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Edited Transcript of JRJC earnings conference call or presentation 24-Apr-19 12:00am GMT

Q4 2018 China Finance Online Co Ltd Earnings Call

BeijingBeijing Apr 25, 2019 (Thomson StreetEvents) -- Edited Transcript of China Finance Online Co Ltd earnings conference call or presentation Wednesday, April 24, 2019 at 12:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Lin Yang

China Finance Online Co. Limited - VP

* Zhiwei Zhao

China Finance Online Co. Limited - Chairman & CEO

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to China Finance Online reports fourth quarter 2018 earnings conference call. (Operator Instructions) I must advise you that this conference is being recorded today, 24th of April 2019.

I would now like to hand the conference over to your first speaker today, [Mr. Dixon Chen]. Thank you. Please go ahead.

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Unidentified Company Representative, [2]

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Thank you, operator. Welcome to China Finance Online's 2018 Fourth Quarter and Full Year Financial Results Earnings Conference Call. With us today are Mr. Zhiwei Zhao, Chairman and CEO; Mr. Lin Yang, Vice President; and Ms. Julie Zhu, Director of Investor Relations. Mr. Zhao will provide a summary of business dynamics in the quarter, and then Mr. Yang will review the quarterly financial results. Thereafter, the management will hold a Q&A session. We will provide translation during the Q&A.

Before we begin, I'll remind all listeners that throughout this call, we may present statements that may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words believe, estimates, plans, expects, anticipates, projects, targets, optimistic, intend, aim, future, will or similar expressions are intended to identify forward-looking statements. All statements other than historical facts may be deemed forward-looking statements. These forward-looking statements are based on current expectations or beliefs including, but not limited to, statements concerning China Finance Online's operations, financial performance and conditions.

China Finance Online cautions that these statements, by their nature, involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including those discussed in China Finance Online's reports filed with the Securities and Exchange Commission from time to time. China Finance Online specifically disclaims any obligation to update the forward-looking statements in the future.

At this time, I would now like to turn the conference call over to Mr. Zhao. (foreign language)

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [3]

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(foreign language)

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Unidentified Company Representative, [4]

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[Interpreted] Good morning and good evening. Thank you for joining today's call.

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [5]

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(foreign language)

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Unidentified Company Representative, [6]

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[Interpreted] Our top line further improved from the third quarter while our net loss was narrowed. Through the effort of controlling costs and improving efficiency for 2018, our net revenue increased year-over-year and our bottom line losses were reduced by $16.8 million. With the priority of strengthening future growth potential, we will continue to improve efficiency.

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [7]

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(foreign language)

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Unidentified Company Representative, [8]

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[Interpreted] While the stock market suffered major losses in China and Hong Kong during the fourth quarter, our equity brokerage related business maintained a strong growth momentum, and our intelligent finance-driven fintech business continued to lock in contracts with leading brokerage firms in China. We are pleased that we have established strategic partnerships with influential financial institutions in China, and are developing systems to empower their wealth management businesses.

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [9]

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(foreign language)

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Unidentified Company Representative, [10]

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[Interpreted] Entering into 2019, we recently won multiple contracts from leading brokerage firms in China. In January 2019, we announced that we have entered into a contract with Orient Securities, a top 10 leading brokerage firm in China according to the Securities Association of China, to construct an intelligent, contextual, programmatic online nationwide investor education center to equip Orient Securities with industry-leading comprehensive intelligence solutions for investor education. In addition to Orient Securities, we have also entered into contract with other leading brokerage firms such as BOCI, which is Bank of China International, and Southwest Securities to develop smart and customized solutions for investor education.

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [11]

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(foreign language)

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Unidentified Company Representative, [12]

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[Interpreted] We also signed a strategic partnership agreement with Founder CIFCO Futures, a leading futures brokerage firm in China. Pursuant to the partnership agreement, both parties will collaborate in the development of more advanced trading systems, smart market news alert, cloud-based research platform and industry forums.

