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Edited Transcript of JT.N earnings conference call or presentation 19-Nov-18 1:00pm GMT

Q3 2018 Jianpu Technology Inc Earnings Call

Dec 26, 2018 (Thomson StreetEvents) -- Edited Transcript of Jianpu Technology Inc earnings conference call or presentation Monday, November 19, 2018 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daqing Ye

Jianpu Technology Inc. - Co-Founder, Chairman & CEO

* Qiuya Chen

Jianpu Technology Inc. - IR Manager

* Yilü Chen

Jianpu Technology Inc. - CFO

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Conference Call Participants

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* Julie Hou

UBS Investment Bank, Research Division - Associate Director & Research Analyst

* Meizhi Yan

UBS Investment Bank, Research Division - MD & Head of Greater China Financials

* Piyush Mubayi

Goldman Sachs Group Inc., Research Division - MD

* Ran Xu

Morgan Stanley, Research Division - MD

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Presentation

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Operator [1]

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Hello, and welcome to Jianpu Technology Inc.'s Third Quarter 2018 Earnings Conference Call. Today's conference is being recorded. (Operator Instructions) .

At this time, I would like to turn the conference over to Qiuya Chen, Jianpu's Investor Relations Manager. Please go ahead.

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Qiuya Chen, Jianpu Technology Inc. - IR Manager [2]

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Thank you, operator. Please note the discussion today will contain forward-looking statements relating to future performance of the company. These statements are within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect Jianpu's business and financial results is included in certain filings of the company with the Securities and Exchange Commission. The company does not undertake any obligation to update this forward-looking information, except as required by law.

During today's call, management will also discuss certain non-GAAP financial measures. For the difference between GAAP and non-GAAP financial measures -- for comparison purposes only. For a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see our third quarter 2018 earnings press release issued earlier today via wire services and also posted in the Investor Relations section of our website.

As a reminder, this conference is being recorded. A live webcast and a replay of this conference will be available on the Jianpu website at ir.jianpu.ai.

Joining us today on the call from Jianpu's senior management are Mr. David Ye, Co-Founder, Chairman and Chief Executive Officer; and Mr. Oscar Chen, Chief Financial Officer.

I will now turn the call over to Mr. Ye, who will provide an overview of the company as well as performance highlights of the third quarter. Mr. Chen will then provide updates on the company's financial results and business outlook before opening the call for your questions.

Mr. Ye, please go ahead.

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Daqing Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [3]

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Thank you, Qiuya. Hello, everyone, and thank you for joining our Third Quarter 2018 Earnings Conference Call today.

Last Friday was 1-year anniversary of Jianpu Technology's listing on the New York Stock Exchange. 4 quarters have passed. Through our continuous efforts to execute our strategy and innovate our products, our team have navigated through the turbulent operating environments, exceeded our guidance in the past 4 consecutive quarters. We have strengthened our position as an independent open platform, continued to add value to our users and financial service providers, fulfilling our mission to becomes everyone's financial partner. Today, I'm very excited to share with you the results for another better-than-expected quarter and our view on the road ahead.

During the third quarter, we kept our focus on capturing market dynamics through our uniquely technology-driven and diversified platform despite the weak sentiment on the macro front with the credit tightening in July and August. We maintained robust momentum in our credit card recommendation service by posting 197% year-over-year increase in revenue. And we also exhibited strong growth in our big data and risk management business, which achieved around 180% year-over-year revenue increase. As a result, we recorded RMB 444 million in revenue, exceeding our previous guidance by 7%.

On November 8th, we hosted our Banking Partners Summit, celebrating the successful partnership between Jianpu, banks, credit card issuers and other financial institutions. Over 600 industry leaders, experts, professionals from banks, credit card issuers, consumer finance company, third-party data and tech providers and media, as well as other partners, participated in this event. At the event, we proudly announced that cumulative number of credit cards recommended on Jianpu's platform and approved by bank had reached over 10 million. Furthermore, in Q3, we have increased the total number of credit card-issuing banks to 24 by adding 3 new banks.

Throughout -- through years of continuous dedication, we have developed strategic collaborations with all 4 largest state-owned banks, 10 joint stock banks out of the 12 nationwide as well as with a number of other rural commercial banks, city commercial banks and foreign banks.

