China Finance Online (NASDAQ:JRJC)

2012 Fourth Quarter Results

• Net revenues for the fourth quarter of 2012 were $5.2 million compared with $10.8 million for the fourth quarter of 2011.
• Gross profit was $3.4 million compared with $8.7 million for the fourth quarter in 2011. Gross margin for the fourth quarter of 2012 was 65.5% compared with 80.8% for the fourth quarter of 2011.
• Net loss attributable to China Finance Online for the fourth quarter of 2012 was $4.9 million, compared with a net loss of $15.4 million in the fourth quarter of 2011. Both basic and diluted weighted average number of ordinary shares in the fourth quarter of 2012 was 109 million. Each ADS represents five ordinary shares of the Company.
• Loss per ADS was (0.22) vs last years quarter of (0.71)

"Amid a sluggish domestic stock market, we continue to proceed with our strategic transition, diversify our product offerings, invest in core internet capabilities and streamline operations to position ourselves for the next stage of growth. We have rebranded our oversea financial platform to unify brand identity and strengthen the recognition of our flagship portal site - www.stockstar.com. We continue to proactively pursue diversified business development and resource consolidation. On the internet platform front, we began real-time trading broadcast on jrj.com and stockstar.com to allow investors to interact directly with professional investment advisors in real time. We also continue to organize and host key industry events to build relationships with institutional partners and enhance our brand loyalty among end users. Operationally, we remain confident in the long-term prospect of our business and anticipate our financial position to improve further in 2013," commented Mr. Zhiwei Zhao, Chairman and CEO of China Finance Online.

Third Quarter 2012 Results

• Net revenues were $7.2 million compared with $13.5 million for the third quarter of 2011 due to the Company's strategic transition amid a challenging business environment;
• Gross profit was $5.5 million compared with $11.2 million for the third quarter of 2011;
• Net loss attributable to China Finance Online was $3.2 million.
• Net loss per share of $0.14 per ADS vs a net loss of $0.16 in third quarter of 2011

We are honored to be selected as a long-term strategic partner for Tsinghua's PBC School of Finance. We look forward to launching collaboration on a variety of fields including research and project incubation related to internet finance, providing internship and employment opportunities, co-education of post-doctor students, as well as co-hosting high-end commerce and finance themed forums and conferences. The agreement serves as a solid acknowledgement of our industry-leading competency and future prospect," said Mr. Zhiwei Zhao, Chairman and CEO of China Finance Online.

"Business environment remains considerably challenging as the Chinese economy grows at its slowest pace in three years and the Chinese stock market continues its slide to new multi-year lows. Facing difficulties, we have streamlined our operations to become a leaner and more efficient Company. We also have plans to initiate additional cost-cutting measures going forward," commented Mr. Zhao. "We are starting to see early signs of stabilization in cash attrition and anticipate our financial position to improve further in 2013. With significant number of high net worth households and the rising middle-class, the market prospect for securities investment advisory and wealth management in China remains exciting in the long run. We continue to lay the foundation for future growth through attracting customers through our flagship financial portal sites, enhancing our financial data and product capabilities, developing technology and human infrastructure, and resource consolidation."

Second Quarter 2012 Results

• Net revenues were $8.1 million compared with $13.8 million for the second quarter of 2011 due to the challenging global and domestic macroeconomic environment and a weak Chinese stock market; 
• Gross profit was $5.5 million compared with $11.6 million for the second quarter of 2011;
• Net loss attributable to China Finance Online was $2.6 million. 
• Diluted loss per ADS of $0.12 vs loss of $0.08 in prior year quater.

Mr. Zhiwei Zhao, Chairman and CEO of China Finance Online, commented, "Amidst the persistent European sovereign debt crisis and a slowing PRC domestic economy, the Chinese stock market continued its downward trend during the second quarter of 2012. China's GDP growth dipped below 8% for the first time in twelve consecutive quarters. The Shanghai A-Share index breached its three-year lows and investor sentiment remains fragile. A tough macroeconomic and market environment poses substantial challenges for our ongoing operations.

"In the face of these challenges, we are implementing additional cost-cutting initiatives to increase efficiency and improve operational performance. We continue to expand the influence and technical capabilities of our flagship financial media platforms for further internet applications. With improving internet capabilities and consistent user traffic, we are also looking to upgrade our advertising business.

"Meanwhile, we continue to proceed with operational transition and we have launched trial services for our securities investment advisory operations during the third quarter. In the third quarter of 2012, one of our PRC affiliates obtained regulatory approval to distribute mutual funds. The newly granted mutual fund license will allow us to diversify our product portfolio and help expand our customer base. However, given the trying external environment, it will take some time for such new segments to generate revenues.

"In the midst of a slowing economy and weak stock markets, we are proactively laying the foundation for future growth through product innovation, resource consolidation and streamlining our corporate structure. Our strategic vision remains to become a leading service provider of informational and other value-added financial products for Chinese investors through leveraging on our proven strength in vertically integrated market intelligence and our substantial experience in financial services," concluded Mr. Zhao.

