our business, we sold our 90% equity stake in stockstar.com and related businesses to independent Chinese private equity investment firms [ph]. This will allow us to reinvest in and fully focus our efforts on further developing and expanding iTouGu and Yinglibao. We continue to integrate our traditional business lines with our iTouGu and Yinglibao. During the quarter we redesigned JRJC's core website, jrj.com, to facilitate its transition towards a more transaction-oriented information platform that will be directly supported by iTouGu and Yinglibao. Finally, we're also pleased with the performance of our commodity trading business during this quarter. Looking forward, we will continue to integrate our traditional business lines, including our financial portals, commodity trading services, database system and brokerage-related business, with our new growth drivers to transform our platform into a more transaction-based business model. We're committed to providing Chinese retail market retail investors with industry-leading tools that will allow them to make educated investment decisions. We will continue to invest in our newest businesses as well as support the transition of our traditional ones as we work to create greater value for our customers and shareholders. With that, I'll now turn the call to our CFO, Jeff Wang, to go over the financial details for this quarter. Thank you.

[Jeff Wang:]

Thank you, Zhao-zong [ph]. First of all, let me walk you through our major items for third quarter, and then quickly go over the results for the first nine months of 2015. Please note that all financial numbers are presented in U.S. dollars and rounded to one decimal point for approximation. Net revenues were $37 million, an increase of 74.8% from $21.1 million during the third quarter of 2014 and 59.9% from $23.1 million during the second quarter of 2015. During the third quarter of 2015, revenues from financial services, financial information and advisory business and advertising services contributed 83%, 12% and 5% of our net revenues, respectively, compared with 81%, 11% and 8%, respectively, for the corresponding period in 2014. Revenues from financial services were $30.7 million, an increase of 79.8% from $17.1 million during the third quarter of 2014 and 82.8% from $16.8 million during the second quarter of 2015. Revenues from financial services comprises of brokerage and commodities services. The year-over-year and sequential increases were mainly due to a significant increase in revenues from our commodities trading services as a result of newly-launched heavy oil brokerage business. Revenues from financial information and advisory business were $4.4 million, an increase of 94.1% from $2.3 million during the third quarter of 2014 and a decrease of 6.4% from $4.7 million in the second quarter of 2015. Revenues from financial information and advisory business comprise of subscription services from individual and institutional customers. Our social-driven stock selection platform iTouGu continued to grow in size and scale as it begins generating revenue in a more meaningful way. As of September 30, 2015, iTouGu had over 3.5 million activated users and over 2,000 investment advisors. Revenues from advertising were $1.7 million, a decrease of 1.5% from $1.8 million in the third quarter of 2014 and an increase of 15% from $1.5 million in the second quarter of 2015. Gross profit was $31.6 million, an increase of 97.4% from $16 million in the third quarter of 2014 and 73.3% from $18.2 million in the second quarter of 2015. Gross margin in the third quarter of 2015 was 85.6%, compared with 75.8% in the third quarter of 2014 and 78.9% in the second quarter of 2015. The year-over-year and sequential increase in gross margin was mainly due to the significant increase in net revenues from financial services. General and administrative expenses were $3.2 million, a decrease of 49.5% from $6.4 million in the third quarter of 2014 and 47.3% from $6.1 million in the second quarter of 2015. The year-over-year and sequential decreases were mainly due to -- attributable -- were mainly attributable to fair value adjustment of stock options granted to non-employees. Sales and marketing expenses were $13.1 million, an increase of 43.9% from $9.1 million in the third quarter of 2014 and 48.4% from $8.8 million in the second quarter of 2015. The year-over-year increase was primarily due to an increase in sales bonus. Research and development expenses were $2.5 million, a decrease of 4.6% from $2.6 million in the third quarter of 2014 and 6.9% from $2.7 million in the second quarter of 2015. We will continue to reinvest in iTouGu as part of this long-term strategic goal of providing retail investors with a one-stop solution for their investment needs. Income from operations was $12.9 million, compared with a loss from operations of $1.9 million in the third quarter of 2014 and an income from operations of $0.6 million in the second quarter of 2015. Net income attributable to China Finance Online was $9.7 million, compared with a net loss of $2.4 million in the third quarter of 2014 and a net income of $4.1 million in the second quarter of 2015. Fully diluted earnings per ADS was $0.39 for the third quarter of 2015, compared with a fully diluted loss per ADS of $0.11 for the third quarter of 2014 and a fully diluted earnings per ADS of $0.16 for the second quarter of 2015. Basic and diluted weighted average numbers of ADSs for the third quarter of 2015 were 22.2 million and 24.8 million, respectively. Each ADS represents five ordinary shares of the Company. As of September 30, 2015, total cash and cash equivalents were $48 million, compared with $32.5 million as of December 31, 2014. Total shareholders' equity of China Finance Online was $76.4 million as of September 30, 2015, compared with $64.6 million as of December 31, 2014. Now I'll quickly go over the results for the first nine months of 2015. Net revenues for the first nine months of 2015 were $73.8 million, an increase of 13.6% compared with $64.9 million in the first nine months of 2014. Gross profit for the first nine months of 2015 was $60.2 million, an increase of 22.9% compared with $49 million in the first nine months of 2014. Net income attributable to China Finance Online for the first nine months of 2015 was $12.5 million, compared with a net loss of $10.8 million in the first nine months of 2014. Fully diluted earnings per ADS was $0.50 for the first nine months of 2015, compared with a fully diluted loss per ADS of $0.49 for the first nine months of 2014. With that, operator, we are ready to begin the Q&A session.