Also on the credit card front, we are glad to report good results of our social media and partners initiatives, which reflect our continuous effort in managing a diversified network of position partners that include a news feed, social network, social engine, app stores, among others; and more importantly, exploring new channels with broader use reach and a higher acquisition efficiency. Our continuous investment in professionally generated content, particularly a variety of video, audio on the content column, incorporating socially conscious financial elements, have successfully attracted over 100 million viewership per month.

We further leveraged this large size of traffic, along with our recommendation engine, to reach and engage a wider range of target users, such as newer generation Y and Z in the Chinese consumers and SME, really, in the third, fourth and fifth-tier cities. Aided by these social media and partner initiatives, total credit card applications and approvals through our platform both saw a significant increase during the third quarter. Starting in June credit card volume generated through these new initiatives saw an exponential growth and expect further growth in the fourth quarter.

In the third quarter, due to the turbulent operating environment, we have opted for a more balanced acquisition strategy between growth and operating efficiency. Benefiting from such strategy and as the user growth, driven by social media and partner initiatives, we achieved strong return on investment improvement for the quarter. We saw sales and marketing expenses, excluding share-based compensation, as a percent of revenue was approximately 76% in the third quarter of 2018 compared with approximately 83% from the same period of 2017. This is a 6% decrease year-over-year.

Despite the challenging marketing condition, we maintained our strategic focus on keeping collaboration with financial service providers and continuously enhancing our user engagement. We expect to execute the current strategy in the following quarters and consequently continue to improve our operating efficiency down the road.

The platform offer diversified financial products across a full credit spectrum. Our collaboration with financial service providers are not limited to facilitating loans and issuing credit cards. We increasingly focus on leveraging our big data and risk management technology to enable financial service providers to further enhance their operating efficiency and improve their decisioning capability in the last quarter.

In July, we launched a joint modeling laboratory, where we can closely work together with financial institutions to develop statistical models that integrate our big data and AI technology into financial service providers' application environment. With the efforts, we have initiated new engagements and advanced existing collaborations with banks and other licensed financial institutions in the industry.

Notably, our AI technology capability also received a significant boost during the quarter. And Mr. Yu Zou, a leading expert in the field of AI, joined our artificial intelligence research institute as chief scientist. Mr. Zou's experience and expertise will be invaluable to the next phase our -- of our tech-driven growth as we further explore a series of AI technologies, such as machine learning, natural language processing as well as image recognition and voice interaction in the financial service industry.

Recently, we further enhanced our smart recommendation engine and initiated our AI-driven customer service systems. The systems are designed to improve recommendation accuracy and conversion rate, improving the effectivity of our customer service. Our big data and risk management business have made remarkable progress and saw a growth of 180% year-over-year revenue growth in the past quarter.

As we mentioned in our previous earnings call, overall lending activities were slowed down in July and August, which had a negative impact in our loan [origin]. We have observed a subsequent pickup in September coming into the fourth quarter. The loan origin from our customer reached approximately 5.8 million in the month of September. We saw 55% higher than the average of July and August numbers.

On August 18, the China Bank and Insurance Regulatory Commission, or CBIRC, issued regulatory guidance intended to strengthen consumer finance role in serving the economy. These guidances include: To actually develop consumer finance and enhance consumption-driven economy development, to adopt to a diversified and multilevel consumption demand, to provide an upgrade differentiation of financial products and services and to support the growth on the consumer loans and SME loans to satisfy the increasing demand for a better life in China.

With more support and the positive signal released and more, better initiatives provided by our government agency and by the industry, we definitely have seen a good sign of increasing in consumer lending, SME lending, financial inclusion and financial innovation. We have seen positive impact, or lending activity, and the market sentiment recently.

Historically, the fourth quarter is a seasonally strong quarter for our business. We are confident that we are in a position to further benefit from stronger consumer and SME demand and growth as financial service provider [sides] as the operating environment further improves in the next quarter.

