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Bitauto Holdings Limited (NYSE:BITA)
Q3 2018 Earnings Conference Call
Nov. 28, 2018, 7:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Q3 2018 Bitauto Holdings Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, you need to press *1 on your telephone. I must advise you that this conference is being recorded today, Wednesday, the 28th of November, 2018. I would now like to hand the conference over to your hosts today. Thank you. Please go ahead.

Unidentified Company Representative

Thank you. Welcome to Bitauto's Third Quarter 2018 Earnings Conference Call. Speakers from the company today are Mr. Andy Zhang, CEO, Mr. Xiaoke Liu, COO, and Mr. Ming Xu, CFO. After management's prepared remarks, Andy, Xiaoke, and Ming will be available to answer your questions. In addition, Catherine Liu, CFO of Yixin, will be available to answer your questions related to Yixin.

Before we proceed, please note that discussions today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities and Litigations Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties which may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC, including the registration statement on Form F-1. Bitauto does not undertake any obligations to update any forward-looking statement except as required under applicable law.

This call will include discussions of certain unaudited non-GAAP financial measures. Please refer to our earnings release, which was issued earlier today, for reconciliations of these unaudited non-GAAP measures to the most directly comparable unaudited GAAP measures. As a reminder, this conference call is being recorded. In addition, a live and archived webcast of the conference will be available on our website. I will now turn the call over to Andy Zhang, CEO of Bitauto.

Andy Xuan Zhang -- Chief Executive Officer

Hello, everyone, and thank you for joining us for our Third Quarter 2018 Earnings Conference Call. Despite softer new passenger car sales over the past few months, we were pleased to maintain healthy growth across our businesses in the third quarter of 2018, with total revenue rising 25.9% year over year to RMB2.72 billion. In our Advertising and Subscription businesses, we achieved 7.7% year-over-year growth with revenue reaching RMB1.06 billion in the third quarter of 2018. In particular, our core Advertising and Subscription business, which excludes contributions from subsidiaries in which we hold controlling interests, grew 14.9% year over year for the quarter. We also recorded higher sequential growth in our core Subscription business compared with industry peers.

In our Transaction Services business, revenues saw steady growth of 39.6% year over year to RMB1.36 billion. In our Digital Marketing Solutions business, revenue growth recovered in the third quarter, recording a 47.7% year over year increase to RMB305 million. In our Ad business, we continue to identify and develop new business areas, which we believe can be potential growth drivers for the long term. For example, our collaborations with key opinion leaders to provide customized content and services for automakers continued to gain traction, and we're extending this initiative to a larger group of sales media and automakers. Moreover, our advertising revenue from new energy automakers was up nearly tenfold in the third quarter versus the same period last year.

In our Subscription business, we further optimized our business mix by converting more members to premium service packages, with penetration of premium packages reaching 74%, up from 70% in the second quarter of 2017. We also expanded our subscription membership base as we roll out tailored services to China's vast market of independent automobile dealers, an under-tapped segment of the auto dealer market in China. We currently cover over 19,000 independent automobile dealers now, through which we service more than 30,000 salespeople.

In our Transaction Services business, despite industrywide headwinds, Yixin posted resilient results, facilitating approximately 123,000 financed automobile transactions in October. Yixin's accumulated financed automobile transactions reached 1 million, making it the first independent automobile finance platform in China to achieve such a scale.

Looking to the future, although we expect pressure on passenger vehicle sales to continue in the near term, we're confident in the long-term growth of China's auto industry. In addition, against the backdrop of slower new car sales, we expect that both the penetration rates of new car financing and used car sales to continue rising, a trend which will benefit Bitauto and Yixin.

Looking forward, Bitauto will remain dedicated to executing our core business strategies. First, we'll continue to enhance user stickiness and Bitauto's brand value through more engaging content initiatives, especially targeting China's younger population. We recently introduced major updates to our Bitauto app to further enhance user experience, attract traffic from younger users, and increase user stickiness through more compelling content and richer social features.

For example, we continue to upgrade the display format of our automobile-related information from traditional graphics and videos to high-definition AR and VR, which now covers more than 1,000 car models, an industry-leading level. Our new Ixue app also provides chat groups for hot-selling vehicles with audio commentaries by industry KOLs, which we believe suit the lifestyles and preferences of the young crowd and young consumers.

