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Edited Transcript of WUBA earnings conference call or presentation 22-Aug-19 12:00pm GMT

Q2 2019 58.com Inc Earnings Call

Beijing Aug 23, 2019 (Thomson StreetEvents) -- Edited Transcript of 58.com Inc earnings conference call or presentation Thursday, August 22, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Hao Zhou

58.com Inc. - CFO

* Jinbo Yao

58.com Inc. - Chairman & CEO

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Conference Call Participants

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* Chen Shen

BOCI Research Limited - Research Analyst

* Hillman Chan

Citigroup Inc, Research Division - Research Analyst

* Thomas Chong

Jefferies LLC, Research Division - Equity Analyst

* Yue Wu

China International Capital Corporation Limited, Research Division - Analyst

* Christian Arnell

Christensen & Associates - MD

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Presentation

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Operator [1]

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Hello and welcome to the 58.com Second Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Christian Arnell. Please go ahead.

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Christian Arnell, Christensen & Associates - MD [2]

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Thank you. Hello, everyone, and thank you for joining us today. The company's results and its Investor Relations presentation were released earlier today and are available on the company's IR website at 58.investorroom.com.

On the call today from 58 is Mr. Michael Yao, Chairman and Chief Executive Officer; Mr. Zhou Hao, Chief Financial Officer; and Mr. Ye Wei, Deputy CFO; and Ms. Ally Wang, IR Director. Mr. Yao will give a brief overview of the company's business operations and highlights, followed by Mr. Zhou, who will go through the financials and guidance. They will all be available to take your questions during the Q&A session that follows.

I'd like to remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as will, expect, anticipates, future, intends, plans, believes, estimate, confident and similar statements. Any statements that are not historical facts, including statements about 58.com's beliefs and expectations, are forward-looking statements that involve risks -- that involve factors, risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the U.S. Securities and Exchange Commission. All information provided on the call is current as of today. 58.com does not undertake any obligation to update such information, except as required under applicable law.

I'd now like to pass the call over to Mr. Yao. Michael, please go ahead.

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Jinbo Yao, 58.com Inc. - Chairman & CEO [3]

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That was great, Christian. Thanks, everyone, for joining our call again. We are very pleased with our second quarter results and with the improvement we are seeing across various areas of our business. The second quarter, our revenue grew 21%, while non-GAAP operating profit increased 29% over -- year-over-year.

Operating expense grew at a slower rate than earlier. Our headcount was about 22,000 during the quarter, a steady drop from a year ago. The [revenue] mix continued to shift more towards product and the tech, which grew 8%, while sales and the marketing (inaudible) decreased by 3%.

CapEx, particularly on our mobile apps, continued to grow very healthily.

The macroeconomic environment remains uncertain and challenging while the Chinese government is taking measures to support the economy.

Recruitment in various industries has slowed. In housing, growth in sales transaction volume is mostly coming from lower-tier cities, while the rental market remains stable. The government continue to monitor and control housing price very tightly, which has created a relatively stable market.

The macroeconomic environment has impacted our recruitment in the housing business and caused revenue growth to slow somewhat. We remain confident in our ability to maintain our market-leading position and the [need] for longer-term growth potential of our platform. In China, 58 is [established] the [largest-horizon] classified platform. As a [compound] group, we have acquired other vertical platforms over the last several years such as Anjuke for housing and incubated others such as Zhuan Zhuan for used goods. We also incorporate in the span of certain platforms such as in the car with Che Hao Duo, (inaudible) in the home, in the freight vertical with WUBA, Daojia and (inaudible), which we don't consolidate into our financials but provide support as in the West.

All together, we are the clear leader in terms of online recruitment, housing, used goods, used car and the yellow pages local services. Our skilled online presence and diversified revenue streams from various content categories make us a bigger and a more profitable platform with a diversified risk profile when compared with other -- with our vertical peers. This is really important, especially in the business macroeconomic environment.

Even if we take, basically, metrics from most of our content category and compare them with other publicly available data for pure-play verticals, we comfortably meet the [intensive] traffic, revenue and the customer numbers. So despite the impact on our revenue from the macroeconomic slowdown, we remain really confident about our market leadership position.

We are also confident in the fact that our user experience in the (inaudible) is improving as our product and the technology play an increasingly big role.

We continue to integrate big data, instant message, video, voice, VR and the payment technology into our platform.

