China Finance Online Co., LTD. Reports Fourth Quarter and Fiscal Year 2010 Financial Results

BEIJING, March 25, 2011 /PRNewswire-Asia/ -- China Finance Online Co., Ltd. ("China Finance Online", or the "Company") (NASDAQ GS: JRJC), the technology-driven, user-focused market leader in China in providing vertically integrated financial services and products including news, data, analytics and brokerage through web portals, software systems, and mobile handsets, today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2010.

2010 Fourth Quarter Financial and Operating Highlights

• Registered user accounts increased to 20.2 million as of December 31, 2010, an increase of 44.3% from 14.0 million at December 31, 2009, exceeding the high end of the Company's prior guidance of 20 million by year end 2010;
• Active paid subscribers were approximately 156,000 as of December 31, 2010, an increase of 32.3% from 117,900 at December 31, 2009;
• Gross margin in the fourth quarter of 2010 was 84.1%;
• Net income attributable to China Finance Online was $89,000 for the fourth quarter of 2010, compared with a net loss of $2.7 million in the fourth quarter of 2009;
• Excluding stock-based compensation expenses, non-GAAP net income attributable to China Finance Online in the fourth quarter of 2010 was $0.7 million, compared with non-GAAP net loss of $1.1 million in the fourth quarter of 2009.

2010 Annual Financial Highlights

• Total revenue for the fiscal year 2010 increased by 11.4% year-over-year to a Company record of $59.7 million from $53.6 million in the fiscal year of 2009, meeting the Company's annual revenue guidance of $56 million to $62 million;
• Gross margin was 85.8% in the fiscal year 2010 compared with 84.8% a year ago;
• Excluding stock-based compensation expenses, non-GAAP net income attributable to China Finance Online for the fiscal year of 2010 was $6.5 million, exceeding the high end of the Company's prior guidance of $6.0 million for the year 2010, or non-GAAP diluted earnings per ADS attributable to China Finance Online of $0.28, compared with a non-GAAP net income of $0.4 million, or non-GAAP diluted per ADS of $0.02 during the fiscal year of 2009.

Mr. Zhiwei Zhao, Chief Executive Officer of China Finance Online, commented, "We are pleased with the Company's performance in 2010 as we sustained our growth momentum as we achieved the highest annual top line in our corporate history. We remained committed to long-term innovation as product development expenses accounted for more than 20% of our annual top line. While we consolidate and steady our individual subscription operations, our institutional subscription, advertising and brokerage service-related businesses provide other sources of growth in challenging market condition. Meanwhile, we continue to make strides in enhancing our operating efficiency through further cost reduction, thus boosting our bottom line and increasing shareholders' value."

Fourth quarter Results

As of December 31, 2010, registered user accounts on the Company's web portals (jrj.com and stockstar.com) were 20.2 million, an increase of 44.3% from 14.0 million at December 31, 2009. Active paid subscribers were approximately 156,000 as of December 31, 2010, a 32.3% gain from 117,900 at December 31, 2009. As of December 31, 2010, Daily Growth had approximately 2,210 customer accounts.

Net revenues for the fourth quarter of 2010 were $14.8 million, compared with $15.0 million for the comparable period in 2009. The main sources of the Company's net revenues were from subscription fees from individual customers, subscription fees from institutional customers, advertising revenues and revenues from brokerage related services, and they contributed 77%, 4%, 13% and 6% to total revenues, respectively, compared to 81%, 3%, 11%, and 4% for the comparable period in 2009. Revenues from advertising and revenues from brokerage related services increased significantly in the fourth quarter of 2010, compared to the same period in 2009. Advertising revenues increased 14.0% year-over-year; and revenues from brokerage related services increased 65.8% year-over-year.

For the fourth quarter of 2010, gross profit was $12.43 million compared with $12.72 million for the comparable period in 2009. Gross margin for the fourth quarter of 2010 was 84.1%. Increase in cost of revenue was mainly due to the incurrence of Level-2 quote expenses associated with the Shenzhen Stock Exchange, which began in 2010 but did not exist in the previous year.

General and administrative ("G&A") expenses for the fourth quarter of 2010 were $2.8 million, or 19.3% of net revenues, down from $4.0 million, or 26.8% of net revenues for the comparable period in 2009. The decrease in G&A expenses, excluding stock-based compensation expenses, in both absolute value and as a percentage of net revenues from the fourth quarter of 2009 was primarily due to decrease in payroll costs as the Company continues to streamline operations through efficiency enhancements. Excluding stock-based compensation of $0.5 million, adjusted G&A expenses for the fourth quarter of 2010 were $2.4 million, or 16.0% of net revenues, compared with $2.5 million, or 16.5% of net revenues in the fourth quarter of 2009.

Sales and marketing expenses for the fourth quarter of 2010 were $7.34 million compared with $8.49 million in the fourth quarter of 2009. Sales and marketing expenses as a percentage of net revenues were 49.7% in the fourth quarter of 2010, down from 56.6% during the same period in 2009. The year-over-year decrease in sales and marketing expenses, excluding stock-based compensation expenses, in both absolute value and as a percentage of quarterly net revenues was primarily due to improved efficiency in our sales organization.

