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Why 58.com Stock Took a Hit on Friday

By Daniel Sparks - Updated Apr 10, 2019 at 10:30AM

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Analysts downgraded the internet company's stock following its fourth-quarter results.

What happened

Shares of 58.com ( WUBA ) fell sharply on Friday, dropping 14.8% by the time the market closed.

The stock's decline follows the online classifieds and listings company's fourth-quarter and full-year results and two analyst downgrades.

A chalkboard sketch of a chart showing a stock price moving lower

Image source: Getty Images.

So what

58.com reported fourth-quarter revenue of 3.6 billion renminbi (RMB), or the equivalent of about $526 million. This was a 30.6% year-over-year increase.

The company's gross margin narrowed from 90.5% in the year-ago quarter to 87.3%. In addition, income from operations rose 15.1% year over year -- less than half the growth rate the company saw in its revenue over the same time frame.

CLSA analyst (via TheFly) Elinor Leung reduced her rating for the stock from buy to outperform, pointing to management's cautious 2019 outlook due to macro uncertainties and user acquisition spending. She expects the company's profit margin to continue narrowing in 2019.

TheFly also said the stock was downgraded to neutral from outperform by an analyst at Macquarie. 

Check out the latest earnings call transcript for 58.com.

Now what

58.com guided for first-quarter revenue to rise 16% to 20% year over year -- a deceleration compared to fourth-quarter revenue growth.

While marketing and research and development costs may pressure 58.com's gross margin in the near term, CFO Hao Zhou said in the company's fourth-quarter earnings call that he believes the company's margin will improve over the long term.

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.

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