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58.com Shs -A- Sponsored American Deposit Share Repr 2 Shs -A-  (NYSE:WUBA)
Q4 2018 Earnings Conference Call
March 01, 2019, 8:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good day and welcome to the 58.com Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Rene Vanguestaine. Please go ahead.

Rene Vanguestaine -- Chairman

Thank you, Andrew. Hello, everyone, and thank you for joining us today. The Company's results and an Investor Relations presentation were released earlier today and are available on the Company's IR website at ir.58.com. On the call today from 58.com are Mr. Michael Yao, Chairman and Chief Executive Officer; and Mr. Zhou Hao, Chief Financial Officer. Mr. Yao will give a brief overview of the Company's business operations and highlights followed by Mr. Zhou who will go through the financials and guidance. They will both be available to answer your questions during the Q&A session that will follow.

I remind you that this call may contain certain -- may contain forward-looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as will, expect, anticipates, future, intends, plans, believes, estimates, confident, and similar statements. 58.com may also make written or oral forward-looking statements in its reports filed with or furnished to the US Securities and Exchange Commission in its Annual Report to shareholders, in press releases, and other written material and in oral statements made by its officers, directors, or employees to third parties. Any statements that are not historical facts, including statements about 58.com's beliefs and expectations, are forward-looking statements that involve factors, risks, and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

Such factors and risks include, but are not limited to, the following. 58.com's goals and strategies; its future business development, financial condition, and results of operations; its ability to retain and grow its user base and network of local merchants for its online marketplace; the growth of and trends in the markets for its services in China; the demand for and market acceptance of its brands and services; competition in its industry in China; its ability to maintain the network infrastructure necessary to operate its website and mobile applications; relevant government policies, and regulations relating to the corporate structure, business, and industry; and its ability to protect its users' information and adequately address privacy concerns. Further information regarding these and other risks, uncertainties, or factors is included in the Company's filings with the US Securities and Exchange Commission. All information provided on this call is current as of today's date and 58.com does not undertake any obligation to update such information except as required under applicable law.

It is now my pleasure to introduce Mr. Yao. Michael, please go ahead.

Jinbo Yao -- Chairman and Chief Executive Officer

Thanks, Rene. Thanks, everyone, for joining our call. Let me start by saying that despite an uncertain economic environment, we had a great fourth quarter 2018. Revenue grew 31% and was slightly higher than our guidance. On a non-GAAP basis, operating and net profit grew 17% and 38% respectively. Advertisements from the third quarter scaled back our sales and marketing expense. As a result, operating margin improved sequentially. Our traffic growth remained healthy. App users for 58 and Anjuke grow more than 20% compared to the same period earlier even though Chinese mobile user base growth is slowing down. I want to extend my congratulations to our team who have done a good job not only in the fourth quarter, but in the whole of 2018. 58 is a platform with a huge user base in the management across a wide range of content categories such as jobs and housing.

Now, let me take a step back and address some macroeconomic trends based on our data since many of you probably have that question in mind. It's true that we see a slowdown in some sectors such as manufacturing, financial service, and (inaudible). This made differ at different regions, some because of global trade and some because of industry so basically domestic policy changes. However, it slowed -- across the board slowed down based on current observations. We also noticed that while some enterprise have become more cautious or even (inaudible) about hire. The local median enterprise, especially in low cost areas, continue to have strong hiring needs probably because they have a big business structure in the first place and they continue to struggle with high employee turnover and don't have much recruitment that's effective. So, however, even though some sectors basically slowed down, it's a mixed bag.

Also, now that we are in the first week following Chinese New Year, our traffic has rebound and aggregate has been relatively normal. And lastly, about the short-term trends, what is more important is that no matter how the short-term market trends changes, our confidence in the mid to longer-term prospects for the business remain high and our mid to longer-term strategy remain unchanged. We see many opportunities, but from a platform scale point of view because China is a huge country and our service are much needed in almost every place, we still have a lot of ground to increase our user base especially in lower-tier cities in the counties. 58.com has always successfully grown. With the right product, we can reach our -- reach out to hundreds and millions of new users at a relatively low cost. Also, our data shows that our app users overall exceed 500 million users in 2018, just over 15 of total Chinese mobile users.

