Explosive Growth From China Finance Online

It's still early in 2009, but the Chinese stock market already has returned close to 25%. In stark contrast, the U.S. market is down nearly 25%, with the vast majority of global indexes also deep in negative territory. Although this initial bullishness may soon grow victim to global economic uncertainty and subsequent financial volatility, interest in investing in China is still in its infancy and should see explosive growth over the long haul.

China Finance Online (Nasdaq:JRJC) provides one of the best illustrations of this phenomenon. Quite young, the company was founded in November 1998 in Hong Kong and went public in late 2004. It bills itself as a leading online provider of financial information and data on Chinese companies. China Finance Online has seen impressive sales growth from its small initial base of $2.3 million in sales in 2003 to $56.2 million in 2008. (For more information about the numbers and what they mean, be sure to read our Introduction To Fundamental Analysis.)

Recent Results
In 2008, sales more than doubled from last year's $25.9 million. Fourth quarter top line growth slowed to 72% to reach $15.3 million, but came in ahead of analyst projections. Of this fourth quarter total, 80% stemmed from subscription service fees to individual users of the firm's securities market information, technical analysis and fundamental research tools, which are similar to the product offerings of TheStreet.com (Nasdaq:TSCM). Roughly 2% of sales stemmed from institutional subscriptions, with 1% attributed to mobile services and another 6% from advertising on the company's websites.

IN PICTURES: Eight Ways To Survive A Market Downturn

China Finance Online reported positive net income for its fourth quarter and full year after losses in each period last year. Full year reported earnings totaled 84 cents per diluted share, as expense growth lagged behind sales improvements and allowed the benefits of sales leverage to enhance margins and overall profitability. The company continues to upgrade content on its websites, add bandwidth and enhance other features to become the Chinese equivalent of Bloomberg or the Yahoo! (Nasdaq:YHOO) financial portal.

Outlook
Management is cautious for the coming year and expects first quarter 2009 revenue to come in somewhere between $10.5 million and $11.5 million, or roughly flat from the same quarter last year. However, it is still experiencing strong user and subscription growth at its two primary websites, jrj.com and stockstar.com. The company ended the year with 11.3 million registered users, still a tiny 4% share of the estimated 298 million internet users in China.

Bottom Line
China Finance Online expects positive free cash flow for the coming year and continues to see potential in a partnership with China Telecom (NYSE:CHA) to develop a finance portal and further expand its reach to increase paid subscribers. Ups and downs obviously will occur as the company continues along its growth trajectory, but with no long-term debt and $97.5 million in the bank, the downside appears limited. (For further reading on choosing the right investments for your portfolio, read Stock-Picking Strategies: Fundamental Analysis.)