This allows users to access more in the higher-quality information and easily communicate with business or other consumers.

Higher-quantity [user] improves customer satisfaction with effectively over our online marketing service as I have commented on the previous calls. Our product and the tech forecasts continue to be on the (inaudible) and paid content, linkage, data, SaaS service extension, and we are happy to see progress we have made in these areas.

We are also making progress in developing [collaborate] relationships with third parties for -- to form a strong ecosystem which [every] benefits from.

For example -- one example is the JV we formed with World Union, (foreign language) and Tospur, (inaudible), [totally giving] primary home broker in China (inaudible) improve our primary home transaction business.

Primary brokers typically sell developers on project concept, design and the launch of offline services. This has the biggest [home seek] user base and become mobilized more than value in secondary real estate agents to sell new homes.

Our collaboration will enable us to further streamline and (inaudible) the full value chain from the user searching online for housing to viewing the house in-person and completing the final transaction.

Another example is our first quarter 2019 investment in Uxin, where 58's online traffic and Uxin's offline gross regional transactional capability.

Sales contribute to a more streamlined and the integrated online and off-line preowned car transaction and the delivery process. Of course, we continue to set forth Che Hao Duo Guazi as well, which implies a different strategy and a different model for its preowned car but which is also doing very well.

This example shows that our model is constantly evolving from a pure online advertising model to a platform with a more comprehensive set of services powered by data and technology. As an interactive company we not only work on -- work to better understand our users. We also work closely with our customers' other ecosystem partners to better serve our customer and increase our own industry efficiency and the user satisfaction.

For customers such as real estate developers, secondary home agents, auto, finance and the big employers, we feel that our value-added is becoming increasingly [appreciating] and the opportunity to create more value-added service become bigger.

Housing and auto are hundreds or billions or trillion dollar markets. While recruitment is indispensable and also a huge market, we feel excited about the enormous market opportunity and our potential. While we continue to monitor macroeconomic growth trends, I also want to emphasize again that China is a massive country with enormous regions that have yet to be penetrated.

The first example of our penetrating out further is [58 Home] (inaudible) initially which continue to gain opportunity -- [profitability]. While 58 Home is only 2 years old, demand from the lower-tier cities for localized and easily accessible information continues to be [mass] and [certainly] undisturbed.

The monetization potential for us to connect recruitment, housing and auto advertiser to this user is huge. In 2019, our focus remained on -- remains on user and the engagement growth, particularly towards our mobile app. We will increase of our investment in (inaudible) to gradually monetization it going forward.

Last but not least, let me also mention that Zhuan Zhuan, our online used goods trading platform, is also doing great. It's less loss with -- when compared with last year as its user base order volumes in [January] continue to grow rapidly.

Our Zhuan Zhuan team is focused on driving user engagement and the conventions. Monetization, which only became a focus during the second half of 2018, is making encouraging progress. We began charging commissions from online C2B and B2C transactions in the used cell phone category and have -- growth [have slowing] in doing the same across other categories.

We are happy to see that its user base and the stickiness was largely building impact as we slowly increased the monetization. I'm pleased with our overall progress this quarter, [resulting] from driving growth and the innovation in products, technology and the business model.

We have also been embracing operational efficiencies, [slow] traffic [evolution] in the sales and the service. As you can see, both advertising and the [long] advertisement sales and the marketing [expense] are growing but at a slower rate than revenue.

Operating profit margin over the last several years have improved a lot and the [way it all] at all-time high during the quarter. That said, both our core classified business (inaudible) and the WUBA home are all platform models. I believe that the margin for our core classified business will improve as we continue to streamline sales and the service progress.

Increase versus decrease in the (inaudible) and the WUBA home gradually become profitable in the coming years. By then, our total growth margins will also be much higher.

In summary, while the macroeconomic slowdown is clearly impact our business in the short term, enormous opportunity to drive growth remains in the -- towards longer term.

Online classified model has proven the model involving with technology. There is no shortage of money for [test of various] and unproven business model in China. Our market leadership position remains solid. We believe our strategy is clear and consistent. Our team is capable and motivated, and our (inaudible) partners and the investing companies are getting stronger in the increasing number. We have many exciting projects in the pipeline, and every day, we are making tangible progress. We are building the business for the longer term and hope all investors can see through their short-term cycles.

