May 21, 2022

China Finance Online Co. Limited (JRJC) CEO Zhiwei Zhao on Q2 2020 Results – Earnings Call Transcript

China Finance Online Co. Limited (NASDAQ:JRJC) Q2 2020 Results Earnings Call September 24, 2020 8:00 PM ET

Company Participants

Dixon Chen – IR

Zhiwei Zhao – CEO

Julie Zhu – Acting CFO

Conference Call Participants

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the China Finance Online Q2 2020 Conference Call. At this time all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]

I would now hand the conference over to your first speaker, Mr. Dixon Chen. Sir, please go ahead.

Dixon Chen

Thank you, operator. Welcome to China Finance Online’s 2020 second quarter and first six months financial results earnings conference call. With us today are Mr. Zhiwei Zhao, Chairman and CEO; and Ms. Julie Zhu, acting CFO. Mr. Zhao will provide a summary of business dynamics in the quarter, and then Ms. Julie will review the quarterly financial results. Thereafter, the management will hold a question-and-answer session.

Before we begin, I want to remind all listeners that throughout this call, we may present statements that may contain forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. The words belief, estimates, plans, expects, anticipate, projects, targets, optimistic, intend, aim, future, will or similar expressions are intended to identify forward-looking statements.

All statements other than historical facts may be deemed forward-looking statements. These forward-looking statements are based on current expectations or beliefs, including, but not limited to, statements concerning China Finance Online’s operations, financial performance and conditions.

China Finance Online cautions that these statements, by their nature, involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including those discussed in China Finance Online’s reports filed with the Securities and Exchange Commission from time to time.

China Finance Online specifically disclaims any obligation to update the forward-looking statements in the future.

At this time, I would now like to turn the conference call over to Mr. Zhao.

[Foreign Language]

Zhiwei Zhao

[Foreign Language]

Dixon Chen

Good morning and good evening. Thank you for joining today’s call.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

During the second quarter of 2020, the Chinese economy and stock markets staged a strong comeback as the pandemic was mostly contained. As a result of improved market sentiment, along with our more effective new marketing programs and extensive product and services provisions, our financial information and advisory business experienced solid rebound.

We further reduced our bottom line losses in the second quarter as our diversified offerings, especially in the personal wealth management category continues to gain traction. And our ongoing cost control proved to be effective.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

In the post-COVID era, businesses in China, big or small, are facing unprecedented uncertainties that present both challenges and opportunities. As a professional financial media, we have continued to introduce more innovative marketing strategies that leverage our advantages in mediate resources and capital market services experience not only to promote more transparent and long-term sustainable development of Chinese capital markets, but also help position publicly listed companies to increase their exposure among investment community and deliver a well-crafted message to investors in this post-COVID area.

In September, we successfully hosted 2 impactful events to gather thought leaders, elite investors and Chinese operators in healthcare and real estate sectors to discuss the growth trends and investment opportunities. Our mission remains to help operators share best practices, enterprises deliver long-term values and investors identify the best investment ideas.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

On September 10, we successfully hosted the institutional investors 2020 China Pharmaceutical and Biotech Conference in Shanghai with the scientific contribution and participation of China Pharmaceutical Industry Research and Development Association, China Society of Biotechnology, China Association for Vaccines and partners of China Fund-of-fund Alliance and Dow Jones & Company. Over 100 leading institutional investors, pharmaceuticals and biotech entrepreneurs and scientists attended the event and participated in debates centered around the topic of global high-quality growth, long-term value investing and ESG investment.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

During the conference, we released our proprietary report, “Rerating and Restructuring, Post-COVID Evolution of Chinese Pharma and Biotech Sector”. From the macroeconomics, industry development and corporate operation perspectives, this report not only provided insightful summaries, analysis and prognosis of pharmaceutical and biotech sectors in China, but also offered valuable data points and objective input for the post-COVID industry recovery blueprint.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

Short after that, on September 17, we successfully hosted the China Property Summit in Shanghai as well, with the guidance of China Real Estate Chambers of Commerce and the company’s partner, Dow Jones & Company and our partners Dow Jones & Company. The event attracted over 100 leading institutional investors, publicly listed property companies and tech entrepreneurs to discuss the post-COVID dynamics of the Chinese property market. And public listed property companies’ status quo in Six Forces Model and ESG investment in the real estate market.

As a leading online financial media in China, we strive to provide a platform that enables all stakeholders to exchange ideas and views for the sustainable growth and development of the Chinese real estate industry.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

As the Chinese stock market progresses towards maturity, we are also undertaking our social responsibility to promote long-term investments, while we continue to grow our investment advisory services for both institutional and retail investor clients.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

As diversified new media rises, we have made continuing efforts in the new media operation to deliver our enriched content to audience through different channels. Thanks to our original content and proprietary program, our operation on the popular short-form video social media, DouYin, has made persistent advances.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

Along with the growing popularity of our content, our services in the institutional wealth management, investor education and investment advisory and asset allocation, have also received more recognition from financial institutions. We have started many modular developments for many institutional clients and used our fintech tools to empower their growth of wealth management services.

