Research and Trading Portal for US-listed China Stocks · March 25, 2017
China Tracker - Details for ChinaNet Online (CNET)
"The significant slowdown in the SME market overshadowed the underlying progress we continue make in our strategic vision. We believe our decision to diversify our customer base and expand our service offerings will allow us to navigate this downturn better than our competitors. With more than $16 million in cash and no debt, we are able to maintain investments in attractive opportunities such as our social networking services information platform, chuanye.com, and advertising and marketing platform, Liansuo.com. Regardless of the depth and duration of the slowdown, we remain confident we will emerge as a more resilient and competitive company."
Due to uncertainties surrounding the economic environment and monetary policies in China and its impact on small business customers, ChinaNet will no longer provide financial guidance. The Company will continue to communicate relevant news to investors as they occur.
Management reaffirms its full year 2011 forecast for revenues to be between $50 and $54 million for 2011 and net income of $17.5 to $18.2 million. This guidance represents 20%-30% and 19%-24% growth in revenues and net income, respectively.
Management expects revenues to be between $50 and $54 million for 2011, and net income guidance of $17.5 million to $18.2 million, which represents year-over-year growth of 20%-30% and 19%-24%, respectively. The Company's strategy is aimed at gaining market share by exclusively targeting the SME market. The Company expects branded customers to drive higher revenue per customer across its advertising platform while value added services generate incremental higher margin revenue from the installed customer base.
ChinaNet Online Holdings today announced that it has purchased two privately held advertising agencies for a combined purchase price of approximately $2.5 million, with an estimated payback of approximately three years. Quanzhou Zhiyuan Marketing Planning Co., Ltd. and Quanzhou Tianxi Shunhe Advertising Co., Ltd. are both independent advertising companies based in Fujian province which provide comprehensive branding and marketing services to over 50 small to medium sized companies focused mainly in the sportswear and clothing industry, including 10 recognized branded clients and numerous mid to high-end producers. ChinaNet expects to generate approximately $80,000 to $100,000 in revenues annually for each branded client.
Management reaffirmed 2010 net income guidance of $14.1 million, which represents 67.9% year-over-year growth, respectively. The Company is ahead of its target to decrease its television advertising and as such expects revenues to be between $41 and $43 million for 2010, compared to previous guidance of $45 million.
ChinaNet is focused on strategically expanding its rapidly growing internet service and advertising business, 28.com, which boasts gross margins of 70%-80%, compared to 5%-10% for its TV Advertising business segment. Two components of the Company's strategy uniquely positions ChinaNet to succeed: 1) an exclusive focus on the burgeoning Small and Medium Enterprises (SMEs) market with an emphasis on adding higher-paying branded clients and 2) introducing additional value added services to existing and new customers.
During the third quarter of 2010, the Company's http://www.28.com web portal exchange further increased its estimated market share to more than 35% due to effective branding and marketing. ChinaNet continues to help SMEs increase the profile and value of their businesses through multi-media branding campaigns by integrating internet advertising with TV advertising. Its Internet Information Management (IIM) division was created in August 2009 to offer clients an intelligent software product based on its proprietary search engine optimization technology.
The Company started offering value added IIM services to existing clients, including search engine marketing, and search engine optimization in the third quarter of 2009. It has also offered add-on brand management services tailored for clients in various industries. Over the past year, 18% of clients have purchased add-on services from ChinaNet as adoption has accelerated. With revenues more than doubling in the first nine months of 2010, ancillary services currently represent approximately 30% (including management) of total internet advertising revenues in the small and medium sized franchise industry.
Management is in the final stages of due diligence on several small acquisitions which include technology solutions and advertising service platforms. These opportunities are aimed at helping the company accelerate its IIM and online management tools, which will drive new franchisor additions while helping existing customers meet their expansion targets while providing a much broader spectrum of services to their franchisee base.
By year-end 2010, ChinaNet plans to have a total of 1,500 installed online kiosks, compared to 200 completed and 400 in progress, and expects these 1,500 kiosks to generate contract fees and online ad sale revenues totaling approximately $1.0 million in 2010, representing a strong growth momentum from 2009 of $153,000. "We anticipate continued rapid and efficient development of our banking kiosk business unit as we seek to leverage the benefits of online banking kiosk technology and further advance our goal of establishing a multi-channel service and branding platform for small and medium companies."
ChinaNet plans to deploy [advertising] kiosks in SRCB's 300 branches in Shanghai by the end of September 2010. The SRCB agreement brings ChinaNet's total number of kiosks currently contracted for deployment to 500, which includes 200 kiosks at China Construction Bank Henan Branch (CCB), under an exclusive and renewable eight-year agreement with CCB. In addition to the SRCB and CCB deployments, ChinaNet expects to deploy by year-end 2010 400 more kiosks in Henan province as well as 600 additional kiosks in other cities such as Hangzhou, Suzhou and Wuxi in the highly developed and rapidly growing Yangtze River Delta area around Shanghai. By year-end 2010, ChinaNet plans to have a total of 1,500 installed online kiosks, and expects these 1,500 kiosks to generate contract fees and online ad sale revenues totaling approximately $1.0 million in 2010. Under GAAP guidelines, monthly fees charged for kiosk installations will be recognized in the aggregate in the fourth quarter of each year, while advertising income will be recognized with the ongoing fulfillment of ad sales contracts.
The Company plans to extend its strategy of focusing on its rapidly growing Internet advertising sales business, which boasts gross margins of 75%, compared to 15% for its TV Advertising business segment. Management will focus resources and allocate capital to Internet advertising, which yield more predictable and recurring revenue. Consequently, management revised 2010 revenue guidance from $72.3 million to $45 million and reaffirmed net income guidance of $14.1 million, which represents 19% and 67.9% year-over-year growth, respectively.