Jiayuan.com International's CEO Discusses Q4 2012 Results - Earnings Call Transcript

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 |  About: Jiayuan.com International Ltd. (DATE)
by: SA Transcripts

Jiayuan.com International Ltd. (NASDAQ:DATE)

Q4 2012 Earnings Conference Call

February 28, 2013 8:00 p.m. EST

Executives

Shirley Zhang – IR Manager

Linguang Wu – CEO

Shang Koo – CFO

Analysts

Zim Yin – Stifel Nicolaus

Ida Yu – CICC

Gregory Chow – Citigroup

Andy Yeung – Oppenheimer

William Huang – Barclays Capital

George Askew – Stifel Nicolaus

Chao Wang – Bank of America-Merrill Lynch

Operator

Hello and thank you for standing by for Jiayuan's Fourth Quarter and Full Year 2012 Earnings Conference Call.

[Operator Instructions]. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the meeting over to your host for today's conference, Shirley Zhang, Investor Relations Manager of Jiayuan.

Shirley Zhang

Thank you. Welcome to Jiayuan's fourth quarter and full year 2012 earnings conference call. On today's call you will hear from Mr. Linguang Wu, CEO, and Mr. Shang Koo, CFO of Jiayuan.

Mr. Wu will begin today's call with an overview of Jiayuan's business highlights and our product initiatives, and then Mr. Koo will talk you through this quarter's key financial indicators. After the prepared remarks, Mr. Wu and Mr. Koo will be available to answer your questions.

Before we proceed, please note that the discussion today will contain forward-looking statements made under the Safe Harbor Provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include but are not limited to those outlined in our public filings with the SEC. Jiayuan does not undertake any obligation to update any forward-looking statement except as required under applicable law.

Our discussion on this call will include certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited directly comparable GAAP measures and is available on our IR website at ir.jiayuan.com.

As a reminder, this conference is being recorded. In addition, a live and archived webcast of the conference will be available on our website.

I will now turn the call over to Mr. Linguang Wu, CEO of Jiayuan.

Linguang Wu

Thank you, Shirley. Hello, everyone, and thank you for joining us for our fourth quarter and full year 2012 earnings conference call.

I'm pleased to report that our commitment to providing users the best results and experienced helped us achieve solid performance in Q4, which is traditionally a slower quarter. It was successful with our progress meeting the specific needs of different vertical markets through our segmentation strategy.

In Q4, our revenue experienced a 24.8% year-on-year increase to RMB110.5 million, primarily due to developing ARPU and paying user accounts [inaudible] further progressed our segmentation strategy, our members [inaudible] izhenxin experienced healthy growth in the fourth quarter. By the end of December, izhenxin already had over 100,000 verified members. We expect to roll out more features to izhenxin as we continue the solid growth from this side. Additional development here was our recent acquisition of Juedui100.com. We're now China's top dating website. Juedui100 has a well-recognized brand name and we believe that with Jiayuan's leading proprietary technology, knowhow [inaudible] we can take Juedui100 to the next level. Over the long term we will work to build out a strong team to help Juedui100 become an important [inaudible] Jiayuan.com. As we mentioned last quarter, we're prepared to launch our new products targeting younger users [in spring] 2013, which we're now testing internally.

Moving to mobile, our smartphone apps continue to be [inaudible] popular in China. Jiayuan is a clear market leader in terms of developing mobile solution and expanding wireless penetration. We're excited that our wireless [inaudible] operating profit in December. And we expect this continues to being profitable going forward. We also continue to optimize our payment channel and product market systems to improve compensation rate or monetization. We are pleased that Jiayuan's iPhone app had maintained its positioned as the top direct social networking app in [iTunes] China store [inaudible] in Q2 2012. In the quarters ahead, we will continue to improve our user experience with new products and we'll introduce new services for mobile users.

As a result of our mobile [effects], we're delighted to [inaudible] award as the top social networking in China at 2012 [inaudible] organized by one of the China leading mobile ad portals, 51.com. Jiayuan has also [inaudible] by Shanghai municipal government. This is an important indication of brand recognition in China, based on [inaudible] [repetition], customer satisfaction, innovation, product quality and market share.

