Technology Falters on Weak Outlook

China Internet
Source: Thinkstock Inc. (NYSE: WUBA) reported second-quarter 2014 results after markets closed Wednesday. The Chinese classified advertising marketplace that is often compared with craigslist posted adjusted diluted earnings per American Depositary Share (ADS) of $0.15 and $64.56 million in revenues. In the same period a year ago, reported earnings per ADS of $0.06 on revenue of $35.11 million. Second-quarter results also compare to the Thomson Reuters consensus estimates for earnings per ADS of $0.08 and $62.65 million in revenue. One ADS is equal to two ordinary shares.

The company’s membership revenues rose by 70% over the second quarter of 2013 to $35.1 million, and the membership total rose from 298,000 merchants to 511,000. Marketing services revenues more than doubled to $29.3 million. Gross margins rose from 93.9% a year ago to 94.7%, and gross profit rose 85.5%. Operating expenses rose 89.2% to $53.9 million and non-GAAP operating income rose from $5.1 million a year ago to $8.5 million. Non-GAAP net income more than doubled from $5.5 million in the second quarter a year ago to $12.4 million.

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The company’s CEO said:

Our overall traffic increased to record high levels. Mobile traffic continued to grow at a much faster pace than PC traffic, with 54% of traffic coming from our mobile platforms demonstrating the traction we are gaining. While we continue to be the leading player in China’s multi-category local services market, we need to invest aggressively now to strengthen our competitive advantages in order to extend our lead and ensure future sustainable growth.

The company came public last October, offering 11 million ADSs at $17 each, which rose to more than $25 on the first trading day. The company issued a secondary offering of 8 million ADSs at $38 in March, but it did not suffer a big hit to the share price.

At the end of the second quarter, sold 36.8 million ordinary shares to Tencent Holdings at $40 per ADS. The company used a portion of the cash to repurchase 27.6 million ordinary shares from existing pre-IPO shareholders. now has 175.21 million shares outstanding. The company has also adopted a dual-class share structure with Class B shares having 10-times the voting power of Class A shares.

Shares were down about 4.3% in Thursday’s premarket, trading at $48.40 in a 52-week range of $21.15 to $58.89. Thomson Reuters had a consensus analyst price target of around $49.00 from five analysts before the results were announced.

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