Here’s the entire text of the prepared remarks from China Finance Online’s (ticker: JRJC) Q3 2005 conference call. The Q&A is here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.
Jing Wu, Investor Relations
Zhao Zhiwei, Chief Executive Officer
Zhongshan Qian, President and Chief Financial Officer
Youssef Squali, Jeffries & Co.
Hyun Chung Li, JP Morgan Hong Kong
Jeffrey Keith, USA
Thank you for holding, and welcome to China Finance Online’s Third Quarter Earnings Release. At this time all participant lines are in listen-only mode. The presentation will be followed by a question and answer session. Any instruction will be informed at that time. I would now like to turn the conference over to your host, Ms. Jing Wu, of China Finance Online. Thank you, Ms. Wu.
Jing Wu, China Finance Online Investor Relations
All right. Thank you, Operator. Welcome everyone to China Finance Online’s Third Quarter 2005 Conference Call. Today, with me in the conference are Mr. Zhao Zhiwei, our CEO, and Mr. Zhongshan Qian, our President and CFO. After the market closed today, the company issued a press release containing the financial results for the third quarter 2005. The purpose of this conference call is to provide its investors (ph) with further detailed information regarding financial results. Following the formal remarks, we’ll be happy to take any questions you might have.
Before we begin, it is my duty to remind you that, during today’s conference call, we might be making forward-looking statements. This announcement contains forward-looking statements. These statements are made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Statements that are not historical fact, including statements about our beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections and, therefore, you should not place undue reliance on them. Forward-looking statements involve inherent risk and uncertainty. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statements.
Potential risks and uncertainties include, but are not limited to, China Finance Online's historical and possible future losses, limited operating history, uncertain regulatory landscape in the People’s Republic of China, fluctuations in quarterly operating results, failure to successfully compete against new and existing competitors, and the company's reliance on China Finance Online's reliance on relationships with Chinese stock exchanges and raw data providers. Further information regarding these and other risks is included in China Finance Online's annual report on Form 20-F for the year ended December 31, 2004, and other filings with the Securities and Exchange Commission. China Finance Online does not undertake any obligation to update any forward-looking statements, except as required under applicable law.
Now, I will pass this call to Mr. Zhao Zhiwei, our CEO.
Zhao Zhiwei, China Finance Online, Chief Executive Officer
Through interpreter: Good morning, and good evening. Thank you for joining us today China Finance Online’s Third Quarter 2005 Conference Call. Compared to similar periods of last year, the Chinese stock market in third quarter is still volatile and weak. However, we have grown our revenue by 8% year-over-year, compared to the previous quarter, our third quarter net revenue are relatively in line. We believe this is because, that of our advertising-related revenues have been growing. Secondly, the third quarter stock market is less volatile compared to second quarter 2005.
This last quarter of this year, China Finance Online has started an online marketing campaign, which is set up due to juristics of (ph) cooperation with a number of popular portals in terms of co-branding and accounting. As a result from this campaign, our average daily user sessions for the third quarter has risen 2.3 million, a new record in our history. The total number of new registers for this quarter is over 2.5 million, an increase of 6% from 2.4 million of last quarter.
In August of this year, China Finance Online also launched a new service package called Tao of Wealth. As of October 31, 2005, there are already over 160,000 downloads. As part of our company development strategies, we’ll focus on distributing tenants (ph) for Tao of Wealth in the early stage of our marketing campaign. Our goal is to quickly gain market share through customer acquisition such as a partnership with banks, mutual funds and insurance company.
Now, I would like to pass the phone to Zhongshan Qian, our company CFO, to give you more details on the third quarter financial and operating results. Thank you.
Zhongshan Qian, China Finance Online President and Chief Financial Officer
Thanks, Zhiwei. Good morning for those in Asia, and good evening for those in Northern America. In addition to the highlights of our financial and operational results in today’s earnings release, I would like here to discuss a few points in more detail.
Our total net revenue for the quarter was $1.81 million, up about 8%, year-over-year and relatively flat compared to the last quarter. Among the net revenues, our advertising-related revenue in Q3 has reached US$449,000, representing 25% of the total net revenue. The advertising growth is 34% quarter-over-quarter and 138% compared to the same quarter a year ago. We believe our advertising growth was due to the increased traffic to our website because of the online marketing campaign and the company’s more efforts dedicated to the advertising-related business division.
Our gross margin for the quarter was 94%, which is relatively the same compared to the last quarter. This is because our cost of revenue remains relatively stable. Our operating expense for the quarter totaled $1.01 million for the third quarter, up 139% from $424,000 year-over-year. The quarter-over-quarter comparison is flat. Our year-over-year expense increase is primarily due to the increase of our general and administrative expenses, and our sales and marketing expenses after the IPO.
The sales and marketing expenses are related to the marketing campaigns that started in the second quarter of 2005. We have established sponsorship and a co-branding partnership with over 30 high-traffic Chinese websites, such as tfol.com, Mattie (ph), tom.com, China.com and 21cn. The co-branding partnerships will help us to (A) promote our brand name awareness and bringing more traffic to our website, and (B) pre-empt our competitor’s presence in high traffic websites because of the exclusivity, and (C) develop distribution channels for our new products, such as Tao of Wealth.
Our net income margin for the quarter increased from 55% of the last quarter to 70%. The main reason for the increase is because we have recorded a net exchange gain of $327,000 for Q3 2005 due to the RMB reevaluation since July 21 of 2005. Excluding the non-recurring FX gains, our net income margin would have been 52%.
There might be further RMB reevaluation in the future that may affect our financial performance in the coming quarters, but the company cannot give any predictions with regard to whether or when the RMB reevaluation will happen.
The number of new subscribers for the quarter was 2,626, down 35% from 4,069 for the same period in 2004. The repeat subscribers for the quarter were 1,910, down 19% from 2,372 for the same period in 2004. These decreases in number of both new subscribers and repeat subscribers were primarily due to the weak performance in Chinese stock market of the third quarter compared to the same period of last year.
The average subscription fee per subscriber, or ASF, for new subscribers was down 24% to $166 from $219 for the same period in 2004, but up 1% from $165 in the previous quarter. ASF for repeat subscribers was down 6% to $253 for the third quarter of 2005 from $268 for the same period in 2004, but up 3% from $246 in the previous quarter. We believe the increased ASF quarter-over-quarter for both the new subscribers and the repeat subscribers may have indicated that the Chinese stock markets were less volatile in the third quarter of 2005 compared to the previous quarter.
Next, let’s move to our balance sheet. Our cash and cash equivalents were $63.34 million by the end of Q3 of 2005. The cash position has improved compared to the $61.83 million of last quarter. We believe, the main reason, of the improvement are one, we continued to generate positive cash flow from our operations, and two, RMB was reevaluated on July 21, 2005.
So now, I’d like to move to the Q&A section, so we will take questions from the audience.
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