With that, let me pass it to Hao for a closer look at the financials.

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Hao Zhou, 58.com Inc. - CFO [4]

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Thanks, Michael. Thank you, again, for joining our call. I'll now walk you through our second quarter 2019 financials.

Total revenues were RMB 4.1 billion, up 20.5% year-over-year. Membership revenues were RMB 1.2 billion, up 1.5% year-over-year.

Online marketing services revenue were RMB 2.7 billion, up 23.8% year-over-year.

In the second quarter of 2019, the total number of paying business users was approximately 3.6 million, a 2% increase from the same quarter of 2018.

Traffic continued its healthy growth and was driven by our expanding user base and increased user engagement. We have been widening and improving the various types of online marketing services we offer across different content categories. As a result, we believe that our customers' ROI on our platform remained healthy.

Gross margin was 89.5% compared with 90% during the same quarter of 2018. Due to minor changes in our product mix, operating expenses were RMB 2.7 billion, up 16.5% year-over-year.

Sales and marketing expenses in the second quarter of 2019 were RMB 2.1 billion, up 15.3% year-over-year.

Within sales and marketing expenses, advertising expenses in the second quarter of 2019 were RMB 1 billion, up 14.8% year-over-year.

Non-advertising sales and marketing expenses in the second quarter of 2019 were approximately RMB 1.1 billion, up 15.8% year-over-year.

Research and development expenses in the second quarter of 2019 were approximately RMB 0.5 billion, up 22.3% year-over-year. The increase was mostly headcount related.

General and administrative expenses in the second quarter of 2019 were approximately RMB 194 million, up 14.7% year-over-year.

As you can see, if we exclude R&D expenses, all our other operating expenses are growing at a slower rate than revenues. We are strategically expanding our teams to develop products and technologies for our platform, while at the same time, carefully controlling expenses and making significant progress in improving operational efficiency.

The total number of employees at the end of second quarter 2019 remained below 22,000, largely stable when compared to last year and last quarter.

Non-GAAP income from operations was approximately RMB 1.1 billion in the second quarter of 2019, up 28.9% year-over-year.

Non-GAAP operating margin was 27.7% in the second quarter of 2019 compared with 23 -- 26%, excuse me, in the same quarter of 2018.

Other income in the second quarter of 2019 was RMB 3.7 billion compared with RMB 94 million in the same quarter of 2018, largely due to a RMB 3.4 billion noncash unrealized fair value gain in our investment in Che Hao Duo group, formerly known as Guazi as well as an RMB 642 million realized gain as a result of the cash received from a sale of certain equity interest in Che Hao Duo.

Let me clarify that according to the latest U.S. GAAP accounting principles, we account for our investments in Che Hao Duo using the measurement alternative method, the sale of the certain equity stake is seen as an observable price change event. So we have to revalue the remainder of our shares in Che Hao Duo. As you can see, Che Hao Duo has done very well over the last several years and many investors have participated in various financing rounds at increasing valuations, which has increased the value of our holdings.

Other items in investment gains and losses include an RMB 493 million fair value loss in our investment in 5I5J due to a decrease in the share price on the Asia market in China during the second quarter of 2019 alongside with other minor immaterial gains and losses.

Non-GAAP net income attributable to 58.com Inc. ordinary shareholders was approximately RMB 1.4 billion in the same quarter of 2019, up 101.4% year-over-year. Non-GAAP net margin was 39.8% in the second quarter of 2019 compared with 23.9% in the same quarter of 2018.

Now on to the guidance. Based on the company's current operations, total revenues for the third quarter of 2019 are expected to be between RMB 4.1 billion and RMB 4.2 billion, this represents a year-over-year increase of 13% to 16% in RMB amounts. These estimates reflect the company's current and preliminary view, which is subject to change.

With that, we'd like to open the Q&A session. Operator, please begin the Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Hillman Chan of Citigroup.

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Hillman Chan, Citigroup Inc, Research Division - Research Analyst [2]

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(foreign language)

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Operator [3]

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Mr. Chan, are you still there, sir?

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Hillman Chan, Citigroup Inc, Research Division - Research Analyst [4]

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(foreign language) Hello, can you hear me?

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Jinbo Yao, 58.com Inc. - Chairman & CEO [5]

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We do. Continue.

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Hao Zhou, 58.com Inc. - CFO [6]

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Yes, go ahead.

