Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Near a 3-Year Low, Is Inc. (ADR) a Buy?

By Leo Sun - Dec 9, 2016 at 10:09AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Why is this growing Chinese internet company trading at a multi-year low?

With the market near all-time highs, it can be tough for contrarian investors to find decent stocks that have fallen to multi-year lows. But as I perused that list of hated stocks, one Chinese stock, ( WUBA ), stood out. posted double- or triple-digit sales growth ever since its IPO in 2013, and its losses have considerably narrowed over the past year. Yet its stock has crashed over 50% this year and currently hovers near a three-year low. Is a good contrarian play, or is there a good reason to avoid it?'s Android app. Image source: Google Play.

How does make money? is the largest online classifieds platform in China, and has a presence in nearly 500 cities. Its ecosystem includes listing platforms 58, Ganji, and Anjuke. 58 and Ganji are multi-category classified ad platforms, and Anjuke is a real estate listing platform. Its subsidiary 58 Daojia operates a mobile platform for at-home services like cleaning, moving, and manicures.

The real estate business accounts for about half of's revenues, while the remainder comes from job and automotive listings. mainly generates revenue from membership fees and online marketing activities. Its paid membership packages offer users online storefronts, preferential listings, customer service, and other perks. Its online marketing business offers real-time bidding, priority listing, display ads, and other marketing services to users in collaboration with other internet companies.

How fast is growing?'s membership revenues rose 32.7% annually to $117.7 million last quarter and accounted for 38% of its top line. That growth was fueled by a 37.5% increase in paid membership accounts, which hit a "record high" of 1.23 million during the quarter.

Online marketing revenues rose 55.5% to $180.5 million and accounted for 59% of its sales. That growth was mainly driven by rising revenues at Ganji and Anjuke, organic growth at, higher overall traffic, and the effectiveness of real-time bidding services.'s total revenue rose 43.9% to $306.5 million, but that missed estimates by $1.8 million. It also represented its slowest year-over-year growth rate since its IPO. CEO Michael Yao attributed that slowdown to softness in the Chinese economy and a tougher real estate market.

Anjuke's Android app. Image source: Google Play.

Being exposed to the right markets isn't the only Chinese company struggling with those headwinds. Its smaller real estate listing rival Fang Holdings ( SFUN 5.70% ) posted less than 1% annual sales growth last quarter, compared to 34% sales growth in the previous quarter.

However, listing portals focused on other markets have fared better. Chinese automotive listing site Autohome ( ATHM 10.38% ) posted 64% annual sales growth last quarter, compared to 60% growth in the previous quarter. The diversified portal SINA ( SINA ) posted 22% sales growth last quarter -- its strongest year-over-year growth in eight quarters. doesn't compare favorably to these high-growth plays, so it's been widely ignored by investors. However, analysts still expect to grow its sales by 59% this year and 29% next year, so it's hardly down for the count.

Profitability and valuations has also done a good job keeping its costs under control. It posted a non-GAAP net loss of just $0.6 million last quarter, compared to a loss of $64.8 million in the prior year quarter. Its GAAP net loss also narrowed from $206 million to $29.9 million.

The company believes that the full integration of Ganji, which it merged with last year, will give it better control over expenses in the future. Analysts believe that could post a full-year non-GAAP profit next year.

Unfortunately, doesn't look cheap compared to its rivals in the Chinese listing and portal space. It trades at 4.3 times sales, which is the same as Autohome's P/S ratio and just slightly lower than SINA's P/S ratio of 5.2. Therefore, growth-oriented investors probably don't see the point of buying a decelerating growth play like when companies with accelerating growth have comparable valuations.

The verdict: Avoid for now's listing and home services businesses remain vulnerable to competition in each niche category, as well as the expanding O2O (online-to-offline) ecosystems of tech giants like Tencent and Baidu.

While members are still signing up, that growth is decelerating and could peak before it scales up to challenge those bigger players. Therefore, I believe that investors should avoid for now, at least until it presents a meaningful roadmap for its long-term ecosystem growth. 


This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned Inc. Stock Quote Inc.
SINA Corporation Stock Quote
SINA Corporation
Fang Holdings Limited Stock Quote
Fang Holdings Limited
$4.08 (5.70%) $0.22
Baidu, Inc. Stock Quote
Baidu, Inc.
$147.65 (7.47%) $10.26
Autohome Inc. Stock Quote
Autohome Inc.
$32.66 (10.38%) $3.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/07/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.