China Finance Online (NASDAQ:JRJC) saw its stock open lower this morning, after the Chinese stock market data provider issued a gloomy near-term outlook. Yet there's good news for its investors. You just need to be patient as you work through the financial statements.
The good news certainly isn't in the near future. The company began to experience deteriorating trends in September, and CFO -- that's China Finance Online, not chief financial officer -- is now looking to generate $14.5 million to $15 million in the current quarter. That represents a healthy 63% to 69% advance over last year, but it's a drop from the previous quarter for the company.
CFO's showing for the third quarter was commendable, at least. Revenue rose 109% to $15.3 million, and net income soared by 115% to $0.28 per share before stock-based compensation expenses. Wall Street was looking for an adjusted profit of just $0.21 a share. Revenue, however, missed the company's own original guidance of $15.5 million to $16.5 million.
The company closed out the quarter with 10.9 million registered users at its jrj.com and stockstar.com portals. That's 400,000 more than it had at the end of the second quarter -- and it's 2.8 million ahead of where the company was last year.
Since CFO generates just 5% of its revenue from online advertising, the real goal is to generate paying subscribers. It did well on that front --115,000 premium subs represents a 153% year-over-year improvement and a reasonable 14% advance from where things stood three months ago. But as you can imagine, sequential weakness at the top doesn't bode well for subscriber growth in the near term.
The really good news lies on the balance sheet, where $82.4 million in cash and short-term investments breaks out to roughly $3.60 in cash for each depositary share. As long as the company can keep cranking out positive cash flow, it's unlikely to head too much lower. The cash mattress is probably the reason the stock bounced quickly off its low opening.
All financial subscription services will be challenged in the near term. TheStreet.com (NASDAQ:TSCM) suffered an 8% dip in subscription revenue in its latest quarter. Mutual fund and equities watcher Morningstar (NASDAQ:MORN) held up better, with a 12% advance in subscription revenue.
CFO was a speedster compared to its stateside premium research peers, but it had help. Teaming up with China Telecom (NYSE:CHA) to launch a finance portal earlier this year was a brilliant move. However, this isn't like online search, where leading search engines in the country, such as Baidu.com (NASDAQ:BIDU) and Sohu.com (NASDAQ:SOHU), will grow as a result of the online migration. CFO needs investors to want an investing edge in China, and for that they're going to need confidence in the marketplace.
Sure, CFO is asking investors to brace for a few difficult quarters, but no one knows when the market will turn. If it happens sooner rather than later in China, we'll be back off to the races for CFO's growth prospects. Until then, value hounds may appreciate a growth-stock pit stop, since they can pick up a stock trading for just a little more than its liquidity.
When will we get back on track? You'll know when you see CFO bounce off its cash balance like a trampoline.
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