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Jiayuan.com International Ltd (NASDAQ:DATE)

Q2 2014 Earnings Conference Call

August 28, 2014 8:00 AM ET

Executives

Shirley Zhang – Investor Relations

Linguang Wu – Director and Chief Executive Officer

Shang-Hsiu Koo – Chief Financial Officer

Analysts

Zim Yin – Stifel Nicolaus

Gregory Chow – Barclays

George Askew – Stifel Nicolaus

Operator

Ladies and gentlemen, thank you for standing by, welcome to the Jiayuan Second Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. (Operator Instructions) I must advice you that this conference is being recorded today, Thursday, the 28th of August, 2014.

I'd now like to hand the conference over to your first speaker today, Ms. Shirley Zhang, Jiayuan’s Investor Relations, Associate Director. Thank you, please go ahead.

Shirley Zhang

Thank you, operator. Welcome to Jiayuan’s second quarter 2014 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 Mr. Koo will then 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 U.S. 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 SEC. Jiayuan does not undertake any obligation to update any forward-looking statements 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

Hello, everyone. Thank you for joining our second quarter 2014 earnings conference call. The second quarter was a key quarter of our business and our matchmaking business continue to gain momentum and mobile reaches the new milestones. Revenues increased to 21.8% to RMB145.2 million from the same period last year.

In particular, our personalized matchmaking services grew 239.3% year-over-year. Active users increased sequentially on a year-over-year to RMB5.7 million as we continue to grew our mobile offering and executed our multi-brand strategy.

As of June 30, 2014, activated installments of Jiayuan's app totaled 31.3 million. We also launched our Android app for iZhenxin.com in May 2014, app to grow 70% during the quarter. Our mobile focus for iZhenxin.com reached a new high monthly active users, further reporting on strong presenting mobile. In addition to growth in active users, paying user accounts increased at even faster rate of $1.5 million.

That was creating attraction, our facilities are gaining. We are excited to tell you about the triple digit growth in our personalized matchmaking services. This business segment now accounts for 22.5% of net revenues and directly approaching our goal of 30% on the fourth quarter of 2014. We are working to scale the business to 80 locations by the end of the year from its current 59 locations in 48 cities.

The revenue expansion of our online-to-offline business during the second quarter leverage our asset singles in our base, (indiscernible) 110 million registered user mark. While critical math our users over 100 cities in China. All of which our potential markets for our matchmaking services. We will continue to invest a large portion of our resources to further develop this business and we also integrated and to consolidate our large database of matchmaking signals.

The second quarter was a major impressing point for our mobile usage. Mobile loggings which are rental income accounted to 63.9% all of into the second quarter. In terms our monthly active users, a number of active users have moving through mobile device surpassed our PC users for the first time in July was a shift to mobile. We anticipated steady growth in actual and pending accounts, but our ARPU remains stable.

However, we expect to see ARPU increase in 2015 as we retune and improve our online offerings in order to increase the monetization of our mobile users. At the same time, we will begin to gradually shift our monetization away from payments to users, which will have ARPU to recover in 2015.

Our focus for 2014 is actively training user growth which we laid the foundation for monetization and growth in 2015. Evaluation will continue to gain momentum from the investment we made earlier this year in expanding our mobile platform and personalized matchmaking services. These two business segments presenting enormous opportunities for growth and it is relatively important year for us.

I’m confident that our strategy will continue to deliver strong result in sustainable long-term gross and increase the shareholder value.

Now I’ll turn to our CFO Shang Koo.

Shang-Hsiu Koo

Thank you, Linguang. Hello everyone I’m pleased to report strong top line results for the quarter. Net revenues increased 21.8% year-over-year to RMB145.2 million primarily due to strong growth in our personalized matchmaking business.

Online services revenue was RMB106.4 million, flat year-over-year and sequentially. Average monthly paying users and active users saw steady growth in the quarter that was offset by a decrease in ARPU. As Linguang, mentioned our focus this year is on active and paying user growth. We believe we can easily transition our users towards higher ARPU subscription product in 2015. And they become more comfortable paying for our products. What’s more exciting for us near-term is that we continue to see strong triple digit growth from our personalized matchmaking services, which grew 239.3% from last year to RMB32.7 million. Growth was driven mainly by the expansion into new locations and new cities across China. We’re now present in 59 locations and 48 cities as we leverage our online database of marriage-minded singles.

