UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington
, D.C.
20549
Form
20-F
(Mark One)
|
¨
|
REGISTRATION STATEMENT
PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
|
or
|
x
|
ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the fiscal year
ended December 31, 2017.
or
|
¨
|
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period
from to
or
|
¨
|
SHELL COMPANY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Date of event requiring
this shell company report
For the transition period
from _______________ to _______________
Commission file number:
001-36140
58.com
Inc.
(Exact name of Registrant
as specified in its charter)
N/A
(Translation of Registrant’s
name into English)
Cayman Islands
(Jurisdiction of incorporation
or organization)
Building 105, 10 Jiuxianqiao
North Road Jia
Chaoyang District, Beijing
100015
People’s Republic
of China
(Address of principal
executive offices)
Hao Zhou, Chief Financial
Officer
Telephone: +86 10 5956-5858
Building 105, 10 Jiuxianqiao
North Road Jia
Chaoyang District, Beijing
100015
People’s Republic
of China
(Name, Telephone, Email
and/or Facsimile number and Address of Company Contact Person)
Securities registered
or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
|
|
Name of Each Exchange on Which Registered
|
American depositary shares, each representing two Class A ordinary shares
|
|
The New York Stock Exchange
|
Class A ordinary shares, par value US$0.00001 per share*
|
|
The New York Stock Exchange*
|
|
*
|
Not for trading, but only in connection with the listing
on the New York Stock Exchange of American depositary shares.
|
Securities registered
or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which
there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of
outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the
annual report.
293,965,131 ordinary
shares, par value US$0.00001 per share, being the sum of 245,924,871 Class A ordinary shares (not including 2,589,192 Class A ordinary
shares issued to the depositary bank of the Issuer and reserved for future exercise or vesting of equity incentive awards) and
48,040,260 Class B ordinary shares as of December 31, 2017.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
x
No
¨
If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes
¨
No
x
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes
x
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
¨
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company.
See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
|
Accelerated filer
¨
|
Non-accelerated filer
¨
|
Emerging growth company
¨
|
If
an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards†
provided pursuant to Section 13(a) of the Exchange Act.
¨
† The term “new
or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its
Accounting Standards Codification after April 5, 2012.
Indicate by check mark
which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
x
|
International Financial Reporting Standards as issued by the International Accounting Standards Board
¨
|
Other
¨
|
If “Other”
has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17
¨
Item 18
¨
If this is an annual report,
indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
¨
No
x
(APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes
¨
No
¨
TABLE OF CONTENTS
INTRODUCTION
In this annual report, unless
otherwise indicated or the context otherwise requires, references to:
|
·
|
“ADSs” refers to our American Depositary Shares, each of which represents two Class A
ordinary shares of 58.com Inc.;
|
|
·
|
“58.com,” “we,” “us,” “our company,” and “our”
refer to 58.com Inc., its subsidiaries and its consolidated variable interest entities;
|
|
·
|
“China” or “PRC” refers to the People’s Republic of China, excluding,
for purposes of this annual report only, Taiwan, Hong Kong and Macau;
|
|
·
|
“Renminbi” or “RMB” refers to the legal currency of China;
|
|
·
|
“U.S. GAAP” refers to generally accepted accounting principles in the United States; and
|
|
·
|
“US$,” “dollars” or “U.S. dollars” refers to the legal currency
of the United States.
|
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form
20-F contains forward-looking statements that relate to our current expectations and views of future events. The forward-looking
statements are contained principally in the items entitled “Information on the Company,” “Risk Factors,”
“Operating and Financial Review and Prospects,” “Financial Information” and “Quantitative and Qualitative
Disclosures About Market Risk.” Our forward-looking statements relate to events that involve known and unknown risks, uncertainties
and other factors, including those listed under “Risk Factors,” which may cause our actual results, performance or
achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking
statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigations
Reform Act of 1995. You can identify some of these forward-looking statements by words or phrases such as “may,” “will,”
“expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,”
“believe,” “is/are likely to,” “potential,” “continue” or other similar expressions,
although not all forward-looking statements contain these words. Forward-looking statements include, but are not limited to, statements
relating to:
|
·
|
our goals and strategies;
|
|
·
|
our future business development, financial condition and results of operations;
|
|
·
|
the expected growth of the online marketing services, mobile services and e-commerce industries;
|
|
·
|
our expectations regarding demand for, and market acceptance of, our services;
|
|
·
|
our expectations regarding keeping and strengthening our relationships with customers;
|
|
·
|
our plans to invest in research and development to enhance our solution and service offerings; and
|
|
·
|
general economic and business conditions in the regions where we provide our solutions and services.
|
We would like to caution you
not to place undue reliance on forward-looking statements and you should read these statements in conjunction with the risk factors
disclosed in “Item 3. Key Information — D. Risk Factors.” Those risks are not exhaustive. We operate in an emerging
and evolving environment. New risk factors emerge from time to time and it is impossible for our management to predict all risk
factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those contained in any forward-looking statement. We do not undertake any obligation
to update or revise the forward-looking statements except as required under applicable law. You should read this annual report
and the documents that we reference in this annual report completely and with the understanding that our actual future results
may be materially different from what we expect.
PART
I
|
ITEM 1.
|
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
Not applicable.
|
ITEM 2.
|
OFFER STATISTICS AND EXPECTED TIMETABLE
|
Not applicable.
|
A.
|
Selected Financial Data
|
Selected Consolidated Financial
Data
The following table presents
the selected consolidated financial information of our company. Our summary data of consolidated statements of comprehensive income/(loss)
and summary consolidated cash flow data presented below for the years ended December 31, 2015, 2016 and 2017 and our summary consolidated
balance sheet data as of December 31, 2016 and 2017 have been derived from our audited consolidated financial statements included
elsewhere in this annual report. Our summary data of consolidated statements of comprehensive income/(loss), and summary consolidated
cash flow data presented below for the years ended December 31, 2013 and 2014 and our summary consolidated balance sheet data as
of December 31, 2013, 2014 and 2015 have been derived from our management accounting records. Our audited consolidated financial
statements are prepared in accordance with U.S. GAAP.
You should read the summary
consolidated financial information in conjunction with our consolidated financial statements and related notes and “Item
5. Operating and Financial Review and Prospects” included elsewhere in this annual report. Our historical results are not
necessarily indicative of our results expected for future periods.
|
|
For the Year Ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
(1)
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands)
|
|
Summary Data of Consolidated Statements of Comprehensive Income/(Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership
|
|
|
530,150
|
|
|
|
857,017
|
|
|
|
1,859,987
|
|
|
|
2,951,135
|
|
|
|
3,789,524
|
|
|
|
579,952
|
|
Online marketing services
|
|
|
361,261
|
|
|
|
768,316
|
|
|
|
2,414,906
|
|
|
|
4,363,777
|
|
|
|
5,978,491
|
|
|
|
914,954
|
|
E-commerce service
|
|
|
—
|
|
|
|
—
|
|
|
|
144,930
|
|
|
|
166,753
|
|
|
|
73,941
|
|
|
|
11,316
|
|
Other services
|
|
|
9,713
|
|
|
|
2,787
|
|
|
|
58,275
|
|
|
|
110,462
|
|
|
|
226,824
|
|
|
|
34,713
|
|
Total revenues
|
|
|
901,124
|
|
|
|
1,628,120
|
|
|
|
4,478,098
|
|
|
|
7,592,127
|
|
|
|
10,068,780
|
|
|
|
1,540,935
|
|
Cost of revenues
(2)
|
|
|
(52,469
|
)
|
|
|
(85,081
|
)
|
|
|
(322,016
|
)
|
|
|
(707,237
|
)
|
|
|
(925,497
|
)
|
|
|
(141,639
|
)
|
Gross profit
|
|
|
848,655
|
|
|
|
1,543,039
|
|
|
|
4,156,082
|
|
|
|
6,884,890
|
|
|
|
9,143,283
|
|
|
|
1,399,296
|
|
Operating expenses
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
(523,216
|
)
|
|
|
(1,106,689
|
)
|
|
|
(4,316,217
|
)
|
|
|
(4,941,380
|
)
|
|
|
(5,212,360
|
)
|
|
|
(797,704
|
)
|
Research and development expenses
|
|
|
(155,631
|
)
|
|
|
(268,336
|
)
|
|
|
(760,796
|
)
|
|
|
(1,107,897
|
)
|
|
|
(1,368,441
|
)
|
|
|
(209,427
|
)
|
General and administrative expenses
|
|
|
(80,288
|
)
|
|
|
(126,709
|
)
|
|
|
(659,284
|
)
|
|
|
(601,906
|
)
|
|
|
(766,017
|
)
|
|
|
(117,232
|
)
|
|
|
For the Year Ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
(1)
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands)
|
|
Total operating expenses
|
|
|
(759,135
|
)
|
|
|
(1,501,734
|
)
|
|
|
(5,736,297
|
)
|
|
|
(6,651,183
|
)
|
|
|
(7,346,818
|
)
|
|
|
(1,124,363
|
)
|
Income/(loss) from operations
|
|
|
89,520
|
|
|
|
41,305
|
|
|
|
(1,580,215
|
)
|
|
|
233,707
|
|
|
|
1,796,465
|
|
|
|
274,933
|
|
Net income/(loss)
|
|
|
119,918
|
|
|
|
139,433
|
|
|
|
(1,648,583
|
)
|
|
|
(772,963
|
)
|
|
|
1,389,242
|
|
|
|
212,612
|
|
Add: Net loss/(income) attributable to noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
80,705
|
|
|
|
4,916
|
|
|
|
(4,667
|
)
|
|
|
(714
|
)
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividend to mezzanine classified noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,762
|
)
|
|
|
(15,717
|
)
|
|
|
(99,507
|
)
|
|
|
(15,228
|
)
|
Accretions to preference shares redemption values
|
|
|
(56,704
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Income attributable to preference shareholders
|
|
|
(7,620
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income/(loss) attributable to 58.com Inc.
|
|
|
55,594
|
|
|
|
139,433
|
|
|
|
(1,573,640
|
)
|
|
|
(783,764
|
)
|
|
|
1,285,068
|
|
|
|
196,670
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands, except for share, per share and per ADS data)
|
|
Net income/(loss)
|
|
|
119,918
|
|
|
|
139,433
|
|
|
|
(1,648,583
|
)
|
|
|
(772,963
|
)
|
|
|
1,389,242
|
|
|
|
212,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of nil tax
|
|
|
8,745
|
|
|
|
(3,192
|
)
|
|
|
(69,708
|
)
|
|
|
(76,027
|
)
|
|
|
82,926
|
|
|
|
12,691
|
|
Unrealized gain/(loss) on available-for-sale securities
|
|
|
—
|
|
|
|
(6,804
|
)
|
|
|
16,919
|
|
|
|
(13,104
|
)
|
|
|
—
|
|
|
|
—
|
|
Reclassification into investment loss, net of nil tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,989
|
|
|
|
—
|
|
|
|
—
|
|
Total comprehensive income/(loss)
|
|
|
128,663
|
|
|
|
129,437
|
|
|
|
(1,701,372
|
)
|
|
|
(859,105
|
)
|
|
|
1,472,168
|
|
|
|
225,303
|
|
Net income/(loss) per ordinary share attributable to ordinary shareholders – basic
|
|
|
0.87
|
|
|
|
0.83
|
|
|
|
(6.70
|
)
|
|
|
(2.73
|
)
|
|
|
4.41
|
|
|
|
0.67
|
|
Net income/(loss) per ordinary share attributable to ordinary shareholders – diluted
|
|
|
0.80
|
|
|
|
0.80
|
|
|
|
(6.70
|
)
|
|
|
(2.73
|
)
|
|
|
4.35
|
|
|
|
0.67
|
|
Net income/(loss) per ADS attributable to ordinary shareholders – basic
|
|
|
1.75
|
|
|
|
1.65
|
|
|
|
(13.40
|
)
|
|
|
(5.46
|
)
|
|
|
8.82
|
|
|
|
1.35
|
|
Net income/(loss) per ADS attributable to ordinary shareholders – diluted
|
|
|
1.61
|
|
|
|
1.60
|
|
|
|
(13.40
|
)
|
|
|
(5.46
|
)
|
|
|
8.70
|
|
|
|
1.33
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands, except for share, per share and per ADS data)
|
|
Weighted average number of ordinary shares used in computing basic earnings/(losses) per share
|
|
|
63,717,007
|
|
|
|
168,589,273
|
|
|
|
234,811,986
|
|
|
|
286,975,068
|
|
|
|
291,475,725
|
|
|
|
291,475,725
|
|
Weighted average number of ordinary shares used in computing diluted earnings/(losses) per share
|
|
|
69,159,524
|
|
|
|
174,024,997
|
|
|
|
234,811,986
|
|
|
|
286,975,068
|
|
|
|
295,304,995
|
|
|
|
295,304,995
|
|
Notes:
|
(1)
|
For the year ended December 31, 2015, the financial statements include the results of significant
business combinations and acquisitions, deconsolidation of 58 Home and Guazi, and other related significant transactions, please
refer to “Item 4. Information on the Company — A. History and Development of the Company.”
|
|
(2)
|
Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows:
|
|
|
For the Year Ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands)
|
|
Cost of revenues
|
|
|
227
|
|
|
|
109
|
|
|
|
760
|
|
|
|
490
|
|
|
|
3,278
|
|
|
|
502
|
|
Sales and marketing expenses
|
|
|
2,759
|
|
|
|
8,579
|
|
|
|
44,049
|
|
|
|
59,017
|
|
|
|
69,926
|
|
|
|
10,702
|
|
Research and development expenses
|
|
|
6,163
|
|
|
|
14,772
|
|
|
|
59,314
|
|
|
|
98,515
|
|
|
|
126,116
|
|
|
|
19,301
|
|
General and administrative expenses
|
|
|
8,573
|
|
|
|
14,473
|
|
|
|
72,482
|
|
|
|
108,553
|
|
|
|
151,249
|
|
|
|
23,147
|
|
Total
|
|
|
17,722
|
|
|
|
37,933
|
|
|
|
176,605
|
|
|
|
266,575
|
|
|
|
350,569
|
|
|
|
53,652
|
|
|
|
As of December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands)
|
|
Summary Data of Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, term deposits and short-term investments
|
|
|
1,896,714
|
|
|
|
3,726,686
|
|
|
|
3,406,037
|
|
|
|
2,060,298
|
|
|
|
4,962,689
|
|
|
|
759,495
|
|
Total assets
|
|
|
2,032,344
|
|
|
|
4,307,360
|
|
|
|
26,380,294
|
|
|
|
25,326,006
|
|
|
|
28,266,512
|
|
|
|
4,325,933
|
|
Deferred revenues
|
|
|
335,935
|
|
|
|
583,359
|
|
|
|
1,344,563
|
|
|
|
1,845,846
|
|
|
|
2,123,755
|
|
|
|
325,021
|
|
Customer advances
|
|
|
130,284
|
|
|
|
220,182
|
|
|
|
981,429
|
|
|
|
1,236,076
|
|
|
|
1,365,437
|
|
|
|
208,968
|
|
Total liabilities
|
|
|
689,302
|
|
|
|
1,203,089
|
|
|
|
7,989,037
|
|
|
|
7,473,830
|
|
|
|
6,714,970
|
|
|
|
1,027,665
|
|
Total mezzanine equity
|
|
|
—
|
|
|
|
—
|
|
|
|
97,647
|
|
|
|
86,457
|
|
|
|
1,736,405
|
|
|
|
265,741
|
|
Total shareholders’ equity
|
|
|
1,343,042
|
|
|
|
3,104,271
|
|
|
|
18,293,610
|
|
|
|
17,765,719
|
|
|
|
19,815,137
|
|
|
|
3,032,527
|
|
Number of ordinary shares outstanding
|
|
|
158,876,693
|
|
|
|
176,375,211
|
|
|
|
283,068,677
|
|
|
|
289,670,997
|
|
|
|
293,965,131
|
|
|
|
293,965,131
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands)
|
|
Summary Data of Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
409,411
|
|
|
|
606,717
|
|
|
|
198,538
|
|
|
|
1,887,849
|
|
|
|
2,697,317
|
|
|
|
412,800
|
|
Cash used in purchase of property and equipment and intangible assets
|
|
|
(25,866
|
)
|
|
|
(199,631
|
)
|
|
|
(1,261,025
|
)
|
|
|
(213,116
|
)
|
|
|
(121,278
|
)
|
|
|
(18,561
|
)
|
Cash paid for business acquisitions of Anjuke and Ganji, net of acquisition of cash
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,044,962
|
)
|
|
|
(1,659,973
|
)
|
|
|
(91,867
|
)
|
|
|
(14,059
|
)
|
Net cash used in investing activities
|
|
|
(1,424,626
|
)
|
|
|
(1,884,031
|
)
|
|
|
(2,781,242
|
)
|
|
|
(3,948,027
|
)
|
|
|
(2,861,564
|
)
|
|
|
(437,937
|
)
|
Net cash provided by financing activities
|
|
|
1,309,245
|
|
|
|
1,584,885
|
|
|
|
4,930,710
|
|
|
|
58,631
|
|
|
|
571,076
|
|
|
|
87,399
|
|
Change in Reporting Currency
and Exchange Rate Information
Starting from December 31,
2016, we changed our reporting currency from U.S. dollars to Renminbi. The change in reporting currency is to facilitate investors
to evaluate our financial results as most of our business operations are conducted in the PRC. Assets and liabilities of entities
with functional currencies other than Renminbi are translated into Renminbi using the exchange rate on the balance sheet date.
Revenues and expenses of entities with functional currencies other than Renminbi are translated into Renminbi using the average
rate prevailing during the reporting period. Prior periods’ financial information has been recasted as if we always used
Renminbi as our reporting currency.
Unless otherwise noted, all
translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report were made at a rate of RMB6.5342
to US$1.00, the middle rate published by the State Administration of Foreign Exchange, or SAFE, on December 29, 2017. We make no
representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi,
as the case may be, at any particular rate, or at all. The PRC government imposes control over its foreign currency reserves in
part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade. On
April 20, 2018, the middle rate published by SAFE was RMB6.2897 to US$1.00.
The following table sets forth
information concerning exchange rates between the Renminbi and the U.S. dollars set forth in the H.10 statistical release of the
Board of Governors of the Federal Reserve System for the periods indicated.
|
|
Exchange Rate
|
|
Period
|
|
Period End
|
|
|
Average
(1)
|
|
|
Low
|
|
|
High
|
|
|
|
(RMB per US$1.00)
|
|
2013
|
|
|
6.0537
|
|
|
|
6.1412
|
|
|
|
6.2438
|
|
|
|
6.0537
|
|
2014
|
|
|
6.2046
|
|
|
|
6.1704
|
|
|
|
6.2591
|
|
|
|
6.0402
|
|
2015
|
|
|
6.4778
|
|
|
|
6.2869
|
|
|
|
6.4896
|
|
|
|
6.1870
|
|
2016
|
|
|
6.9430
|
|
|
|
6.6549
|
|
|
|
6.9580
|
|
|
|
6.4480
|
|
2017
|
|
|
6.5063
|
|
|
|
6.7350
|
|
|
|
6.9575
|
|
|
|
6.4773
|
|
October
|
|
|
6.6328
|
|
|
|
6.6254
|
|
|
|
6.6533
|
|
|
|
6.5712
|
|
November
|
|
|
6.6090
|
|
|
|
6.6200
|
|
|
|
6.6385
|
|
|
|
6.5967
|
|
December
|
|
|
6.5063
|
|
|
|
6.5932
|
|
|
|
6.6210
|
|
|
|
6.5063
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
6.2841
|
|
|
|
6.4233
|
|
|
|
6.5263
|
|
|
|
6.2841
|
|
February
|
|
|
6.3280
|
|
|
|
6.3183
|
|
|
|
6.3471
|
|
|
|
6.2649
|
|
March
|
|
|
6.2726
|
|
|
|
6.3174
|
|
|
|
6.3565
|
|
|
|
6.2685
|
|
April (through April 20, 2018)
|
|
|
6.2945
|
|
|
|
6.2859
|
|
|
|
6.3045
|
|
|
|
6.2655
|
|
Source: Federal Reserve Statistical Release
|
(1)
|
Annual averages were calculated by using the average of the exchange rates on the last day of each
month during the relevant year. Monthly averages are calculated by using the average of the daily rates during the relevant month.
|
|
B.
|
Capitalization and Indebtedness
|
Not applicable.
|
C.
|
Reasons for the Offer and Use of Proceeds
|
Not applicable.
Risks Related to Our Business
We operate
in a fast-evolving industry, which makes it difficult to evaluate our business and prospects.
We commenced operations in
2005 and many of the elements of our business are evolving and some are relatively unproven. The markets for our technology and
products and services are relatively new and rapidly developing and are subject to significant challenges. Our business plan relies
heavily upon growing our user base and exploring new market opportunities, and we may not succeed in any of these respects.
As the online marketing services
and mobile services industries in China are relatively young and untested, there are few proven methods of projecting user demand
or available industry standards on which we can rely. We cannot assure you that our attempts to expand our user base and products
and services will be successful, profitable or widely accepted and therefore the future revenue and income potential of our business
are difficult to evaluate. You should consider our prospects in light of the risks and uncertainties fast-growing companies with
limited operating histories may encounter.
We may
not be able to maintain profitability.
We incurred losses in 2015
and 2016, but made profit in 2017. Our loss in 2015 was attributable to increased competition and the fact that we had new initiatives
such as 58 Daojia Inc., or 58 Home, a mobile-based closed-loop transactional platform for home services, and Guazi.com Inc., or
Guazi, a subsidiary that operated our consumer-to-consumer (C2C) used car trading platform, that were still in early stages of
development. We have ceased consolidating 58 Home’s financial results in our consolidated financial statements since its
completion of Series A equity financing round on November 27, 2015, and we divested Guazi on December 31, 2015. However, as we
account for 58 Home as our equity investee, we share our portion of its income or loss. We may also decide to provide additional
capital to support our incubated businesses. In 2016, our net losses primarily resulted from our share of 58 Home’s loss.
Our future profitability may
also be significantly impacted by the success of our recent and new service and product offerings, such as our new mobile applications.
If competition in these new services intensifies in China, we may choose to invest heavily to gain market share, which may adversely
affect our profitability. We expect that we will continue to incur marketing and sales, research and development and other expenses
to launch new services and grow our user base, which may affect our profitability and operating cash flow in the future. For example,
we launched a new mobile application, Zhuan Zhuan (“
转转
”),
which targets the C2C used goods market. We also launched 58 Town (“58
同镇
”),
a rural version of 58 targeting the rural population. We have invested, and may continue to invest, in the marketing of Zhuan Zhuan,
58 Town and our other new service and product offerings. Our results of operations will be adversely affected if our new product
initiatives including Zhuan Zhuan, 58 Town and other services fail to generate sufficient revenue to recoup our investment and
expenses.
In addition, our ability to
achieve or maintain profitability is affected by various factors that are beyond our control. For example, our revenues and profitability
depend on the continuous development of the online marketing industry in China and business users’ allocation of more of
their budgets to online marketing services. We cannot assure you that online marketing services will become more widely accepted
in China or that business users will increase their spending on online marketing services.
If we are unsuccessful in
addressing any of these risks and uncertainties, our business may be materially and adversely affected and we may incur net loss
in the future. If we are unable to maintain positive operating cash flows, we may need to seek debt or equity financing or may
cease to operate as a going concern. Further equity financings may dilute our existing shareholders.
We may
be subject to liability for placing advertisements with content that is deemed inappropriate or misleading.
In July 2016, the State Administration
for Industry and Commerce of the People’s Republic of China, or SAIC, promulgated the Interim Administrative Measures for
Internet Advertisements, or the Interim Measures, which became effective on September 1, 2016. The Interim Measures provide for,
among other things, a more detailed definition of online advertising and the obligations and liabilities of online adverting operators
and distributors. Certain parts of our business which were not specified as forms of advertising under previous regulations, such
as priority listing in the yellow page business may now be deemed as online advertising business under the Interim Measures and
subject to the Interim Measures and other PRC advertising laws and regulations.
The PRC advertising laws and
regulations, including the Interim Measures, prohibit advertising operators and distributors from producing, distributing or publishing
any advertisement with content that violates PRC laws and regulations, impairs the national dignity of the PRC, involves designs
of the PRC national flag, national emblem or national anthem or the music of the national anthem, is considered reactionary, obscene,
superstitious or absurd, is fraudulent, or disparages similar products. We, as a platform for online classifieds and listings,
have higher obligations with respect to the advertisements placed on our platforms than to other information posted on our platforms.
For example, under the Interim Measures, internet advertisement shall be labeled visibly and distinguishably as “advertisement”
for identification by the consumers. We are obligated to monitor the advertising content and examine the supporting documents for
advertisements provided by advertisers to ensure that the content is accurate and in compliance with applicable law. In addition,
where a special government review is required for specific categories of advertisements before posting, we are obligated to confirm
that such review has been performed and approval, if required, has been obtained. We are also required to employ personnel familiar
with the advertising laws to review advertisements or set up a special Internet advertisement review department. We have adopted
policies and procedures and have provided training to our content review team to ensure our compliance with these new measures.
However, PRC advertising laws and regulations do not provide clear guidance on the content standards. If we are found in violation
of these regulations, we will be subject to penalties such as fines and confiscation of advertising income. We may also be ordered
to cease dissemination of the advertisements. In circumstances involving serious violations, the SAIC or its local branches has
the authority to suspend the violators’ advertising business or revoke the violators’ business licenses. Furthermore,
we may be subject to claims by consumers misled by advertisements placed on our platforms.
If we
fail to continually anticipate user preferences and provide attractive services on our online platforms, we may not be able to
grow and retain our user base.
Our success depends on our
ability to grow and retain our user base. In order to attract and retain users and compete against our competitors and other industry
or content-specific vertical companies, we must continue to innovate and introduce services that our users find useful and attract
them to use our online platforms more frequently and continue to develop our paying users. For example, we must continue to enhance
the content on our online platforms that appeal to our users. The popularity of online marketing services and other internet services
is difficult to predict, and we cannot be certain that the services we offer will continue to be popular with our users or sufficiently
successful to offset the costs incurred to acquire these users and offer these services. Given that we operate in a rapidly evolving
industry in China, we need to continually anticipate user preferences and industry changes and respond to such changes in a timely
and effective manner. If we fail to anticipate and meet the needs of our users, the size of our user base or the user engagement
may decrease. A decrease in our user base or user engagement would render our online platforms less attractive to business users
and may reduce our membership and online marketing revenues, which may have a material and adverse effect on our marketing business,
financial condition and results of operations.
If we
fail to retain existing or attract new business users to use our online platforms and pay for our membership and online marketing
services, our business, financial condition and prospects may be materially and adversely affected.
The success of our business
depends on our ability to attract and retain business users that provide information on our online platforms to consumers and pay
for our membership and online marketing services. If we are unable to grow and maintain a healthy ecosystem of business users,
our users may find our online platforms to be less useful than expected and may not continue to use our online platforms. This
in turn may affect our ability to attract new business users and convince existing business users to renew their paid memberships
or increase their level of spending on our services. Our membership contracts have terms ranging from one month to one year. A
significant portion of our subscription-based paying members are small and medium-sized local businesses who fail to renew their
membership contracts upon expiration for a number of reasons, including reasons beyond our control such as discontinuation of their
business. There is no assurance that we could successfully drive the increase in subscription-based paying members using our platforms
going forward. The competitive landscape for such local business users changes quickly and they may have only temporary or occasional
recruiting or marketing needs. In addition, our efforts to provide greater incentives for our existing subscription-based paying
members to use our online marketing services, including marketing activities to highlight the value of differentiated subscription-based
paying members-only services, may not be successful. Our customers may terminate their memberships or other spending on our online
marketing services because we no longer serve their needs or because their demands can be better fulfilled by our competitors or
other service providers. Our ability to maintain or grow our membership base may also be affected by changes in China’s macro
economy. For example, largely due to unfavorable real estate policies, memberships in the real estate vertical suffered a negative
impact, resulting in a slower growth in our paying membership accounts 2017, as compared with the previous years. Furthermore,
we have used our own sales teams to replace third-party sales agencies in selected industry verticals and may continue to do so.
As a result of this transition, we may lose subscription-based paying members who have established relationships with the third-party
agencies or who are not satisfied with the performance of our own teams. Decisions by our customers not to renew their memberships
or not to use our online marketing services could reduce our revenues, as well as cause us to incur additional cost in attracting
new subscription-based paying members and other customers. A significant increase in local subscription-based business users’
attrition or decrease in local business users’ spending on our services would have an adverse effect on our business, financial
condition and results of operations.
Strategic
acquisition of businesses and assets, and the subsequent integration of newly acquired businesses into our own, create significant
challenges that may have a material adverse effect on our business, reputation, results of operations and financial condition.
Since our IPO in October 2013,
we have made a number of acquisitions and investments, including several major ones. In March 2015, we acquired Anjuke, a major
online real estate listing platform in China, for a combination of share consideration and cash, including 4.8 million newly issued
ordinary shares of our company and US$160.2 million in cash. We also issued 0.2 million fully vested restricted share units of
our company to former Anjuke employees as part of the share consideration. In April 2015, we acquired a less than 50% equity stake
in Ganji, a major online local services platform in China, for a combination of share consideration and cash, including 34.0 million
newly issued ordinary shares of our company and US$412.2 million in cash. Later in 2015, our company, as a limited partner, committed
an aggregate of 46.5 million newly issued ordinary shares and US$406.7 million in cash to several private equity funds, of which
all the ordinary shares and US$272.4 million in cash were contributed in August 2015. These funds are dedicated to investing in
businesses in China and are separately managed by different investment entities as general partners which are unaffiliated with
each other and unaffiliated with us. These funds, together with Tencent, acquired all the remaining equity interests in Ganji in
August 2015 and transferred those equity interests to us in September 2017. We also transferred an aggregate of 4.4 million fully
vested restricted share units of our company and US$51.0 million in cash to former Ganji employees. As a result of the foregoing
transactions, Ganji has been a wholly owned subsidiary of ours since September 2017 and we have consolidated the financial statements
of Anjuke into our financial statements since March 2015, and Ganji’s financial statements into our own since August 2015.
The addition of Anjuke has
strengthened our market position in the online secondary property sales markets and has allowed us to enter the primary home sales
market. The acquisition of Ganji and our subsequent business cooperation and integration have allowed us to increase our market
share in the job, real estate, yellow page local services, used car and used goods categories and better control marketing costs
and expenses. The integration of Ganji and Anjuke has largely been completed and we gradually realized more synergies. However,
Anjuke and Ganji continue to be separate consumer-facing platforms and have their own respective user bases and paying business
user networks that might not overlap much with those of 58. We might experience unexpected loss of users and customers after our
acquisition or investment. These acquisitions and investments expose us to potential risks, including risks associated with unforeseen
or hidden liabilities, diversion of management attention and resources from our existing business and inability to generate sufficient
revenues to offset the costs and expenses of the acquisition or investment.
Other than Anjuke and Ganji,
we have made various other acquisitions and investments since our IPO in 2013. If we fail to integrate these acquired businesses
or the companies in which we invested fail to grow as we expect or continue to generate losses, we may experience losses in our
acquisitions and investments.
If we are presented with appropriate
opportunities in the future, we may acquire or invest in additional businesses or assets that are complementary to our business.
However, strategic acquisitions and the subsequent integration of new businesses and assets into our own would require significant
attention from our management and could result in a diversion of resources from our existing business, which in turn could have
an adverse effect on our business operations. In addition, acquisitions could result in potential dilutive issuances of equity
securities, use of substantial amounts of cash, and exposure to potential ongoing financial obligations and unforeseen or hidden
liabilities of the acquired businesses. The cost and duration of, and difficulties in, integrating newly acquired businesses and
managing a larger overall business could also materially exceed our expectations. Moreover, we may not be able to achieve our intended
strategic synergies and may record substantial impairment charges to goodwill, if we fail to successfully integrate the newly acquired
businesses or manage a larger business. Our equity investees may generate significant losses, a portion of which will be shared
by us in accordance with U.S. GAAP. In addition, we may incur impairment losses if the financial or operating results of those
investees fail to meet the expectations. Any such negative developments could have a material adverse effect on our business, reputation,
results of operations and financial condition.
We face
intense competition, and if we do not compete successfully against existing and new competitors, we may lose market share and suffer
losses.
We face intense competition.
Our competitors in the online marketing space include other smaller multi-category online classifieds companies as well as industry
or content-specific vertical platforms whose information serve the same underlying industries as certain content categories of
our online platforms. For example, Anjuke, our online real estate listing platform, competes with other listing platforms in the
real estate industry as well as traditional real estate agencies that develop their own online platforms. We may also face competition
from other internet or other companies, who may enter the online classifieds market in China. We compete primarily on the basis
of user traffic, effectiveness of services in reaching targeted users, ability to demonstrate marketing results and customer service
capabilities.
We believe that our competitiveness
depends upon many factors both within and beyond our control, including our ability to increase our brand recognition and continue
to develop user loyalty, our ability to keep up with the technological developments and users’ changing demands and our ability
to raise sufficient capital to sustain and expand our business. For example, we may have to increase our sales and marketing expenses
from time to time to promote our brand, especially when the competition is intense. Some of our current and potential competitors
may have greater financial, marketing, user traffic and other resources than we have. In addition, local content providers may
be acquired by, receive investments from or enter into strategic relationships with larger, well-established and well-financed
companies or investors. Certain of our competitors may be able to devote greater resources to marketing and promotional campaigns
and devote substantially more resources to website and system development than us. Increased competition may reduce our market
share and require us to increase our marketing and promotion efforts, which could negatively affect our operating margins or force
us to incur losses. There can be no assurance that we will be able to compete successfully against current and future competitors
or maintain our leading position or level of user traffic in the online marketing services market in China, and competitive pressures
may have a material adverse effect on our business, prospects, financial condition and results of operations.
We may
not be able to effectively manage our growth and expansion or implement our business strategies, in which case our business and
results of operations may be materially and adversely affected.
We have experienced a period
of rapid growth and expansion, which has placed, and continues to place, significant strain on our management and resources. We
cannot assure you that this level of significant growth and expansion will be sustainable or achieved at all in the future. We
believe that our continued growth and expansion will depend on our ability to develop new sources of revenue, attract new users,
paying members and customers, retain and expand paying members and customers, encourage additional spending by our customers, continue
developing innovative technologies in response to user demand, increase brand awareness through marketing and promotional activities,
react to changes in user access to and use of the internet, expand into new market segments, integrate new devices, platforms and
operating systems and take advantage of any growth in the relevant markets. We cannot assure you that we will achieve any of the
above.
To manage our growth and expansion,
and to attain and maintain profitability, we anticipate that we will need to implement a variety of new and upgraded operational
and financial systems, procedures and controls, including the improvement of our accounting and other internal management systems.
We will also need to further expand, train, manage and motivate our workforce and manage our relationships with our paying members
and customers. All of these endeavors involve risks and will require substantial management efforts and skills and significant
additional expenditures. Our further expansion may divert our management, operational or technological resources from our existing
business operations. In addition, our expansion may require us to operate in new cities and towns in China, including a number
of small cities and towns in China, where we may have difficulty in satisfying local market demands and regulatory requirements.
We cannot assure you that we will be able to effectively manage our growth and expansion or implement our future business strategies
effectively, and failure to do so may materially and adversely affect our business and results of operations.
Any damage
to our reputation and brands or failure to enhance our brand recognition may materially and adversely affect our business, financial
condition and results of operations.
Our major brands include 58.com,
Ganji and Anjuke. We believe that the market recognition and reputation of our brands have significantly contributed to the success
of our business. Maintaining and enhancing our brands is critical to our success and ability to compete. Many factors, some of
which are beyond our control, may negatively impact our brand and reputation, such as:
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any failure to maintain a pleasant and reliable experience for users as their preferences evolve and
as we expand into new services;
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any decrease in brand awareness among our existing and potential users; and
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any negative publicity about us or user experience in general, including any actual or perceived security
or product or service quality problems involving online marketing service providers in China.
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Although all of our paying
users and a growing number of registered users go through certain verification procedures, fraudulent transactions and sale of
counterfeit or pirated, as well as faulty or defective, items through our online platforms have occurred in the past and may occur
in the future. In the past, Chinese media reported some incidents of consumers having unpleasant experiences with services on our
platform and accused us of failure to safeguard consumer rights on our platforms. These incidents and any similar incidents or
true or untrue claims of such incidents could harm our reputation, impair our ability to attract and retain users and grow our
base of paying customers. If we are unable to maintain a good reputation, further enhance our brand recognition, continue to develop
our user loyalty and increase positive awareness of our platforms, our results of operations may be materially and adversely affected.
In addition, any claims or
negative publicity about our company, our services, our employees, our business practices, regardless of their veracity, could
harm our brand image and in turn adversely affect our business and results of operations. We cannot assure you that we will be
able to defuse negative publicity to the satisfaction of our investors, users, customers and business partners. From time to time,
there have been claims or negative publicities about our company and our business practice, which adversely affected our public
image and reputation during the period of such negative publicities. Intense negative publicities may divert our attention and
may adversely impact our business, and we cannot assure you that our brands, public image and reputation will not be materially
and adversely affected.
We have
incurred significant costs on a variety of marketing efforts, including significant advertising expenses, designed to attract users,
and some marketing campaigns and methods may turn out to be ineffective.
We have invested significantly
in marketing to promote public awareness of our platforms, enhance our brand recognition and drive user growth, including incurring
RMB1.8 billion, RMB2.0 billion and RMB2.1 billion in advertising expenses in 2015, 2016 and 2017, respectively. Such advertising
expenses represented 42.0%, 41.3% and 40.0% of our total sales and marketing expenses and 40.5%, 26.9% and 20.7% of our revenues
in the corresponding periods. Our marketing activities may not be well received by users and may not attract the additional traffic
that we anticipated. The evolving marketing approaches and tools require us to enhance our marketing approaches and experiment
with new marketing methods to keep pace with industry developments and user preferences. Failure to refine our existing marketing
approaches or to introduce new effective marketing approaches in a cost-effective manner could reduce our market share, cause our
revenues to decline and negatively impact our profitability.
We derive
a significant portion of our revenues from five of China’s major cities and we face market risk due to our concentration
in these major urban areas.
We derive a significant portion
of our revenues from five of China’s major cities: Beijing, Shanghai, Shenzhen, Hangzhou and Guangzhou. Even though revenues
from five major cities as a percentage of the total revenues have been decreasing, we expect these five cities to continue to be
important sources of revenues in all of our content categories. If any of these major cities experience events which negatively
impact the internet industry, such as a serious economic downturn or contraction, a natural disaster, or slower economic growth
due to adverse governmental policies or otherwise, demand for our services could decline significantly and our revenues and profitability
could be materially reduced. Any of these cities may experience decreases in demand for services related to specific content categories
on our platforms, such as real estate or automotive, due to local policies, regulations or economic conditions. In addition, if
a competitor, including a local competitor whose business focuses on one of these cities, were to gain significant market share
in any of these cities, our revenues may be materially and adversely affected.
The markets
for online marketing services and mobile services in China are constantly evolving and may not grow as quickly as expected or at
all.
Our business and prospects
are affected by the development of emerging internet business models in China, including those for online marketing services and
mobile services. Our membership services and other online marketing services have distinct business models which may differ from
models for these businesses in other markets, such as the United States, and that are in varying stages of development and monetization.
Our future success will depend on our ability to respond to rapidly changing technologies, adapt our products and services to evolving
industry standards and improve the performance and reliability of our products and services. Our failure to adapt to such changes
could harm our business. In addition, changes in user behavior resulting from technological developments may also adversely affect
us. We cannot assure you that the online marketing services and mobile services industries in China will continue to grow as rapidly
as they have in the past or at all. With the development of technology, new internet services may emerge which are not a part of
our service offerings and which may render online marketing services or mobile services less attractive to users. The growth and
development of these industries are affected by numerous factors, such as the macroeconomic environment, regulatory changes, technological
innovations, development of internet and internet-based services, users’ general online experience, cultural influences and
changes in tastes and preferences. If the online marketing services and mobile services industries in China do not grow as quickly
as expected or at all, or if we fail to benefit from such growth by successfully implementing our business strategies, our business
and prospects may be adversely affected.
Our real
estate vertical is susceptible to fluctuations in China’s real estate industry, and if we are unable to continue to obtain
listings from our key real estate market participants, the results of operations and financial performance of our real estate vertical
could be materially and adversely affected.
We derive a significant portion
of our revenues from the real estate content category, or vertical. Our 58 and Ganji platforms have mainly secondary property sales
and rental listings, while our Anjuke platform has both primary and secondary property sales listings.
Our real estate vertical is
susceptible to fluctuations in China’s real estate industry. Demand for private residential real estate in China has grown
rapidly in recent years but such growth is often coupled with volatility and fluctuations in real estate transaction volume and
prices. Fluctuations of supply and demand in China’s real estate industry are caused by economic, social, political and other
factors. Over the years, governments at both national and local levels have announced and implemented various policies and measures
aimed to regulate the real estate market, in some cases to stimulate further development and more purchase of residential real
estate units and in other cases to restrict these activities from growing too rapidly. These measures can affect real estate buyers’
eligibility to purchase additional units, their down payment requirements and financing, as well as availability of land to developers
and their ability to obtain financing. These measures have affected and continue to affect the conditions of China’s real
estate market and cause fluctuations in real estate pricing and transaction volume. To the extent fluctuations in China’s
real estate industry adversely affect spending on real estate marketing, the results of operations and financial performance of
our real estate vertical may be materially and adversely affected.