Second, we will maintain our growth by developing new business areas with strong potential. For example, we will work closely with new energy automakers in 2019 to serve their marketing needs. We will also continue to upgrade our dealer subscription package and further expand our coverage to dependent dealers. Third, we will drive further synergies between Bitauto, Yixing, and other Bitauto ecosystem companies to create more diversified offerings and better serve consumers and business partners.

We will further enable crossover of user accounts and access to data sources across the Bitauto ecosystem, including user profiles, automobile data generated through the entire auto consumption cycle. With strong momentum and a market-leading position, we're confident that we will continue to outgrow the overall auto, media, and transaction market and achieve our goal of becoming China's top online auto, media, and transaction services platform. With that, I'll turn the call over to Ming to go over the financial statements.

Ming Xu -- Chief Financial Officer

Thank you, Andy. Good evening and good morning, everyone. Amid a more challenging industry environment in the third quarter, we remain dedicated to driving growth on both our top line and bottom line. Our Advertising and Subscription business achieved steady growth on the top line. In particular, we had higher sequential growth in our core Subscription business compared with our industry peers. We were also able to further improve operating margin, thanks mainly to better cost control measures including lower traffic acquisition cost and more effective selection of media channels.

Looking ahead, we're confident that our superior and ever-improving products and services -- as well as traffic scale -- will continue to win the trust of our automobile dealer customers and continue to drive our revenue and profit growth. For our Transaction Service business, Yixin maintained its revenue growth momentum thanks to greater accumulated loan volume in its self-operated business and its rapidly expanding loan facilitation business. In particular, our third-party loan facilitation was growing very fast. We believe Yixin's total auto financing transaction volume and the quarter-over-quarter growth of loan facilitation transactions were both ahead of peers in the industry.

In the third quarter, 24% of total financed automobile transactions were through third-party loan facilitation services, up from 19% in the previous quarter, and so far, in the fourth quarter, loan facilitation service has contributed over 40% of total financed automobile transactions. We believe the third-party loan facilitation services will have better scalability as well as margin profile over the long run, and we expect this upward trend to continue.

Now, let's look at our Q3 2018 financial highlights before moving to Q&A. Bitauto reported revenue of RMB2.72 billion/USD$396.7 million for the third quarter of 2018, representing a 25.9% increase from the corresponding period in 2017. The increase in revenue is attributable to the growth of the company's Transaction Service business, Digital Marketing Solutions business, and Advertising and Subscription business. Revenue from the Advertising and Subscription business for third quarter of 2018 was RMB1.06 billion/USD$154 million, representing a 7.7% increase from RMB980.5 million/USD$143 million in the corresponding period in 2017. In particular, our core Advertising and Subscription business, which excludes contributions from subsidiaries in which we hold controlling interest, grew 14.9% year over year.

Revenue from the Transaction Service business for the third quarter of 2018 was RMB1.36 billion/USD$199 million, representing a 39.6% increase from RMB976.6 million/USD$142 million in the corresponding period in 2017, mainly attributable to the revenue growth of loan facilitation services and self-operated financing business. Revenue from the Digital Marketing Solutions business for the third quarter of 2018 was RMB305 million/USD$44 million, representing a 47.7% increase from RMB206.5 million/USD$30 million in the corresponding period in 2017, mainly driven by higher spending from its advertising customers as well as more diversified services.

Cost of revenue for the third quarter of 2018 was RMB1.05 billion/USD$153 million, representing a year-over-year increase of 56% from the corresponding period in 2017. The increase was primarily due to increased funding cost related to the growth of Transaction Services. Cost of revenue as a percentage of revenue in the third quarter of 2018 was 38.7% compared to 31.1% in the corresponding period in 2017.

Gross profit for the third quarter of 2018 was RMB1.67 billion/USD$243 million, representing a 12.2% increase from the corresponding period in 2017. Selling and administrative expenses were RMB1.52 billion/USD$221 million for the third quarter of 2018, representing a 15% decrease from the corresponding period in 2017. This decrease was primarily due to the decreases in share-based compensation, marketing expenses, which was offset by the increase in provision for credit losses of finance receivables.