So while we are happy with our current user growth, we will continue to innovate and go after user growth. Secondly, from that point of view, our platform has a lot of potential to classify this as long being a place where users posted and browsing information easily. We are always advanced in technology and product. In addition to just reading and post the information, we are enabling users to make more connections and become more active on our platform. Users can chat, make reservation, watch or answer on video format, or in some cases complete a transaction on app. Our value-add to consumer is evolving from providing information to facilitating decision making. Our value-add for business is evolving from online marketing to more intelligence (inaudible) service throughout different work process. For instance, in the housing category, in addition to Hilton finished their agents list property in the (inaudible), we provide app to help them become more efficient during their various interaction with customers.

Give training to advance their career and we also provide (inaudible) to better managing the group, grow their business. In the job sector, in addition to helping employers post jobs in the downloaded version, we help them become more efficient in doing background check, arranging and conducting interview, and other HR functions or even other related services. I could go on with more examples in more categories because it's an -- it is an observation and a strategy that we find applicable. It grows almost all categories. So as we involve in pursuing new opportunities, we are transforming and updating our team so that they upgrade to our platform and service to better serve our users. Our sales team are gradually transforming and updating themselves (inaudible). Our product team KPI and the focus moved beyond just the quantity of information in users to a more comprehensive and balanced set of metric including quantity, quality, and deliverables of the information in the users package on our platform.

Our data is being converted into insight to a number of beta mentioned recommendations and personalized decision based on AI capabilities. There is one more thing that also works in our favor. Our competitors in China are mostly pure play vertical companies. However, 58 is a horizon platform that offers multiple content categories enjoying various benefits. First, we have lower user acquisition cost because our users are active in more than one category and that become naturally bigger. Second, similarly we can scale our R&D and other beta in the back office expense. Third, we have more touch point with each one user so we can build better user profile and can potentially serve them better. And four, we are financial -- financially strong and less exposed to a sector basically. And therefore, we can pursue our strategy more consistently and make fewer mistakes.

So in summary, even though we might face some market uncertainties, we feel confident about the (inaudible) of the business.

We also believe we have the right strategy and sufficient capital, including both financial and human capital to keep executing strongly. We have always been a team that focuses on the longer-term value of the Company and it's better to sacrifice short-term benefits to maximize value longer term. I hope all our investors share with us the same views on this.

Now let me pass it to Zhou for fourth quarter financials.

Hao Zhou -- Chief Financial Officer

Thanks, Michael. Thank you, everyone, on the phone for joining our call. Let me walk you through fourth quarter 2018 financials. Total revenues were RMB3.6 billion, an increase of 30.6% year-over-year. Membership revenue were RMB1.1 billion, an increase of 8% year-over-year. Number of subscription-based paying member accounts was approximately 2.8 million during the fourth quarter of 2018, a 4.4% increase over a year ago. Online marketing services revenue were RMB2.3 billion, an increase of 38.3% year-over-year. Gross margin was 87.3% compared with 90.5% during the same quarter of 2017, mainly due to a one-off retail service -- retail sales of one batch of second-hand iPhone X on the Zhuan Zhuan platform among many other things. Operating expenses were RMB2.4 billion, an increase of 29.5% year-over-year. Sales and marketing expense in the fourth quarter of 2018 were RMB1.7 billion, an increase of 28.5% year-over-year.

Within sales and marketing expenses, advertising expense in the fourth quarter of 2018 were approximately RMB800 million, an increase of 55.6% year-over-year. Let me give you some color on advertising expenses. Offline branding is small compared to online traffic acquisition. Within the online piece, mobile is the major chunk, particularly for mobile applications. Core businesses, including 58 and Anjuke, were bigger than Zhuan Zhuan in absolute dollar terms and also in the year-over-year increase amount. But Zhuan Zhuan's number grew faster from a smaller base in 2017. Sequentially compared to third quarter 2018, we scaled back advertising expenses in the fourth quarter that contributed sequentially to the improved operating margins in the fourth quarter 2018. Non-advertising sales and marketing expenses in the fourth quarter of 2018 were approximately RMB900 million, an increase of 11.7% year-over-year. This line is closely related to the number of employees.

