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51job, Inc. (NASDAQ:JOBS)

Q3 2013 Earnings Call

November 6, 2013 8:00 PM EST

Executives

Linda Chien – VP and Head of Investor Relations

Rick Yan – President and CEO

Kathleen Chien – COO and Acting CFO

Analysts

Phillip Wang – Morgan Stanley

Tim McHugh – William Blair

Jose Pun – Macquarie

Alicia Yap - Barclays

Wendy Huang – Standard Chartered

Eric Chung – UBS

Unidentified Analyst

Operator

Good morning, ladies and gentlemen. Thank you for holding. Welcome to the 51job, Inc. Third Quarter 2013 Conference Call. (Operator Instructions). I will now hand the conference over to Ms. Linda Chien, Vice President and Head of Investor Relations. Thank you, madam. Please go ahead.

Linda Chien

Thank you, [Ben]. And thank you all for attending this teleconference to discuss unaudited financial results for the third quarter ended September 30, 2013.

With me for today’s call are Rick Yan, President and Chief Executive Officer, and Kathleen Chien, Chief Operating Officer and Acting Chief Financial Officer.

A press release containing third quarter 2013 results was issued earlier today and a copy may be obtained through our website at ir.51job.com.

Before we begin, I would like to remind you that during this call, statements regarding targets for the fourth quarter of 2013, future business and operating results constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the Private Securities Litigation Reform Act of 1995. These statements are based upon management’s current expectation and actual results could differ materially.

Among the factors that could cause actual results to differ are the number of recruitment advertisements placed, sales orders received and customer contracts executed during the remaining weeks of the fourth quarter of 2013. Any accounting adjustments that may occur during the quarterly close, fluctuations in the value of the renminbi against the US dollar and other currencies; behavioral and operational changes of customers in meeting their human resource needs as they respond to evolving social, economic, regulatory and political changes in China as well as stock market volatilities; introduction by competitors of new or enhanced products or services; price competition in the market for the various human resource services that the company provides in China; acceptance of new products and services developed or introduced by the company outside of the human resources industry; and fluctuations in general economic conditions.

For additional information on these and other factors that may affect the company’s financial results, please refer to the Risk Factors section of the company’s filings with the Securities and Exchange Commission. 51job undertakes no obligation to update targets prior to announcing final results for the fourth quarter of 2013 or as a result of new information, future events or otherwise.

Also I would like to remind you that during the course of this call we may discuss non-GAAP measures. Reconciliation to the most directly comparable GAAP financial measures are provided in the tables appended to the press release. This conference call is being broadcast on the internet and is available through our website at ir.51job.com.

Now I’ll turn the call over to Rick.

Rick Yan

Thank you, Linda, and welcome to today's call. I will begin with a review of the third quarter of 2013, followed by Kathleen with a detailed presentation of our financial results. Then I will discuss current market and operating conditions as well as our guidance for the fourth quarter. Finally, we'll open the call to your questions.

In line with employer behavior we saw earlier this year, market demand for our online and other HR services stay consistently positive in the third quarter. As a result, total revenues for the third quarter came in at RMB420 million at the top end our forecasted range, and non-GAAP EPS was RMB2.28 ahead of our guidance.

Our online business perform well and we continue to make strong progress in expanding our customer base. Our step-up efforts and investments in sales and marketing are generating meaningful returns as evident by the acceleration in the pace of our customer acquisition over the past 15 months.

The number of unique employers we transacted with top 237,000 in the third quarter, a 26% year-over-year increase.

Customer acquisition remains our primary and foremost strategic initiative as we focus on the increasing market penetration and extending our industry leadership position. While we expect the influx of new customers, we drag down online average revenue per employer in the current period. We continue to favor volume growth as it strengthens the network effect of our platform and create further future upselling as well as cross-selling opportunities for the entire organization.

Our other HR services area maintained a solid growth trajectory in the third quarter led by the growing adoption and usage of our business process outsourcing and training services, revenues increased 20% year-over-year.