At the same time our proprietary CRM system allows us to improve service quality and sales efficiency in our existing stores. Same store sales based on revenues from the six locations we operated in the second quarter of 2013 grows 34.6% year-over-year. As we expand the geographic reach of our matchmaking service this year, we also expect same store sales to continue its tremendous growth well into 2015 and 2016, as our new stores steadily improved their performance. Our personalized matchmaking business is still relatively small in terms of percentage of revenue and market penetration. We expect that this service will continue to see triple digit growth for the rest of the year and in 2015.

Now let’s take a quick look at our key operational metrics for the quarter. The number of average monthly active users accounts was 5.7 million this compares to 5.3 million during the corresponding period of 2013 and 5.4 million for the previous quarter. We expect to see continuous growth in our active user accounts in the quarters ahead. The growth of our mobile platforms that Linguang talked about earlier, how to increase paying conversions in the second quarter.

The number of average monthly paying user accounts this quarter was 1.5 million up from 1.3 million for the corresponding period of 2013 and 1.4 million for the previous quarter. Our average monthly revenue per paying user or ARPU for online services for the second quarter of 2014 was RMB22.5 down from RMB26.6 for the corresponding period of 2013 and 23.9 for the previous quarter.

Mobile users tend to pay less than our PC users initially, but going forward we expect ARPU to remain steady around the RMB20 to RMB25 range and increase in the medium-term as we ramp up monetization.

Turning now to marketing and R&D. Selling and marketing expenses for RMB55.5 million for the second quarter of 2014, up 24.6% from RMB44.5 million in the second quarter of 2013 and down 33.1% from RMB83 million last quarter. The year-over-year increase in selling and marketing expenses was primarily related to the rising cost per advertisement while the sequential decrease was due in part to a TV brand advertising campaign launched during the 2014 Chinese New Year holiday.

Looking forward to the third quarter, we invested in another brand marketing campaign to coincide with Chinese Valentines Day on August 2. We’re very happy with the resulting user growth so far, especially in mobile users. During the second quarter, R&D expenses were RMB5 million, down 8.4% from RMB5.4 million for the corresponding period of 2013 and down 9.3% sequentially. The year-over-year and sequential decreases were primarily due to the decline in the provision of employee bonuses.

And lastly, G&A expenses. In the second quarter of 2014, general and administrative expenses were RMB13.4 million, up RMB7.5 million from RMB12.4 million in the second quarter of 2013, primarily due to the increasing human resource costs. We closed out the quarter with net income of RMB11.9 million or RMB13.4 million when you backout share-based compensation. This translated into basic and diluted earnings per ADS of RMB0.4 and RMB0.39 respectively.

Cash flows from operating activities for the second quarter of 2014 were RMB38.2 million. Our cash, cash equivalent and short-term investment balances now stand at RMB541.1 million.

With that let me give you our outlook for the quarter ahead. In the third quarter of 2014, Jiayuan currently expects to generate net revenues in the range of RMB155 million to RMB157 million. This forecast reflects Jiayuan's current and preliminary view which is subject to change.

With that I like to turn the call over to the operator and begin taking some of your questions. Operator?

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we would now begin the question-and-answer session. (Operator Instructions) The first question comes from the line of Zim Yin from Stifel. Please ask your question.

Zim Yin – Stifel Nicolaus

Good evening, Linguang, Shang and Shirley thanks for taking my question. I have two questions, first could you share with us more color on the strong growth into personalized matchmaking business. How much does that grow came from the younger generation born after 1990’s and how sustainable can it be going forward. It’s my first question.

Linguang Wu

Good evening gentlemen, let me translate the question a little bit.