The average number of employees in the Company's field sales, customer service, and other sales and marketing teams was largely similar versus the fourth quarter of 2017 implying an improved operational efficiency. Research and R&D expenses in the fourth quarter of 2018 were approximately RMB500 million, an increase of 37.9% year-over-year. The increase was mostly headcount related as well. General and administrative expenses in the fourth quarter of 2018 were approximately RMB200 million, an increase of 21% year-over-year. As you can see, advertising and R&D expenses were growing faster than revenues, but we believe that user growth and product and technology investments will bring us bigger mid to longer-term benefits. The non-advertising sales and marketing expenses and G&A expenses were quite well controlled and all -- and both grew at a slower rate than revenues, which speaks to our progress in improving operational efficiency.

Non-GAAP income from operations was approximately RMB900 million in the fourth quarter of 2018, an increase of 17.3% year-over-year. Non-GAAP operating margin was 24.8% in the fourth quarter of 2018 compared with 27.6% in the same quarter of 2017. Other expenses in the fourth quarter of 2018 were RMB164.5 million compared with other expenses of RMB123.8 million in the same quarter of 2017 largely due to the RMB20.7 million loss due to the change in the fair value of an investment in 5i5j whose share price dropped during the fourth quarter of 2018. We excluded this non-cash fair value change in our non-GAAP net income calculation. Non-GAAP net income attributable to 58.com Inc. ordinary shareholders was approximately RMB300 million in the fourth quarter of 2018, an increase of 37.8% year-over-year. Non-GAAP net margin was 21% in the fourth quarter of 2018 compared with 19.9% in the same quarter of 2017.

Non-GAAP basic and diluted earnings per ADS attributable to ordinary shareholders in the fourth quarter of 2018 were RMB5.12 and RMB5.06 respectively, representing 36.7% and 37.3% increase year-over-year. In the interest of time, I won't go through the full-year financials in the similar level of details. In summary, we are pleased to see that revenues grew 30.5% year-over-year for the entire year. Non-GAAP operating income and net income for the entire 2018 grew 29.3% and 51.7% year-over-year respectively. Non-GAAP operating margin for the full year was 23.2% in 2018, largely flat with 2017. Non-GAAP net margin was 20.7% in the 2018 full year, improved from 17.9% in 2017. Now on to the guidance. We expect first quarter 2019 revenues to be between RMB2.86 billion and RMB2.96 billion, a 16% and 20% year-over-year growth rate respectively. The sequential drop from last quarter to this quarter is driven by normal seasonality due to the Chinese New Year holidays in the first quarter, which is similar to prior years. These estimates reflect the Company's current and preliminary view, which is subject to change.

With that, we like to open up the call for Q&A. Operator, please begin the Q&A.

Questions and Answers:

Operator

We will now begin the question-and-answer session. (Operator Instructions) The first question comes from Thomas Chong of Credit Suisse. Please go ahead.

Thomas Chong -- Credit Suisse -- Analyst

Hi. Thanks, management, for taking my questions. I have a question about our expectation in terms of the growth rate for property as well as jobs category in 2019. I know management may not provide a quantitative answer, but any color about qualitatively how we should think about the directions for this year will be great. Thank you.

Hao Zhou -- Chief Financial Officer

Hi, Thomas; this is Hao. I will take this question. Yes, to make it simple, we won't break down revenue by categories. So, I think the color I can give you is that our used car business and job business probably will relatively grow faster whereas our Yellow Page and housing will probably grow slightly smaller for different reasons. Housing is in dollar term wise the biggest revenue category and we have Incredible who have very big market share in the market already. However, the housing policy environment has been pretty negatives for the last couple years already and the transaction levels in the market remain low. Even though we are a clear market leader in this, we also get impacted by the slow transaction volume and very strict policies.

So provided that these policies don't change and the transaction levels pickup, I think our housing will still be able to grow but probably not as fast as the prior years. Whereas in other relatively smaller used car or Yellow Page sectors, I think we can still grow because they're less exposed to a macroeconomy. And then jobs also I want to emphasize because it's also pretty significant. In the past it's been very fast growing segment, but in the recent months we are starting to see the impact of a -- of a slowing down economy as well. Typically after Chinese New Year business resume so every year we see this momentum and this year it seems slower than prior years with respect to how fast business users come back and how aggressive they are in hiring people.