In our conference calls earlier this year, we shared with you information about the passage of an amendment to the PRC labor contract law which may affect our HR outsourcing services in particular. Although the amendment went into effect on July 1, those specific or formalized guideline has been issued thus far by local authorities, which we got to its actual implementation.

Our HR outsourcing services are operating unchanged as we continue to monitor developments on the regulatory front very closely. We stand ready and prepare to assist our customers and relevant authorities to facilitate compliance to the revised labor law as directed and required.

As the PRC government works to build a strong social safety net in China, we remain excited about the long-term potential of the HR outsourcing services market in addition to our ability to participate in its development and new solution.

Finally, in the print business, the gradual, managed (line) down continues with revenues further tapering off in the third quarter. In August, we terminated the publication in Nanjing living only four cities remaining where we currently provide print services.

In summary, the third quarter saw pleasing results across the board in the (inaudible) with our operating plan. We remain focused on the ongoing execution of our strategic initiatives and look forward to a strong (wrap up) to 2013.

I would now turn the call over to Kathleen for a detailed financial discussion.

Kathleen Chien

Thank you, Rick. In my following presentation, please be aware that all financial numbers are in our reporting currency of the Chinese renminbi unless otherwise stated.

Our total revenues for the third quarter of 2013 were approximately RMB420 million at the high end of our forecast and representing a 12% increase over the same quarter in 2012.

Our online revenues for the third quarter grew 15% year-over-year to RMB278 million, driven by an increase in the volume of employers, which was partially offset by a lower ARPU. The number of unique employers increased by nearly 50,000 year-over-year to more than 237,000 companies in the third quarter of 2013.

However, the impact of this large addition of employers drove a shift in customer mix to our more purchase introductory or lower-priced packages, which resulted in a 9% decrease in online ARPU compared to the year-ago quarter.

Our print advertising revenues further declined as we draw closer to completing our transition away from this business. Our revenues decreased 59% from the year-ago quarter to RMB9 million and the number of print advertising pages in the third quarter of 2013 decreased 45% to less than 350 pages.

We have manage down the contribution of the print business to just 2% of total revenues this quarter, and we expect that the negative (drives) of this transition on our overall financial performance to become minimal within the next few quarters as we continue to terminate operations in our last few cities.

Revenues for other HR services increased 20% year-over-year to approximately RMB133 million primarily due to the growing demand for our outsourcing and training services. Our other HR services represented 32% of total revenue compared to 30% in the year-ago quarter.

Gross profit grew 12% to RMB292 million and gross margin was 72.4%. Included in the cost of services in the third quarter was higher share-based compensation expense in the amount of RMB2.9 million.

Our sales and marketing expenses increased 28% year-over-year to nearly RMB120 million in the third quarter, primarily due to the higher employee compensation expenses, headcount additions and greater advertising and promotion expenses. Included in our sales and marketing expenses was share-based compensation expense of RMB2.5 million in the third quarter.

We actively hired sales staff this summer and our direct sales force grew to RMB2800 at the end of September, a (net add) of around RMB200 for the quarter.

We plan to stay aggressive with our sales and marketing investments into the 2014 Chinese New Year, which falls in late January. Combined with the fact that we traditionally conduct many year-end customer events and incur a greater expenditures in preparation for the post-CNY recruitment peak season, we do expect that sales and marketing expenses as a percentage of revenues to be at the top end of a historical (spending range) in the ballpark of 30%.

Our G&A expenses for the third quarter were RMB57 million, an increase of 18% from the year-ago quarter due to higher employee compensation, office and depreciation expense. Share-based compensation expense included in G&A increased to nearly RMB13 million in the third quarter of 2013 compared with RMB10 million in the same quarter of the prior year.

Our operating income for the third quarter of 2013 decreased 2% year-over-year to RMB114 million. Our operating margin was 28.4% compared with 32.7% in the same quarter of the prior year. Excluding share-based compensation expense though, our operating margin was 32.9% compared with 36.6% in the year-ago quarter.