[Foreign Language]

For personalized matchmaking business, we expect for the rest of year and 2015, we can maintain triple-digit revenue growth. but this business is still in its infancy. and right now, our main focus is really to open new locations. If you look at the number of cities in China, where we have at least 10,000 active users, we have over 100 cities like that. So the number of cities that we can cover, we believe should be at least 100 and the number of stores that we can open in China can reach 200, or even more. So at least in 2015 and 2016, most of growth will still come from new store location openings. But at the same time, you’ll see growth coming from improving sales with the order stores.

As I have mentioned before with our same-store sales and the locations that we operated a year ago, we saw very good same-store sales in the second quarter, and we expected to see continued same-store sale growth going forward, because even with the new stores, when we first open up, the first three months is very weak – is very weak for them. They’re still learning how to sell our products; they’re still learning how to interface with our target customers. So it takes a while to ramp up, and after they ramp up, it takes a while for them to learn how to upsell our clients and to offer better services.

So going to 2015-2017, we can see more growth coming from same-store sales, improving efficiency within our network. as for, the amount of users amount clients coming from the post-90s generation. I think at this point, it’s still not the right services, still not catered for the post-90s generation. they’re still very young. So they’re not at the stage where they want to get married, yes. So at this point, less than 10% of our paying clients are from the post-90s generation.

Zim Yin – Stifel Nicolaus

Thank you. And then could you give us an update on your Smart Bracelet advice, any order matches that you can share with us and also could you talk about the new version that you are going to release soon in a few days. How would you differentiate your bracelet from other smart bracelets, such as stores provided by (indiscernible) or other manufacturers.

Unidentified Company Representative

[Foreign Language]

Shang-Hsiu Koo

In terms our pre-sales, right now we don’t require deposit for the pre-sales. So, we think that the pre-sale numbers right now are not very relevant. But we expect to get a better picture of the demand for the product once we start selling on Jiayuan.com in September.

Now for how our product is differentiated from other smart wearable devices in the market. Our Smart Bracelet is actually very unique and that it focuses on the relationship between two people rather than for health or other type of personal just single person use type of cost. So, our bracelet actually is a pair of bracelets that is sold together. And the bracelet do not require a cell phone to operate. They can operate independently, because they have their own SIM cards. So the two bracelets that we sell in a pair they can only communicate with each other and the communication is very focused on the relationship aspect.

Zim Yin – Stifel Nicolaus

Got it, very helpful. Thank you very much.

Shang-Hsiu Koo

You’re welcome.

Operator

Thank you for your questions. The next question comes from the line of Gregory Chow from Barclays. Please ask your question.

Gregory Chow – Barclays

Hi, Linguang, Shang and Shirley, thanks for taking my question. I have two questions, my first question is about the current market competitive landscape. We see some changes of the competitive landscape and especially after our marketing campaign in Q1 do you have observed any market share changes in the past quarter, this is my first question.

And my second question is that, we noted some multimedia platforms like YY, it is adopting some voice and video social function on new platform for some – like some making friend function. Also, within the user capability that may not comparable with Jiayuan’s user capability. But do you think in the future where we will launch some such kind of multimedia function on our mobile or PC platform or in the future we may cooperative with such kind of platforms to improve our user experience. Thank you.

[Foreign Language]

Shang-Hsiu Koo

Okay. For your first question about the changing market landscape we do see an increase in market share across in the recent quarters. If you look at our usage, by time spent on the major tracking on the user traffic services. We are very strong in user traffic. So, if you look at second quarter we are close to 60% of the total time spent in China for online dating services. So, the marketing campaigns during Chinese New Year definitely helped. At the same time, if you look at our personalized matchmaking growth, a lot of that growth is a result of the brand marketing campaign in the first quarter as well. Especially, in terms of the number of stores we definitely see us taking a lot of market share away from our competitors in China.

As for your second question concerning the other multimedia dating options, I guess you’re more concerned with, I guess you’re referring more to YY and that type of video online dating product. So, from what we seen a video online dating or the chat type of dating product on YY. We believe it’s a very different product than what Jiayuan offers. For one that user base is very different. The user base on those type of products most of them are the younger users under 20 years old. And they are their mainly for entertainment purposes.