On the retail wealth management front, we also captured the market opportunity to grow our subscriber base as more investors seek professional advices in a rapidly changing environment.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

According to our proprietary asset allocation system, our Robo-Advisor product, Lingxi, provides Chinese retail investors with a wide array of investment combinations and personalized global asset allocations through the Chinese domestic mutual funds. Since its inception, Lingxi established a solid track record of balancing performance and risk management.

During the second quarter of 2020, the Chinese stock market experienced a strong rebound from the sell-off related to the COVID-19 pandemic in the first quarter. Lingxi, once again, outclassed most of its peers Robo-Advisor products in the marketplace and outperformed the Shanghai Composite Index. The best strategy of Lingxi posted a return of 11% in the second quarter of 2020, while the Shanghai Composite Index had a return of 10% during the same period.

All strategies of Lingxi managed to control the expected annualized fluctuation under 6.5%, while the expected annualized volatility of Shanghai Composite Index reached 12.6% during the same period. In the first half of 2020, Lingxi produced an average of 6.0%, continuing to extend its leadership in the Robo-Advisor marketplace, with the best-performing strategy yielded 10% return.

During the first half of 2020, Lingxi’s annualized fluctuation was 5.5% while the Shanghai Composite Index rose to 21.6% in fluctuation in the same period.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

Looking into the second half of 2020, there remains many uncertainties in the economy and capital markets. But we will continue to strengthen our fintech capability through optimization and upgrades of our services and products to empower the wealth management sector in China.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

With that, I will now turn the call to our acting CFO, Julie Zhu, to go over the financial details of the quarterly and 6 months results. Thank you.

Julie Zhu

Thank you, Mr. Zhao. Let me walk you through our major items for the second quarter. Please note that all financial numbers are unaudited and presented in U.S. dollars rounded to 1 decimal point for approximation.

Net revenues were $9.7 million compared with $8.9 million during the second quarter of 2019 and $9.8 million during the first quarter of 2020. During the second quarter of 2020, revenues from financial services, financial information advisory business, advertising business and enterprise value-added services contributed 33%, 47%, 10% and 9% of the net revenues, respectively, compared with 47%, 32%, 13% and 8%, respectively, for the corresponding period in 2019.

Revenues from financial services were $3.2 million compared with $4.2 million during the second quarter of 2019 and $4.2 million during the first quarter of 2020. The year-over-year and quarter-over-quarter decreases in revenues from financial services were mainly due to reduced revenue from the equity brokerage business.

Revenues from the financial information advisory business were $4.6 million compared with $2.9 million during the second quarter of 2019 and $3.5 million in the first quarter of 2020. Revenues from the financial information advisory business were mainly comprised of subscription services from individual and institutional customers and the financial advisory service. The year-over-year and quarter-over-quarter increases in revenues from the financial information advisory business were mainly due to the fast-growing investment advisory services and subscription fees from individual investors.

During the second quarter, revenue from individual investors subscription business rose by 59.8% from the second quarter of 2019 and 63.9% from the first quarter of 2020 as more retail investors were seeking professional advice in the unprecedented volatile market during and after the outbreak of the COVID-19 pandemic.

Investment advisory service also registered strong growth with an increase of 125.4% from second quarter of 2019, an increase of 22.7% from the first quarter of 2020.

Revenues from advertising business were $1 million compared with $1.2 million in the second quarter of 2019 and $1.3 million in the first quarter of 2020.

Revenues from enterprise value-added services were $0.9 million compared to $0.7 million in the second quarter of 2019 and $0.8 million in the first quarter of 2020. Enterprise value-added services is a relatively new service that came out of our advertising business. Leveraging its accumulated large corporate data and research and increasing audience base online, China Finance Online provides professional communication services to companies listed on domestic or international markets to increase their visibility in the market.

Gross profit was $6.2 million compared with $5.6 million in the second quarter of 2019 and $5.9 million in the first quarter of 2020. Gross margin in the second quarter was 63.3% compared to 63.1% in the second quarter of 2019 and 60.1% in the first quarter of 2020. The year-over-year and the quarter-over-quarter increases in gross margin were mainly due to increased revenue contribution from individual subscription service, which was a higher — which has a higher gross margin.

G&A expenses were $2.3 million compared with $2.5 million in the second quarter of 2019 and $2.2 million in the first quarter of 2020. The year-over-year decrease was mainly attributable to further streamlining of the corporate managerial operations.

Sales and marketing expenses were $4.1 million compared with $3.8 million in the second quarter of 2019 and $3.3 million in the first quarter of 2020. The year-over-year and the quarter-over-quarter increases were mainly attributable to higher market expenses related to investment advisory business.