The success of our real estate
vertical depends on our ability to persuade real estate agents, brokers, developers and property owners to list their properties
on our 58, Anjuke and Ganji platforms. We believe having large numbers of high-quality listings from such real estate market participants
attracts users to our platforms, thereby enhancing our attractiveness to advertisers and other real estate market participants.
However, our real estate listing agreements are typically non-exclusive, which we believe is generally consistent with industry
practice. Our listing customers may stop using our listing services and may choose to use the services of one or more of our competitors
or alternative means of marketing, such as real estate magazines or newspapers. If owners of large numbers of property listings,
such as major developers or large brokers or property owners in key real estate markets choose not to list their properties on
our platforms, our platforms could become less attractive to users. If we experience reduced user traffic on our platforms, advertisers
and other real estate market participants may discontinue the use of or be unwilling to pay for our services. In such an event,
the competitive position of our real estate vertical could be significantly weakened and our business, financial condition and
results of operations could be materially and adversely affected.
If we
fail to keep up with the technological developments and users’ changing requirements or to successfully capture and retain
a significant portion of the growing number of users that access online marketing services, we may be unable to meet our revenue
growth expectations and our results of operation may be adversely affected.
The internet industries in
China are subject to rapid and continuous changes in technology, user preferences, the nature of services offered and business
models. Our success will depend on our ability to keep up with the changes in technology and user behavior resulting from technological
developments. If we do not adapt our services to such changes in an effective and timely manner, we may suffer from decreased user
traffic, which may result in a reduction of revenues from our membership services or a decrease in spending on our other services.
Our online marketing services
are now accessible to users from many internet-enabled devices, and we offer versions of our services for mobile operating systems,
including Android and iOS. An important element of our strategy is to continue to develop our online platforms and services for
mobile devices to capture a greater share of the growing number of users that access online marketing services and other internet
services through smartphones and other mobile devices. The lower resolution, functionality and memory associated with some mobile
devices make the use of services through such devices more difficult and the services we develop for these devices may fail to
prove compelling to users. Manufacturers or distributors may establish unique technical standards for their devices, and our services
may not work or be viewable on these devices as a result. As new devices and new services are continually being released, it is
difficult to predict the problems we may encounter in developing our services for use on these devices and we may need to devote
significant resources to the creation, support and maintenance of such services. Devices providing access to our products and services
are not manufactured and sold by us, and we cannot assure you that the companies who manufacture or sell these devices would always
ensure that their devices perform reliably and are maximally compatible with our systems. Any faulty connection between these devices
and our products and services may result in consumer dissatisfaction with us, which could damage our brand and have a material
and adverse effect on our financial results. Furthermore, new online marketing services may emerge which are specifically created
to function on mobile platforms, as compared to our online marketing services that were originally designed to be accessed through
personal computers (“PCs”), and such new services may operate more effectively through mobile devices than our own.
If we are unable to attract and retain a substantial number of mobile device users to our services, or if we are slower than our
competitors in developing attractive services that are adapted for such devices, we may fail to capture a significant share of
an increasingly important portion of the market for our services or lose existing users, either of which may have a material adverse
effect on our business, financial condition and results of operations.
Furthermore, changes in technologies
may require substantial capital expenditures in development of new features, applications and services as well as in modification
of existing features, applications, services or infrastructure. We may not successfully execute our business strategies due to
a variety of reasons such as technical hurdles, misunderstandings or erroneous predictions of market demand or lack of necessary
resources. Failure in keeping up with technological developments may result in our online platforms being less attractive, and
as a result we may be unable to meet our revenue growth expectations and our results of operations may be adversely affected.
If internet
search engines’ ranking methodologies are modified or our search result page rankings decline for other reasons, our user
traffic could decrease.
We depend in part on various
internet companies to direct traffic to our platforms. Our ability to maintain the number of visitors directed to our platforms
is not entirely within our control. Our competitors’ search engine optimization efforts may result in their platforms receiving
a higher search result page ranking than ours, or internet companies could revise their methodologies in an attempt to improve
their search results, which could adversely affect the placement of our search result page ranking. If internet companies modify
their search algorithms in ways that are detrimental to our user growth or in ways that make it harder for our users to find our
platforms, or if our competitors’ search engine optimization efforts are more successful than ours, our overall growth in
user traffic could slow down or decrease, and we could lose existing users. Our platforms have experienced fluctuations in search
result rankings in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of users directed
to our platforms would harm our business and results of operations.
Our business
depends substantially on the continuing efforts of our executive officers and key employees, and our business may be severely disrupted
if we lose their services.
We currently depend on the
continued services and performance of the key members of our management team, in particular Mr. Jinbo Yao, our chairman and chief
executive officer. Mr. Yao is one of our founders and his leadership has played an integral role in our growth. Our future success
depends substantially on the continued efforts of our executive officers and key employees. If one or more of our executive officers
or key employees were unable or unwilling to continue their service, we might not be able to replace them in a timely manner, or
at all, and our business may be severely disrupted, our financial conditions and results of operations may be materially and adversely
affected and we may incur additional expenses to recruit, train and retain personnel. If any of our executive officers or key employees
joins a competitor or forms a competing company, we may lose users, know-how and key professionals and staff members. Each of our
executive officers and key employees has entered into an employment agreement and a confidentiality and non-competition agreement
with us. However, if any dispute arises between our executive officers and key employees, on one hand, and us on the other, we
cannot assure you that we would be able to enforce these non-compete provisions in China, where these executive officers reside,
in light of uncertainties with the PRC legal system. See “— Risks Related to Doing Business in China — Uncertainties
in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.”
If we
are unable to attract, train and retain qualified personnel, our business may be materially and adversely affected.
Our future success depends,
to a significant extent, on our ability to attract, train and retain qualified personnel, particularly management, product, research,
developing and marketing personnel with expertise in the online marketing industry. Our field sales and customer service teams
are also critical to maintaining the quality of our services as they interact with business users on a regular basis. We must continue
to attract qualified personnel at a fast pace to keep up with our growing user base and the scale of our operations. Since our
industry is characterized by high demand and intense competition for talent, there can be no assurance that we will be able to
attract or retain qualified staff or other highly skilled employees that we will need to achieve our strategic objectives. As we
are still a relatively young company, our ability to train and integrate new employees into our operations may not meet the growing
demands of our business. If we are unable to attract, train, and retain qualified personnel, our business may be materially and
adversely affected.
Future
strategic alliances, acquisitions or business disposals may have a material and adverse effect on our business, reputation and
results of operations.
We may enter into strategic
alliances with various third parties to further our business purposes from time to time. For example, in June 2014, we entered
into a strategic partnership with Tencent Holdings Limited, or Tencent, a leading provider of comprehensive Internet services in
China, pursuant to which Tencent invested US$736.1 million in exchange for an approximately 19.9% equity interest in our company
on a fully diluted basis. Strategic alliances with third parties could subject us to a number of risks, including risks associated
with sharing proprietary information, non-performance by the counter-party, and an increase in expenses incurred in establishing
new strategic alliances, any of which may materially and adversely affect our business. In addition, to the extent the strategic
partner suffers negative publicity or harm to their reputation from events relating to their business, we may also suffer negative
publicity or harm to our reputation by virtue of our association with such third parties, and we may have little ability to control
or monitor their actions.
Investments and acquisitions
and the subsequent integration of new assets and businesses into our own require significant attention from our management and
may divert resources from our existing business, which in turn could have an adverse effect on our business operations. Invested
or acquired assets or businesses may not generate the financial results we expect and may adversely affect our results of operations.
Furthermore, investments and acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances
of equity securities, the occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets
and exposure to potential unknown liabilities of the acquired businesses. Moreover, the costs of identifying and consummating acquisitions
may be significant.
Furthermore, the legal requirements
on acquisitions by us and our PRC subsidiaries are different from acquisitions by our consolidated affiliated entities. Most importantly,
if we or our PRC subsidiaries acquire any domestic companies in China, such acquisition will be subject to PRC laws and regulations
on foreign investment. We and our PRC subsidiaries are restricted or prohibited from directly acquiring interests in companies
in certain industries under PRC laws and regulations. See “Item 4. Information on the Company — B. Business Overview
— Regulation — Regulations on Value-Added Telecommunication Services.” Our consolidated affiliated entities are
not subject to PRC laws and regulations on foreign investment and may acquire PRC companies operating in industries where foreign
investments are restricted or prohibited. However, there are uncertainties with respect to the interpretation and application of
PRC laws and regulations regarding indirect foreign investments in such industries. See “— Risks Related to Our Corporate
Structure and Restrictions on Our Industry — Substantial uncertainties and restrictions exist with respect to the interpretation
and application of PRC laws and regulations relating to online commerce and the distribution of internet content in China. If the
PRC government finds that the structure we have adopted for our business operations does not comply with PRC laws and regulations,
we could be subject to severe penalties, including the shutting down of our platforms.”
On December 31, 2015, we sold
our controlling ownership stake in Guazi, a subsidiary that operated our C2C used car trading platform, to Mr. Mark Haoyong Yang,
the former co-chairman of our board of directors and our former co-chief executive officer, for cash consideration of US$50.0 million.
We concurrently used the proceeds to invest in a US$50.0 million non-interest bearing convertible note issued by Guazi and converted
the convertible note into series B preference shares of Guazi in March 2016. In June 2016, we sold all of our interests in Mighty
Talent Limited, or Mayi, a China-based short-term and vacation rental platform that was owned by Ganji, to Tujia.com Inc., or Tujia,
in return for equity interests in Tujia. Concurrently with the sale of Mayi, we also acquired additional equity interests in Tujia.
As a result of these transactions, we hold less than 5% of equity interests in Tujia.
We may dispose of other businesses
that we control, particularly ones that are not closely related to our core focus areas or might require more resources or financial
capital than we can allocate to them. These decisions are largely based on our management’s assessment of the business models
and likelihood of success of these businesses. Our judgment could be inaccurate and divesting ownership of these businesses might
negatively affect our operations or long-term value.
The proper
functioning of our platforms, network infrastructure and information technology systems is essential to our business, and any failure
to maintain the satisfactory performance, security and integrity of our systems will materially and adversely impair our ability
to provide services and affect our business, reputation, financial condition and results of operations.
The proper functioning of
our platforms is essential to the conduct of our business. Specifically, the satisfactory performance, reliability and availability
of our platforms and mobile applications, our transaction-processing systems and our network infrastructure are critical to our
success and our ability to attract and retain users and provide adequate services. Our revenues depend on the user traffic on our
platforms and the volume of activities that traffic creates.
In addition, our ability to
provide consumers and business users with a high-quality online experience depends on the continuing operation and scalability
of our network infrastructure and information technology systems. The risks we face in this area include:
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our systems are potentially vulnerable to damage or interruption as a result of earthquakes, floods,
fires, extreme temperatures, power loss, telecommunications failures, technical error, computer viruses, hacking and similar events;
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we may encounter problems when upgrading our systems or services and undetected programming errors
could adversely affect the performance of the software we use to provide our services. The development and implementation of software
upgrades and other improvements to our internet services is a complex process, and issues not identified during pre-launch testing
of new services may only become evident when such services are made available to our entire user base; and
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we rely on servers, data centers and other network facilities provided by third parties, and the limited
availability of third-party providers with sufficient capacity to house additional network facilities and broadband capacity in
China may lead to higher costs or limit our ability to offer certain services or expand our business. In particular, electricity,
temperature control or other failures at the data centers we use may adversely affect the operation of our servers or result in
service interruptions or data loss.
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These and other events in
the past occasionally led to and may in the future lead to interruptions, decreases in connection speed, degradation of our services
or the permanent loss of user data and uploaded content. Any system interruptions caused by telecommunications failures, computer
viruses, or hacking or other attempts to harm our systems that result in the unavailability of our platforms and mobile applications
or reduced performance would reduce the attractiveness of the services offered on our online platforms. If we experience frequent
or persistent service disruptions, whether caused by failures of our own systems or those of third-party service providers, our
reputation or relationships with our users may be damaged and our users may switch to our competitors, which may have a material
adverse effect on our business, financial condition and results of operations.
Our operations
depend on the performance of the internet infrastructure and fixed telecommunications networks in China.
Almost all access to the internet
in China is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision
of the Ministry of Industry and Information Technology, or the MIIT. Moreover, we primarily rely on a limited number of telecommunication
service providers to provide us with data communications capacity through local telecommunications lines and internet data centers
to host our servers. We have limited access to alternative networks or services in the event of disruptions, failures or other
problems with the PRC internet infrastructure or the fixed telecommunications networks provided by telecommunication service providers.
With the expansion of our business, we may be required to upgrade our technology and infrastructure to keep up with the increasing
traffic on our platforms. We cannot assure you that the internet infrastructure and the fixed telecommunications networks in China
will be able to support the demands associated with the continued growth in internet usage.
In addition, we have no control
over the costs of the services provided by telecommunication service providers. If the prices we pay for telecommunications and
internet services rise significantly, our results of operations may be materially and adversely affected. Furthermore, if internet
access fees or other charges to internet users increase, our user traffic may decline and our business may be harmed.
We may
not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive
position.
We regard our trademarks,
service marks, domain names, trade secrets, proprietary technologies and similar intellectual property as critical to our success,
and we rely on trademark law, trade secret protection and confidentiality and license agreements with our employees, partners and
others to protect our proprietary rights. As of March 31, 2018, we and consolidated affiliated entities had registered 37 domain
names that are material to our business, including www.58.com, www.58.com.cn, www.ganji.com, www.ganji.com.cn, www.anjuke.com and
www.anjuke.cn, and 1,312 trademarks in China, excluding those relating to 58 Home. However, trademarks may also be invalidated,
circumvented or challenged. For example, under PRC law, certain graphics may not be registered as a trademark and if a registered
trademark is found to violate such prohibition, the relevant authority can invalidate the trademark; third parties may challenge
such registered trademarks and apply to the authority for invalidation. In addition, if a registered trademark is identical or
similar to a well-known trademark or prejudices the existing right obtained by others, it may be invalidated by the relevant authority
upon request by the right holder. Trade secrets are difficult to protect, and our trade secrets may be leaked or otherwise become
known or be independently discovered by competitors. Confidentiality agreements may be breached, and we may not have adequate remedies
for any breach.
It is often difficult to enforce
intellectual property rights in China. Even where adequate laws exist in China, it may not be possible to obtain prompt and equitable
enforcement of such laws, or to obtain enforcement of a court judgment or an arbitration award delivered in another jurisdiction,
and accordingly, we may not be able to effectively protect our intellectual property rights in China. Policing any unauthorized
use of our intellectual property is difficult and costly and the steps we have taken may be inadequate to prevent the misappropriation
of our technologies.
We may
not be able to successfully halt the operations of websites that aggregate our data as well as data from other companies, including
social networks, or “copycat” websites that have misappropriated our data in the past or may misappropriate our data
in the future.
From time to time, third parties
have misappropriated our data through website scraping, robots or other means and aggregated this data on their websites. In addition,
“copycat” websites have misappropriated data on our platforms and attempted to imitate our brand or the functionality
of our platforms. When we have become aware of such websites, we have taken measures to halt such conduct. However, we may not
be able to detect all such websites in a timely manner and the measures we take may be insufficient to stop their conduct. In those
cases, our available remedies may not be adequate to protect us against such websites. Regardless of whether we can successfully
enforce our rights against these websites, any measures that we may take could require us to expend significant financial or other
resources.
We may
be subject to intellectual property infringement claims or other allegations by third parties for services we provide or for information
or content displayed on, retrieved from or linked to our platforms, or distributed to our users, which may materially and adversely
affect our business, financial condition and prospects.
Internet, technology and media
companies are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition,
invasion of privacy, defamation and other violations of other parties’ rights. The validity, enforceability and scope of
protection of intellectual property rights in internet-related industries, particularly in China, are uncertain and still evolving.
We face, from time to time, and expect to face in the future, allegations that we have infringed the trademarks, copyrights, patents
and other intellectual property rights of third parties, including our competitors, or allegations that we are involved in unfair
competition against our competitors. As we face increasing competition and sometimes have to take defensive measures in response
to competitive pressure and as litigation become more common in China in resolving commercial disputes, we face a higher risk of
being the subject of intellectual property infringement and unfair competition claims. Intellectual property and unfair competition
claims and litigation may be expensive and time-consuming to investigate and defend, and may divert resources and management attention
from the operation of our business. Such claims, even if they do not result in liability, may harm our reputation. Any resulting
liability or expenses, or changes required to be made to our platforms to reduce the risk of future liability, may have a material
adverse effect on our business, financial condition and prospects.
We utilize software that selectively
identifies classified information listings on other platforms in certain content categories for which our certification procedure
is not required and replicates such listings on our platforms. These replicated listings are not given individualized registered
user accounts and are not counted as listings for purposes of calculating the listings per day posted by our users as disclosed
in this annual report. If an original poster wants to delete a replicated listing on our platforms, the poster can either use our
online self-help functions or contact our customer service online to delete the listing. We do not explicitly indicate the replicated
listings on our platforms, although we notify our users of the replicated nature of the listings upon inquiry. We believe this
is a widespread practice in our industry in China. However, the practice may be deemed to be in violation of the PRC Anti-Unfair
Competition Law. If other market participants bring legal claims against us for conducting unfair competition, we may be held liable
by the court and be required to pay damages to the plaintiffs equal to the losses suffered by the market participants as a result
of the unfair competition practices or, if it is difficult to calculate the losses, equal to the aggregate profits earned through
the unfair competition practices and the reasonable expenses incurred by the plaintiffs to investigate the unfair competition practices.
We have never generated revenue from replicated listings. In addition, if the replicated listings are protected under copyright
law, the practice of replicating listings may be deemed to be copyright infringement. In such case, we may be required to cease
the act of infringement, eliminate any influence caused, apologize to and pay damages to the copyright owners and be subject to
penalties including confiscation of illegal gains and imposition of fines by the relevant governmental authorities. In addition,
we have from time to time been the subject of critical media coverage due to this practice, which could harm our reputation and
business.
We may
be held liable to third parties for information or content displayed on, retrieved from or linked to our platforms, which could
harm our reputation and business.
Our online marketing services
enable users to exchange local business or service information, generate content, market products and services, conduct business
and engage in various other online activities. Claims may be brought against us for defamation, libel, negligence, copyright, patent
or trademark infringement, tort (including personal injury), fraud, other unlawful activity or other theories and claims based
on the nature and content of information to which we link or that may be posted on our platforms, generated by our users, or delivered
or shared hypertext links to third-party platforms, or video or image services, if appropriate licenses and/or third-party consents
have not been obtained. Third-parties have sought, and they may in the future seek to assert claims against us alleging unfair
competition or violations of privacy rights or failure to maintain the confidentiality of user data. Our defense of any such actions
could be costly and involve significant time and attention of our management and other resources.
We are also regularly approached
and asked to remove content uploaded by users on the grounds of alleged copyright or personal rights infringement. In such cases,
we investigate the claims and remove any uploads that appear to infringe the rights of a third party after our reasonable investigation
and determination. Our corporate policy requires a user to enter into a user agreement in the registration process before posting
any content on our platforms. Pursuant to the user agreement, a user makes certain representations and warranties relating to the
user generated content on our platforms. See “Item 4. Information on the Company — B. Business Overview — Content
Management and Monitoring.” However, we have been and in the future may be subject to intellectual property infringement
claims or other allegations by third parties for services provided or content displayed on our platforms. Although we believe that
we will have recourse to indemnification from alleged infringing users on the basis of the user agreement, such right to recourse
is subject to the enforcement mechanism of PRC legal system, which may not be effective. Our data security team also screens our
platforms to eliminate content that we believe may infringe copyrights. Although our internal policy, terms of our user agreements
and the screening system are designed to help limit the occurrences and impact of infringing activities, they may not be effective
in eliminating such occurrences or dissemination of infringing materials on our platforms.
Pursuant to PRC national and
Beijing local regulations and judicial interpretations, online service providers that provide information storage space for users
to upload works or link services may be held liable for damages if such providers know or have reason to know that the works uploaded
or linked infringe others’ copyrights. The Supreme People’s Court of China promulgated a judicial interpretation on
infringement of the right of dissemination through internet in December 2012. This judicial interpretation, like certain court
rulings and certain other judicial interpretations, provides that the courts will place the burden on internet service providers
to remove not only links or contents that have been specifically mentioned in the notices of infringement from right holders, but
also links or contents they should have known to contain infringing content. The interpretation further provides that where an
internet service provider has directly obtained economic benefits from any contents made available by an internet user, it has
a higher duty of care with respect to internet users’ infringement of third-party copyrights. This interpretation could subject
us and other online service providers to significant administrative burdens and litigation risks.
Concerns
about collection and use of personal data could damage our reputation and deter current and potential users from using our services.
Concerns about our practices
with regard to the collection, use or disclosure of personal information or other privacy-related matters, even if unfounded, could
damage our reputation and operating results. Pursuant to the applicable PRC laws and regulations concerning the collection, use
and sharing of personal data, our PRC subsidiaries and consolidated affiliated entities are required to keep our users’ personal
information confidential and are prohibited from disclosing such information to any third parties without the users’ consent.
We apply strict management and protection to any information provided by users, and under our privacy policy, without our users’
prior consent, we will not provide any of our users’ personal information to any unrelated third party. In December 2012
and July 2013, new laws and regulations were issued by the standing committee of the PRC National People’s Congress and the
MIIT to enhance the legal protection of information security and privacy on the internet. The laws and regulations also require
internet operators to take measures to ensure confidentiality of information of users. In November 2016, the Standing Committee
of the PRC National People’s Congress promulgated the PRC Cyber Security Law, which, among others, prohibits network operators
from collecting personal information irrelevant to their services. While we strive to comply with our privacy guidelines as well
as all applicable data protection laws and regulations, any failure or perceived failure to comply may result in proceedings or
actions against us by government entities or others, and could damage our reputation. User and regulatory attitudes towards privacy
are evolving, and future regulatory or user concerns about the extent to which personal information is shared with business users
or others may adversely affect our ability to share certain data with business users, which may limit certain methods of targeted
marketing. Concerns about the security of personal data could also lead to a decline in general internet usage, which could lead
to lower user traffic on our platforms. A significant reduction in user traffic could lead to lower revenues from paying users,
which could have a material adverse effect on our business, financial condition and results of operations.
We could
be liable for any breach of security relating to the third-party online payment platforms we use, and concerns about the security
of internet transactions could damage our reputation, deter current and potential users from using our online platforms and have
other adverse consequences to our business.
Users may conduct transactions
on our online platforms through third-party online payment platforms. In these online payment transactions, secured transmission
of confidential information, such as customers’ credit card numbers and expiration dates, personal information and billing
addresses, over public networks is essential to maintain consumer confidence. In addition, we expect that an increasing amount
of our sales and transactions conducted on our online platforms will be conducted over the internet as a result of the growing
use of online payment platforms. As the prevalence of using online payment methods increases, associated online crimes will likely
increase as well. Our current security measures and those of the third-party online payment platform service providers may not
be adequate. We must be prepared to increase and enhance our security measures and efforts so that our users have confidence in
the reliability of the online payment platforms that we use, which will impose additional costs and expenses and may still not
guarantee complete safety. In addition, we do not have control over the security measures of our third-party online payment platform
service providers. Security breaches of the online payment platforms that we use could expose us to litigation and possible liability
for failing to secure confidential user information and could, among other things, damage our reputation.
A significant barrier to financial
transactions or other electronic payment processing platforms over the internet in general has been public concern over the security
of online payments. If these concerns are not adequately addressed, they may inhibit the growth of paid online services generally.
If an internet or mobile network security breach were to occur and get publicized, the perceived security of the online payment
platforms may be damaged, and users concerned about the security of their transactions may become reluctant to purchase our services
even if the publicized breach did not involve payment platforms or methods used by us.
If any of the above were to
occur and damage our reputation or the perceived security of the online payment platforms that we use, we may lose users and user
traffic, and users may be discouraged from purchasing our services, which may have an adverse effect on our business. Any significant
reduction in user traffic could lead to lower revenues from membership and online marketing services.
Spammers
and malicious applications may make our services less user-friendly and discourage users from using our platforms or services.
Spammers may use our platforms
and services to send targeted and untargeted spam messages to users, which may embarrass or annoy users and make usage of our platforms
and services more time-consuming and less user-friendly. As a result, our users may use our services less or stop using them altogether.
As part of fraudulent spamming activities, spammers typically create multiple user accounts, such as accounts being set-up for
the purposes of sending spam messages. Although we have technologies and employees that attempt to identify and delete accounts
created for spamming purposes, we are not able to eliminate all spam messages from being sent on our platforms.
Our business,
financial condition and results of operations, as well as our ability to obtain financing, may be adversely affected by the downturn
in the global or Chinese economy.
The online information services
and mobile services industries may be affected by economic downturns. Thus, our business and prospects may be affected by the macroeconomic
environment in China. A prolonged slowdown in the Chinese economy may lead to a reduced amount of activities on our platforms,
which could materially and adversely affect our business, financial condition and results of operations. In addition, our products
and services may be viewed as discretionary by our users, who may choose to discontinue or reduce spending on such products and
services during an economic downturn. In such an event, our ability to retain existing paying members and customers and recruiting
new paying members and customers will be adversely affected, which would in turn negatively impact our business and results of
operations.
Moreover, a slowdown or disruption
in the global or China’s economy may have a material and adverse impact on financings available to us. The weakness in the
economy could erode investors’ confidence, which constitutes the basis of the credit market. The recent financial turmoil
affecting the financial markets and banking system may significantly restrict our ability to obtain financing in the capital markets
or from financial institutions on commercially reasonable terms, or at all. Although we are uncertain about the extent to which
the recent global financial and economic crisis and slowdown of China’s economy may impact our business in the short-term
and long-term, there is a risk that our business, results of operations and prospects would be materially and adversely affected
by any global economic downturn or disruption or slowdown of China’s economy.
We may
need additional capital, and the sale of additional ADSs or other equity securities could result in additional dilution to our
shareholders.
As of December 31, 2017, we
had cash and cash equivalents and short-term investments totaling RMB5.0 billion. Our ability to continue as a going concern is
dependent on our ability to successfully execute our business plan, which includes increasing revenues while controlling operating
expenses, as well as generating cash flows from operating activities and continuing to gain support from outside sources of financing.
We can adjust the pace of our operation expansion and control our operating expenses. Although we believe that we have sufficient
funds to meet our working capital requirements and debt obligations in the ordinary course of business for the next twelve months
from the date of this annual report, we may require additional cash resources due to changed business conditions or other future
developments, including to make any investments or acquisitions we may decide to pursue or to pay down loans from financial institutions.
If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities
or obtain a credit facility. For example, in June 2014 and April 2015, we issued 36.8 million ordinary shares at the equivalent
of US$20.00 per ordinary share and 15.4 million ordinary shares at the equivalent of US$26.00 per ordinary share, respectively,
to a holding vehicle of Tencent. The sale of additional equity securities could result in additional dilution to our shareholders.
The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants
that would restrict our operations. It is uncertain whether financing will be available in amounts or on terms acceptable to us,
if at all.
If we
fail to implement and maintain an effective system of internal controls, we may be unable to accurately or timely report our results
of operations or prevent fraud, and investor confidence and the market price of our ADSs may be materially and adversely affected.
In connection with our independent
registered public accounting firm’s audit of the effectiveness of our internal control over financial reporting as of December
31, 2015, and our management’s assessment of the effectiveness of our internal control over financial reporting as of December
31, 2015, we and our independent registered public accounting firm identified one “material weakness” in our internal
control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board of the
United States, or PCAOB. The material weakness identified related to the lack of adequate resources with an appropriate level of
knowledge in U.S. GAAP to properly account for significant complex transactions under U.S. GAAP. As a result, certain significant
complex transactions were not initially accounted for properly in 2015.
Our management has concluded
that our internal control over financial reporting was effective as of December 31, 2017. For details, please see “Item 15.
Controls and Procedures — Management’s Annual Report on Internal Control over Financial Reporting.”
However, if we fail to maintain
effective internal control over financial reporting in the future, our management may not be able to conclude that we have effective
internal control over financial reporting at a reasonable assurance level. In addition, the process of designing and implementing
an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business
and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that
satisfies our reporting obligations. Our failure to discover and address any other material weaknesses or deficiencies may result
in inaccuracies in our financial statements or delay in the preparation of our financial statements. This could in turn result
in the loss of investor confidence in the reliability of our financial statements and negatively impact the trading price of our
ADSs. Ineffective internal control over financial reporting could also expose us to increased risk of fraud or misappropriations
of corporate assets and subject us to potential delisting from the stock exchange on which our ADSs are listed, regulatory investigations
or civil or criminal sanctions.
We have
granted restricted share units and other share-based awards in the past and will continue to do so in the future. We recognize
share-based compensation expenses in our consolidated statement of comprehensive income/(loss) in accordance with U.S. GAAP. Any
additional grant of restricted share units and other share-based awards in the future may have a material adverse effect on our
results of operation.
We adopted an employee stock
option plan in 2010, or the 2010 Plan, and a share incentive plan in 2013, or the 2013 Plan, for the purpose of granting share-based
compensation awards to employees, directors and consultants to incentivize their performance and align their interests with ours.
Under the 2010 Plan, we are permitted to issue options to purchase up to 20,173,225 ordinary shares. Under the 2013 Plan, we are
authorized to grant options, restricted shares, restricted share units or other awards to purchase up to 26,686,700 ordinary shares,
consisting of 19,686,700 Class A ordinary shares and 7,000,000 Class B ordinary shares, including the automatic increase of 4,409,477
ordinary shares at the beginning of 2018 pursuant to the evergreen provision of the 2013 Plan. As of March 31, 2018, restricted
share units to receive and options to purchase an aggregate of 7,730,854 ordinary shares were issued and outstanding under the
2013 Plan, and options to purchase an aggregate of 1,654,780 ordinary shares were issued and outstanding under the 2010 Plan. 58
Home, our significant investee accounted for under equity method, adopted a share incentive plan in 2015 and granted options and
restricted shares under that plan to certain employees of 58 Home and our company. In addition, Zhuan Spirit Holdings Limited,
or Zhuan Zhuan Holding, adopted its 2017 Share Incentive Plan, and granted restricted share units, options and restricted shares
under that plan to certain employees of Zhuan Zhuan Holding. See “Item 6. Directors, Senior Management and Employees —
B. Compensation.” We have granted substantial additional share-based awards in connection with our acquisition of Ganji and
may grant more as part of future acquisition and integrations of other companies. As a result of these grants and potential future
grants, we incurred in the past and expect to continue to incur in future periods significant share-based compensation expenses.
The amount of share-based compensation expenses is based on the fair value of the share-based awards. We account for compensation
costs for all share-based awards using a fair-value based method and recognize expenses in our consolidated statement of comprehensive
income/(loss) in accordance with U.S. GAAP. The expenses associated with share-based compensation will increase our net loss or
decrease our net income, perhaps materially, and the additional securities issued under share-based compensation plans will dilute
the ownership interests of our shareholders, including holders of our ADSs. However, if we limit the scope of our share-based compensation
plan, we may not be able to attract or retain key personnel who are expected to be compensated by incentive shares or options.
We have
limited business insurance coverage.
Insurance companies in China
currently do not offer as extensive an array of insurance products as insurance companies do in more developed economies. Except
for the property insurance, third-party liability insurance, professional liability insurance and certain other insurance policies
purchased by Beijing Chengshi Wanglin Information Technology Co., Ltd., or Wanglin, Ruiting Network Technology (Shanghai) Co.,
Ltd., or Shanghai Ruiting, Beijing 58 Information Technology Co. Ltd., or Beijing 58, and 58 Tongcheng Technology Co., Ltd., or
58 Technology, we do not have any business liability or disruption insurance to cover our operations. We have determined that the
costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms
make it impractical for us to have such insurance. Any uninsured occurrence of business disruption may result in our incurring
substantial costs and the diversion of resources, which could have an adverse effect on our results of operations and financial
condition.
Failure
to renew our current leases or locate desirable alternatives for our facilities could materially and adversely affect our business.
In September 2014, we
entered into an agreement to purchase 44,915 square meters of office space in Chaoyang District, Beijing, which is used as
our company’s new corporate headquarters. All of the space was fully occupied as of December 31, 2017. We have
purchased a smaller office space in Tianjin as well. However, outside of Beijing and Tianjin, all of our offices in the other
48 cities and data centers were located on leased premises as of December 31, 2017. At the end of each lease term, we may not
be able to negotiate an extension of the leases and may therefore be forced to move to different locations, or the rents we
pay may increase significantly. This could disrupt our operations and adversely affect our profitability. We compete with
other businesses for premises with certain characteristics or in desirable locations and some landlords may have entered into
long-term leases with our competitors for such premises. As a result, we may not be able to obtain new leases at desirable
locations or renew our existing leases on acceptable terms or at all, which could materially and adversely affect our
business.
Risks Related to Our Corporate
Structure and Restrictions on Our Industry
Substantial
uncertainties and restrictions exist with respect to the interpretation and application of PRC laws and regulations relating to
online commerce and the distribution of internet content in China. If the PRC government finds that the structure we have adopted
for our business operations does not comply with PRC laws and regulations, we could be subject to severe penalties, including the
shutting down of our platforms.
Foreign ownership of internet-based
businesses is subject to significant restrictions under current PRC laws and regulations. The PRC government regulates internet
access, the distribution of online information and the conduct of online commerce through strict business licensing requirements
and other government regulations. These laws and regulations also include limitations on foreign ownership in PRC companies that
provide internet content distribution services. The State Council amended the Provisions on Administration of Foreign Invested
Telecommunications Enterprises in February 2016. Specifically, foreign investors are not allowed to own more than 50% of the equity
interests in any entity providing value-added telecommunication services. The Circular on Strengthening the Administration of Foreign
Investment in and Operation of Value-added Telecommunications Business, or the MIIT Circular, issued by the MIIT in July 2006,
reiterated the regulations on foreign investment in telecommunications businesses, which require foreign investors to set up foreign-invested
enterprises and obtain business operating licenses for internet content provisions to conduct any value-added telecommunications
business in China. Under the MIIT Circular, a domestic company that holds an internet content provision license, or ICP license,
is prohibited from leasing, transferring or selling the license to foreign investors in any form, and from providing any assistance,
including providing resources, sites or facilities, to foreign investors that conduct value-added telecommunications business illegally
in China. Furthermore, the relevant trademarks and domain names that are used in the value-added telecommunications business must
be owned by the local ICP license holder or its shareholders. Due to a lack of interpretation from MIIT, it is unclear what impact
the MIIT Circular will have on us or the other PRC internet companies that have adopted the same or similar corporate and contractual
structures as ours. Beijing 58 and certain other consolidated affiliated entities of us hold ICP licenses, and own all domain names
used in our value-added telecommunications businesses. Beijing 58 and certain other consolidated affiliated entities of us are
also the owners of all registered trademarks used in our value-added telecommunications businesses and are the applicants of all
our applications for registration of trademarks used for our value-added telecommunications businesses.
We are a Cayman Islands company
and our PRC subsidiary, Wanglin, is considered a foreign invested enterprise. To comply with PRC laws and regulations, we conduct
our operations in China through a series of contractual arrangements entered into among Wanglin, Beijing 58 and Beijing 58’s
shareholders. As a result of these contractual arrangements, we exert control over our Beijing 58 and its subsidiaries and consolidate
their financial results in our financial statements under U.S. GAAP. In August 2015, 58 Home, through its PRC subsidiary, Beijing
58 Daojia Information Technology Co., Ltd., or Beijing 58 Home, entered into contractual arrangements with Tianjin 58 Daojia Life
Services Co., Ltd., or Tianjin 58 Home, which had previously been an indirect subsidiary of Beijing 58, and the shareholders of
Tianjin 58 Home. As a result of these contractual arrangements, 58 Home exert control over Tianjin 58 Home. In addition, Tianjin
Zhuanzhuan World Technology Co., Ltd., or Tianjin Zhuanzhuan, entered into contractual arrangements with Beijing Zhuanzhuan Spirit
Technology Co., Ltd., or Beijing Zhuanzhuan, and Beijing Zhuanzhuan’s shareholders. As a result of these contractual arrangements,
Zhuan Spirit Holdings Limited, or Zhuan Zhuan Holding, exert control over Beijing Zhuanzhuan. For a detailed description of these
contractual arrangements, see “Item 4. Information on the Company — C. Organizational Structure — Our Contractual
Arrangements.”
In the opinion of our PRC
counsel, Han Kun Law Offices, our current ownership structure, the ownership structure of our PRC subsidiaries and our consolidated
affiliated entities, the contractual arrangements relating to our consolidated affiliated entities, and, except as otherwise disclosed
in this annual report, our business operations, are not in violation of any existing PRC laws, rules and regulations. There are,
however, substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations.
In particular, in January 2015, the Ministry of Commerce published a discussion draft of the proposed Foreign Investment Law for
public review and comments. Among other things, the draft Foreign Investment Law expands the definition of foreign investment and
introduces the principle of “actual control” in determining whether a company is considered a foreign-invested enterprise.
Under the draft Foreign Investment Law, variable interest entities would also be deemed as foreign-invested enterprises, if they
are ultimately “controlled” by foreign investors, and be subject to restrictions on foreign investments. However, the
draft law has not taken a position on what actions will be taken with respect to the existing companies with the “variable
interest entity” structure, whether or not these companies are controlled by Chinese parties. It is uncertain when the draft
will be signed into law and whether the final version will have any substantial changes from the draft. See “—
Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign
Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.”
Accordingly, we cannot assure you that PRC government authorities will not ultimately take a view contrary to the opinion of our
PRC legal counsel.
Accordingly, if our ownership
structure, contractual arrangements and businesses of our company, our PRC subsidiaries or our consolidated affiliated entities
are found to be in violation of any existing or future PRC laws or regulations, or we fail to obtain or maintain any of the required
permits or approvals, the relevant governmental authorities would have broad discretion in dealing with such violation, including
levying fines, confiscating our income or the income of our PRC subsidiaries or consolidated affiliated entities, revoking the
business licenses or operating licenses of our PRC subsidiaries or consolidated affiliated entities, shutting down our servers
or blocking our platforms, discontinuing or placing restrictions or onerous conditions on our operations, requiring us to undergo
a costly and disruptive restructuring, and taking other regulatory or enforcement actions that could be harmful to our business.
Any of these actions could cause significant disruption to our business operations and severely damage our reputation, which would
in turn materially and adversely affect our business, financial condition and results of operations. If any of these occurrences
results in our inability to direct the activities of any of our consolidated affiliated entities that most significantly impact
its economic performance, and/or our failure to receive the economic benefits from any of our consolidated affiliated entities,
we may not be able to consolidate the entity in our consolidated financial statements in accordance with U.S. GAAP.
We rely
on contractual arrangements with our consolidated affiliated entities and their shareholders for the operation of our business,
which may not be as effective as direct ownership. If we are unable to maintain control, we would not be able to continue to consolidate
the financial results of these entities with our financial results. If our consolidated affiliated entities and their shareholders
fail to perform their obligations under these contractual arrangements, we may have to resort to litigation or arbitration to enforce
our rights, which may be time-consuming, unpredictable, expensive and damaging to our operations and reputation.
Because of PRC restrictions
and qualification requirements on foreign ownership of value-added telecommunications services in China, we depend on contractual
arrangements with our consolidated affiliated entities, in which we have no ownership interest, to conduct our business. These
contractual arrangements are intended to provide us with control over these entities and allow us to obtain economic benefits from
them. Although we have been advised by our PRC counsel, Han Kun Law Offices, that these contractual arrangements are valid, binding
and enforceable under current PRC laws, these contractual arrangements may not be as effective in providing control as direct ownership.
For example, our consolidated affiliated entities and their shareholders could breach their contractual arrangements with us by,
among other things, failing to conduct their operations, including maintaining our platforms and using the domain names and trademarks
for which they have exclusive right to use, in an acceptable manner or taking other actions that are detrimental to our interests.
If we were the controlling shareholder of our consolidated affiliated entities with direct ownership, we would be able to exercise
our rights as shareholders to effect changes to their board of directors, which in turn could implement changes at the management
and operational levels. Furthermore, each of our consolidated affiliated entities’ company chops are held by each company’s
legal or accounting department. Our ability to ensure the consolidated affiliated entities’ performance under the contractual
agreements may be limited if we were unable to secure control of the company chops in the event of a dispute with the entity’s
management or shareholders as many official documents require affixation of company chops to become fully effective. As a result,
if our consolidated affiliated entities or their shareholders fail to perform their obligations under these contractual arrangements
we may have to incur substantial costs to enforce such arrangements, and rely on legal remedies under PRC law, including contract
remedies, which may not be sufficient or effective. If we are unable to maintain control, we would not be able to continue to consolidate
the financial results of these entities with our financial results.
These contractual arrangements
are governed by PRC law and provide for dispute resolution through arbitration in China. Accordingly, these contracts would be
interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. Under PRC law,
if parties to a contract have agreed to resolve disputes arising from the contract by arbitration, a PRC court will not accept
a lawsuit initiated at the court by any contract party, unless the agreement for arbitration is invalid. An arbitration award issued
by the arbitration commission chosen in accordance with the agreement is final, binding and enforceable against the parties. If
any party fails to comply with the arbitration award, the other party has the right to apply with a competent court for enforcement.
However, the legal environment in China is not as developed as other jurisdictions such as the United States. As a result, uncertainties
in the PRC legal system could limit our ability to enforce these contractual arrangements, which may make it difficult to exert
control over our consolidated affiliated entities, and our ability to conduct our business may be negatively affected. In addition,
a PRC court or arbitration tribunal may refuse to enforce the contractual arrangements on the grounds that they are designed to
circumvent PRC foreign investment restrictions and therefore are against PRC public policy.
