Investors came into Uxin's (NASDAQ:UXIN) fourth-quarter earnings report expecting a big swing one way or the other. Uxin has been one of the most volatile stocks on the market since its June IPO, influenced by China trade tensions and the usual speculation about a fast-growing, profitless company. Investors were anxious to see the impact of the company's new partnership with Alibaba's (NYSE:BABA) Taobao marketplace, as the fourth-quarter report was its first since the partnership began.
Though the stock was up double digits in pre-market trading, Uxin shares quickly fell into the red when regular trading opened and were down 17% on Thursday afternoon. Still, the company showed off another round of strong growth. Here's what you need to know.
Uxin earnings: The raw numbers
|Metric||Q4 2018||Q4 2017||YOY Change|
|Revenue||$165.6 million||$102.5 million||61.6%|
|Net income from continuing operations||($45.8 million)||($131.3 million)||N/A|
|Adjusted diluted earnings per share||($0.04)||($1.46)*||N/A|
What happened with Uxin this quarter
- Uxin topped its own guidance in the quarter, posting sales of $171 million against a forecast of $153 million-$159 million, though that guidance came before the Taobao announcement.
- Uxin continued to shift to its 2C business, which is facilitating sales of used cars to consumers, and de-emphasized the 2B business, which is made up of sales of used cars to dealers. That shift followed the company's decision last August to stop providing inspections and other related services for customers selling cars on its 2B business, which has caused revenue in that segment to decline.
- 2B transaction revenue declined 16.4% during the year, to $21.2 million. However, 2C revenue surged, climbing 118.3%, to $136.3 million. Growth in both 2C transaction facilitation and loan facilitation was strong, and the take rate, or the percentage the company keeps from each sale, rose in both its 2C and 2B businesses.
- Gross margin increased from 64.9% to 68.9%, reflecting the shift to the higher-margin 2C business, as well as the optimization of Uxin's business model and implementation of cost controls.
- Sales and marketing expenses, which have historically taken up the bulk of the company's revenue, were essentially flat in the quarter, declining 0.8%, to $100.4 million. Management credited efforts to enhance operating efficiency and a focus on sales conversion for the improvement as sales and marketing costs made up 60.6% of revenue, compared to 98.7% in the year-ago quarter.
What management had to say
CEO Kun Dai touted the company's progress in the quarter, saying:
We experienced an exponential growth in cross-regional transactions, with transaction volume exceeding 10,000 used cars in December alone, and over 22,000 in the fourth quarter. This reflects the revolutionary impact of our business model on China's used car supply chain, as well as growing appreciation of Uxin's brand and services.
He also shed light on the path ahead in 2019:
Looking into 2019, we will continue to increase our focus on the 2C business. From a commercial perspective, we see much greater growth potential in the 2C business, especially in terms of cross-regional transactions. We have identified a number of strategic initiatives to strengthen our capabilities on this front. For example, we will adopt a franchise model to complement our self-operated service centers, in order to better penetrate lower-tier cities and expand coverage of our offline network.
For the first quarter, Uxin actually expects a slowdown in revenue, guiding for $135 million-$142.5 million, which would represent 34% growth at the midpoint from a year ago. However, that's still a significant deceleration from the fourth quarter's growth rate of 61.6%.
As CEO Kun highlighted, growing cross-regional transactions is one sign of the power of its network, and the company also seems to be gaining leverage as it was able to drive significant revenue growth without increasing sales and marketing. Uxin's ongoing shift to the 2C segment should help bring the company closer to profitability in 2019.