58.com (WUBA), which is known as "the Craigslist of China, " is trading modestly higher today (+1%) after reporting strong Q3 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 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 Q3 results, non-GAAP earnings per ADS came in at $US0.49. Revenue rose 33.3% year/year to US$410.2 mln. Both numbers were much better than market expectations. Looking ahead to Q4, WUBA guided to revenue of RMB 2.625-2.725 bln, which also was better than expected. Non-GAAP operating margin in Q3 improved to 24.3% from 13.0% in the prior year period.
Membership revenue was US$149.8 mln, an increase of 26.7% YoY. The increase in membership revenue was primarily driven by an increase in the number of subscription-based paying membership accounts. The total number of subscription-based paying membership accounts on the company's platforms, which include 58.com, Ganji.com and Anjuke.com, was approximately 2.611 mln during Q3, a 26.3% YoY increase.
WUBA says it continued to drive traffic growth and expand user engagement by deploying new technologies, particularly on its mobile apps. WUBA says it's the clear market leader in major categories such as jobs, rental and secondary housing in China in terms of traffic and revenue. WUBA continues to see what it describes as enormous market opportunities.
In sum, this was another very nice quarter for WUBA and investors are pleased. Since it fell sharply in November 2016 on weak guidance, the stock has been making a nice comeback since then and it's trading near 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.