JerryD

"The Company Should Never Have Gone Public" (JRJC)

I agree with you on a number of points. Just to be clear, I see the declining subscriber base as a major indicator of the value the company is providing. Once their surging market expenses slows down, we'll see how much their web hits and advertising revenue will be impacted.

You mentioned "too many examples" of no paying subscriber sites worth millions. So, I'm curious, can you name one or two examples of such sites that are similar to JRJ and are worth $100 million (JRJ's current market cap)?

"The Company Should Never Have Gone Public" (JRJC)

Ian,
You need to break things down analytically. Marketing works when you have a product or service that people want. But marketing a website for the purpose of generating advertising revenue is a losing proposition. It does not generate shareholder value. It is not a legitimate growth plan. This is precisely management's strategy. The company generated $449k in advertising in the quarter, while sales and marketing expenses increased to $539k. It's difficult to imagine that the company is actually profiting from this venture. The company's profits are coming from their existing subscriber base, which is declining. All they are achieving now is offsetting their decline subscription revenue with advertising revenue. Growth in advertising revenue is <strong>WORTHLES... unless you have growth in user base. They are experiencing a decline in user base.

This company should never have gone public because they simple do not know what to do with all of the cash that generated from their IPO.

Does China Finance Online Have a Growth Plan? (JRJC 3Q05 Conf Call Quotes)

Notable events since JRJ went public:

CEO left the company
COO left the company
Declining subscriptions
Declining average selling fees

So, what does the company do with all of its cash generated from its IPO? It proclaims that it's stock is undervalued and spends $10 million on a stock buyback program. The other thing the company does is increase spending on a marketing campaign. This marketing campaign does not help reverse their declining subscriptions. However, it increases network traffic to their site, which in turn generates more advertising revenue. Management seems very excited by this phenomenon and states that they are "putting a lot of effort in this direction". They state that revenue from advertising may be a major growth factor in the future.

In other words, less than a year after their IPO, they spend cash buying back stock that helps support an artificially high market cap. During that time, their only growth strategy that works is to increase spending on marketing to generate higher website traffic that increases their advertising revenue. These two business activities are tantamount to deciding to eat one's self in order to avoid starvation.

Simply put, the company should never have gone public. Management does not have a viable business plan yet and their spending is unsustainable.