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Operator [7]

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Okay. His line is disconnected. I've got a feeling he was in a bad cell area. So we'll go to the next questioner, who is Thomas Chong of Jefferies.

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Thomas Chong, Jefferies LLC, Research Division - Equity Analyst [8]

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I would like to ask about our strategy for Zhuan Zhuan. As we see revenue starts to ramp up in the second quarter, any comments about competition and when should we expect that to achieve profitability? And how should we think about its long-term margin profile? (foreign language)

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Hao Zhou, 58.com Inc. - CFO [9]

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Thomas, this is Hao. I would first address and -- some of the financial-related part and Michael may chime in on the strategy part.

Yes, as you can see that Zhuan Zhuan's revenue is ramping up because it goes through the other revenue line, which is the reflection of pretty encouraging trends that we have seen in the last 2 or 3 quarters in Zhuan Zhuan because we really became a focus of monetization of the focus of the business things pretty late last year. And currently, we started to sort of distinguish users between consumers and business. We're starting to take commission from business who buys and sells used stuff on our platform. We started mainly in the used cell phone categories, but we are also testing other potential categories as well.

So yes. So it looks good within a pretty short period and we'll let it run. Potentially, as we said, we can expand to other categories. And so it did speak to the value we created in the first 3 years of Zhuan Zhuan because -- even though we started monetization very recently, but in the last 3 years, we have accumulated a huge amount of users. And we did some branding last year. The team worked very hard in kind of making sure the processes all run smoothly. And we also are pretty innovative in introducing some of the value-add services that we believe can further reduce the friction of used goods transactions on our platforms, for instance, inspection of the cell phones among others. So we're doing a lot of things not only to create an online platform but really just to remove the friction of online used goods transactions.

And -- so in the first 2.5 years, we basically focused on user experience, right? So we didn't really try to monetize too early. And -- but now when we start to ramp up monetization, it was -- it's based on a pretty -- a very vibrant and -- platform already. So the ramp-up was seen pretty fast, which I think is the result of the value we created all along.

And you asked about the long-term profit ratio. I think it's -- obviously, it's still in the loss-making stage today because we have a team that really focuses on user experiences, and we're starting to monetize value recently. But we believe -- if you think about the model itself, right, it's a very platform-based model, as Michael mentioned in his prepared remarks. It's online transaction, it's -- the cost base is a bit of -- there will be R&D cost. There will be some customer service costs handling some customer queries, but it's going to be fairly small compared to the overall GMV that we're seeing there going through the platform. And if you think about it almost anyone in China can buy and sell used goods. So potentially, this is a very big platform with various type of used goods. And we believe that we have seen e-commerce grow very well in China, right, for the last say, 10, 15 years. But the transactions for used goods, in terms of awareness, is significantly lagging. But at the same time, we see that the infrastructure, the online payment infrastructure, including logistic, et cetera, is very good already in China. So it is -- especially in most recent years, right?

So in theory, if it works for new goods, largely it works for used goods as well in terms of buying and selling online. So I think the -- it's underserved, but it has massive market. So I think the major focus for the business is still -- we've started to ramp up revenue, the major focus is still growing the platform, making sure it's a superior user experience. And from -- ultimately, when we have queued GMVs running through the platform with commission rate, with even marketing percentage, and we should be more than enough to cover the RMB and customer service cost that the platform needs on an ongoing basis. So I believe it's a pretty nice model, but we'll see. And I'll probably leave Michael to mention about strategy and the competition part with Zhuan Zhuan.

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Jinbo Yao, 58.com Inc. - Chairman & CEO [10]

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(foreign language)

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Hao Zhou, 58.com Inc. - CFO [11]

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[Interpreted] Yes, in terms of strategy and differentiation with our peers, for one, I think, because of investment from Tencent, right, on top of being the investor on the corporate level, they invested an additional USD 200 million in 2017. And -- so therefore, we have a closer relationship versus our competitor from -- that has no resource that they can leverage from the WeChat ecosystem. So users can access Zhuan Zhuan not only from the app but also from mini programs. And because of the transactional is pretty light, so it works equally well almost. So that's one thing.