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [13]

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(foreign language)

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Unidentified Company Representative, [14]

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[Interpreted] The changing market environment is posing more challenges to financial advisers. In late 2018, we launched the i-TAMP platform, which stands for Turnkey Asset Management Platform, to provide financial adviser consultation and advice on stocks, mutual funds, wealth management products, insurance, trusts and other financial products. Featuring best-in-class TAMP, this platform has already attracted hundreds of financial advisers to open their online offices to provide services to mass retail investors. The key benefits of the i-TAMP platform are the superior user experience and robust product functionalities which empower financial advisers to better service their clients.

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [15]

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(foreign language)

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Unidentified Company Representative, [16]

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[Interpreted] According to our proprietary asset allocation system, our Robo-Advisor product, Lingxi, provides Chinese retail investors with a wide array of investment combinations and strategies and personalized global asset allocation through Chinese domestic mutual funds. Since its inception, Lingxi significantly outperformed all Chinese market key indexes, and most of the peer products in the marketplace. In 2018, the Shanghai Composite Index experienced a loss of 24.6%. However, 95% of the strategies in our Robo-Advisor product, Lingxi, posted positive returns, with a defensive strategy yielding an annual return of 5.28% in 2018. Since its inception in 2017 to the end of 2018, the accumulative return of our Lingxi's high-risk, medium-risk and low-risk strategies were 15.94%, 13.91% and 19.79%, respectively.

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [17]

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(foreign language)

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Unidentified Company Representative, [18]

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[Interpreted] Our other operations have also been making solid progress. Our website, jrj.com.cn, remains a popular destination for news and analysis on the economy and capital markets, and its unique visitor all year in 2018 rose to 253 million from 236 million in 2017 and 169 million in 2016. The strong growth of traffic to our site was attributable to the improvement of our fact-based journalism, breaking news coverage and proprietary deep dive content.

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [19]

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(foreign language)

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Unidentified Company Representative, [20]

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[Interpreted] Being one of the largest online financial media, we take pride in our original content development. As the #2 most popular financial news website in China by Sina, the company -- our 253 million unique visitors in 2018 along with a robust presence in large Chinese social media domain including 2.7 million followers on Weibo, 1 million followers on WeChat and 1.8 million followers on TikTok. In recent months, we have been consistently ranked #1 on Baidu's financial institution value board for our 500,000 followers and accumulated a reach of 410 million.

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [21]

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(foreign language)

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Unidentified Company Representative, [22]

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[Interpreted] In 2018, our media content department received a slew of awards and letter of appreciation from China Banking Association, China Banking Regulatory Commission and Securities Investment Association and National Internet Finance Association of China, for our outstanding media coverage on the Chinese banking industry and stock markets. These accolades are government's endorsement of our efforts in promoting rational and long-term investment philosophy.

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [23]

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(foreign language)

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Unidentified Company Representative, [24]

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[Interpreted] Also in December 2018, we've successfully hosted the 2018 Fintech Forum, a leading China annual award in Beijing. The key discussions were centered around artificial intelligence, data security, big data, risk management, Internet of Things and blockchain. This conference is committed to promoting long-term health of the financial industry in China and has received high recognitions from financial regulators and institutions.

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [25]

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(foreign language)

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Unidentified Company Representative, [26]

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[Interpreted] With that, I will now turn the call to our Vice President, Lin Yang, to go over the financial details for the quarter and the full year results. Thank you.

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Lin Yang, China Finance Online Co. Limited - VP [27]

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Thank you, Mr. Zhao. Let me walk you through our major items for the fourth quarter. Please note that all financial numbers are unaudited and presented in U.S. dollars, rounded to 1 decimal point for approximation.

Net revenues were USD 10.7 million compared with USD 13.6 million during the fourth quarter of 2017, and USD 8.6 million during the third quarter of 2018. During the fourth quarter of 2018, revenues from financial services, the financial information and the advisory business and the advertising services contributed 53%, 19% and 28% of the net revenue, respectively, compared with 56%, 21% and 12%, respectively, for the corresponding period in 2017.

Revenues from financial services were USD 5.7 million compared with USD 8.9 million during the fourth quarter of 2017 and USD 4.7 million during the third quarter of 2018. Revenues from financial services consist mainly of active brokerage services. The year-over-year decrease of revenues from financial services was mainly due to the reduced revenue from the active brokerage business. The quarter-over-quarter increase was mainly driven by the positioning of the [recent] active brokerage business.

