58.com (WUBA), which is known as "the Craigslist of China," trades modestly higher today (+3%) after reporting Q1 results last night. WUBA operates the largest online marketplace (classified ads, etc.) serving local merchants and consumers in China in areas such as housing, jobs, used goods, automotive, pets, services, and tickets.
Turning to the Q1 results, non-GAAP earnings per ADS came in at $US0.43, which was much better than market expectations. Revenue rose 22.5% year/year to US$449.7 mln, which was well above prior guidance for revenue of $427.5-442.4 mln. Looking ahead to Q2, WUBA guided to revenue of RMB 4.0-4.1 bln. This represents a yr/yr increase of 17-20% in Renminbi amounts. Non-GAAP operating margin in Q1 dipped to 15.4% from 16.6% in the prior year period.
CEO Michael Yao notes that WUBA began the year with solid results, saying, "[U]ser traffic to our apps in particular and user engagement continued to gain growth momentum." Yao further added, "Our core housing and jobs businesses lead the market, while newer businesses like Zhuan and 58 Town are growing rapidly. We are confident in our online classifieds marketplace business mode."
Yao conceded that WUBA is "not immune to China's softening economy given [its] exposure to several key local services categories such as jobs, housing and auto." WUBA has seen its share price slump recently, going from the low $70s in early May to around $57 now. The trade war with the US looks like it has staying power. That and the weakening Chinese economy overall are taking a toll.
In addition to earnings, WUBA also announced today it will purchase $100 mln in convertible notes issued by Uxin (UXIN). Each note will be convertible at a conversion price $3.09 per Uxin ADS, which is above Uxin's current price, around $2.50. Uxin has been a bit of a dud since its IPO in June 2018. It priced at $9 and has been steadily heading lower since then. It's the largest used car e-commerce platform in China, so it has solid market position, but the company has struggled. This purchase could turn out to be a cheap entry point if Uxin can turn its business around.
Overall, this was a good quarter for WUBA and a good start to 2019. After an EPS miss in Q4, WUBA solid Q1 EPS beat was a good bounce back to see. However, we suspect that the weak economy will remain a cloud over this stock in the near term.