And sometimes on the news you see companies being more cautious on the number of employees they have and some companies even reduce their headcount. So this I think inevitably at least temporary impact our growth as well. But that said, I think, both housing and jobs and other sectors are big -- very big sectors in China. Sometime the economy goes through cycles. But the most important thing, as Michael alluded to in his prepared remarks, is we still have pretty healthy traffic growth. User -- on the user front, things seems to be quite fine. It's just that the momentum or the confidence level on the business side seems to be on the lower than past. But as long as an Internet company have the users and their market shares among all the relevant players, our underlying value is largely intact. Thanks.

Thomas Chong -- Credit Suisse -- Analyst

Got it. Thank you.

Operator

The next question comes from Wendy Huang of Macquarie. Please go ahead.

Wendy Huang -- Macquarie -- Analyst

Thanks, management, for taking my questions. First, in terms of the paying merchants this quarter, it actually declined sequentially so declined by about like about 200,000. So which category, is it housing or recruitment category that you are seeing the decline that you mentioned? And also given the overall macro environment, do you expect the paying merchant to continue to decline sequentially in Q1? And secondly, we noticed that your online marketing service is growing much faster than the membership services given your efforts to promote more team members to use value-added service. So can you just provide some update in terms of the penetration of the online marketing services among the paying members i.e. what percentage of the paying members are already adopting the more advanced facilities? Thank you.

Hao Zhou -- Chief Financial Officer

Thanks, Wendy. Yes, we did see that sequential decline in the paying subscription members in Q4, which is largely expected. One is typical seasonality because toward the year-end, the sort of demand in hiring typically trend down and in today's environment, I think it's even more normal. In housing also, housing -- as the transaction levels in some of the Tier 1 markets in Q4 or in December particularly is trending down. So the entire market in terms of number of agents in the market is probably getting smaller. You've seen use of investor agents kind of reducing their employers -- employee size as well. So as a market leader in this area, we also get impacted. But like I said, we still have Number 1 market share and we are probably gaining shares -- gained shares in the last two years. So, the market has been pretty slow, as I said, for at least couple of years for the housing, but we managed to continue to grow our revenue and whereas our competitors started to have declines way earlier.

So in Q1, it's hard to say. Q1 typically compared to Q4, it's not a -- it's not a strong growth quarter because of Chinese New Year and sometimes we find our business customers going back home earlier if they find the business is not easy and sometimes we find them come back to big cities later. So, it all reflects the confidence which seems pretty low compared to prior years. But I think it's fine. We have good market share and these are huge verticals so we'll see how Q2 works out. I think that's more a typical quarter. Q1 is not a very normal quarter to analyze the trend. Yes, OMS, online marketing service is a bigger trend. It grow faster. It has been very consistent in prior at least a couple of years and that will be the trend for future quarters as well. And that's the focus of the business too because we want to have more online revenue, customers are more engaged, we have more diversified products for the different needs of the different type of customers at different times.

So -- and they are more -- typically more self-served and help us to get a higher margin business so which is all good. And we have -- we have pretty big. We have -- over the last five years, I think we increased dramatically the number of paying subscription members that also buy OMS. Right now it's more than two-thirds. So it's a very high number and I remember four or five years ago, it's in the teens or even lower. So, has been sequential increase every year due to our product innovation as well as our customer service continue to add customer. So, it's a very high number and so that gives the confidence because it's also more performance driven. It's more -- it's more sort of tailor-made to different categories. We have different OMS for different categories not all the same. There are some common products, but there are some unique products that is unique to housing, unique to jobs.

So, that would be the trend. So you will see that in future quarters probably have pretty low growth in membership numbers or membership revenues. But I think our focus is really continue to encourage customers to be more engaged in the OMS marketing. We're going to innovate, we're going to try to be more intelligent, we're going to try to generate more data-driven relevant product so that for the customer that remain on our platform has better ROI and we have higher per-customer revenue contribution for instance. And when the market kind of swing back to a more positive momentum, I think more customers will come back and which will contribute to the membership numbers and the membership revenue. So, I think we're pretty confident about the trend. Thank you.

Wendy Huang -- Macquarie -- Analyst

Thanks, Hao.

Operator

The next question comes from Natalie Wu of CICC. Please go ahead.

