58.com (WUBA), which is known as "the Craigslist of China, " is trading sharply higher today (+9%) after reporting strong Q2 results last night. Since you're probably not familiar, 58.com, which made its IPO debut in October 2013, is thought of as "the Craigslist of China." It operates the largest online marketplace (think classified ads) 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 to 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).
In terms of major recent developments, in April 2017, WUBA announced a deal with Tencent Holdings (TCEHY), which is a major investor in WUBA. Tencent has 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 here 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 Q2 results, non-GAAP earnings per ADS came in at $US0.66. Revenue rose 28.5% year/year to US$382.8 mln. Both numbers were much better than market expectations. Looking ahead to Q3, WUBA guided to revenue of RMB 2.55-2.65 bln, which also was better than expected. Non-GAAP operating margin in Q2 improved to 27.6% from 18.6% in the prior year period.
Membership revenue came in at US$142.3 mln, an increase of 28.2% YoY. Growth was primarily driven by an increase in the number of subscription-based paying membership accounts, which grew 24.8% YoY to 2.464 mln. Online marketing services revenues were US$226.8 mln, an increase of 36.6% YoY. The increase was primarily driven by the increasing adoption and effectiveness of WUBA's various online marketing services such as real time bidding and priority listings.
Among all categories on its platforms, WUBA says that job listings continued to deliver the fastest growth and increasingly accounts for a larger proportion of total revenue. While the housing market in tier one and two cities remains relatively soft, revenue from its housing category continues to show resilience by performing better than expected. Also, WUBA says it's making solid progress in developing new products across various categories. Finally, its mobile app traffic continues to grow rapidly and is accounting for a larger portion of total traffic.
In sum, this was a very nice quarter for WUBA and investors are pleased. Since it fell sharply in November 2016 on weak guidance for Q4, the stock has been making a nice comeback since then and it's trading at a new 52-week high today. Improving earnings has helped the stock rebound. Also, there have been long held rumors that Tencent may buy the remaining portion of WUBA that it does not already own. Whatever the reasons, investors are happy to see the stock back on the upswing.