If we are unable to enforce
these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual
arrangements, our business and operations could be severely disrupted, which could materially and adversely affect our results
of operations and damage our reputation. See “— Risks Related to Doing Business in China — Uncertainties in the
interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.”
The shareholders
of our consolidated affiliated entities have potential conflicts of interest with us, which may adversely affect our business.
Mr. Jinbo Yao is the founder,
chairman and chief executive officer of our company, having beneficial ownership of 10.5% of the total outstanding shares of our
company as of March 31, 2018. See “Item 7. Major Shareholders and Related Party Transactions — A. Major Shareholders.”
He is also the sole director, an executive officer and a shareholder of Beijing 58, our consolidated affiliated entity, holding
a 37.8% equity interest in the entity. In addition, Mr. Yao is the sole director and a 16.7% shareholder of Beijing Wanglintong
Information Technology Co., Ltd., or Beijing Wanglintong, an entity that holds a 13.4% equity interest in Beijing 58. Mr. Yao is
also an executive director and a 1.4% shareholder of Tianjin 58 Home, 58 Home’s consolidated affiliated entity. Conflicts
of interest between his duties to our company, his duties to Beijing 58 or Tianjin 58 Home and his interests as a shareholder of
Beijing 58 may arise. We cannot assure you that he will act entirely in our interests when conflicts of interest arise or that
conflicts of interest will be resolved in the favor of our company. Furthermore, in the context of Mr. Yao’s acting as the
director and an executive officer of Beijing 58 or a director of Tianjin 58 Home, PRC law would not require him to consider our
company’s best interests. We rely on Mr. Yao to abide by the laws of China, which provide that directors and executive officers
owe a duty of loyalty and duty of care to the company and require them to avoid conflicts of interest and not to take advantage
of their positions for personal gains, and the laws of Cayman Islands, which provide that directors owe a duty of care and duty
of loyalty to the company. The respective legal framework of China and the Cayman Islands does not provide guidance in the event
of a conflict with another corporate governance regime. If we cannot resolve any conflict of interest or dispute between us and
the shareholders of our consolidated affiliated entities should one arise, we would have to rely on legal proceedings, which could
result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.
In addition, Mr. Yao could violate his non-competition or employment agreements with us or his legal duties by diverting business
opportunities from us, resulting in our loss of corporate opportunities. If we are unable to resolve any such conflicts, or if
we suffer significant delays or other obstacles as a result of such conflicts, our business and operations could be severely disrupted,
which could materially and adversely affect our results of operations and damage our reputation. See “— Risks Related
to Doing Business in China — Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit
the legal protections available to you and us.”
We may
lose the ability to use and enjoy assets held by our consolidated affiliated entities that are material to the operation of our
business if any of such entities goes bankrupt or becomes subject to a dissolution or liquidation proceeding.
As part of our contractual
arrangements with Beijing 58 and other consolidated affiliated entities, these entities hold certain assets that are material to
the operation of our business, including the ICP license, and the domain names and trademarks for which Beijing 58 or any of the
other consolidated affiliated entities has exclusive right to use. If any of our consolidated affiliated entities goes bankrupt
and all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or
all of our business activities, which could materially and adversely affect our business, financial condition and results of operations.
Under the contractual arrangements, our consolidated affiliated entities may not, in any manner, sell, transfer, mortgage or dispose
of their assets or legal or beneficial interests in the business without our prior consent. If any of our consolidated affiliated
entities undergoes a voluntary or involuntary liquidation proceeding, the unrelated third-party creditors may claim rights to some
or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our
business, financial condition and results of operations.
Our contractual
arrangements with our consolidated affiliated entities may result in adverse tax consequences to us.
Under PRC laws and regulations,
arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities within ten
years after the taxable year when the transactions are conducted. The PRC enterprise income tax law requires every enterprise in
China to submit its annual enterprise income tax return together with a report on transactions with its related parties to the
relevant tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related
party transactions that are inconsistent with arm’s length principles. We may be subject to adverse tax consequences if the
PRC tax authorities were to determine that the contracts between our PRC subsidiaries and our consolidated affiliated entities
were not on an arm’s length basis and therefore constitute favorable transfer pricing arrangements. If this occurs, the PRC
tax authorities could request that our consolidated affiliated entities adjust their taxable income, if any, upward for PRC tax
purposes. Such a pricing adjustment could adversely affect us by increasing our consolidated affiliated entities’ tax expenses
without reducing our tax expenses, and by subjecting our consolidated affiliated entities to late payment fees and other penalties
for underpayment of taxes.
We may
be adversely affected by the complexity, uncertainties and changes in China’s regulation of internet business and companies.
The internet industry in China
is highly regulated by the PRC government and numerous regulatory authorities of the central PRC government are empowered to issue
and implement regulations governing various aspects of the internet industry including foreign ownership of and licensing and permit
requirements pertaining to companies in the internet industry. See “Item 4. Information on the Company — B. Business
Overview — Regulation.” These internet-related laws and regulations are relatively new and evolving, and their interpretation
and enforcement involve significant uncertainty. As a result, in certain circumstances, it may be difficult to determine what actions
or omissions may be deemed to be in violation of applicable laws and regulations. Our consolidated affiliated entities are required
to obtain and maintain applicable licenses or approvals from different regulatory authorities in order to provide their current
services, including but not limited to the ICP license, the Surveying and Mapping Qualification Certificate for internet mapping,
the Employment Agency License and the Internet Culture Business Permit.
Pursuant to the relevant regulations
promulgated by the State Administration of Press Publication, Radio, Film and Television, or the SAPPRFT, any company engaged in
internet broadcasting activities must obtain an Online Audio/Video Program Transmission License issued by the SAPPRFT and operate
in accordance with the scope as stipulated in such license. Since February 2008, only wholly state-owned or state-controlled enterprises
are qualified to apply for new Online Audio/Video Program Transmission License. Beijing 58 Auto Technology Co., Ltd. or Beijing
58 Auto (formerly known as Beijing Leftbrain Network Technology Co., Ltd.), one of our consolidated affiliates, has not obtained
an Online Audio/Video Program Transmission License and provides on its website certain audio/video programs on third-party platforms,
which have the Online Audio/Video Program Transmission Licenses. Beijing 58 Auto had fines imposed for an amount of RMB6,000, RMB6,000
and RMB3,000 in 2015, 2016 and 2017, respectively, for providing internet broadcasting activities without an Online Audio/Video
Program Transmission License, Beijing 58 Auto may be subject to additional penalties and be required to change its way to provide
audio/video programs if the local authorities still consider the existing way that Beijing 58 Auto provides the audio/video programs
to be an internet broadcasting activity.
Furthermore, our consolidated
affiliated entities may be required to obtain additional licenses. If any of them fails to obtain or maintain any of the required
licenses or approvals, its continued business operations in the internet industry may subject it to various penalties, such as
confiscation of illegal net sales, fines and the discontinuation or restriction of its operations. Any such disruption in the business
operations of our consolidated affiliated entities will materially and adversely affect our business, financial condition and results
of operations.
Regulation
and censorship of information distribution over the internet in China may adversely affect our business, and we may be liable for
information displayed on, retrieved from or linked to our platforms.
The PRC government has adopted
regulations governing internet access and the distribution of information over the internet. Under these regulations, internet
content providers and internet publishers are prohibited from posting or displaying over the internet content that, among other
things, violates PRC laws and regulations, impairs the national dignity of China or the public interest, contains terrorism or
extremism content, or is reactionary, obscene, superstitious, fraudulent or defamatory. Failure to comply with these requirements
may result in the revocation of licenses to provide internet content and other licenses, the closure of the concerned platforms
and reputational harm. A website operator may also be held liable for such censored information displayed on or linked to its website.
For a detailed discussion, see “Item 4. Information on the Company — B. Business Overview — Regulation —
Regulations on Value-Added Telecommunication Services” and “Item 4. Information on the Company — B. Business
Overview — Regulation — Regulations on Information Security and Censorship.” We have a team within our data security
department which implements internal procedures to review the content in our system for compliance with applicable laws and regulations,
aided by a program designed to periodically sweep our platforms and the data being conveyed in our system for sensitive keywords
or questionable materials. In spite of this screening system, we may have difficulty identifying and removing all illegal content
or transactions involving illegal sales of goods and services, which could expose us to the penalties described above.
Risks Related to Doing
Business in China
Uncertainties
in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.
The PRC legal system is based
on written statutes. Unlike common law systems, it is a system in which legal cases have limited value as precedents. In the late
1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general.
The overall effect of legislation over the past three decades has significantly increased the protections afforded to various forms
of foreign or private-sector investment in China. Our PRC subsidiaries, Wanglin, 58 Technology and Shanghai Ruiting, are foreign-invested
enterprises and are subject to laws and regulations applicable to foreign-invested enterprises as well as various PRC laws and
regulations generally applicable to companies in China. However, since these laws and regulations are relatively new and the PRC
legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement
of these laws, regulations and rules involve uncertainties.
From time to time, we may
have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and court
authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult
to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed
legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are
not published in a timely manner or at all) that may have retroactive effect. As a result, we may not be aware of our violation
of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect
of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in
the regulatory environment in China could materially and adversely affect our business and impede our ability to continue our operations.
Changes
in China’s economic, political or social conditions or government policies could have a material adverse effect on our business
and operations.
Substantially all of our assets
and almost all of our users are located in China. Accordingly, our business, financial condition, results of operations and prospects
may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic
growth in China as a whole.
China’s economy differs
from the economies of most developed countries in many respects, including the level of government involvement, level of development,
growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures since
the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive
assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets
in China is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating
industry development by imposing industrial policies. The PRC government also exercises significant control over the PRC economic
growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy,
and providing preferential treatment to particular industries or companies.
While China’s economy
has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors
of the economy, and may slow down in the future. Some of the government measures may benefit the overall Chinese economy, but may
have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government
control over capital investments or changes in tax regulations. Any stimulus measures designed to boost the Chinese economy may
contribute to higher inflation, which could adversely affect our results of operations and financial condition. For example, certain
operating costs and expenses, such as employee compensation and office operating expenses, may increase as a result of higher inflation.
Substantial
uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment
Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.
The Ministry of Commerce published
a discussion draft of the proposed Foreign Investment Law in January 2015 aiming to, upon its enactment, replace the trio of existing
laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative
Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary
regulations. The draft Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory
regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for
both foreign and domestic investments. While the Ministry of Commerce solicited comments on this draft, substantial uncertainties
exist with respect to its enactment timetable, interpretation and implementation. The draft Foreign Investment Law, if enacted
as proposed, may materially impact the viability of our current corporate structure, corporate governance and business operations
in many aspects.
Among other things, the draft
Foreign Investment Law expands the definition of foreign investment and introduces the principle of “actual control”
in determining whether a company is considered a foreign-invested enterprise, or an FIE. The draft Foreign Investment Law specifically
provides that entities established in China but “controlled” by foreign investors will be treated as FIEs, whereas
an entity set up in a foreign jurisdiction would nonetheless be, upon market entry clearance by the Ministry of Commerce, treated
as a PRC domestic investor provided that the entity is “controlled” by PRC entities and/or citizens. In this connection,
“foreign investors” refers to the following subjects making investments within the PRC: (i) natural persons without
PRC nationality; (ii) enterprises incorporated under the laws of countries or regions other than China; (iii) the governments of
countries or regions other than the PRC and the departments or agencies thereunder; and (iv) international organizations. Domestic
enterprises under the control of the subjects as mentioned in the preceding sentence are deemed foreign investors, and “control”
is broadly defined in the draft law to cover the following summarized categories: (i) holding, directly or indirectly, not less
than 50% of shares, equities, share of voting rights or other similar rights of the subject entity; (ii) holding, directly or indirectly,
less than 50% of the voting rights of the subject entity but having the power to secure at least 50% of the seats on the board
or other equivalent decision making bodies, or having the voting power to exert material influence on the board, the shareholders’
meeting or other equivalent decision making bodies; or (iii) having the power to exert decisive influence, via contractual or trust
arrangements, over the subject entity’s operations, financial matters or other key aspects of business operations. Once an
entity is determined to be an FIE, it will be subject to the foreign investment restrictions or prohibitions set forth in a “catalogue
of special administrative measures,” which is classified into the “catalogue of prohibitions” and “the
catalogue of restrictions,” to be separately issued by the State Council later. Foreign investors are not allowed to invest
in any sector set forth in the catalogue of prohibitions. However, unless the underlying business of the FIE falls within the catalogue
of restrictions, which calls for market entry clearance by the Ministry of Commerce, prior approval from the government authorities
as mandated by the existing foreign investment legal regime would no longer be required for establishment of the FIE.
The “variable interest
entity” structure, or VIE structure, has been adopted by many PRC-based companies, including us, to obtain necessary licenses
and permits in the industries that are currently subject to foreign investment restrictions in China. See “— Risks
Related to Our Corporate Structure and Restrictions on Our Industry” and “Item 4. Information on the Company —
C. Organizational Structure.” Under the draft Foreign Investment Law, variable interest entities that are controlled via
contractual arrangement would also be deemed as FIEs, if they are ultimately “controlled” by foreign investors. Therefore,
for any companies with a VIE structure in an industry category that is included in the “negative list” as restricted
industry, the VIE structure may be deemed legitimate only if the ultimate controlling person(s) is/are of PRC nationality (either
PRC government authorities and its affiliates or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign
nationalities, then the variable interest entities will be treated as FIEs and any operation in the industry category on the “negative
list” without market entry clearance may be considered illegal.
It is uncertain whether we
would be considered as ultimately controlled by Chinese parties. Besides, the draft Foreign Investment Law has not taken a position
on what actions shall be taken with respect to the existing companies with a VIE structure, whether or not these companies are
controlled by Chinese parties, while the Ministry of Commerce solicited comments from the public on this point. Moreover, it is
uncertain whether the value-added telecommunications services, in which our variable interest entities operate, will be subject
to the foreign investment restrictions or prohibitions set forth in the “negative list” to be issued. If the enacted
version of the Foreign Investment Law and the final “negative list” mandate further actions, such as Ministry of Commerce
market entry clearance, to be completed by companies with existing VIE structure like us, we face uncertainties as to whether such
clearance can be timely obtained, or at all.
The draft Foreign Investment
Law, if enacted as proposed, may also materially impact our corporate governance practice and increase our compliance costs. For
instance, the draft Foreign Investment Law imposes stringent ad hoc and periodic information reporting requirements on foreign
investors and the applicable FIEs.
Under
the Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes.
Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material
adverse effect on our results of operations and the value of your investment.
Under the PRC Enterprise Income
Tax Law, an enterprise established outside the PRC with “de facto management bodies” within China is considered a “resident
enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on
its worldwide income. Under the implementation rules to the Enterprise Income Tax Law, a “de facto management body”
is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel
and human resources, finances and properties of an enterprise. In addition, a circular known as SAT Circular 82, issued in April
2009 and amended in January 2014 by the State Administration of Taxation specifies that certain offshore incorporated enterprises
controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are located
or resident in China: senior management personnel and departments that are responsible for daily production, operation and management;
financial and personnel decision making bodies; key properties, accounting books, company seal, and minutes of board meetings and
shareholders’ meetings; and half or more of the senior management or directors having voting rights. Further to SAT Circular
82, the State Administration of Taxation issued a bulletin, known as SAT Bulletin 45, which took effect in September 2011, to provide
more guidance on the implementation of SAT Circular 82 and clarify the reporting and filing obligations of such “Chinese-controlled
offshore incorporated resident enterprises.” SAT Bulletin 45 provides procedures and administrative details for the determination
of resident status and administration on post-determination matters. Although both SAT Circular 82 and SAT Bulletin 45 only apply
to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign
individuals, the determining criteria set forth in SAT Circular 82 and SAT Bulletin 45 may reflect the State Administration of
Taxation’s general position on how the “de facto management body” test should be applied in determining the tax
resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups or
by PRC or foreign individuals.
We do not believe that 58.com
Inc., China Classified Network Corporation, China Classified Information Corporation Limited, or any of our other offshore subsidiaries
meet all of the conditions above and thus we do not believe that 58.com Inc., China Classified Network Corporation, China Classified
Information Corporation Limited or any of our other offshore subsidiaries is a PRC resident enterprise, although some of the members
of our management team as well as the management team of our offshore holding companies are located in China. However, if the PRC
tax authorities determine that 58.com Inc., China Classified Network Corporation, China Classified Information Corporation Limited
or any of our other offshore subsidiaries is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable
PRC tax consequences could follow. First, we and/or our offshore subsidiaries will be subject to the uniform 25% enterprise income
tax on our world-wide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise
income tax reporting obligations.
Furthermore, although dividends
paid by one PRC tax resident enterprise to an offshore incorporated PRC resident enterprise controlled by PRC enterprises or PRC
enterprise groups should qualify as “tax-exempt income” under the Enterprise Income Tax Law and Bulletin 45, we cannot
assure you that dividends paid by any of our PRC subsidiaries to their shareholder in Hong Kong such as China Classified Information
Corporation Limited will not be subject to a PRC withholding tax, as the PRC foreign exchange control authorities, which enforce
the withholding tax on dividends, and the PRC tax authorities have not yet issued guidance with respect to the processing of outbound
remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes but not controlled by PRC
enterprises or PRC enterprise groups.
Finally, dividends payable
by us to our investors and gains on the sale of our shares may become subject to PRC withholding tax, each at a rate of 10% for
foreign enterprise holders and at a rate of 20% for foreign individual holders of the ADSs or ordinary shares.
We may
not be able to obtain certain benefits under relevant tax treaty on dividends paid by our PRC subsidiaries to us through China
Classified Information Corporation Limited or other Hong Kong subsidiaries.
We are a holding company incorporated
under the laws of the Cayman Islands and as such rely on dividends and other distributions on equity from our PRC subsidiaries
to satisfy part of our liquidity requirements. Pursuant to the Enterprise Income Tax Law, a withholding tax rate of 10% currently
applies to dividends paid by a PRC “resident enterprise” to a foreign enterprise investor, unless any such foreign
investor’s jurisdiction of incorporation has a tax treaty with China that provides for preferential tax treatment. Pursuant
to a Notice 112 issued by the State Administration of Taxation in January 2008 and the Arrangement between the Mainland China and
the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion, or the Double
Taxation Arrangement (Hong Kong), such withholding tax rate may be lowered to 5% if the PRC enterprise is at least 25% held by
a Hong Kong enterprise at all times within the 12-month period immediately prior to distribution of the dividends and is determined
by the relevant PRC tax authority to have satisfied other conditions and requirements under the Double Tax Avoidance Arrangement
(Hong Kong) and other applicable PRC laws. Pursuant to SAT Notice 9 issued by the State Administration of Taxation in February
2018, which took effect on April 1, 2018 and superseded SAT Circular 601 issued by the State Administration of Taxation in October
2009 and an announcement released by the State Administration of Taxation in June 2012, non-resident enterprises that cannot provide
valid supporting documents as “beneficial owners” may not be approved to enjoy tax treaty benefits. “Beneficial
owners” are residents who have ownership and the right to dispose of the income or the rights and properties giving rise
to the income. These rules also set forth certain adverse factors against the recognition of a “beneficial owner,”
such as not carrying out substantive business activities. Whether a non-resident company may obtain tax benefits under the relevant
tax treaty will be subject to approval of the relevant PRC tax authority and will be determined by the PRC tax authority on a case-by-case
basis. SAT Notice 9 further provides that a comprehensive analysis should be made when determining the beneficial owner status
based on various factors supported by documents including the articles of association, financial statements, records of cash movements,
board meeting minutes, board resolutions, staffing and materials, relevant expenditures, functions and risk assumption as well
as relevant contracts and other information. In August 2015, the State Administration of Taxation promulgated the Administrative
Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties, or SAT Circular 60, which became effective on November
1, 2015. SAT Circular 60 provides that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority
in order to enjoy the reduced withholding tax rate. Instead, non-resident enterprises and their withholding agents may, by self-assessment
and upon their confirmation that the prescribed criteria are met, directly apply the reduced withholding tax rate, and file necessary
forms and supporting documents when conducting tax filings, which will be subject to post-filing examinations by the relevant tax
authorities. None of our Hong Kong subsidiaries has applied for the approval for a withholding tax rate of 5% from the local tax
authority prior to SAT Circular 60, nor has any of our PRC subsidiaries applied the 5% tax rate directly to any dividend payment
after the SAT Circular 60, as our PRC subsidiaries have not paid dividends to us. We plan to have our Hong Kong subsidiaries assume
some managerial and administrative functions, as well as conduct other business functions in the future. Once we implement such
a plan, our Hong Kong subsidiaries may be qualified as
beneficial
owners as defined under SAT Notice 9 and will enjoy treaty benefits such as preferential dividend withholding tax rates
.
However, our Hong Kong subsidiaries as currently situated may be considered
non-beneficial
owners
and we cannot assure you that the relevant PRC tax authority will agree with our view when any of our PRC subsidiaries
directly applies reduced withholding tax rate under the relevant tax treaty in the future. As a result, we may not be able to enjoy
the preferential withholding tax rate of 5% under the Double Taxation Arrangement (Hong Kong) and therefore be subject to withholding
tax at a rate of 10% with respect to dividends to be paid by our PRC subsidiaries to their shareholders in Hong Kong such as China
Classified Information Corporation Limited.
Enhanced
scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue
in the future.
On February 3, 2015, the State
Administration of Tax issued a Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties
by Non-Tax Resident Enterprises, or SAT Notice 7, which partially
replaced and supplemented
previous rules under the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident
Enterprises, or SAT Circular 698, issued by the State Administration of Taxation, on December 10, 2009
. SAT Notice 7 extends
its tax jurisdiction to not only indirect transfers set forth under SAT Circular 698 but also transactions involving transfer of
other taxable assets, through the offshore transfer of a foreign intermediate holding company. SAT Notice 7 also brings challenges
to both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the taxable assets.
Where a non-resident enterprise conducts an “indirect transfer” by transferring the taxable assets indirectly by disposing
of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or
the PRC entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a
“substance over form” principle, the PRC tax authority may re-characterize such indirect transfer as a direct transfer
of the equity interests in the PRC tax resident enterprise and other properties in China. As a result, gains derived from such
indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the
transfer is obligated to withhold the applicable taxes, currently at a rate of up to 10% for the transfer of equity interests in
a PRC resident enterprise. However, SAT Notice 7 has introduced safe harbors for internal group restructurings and the purchase
and sale of equity through a public securities market. On October 17, 2017, the SAT issued the Announcement of the State Administration
of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Bulletin 37, which came
into effect on December 1, 2017, and concurrently abolished SAT
Circular 698
. The
SAT Bulletin 37 further clarifies the practice and procedure of the withholding of non-resident enterprise income tax. Pursuant
to SAT Notice 7 and SAT Bulletin 37, both the transferor and the transferee may be subject to penalties under PRC tax laws if the
transferee fails to withhold the taxes and the transferor fails to pay the taxes.
We face uncertainties on the
reporting and consequences of private equity financing transactions, share exchange or other transactions involving the transfer
of shares in our company by investors that are non-PRC resident enterprises outside a public securities market, which means that
an investor obtains or sells our shares outside a public securities market, or sale or purchase of shares in other non-PRC resident
companies or other taxable assets by us. Our company and other non-resident enterprises in our group may be subject to filing obligations
or taxation if our company or other non-resident enterprises in our group are transferors in such transactions, and may be subject
to withholding obligations if our company or other non-resident enterprises in our group are transferees in such transactions,
under SAT Notice 7 and/or SAT Bulletin 37. For the transfer of shares in our company by investors that are non-PRC resident enterprises
outside a public securities market, our PRC subsidiaries may be requested to assist in the filing under SAT Notice 7 and/or SAT
Bulletin 37. As a result, we may be required to expend valuable resources to comply with SAT Notice 7 and SAT Bulletin 37 or to
request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our
company and other non-resident enterprises in our group should not be taxed under these circulars, which may have a material adverse
effect on our financial condition and results of operations.
The PRC tax authorities have
the discretion under SAT Notice 7 and SAT Bulletin 37 to make adjustments to the taxable capital gains based on the difference
between the fair value of the taxable assets transferred and the cost of investment. If the PRC tax authorities make adjustments
to the taxable income of the transactions under SAT Notice 7 and SAT Bulletin 37, our income tax costs associated with such potential
sales or acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.
We have conducted acquisitions or sales in the past and may conduct additional acquisitions or sales in the future. We cannot assure
you that the PRC tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing obligations
on us or require us to provide assistance for the investigation by PRC tax authorities with respect thereto. Heightened scrutiny
over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in
the future.
PRC regulations
establish complex procedures for mergers and acquisitions, including acquisitions of PRC companies by foreign investors, which
could make it more difficult for us to pursue growth through acquisitions in China.
Six PRC regulatory agencies
promulgated regulations effective on September 8, 2006, with subsequent amendment in June 2009, which is commonly referred to as
the M&A Rules. See “Item 4. Information on the Company — B. Business Overview — Regulation.” The M&A
Rules establish procedures and requirements that could make some acquisitions of PRC companies by foreign investors more time-consuming
and complex, including requirements in some instances that the Ministry of Commerce be notified in advance of any change-of-control
transaction in which a foreign investor takes control of a PRC domestic enterprise. In addition, national security review rules
issued by the PRC governmental authorities in 2011 require acquisitions by foreign investors of domestic companies engaged in military-related
or certain other industries that are crucial to national security to be subject to prior security review. Moreover, the Anti-Monopoly
Law requires that the Ministry of Commerce shall be notified in advance of any concentration of undertaking, occurring inside or
outside China, if certain thresholds are triggered. We may expand our business in part by acquiring complementary businesses. Complying
with the requirements of the M&A Rules, security review rules and other PRC regulations to complete such transactions could
be time-consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce, may delay or
inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market
share. In addition, due to lack of clarity under some PRC laws and regulations, it is unclear in some circumstances whether an
approval is required for a merger or acquisition transaction and we cannot assure you that the PRC governmental authorities will
agree with our view on whether the approval is required for transactions conducted or to be conducted by us.
PRC regulations
relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered
capital or distribute profits to us, limit our ability to inject capital into our PRC subsidiaries, or otherwise expose us to liability
and penalties under PRC law.
SAFE promulgated the Circular
on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose
Vehicles, or SAFE Circular 37, in July 2014, to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration
for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE
Circular 37 requires PRC residents, including PRC individuals and entities, to register with SAFE or its local branch in connection
with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition,
such PRC residents must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating
to any change of basic information (including change of such PRC residents, name and operation term), increases or decreases in
investment amount, transfers or exchanges of shares, or mergers or divisions. In February 2015, SAFE promulgated the Notice on
Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became
effective on June 1, 2015. Pursuant to SAFE Notice 13, instead of applying for approvals regarding foreign exchange registrations
of foreign direct investment and overseas direct investment from SAFE as required under current laws, entities and individuals
are required to apply for such foreign exchange registrations, including those required under the SAFE Circular 37, from qualified
banks. The qualified banks, under the supervision of SAFE, will examine the applications and conduct the registration. If a PRC
resident fails to make the required SAFE registration with the local SAFE branches, the PRC subsidiaries of such offshore company
may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to
the offshore company, and the offshore company may be restricted in its ability to contribute additional capital to its PRC subsidiaries.
Moreover, failure to comply with SAFE registration and amendment requirements described above could result in liability under PRC
law for evasion of applicable foreign exchange restrictions.
Furthermore, it is unclear
how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended
and implemented by the relevant government authorities. We cannot predict how these regulations will affect our business operations
or future strategy. For example, we may be subject to a more stringent review and approval process with respect to our foreign
exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our
financial condition and results of operations. In addition, if we decide to acquire a PRC domestic company, either we or the owners
of such company, as the case may be, may not be able to obtain the necessary approvals or complete the necessary filings and registrations
required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely
affect our business and prospects.
Failure
to comply with PRC regulations regarding the registration requirements for employee share ownership plans or share option plans
may subject the PRC plan participants or us to fines and other legal or administrative sanctions.
In February 2012, SAFE promulgated
the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive
Plans of Overseas Publicly Listed Companies, or the Stock Option Rules, replacing the previous rules issued by SAFE in March 2007.
Under the Stock Option Rules and other relevant rules and regulations, PRC residents who participate in stock incentive plan in
an overseas publicly listed company are required to register with SAFE or its local branches and complete certain other procedures.
Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary
of the overseas publicly listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration
and other procedures with respect to the stock incentive plan on behalf of its participants. The participants must also retain
an overseas entrusted institution to handle matters in connection with their exercise of stock options, the purchase and sale of
corresponding stocks or interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with
respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas
entrusted institution or other material changes. See “Item 4. Information on the Company — B. Business Overview —
Regulation —Regulations on Employee Stock Option Plans.” We and our PRC employees who have been granted share options
and restricted shares are subject to these regulations. Failure of our PRC share option holders or restricted shareholders to complete
their SAFE registrations may subject these PRC residents to fines and legal sanctions and may also limit our ability to contribute
additional capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to us, or otherwise
materially adversely affect our business.
PRC regulation
of direct investment and loans by offshore holding companies to PRC entities and governmental control of currency conversion may
delay or limit us from using the proceeds of our securities offerings to make additional capital contributions or loans to our
PRC subsidiaries.
Any capital contributions
or loans that we, as an offshore entity, make to our PRC subsidiaries, including from the proceeds of our securities offerings,
are subject to PRC regulations. Under PRC laws and regulations, we are permitted to utilize the proceeds from our securities offerings
to fund our PRC subsidiaries only through loans or capital contributions, subject to applicable government registration and approval
requirements. None of our loans to a PRC subsidiary can exceed the maximum amount that such PRC subsidiary is allowed to borrow
from foreign creditors under relevant PRC laws, and the loans must be registered with the local branch of SAFE. Our capital contributions
to our PRC subsidiaries must be filed with the Ministry of Commerce or its local counterpart, and if our PRC subsidiaries are subject
to special administrative measures for foreign investment entry under PRC laws, namely the restrictions applicable to the “restrictive
business” under the Guidance Catalog of Industries for Foreign Investment and special requirements on shareholding percentage
and qualification of senior officers for “encouraged business” under the foregoing catalog, the capital contributions
to such PRC subsidiaries will be subject to approval by the Ministry of Commerce or its local counterpart. We cannot assure you
that we will be able to complete the necessary registration or obtain the necessary approval on a timely basis, or at all. If we
fail to complete the necessary registration or obtain the necessary approval, our ability to make loans or equity contributions
to our PRC subsidiaries may be negatively affected, which could adversely affect our PRC subsidiaries’ liquidity and their
ability to fund their working capital and expansion projects and meet their obligations and commitments.
In March 2015, SAFE promulgated
SAFE Circular 19, which took effective and replaced SAFE Circular 142 from June 1, 2015. Although SAFE Circular 19 removed certain
restrictions previously provided under SAFE Circular 142 for conversion by a foreign-invested enterprise of foreign currency registered
capital into RMB and use of such RMB capital, it continues to prohibit foreign-invested enterprises from, among other things, using
RMB fund converted from its foreign exchange capital for expenditure beyond its business scope, providing entrusted loans or repaying
loans between non-financial enterprises. In addition, SAFE Circular 19 is still unclear whether a foreign-invested enterprise whose
business scope does not include equity investment or similar activities may use Renminbi converted from the foreign currency-denominated
capital for equity investments in the PRC. For example, the business scopes of Wanglin and 58 Technology include, among others,
research and development of online classified information technology and software systems, information technology consulting, technical
services and marketing and promotional services. Each of Wanglin, 58 Technology and our other PRC subsidiaries that are foreign-invested
enterprises may only use Renminbi converted from foreign exchange capital contribution for activities within its approved business
scope. In addition, the use of such Renminbi capital may not be altered without SAFE approval, and such Renminbi capital may not
in any case be used to repay Renminbi loans if the proceeds of such loans have not been used. Violations of these circulars and
rules could result in severe monetary or other penalties. If we convert the net proceeds we receive from our securities offerings
into Renminbi pursuant to the applicable laws and regulations, our use of Renminbi funds for general corporate purposes will be
within the business scope of our PRC subsidiaries.
PRC regulation
of loans by offshore holding companies to PRC entities and governmental control of currency conversion may limit our ability to
fund the operations of our consolidated affiliated entities.
Due to the restrictions imposed
on loans in foreign currencies extended to any PRC domestic companies, any loans from our Cayman Islands holding company or other
offshore entities to PRC domestic company are required to be registered with local SAFE and cannot exceed the maximum amount that
such company is allowed to borrow from foreign creditors under the applicable PRC laws and complete record-filling procedures with
local SAFE on an item-by-item basis. In addition, loans to a PRC domestic company with a term of one year or a longer term are
also subject to filings with the National Development and Reform Commission and/or its local branches. Therefore, we are not likely
to have our Cayman Islands holding company or other offshore entities to use the proceeds from our securities offerings to extend
loans to our consolidated affiliated entities or their subsidiaries, each of which is a PRC domestic company. Meanwhile, we are
not likely to finance the activities of our consolidated affiliated entities by means of capital contributions due to regulatory
restrictions relating to foreign investment in PRC domestic enterprises engaged in value-added telecommunications services. In
addition, due to the restrictions on a foreign-invested enterprise’s use of Renminbi converted from foreign-currency registered
capital under PRC regulations, including SAFE Circular 19, as described under the foregoing risk factor, our PRC subsidiaries may
be unable to use the Renminbi converted from their registered capital to provide loans or financial support to our consolidated
affiliated entities. We currently do not plan to use the proceeds from our securities offerings to fund the operations of our consolidated
affiliated entities and their subsidiaries. Additionally, our PRC subsidiaries are not prohibited under PRC laws and regulations
from using their capital generated from their operating activities to provide entrusted loans or other forms of financial support
to consolidated affiliated entities. We will assess the working capital requirements of our consolidated affiliated entities on
an ongoing basis and, if needed, may have our PRC subsidiaries to use their capital from operating activities to provide financial
support to our consolidated affiliated entities.
Our PRC
subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to
satisfy our liquidity requirements.
We are a holding company incorporated
in the Cayman Islands. We may need dividends and other distributions on equity from our PRC subsidiaries to satisfy our liquidity
requirements. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits,
if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required
to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total
amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries may also allocate a portion of its after-tax
profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable
as cash dividends. As of the date of this annual report, our PRC subsidiaries have not paid dividends to us. Further, if any of
our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to
pay dividends or make other payments to us, which may restrict our ability to satisfy our liquidity requirements. As of March 31,
2018, the registered capital of our PRC subsidiaries Wanglin and 58 Technology was US$280 million and approximately US$107 million,
respectively. See “Item 4. Information on the Company — B. Business Overview — Regulation — Regulations
on Foreign Currency Exchange.”
Discontinuation
of any of the preferential tax treatments and government subsidies or imposition of any additional taxes and surcharges could adversely
affect our financial condition and results of operations.
The Enterprise Income Tax
Law and its implementing rules impose a uniform statutory enterprise income tax rate of 25% on all enterprises in China. The Enterprise
Income Tax Law and its implementing rules also permit qualified “high and new technology enterprises” to enjoy a preferential
enterprise income tax rate of 15% upon filing with relevant tax authorities. This qualification generally has a valid term of three
years and the renewal of the qualification is subject to review by the relevant authorities in China. Beijing 58, one of our consolidated
affiliated entities, first obtained its certificate as a “high and new technology enterprise” in May 2009 and renewed
the certificate in May 2012 and again in July 2015, each time valid for a period of three years. Beijing 58 Auto, one of our consolidated
affiliated entities, first obtained its certificate as a “high and new technology enterprise” in November 2013 and
renewed its certificate in December 2016, each time valid for a period of three years. Wanglin, one of our PRC subsidiaries, obtained
its certificate as a “high and new technology enterprise” in November 2012 and renewed its certificate in July 2015,
each time valid for a period of three years. Shanghai Ruiting, one of our PRC subsidiaries, obtained its certificate as a “high
and new technology enterprise” in December 2010 and renewed its certificate in November 2013 and again in November 2016,
each time valid for a period of three years. Beijing 58, Beijing 58 Auto, Wanglin and Shanghai Ruiting are each eligible to enjoy
a preferential tax rate of 15% when they have taxable income under the Enterprise Income Tax Law, as long as they maintain such
qualification and obtain approval from the relevant tax authorities. Wanglin also obtained qualification as a “software enterprise”
in July 2014. In April 2015, the local tax authority granted Wanglin a two-year exemption followed by a three-year 50% reduction
on its taxable income under the Enterprise Income Tax Law, effective retroactively from January 1, 2014. 58 Technology, one of
our PRC subsidiaries, qualified as a “software enterprise” in December 2014. In March 2016, the local tax authority
granted 58 Technology a two-year exemption followed by a three-year 50% reduction on its taxable income under the Enterprise Income
Tax Law, effective retroactively from January 1, 2015. If any of Beijing 58, Beijing 58 Auto, Wanglin, Shanghai Ruiting or 58 Technology
fails to maintain its qualification as a “high and new technology enterprises” or a “software enterprise,”
as the case may be, or if any of them fails to renew its qualification when its current term expires, its applicable enterprise
income tax rate may increase to 25%, which could have an adverse effect on our financial condition and results of operations.
In addition, our PRC subsidiaries
and consolidated affiliated entities have received various financial subsidies from PRC local government authorities. The financial
subsidies are discretionary incentives and policies adopted by PRC local government authorities. Local governments may decide to
change or discontinue such financial subsidies at any time. The discontinuation of such financial subsidies or imposition of any
additional taxes could adversely affect our financial condition and results of operations.
Fluctuations
in exchange rates could have a material adverse effect on our results of operations and the value of your investment.
As the functional currency
for our PRC subsidiaries and consolidated affiliated entities is Renminbi, fluctuations in the exchange rate may cause us to incur
foreign exchange losses on any foreign currency holdings they may have. If we decide to convert our Renminbi into U.S. dollars
for the purpose of making payments for dividends on our ordinary shares or for repayment of our bank loans denominated in U.S.
dollars, appreciation of the U.S. dollar against the Renminbi would increase our amount of repayment in Renminbi.
The value of the Renminbi
against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and by China’s
foreign exchange policies, among other things. In July 2005, the PRC government changed its decades-old policy of pegging the value
of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three
years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar
remained within a narrow band. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and
unpredictably. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi
internationalization, the PRC government may in the future announce further changes to the exchange rate system and there is no
guarantee that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It
is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and
the U.S. dollar in the future.
Any significant appreciation
or depreciation of the Renminbi may materially and adversely affect our earnings and financial position, and the value of, and
any dividends payable on, our ADSs in U.S. dollars. Conversely, a significant depreciation of the Renminbi against the U.S. dollar
may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our ADSs.
Very limited hedging options
are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions
in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in
the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure
or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability
to convert Renminbi into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your
investment.
Our failure
to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.
Companies operating in China
are required to participate in social insurance and housing fund plans. We have not fully contributed to such plans as required
by applicable PRC regulations. As of December 31, 2017, with regards to the outstanding contributions, including historical underpayments
to such plans, we made a provision of RMB61.4 million, which is reflected in our audited financial statements included in this
annual report. While we believe this provision is adequate, our failure to make sufficient payments to such plans does not fully
comply with applicable PRC laws and regulations and we may be required to make up the contributions for such plans as well as to
pay late fees and fines.
Registered
public accounting firms in China, including our independent registered public accounting firm, are not inspected by the U.S. Public
Company Accounting Oversight Board, which deprives us and our investors of the benefits of such inspection.
Auditors of companies whose
shares are registered with the U.S. Securities and Exchange Commission, or the SEC and traded publicly in the United States, including
our independent registered public accounting firm, must be registered with the U.S. Public Company Accounting Oversight Board,
or PCAOB, and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance
with the laws of the United States and professional standards applicable to auditors. Our independent registered public accounting
firm is located in, and organized under the laws of the Peoples’ Republic of China, or the PRC, which is a jurisdiction where
the PCAOB, notwithstanding the requirements of U.S. law, is currently unable to conduct inspections without the approval of the
Chinese authorities. In May 2013, PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation
with the China Securities Regulatory Commission, or the CSRC and the PRC Ministry of Finance, which establishes a cooperative framework
between the parties for the production and exchange of audit documents relevant to investigations undertaken by PCAOB, the CSRC
or the PRC Ministry of Finance in the United States and the PRC, respectively. PCAOB continues to be in discussions with the CSRC
and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit
Chinese companies that trade on U.S. exchanges.
This lack of PCAOB inspections
in China prevents the PCAOB from fully evaluating audits and quality control procedures of any auditors operating in China, including
our independent registered public accounting firm. As a result, we and investors in our common stock are deprived of the benefits
of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate
the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as
compared to auditors outside of China that are subject to PCAOB inspections, which could cause investors and potential investors
in our common stock to lose confidence in our audit procedures and reported financial information and the quality of our financial
statements.
If additional
remedial measures are imposed on the Big Four PRC-based accounting firms, including our independent registered public accounting
firm, in administrative proceedings brought by the SEC alleging the firms’ failure to meet specific criteria set by the SEC,
we could unable to timely file future financial statements in compliance with the requirements of the Securities Exchange Act of
1934, as amended, or the Exchange Act.