Product development expenses for the fourth quarter of 2010 were $3.6 million compared with $2.9 million in the same quarter in 2009. Product development expenses as a percentage of net revenues was 24.4%, up from 19.4% in the same quarter of the previous year. Management continues to build solid foundation through further investment in our data, product and technical capability.

Total operating expenses for the fourth quarter of 2010, were $13.8 million, down from $15.4 million in the fourth quarter of 2009. Selling, general and administrative ("SG&A") expenses as a percentage of net revenues decreased to 68.9% in the fourth quarter of 2010 from 83.5% in the fourth quarter of 2009. Excluding total stock-based compensation, adjusted operating expenses were $13.2 million in the 2010 fourth quarter, compared with adjusted operating expenses of $13.8 million for the fourth quarter of 2009.

GAAP net income attributable to China Finance Online for the fourth quarter of 2010 was $89,000 compared with a net loss of $2.7 million in the 2009 fourth quarter. Non-GAAP net income attributable to China Finance Online, which excluded the stock-based compensation expenses, was $0.7 million for the 2010 fourth quarter, compared with a non-GAAP net loss of $1.1 million for the same quarter of 2009. Diluted Non-GAAP net earnings per ADS attributable to China Finance Online were $0.03 for the fourth quarter of 2010. Total diluted outstanding ADSs were 23,026,804 at the end of December 2010.

As of December 31, 2010, total cash and cash equivalents and restricted cash were $121.3 million. As of December 31, 2010, accounts receivable was $11.8 million, compared with $5.4 million as of December 31, 2009. Accounts receivable resulting from Daily Growth's IPO financing was zero as the entire balance from the third quarter of fiscal year 2010 had been received during the fourth quarter. Accounts receivables resulting from Daily Growth's margin business amounted to $8.1 million. Remainder of the accounts receivable was mainly generated from the web portals' advertisement business and Daily Growth's settlement operation.

Total China Finance Online's shareholders' equity was $105.9 million as compared with $97.4 million as of December 31, 2009.

The combined current and non-current deferred revenues at the end of the fourth quarter of 2010, which represented prepaid service fees made by customers for subscription services that have not been rendered as of December 31, 2010, were $46.0 million.

Fiscal Year Results

Total net revenues for the fiscal year ended December 31, 2010, increased by 11.4% year-over-year to $59.7 million from $53.6 million in the fiscal year of 2009. Gross profit for the fiscal year of 2010, was $51.2 million, up 12.7% from the gross profit of $45.5 million in the same period last year. Gross margin was 85.8% for the fiscal year of 2010, up from 84.8% in the comparable period in 2009. Net income attributable to China Finance Online for the fiscal year of 2010, was $1.96 million, or diluted earnings per ADS of $0.09, compared with a net loss of $6.2 million, or diluted net loss per ADS of $0.30 during the fiscal year of 2009. Excluding stock-based compensation, non-GAAP net income attributable to China Finance Online for the fiscal year of 2010 was $6.5 million, or non-GAAP diluted earnings per ADS of $0.28, compared with a non-GAAP net income of $0.4 million, or non-GAAP earnings diluted per ADS of $0.02 during the fiscal year of 2009.

Recent Developments

Recently, Mr. Kiang Dalaroy joined the Company as its Chief Strategy Officer. Mr. Dalaroy brings vast managerial, business and technical expertise from stock exchange and global financial information corporation and will be overseeing the institutional business of the Company. Mr. Dalaroy was a Deputy General Manager and Chief Information Officer from the Shanghai Stock Exchange Infonet Ltd., where he pioneered Level-2 market data, XBRL financial reporting products and associated commercial models in China. Previously, Mr. Dalaroy held managerial, business development and technical positions in Reuters Group companies for fifteen years, in Asia and North America. Specifically, he was the Head of Treasury Solutions for Reuters China and Hong Kong, leading major solutions deals in China Foreign Exchange Trade System & National Interbank Funding Center (CFETS), Shanghai Stock Exchange and Chinese banks. Mr. Dalaroy earned a degree in electronics engineering from Taiwan's Taipei Institute of Technology and obtained EMBA certificates from top business schools in executive development programs. With his global perspective and in-depth industry experience, Mr. Dalaroy will provide new impetus to the development of our institutional business.

During the fourth quarter of 2010, the Company reinforced and expanded its internet-based capacities through new initiatives such as a financial microblogging and trading simulations. The Company launched a leading financial microblogging platform, Ganniu, to enable investors to share with each other their investment opinions, to gain valuable insight from experienced investors and to follow the latest developments in the market. Leveraging on the Company's strong brand traction and user friendly design, Ganniu has received solid reception in the market place.