Natalie Wu -- CICC -- Analyst

Hi. Thanks for taking my question. Firstly, I have a quick follow-up on the paying membership subscription. I understand that was mainly attributable to the seasonality and soft macro environment. But I'm just wondering if anything related with the streamlining efforts for your field sales team in the couple of quarters previously? And also can you remind us the current sales incentive commission rate for our new paying merchant conversion? Is there any change recently? And secondly, about your 58 Town initiative. It will be great that if management can share with us some of the recent development say the key metrics of 58 Town and just wondering how does that help our Company in terms of the -- maybe the activeness, engagement, and paying merchant ARPU? Also it will be great if you can share with us the budget for that program in 2019. Thank you.

Hao Zhou -- Chief Financial Officer

Yes, sure. Thanks, Natalie. I'll address the first question and then maybe Michael will comment on Town later on. Yes, the sequential drop of the paying customers in Q4 is largely related to macro trends. I don't think we see a correlation between the sales headcount -- between the sales headcount and the paying customers. And I think when we have -- we have pretty large sales force. In the past our business operation process is more people dependent. I think they have done a good job in the last several years in educating SMEs in China that are not sophisticated with the online marketing concept, right. And therefore we increased from probably five years ago about 200,000 or 300,000 paying customers now to about 3 million. So we grow our paying members by 10x due to the great effort of these teams.

But however, I think as the customers or the overall SMEs in China get more sophisticated with the concept and they get more sophisticated online and mobile and we also get more sophisticated on processes and systems and apps we have -- we're now encouraging more customers to get on the apps to sort of resolve their own issues or give us feedback or looking at the data from their own app, et cetera. So, naturally we are trying to take some of the many processes out. But obviously when we do that, when we reduce our sales headcount through some changes like that, we actually make sure that it doesn't impact the level of customer service. So it's -- we're pretty certain that even if we control the sales headcount, it's not going to jeopardize our growth. So, we must have enough people to grow our new paying users. But the macro trend, I think is the key indicator -- key contributor to the paying customer trend numbers.

The incentive system is largely unchanged. We have teams that are incentivized by the number of new customers they generate every quarter, every month. We also have customer service nature teams kind of generated incentivized by the number of customers they serve and the number of questions they address, the number of -- the total amount of the OMS that these existing customer -- so there is smaller teams that are responsible for different things. And we look at the schemes regularly and we look at the percentage of commission, which is over time coming down because of the growing scale of the business. So we -- this is how we get scale or leverage from our operations. But I think we're-- we have a lot of expertise in this. We've been having the sales team for quite a number of years and we look around for best practices in terms of incentive systems, organization know-hows, et cetera.

I think overall, we do quite well in China in terms of managing more than 10,000 field sales and customer service. And we're getting more efficient. As you can see last year, we grew sales by 30% and our sales headcount is relatively stable and we still have a lot more to do. So, there is still more efficiency increase potential from this regard. So, maybe Michael will comment on 58 Town.

Jinbo Yao -- Chairman and Chief Executive Officer

Okay. (Foreign Language) Yes. So, 58 Town is a very exciting new business or initiative that we started in the mid-'17 so '18 was really the first full year. Every month we experienced very high month-over-month growth so by the end of the year last year, we achieved more than 10 million payees from 58 Town product. So this has been proven a very effective model to reach into the lower tier countryside and counties in China, which has 300 million or 400 million people in China. So it's lower tier, it's very low, but by no means a small market. It's a huge market in terms of number of people, in terms of the number of -- the amount of commercial opportunities in the end of the day. So, we're not 100% covered. It has been growing very fast. And so in 2019, the primary focus for the team is obviously continue to expand coverage, continue to grow traffic and making sure there -- the activity -- the engagement also increase at the same time. So, it's more on the user product.

So, we don't want to take away the team's focus to ask them to think about revenue generation too early and -- but we are pretty relaxed about revenue models in 58 Town because we have been experiencing 58.com already and we believe that revenue models is quite straightforward. So we have pretty good confidence that when we do want to start generate revenue, we can ramp up pretty quickly. And our experience from 58.com is only users, you are creating underlying value. As you grow users, you're creating more value. So whether or not you want to at a certain point in time in the future to start monetization, the value is being created as we speak, that's which is more important. So, revenue generation is not a focus at all in '19. We want to keep the team focused on relatively smaller number of things and -- but we are very excited about the potential of this product in the years to come.

Natalie Wu -- CICC -- Analyst

Great. Thanks, Michael and Hao.

Operator

The next question comes from Hillman Chan of Citi. Please go ahead.