And second thing is we focus on services. I mentioned a little bit before, but on inspection on cell phones, when you -- it's a challenge as well as opportunity at the same time for used goods, right? Because it's -- it does have a character of not being the very standardized like the new goods. But if you go through category by category, there are areas where, when you introduce certain services, you significantly reduce the friction. Whether it's some services related to preowned sneakers or books, whether it's cleaning or packaging or anything. So maybe different services for different categories, but we try to do these smart things and find these pain points and introduce services that will unlock the demand for online transaction of used goods. So on that, I think different companies have different viewpoints. And there might be lot of different areas people can focus on. So it caused natural differentiation among the players. So it's not like all the used good trading platforms are exactly the same. So naturally, it takes on different characters. So that's the second thing to differentiate. And I think -- yes, it's a promising category. It potentially is a massive platform for users and GMV.

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Operator [12]

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And we have a question from Hillman Chan of Citigroup.

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Hillman Chan, Citigroup Inc, Research Division - Research Analyst [13]

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(foreign language) So firstly could [you mention] all your (inaudible) on our recruiters and property agents. And how we should think about the growth outlook in the fourth quarter and 2020? And also as macro is not so good, what are we doing strategically to broaden the monetization and cut back on spending? And lastly, how should we think about the macro impact on competition, especially on the property side?

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Jinbo Yao, 58.com Inc. - Chairman & CEO [14]

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(foreign language)

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Hao Zhou, 58.com Inc. - CFO [15]

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[Interpreted] Yes. So first of all, on the sector gross right, on the housing and jobs. Even though I think there is clearly a macro impact, particularly on jobs, because, as you can imagine, recruitment is directly a reflection of the confidence level of the business community and -- which, in today's environment, is not particularly high and which is no secret. So we're clearly seeing a drop in the demand for hiring, which directly hits. And we see that across the board. We see that in other recruitment platforms in China as well, et cetera. But we still have very good market share in terms of the -- especially on the blue-collar side. But it's not as good as kind of the overall market hiring demand-wise like couple of years ago.

However, we do notice that the supply-demand equation by sector and -- or by industry is different. So I think what we are doing is we're trying to be selective or be more focused in areas, industries, where there's still relatively strong demand and trying to continue to meet our customers' requests there and along with some other product, future innovation that we're doing on jobs.

On housing, yes, it is true that we have good years in housing in '15 and '16. Starting from, I think, late part of '16, it has been slow. A lot of the restrictive measures have been put into place by the government. And so the volume took a hit and has been pretty low but quite stable. Given the continuity of these policies, it has been [felt]. So it's not like a free fall. It is pretty low level but stable. So it's a new norm almost as well as volume and price. So it's a fairly stable market, but it's a big market. So we're talking about potentially RMB 6 trillion to RMB 7 trillion secondary GMVs every year. We are talking about RMB 15 trillion new homes GMV every year. So these are huge markets, but just stable, not very heated as previous years. So there's still a lot of things we can do. We can focus on different subsegments. We used to be very big on -- well, we started with rental and we might move into secondary. We're now more focused on also starting to focus more on commercial real estate, on primary homes and on the short-term rental platforms, apartment rental platforms, et cetera. And also from a platform point of view, we are evolving, as Michael alluded to in his speech earlier, that we -- our model is evolving from pure traffic direction model, right, to a more of a traffic. Obviously, continue to extend -- continue to defend the leadership position, but also introducing more services. We're trying to go deeper into helping our customers with our technology. So that they become more efficient, whether -- regardless whether it's secondary or rental or primary.

And one example is, we started to form a JV with primary brokers so that we jointly sort of develop those better with a more streamlined end-to-end process of buying new homes. And we provide secondary agents, for instance, a chance to sell new homes as well. And so we're trying to utilize all these resources that we have as well as our partners have and trying to increase the efficiency of the industry.

I think on the online side, we -- if you download the Anjuke app or 58, you will see changes that are happening very quickly in terms of user experience, in terms of data, in terms of video, in terms of insurance services, in terms of all the user experience improvement that we have been introducing. So I think, ultimately, if it's a stable market it's fine, but it's huge. The industry is -- there's lot of the inefficiency in it. We have got good market share. We've got leadership market share in traffic, in businesses. But we can serve our consumers and business a lot better. I think we'll monetize these one way or another. But as long as we add value, we'll be able to grow our revenues. Yes.