R&D expenses were $2 million compared with $2.6 million in the second quarter of 2019 and $2 million in the first quarter of 2020. The year-over-year decrease was mainly attributable to improved efficiency after consolidation of research and development teams throughout different business units. The company continues to support research and development in the fintech segment to further develop its fintech capabilities.

Total operating expenses were $8.4 million compared with $8.9 million in the second quarter of 2019 and $7.5 million in the first quarter of 2020. The year-over-year decrease was mainly due to improved efficiency and effective cost controls. The quarter-over-quarter increase was mainly due to higher sales and marketing expenses.

Loss from operations was $2.2 million compared with a loss from operations of $3.3 million in the second quarter of 2019 and a loss from operations of $1.6 million in the first quarter of 2020.

Net loss attributable to China Finance Online was $1.5 million compared with a net loss of $3 million in the second quarter of 2019 and a net loss of $1.9 million in the first quarter of 2020.

Fully diluted loss per ADS attributable to China Finance Online was $0.65 for the second quarter of 2020 compared with fully diluted loss per ADS of $1.29 for the second quarter of 2019 and fully diluted loss per ADS of $0.83 for the first quarter of 2020. Basic and diluted weighted average numbers of ADS for the second quarter of 2020 were $2.3 million compared with basic and diluted weighted average number of ADS of $2.3 million for the second quarter of 2019 each ADS represents 50 ordinary shares of the company.

Now let me go over our 2020 first 6 months financial results. Net revenues for the first 6 months of 2020 were $19.6 million compared with $18.8 million in the first 6 months of 2019. Gross profit for the first 6 months of 2020 was $12.1 million compared with $12 million in the first 6 months of 2019.

Loss from operations for the first 6 months of 2020 was $3.8 million compared with a loss from operations of $5.8 million in the first 6 months of 2019. Net loss attributable to China Finance Online for the first 6 months of 2020 was $3.4 million compared to a net loss of $5.7 million in the first 6 months of 2019.

With that, this wraps up my prepared summary. And operator, we are ready for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question on queue comes from the line of Bob Wilson. Bob please go ahead as your question your line is open.

Unidentified Analyst

Okay. Can you please tell us a little bit more about the enterprise value-added services? In particular, what’s your revenue model? How big is the addressable market? And how many clients you already have?

Dixon Chen

[Foreign Language]

Zhiwei Zhao

[Foreign Language]

Dixon Chen

As we discussed in the past, our enterprise value-added service is a spin-off product from our traditional advertising.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

In the past 20 years, China Finance has dedicated its services to financial media and brokerage and investment advisory services. We focus on providing professional financial advisory services to all players in the investment food chain as well as enable investors to identify investment opportunities and marketing investment value from various perspectives.

There are over 250 million unique visitors to our flagship website every year. And over 10 million daily active user investors are on our site. We have consistently showcased our innovative capabilities by offering new services to over 1,000 publicly listed companies and financial institutions in China.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

We leverage our robust market advantage in corporate, financial data and research, and track record in servicing capital markets to provide a high-grade of online and offline professional communication services for public companies listed in domestic and overseas stock markets.

Our service is centered around deep dive interest of our clients’ value proposition. And then delivered by designing, planning and execution of a series of events, special reports to enable investors to understand the value of our clients, and assist our clients to promote their stock.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

Public companies are the foundations of the — for any capital market. There are collectively over 6,500 companies listed in the Chinese stock markets and Hong Kong market and over 300 listed in the U.S. market. With the ongoing reform, the introduction of new exchange in the Chinese stock market, we anticipate more and more companies will be going public in the foreseeable future.

We believe there will be continued — there will continue to be gaps between fundamental value and capital market pricing for many of these public companies, which present opportunities for high-quality providers to help unlock these companies’ shareholder value.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

In the post-COVID era, the investment community will pay more attention to the company’s core competence, social responsibilities, [indiscernible] handling second curve, and the long-term value. And therefore, in this critical moment, we hosted 2 well-attended investor events on real estate and healthcare. And provided a timely platform for all stakeholders and professionals to discuss and analyze the market dynamics, challenges and opportunities in the rapidly changing environment. These events not only helped increase our clients’ exposure among investors, but also enabled us to sign more new clients.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

Other than media influence, we see other opportunities within our enterprise value adds, such as database services, Investor Relations and [Foreign Language]. The next step, we will consolidate our resources in media, data fintech to provide more professional and sophisticated services to more and more public companies.

Zhiwei Zhao

[Foreign Language]

Dixon Chen

Thank you. Hope that answers your question.

Operator

[Operator Instructions] There are no further questions in queue. Presenters, please go ahead and continue.

Dixon Chen

Thank you, everybody, for attending China Finance Online’s 2020 second quarter and first six months financial results earnings conference call. We wish you a good evening and a good day and stay safe. We look forward to speak with you again.

Operator

Thank you, presenters. Ladies and gentlemen, this concludes our conference for today. Thank you all for participating. You may now disconnect.

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