Other incomes in the third quarter included RMB10 million in local government financial subsidies. This year, a good portion of the subsidies came in earlier than we expected, as we have traditionally received them at year end. We also anticipate that additional (acceptances) of more than RMB20 million will be included in other income in the fourth quarter. And this has been factored into our non-GAAP EPS guidance for the fourth quarter.

Net income for the third quarter increased 4% to RMB117 million compared with RMB113 million in the same quarter of 2012. Our fully diluted earnings were RMB1.95 per common share which is equivalent to $0.64 per ADS.

Excluding share-based compensation expense, loss or gain from foreign currency translation and the related tax impact, our non-GAAP adjusted net income increased 9% year-over-year to RMB137 million in the third quarter. Our non-GAAP adjusted fully diluted earnings per common share were 2.28, which is equivalent to $0.75 per ADS.

Turning to our balance sheet, we maintain strong cash flow generation and ended the September period with cash and short-term investments totaling RMB3 billion, equal to approximately $496 million.

In September, we entered into an agreement to acquire 6,120 square meters of office base in Beijing for a total purchase price of RMB165 million, including transaction fees. An installment payment of RMB16 million was made to a seller in the third quarter, and the remaining balance was paid in October of this year.

The transaction was funded from our existing cash resources, and is expected to be completed before year end. We plan to move our local Beijing staff and operations to (inaudible) premises early next year.

Now, I turn this call back over to Rick.

Rick Yan

Thank you. Despite market (sentiment) about the Chinese economy having swung back and forth between positive and negative all year, we (come and) demand from employers for our services has remained consistently robust in 2013.

Our recent corporate survey of employers show that four out of five companies plan to increase hiring with more than half (siting) business expansion as the main reason. If the core of future economic development in China continues to be redirected away from manufacturing to domestic consumption in the services sector, we believe that (human) capital is becoming increasingly important to enterprises.

We found (rival array) of HR solutions. We are playing a critical role in assisting our customers, resolve their various talent acquisition (inaudible) management problems.

(Amidst) this favorable demand environment, we have made a strategic decision to step up investments in sales and marketing activities this year. We have been aggressively hiring our sales, increasing our sales force by more than (15)% year-to-date. The contribution of these heightened efforts has already manifest itself in the faster growth rate of online employers, which in turn goes well for increase revenue opportunities for all of our service lines down the road.

On the competitive front, we are also seeing a strengthening of our market position. Based on publicly available information, growth of our online business have outpaced that of our main competitors on both financial and operating metrics. We will build on this momentum to further extend our industry leadership.

On the product development side, we continue to focus on increasing dialogue and interactivity between employers and job seekers. On the back of our successful (fame club) function and mobile apps which have improved user engagement, we began hosting weekly online interview forums earlier this year.

Turning the tables, we allow job seekers to ask questions to senior HR executives in recent companies under the microscope include (Audi), GE, Loreal, and Tencent. The 90-minute sessions can be accessed through –- can be accessed live through both PC and mobile; and the transcript, our archive on our site.

For job seekers, this event not only provide valuable first-hand insight into the recruitment process, culture, and in the workings of their (dream) employers; but also general knowledge on how to better prepare and position themselves to land a job.

For corporate, they view this as a unique opportunity to raise the HR brand awareness and attract high-quality candidates. We remain (inaudible) as the innovator of online recruitment vertical and we’ll continue to take steps to evolve our sites, to meet new trends and emerging needs.

Turning now to our guidance, based on current market conditions and also factoring in a decrease in print revenues -- print advertising revenues, our total revenue target for the fourth quarter of 2013 is in the estimated range of RMB445 million to RMB460 million.

For the non-GAAP fully diluted EPS target, our estimated range is between RMB2.5 to RMB2.65 per common share. Please note that this non-GAAP EPS range does not include share-based compensation expense, gain or loss from foreign currency translation, nor their related tax impact.

