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Edited Transcript of JT.N earnings conference call or presentation 29-May-18 12:00pm GMT

Q1 2018 Jianpu Technology Inc Earnings Call

May 30, 2018 (Thomson StreetEvents) -- Edited Transcript of Jianpu Technology Inc earnings conference call or presentation Tuesday, May 29, 2018 at 12:00:00pm 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

* Yilü Chen

Jianpu Technology Inc. - CFO

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Conference Call Participants

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* Binbin Ding

JP Morgan Chase & Co, Research Division - Analyst

* 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 First 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, [2]

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Thank you, operator.

Please know 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 the press release and these discussions.

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 its 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 first 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 call will be available on Jianpu website at ir.jianpu.ai.

Joining us today on the call from Jianpu's senior management is 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 first quarter. Mr. Chen will then provide details 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 first quarter 2018 earnings conference call. We are pleased to report solid operating and financial results for the first quarter of 2018. Despite the first quarter always being a softer quarter due to a slower borrowing and financing activity around the Chinese New Year, we continued our strong growth momentum, recording revenue growth of 145% and a gross profit growth of 139% year-over-year; and enhancing the operating efficiency, with our non-GAAP adjusted net margin improved from minus 22.5% in the first quarter of 2017 to minus 5.9% in the first quarter of 2018.

Being a platform that covers financial products and the financial service providers of a full credit spectrum, Jianpu is ideally positioned to capture the changing market dynamics and drives growth across the board. We continue to see a shift in consumer demand towards credit card and other loan products and away from short-term microloan products. This shift is evidenced by a 400% increase in credit card volume compared with the same period of last year. Apart from significant growth in the volume, the unit price for credit card also continued to trend up on a year-over-year basis. The combination of a higher total credit card volume and a higher unit price resulted in an increase of 718% in credit card recommendation revenues in the first quarter.

The accelerated growth in our credit card business illustrates the scalability, efficiency and the nimbleness of our unique platform model, the strength of our robust user engagement capabilities and our ability to capture the dynamics of the retail financial services markets; and we remain confident in the growth trajectory throughout the remainder of the year.

Responding to the regulation guidelines on short-term microloans, we beefed up our quality control process, conducting a new round of internal review on December and removed the noncompliant financial products from our platform.

In the first quarter, we experienced a sequential decrease in loan application volume due to the combined factors of seasonality and the market adjustments to ensure regulatory compliance. Since early this year, we have seen improved level of clarity on the regulatory front. In December last year and in the first 2 months of this year, the industry has largely embraced and observed the impact of the shifting regulations. As we witnessed from the initiatives and the actions conducted by our financial service providers, the market has been recovering and we believe the worst is now behind us.

We're encouraged by the solid uptrend in volume and optimistic about healthier and stronger recovery in the coming quarters. With financial stability being a top priority for the country, we expect licensing requirements to continue to be a core focus of the new regulatory framework. In the long run, China's retail financial services market are likely to be dominated by licenses and registered financial service providers.

In light of the more intense competition and the new regulatory framework, we are seeing rising demand for risk management services among financial service providers. This has allowed us to rapidly expand revenues of our big data and risk management services. By utilizing the data and the insights we accumulated at the platform, we are able to help financial service providers to analyze the profile of its targeted borrowers, test and secure the most relevant data sources and structure the most efficient risk and credit models and algorithms. For example, with our integrated solutions, we have successfully helped our financial service provider lower the default rate by around 50%, while holding the approval rates unchanged. We have seen numerous success cases in the risk management service segment and more opportunities will be in the pipeline.

Within the first quarter of 2018, our big data and risk management services recorded a meaningful increase of over 300% compared to the same period last year. Furthermore, we continued to enhance our user engagement. User focus has always been one of the 6 corporate values of Jianpu RONG360. In addition to a variety of user-engaging content and tools, we strive to provide users with access to an extensive range of curated financial products.

By launching the initiative of (inaudible) affluence and underserved users, (foreign language) in Chinese, we had been further improving our matching and the recommendation capabilities and, as a result, achieved better segmentation and duration.