Moving to 2013, we will continue to implement our segmented strategy by developing our offerings to different user groups with different needs. We have an exciting pipeline of new products and services and ensure that we always fully meet the needs of marriage-minded singles. We also believe that our new office closer to our current location will help to provide a stable long-term working environment for our future growth and will benefit our corporate culture.

With that, I'll turn the call over to Shang to walk through our financials. Thank you.

Shang Koo

Thank you, Linguang. Hello, everybody.

I am pleased to report strong top-line growth in Q4. Our net revenue was RMB110.5 million, representing a year-over-year increase of 24.8%. This was primarily attributable to the strong growth of online services, driven by increases in paying user accounts and ARPU. We were encouraged to see our ARPU for online services increase from RMB21.5 to RMB26.5 year on year. Looking at the full year 2012, our revenue from online services increased 30.8% to RMB 363.5 million, primarily due to the same reasons said in Q4.

Let's take a quick look at our key operational metrics for the quarter. We're pleased to report that -- we are pleased to report that the number of Jiayuan.com registered user accounts exceeded 80 million as of January 19, 2013. In the future, we will provide updates as registered user numbers reach important milestones.

The number of average monthly active user accounts was 5.13 million compared to 5.18 million for Q4 2011 and 5.24 million for the previous quarter. The sequential decrease was due to seasonality, while the year-on-year decrease was primarily due to credit marketing cost control measures starting in March 2012, which we focused our marketing efforts on higher-paying users. Please note that in the fourth quarter, average monthly active user accounts include active user accounts from izhenxin.com for 71 days and Juedui100.com for 19 days.

In the fourth quarter, we had 1.23 million average monthly paying user accounts, up from 1.17 million in Q4 2011 and down slightly from 1.27 million in Q3 2012. This decline is related to seasonal issues. Again, in the fourth quarter, average monthly paying user accounts from izhenxin.com for 71 days and Juedui100.com for 19 days.

Turning now to R&D and marketing. In the fourth quarter, R&D expenses were RMB5.0 million, an increase of 14.9% year over year and 13.0% quarter over quarter. The increase in RMB expenses was driven by the increased number of our research and development personnel in connection with Jiayuan's segmentation strategy, new product development and our investment in wireless services. Looking to 2013, we expect our R&D expenses to be stable and about 5% of revenue.

In Q4, we were pleased -- we were pleased with the continued increases in the efficiency and effectiveness of our marketing activities resulted in lower-than-anticipated marketing expenses. Our marketing expenses were RMB14.7 million, down 5.4% year over year and up 8.6% sequentially. For the full year 2012, marketing expenses increased 29.7% from 2011, which was attributable to increased marketing spending in line with higher advertising prices. In the coming quarters, we will look to optimize our cost structure to minimize the impact of ad price increases.

Looking at G&A expenses, we're delighted to announce that we are in the process of finalizing the acquisition of a new office space nearby our current location for RMB72.4 million. While we do expect additional costs in the next two quarters related to our relocation, we believe that this move will allow us to better control costs in the long term and provide a good working environment to nurture business growth.

Now let's talk about offline performance. Our Events & VIP business was RMB12.4 million for Q4 2012 compared to RMB12.7 million in the fourth quarter last year and RMB12.1 million for Q3. Following the restructuring of our VIP business in the first half of 2012, we have regained momentum and our VIP management team has been introducing new sales and customer engagement processes to enable the sustainable growth of offline business.

With that, let me give you our outlook for the first quarter of 2013. Looking into the first quarter of 2013, the company's business outlook will be impacted by the later arrival of Chinese New Year holiday than in 2012, which also overlaps with Valentine's Day. Jiayuan currently expects to generate net revenues in the range of RMB106 million to RMB108 million for the first quarter of 2013. This forecast reflects Jiayuan's current and preliminary view which is subject to change.

Thank you for listening. We are now ready for your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions].

Your first question comes from Zim Yin from Stifel Nicolaus. Please ask your question.

Zim Yin – Stifel Nicolaus

Good morning. Thanks for taking my question. This is Zim Yin on behalf of George Askew. Just we got two questions. Could you share with us more color on the acquisition of Juedui100? And did you acquire the company by cash or any other -- by equity? And I have a follow-up question on that.