Total share-based compensation expense is expected to be between RMB18 million and RMB19 million for the fourth quarter. This guidance reflects our current forecast which is subject to change.

In conclusion, we are making excellent progress on our strategic initiatives, while at the same time it’s always we stay disciplined in balancing near-term profitability and necessary investments for the long term.

As our 15th year in operations draw to a close, we’re excited as ever about our prospects to realize and monetize the enormous market opportunity of the HR services industry in China.

That concludes our presentation. We’ll be happy to take your questions at this time. Operator?

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions).

And our first question is from the line of Phillip Wang. Please state your company name followed by your question.

Phillip Wang – Morgan Stanley

Hi, good morning. This is Phillip from Morgan Stanley. Thanks for taking my question. You mentioned that recruiting (team are living solid), could you further elaborate on that? For example, any particular reason (inaudible) are going exceptionally because – exceptionally by a (simple word).

Rick Yan

Yes. So, historically, you can say this is funny, but when we are doing well, most of the –- almost all of the cities and all of the industry kind of tend to go in tandem. But please keep in mind that we focus more on the white collar jobs in China that would mean that we are more related to the service sector in China, so we’re underrepresented in the manufacturing industry to start with.

So, other than the fact that we focused on the service industry, we have not seen any differential growth rate between industries or geographies in any meaningful way. So it’s pretty much a cross of both.

Phillip Wang – Morgan Stanley

Okay, thank you. Could you comment on the performance of your call center? How the call center is driving the overall growth?

Linda Chien

The call center is an important part of the coverage and the penetration plan that we have obviously for the cities that we don’t have geographic offices in. I think, in terms of its contribution, we’ve got continuous data. It’s still a small percent although it is actually a single percent as a percentage of revenue that it contributes and in terms of headcount as a percentage of this total sales force, it’s also in a single digit.

But I think that it is actually something that we continuously build as a very important part of the longer term (inaudible) that we have. And it’s going to be something that we continue to drive forward, and we do have capacity to continue expanding that area, and we plan to do so going forward.

Phillip Wang – Morgan Stanley

Okay, thank you. I’ll get back to the queue.

Operator

Thank you. Our next question comes from the line of Tim McHugh. Please state your company name followed by your question.

Tim McHugh – William Blair

Yes, William Blair & Company. First, I was just going to ask on the regulatory front I guess. I heard your comment, but it sounds like there’s still a lot of uncertainty, and basically what you’re saying is we still don’t know and it’s not having much of an impact. Is that a fair summary (inaudible)?

Kathleen Chien

I think it’s a situation where I think there’s been obviously some framework that was actually introduced, but since there was no implementing guideline and there’s nothing else kind of specific that actually affects customer behavior at this point. It’s more of a status quo I guess. All information that’s available today was available a few months ago and nothing has changed them. So I guess, it’s a status quo situation, so.

Tim McHugh – William Blair

Okay. And I guess, as I look at the guidance, I’m still running some of the numbers about the guidance for the fourth quarter seems pretty strong from a margin perspective I guess. Are you at a point where some of the investments that you’ve been making, you’ll start to scale or I guess, how should we or my –- is my math wrong?

Kathleen Chien

Well, typically, fourth quarter is a high-spend quarter, but the guidance this time is already factored in a more substantial subsidy, financial subsidy that we will be receiving. It is a bit affected by that so that does have a positive contribution to it. As I said in the comments already earlier, we expect that in terms of the subsidy that we'll receive it will be north of RMB20 million.

If you look back at our result last year that would be actually double that amount that we received last year, but that does give us a little bit of bump up at least. But I think that we are happy to say that we believe that the investment we're making are moving us in the right direction and that we certainly feel that we still have more upside to capture and that there is going to be leverage for us going forward.

Tim McHugh – William Blair

Okay, thank you.

Operator

Thank you. Our next question is from the line of Jose Pun. Please state your company name followed by your question.