[Operator:]

Thank you. Ladies and gentlemen, welcome to the question-and-answer session. [Operator Instructions] Thank you. And your first question comes from the line of Steven Heathers [ph] from Park Hill Capital [ph]. Go ahead, thank you.

[Unidentified Participant:]

Hi. Thank you for taking my call. You guys have shown some fairly decent growth both top line and bottom line over the last couple of quarters. Can you give us a sense of what your -- what the outlook is for next year? Thank you.

[David Tan:]

Thank you. Yes. It's the end of the year again. First, we will say we are positive on our long-term business outlook. The Chinese stock [ph] market reform is deepening in the next year with expected launch of new exchange [ph] system and new third board of GC [ph] listing and trading rules [ph]. Individual investors in China need more professional advice from professional advisors to help them to make investment decisions. At the same time, individual investors are searching for more equity from [ph] fixed income products. We look forward to the continued revenue in the user growth, primarily from iTouGu and Yinglibao. Our target is to have 8 million activated users on these two platforms this time next year. So, 2016 will be a very, very important year for us. Thank you.

[Unidentified Participant:]

Thank you.

[Operator:]

[Operator Instructions] My apologies. We've got a follow-up question from the line of Steven Heathers [ph]. Go ahead please.

[Unidentified Participant:]

Hi. One more question. What do you view as -- what's the -- what do you view as your competition? What's the competitive outlook for you guys? Again, looking out to next year. Thank you.

[David Tan:]

Okay. We started our business in the financial portal, and it's competing with the likes of eastmoney.com. It's a company listed in A-share in China. Now we are transforming into transaction-oriented platform, which will be supported by our strong market information and data capabilities. Our two new investment application iTouGu and Yinglibao, which are internet-based financial platform cash management solutions and mutual fund distribution, provide us with an excellent opportunity to differentiate ourselves on most of our competitors. Our competitive advantages lie in internet traffic volume and financial data and investment advisory resources and capabilities, which will directly benefit iTouGu and Yinglibao. We will continue to optimize the user experience and to establish a leading position in equity and wealth management market. Thank you.

[Unidentified Participant:]

Thank you very much.

[Operator:]

Thank you. We have no further questions at this time, so I'll hand back to Ms. Zhu for closing remarks.

[Julie Zhu:]

Thank you to all for participating in this earnings call and webcast. We look forward to speaking with you again.

[Operator:]

Great. Thank you so much. Ladies and gentlemen, that does conclude our conference for today. Thank you for your attendance. You may all now disconnect.