Revenues from financial information and the advisory business were USD 2 million compared with USD 2.9 million during the fourth quarter of 2017 and USD 2.4 million in the third quarter of 2018. Revenues from financial information and the advisory business were comprised of subscription services from individual and institutional customers and the financial advisory firms.

During the fourth quarter, subscription revenue from individual investors decreased by 12.3% year-over-year, mainly due to the effects of the streamlined sales team and the upgrading business operation for long-term healthy growth during the fourth quarter. Revenues from advertising services was USD 3 million compared with USD 1.6 million in the fourth quarter of 2017 and USD 1.4 million in the third quarter of 2018. The increase in traffic to our site also helped elevate our advertising revenues on both a year-over-year and a quarter-over-quarter basis.

Gross profit was USD 6.9 million compared with USD 6.8 million in the fourth quarter of 2017 and USD 5 million in the third quarter of 2018. Gross margin in the fourth quarter of 2018 was 55.1% compared with 49.7% in the fourth quarter of 2017 and 58.2% in the third quarter of 2018. The year-over-year and quarter-over-quarter increases in gross margin were mainly due to increased revenue contribution from advertising which carries a high gross margin.

General and administrative expenses were USD 4.9 million compared with USD 4.1 million in the fourth quarter of 2017 and USD 3.1 million in the third quarter of 2018. The year-over-year and the quarter-over-quarter increases were mainly attributable to increased bad debt provisions.

Sales and marketing expenses were USD 4.4 million compared with USD 6.8 million in the fourth quarter of 2017, and USD 4.8 million in the third quarter of 2018. The year-over-year decrease of 35.1% was mainly attributable to the reduction of consulting fees related to commodities, the brokerage business and sales commission. The quarter-over-quarter decrease of 7.4% was mainly attributable to the reduction in advertising.

Research and development expenses were USD 2.9 million compared with USD 3.8 million in the fourth quarter of 2017, and USD 3.5 million in the third quarter of 2018. The year-over-year and quarter-over-quarter decreases were mainly attributable to improved efficiency after the consolidation of the R&D team throughout different business units. The company continues to maintain a team of senior software engineers, data scientists and capital market professionals to support further development in its fintech capabilities.

Total operating expenses were USD 12.3 million compared with USD 14.7 million in the fourth quarter of 2017 and USD 11.3 million in the third quarter of 2018. The year-over-year decrease was mainly due to improved efficiency and effective cost controls. The quarter-over-quarter increase was mainly due to bad debt provisions.

Loss from operations were USD 5.4 million compared with a loss from operations of USD 8 million for the fourth quarter of 2017 and a loss from operations of USD 6.3 million in the third quarter of 2018. Net loss attributable to China Finance Online was USD 4.4 million compared with a net loss of USD 8.4 million in the fourth quarter of 2017, and a net loss of USD 6 million in the third quarter of 2018. Fully diluted loss per ADS attributable to China Finance Online was USD 0.19 for the fourth quarter of 2018 compared with fully diluted loss per ADS of USD 0.37 for the fourth quarter of 2017, and a fully diluted loss per ADS of USD 0.26 for the third quarter of 2018. Basic and diluted weighted average number of ADS for the fourth quarter of 2018 was 22.8 million compared with basic and diluted weighted average number of ADS of 22.7 million. For the fourth quarter of 2017, each ADS represented 5 ordinary shares of the company.

Now let me walk you through the 2018 full year financial results. Net revenues for full year 2018 were USD 45.5 million, an increase of 6.7% compared with USD 42.6 million for 2017. Net revenue from financial services for the full year 2018 were USD 23.1 million, a decrease of 18.3% compared with USD 28.2 million for the 2017. Net revenues from the financial information and the advisory business for the full year 2018 were USD 14.9 million, an increase of 45% compared with USD 10.3 million for 2017.

Revenues from advertising services for the full year 2018 were USD 7.3 million, an increase of 103.8% compared with USD 3.6 million for 2017. Gross profit for the full year 2018 was USD 28.6 million, an increase of 38.4% compared with USD 20.7 million in the full year 2017. Gross margin was 53% compared with 48.5% in 2017. Net loss attributable to China Finance Online for the full year 2018 was USD 20 million compared with USD 36.7 million in 2017. Fully diluted loss per ADS attributable to China Finance Online was USD 0.88 for the full year 2018 compared with USD 1.62 in 2017. Basic and diluted weighted average number of ADS for the full year 2018 were 22.8 million.