Product development expense was RMB154.6 million/USD$22.5 million for the third quarter of 2018 compared to RMB156.5 million/USD$23 million in the corresponding period in 2017. Share-based compensation, which was allocated to related operating expense line items, was RMB173.1 million/USD$25 million in the third quarter of 2018 compared to RMB522 million/USD$76 million in the corresponding period in 2017, which was incurred as a result of options granted by Yixin to its employees in the third quarter of 2017.

Non-GAAP net income from operations in the third quarter of 2018 was RMB408.3 million/USD$59 million, a 53.4% increase from the corresponding period in 2017. Net loss in the third quarter of 2018 was RMB20 million/USD$2.9 million compared to the net loss of RMB510 million/USD$74 million in the corresponding period in 2017. Net loss attributable to Bitauto in the third quarter of 2018 was RMB26.7 million/USD$3.9 million. Non-GAAP net income in the third quarter of 2018 was RMB345 million/USD$50 million, a 48.8% increase from the corresponding period in 2017. Non-GAAP net income attributable to Bitauto in the third quarter of 2018 was RMB265.8 million/USD$38.7 million.

Basic and diluted net loss per ADS, with each representing one ordinary share in the third quarter of 2018, amounted to RMB0.54/USD$0.06 and RMB0.47/USD$0.07 respectively, taking into consideration the accretion of two redeemable non-controlling interests amounting to RMB7.1 million/USD$1 million. Non-GAAP basic and diluted net income per ADS in the third quarter of 2018 amounted to RMB3.56/USD$0.53 and RMB3.36/USD$0.49 respectively, taking into consideration the accretion to redeemable non-controlled interests amounting to RMB7.1 million/USD$1 million.

As of September 30th, 2018, the company has cash and cash equivalents and restricted cash of RMB8.98 billion/USD$1.31 billion. Cash provided by operating activities, cash used in investing activities, and cash provided by financing activities in the third quarter of 2018 were RMB246.9 million/USD$36 million, RMB2.15 billion/USD$313 million, and RMB2.83 billion/USD$413 million respectively. Number of employees totaled 7,739 as of September 30th, 2018, including employees of entities in which Bitauto has acquired and holds a controlling interest. This represents a 7.64% year-over-year decrease, primarily due to the decreased headcount in Yixin following its strategic deemphasis of used car transaction facilitation services.

Given Yixin's scale and significance to Bitauto, I would also like to share with you some of Yixin's operating and financial highlights in Q3 of 2018. In the third quarter of 2018, Bitauto's controlled subsidiary Yixin, the primary operator of the company's Transaction Services business, facilitated approximately 123,000 financed automobile transactions, with the aggregate loan amount of approximately RMB9.8 billion through its loan facilitation services and self-operated financing business.

In particular, Yixin's third-party loan facilitation transactions continue to gain momentum, contributing approximately 24% of total financed automobile transaction volume in the third quarter, up from 19% in the previous quarter. In the third quarter of 2018, through its loan facilitation services for partner banks, Yixin facilitated approximately 30,000 financed automobile transactions, a year-over-year increase of approximately 300x and approximately RMB2.2 billion amount in auto financing.

In the third quarter of 2018, under U.S. GAAP, Yixin's total revenue reached RMB1.38 billion/USD$201 million, gross profit reached RMB610.5 million/USD$89 million, net loss was RMB3.9 million/USD$0.6 million, and non-GAAP net income was RMB121.6 million/USD$18 million. Yixin's non-GAAP net income is calculated as net loss excluding share-based compensation of RMB89.9 million/USD$13 million, amortization of intangible assets resulting from asset and business acquisition of RMB35.7 million/USD$5.2 million, and offset by tax impact of RMB0.04 million/USD$0.01 million.

In the third quarter of 2018, Yixin entered into transactions with other subsidiaries of Bitauto, which have been eliminated upon Bitauto's consolidation of Yixin. The revenue that Yixin recorded for the service provided to those subsidiaries of Bitauto amounted to RMB4.1 million/USD$0.6 million. As of September 30th, 2018, Yixin had cash and cash equivalents and restricted cash of RMB5.31 billion/USD$835 million, total finance receivables of RMB36 billion/USD$5.53 billion, and total borrowing including bank borrowing and asset-backed securitization debt of RMB31.65 billion/USD$4.6 billion.