In December 2012, the SEC
instituted administrative proceedings against the Big Four PRC-based accounting firms, including our independent registered public
accounting firm, alleging that these firms had violated U.S. securities laws and the SEC’s rules and regulations thereunder
by failing to provide to the SEC the firms’ audit work papers with respect to certain PRC-based companies that are publicly
traded in the United States. On January 22, 2014, an initial administrative law decision was issued, censuring that each of the
firms had violated the SEC’s rules of practice by failing to produce audit work papers to the SEC. The initial decision censured
each of the firms and barred them from practicing before the SEC for a period of six months. The decision is not effective unless
and until it is endorsed by the SEC. On February 12, 2014, the four PRC-based accounting firms appealed to the SEC against this
sanction. On February 6, 2015, the four PRC-based accounting firms each agreed to a censure and to pay a fine to the SEC to settle
the dispute and avoid suspension of their ability to practice before the SEC and audit U.S. listed companies. The settlement required
the firms to follow detailed procedures to seek to provide the SEC with access to Chinese firms’ audit documents via the
CSRC. If future document productions fail to comply with the documentation production procedures that are in the settlement agreement
or if there is a failure of the process between the SEC and the CSRC, the SEC retains authority to impose a variety of additional
remedial measures on the firms depending on the nature of the failure. If the accounting firms are subject to additional remedial
measures, our ability to file our financial statements in compliance with SEC requirements could be impacted. A determination that
we have not timely filed financial statements in compliance with SEC requirements could ultimately lead to the delisting of our
common stock from the New York Stock Exchange, or NYSE, or the termination of the registration of our common stock under the Securities
Exchange Act of 1934, or both, which would substantially reduce or effectively terminate the trading of our common stock in the
United States.
Risks Related to Our ADSs
The trading
prices of our ADSs have fluctuated and may be volatile.
The trading prices of
our ADSs have fluctuated since we first listed our ADSs. Since our ADSs became listed on the NYSE on October 31, 2013, the
trading price of our ADSs has ranged from US$17.00 to US$87.65 per ADS, and the last reported trading price on April 27, 2018
was US$84.11 per ADS. The prices for our ADSs may continue to fluctuate because of broad market and industry factors, like
the performance and fluctuation of the market prices of other companies with business operations located mainly in China that
have listed their securities in the United States. In recent years, the widespread negative publicity of alleged fraudulent
accounting practices and poor corporate governance of certain U.S. public companies with operations in China were believed to
have negatively affected investors’ perception and sentiment towards companies with connection with China, which
significantly and negatively affected the trading prices of some companies’ securities listed in the United States. Any
similar negative publicity or sentiment may affect the performances of our ADSs. The securities of some PRC companies that
have listed their securities on U.S. stock markets have experienced significant volatility. The trading performances of these
PRC companies’ securities after their offerings may affect the attitudes of investors toward PRC companies listed in
the United States in general and consequently may impact the trading performance of our ADSs, regardless of our actual
operating performance.
In addition to market and
industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our own operations,
including the following:
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the financial projections that we may choose to provide to the public, any changes in those projections
or our failure for any reason to meet those projections;
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variations in our net sales, earnings and cash flow;
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announcements of new investments, acquisitions, strategic partnerships, or joint ventures;
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announcements of new services and expansions by us or our competitors;
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changes in financial estimates by securities analysts;
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additions or departures of key personnel;
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release of lock-up or other transfer restrictions on our outstanding equity securities or sales of
additional equity securities;
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detrimental negative publicity about us, our competitors or our industry;
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potential litigation or regulatory investigations or other proceedings involving us;
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fluctuations in market prices for our products; and
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proceedings instituted recently by the SEC against five PRC-based accounting firms, including our
independent registered public accounting firm.
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Any of these factors may result
in large and sudden changes in the volume and price at which our ADSs will trade.
If securities
or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding
our ADSs, the market price for our ADSs and trading volume could decline.
The trading market for our
ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or more
analysts who cover us downgrade our ADSs, or publish unfavorable research about us, the market price for our ADSs would likely
decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility
in the financial markets, which, in turn, could cause the market price or trading volume for our ADSs to decline.
Our dual
class share structure with different voting rights will limit your ability to influence corporate matters and could discourage
others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.
Our ordinary shares are divided
into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are entitled to one vote per share,
while holders of Class B ordinary shares are entitled to ten votes per share, with Class A and Class B ordinary shares voting together
as one class on all matters subject to a shareholders’ vote. As of March 31, 2018, holders of our Class B ordinary shares
collectively owned approximately 16.3% of our outstanding ordinary shares, representing 66.1% of our total voting power. As of
March 31, 2018, our founder, chairman and chief executive officer, Mr. Jinbo Yao, and Tencent beneficially owned an aggregate of
33.3% of our outstanding shares.
As a result of the dual class
share structure and the concentration of ownership, holders of our Class B ordinary shares have substantial influence over our
business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election
of directors and other significant corporate actions. They may take actions that are not in the best interest of us or our other
shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could
deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and may reduce
the price of our ADSs. This concentrated control will limit your ability to influence corporate matters and could discourage others
from pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and
ADSs may view as beneficial. For more information regarding our principal shareholders and their affiliated entities, see “Item
7. Major Shareholders and Related Party Transactions.”
The sale
or availability for sale of substantial amounts of our ADSs could adversely affect their market price.
Sales of substantial amounts
of our ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price of our
ADSs and could materially impair our ability to raise capital through equity offerings in the future. We cannot predict what effect,
if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities
for future sale will have on the market price of our ADSs.
We may
be classified as a passive foreign investment company for United States federal income tax purposes, which could result in adverse
United States federal income tax consequences to United States investors in the ADSs or Class A ordinary shares.
Depending upon the value of
our assets, which may be determined based, in part, on the market value of our Class A ordinary shares and ADSs, and the nature
of our assets and income over time, we could be classified as a “passive foreign investment company,” or PFIC, for
United States federal income tax purposes. Under United States federal income tax law, we will be classified as a PFIC for any
taxable year if either (i) at least 75% of our gross income for the taxable year is passive income or (ii) at least 50% of the
value of our assets (based on the average quarterly value of our assets during the taxable year) is attributable to assets that
produce or are held for the production of passive income. Based on our income and assets and the value of our ADSs and Class A
ordinary shares, we do not believe that we were a PFIC for the taxable year ended December 31, 2017 and, although no assurances
can be made in this regard, we do not expect to be a PFIC for the current taxable year or any subsequent taxable year. While we
do not anticipate being a PFIC, changes in the nature of our income or assets or the value of our assets may cause us to become
a PFIC for the current or any subsequent taxable year.
Although the law in this regard
is not entirely clear, we treat Beijing 58 and other consolidated affiliated entities as being owned by us for United States federal
income tax purposes, because we control their management decisions and we are entitled to substantially all of the economic benefits
associated with them, and, as a result, we consolidate their results of operations in our consolidated U.S. GAAP financial statements.
If it were determined, however, that we are not the owner of Beijing 58 and other consolidated affiliated entities for United States
federal income tax purposes, we would likely be treated as a PFIC for our taxable year ending December 31, 2018 and for subsequent
taxable years. Because of the uncertainties in the application of the relevant rules and because PFIC status is a factual determination
made annually after the close of each taxable year on the basis of the composition of our income and the value of our active versus
passive assets, there can be no assurance that we will not be a PFIC for our taxable year ending December 31, 2018 or any future
taxable year. Under circumstances where revenues from activities that produce passive income significantly increase relative to
our revenues from activities that produce non-passive income or where we determine not to deploy significant amounts of cash for
active purposes, our risk of becoming classified as a PFIC may substantially increase.
If we were to be or become
a PFIC, a U.S. Holder (as defined in “Item 10. Additional Information — E. Taxation — United States Federal Income
Tax Considerations” ) may incur significantly increased United States federal income tax on gain recognized on the sale or
other disposition of the ADSs or Class A ordinary shares and on the receipt of distributions on the ADSs or Class A ordinary shares
to the extent such gain or distribution is treated as an “excess distribution” under the United States income tax rules.
Further, if we were a PFIC for any year during which a U.S. Holder held our ADSs or Class A ordinary shares, we generally would
continue to be treated as a PFIC with respect to such U.S. Holder for all succeeding years during which such U.S. Holder held our
ADSs or Class A ordinary shares. Each U.S. Holder is urged to consult its tax advisor concerning the United States federal income
tax consequences of purchasing, holding and disposing of ADSs or Class A ordinary shares if we are or become treated as a PFIC.
The voting
rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to
vote your Class A ordinary shares.
As a holder of our ADSs, you
will only be able to exercise the voting rights with respect to the underlying Class A ordinary shares in accordance with the provisions
of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt
of your voting instructions, the depositary will vote the underlying Class A ordinary shares in accordance with these instructions.
You will not be able to directly exercise your right to vote with respect to the underlying shares unless you withdraw the shares.
Under our amended and restated memorandum and articles of association, the minimum notice period required for convening a general
meeting is ten clear days. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the shares
underlying your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary
will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will
receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary
and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting
instructions. This means that you may not be able to exercise your right to vote and you may have no legal remedy if the shares
underlying your ADSs are not voted as you requested.
We are
a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions
applicable to United States domestic public companies.
Because we qualify as a foreign
private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United
States that are applicable to U.S. domestic issuers, including:
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the rules under the Exchange Act requiring the filing with the Securities and Exchange Commission,
or the SEC, of quarterly reports on Form 10-Q or current reports on Form 8-K;
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the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations
in respect of a security registered under the Exchange Act;
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the sections of the Exchange Act requiring insiders to file public reports of their share ownership
and trading activities and liability for insiders who profit from trades made in a short period of time; and
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the selective disclosure rules by issuers of material nonpublic information under Regulation FD.
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We are required to file an
annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on
a quarterly basis as press releases, distributed pursuant to the rules and regulations of the NYSE. Press releases relating to
financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to
file with or furnish to the SEC are less extensive and less timely as compared to that required to be filed with the SEC by United
States domestic issuers. As a Cayman Islands company listed on the NYSE, we are subject to the NYSE corporate governance listing
standards. Among other things, Section 303A.08 of the NYSE Listed Company Manual requires shareholder approval of material revisions
to equity-compensation plans and Section 312.03(c) of the NYSE Listed Company Manual requires shareholder approval of new share
issuances above the 20% threshold specified therein. However, NYSE rules permit a foreign private issuer like us to follow the
corporate governance practices of its home country. We have elected to follow the Cayman Islands practices with respect to the
amendment of our 2013 share incentive plan to increase the total number of ordinary shares that may be issued pursuant to awards
granted under the plan. In addition, we have also elected to follow the Cayman Islands practices with respect to the issuance of
new ordinary shares above the 20% threshold as specified in Section 312.03(c).
You may
not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal
or impractical to make them available to you.
The depositary of our ADSs
has agreed to pay to you the cash dividends or other distributions it or the custodian receives on Class A ordinary shares or other
deposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion
to the number of Class A ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it
is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a
distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not
properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is
not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than
the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to
register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions.
We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else
to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it
is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of
our ADSs.
You may
not be able to participate in rights offerings and may experience dilution of your holdings.
We may, from time to time,
distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will
not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate
are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions
of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties,
and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we
are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to
have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings
and may experience dilution of their holdings as a result.
You may
be subject to limitations on transfer of your ADSs.
Your ADSs are transferable
on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient
in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons,
including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an
exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on
weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our
share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so
because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or
for any other reason.
We incur
increased costs as a result of being a public company.
As a public company, we incur
significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as
well as rules subsequently implemented by the SEC and NYSE, imposes various requirements on the corporate governance practices
of public companies. For example, as a public company, we need to increase the number of independent directors and adopt policies
regarding internal controls and disclosure controls and procedures. We have incurred additional costs in obtaining director and
officer liability insurance. In addition, we also incur additional costs associated with our public company reporting requirements.
It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We
expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more
time-consuming and costly. We are currently evaluating and monitoring developments with respect to these rules and regulations,
and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such
costs.
In addition, we have ceased
to be an “emerging growth company” as of December 31, 2014, and therefore are no longer able to take advantage of certain
exemptions from various requirements applicable to other public companies that are not emerging growth companies including, most
significantly, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act
of 2002. We have incurred significant expenses and devoted substantial management effort, and expect to continue to do so to ensure
compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC.
In the past, shareholders
of a public company often brought securities class action suits against the company following periods of instability in the market
price of that company’s securities. If we were involved in a class action suit, it could divert a significant amount of our
management’s attention and other resources from our business and operations, which could harm our results of operations and
require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm
our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us,
we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results
of operations.
|
ITEM 4.
|
INFORMATION ON THE COMPANY
|
|
A.
|
History and Development of the Company
|
We began our operations in
China in 2005 through Beijing 58, a PRC limited liability company, which has become our consolidated affiliated entity through
a series of contractual arrangements. Our current holding company, 58.com Inc., was incorporated in May 2011 as a limited liability
company in the Cayman Islands.
On November 5, 2013, we raised
US$200.0 million in net proceeds from the initial public offering of our ADSs and another US$15.0 million from a concurrent private
placement of Class A ordinary shares to DCM Hybrid RMB Fund, L.P., a fund affiliated with DCM V, L.P., one of our existing shareholders.
Our ADSs trade on the New York Stock Exchange under the symbol “WUBA.”
On April 2, 2014, we and certain
selling shareholders completed a follow-on public offering of ADSs. Our net proceeds, after deducting underwriting commissions,
amounted to approximately US$73.0 million. We did not receive any proceeds from the sale of the ADSs by the selling shareholders.
In June 2014, Tencent invested
US$736.1 million in our company and acquired 36.8 million Class A and Class B ordinary shares, representing a 19.9% equity interest
in our company on a fully diluted basis at that time. We applied part of the proceeds from this transaction to repurchase 27.6
million ordinary shares of our company from certain pre-IPO shareholders.
In March 2015, we acquired
Anjuke, a major online real estate listing platform in China, through the purchase of a 100% equity interest in Anjuke Inc., a
company incorporated under the laws of the Cayman Islands, for 4.8 million newly issued Class A ordinary shares of our company
and US$160.2 million in cash. We also issued 0.2 million fully vested restricted share units of our company to former Anjuke employees
as part of the share consideration.
In April 2015, we acquired
a less than 50% equity stake in Falcon View Technology, or Ganji, the holding company of the PRC entities operating Ganji.com,
a major online local services platform in China, for 34.0 million newly issued Class A ordinary shares of our company and US$412.2
million in cash. Concurrent with this acquisition, Tencent purchased 15.4 million additional newly issued Class A ordinary shares
of our company from us for US$400.0 million.
Later in 2015, our company,
as a limited partner, committed an aggregate of 46.5 million newly issued ordinary shares and US$406.7 million in cash to several
private equity funds, of which all the ordinary shares and US$272.4 million in cash were contributed to the funds in August 2015.
These funds are dedicated to investing in businesses in China and separately managed by different investment entities, as general
partners, which are unaffiliated with each other and unaffiliated with us. These funds, together with Tencent, acquired all the
remaining equity interests in Ganji in August 2015. We also transferred an aggregate of 4.4 million fully vested restricted share
units of our company and approximately US$51.0 million in cash to former Ganji employees as part of the total consideration of
step acquisition of Ganji. We considered that we had a controlling financial interest over the equity funds under the voting interest
model, and as a result have consolidated Ganji since August 6, 2015. In September 2017, the aforementioned funds distributed all
equity interests in Ganji not held by us or Tencent to their respective limited partners. For a total consideration of US$14.1
million, we acquired those equity interests as well as the remaining equity interest in Ganji held by Tencent. As a result, Ganji
became a wholly owned subsidiary of our company on September 14, 2017.
On November 27, 2015, 58 Home
raised US$300.0 million in a Series A preferred shares equity funding round, with participation from Alibaba Group Holding Limited,
global investment firm KKR, and Ping An Group, among which US$10.0 million was contributed by 58.com Inc. Following the closing
of the Series A financing of 58 Home, 58.com Inc. holds majority equity interests in 58 Home. As certain rights provided to the
noncontrolling Series A preferred shareholders of 58 Home would be viewed as substantive participating rights under U.S. GAAP,
we have ceased consolidating the financial results of 58 Home in our consolidated financial statements in accordance with U.S.
GAAP since November 27, 2015.
On December 31, 2015, we divested
our controlling ownership stake in Guazi, a subsidiary that operated our C2C used car trading platform, to Mr. Mark Haoyong Yang,
co-chairman of our board of directors at the time. We had a 45.6% stake in Guazi immediately after the spin-off, and we currently
hold minority equity interests in Guazi following their subsequent private equity financing.
In April 2017, we
transferred our business relating to the Zhuan Zhuan app and certain used goods related listing channels from the 58 and
Ganji classified platforms into a Zhuan Spirit Holdings Limited, or Zhuan Zhuan Holding, and its subsidiaries
consolidated affiliated entities, and Tencent invested US$200.0 million in cash and additional business resources in Zhuan Zhuan
Holding in exchange for a minority equity ownership. We will continue our direct traffic and other business support to Zhuan
Zhuan Holding. We currently own a majority of equity stake in Zhuan Zhuan Holding.
In September 2017, we entered into a framework
agreement with Mr. Jinbo Yao, the chief executive officer of our company, and other parties thereto, to dispose our financial
services and other finance related business (the “disposed business”) to Mr. Jinbo Yao
,
who in return committed to provide capital contributions to the disposed business subsequent to the disposal
. Pursuant to
this framework agreement, we agreed to provide to the disposed business, among other things, some traffic support and the right
to use certain intellectual property rights. In return, we are entitled to profit participation rights in the disposed business.
Our principal executive offices
are located at Building 105, 10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing 100015, the People’s Republic of China.
Our telephone number at this address is +86 10 5956-5858. Our registered office in the Cayman Islands is located at the offices
of Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands.
Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 400 Madison Avenue,
4th Floor, New York, New York 10017.
Our business currently consists
of 58 core businesses and incubated new businesses.
The 58 Core businesses are
comprised principally of 58 and Ganji (“
赶集网
”),
our multi-content category online classifieds platforms, Anjuke (“
安居客
”),
our real estate listing platform, ChinaHR (“
中华英才网
”),
our online recruitment platform that focuses on white-collar jobs and Jia Xiao Yi Dian Tong (“
驾校一点通
”),
an online platform for drivers’ license examination preparation and other related services. Our 58 core businesses enable
local businesses and consumers to connect, share information and conduct business in China.
The incubated new businesses
include Zhuan Zhuan (“
转转
”), an online
used good trading platform, 58 Home (“58
到家
”),
an online home and moving services platform, and Che Hao Duo (“
车好多
”),
an online used and new car trading platform which contains Guazi (“
瓜子
”),
the used car platform and Mao Dou (“
毛豆
”),
the new car platform. These platforms provide more vertically integrated services to users in their respective content categories.
They were initially incubated within 58 or Ganji and have completed fund raisings from additional outside investors.
We primarily conduct
our business in mainland China. Our online services currently cover 338 cities (“
市
”),
443 counties (“
县
”), and over 9,000
towns and villages (“
乡镇
”) in
mainland China. We have our direct sales team in 49 cities in mainland China.
Our Users
Our users refer to all participants
on our platforms, including consumer users and business users.
Consumer users browse and
search information on our online platforms without the need to register an account with us. After completing a user registration
process, a user can post information, access more content and use our communication tools and other services. We increasingly encourage
more users to register and log into their accounts before utilizing our services.
Business users are typically
those who attempt to attract customer leads or hire people for their businesses. Business users can post information on our platform
for free, however, they may choose to pay for our premium services to enhance the marketing effectiveness.
Members refer to users, primarily
business users, who purchase our subscription-based membership services and maintain subscription-based paying member accounts.
Members are entitled to additional services and benefits as compared to non-paying users. See also “— 58 Core Service
Offerings — Paid premium services to business users — Subscription-based membership services.”
Our online marketing customers
refer to users who have purchased our various online marketing services to enhance their marketing effectiveness. Members who purchase
our subscription-based membership services can also purchase online marketing services in addition to subscription based membership,
typically at a discount compared to non-subscription-based members. Online marketing customers also include third-party internet
companies who collaborate with us on performance-based online marketing services for their own advertisers. See also “—
58 Core Service Offerings — Paid premium services to business users — Online marketing services.”
58 Core
Service Offerings
58
Core services for consumer users
We provide platforms for consumer
users to browse, search and post information, get connected and communicate with services providers to ultimately address these
consumer users’ needs for local services. We continue to invest in technology such as big data and artificial intelligence
(AI) to enhance the relevance and effectiveness of our services. 58, together with other acquired platforms, are well positioned
to serve Chinese consumers with respect to provision local service information. Some consumer users also pay to better promote
their own listings, but it is free for consumer users to browse, search and use other features on our platforms.
The following platforms can
be accessed through personal computers (PC), mobile browsers, as well as mobile applications (APP).
58
was launched in
2005 when our company was first founded. It is currently the largest online classifieds platform in China measured by traffic and
revenues. It contains various content categories such as jobs, real estates, used goods, automotive, yellow pages and other local
services categories.
58 Town
(“
58
同镇
”)
was launched in 2017 as a rural version of 58 targeting the rural population. It contains largely similar local services categories
as 58 with content more relevant in small towns in China. We leverage our decade-long know-how in local information to rapidly
acquire followers from Tencent’s WeChat eco-system. We identify and work with a local partner in each small town and provide
online tools and training so that the partner can generate, disseminate and manage local content to attract users. The information
is available in WeChat public account, mini-program, and is also stored in 58 data base which is synchronized with 58 App. Gradually,
we convert more users to access 58 Town information to 58 App.
Ganji
(“
赶集
”)
was launched in 2005. It was consolidated into our company in August 2015. It contains similar content categories as 58. A new
mobile app version for Ganji, which emphasizes on jobs category, was launched in December 2017 which targets to differentiate Ganji
from 58, which has more balanced and comprehensive content categories.
Anjuke
(“
安居客
”)
was launched in 2007 and acquired and consolidated by us in March 2015. It is currently one of the leading real estate listing
platforms and
is focused mainly on real estate sales, both secondary and primary, whereas the housing categories on 58 and Ganji
platforms mainly focus on rental and secondary housing sales.
ChinaHR
(“
中华英才网
”)
was launched in 1997 and acquired by 58.com in May 2015. It is currently one of the leading online recruitment platforms and
is focused on white-collar jobs and offers career information and various other recruitment related services.
Jia Xiao Yi Dian Tong
(“
驾校一点通
”)
was launched in 2005 and acquired by 58.com in April 2015. It is currently one of the leading platforms that offer drivers’
license examination preparation and other related services.
58
core services for business users
Business users use our platform
to upload and promote their services, attract customer leads and inquiries and hire people for their own businesses. Business users
can also validate themselves through a range of individual and business background validation tools on the platform to enhance
their profiles online.
We provide
business users a series of services for free. They can post information within certain limit for free. In most of its key
categories, they have a basic storefront pages and access to PC and mobile apps to manage their listings and communicate
with consumer users.
We also launched dedicated
mobile apps for business users with more mobile-friendly features for them to manage listings on our platforms, get leads and communicate
with consumer users. We also increasingly generate more data insight on marketing effectiveness and provide relevant feedback to
our business users and help them to increase the efficiency of their online marketing effort and overall business activities. We
plan to continue to expand the features and enhance the user experience for these software as a service (SaaS) tools. With the
help of these enhanced tools, we increase engagement and interaction between consumer users and business users, which in turn provides
us with larger amount of data for us to better understand, profile and connect with our users. As a result, by leveraging our AI
and big data capabilities, our platforms are becoming increasingly intelligent to match consumer users with business users, leading
to more diversified lead-generation revenue models, higher traffic monetization efficiency and improved quality of the information.
Our mobile applications developed
for business users primarily consists of the following:
Zhao Cai Mao
(“
招才猫
”)
is a dedicated recruitment mobile app particularly for small and micro business users. This application allows employers to upload
descriptions of their business, post jobs and search for and chat with potential job seekers. Its location-based services help
identify job seekers that are potentially more geographically suitable for the open positions. Its chat function provides a convenient
alternative to phone calls to conduct job search related communication. It enables employer to better connect with job seekers
on 58 and Ganji platforms. These features make the hiring process more efficient and help employers recruit on the go. Business
users can pay for more leads or enhanced online marketing services on this app.
Mobile Real Estate Agent
(“
移动经纪人
”)
is a dedicated mobile app for individual real estate agent users. It helps real estate agent to upload and manage listings, contribute
content to the platform and connect more effectively with consumer users.
Shang Jia Tong
(“
商家通
”)
is a dedicated mobile app for yellow page business users. It helps business users to upload and manage listings and connect more
effectively with consumer users.
Che Shang Tong
(“
车商通
”)
is a dedicated mobile app for used car dealer users. It helps used car dealers to upload and manage listings, access useful information
such as maintenance or pricing through integrated third-party tools, and connect more effectively with consumer users.
58 Town for Town partner
(“
58
同镇镇长端
”)
is a dedicated mobile app for 58 Town partners to upload, promote and manage information on the 58 Town network, which includes
WeChat groups, mini program and 58 app. It also help town partners to receive training, guidance and information from our dedicated
service representatives.
Paid
premium services to business users
Subscription-based
membership services.
Even though business users
can participate our platform for free, some business users pay for additional premium services to enhance their marketing effectiveness.
Our subscription-based membership is a basic service package consisting mainly of merchant certification, display of an online
storefront on our platforms, preferential listing benefits such as daily priority listings and a higher limit for daily listings,
and access to our dedicated customer service support team and online account management system. Members who subscribe to our membership
can enjoy more services and obtain more effective marketing than non-paying business users on our platforms. 58, Ganji and Anjuke
offer subscription-based membership packages that include similar types of services although the specific details of the services,
such as the quotas for daily listings and downloadable resumes, may vary from platform to platform.
We offer memberships of varying
lengths across different content categories. Memberships in the yellow pages and jobs categories are primarily 12-month packages.
In China, due to relatively high employee turnover among migrant workers, many businesses have ongoing hiring needs. Memberships
in the real estate category are primarily one- to three-month packages due to the higher turnover of real estate agents.
We acquire a majority of subscription-based
members through our field sales teams and our sales agent network. Our centralized and dedicated tele-customer service team supports
our members during their membership period to enhance the marketing effectiveness and improve membership renewals. A majority of
our subscription-based paying members are small and medium-sized local businesses.
The following table sets forth
the number of subscription-based paying membership accounts for the periods indicated:
|
|
Mar.
31,
|
|
|
June
30,
|
|
|
Sept.
30,
|
|
|
Dec.
31,
|
|
|
Mar.
31,
|
|
|
June
30,
|
|
|
Sept.
30,
|
|
|
Dec.
31,
|
|
|
Mar.
31,
|
|
|
June
30,
|
|
|
Sept.
30,
|
|
|
Dec.
31,
|
|
|
|
2015
|
|
|
2015
|
|
|
2015
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Subscription-based
Paying Membership Accounts
|
|
|
797.6
|
|
|
|
990.0
|
|
|
|
1,682.0
|
|
|
|
1,754.8
|
|
|
|
1,817.8
|
|
|
|
1,974.0
|
|
|
|
2,067.2
|
|
|
|
2,069.7
|
|
|
|
2,211.9
|
|
|
|
2,464.3
|
|
|
|
2,611.2
|
|
|
|
2,653.5
|
|
|
Note:
|
We define subscription-based paying membership accounts as the registered accounts through which our
users have purchased our membership subscriptions. The number of paying membership accounts in a given period represents the paying
members whose membership subscriptions are in their service period at any point during such given period.
|
Online
Marketing Services.
We position subscription-based
membership services as a basic entry-level package services for business users. In addition to membership services, we aspire to
provide various additional online marketing services to meet the various needs of business customers of different scales. Some
online marketing services types are available for most content categories, whereas others are tailor made for certain content categories
only.
Our business users purchase
online marketing services to enhance their marketing and recruitment effectiveness. Business users can purchase online marketing services
without subscribing to subscription-based membership services. However, subscription-based paying members enjoy get bigger discount
for additional online marketing services. In 2017, subscription-based paying members continue to contribute majority of the online
marketing services revenues. On average, approximately 60.2% of our quarterly paying membership accounts purchased our online marketing
services in 2017. We plan continue to promote online marketing services to our subscription-based paying members.
Our online marketing services
primarily include real-time bidding, priority listing, various other lead-generation services and display advertising. Some types
of online marketing services are similar across different content categories, whereas others are tailored to one or some specific
content category based on the nature of the content category and our insights and know-how.
Business users use our real-time
bidding services to bid for the most prominent placement of their listings in specific categories and locations on a cost-per-click
(CPC) basis. We have developed a user-friendly bidding system through which business users can create text- and graphic-based
descriptions for their listings and bid on the placements of their listings. In some categories, instead of a dynamic market-based
bidding pricing system, we set fixed CPC price that is subject to regular reviews and adjustment. We made decisions as to which
bidding systems to use based on our experience and know-how about each specific content category. Through bidding services, we
typically generate much higher revenues than we otherwise could with the same amount of listing space as it maximizes the traffic
monetization efficiency.
Business users also purchase
our priority listing services, which typically place their listings below real-time bidding listings but above the area where regular
subscription-based paying members’ listings are displayed. Business users can purchase listing placements of varying durations
from several hours to several days to several weeks depending on their need.
We continue to provide users
more innovated ways to connect on our platforms in addition to phone calls, such as online chat through instant messaging tools,
a quote for a specific service item, submission of resume to an open job posting in which users are interested. As a result, we
are increasingly capable of passing leads directly to our business users. In addition, as we accumulate more user data and build
better user profiles, we are also able to improve the quality of the leads we provide. Therefore, we are providing more innovative
lead-generations based online market services to our business users to replace the traditional listing-position-based services.
We offer business users a simpler way to market their services with clear measures of returns on investment (ROI) of their marketing
investment. This also allows us more flexibility to utilize our traffic and to leverage technology to better match the needs of
consumer and business users. As we monitor the effectiveness and gather feedback from our customers, our AI and big data algorithm
help improve both monetization and user experience.
We provide display advertisement
mainly for major business users, such as primary real estate developers on our Anjuke platform, companies who hire more white-collar
staff on our ChinaHR platform and car manufacturers on our 58che (“58
车
”)
platform. These business users purchase display advertisement to enhance their brand recognition and attract consumer attention.
These display advertisements are either text- or graphic-based displays for varying time periods ranging from several days to several
months.
Most of the online marketing
services customers are required to make payment in advance before purchasing our services, in the form of purchasing virtual online
currencies of our platforms. Paying members can log into our account management webpage or mobile apps and purchase various online
marketing services through an easy-to-use interface.
Incubated
New Businesses
Zhuan Zhuan
(“
转转
”)
is an online used goods trading platform launched in the fourth quarter of 2015 that mainly focuses on consumer to consumer
(“C2C”) used goods transactions. It allows users to search and trade a wide variety of used goods and features
picture-taking and video-shooting to make listing used goods much easier. The C2C payment solution for Zhuan Zhuan is a
Wechat payment based escrow payment process co-developed by 58 and Tencent. This is a convenient and secure payment method
with an escrow payment process. Under this process, funds transferred through online payment will not be released to the
sellers until the buyers confirm receipt. The use of WeChat account log-in and exclusive WeChat friends’ relations data
has given the platform an extra level of security and social interest. Users can opt to transact offline face-to-face as well
as using Zhuan Zhuan to contact logistic service providers who can come to sellers’ place to pick up the goods. To
further enhance confidence and trust in used goods transactions, for some specific product categories, such as iPhones, we
have hired a team that specializes in iPhone authentication and maintenance. Leveraging our increasing knowledge of the
marketplace and to promote market activities, we also recommend price ranges for specific product categories. These
innovative value-added services help to boost transaction volume and strengthen our brand recognition for the platform
through word of mouth marketing. Zhuan Zhuan has experienced very rapid growth in user traffic, transaction volume and gross
merchandize values since its launch in 2015.
We currently own a majority
of equity stake in the Zhuan Zhuan Entities and continue to consolidate Zhuan Zhuan in our financial statements. See “–A.
History and Development of the Company.”
58 Home
(“
58
Daojia Inc.
”) is a platform that enables users to search and purchase various home and household services, including
domestic services, ad-hoc delivery services and platform services. Consumer users can select individual service providers online
without going through middleman agency companies. For its core service categories, in addition its online platform, 58 Home engages
various offline operations, such as finding and certifying individual service providers and providing them with a mobile app tailor
made for them to receive order and connect with consumer users. 58 Home also conducts regular offline training for services providers
in an effort to raise the quality of their services. 58 Home has customer service call center teams that collect customer feedback
to enhance its customers’ operations. 58 Home also partners with other third-party vertically-dedicated service companies
in order to widen its content categories. Currently, there are over 269 cities in China where most of 58 Home’s online services
are available.
We hold 87.9% of the total
outstanding ordinary shares of 58 Home and 61.7% of the total outstanding shares of 58 Home on an as-converted basis. As certain
rights provided to the noncontrolling Series A preferred shareholders of 58 Home would be viewed as substantive participating rights
under U.S. GAAP, we have ceased consolidating the financial results of 58 Home in our consolidated financial statements in accordance
with U.S. GAAP since November 27, 2015. See “–A. History and Development of the Company.”
Che Hao Duo
(“
车好多
”),
previously known as Guazi, is one of the leading innovative automotive retail groups in China. Its business mainly consists of
Guazi (“
瓜子
”), an online consumer-to-consumer
(C2C) used car trading platform, which was launched in 2015 and Mao Dou (“
毛豆
”),
an online new car trading platform, which was launched in 2017. These platforms provide consumers with a great selection of used
and new car inventory and a hassle-free one-stop-shop experience with various post-sales maintenance services, financing and insurance
solutions. They continue work towards optimizing the efficiency of the overall automotive retail industry with strong big data
capability, strong brand recognition, major online mobile apps and offline sales and technician teams that cover approximately
200 cities in China.
We currently have a minority
equity interest in Che Hao Duo. Che Hao Duo has been accounted for using cost method since the transaction whereby we divested
Che Hao Duo on December 31, 2015. See “–A. History and Development of the Company.”
Content
Categories
We organize listings on our
platforms by content categories in an intuitive and easy-to-use directory to facilitate browsing and viewing. Currently, the major
content categories in terms of number of listings and user traffic on our platforms are the following:
|
·
|
Jobs
. Jobs currently covers a wide range of job categories, such as sales, customer service,
manufacturing, human resources and administrative, homecare, cleaning, security, logistics. Employers on our platforms come from
diverse industries, such as dining, recreation and entertainment, internet, retail and e-commerce, healthcare, education, finance
and insurance, real estate, renovation and construction. We also have recruitment agencies, which represents a minority of all
listings on jobs category. Our 58 and Ganji platforms have largely mid-to-lower-level income job listings and resumes. ChinaHR,
on the other hand, focuses on white-collar jobs from larger and more reputable companies. Job applicants can prepare a resume online,
browse open positions and apply for jobs online. They can also join an online community to share job search experience and access
career advices or industry news. Employers can upload job listings, purchase resumes and use our background check and assessment
services. Job applicants and employers can communicate in various ways on our platforms through various consumer and business facing
mobile apps.
|
|
·
|
Real estate
. Real estate is sorted into subgroups of residential leasing, secondary and primary
property sales, office space, retail space and industrial real estate leasing. 58 and Ganji platforms have mainly rental and secondary
property sales listings, while our Anjuke platform has mainly secondary and primary property sales listings. Listings are mostly
uploaded by real estate agents, although consumers can upload their own homes for lease or sale as well. We have been continuously
working on enriching the content and improving the quality of our listings. For instance, for residential properties, a listing
not only covers the home itself, but also increasingly covers floor plan and description of the community. The format of the listing
includes text, picture and increasingly video, virtual 3-D depiction or bird's-eye view of the property and community. We also
provide useful tools such as maps, property pricing index, mortgage calculators, housing policy discussions and industry news to
further assist consumers’ decision-making.
|
|
·
|
Used goods
. Used goods covers a wide range of used consumer products such as computers and
peripherals, mobile phones, digital cameras, furniture, household appliances and goods, books, artwork, sporting goods and musical
instruments. On 58 and Ganji platforms, listings are uploaded by either professional used goods resellers or individual consumers.
On Zhuan Zhuan, listings are largely uploaded by individual consumers. Consumers can browse and communicate with businesses or
other consumers on 58 and Ganji. In addition, consumers can directly transact on Zhuan Zhuan.
|
|
·
|
Automotive
. Automotive includes listings of used and new cars, car leasing, driving school
services, automotive repairs and maintenance services, and other car-related services. Our platforms primarily focus on used car.
Listings are uploaded by either used car dealers or individual consumers. Our platforms also provide consumers with tools for car
valuation, inspection of used car maintenance record and insurance solutions. For selected vehicles, we also provide vehicle inspection
information as well as financial services, mostly through qualified third-party partners, in an effort to better facilitate the
automotive transaction. We separately display cars subject to our inspections on our platform. Consumer users and businesses users
can communicate in various ways on our platform through various consumer and business facing mobile apps.
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Yellow pages local services
. This category covers a variety of services such as homecare, business
services, renovation, education and training, vehicle rental, franchise licensing services, wedding and filming, and travel services.
On 58 and Ganji platforms, consumer users search and browse local services information. Listings are primarily uploaded by business
users. We are encouraging more user reviews and develop more information tags on businesses and their service offerings to further
facilitate decision-making. Consumer users can browse and communicate with business users or other consumer users on 58 and Ganji.
For selected categories, such as home cleaning, mate services and ad-hoc logistics services, 58 Home allows consumers to directly
purchase services from services providers rained and regulated by 58 Home.
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Content
Monitoring and Quality
We are committed to offering
authentic and high quality information across our platforms and complying with applicable laws and regulations. We believe information
quality is critical to superior user experience. However, we are subject to spam, poor quality information and fraudulent activities
as many other large internet companies.
We have adopted a multiple-level
detective, protective and preventive system to manage our content and safeguard information quality.
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Screening, removal and user feedback system on information
. We utilize proprietary technology
such as text- or picture-based content screening analysis technologies together with manual screening to ensure content that contains
certain keywords are automatically filtered out and cannot be successfully posted on our online platforms. We have a rigorous process
to detect and remove content that violates the platform rules, such as posting information in an irrelevant category. The accounts
that violate these rules will be temporarily suspended or permanently terminated based on the severity of the violation. We also
hold our sales and customer service staff who first introduce such businesses onto the platforms accountable for the violations.
We encourage users to report information quality issues or fraudulent activities. We are increasing our resources to process and
validate these reports and claims. We encourage business users to make a deposit for information quality in exchange of more traffic
support. In the event of violation, the deposit will be deducted and paid to the users who report the violation. In other cases
where the business users or the platforms have paid for premiums to insure information quality, the insurance company will compensate
the users. We may compensate or reward the users even if it is not legally required.
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Account management and control
. Many information quality issues arise from insufficient verification
and control over the account set-up and management. We have been raising the bars on authorization of individuals and businesses,
and increasing the authorization requirement and verification procedure during the account opening process. We work with increasing
number of third parties and used more advanced technologies such as facial recognition to validate the account owner. The percentage
of users who have passed one or multiple real identity validation has been increasing.
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Ongoing online monitoring powered by big data
. We used our proprietary systems to analyze information,
track user traffic and detect irregular user behaviors, spams or potential fraud. Our big data capability allows us analyze a huge
amount of data per second in real time, and analyze multiple forms of data including text, photo, video and voice. We are also
building large databases on our content categories such as real estate and automotive to further regulate the posting and detect
irregular information upload. As we are becoming more experienced to detect fraudulent individuals and offenders and develop more
comprehensive blacklists and whitelists.
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Onsite due diligence and external partnerships
. We have increased and will further
increase investment in onsite due diligence, including examining the availability and status of the listed real estate
properties, inspecting the condition of used cars, validating the due authorization and hiring needs from employers and
recruitment agencies, which helps to safeguard the platform information quality. We also partner with other internet
companies and other interested organizations to share experience and leads. We work closely with law enforcement authorities
to assist in their investigations against fraud. With insights drawn from our data analytics, we help law enforcement
authorities to identify suspicious groups and individuals who may commit fraud or infringe on consumer rights.
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Increase exposure to high quality information
. In addition to detecting and removing misinformation
and guarding against fraudulent activities, we also try to identify high quality information and provide them with more exposures
as a way to improve overall user impression on information quality. For instance, we encourage real estate agents to guarantee
the quality of listing through our “genuine housing” (“
真房源
”)
initiative in exchange with more traffic support. We support real estate agents with technology platform to upload videos of property
listings, which tend to be genuine and attract more click-through. We also encourage business users across all platforms to provide
quality guarantee deposits to increase consumer confidence. We have dedicated sections on our platforms, including Che Hao Duo
and 58 Home, to display listings of real estate, cars or services that have been inspected onsite. We believe that these measures,
combined with other content monitoring efforts, will improve the overall information quality on our platforms.
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Technology
Technology is the key to
our success. We have been making continuous investment in technology to enable superior user experience, increase the ease
and effectiveness of business users in using our platforms and optimize our operational efficiency. Our proprietary
technology supports very high user traffic during peak traffic periods such as the Chinese New Year, which is the peak season
for job and rental home searches. As of December 31, 2017, we had a team of approximately 3,000 highly skilled product
development personnel and engineers with expertise in a broad range of technical areas. We will continue to develop
technology to support our business innovations and growth.
Our technology capability
primarily lies in the areas of real-time search, anti-fraud protection and information quality assurance, big data, AI, cloud and
online marketing.
Real-time
Search
To accomplish the timely display
of information, we have developed a proprietary search engine with high levels of performance, reliability and scalability.
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High performance levels. We have implemented an advanced search indexing system through which all
new data are stored immediately after they are posted. Our new postings are typically available for search within three seconds
after they are posted.