In the first quarter, we achieved 61% of growth in the MAU to 82.5 million compared to Q1 last year. At the same time, in response to the market adjustments, we proactively managed and optimized our marketing spending among fragments of measurable and trackable marketing channels. As a result, we achieved a better return on investment in a challenging marketing environment, evidenced by a decreasing sales and marketing expenses as a percent of total revenue of 77% in the first quarter of 2018 compared to 90% in the first quarter 2017 and 85% in the fourth quarter 2017.

In summary, with our fruitful first quarter now behind us, we are comforted by the belief that we now operate within a more structured regulatory framework with a greater policy clarity and certainty. The enormous demand for consumer and SME credit in China is continuing its growth trajectory. And as an independent open platform that covers a full spectrum of financial products and financial service providers, we are well positioned to capture emerging opportunities within the evolving regulatory framework.

Looking ahead, we are confident that a healthier and a more sustainable marketing environment will benefit the industry as well as our business more in the long run. We are working diligently to enhance our products and service offerings to better serve both our users and financial service partners to improve our operating efficiencies. We are confident that we will be able to generate strong growth and provide value to all stakeholders in the long run.

With that, I will now turn the call over to our CFO, Oscar, 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 first quarter 2018 financial results that continue to demonstrate our solid growth and improved efficiency.

In the first quarter, we realized total revenue of approximately RMB 336 million, up 145% from the same period of last year and exceeding our revenue guidance of RMB 320 million. The major driver of increase in total revenues was significant growth in revenue generated from our recommendation services, which increased 131% year-over-year to RMB 289 million.

Within the category of recommendation services, revenue from credit card recommendation services grew by 718% year-over-year to reach RMB 179 million. Revenues from loan recommendation services grew more modestly, up by 46.5% year-over-year to RMB 160 million. The more modest growth in recommendation services for loans reflect a slowdown in applications for loan products due to the seasonality and the market adjustments within the new regulatory framework for short-term microloans.

Our credit card business has been the star performer since the second half last year. In this quarter, the credit card volume increased by approximately 400% from the first quarter 2017. Also in the first quarter, our average fee per credit card was RMB 97.15 million compared to RMB 77.33 million in the first quarter 2017 and RMB 104.5 million in the fourth quarter of 2017. The sequential decrease was largely due to the absence of the (inaudible) incentive in the first quarter. Regardless, we're certainly confident about both the volume and of the average pricing trends of our credit card business and expect to see strong performance going forward.

Now I'd like to walk you through more details of our first quarter 2018 financial results. Total revenues for the first quarter of 2018 increased by 145% to RMB 335.7 million from RMB 137.3 million in the same period last year, primarily due to the increase in revenues from recommendation services. Total revenues from recommendation services increased by 131% to RMB 289.3 million in the first quarter of 2018 from RMB 125.2 million in the same period last year.

Revenues from recommendation services for loans increased by 46.5% to RMB 160.1 million in the first quarter of 2018 from RMB 109.3 million in the same period last year due to an increase in both number of loan applications on the company's platform and average fee per loan application.

The number of loan applications on the company's platform was approximately 12.1 million in the first quarter of 2018, representing an increase of approximately 21% from the same period last year. The average fee per loan application increased by 21.4% to RMB 13.27 in the first quarter of 2018 from RMB 10.93 in the first quarter of 2017.

Revenues from recommendation services for credit card increased by 718% to RMB 129.2 million in the first quarter of 2018 from RMB 15.8 million in the first quarter of 2017 due to the increase in both credit card volume and average fee per credit card. Credit card volume for recommendation services reached approximately 1.3 million in the first quarter of 2018, representing an increase of approximately 550% from the same period last year. The average fee per credit card increased by 25.6% to RMB 97.15 in the first quarter of 2018.

Revenues from advertising and marketing services and other services increased by 280% to RMB 46.4 million in the first quarter of 2018 from RMB 12.2 million in the same period last year, primarily due to an increase in revenues from big data and the risk management solutions as well as an increase in advertising services provided to credit card issuers.

Cost of revenues increased by 183% to RMB 49.3 million in the first quarter of 2018 from RMB 17.4 million in the same period of 2017. The increase was primarily attributable to the increases in traffic acquisition costs of advertising and marketing services, data acquisition costs and the short message service fees.

Gross profit increased by 139% to RMB 286.4 million in the first quarter of 2018 from RMB 119.9 million in the same period of 2017. The increase was primarily attributable to the continuing growth in revenue.