As of September 30th, 2018, 90-day-plus past due ratio including 180 days and 100-day-plus past due ratio for Yixin's self-operated finance business was 1.03% and 0.53% respectively. Ninety-day-plus past due ratio including 100-day-plus and 180-day past due ratio for all financed transactions including third-party loan facilitations were 0.97% and 0.49% respectively. Under U.S. GAAP, Yixin's provision for credit losses of finance receivables in the third quarter of 2018 were RMB130.6 million/USD$19 million. The balance of provision for credit losses of finance receivables were RMB276.3 million/USD$40 million as of September 30th, 2018.

With that, I will turn to guidance for the fourth quarter of 2018. Bitauto currently expects to generate revenue in the range of RMB2.92 billion/USD$425 million to RMB2.97 billion/USD$432 million in the fourth quarter of 2018, representing a 17.2-19.2% increase from the corresponding period in 2017. The forecast reflects revenue net of VAT under the new revenue guidance ASC Topic 606, which has been adopted by Bitauto starting from January 1st, 2018.

If presented on a gross basis as consistent with the year 2017 forecasted revenue, it would be between RMB3.14 billion/USD$458 million to RMB3.2 billion/USD$465 million in the fourth quarter of 2018, representing a 16.6-18.6% increase from the corresponding period in 2017. This forecast takes into consideration of seasonality factors in Bitauto's business and excludes any impact of foreign currency fluctuation. It reflects management's current and preliminary view, which is subject to change. Now, let's start the Q&A session. Andy, Xiaoke, myself, and Yixin's CFO Catherine are available to take your questions. Operator, please go ahead.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you want to ask a question, please press *1 on your telephone and wait for your name to be announced. If you want to cancel your request, you can also press #. Once again, to ask a question, please press *1. Our first question comes from the line of Binbin Ding from J.P. Morgan. Please go ahead.

Binbin Ding -- J.P. Morgan Securities -- Analyst

Thanks, management, for taking my question. My first question is on the macro impact. What is your current view on the macro outlook given the decline of new car sales over the past few months? How should we look at the trend into 2019? And, my second question is on auto financing service. So, we noticed there are some new players being listed in recent months also in the auto financing services sector, and they seem to have generated decent margins. So, can you help us to understand the reason behind the margin difference between us and the new players? Is it because of difference in business models, accounting treatment, or some other reasons? Thank you.

Andy Xuan Zhang -- Chief Executive Officer

I'll take the first question in terms of the overall market. Obviously, we've seen quite a few different indicators indicating that new car/passenger car sales have been really slowing down. For the month of October as well as for the first three weeks of November, we've also -- we have not seen any recoveries from the decreasing trend from the third quarter. I think 2018 will probably be marked the first-ever year of auto sales being negatively growing or decreasing in terms of overall sales volume. Right now, most of the OEMs are working up their budgets in terms of the forecasts for 2019 as to what to look forward to.

I think there's a few points that need to be pointed out for the market overall. We'll talk about new cars first, then we'll talk about used cars. First of all, I think 2018 marks the first year in the last three years that we didn't have the tax stipends from the government. Whether or not the government will see this particular weak trend in the new car sales as a sign of reviving such a benefit to the market -- that's something that needs to be awarded out, at least until the first quarter of next year. But, chances are because the new car sales accounts for about 20% of the overall retail revenue volume in China, this is one of the biggest factors that cannot be overlooked by the central government.

Secondly, we do also see the rise of the new energy cars. I think for the first nine months, the sales of new energy cars have actually grown in high double-digit percentages. I think this whole year will mark the first year that the new energy cars will be selling over 1 million units. Given the trend and the rules and regulations that kicked in for environmental factors, as well as the points that the OEM has to accumulate on these factors, we do expect new energy cars will actually grow much faster in the year 2019.

Also, we have -- as a company -- been building up very solid relationships with these new energy car companies. There are two breeds, mainly. One is the extension or the newly developed new energy segments from the existing traditional OEMs, but there is also a breed of what we call the new breed of the new energy car companies, mostly coming from the internet players. Just to name a few, NIO Auto, who just got listed in the U.S. back in September. So, we do have a lot of the different choices of the new energy cars available to consumers in the year 2019. I think that will actually significantly outgrow the market in general, and that's a factor I think people like us -- BITA as well as Yixin -- cannot overlook. We do expect to generate another significantly increased amount of revenues from these new energy players in the year 2019.