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Highly reliable. We have developed a load balancing mechanism in the search engine to ensure that
our overall searching system will be unaffected by server failure.
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Highly scalable. Our search system is implemented on a distributed and clustered infrastructure which
enables the storage and processing of large datasets and facilitates deployment of resources on a larger scale.
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Anti-fraud
Protection and Information Quality Assurance
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Content analysis technology. Our system screens every listing for fraud risk before a listing can
be displayed on our online platforms by using various specific technologies such as watermark identification, information retrieval
and machine learning technologies. Our system is designed to sweep the data being transmitted on our platforms on a real-time basis
for sensitive keywords, questionable content and unusual level of activities.
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User behavior analysis technology. Equipped with data mining technology to track and analyze a wide
range of anonymous user information, our system can detect and flag potential irregularities and initiate the relevant procedures
to quickly identify and fix any potential problems.
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Manual review and feedback adopting system. We use a manual review process to screen information that
is flagged by our system, requiring a more detailed follow-up. We have built a mechanism through which our system can “learn”
from the results if a listing is checked and validated to be accurate through our manual review process, by incorporating the manual
review results in our system database. Thus we are able to continue to update our system and enhance the system’s screening
capability and efficiency.
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Big
Data
We have developed our own
big data infrastructure as a result of the increasing need for large scale and real time data analysis to enhance our operation
and user experience. Our massive amount of data is stored on a distributed computing and storage network. Our system has the capacity
to process million level requests per second. Our big data infrastructure is both scalable and reliable, providing strong support
for the operations of all business units.
We also developed an online
data warehouse and analytics platform to integrate data from multiple systems, which enables data search, business intelligence,
multi-dimension and real time data monitoring and analysis. Our proprietary user behavior analytics platform for business users
allows them to perform customized analysis of user profile, demographics and conversion.
Artificial
Intelligence (AI)
We used our proprietary technology
to develop our AI platform for business units to conduct deep learning and machine learning tasks. We developed AI-based customer
services systems which utilize voice recognition, natural language processing and machine learning technology to reduce human intervention
in our customer service process. AI is also utilized in real time search, recommendation and advertising to improve the efficiency
and effectiveness of monetization of our platforms.
Cloud
Platform
We have developed our cloud
platform, currently and primarily used internally. Our cloud platform simplifies and standardizes our internal communications and
improves synchronization of our system testing process. It also provides a more secured platform for data applications and allows
more flexible and intelligent deployment and allocation of our IT resource meet our evolving business needs. As a result, we are
able to increase our overall research and development efficiency while reducing cost.
Online marketing platform
To connect users and
customers more efficiently, we have integrated several kinds of advertising systems into one marketing platform with a high
level of intelligence, functionality, flexibility and scalability.
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Highly intelligent
. A series of AI services have been developed for customers to target their
audiences effectively. The platform provides customers with tools such as smart pricing, budget pacing and anti-spam to increase
returns on their marketing investment.
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Highly functional
. There are sufficient options to meet different customer demands with uniform
UI. Many value-added services have also been implemented to assist customers to design smart advertising campaign, such as creative
builder, and landing page builder.
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Highly flexible
. The marketing platform contains a set of reusable modules with open API and
configuration. Thus, business units can use it to design personalized monetization mechanism. It supports developer collaboration
on monetization products experiment.
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Highly scalable
. The platform supports scalable distribution of user traffic and customer budget
based on unified management tools. It provides various options to connect with external sites or apps, such as online advertising
union network on tools such as real time bidding (RTB). This helps our customers to expand the reach of their marketing
efforts.
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Sales and
Customer Services
Sales
Our field direct sales force
provides us with direct access to local business users and helps us better understand local needs. They help to certify our paying
members in person, organize focused workshops or seminars with interested business users to promote basic concepts of online marketing
and our various premium services, primarily the subscription-based paying membership services.
As of December 31, 2017, our
field direct sales teams and sales support teams consisted of 14,646 employees and they cover 49 cities
in mainland China. The cities covered by field direct sales teams vary slightly by content category managed by different business
units.
Our field direct
sales teams directly contribute to the revenue growth of our subscription-based membership services. They also lay the
foundation for the growth of our online marketing services by promoting packages that combine subscription-based
packages and virtual currencies which customers can later use to purchase various forms of online marketing services.
The compensation package for
our sales teams includes fixed base salaries and commissions based on the revenues or collection they achieve. We provide our
sales team with regular training and internally developed systems to assist them to quickly become proficient and productive members.
Since the mergers and acquisitions
of Ganji, Anjuke and ChinaHR platforms in 2015, we have been integrating the direct field sales and dealer network. These changes
have been largely implemented as of the date of this annual report.
As of December 31, 2017,
the field sales teams are managed by business teams in each of the major five content categories. Within each content
category, we have merged the teams for different platforms into a single team that support multiple platforms. Prior to being
acquired, Ganji had direct sales teams only in top 4 cities and used sales agencies to cover other cities, while Anjuke had
direct sales in less than 20 cities and no sales agencies. We have expanded the direct sales teams’ coverage
after consolidating their businesses.
As of December 31, 2017,
we have direct sales teams coverage for jobs, yellow pages and used car categories in all top 27 cities, while our
direct sales team in housing category has expanded its coverage to approximately 40 cities.
These direct sales teams
helped us to more effectively acquire subscription-based paying users. Outside those major cities, we continue to work with
sales agencies to grow our paying members in lower tier cities.
Customer
Service
We have dedicated and centralized
customer service team in Tianjin, China, which are engaged in providing services to general users and subscription-based paying
members and generating new members. Our customer service team consisted of 1,566 members as of December 31, 2017.
General
user service
We have centralized dedicated
teams who are committed to address general users’ queries within 24 hours through online messages or emails. In addition,
we closely monitor user feedback from various other channels, such as popular social network services platforms and promptly elevate
issues internally and respond to valuable user feedback we collect.
Subscription-based
paying member service
For our subscription-based
paying members, we have a dedicated customer service center in Tianjin, China, which supports our paying members through a members-only
toll-free phone number and other online communication channels. Our dedicated customer service team is well trained on our membership
service functions and online marketing service offerings. Using our internally developed customer service systems, our
customer service teams analyze data on the performance of the marketing services and help paying members to optimize their online
marketing strategies and performance.
New
member generation
In some limited cases, we
utilize our centralized customer service team to acquire new paying members through tele-sales or online sales leads. In the industries
where local business users are more familiar with online marketing, we find this to be more cost-effective to promote our online
marketing services on the phone, as opposed to having in-person demonstrations of our service offerings. We also use our tele-sales
teams to cover remote areas where it is not economical to cover through our field sales teams or sales agent network.
Efficiency
improvement of sales and customer services teams
As the expenses related to
our sales and customer services teams primarily contribute to our operating expenses of, we continuously work to increase the efficiency
of teams, mainly in the following three areas.
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Management rigor
. We have continuously rolled out training particularly to the mid-level management
teams to improve the overall efficiency.
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Technology and AI
. We have been improving our IT infrastructure to enhance management clarity,
granularity and timeliness of intervention. With more profiling information about a lead or an existing customer, our sales and
customer service teams are becoming more targeted and effective in address customers’ needs.
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Self-service
. We have been developing interfaces for business users to purchase marketing services
and manage their listings and marketing activities online through tailor-made category-specific business facing mobile applications
such as Zhao Cai Mao (“
招才猫
”),
Mobile Real Estate Agent (“
移动经纪人
”),
Shang Jia Tong (“
商家通
”), Che Shang
Tong (“
车商通
”). “Self-service”
has helped and will continue to enable us to remove manual handholding efforts by our sales and customer service teams, which results
in further efficiency increase of our teams.
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These measures help to
further improve the efficiency of our sales team. As of December 31, 2017, our field sales and customer service headcount
decreased by approximately 10% from December 31, 2016, while our revenues grew by 32.6% in the same period. We believe that we
can further improve efficiency of our sales and customer service teams.
Marketing
and Brand Promotion
We believe that there are
still lots of room in China for user growth for our platforms, particularly on mobile applications, as smartphones continue to
proliferate. Other than continuing enhancing user experience, which drives word-of-mouth and repeat usage, it is also critical
to continue to promote our brand and attract more users through various forms of online and offline marketing.
Our online marketing activities
primarily consist of smartphone app pre-installations, paid app downloads, paid traffic acquisition from browser-based mobile media,
paid marketing from internet navigation platforms and various popular search engines in China.
Our offline marketing activities
include traditional mainstream media such as television, outdoor billboards and display screens, public relations activities, as
well as sponsored events to increase our visibility and promote our brand.
Our branding efforts cover
major brands, such as 58, Anjuke and Ganji. We continue to evaluate the return on investment
of various online and offline advertising channels and among our various platforms. We adjust the focus of our advertising campaign
according to ROI assessment, external market and competition environment.
Although the majority of our
advertising expenses are incurred to attract consumer users, we also conduct business user related marketing events, such as conferences,
seminars and workshops, where we meet with our business users as well as industry experts to exchange insights, promote our strategies,
strengths and services to deepen our relationship with our users.
Intellectual
Property
Our success and ability to
compete depend, in part, upon our ability to establish and adequately protect our intellectual property rights. In this regard,
we rely primarily on a combination of patent, copyright, software registration, trademark, trade secret and unfair competition
laws and contractual rights, such as confidentiality and license agreements with our employees, partners and others. We hold 51
patents and have applied for the registration of 376 other patents, which cover a variety of technologies, including those relating
to data processing, search, distribution and publishing. As of March 31, 2018, we had registered 244 computer software copyrights
and 74 artwork copyrights in China, and had registered 37 domain names that are material to our business, including www.58.com,
www.58.com.cn, www.ganji.com, www.ganji.com.cn, www.anjuke.com and www.anjuke.cn, and 1,312 trademarks, including
,
and
, in China, excluding those relating to 58 Home.
Competition
Our competitors in the online
marketing space include smaller or regional online classifieds websites as well as industry-or content-specific vertical websites
that are in the same core content categories with us. We may also face competition from other internet companies, who may enter
into the online classifieds market in China. We compete primarily with our user traffic, effectiveness of services in reaching
targeted users, ability to demonstrate marketing results and customer service capabilities as well as brand awareness.
Regulation
This section sets forth a
summary of the significant regulations or requirements that affect our business activities in China or our shareholders’
rights to receive dividends and other distributions from us.
Regulations on Value-Added
Telecommunication Services
The PRC government extensively
regulates the telecommunications industry, including the internet sector. The PRC State Council, the MIIT, the Ministry of Commerce,
the State Administration for Industry and Commerce, the State Administration of Press, Publication, Radio, Film and Television
(formerly the General Administration of Press and Publication) and other relevant government authorities have promulgated an extensive
regulatory scheme governing telecommunications, internet-related services and e-commerce. However, the PRC telecommunications industry
and internet-related industry are at an early stage of development. New laws and regulations may be adopted from time to time that
will require us to obtain additional licenses and permits in addition to those that we currently have, and will require us to address
new issues that arise from time to time. As a result, substantial uncertainties exist regarding the interpretation and implementation
of current and any future Chinese laws and regulations applicable to the telecommunications, internet-related services and e-commerce.
See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Uncertainties
in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.”
Licenses for Value-Added
Telecommunication Services
The Catalogue for the Guidance
of Foreign Investment Industries, or the Catalogue, as promulgated and amended from time to time by the Ministry of Commerce and
the National Development and Reform Commission, is the principal guide to foreign investors’ investment activities in China.
The most recent version of the Catalogue, which was promulgated in 2017, divides the industries into three categories: encouraged,
restricted and prohibited. Industries not listed in the Catalogue are generally open to foreign investment unless specifically
restricted by other PRC laws and regulations. A wholly foreign-owned enterprise is generally permitted for encouraged industries,
while for restricted industries, such as value-added telecommunications service industry, there are some limitations to the ownership
and/or corporate structure of the foreign-invested companies that operate in such industries. Industries in the prohibited category
are not open to foreign investors.
The Telecommunications Regulations
issued by the PRC State Council in September 2000 and amended subsequently are the primary regulations governing telecommunication
services. The Telecommunications Regulations set out the general framework for the provision of telecommunication services by PRC
companies. Under the Telecommunications Regulations, it is a requirement that telecommunications service providers procure operating
licenses prior to their commencement of operations. The Telecommunications Regulations draw a distinction between “basic
telecommunications services” and “value-added telecommunications services.” Information services such as content
service, entertainment and online games services are classified as value-added telecommunications services.
Pursuant to the Administrative
Measures for Telecommunications Business Operating Permit promulgated by the MIIT in March 2009 with latest amendments becoming
effective in July 2017, there are two types of telecom operating licenses for operators in China, namely, licenses for basic telecommunications
services and licenses for value-added telecommunications services. The operation scope of the license will detail the permitted
activities of the enterprise to which it is granted. An approved telecommunication services operator must conduct its business
in accordance with the specifications recorded on its value-added telecommunications services operating license. Beijing 58, our
consolidated affiliated entity, obtained a Value-Added Telecommunications Business License issued by MIIT on April 11, 2017, which
will expire on April 11, 2022.
Pursuant to the Administrative
Measures on Internet Information Services, promulgated by the PRC State Council in September 2000 and amended subsequently, commercial
internet information services operators must obtain an ICP License, from the relevant government authorities before engaging in
any commercial internet information services operations within China. Beijing 58, our consolidated affiliated entity, obtained
an ICP License issued by Beijing Administration of Telecommunication in May 2006, which was renewed in May 2011 and again in May
2016, and will expire in April 2021.
Foreign
Investment in Value-Added Telecommunications Services
Pursuant to the Provisions
on Administration of Foreign-Invested Telecommunications Enterprises, promulgated by the State Council in December 2001 and amended
subsequently, the ultimate foreign equity ownership in a value-added telecommunications services provider may not exceed 50%, except
for e-commerce business, in which foreign investors are allowed to have 100% ownership in accordance with an announcement by the
MIIT in June 2015 and the Guidance Catalog of Industries for Foreign Investment amended in July 2017. Moreover, for a foreign investor
to acquire any equity interest in a value-added telecommunication business in China, it must satisfy a number of stringent performance
and operational experience requirements, including demonstrating good track records and experience in operating value-added telecommunication
business overseas. Foreign investors that meet these requirements must obtain approvals from the MIIT and the Ministry of Commerce
or its authorized local counterparts, which retain considerable discretion in granting approvals. Pursuant to publicly available
information, the PRC government has issued telecommunications business operating licenses to only a limited number of foreign-invested
companies, all of which are Sino-foreign joint ventures engaging in the value-added telecommunication business.
The MIIT Circular issued in
July 2006, reiterated the regulations on foreign investment in telecommunications businesses, which require foreign investors to
set up foreign-invested enterprises and obtain a business operating license for internet content provision to conduct any value-added
telecommunications business in China. Pursuant to the circular, a domestic company that holds an ICP license is prohibited from
leasing, transferring or selling the license to foreign investors in any form, and from providing any assistance, including providing
resources, sites or facilities, to foreign investors that conduct value-added telecommunications business illegally in China. Furthermore,
the relevant trademarks and domain names that are used in the value-added telecommunications business must be owned by the local
ICP license holder or its shareholders. The MIIT Circular further requires each ICP license holder to have the necessary facilities
for its approved business operations and to maintain such facilities in the regions covered by its license. In addition, all value-added
telecommunications service providers are required to maintain network and information security in accordance with the standards
set forth under relevant PRC regulations.
In light of the aforesaid
restrictions, we rely on Beijing 58, our consolidated affiliated entity, to hold and maintain the licenses necessary to provide
online marketing services and other value-added telecommunications services in China. For a detailed discussion of our contractual
arrangement, please refer to “— C. Organizational Structure.” To comply with these PRC regulations, we operate
our platforms and value-added telecommunications services through Beijing 58. We and certain of our consolidated affiliated entities
hold ICP licenses and own all domain names used in our value-added telecommunications businesses. We and our consolidated affiliated
are also the owner of all registered trademarks which are used in our value-added telecommunications businesses and is the applicant
of all registered trademark applications we are currently making.
Regulations on Advertising
Services
According to relevant laws
and regulations, companies that engage in advertising activities must obtain a business license from the SAIC or its local branches
which specifically include operating an advertising business within its business scope. Advertisers, advertising operators and
advertising distributors are required by PRC advertising laws and regulations to ensure that the content of the advertisements
they prepare or distribute are true and in full compliance with applicable laws and regulations. In addition, where a special government
review is required for certain categories of advertisements before publishing, the advertisers, advertising operators and advertising
distributors are obligated to confirm that such review has been performed and the relevant approval has been obtained. Where internet
information service providers know or should know that illegal advertisements are distributed using their services, they should
prevent such advertisements from being distributed.
The Interim Measures, also
sets forth certain compliance requirements for online advertising businesses. For example, paid search results must be indicated
as an advertisement and distinguished from natural search results. Advertising operators and distributors of internet advertisement
must examine, verify and record identity information, such as name, address and contact information, of advertisers, and maintain
an updated verification record on a regular basis. Moreover, advertising operators and advertising distributors must examine supporting
documentation provided by advertisers and verify the content of the advertisements against supporting documents before publishing.
If the content of advertisements are inconsistent with the supporting documentation, or the supporting documentation is incomplete,
advertising operators and distributors must refrain from providing design, production, agency or publishing services.
Violation of these regulations
may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements
and orders to publish an advertisement correcting the misleading information. In the case of serious violations, the SAIC or its
local branches may force the violator to terminate its advertising operation or even revoke its business license. Furthermore,
advertisers, advertising operators or advertising distributors may be subject to civil liability if they infringe on the legal
rights and interests of third parties. We have adopted policies and procedures and have provided training to our content review
team to ensure our compliance with these laws and regulations.
Regulations on Mobile Internet
Applications
In August, 2016, the State
Internet Information Office promulgated the Administrative Provisions on Mobile Internet Application Information Services, or the
Mobile Application Administrative Provisions. Pursuant to the Mobile Application Administrative Provisions, mobile internet applications
refer to application software that run on smart mobile devices providing information services after being pre-installed, downloaded
or embedded through other means. Mobile internet application providers refer to the owners or operators of mobile internet applications.
Pursuant to the Mobile Application
Administrative Provisions, an internet application provider must verify a user’s mobile phone number and other identity information
following the principle of mandatory real name registration at the back-office end and voluntary real name display at the front-office
end. An internet application provider must not enable functions that can collect a user’s geographical location information,
access user’s contact list, activate the camera or recorder of the user’s smart mobile device or other functions irrelevant
to its services, nor is it allowed to conduct bundle installations of irrelevant application programs, unless it has clearly indicated
to the user and obtained the user’s consent to such functions and application programs. If an application provider violates
the regulations, the internet application store service provider must take measures to stop the violations, including warning,
suspending the release, withdrawing the application from the platform, keeping a record and reporting the incident to the relevant
governmental authorities.
In December 2016, the MIIT
promulgated the Interim Measures on the Administration of Pre-Installation and Distribution of Applications for Smart Mobile Terminals,
or the Pre-Installed Application Interim Measures, which became effective on July 1, 2017, to enhance the administration of mobile
applications. The Pre-Installed Application Interim Measures require, among others, that mobile phone manufacturers and internet
information service providers ensure that a mobile application, together with its ancillary resource files, configuration files
and user data, can be uninstalled by a user on a convenient basis, unless it is a basic function, which supports the normal functioning
of hardware and operating system of a smart mobile device.
We are subject to these measures
as we provide listing-based information services through different mobile applications such as 58 Home, and we have adopted policies
and measures regarding the collection, verification, use, storage, transmission and security of user’s information to comply
with the relevant laws and regulations.
Regulations on Information
Security and Censorship
The PRC government regulates
and restricts internet content in China to protect state security and ensure the legality of the internet content. The Standing
Committee of the National People’s Congress, the PRC national legislative body, enacted a law in December 2000, as subsequently
amended, that among other things, makes it unlawful to: (1) gain improper entry into a computer or system of strategic importance;
(2) disseminate politically disruptive information; (3) leak state secrets; (4) spread false commercial information; or (5) infringe
intellectual property rights. Pursuant to the Administrative Measures on Internet Information Services and other applicable laws,
internet content providers and internet publishers are prohibited from posting or displaying over the internet content which violates
PRC laws and regulations, impairs the national dignity of China, or is reactionary, obscene, superstitious, fraudulent or defamatory.
Internet service providers are required to monitor their platforms, including electronic bulletin boards. They may not post or
disseminate any content that falls within these prohibited categories and must remove any such content from their platforms. The
PRC government may shut down the platforms of ICP license holders that violate any of the above-mentioned content restrictions
and revoke their ICP licenses. In addition, the MIIT has published regulations that subject ICP operators to potential liability
for content displayed on their platforms and the actions of users and others using their systems, including liability for violations
of PRC laws and regulations prohibiting the dissemination of content deemed to be socially destabilizing. The Ministry of Public
Security has the authority to order any local internet service provider to block any internet website at its sole discretion. From
time to time, the Ministry of Public Security has stopped the dissemination over the internet of information which it believes
to be socially destabilizing.
The Ministry of Public Security
has promulgated measures in December 1997 that prohibit the use of the internet in ways which, among other things, result in a
leakage of State secrets or the distribution of socially destabilizing content. Socially destabilizing content includes any content
that incites defiance or violations of PRC laws or regulations or subversion of the PRC government or its political system, spreads
socially disruptive rumors or involves cult activities, superstition, obscenities, pornography, gambling or violence. Under PRC
law, state secrets are defined broadly to include information concerning PRC national defense, state affairs and other matters
as determined by the PRC authorities.
In December 2005, the Ministry
of Public Security promulgated Provisions on Technological Measures for Internet Security Protection. These measures and the Administrative
Measures on Internet Information Services require all ICP operators to keep records of certain information about their users (including
user registration information, log-in and log-out time, IP address, content and time of listings by users) for at least 60 days
and submit the above information as required by laws and regulations. The ICP operators must regularly update information security
and censorship systems for their platforms with local public security authorities, and must also report any public dissemination
of prohibited content. If an ICP operator violates these measures, the PRC government may revoke its ICP license and shut down
its websites. Pursuant to the Decision on Strengthening Network Information Protection issued by the Standing Committee of the
PRC National People’s Congress in December 2012, ICP operators must request identity information from users when ICP operators
provide information publication services to the users. If ICP operators come across prohibited information, they must immediately
cease the transmission of such information, delete the information, keep relevant records, and report to relevant government authorities.
In July 2013, the MIIT promulgated the Regulation on Protection of Personal Information of Telecommunication and Internet Users
to provide for more detailed rules in this respect. In November, 2016, the Standing Committee of the National People’s Congress
promulgated the Cyber Security Law, which became effective on June 1, 2017. In accordance with the Cyber Security Law, network
operators must comply with applicable laws and regulations and fulfill their obligations to safeguard network security in conducting
business and providing services. Network service providers must take technical and other necessary measures as required by laws,
regulations and mandatory requirements to safeguard the operation of networks, respond to network security effectively, prevent
illegal and criminal activities, and maintain the integrity, confidentiality and usability of network data.
In addition, the State Secrecy
Bureau has issued provisions authorizing the blocking of access to any website it deems to be leaking state secrets or failing
to comply with the relevant legislation regarding the protection of state secrets.
The Standing Committee of
the National People’s Congress promulgated Anti-Terrorism Law in December, 2015, which took effect on January 1, 2016. According
to the Anti-Terrorism Law, telecommunication service operators or internet service providers must, among others, (i) provide technical
support and assistance to the relevant government authorities in preventing and investigating terrorist activities, (ii) implement
network security and information monitoring systems and take safety and prevention measures to prevent the dissemination of terrorism
information, delete the terrorism information, immediately stop its dissemination, and keep record and report to the relevant government
authorities once the terrorism information is discovered, and (iii) examine the identity of customers before providing services.
Any violation of the Anti-Terrorism Law may result in severe penalties, including substantial fines.
As Beijing 58 is an ICP operator,
it is subject to the laws and regulations relating to information security. To comply with these laws and regulations, it has completed
the mandatory security filing procedures with the local public security authorities, regularly update their information security
and content-filtering systems with newly issued content restrictions, and maintains records of users’ information as required
by the relevant laws and regulations. Beijing 58 has also taken measures to delete or remove links to content that to its knowledge
contains information violating PRC laws and regulations. The majority of the content posted on our online platforms is first screened
by our filtering systems. Content containing prohibited words or images is then manually screened by employees who are dedicated
to screening and monitoring content published on our online platforms and removing prohibited content. Furthermore, Beijing 58
has adopted and maintained system controls, protocols and policies that are designed to ensure its compliance with the requirements
of the new Cyber Security Law. We believe that with these measures in place, no prohibited content under PRC information security
laws and regulations should have been publicly disseminated through our online platforms in the past. However, there is significant
amount of content posted on our online platforms by our users on a daily basis. If any prohibited content is publicly disseminated
in the future and we become aware of it, we will report it to the relevant government authority. We believe these measures taken
by us are generally in compliance with the relevant laws and regulations.
If, despite the precautions,
we fail to identify and prevent illegal or inappropriate content from being displayed on or through our online platforms, we may
be subject to liability. In addition, these laws and regulations are subject to interpretation by the relevant authorities, and
it may not be possible to determine in all cases the types of content that could result in liability. To the extent that PRC regulatory
authorities find any content displayed on or through our online platforms objectionable, they may require us to limit or eliminate
the dissemination or availability of such content or impose penalties, including the revocation of our operating licenses or the
suspension or shutdown of our online operations. In addition, the costs of compliance with these regulations may increase as the
volume of content and users on our online platforms increases.
Regulations on Internet
Privacy
The PRC Constitution states
that PRC law protects the freedom and privacy of communications of citizens and prohibits infringement of these rights. In recent
years, PRC government authorities have promulgated laws and regulations on internet use to protect personal information from any
unauthorized disclosure. The Decision on Strengthening Network Information Protection and the Regulation on Protection of Personal
Information of Telecommunication and Internet Users provides that information that identifies a citizen, the time or location for
his use of telecommunication and internet services, or involves privacy of any citizen such as his birth date, ID card number,
and address is protected by law and must not be unlawfully collected or provided to others. ICP operators collecting or using personal
electronic information of citizens must specify the purposes, manners and scopes of information collection and uses, obtain consent
of the relevant citizens, and keep the collected personal information confidential. ICP operators are prohibited from disclosing,
tampering with, damaging, selling or illegally providing others with, collected personal information. ICP operators are also prohibited
from collection and use of personal information after a user has stopped using the services. ICP operators are required to take
technical and other measures to prevent the collected personal information from any unauthorized disclosure, damage or loss as
well as conducting a self-examination of their protection of personal information at least once a year. The Administrative Measures
on Internet Information Services prohibit an ICP operator from insulting or slandering a third party or infringing upon the lawful
rights and interests of a third party. In accordance with the Cyber Security Law, network operators must not collect personal information
irrelevant to their services. In the event of any unauthorized disclosure, damage or loss of collected personal information, network
operators must take immediate remedial measures, notify the affected users and report the incidents to the relevant authorities
in a timely manner. If any user knows that a network operator illegally collects and uses his or her personal information in violation
of laws, regulations or any agreement with the user, or the collected and stored personal information is inaccurate or wrong, the
user has the right to request the network operator delete or correct the relevant collected personal information.
The relevant telecommunications
authorities are further authorized to order ICP operators to rectify unauthorized disclosure. ICP operators are subject to legal
liability, including warnings, fines, confiscation of illegal gains, revocation of licenses or filings, closing of the relevant
websites, administrative punishment, criminal liabilities, or civil liabilities, if they violate relevant provisions on internet
privacy. Pursuant to the Ninth Amendment to the Criminal Law issued by the Standing Committee of the National People’s Congress
in August 2015 and becoming effective in November, 2015, any ICP provider that fails to fulfill its obligations relating to internet
information security administration under applicable law and refuses to rectify upon an order will be subject to criminal liability
for (i) any dissemination of illegal information on a large scale, (ii) any severe effect due to the leakage of client information,
(iii) any serious loss of evidence of criminal activities, or (iv) other severe situations, while any individual or entity that
sells or provides personal information to others unlawfully, or steals or otherwise unlawfully obtains any personal information
will be subject to criminal liability in severe situations.
In
addition, the Interpretations of the Supreme People’s Court and the Supreme People’s Procuratorate of the PRC on Several
Issues Concerning the Application of Law in Handling Criminal Cases of Infringing Personal Information, issued in May 2017 and
effective in June 2017, clarified certain standards for the conviction and sentencing of the criminals in relation to personal
information infringement.
The PRC government, however, has the power and authority to order ICP operators to turn over personal
information if an internet user posts any prohibited content or engages in illegal activities on the internet.
Regulations on Internet
Mapping Services
Pursuant to the PRC regulations
applicable to internet mapping services issued by the National Administration of Surveying, Mapping and Geo information (formerly
known as the State Bureau of Surveying and Mapping), maps transmitted through internet are internet maps. To provide internet mapping
services, the provider shall apply for a Surveying and Mapping Qualification Certificate for internet mapping with the competent
surveying and mapping bureau. The PRC regulations also provide for certain conditions and requirements for issuing the Surveying
and Mapping Qualification Certificate, such as the number of technical personnel and map security verification personnel, security
facilities, and approval from relevant provincial or municipal surveying and mapping bureau on security system, qualification management
and filing management. Internet maps must be approved by relevant government authority before they can be publicized on internet.
Further, the State Bureau of Surveying and Mapping and other seven PRC government authorities jointly issued a notice in 2008,
to investigate and punish the illegal and non-compliance activities with respect to the internet mapping services or geography
information services. We currently provide location information in our real estate directory by using maps provided by a third-party
internet map operator, which may be deemed as one type of internet mapping services. Our consolidated affiliated entity, Beijing
58, obtained a Surveying and Mapping Qualification Certificate for internet map search and location services in May 2012, which
was renewed in January 2015 and will expire in December 2019. Shanghai Ruijia, a subsidiary of Beijing 58, is in the process of
applying for the Surveying and Mapping Qualification Certificate.
Regulations on Employment
Agency Services
In accordance with the Employment
Promotion Law promulgated by the Ministry of Human Resources and Social Security and the Regulations on Employment Service and
Employment Administration promulgated by the Ministry of Human Resources and Social Security, both with effect from January 1,
2008, an employment agency, which provides intermediary and other services for recruitment by employers and job seeking by employees,
must obtain an Employment Agency License from the relevant labor authority and be subject to annual inspection by such authority.
An employment agency may engage in collecting and publishing job seeking and recruitment information and providing internet employment
information services in accordance with relevant laws and regulations. An employment agency is prohibited from providing services
for individuals without legal identity certifications or enterprises without legal licenses. A wholly foreign-owned enterprise
(other than owned by Hong Kong and Macau service providers) is prohibited from conducting employment agency business. Our jobs
and resumes directory provides an online platform for job seekers and employers to post resumes and job opportunities. Our consolidated
affiliated entity, Beijing 58, initially obtained an Employment Agency License in March 2012 and had it renewed in April 2016.
The renewed Employment Agency License will expire in March 2019.
Regulations on E-commerce
The PRC e-commerce industry
is at an early stage of development and there are few PRC laws or regulations specifically regulating e-commerce business. In December
2007, the Standing Committee of Beijing Municipal People’s Congress adopted the Beijing Municipal Regulations on Promotion
of Informatization, which provides that any individual or enterprise that conducts business operations through the internet must
obtain a business license and/or other necessary licenses prior to operation. The operator of an online platform is responsible
for checking such individuals’ or enterprises’ licenses. In July 2008, the Beijing AIC promulgated certain rules for
implementing the above-mentioned regulation. Pursuant to these rules, any individual or enterprise failing to obtain a business
license may be prohibited from doing business on an e-commerce platforms operating in Beijing, and violation of these rules may
lead to penalties on either the individual/enterprise or the operator of the e-commerce platforms. On January 26, 2014, the State
Administration for Industry and Commerce adopted the Administrative Measures for Online Trading, or the Online Trading Measures,
which became effective on March 15, 2014 and repealed the Interim Measures for the Administration of Online Products Sales and
Relevant Services previously issued in May 2010. Pursuant to the Online Trading Measures, enterprises or other operators that engage
in online product sales and other services and have been registered with the State Administration for Industry and Commerce or
its local branch must make available to the public the information stated in their business licenses or the link to their business
licenses online on their websites; individuals that engage in online product sales and other services must submit actual identification
information such as name and address to the operator of the e-commerce platforms. The Online Trading Measures, however, allow individuals
to engage in online product sales and other services without obtaining a business license. Under the Online Trading Measures, a
consumer is entitled to return the products (other than customized products, fresh and perishable goods, audio or visual products,
computer software and other digital products downloaded online or unpackaged by consumers, and newspapers and journals that have
been delivered) within seven days from the date after receipt of the products without giving any reason. The online sellers must,
within seven days upon receipt of the returned products, refund the prices paid by consumers for relevant products. In addition,
sellers are prohibited from using contract terms or other means setting out provisions that are unfair or unreasonable to consumers
such as those excluding or restricting consumers’ rights, reducing or exempting operators’ responsibilities, and increasing
the consumers’ responsibilities, and are prohibited from forcing consumers to enter into transactions by using contract terms
and technical means.
Beijing 58 has obtained a
business license from a branch of the Beijing AIC with a term from December 2005 to December 2025. Based our verbal consultation
with the Beijing AIC, we believe that, except for business users who conduct transactions on our online platforms, our other users
who list information on our platforms and conduct the product sales and other services offline are not subject to the provisions
regarding online platforms. As for business users who conduct transactions on our online platforms, we check their business licenses
before allowing them to post listings on our platforms to ensure compliance with license requirements under PRC laws and regulations.
However, uncertainties exist in terms of the implementation of these national and Beijing local rules due to the lack of practical
guidance. We cannot predict with certainty to what extent these rules will affect our business operations or future strategies.
Regulations on Internet
Information Search Service
In June 2016, the State Internet
Information Office promulgated the Administrative Provisions on Internet Information Search Services, or the Search Services Administrative
Provisions, which took effect on August 1, 2016. Pursuant to the Search Services Administrative Provisions, internet information
search service refers to the service whereby users can search for information that is collected from the internet and processed
by computer technology. The Search Services Administrative Provisions require that an internet information search service provider
must not publish any information or contents prohibited by law in the form of links, abstracts, snapshots, associative words, related
search or recommendations or otherwise. If an internet information search service provider identifies any search results that contain
any information, website or application that is prohibited by law, it must stop displaying the search results, and record and report
it to the relevant governmental authority. In addition, an internet information search service provider is prohibited from seeking
illegitimate interest by means of unauthorized disconnection of links, or provision of search results containing false information.
If an internet information search service provider engages in paid search services, it must examine and verify the qualifications
of its customers of the paid search services, specify the maximum percentage of search results as paid search results on a webpage,
clearly distinguish paid search results from natural search results, and notably identify the paid search information item by item.
We may be found as an internet information search service provider. We have adopted policies and have maintained procedures designed
to ensure the compliance of our operation with these regulations. For example, we monitor the content in our search results and
remove any questionable search listings.
Regulations on Software
Products
The State Copyright Bureau
issued the Computer Software Copyright Registration Procedures in February 2002, which apply to software copyright registration,
exclusive licensing contract registration and transfer contract registration. Although registration is not mandatory under PRC
law, software copyright owners are encouraged to go through the registration process and registered software may receive better
protection. As of March 31, 2018, we had registered 244 computer software copyrights in China, excluding those relating to 58 Home.
Regulations on Trademarks
Trademarks are protected by
the PRC Trademark Law adopted in 1982 and subsequently amended as well as the Implementation Regulation of the PRC Trademark Law
adopted by the State Council in 2002 and subsequently amended. The Trademark Office under the State Administration for Industry
and Commerce handles trademark registrations. Trademarks can be registered for a term of ten years and can be extended for another
ten years if requested upon expiry of the first or any renewed ten-year term. The PRC Trademark Law has adopted a “first-to-file”
principle with respect to trademark registration. Where a trademark for which a registration application has been made is identical
or similar to another trademark which has already been registered or been subject to a preliminary examination and approval for
use on the same type of or similar commodities or services, the application for such trademark registration may be rejected. Any
person applying for the registration of a trademark may not prejudice the existing right first obtained by others, nor may any
person register in advance a trademark that has already been used by another party and has already gained a “sufficient degree
of reputation” through such another party’s use. Trademark license agreements must be filed with the Trademark Office
or its regional offices. As of March 31, 2018, we had registered 1,312 trademarks in China, excluding those relating to 58 Home.
Regulations on Patent
The PRC Patent Law provides
for patentable inventions, utility models and designs, which must meet three conditions: novelty, inventiveness and practical applicability.
The State Intellectual Property Office is responsible for examining and approving patent applications. A patent is valid for a
term of 20 years in the case of an invention and a term of ten years in the case of utility models and designs. As of March 31,
2018, we held 51 patents and had applied for the registration of 376 other patents, all of which are in the process of examination
by the State Intellectual Property Office.
Tort Liability Law
In accordance with the Tort
Liability Law, internet users and internet service providers bear tortious liabilities in the event they infringe other persons’
rights and interests through the internet. Where an internet user conducts tortious acts through internet services, the infringed
person has the right to request the internet service provider to take necessary actions such as deleting contents, screening and
delinking. The internet service provider, failing to take necessary actions after being informed, will be subject to joint and
several liabilities with the internet user with regard to the additional damages incurred. If an internet service provider knows
an internet user is infringing other persons’ rights and interests through its internet service but fails to take necessary
action, it shall be jointly and severally liable with the internet user. We have internal policy designed to reduce the likelihood
that user content may be used without proper licenses or third-party consents. When we are approached and requested to remove content
uploaded by users on the grounds of infringement, we investigate the claims and remove any uploads that appear to infringe the
rights of a third party after our reasonable investigation and determination. However, such policy may not be effective in preventing
the unauthorized listing of copyrighted materials or materials infringing other rights of third parties. See “Item 3. Key
Information — D. Risk Factors — Risks Related to Doing Business in China — We may be held liable to third parties
for information or content displayed on, retrieved from or linked to our website, or distributed to website users, which could
harm our reputation and business.”
Regulations on Foreign
Currency Exchange
Pursuant to the
Foreign
Exchange Administration Regulations
, as amended in August 2008, the Renminbi is freely convertible for current account items,
including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for
capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of
China, unless SAFE’s prior approval is obtained and prior registration with SAFE is made. In May, 2013 SAFE promulgated SAFE
Circular 21 which provides for and simplifies the operational steps and regulations on foreign exchange matters related to direct
investment by foreign investors, including foreign exchange registration, account opening and use, receipt and payment of funds,
and settlement and sales of foreign exchange. In February 2015, SAFE promulgated the Notice on Further Simplifying and Improving
Foreign Exchange Administration Policy on Direct Investment, or the SAFE Notice 13, which became effective on June 1, 2015. Pursuant
to SAFE Notice 13, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and
overseas direct investment from SAFE as required under current laws, entities and individuals will be required to apply for such
foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, will directly examine
the applications and conduct the registration. We generally follow the regulations and apply to obtain the approval of SAFE and
other relevant PRC government authorities. However, we may not be able to obtain these government registrations or approvals on
a timely basis, if at all. If we fail to receive such registrations or approvals, our ability to provide loans or capital contributions
to our PRC subsidiaries and our consolidated affiliated entities may be negatively affected, which could adversely affect our liquidity
and our ability to fund and expand our business.
In March 2015, SAFE promulgated
SAFE Circular 19, which came into force replacing
previous
regulations limiting a foreign-invested company’s use of its RMB-settled registered capital
. Although SAFE Circular
19
has lifted certain restrictions on the use
by a foreign-invested enterprise of its
Renminbi
registered
capital converted from foreign currencies
and allows for the use of Renminbi converted from the foreign currency-denominated
capital for equity investments in the PRC, the restrictions will continue to apply as to foreign-invested enterprises’ use
of the converted Renminbi for purposes beyond the business scope, for entrusted loans or for inter-company Renminbi loans. In addition,
SAFE Circular 19 is still unclear whether a foreign-invested enterprise whose business scope does not include equity investment
or similar activities may use Renminbi converted from the foreign currency-denominated capital for equity investments in the PRC.
Violations of these circulars and rules will result in severe penalties, such as heavy fines. These circulars may significantly
limit our ability to use Renminbi converted from net proceeds of our securities offerings to provide financial support to our consolidated
variable interest entitles in China through our PRC subsidiaries.
The principal regulations
governing distribution of dividends of foreign-invested enterprises include the Foreign-Invested Enterprise Law and the Implementation
Rules of the Foreign-invested Enterprise Law, as amended from time to time. Pursuant to these laws and regulations, foreign-invested
enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting
standards and regulations. In addition, foreign-invested enterprises in China are required to allocate at least 10% of their respective
accumulated profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital
of the enterprises. In addition, these companies may allocate a portion of their after-tax profits based on PRC accounting standards
to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends.
Regulations on Offshore
Financing
Pursuant to a SAFE Circular
37 issued by SAFE in July 2014, prior registration with the local SAFE branch is required for PRC residents, including PRC individuals
and PRC entities, to establish or control an offshore company for the purposes of overseas investment or financing with legitimate
assets or equity interests in an onshore enterprise or offshore assets or interests located in China. The PRC residents are also
required to amend the registration or filing with the local SAFE branch any material change in the offshore company, such as any
change of basic information (including change of such PRC residents, name and operation term), increase or decreases in investment
amount, transfers or exchanges of shares, or merger or divisions. On February 28, 2015, SAFE promulgated the Notice on Further
Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective
on June 1, 2015. Pursuant to SAFE Notice 13, instead of applying for approvals regarding foreign exchange registrations of foreign
direct investment and overseas direct investment from SAFE as required under current laws, entities and individuals will be required
to apply for such foreign exchange registrations, including those required under the SAFE Circular 37, from qualified banks. The
qualified banks, under the supervision of SAFE, will directly examine the applications and conduct the registration.
