(WUBA 80.39, -4.16, -4.92%), which is known as "the Craigslist of China," is trading
modestly lower today after reporting Q1 results last night 58.com, which made
its IPO debut in October 2013, is thought of as "the Craigslist of
China." It operates the largest online marketplace serving local merchants and consumers in
China. The site covers diverse content categories, including housing, jobs,
used goods, automotive, pets, tickets, yellow pages, and other local services.
Its well-recognized brand, "58.com," helps local merchants attract
consumers in China.
Online classified ads are a relatively new concept in China, but it's catching on quickly and WUBA is a play on that trend. The online classifieds market in China is expected to explode in the coming years due to China's large number of megacities, where access to local information is paramount. WUBA operates three platforms: 58.com (China's largest online marketplace), Ganji.com (local services), and Anjuke.com (real estate listings). Two of its newest early-stage businesses include Zhuan Zhuan, a C2C used goods transaction platform and 58 Town, a version of 58 specifically designed for rural areas.
Of note, in April 2017, WUBA announced a deal with Tencent Holdings (TCEHY), which is a major investor in WUBA. Tencent agreed to invest US$200 mln in Zhuan Zhuan, a used goods trading platform incubated by 58.com. Under the agreement, 58.com will inject the Zhuan Zhuan App and related listing channels from the 58 and Ganji classified platforms into a separate group of entities.
WUBA sees this as a significant endorsement of a platform that was launched in November 2015. WUBA sees an opportunity as online transactions of used goods are very underdeveloped in China. However, mobile technology and increasing user awareness is changing that. WUBA expects to accelerate growth in this market with more support from Tencent.
Turning to the Q1 results, non-GAAP earnings per ADS came in at $US0.33, which was in-line with market expectations. Revenue rose 36.4% year/year to US$393 mln, which was well above prior guidance of $361.3-377.0 mln. Looking ahead to Q2, WUBA guided to revenue of RMB 3,100-3,200 mln. This represents a year/year increase of 19.6% to 23.4% in Renminbi amounts. Non-GAAP operating margin in Q1 improved to 16.6% from 10.9% in the prior year period.
Membership revenue was US$147.7 mln, an increase of 17.1% year/year. The increase was primarily driven by an increase in the number of subscription-based paying membership accounts. The total number of subscription-based paying membership accounts (includes 58.com, Ganji.com and Anjuke.com) was 2.665 mln, up 20.5% year/year. Online marketing services revenues grew 31.2% to US$237.3 mln, primarily driven by the increasing adoption real-time bidding, priority listings etc.
WUBA sees its Q1 results as being solid. Its job category in particular continues to grow faster than other major categories in terms of revenue and paying customers which WUBA feels is a clear indication of its market leading position. Its housing category remains resilient despite low overall transaction volumes in China's housing market. Two of its newest early-stage businesses, Zhuan Zhuan and 58 Town both continue to grow rapidly. WUBA continues to launch more features across its platform and is pushing further into lower tier cities to take advantage of growth opportunities there.
In sum, the stock is trading a bit lower today as investors are interpreting the Q1 in-line results as a bit disappointing after a huge EPS beat in Q4. Despite today's weakness and the weakness over the past month or so, the stock has been in a steady uptrend over the past year. Probably the comment that stood out to us most was WUBA saying its housing category remains resilient despite low overall transaction volumes in China's housing market.
Also, it's good to see WUBA doing well with 58 Town, which is designed for rural areas. WUBA has always been known for its robust growth in larger cities and a service like 58.com (sort of like Craigslist) makes a lot of sense in the big cities. However, it's good to see them drilling down into smaller cities/towns which had been seen as harder to penetrate because people there are less likely to be tech-savvy and the WUBA service is a bit less in demand when fewer people live in an area.
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