Sales and marketing expenses increased by 111% to RMB 259 million in the first quarter of 2018 from RMB 123 million in the same period of 2017. The increase was mainly due to the growth in marketing and advertising expenses and the payroll-related costs.

Research and development expenses increased by 107% to RMB 43.6 million in the first quarter of 2018 from RMB 21.1 million in the same period of last year, primarily due to the increase in payroll-related costs, mainly for the new hiring of R&D people to further enhance our big data and risk management service capabilities.

General and administrative expenses increased by 970% to RMB 42.8 million in the first quarter of 2018 from RMB 4 million in the same period of last year. The increase was mainly due to the recognition of share-based compensation, including employee options granted historically with the performance target contingent upon IPO and the new options granted under 2017 Share Incentive Plan to the management and executives in December 2017 as well as increase in professional fees for maintaining our listing status.

Share-based compensation expenses recognized in cost of revenues, sales and marketing expenses, research and development expenses and general and administrative expenses in the first quarter of 2018 were RMB 37.3 million in total.

Loss from operations increased to RMB 59 million in the quarter from RMB 28.3 million in the same period last year.

Income tax expenses was 0 in the first quarter of 2018, compared with RMB 3.3 million in the same period of 2017. The decrease of annualized effective tax rate for the first quarter of 2018 was primarily due to the change of cost and expenses structure and lower enacted tax rates of the subsidiaries in 2018.

Net loss increased by 80.7% to RMB 57.1 million in the first quarter of 2018 from RMB 31.6 million in the same period last year. The increase was primarily due to the increase in share-based compensation expenses.

Non-GAAP adjusted loss, which excluded share-based compensation expenses from net loss, decreased by 35.9% to RMB 19.8 million in the first quarter of 2018 from RMB 30.9 million in the same period last year. Non-GAAP adjusted EBITDA, which excluded share-based compensation expenses, depreciation and amortization, interest income and expenses and income tax expenses from net loss for the first quarter of 2018 was a loss of RMB 18.6 million, representing a decrease of 30.3% from the same period last year.

Net cash provided by operating activities was RMB 24.7 million for the first quarter of 2018, compared with net cash used in operating activities of RMB 62.6 million for the same period last year.

As of March 31, 2018, the company had cash and cash equivalents of approximately RMB 1.4 billion and a working capital of approximately RMB 1.4 billion.

To continue with that David just had discussed, during the past several months, we witnessed some fairly significant change with regards to the regulatory environment for the retail finance and the consumer credit market in China. We believe the periods with the greatest uncertainty is now likely behind us and we certainly welcome a more balanced and regulated market as we believe it will benefit us in the long run.

What I want to emphasize again is that Jianpu is a technology-driven platform and does not assume any credit or liquidity risk. In this regard and on what we call a diversified network and the technology capabilities, we are well positioned to capitalize on any new market opportunities.

Now for guidance. Building on our solid first quarter financial results, we expect second quarter 2018 revenues to reach RMB 460 million, representing a year-over-year growth of 80%. Our quarterly progression during the year reflects our estimate in the current market and regulatory environment and is subject to uncertainties and changes.

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 this morning's first question comes from Piyush Mubayi from Goldman Sachs.

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Piyush Mubayi, Goldman Sachs Group Inc., Research Division - MD [2]

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Congratulations on a strong number despite the regulatory issues and challenges we faced. Now having been through the worst of that period, I wonder if you can just take us through how the ecosystem has been building up on -- well, with banks, nonbanks and nonbanking financial FSPs through the first quarter? And how does it look for the rest of the year? That's my first question. And the second question is with regard some -- is there any color you could shed on how the credit card approval process has been trending? Those numbers have been exceptionally strong. And then just taking off from there, if you could give us -- Oscar, if you could just talk about the RMB 460 million guidance that you're giving for the second quarter, the 80% growth, how does that break down between the 2 large clusters of businesses that you have? And then if I can ask a fourth question please, if I might, if you could just look through the preliminary through the rest of the year and, if at all possible, give us a sense of how does the rest of the year look?

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

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Okay. Thank you, Piyush. Let me answer your question first. Firstly, to clarify your first question. Your first question is about the bank and other licensed players in the market and their contribution to our revenue, right? Am I understanding your question correctly?