Failure to comply with the
registration procedures set forth in the SAFE Circular 37, or making misrepresentation on or failure to disclose controllers of
foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed on the
foreign exchange activities of the relevant onshore company, including the increase of its registered capital, the payment of dividends
and other distributions to its offshore parent or affiliate and the capital inflow from the offshore entities, and may also subject
relevant PRC residents to penalties under PRC foreign exchange administration regulations. PRC residents who directly or indirectly
hold any shares in our company from time to time are required to register with SAFE in connection with their investments in us.
We have requested PRC residents holding direct or indirect interest in our company to our knowledge to make the necessary applications,
filings and amendments as required under the SAFE Circular 37 and other related rules. To our knowledge, all of our shareholders
who are PRC citizens and hold interest in us, have registered with the local SAFE branch as required under the SAFE Circular 37
and are in the process of amending certain applicable registrations with the local SAFE pursuant to the SAFE Circular 37. See “Item
3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — PRC regulations relating to
offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered capital
or distribute profits to us, limit our ability to inject capital into our PRC subsidiaries, or otherwise expose us to liability
and penalties under PRC law.”
Regulations on Employee
Stock Option Plans
In February 2012, SAFE promulgated
the Stock Option Rules, replacing the previous rules issued by SAFE in March 2007. Under the Stock Option Rules and other relevant
rules and regulations, PRC residents who participate in stock incentive plan in an overseas publicly listed company are required
to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are
PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of the overseas publicly listed company or another
qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the
stock incentive plan on behalf of its participants. The participants must also retain an overseas entrusted institution to handle
matters in connection with their exercise of stock options, the purchase and sale of corresponding stocks or interests and fund
transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there
is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes.
The PRC agents must, on behalf of the PRC residents who have the right to exercise the employee share options, apply to SAFE or
its local branches for an annual quota for the payment of foreign currencies in connection with the PRC residents’ exercise
of the employee share options. The foreign exchange proceeds received by the PRC residents from the sale of shares under the stock
incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in China
opened by the PRC agents before distribution to such PRC residents.
We adopted an employee stock
option plan in 2010 and a share incentive plan in 2013. Pursuant to these two plans, we may issue options, restricted shares, restricted
share units or other types of awards to our qualified employees and directors and consultants on a regular basis. We have advised
our employees and directors participating in the employee stock option plan to handle foreign exchange matters in accordance with
the Stock Option Rules. However, we cannot assure you that our PRC individual beneficiary owners and the share options holders
can successfully register with SAFE in full compliance with the Stock Option Rules. The failure of our PRC individual beneficiary
owners and the share options holders to complete their registration pursuant to the Stock Option Rules and other foreign exchange
requirements may subject these PRC individuals to fines and legal sanctions, and may also limit our ability to contribute additional
capital to our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to us or otherwise materially
adversely affect our business. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business
in China — Failure to comply with PRC regulations regarding the registration requirements for employee share ownership plans
or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.”
In addition, the State Administration
for Taxation has issued circulars concerning employee share options, under which our employees working in China who exercise share
options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee
share options with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share
options. If our employees fail to pay or if we fail to withhold their income taxes as required by relevant laws and regulations,
we may face sanctions imposed by the PRC tax authorities or other PRC government authorities.
PRC Enterprise Income Tax
Law and Individual Income Tax Law
Under the Enterprise Income
Tax Law, enterprises are classified as resident enterprises and non-resident enterprises. PRC resident enterprises typically pay
an enterprise income tax at the rate of 25%. An enterprise established outside of the PRC with its “de facto management bodies”
located within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a
PRC domestic enterprise for enterprise income tax purposes. The implementation rules of the Enterprise Income Tax Law define “de
facto management body” as a managing body that in practice exercises “substantial and overall management and control
over the production and operations, personnel, accounting, and properties” of the enterprise.
SAT Circular 82, issued by
the State Administration of Taxation in April 2009 and amended in January 2014, provides certain specific criteria for determining
whether the “de facto management body” of a PRC-controlled offshore incorporated enterprise is located in China. Pursuant
to SAT Circular 82, a PRC-controlled offshore incorporated enterprise has its “de facto management body” in China only
if all of the following conditions are met: (a) the senior management and core management departments in charge of its daily operations
function have their presence mainly in China; (b) its financial and human resources decisions are subject to determination or approval
by persons or bodies in China; (c) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’
meetings are located or kept in China; and (d) more than half of the enterprise’s directors or senior management with voting
rights habitually reside in China. SAT Bulletin 45, which took effect from September 2011, provides more guidance on the implementation
of SAT Circular 82 and provides for procedures and administration details of determination on resident status and administration
on post-determination matters. Although SAT Circular 82 and SAT Bulletin 45 only apply to offshore enterprises controlled by PRC
enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals, the determining criteria
set forth there may reflect the State Administration of Taxation’s general position on how the “de facto management
body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are
controlled by PRC enterprises or PRC enterprise groups or by PRC or foreign individuals.
Due to the lack of applicable
legal precedents, it remains unclear how the PRC tax authorities will determine the PRC tax resident treatment of a foreign company
controlled by individuals like us. We do not believe 58.com Inc., China Classified Network Corporation, China Classified Information
Corporation Limited or any of our other offshore subsidiaries meet all the criteria provided by the implementation rules, thus
we do not believe 58.com Inc., China Classified Network Corporation, China Classified Information Corporation Limited or any of
our other offshore subsidiaries is a PRC “resident enterprise.” If the PRC tax authorities determine that 58.com Inc.,
China Classified Network Corporation, China Classified Information Corporation Limited or any of our other offshore subsidiaries
is a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could
follow. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Under
the Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes.
Such classifications would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material
adverse effect on our results of operations and the value of your investment.”
The Enterprise Income Tax
Law and its implementation rules permit certain “high and new technology enterprises strongly supported by the state”
that hold independent ownership of core intellectual property and simultaneously meet a list of other criteria, financial or non-financial,
as stipulated in the implementation rules and other regulations, to enjoy a reduced 15% enterprise income tax rate subject to certain
new qualification criteria. The State Administration of Taxation, the Ministry of Science and Technology and the Ministry of Finance
jointly issued the Administrative Rules for the Certification of High and New Technology Enterprises delineating the specific criteria
and procedures for the “high and new technology enterprises” certification in April 2008. Enterprises recognized as
“high and new technology enterprises” will enjoy a reduced 15% enterprise income tax rate after they go through tax
reduction application formalities with relevant tax authorities. Beijing 58 and Beijing 58 Auto, our consolidated affiliated entities,
and Wanglin and Shanghai Ruiting, our PRC subsidiaries, renewed their “high and new technology enterprise” certificates
in 2015 and 2016, respectively, and will be eligible for a preferential tax rate of 15% when they have taxable income under the
Enterprise Income Tax Law, as long as they maintain the “high and new technology enterprise” status.
In addition, qualified software
enterprises are exempt from the enterprise income tax for two years beginning from their first profitable year and are entitled
to a 50% tax rate reduction for the subsequent three years. The software enterprise qualification is subject to an annual assessment.
Wanglin was determined to be a qualified software enterprise in July 2014 and was granted a two-year exemption followed by a 50%
reduction on its taxable income under the Enterprise Income Tax Law for the subsequent three years, effective retroactively from
January 1, 2014. Therefore, Wanglin is entitled to a two-year exemption from 2014 to 2015 and a 50% tax rate deduction from 2016
to 2018 as long as it is able to pass the annual assessment for software enterprise qualification for each of the respective years.
58 Technology, one of our PRC subsidiaries, also qualified as a software enterprise in March 2016 and was granted a two-year exemption
followed by a 50% reduction on its taxable income under the Enterprise Income Tax Law for the subsequent three years, effective
retroactively from January 1, 2015. Therefore, 58 Technology is entitled to a two-year exemption from 2015 to 2016 and a 50% tax
rate deduction from 2017 to 2019 for so long as it maintains this qualification.
Regulations on PRC Business
Tax and VAT
Prior to January 1, 2012,
pursuant to the Provisional Regulation of China on Business Tax and its implementing rules, any entity or individual rendering
services in the territory of PRC was generally subject to a business tax at the rate of 5% on the revenues generated from provision
of such services. Our PRC subsidiaries and consolidated affiliated entities were subject to business tax at the rate of 5% for
the membership and online marketing services.
Since January 1, 2012, the
PRC Ministry of Finance and the State Administration of Taxation have been implementing the VAT Pilot Program, which imposes VAT
in lieu of business tax for certain industries in Shanghai, and since September 1, 2012, this Pilot Program has been expanded to
other regions. In August 2013, the program was further expanded nationwide.
VAT is applicable at a rate
of 6% in lieu of business tax for the membership, online marketing services and e-commerce services rendered by all of our PRC
subsidiaries and consolidated affiliated entities. VAT payable on goods sold or taxable services provided by a general VAT taxpayer
for a taxable period is the net balance of the output VAT for the period after crediting the input VAT for the period. With the
adoption of the Pilot Program, our revenues are subject to VAT payable on goods sold or taxable labor services provided by a general
VAT taxpayer for a taxable period. VAT payable is the net balance of the output VAT for the period after deducting the input VAT
for the period. Hence, the amount of VAT payable does not result directly from output VAT generated from goods sold or taxable
labor services provided. Accordingly, we have adopted the net presentation of VAT.
Employment Laws
In accordance with the PRC
National Labor Law, which became effective in January 1995, and the PRC Labor Contract Law, which became effective in January 2008,
as amended subsequently, employers must execute written labor contracts with full-time employees in order to establish an employment
relationship. All employers must compensate their employees equal to at least the local minimum wage standards. All employers are
required to establish a system for labor safety and sanitation, strictly abide by state rules and standards and provide employees
with appropriate workplace safety training. In addition, employers in China are obliged to pay contributions to the social insurance
plan and the housing fund plan for employees.
We have entered into employment
agreements with all of our full-time employees. We have not fully contributed to the social insurance plan and the housing fund
plan as required by applicable PRC regulations. As of December 31, 2017, with regards to the outstanding contributions to such
plans, we made provisions of approximately RMB61.4 million. While we believe we have made adequate provision of such outstanding
amounts of contributions to such plans in our audited financial statements, our failure to make sufficient payments to such plans
does not fully comply with applicable PRC laws and regulations and we may be required to make up the contributions for such plans
as well as to pay late fees and fines. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing
Business in China — Our failure to make adequate contributions to various employee benefit plans as required by PRC regulations
may subject us to penalties.”
|
C.
|
Organizational Structure
|
The following diagram illustrates
our corporate structure, including our principal subsidiaries and consolidated affiliated entities as of the date of this annual
report:
Notes:
|
*
|
We have omitted from this diagram other consolidated entities
of 58.com Inc. that, in the aggregate, would not constitute a significant subsidiary as defined in Rule 1-02(w) of Regulation
S-X as of December 31, 2017.
|
|
(1)
|
Jinbo Yao, Lianqing Zhang, Jianbo Su and Beijing Wanglintong hold 37.8%,
39.8%, 9.0% and 13.4% equity interests in Beijing 58, respectively. Among the shareholders of Beijing 58, Jinbo Yao and Jianbo
Su are shareholders of our company. Lianqing Zhang is not affiliated with us. Jinbo Yao is the sole director of and holds a 16.7%
equity interest in Beijing Wanglintong, which is jointly owned by Jinbo Yao, Xiaohua Chen, holding 15.92% equity interest, Jiandong
Zhuang, holding 15.8% equity interest, and five other individuals who are employees or ex-employees of our company. Beijing Wanglintong,
a PRC domestic company, does not have any business operations or assets other than its equity interest in Beijing 58. The registered
business scope of Beijing Wanglintong includes technology promotional services, software development and computer technology training.
|
|
(2)
|
In January 2018, Haoyong Yang, Chunyan Guo and Yang Liu who previously
held 0.31%, 20% and 30.69% equity interest in Shanjing Kechuang transferred all their equity interest to 58 Co., Ltd, which currently
holds 100% equity interest in Shanjing Kechuang.
|
|
(3)
|
58 Daojia Inc., or 58 Home, is the holding company of the PRC entities
that operate 58 Home business. On November 27, 2015, 58 Home completed a Series A equity funding round, with participation from
Alibaba Group Holding Limited, global investment firm KKR, and Ping An Group. Following the closing of the Series A financing of
58 Home, 58.com Inc. held 87.9% of the total outstanding ordinary shares of 58 Home and 61.7% of the total outstanding shares of
58 Home on an as-converted basis. As certain rights provided to the noncontrolling Series A preferred shareholders of 58 Home would
be viewed as substantive participating rights under U.S. GAAP, we have ceased consolidating the financial results of 58 Home in
our consolidated financial statements in accordance with U.S. GAAP since November 27, 2015.
|
|
(4)
|
The other
shareholders of Beijing 58 Auto Technology Co., Ltd. include its chief executive officer and certain third-party investors, who
hold 15.0% and 10.2% of equity interests in this company, respectively.
|
|
(5)
|
58 Co., Ltd., Jinbo Yao and Xiaohua Chen hold 94.1%, 1.4% and 4.5% equity
interest in Tianjin 58 Home, respectively. Jinbo Yao is our chairman and chief executive officer, and Xiaohua Chen is our chief
strategic officer and the chief executive officer of 58 Home.
|
|
(6)
|
Magic Heart Inc. and Tencent Mobility Limited hold 73.1% and 26.9% equity interest of Zhuan Spirit
Holdings Limited, respectively.
|
|
(7)
|
Beijing Yunqi Hulian Investment Co., Ltd., Linzhi Lichuang
Information Technology Co., Ltd. and Mr. Wei Huang each holds 74.1%, 24.7% and 1.2% equity interest of Beijing Zhuangzhuan, respectively.
Mr. Wei Huang is the chief executive officer of Zhuan Zhuan.
|
Our Contractual Arrangements
Prior to 2012, we conducted
substantially all of our business operations through Beijing 58. Since 2012, we have started to conduct our business operations
that are not subject to PRC legal restrictions on foreign ownership through our wholly owned subsidiaries, Wanglin and 58 Technology,
to address risks related to the contractual arrangements discussed above and under “Item 3. Key Information — D. Risk
Factors — Risks Related to Our Corporate Structure and Restrictions on Our Industry.” Currently, we primarily use Wanglin
and 58 Technology, rather than Beijing 58, to provide services to our customers, and we have transferred a significant portion
of our personnel, including substantially all of our administrative and product development personnel, from Beijing 58 to Wanglin
and 58 Technology. As of December 31, 2017, a majority of our assets were held by Wanglin, 58 Technology and Shanghai Ruiting.
Wanglin, 58 Technology and Shanghai Ruiting collectively generated a majority of our revenues in 2017 and we currently expect that
they will continue to generate a majority of our revenues going forward. We further expect Beijing 58’s business to be limited
primarily to services that are legally required to be conducted through a PRC domestic entity.
We acquired a less than 50%
equity stake in Ganji in April 2015, and have consolidated the financial results of Ganji in our consolidated financial statements
since August 2015. Ganji operates online multi-content category classified advertising platforms in China through its PRC subsidiaries
and consolidated affiliated entities, including Shanjing Kechuang. In January 2018, Shangjing Kechuang became a wholly owned subsidiary
of one of our consolidated affiliated entities, 58 Co., Ltd.
In August 2015, Tianjin 58
Home, which had previously been an indirect subsidiary of Beijing 58, became 58 Home’s consolidated affiliated entity.
In April 2017, Beijing Zhuanzhuan
became Zhuan Zhuan Holding’s consolidated affiliated entity.
In the opinion of our PRC
counsel, Han Kun Law Offices, the contractual arrangements described below are valid, binding and enforceable under current PRC
laws. However, these contractual arrangements may not be as effective in providing control as direct ownership. There are substantial
uncertainties regarding the interpretation and application of current or future PRC laws and regulations. For a description of
the risks related to our corporate structure, please see “Item 3. Key Information — D. Risk Factors — Risks Related
to Our Corporate Structure and Restrictions on Our Industry.”
Contractual Arrangements
with Beijing 58
We have entered into contractual
arrangements with Beijing 58 and its shareholders described below, which we refer to as the Beijing 58 Agreements. Through the
Beijing 58 Agreements, we exercise control over the operations of Beijing 58 and receive substantially all its economic benefits
and residual returns. Through the amended and restated exclusive business cooperation agreement between Beijing 58 and Wanglin,
Wanglin agrees to provide certain technical and business support and related consulting services to Beijing 58 in exchange for
service fees. In addition, pursuant to the amended and restated exclusive option agreement, Beijing 58 is prohibited from declaring
and paying any dividends without Wanglin’s prior consent and Wanglin enjoys an irrevocable and exclusive option to purchase
Beijing 58 shareholders’ equity interests, to the extent permitted by applicable PRC laws, at a nominal price from Beijing
Wanglintong Information Technology Co., Ltd., or Beijing Wanglintong, which is one of the shareholders of Beijing 58, or at a specified
price equal to the loan provided by Wanglin to the individual shareholders. If the lowest price permitted under PRC law is higher
than the above price, the lowest price permitted under PRC law shall apply. Through the arrangements, we can obtain all of Beijing
58’s income and all of its residual interests, such as undistributed earnings, either through dividend distribution or purchase
of Beijing 58’s equity interests from its existing shareholders. As a result of the contractual arrangements, we consolidate
Beijing 58’s financial results in our consolidated financial statements in accordance with U.S. GAAP.
Exclusive Business Cooperation
Agreement
. Under the exclusive business cooperation agreement between Beijing 58 and Wanglin, as amended and restated,
Wanglin has the exclusive right to provide, among other things, technical support and business support and related consulting services
to Beijing 58 and Beijing 58 agrees to accept all the consultation and services provided by Wanglin. Without Wanglin’s prior
written consent, Beijing 58 is prohibited from engaging any third party to provide any of the services under this agreement. In
addition, Wanglin exclusively owns all intellectual property rights arising out of or created during the performance of this agreement.
Beijing 58 agrees to pay a quarterly service fee to Wanglin at an amount determined solely by Wanglin after taking into account
factors including the complexity and difficulty of the services provided, the time consumed, the seniority of the Wanglin employees
providing services to Beijing 58, the value of services provided, the market price of comparable services and the operating conditions
of Beijing 58. This agreement will remain effective unless Wanglin terminates the agreement in writing or a competent governmental
authority rejects the renewal applications by either Beijing 58 or Wanglin to renew its respective business license upon expiration.
Beijing 58 is not permitted to terminate this agreement in any event unless required by applicable laws. In 2017, Wanglin provided
technical support services to Beijing 58 and its subsidiaries and collected service fee payments of approximately RMB0.4 million.
Powers of Attorney
.
Pursuant to the powers of attorney, the shareholders of Beijing 58 each irrevocably appointed Wanglin as the attorney-in-fact to
act on their behalf on all matters pertaining to Beijing 58 and to exercise all of their rights as a shareholder of Beijing 58,
including but not limited to attend shareholders’ meetings, vote on their behalf on all matters of Beijing 58 requiring shareholders’
approval under PRC laws and regulations and the articles of association of Beijing 58, designate and appoint directors and senior
management members. Wanglin may authorize or assign its rights under this appointment to any other person or entity at its sole
discretion without prior notice to the shareholders of Beijing 58. Each power of attorney will remain in force until the shareholder
ceases to hold any equity interest in Beijing 58.
Equity Interest Pledge
Agreements
. Under the equity interest pledge agreements between Wanglin, Beijing 58 and the shareholders of Beijing 58,
as amended and restated, the shareholders pledged all of their equity interests in Beijing 58 to Wanglin to guarantee Beijing 58’s
and Beijing 58’s shareholders’ performance of their obligations under the contractual arrangements including, but not
limited to, the payments due to Wanglin for services provided. If Beijing 58 or any of Beijing 58’s shareholders breaches
its contractual obligations under the contractual arrangements, Wanglin, as the pledgee, will be entitled to certain rights and
entitlements, including receiving proceeds from the auction or sale of whole or part of the pledged equity interests of Beijing
58 in accordance with legal procedures. Wanglin has the right to receive dividends generated by the pledged equity interests during
the term of the pledge. If any event of default as provided in the contractual arrangements occurs, Wanglin, as the pledgee, will
be entitled to dispose of the pledged equity interests in accordance with PRC laws and regulations. The pledge will become effective
on the date when the pledge of equity interests contemplated in these agreements are registered with the relevant local administration
for industry and commerce and will remain binding until Beijing 58 and its shareholders discharges all their obligations under
the contractual arrangements. We registered these equity interest pledge agreements with Chaoyang Branch of Beijing Administration
for Industry and Commerce in July 2013.
Exclusive Option Agreements
.
Under the exclusive option agreements between Wanglin, as amended and restated, each of the shareholders of Beijing 58 and Beijing
58, each of the shareholders irrevocably granted Wanglin or its designated representative(s) an exclusive option to purchase, to
the extent permitted under PRC law, all or part of his, her or its equity interests in Beijing 58. In addition, Wanglin has the
option to acquire all the equity interests of Beijing 58 for either a nominal price from Beijing Wanglintong or a specified price
equal to the loan provided by Wanglin to the individual shareholders. If the lowest price permitted under PRC law is higher than
the above price, the lowest price permitted under PRC law shall apply. Wanglin or its designated representative(s) have sole discretion
as to when to exercise such options, either in part or in full. Without Wanglin’s prior written consent, Beijing 58’s
shareholders shall not transfer, donate, pledge, or otherwise dispose any equity interests in Beijing 58. These agreements will
remain effective until all equity interests held in Beijing 58 by the Beijing 58’s shareholders are transferred or assigned
to Wanglin or Wanglin’s designated representatives. At the moment, we cannot exercise the exclusive option to purchase the
current shareholders’ equity interests in Beijing 58 due to the PRC regulatory restrictions on foreign ownership in the value-added
telecommunications services. We intend to exercise such option once China opens up these industries to foreign investment.
Loan Agreements
.
Pursuant to the loan agreements between Wanglin and each individual shareholder of Beijing 58, Wanglin provided interest-free loans
with an aggregate amount of approximately RMB7.8 million to the individual shareholders of Wanglin for the sole purpose of funding
the capital increase of Beijing 58. The loans can be repaid by transferring the individual shareholders’ equity interest
in Beijing 58 to Wanglin or its designated person pursuant to Exclusive Option Agreements. The term of each loan agreement is ten
years from the date of the agreement expiring on December 1, 2021 and can be extended with the written consent of both parties
before expiration.
58 Home’s Contractual
Arrangements with Tianjin 58 Home
58 Home has through Beijing
58 Home entered into contractual arrangements with Tianjin 58 Home and its shareholders described below, which we refer to as the
Tianjin 58 Home Agreements. Through the Tianjin 58 Home Agreements, Beijing 58 Home exercises control over the operations of Tianjin
58 Home and receives substantially all its economic benefits and residual returns. Through the exclusive business cooperation agreement
between Beijing 58 Home and Tianjin 58 Home, Beijing 58 Home agrees to provide certain technical and business support and related
consulting services to Tianjin 58 Home in exchange for service fees. In addition, pursuant to the exclusive option agreements,
Tianjin 58 Home is prohibited from declaring and paying any dividends without Beijing 58 Home’s prior consent and Beijing
58 Home enjoys an irrevocable and exclusive option to purchase Tianjin 58 Home shareholders’ equity interests, to the extent
permitted by applicable PRC laws, at a specified price equal to the loan amount provided by Beijing 58 Home to the shareholders.
If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted under PRC law shall apply.
Through these arrangements, 58 Home can obtain all of the income and the residual interests of Tianjin 58 Home, such as undistributed
earnings, either through dividend distributions or purchase of equity interests of Tianjin 58 Home from its existing shareholders.
As a result of the contractual arrangements, 58 Home consolidates the financial results of Tianjin 58 Home in accordance with U.S.
GAAP. In July 2016, one shareholder and also employee of Tianjin 58 Home left Tianjin 58 Home and transferred his equity interest
in Tianjin 58 Home to 58 Co., Ltd. As a result, Beijing 58 Home amended its contractual arrangements with Tianjin 58 Home to reflect
the change in shareholding of Tianjin 58 Home. Beijing 58 Home continues to maintain the following contractual arrangements with
Tianjin 58 Home.
Exclusive Business Cooperation
Agreement
. The terms and arrangements of the exclusive business cooperation agreement between Tianjin 58 Home and Beijing
58 Home under the Tianjin 58 Home Agreements are substantially similar to those under the Beijing 58 Agreements, except that Tianjin
58 Home agrees to pay a monthly service fee to Beijing 58 Home in an amount determined by both parties after taking into account
factors similar to those provided under the Beijing 58 Agreements. Beijing 58 Home did not collect any service fee payments from
Tianjin 58 Home in 2017.
Powers of Attorney
.
Each shareholder of Tianjin 58 Home has executed a power of attorney to irrevocably appoint Beijing 58 Home as the attorney-in-fact
to act on the shareholder’s behalf. The terms of the powers of attorney are substantially similar to those under the Beijing
58 Agreements.
Equity Interest Pledge
Agreements
. Beijing 58 Home, Tianjin 58 Home and each of the shareholders of Tianjin 58 Home have entered into equity interest
pledge agreements with terms and arrangements that are substantially similar to those under the Beijing 58 Agreements. We registered
these equity interest pledge agreements with the Tianjin Binhai New Area Market and Quality Supervision and Administration Bureau
on September 8, 2015.
Exclusive Option Agreements
.
Beijing 58 Home, Tianjin 58 Home and each of the shareholders of Tianjin 58 Home have entered into exclusive option agreements
with terms and arrangements that are substantially similar to those under the Beijing 58 Agreements, except that the purchase price
to be paid by Beijing 58 Home to each shareholder by exercising its option to purchase all the equity interests held by the shareholder
in Tianjin 58 Home equal to the loan amount provided by Beijing 58 Home to the shareholder. At the moment, 58 Home cannot exercise
the exclusive options to purchase the current shareholders’ equity interests in Tianjin 58 Home due to the PRC regulatory
restrictions on foreign ownership in the value-added telecommunications services. 58 Home may exercise the options if China opens
up these industries to foreign investment.
Loan Agreements
.
Beijing 58 Home and each shareholder of Tianjin 58 Home have entered into loan agreements with an aggregate amount of interest-free
loans of approximately RMB100 million. The terms of the loan agreements are substantially similar to those under the Beijing 58
Agreements and each loan agreement expires on August 5, 2025 and can be extended with the written consent of both parties before
expiration.
Contractual Arrangements
with Beijing Zhuanzhuan
Zhuan Zhuan Holding, through
its PRC subsidiary, Tianjin Zhuanzhuan, has entered into contractual arrangements with Beijing Zhuanzhuan and its shareholders
described below, which we refer to as the Beijing Zhuanzhuan Agreements. Through the Beijing Zhuanzhuan Agreements, Tianjin Zhuanzhuan
exercises control over the operations of Beijing Zhuanzhuan and receives substantially all its economic benefits and residual returns.
Through the exclusive business cooperation agreement between Tianjin Zhuanzhuan and Beijing Zhuanzhuan, Tianjin Zhuanzhuan agrees
to provide certain technical and business support and related consulting services to Beijing Zhuanzhuan in exchange for service
fees. In addition, pursuant to the exclusive option agreements, Beijing Zhuanzhuan is prohibited from declaring and paying any
dividends without Tianjin Zhuanzhuan’s prior consent and Tianjin Zhuanzhuan enjoys an irrevocable and exclusive option to
purchase Beijing Zhuanzhuan shareholders’ equity interests, to the extent permitted by applicable PRC laws, at a purchase
price of RMB10. If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted under PRC
law shall apply. Through these arrangements, Zhuan Zhuan Holding can obtain all of the income and the residual interests of Beijing
Zhuanzhuan, such as undistributed earnings, either through dividend distributions or purchase of equity interests of Beijing Zhuanzhuan
from its existing shareholders. As a result of the contractual arrangements, we, through Zhuan Zhuan Holding, consolidate the financial
results of Beijing Zhuanzhuan in our consolidated financial statements in accordance with U.S. GAAP.
Exclusive Business Cooperation
Agreement
. The terms and arrangements of the exclusive business cooperation agreement between Tianjin Zhuanzhuan and Beijing
Zhuanzhuan are substantially similar to those under the Beijing 58 Agreements.
Powers of Attorney
.
Each shareholder of Beijing Zhuanzhuan has executed a power of attorney to irrevocably appoint Tianjin Zhuanzhuan as the attorney-in-fact
to act on the shareholder’s behalf. The terms of the powers of attorney are substantially similar to those under the Beijing
58 Agreements.
Equity Interest Pledge
Agreements
. Tianjin Zhuanzhuan, Beijing Zhuanzhuan and each of the shareholders of Beijing Zhuanzhuan have entered into
an equity interest pledge agreement with terms and arrangements that are substantially similar to those under the Beijing 58 Agreements.
Exclusive Option Agreements
.
Tianjin Zhuanzhuan, Beijing Zhuanzhuan and each of the shareholders of Beijing Zhuanzhuan have entered into an exclusive option
agreement with terms and arrangements that are substantially similar to those under the Beijing 58 Agreements. At the moment, Tianjin
Zhuanzhuan cannot exercise the exclusive options to purchase the current shareholders’ equity interests in Beijing Zhuanzhuan
due to the PRC regulatory restrictions on foreign ownership in the value-added telecommunications services. Tianjin Zhuanzhuan
may exercise the options if China opens up these industries to foreign investment.
|
D.
|
Property, Plants and Equipment
|
Our principal headquarter
offices are located on 44,915 square meters of our purchased office space at Building 105 and Building 101, 10 Jiuxianqiao North
Road Jia, Chaoyang District, Beijing, China. In September 2014, we entered into an agreement with Beijing Electronics Zone Investment
and Development Co., Ltd. to purchase 44,915 square meters of office space in Chaoyang District, Beijing, for RMB1.0 billion, to
accommodate our business expansion and increase in headcount. Building 105 and Building 101 were ready for occupancy in October
2015 and August 2016, respectively. We purchased a smaller office space located in Tianjin with 29,823 square meters in 2015 and
it was ready for occupancy in 2016. We also lease an additional 32,836 square meters office spaces in other locations in Beijing
and Tianjin, China, excluding the office spaces for 58 Home. We maintain leased offices in 50 additional cities in China totaling
115,853 square meters, excluding those for 58 Home. We lease our premises from unrelated third parties under non-cancelable operating
lease agreements. The leases typically have terms of one to eight years, some of which are due to expire during 2018 or 2019.
Our servers are primarily
hosted at internet data centers owned by major domestic internet data center providers. The hosting services agreements typically
have one-year terms and are renewed automatically upon expiration. We believe that we will be able to obtain adequate facilities,
principally through leasing, to accommodate our future expansion plans.
|
ITEM 4A.
|
UNRESOLVED STAFF COMMENTS
|
None.
|
ITEM 5.
|
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
The following discussion and
analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements
and the related notes included elsewhere in this annual report on Form 20-F. This discussion and analysis may contain forward-looking
statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item
3. Key Information — D. Risk Factors” or in other parts of this annual report on Form 20-F.
Overview
Our business currently consists
of 58 core businesses and incubated new businesses. The 58 Core businesses are comprised principally of 58 and Ganji (“
赶集网
”),
our multi-content category online classifieds platforms, Anjuke (“
安居客
”),
our real estate listing platform, ChinaHR (“
中华英才网
”),
our online recruitment platform that focuses on white-collar jobs and Jia Xiao Yi Dian Tong (“
驾校一点通
”),
an online platform for drivers’ license examination preparation and other related services. Our 58 core businesses enable
local businesses and consumers to connect, share information and conduct business in China. We have consolidated Anjuke since March
2015 and Ganji since August 2015.
The incubated new businesses
include Zhuan Zhuan (“
转转
”), an online
used good trading platform, 58 Home (“58
到家
”),
an online home and moving services platform, and Che Hao Duo (“
车好多
”),
formerly known as Guazi, an online used and new car trading platform consisting of Guazi (“
瓜子
”),
the used car platform and Mao Dou (“
毛豆
”),
the new car platform. These platforms provide more vertically integrated services to users in their respective content categories.
They were initially incubated within 58 or Ganji and have completed fund raisings from additional outside investors. We currently
continue to consolidate Zhuan Zhuan. 58 Home was de-consolidated from our consolidated financial results following its series A
financing on November 27, 2015. After the de-consolidation, we treat 58 Home as an equity investee. Guazi was de-consolidated on
December 31, 2015. As our investment in Guazi was accounted for using cost method, we did not recognize a proportionate share of
the reported earnings or losses of Guazi for the three years ended December 31, 2017.
Our revenues are mainly generated
from subscription-based memberships and online marketing services on our online classifieds and listing platforms. As a result
of consolidation of Anjuke and Ganji in 2015 and continued organic growth after 2015 the number of our average quarterly paying
membership accounts on our 58, Ganji and Anjuke platforms increased significantly to approximately 1.3 million in 2015, 2.0 million
in 2016 and 2.5 million in 2017. We continue to make progress in upselling additional online marketing services, such as real time
bidding services, to our members.
Our revenues increased from
RMB4.5 billion in 2015 to RMB7.6 billion in 2016, and further to RMB10.1 billion in 2017. The increase was primarily driven by
the increased revenues from consolidated businesses such as Ganji and Anjuke, as well as the organic growth of the 58 platform.
We incurred a net loss of
RMB1.6 billion in 2015 and a net loss of RMB773.0 million in 2016 and had net income of RMB1.4 billion in 2017.
How We Generate Revenues
While many of our users browse
and post information on our online platforms for free, we generate revenues from the following services:
Membership
A subscription-based membership
is a basic service package consisting mainly of merchant certification, display of an online storefront on our platforms, preferential
listing benefits such as daily priority listings and higher quota for daily listings, and access to our dedicated customer service
support team and online account management system. Members who subscribe to a membership with us can enjoy more services and achieve
more effective marketing than non-paying members on our platforms. 58, Ganji and Anjuke offer subscription-based membership packages
that include similar types of services, although the specific details of the services, such as the quotas for daily listings and
downloadable resumes, may vary from platform to platform.
We offer memberships of varying
lengths across different content categories. Memberships in the yellow pages and jobs categories are primarily 12-month packages.
In China, due to relatively high employee turnover among migrant workers, many businesses have ongoing hiring needs. Memberships
in the real estate category are primarily one- to three-month packages due to the higher turnover of real estate agents. We acquire
the majority of our paying members through our field direct sales teams. In cities where we do not have field direct sales teams
on the ground, we work with sales agency companies to grow our paying member network locally. Our centralized and dedicated tele-customer
service team supports our paying members during their membership to enhance the effectiveness of their marketing efforts and improve
the likelihood of membership renewal. A majority of our paying members are small and medium-sized business users. We believe that
our field sales, sales agency network and customer service teams have been effective in increasing the number of our paying members,
retaining high-quality existing paying members and increasing spending by our existing paying members, all of which are important
to the growth of our revenues. We have also been developing interfaces for members to purchase and pay for subscription-based membership
services online. See “Item 4. Information on the Company — B. Business Overview — 58 Core Service Offerings —
Paid premium services to business users” for details of the number of subscription-based paying membership accounts. See
“Item 4. Information on the Company — B. Business Overview — Sales and Customer Services” for details of
the sales and customer service team operation.
Most paying members pay their
membership fees in advance. These advance payments are made to our field sales teams, sales agency companies or through other online
interfaces and are recorded as customer advances. Once a member completes the purchase of membership, we deduct that amount from
the customer advances account and record it as deferred revenues. Revenues are recognized ratably over the contract period for
the membership services.
Online
Marketing Services
Our online marketing services
primarily include real-time bidding, priority listing, various other lead-generation services and display advertising. All of our
58, Ganji and Anjuke platforms offer some forms of online marketing services. Online marketing services of 58 and Ganji are mainly
listing services that customers purchase to enhance the exposure of their listings. Anjuke’s marketing services relate to
both listing services for secondary real estate properties and advertising services for primary real estate properties. On average,
approximately 60.2% of our quarterly paying membership accounts purchased our online marketing services in 2017.
Members can use our real-time
bidding services to bid for the most prominent placement of their listings in specific categories and locations on a cost-per-click
(CPC) basis. We have developed a user-friendly bidding system, through which members can create text- and graphic-based descriptions
for their listings and bid on placements of their listings. We set minimum bidding prices which are based on metrics such as traffic
and number of clicks generated by precedent placements. We generate much higher revenues than we otherwise could with the same
amount of listing space by attracting more customers and monetize the traffic to their market value.
Members can also purchase
our priority listing services, which place their listings below real-time bidding listings and above paying members’ listings.
Members can purchase listing placements of varying duration from several hours to several days to several weeks.
We provide display advertisement
mainly for primary real estate developers on our Anjuke platform, ChinaHR platform and 58che platform. The customers use these
services to enhance their brand recognition and attract consumer attention to the primary real estate projects that are on the
market. They can be text- or graphic-based displays for varying time periods ranging from several days to several months.
We collaborate with third-party
internet companies by placing the marketing links of their marketing customers on the relevant listing pages on our online platforms.
We generate revenues based on the number of clicks or cost-per-thousand impressions at pre-determined prices.
In most cases customers are
required to make payment in advance before purchasing our online marketing services, in the form of purchasing virtual online currencies
of our platforms. Paying members can log into our account management webpage or mobile application and purchase various online
marketing services through an easy-to-use interface. Our account management system enables paying members to review and optimize
the performance of their existing listings and to upload and market new listings.
Our field sales and customer
service teams stay in regular contact with our customers and play an essential role in promoting our online marketing services
to our paying members. Leveraging our expertise in online marketing services, we help our paying members to select the most suitable
services to maximize their marketing effectiveness.
E-commerce
Services
Our e-commerce services consist
of services provided to real estate developers such as sale of discount coupons with which home buyers use to buy properties at
a discounted price. Our e-commerce services also include property tours, onsite promotion activities and other services relating
to property purchases. The coupon purchased by prospective home buyers is refundable before a purchase of the designated property
and prior to the expiry date of the coupon. We recognize revenues when home buyers apply the discount coupon to pay for the purchase
price of the designated properties from real estate developers.
Other
Services
Revenues from other services
are derived from various off-line services we provide. In 2015, other services revenues were mainly contributed by Guazi C2C services
and offline recruitment services. In 2016, other services revenues were mainly contributed by offline recruitment services. In
2017, other services revenues were mainly attributable to revenues from selling used goods in our used goods trading platform Zhuan
Zhuan and offline recruitment services provided.
Taxation
Cayman
Islands
We are incorporated in the
Cayman Islands. Under the current laws of the Cayman Islands, we are not subject to tax on income or capital gains. Additionally,
upon payments of dividends to our shareholders, no Cayman Islands withholding tax will be imposed.
British
Virgin Islands
We are exempted from income
tax in the British Virgin Islands on our foreign-derived income. There are no withholding taxes in the British Virgin Islands.
Hong
Kong
The operations in Hong Kong
have incurred net accumulated operating losses for income tax purposes. The corporate income tax rate in Hong Kong is 16.5%.
PRC
Pursuant to the Enterprise
Income Tax Law, foreign-invested enterprises and domestic companies are subject to enterprise income tax at a uniform rate of 25%.
In addition, “high and new technology enterprises” will enjoy a preferential enterprise income tax rate of 15%. Beijing
58, our consolidated affiliated entity, is qualified as a “high and new technology enterprise” under the Enterprise
Income Tax Law and is eligible for a preferential enterprise income tax rate of 15% for the period from 2009 to 2017, so long as
it obtains approval from the relevant tax authority and if it is profitable during the period.
Beijing 58 Auto, one of our
consolidated affiliated entities, is qualified as a “high and new technology enterprise” and is eligible for preferential
enterprise income tax rate of 15% from 2013 to 2018, so long as it obtains approval from the relevant tax authority and maintains
the “high and new technology enterprise” status and if it is profitable during that period.
Wanglin, one of our PRC subsidiaries,
was qualified as a “high and new technology enterprise” from 2012 to 2017 and obtained its “software enterprise”
status in July 2014. The local tax authority granted Wanglin a two-year tax holiday effective from January 1, 2014 followed by
a three-year 50% tax rate reduction from January 1, 2016 to December 31, 2018. Wanglin paid approximately RMB7.3 million in income
tax in 2014 and received a RMB7.3 million refund in the second half of 2015. Wanglin incurred loss and was not required to pay
income tax in 2016 and 2017.
Shanghai Ruiting, one of our
PRC subsidiaries, was qualified as a “high and new technology enterprise” in 2010 and is eligible for preferential
enterprise income tax rate of 15% from 2010 to 2018, so long as it obtains approval from the relevant tax authority and maintains
the “high and new technology enterprise” status and if it is profitable during that period.
58 Technology, one of our
PRC subsidiaries, was qualified as a “software enterprise” in December 2014. In March 2016, the local tax authority
granted 58 Technology a two-year exemption followed by a three-year 50% reduction on its taxable income under the Enterprise Income
Tax Law, effective retroactively from January 1, 2015.