Jose Pun – Macquarie

Hi. This is Jose from Macquarie. Thanks for taking my questions and congratulations on a great quarter. I see that your HR outsourcing business holds up pretty well in terms of growth. Could you give us some more color on the growth behind like how many advertisers, like your customer actually using this service and what's your target in the near future?

Linda Chien

I think we've always been a big believer in the outsourcing business certainly for a long time. That is one of the biggest drivers in the other HR segment that we're going after. In terms of the number of customers in this space, it's still a small number compared to the poor or advertising customers that we can work with on the recruitment side. So that still remains a penetration rate of may be like 2% or 3%, because we're talking about four or 5,000 in terms of the number of customers. But it is actually a completely -- it's a complete subset or overlap of the recruited customers so these are not new customers and that are not working with on the recruitment side.

I think this is an area we've always said that leave that, it's on the early stage of development. It's a market where we believe that it gives us a lot of chance to actually strengthen the relationship that we're still already on the recruiting side. It's something that we believe that we'll have a lot of opportunities to use to drive our overall growth rate going forward. You can see the fluctuation in the growth rate in this segments tends to be a lot -- less volatile as they’ve been in the recruiting segment in general, so that’s a good balance to our other business.

Jose Pun - Macquarie

Thanks. Are you launching any kind of new service on this part of the business or new product?

Linda Chien

In the other HR services segment, we're not launching new service lines I would say. But in terms of the service offering within this category, it's not necessarily standardized, off-the-shelf kind of product. It's not always the same for every single customer, so that’s where we are.

Jose Pun - Macquarie

Okay, thank you.

Operator

Thank you. Our next question is from the line of Alicia Yap. Please state your company name followed by your question.

Alicia Yap – Barclays

Hi. I'm from Barclays. Good morning, Rick, Kathleen, and Linda. Thanks for taking my questions. I have a question regarding your sales hiring. I just wanted to get some more colors in terms of the purpose of the numbers of sales that you are hiring. Is that more for your online recruitment business or is it preparing for penetrating more into the outsourcing business, the other HR business? If it's for online, then what other service vertical that you believe you still need to penetrate further that leads to this higher numbers of hiring? Then if you can also remind us the total number of the tally sales in your Nantong call center?

Linda Chien

Thanks, Alicia. Let me try to make sure I catch each part of the question when I answer. If I missed something, just remind me then.

In terms of just the sales addition, typically, we assumed we're more of an integrated model so we actually don’t say designated sales person, just online or offline, if you will. So it's always been more on the integrated approach. There'll be (inaudible) on the product side [Audio Gap] relationship management kind of approach. Given that kind of thinking typically, the way we think about it is that we will continue to want to add more sales people in general as we continue to cover and penetrate more account, because there is actually going to be some a finite number of universe that each sales can cover in terms of bandwidth. From that perspective, we'll continue to have to add sales people and as we are, let's say, more optimistic about the market sentiment in general, we will actually be more aggressive in that.

In the last few quarters, I think we made three good progress in terms of continuing to add sales people to our total headcount and actually also upping the percentage of people in our total headcount that's actually sales related. While holding the other kind of service lines or the backend -- back office operation stuff at a more confident level, if you will, we've actually been pretty aggressive just on the sales hiring side. If you look at our year-to-date headcount increases, I mean we're actually less than 10%. But our sales-related headcount is actually up more than 15%, so just to give a sense of the trajectory we're on.

Alicia Yap - Barclays

I see. Just to follow up on that, is that -- I think Rick and you mentioned we will continue this probably towards the Chinese New Year next year. How shall we assess some of this leverage order, the return that we can start to yield later into the next year to some benefit in terms of the operating leverage or in terms of like how long you would take them to be more effective and start to generate revenues that we could start to see? On the cost line it's more moderate, but then we have the revenues on the top.