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Jinbo Yao, 58.com Inc. - Chairman & CEO [16]

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(foreign language)

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Hao Zhou, 58.com Inc. - CFO [17]

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[Interpreted] Yes. And then your question about expanding the revenue sources, right? One example would be 58 Town, right? It's really a driver of expansion, right? But if you think about our product road map or business model road map, it's very similar to what we have gone through in big cities with 58.com. So we're replicating our success story or capability in different locations or distributed at smaller locations individually, right? But the countryside or rural areas add up to huge amount of users. We're talking about 400 million or 500 million people, so almost equivalent to our current users that we have accumulated in last 14 years in 58.com.

So -- while we replicate our success in smaller, lower-tier places, we believe that, over time, it will contribute significant revenue. So hopefully, RMB 1 billion in next year or the future years to come.

And at the same time, there is a lot of -- 58 is not only about housing and jobs, right? It has a huge -- a big list of different content categories. So as we continue to deepen our services in our core categories, in housing and jobs or used cars, we can -- we will look into other categories as well. We're trying to understand better the differences. For instance, yellow pages is a combination of lot of different niche categories. As we dig deeper and we hope to create better user experiences and create new revenue streams, as we kind of improve our business model in the -- differently in different categories. So that provides another angle as well.

In terms of expense controls, maybe let me comment on if you look at our expense profile, right? And it's a very high gross margin model. So it's really the operating expenses is advertising, which is mainly user acquisition or people, or people is largely salespeople is a big chunk of our employee base, which is really -- ultimately, they are trying to acquire paying users and acquire or retaining paying users. So in terms of traffic acquisition, we're doing pretty -- and we're doing pretty good ROIs. And -- so I think that's an investment that we need for the mid- to longer-term value of the platform. Because -- and that will affect the platform the bigger you get and the more leverage you have on your expenses. So we believe that longer term, as we become bigger and stronger versus other smaller peers, it will naturally be a smaller percentage of the revenue. And we will compare the ROIs, we will track the data rigorously. We'll compare the ROIs of [each] acquisition and we can -- we do have control of where we cut back on certain channels and such depending our assessment of the overall balance between growth and short-term profitability. And on the people side, as you can see micromanagement also, as we have actually been reducing our total employee size, largely from the sales and marketing teams. Because the self-serve initiative, the online payment, the infrastructure as well as our internal team's tools are getting better. So even though we serve 3.6 million SMEs, but we are being able -we are serving them with fewer amount of people, with -- by introducing better tools to them so that they can be more self-served. And we -- all these initiatives are going on. And we believe that there is huge potential for us to be much more efficient in the years to come.

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Operator [18]

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The next question comes from Natalie Wu of CICC.

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Yue Wu, China International Capital Corporation Limited, Research Division - Analyst [19]

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(foreign language) I will translate myself. We see a significant slowdown in the job sector. Just curious, one, if any typical recruiter verticals performed actually quite resilient amid this weakness; and two, what's management take on the current online penetration of blue-collar job recruitment? And how big it could be [the numbers are] in the future? Because according to our observation, if the online penetration is still at the lower level and has a great potential to develop and overall weakness across the offline industry, normally, will not have such an impact on the [according] online business. So just want to hear from management opinions on that. And what do you see as the largest issues that [pained the] online penetration growth of the blue-collar recruitment sector at current stage?

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Jinbo Yao, 58.com Inc. - Chairman & CEO [20]

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(foreign language)

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Hao Zhou, 58.com Inc. - CFO [21]

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[Interpreted] Yes. So in terms of industries, yes, we do see differences in different verticals. For instance, manufacturing used to be a larger portion, but has continuously shrunk over last couple of years, at least. It's now -- it's really a single-digit of our revenue contribution according to our estimates. And financial services, micro loans, P2Ps used to be a pretty active industry but more -- because of regulations, that has reduced a lot in terms of hiring demand, for instance.

But on the other hand, industries like education seems to be too quite positive looking or pretty strong demand. Or local services, restaurants and these areas don't seem to get impacted that significantly from the macro, at least for now. So there are differences, so that's why we think we can also channel our resources differently so to get a close as high as possible.