Shang Koo

(Chinese language spoken)

Linguang Wu

(Chinese language spoken)

Shang Koo

The reason for Juedui100 acquisition was to help with our segmentation strategy. And actually it was a fairly opportunistic acquisition for us. We had opportunity to acquire the platform, which in China is actually a very -- a fairly popular platform with a very strong brand. We could acquire it at a reasonable price, and it would help accelerate our segmentation strategy, that we do not think we could with a brand-new website starting from scratch. So the cost was not material. It is for cash. And we acquired the asset of Juedui100, the website, not the actual company. So we only acquired the domain name, the database, the codes and the trademark.

Zim Yin – Stifel Nicolaus

Okay, thanks. What is your 4Q ARPU without izhenxin and Juedui100? And could you give us more color on the impact of the two new sites on 4Q ARPU?

Shang Koo

Right. The two new sites were actually insignificant, it's not material to the overall ARPU or the active user -- paying user numbers. Overall for izhenxin.com, the ARPU is significantly higher than for Jiayuan.com, but again because right now we're more focused on user growth for Juedui100 rather than for revenue growth, so far izhenxin's contribution is not significant.

Operator

Thank you. Your next question comes from Ida Yu from CICC. Please ask your question.

Ida Yu – CICC

Hi, good morning. Thank you for taking my questions. I have two questions. The first one is regarding about your local business. So, can you give us an update about how much traffic contributed from the mobile end? And how much of the ARPU increase contribution from mobile end as well?

And my next question is about VIP, and can you give us more update about your offline VIP services business?

Shang Koo

Thanks, Ida. Let me translate that real quick.

(Chinese language spoken)

Linguang Wu

(Chinese language spoken)

Shang Koo

Let me first answer your question about mobile. Right now about 30% of our newly-registered users come from mobile. But in terms of mobile traffic, mobile ARPU, how much of that is directly contributed from mobile users, it's very difficult to split that cost directly because mobile users are often also online users as well. So it's hard to divide a single user into multiple. But for the users that use both mobile and online platforms, those users actually help with -- those users actually have higher ARPU than the rest of our users. However, mobile users that -- the users that are purely mobile users, they actually have lower ARPU than our overall paying user base because of the inherent issues with mobile payment that that is not the case for online payment.

Ida Yu – CICC

Okay. So --

Shang Koo

You have a follow-up to that, Ida?

Ida Yu – CICC

Yeah, just quickly. So the mobile users, they're actually paying separately or they usually share the same accounts from the online ARPUs? For example, they bought membership accounts and they can just use the same accounts or mobile users have to pay separately [from the brand]?

Shang Koo

Yeah. So we offer both online and mobile payment options, but mobile payment options are more limited, and most of the time, for mobile payment options, there's a -- there's more of upper cap on how much you can pay each time through mobile platforms, whereas with online, online banking or credit card, there's -- the cap for payment is actually much higher for the individual users. But one account on Jiayuan can be used for both mobile and online for -- through any of our platforms. So as long as you pay on either online or mobile, either account can be used. So we don't differentiate between the platforms for the user -- for the usage.

Ida Yu – CICC

Okay, that's great. Thank you. And VIP --

Shang Koo

(Chinese language spoken)

Linguang Wu

(Chinese language spoken)

Shang Koo

Our VIP business in 2012 was more of a recovery process because of the restructuring that we started in the first half of 2012. And going forward for VIP product, we plan to change our product mix a little bit so that it will allow -- so we offer more products to allow more users to enjoy the benefits of our VIP service and high-end users to enjoy our VIP services.

Ida Yu – CICC

Okay, got it. Thanks.

Operator

Thank you. Your next question comes from Gregory Chow from Citigroup. Please ask the question.

Gregory Chow – Citigroup

Good morning, Linguang and Shang. My first question, about your selling and marketing expenses, I think in last quarter your guidance is about RMB44 million to RMB46 million sales and marketing expenses for Q4, but I think the expense actually figure came in lower than the guidance. So, any reason behind that? And we think the Chinese New Year came in later this year. Will the expense budget shift to Q1 this year? Thanks. I have another question. Thanks.

Shang Koo

Okay. Let me translate that real quick.

