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ChinaNet Online Holdings, a leading B2B Internet technology company providing online-to-offline sales channel expansion services for small and medium-sized enterprises as well as entrepreneurial management and networking services for entrepreneurs in the People's Republic of China, today reported its financial results for the first quarter 2012.
Revenues for the three month period increased by 113% to $14.9 million from the $7.0 million reported for the same period a year earlier. The company attributed the increase primarily to the sale of TV and internet advertising and marketing services on the company's web portals. TV advertising revenue skyrocketed to $10.4 million for the three months ended March 31, 2012, from $0.7 million in the same period in 2011. TV advertising revenues were generated by selling approximately 10,396 minutes of advertising time purchased from provincial TV stations as compared with approximately 835 minutes of advertising time that we sold in the same period in 2011. Revenue from internet advertising and marketing increased by 50% to $4.3 million, as compared to the first quarter of 2011 due to the addition of Sooe.cn and increasing the number of clients on Liansuo.com.
Total cost of sales for the first quarter of 2012 was reported at $12.5 million, compared to $2.0 million a year earlier. Gross profit was $2.4 million for the first quarter, representing gross margin of 16.0%, compared to $5.0 million of gross profit and gross margin of 71% in the first quarter of 2011. The decrease in gross margin was attributed to the percentage of sales from the company's lower margin TV advertising revenue, which accounted for approximately 69% of total revenues as well as increased resource costs.
Operating expenses for the three months ended March 31, 2012, were approximately $2.3 million, up 15.7% from $2.0 million in the comparable period of 2011. General and administrative expenses increased $0.4 million to $1.2 million. Research and development expenses dropped 6.2% year-over-year to $0.3 million.
The company had an operating income of $0.13 million in the first quarter of 2012 compared to $3.0 million operating income in the first quarter of 2011.
Net loss attributable to common stockholders for the first quarter of 2012 was $0.4 million and loss per share was $0.02 compared to $2.6 million net income attributable to common stockholders and $0.14 earnings per share in the first quarter of 2011, respectively. Total shareholders' equity of ChinaNet was $41.6 million at March 31, 2012, compared to $41.7 million at December 31, 2011.
In a press release issued earlier today, management provided guidance for the current fiscal year. Full year 2012 revenues are expected to be at least $42 million and net income should be at minimum $2.8 million.
ChinaNet said it's committed to strategically expanding its client base of over 6,000 current customers by continuing to grow its internet advertising and marketing services business. Currently, 28.com, which connects SME franchisors with new franchisees, generates the majority of revenues. ChinaNet will continue to invest in new technology and expects to increase its market share to over 55% by the end of the third quarter 2012.
As announced previously, management is focused on several new growth and management initiatives to help offset short-term economic challenges on 28.com. Additional initiatives are outlined below:
• Improving internal management with cost reduction plan, expect to increase net profit margin by 2%-5%;
• Addition of Sooe.cn with commercialization expected in Q3 2012;
• Sales campaign with China Business Journal to attract better quality and larger clients in Q3 2012, further extending Liansuo.com's client base by 20% or more;
• Launching Weibo (like Twister) related value-added marketing service to existing or larger branded customers in Q3 2012 with 3rd party alliance;
• Launching of Zhifuwan.com, an integrated SEM and e-Commerce marketing service as additional value-added services to all other web portals, helping SMEs to further market their Taobao B2C sites by means of technology in Q3 2012.
• With the complexity of additional features, the commercial launch of flying cloud (feitengyun.com) has been re-scheduled to occur by the end of October 2012.
With these initiatives, management expects ChinaNet to return to profitability in Q2 2012 based on current and improving economic conditions.
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