In addition, we are very excited and honored to welcome Mr. Kuang-Yu (Jeff) Liao to our board to serve as our independent Director. Jeff will also serve as the Chairman of our Nomination and Corporate Governance Committee and as well as a member of the Audit Committee and Compensation Committee on the board. Jeff has extensive leadership experience in leading fintech company, consumer finance company and online retail worldwide. Including that act -- previously, he was head of Apple Pay Asia, Visa China, head of PayPal China, CEO of eBay Greater China and General Manager at Standard Charter Consumer Bank of China. We look forward to learning from Jeff's business acumen and strategic vision and improving our overall corporate management and corporate governance.

With that, I now turn the call over to our CFO, Oscar Chen, who will discuss our financial results.

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Yilü Chen, Jianpu Technology Inc. - CFO [4]

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Thank you, David, and hello, everyone. We are pleased to report that Jianpu delivered a respectable financial and operational results for the third quarter of 2018 despite the macro slowdown.

Total revenue for the third quarter of 2018 reached approximately RMB 444 million, 7% exceeding our previous guidance. Also through our continuous efforts of improving operational efficiencies, we successfully narrowed down our adjusted net loss margin to minus 4.5% in this quarter from minus 5.8% in the last quarter.

Our technology-based diversified platform model enabled us to navigate through the challenging macro environment. Although lending activities [slide] down in July and August due to the liquidity and credit tightening across the retail financial services sector, our credit card recommendation service continued to grow 197% year-over-year and achieved RMB 184 million of recommendation revenue.

Combining the credit card business from both recommendation services and advertising, we recorded a credit card volume of approximately 2 million in the third quarter of 2018, representing a year-over-year increase of approximately 82%. The revenue growth is also driven by the increase of average fee per credit card, which is RMB 103.6 in the third quarter of 2018, representing a 48% increase year-over-year.

Attributable to the macro downside in the third quarter, revenues from loan recommendation decreased by 49% year-over-year to RMB 193 million in the third quarter of 2018. The liquidity and credit tightening in July and August resulted in a slowdown in lending activities, and the number of loan application on our platform was negatively impacted down to 13.3% -- of 13.3 million in the third quarter of 2018. However, such tightening had limited impact on our pricing. Our average fee per loan application continued to grow, which increased to RMB 14.5 in the third quarter of 2018 from RMB 13.4 in the third quarter of 2017 and RMB 13.8 in the last quarter. As David mentioned previously, we have observed the lending activities resumed growth in September and we are confident such growth will continue into the next quarter and onwards.

During the third quarter of 2018, our revenues from credit card and loans accounted for 46% and 44% of total revenue, respectively. Also, our big data and risk management services achieved a 180% year-over-year growth, contributing approximately 7% of total revenue. The current revenue structure demonstrates the robustness of our platform model that is well positioned to capture the dynamics of retail finance market.

Responding to the changing environment, we fine-tuned our strategy to be more balanced between growth and efficiency. Some new initiatives have also contributed to our efficiency gain in the third quarter. As a result, our gross margin improved to 89% in third quarter of 2018 from 88% in the last quarter. Also sales and marketing expenses, excluding share-based compensation, as a percentage of revenues, was significantly improved to 76% in third quarter of 2018, representing approximately 7 and 9 percentage points down year-over-year and quarter-over-quarter, respectively.

At the same time, we continued our pace in respect of R&D investment, which we believe will then benefit our business in the long run. In order to further optimize our technological infrastructure, we have continued to invest heavily in talent acquisition in the big data, AI and machine learning space, driving our R&D expenses increase, in absolute amount, by 69% year-over-year as well as R&D expenses, excluding share-based compensation, as a percentage of revenue, up to 13% in the third quarter of 2018.

From what has been discussed above, finally, it come down to the improvement of net loss and corresponding margins quarter-over-quarter. Non-GAAP adjusted net loss was RMB 20 million in the third quarter of 2018, improved from adjusted net loss of RMB 29 million in the second quarter of 2018. Non-GAAP adjusted net margin improved to minus 4.5% from minus 5.8% quarter-over-quarter. Net loss was RMB 54 million in the third quarter of 2018, improved from net loss of RMB 61 million in the second quarter of 2018.

As of September 30, 2018, the company had a strong balance sheet with cash and cash equivalent, restricted time deposits and short-term investment, of RMB 1,379 million and working capital of approximately RMB 1,453 million.