Let's talk a little bit about the used car sector. For the first nine or 10 months, the used car has been selling at a rate of 16-17% increase compared to last year. This trend and momentum are likely to continue. I believe that for the whole year of 2018, we will see about high-teens growth in terms of used car sales in China. I also believe that this trend will continue in the year ahead of us, and given that this year, we're looking at about maybe 14 million transactions in used car, next year, we can expect another maybe 2 million more on top. So, especially for the business of Yixin, it taps both into new car finance as well as used car finance, so therefore, this also serves as a very good signal for us in terms of the market side.

Since the overall macro relates to us -- not only taps into the sales volume, but also taps into the penetration of finance and leasing on the retail end, in the year of 2018, we also expect for the entire market, the finance/leasing penetration will go from 2017's almost 40% level to definitely above 50% in 2018. We do also see this trend to continue in 2019. As per my prediction, we're probably looking at penetration for both new and used car market on the financing side and leasing side to be above 60% for 2019. So, in general, at least, the market penetration will continue to grow. That's the market that's tailored for Yixin. That's the overall macro condition for both the new car sales, used car transactions, as well as the finance and lease penetration. I think Catherine -- Xu Ming will actually answer the second question, along with Catherine.

Ming Xu -- Chief Financial Officer

Thanks, Binbin. I'll take your question, and Catherine may add if there's anything I omit. I think we differ from our U.S.-listed auto finance peers in several ways. Firstly, in terms of a product, we offer both auto finance products for new car buyers and used car buyers, while our peers either purely operate in new car area or purely in used car area. Secondly, we offer both self-operated business and loan facilitation business while our peers offer primarily facilitation business.

Secondly, in terms of sales channels we operate, we work with both the 4S dealers and also the independent, unauthorized dealers while our peers mainly work with the unauthorized channel. So, we have a more comprehensive sales channel. Thirdly, on the calculation on the treatment of provisions, I think the calculation method of provision depends on various factors such as business models and regulatory environment, including, but not limited to, the fact that Yixin is a separately listed company. Compared to our peers that also adopt U.S. GAAP, we believe we use more conservative parameters on the Bitauto side in our financial reporting in treating the provisions.

Catherine Liu -- Chief Financial Officer, Yixin

Just to add to Ming's point, because for Yixin, we are listed under Hong Kong Stock Exchange, which is required to use IFRS, and under IFRS, the provision recognition policy is very different from U.S. GAAP, which resulted in much higher provision expenses than if we would have used U.S. GAAP. But, our peers that are listed all use U.S. GAAP and are listed in the U.S. Secondly, because a majority of our revenues are from self-operated financing business, which the revenue is recognized over 30 months, while for the loan facilitation services, the revenue is recognized at the time of the transaction. So, that's why if you look at Yixin's revenue and profit, actually, quite a significant amount of the revenue and profit will be recognized in the two years after the transaction. So, that's also contributing the difference.

Binbin Ding -- J.P. Morgan Securities -- Analyst

Thank you very much for the comments.

Andy Xuan Zhang -- Chief Executive Officer

Lastly, I think I just want to conclude this on a note that as Yixin's asset size gets to the limit according to the leverage ratio that's normally practiced in China, and also, given the much higher penetration of the loan facilitation businesses that are being accounted for in the fourth quarter and moving on, we do expect our margin profile to be -- I wouldn't say exactly flipped, but also, the margin profile will actually change significantly in 2019, mainly because the majority of the transactions that will be carried out in 2019 for Yixin will be facilitated transactions, which is comparable to most of the peers that are on the market.

And, Yixin will always have its own balance sheet, but the size of the balance sheet will not increase in the years ahead. Quite the contrary -- probably, it will decrease as well, so that also contributes to the margin improvements, especially on the growth side, because of different revenue treatment. So, just to give everyone the heads up that the margin profile for Yixin will change in 2019 and the years ahead because of those changes. Thank you.

Operator

Thank you for the questions. I'll move on to the next question from Monica Chen from Credit Suisse. Please go ahead.

Monica Chen -- Credit Suisse -- Analyst

Hi, good evening, management. Thank you for taking my questions. I have two questions here. Regarding our traffic, we see we launched a major app upgrade last month in which this new version is more focused on content and user interaction. So, I wonder what kind of traffic mix have we observed so far and what kind of user growth trends are we expecting for next year? And also, on the cost side, what's the plan for branding and product promotion versus user acquisition going forward?

