Free Annual Reports
The Wait Continues At China Finance Online
China Finance Online (Nasdaq:JRJC) is a leading financial portal in China and owns the highly popular web portals of jrj.com and stockstar.com. It also has ambitions to be a leading broker in the country through its subsidiary Daily Growth. The problem is rapid revenue growth appears to have stalled out for the time being. Profit trends have also been murky, though the firm should end the year in the black.
IN PICTURES: 4 Biggest Investor Errors
Third-Quarter Review
China Finance's total registered users jumped 41% to 18.5 million and paid users increased almost 30% to 145,000, but for some reason sales fell 1.4% to $14.4 million. Main revenue sources consist of subscription fees from individual and institutional users, advertising and fees received from brokerage services. User fees make up the bulk of sales, with individuals making up the most at 78%. Ad revenue is the next largest category at 12% and is followed by brokerage at 6% and institutional users at 4%.
Gross profits increased slightly to $12.3 million. Operating costs fell an impressive 15.8% and came primarily from trimming payroll expenses. This pushed net income into positive territory after a loss in last year's third quarter. Earnings came in at $1.2 million, or 6 cents per diluted share.
Outlook
China Finance expects to end the year with 20 million registered users and revenues of $59 million. Net income guidance is $6 million and excludes stock-based compensation that amounted to almost $3 million last year. This works out to about 26 cents per diluted share when excluding the compensation expense.
Concerning Events
A worrisome development during the quarter was a big jump in accounts receivable, nearly $70 million to $76.4 million due to "IPO financing and margin business associated with Daily Growth, the Company's Hong Kong brokerage firm." This resulted in a cash outflow and sent operating cash flow generation into negative territory.
This combined with the anemic top-line trends mean China Finance Online's potential is still unrealized. As of now, it is not finding solid ways to garner sales or profits from its high and growing registered user base. Yahoo! (Nasdaq:YHOO) has had this problem and financial media firm Thestreet.com (Nasdaq:TSCM) has also had trouble staying consistently profitable despite a high number of readers and users.
Bottom Line
An agreement with China Unicom (NYSE:CHU) "to become the exclusive content provider of financial news and market data for its 3G mobile portal" also continues to hold promise, as does the fact that China is a rapidly developing market for individual investors. China Finance may also turn more into a broker, such as U.S.-based TD Ameritrade (Nasdaq:AMTD), though this could be met with growing pains as the big jump in A/R could indicate. Overall, there are many avenues for the company to become fantastically profitable in China, but for the time being it's not reflected in the financial performance. (For related reading, take a look at Investing In China.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 4 Biggest Investor Errors
Third-Quarter Review
China Finance's total registered users jumped 41% to 18.5 million and paid users increased almost 30% to 145,000, but for some reason sales fell 1.4% to $14.4 million. Main revenue sources consist of subscription fees from individual and institutional users, advertising and fees received from brokerage services. User fees make up the bulk of sales, with individuals making up the most at 78%. Ad revenue is the next largest category at 12% and is followed by brokerage at 6% and institutional users at 4%.
Gross profits increased slightly to $12.3 million. Operating costs fell an impressive 15.8% and came primarily from trimming payroll expenses. This pushed net income into positive territory after a loss in last year's third quarter. Earnings came in at $1.2 million, or 6 cents per diluted share.
Outlook
China Finance expects to end the year with 20 million registered users and revenues of $59 million. Net income guidance is $6 million and excludes stock-based compensation that amounted to almost $3 million last year. This works out to about 26 cents per diluted share when excluding the compensation expense.
A worrisome development during the quarter was a big jump in accounts receivable, nearly $70 million to $76.4 million due to "IPO financing and margin business associated with Daily Growth, the Company's Hong Kong brokerage firm." This resulted in a cash outflow and sent operating cash flow generation into negative territory.
This combined with the anemic top-line trends mean China Finance Online's potential is still unrealized. As of now, it is not finding solid ways to garner sales or profits from its high and growing registered user base. Yahoo! (Nasdaq:YHOO) has had this problem and financial media firm Thestreet.com (Nasdaq:TSCM) has also had trouble staying consistently profitable despite a high number of readers and users.
Bottom Line
An agreement with China Unicom (NYSE:CHU) "to become the exclusive content provider of financial news and market data for its 3G mobile portal" also continues to hold promise, as does the fact that China is a rapidly developing market for individual investors. China Finance may also turn more into a broker, such as U.S.-based TD Ameritrade (Nasdaq:AMTD), though this could be met with growing pains as the big jump in A/R could indicate. Overall, there are many avenues for the company to become fantastically profitable in China, but for the time being it's not reflected in the financial performance. (For related reading, take a look at Investing In China.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Ryan C. Fuhrmann
Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing assets for high-net-worth individuals and covering a broad array of industries from a generalist perspective. An active student of investing, he focuses on communicating his ideas as an investment writer and learning from the financial community. Ryan is also actively involved with the CFA Institute. Feel free to visit his website at www.rationalanalyst.com.
Free Annual Reports
