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Why Shares of Soared Today

By Lou Whiteman – Nov 19, 2019 at 5:58PM

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The Craigslist of China posts a strong quarter in difficult conditions.

What happened

Shares of (WUBA) traded up more than 13% on Tuesday afternoon after the Chinese online classifieds and listings company reported better than expected quarterly results and provided a rosy forecast. It's a nice turnaround from earlier in the year, when the Chinese tech stock was battered after an earnings disappointment.

So what

After markets closed Monday, reported third-quarter adjusted earnings of $0.96 per share on revenue of $602 million, surpassing analyst expectations for $0.82 per share in earnings on revenue of $596 million. The company also said it expects to generate fourth-quarter revenue between 4.05 billion yuan and 4.15 billion yuan ($577 million to $591 million), which would represent a 12% to 15% increase from a year prior.

Stock market trend lines heading up.

Image source: Getty Images.

CEO Michael Yao said the strong numbers came "despite challenging market conditions," adding that is doing well in core areas including housing and local services.

"We are confident in our horizontal platform and the diversified product and services it offers," Yao said. "We are also optimistic about the massive market opportunity and tremendous growth potential that China offers, and will continue to invest in innovation and user engagement to further enhance our leading market position."

Now what also seems to be making progress on growing margins. Operating margin was 20.2% in the quarter, versus 18.5% in the same three months of 2018.

It's still a relatively small business, generating about $600 million in quarterly sales, and has a huge opportunity as it tries to position itself as the Craigslist of China. It also trades at 27 times earnings. The market reaction on Tuesday reflects growing investor optimism that the company can grow into that valuation.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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