And – so YY's more direct competitor would actually be television. So instead of watching a TV show or instead of watching a TV dating show they would be on YY watching YY's dating channel, dating chat show. It’s more of a show rather than actual dating, whereas the users come to our platform mainly to look for relationship. So, maybe they can actually find someone through YY service, but because it’s a entrainment show in nature. They can only satisfy the need of a tiny portion of users. No matter how big it grows, whereas we are a mass market platform that services marriage minded singles in China. We actually ourselves are still looking at potential methods of benefiting from this growth in the video dating show type of format. And we may consider doing something similar launching a similar product or working with one of the existing players to launch a product that focuses on our video online dating.

Gregory Chow – Barclays

Okay, thank you very much.

Shang-Hsiu Koo

Yep.

Operator

Thank you for your question. Your next question comes from the line of George Askew from Stifel. Please ask your question

George Askew – Stifel Nicolaus

Yes, thanks very much and congratulations on the phenomenal growth in your matchmaking business, its awesome.

Shang-Hsiu Koo

Thanks George.

George Askew – Stifel Nicolaus

On that front my question is start – the first question is on matchmaking. Is the growth the result of this volume growth meaning more clients and locations or is that the up-selling Shang that you referred to before at the – on the same-store basis, same-store sales growth?

Shang-Hsiu Koo

Yes, in the same-store sales that for the existing locations that we had, the 30 plus percent same-store sales growth that mostly coming from additional number of clients in those stores. So, because of our CRM system, we are able to better optimize our sales profit. And so, while we are growing the number of sales representatives and matchmakers in those locations. Because we are better able to manage those matchmakers.

At the same time each matchmaker can also sell to more clients or service more clients at the same time. So, it’s actually improving our efficiency, and improving the amount of sales that we can – the amount of clients that we can service and each location. But the main growth that you saw this quarter, most of that is coming from the additional locations.

George Askew – Stifel Nicolaus

Right, okay. And what was sort of the average age of the six stores in the second quarter of 2013 a year ago. On average, six months old and five months old, two months old or 12?

Shang-Hsiu Koo

Right. The six stores that we use the same-store sales metrics or they’ve been around should be 2010 or potentially even earlier for some of the stores. These are the – we only started opening new locations in May last year. So, those were not used in the same-store sales calculation, because they were not opened for the full quarter.

George Askew – Stifel Nicolaus

Gotcha. Okay, great that’s excellent. And then my second question is on mobile monetization, if you’re pointing to clearly improving ARPU in 2015 will should we expect some new monetization strategies for mobile in the future. Or is it a function of just executing and exploiting your current monetization driving better adoption, better utilization in higher paying users using the existing monetization strategies in mobile?

Linguang Wu

Let me translate that question a little bit. [Foreign Language]

Shang-Hsiu Koo

We won’t change our strategy – monetization strategy for our product. But we will suddenly – we will gradually improve the product itself. So that users we have higher conversion of paying users and the users are more likely to pay for a more sense of product. So, for the second half of 2014, we’ve been, we are spending a lot of efforts to change our mobile offering to be more inline with to be more suitable for its younger users and for a more mobile centric product whereas the four, if you use our product. You will see that our mobile apps are more of a online product converted to mobile apps. Whereas later this year you will see mobile apps coming out that are filled from the ground up – mobile product from the browser. So that in itself will help better conversion rates for mobile users and for us to better monetize them in 2015.

Our strategy this year is really on user growth in converting the younger users into paying users. In 2015, we can convert the lower paying younger users into higher paying subscription products. And overtime these users are going to the order and were willing to pay and more able to pay more for our products anyway. So, what we believe our users are actually fairly sticky especially our paying users are fairly sticky. So, once we get them to start paying then it’s only a matter of time before they start paying more for our products.

George Askew – Stifel Nicolaus

Got it. Okay, thanks very much for that.

Operator

Thank you for the questions. (Operator Instructions) We appear to have no further question at this time. I like to hand the call back to Ms. Shirley Zhang for the 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 upcoming months. Operator?

Operator

Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for your participation. You may now disconnect the lines.

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