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Piyush Mubayi, Goldman Sachs Group Inc., Research Division - MD [4]

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That as well as how the ecosystem is building up, given all the regulatory changes.

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Yilü Chen, Jianpu Technology Inc. - CFO [5]

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Okay. So firstly, I think looking into the current market landscape, we think in the retail financial market and the consumer lending market, the bank and the licensed players are currently dominant in this market. And in our view, we think these licensed players, including the traditional market players and the emerging licensed -- emerging players that will get licensed in the future, so regulating this market by license will be one of the focus of the regulators going forward. So we believe the licensed players, including banks, licensed -- nonbank licensed players and the newly licensed financial service providers will continue to dominate this market. So talking about our current relationship with these licensed players, so firstly, in the past quarter, we have well maintained our existing relationships with the traditional financial service providers and established partnership with new ones. So one data point we can share with that, in the past quarter, we successfully brought onboard 39 banks and a nonbank licensed financial service providers. That -- to be more specific, that excludes the microlending licensed players regulated by the local financial office regionally.

And also with the existing financial service providers we have, we have renewed here. In contrary, we've seen large budgets and high volumes, volume-raising incentives. Also, we're taking new initiatives, such as deep cooperation in big data and customer acquisition, which will give us great future income potentials. So that's also to your question about the -- to your first question.

I think for the guidance, I will leave the question for the credit card to David. And to your first question regarding the guidance of CNY 460 million in the fourth quarter -- or in the second quarter, we would expect that price -- that loans would constitute around 57% of our revenue. And credit card will contribute 1/3 and the remaining will come from advertising services and data -- big data and risk management services. So that's the breakdown for our guidance in the -- for the second quarter.

And also for the outlook of the rest of this year, so we're -- firstly, we expect credit card will continue to deliver strong results for the remainder of this year. And also for the loan recommendation, for the loan business line, we are seeing a clear trend of recovery, so we would expect loan volume will come back in the next few quarters. And given the user demand is there, the supply side will recover by themselves. So we're confident with -- as we've said in our previous earnings call, the regulation could have some hits on the first quarter and second quarter this year. But we are very confident to deliver the second half of this year. I'm not sure what David has to say.

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Daqing Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [6]

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So Piyush, this is David. I know you have 4 questions. First question, I understand that you're asking the ecosystem, the landscape change among the financial service providers, the bank, nonbank finance company, other tech-enabled lending company, I know Oscar has given good feedback. But let me just add two points. I mean, the first -- the key driver in the change of the market are the interest rate utilization and also the online or digitalization of the whole consumer lending or SME lending space, right? We've seen new entrants in terms of foreign banks, large banks and now the ones who do online lending and there are also other licensed guys like consumer finance companies, independent finance companies and also tech-enabled lenders. They all want to capture the growth of the whole space and they want to invest their budget in terms of more digital marketing, in terms of big data, risk management capabilities, in terms of better online services.

So that, we see definitely more competition just among the financial service providers. We believe, actually, tighter regulation and more competition actually provide better opportunity for independent open platform like us because when banks or when financial service providers compete, user wins.

We -- as a platform, we provide users better search and smarter recommendation and we enable our users to make better financial decisions. We also enable financial service providers to increase their marketing efficiencies, risk management capabilities. So that's -- we believe that close market competition and -- will actually create opportunity for a company like us.

And then secondly, in terms of the -- I mean, we talked a little bit about the mix or the composition of the financial service providers. As Oscar said, we definitely see a trend of increased number of products, increase of revenue in terms of licensed bank and nonbank finance companies. Our credit card business is growing very nicely.

Another is installment loan, high growth; auto loan; we see the interest in SME loan, high growth. And also we see top banks, top 10 banks, now they set up inclusive finance department. They want to invest more of their capital and their internal resources in SME lending and also to underserved corporation lending. So those are actually the opportunities that we'll be able to capture. And as we, as a platform, covering all products and all credit sections, we're able to work not only with traditional financial service providers like banks, the newer guys like consumer finance companies, tech-enabled lenders; we are helping them to expand in digitalization and also the big data and risk management services. So with that, definitely, we're able to capture the trend growth of the ecosystem. So that's the first one.