First Quarter 2012 Results

• Net revenues for the first quarter of 2012 were $9.1 million, compared with $15.0 million for the first quarter of 2011.
• Non-GAAP net loss attributable to China Finance Online, which excluded the non-cash share-based compensation expenses of $0.2 million, was $1.1 million for the 2012 first quarter, compared with a non-GAAP net income of $1.9 million for the same quarter of 2011.
• Non-GAAP net loss per share for the 2012 first quarter was $0.05) vs earnings per share of $0.08 in prior year period.

Mr. Zhiwei Zhao, Chairman and CEO of China Finance Online, commented, "Amid concerns toward a slowdown of the Chinese economy, the Chinese A-Share market again was one of the most underperforming global equity markets during the first quarter of 2012. Trading turnover and market capitalization shrank further as China's GDP and corporate earnings growth trended lower. Demand for paid securities analysis software continued to be negatively impacted across the board as investor sentiment remained fragile.

"As we transition our business toward securities investment advisory services, we continue to leverage our leadership in financial information services, data solutions and web technologies, to expand our user base. Our flagship sites jrj.com and stockstar.com are two of the most established financial portal sites in China with tens of millions of users. We keep strengthening our research and development in new areas including open-source platform application, wireless application, financial micro-blogging, and HTML5 technology. Furthermore, our exclusive partnership with Baidu will enable us to provide our market-leading financial information services to a much broader audience," Mr. Zhao concluded.

2011 Fourth Quarter Financial Highlights

• Net revenues were $10.8 million compared with $14.8 million for the fourth quarter of 2010;
• Gross profit was $8.7 million with a gross margin of 80.8% compared with $12.4 million and 84.1% for the fourth quarter of 2010;
• A total of $15.2 million in non-cash impairment loss of goodwill and intangible assets was recorded following an impairment test;
• Net loss attributable to China Finance Online was $15.4 million;
• Excluding non-cash share-based compensation expenses and non-cash impairment loss of goodwill and intangible assets, non-GAAP net income attributable to China Finance Online was $80,000.

Business Outlook

Cost reduction associated with the transition will help offset the loss in revenues and mitigate the loss of cash flow to a certain extent. The Company plans to implement additional cost-cutting initiatives to increase efficiency and improve operational performance. Deferred revenues will continue to be realized until the expiration of outstanding premium individual subscriptions. The Company intends to preserve its cash balance as ample cash is critical for ensuring the success of the strategic transition.

New businesses such as securities investment advisory and other wealth management services are still in the early stage of development. The Company does not expect these areas to contribute material revenues any time soon. During this transition period, the Company will no longer provide financial or operational guidance.

"Given the increasing availability of financial products, investors are diversifying their investments and at the same time seeking professional investment advisory and guidance on wealth management. We are taking necessary actions now to adapt to the evolving external environment and better position ourselves for future growth," commented Mr. Zhiwei Zhao, Chairman and CEO of China Finance Online.

Third Quarter 2011 Results

Second Quarter 2011 Results

• Net revenues were $13.8 million, compared to $15.3 million in the second quarter of 2010;
• Gross profit was $11.6 million with a gross margin of 84.3%, compared to $13.2 million and 86.2% in the second quarter of 2010;
• Excluding share-based compensation expenses and investment impairment, non-GAAP net income attributable to China Finance Online in the second quarter of 2011 was $63,000 with diluted non-GAAP net earnings per ADS of $0.00 vs $0.10 in 2010.

First Quarter Results:

• Net revenues were $15.0 million, compared with $15.2 million for the first quarter of 2010;
• Net income attributable to China Finance Online was $1.4 million with diluted GAAP earnings per ADS of $0.06 for the first quarter of 2011, compared with a net income of $0.14 million and diluted GAAP earnings per ADS of $0.01 in the first quarter of 2010;
• Excluding share-based compensation expenses, non-GAAP net income attributable to China Finance Online in the first quarter of 2011 was $1.9 million with diluted non-GAAP earnings per ADS of $0.08, compared with a non-GAAP net income of $1.8 million and diluted non-GAAP earnings per ADS of $0.08 in the first quarter of 2010;
• Annual guidance for net revenues revised down from $58 million to $55 million and non-GAAP net income from $3 million to a loss of $1 million in light of weakening investor sentiment regarding the languishing Chinese stock market and the impact of new Chinese regulations on both the Company's revenues and costs.