With that, this wraps up my prepared summary. And operator, we are ready for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of [Bob Wilson].

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Unidentified Analyst, [2]

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Your R&D and selling expenses continued to go down in the fourth quarter, however, your G&A expenses went up significantly. Do you think the outstanding receivables may be at risk?

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Unidentified Company Representative, [3]

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(foreign language)

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [4]

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(foreign language)

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Unidentified Company Representative, [5]

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[Interpreted] The increase of G&A expense is mainly due to the bad debt provision for the security deposit in our former commodity trading business. This is a onetime, nonrecurring event. As we are not sure whether the deposit -- the security deposit will be retrieved, we made such adjustments in our book. But again, it's a onetime adjustment and so that's causing the increase on the G&A expenses for the fourth quarter.

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Unidentified Analyst, [6]

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Okay. Also, your advertising business had a strong quarter. Do you think you can continue to grow them into a major revenue source like other portal companies?

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Unidentified Company Representative, [7]

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(foreign language)

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [8]

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(foreign language)

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Unidentified Company Representative, [9]

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[Interpreted] Reviewing Alexa's ranking of the mainstream websites, the influence of our website continues to rise. The stronger influence is now being translated into increase of advertising revenue, which is a very good encouraging sign for us. In the meantime, we're also broadening our offerings by introducing more novel models such -- including fintech for financial information services, news dissemination and distribution and investment opportunity discovery. Our goal remains to provide mass investors and public companies with enriched services, better user experience and enhance the user value.

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Operator [10]

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(Operator Instructions) Your next question comes from the line of [Pat Murphy].

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Unidentified Analyst, [11]

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The Chinese stock market is having an amazing rebound this year, do you expect your revenues from individual subscription and advisory services will pick up in a significant way in 2019?

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Unidentified Company Representative, [12]

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(foreign language)

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [13]

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(foreign language)

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Unidentified Company Representative, [14]

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[Interpreted] In order to promote long-term health and development of our investment advisory business, we implemented and introduced a series of upgrades and optimizations of our customer acquisition, content development and team building in 2018. Since then, we have noticed the significant improvement. With the reinvigorated market sentiment and investor confidence, the restored investor confidence, we are upbeat that the future -- on the future of our investment advisory business.

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Operator [15]

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(Operator Instructions) Your next question again from the line of [Pat Murphy].

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Unidentified Analyst, [16]

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Okay. Apparently, the performance of your Robo-Advisor is outstanding. What kind of strategies does your program employ to achieve a positive return in a massive down market? How are they doing this year?

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Unidentified Company Representative, [17]

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(foreign language)

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [18]

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(foreign language)

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Unidentified Company Representative, [19]

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[Interpreted] Since you talked about our Robo-Advisor, since its inception, Lingxi has not only consistently outperformed the Shanghai Composite Index but continuously beaten the majority of the peer products in the marketplace as well. In 2018, the Shanghai Index suffered a massive loss of nearly 25%, but 95% of our Lingxi investment strategies produced positive returns. And one of our defensive strategy returned an annual growth of over 5%. So from 2017 to the end of 2018, the best performing strategy of Lingxi reached a positive 17% return, so these are encouraging to see. To sum it up, the success of Lingxi is attributable to our fintech resource accumulation in the past years and also our commitment to developing best-in-class asset allocation systems.

Lingxi is essentially built upon these 5-star strategies from our proprietary asset allocation systems. And so with this kind of level of success we're seeing in the last about 2 years of performance, we now look forward to introduce these products to our institutional clients and further empowering their wealth management businesses with our technologies.

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Operator [20]

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This will be the end of our question and answer. I'll hand back now to our today's presenter.

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Unidentified Company Representative, [21]

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Thank you for attending China Finance Online Fourth Quarter and 2018 Earnings Conference Call. We look forward to speaking with you. You have a good day.

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Operator [22]

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Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.