(Chinese language spoken)

Linguang Wu

(Chinese language spoken)

Shang Koo

Okay. For your first question, about sales and marketing, why it was lower than guidance. Two main reasons for that. One is that our cost control measures that we use for our marketing spend or the KPIs, the metrics that use to measure effectiveness of our marketing efforts, that actually improved in the fourth quarter, so we were much more efficient in marketing than we were before. And another reason, which is actually somewhat related to the first reason is that because of the weak seasonality in the fourth quarter, a lot of the marketing expenses that we planned to spend or we had budgeted to spend in the fourth quarter, at the end of the fourth quarter, especially in December, could not be spent. So we came in under-budget.

For the question about the Chinese New Year, hold on.

(Chinese language spoken)

Linguang Wu

(Chinese language spoken)

Shang Koo

Yeah. With respect to Chinese New Year, because Chinese New Year came in two weeks later than normal, this actually extended to winter season for our business. So the weak seasonality, especially that the pre-Chinese New Year few weeks, that came in a little bit later, and this will impact our revenue for the first quarter 2013, and also it will affect our marketing expenses because we cannot -- we could not spend as much in the first quarter because of the weak seasonality.

Gregory Chow – Citigroup

Okay, thanks. My second question, about your balance sheet items, I saw this quarter we have about RMB74 million prepaid expense and other receivables, what this balance for? Thanks.

Shang Koo

The prepaid expenses, that was -- that's for the building, that's for the office space, the office space that we are in the stage of acquiring.

Gregory Chow – Citigroup

Okay, thanks.

Operator

Thank you. Our next question comes from Andy Yeung from Oppenheimer. Please ask your question.

Andy Yeung – Oppenheimer

Hi, good morning. Thank you for taking my questions. Looking at your active user number, the growth has been very limited in 2012. Can you help us understand what's frustrating the active user growth?

Shang Koo

(Chinese language spoken)

Linguang Wu

(Chinese language spoken)

Shang Koo

The reason for active user growth being limited in 2012 is because of cost control measures that we had put in place in the beginning of the year. We put in much more stringent KPI measures, KPI performance measures for our sales and marketing efforts, so that each user acquisition is measured for -- the cost of each user acquisition is measured against the lifetime value that we expect that user to bring. So as a result of that, we cut down on some of the less efficient channels. So that our sales and marketing in terms of the [add real estate] that we've acquired this year, it was much less than previous years. So that was the big reason for the slow growth of active users.

Andy Yeung – Oppenheimer

Okay. And then going to -- sorry.

Shang Koo

Sorry. At the same time, for 2012 we were more focused on ARPU growth rather than user growth, just to convert more of our users to the paying users and convert the paying users to higher paying users.

Andy Yeung – Oppenheimer

Okay. Thanks for that. And so looking into 2013, you plan to maintain the same [amortization for user acquisition] strategies? And also in terms of ARPU growth, you know, have increased healthily for 2012, yet still relative to other online gaming platform like games and whatnot, the ARPU is still relatively low? How high do you think it can go before [you could become more consistent with that]?

Shang Koo

(Chinese language spoken)

Linguang Wu

(Chinese language spoken)

Shang Koo

For 2013 we expect higher active user growth, and this is because of our segmentation strategy and our new products. The new product and segmentation strategy allows us to target different types of users or focus, or allow the segmented website the verticals to focus on a unique mix of users which allows us more flexibility in marketing and potentially market to a new group of users, thereby expanding our user base. But our cost control measures that we put in place for sales and marketing, the KPI that we put in place, that will continue into 2013, and that will be improved.

As for ARPU, we expect ARPU to continue growing in 2013 as the segmentation strategy, especially the more premium, the higher ARPU segmented websites certainly should [reap in] more revenue.

Andy Yeung – Oppenheimer

Good, that's very helpful. Thank you very much.

Shang Koo

Okay.

Operator

Thank you. Your next question comes from William Huang from Barclays Capital. Please ask your question.

William Huang – Barclays Capital

Hi, good morning. Thank you for taking my call. Just want to have a follow-up question on your mobile strategy. Can you update us the competition landscape on mobile? Which company do you see major competitors to your mobile space? And how do you actually compare -- view your competitors' strategy versus Jiayuan? And when should we expect a more meaningful revenue ramp in terms of the mobile monetization? Thank you.