The second one, I believe, Piyush, you asked that you want to put some color on credit card approval process, right? So let me -- Oscar, let me -- I'll answer this one. So actually, credit card business is a high-growth business. We have seen in the last 5 years -- we launched our credit card business 5 years ago, but really the platform or the (inaudible) effect that we see take off, past 1.5 years, you will see this continuing trend. It's a key driver of both the demand from the consumer side, the average penetration rate, CRO -- so on the penetration rate, CRO compared to the U.S. and the approval process, the CRO comparison -- the approval rate with CROs, the average approval rate, if you blend all the 21 credit card issuers, it's still around 20%. We definitely have seen the credit card approval rate grow from less than 10% to around midteens, it's 15% in Q1 2016 and to about 21% in Q1 2017. And last Q1 2018, we have increased that to 24%, and that's at blended. However, if you look at individual credit card issuers, so 1 of the top 5 largest credit card -- 1 of the top 5 banks in China is actually one of the largest credit issuer. When we first worked with them 5 years ago, their approval rate was less than 10%. Now we were able to increase that from 20%. About this large issuer, their approval rate has increased to over 30%.

So that's -- behind us, that's our better matching and recommendation, our better technology we leverage and more data on the user side and also the financial service providers provide us closed-loop approval data and also like application for information. So by providing those informations to us, we're able to better filter the bad guys and default guys. And also, we have more credit card issuer now starting to provide us a user base, a user-level information in terms of the charge-off, I mean, either in a sample basis or in a batch basis. So in that case, we were able to help financial service providers, credit card issuers to improve their risk management: reduce their charge-off rates or improve their monetization. So as a result, we have seen the year-over-year increase of the -- that bandwidth for approval, we have seen -- you guys saw the number Oscar just said, that from Q1 last year to Q1 this year, we've seen the bandwidth for approval increase over 21%. So behind all these, there is big data, technology, artificial intelligence and also the continuous improvement, so we have built the first mover advantage. So that the technology solution was built over the years. It's not built by 1 quarter or by 1 month, right? So, however, we do see opportunity to increase the approval rate and to increase the bandwidth for approval over the -- year-over-year. And we signed up some big guys, 1 of the top 4 credit card issuers. We signed up 2 big guys, ICBC and the Bank of China. And for those big guys, first year of fully incorporating, we see the approval rates were still below the average. It's a huge loan to improve. It takes time to improve the user experience, improve the matching rates, improve the commercial rates, improve the approval rate over time. And we believe that there's also a lot of room for us to grow the approval rate and the monetization.

So Piyush, did that answer your second question? And also you had, I think, a third one, the projections for the revenue. Oscar has answered that. And there's a fourth one, if I took the notes correctly, you're asking for the rest of the year projection. I think that's a good answer, right?

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Piyush Mubayi, Goldman Sachs Group Inc., Research Division - MD [7]

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That's only if you can possibly comment on the rest of the year, or even broad guidelines on whether the run rate we're seeing in the second quarter can be maintained through the rest of the year.

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

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Yes, I think Oscar has shared the numbers. I mean, numbers, of course, the results of our improving operating efficiency, our improved -- our further investment in our talent, in our people, our data and our technology. And we see the growth, actually, the growth across the board, for all fronts, for all business segments, the loan business and even subsegments. We talked about the big companies and the more affluent people as well as the underserved people, the SME loan, the auto loan and it's a high credit line in summary loan, right? And the credit card business grew very nicely. Our big data, risk management, we have seen high growth. We will see further growth for the rest of this year. Even in the small segments, the other segments, we also saw strong growth as well. I mean, that's -- at the end of the day, the results will be better at stake.

And also, on the regulatory front, we probably will be asked that later, we definitely see the improved clarity and we see the continuing regulatory development in short-term microloan, but we definitely have -- actually, we see the dilemma that's still in the cap interest rate, et cetera, right? And TPG registration has been postponed. And we actually see the positive side of the regulation, some of the banks and nonbank finance companies, they're actually able to take the opportunities to grow, they are a retail business or like credit cards and summary loan business. So on the regulatory side, we see the worst is behind and we will see the growth for the rest of this year.

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Operator [9]

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And the next question comes from Richard Xu with Morgan Stanley.