Hillman Chan -- Citigroup -- Analyst

Good evening, management. Thank you for taking my question. So, my first question is about the property segment. Could you share more your growth strategy this year into the lower-tier cities and also the different segments including new home, secondary home, and rental? And on the other hand, how should we think about the competition versus Baker and Tencent's cooperation with Baker in certain areas? And my second question is about the second-hand goods market. Could you share more your thoughts on the competition versus Chen Hefu? And on the other hand, how should we think about the monetization of Zhuan Zhuan and the investment budget for Zhuan Zhuan this year versus last year? Thank you.

Jinbo Yao -- Chairman and Chief Executive Officer

(Foreign Language) So on properties, relative -- 58 and Anjuke work very nice together. 58 has a stronger focus on rental even though it does have secondary home sales as well, but rental is very strong. Anjuke is more on the sales side, it has secondary and new homes. So, they work together quite well. And a few people know -- I mean we obviously see internal data, but it's a good chance to let you know that the housing part of 58 app's traffic is larger than Anjuke alone. So, Anjuke is a pure play housing platform and it's very -- it goes very nicely, but 58 housing is even bigger. So when you add the 58 housing traffic and the Anjuke traffic together, they are way larger than Baker and HomeLink together, several times bigger. And Anjuke alone is already bigger than Baker and Lianjia looking from some third-party data. That's along if you add up the 58 housing. So, I think we are very confident about the market share we have on the consumer side as well as on the agent side.

Number of agents based on the numbers we see from some of the reports, we are several times bigger than what Baker and HomeLink have as well. And from some more recent data points from some third-party channels, the gap seems to be even larger on the consumer side. So, I think overall I feel very confident and this is achieved with a background that last year Baker spent a lot more money on advertising than we do -- than we did in housing. So, they have largely raised some money and they spend very aggressively. But despite of that, we're still much larger and we are enlarging the gap. So this is not only about spending money, this is all about the comprehensive capability of the platform including product innovation, including data, including how many research scientists you have, including how financially healthy your platform is that you can continue to invest.

And I think if you measure all these metrics, we're definitely a lot stronger than Baker and Lianjia alone because they only play in housing and it's a pretty difficult environment out there. So, that's about property. So it's true that Zhuan Zhuan and Xianyu are the top two secondhand apps or platforms in China, but we are not all the same, right. So some of the differences, one of them is we are more connected with the WeChat ecosystem, right. Tencent put RMB200 million and other business resources in Zhuan Zhuan back in '17. So, we had more convenient channels to leverage the WeChat system not only just through the Wallet access, but also lot of the mini programs and ideas to kind of get some of the interesting viral effects of Zhuan Zhuan within WeChat. And then, as you know, Xianyu has none of this at all available to them. They more work with other platforms. So, that's different really and Zhuan Zhuan is more highly frequent -- high frequency product.

So compared to big housing, it's a lot easier to leverage the WeChat ecosystem because that's how social and high frequency stuff work together. And the other differentiator is we have different services. So one of the unique service we have is cellphone inspection and we have very good expert teams and we have the know-how to validate -- to authenticate and also to inspect and kind of describe the used cellphone based on inspection so that it's easier for users to have more transparency on the cellphone conditions and transact more. And we are starting to roll out some other services to other carriers and that's the fun part of used goods because used goods category-to-category, there are some unique aspects. So make it not that standardized, which is kind of different from new goods. So even Ali has a lot of experience on new good e-commerce, but it doesn't lend itself easily to used goods.

So, you need different tools and ideas. And so I think, 58 has been working on very different categories before and then we are very willing to engage ourself in some of the services that are -- that's very hard and which require on-the-ground services, all that. So I think we have the mentality, we have the know-how, and that helps us to differentiate our services in the used good sector as well. And both apps are I think they have been growing, but relatively early stage. So, almost anyone can have sales and used goods. And online payment, the logistic have become very -- so we're in the early stage. So, we are also very excited about the prospect of Zhuan Zhuan. Okay. Thank you.

Hillman Chan -- Citigroup -- Analyst

Thank you very much, Michael and Hao.

Operator

The next question comes from Jamie Shen of Bank of China International. Please go ahead.