Now in terms of hiring online penetration, yes, we do agree that it's not a high penetration at all. There is still a lot of consumers, job seekers as well as businesses that have not really embraced online hiring as much as they have embraced may be some other online applications. So there is still room for us to grow. I mean, we think, currently, this slowdown in our jobs revenue is largely macro-related. Because we have seen that across all the hiring platforms, different companies. And it's not a secret, right? So it's quite understandable that the confidence level given the macro situation or the -- that we're seeing globally and domestically has very naturally caused the business owners to be very cautious of not to expand on the employee size to say the least, and in some cases, cutting back on the current employee size. So you can imagine how much money they wanted to spend on hiring, if they're reducing the -- their team size. So this is what we are facing externally.

But as I said -- as we said before, there is lot more we can do in terms of our ability to grow and to improve user experience, improve matching and improve data. And we believe that economic cycles come and go. So once -- the government is talking about more stimulus, right? So if those things kick in and, at some point, the confidence level is back up again, I think the hiring activities will be back again. And as long as our leadership position in the online hiring is there, we'll reap the majority of the benefit when the time comes. So we'll continue to improve our product and maintain our market share.

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Yue Wu, China International Capital Corporation Limited, Research Division - Analyst [22]

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Got it. Quickly, can I read it as we actually have a good chance of growth recovery of the job segment next year?

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Hao Zhou, 58.com Inc. - CFO [23]

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I think it's probably too early to point to one way or another in terms of how the market will go because we are in pretty unusual times as you know. And -- so to comment on, actually, we'll probably need at least another quarter to be more confident on giving you more color on that.

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Operator [24]

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And the last question today due to time constraints will be from Jamie Shen of Bank of China International.

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Chen Shen, BOCI Research Limited - Research Analyst [25]

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(foreign language) I'll quickly translate myself. So I think Yao Jinbo just talked about RMB 1 billion revenue target for 58 Town next year. Can you talk about the key contributing factors? To start with, is it similar to the current revenue mix at 58.com? And also in terms of business expansion, do you expect to expand sales force or like leverage the current village manager to in charge of the recruiting efforts?

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Jinbo Yao, 58.com Inc. - Chairman & CEO [26]

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(foreign language)

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Hao Zhou, 58.com Inc. - CFO [27]

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[Interpreted] Yes. So for 58 Town, Jamie, we do see a very fast user ramp up. So Michael said, it feels very similar to how he started 58.com in the very first initial years, and it has a good word of mouth. He also, himself, kind of tracks his hometown's 58 Town product development and has seen users giving very positive feedback, as well as from the government -- local government point of view and we really view it as a very positive force in digitizing locally in terms of centralizing information that's useful for local people.

And yes, he did mention RMB 1 billion, but we didn't commit to deliver that in next year, maybe next year, maybe the year after. What he meant is really it can reach to a pretty significant revenue scale. So we'll see how that ramps up. And you mentioned about the go-to-market strategy, right, the monetization strategy. It has some aspects which are similar to 58, but maybe not -- maybe exactly the same. For instance, in some cases, the revenue would be generated with our current customers, for instance, of home developers, right? The -- that's the existing customer of our teams. But if they wanted to build a project in a remote area and we can help them to mobilize people in the smaller towns, maybe in the neighboring smaller towns. A series -- small towns in the area to come to the project to meet potentially customers for our housing customer.

And similarly, for auto manufacturers, right? So if there is a certain model that's more tailor-made for small low-tier users and we have 58 Town, it will be a very suitable channel for us to advertise on their behalf. It would probably be one of the best channels and because we're talking about very a distributed network of people. So -- and you mentioned about the Town partners, yes, the Town partners are the local guys who can act as an agent to help to monetize more of the local businesses, where they can meet the person in person. And we'll provide the tools and training to them so that they can help us to [model]. So it will be a combination of methods that we'll experiment in terms of monetization. But the commercial potential for 58 Town is very obvious. We're linking hundreds of millions of people with -- I'm sure you will be very interested. It will be very interesting assets for a lot of customers, including some existing customers of ours and maybe some other new customers. So we're -- we feel very excited and positive about the business. Even though today, it's very early, we're losing -- we're making some losses because of the initial statement. But it's a great business and it's doing very well.

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Operator [28]

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This concludes our question-and-answer session. I would like to turn the conference back over to Christian Arnell for any closing remarks.

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Christian Arnell, Christensen & Associates - MD [29]

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Thank you, everyone, for joining our call today. If you have any further questions or comments, please don't hesitate to reach out to any of us. This concludes the call tonight. Have a good night.

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Operator [30]

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