My second question is on the dealer products. I want to understand what is our strategy to increase the premium package penetration to cover more independent dealers, considering there is a general slowdown in auto sales and macro uncertainty, plus there could be some potential competition from Don Hse Di, given we think they may consider to launch similar dealer package products next year. So, any colors on that will be very helpful. Thank you.

Xiaoke Liu -- Chief Operating Officer

Thank you very much for the questions. First of all, let me take your first question regarding the upgrading of our new app. Actually, in September, we have released a new logo and branding image, and in October, we have upgraded our app. Actually, the feedback is beyond our expectations because the user growth reached to 25%, and also, in the latest ranking of the Apple app downloads, we are No. 6.

In terms of the app upgrade, we have attracted a lot of young users. A lot of our content has been young-user-driven, and we used to have car-centered content. Now, we have shifted into people-oriented or young-user-oriented strategy. We also have our four new strategies focusing on the young users, and also, we have achieved better interaction between the users, and the design was also quite appealing for the young users. Talking about the details of the strategy of upgrading the app, we have five areas I want to share with you. Firstly, it's data-driven. We have dug deeper into the verticals and we have more effective content recommendations for the CTR value, which has grown 167%.

Now, the second-biggest area is more social interaction has been embedded into the new app. For example, we have embedded more quotes or comments into the content, and we do see the volume of the quotes has grown very quickly. Compared with our competitors Autohome and Don Hse Di, they also launched their version of the social interaction quotes and comments. We believe the quotes and the comments will be a big battle in this field, and we are very confident that we can fight with our competitors in this battle. Also, for the social media, we have exclusively offered IM -- instant messenger -- products, and the IM products contribute -- actually, the ratio has gone up from 2.7% to 3.5%.

The third area is we have embedded more IR, AR, and VR into our app. Let's take VR as an example. For the top 100 car models, we already cover 75% of them to offer the VR version of the car models, and we have embedded a lot of IR tools. For example, the IR-based customer service answering system -- 70% of the questions can be answered. Also, the volume can be over 100,000 pieces of answers being provided.

And, we not only offer the upgraded version of our app, but also, we have a matrix of new products. For example, under Bitauto, we have the new app. We have the M5. The M5 auto is growing. We also have the mini programs. In the third quarter, we have launched three new versions of the mini programs. One is called the Bitauto Mini App, and also the Auto Price Quote, and the Car Price Quote on a daily basis. And, we have been very active on the WeChat ecosystem under Tencent. In the recent Billboard the ranking of all the mini apps, we ranked as No. 34 out of the total Billboard rankings, and we are No. 1 under the vertical of auto rankings. That's all for products. Thank you.

Ming Xu -- Chief Financial Officer

Thanks, Monica. I will take the question about the promotion expenses. Yes, we will increase our promotional spending and sales and marketing expenses in the fourth quarter, for mainly two ways. One is branding of our new app and our new brand logo. Some of you may already have noticed in elevators that we started to show our ad a couple days ago, and we will run this campaign until the end of this year.

Secondly, we will do more as to our marketing, both on the iOS side and on the Android side, but I want to highlight that firstly, this increased spending is within our original budget, and secondly, the increased DAU of our app will bring long-term benefits. Although we have only launched the app for less than a month, we already started to see a pickup in the sales contribution from the Ixue app, and also, the sales leads from that app actually have higher quality compared to the sell-through from other channels.

And then, I'll take your question about the growth strategy for the dealer subscription business in 2019. I think I'll talk about this topic in three ways. First, our existing 4S store service business. I think we will continue to expand our coverage, and obviously, we still have a gap with our peer in terms of coverage, although we noticed that the gap is shrinking quarter by quarter, but we still can pick up some more dealers.

And, at the same time, we will try to increase our ARPU in the dealer subscription business. We will try to not just heighten the price, but actually provide more services to the dealers or try to transform our product from a purely lead-gen project to a more SaaS-based platform. We're integrating more services that are powered by AI to try to help the dealers to improve their efficiency. For example, we integrated a smart reply product to help the salespeople to automatically interact with potential customers, and also, we tried to integrate some smart insurance products to help the dealers sell their insurance products.