Jamie Shen -- Bank of China International -- Analyst

Hi, management. Thanks for taking my question. So, I have a question on the long-term margin outlook in likely next three to five years because I understand the quarterly margin trend has been weaker starting the second quarter due to rising marketing costs and R&D costs. I just wonder like in the long run given normalized competition level, what would be the operating margin level we should be expecting? Thanks.

Hao Zhou -- Chief Financial Officer

Thanks, Jamie. That's a great question and that's the question that we are very confident about. And I won't put a number out there, but I think we're very confident that in the long run 58.com will have very high long-term margins or have the capabilities to have high long-term margins. Why is that? When you look at (inaudible) model globally and this is unique in China, almost every country has it. And then you look at Schibsted, you look at Nasbro Classified, you look at Vido, you look at also some of the verticals, right. You look at Right Move, you look at REA, TradeMe. So they all have demonstrated it pretty consistent that if you're a leader in a particular market and you have great amount of organic traffic, you have a great brand and yes, you do have an R&D team, but largely things happen online, self-serve, users know you, they come to you and merchants know you, they come to you, and you have recurring revenue. And you may have some sales people, but they're not huge.

So, it's a great model and it has been proven already. So, I think China is no different. And China even has even some -- even more advantages compared to other countries because we're much larger. We're much larger so the economy of scale arguably is even bigger. So if a small country can achieve certain high margin 40%, 50%; in China theoretically we should achieve much even higher margins. If you look at margins on e-commerce platform, it's very high because of the scale as well. So, I think we're very confident about the longer-term. And also you look at our cost structure, another way to look at it is bottoms-up. You look at our numbers, our sales and marketing expense as a percent of revenue is 50% and it's pretty high. So if you can use that 50%, you never have very high margin. But I think in the long run, it should be much leaner, a smaller percent, why? Because today we still feel necessary to spend to acquire new users because we know for example last year we cover 500 million users on the app.

It's big, but as Michael said, it's 50% of the Chinese mobile users who have so many services. So, I think theoretically everyone in China, mobile users should use 58 and use one of the services once a year. Not too much to ask for, right. So we have twice -- twice a chance to double our users. So, we should still grow -- spend to grow. So -- but five years later, maybe we do have majority of the Chinese users. So, are we going to be more -- are we going to spend as much that time when we have already kind of gone through the user acquisition process. You would argue and say we probably may not need that much user acquisition cost in three to five years' time. And also when you look at the other, we mentioned about more than 16,000 salespeople. I think in the past year these people helped us to get the first batch of SMEs online in those years where internet is still a relatively new thing. But 5, 10 years later, I think Chinese SMEs will be very sophisticated with the Internet, they don't need education.

And as long as we give them tools, they can be more -- a lot more self-served than they are today. So we can probably even either reduce number of people we have or redeploy these people to other services that will generate incremental revenue. So one way or another, I think we can be a lot more efficient in the sales and marketing initiative and also in R&D, et cetera. I think longer term we also have scale. So, it's a great question. So we're very confident longer term. I'm sure short term, there is competition, there is -- there is a lot of money in China. Sometimes they drive up the user acquisition cost, but when we look at our business prospects, these are huge verticals with great market position and we're very confident about the long-term margins. Therefore, Michael said, if we were willing to at sometimes sacrifice short-term benefits to do the things that are right for longer-term value creation point of view. So, thanks for the question.

Jamie Shen -- Bank of China International -- Analyst

Thanks very much, Hao. That's very helpful.

Operator

The next question comes from Tianxiao Hou of T.H. Capital. Please go ahead.

Tianxiao Hou -- T.H. Capital -- Analyst

Good evening, Michael and Hao Zhou. Two questions. First question is related to the budget spending on Zhuan Zhuan and Tongcheng. So, last year actually you'd be -- you guys gave us the guidance on how much additional marketing expense you are going to allocate and spend. So I wonder this part of the budget in 2019, is that going to be increased or dollar wise it's going to be stable with last year? So that is, what is the trend on that? That is number one. Number two, so you actually analyzed the industry, we see in terms of the information distribution business, we saw the news feed business is taking off; (inaudible), TikTok and Baidu, Tencent, Alibaba (inaudible) technology to distributing information or matching them to increase the conversion. So I wonder is that something where going to invest R&D wise and going to adopt in near term. So that's the second question. Thank you.