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Ran Xu, Morgan Stanley, Research Division - MD [10]

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Two questions. First of all, on the credit card business, I certainly see the growth is quite impressive on the first quarter. Also -- but also see some fluctuation in the, I guess, average fee per card -- credit card, some very good number in the fourth quarter, some moderation in the first quarter. I'm just wondering, what are the key channels where the banks are cooperating with your firm? And what was really driving some of these fee volatilities? And from quarter-to-quarter, what should we expect going forward? I understand all of these are still within your rough guidance. I just want to see some, I guess, recent trends.

Secondly is, I remember you mentioned that basically there's less competition given the regulatory environment on sales and marketing expenses. Certainly, the first quarter cost is a little bit lower than our expectation. Just wondering what's the trend right now. What are we seeing in the second quarter as the loan volume recovery, whether your sales and marketing expenses will normalize as well? Or there's continued, I guess, less competition for commercials or for those commercial spots in China at the moment?

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

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Okay. Thank you, Richard. Let's answer your 2 questions. The first is about the credit card unit price, duration. So I think for the first quarter this year, we see -- saw more than 20% increase in terms of unit price. But over the last -- for the fourth quarter last year, you may see some quarterly fluctuation quarter-over-quarter. But one thing I want to -- you can see the steady quarter-over-quarter growth of the unit price of credit cards in the last year.

One outlier in the second quarter last year is the price drop. That's mainly because we signed up ICBC and BOC in the second quarter last year as we mentioned earlier. So all these large banks, we always start up the relationship with them with a lower price. And -- but every year, when we improve our [enhanced] technological capabilities to help them enhance our conversion rate and approval rates, we have always been -- raised our prices year-over-year. So for this year, we'll be adding some one-off to the large banks in the second quarter or third quarter this year. Probably, the mix of the newly added bank will contribute to some fluctuation of the unit price of the credit card, but we wouldn't -- because we already have a quite large volume in terms of number of credit card approval -- the number of credit card approvals, so we would expect for the remaining quarters, we should see -- at least for the year-over-year, we should see the pricing increase for the credit card at a blended level.

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

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Okay. Richard, I have one more point. So price -- unit price of credit card fluctuated because if you have new credit card issuers signed up, of course, that reduces the blend. Also, compared to Q4 last year to Q1 this year, the decrease, another reason was in Q4 last year, we had additional incentive, end-of-year incentive credit card issuers. That's a tailwind incentive. Keep in mind that the per unit price is primarily driven by, number one, quality of the approval; number two is the volume. At the end of every year, most of the credit card issuers, they try to meet their annual budget, that's why Q4, we get additional 10% and 21% for approval, a lot of times at a tiered price. So that's why in Q4, we always see a higher unit average price; but if you compare Q1 this year versus Q1 last year, we see a very nice 21% increase. So I mean, that sequential comparison is sometimes misleading. Just like Oscar said, sign up a new guy, you decrease. Also, we've restated the price, onetime first quarter. That's very important. So they are very good, increased 21%. So that we will see in Q2, Q3, even Q4 of this year with higher unit price, I mean, potentially. Of course, this is blended; we have to look at it systematically.

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Yilü Chen, Jianpu Technology Inc. - CFO [13]

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And to your second question, Richard, the marketing spending in the -- for the fourth quarter and for the first quarter, particularly in this challenging market environment under the new regulation. So as we told everyone before, we definitely reduced -- dropped in -- on our trend of the marketing -- user equity and cost, I think last December when the new regulation came out because of the marginal lenders' exit from the market. And yes -- and at the same time, we also proactively -- in the first quarter, we also had a hit in terms of the loan volume. So we proactively managed and optimized our marketing spending. So as a result, we achieved higher ROI and also lower sales and marketing as a percentage of revenue. You can see the number there.

So I think for the next quarter and in the second half of this year, so I think you have heard from other fintech traders that I think we took a quite optimistic view of the market trends down the road. And the others, I think, are all quite optimistic. So we're already seeing the user acquisition cost also recover a bit compared to the low end in the first quarter. But this will definitely result in higher acquisition costs. But we want to emphasize we are a platform -- we are a platform connecting users with our financial service providers and financial products. So we have the natural hedging effect of the platform. So better trend of the market will result -- will lead us to the path of monetization. So we are not so concerned about the increase of the marketing costs. We think we have -- as long as we have the path of monetization, we can -- we shall be able to afford the marketing cost. And with an optimist outlook for the remainder of this year, so our acquisition strategy will be -- down the road, will be the same as of last year. So we will manage our margin. So we will acquire the users. As long as we achieve a threshold of ROI, we will reinvest that gain to acquire more users. I think that will be our strategy under an optimistic market outlook. So we should able to achieve a comparable ROI to the last -- achieve an ROI comparable to the last year, full year I think.