Linda Chien

I think to some degree, there's also a little bit of timeline to when you actually spend or add people to when you get them to cooperate to do your business. So I think as we've stepped (inaudible) this year obviously the cost increased immediately, but the full benefit may not be captured this year. Obviously, our hope is that if markets continue to be robust, all of the people who was added this year will be that much more experienced that we expect that productivity (inaudible) to increase over time if you will.

I think we've done quite a bit of hiring this year and I think that we continue to believe that there's a little bit more work to do before Chinese New Year next year, so we'll probably add a little bit more people on that front. But hopefully, if the market is robust, we'll see a better reflection in our results next year. But already I think we're very pleased with the fact that in terms of just the unique customer count that continues to be very healthy and certainly that is a reflection of the fact that I think the people that we've added has been put to good use. But may be not necessary for productivity yet but give us a little bit of time on that because these are news gap that we've added this year.

Alicia Yap - Barclays

Just last questions on the pricing. I understand that we probably have not raised the prices for this year. Is it something that we can look for for beginning of the next year or may be mid next year?

Linda Chien

I'm going to defer that question to after Chinese New Year, just because I always like to look at the pricing question after Chinese New Year. But I think there's always opportunity for us to look at things and I thank you. Let's hope that it's a good trajectory that China continues beyond and that we can all be optimistic and positively develop that going forward.

Alicia Yap - Barclays

Okay, great. Thank you. I look forward to that and congratulations on the solid results. Thank you.

Linda Chien

Thanks, Alicia.

Operator

Thank you. Our next question comes from the line of Wendy Huang. Please state your name followed by your question.

Wendy Huang – Standard Chartered

Thank you for taking my questions. This is Wendy Huang from Standard Chartered. First, you mentioned about the timing of the Chinese New Year so it will be January this year and a little bit earlier than the previous years. Can you remind us whether early Chinese New Year will have positive or negative impact on your may Q1 revenue? Also [secondly], in terms of the new office in Beijing, if I recall correctly in the past every time you purchase office building or leaving the office building, is that actually related to your headquarter or related to your call center for online recruitment? Can you elaborate whether (inaudible) office purchase in Beijing is for the outsourcing or for the online recruitment assessment mainly?

Linda Chien

Okay, let me try to answer the second question first. Actually, for any of the office space that we've acquired is never actually only related to one business. Actually, everybody is housed in the same building, if you will, because we run everything as one group, if you will. We actually have purchased space in Shanghai, which obviously held everybody, including in the operations and other people. We have purchased a space in Wuhan, which I think everyone is familiar with, and that’s not just necessary for sales. It's also for operations as well.

So if I had given people a misunderstanding on that, let me just try to correct that at this point in time. We also actually have purchased a space in [Guangzhou] more recently and that again is actually not specific to the online service team, because there is no such a designation in our online. For Beijing, similarly, it's not for one particular unit or one particular chain, it is actually for everybody. So let me just make sure that I conveyed the right information on that first.

Is that clear?

Wendy Huang – Standard Chartered

Yes, that’s clear.

Linda Chien

Okay ,sorry.

Wendy Huang – Standard Chartered

[Multiple speakers] impact.

Linda Chien

Yes. Thank you for actually bringing that up, because actually that’s I think is a very good question. Typically, with the season allergy or the change in calendar on the Chinese New Year that some time actually has impact on actually almost the revenue balance between the first and the second quarter. If you look at our results in 2012 with the earlier Chinese New Year compared to our results this year, which is a late Chinese New Year, you'll see that the differential between the first and the second quarter is actually more noticeable in the 2012 situation while you actually see a lot the peak season demand capture, because we start Chinese New Year early, if you will.

After Chinese New Year, you expect that people return to the workforce and start their hiring for the year. So if in the case of, let's say, next year where we believe -- Chinese New Year is actually at the end of January as you say, so we expect that most people will be back in the office and start their activities probably about mid February or early to mid February, so we'll have a good solid six to seven weeks to capture the peak season demand. I think that will be positive for first quarter in terms of how that look.