Shang Koo

(Chinese language spoken)

Linguang Wu

(Chinese language spoken)

Shang Koo

For the competition in the mobile space, for the online dating space, we actually don't see that much competition from the traditional online dating players. In large part that's because our traditional online dating competitors are actually shifting more and more offline. So their business model is more aligned with the offline and there's not that much usefulness that they can out of the mobile platform. So we actually don't see that much competition still in the mobile space.

For mobile revenue ramp-up, in 2012 our mobile revenue, each quarter we've been seeing double-digit growth, sequentially, and the revenue has more than doubled in -- the mobile -- the revenue coming from mobile channels such as [WAP] and the mobile apps, that actually doubled in 2012.

Operator

Thank you, sir. Next question comes from George Askew from Stifel Nicolaus. Please ask your question.

George Askew – Stifel Nicolaus

Yes, thank you. Just a follow-up to one of the mobile questions before. You mentioned that 30% of new users came from the mobile channel. Was that a quarter number or a full year number?

Shang Koo

Fourth quarter number.

George Askew – Stifel Nicolaus

Okay. What percent of fourth quarter revenue came from those users?

Shang Koo

(Chinese language spoken)

Linguang Wu

(Chinese language spoken)

Shang Koo

The online revenue is over 15% of revenues. But again, this is -- it really depends on how you measure what's mobile revenue, whether you're measuring mobile revenue as revenue from -- through the mobile payment channels or revenue from users that register through mobile, or users that primarily use mobile. So this could actually shift the percentage quite a bit. But in terms of user that pay through mobile, that's over 15%.

George Askew – Stifel Nicolaus

Right. But that's -- is that the same as the percent that was sourced from the mobile channel? In other words, like, I mean that 30% applies to people who joined the paying users through the mobile channel. Am I getting -- is that correct?

Shang Koo

Correct. Correct. So the monetization of mobile is actually lower than online users because of the inherent difficult in mobile payment. So for a user that's kind of online, it's much easier for them to pay online, whereas mobile users, if you want them to use all our payment channels, it takes some extra steps to convert those to an online user as well. So the conversion rate is lower, causing the lower ARPU and lower monetization of mobile -- of users that were acquired through mobile channels.

George Askew – Stifel Nicolaus

Okay. No, that's fair. I just want to make sure I'm -- we're talking about apples and apples here.

And then the second question is, is the new office space replacing your existing Beijing office space or is it incremental for growth?

Shang Koo

It's replacing our existing office space. We've seen that office space in every year has been rising very rapidly. So this allows us to increase our costs for the next 20, 30 years. And so this will actually -- you'll actually start seeing cost savings starting in 2014 as a result of the office space.

George Askew – Stifel Nicolaus

Got it. Thanks. And congrats on a very nice quarter.

Shang Koo

Thank you.

Operator

Thank you. Your next question comes from Chao Wang from Merrill Lynch. Please ask your question.

Chao Wang – Bank of America-Merrill Lynch

Hi, good morning. Thanks for taking my question. Firstly, could you explain a bit on the gross margin decline despite that ARPU continues to grow?

And just a quick follow-up on mobile, how does the customer acquisition cost on mobile and compared to that on PCM? Thank you.

Shang Koo

(Chinese language spoken)

Linguang Wu

(Chinese language spoken)

Shang Koo

For the mobile user acquisition cost, it's about half of the cost for online user. The reason for the margin decline, margin was actually -- gross margin was actually flat quarter on quarter, but the year-on-year decline in 2012 was due to the increase in mobile payment. The mobile payment, because we use the third-party mobile payment providers such as through the telco billing or the operator billing or some of the other mobile channels, I mean we actually have much higher commission costs from the third-party payment providers. And that is mostly the reason for the decrease in gross margin.

Chao Wang – Bank of America-Merrill Lynch

Understood. Thank you.

Operator

Thank you. [Operator Instructions].

We are now approaching the end of the conference. I would now turn the call over to Shirley Zhang of Jiayuan for closing remarks.

Shirley Zhang

Thank you, operator. Once again, thank you for joining us today. Please don't hesitate to contact us if you have any further questions. Thank you for your continued support, and we look forward to talking with you in the coming months. Operator?

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

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