Next, we want to give a quick update on the share repurchase plan. We announced during the last quarter earnings call that our board has approved a share repurchase program which authorized the company to repurchase an aggregate value of up to USD 20 million during the next 12-month period. As of November 16, 2018, the company had repurchased approximately USD 5 million of shares under this program. And we will continue our share repurchase efforts during the next 3 quarters. We maintain our utmost confidence in our business strategy, strong fundamentals and the long-term prospects as well as our commitment to maximize shareholder value

Now for the guidance. Based on the company's current estimates, total revenue for the fourth quarter of 2018 are expected to be approximately RMB 680 million, representing an increase of approximately 53% on a quarter-over-quarter basis and 16% on a year-over-year basis.

With that, I will conclude our prepared remarks. We will now open the call to questions. Operator, please kindly go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Richard Xu of Morgan Stanley.

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Ran Xu, Morgan Stanley, Research Division - MD [2]

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A quick question on the guidance, actually. You mentioned, basically, you were seeing some rebound in loan activities. So obviously, there's some seasonality for the fourth quarter as well. So in the guidance, what are the key assumptions for credit cards and loan business? Is it largely driven by rebound in the loan facilitation business? Or do you think the credit card company -- credit card business will accelerate further in fourth quarter?

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Yilü Chen, Jianpu Technology Inc. - CFO [3]

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Thanks, David -- thanks, Richard. Let me firstly answer your question regarding the -- our guidance into the fourth quarter. Yes, fourth quarter is historically our peak season for both loan and credit cards. Because of -- we will -- we expected to see higher credit demand from users as well as higher supplies from the financial service providers. Because approaching to year end, users normally want to take on credit for consumptions and probably some other purposes. And for the banks, nonbank financial institutions and other tech-enabled lender, normally, they will have some year -- annual target to meet. So there will be some -- they will have incentive to speed up their customer and revenue growth into the fourth quarter. So this is -- historically -- this is why, historically, fourth quarter is normally the peak season for both loan and credit cards. And for this fourth quarter, not only the seasonality, we're also seeing the easing of the tightening policy and also more stabilized regulatory outlook will also contribute to our fourth quarter loan volume, credit card volume, and as a result, the revenue. So as David just mentioned, so when we look into the September, we saw nice -- resumed the growth of our loan volume. So we recorded around 6 million loan application volume on our platform. So entering into the October, we even see -- we also see a month-over-month sequential loan volume growth. That's -- I think that's the ease of the credit and liquidity tightening in July and August. So from that, we have more confidence with our business entering into the fourth quarter. And lastly, we will see -- with stronger demand from user side and resumed growth at the supply side, at the financial service provide side, so our improved matching capabilities, driven by the big data and AI technology, will play an important role in matching the users' demand and the financial service provider supply. And I think that's peak season, the changing environment and also our core capability all contributed our confidence of the guidance into the fourth quarter.

I may want to give some more color regarding the fourth quarter revenue composition of RMB 680 million. So in the fourth -- in the third quarter, we saw our loan recommendation revenue contributed around 44% of total revenue. And our credit card in total, combining recommendation and advertising, contributed 46% of our total revenue. And the big data and the recommendation services contributed around 7% of total revenue. Looking to the fourth quarter, we would expect sequentially -- credit card will continue to grow, and the resumed growth of the lending activities will lead to a higher growth rate for loans. So among RMB 680 million revenue, we will expect around 75 -- sorry, 45% to 48% from the loan recommendation and 40% to 45% from the credit card recommendation and also advertising for credit cards. And big data and risk management will also achieve a high single-digit percent in terms of the revenue contribution. Richard, does that answer your question?

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Ran Xu, Morgan Stanley, Research Division - MD [4]

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Sure, yes.

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Operator [5]

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The next question comes from Piyush Mubayi of Goldman Sachs.

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Piyush Mubayi, Goldman Sachs Group Inc., Research Division - MD [6]

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Thank you for that guidance. You talked about encouraging trends coming through in the month of September. Could you just comment through for the next 2 months of third -- of 2000 and -- the last 2 months of 2018? And one of the challenges with 2018 4Q is the very high base, what we have in the fourth quarter '17. So I wonder if you could talk through the growth outlook for the 2 different businesses in 2019 as we stand today.

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Yilü Chen, Jianpu Technology Inc. - CFO [7]

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Okay. Thank you, Piyush. Yes. So as I just mentioned, in the -- in October, we have seen the sequential growth of the loan volume around 10% month-over-month. Into the -- I'm talking about the last 2 months, as we said before, we are seeing an overall environment with more liquidity injected into the economy and also a more stabilized regulatory outlook. So I think that will benefit all the participants in the industry, including banks, nonbanks licensed financial institutions and also tech-enabled lenders because we are -- we have seen our loan volume increase across all these financial service providers -- all these types of financial service providers. Credit card is also -- I think for the fourth quarter, the credit card -- the growth in credit cards were driven by both volume and the unit price. I think this year is a very good year for the credit card online issuance. We have reported -- or we almost achieved triple-digit year-over-year growth for the credit card. So entering into the fourth quarter, we would expect that, that momentum will continue. And also, in the fourth quarter, because, as I just mentioned, the banks have -- are more -- would be more incentivized to achieve the year target. So they will -- I think we will be given more volume-based year-end incentive for the -- for help them achieving the annual credit card issuance target.

So yes, as you mentioned, your second half of your question is about, last year, we are seeing -- we had a high base. If I remember correctly, that's RMB 584 million revenue has -- was recorded. So our guidance was, year-over-year wise, was 15% -- 16% increase. I think partially last -- both for the last fourth quarter, the low-lying cash loans reached its peak. But in last December, there are more stringent regulation came out. So I think if we take that part aside or we give some so-called normalized growth rates, I think that growth rate will be pretty much like the growth rate we achieved in the first 9 months of this year. That's around 45% to 50% growth. That's take -- we exclude the impact from the loan volume before the cash loan regulation. Yes, David.

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Daqing Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [8]

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Okay. Piyush, this is David. I will just add a few more data points. We know in China's retail financial service sector, it's high growth. We expect the growth, for the next 2 to 3, 5 years, we will be around 20%, 25%. In 2020, in year 2020, China will become the largest retail -- or financial services market in the world. We exceed the U.S., as the market grow 20%, 25%. That's one of the driver.

The second driver, we see the digitalization of financial service reach more loan, credit card, wealth management and auto loan, where we are [acquired], we are [deficient], we are managing the service online. And so that's the macro trend. So related to our data, Oscar mentioned that in Q4, we are going to grow around 53%, and that's from Q3 to Q4, right? That's 16% compared to Q4 last year. And then next year, we also expected a growth of middle -- I mean, double-digit [whatever], right? So that's the numbers, the macro number and what we will be able to deliver in Q4, as Oscar mentioned, the growth from the user demand, consumer is in high demand. Of course, seasonality helps a lot, and also the increased liquidity. We have seen huge liquidity boost across the board, from banks, credit card issuers, small business lenders, auto lenders, the fintech lender companies. So deleveraging of the financial sector basically slowed and stopped around August. And obviously, the turning point for consumer and SME lending, I mean, overall, so that's why we see there's a lot of liquidity in September. And we've seen huge liquidity last month. We will see this trend continue, it will continue going forward. And we, as a tech-driven AI data-driven, and it's an open platform, we are actually -- we are able to capture the growth better than other lender or fintech company in the world. So we have built the platform in the last 6, 7 years, right? It's -- as we add more financial institutions, more financial institution provide a differentiated product into different geographic area, different consumer segments and different products, right? And also on the other side, on the user side of our social media and partnership initiative, we were able to capture the younger generation in second-, third-, fourth-tier cities -- underserved market, underserved populations. So this is a very healthy, diverse circle. We're able to match more users with more tailored or personalized product. We have seen in the last 2, 3 months, we see our conversion rate have improved a lot. We see a higher prorate by different type of financial service providers. We have seen lenders or credit insurers pay us more for approval. And once the number of commissioned, approved credit card policy that's for approval, we have seen increase of 40% year-over-year. So that's both, it's a combination of macro growth; industry growth; of course, traffic growth; better conversion; better use experience; and better monetization. So that's why in a macro level, we are very confident that we are able to deliver the around 16% growth this quarter.

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Yilü Chen, Jianpu Technology Inc. - CFO [9]

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So also, Piyush, I think you also mentioned the -- given the fourth quarter number, what -- any flavor on the 2019. I think our practice is to give quarterly guidance. But talking about the next year, what we can share on the call is -- so the Chinese economy will continue to grow, and more stabilized regulatory outlook. From that, as long as we see stronger user demand and also stronger supply as a financial service providers, that the platform will definitely -- and also, we are confident in next year's growth.

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Operator [10]

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The next question comes from Julie Hou of UBS.

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Julie Hou, UBS Investment Bank, Research Division - Associate Director & Research Analyst [11]

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I have 2 questions. First, could you share with us some data on the loan side, like revenue contribution of top 50 FSPs? Loan size breakdown in third quarter? And revenue split between -- by FSP, perhaps? And my second question is the improving ROI for the quarter. As you opted for more balanced strategy between growth and efficiency, could you provide more color on the ROI for loan and credit card business and how should we think about it going forward? With higher ROI, when do you plan to make profit?

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Yilü Chen, Jianpu Technology Inc. - CFO [12]

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Okay. Julie, may I clarify your first question is about the loan volume contribution from different type of financial service providers? And what was the second part? Probably, it's a bit broken.

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Julie Hou, UBS Investment Bank, Research Division - Associate Director & Research Analyst [13]

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Revenue contribution of top 50 financial service providers. Loan size breakdown in third quarter. And revenue split between different types of FSPs.

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Yilü Chen, Jianpu Technology Inc. - CFO [14]

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Okay. Yes, the loans. So in the third quarter, firstly, let me talk about the contribution by different financial service providers of total revenue. So because of credit card continue to grow in the third quarter, and the loan -- the revenue from loan recommendation reduced in third quarter. So the overall contribution -- credit card already accounted for 46% of my total revenue. So adding credit card and the loan recommendation revenue from the banks, so the revenue contribution by the banks, already in the third quarter, reached close to 60% of my total revenue. And for the remaining -- so that's already 60%. So if you're looking to the loan -- the revenue from the loan recommendations in the third quarter, I would say it's 1/3 contributed by the banks and 1/3 contributed by the P2P companies and the remaining 1/3 was contributed by the nonbank licensed financial institutions, include consumer finance companies and the micro-lending companies. So that's the revenue contribution by the financial -- different type of financial institutions. And I think for the loan breakdown into the -- breakdown by loan ticket size, I think it's quite similar to what we shared in the second quarter. So that's around 30% from the -- with the loan size less than -- with the loan size lower than RMB 10,000. Around 50% contributed by the -- with the loan size between RMB 10,000 to RMB 50,000. And the remaining 20% are from the loan size -- are from the loans with the size over RMB 50,000. So that's about your first question.

Regarding your second question, yes. I think anticipating that changing environment in the third quarter, the government intentionally adopted a strategy, a more balanced strategy between growth and efficiency. That means -- as you may remember, we actively manage over 1,000 marketing channels for our acquisition. Firstly, in third quarter, our organic traffic contributed 39% of our total traffic. And then we further managed the marketing channel by ROI and efficiency. We rank them by ROI and efficiency. And put more resources into the higher-efficiency and higher-ROI channels for user acquisition. So -- and also, we have some new initiatives, as David mentioned. The social media and partner program, that also have some positive impact on our ROI contribution. So this is why we significantly increased our ROI in the third quarter.

So looking to the fourth quarter and onwards, I would say the outside environment is always changing. So anticipating that, we would adopt the phased strategy into the fourth quarter. So I would expect the sales and marketing percentage for the revenue will hold constant into the fourth quarter. So we still have a good answer on the profitability yet, but I think the revenue will continue to grow according to the guidance we shared. The gross margin and sales, marketing as percentage of revenue will be stable into the fourth quarter, and the R&D and G&A are mostly headcount costs. So we will expect an ordinary growth into the fourth quarter. So yes, that's something I can share.

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Operator [15]

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(Operator Instructions) The next question comes from Mary Yan -- excuse me, May Yan of UBS.

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Meizhi Yan, UBS Investment Bank, Research Division - MD & Head of Greater China Financials [16]

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I have 2 questions. One is, you've mentioned big data, AI contributed 7% to the revenue this quarter in IT. How do you see this business going forward? Is it going to account for -- you said a high single-digit in the fourth quarter. And next year and maybe in the next 1 to 2 years, is it going to be a bigger sort of meaningful part of the business? More than 10%, you said before that you would break down the detail? Can you explain a bit more, how this business has developed? How do you charge? And how -- what type of key sort of income is -- you are able to charge? And how is it going to grow? And then secondly, we have seen a slowdown in the industry, credit card total issuance for the whole industry. And what's your -- in the third quarter, and you mentioned about there's policies coming out supporting consumer lending, et cetera. Is it somewhat different, maybe, in reality the credit market is saturating. And in next year or going forward, do you see that can be a smaller part of contribution to your revenue? And -- okay.

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Yilü Chen, Jianpu Technology Inc. - CFO [17]

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Thanks, May. To your first question, the big data. So I think, yes, the big data and risk management services, as of last year, is less than 2% of my total revenue. That's in 2017. So this is why this revenue line was embedded in the advertising, marketing and others. Starting from earlier this year, I think due to the overall regulatory and also the environmental weakness, we found that the financial service providers, they emphasize -- they focused more and more on data and risk management, particularly for the online lending products. And nowadays, we also -- we have also seen opportunities for credit cards. So for online -- our data and -- our big data and risk management services helps financial service providers on both online acquisitions and online decisionings. So for online acquisition, that's -- mainly, we can use our data and use our proprietary model to do better segmentation for different financial service providers. That means we can match the user's demand with particular financial products better and more efficiently. And on the decisioning side, we can also help them to lower -- to enhance the approval rate and lower the charge-off. We shared some case studies of how we collaborate with credit card issuers in terms of big data and risk management services as of last quarter's -- in our last quarter's earnings call. For this quarter, as David just mentioned, we found this is a good opportunity for us to further explore. So this is why we do the -- we launched our joint modeling laboratory and host the joint modeling between us and the financial service providers. We found that more and more institutions -- And this laboratory is well received among financial service providers. We see we have more dialogue engaged with financial service providers in terms of joint modeling. And we also see this also help us to cross-selling more products to the existing financial service providers. So how we -- so looking to the future, because the big data and risk management is still a small portion of our total revenue, the base is relatively low. So if we look into the next 4 quarters or something, we will still expect it will grow at -- it can double in the next 3 or 4 quarters. So we can achieve triple-digit growth for the big data and risk management services. And regarding the revenue contribution, because our loan recommendation and credit card recommendation and other revenue lines are -- will continue to grow into the next year. So this is why we say it will be a high single digits contribution into next year. But looking forward, we believe it will contribute more because the risk management means we can help the financial service provider to lower the charge-off. Charge-off is a main cost component for the financial service providers. So I think it's even a big market than sales and marketing.

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Daqing Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [18]

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May, this is David. I would like to provide some macro-level information about the landscape of the retail, China retail financial service market. As you probably know, the whole market is still hugely underdeveloped, underserved compared to U.S. or Japan or other European countries. I just have a couple of number, like, the average credit card per Chinese adult is about 0.46, 0.46. In U.S., it's about 5. I mean, in China, we have 1.4 billion people, less than 400 million people have a credit card, have a mortgage or have a good data in the central bank's credit bureaus. So that's why we -- our growth from -- most coming from first-, second-tier city; we see the growth from Generation Y and the Generation Z, 'the third-, fourth-tier cities. I mean, not all the Chinese farmers, for example, have a mortgage or have a credit card or have -- or they can receive the retail financial services. So if I can segment the market by sales modeling, big data risk management or cost base solution or system IT solutions for financial institutions. As we know, the overall market grow around 25%, more of that shifting from off-line to online, right? Digitalization will enable more lenders to make decision online, serve customer online. We have the number actually. The sales marketing, the market, last year -- end of last year was about close to RMB 1 trillion, about -- over [RMB 9,000], which is growing at about 40%. Big data and risk management is about [RMB 3,000] market size. However, the growth rate is over 100%. So if we tied the market size and the growth potential of different segments into our business. We know overall, we grow around 50% in Q4, that's our loan and credit card recommendation. I mean, it's a blended. I mean, perhaps, we'll manage around 50%. However, our big data and risk management service, we expect the growth in triple digits. We'll grow it -- we'll grow at a higher speed, I mean, for years down the road. I mean, if you compare the China's market condition to growth, the adoption of AI or technology or IT used by financial service company, we see we can actually compare some of the trend in U.S. and in Japan or even in other markets, like Taiwan or Korea 10 or 15 or 20 years ago. I mean, they studied leveraging Internet, leveraging data and technology to serve customers online. That's why we are confident that the big data risk management service or [cause-based] solution I mean, cause-based solution is still small in our part of business than the, I would call it, professional fraud detection, like online decisioning and joint model development program and account servicing assistance to financial institutions. I mean, that's another segment. It's a smaller size, but we expect higher growth.

I just want to summarize our outlook for the whole sector and also different segments of our business. I mean, if the market grow at around 20%, 25%, and online, we grow at a faster rate in the different product service or credit card or like non-secured credit. Non-secured credit slowed down in Q3. We will see the growth again in Q4 and the next few years. But of course, the tech side, the data side, technology side, analytical side and the more value-added service side, we believe that's the more valuable part for financial institutions. That's the part that we're going to heavily invest, not only in talent, in people and technology, in our overall capability.

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Yilü Chen, Jianpu Technology Inc. - CFO [19]

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And also, May, to your second question -- actually, I'm taking the question about the credit card. Our focus is more on the online part of the credit card issuance. Probably, you may notice there's some slowdown of the credit card issuance. But our observation is that the banks still find the online channel as more efficient and a lower-cost channel compared to the off-line. So this is why we saw strong growth in the third quarter, and we are confident that such trend will continue into the fourth quarter because quite some banks have not achieved their annual target yet of credit card issuance.

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Daqing Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [20]

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Yes, the credit card market is highly debatable. However, May, in my view, in our view, we actually feel the credit card market in China is still underdeveloped. I saw the number, the average credit card per Chinese adult is about 1/10 of U.S. I mean, that's 400 million of Chinese have credit cards. And if you look at the strategy of Chinese banks, state-owned banks or joint stock-owned bank. I read a report by another bank say, now the credit card division of the banks are the most profitable division and high-growth division. Banks are shifting their strategy or their investment away from wholesale lending, from SME lending, away from mortgage lending, right? Credit card or large-scale credit is really the growth strategy, and the risk reverse. I mean, it's also a good strategy in this economic slowdown or slow growth. That's why credit card -- now we recently talked to more banks. Their credit card division actually are trying to meet the target and exceeded expectation. As overall, we saw a number in China. First 9 months, close to 100 million new cards issued, still average very low. And we have actually found out a couple of banks, 1 of the top 5 banks is the Bank of Communication, for example. The retail bank, if the credit card business is doing well, the overall bank will do well. So now the wealth management, wholesale banking, real estate lending are not part of the banks' core strategy. So I guess, I think we probably -- we underestimated the potential of the credit card. Or maybe, I guess, down the road, virtual credit card. A credit card is a product combined with payments, with installment, or mostly credit, right? I mean, that's really the future for -- of the credit card market. I know we're talking about 800 million Chinese farmers living in the countryside. None of them now even have a card issued by a bank, and thus, the sky is the potential.

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Meizhi Yan, UBS Investment Bank, Research Division - MD & Head of Greater China Financials [21]

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Okay. Just a follow-up. Can you let us know how many, like, financial service providers do you work with on the big data risk management side? And how many of them are fee paying? And how much do you charge them?

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Yilü Chen, Jianpu Technology Inc. - CFO [22]

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Nowadays, we are working with over 200 financial service providers in terms of big data and risk management services. All of them, we count the number of it down, they pay us.

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Operator [23]

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And that concludes the question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments.

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Qiuya Chen, Jianpu Technology Inc. - IR Manager [24]

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Thank you once again for joining us today. If you have any further questions, please contact us at ir@rong360.com or TPG Investor Relations at jianpu@tpg-ir.com. Thank you for your attention, and we hope you have a wonderful day. Thank you.

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Operator [25]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.