But then in comparison you might say that -- then you might not see us big of a bump than into the second quarter just because a lot of the peak activity is captured in the first quarter. It is a little bit of a shift between the first the second quarter, but we always like earlier Chinese New Year just for the sake of having more visibility into the actual action that corporate take starting the year. Obviously, a lot of the work that we'll be doing actually starting from December until before Chinese New Year is really about feeling out and getting a better insight into the planning and the budget of our customers. But until they started taking action we always feel that it's for reference only, if you will. We like early Chinese New year so we're actually hopeful that having early Chinese New year is good for us next year.

Wendy Huang – Standard Chartered

That’s very helpful. Also I want to get more color on your Q4 guidance. Basically, your Q4 revenue is now just dynamic between the online recruitment and other HR business so your guidance sequential dollar amount increased. I wonder if that’s mainly actually from the campus recruitment, because I remember that Q4 technically you were [seeing this jump in] campus recruitment (inaudible).

Linda Chien

Yeah. Q4 has a big component in campus recruitment typically and so, yes, that will be reflected in the guidance. Print continues to diminish over time so I think the other two segments that people will just be looking at, which is online versus other HR services. Other HR services will have a big component that comprised of campus recruiting in the fourth quarter.

Wendy Huang – Standard Chartered

In other words the online part will be sequentially like steady (inaudible).

Linda Chien

It would be a typical seasonality patter, I would say -- I would expect, yes.

Wendy Huang – Standard Chartered

Okay, great. Thank you very much.

Linda Chien

Thank you.

Operator

Thank you. (Operator Instruction). Our next question is from the line of [Anthony Tom]. Please state your name followed by your question.

Unidentified Analyst

Good morning. Thank you for taking my questions. Two quick questions. Could you comment on your competitive landscape (inaudible) specialty 58 account biased originally completed there IPO so although they’ve been largely focused on different group of jobseekers, employers versus jobs. Do you see any signs that it becomes (inaudible) escalating? Thank you.

Linda Chien

I think if you asked anybody, I will say that yes everyone has -- (inaudible) part of their business I think in the recruitment segment, but I don’t think that is their whole business. The demographics and the type of position that’s been recruited in our platform obviously versus (inaudible) from this actually quite different, so I think there's actually a very limited overlap in that sense. I don’t think and we do not consider a really direct competitor in our business. If you talk to our corporate HR, I will not say that they will bucket us into the same vendor category even. I don’t think that (inaudible) will be someone that we will consider as a direct competitor on that before and we don’t expect that to change much at this time.

Anthony

Okay, understood. Secondly, I would like to know may your latest development on mobile, so if you can share some magic slide and mostly you research or in of the chance (inaudible) that would be very helpful. Thank you.

Linda Chien

I think we're probably still a little bit different from the other guys in terms of trying to measure sort of the mobile -- sorry. I'd say mobile isn't really the predominant form of access for our users at this point in time, because if you look at -- firstly, you used to tell me the platform building out detailed information about their work history and background and all that stuff, so that still preferred to be done on a sort of a bigger screen rather on the mobile screen, because it's actually more complex in data entering and more information you need to spend time looking at. So mobile is not the predominant, it's the person in traffic that drives it. It may be a low of 15% to 20% for us at this point in time so it's really not the key for us.

But in terms of just having -- I'll give you a sense of in terms of number of downloads or apps that have been cumulative for us at this day. We've actually just passed the 10 million mark in terms of cumulative users that downloaded apps. In terms of having additional access channel to continue to see people engage in forum about some of the information related to the account or whether or not an HR person wants to contact them or reach out to them to have more real time delivering information that’s been quite helpful. But I would not say at this point that we would focus on measuring mobile traffic or using that as any proxy of how active a user is, because we do see a lot of users still really just going on to the PC rather than a mobile.

Unidentified Analyst

Thank you.

Operator

Our next question is from the line of Eric Chung. Please state your name followed by your question.