Hao Zhou -- Chief Financial Officer

Yes. Sure, Tian. I will take the budget question and probably Michael will comment on the news feed business product. Zhuan Zhuan -- yes, Zhuan Zhuan and Tongcheng -- yeah, Zhuan Zhuan and Tongcheng are both -- 58.com -- are both very good products. They have proven their initial model. They are growing very fast. They have very good customer satisfaction rate. And they are also in early stage of the business development when we look at their user numbers today with the addressable users in China. So they -- it's good that you put these two things together because they share a lot of things in common. So, our strategy for them is for '19, they will probably lose same amount of money or if increased it will be modest so -- because here is the thing. Zhuan Zhuan has made pretty significant investment last year in '18 on branding, et cetera so that clearly helps. But now we have more help from Tencent and teams are more focused on trying to come up with better innovative ideas to leverage the social network, which is a huge amount of unique resource that we have that Baba and JD doesn't have.

And also they are starting to -- Zhuan Zhuan is starting to generate some of the revenues or testing some of the commission-based revenues and stuff like that. So, that should help with the -- offset some of the expense if we're going to continue to expense. But overall, we are happy with the number -- amount of loss. I think compared to our core business profit, they are a fraction. They're about 25%, 30%, It's in the level that we think is adequate. So we're not going too aggressively on new business that it's -- that it has become too much of a burden. But I think it's reasonable. For a Internet company, we shouldn't manage our business only by profits. We should also improve our efficiency to try to grow our profits, but at the meantime, invest in businesses that will -- that will feed the next wave of growth and revenue and value creation. So, that's where we are going to have Zhuan Zhuan continue, which I think the last is in the -- an acceptable rate.

Jinbo Yao -- Chairman and Chief Executive Officer

(Foreign Language) News feed is a quite innovative product, which is based on content generation. So, I think we're doing -- we're growing similar things as well around the content strategy. If you in a traditional sense, you've classified is the -- classified a small ad part of the newspaper, what we're trying to create in 58 today is the entire newspaper that not only has the classified ad piece, but also has the other content. That's what we're trying to do. And if you go to 58, you will see things like a blog where local users just come to our platform to share about things about their lives. And you have strangers that can also start to interact under the same topic. And if you go to Anjuke also, you will start to see that you have professional generated content about housing, you have agents and people who know the area very well that like to share things that attract users.

So, it's becoming overall a lot more content-rich and that generate more visits other than in the traditional sense, people will come to check out the number of local businesses. So, we are actually doing some of that. And by last year the broader content quote-unquote part of the platform attracted also around the 10 million DAUs in the last year, which has grown tremendously from a year ago and it's still very -- growing very fast because a lot of things are quite new. So, I think we are -- we offer something quite unique in China's Internet place. If you look at Weebo, if you look at WeChat, they are either among people who know each other or there are either a platform that you follow with someone that are very famous. So we are trying to create a platform to allow local users that are not so famous, but they have a lot in common to social to interact and to find things that are useful or interesting for them.

So, it will really start to work. And what it does from a business point of view is we are really becoming the entire newspaper or the magazines and therefore not only the classifieds can be a place for SMEs to advertise and to attract customers, but you also attract that when you become the media -- when you attract -- you can attract more upscale big brand type of customers across all categories. So, that will be hopefully generating additional revenue stream down the road. But right now obviously we are also similar to Zhuan Zhuan and Tongcheng. We are focused on generating the user part of the equation first, but I'm sure when you have users, you have additional revenue streams and additional customer streams.

Tianxiao Hou -- T.H. Capital -- Analyst

Thank you, Michael. Thank you, Hao.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Rene Vanguestaine for any closing remarks.

Rene Vanguestaine -- Chairman

Thank you, Andrew. This concludes our call for tonight. Thank you all for joining us and for your continued interest in 58.com. Goodbye.

Hao Zhou -- Chief Financial Officer

Bye-bye.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 54 minutes

Call participants:

Rene Vanguestaine -- Chairman

Jinbo Yao -- Chairman and Chief Executive Officer

Hao Zhou -- Chief Financial Officer

Thomas Chong -- Credit Suisse -- Analyst

Wendy Huang -- Macquarie -- Analyst

Natalie Wu -- CICC -- Analyst

Hillman Chan -- Citigroup -- Analyst

Jamie Shen -- Bank of China International -- Analyst

Tianxiao Hou -- T.H. Capital -- Analyst

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