Effective January 1, 2012,
the PRC Ministry of Finance and the State Administration of Taxation launched a Business Tax to Value-Added Tax Transformation
Pilot Program, or the VAT Pilot Program, which imposes VAT in lieu of business tax for certain “modern service industries”
in certain regions. According to the implementation circulars released by the Ministry of Finance and the State Administration
of Taxation on the VAT Pilot Program, the “modern service industries” include research, development and technology
services, information technology services, cultural innovation services, logistics support, lease of corporeal properties, attestation
and consulting services. In August 2013, the program was further expanded nationwide. With the adoption of the program, our revenues
are subject to VAT. VAT payable on goods sold or taxable services provided by a general VAT taxpayer for a taxable period is the
net balance of the output VAT for the period after crediting the input VAT for the period. Hence, the amount of VAT payable does
not result directly from output VAT generated from goods sold or taxable services provided. Therefore, we have adopted the net
presentation of VAT. From May 1, 2016, the program has been further expanded to cover all industries.
Critical Accounting Policies
We prepare our financial statements
in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We continually evaluate these estimates
and assumptions based on the most recently available information, our own historical experience and various other assumptions that
we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting
process, actual results could differ from our expectations as a result of changes in our estimates.
An accounting policy is considered
critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time
such estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accounting
estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. The
selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies, and the
sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our
consolidated financial statements. We believe that the following accounting policies involve a higher degree of judgment and complexity
in their application and require us to make significant accounting estimates. The following descriptions of critical accounting
policies, judgments and estimates should be read in conjunction with our consolidated financial statements and other disclosures
included in this annual report.
Consolidation
Our consolidated financial
statements include the accounts of 58.com Inc. and its wholly owned and majority owned subsidiaries and consolidated variable interest
entities in which our company has a controlling financial interest. All intercompany transactions are eliminated.
Our variable interest entities
are wholly or partially owned by certain of our employees as shareholders. For consolidated variable interest entities, our management
made evaluations of our relationships with the variable interest entities and the economic benefit flow of contractual arrangements
with the variable interest entities. In connection with such evaluation, we also take into account the fact that, as a result of
such contractual arrangements, we control the shareholders’ voting interests in these variable interest entities. As a result
of such evaluation, we concluded that we are the primary beneficiary of these consolidated variable interest entities.
Deconsolidation
We deconsolidate our subsidiaries
in accordance with Accounting Standards Codification (“ASC”) 810-10-40-4 as of the date we ceased to have a controlling
financial interest in the subsidiaries.
We account for the deconsolidation
of our subsidiaries by recognizing a gain or loss in net income/(loss) attributable to us in accordance with ASC 810-10-40-5.
This gain or loss is measured at the date the subsidiaries are deconsolidated as the difference between (a) the aggregate of the
fair value of any consideration received, the fair value of any retained noncontrolling interest in the subsidiaries being deconsolidated,
and the carrying amount of any noncontrolling interest in the subsidiaries being deconsolidated, including any accumulated other
comprehensive income/(loss) attributable to the noncontrolling interest, and (b) the carrying amount of the assets and liabilities
of the subsidiaries being deconsolidated.
Business
Combination, Noncontrolling Interests and Mezzanine Classified Noncontrolling Interests
We account for our business
combinations using the acquisition method of accounting in accordance with ASC 805 “Business Combinations” (“ASC
805”). The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred
and liabilities incurred by us to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition
are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values
as of the acquisition date. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition
date fair value of any previously held equity interests in the acquiree over (ii) the fair value of the identifiable net assets
of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary
acquired, the difference is recognized directly in the consolidated statements of comprehensive income/(loss). The determination
and allocation of fair values to the identifiable assets acquired, liabilities assumed and noncontrolling interests is based on
various assumptions and valuation methodologies requiring considerable judgment from management. The most significant variables
in these valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well
as the assumptions and estimates used to determine the cash inflows and outflows. We determine discount rates to be used based
on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based
on the expected life of assets, forecasted life cycle and forecasted cash flows over that period.
During the measurement period,
which can be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed
with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of
assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements
of operations.
In a business combination
achieved in stages, we re-measure the previously held equity interests in the acquiree immediately before obtaining control at
its acquisition-date fair value and the re-measurement gain or loss, if any, is recognized in the consolidated statements of comprehensive
income/(loss).
For our majority-owned subsidiaries
and VIEs, a noncontrolling interest is recognized to reflect the portion of their equity which is not attributable, directly or
indirectly, to us. When the noncontrolling interest is contingently redeemable upon the occurrence of a conditional event, which
is not solely within our control, the noncontrolling interest is classified as mezzanine classified noncontrolling interest. Consolidated
net income/(loss) on the consolidated income statements includes the net income/(loss) attributable to noncontrolling interests
and mezzanine equity holders when applicable. The cumulative results of operations attributable to noncontrolling interests are
also recorded as noncontrolling interests in our consolidated balance sheets. Cash flows related to transactions with noncontrolling
interests are presented under financing activities in the consolidated statements of cash flows.
Goodwill
Goodwill represents the excess
of the purchase consideration over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed
of the acquired entity as a result of our acquisitions of interests in its subsidiaries and VIEs. Goodwill is not amortized but
is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that it might be
impaired. We first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill
impairment test. In the qualitative assessment, we consider primary factors such as industry and market considerations, overall
financial performance of the reporting unit, and other specific information related to the operations. Based on the qualitative
assessment, if it is more likely than not that the fair value of each reporting unit is less than the carrying amount, the quantitative
impairment test is performed.
In performing the two-step
quantitative impairment test, the first step compares the fair values of each reporting unit to its carrying amount, including
goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the
second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the
implied fair value of goodwill to the carrying value of a reporting unit’s goodwill. The implied fair value of goodwill is
determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined
in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over
the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed
for the purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities.
Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units,
assigning assets, liabilities and goodwill to reporting units, and determining the fair value of each reporting unit.
We perform impairment tests
in the fourth quarter of each year. No impairment loss was recognized for all periods presented.
Long-lived
Assets
Intangible assets acquired
through business acquisitions are recognized as assets separate from goodwill if they satisfy either the “contractual-legal”
or “separability” criterion. Purchased intangible assets and intangible assets arising from the acquisitions of subsidiaries
and VIE subsidiaries are recognized and measured at fair value upon acquisition. Separately identifiable intangible assets that
have determinable lives continue to be amortized over their estimated useful lives using the straight-line method. Separately identifiable
intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted
future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for identifiable
intangible assets is based on the amount by which the carrying amount of the assets exceeds the fair value of the asset. Changes
in these estimates and assumptions could materially impact our financial condition and results of operations.
Property and equipment are
stated at cost less accumulated depreciation and impairment. Property and equipment are depreciated on a straight-line basis over
the estimated useful lives, which is generally from 30 to 50 years for buildings and 3 to 5 years for the other properties and
equipment. Judgment is required to determine the estimated useful lives, including determining how long existing properties and
equipment can function and when new technologies will be introduced at cost-effective price points to replace existing equipment.
Changes in these estimates and assumptions could materially impact our financial condition and results of operations. Expenditures
for maintenance and repairs are expensed as incurred. The gain or loss on the disposal of property and equipment is the difference
between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the consolidated statements
of comprehensive income/(loss).
Long-term
Investments
Long-term investments represent
our investments in privately held companies. In accordance with ASC 323 “Investment-Equity Method and Joint Ventures,”
we apply the equity method of accounting to equity investments, in common stock or in-substance common stock, over which it has
significant influence but does not own a majority equity interest or otherwise control.
An investment in in-substance
common stock is an investment that has risk and reward characteristics that are substantially similar to those involved in an investment
in an entity’s common stock. We consider subordination, risks and rewards of ownership and obligation to transfer value when
determining whether an investment in an entity is substantially similar to an investment in that entity’s common stock.
Under the equity method, we
initially record our investment at cost. The difference between the cost of the equity investment and the amount of the underlying
equity in the net assets of the equity investee is recognized as equity method goodwill or as an intangible asset as appropriate,
which is included in the equity method investment on the consolidated balance sheets. We subsequently adjust the carrying amount
of the investment and recognize our proportionate share of each equity investee’s net income or loss as “share of results
of equity investees” in the consolidated statements of comprehensive income/(loss) after the date of acquisition. When our
share of losses in the equity investee equals or exceeds our interests in the equity investee, we do not recognize further losses,
unless we have incurred obligations or made payments or guarantees on behalf of the equity investee.
For long-term investments
in equity securities that are not accounted for using equity method of accounting and have no readily determinable fair value,
the cost method accounting is used.
We assess our long-term investments
accounted for using the cost method and equity method for other-than-temporary impairment by considering factors including, but
not limited to, current economic and market conditions, operating performance of the companies, which includes current earnings
trends and undiscounted cash flows, and other company-specific information, such as recent rounds of financing. If any impairment
is considered other-than-temporary, we will write down the asset to its fair value and take the corresponding charge to the consolidated
statements of comprehensive income/(loss).
Revenue
Recognition
We generate revenues primarily
from membership, online marketing services and E-commerce services. We sell these services through our direct sales teams and third-party
sales agencies. Under the terms of the agreement with the sales agencies, the sales agencies remit to us a certain percentage of
our listed sales price. We recognize revenue net of the amounts retained by the sales agencies because the sales agencies will
offer discretionary discount to the customer. Revenue is recognized when persuasive evidence of an arrangement exists, the price
is fixed or determinable, service is performed and collectability of the related fee is reasonably assured.
Effective September 1, 2012,
the PRC Ministry of Finance and the State Administration of Taxation launched the Value Added Tax Pilot Program (the “Pilot
Program”) for certain industries in certain regions for transition from the imposition of PRC business tax to the imposition
of value-added tax (“VAT”). On May 1, 2016, the transition was expanded to all industries in China. Our revenues have
been subject to VAT since it adopted the Pilot Program. To record VAT payable, we adopted the net presentation method, which presents
the difference between the output VAT on goods sold or taxable labor services and the available input VAT amount (at the rate applicable
to the supplier). Revenues are recorded net of VAT and related surcharges.
Membership
. A membership
is a basic services package mainly consisting of the following services: customer certification, display of an online storefront
on our platforms, preferential listing benefits such as limited daily priority listings and higher quota for free daily listings
and access to our dedicated customer service support team and online account management system. Membership revenues are recognized
ratably over the contract period when membership services are provided.
Online marketing services
.
Our online marketing services include time-based services and performance-based services. Revenues from time-based services are
recognized ratably over the service period. Revenues from performance-based services are recognized when the agreed performance
criteria are achieved. For service arrangements that include multiple deliverables, revenues are allocated to each unit of accounting
based on relative selling price of each unit of accounting according to the selling price hierarchy established by Accounting Standards
Update (“ASU”) No. 2009-13. We use (a) vendor-specific objective evidence of selling price, if it exists, (b) otherwise,
third-party evidence of selling price. If neither (a) nor (b) exists, we will use (c) the management’s best estimate of the
selling price for that deliverable. Selling price is generally determined by vendor specific objective evidence.
E-commerce services
.
Our e-commerce services consist of services provided to real estate developers such as sale of discount coupons with which home
buyers use to buy properties at a discounted price. Our e-commerce services also include property tours, onsite promotion activities
and other services relating to property purchases. The coupon purchased by prospective home buyers is refundable before a purchase
of the designated property and prior to the expiry date of the coupon. We recognize revenues when home buyers apply the discount
coupon to pay for the purchase price of the designated properties from real estate developers.
Other services
. Other
services mainly include revenues from selling certain type of used goods in our used goods trading platform Zhuan Zhuan and offline
recruitment services provided. We recognize other services revenue when the related services are rendered.
Income
Taxes
Current income taxes are provided
on the basis of net income for financial reporting purposes, adjusted for income and expense items which are not assessable or
deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred income taxes
are provided using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities. The tax base of an asset or liability is the amount attributed to
that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in the statement
of comprehensive loss in the period of change. A valuation allowance is provided to reduce the amount of deferred tax assets if
it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.
The guidance prescribes a
more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. Guidance was also provided on derecognition of income tax assets and liabilities, classification of current and
deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for
income taxes in interim periods, and income tax disclosures. Significant judgment is required in evaluating our uncertain tax positions
and determining its provision for income taxes. We recognize interests and penalties, if any, under accrued expenses and other
current liabilities on our balance sheet and under other expenses in our statement of comprehensive income/(loss). We did not have
any interest or penalties associated with tax positions as of December 31, 2015, 2016 and 2017. As of December 31, 2015, 2016 and
2017, we did not have any significant unrecognized uncertain tax positions.
In order to assess uncertain
tax positions, we apply a more likely than not threshold and a two-step approach for the tax position measurement and financial
statement recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining
if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution
of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is
more than 50% likely of being realized upon settlement.
Share-Based
Compensation
All share-based awards to
employees and directors, including share options, restricted share units, or RSUs, and restricted shares are measured at the grant
date based on the fair value of the awards. Share-based compensation expenses are recognized as costs and expenses on a straight-line
basis over the vesting period in the consolidated statements of comprehensive income based on the fair value of the related share-based
awards on their grant date, if no performance conditions are required. Under ASC 718, compensation cost should be accrued if it
is probable that the performance condition will be achieved and should not be accrued if it is not probable that the performance
condition will be achieved. As a result, we recognize no compensation expense for share-based awards with performance conditions
unless the performance conditions become probable of being achieved.
Share options
We use the Binominal option
pricing model to determine the fair value of share options. We account for share-based compensation expenses using an estimated
forfeiture rate at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial
estimates. Share-based compensation expenses were recorded net of estimated forfeitures such that expense was recorded only for
those share-based awards that are expected to vest. Historically, our share-based compensation expenses were relatively low.
We adopted an employee stock
option plan in March 2010. We refer to this as the 2010 Plan. The maximum number of shares in respect of which share awards may
be granted under the 2010 Plan is 20,173,225. The 2010 Plan will terminate automatically 10 years after its adoption, unless terminated
earlier by our shareholders’ approval.
We also adopted a share incentive
plan in September 2013. We refer to this as the 2013 Plan. The maximum aggregate number of shares which may be issued pursuant
to all awards under the 2013 Plan was 2,800,000 shares as of the date of its adoption. The number of shares reserved for future
issuances under the 2013 Plan will be increased by a number equal to 1.5% of the total number of outstanding shares on the last
day of the immediately preceding calendar year, on the first day of each calendar year during the term of the 2013 Plan beginning
in 2015, or such lesser number of ordinary shares as determined by our board of directors. In addition, in April 2015, in connection
with our acquisition of a strategic stake in Ganji, we further increased such number of maximum aggregate number of shares which
may be issued by an additional 7,000,000 ordinary shares, reserved for future grants. The annual general meeting of our shareholders
held on December 17, 2015, further increased the maximum aggregate number of shares that may be issued pursuant to all awards under
the 2013 Plan to a total of 13,686,128 ordinary shares (consisting of 6,686,128 Class A ordinary shares and 7,000,000 Class B ordinary
shares), plus any applicable annual increase beginning in 2016. In 2016, 2017 and 2018, an annual increase of 4,246,030, 4,345,065
and 4,409,477 ordinary shares, respectively, were added to the aggregate number of shares that may be issued pursuant to all awards
under the 2013 Plan which increased the maximum aggregate number to 26,686,700.
58 Home adopted its
2015 Share Incentive Plan, which we refer to as the 58 Home 2015 Plan, in February 2015. Zhuan Spirit Holdings Limited, or
Zhuan Zhuan Holding, adopted its 2017 Share Incentive Plan, which we refer to as the Zhuan Zhuan 2017 Plan, in September
2017. The 58 Home 2015 Plan and the Zhuan Zhuan 2017 Plan permit the grant of options, restricted shares, restricted share
units to the directors, employees and consultants of 58 Home and Zhuan Zhuan Holding, respectively.
A summary of the share option
grants under our 2010 Plan and 2013 Plan since January 1, 2015, is presented below (share and per share information is presented
to give retroactive effect to the share splits that we have conducted so far).
|
|
Number of
Options
Granted
|
|
|
Exercise
Price
|
|
|
Fair Value
of the
Options as
of the
Grant
Date
|
|
|
Fair Value
of the
Underlying
Ordinary
Shares as
of the
Grant Date
|
|
|
Intrinsic
Value as of
the Grant
Date
|
|
|
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
February 27, 2015
|
|
|
201,600
|
|
|
|
18.675
|
|
|
|
12.060
|
|
|
|
20.840
|
|
|
|
2.165
|
|
April 13, 2015
|
|
|
7,000
|
|
|
|
22.030
|
|
|
|
16.520
|
|
|
|
25.415
|
|
|
|
3.385
|
|
May 22, 2015
|
|
|
1,600
|
|
|
|
38.140
|
|
|
|
24.850
|
|
|
|
39.555
|
|
|
|
1.415
|
|
August 24, 2015
|
|
|
2,400
|
|
|
|
20.980
|
|
|
|
10.930
|
|
|
|
21.400
|
|
|
|
0.42
|
|
August 24, 2015
|
|
|
1,426,000
|
|
|
|
20.980
|
|
|
|
12.010
|
|
|
|
21.400
|
|
|
|
0.42
|
|
A summary of the share option
grants under the 58 Home 2015 Plan since January 1, 2015 to November 27, 2015, the date on which 58 Home was deconsolidated from
our consolidated results of operations, is presented below.
|
|
Number of
Options
Granted
|
|
|
Exercise
Price
|
|
|
Fair Value
of the
Options as
of the
Grant Date
|
|
|
Fair Value
of the
Underlying
Ordinary
Shares as
of the
Grant Date
|
|
|
Intrinsic
Value as of
the Grant
Date
|
|
|
|
|
|
|
|
|
US$
|
|
|
|
US$
|
|
|
|
US$
|
|
|
|
US$
|
|
February 10, 2015
|
|
|
2,000,000
|
|
|
|
0.010
|
|
|
|
0.170
|
|
|
|
0.176
|
|
|
|
0.166
|
|
February 10, 2015
|
|
|
2,671,000
|
|
|
|
0.100
|
|
|
|
0.120
|
|
|
|
0.176
|
|
|
|
0.076
|
|
February 10, 2015
|
|
|
1,700,000
|
|
|
|
0.170
|
|
|
|
0.110
|
|
|
|
0.176
|
|
|
|
0.006
|
|
February 10, 2015
|
|
|
1,400,000
|
|
|
|
0.170
|
|
|
|
0.100
|
|
|
|
0.176
|
|
|
|
0.006
|
|
April 1, 2015
|
|
|
1,000,000
|
|
|
|
0.170
|
|
|
|
0.270
|
|
|
|
0.200
|
|
|
|
0.030
|
|
April 30, 2015
|
|
|
150,000
|
|
|
|
0.170
|
|
|
|
0.250
|
|
|
|
0.200
|
|
|
|
0.030
|
|
We estimated the fair value
of share options using the binominal option-pricing model with the assistance from an independent valuation firm.
The fair value of each option
grant under the 2013 Plan is estimated on the date of grant with the following assumptions:
|
|
Feb. 27,
Apr. 13,
and
May 22,
2015
|
|
|
Aug. 24, 2015
|
|
Expected volatility
(1)
|
|
|
49.0
|
%
|
|
|
48.5
|
%
|
Risk-free interest rate (per annum)
(2)
|
|
|
2.760
|
%
|
|
|
2.670
|
%
|
Exercise multiple
(3)
|
|
|
2 or 2.8
|
|
|
|
2 or 2.8
|
|
Expected dividend yield
(4)
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected term (in years)
(5)
|
|
|
10
|
|
|
|
10
|
|
Expected forfeiture rate (post-vesting)
(6)
|
|
|
0.25
|
%
|
|
|
0.17
|
%
|
The fair value of each option
grant under the 58 Home 2015 Plan before its deconsolidation was estimated on the date of grant with the following assumptions:
|
|
Feb. 10,
2015
|
|
|
Apr. 1,
2015
|
|
|
Apr. 30,
2015
|
|
Expected volatility
(1)
|
|
|
59.7
|
%
|
|
|
59.4
|
%
|
|
|
60.0
|
%
|
Risk-free interest rate (per annum)
(2)
|
|
|
2.600
|
%
|
|
|
2.460
|
%
|
|
|
2.630
|
%
|
Exercise multiple
(3)
|
|
|
2 or 2.8
|
|
|
|
2.8
|
|
|
|
2
|
|
Expected dividend yield
(4)
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected term (in years)
(5)
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
Expected forfeiture rate (post-vesting)
(6)
|
|
|
0.25
|
%
|
|
|
0.25
|
%
|
|
|
0.25
|
%
|
Notes:
|
(1)
|
We estimated expected volatility based on the annualized standard deviation of the daily return embedded
in historical share prices of comparable companies with a time horizon close to the expected expiry of the term.
|
|
(2)
|
We estimated risk-free interest rate based on the yield to maturity of US$ denominated Chinese Government
bonds with a maturity similar to the expected expiry of the term.
|
|
(3)
|
The exercise multiple is estimated as the ratio of fair value of underlying shares over the exercise
price as at the time the option is exercised, based on a consideration of research study regarding exercise pattern based on historical
statistical data.
|
|
(4)
|
Expected dividend yield: We have never declared or paid any cash dividends on our capital stock, and
we do not anticipate any dividend payments on our ordinary shares in the foreseeable future.
|
|
(5)
|
Expected term (in years): Expected term is the contract life of the option.
|
|
(6)
|
Expected forfeiture rate (post-vesting): Estimated based on historical employee turnover rate after
each option grant.
|
Determining the fair value
of our ordinary shares required us to make complex and subjective judgments, assumptions and estimates, which involved inherent
uncertainty. Had our management used different assumptions and estimates, the resulting fair value of our ordinary shares and the
resulting share-based compensation expenses could have been different.
Restricted
share units
RSUs issued to our employees
are measured based on the grant date fair value of the award and recognized as compensation expense based on the straight-line
vesting method, net of estimated forfeitures, over the requisite service period, with a corresponding impact reflected in additional
paid-in capital. The fair value of RSUs was based on the fair value of our underlying ordinary shares on the grant date. We granted
no RSUs prior to 2014.
The following table sets forth
certain information regarding the RSUs granted to our employees since January 1, 2015, with share and per share information.
|
|
Number of
RSUs
Granted
|
|
|
Fair Value
per
Ordinary
Share as of
the Grant
Date
|
|
|
Type/Methodology
of Valuation
|
|
|
|
|
|
US$
|
|
|
|
February 27, 2015
|
|
|
392,308
|
|
|
|
20.840
|
|
|
Contemporaneous/ Stock Price (1)
|
April 13, 2015
|
|
|
432,000
|
|
|
|
25.415
|
|
|
Contemporaneous/ Stock Price (1)
|
May 22, 2015
|
|
|
143,986
|
|
|
|
39.555
|
|
|
Contemporaneous/ Stock Price (1)
|
August 6, 2015
|
|
|
1,050,578
|
|
|
|
28.570
|
|
|
Contemporaneous/ Stock Price (1)
|
August 24, 2015
|
|
|
3,427,590
|
|
|
|
21.400
|
|
|
Contemporaneous/ Stock Price (1)
|
November 23, 2015
|
|
|
225,598
|
|
|
|
26.530
|
|
|
Contemporaneous/ Stock Price (1)
|
February 22, 2016
|
|
|
152,240
|
|
|
|
28.065
|
|
|
Contemporaneous/ Stock Price (1)
|
May 18, 2016
|
|
|
468,926
|
|
|
|
25.080
|
|
|
Contemporaneous/ Stock Price (1)
|
September 21, 2016
|
|
|
2,394,600
|
|
|
|
24.680
|
|
|
Contemporaneous/ Stock Price (1)
|
October 1, 2016
|
|
|
482,356
|
|
|
|
23.830
|
|
|
Contemporaneous/ Stock Price (1)
|
November 9, 2016
|
|
|
99,600
|
|
|
|
20.100
|
|
|
Contemporaneous/ Stock Price (1)
|
February 24, 2017
|
|
|
1,234,928
|
|
|
|
15.985
|
|
|
Contemporaneous/ Stock Price (1)
|
March 24, 2017
|
|
|
45,792
|
|
|
|
18.655
|
|
|
Contemporaneous/ Stock Price (1)
|
May 23, 2017
|
|
|
251,800
|
|
|
|
21.830
|
|
|
Contemporaneous/ Stock Price (1)
|
August 20, 2017
|
|
|
2,685,400
|
|
|
|
26.630
|
|
|
Contemporaneous/ Stock Price (1)
|
September 20, 2017
|
|
|
13,862
|
|
|
|
33.490
|
|
|
Contemporaneous/ Stock Price (1)
|
November 9, 2017
|
|
|
149,400
|
|
|
|
33.555
|
|
|
Contemporaneous/ Stock Price (1)
|
Note:
|
(1)
|
The fair values of restricted share units are based on stock price of our company on grant dates.
|
In March 2015, in connection
with our acquisition of Anjuke, we issued 248,216 fully vested RSUs of our company to former Anjuke employees as part of the share
consideration. In August 2015, in connection with our strategic investment in Ganji, we issued approximately 4,449,002 fully vested
RSUs of our company to former Ganji employees as part of the share consideration.
In February 2018, our board
of directors approved the grant of 104,236 restricted share units to employees of our company under the 2013 Plan.
Restricted
shares of 58 Home
In February 2015, 58 Home
granted 9,100,000 restricted shares to selected management members of 58 Home. In April 2015, 58 Home further granted 1,880,000
restricted shares to an executive officer of our company. All these restricted shares were granted under the 58 Home 2015 Plan
and were fully vested on the respective grant dates. The foregoing disclosure of awards by 58 Home under its 2015 Plan only relates
to the period prior to November 27, 2015, when 58 Home was deconsolidated from our consolidated financial results.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers (Topic 606).” This guidance supersedes current guidance on revenue recognition
in Topic 605, “Revenue Recognition.” In addition, there are disclosure requirements related to the nature, amount,
timing, and uncertainty of revenue recognition. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of
ASU No. 2014-09 for all entities by one year. For publicly traded business entities that follow U.S. GAAP, the deferral results
in the new revenue standards’ being effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. We will
apply the new revenue standard under the modified retrospective approach, effective January 1, 2018. The cumulative effect of initially
applying the guidance will be recognized at the date of initial application. We are continuing to analyze each category of our
revenues in accordance with ASU No. 2014-09 to determine the impact on our consolidated financial statements. Based on the current
analysis, we do not expect the adoption of the new revenue standard to have a material adjustment recorded on January 1, 2018.
We currently expense the sales commissions when they are incurred. Under ASU No. 2014-09, we plan to adopt the practical expedient
for “Contract Cost” to expense the sales commissions when incurred for the contracts with the contract terms of less
than one year. Accordingly, there will not be a material impact on our accounting for sales commissions. Further, the new standard
requires new disclosures about arrangements with customers, including significant judgments we have made when using the guidance.
In January 2016, the FASB issued
ASU No. 2016-01 (“ASU 2016-01”), “Financial Instruments
—
Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends various
aspects of the recognition, measurement, presentation, and disclosure of financial instruments and simplifies the impairment assessment
and enhances the disclosure requirements of equity investments. Th
is amendment requires all
equity investments to be measured at fair value, with changes in the fair value recognized through net income (other than those
accounted for under equity method of accounting or those that result in consolidation of the investee).
The guidance
will be effective for the fiscal year beginning after December 15, 2017, including interim periods within that year. With respect
to our consolidated financial statements, the most significant influence relates to the accounting treatment for our equity investments
(except for those accounted for under equity method or those that result in the consolidation of the investee), and further more
impacts the disclosure and presentation of financial assets and liabilities. We
will adopt
ASU 2016-01
effective January 1, 2018. For equity investments measured at fair value, we
will recognize the changes in fair value through net income /(loss); and for equity investments that lacked readily determinable
fair values, we will elect to use the measurement alternative defined as cost, less impairments, adjusted by observable price changes.
We anticipate that the adoption of ASU 2016-01 will increase the volatility of our other income (expense), net, as a result of
the remeasurement of our equity securities upon the occurrence of observable price changes and impairments.
In February 2016, the FASB
issued ASU No. 2016-02, “Leases (Topic 842),” which amends the existing accounting standards for lease accounting.
For operating leases, ASU No. 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured
at the present value of the lease payments, in its balance sheet with terms of more than twelve months. Lessees are permitted to
make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. The
standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the
lease term, on a generally straight-line basis. In addition, this standard requires both lessees and lessors to disclose certain
key information about lease transactions. The amendments in this Update are effective for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. We are currently assessing the potential effects the adoption of
this update may have on our consolidated financial statements and related disclosures.
In March 2016, the FASB issued
ASU No. 2016-09, “Compensation
—
Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment Accounting,” to simplify the accounting for employee share-based
payment transactions. This standard allows the company to make an entity-wide accounting policy election to either estimate the
number of awards that are expected to vest or account for forfeitures when they occur, and is effective for fiscal years beginning
after December 15, 2016, including interim periods within those fiscal years. We
have adopted
the new standard effective January 1, 2017
and expected no impact on our consolidated financial statements due to we elected
to continue estimating the number of awards that are expected to vest.
In June 2016, the FASB issued
ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326),” which requires entities to measure all expected
credit losses for financial assets held at the reporting date. This replaces the existing incurred loss model and is applicable
to the measurement of credit losses on financial assets measured at amortized cost. For available-for-sale debt securities, entities
will be required to record allowances rather than reduce the carrying amount, as they do today under other-than-temporary impairment
model. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15,
2019, including interim periods within those fiscal years. We are currently evaluating the impact that the adoption of this update
will have on our consolidated financial statements and related disclosures.
In August 2016, the FASB issued
ASU No. 2016-15, “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments,” which
addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon
debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest
rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance
claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies
(BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately
identifiable cash flows and application of the predominance principle. The amendments in this Update are effective for public business
entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted.
We are currently evaluating the impact that the adoption of this update will have on our consolidated financial statements and
related disclosures.
In November 2016, the FASB
issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” The guidance requires that
a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described
as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash
equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total
amounts shown on the statement of cash flows. The amendments in this update are effective for public business entities for fiscal
years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including
adoption in an interim period. The standard requires application using a retrospective transition method to each period presented.
We do not expect the standard to have a material impact on our consolidated financial statements.
In January 2017, the FASB
issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which clarifies
the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should
be accounted for as acquisitions or disposals of assets or businesses. Public business entities should apply the amendments in
this Update to annual periods beginning after December 15, 2017, including interim periods within those periods. Early application
of the amendments in this Update is allowed as follows: 1. For transactions for which the acquisition date occurs before the issuance
date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been
issued or made available for issuance; 2. For transactions in which a subsidiary is deconsolidated or a group of assets is derecognized
that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial
statements that have been issued or made available for issuance. The standard should be applied prospectively on or after the effective
date. We will evaluate the impact of adopting this standard prospectively upon any transactions of acquisitions or disposals of
assets or businesses.
In January 2017, the FASB
issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment.” The guidance removes Step 2 of the goodwill
impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which
a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should
be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early
adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are
currently evaluating the impact the adoption of this update will have on our consolidated financial statements.
In May 2017, the FASB
issue ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” which
provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification
accounting in Topic 718. This standard is effective for all entities for annual periods, and interim periods within those annual
periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period for public
business entities for reporting periods for which financial statements have not yet been issued. We are currently evaluating the
impact that the adoption of this update will have on our consolidated financial statements.
Results of Operations
The following table sets forth
our consolidated results of operations for the periods indicated. Our business has experienced rapid growth since inception. We
expect our growth to continue as we grow our user base and explore new market opportunities. However, due to our limited operating
history, our historical growth rate may not be indicative of our future performance. Therefore, we believe that period-to-period
comparison of our results of operation should not be relied upon as indicative of future performance.
We have consolidated Anjuke
since March 2015 and Ganji since August 2015.
58 Home, a subsidiary that
operates a mobile-based transactional platform for home services, was de-consolidated from our consolidated financial results following
its series A financing on November 27, 2015. Since then, we pick up 58 Home’s losses in the investment income and loss line
based on our ordinary share ownership percentage. Guazi, a subsidiary that operates our C2C used car trading platform, was de-consolidated
on December 31, 2015. As our investment in Guazi was accounted for using cost method, we did not recognize a proportionate share
of the reported earnings or losses of Guazi for the years ended December 31, 2015, 2016 and 2017. Prior to the dates when these
businesses were de-consolidated, their financial results were part of our consolidated financial results.
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands)
|
|
Revenues
|
|
|
4,478,098
|
|
|
|
7,592,127
|
|
|
|
10,068,780
|
|
|
|
1,540,935
|
|
Cost of revenues
|
|
|
(322,016
|
)
|
|
|
(707,237
|
)
|
|
|
(925,497
|
)
|
|
|
(141,639
|
)
|
Gross profit
|
|
|
4,156,082
|
|
|
|
6,884,890
|
|
|
|
9,143,283
|
|
|
|
1,399,296
|
|
Operating expenses
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
(4,316,217
|
)
|
|
|
(4,941,380
|
)
|
|
|
(5,212,360
|
)
|
|
|
(797,704
|
)
|
Research and development expenses
|
|
|
(760,796
|
)
|
|
|
(1,107,897
|
)
|
|
|
(1,368,441
|
)
|
|
|
(209,427
|
)
|
General and administrative expenses
|
|
|
(659,284
|
)
|
|
|
(601,906
|
)
|
|
|
(766,017
|
)
|
|
|
(117,232
|
)
|
Total operating expenses
|
|
|
(5,736,297
|
)
|
|
|
(6,651,183
|
)
|
|
|
(7,346,818
|
)
|
|
|
(1,124,363
|
)
|
Income/(loss) from operations
|
|
|
(1,580,215
|
)
|
|
|
233,707
|
|
|
|
1,796,465
|
|
|
|
274,933
|
|
Other expenses, net
|
|
|
(117,154
|
)
|
|
|
(1,057,650
|
)
|
|
|
(260,534
|
)
|
|
|
(39,872
|
)
|
Income/(loss) before tax
|
|
|
(1,697,369
|
)
|
|
|
(823,943
|
)
|
|
|
1,535,931
|
|
|
|
235,061
|
|
Income taxes benefits/(expenses)
|
|
|
48,786
|
|
|
|
50,980
|
|
|
|
(146,689
|
)
|
|
|
(22,449
|
)
|
Net income/(loss)
|
|
|
(1,648,583
|
)
|
|
|
(772,963
|
)
|
|
|
1,389,242
|
|
|
|
212,612
|
|
Note:
|
(1)
|
Share-based
compensation expenses were allocated in cost of revenues and operating expenses as follows:
|
|
|
For
the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands)
|
|
Cost of revenues
|
|
|
760
|
|
|
|
490
|
|
|
|
3,278
|
|
|
|
502
|
|
Sales and marketing expenses
|
|
|
44,049
|
|
|
|
59,017
|
|
|
|
69,926
|
|
|
|
10,702
|
|
Research and development expenses
|
|
|
59,314
|
|
|
|
98,515
|
|
|
|
126,116
|
|
|
|
19,301
|
|
General and administrative expenses
|
|
|
72,482
|
|
|
|
108,553
|
|
|
|
151,249
|
|
|
|
23,147
|
|
Total
|
|
|
176,605
|
|
|
|
266,575
|
|
|
|
350,569
|
|
|
|
53,652
|
|
The following table sets forth
the results of operations for the periods indicated, as percentages of revenues.
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
(% of revenues)
|
|
Revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of revenues
|
|
|
(7.2
|
)
|
|
|
(9.3
|
)
|
|
|
(9.2
|
)
|
Gross profit
|
|
|
92.8
|
|
|
|
90.7
|
|
|
|
90.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
(96.4
|
)
|
|
|
(65.1
|
)
|
|
|
(51.8
|
)
|
Research and development expenses
|
|
|
(17.0
|
)
|
|
|
(14.6
|
)
|
|
|
(13.6
|
)
|
General and administrative expenses
|
|
|
(14.7
|
)
|
|
|
(7.9
|
)
|
|
|
(7.6
|
)
|
Total operating expenses
|
|
|
(128.1
|
)
|
|
|
(87.6
|
)
|
|
|
(73.0
|
)
|
Income/(loss) from operations
|
|
|
(35.3
|
)
|
|
|
3.1
|
|
|
|
17.8
|
|
Other expenses, net
|
|
|
(2.7
|
)
|
|
|
(13.9
|
)
|
|
|
(2.6
|
)
|
Income/(loss) before tax
|
|
|
(38.0
|
)
|
|
|
(10.8
|
)
|
|
|
15.2
|
|
Income taxes benefits/(expenses)
|
|
|
1.1
|
|
|
|
0.6
|
|
|
|
(1.4
|
)
|
Net income/(loss)
|
|
|
(36.9
|
)
|
|
|
(10.2
|
)
|
|
|
13.8
|
|
Comparison of the Years
Ended December 31, 2015, 2016 and 2017
Revenues
The following table sets forth
the principal components of our revenues, both as absolute amounts and as percentages of total revenues, and year-over-year changes,
for the periods indicated.
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2016 vs. 2015
|
|
|
2017 vs. 2016
|
|
|
|
RMB
|
|
|
% of
revenue
|
|
|
RMB
|
|
|
% of
revenue
|
|
|
RMB
|
|
|
US$
|
|
|
% of
revenue
|
|
|
% change
|
|
|
% change
|
|
|
|
(in thousands, except for % data)
|
|
Membership
|
|
|
1,859,987
|
|
|
|
41.6
|
|
|
|
2,951,135
|
|
|
|
38.9
|
|
|
|
3,789,524
|
|
|
|
579,952
|
|
|
|
37.6
|
|
|
|
58.7
|
|
|
|
28.4
|
|
Online marketing services
|
|
|
2,414,906
|
|
|
|
53.9
|
|
|
|
4,363,777
|
|
|
|
57.5
|
|
|
|
5,978,491
|
|
|
|
914,954
|
|
|
|
59.4
|
|
|
|
80.7
|
|
|
|
37.0
|
|
E-commerce services
|
|
|
144,930
|
|
|
|
3.2
|
|
|
|
166,753
|
|
|
|
2.2
|
|
|
|
73,941
|
|
|
|
11,316
|
|
|
|
0.7
|
|
|
|
15.1
|
|
|
|
(55.7
|
)
|
Other services
|
|
|
58,275
|
|
|
|
1.3
|
|
|
|
110,462
|
|
|
|
1.4
|
|
|
|
226,824
|
|
|
|
34,713
|
|
|
|
2.3
|
|
|
|
89.6
|
|
|
|
105.3
|
|
Total revenues
|
|
|
4,478,098
|
|
|
|
100.0
|
|
|
|
7,592,127
|
|
|
|
100.0
|
|
|
|
10,068,780
|
|
|
|
1,540,935
|
|
|
|
100.0
|
|
|
|
69.5
|
|
|
|
32.6
|
|
Membership
Membership revenues were RMB1.9
billion, RMB3.0 billion and RMB3.8 billion, representing 41.6%, 38.9% and 37.6% of revenues in 2015, 2016 and 2017,
respectively. The increase in our membership revenues was primarily attributable to the increase in the number of
subscription-based paying membership accounts, as a result of the strong focus of our field sales and customer service teams
on acquiring and serving the subscription-based paying members. As a result of the Anjuke and Ganji transactions and the
continuous effort after the integration, the number of our average quarterly paying membership accounts on our 58, Ganji and
Anjuke platforms increased significantly from approximately 1,306,000 in 2015, to 1,982,000 in 2016 and further to
2,485,000 in 2017. See “Item 4. Information on the Company — B. Business Overview — 58 Core Service
Offerings – 58 Core services for business users – Paid premium services to business users –
Subscription-based membership services” for details of subscription-based paying membership.
We expect our membership revenues
will continue to grow as we continue to expand our paying member base in the existing and new cities. Our field sales teams, which
cover 49 cities for different content categories, and our sales agency network, which cover over 500 other cities and counties,
will continue to attract new paying members. Our dedicated customer service team will continue to contribute to membership revenues
by retaining existing members through helping them to optimize their marketing effectiveness.
2017 compared to 2016
.
Our membership revenues increased from RMB3.0 billion in 2016 to RMB3.8 billion in 2017, representing an increase of 28.4%. The
increase was primarily driven by an increase in the number of subscription-based paying membership accounts. On our 58, Ganji and
Anjuke platforms, the increase in membership revenues was primarily due to the increase in average quarterly paying membership
accounts from approximately 1,982,000 in 2016 to approximately 2,485,000 in 2017. We experienced growth in the number of subscription-based
paying membership accounts across most of the content categories, particularly in our jobs categories in 2017. Subsequent to the
Ganji transaction in 2015, we continued to reduce discounts for both 58 and Ganji brands, which contributed to the increase in
net price of membership across all categories. We also raised list prices for Jobs category membership packages as our traffic
grows rapidly and the market was overall positive throughout most of 2017.
2016 compared to 2015
.
Our membership revenues increased from RMB1.9 billion in 2015 to RMB3.0 billion in 2016, representing an increase of 58.7%. The
increase was driven by an increase in the number of paying membership accounts. On our 58, Ganji and Anjuke platforms, the increase
in membership revenues was primarily due to the increase in average quarterly paying membership accounts from approximately 1,306,000
in 2015 to approximately 1,982,000 in 2016. We experienced significant growth across multiple content categories, particularly
in our real estate and jobs categories, in 2015 and 2016. Subsequent to the Ganji transaction, we reduced discounts for both brands,
which contributed to the increase in net price of membership across all categories. We also raised listing prices for real estate
membership packages as our traffic grow rapidly and real estate market sentiment was overall positive throughout most of 2016.
