China Finance's Portal to Profits

Stock-market data provider China Finance Online (Nasdaq: JRJC  ) has moved from an advertising-based business model to a subscription-based one, and this is ultimately proving to have been a smart decision. You can think of the company as analogous to the finance arm of Yahoo! (Nasdaq: YHOO  ) , or to MarketWatch, part of the Dow Jones family of services at News Corp. (NYSE: NWS  ) .

CFO reported second-quarter earnings yesterday that saw its GAAP profits tripling to $4.5 million on revenue that increased 156% year over year. The bulk of that revenue -- almost 90% -- comes from subscription services, well above the 81% such services contributed last year. Advertising has fallen to just 5% of the total.

Despite continuing declines in the Shanghai index, which fell an additional 21% in the quarter on the heels of a record 34% decline in Q1, CFO was able to grow its registered user base by an additional 700,000 accounts. Meanwhile, individual subscribers who actually pay a fee for CFO's services increased 34% from the previous quarter, to 100,600. Undoubtedly, the alliance with China Telecom (NYSE: CHA  ) in setting up a joint finance portal is paying off.

The market remains leery of China Finance, however, and its stock still trades more than 30% below the May highs it reached -- even accounting for the bounce it's enjoying with this earnings report. Management has reaffirmed the upgraded guidance it gave last quarter of $1.09 to $1.26 per share, meaning that it is trading at roughly 16 times 2008's earnings. While that’s not as lofty as Baidu.com (Nasdaq: BIDU  ) ’s valuation, CFO is selling at a forward P/E nearly three times that of Xinhua Finance Media (Nasdaq: XFML  ) . Still, its growth prospects for the current year and next help justify the premium.

Since the China Telecom alliance gives China Finance the opportunity to market its services to the Chinese investor base -- which had around 180 million stock trading accounts at the end of 2007 -- along with its own growing registered user base, the potential for this to be a catalyst for growth remains huge. You can watch the ticker crawl for further price jumps here.

Related Foolish articles:

Baidu.com is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 717583, ~/Articles/ArticleHandler.aspx, 4/20/2014 8:01:19 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement