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Edited Transcript of JT.N earnings conference call or presentation 25-Feb-19 1:00pm GMT

Q4 2018 Jianpu Technology Inc Earnings Call

Mar 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Jianpu Technology Inc earnings conference call or presentation Monday, February 25, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Ye

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

* Qiuya Chen

Jianpu Technology Inc. - IR Manager

* Oscar Chen

Jianpu Technology Inc. - CFO

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Conference Call Participants

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* Alex C. Yao

JP Morgan Chase & Co, Research Division - Head of Asia Internet and New Media Research

* Bill Liu

Goldman Sachs Group Inc., Research Division - Associate

* John Cai

Morgan Stanley, Research Division - Research Associate

* Julie Hou

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

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Presentation

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Operator [1]

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Hello, and welcome to Jianpu Technology Inc's. Fourth Quarter 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Qiuya Chen, Jianpu's Investor Relations Manager.

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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. The 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 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 -- fourth 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 of this -- the replay of this conference call will be available on 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's highlights from the full fiscal year. 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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David Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [3]

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Thank you, Qiuya. Hello, everyone. Thank you for joining us. We are very excited to share with you today another milestone in our 8-year journey. In the fourth quarter of 2018, our revenue reached historically high, and we also achieved breakeven for the first time.

When we founded the company in a 3-bedroom apartment back in October 2011, we don't think any of us at that time would have imagined the impact that our business have created for China's financial service ecosystem. Our mission is to become everyone's financial partner, empowering users to make smart choices and enabling financial institutions to make better decisions.

Today, we are the largest independent open platform in China, connecting more than 100 million users, with over 200,000 financial products and 2,500 financial service providers. Total cumulative number of credit cards issued on our platform have exceeded 10 million.

Now let me walk you through some of the key business highlights in 2018. First of all, an expanded user base is rising user engagement with our platform. In 2018, we grew our registered user base to more than 100 million. At the same time, our user stickiness and brand awareness has been enhanced through our initiatives to spend on product offerings, content and tools.

In Q2, we launched an initiative to further expand and penetrate into the affluent and underserved user base, engaging consumers across a wide range of demographics, geographical locations and credit spectrum. In Q3, we stepped up our efforts with social media and partnership initiative, targeting younger generations, such as millennials and generation Z as well as users from lower-tier cities in the countryside.

Our financial content in various format, including short video/audio are distributed through multimedia matrix with over 200 million followers. We have more than 10 series of popular financial products, each generated more than 58 million viewership. In Q4, number of credit card approvals generated through the social media and the partnership network saw triple-digit growth compared to Q3 and accounted for more than 15% of our total applications.

In Q2, we launched a personal finance management tool. The tool and content increased user engagement and drive user retention. Last year, we issued close to 200 proprietary industry research reports and other educational content, which continues to broaden brand awareness as well as attracting organic traffic for consumers and SMEs seeking industry insights and financial knowledge.

Secondarily, we want to highlight our extended cooperation with financial service providers and our more comprehensive solutions provided to them. Whilst we have first-movers advantage in this space, continuously deepening our relationship with financial service providers remains at the core of our fast-growing businesses.

As of the end of 2018, we have built a vibrant network of over 2,500 financial institutions and have also strengthened our collaboration with all 5 of the largest state-owned national banks and 11 joint stock banks out of the 12 nationwide.

As mentioned above, our credit card recommendation businesses have achieved very sharp growth momentum, with the total number of credit card issued on our platform standing at more than 10 million. We have the largest network of online credit card issuers with 25 credit card banks on our platform. Recently, we introduced our first co-branded credit card, featuring Jianpu RONG360's mascots deepening our collaboration with the bank.

The competitive landscape is evolving at a fast pace. Many large financial service providers have moved online with strong product offerings actively exploring new data source and third-party services to do better acquisition and decisions. Taking this opportunity, we have diversed our branded big data and risk management service, SkyKey, which has proven to be instrumental and transformational for our financial service providers.

As a bespoke service developer in-house, SkyKey is helping financial service providers reduce risk, lower cost and improve digital marketing and operating efficiencies. This is a high potential growth driver for us. Our Big Data risk management services recorded over a 150% increase in 2018 as compared to the previous year.

Third, we want to reiterate our commitment to a strong technology infrastructure to enhance data insights and user experience. We are building a closed-looped data ecosystem, including data from many millions of registered users, thousands of financial service providers and data providers.

All of these efforts allow us to obtain greater insights through access to broader, more relevant and timely data, further enhancing recommendation engine, data analytics as well as refining our algorithm and risk management decisions.

Our success is largely attributed to our ongoing ability to attract and retain talented employees and business leaders. In 2018, we have almost doubled our R&D team size and hired key talents including our chief scientist. We launched our artificial intelligence research institute. We are continuing to invest in our people, strengthening our culture and organization and to further enhance corporate governance.

I would like to now provide key updates for our results in the fourth quarter. Revenue was at historically high, beating guidance and have increased across the board. I'm very pleased to tell you that in the fourth quarter our revenue reached a record high of approximately CNY 742 million. With the fourth quarter being historically the best quarter, we have seen incredible growth across all 3 [top] lines, including loan recommendation, credit card recommendation and big data and risk management services.

As mentioned in our previous earnings call, overall lending activities in China have resumed strong growth since September 2018. More consumers and SME lending and financing activities are shifting from offline to online. Financial service providers have improved their digital marketing, on their underwritings, KYC, data analytics, risk management and online servicing capabilities.

With the macro environment still applying some downward pressure on the credit market, recently the ease in policies by Chinese State Council and the central bank has helped to boost the liquidity, which in some extent has stimulated growth in the SME and retail financial service market.

Heading towards 2019, more positive signals were released by the government. President Xi made a remark that financial services future is toward the more inclusive with broadened financial products, emphasizing that China should deepen supply-side structural reform in the financial sector and serve the real economy.

These developments indicate that the uptrend for growth and innovation of the financial markets remain unchanged. Also, in our effort to improve operating efficiency and enhance operating leverage, we have achieved steady improvement in return on investment. We have reached the critical mass of scale, achieved quarterly breakeven for the first time in the company's history.

Being an independent open platform empowers us to take the driver seat role in China's rapidly evolving retail financial service or fintech sector.

We are fortunate enough to be operating in a country that has witnessed a swift transition in technology to digital and mobile, artificial intelligence, big data, cloud computing and in the future, 5G are reshaping the competitive landscape, complementing a digitally all-inclusive financial sector, propelling China's financial services industry to leapfrog, which we are connecting Chinese consumers and SMEs closer, faster, easier and safer to the financial markets.

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

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

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Thank you, David, and hello, everyone. Our strong results in the fourth quarter continued to demonstrate our growth momentum despite a challenging microenvironment in the second half of 2018. We are pleased to have hit a record high in total revenues of approximately RMB 742 million for the fourth quarter, a 27% year-over-year increase and 67% on a sequential basis in what is historically our strongest quarter.

Our continuous efforts to balance growth initiatives, while improving operational efficiencies, has paid off as we turned profitable in the fourth quarter, both on a GAAP and a non-GAAP basis, achieving net income of RMB 12 million and adjusted net income of RMB 39 million.

Led by robust growth in our credit card business and solid recovery of loan recommendation services, our total recommendation services revenues reported a 20% year-over-year increase to RMB 659 million in the fourth quarter, mainly driven by a 144% year-over-year increase in credit card recommendation services, further illustrating the scalability of our platform model and execution strength.

Combining the credit card business from both recommendation services and advertising, we recorded credit card volume of approximately 3 million in the fourth quarter of 2018, representing a year-over-year increase of approximately 123%.

As David mentioned previously, loan application volumes experienced a meaningful sequential increase by around 86%. The average fee per loan application continues to grow to RMB 15 from RMB 14.5 in the third quarter 2018. As a result, loan recommendation revenue reached RMB 370 million in the quarter, decreasing 14% year-over-year, while increasing approximately 92% from the preceding quarter. We believe that with a healthier regulatory framework, the overall lending market is in solid recovery, trending up towards -- heading into early 2019.

Additionally, loan recommendation revenue accounted for around 50% of our total revenue in the fourth quarter, amount of revenues generated from advertising and marketing services and other services. Our Big Data and risk management services maintained a strong growth trajectory, increasing 158% year-over-year.

More and more financial service providers are utilizing our Big Data and the risk management services offering. As we diligently move forward fine-tuning our strategy and looking for balance between growth and efficiency, we achieved a significant improvement in our profitability.

Our gross margin continued to improve to 91% in the fourth quarter of 2018 from 89% in the preceding quarter. Also sales and marketing expenses, excluding share-based compensation, as a percentage of revenue, significantly improved to 71% in the fourth quarter of 2018, representing approximately 11 and 5 percentage points down year-over-year and quarter-over-quarter, respectively.

As we maintained strategically focused on strengthening our technological capabilities, while optimizing technology infrastructure, non-GAAP R&D expenses increased by 91% year-over-year to RMB 81 million. The increase is also attributable to the acquisition of a subsidiary and the front-load hiring of certain new forces and new initiatives.

Our non-GAAP G&A expenses increased by 56% to RMB 23 million in the fourth quarter from RMB 15 million in the same period of 2017. The increase was primarily due to the increase in the payroll costs and other administrative expenses along with the expansion of back-end team to support our growth.

While looking at the R&D and the G&A expenses as a percentage of revenue, it decreased to 11% and 3% in the fourth quarter from approximately 13% and 4% in the previous quarter, representing a sequential decrease benefited from the economics of scale.

From our discussion above, we reached an inflection point and achieved profitability on both net income and non-GAAP adjusted net income. Non-GAAP adjusted net income reached RMB 39 million in the fourth quarter of 2018 and net income was RMB 12 million. At the same time, non-GAAP adjusted EBITDA turned positive this quarter at RMB 54 million.

As of December 30, 2018, we maintained strong balance sheet and cash position, with cash and cash equivalents, restricted time deposits and short-term investments of RMB 1.5 billion and working capital of approximately RMB 1.4 billion.

Now I would like to briefly go over the company's full year financial results of 2018. In spite of the micro slowdown and the rising challenges of industry-tightened regulatory environments throughout the year, total revenue for full year 2018 increased by 39% to RMB 2 billion from RMB 1.4 billion for 2017, primarily driven by our faster-growing credit card business and strong growth in Big Data and the risk management services, driven by technology.

Our diversified platform model has enabled us to navigate evolving market dynamics, successfully capturing shift in user demand and achieving remarkable performance when facing the tightening liquidity and credit across the retail financial services sector.

Revenues from credit card recommendation services significantly increased by 228% to RMB 751 million from RMB 229 million for 2017, driven by impressive increase in both credit card volume and unit price. We grew our credit card volume from both recommendation and advertising services to over 8 million in the year. And in October, we proudly announced that our cumulative credit card volume had reached over 10 million.

Micro slowdown and the regulatory uncertainties impacted our loan recommendation business in 2018. Revenues from recommendation services for loans decreased by 9% to RMB 1,015 million in 2018 from RMB 1,120 million in 2017, primarily due to the decrease in the number of loan applications on the company's platform, which was partially offset by the increase in the average fee per loan application.

The number of loan applications on our platform was approximately 71 million in 2018, decreased by approximately 21% from the prior year, mainly attributable to the slowdown in lending activities resulting from credit and liquidity tightening in the third quarter of 2018 as well as market adjustment within the new regulatory framework since the end of 2017. The average fee per loan application increased to RMB 14.2 in 2018 from RMB 12.5 in the prior year.

Revenues from advertising and marketing services and other services increased by 152% to RMB 246 million in 2018, from RMB 97 million in the prior year, primarily due to an increase in the big data and risk management services, which increased 194% year-over-year as well as an increase in revenues from advertising services provided to credit card issuer and other advertisers.

The efficiency gain discussed above is also a major theme of the whole year of 2018 as we have continued to execute and deliver our strategy and at the same time to strike a balance between growth and efficiency and the fast-changing industry dynamics.

The improvement in operating efficiency, particularly on the front of traffic acquisition and matching capabilities resulted in sales and marketing expenses, excluding share-based compensation as a percentage of revenue down to 77% in 2018 from 84% in 2017. Consequently, non-GAAP adjusted net loss, which excluded share-based compensation expenses from net loss decreased by 69% to RMB 29 million for 2018 from RMB 94 million in the prior year. Non-GAAP adjusted net margin improved to minus 1.4% compared to minus 6.5% in the prior year.

Share-based compensation recognized in cost of revenues, sales and marketing expenses, R&D expenses and G&A expenses were RMB 131 million in 2018 and RMB 108 million in 2017 in total.

Share repurchase plan. Previously, we announced in August 2018 that our Board of Directors had approved a share repurchase program, which authorized the company to repurchase an aggregate value of up to USD 20 million. As of February 22, 2019, the company had repurchased approximately USD 15.1 million of shares under this program.

We maintained our ultimate confidence in our business strategy, strong fundamentals and the long-term prospects. As such, our Board authorized another USD 10 million for the share repurchase to demonstrate our confidence as well as our commitment to maximize shareholder value.

Now the last piece is outlook. Our guidance for the first quarter of 2019, based on the company's current estimates, total revenues for the first quarter of 2019, are expected to be within the range of RMB 600 million to RMB 630 million.

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) And the first question comes with -- from Piyush Mubayi with Goldman Sachs.

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Bill Liu, Goldman Sachs Group Inc., Research Division - Associate [2]

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This is Bill on behalf of Piyush. Congratulations on this solid quarter. My first question is about our revenue. So I saw that there's a sequential improvement in our credit card volume and to a less extent pricing.

So I just wonder that based on the current guidance and the current outlook in Q1, do you expect this to continue in the next couple of quarters, given that we have seen some seasonality in historical years, but from the guidance it appears that seasonality for -- at least for Q1 is no longer an issue?

And then my second question is about our expense, especially sales and marketing. So I wonder what is the rough -- is there any color on the mix between the traffic, i.e. organic traffic and the -- any platform how we acquire external traffic and what is the sort of, expense implication from that mix change?

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

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Okay. Thank you, Bill. Let me take your questions. So firstly, regarding our revenue guidance of RMB 600 million to RMB 630 million provided for the first quarter, I think a couple of things.

Firstly, I think for the loan recommendation services, we are seeing strong recovery starting from the -- not only the fourth quarter but also, as we mentioned earlier, starting from September last year, as we are seeing more and more positive signals from the regulators and also more liquidity is injected into the real economy, the government encourage the financing to the SMEs and to the consumers to further grow the economy.

So this is why we are seeing strong sequential recovery of the loan recommendation on our platform, both in terms of the volumes and also in terms of the unit price. I think this strong momentum will continue into early 2019. So we would expect strong -- we will expect -- but anyways, first quarter is -- we also have the seasonality impact in terms of the Chinese New Year and some other factors.

So year-over-year, we think the first quarter will have strong growth. But sequentially, I think, everyone should expect that will be a dip compared to the fourth quarter last year.

And also, back to your question on credit card, we will also expect that credit -- we will have a nice quarter for the quarter -- fourth quarter -- for the first quarter of 2019. But there are also some seasonality factors for the credit cards because the banks, particularly the larger banks, they are still fine-tuning their annual budget in the first quarter. So that [doesn't have] impact on our credit card business. But anyway, year-over-year, we expect growth. But sequentially, we would expect a reduced compare to the fourth quarter.

Regarding the revenue mix, I think I can provide more color in terms of the annual number, because for quarter-over-quarter there could be some fluctuations between the different business lines, but for our outlook for the full year 2019, I think it will be -- the mix for the 2019 will be similar or comparable to the fourth quarter 2018.

Because during the last year, although there's -- it's quite a volatile year, but we as a platform connecting users with financial service providers, we have our revenue mix adjusted to a healthier structure compared to the before. I think what -- this would be a solid foundation to fuel our future growth. So this is, I think, the question about the revenue, the sequential trend into the first quarter and our estimate of the outlook, the revenue mix going forward.

And secondly, to your questions, the acquisition, the sales and marketing expenses. So in the fourth quarter, our organic traffic was around 40% of our total traffic, which is the main driver for our efficiency gains in terms of user acquisitions. And we can share a bit more about the traffic distribution among different channels.

So in addition to the total -- yes, in addition to organic traffic, so we also deployed our sales and marketing budget into info feeds, app stores, search engine and social media partner program and some other alliance, some other marketing alliance.

So a rough breakdown into these categories is that info feeds may account for 15% of our total traffic in fourth quarter, app stores around 15 -- another 15%, search engine around 10% to 12% and our social media partner program and other marketing alliance, that means the long tail channel -- marketing channel we developed over years, that accounts for around 18% to 20%. That's a rough distribution of our traffic distribution in the fourth quarter.

I think the efficiency gains as we mentioned that firstly, we should [thank] to our technological capabilities, which improve -- which help us to improve our management capabilities into the fourth quarter. The management capabilities means how much percentage of traffic that we can convert into a loan application or credit card application so that we can monetize.

So into fourth quarter, our rough conversion rate from our monthly active user to the number of loan and credit card applications is roughly 12%. And secondly, of course, the traffic acquisition cost, the media always want to charge higher price. So in terms of single user acquisition cost, it -- in the bullish market is always going up.

So the efficiency gain for us is firstly to improve our matching capabilities and also you may notice that our unit price for credit card and loan recommendations also increased sequentially in the fourth quarter. That means we can help our financial services providers to broaden the coverage in terms of the user acquisition and also help them to improve their efficiencies.

So better monetization also contributes to our efficiency gains. I think that's -- yes, that's my answer to your 2 questions, revenues and expenses. I'm not sure whether it's helpful to you or not.

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Bill Liu, Goldman Sachs Group Inc., Research Division - Associate [4]

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It's very helpful.

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Operator [5]

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And the next question comes from John Bai (sic - John Cai) with Morgan Stanley.

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John Cai, Morgan Stanley, Research Division - Research Associate [6]

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I have a few questions. I think, first one is on the loan recommendation revenue. The number is strong in the fourth quarter and I just wonder if we can share some breakdown by institutions, i.e., how much are from P2P and how much are from license institutions. And, obviously, with the tightening on the P2P industry, how would that impact our loan recommendation revenue outlook for 2019?

Or more in general, what's the management's assessment on the P2P industry under these regulations and/or in general overall the online lending industry? So that's the first question.

And my second question is on the cash side. So, obviously, we turned profitable in this quarter and potentially, with the efficiency gain, we might have better cash flow going forward. So with like more than RMB 1 billion cash on the balance, what's our trend on that?

And the final question is more generic. It's on the strategy side. So on the -- we have heard the note that you want to balance the growth and the efficiency. So just wonder, does that mean we can maintain at the current efficiency, i.e., maintain profitable while continuing to grow our business looking forward?

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

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Okay, thank you, John, for your questions. So first question is regarding the revenue breakdown among the different financial -- different type of financial institutions. So as a practice, we always -- in the previous quarters I think we discussed this breakdown several times. So we will -- I will follow the same practice [to my best knowledge] to discuss the number.

So firstly, in terms of -- so first, I would give out the number of our total revenue breakdown. So in the fourth quarter, we have around 52% of our revenue coming from the banks. So keep in mind, the majority of this part is contributed by the credit card. So the total credit card is around 40% of total revenue in the fourth quarter.

So -- and then we will have the P2P part. I think everyone has a interest to know the number. So as of the fourth quarter, the P2Ps contribute to around 16% of my total revenues. And then the remaining revenues comes from the nonbanking licensed financial institutions, including consumer finance company, microlending company and other license players.

So this is same as we discussed before. So this is the distribution number and there's also statistics of our top 50 revenue contributors. I think it's representative of the company's overall revenue stream. So that's a rough number. It's -- I think it's quite similar -- changed not that much compared to third quarter 2018. So that's your first question.

And also you want us to discuss particularly about the revenue from the P2P and any regulatory impact in terms of the outlook into 2019. I think the regulation is already out there and different people have different expectations of the P2P industry. I'm not an expert in this regard, but -- so I want to focus more on the impact on us.

So the -- we took a look into our major P2P revenue contributors. And also you know that we have loans (inaudible) the research institute publish the P2P rating report every month, every quarter. So we consulted with our experts and further looked into the names of the P2P guys working with us.

So among the P2P revenues, so our best guess is around 3/4. I mean, 75% of the revenue underlying the P2P companies have the large probability to get registered in the future. And probably the remaining 1/4 of the revenue probably is at risk, but I don't have the answer because -- so as far as we know currently they submitted the self-inspection report and are waiting for the regulatory inspection and the further -- regulatory further inspection.

So that account for less than 5% of my total revenue. So that could be a big impact going forward. And also, in terms of the regulatory impact into 2019, I think first quarter, it's already January and February. We have strong confidence to deliver the number we provided in our guidance.

But entering into the second and third quarter, there might be more stringent regulatory implementation because at that time there could be the pre-registration process for the P2P guys and there could be more regulations published in terms of the industry. But I think overall, in terms of the regulatory environment in 2019, we would expect 2019 would be a better year in terms of the visibility and the stableness.

Okay, that's -- and your third question is about the cash flow. Yes, we still maintain a strong cash balance sitting on our balance sheet. I think for 2019, in terms of the efficiency gain, I think the management strives to continue to deliver our strategy and at the same time to have -- to deliver the efficiency -- our operating efficiency down the road.

But at the same time, we should also -- yes, please be reminded that there are certain initiatives we would like to launch in 2019, including the branding, the user engagement and also some new product offerings. So we may have some upfront investment into these new initiatives.

So I think for the existing product and the business lines, we will continue to deliver the efficiency. But in terms of the new initiatives, we don't have a clear view for now, but we will keep you guys and the investors updated when we have any progress in that regard.

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

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John, this is David. You asked me a question. We have RMB 1 billion in our balance sheet -- over RMB 1 billion, right. And it looks like it's a big number. You asked a question how we're going to use it. I mean, if you compare RMB 1 billion -- RMB 1 billion-plus maybe compared to our mission, our mission is to become everyone's financial partner, right?

And we have just a little over 100 million registered users, right? We want to grow the business to 200 million Chinese consumers, SME, maybe 500 million, maybe 1 billion worldwide, right? If you compare RMB 1 billion with 1 billion users, I mean, down the road, 10 years -- maybe 5, maybe 10, that's not sufficient enough in our view.

So that's why Oscar also mentioned -- I mean, a couple of initiatives we have planned for this year. We have also a long-term plan. But let me just mention a couple ones.

First is user acquisition, right? How to grow this business into just a little over 100 million registered users or less than 10 million SMEs to 5x, maybe 10x. That's number one.

Number two, we're going to invest heavily, strategically in our big data risk management service, including in talents, including in like strategic data partnership. We are going to maintain high growth. But in SME, we are going to generate positive cash flow for this big data risk management service this year, yes. We are going to invest for growth for next year and the years beyond, right?

And also, there are other financial products, like retail financial products, such as wealth management, we haven't really done much yet. But for loans, we're doing pretty well in retail loans. SME loans, we're going to (foreign language) -- auto loans, right? In the -- also even for consumer loans with high credit limit. We launched our initiative we call [shàngshan xià xiang]. I mean, the translation in English, we say it's expand and penetrate into affluent and underserved user base.

We still have a few hundred million underserved user base in China. Of course, worldwide, we haven't penetrated. So that's the path. We're going to invest in innovation, some -- like insurance, wealth management, auto loans. We're going to have some special project investing in that.

And talents, I mentioned that. We have close to 1,000 people. We are going to invest a lot of money in our HRIR, our corporate governance, our infrastructure, our training program. And last but not least, we spent a little bit money last year in strategic investment. We acquired a big data risk management company, I mean, high growth. And we are strengthening our positioning in the sector.

And as we could see, if we have good data company, AI company, a good team, we don't mind to spend a little bit more money on that part. So for this year, maybe that's why I've been [in a zone B]. I mean it's not enough in our view. I mean, that's just our take -- our management take for this question.

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

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So, John, do you have any follow-up questions?

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John Cai, Morgan Stanley, Research Division - Research Associate [10]

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So yes, just a quick follow-up on, yes, I think obviously, there's plenty of growth opportunity out there. And I think in the press release, you also mentioned growth in efficiencies. So basically, do we expect like continued profitability down the road while maintaining [target] obviously?

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Oscar Chen, Jianpu Technology Inc. - CFO [11]

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Yes, I think it's part of our answer to your cash flow question. So I think, for the existing products and business lines, the management strives to continue to deliver our efficiency for 2019 and the years beyond.

But as David mentioned, we may have some expenses -- or we may incur certain expenses of our headcount or some other related expenses in our new initiatives. So we are not sure the new initiatives will bring how much revenue. It's new initiatives; no one has the answer. So yes, I think, that's the best answer we can provide for now.

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David Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [12]

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Yes, we will have positive cash flow for some business that we are leading in the marketplace, right? We are increasing our operating efficiency. However, we do invest in technology, in people, in strategic investment in talents, user growth, right? And also, actually for the brand. We want to build not just Jianpu as a brand -- the ultimate brand.

We want to be everyone's financial partner. If every Chinese consumer and SME, if they're looking for a financial product, they'll think about our brand. I mean, that's also the part -- we want to invest a little bit on that part as well. So the profitability, I would say, I would put that behind all other things I've just talked. We do want to invest strategic first.

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John Cai, Morgan Stanley, Research Division - Research Associate [13]

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That's very helpful. And congratulations again on the strong quarter.

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Operator [14]

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And the next question comes from Alex Yao with JPMorgan.

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Alex C. Yao, JP Morgan Chase & Co, Research Division - Head of Asia Internet and New Media Research [15]

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I have 2. Number one is regarding your business momentum. What exactly is driving the strong growth momentum and how sustainable is it? I think in the prepared remarks, you guys talked about easing the regulatory environment coming from the government to encourage the financial institution to lend out more money to the individual consumers and SMEs. How exactly does this government message transmit to the financial institution and to the consumer behavior?

If I understand correctly, the legal trend of 36% annual interest rate remains unchanged. So has the financial institutions changed any of your product structure? And how exactly does this policy in environments improve your business momentum? And how should we think about the growth momentum in the coming quarters?

And then secondly, now that you guys have reached the first profitable quarter, how should we think about the path to profitability in the next 1 to 2 years? Maybe perhaps you can share with us the unique economics between the loan business and the credit card business. And also what are your margin most sensitive to? Is it ARPU or revenue mix or user retention rate? Any color would be helpful.

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Oscar Chen, Jianpu Technology Inc. - CFO [16]

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Okay. Thank you, Alex. Let me answer your question first. So for the recovery, you mentioned a strong growth momentum of the loan recommendation business and how sustainable it is. So I think this question, we shared that color from the macro level.

I think, of course, still the macro -- the underlying drivers from the -- I think you may notice that in June that the overall banks' credits extended to the enterprise and the consumers reached a historical high, and also the so-called social financial model (foreign language) also is a record high in January.

So I think behind that, I think the -- I'm not an economist, but normally our -- the activities -- lending activities on our platforms are to some extent strongly correlated with the liquidity and the credit facility available in the market, where there is more liquidity because, as we analyzed before, the users' demand is always there.

The consumers, the SMEs, they want to borrow money to fund their lifestyle and to fund their business. The user demand is always there. Even in July and August in 2018, the overall -- it's a very tightening of the liquidity and the credit. So we still observed the users' activities on our platform.

But unfortunately, at that time, because of the shortage of funding across the board among the banks, P2P guys and other financial service providers, there's a shortage of product offering. So the users demand could not be met at that time. Now with sufficient liquidity and more products, our platform -- the lending activities on our platform naturally grows.

So regarding how sustainable it is, so we believe the retail financial services industry is still a growing sector down the road, particularly in terms of digitalization, in terms of financial inclusion. So that means the opportunities to us.

Of course, the outside environment, the regulations may have impact on us in terms of the -- they have impact on the financial institutions that offer product -- who offer product on our platform, and indirectly that will have impact on us.

So as we discussed -- as we answered the first question from those analysts, so we would expect there could be some uncertainties or challenges around the time of the P2P registration or preregistration or whatever inspection down the road.

So it could be the second quarter or it could be the third quarter because it is largely expected the P2P registration, the deadline into June this year probably would be further pushed back by another few months. So that could be the impact, but we still believe this will be the short-term volatility -- short-term impact on us.

Looking to the long term, we still strongly believe the retail financial services sector in China will further grow. And we as a platform, we can capture the trends, we can help the financial service providers to do better job in terms of digitalization, and so we will benefit from the overall trend in the long run.

So your second question, regarding the profitability. So I think you want us to drill down further into the potential drivers that could impact on our profitability. So I think to your question, if you look into the trend in the past 4 quarters, I think our profitability comes from a few factors or driven by a few factors.

Firstly, it's still our efficiency of traffic acquisition. So that means if we have more organic traffic or more repeatness, that will be helpful in terms of the traffic acquisition because we still believe the unit traffic acquisition cost is always trending up. So as long as we can have more organic traffic and more repeat users, that will be helpful.

And secondly is the conversion. So that depends on our technological capabilities, how we can match the users' demands with the appropriate financial service products. So another impact on this is -- another thing that would contribute positively to the so-called conversion is that we have more -- if we can have more product online, we can help users to find -- to meet user demand better. So this is why we are -- David said we are going to launch some new initiatives. So we want to bring more financial products online. So every single -- that means for every single user, we can provide more services -- more product and more services to them. That will also be helpful to the profitability. So it will also be helpful to the ARPU. And thirdly is the unit price we can take from the financial service providers. You can view the upward trend in the last 2 years on both credit card and the loan recommendations. So we are quite confident we can keep up the upward trend. That means we can further grow the unit price for credit card and loans. And also, the reason behind that is that we think we continue to bring more value to the financial service providers, not only the user acquisition but also we can help them to do prefiltering, presegmentation. So that all help them to lower their acquisition cost. And also in terms of your question about the product offerings available on our platform, we didn't see much change in the fourth quarter this year.

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Operator [17]

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And the next question comes from Julie Hou with UBS.

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Julie Hou, UBS Investment Bank, Research Division - Associate Director & Research Analyst [18]

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I have 2 questions. First, could you provide some color on the growth outlook for credit card business in 2019? And my second question is on big data and risk management, could you give us an update on what kind of services you provide to financial service providers and how do you charge them?

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

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Okay. Thank you, Julie. So the growth outlook for the credit cards. So, yes, for the credit cards throughout the year 2018, we saw the great momentum and great demand from the banks. So in the fourth quarter, we added another 3 banks on to our platform to have them to acquire credit card users. So as of now, we have 25 credit card issuers working with us. So I think, we are the largest online platform or network in terms of online credit card issuance. So the bank added -- we added in the fourth quarter including one of the state-owned banks and the 2 -- one joint-stock bank and one city commercial bank. So now we have 25 banks. We have all the 5 state-owned banks, 11 out of 12 joint-stock banks. Unfortunately, now it's published by the government, now the state-owned banks turns to 6, adding the Postal Savings Bank. So we have to say we have 5 out of 6 state-owned banks, 11 out of 12 joint-stock banks with national presence and a couple of city or rural commercial banks. We are -- so I think into 2019, we expect to add more banks on to our platform and also at the same time, in terms of the -- we get more and more knowledge in terms of the credit card business. We are -- for this year's initiatives, we will not work with credit card center (foreign language) only. We will also work with the branch -- provincial-level branch of the big banks to further help them to penetrate the credit card issuance because we understand some marketing budget are also allocated from the centralized credit card center to the provincial-level branch. And so we also want to help them to fulfill their target. So we will go deep into the market to grow our credit card business. And also, you may notice that there are quite some press release -- news regarding the quality of credit card users, say, there is some risks in terms of the aggressive issuance of credit cards, something. Actually, that's an opportunity for our big data and risk management services. We already work with a couple of banks to help them to do online acquisition better. That means, we will -- for one bank, we have the joint modeling efforts with them to help them to target more precise credit card users and at the same time to lower risks. We will promote this kind of model to more banks plus its cross-selling efforts. And another thing in the fourth quarter is that we launched our co-branded cards with one of the banking partners. That's -- David just introduced. That's a card with a [well listed] logo and markup clients. So that will also be helpful to our credit card business and also to our brand. And we will continue to test this kind of initiatives to cooperate widely and deeply with our banks. So this will provide -- all these things, I think, will benefit our growth into 2019. So big data and risk management services, we provide -- in main category, we provide 3 levels of the services to the financial service providers, including data inquiry, profile inquiry and modeling exercise. So all these revenue -- all these data profiling and the modeling, we charge per inquiry. So for every inquiry initiated by the financial service providers, we charge them at a certain -- at a fixed price. So that's actually SaaS based services we provided to the financial services providers to do a better job in terms of risk management and online decisioning. So yes, we can talk later off-line if you have interest in our big data and risk management services. We believe this product will also be a strong growth driver for our business in 2019.

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

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Julie, about the credit card growth and the market potential, our growth, in a nutshell, we're going to grow our credit business at a very high speed. In terms of the overall market, I want to just share with you a couple of data points. I mean, like in China, average credit card per adult is 0.5. And also, last year Chinese urban family, like the credit penetration rate was only 32% -- 31.6%. It's much lower compared to U.S., 77%. In countryside -- in Chinese countryside, third or fourth-tier countryside, the penetration rate is very much lower. So I actually personally started my career in a U.S. credit card company called Capital One 20-plus years ago. I also worked at American Express more than 10 years ago. If we compare China, the credit market or retail or consumer credit market, the stage or the kind of adoption, it's like the U.S. maybe in 1995. Of course, the digitalization -- online in China is -- like today is like maybe the U.S. in early 2000s. So that's why we will see the Chinese banks, they would allocate more of their capital to the retail businesses, in the credit card businesses. So credit card -- in some retail bank, credit card accounts for over 1/3 of the bank's total profits. And also the overall market will grow the more users need access to credit. And of course, the secondary growth driver will be online, shifting from branch network direct sales, shifting from offline to online. And also smaller banks, we see the rural commercial banks, the local banks started launching retail businesses, launching like credit card businesses. We have signed up 25 largest online credit issuers in China. Last quarter, we signed up China Construction Bank, which is one of the top 4 banks. We are going to keep signing up more large bank and medium-sized bank. And also keep in mind, we have started -- we have invested heavily in the matching recommendation and conversion risk management capabilities. We have reached the scale, so the scale, the network effect. And we have increased efficiency in terms of approval rate, in terms of helping credit card issuers manage their like fraud detection better, risk management better. That's why you have seen the [positive improvement] of economics unit price is much better compared to other smaller, like, platforms because we have the scale, we have the efficiency and we have the quality. So that's why are very confident that we're going to grow the business, I mean, at a very high speed.

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Operator [21]

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And that concludes the question-and-answer session. I'd like to return the conference back to management for additional closing comments.

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Qiuya Chen, Jianpu Technology Inc. - IR Manager [22]

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Thank you once again for joining us today. If you have any further questions, feel free to 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.

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David Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [23]

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Thank you.

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Oscar Chen, Jianpu Technology Inc. - CFO [24]

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Thank you.

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David Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [25]

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Have a good day, have a good night.

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Operator [26]

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