Secondly, in our coverage of the unauthorized dealers, we have been talking about this initiative since one or two quarters ago. I noticed that our competitors are also picking up this topic, but we believe we have established a pretty strong early mover advantage. Currently, as we disclosed in our filing, as of September 30th, we already cover 19,000 independent car dealers and around 30,000 salespeople from those dealers. I can say that this number is still increasing these days.

I want to emphasize that this number is very important because even though there's an industry number of people talking about 100,000 unauthorized dealers in China in total, we believe the important ones of them -- the sizable ones, and those that can be monetized -- the total number is far fewer than 100,000, so this 19,000 existing coverage is a very important early mover advantage.

Secondly, in terms of business, we already serve them in multiple ways, including sales fleet, like we were doing for the 4S stores, but beyond that, we are also providing inventory sourcing and other services to the dealers. We expect in the year of 2018 we can facilitate over 100,000 cars on our platform for the unauthorized dealers, and we believe this level is actually among the first level of players in the industry. Thirdly, we haven't started monetizing from the unauthorized dealers, but we believe going into 2019, we'll try to look at different ways of monetization.

Thirdly, in terms of our growth strategy for the dealer business, I believe you noticed that one of our important strategic shareholders recently announced their strategy to put more emphasis on the B2B side of internet service. Because we have this strong positioning and advantage in this dealer coverage, we are also actively looking at closer cooperation opportunity with this shareholder. We are actively talking with them in terms of what we can do together to leverage both of our edges. I hope this answers your questions.

Andy Xuan Zhang -- Chief Executive Officer

Lastly, just to add one more point to the significance of the currently over 90,000 for 2018, annually over 100,000 B2B transactions that we, as an EP platform, actually carry out on behalf of the second-tier dealers, helping them sourcing the inventories. I think that was one of the strategies that we decided to undergo earlier in 2018. Given the idea that we historically have only been helping the dealers to sell cars to Cs, but we do see B2B transaction as a huge potential for future growth. After nine or 10 months of trying it out and redesigning the product, apparently, most of these second-tier dealers have been really accepting this particular product offering that we have created for them. And, in 2019, it's our belief that this part will also begin to have a sizable revenue stream coming from this area compared to this year's mostly for free tryout for the dealers.

Currently, I think we have approximately 140,000 second-tier dealer employees or salespeople that are linked up to this particular platform, and they do actually have different exchanges of inventory availability as well as daily routine business that's being carried out among them. We're also seeking additional ways to monetize this particular network we have built and utilized by these industry players. This also fits right into our company's overall strategy in terms of connecting the 5 million industry players with the existing 200 million car users and buyers. So, this part of the business is something that we'll put heavy emphasis on in the year 2019, and hopefully, we'll derive another healthy revenue stream coming from that end as well. Thank you.

Monica Chen -- Credit Suisse -- Analyst

Thank you very much for the detailed answer, and to you, Xiaoke and Xu Ming. Thank you again.

Operator

Thank you for your questions. The next question comes from the line of Liping Zhao from CICC. Please go ahead.

Liping Zhao -- China International Capital Corporation -- Analyst

Good evening, management. Thanks for taking my question. I have a quick question regarding Yixin. Can management tell us what's the funding cost level for Yixin in the third quarter, and should we expect the cost to be stabilized in 4Q? Thank you.

Catherine Liu -- Chief Financial Officer, Yixin

The funding cost in Q3 has already stabilized. It's similar to Q2. So, we think in Q4, the funding cost is also going to stabilize compared with Q2 and Q3.

Liping Zhao -- China International Capital Corporation -- Analyst

Okay, thank you.

Andy Xuan Zhang -- Chief Executive Officer

Just to give an example because this is publicly available information, in the second quarter, we've undergone an asset-backed securitization at the end of June. I think the primary tranche cost was 6.5-7%, if I remember correctly. We've also done recently -- within this month -- an asset-backed notes, which is in between the banks, and this particular offering was also in the size of RMB1.5 billion, I believe, and the primary tranche cost is approximately 5.5% compared to 6.5-7% in the second quarter. So, we do see that the funding cost has been stabilized, and I think hopefully, in 2019, that will also be the case more compared to our fourth quarter instead of the second quarter.

