58.com (WUBA), which is known as "the Craigslist of China, " is trading modestly higher today (+2%) after reporting strong Q4 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).
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, a used goods trading platform incubated by 58.com. Under the agreement, 58.com will inject the 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 Q4 results, non-GAAP earnings per ADS came in at $US0.56, which was much better than market expectations. Revenue rose 38.0% year/year to US$423.1 mln, which was well above prior guidance of $395.4-410.5 mln. Looking ahead to Q1, WUBA guided to revenue of RMB 2.290-2.390 bln. Non-GAAP operating margin in Q4 improved to 27.6% from 15.1% in the prior year period.
Membership revenue was US$159.0 mln, an increase of 27.9% YoY. 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 grew 28.2% YoY to 2.654 mln in Q4. Online marketing services revenues grew 38.3% to US$251.7 mln, primarily driven by the increasing adoption real-time bidding, priority listings etc.
WUBA says traffic on its mobile apps continued to grow strongly, largely as a result of app innovation improvements and a better user experience. Its core categories, such as jobs, secondary housing and rentals, used automobiles, and used goods all continue to do well. Of note, the growth in traffic and revenue is particularly strong in lower tier cities and towns.
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 although stumbled a bit in 2018, moving more sideways than up.
Probably the comment that stood out to us most was WUBA saying that traffic/revenue has been particularly strong in lower tier cities and towns. 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 and 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.