On the 12th of March, 58 cities released the fourth quarter and full-year financial reports for 2019. According to the financial report, in the fourth quarter of 2019, 58 same-city revenue reached 4.16 billion yuan, an increase of 15.1% year-on-year; total annual revenue was 15.58 billion yuan, an increase of 18.6% year-on-year. In the fourth quarter of 2019, net profit attributable to mothers was 2.610 billion yuan, an increase of 535.1% year-on-year; for the full year of 2019, net profit attributable to mothers was 8.278 billion yuan, an increase of 314.5% year-on-year.
58 The same city is “a magical website”: Net profit skyrocketed, but revenue grew sluggishly. What is the hidden worry behind it? Let’s find out through the 58 city report for 2019.
I. 58 What is the source of income in the same city?
From the perspective of the nature of income, 58 main sources of income in the same city are Merchants collect membership fees and online promotion service fees , accounting for over 90%.
2019Q4, 58.67% of the same city revenue comes from merchant membership fees, 65.30% from online promotion service fees, and 7.94% of other income includes two parts, one is from e-commerce services (services provided to real estate developers, such as Selling discount coupons for new homes); The second is from other services (return revenue, 58 revenue from second-hand platforms in the same city, and offline recruitment service of China Talent Network)
From a trend perspective, since 2019, the contribution ratio of online service promotion revenue has declined, but it is still the main source of revenue for 58 cities.
Data source: Wind
Online Promotion services become the “engine” for revenue growth, and merchant membership fees are now negatively increasing.
Online service promotion fees are not only the largest revenue in 58 cities, but also an important “engine” that drives the company’s revenue growth. In terms of growth rate, the year-on-year growth rate of online service promotion fees is much higher than the merchant membership fee. Although both growth rates are slowing down, in 2019Q4, the new service promotion fees have maintained a year-on-year growth rate of about 20%. The merchant membership fee showed a negative growth for the first time year-on-year.
In the fourth quarter of 2019, 58 members in the same city received 1.124 billion yuan in membership fee income, a decrease of 0.9% year-on-year. This was mainly due to the reduction in merchant membership. During the reporting period, the number of 58 paying merchants in the same city, Anjuke and other platforms was approximately 3.3 million, a decrease of 300,000; Revenue from online promotion service fees was 2.714 billion yuan, a year-on-year increase of 19.3%, mainly due to the increase in the use and effect of various online market services, such as real-time bidding.
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Data source: company announcement
Data source: company announcement
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Second, how is the growth of the same city?
A series of previous mergers and acquisitions drove a significant increase in revenue. With the decline of traffic dividends and intensified market competition, the growth of merchant membership fees and online promotion services has slowed, resulting in limited revenue growth.
Since 2015, 58 cities have launched a series of mergers and acquisitions, acquiring Zhongying.com, Cangji.com, and Anjuke Group. A series of consolidations (2015Q2 Anjuke consolidation and 2015Q3 merging consolidation) have helped 58 city’s total revenue. In 2015, a year-on-year growth rate of 175.06% was achieved.
In the late stage of the traffic bonus, the number of new members decreased, and the growth rate of merchant member service income and online promotion income slowed down, which is also the essential reason for the 58 cities in the city to continue to “slow down” revenue. From 2015 to 2019, the revenue growth rate of 58 cities in the same city slowed from 175.06% to 18.56%, and the growth rate dropped sharply.
Data source: company announcement
In the fourth quarter of 2019, 58 same-city operating income reached 4.156 billion yuan, a year-on-year growth rate of 15.16%, and the growth rate slowed to a record low.
Data source: company announcement
The information platform where the same city is located has low barriers to entry. As the market competition becomes more fierce, the challenge of vertical enterprise diversification in segmented areas is also increasing. Therefore, the decline in traffic dividends and intensified market competition have led to weak revenue growth in the same city, and this trend is difficult to change.
III. How profitable is 58 city?
Sold assets and withdraw funds to increase profits.
58 The same city suffered losses in 2015 and 2016. The first is that the loss of the investment target has dragged down the performance of listed companies. For example, if a loss of 58 million to 100 million was shared in 2016, the investment income was negative. In 2015 and 2016, respectively It is -173 million yuan and -145 million yuan; the second is the high marketing expenses, which has greatly reduced the company’s profits.
58 The same city began to turn a profit in 2017Q2, mainly due to two aspects:
On the one hand, at the beginning of 2017, 58 city’s price increase strategy was successfully implemented, making the company turn losses into profit; on the other hand, The company’s calculation of 58 home losses since January 2018 was originally ordinary. 87.9% of the shareholding ratio changed to 3.3% of the preferred shareholding ratio, resulting in a reduction in the loss of long-term equity investment income.
In 2019, the company realized net profit attributable to mothers of RMB 8.278 billion, a year-on-year growth rate of 314.52%, which is much higher than the year-on-year growth rate of 18.56% in revenue. This was mainly due to the fact that 58 shares in the city sold a lot of equity in the car and obtained an investment income of 6.142 billion yuan. If the non-recurring profit and loss part is excluded, the 58 cities in the city will realize a deduction of non-net profit of 1.889 billion yuan in 2019, an increase of only 0.96% year-on-year.
Similarly, the net profit of 58 returning mothers in the same city realized 2.610 billion yuan in 2019Q4, a year-on-year increase of 535.04%. It was also benefited from the investment income of 2.827 billion yuan obtained from the sale of a large part of the equity of the car during the reporting period.
So, the investment income brought by the sale of a lot of cars has increased the net profit of returnees in the same city. However, investment income is not sustainable. Whether the growth rate of return to net income of the same city 58 remains high still needs to observe the subsequent performance of the main business.
Data source: company announcement
Data source: company announcement
Is there any possibility of improvement in profitability?
High market costs have squeezed profit margins.
58 The largest operating expenses in the city come from marketing expenses, including traffic costs and sales staff costs. Secondly, relatively fixed expenses include research and development expenses, administrative expenses, and fixed transaction costs.
Traffic costs (i.e. advertising market costs) are used to subsidize users and merchants. 58 The market expenses in the same city have gradually increased, and the market expense ratio has remained above 50% for a long time.
The year-on-year growth rate of market expenses in 2018 and 2019 is close to or even higher than the revenue growth rate, which means that the company’s investment in market expenses is high, but the effect is not very good. Similarly, high market costs have not increased the membership conversion rate, and the number of merchant members has not increased or even increased negatively, further indicating that the input and output of market costs are relatively low.
Data source: company announcement
The improvement of profit space is mainly reflected in two aspects: first, the room for revenue growth; second, the space for cost reduction.
The above contents have shown that the increase in the number of merchant members has resulted in limited revenue growth, and market costs are the main reason for compressing profit margins. Therefore, compressing market costs may be one of the keys to releasing the company’s profit margins.
However, 58 it is difficult to control fees in the same city. First of all, there is basically no conversion cost in the information integration industry where 58 city is located, so as market competition intensifies, large-scale market costs must be invested to maintain existing traffic and merchant scale. Secondly, with the development of 58 cities in the sinking market and seeking new traffic growth points, the promotion of 58 cities also requires high market investment.
As a result, it is expected that the market expenses of the same city in 2020 will remain at a relatively high level, and the company’s profitability is unlikely to increase.
In addition, due to the impact of the new crown virus epidemic on the economic cycle, 58 cities adjusted their short-term development rhythm. The 58 cities expected a total revenue range of 2.16 billion to 2.26 billion in 2020Q1, a 25% to 29% year-on-year decline.