The Company has successfully created trading simulation platforms for the trading simulation of mainland stocks. The Company also pioneered the simulation for funds, Hong Kong stocks and index futures. Simulation platforms have provided educational platform for users to gain investment knowledge and improve investment techniques. They have also boosted the Company's brand image and users outreach among Chinese investors.

Business Outlook

The Company expects to generate net revenues of $58 million for fiscal year 2011. Non-GAAP net income, which is defined as net income excluding stock-based compensations, for the 2011 year is anticipated to be $3million.

The above forecast reflects the Company's current views, which are subject to change. A number of important factors including, but not limited to, fluctuations in the Chinese stock market, could cause the actual results to differ materially from those contained in the above guidance.

"Due to the fluid macroeconomic conditions and continued sluggish domestic stock market in China, we would take a cautious view on our guidance for 2011. In addition, some competitors recently grew their market share through aggressive sales and marketing. While this healthy competition validates the long-term growth potential available in the domestic subscription space, we believe that our competitive advantage lies in our ability to attract and retain users through our resourceful and market leading websites. Based on advanced countries experience, internet portal sites and their related web applications will continue to grow in importance for China's financial information market and we have taken a series of steps recently in reinforcing our market leading position through creating a financial microblogging and stock trading simulations. These measures are expected to help our websites continue to grow their user base while at the same time improve user experience and stickiness, and stimulates online activities. Although some of these measures might not contribute financially in the short run, we believe they are an integral part in consolidating our industry leading internet capabilities.

"China Securities Regulatory Commission's promulgation of the 'Provisional Regulations on Securities Investment Advisory' now allows securities investment advisory companies to provide advisory services for securities and related products under the framework of the provisional regulations and receive service compensation. We are actively strategizing to provide investment advisory related services to capitalize on the rapidly growing wealth management market.

"Overall investors' confidence remained tentative given the recent global geopolitical, economic uncertainties and the inflationary domestic environment. We see this as potentially challenging to our subscription business growth in the short run. However, in the long run, we believe China's financial information and service market contains vast growth potential. We remain focused on developing our internet capabilities in our websites and various web applications, researching new product, and optimizing our financial database to reinforce our competitive advantages and to position ourselves for the upcoming opportunities," Mr. Zhao concluded.

Conference Call Information

The Company will host a conference call and a simultaneous webcast, on March 24, 2011 at 8:00 p.m. Eastern Time/March 25, 2011 8:00 a.m. Beijing Time. Interested parties may participate in the conference call by dialing approximately five minutes before the call start time at Toll Free Numbers: U.S. +1-877-847-0047, Hong Kong +852-3006-8101, Singapore +8008-523-396, or China +800-876-5011, and pass code for all regions is 645581.

A replay of the conference call will be available shortly after the conclusion of the event through 11:00 p.m. Eastern Time on March 31, 2011 (or 11:00 a.m. April 1, 2011 Beijing Time). The dial-in details for the replay: U.S. Toll Free Number +1-866-572-7808, Singapore Number +800-101-2157 or China Toll Free Number +800-876-5013, Hong Kong Number +852-3012-8000. Access code: 645581.

The conference call will be available on webcast live and replay at: http://tinyurl.com/4q6gawe

About China Finance Online

China Finance Online Co. Limited is the technology-driven, user-focused market leader in China in providing vertically integrated financial services and products including news, data, analytics and brokerage through web portals, software systems, and mobile handsets. Through its web portals, www.jrj.com and www.stockstar.com, the Company provides individual users with subscription-based service packages that integrate financial and listed-company data, information and analytics from multiple sources with features and functions such as data and information search, retrieval, delivery, storage and analysis. These features and functions are delivered through proprietary software available by download, through the internet or through mobile handsets. Through its subsidiary, Genius, the Company provides financial information database and analytics to institutional customers including domestic securities and investment firms. Through its subsidiary, Daily Growth, the Company provides securities brokerage services for stocks listed on Hong Kong Stock Exchange.

Safe Harbor Statement

This press release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the quotations from management in this press release and the Company's strategic operational plans and business outlook, contain forward-looking statements. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. The Company believes that the Chinese economy continues to expand; however, the expansion may be uneven with certain sectors being affected more than others with resulting volatility in the Chinese equity market which could influence the Company's operating results in the coming quarters. Further information regarding these and other risks is included in the Company's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

Non-GAAP Measures

To supplement the unaudited condensed consolidated financial information presented in accordance with Accounting Principles Generally Accepted in the United States of America ("GAAP"), the Company uses non-GAAP measures of income from operations, net income, diluted net income per ADS, which are adjusted from results based on GAAP to exclude the stock-based compensation expenses. The non-GAAP financial measures are provided to enhance the investors' overall understanding of the Company's current and past financial performance in on-going core operations as well as prospects for the future. These measures should be considered in addition to results prepared and presented in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. Management uses both GAAP and non-GAAP information in evaluating and operating business internally and therefore deems it important to provide all of this information to investors. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliation of the Company's GAAP financial measures to Non-GAAP financial measures" set forth at the end of this release.

Tables follow

(a) The adjustment is for share-based compensation expenses.