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Operator [14]

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And the next question comes from Binbin Ding with JPMorgan.

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Binbin Ding, JP Morgan Chase & Co, Research Division - Analyst [15]

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This is Binbin calling on behalf of Alex. My first question is can you give us an update on the cleanup of online lenders and how does that impact your full year revenue outlook of 2018? And secondly, in terms of the regulatory tightening of the online lending industry, how does management think about the long-term growth strategy in response to these regulatory changes?

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Daqing Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [16]

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Binbin, can you repeat the first question? Because you were breaking up, and just we couldn't hear it in the room.

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Binbin Ding, JP Morgan Chase & Co, Research Division - Analyst [17]

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The cleanup of online lenders, and how does that impact your full year revenue outlook?

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

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Okay, got it.

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

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So the cleanup -- I don't know if I want to use the term "cleanup" of the online lenders. So after the regulation, firstly we are seeing higher where we're sat in the credit spread. So we conducted a new round of review of the product available on our platform and took out all the noncompliant products according to the new regulation. So I think for the lenders we have worked with -- for the microloan, micro online lending, so we are -- firstly, we worked with auto-capable P2P companies and micro-lending companies. So after taking down all of the noncompliant products, so all these -- I think most of the lenders until now, they have already come back with newly launched products, which is larger size, longer duration installment loan fully compliant with the regulation. So we see since December and also before the Chinese New Year, most of the lenders, they are adjusting their products, they are adjusting their credit -- they're adjusting the credit quality and also the funding source, some of the lenders. And then some capable lenders, they launched their new product before the Chinese New Year. And most of the remaining come back with the installment loan product after the Chinese New Year.

So this is -- we saw -- why we say we see the recovery of loan volume on our platform. So of course, there -- we should admit that there will be some hit in the first quarter and also partially in the -- into the second quarter because some short-term micro lending product no longer works under the APR cap. So volume-wise, we think for this year, our overall cost -- we still see the growth. We still expect our loan recommendation service revenue would grow year-over-year. Probably, we can share more data in our earnings call in the next quarter or the quarter after next. But the regulation, we do see that after the regulation, we do see the credit -- after regulation, we do see the user demand of the credit shifting from cash -- shifting from short-term microloan to credit card and other credit products, say, installment loans. So this is why we see credit card volume grew over 400% in the first quarter and also we see the -- our -- among the loan volume, we see the larger, decent-sized loan volume is ticking -- is growing. So I think that will be the outlook -- answer to your first question.

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

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Yes, Binbin, let me -- well, let us just add a few data points. Keeping in mind the Jianpu RONG360, we're working with over 2,000 financial service providers in different type of category, right? Banks, nonbank finance company, consumer finance companies like -- they're all licensed or the microfinance company or even microfinance company. Or P2P company, of course, the top ones there is already in the process of registrations. And so we do have the most diversified financial service providers covering the full credit spectrum, right? And that's unique -- put us in a very unique position. So number two, I want to give you guys a few other numbers.

So in the first quarter, among Jianpu's top 50 revenue contributors, more than 87% were generated by licensed financial service providers. Of course, we do cover some of the P2Ps, and it's only the top guys. We don't look at the non-P2Ps. So 87% are licensed financial service providers and there are also P2Ps who are currently undergoing provisioning process. And we expect that this number will change going forward. So that should give you a sense. Of course, the regulation now is very clear. It's (inaudible) regulatory path, we said it's undergoing short-term microfinance companies, the interest rate cap or other regulation in terms of collection practices, restriction in student lending and we -- that's the one we have a stringent process. And we have -- it's an ongoing process, review process. We now know -- hey, the guys here are actually also good product, good service, compliant with the law. And that's really the product our users need.

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Operator [21]

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

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Qiuya Chen, [22]

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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.

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Operator [23]

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Thank you.

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Daqing Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [24]

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Thank you.

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Yilü Chen, Jianpu Technology Inc. - CFO [25]

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Thank you.

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Operator [26]

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