Eric Chung – UBS

Hi. I'm from UBS. I was just wondering if you could give a bit more color on the splits of the 26% year-on-year growth in unique employees just in terms of how much of that was driven by, say, high market penetration of employees using online recruitment services how much growth is driven from when you shift from other competitors?

Linda Chien

I don’t think there is easy way or realistic way to do that, because there'll be some situations where somebody would actually be using multiple sites. It could be a situation where there's a timeline when someone (inaudible) use somebody else and then have used us or vice versa. I think it's very difficult to try to measure it that way. Honestly speaking, we never tried to track information of it. But I will say is that if you look at the fact we actually grew 26% year-over-year and we would expect that there's a lot of new customer additions in general in any ways. Because in China at this point in time, we do not think there is some gain. We don’t focus too much on trying to differentiate how much we're pulling from competitors versus a new customer. We just think that the total customer base, the customer universe addressable market is still very underpenetrated. I think we place less emphasis on that anyway.

Eric Chung – UBS

Okay, thank you. The other view on saving both market penetration and placing online recruitment services in the areas that you’re servicing (inaudible)?

Linda Chien

If you think about the fact that let's say we're now covering 100 geographies or 100 cities, if you will, I know people have reported different numbers in terms of number of companies established in China and I've seen anywhere from 30 million to 52 million, one of the latest numbers I think. But we're talking about 237,000, I mean that minuscule, right, and if you like cut out in geographies then that represent it, even just taking a haircut and say, "There's a million adjustable market that I can actually go after at any given time," I mean that’s still less than 30% for the quarter, so it's actually quite low I think.

Eric Chung – UBS

Great, thanks very much.

Linda Chien

Thank you.

Operator

(Operator Instructions). We have a follow-up question from the line of Wendy Huang. Please state your name followed by your question.

Wendy Huang – Standard Chartered

Thank you. This is Wendy Huang from Standard Chartered again. I just want to get more color on the margin outlook for both near term and longer term. Can you clarify -- did you just say actually you see there's marking cost 30% (inaudible) to include to 30% of the level in the fourth quarter? Also in terms of longer term margin outlook, can you remind us whether you are still seeing potential for your longer term margin expansion and where is the range forward into? Thank you.

Linda Chien

In the near term I think we've always been very open in discussing this. When we see our business, I think the leverage at this point in time should come in. We're on the cost of services side and the SG&A is trying to squeeze out more gains there. But we've always -- I guess a little bit reluctant to say we want to cut back and tell the market because we feel like again it's much more of a green field market. The market is underpenetrated. It's kind of a land grafting.

So in situation in the past, there are certain quarters we've spent less and less people when I think the market wasn’t as robust so we didn’t feel like spending at that time could actually help us capture revenue down the line so that we could be actually skewing on that lower end of the 25% to 30% spending on sales marketing. But this year, we've actually been very active and we communicated continuously throughout the year. We believe that this is a good time to make the investment and we think the sentiment is positive and I think to be a stable situation where we believe them by making investment now. It would actually enable us to capture more customers, more market share, more opportunity so we've actually been spending on the higher end of that 30% range or sort of 25% to 30% range.

So within that area, there's a 5% swing in terms of the margin, if you will. If the investments we made are in the right direction and that we can actually bolster the productivity, the people added this year, I expect that we can actually try to make some progress again next year on that front. Again, like I said, most of our leverage have really come on the cost of services line and then in G&A line in the past and I think that continues to be the areas that we'll look for leverage first before we look at the sales marketing line to try to trim down that.

Wendy Huang – Standard Chartered

Okay, thank you.

Operator

Thank you. At this time, Mr. Yan, there are no further questions. Please continue with any final comments.

Rick Yan

Thank you for joining us today. We look forward to speaking with you again next quarter and we value your continued support of 51job. Thank you and bye-bye.

Operator

Thank you, sir. Ladies and gentlemen, this concludes the 51job, Inc. third quarter 2013 conference call. Thank you for participating. You may now disconnect.

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