Mr. Zhiwei Zhao, Chief Executive Officer of China Finance Online, commented, "We see a more challenging external business environment. Domestic investor confidence remains low as concerns about the sluggish Shanghai index and a slowdown in Chinese economic growth have caused investors to scale back their stock market exposure. Meanwhile, the China Securities Regulatory Commission (CSRC) is stepping up its regulatory reform of China's securities investment advisory industry, and in particular, the securities advisory software business. This is the first time for the government to implement industry wide regulations of this sort. The evolving interactions between service providers and the regulatory bodies necessary to gauge the effect and effectiveness of the new regulations dictates a transition period that is taking longer than most industry participants, including ourselves, had anticipated. Additionally, while we have proactively adapted our sales and marketing strategies in the current environment, the timing of the new regulations in the midst of a sluggish Chinese stock market has nevertheless weakened our customers' confidence in stock investment and their interest in our products and services, and has deterred their purchasing decisions on subscription of our stock advisory software services.

Fourth Quarter Results:

• Net income attributable to China Finance Online was $89,000 for the fourth quarter of 2010, compared with a net loss of $2.7 million in the fourth quarter of 2009;
• Excluding stock-based compensation expenses, non-GAAP net income attributable to China Finance Online in the fourth quarter of 2010 was $0.7 million, compared with non-GAAP net loss of $1.1 million in the fourth quarter of 2009.

Mr. Zhiwei Zhao, Chief Executive Officer of China Finance Online, commented, "We are pleased with the Company's performance in 2010 as we sustained our growth momentum as we achieved the highest annual top line in our corporate history. We remained committed to long-term innovation as product development expenses accounted for more than 20% of our annual top line. While we consolidate and steady our individual subscription operations, our institutional subscription, advertising and brokerage service-related businesses provide other sources of growth in challenging market condition. Meanwhile, we continue to make strides in enhancing our operating efficiency through further cost reduction, thus boosting our bottom line and increasing shareholders' value."

Diluted Non-GAAP net earnings per ADS attributable to China Finance Online were $0.03 for the fourth quarter of 2010

The Company expects to generate net revenues of $58 million for fiscal year 2011. Non-GAAP net income, which is defined as net income excluding stock-based compensations, for the 2011 year is anticipated to be $3million.

Third Quarter Results

• Net revenues for the third quarter of 2010 were $14.4 million, compared with $14.6 million for the comparable period in 2009. GAAP income from operations for the third quarter of 2010 was approximately $0.33 million compared with a loss of $1.81 million in the third quarter of 2009.  Non-GAAP income from operations, which excluded stock-based compensation expenses, was $0.83 million for the 2010 third quarter, compared with a non-GAAP loss of $0.17 million for the comparable period of 2009.

• GAAP net income attributable to China Finance Online for the third quarter of 2010 was $1.35 million compared with a net loss of $1.03 million in the 2009 third quarter. Diluted GAAP net earnings per ADS attributable to China Finance Online were $0.06 for the third quarter of 2010.

• Non-GAAP net income attributable to China Finance Online, which excluded the stock-based compensation expenses of $0.5 million, was $1.85 million for the 2010 third quarter, compared with a non-GAAP net income of $0.60 million for the same quarter of 2009. Diluted Non-GAAP net earnings per ADS attributable to China Finance Online were $0.08 for the third quarter of 2010. Total diluted outstanding ADSs were 22,970,713 at the end of September 2010.

Business Outlook

The Company reiterates its expectation to increase the registered user accounts to 20 million by year end 2010, up 43% from 14 million at the year end of 2009, and up 82% from 11 million at the year end of 2008, respectively.

The Company updated its annual guidance for the year 2010 and expects net revenues to exceed $59 million. The Company also updated its guidance of annual non-GAAP net income attributable to China Finance Online, which excluded stock-based compensations, to exceed $6.0 million

The Company reiterates its expectation to increase the registered user accounts to 20 million by year end 2010, up 43% from 14 million at the year end of 2009, and up 82% from 11 million at the year end of 2008, respectively.

The Company reiterates its net revenues guidance of an amount ranging from $56 million to $62 million for the 2010 year.

The Company also reiterates its guidance for non-GAAP net income, which is defined as net income attributable to China Finance Online Co., Ltd. excluding stock-based compensation, for the 2010 year in an amount ranging from $2 million to $4 million. The Company intends to achieve positive free cash flow of over $8 million in 2010, excluding potential M&A activities. Free cash flow is defined as net cash flow from operations minus capital expenditure.

"The ripple effects from the on-going financial crisis in Europe and the Chinese government's regulation of the domestic real estate market have caused significant turbulence in the Chinese stock market and negatively affected Chinese investors' confidence. Although we posted a solid performance in the 2010 first quarter, we remain cautiously optimistic about the outlook for 2010. We believe that the need for high-quality financial data is bound to increase in the long run. Our role in providing vital financial information to enable Chinese investors to make more intelligent investment decisions will eventually be recognized and rewarded by the vast investor population in China," Mr. Zhao concluded.

The above forecast reflects the Company's current and preliminary view, which is subject to change. A number of important factors including, but not limited to, fluctuation in the Chinese stock market, could cause the actual results to differ materially from those contained in the above guidance.