Also, because of the...I would say "adjusted," but because the facilitation side of the business has been really growing fast, this particular funding cost impact to us will be getting smaller and smaller as days move on, OK? Just to add that point. Thank you.

Liping Zhao -- China International Capital Corporation -- Analyst

Okay, thank you, Andy.

Operator

Thank you for the questions. Our next question comes from the line of Hillman Chan from Citigroup. Please go ahead.

Hillman Chan -- Citigroup Research -- Analyst

Good evening, management. Thank you for taking my question. My first question is regarding our dealer products. From your recent conversation with our dealer customers, what is the feedback from them on our potential price hike in dealer products given soft retail sales outlook in 2019 and some discounts on competing products from Don Hse Di? My other question would be on the Yixin business. So, in the third quarter, we had about 123,000 financed auto transactions, so could you share the run rate for October and November, and also the percentage of third-party loan facilitation as well? Lastly, on the fourth-quarter guidance, could you give us some underlying guidance for the Media and Transaction business respectively? Thank you very much.

Ming Xu -- Chief Financial Officer

Thanks, Hillman. In terms of our potential price hike, I think on the one hand, dealers are facing high inventory and weak outlook for sales in the upcoming quarters, but on the other hand, this actually increased their need or urgency to spend on effective channels. I think we believe we are still one of the most effective channels for the dealers in both the quality of sales lead and the scale of sales lead. I think although some of our upcoming competitors are rising very fast, we know that the total size of the sales lead they can generate every day for the dealers is just a fraction of our size, so we believe that we still have the pricing power against the dealers, although we won't actually leverage this pricing power to push too hard on the dealers. We want to build a long-term relationship with them.

Xiaoke Liu -- Chief Operating Officer

Thank you. I want to answer the question related to our competition with Don Hse Di. Compared with our competitor Don Hse Di, we believe we have a more diversified product portfolio. We not only have the PC product, we also have the MSAT and double app mini programs. So, this is a matrix of diversified product offering, which is more advanced than our competitors, and essentially, we can provide a multiplied conversion rate for the dealers because we have accumulated multiple years of experience and we can really achieve a higher conversion rate for the dealers. We also have a lot of very loyal core dealers as members, so that's why we do have advantages over our competitors. Thank you very much.

Catherine Liu -- Chief Financial Officer, Yixin

To your second question, in the third quarter, we have done about 123,000 units, and we expect that Q4 will grow over Q3, and then, the total annual unit will probably have about 20% of growth over last year despite the weak market. We think next year, despite the current weak market, we should still be able to grow about 20-30%. And, in terms of loan facilitation, in the third quarter, our loan facilitation contributed about 24%, and in the fourth quarter to date, we have already seen the loan facilitation contributing over 40%. We think next year, the loan facilitation is going to contribute about 60-70%.

Ming Xu -- Chief Financial Officer

Hi, Hillman. Regarding your third question about the breakdown of our guidance, I think in the fourth quarter, our Media and Advertising and Lead-Gen business -- we expect the business to grow at high single digits year over year, but I still want to highlight that if you exclude all the subsidiaries which we hold controlling stake, the core of our business will grow at low-to-mid-teens year over year in the fourth quarter, and our Transaction Service will have year-over-year growth of 25-30%, and our CIT business -- revenue growth will be around mid-teens year over year.

Hillman Chan -- Citigroup Research -- Analyst

Thank you very much, Andy, Xiaoke, Ming, and also Catherine. Thank you very much.

Operator

Thank you for the questions. I would now like to hand the call back to the management for closing.

Ming Xu -- Chief Financial Officer

Once again, thank you very much for joining us today. Please don't hesitate to contact us if you have any other further questions. Thank you for your continued support, and we look forward to talking with you again in the coming months.

Thank you, ladies and gentlemen. That does conclude the conference for today. Thank you for your participation. You may now disconnect your line.

Duration: 60 minutes

Call participants:

Andy Xuan Zhang -- Chief Executive Officer

Xiaoke Liu -- Chief Operating Officer

Ming Xu -- Chief Financial Officer

Catherine Liu -- Chief Financial Officer, Yixin

Binbin Ding -- J.P. Morgan Securities -- Analyst

Monica Chen -- Credit Suisse -- Analyst

Liping Zhao -- China International Capital Corporation -- Analyst

Hillman Chan -- Citigroup Research -- Analyst

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