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JT: Tapping a Fast Growing Market

09/10/2018


NYSE:JT

Beijing, China-based Jianpu Technology Inc.  (NYSE:JT) is an internet services provider that operates an open platform enabling individual users and small businesses to obtain information about selecting financial services and products and also helps match financial service providers with appropriate users. The company’s stated mission is, “to become everyone’s financial partner, empowering users and enabling financial service providers to better serve them.” Jianpu’s platform operates under the brand Rong360 and has over 100 million registered users, according to management. Ranked by the number of loan or credit card applications submitted through its platform, the company is a leading destination for users seeking financial services or products. The company’s ADRs trade on the NYSE under the symbol JT.

The company’s proprietary recommendation technology helps users find and choose Chinese financial products. With the user’s authorization, Jianpu can obtain customer data on metrics including demographic, mobile, payment and credit-related information. Jianpu’s data analytics technology provides individual users with customized search results and recommendations that are specific to their financial requirements and credit profile.

For financial service providers, the company provides sales and marketing tools that allow them to serve target customers via online and mobile platforms. Management has indicated that this business and the big data and risk management solutions business are included in the Advertising, marketing and other services segment, which grew 159% year-over-year in the first six months of 2018. Currently, this segment accounts for roughly 10% of total revenue, but if these operations continue to grow as the company expects, it will help diversify the overall revenue stream.

The company believes it provides tools that enhance the competitiveness of its financial services clients by providing them with customized data, risk management and turnkey solutions. Jianpu’s tools help financial companies with credit underwriting and fraud detection and prevention, among other services. According to management, the platform has attracted a broad range of financial service companies, including four of the largest government-owned banks in China and 21 of the biggest online credit card issuers. Management is optimistic about the big data and risk management solutions business, which is designed to provide risk management services to financial service providers. Leveraging big data, AI (artificial intelligence), and machine learning enables the big data and risk management solutions to offer services across a broad range of credit-related applications, including analytics, fraud prevention, credit profiling, risk management strategies and other applications. More than 600 financial institutions have used the big data and risk management solutions thus far, contributing to a 60% reduction in default rates, according to management.

Highlights – Recent Product Initiatives
‣ 1Q 2012 – Introduced loan recommendation services
‣ 3Q 2013 – Launched credit card recommendation services
‣ 2Q 2014 – Introduced wealth management information services
‣ 2Q 2015 – Launched big data risk management solutions
‣ 1Q 2016 – Launched Gold Cloud system
‣ 2Q 2018 – Acquired technology company with suite of risk management products

The company continues to improve its platform with new products and services, as illustrated above. For example, Jianpu introduced loan recommendation services in first quarter 2012, credit card recommendation services in third quarter 2013 and wealth management information services in second quarter 2014.

Recently, in June 2018, Jianpu acquired majority interest in a China-based technology company that specializes in optimizing data-driven risk management decisions and offers a suite of products and services helping financial service providers enhance their risk management capabilities. Management believes its target market is underserved and that it has early mover advantage in providing these tools.


2Q18: Y/Y Improvements

Management believes that the company’s tools provide users with a greater selection of financial products and services more conveniently and at improved terms than they could obtain on their own. Finding appropriate financial products and providers is particularly difficult, management believes, given the fragmented nature of China’s retail financial services sector. According to the company, there were more than 2,300 financial service providers operating throughout the country in the second quarter of 2018, offering 260,000+ financial products on the Jianpu platform.
Reflecting the growth of the company’s target market and rising popularity of its platform, revenue has increased significantly over the past few years, as illustrated in the figure below.


View Exhibit I

TechCrunch notes that “China’s online lending industry has seen rapid growth since 2007 without significant regulation. Default rates have been soaring since June.” Nevertheless, reflecting the diversified nature of the company’s business, Jianpu recently reported 2Q18 results that reflect the benefits of its strategy. For the quarter ended June 30, 2018, Jianpu recorded revenue of RMB490.4 million (US$74.1 million), up from RMB256.0 million registered in the same period of 2017. This represents a 91.6% year-over-year increase, mainly reflecting growth in both the company’s credit card and loan application business during the period. As a result, the company’s gross profit advanced 85.3% year-over-year to RMB431.2 million (US$65.2 million) from RMB232.7 million and its gross margin came in at 87.9% versus 85.3%.

The number of loan applications submitted through the Jianpu platform during the period grew roughly 11.0% year-over-year and 75.2% sequentially to 21.2 million. Credit card volume was approximately 1.6 million, up about 167% year-over-year and 6.7% sequentially. For the first six months of 2018, these metrics were 33.3 million and 3.1 million, respectively, which reflects 14.4% and 244% improvements versus the same period of 2017.

The company noted that as a result of credit tightening within the overall market, a slowdown in lending activity has become evident recently, and provided third quarter 2018 total revenue guidance of roughly RMB415 million. The company is optimistic, however, that any potential constraints will be relatively short-term, reflecting the competitive advantages of Jainpu’s proprietary recommendation technology and diversified product portfolio, with many products continuing to enjoy strong growth. The company believes that the slowdown in P2P will have little to no impact on its rapidly growing credit card business. Moreover, the increase in average fees to RMB99.47 from RMB73.66 in last year’s second quarter implies a positive impact on margins and profitability as the credit card business grows. For the market overall, issuance of new bank credit cards increased 12.54% year-over-year in 2016, according to China Internet Watch. Management cites credit card penetration at only 16%, which would imply significant potential for further growth of this business, we believe.

Summary: Company Expects to Drive Continued Growth

Jianpu Technology’s proprietary recommendation technology helps users find and choose Chinese financial products and helps financial service providers target and serve customers. The company’s strategy is to offer a broad and diversified portfolio of tools and services. Reflecting the growth and rising popularity of the company’s platform, revenue has increased significantly over the past few years. The company’s recently reported 2Q18 results also reflect the benefits of its strategy. While there has been a slowdown in lending activity over the past two months, Jainpu offers a broad range of products and services and many have not been impacted and continue to grow, such as its credit card segment. Overall, management is optimistic about the company’s outlook. Risks include competitive and regulatory risk, as well as market risk, in our view.

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