Online Marketing
Services
Revenues from online marketing
services were RMB2.4 billion, RMB4.4 billion and RMB6.0 billion, representing 53.9%, 57.5% and 59.4% of our revenues in 2015,
2016 and 2017, respectively. Although online marketing services are available to all users, the majority of the online
marketing services revenues are contributed by subscription-based paying members who have purchased online marketing services
revenues in addition to the subscription-based membership services they already purchased. We position subscription-based
membership service as a basic entry level package service for business users. We aspire to provide various additional online
marketing services to meet the varying needs of business customers of different scales. In addition, we continue to try to
better leverage technology and product design to help our business customers to get more traffic and higher quality leads
from their marketing efforts. See “Item 4. Information on the Company — B. Business Overview — 58 Core
Service Offerings – 58 Core services for business users – Paid premium services to business users – Online
marketing services” for details of online marketing services. These innovative and effective services have continued to
attract more business users and increase average spending per merchant, which also enhances our ability to more efficiently
monetize our substantial traffic.
We expect our online marketing
services will continue to grow as we further develop the paying member network, diversify and enhance our services and increase
the marketing effectiveness and engagement of our customers.
2017 compared to 2016
.
Our online marketing services revenues increased from RMB4.4 billion in 2016 to RMB6.0 billion in 2017, representing an increase
of 37.0%. The increase was primarily driven by the increasing adoption and effectiveness of our various online marketing services
such as real-time bidding, priority listing and various other online marketing services.
2016 compared to 2015
.
Our online marketing services revenues increased from RMB2.4 billion in 2015 to RMB4.4 billion in 2016, representing an increase
of 80.7%. The increase was mostly driven by increased revenues from Ganji and Anjuke, as well as the organic growth of our 58 platform.
The increase of our subscription-based paying members, increased traffic and more diversified products help grow the online marketing
services revenues.
E-commerce
Services
Revenues from e-commerce services
were RMB144.9 million, RMB166.8 million and RMB73.9 million, representing approximately 3.2%, 2.2% and 0.7% of our revenues in
2015, 2016 and 2017, respectively, all of which were contributed by the Anjuke business that we acquired in March 2015. It mainly
related to our sale of discount coupons for primary real estate projects.
Other Services
Revenues from other services
were RMB58.3 million, RMB110.5 million and RMB226.8 million, representing approximately 1.3%, 1.4% and 2.3% of our revenues in
2015, 2016 and 2017, respectively. In 2015, other services revenues were mainly contributed by Guazi C2C services and offline recruitment
services. In 2016, other services revenues were mainly contributed by offline recruitment services. In 2017, other services revenues
were mainly attributable to revenues from selling used goods in our used goods trading platform Zhuan Zhuan and offline recruitment
services provided.
Cost
of Revenues
Cost of revenues consists
primarily of expenses associated with the operation of our platforms, such as data center bandwidth fees, depreciation and maintenance
expenses for our computers, servers and other equipment, short message services (“SMS”) costs, salary, bonuses, benefits
and share-based compensation expense relating to web operation personnel. It also includes the traffic acquisition costs (TAC)
paid to our advertising union partners who displayed our customers’ marketing information on their platforms or mobile applications
and cost associated with primary real estate e-commerce revenues, offline recruitment services revenues and certain types of used
goods buy-sell services revenues.
We expect that our cost of
revenues will increase in absolute amounts as we further grow our user base and expand our revenue-generating services.
For the share-based compensation
charges included in cost of revenues, see “— Critical Accounting Policies — Share-Based Compensation” for
more information.
2017 compared to 2016
.
Our cost of revenues was RMB925.5 million in 2017, an increase of 30.9% from RMB707.2 million in 2016. The increase in cost of
revenues was primarily driven by increases in salaries and benefits for customer service staff, costs of used goods sold, and other
type of website maintenance-related costs such as depreciation expenses.
2016 compared to 2015
.
Our cost of revenues was RMB707.2 million in 2016, an increase of 119.6% from RMB322.0 million in 2015. The increase in cost of
revenues was primarily driven by increased TAC paid to our 58 platform’s advertising union partners as well as other types
of website maintenance-related costs such as short message service (SMS) costs, bandwidth fees and depreciation expenses.
Gross
Profit
The following table sets forth
our gross profit and gross margin for the periods indicated.
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands, except for % data)
|
|
Gross profit
|
|
|
4,156,082
|
|
|
|
6,884,890
|
|
|
|
9,143,283
|
|
|
|
1,399,296
|
|
Gross margin
|
|
|
92.8
|
%
|
|
|
90.7
|
%
|
|
|
90.8
|
%
|
|
|
90.8
|
%
|
2017 compared to 2016
.
Our gross profit increased from RMB6.9 billion in 2016 to RMB9.1 billion in 2017, representing an increase of 32.8%. The increase
in gross profit was primarily attributable to the significant increase in membership revenues as well as online marketing services
revenues from our core classified business and the consolidation of financial results of Ganji and Anjuke, while our gross margin
for 2017 was generally stable compared with 2016.
2016 compared to 2015
.
Our gross profit increased from RMB4.2 billion in 2015 to RMB6.9 billion in 2016, representing an increase of 65.7%. The increase
in gross profit was primarily attributable to the significant increase in membership revenues as well as online marketing services
revenues from our core classified business and the consolidation of financial results of Ganji and Anjuke. Gross margin decreased
from 92.8% to 90.7% during the same period. The decrease in gross margin was primarily due to the increase in TAC paid to our 58
platform’s advertising union partners.
We expect our gross profit
to increase as our revenues grow.
Operating
Expenses
Our operating expenses consist
of sales and marketing expenses, research and development expenses and general and administrative expenses. The following table
sets forth our operating expenses, both as absolute amounts and as percentages of our revenues, and year-over-year changes, for
the periods indicated.
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2016 vs. 2015
|
|
|
2017 vs. 2016
|
|
|
|
RMB
|
|
|
% of
revenue
|
|
|
RMB
|
|
|
% of
revenue
|
|
|
RMB
|
|
|
US$
|
|
|
% of
revenue
|
|
|
% change
|
|
|
% change
|
|
|
|
(in thousands, except for % data)
|
|
Sales and marketing expenses
|
|
|
4,316,217
|
|
|
|
96.4
|
|
|
|
4,941,380
|
|
|
|
65.1
|
|
|
|
5,212,360
|
|
|
|
797,704
|
|
|
|
51.8
|
|
|
|
14.5
|
|
|
|
5.5
|
|
Research and development expenses
|
|
|
760,796
|
|
|
|
17
|
|
|
|
1,107,897
|
|
|
|
14.6
|
|
|
|
1,368,441
|
|
|
|
209,427
|
|
|
|
13.6
|
|
|
|
45.6
|
|
|
|
23.5
|
|
General and administrative expenses
|
|
|
659,284
|
|
|
|
14.7
|
|
|
|
601,906
|
|
|
|
7.9
|
|
|
|
766,017
|
|
|
|
117,232
|
|
|
|
7.6
|
|
|
|
(8.7
|
)
|
|
|
27.3
|
|
Total operating expenses
|
|
|
5,736,297
|
|
|
|
128.1
|
|
|
|
6,651,183
|
|
|
|
87.6
|
|
|
|
7,346,818
|
|
|
|
1,124,363
|
|
|
|
73.0
|
|
|
|
15.9
|
|
|
|
10.5
|
|
Our sales and marketing expenses,
research and development expenses and general and administrative expenses include share-based compensation charges. See “—
Critical Accounting Policies — Share-Based Compensation” for more information.
Sales and
Marketing Expenses
Sales and marketing expenses
consist primarily of advertising expenses and non-advertising expenses.
Advertising expenses include
offline brand advertising, online traffic acquisition expenses from mobile and PC channels, including pre-installation of apps
in smart phones, which are mainly for attracting consumer users. See “Item 4. Information on the Company — B. Business
Overview — Marketing and Brand Promotion” for more details.
Non-advertising sales and
marketing expenses include salaries, benefits, commissions and share-based compensation for our sales, sales support, customer
service, marketing dealer management personnel, online and offline promotion expenses and other operating expenses that are associated
with sales and marketing activities. See “Item 4. Information on the Company — B. Business Overview — Sales and
Customer Services” for more details.
The following table sets forth
our advertising expenses, non-advertising sales and marketing expenses and total sales and marketing expenses, both as absolute
amounts and as percentages of our revenues, and year-over-year changes, for the periods indicated.
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2016 vs. 2015
|
|
|
2017 vs. 2016
|
|
|
|
RMB
|
|
|
% of
revenue
|
|
|
RMB
|
|
|
% of
revenue
|
|
|
RMB
|
|
|
US$
|
|
|
% of
revenue
|
|
|
% change
|
|
|
% change
|
|
|
|
(in thousands, except for % data)
|
|
Advertising expenses
|
|
|
1,811,852
|
|
|
|
40.5
|
|
|
|
2,040,020
|
|
|
|
26.9
|
|
|
|
2,087,066
|
|
|
|
319,406
|
|
|
|
20.8
|
|
|
|
12.6
|
|
|
|
2.3
|
|
Non-advertising sales and marketing expenses
|
|
|
2,504,365
|
|
|
|
55.9
|
|
|
|
2,901,360
|
|
|
|
38.2
|
|
|
|
3,125,294
|
|
|
|
478,298
|
|
|
|
31.0
|
|
|
|
15.9
|
|
|
|
7.7
|
|
Total sales and marketing expenses
|
|
|
4,316,217
|
|
|
|
96.4
|
|
|
|
4,941,380
|
|
|
|
65.1
|
|
|
|
5,212,360
|
|
|
|
797,704
|
|
|
|
51.8
|
|
|
|
14.5
|
|
|
|
5.5
|
|
Since the consolidation of
Ganji in August 2015, as competition in online classifieds space subsided, we have been exercising tighter control on advertising
expenses and sales and services headcount increase and focusing more on platform product-driven enhancement and providing better
tools and management guidance to increase the efficiency of the teams. However, to support longer term platform growth we will
continue to make appropriate sales and marketing investments in different business lines depending on the stage of the businesses
and market environment. The sales and marketing expenses as a percentage of revenues declined from 96.4% for 2015, to 65.1% for
2016 and 51.8% for 2017.
Expenses related to Anjuke
in 2015 only included the period from March 2015 to the end of the year and expenses related to Ganji in 2015 only included the
period from August 2015 to the end of the year. During the initial launch phase of 58 Home’s business, we provided subsidies
to the individual service providers on the 58 Home platform which went through the non-advertising sales and marketing line. After
the deconsolidation of 58 Home in November 2015, its expenses were no longer included in our consolidated expenses. During the
initial business launch stage, we incurred online and offline advertising expenses for Guazi. After the deconsolidation of Guazi
in December 2015, its expenses were no longer included in our consolidated expenses.
The advertising expenses charged
by Tencent, a related party of our company, amounted to RMB152.1 million, RMB351.1 million and RMB422.3 million for the years ended
December 31, 2015, 2016 and 2017, respectively.
We expect that our sales and
marketing expenses will increase in absolute amounts going forward as we continue to see opportunities in attracting more users
and launch new services, particularly on mobile internet through our advertising campaigns.
2017 compared to 2016
.
Our sales and marketing expenses increased from RMB4.9 billion in 2016 to RMB5.2 billion in 2017, representing an increase of 5.5%.
Our advertising expenses increased from RMB2.0 billion in 2016 to RMB2.1 billion in 2017, representing an increase of 2.3%, which
was primarily due to an increase in advertising expenses associated with the promotion of the 58.com and Zhuan Zhuan brands. Our
non-advertising sales and marketing expenses increased from RMB2.9 billion in 2016 to RMB3.1 billion in 2017, representing an increase
of 7.7%. The increase was primarily driven by increased salaries, benefits, commissions and share-based compensation expenses for
our sales, customer service and marketing teams.
2016 compared to 2015
.
Our sales and marketing expenses increased from RMB4.3 billion in 2015 to RMB4.9 billion in 2016, representing an increase of 14.5%.
Our advertising expenses increased from RMB1.8 billion in 2015 to RMB2.0 billion in 2016, representing an increase of 12.6%. The
increase in advertising expenses were primarily a result of increases from the consolidation of Anjuke’s financial results
since March 2015 and Ganji’s financial results since August 2015, which were partially offset by the deconsolidation of Guazi
since December 2015. The advertising expenses for our 58 brand in 2016 were less than that in 2015, but we allocated advertising
expenses to newly launched ChinaHR and Zhuan Zhuan. Our other sales and marketing expenses increased from RMB2.5 billion in 2015
to RMB2.9 billion in 2016, representing an increase of 15.9%. The increase in other sales and marketing expenses was primarily
a result of the consolidation of Anjuke’s financial results since March 2015 and Ganji’s financial results since August
2015, which was partially offset by the deconsolidation of 58 Home since November 2015. The increase in other sales and marketing
expenses was also driven by a modest increase of sales and service headcount, sales commissions and local marketing expenses associated
with increased revenues.
Research and
Development Expenses
Research and development expenses
mainly consist of salaries, benefits and share-based compensation for product development and engineering personnel and other operating
expenses such as rental and depreciation of equipment that are associated with product development and engineering activities.
We expect our research and
development expenses to increase in absolute amounts as we intend to hire additional research and development personnel to develop
new features, applications and services for our online platforms and further improve our technologies and infrastructure. See “Item
4. Information on the Company — B. Business Overview — Technology” for details of the technology aspect of the
business.
2017 compared to 2016
.
Research and development expenses increased from RMB1.1 billion in 2016 to RMB1.4 billion in 2017, representing an increase of
23.5%. The increase was primarily attributable to increased salaries and benefits as well as share-based compensation expenses
associated with the hiring of additional employees for research and development of new features and services.
2016 compared to 2015
.
Research and development expenses increased from RMB760.8 million in 2015 to RMB1.1 billion in 2016, representing an increase of
45.6%. The increase was primarily a result of the consolidations of Anjuke’s financial results since March 2015 and Ganji’s
financial results since August 2015 and the organic increase of research and development expenses associated with our 58 platform.
The increase was also attributable to increased costs associated with the hiring of additional research and development personnel
for the development of new features and services.
General and
Administrative Expenses
General and administrative
expenses consist primarily of salaries, benefits and share-based compensation for our general and administrative personnel, general
office expenses and fees and expenses for third-party professional services.
We expect our general and
administrative expenses to increase in absolute amounts in the future as our business grows.
2017 compared to 2016
.
Our general and administrative expenses increased from RMB601.9 million in 2016 to RMB766.0 million in 2017, representing an increase
of 27.3%. The increase was primarily driven by an increase in salaries, share-based compensation expenses and other administrative
related expenses.
2016 compared to 2015
.
Our general and administrative expenses decreased from RMB659.3 million in 2015 to RMB601.9 million in 2016, representing a decrease
of 8.7%. This decrease was primarily due to financial advisory and professional service fees incurred in connection with the strategic
investment in Ganji and RMB77.3 million in compensation to noncontrolling shareholders resulting from a waiver of receivables from
58 Home in 2015, which was partially offset by increases in share-based compensation expenses, administrative staff salaries and
benefits, and depreciation and amortization expenses in 2016.
Income/(Loss)
from operations
The following table sets forth
our operating profit and operating margin for the periods indicated.
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands, except for % data)
|
|
Income/(Loss) from operations
|
|
|
(1,580,215
|
)
|
|
|
233,707
|
|
|
|
1,796,465
|
|
|
|
274,933
|
|
Operating margin
|
|
|
(35.3
|
)%
|
|
|
3.1
|
%
|
|
|
17.8
|
%
|
|
|
17.8
|
%
|
We had an operating income
of RMB1.8 billion for 2017, compared with an operating income of RMB233.7 million for 2016 and an operating loss of RMB1.6 billion
for 2015. Our operating margin was 17.8% for 2017, compared with an operating margin 3.1% and negative operating margin of 35.3%,
respectively, for 2016 and 2015. The increase in our operating profit and operating margin was primarily due to the significant
increase in revenues and more stringent control in costs and expenses.
Other income/(expenses)
Other income/(expenses) mainly
consisted of share of results of equity investees, investment income/(loss), interest income and expenses, foreign currency exchange
gain/(loss), gain on deconsolidation and disposal of businesses, and government subsidies.
For the year ended December 31, 2015, 2016
and 2017, other expenses were RMB117.2 million, RMB1.1 billion, and RMB260.5 million, respectively. Other expenses in 2017 was
mainly a RMB687.4 million share of results of equity investees, which primarily consisted of a RMB663.2 million share of the net
loss attributable to 58 Home’s ordinary shareholders calculated based on our company’s ordinary shareholding in 58
Home, which was partially offset by investment income of RMB342.2 million and government subsidies of RMB81.4 million. Other expenses
in 2016 was mainly a RMB926.7 million share of results of equity investees, which primarily consisted of a RMB923.3 million share
of the net loss attributable to 58 Home’s ordinary shareholders calculated based on the Company’s ordinary shareholding
in 58 Home. Other expenses in 2015 mainly included a RMB717.6 million share of results of equity investees, which primarily consisted
of a RMB657.0 million share of the net loss attributable to Ganji, a RMB59.9 million share of the net loss attributable to 58 Home,
and a RMB224.3 million remeasurement loss as a result of step acquisition of Ganji, partially offset by RMB765.1 million gain on
disposals of Guazi business and 58 Home business.
Income
tax benefits/(expenses)
Income tax expense was RMB146.7 million
for 2017, compared to an income tax benefit of RMB51.0 million and an income tax benefit of RMB48.8 million, respectively, for
2016 and 2015. The significant increase in income tax expense in 2017 is due to we made profit in 2017.
Net income/(loss)
As a result of the foregoing, we had a
net income of RMB1.4 billion for 2017, compared to a net loss of RMB773.0 million and a net loss of RMB1.6 billion, respectively,
for 2016 and 2015.
Seasonality
We experience seasonality in our business. Our revenues are
typically lower during the holidays in China, particularly during the Chinese New Year, which occurs in the first quarter. Many
businesses close or substantially reduce their activities, including hiring and marketing, during this period. Job search and
rental home search activities also slow down during the Chinese New Year. Therefore, our revenues for the first quarter typically
decrease substantially from the fourth quarter of the prior year. After the Chinese New Year holiday, these activities typically
rebound very strongly, which results the recovery of user traffic and revenues. In addition, the Chinese New Year is based on
the Chinese Lunar Calendar and falls on a different date each year. Therefore, our year over year growth of our first quarter
revenues also depends on which date the Chinese New Year falls.
Due to our limited operating
history, the seasonal trends that we have experienced in the past may not apply to, or be indicative of, our future operating results.
Inflation
Since our inception, inflation
in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year
percent changes in the consumer price index for December 2015, 2016 and 2017 were increases of 1.6%, 2.1% and 1.6%, respectively.
Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected
in the future by higher rates of inflation in China. For example, certain operating costs and expenses such as employee compensation
and office operating expenses may increase as a result of higher inflation. Additionally, because a substantial portion of our
assets consist of cash and cash equivalents, term deposits and short-term investments, high inflation could significantly reduce
the value and purchasing power of these assets. We are not able to hedge our exposure to higher inflation in China.
Impact of Foreign Currency
Fluctuation
See “Item 3. Key Information
— D. Risk Factors — Risks Related to Doing Business in China — Fluctuations in exchange rates could have a material
adverse effect on our results of operations and the value of your investment.” and “Item 11. Quantitative and Qualitative
Disclosures About Market Risk — Foreign Exchange Risk.”
Impact of Governmental
Policies
See “Item 3. Key Information
— D. Risk Factors — Risks Related to Doing Business in China” and “Item 4. Information on the Company —
B. Business Overview — Regulation.”
|
B.
|
Liquidity and Capital Resources
|
Cash Flows and Working
Capital
Our principal sources of liquidity
have been financing activities and operating activities.
Our financing activities include
issuance of shares and various loan borrowings. As part of the Ganji transaction in April 2015, Tencent purchased US$400.0 million
of newly issued ordinary shares from us. In July 2015, we obtained a loan from Tencent in an aggregate principal amount of US$400.0
million. In December 2015, we and Tencent entered into an amendment to the loan agreement, pursuant to which we issued approximately
4.3 million Class A ordinary shares to Tencent and the principal amount of the loan under the loan agreement was reduced to US$275.0
million. We repaid in full this US$275.0 million loan from Tencent with a loan from China Merchants Bank Co., Ltd., or CMB Bank,
in April 2016. The US$275.0 million obtained in April 2016 from CMB Bank was secured by 12.4 million Class B ordinary shares owned
by Mr. Jinbo Yao, the chief executive officer of our company. We fully repaid this US$275.0 million loan from CMB Bank in April
2017 and all the Class B ordinary shares pledged as security were released accordingly.
Currently, our outstanding
bank borrowings include the following:
|
(i)
|
RMB150.0 million obtained in December 2016 from Shanghai Pudong Development Bank Co., Ltd., or Pudong
Bank,
which was secured by one of our office buildings as collateral
;
and
|
|
(ii)
|
US$107.5 million obtained in April 2017 from CMB Bank, which
was
secured by a two-year RMB denominated term deposit amounted to RMB792.0 million.
|
We had net cash provided by
operating activities of RMB198.5 million, RMB1.9 billion and RMB2.7 billion in 2015, 2016 and 2017, respectively. The increase
in net cash provided by operating activities in 2017 was primarily contributed by increased revenues and improved cost control
after Anjuke’s and Ganji’s businesses were fully integrated into our own.
As of December 31, 2017,
we had cash and cash equivalents and short-term investments totaling RMB5.0 billion. These included (i) RMB1.5 billion in cash
and cash equivalents, which primarily consisted of cash, demand deposits and highly liquid investments placed with banks or other
financial institutions that have original maturities of three months or less, and (ii) RMB3.4 billion in short-term investments,
placed with banks with terms between three months to one year.
As of December 31, 2017, our
current assets exceeded our current liabilities by RMB780.1 million, and we had an accumulated deficit of RMB1.7 billion. For the
year ended December 31, 2017, we had a net income attributable to 58.com Inc. of RMB1.3 billion.
Our ability to continue as
a going concern is dependent on our ability to successfully execute our business plan, which includes increasing revenues while
controlling operating expenses, as well as generating cash flows from operating activities. We believe our current cash and cash
equivalents and anticipated cash flow from operations provide sufficient funds to meet the working capital requirements to fund
planned operations and other commitments for at least the next twelve months from the date of this annual report. We may, however,
need additional cash resources in the future if we experience changes in business, financial conditions or other developments.
We may also need additional cash resources in the future if we find and wish to pursue opportunities for investment, acquisition,
capital expenditure or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents
we have on hand, we may seek to issue debt or equity securities or obtain additional credit facilities.
Although we consolidate the
results of our consolidated affiliated entities and their subsidiaries, our access to cash balances or future earnings of these
entities is only through our contractual arrangements with them and their shareholders. See “Item 4. Information on the Company
— C. Organizational Structure — Our Contractual Arrangements” and “Item 3. Key Information — D. Risk
Factors — Risks Related to Doing Business in China — PRC regulation of direct investment and loans by offshore holding
companies to PRC entities and governmental control of currency conversion may delay or limit us from using the proceeds of our
securities offerings to make additional capital contributions or loans to our PRC subsidiaries.”
Cash
Flow
The following table sets forth
a summary of our cash flows for the periods indicated.
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
(in thousands)
|
|
Net cash provided by/(used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
198,538
|
|
|
|
1,887,849
|
|
|
|
2,697,317
|
|
|
|
412,800
|
|
Investing activities
|
|
|
(2,781,242
|
)
|
|
|
(3,948,027
|
)
|
|
|
(2,861,564
|
)
|
|
|
(437,937
|
)
|
Financing activities
|
|
|
4,930,710
|
|
|
|
58,631
|
|
|
|
571,076
|
|
|
|
87,399
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
108,872
|
|
|
|
63,617
|
|
|
|
(82,304
|
)
|
|
|
(12,596
|
)
|
Net increase/(decrease) in cash and cash
equivalents
|
|
|
2,456,878
|
|
|
|
(1,937,930
|
)
|
|
|
324,525
|
|
|
|
49,666
|
|
Operating
Activities
Net cash provided by operating
activities was RMB2.7 billion in 2017. Our net cash provided by operating activities in 2017 reflected a net income of RMB1.4 billion,
adjusted by (i) the add back of non-cash items mainly consisting of share of results of equity investees of RMB687.4 million, depreciation
and amortization expenses of RMB435.6 million, share-based compensation expenses of RMB350.6 million, impairment loss of long-term
investments and other non-current assets of RMB37.3 million, allowance for doubtful accounts of RMB16.8 million, and loss from
disposal of property and equipment of RMB1.0 million, and (ii) partially offset by gain from investment income of RMB319.7 million,
change in deferred income taxes of RMB65.8 million, and foreign currency exchange income of RMB0.8 million. The RMB114.4 million
increase in working capital items is reflected in operating cash flow. The increase in working capital mainly arises from an increase
in deferred revenues of RMB285.3 million, an increase in accrued expenses and other liabilities of RMB238.6 million, an increase
in customer advances of RMB129.4 million, an increase in tax payable of RMB122.7 million, an increase in accounts payable of RMB40.5
million, partially offset by an increase of prepayment and other assets of RMB345.3 million, an increase of accounts receivable
of RMB 260.3 million, a decrease of salary and welfare payable of RMB13.9 million, and an increase in restricted cash of RMB82.6
million.
Net cash provided by operating
activities was RMB1.9 billion in 2016. Our net cash provided by operating activities in 2016 reflected a net loss of RMB773.0 million,
adjusted for non-cash items of RMB1.8 billion and changes in operating assets and liabilities net of acquisitions and disposals
of RMB824.7 million. Non-cash reconciling items mainly included share of results of equity investees of RMB926.7 million, depreciation
and amortization expenses of RMB406.8 million, share-based compensation expenses of RMB266.6 million, impairment loss of long-term
investments and other non-current assets of RMB172.1 million, loss upon conversion of Guazi Convertible Note of RMB84.2 million
and gain on deconsolidation and disposal of businesses of RMB79.6 million. Changes in operating assets and liabilities mainly represented
an increase in deferred revenues of RMB420.9 million, an increase in accrued expenses and other liabilities of RMB269.1 million,
an increase in customer advances of RMB233.4 million, and were partially offset by an increase in accounts receivable of RMB87.8
million. Deferred revenues and customer advances increased as the collection of our membership services and online marketing services
grew rapidly as a result of rapid growth in the number of paying membership accounts. The increase in accrued expenses and other
liabilities was primarily due to the growth in accruals primarily associated with the increase in our headcount, and the growth
in our online marketplace business resulted in an increase of deposits by sales agents. The increase in accounts receivable was
in line with revenue growth.
Net cash provided by operating
activities was RMB198.5 million in 2015. Our net cash provided by operating activities in 2015 reflected a net loss of RMB1.6 billion,
adjusted for non-cash items of RMB686.2 million and changes in operating assets and liabilities net of acquisitions and disposals
of RMB1.2 billion. Non-cash reconciling items mainly included investment loss of RMB230.6 million, share of results of equity investees
of RMB717.6 million, gain on deconsolidation and disposal of businesses of RMB765.1 million, depreciation and amortization expenses
of RMB209.1 million and share-based compensation expenses of RMB176.6 million. Changes in operating assets and liabilities mainly
represented an increase in customer advances of RMB484.0 million, an increase in deferred revenues of RMB363.2 million, an increase
in accounts payable of RMB304.9 million, an increase in accrued expenses and other liabilities of RMB162.1 million and an increase
in salary and welfare payable of RMB167.7 million, and were partially offset by an increase in accounts receivable of RMB166.2
million and an increase in prepayments and other assets of RMB158.7 million. Deferred revenues and customer advances increased
as the collection of our membership services and online marketing services grew rapidly as a result of rapid growth in the number
of paying membership accounts. The increase in accounts payable was primarily due to our consolidation of the financial statements
of Ganji and Anjuke, and the year-over-year increase in advertising expenses for the 58 platforms primarily resulted from increasing
competition. The increase in accounts receivable was primarily due to our consolidation of Anjuke’s financials.
Investing
Activities
Net cash used in investing
activities primarily consists of long-term investments and business acquisitions, purchase of office space, investment in short-term
financial instruments and term deposits to increase the interest income for our excess cash. We expect that our capital expenditures
will increase as we purchase additional equipment and servers and expand our technology infrastructure to support the growth of
our business.
Our net cash used in investing
activities in 2017 was RMB2.9 billion, primarily due to RMB18.5 billion used in purchase of short-term investments, RMB467.4 million
used in purchase of long-term investments, RMB330.2 million decrease due to deconsolidation and disposal of businesses, RMB121.3
million used in purchase of property and equipment and intangible assets, RMB91.9 million paid for step-acquisition of Ganji, net
of acquisition of cash, RMB15.8 million paid to term deposits and other advances, which were partially offset by RMB15.9 billion
of proceeds from maturity of short-term investments, RMB353.5 million received from disposal of long-term investments, RMB348.7
million increase in restricted cash, RMB61.2 million proceeds from maturity of term deposits, RMB1.7 million received from acquisitions
of other subsidiaries, net of acquisition of cash, and RMB0.5 million received from disposal of property and equipment.
Our net cash used in investing
activities in 2016 was RMB3.9 billion, primarily due to cash payments of RMB1.5 billion related to our investment in Ganji, RMB190.9
million related to our acquisition of Anjuke and increase in restricted cash of RMB1.1 billion as collateral for the RMB1.1 billion
short-term bank loan borrowed from CMB Bank in 2016. We purchased RMB9.7 billion short-term investments, which were partially offset
by RMB9.1 billion of proceeds from maturity of short-term investments in 2016.
Our net cash used in investing
activities in 2015 was RMB2.8 billion, primarily due to cash paid for investment in Ganji of RMB3.3 billion and acquisition of
Anjuke of RMB766.5 million. Our net cash used in investing activities in 2015 also included RMB1.3 billion we paid for purchase
of office space in Beijing and Tianjin headquarters as well as other property and equipment, and RMB3.0 billion we used to purchase
short-term financial instruments, which were partially offset by RMB4.4 billion of proceeds from maturity of short-term investments.
Financing
Activities
Net cash provided by financing
activities primarily consists of net proceeds from the issuance of ordinary and preference shares as well as borrowing from an
existing shareholder.
Our net cash provided by
financing activities in 2017 was RMB571.1 million, and primarily consisted of RMB1.4 billion of proceeds from the issuance of
preferred shares of a subsidy to Tencent, RMB740.1 million of proceeds from long-term loans, RMB164.6 million contribution from
noncontrolling interest holders, RMB100.9 million of proceeds from exercise of share options, which was partially offset by RMB1.8
billion repayment of short-term loans.
Our net cash provided by financing
activities in 2016 was RMB58.6 million, primarily consisted of proceeds from short-term bank borrowing of RMB2.9 billion from CMB
Bank, repayment of RMB1.2 billion short-term bank borrowing from CMB Bank, cash paid by employees for their exercise of share options
of RMB21.1 million and cash contributed by noncontrolling shareholders of affiliated PRC companies of RMB28.2 million, which were
partially offset by proceeds from long-term bank borrowing of RMB150.0 million from Shanghai Pudong Development Bank, and repayment
of RMB1.8 billion short-term borrowing from Tencent.
Our net cash provided by financing
activities in 2015 was RMB4.9 billion, primarily attributable to the proceeds from borrowing of short-term loans of RMB2.5 billion,
and the proceeds from issuance of ordinary shares to Tencent of RMB2.5 billion.
Capital Expenditures
We had capital expenditures
of RMB1.3 billion, RMB213.1 million and RMB121.3 million in 2015, 2016 and 2017, respectively. Our capital expenditures were primarily
for the purchase of servers, other equipment and office buildings. In 2015, 2016 and 2017, we paid RMB1.1 billion, nil and nil,
respectively, for the purchase of new office spaces. Our capital expenditures have been primarily funded by net cash provided by
financing activities and net cash provided by operating activities.
Holding Company Structure
We are a holding company with
no material operations of our own. We conduct our operations primarily through our wholly owned subsidiaries and consolidated affiliated
entities in China. As a result, our ability to pay dividends to our shareholders depends upon dividends paid by our PRC subsidiaries.
If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability
to pay dividends to us. In addition, our PRC subsidiaries are permitted to pay dividends to us only out of their retained earnings,
if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and
our consolidated variable interest entities in China is required to set aside at least 10% of its after-tax profits each year,
if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, each
of our subsidiaries and consolidated affiliated entities in China may allocate a portion of its after-tax profits based on PRC
accounting standards to staff welfare and bonus funds at its discretion. These reserve funds and staff welfare and bonus funds
are not distributable as cash dividends. Most of our PRC subsidiaries and consolidated affiliated entities have incurred accumulated
losses. Our PRC subsidiaries have never paid dividends and do not plan to pay dividends until they generate accumulated profits
and meet the requirements for statutory reserve funds.
|
C.
|
Research and Development
|
As of December 31, 2017, we
had approximately 3,000 product development and engineering professionals who focus on developing products to deliver and enhance
user experience. We have developed a robust technology platform capable of efficiently processing large amounts of data, screening
the relevance and credibility of information, and delivering a superior search indexing function. Our system is built on a distributed,
load balanced computing infrastructure, which is highly scalable and reliable. This allows us to expand processing capacity and
add new features and functionalities efficiently without incurring significant additional costs.
Our success and ability to
compete depend, in part, upon our ability to establish and adequately protect our intellectual property rights. In this regard,
we rely primarily on a combination of patent, copyright, software registration, trademark, trade secret and unfair competition
laws and contractual rights, such as confidentiality and license agreements with our employees, partners and others. As of March
31, 2018, we held 51 patents and had applied for the registration of 376 other patents, which cover a variety of technologies,
including those relating to data processing, search, distribution and publishing. As of March 31, 2018, we had registered 244
computer software copyrights and 74 artwork copyrights in China, and had registered 37 domain names that are material to our business,
including www.58.com, www.58.com.cn, www.ganji.com, www.ganji.com.cn, www.anjuke.com and www.anjuke.cn, and 1,312 trademarks,
including
,
and
, in China, excluding those relating to 58 Home.
Other than as disclosed elsewhere
in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period since January
1, 2017 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital
resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results
or financial conditions.
|
E.
|
Off-Balance Sheet Arrangements
|
We have not entered into any
financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any
derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our
consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an
unconsolidated entity that serve as credit, liquidity or market risk support to such entity. We do not have any variable interest
in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging
or product development services with us.
|
F.
|
Tabular Disclosure of Contractual Obligations
|
We lease our facilities and
offices under non-cancelable operating lease agreements. Certain of these arrangements have renewal or expansion options and adjustments-for-market
provisions, such as free or escalating base monthly rental payments.
We use third-party services
for server custody and bandwidth. The contracts are typically 12 months in duration. We typically contract these services according
to the traffic level of our online platforms and the respective server storage and bandwidth required to support the traffic.
The following table sets forth
our contractual obligations and commercial commitments as of December 31, 2017:
|
|
Payment Due by Period
|
|
|
|
Total
|
|
|
Less than
1 year
|
|
|
2–3 years
|
|
|
4–5 years
|
|
|
More
than
5 years
|
|
|
|
(in thousands of RMB)
|
|
Operating lease commitments
|
|
|
474,688
|
|
|
|
182,456
|
|
|
|
179,751
|
|
|
|
69,843
|
|
|
|
42,638
|
|
Server custody and bandwidth fee commitments
|
|
|
79,588
|
|
|
|
50,330
|
|
|
|
29,258
|
|
|
|
-
|
|
|
|
-
|
|
Advertising commitments
|
|
|
5,686
|
|
|
|
5,686
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Bank loans and accrued interest payable
|
|
|
888,717
|
|
|
|
101,866
|
|
|
|
786,851
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
1,448,679
|
|
|
|
340,338
|
|
|
|
995,860
|
|
|
|
69,843
|
|
|
|
42,638
|
|
In April 2016, we obtained
a secured loan of US$275.0 million from CMB Bank. The loan is interest bearing and has a 13-month tenor. The proceeds from this
loan were used to repay our amended loan from Tencent. We fully repaid the loan from CMB Bank in April 2017.
In September and December
2016, we obtained new interest-bearing loans amounted to US$157.5 million from CMB Bank. These bank borrowings were secured by
term deposits amounted to US$165.6 million, which was classified as restricted cash in our consolidated balance sheets. These loans
were fully repaid upon maturity in September and December 2017, respectively, using our own funds.
In November 2016, we obtained
a three-year interest bearing loan of RMB150.0 million from Shanghai Pudong Development Bank, which was secured by one of our office
buildings as collateral. The proceeds from this loan will be used to build a local life information cloud platform based on big
data. According to the loan agreement, the principal amount will be repaid in four installments, with two installments totaling
RMB75.0 million due in 2018 and the other two installments of RMB75.0 million due in 2019.
We obtained a two-year interest-bearing
loan amounted to US$107.5 million from CMB Bank in April 2017. This bank loan was secured by two-year term deposits in Renminbi
amounted to RMB792.0 million. We used the proceeds from this loan to repay the remaining outstanding balance under our April 2016
short-term loan from CMB Bank.
This annual report on Form
20-F contains forward-looking statements. These statements are made under the “safe harbor” provisions of Section 21E
of the Securities Exchange Act of 1934, as amended. These forward-looking statements can be identified by terminology such as “will,”
“expects,” “anticipates,” “future,” “intends,” “plans,” “believes,”
“estimates,” “confident” and similar statements. Among other things, the sections titled “Item 3.
Key Information — D. Risk Factors,” “Item 4. Information on the Company,” and “Item 5. Operating
and Financial Review and Prospects” in this annual report on Form 20-F, as well as our strategic and operational plans, contain
forward-looking statements. We may also make written or oral forward-looking statements in our filings with the SEC, in our annual
report to shareholders, in press releases and other written materials and in oral statements made by our officers, directors or
employees to third parties. Statements that are not historical facts, including statements about our beliefs and expectations,
are forward-looking statements and are subject to change, and such change may be material and may have a material and adverse effect
on our financial condition and results of operations for one or more prior periods.
Forward-looking statements
involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those
contained, either expressly or implicitly, in any of the forward-looking statements in this annual report on Form 20-F. Potential
risks and uncertainties include, but are not limited to, our goals and strategies, our future business development, financial condition
and results of operations, ability to retain and grow our user base and network of business users for our online platforms, the
growth of, and trends in, the markets for our services in China, the demand for and market acceptance of our brand and services,
competition in our industry in China, our ability to maintain the network infrastructure necessary to operate our platforms and
mobile applications, relevant government policies and regulations relating to the corporate structure, business and industry, and
our ability to protect its users’ information and adequately address privacy concerns. All information provided in this annual
report on Form 20-F and in the exhibits is as of the date of this annual report on Form 20-F, and we do not undertake any obligation
to update any such information, except as required under applicable law.
|
ITEM 6.
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
|
A.
|
Directors and Senior Management
|
The following table sets forth
information regarding our executive officers and directors as of the date of this annual report.
Directors and
Executive Officers
|
|
Age
|
|
Position/Title
|
Jinbo Yao
|
|
42
|
|
Chairman and Chief Executive Officer
|
Xiaoguang Wu
|
|
43
|
|
Director
|
Frank Lin
|
|
54
|
|
Independent Director
|
Herman Yu
|
|
48
|
|
Independent Director
|
Chi (Eric) Zhang
|
|
43
|
|
Independent Director
|
Xiaohua Chen
|
|
37
|
|
Chief Strategic Officer; Chief Executive Officer of 58 Home
|
Hao Zhou
|
|
42
|
|
Chief Financial Officer
|
Hongyu Xing
|
|
46
|
|
Chief Technology Officer
|
Jiandong Zhuang
|
|
50
|
|
Executive Vice President of Housing and Auto Business Group (HBG & ABG)
|
Mingke He
|
|
40
|
|
Senior Vice President of Sales
|
Mr. Jinbo Yao
is our
founder and has served as chairman of our board of directors and chief executive officer of our company since our inception. Mr.
Yao is a pioneer in the PRC internet industry. Before founding our company, in 2000, Mr. Yao founded domain.cn, a domain name transaction
and value-added service website in China. After domain.cn was acquired by net.cn in September 2000, Mr. Yao served various managerial
roles at net.cn including vice president of sales until 2005. Mr. Yao currently serves on the board of directors of two NYSE-listed
companies, namely Noah Holdings Limited, a leading wealth and asset management service provider in China, and Cheetah Mobile Inc.,
a leading mobile internet company. Mr. Yao received bachelor’s degrees in computer science and chemistry from Ocean University
of China (formerly known as Ocean University of Qingdao) in 1999.
Mr. Xiaoguang Wu
has
served as our director since August 2014. Mr. Wu has served as a senior executive vice president at Tencent. Mr. Wu joined Tencent
in 1999 to lead development and product planning for Tencent’s core product QQ instant messaging. He served successively
as project manager for QQ’s research and development team, general manager for IM Products, and general manager for the internet
business division. Mr. Wu was promoted to senior vice president of Internet Services Division and chief executive officer of Tencent
E-Commerce Holdings Limited. Mr. Wu also serves on the board of directors of China Online Education Group, eLong, Inc., Wanda Electronic
Commerce Technology Co., Ltd., Shanghai New Feifan E-commerce Co., Ltd., Okay Buy (China) Holding Inc., Nanjing Wangdian Technology
Co., Ltd. and Yixun.com. Mr. Wu received his bachelor’s degree in weather dynamics from Nanjing University in 1996 and an
EMBA degree from China Europe International Business School (CEIBS) in 2008.
Mr. Frank Lin
has served
as our director since March 2010. Mr. Lin is a general partner of DCM, an early stage technology venture capital firm. Prior to
joining DCM in 2006, Mr. Lin was chief operating officer of SINA Corporation, a Nasdaq-listed company. He co-founded sina.com’s
predecessor company, SinaNet, in 1995 and later guided the company through its listing on NASDAQ. Prior to founding SinaNet, Mr.
Lin was a consultant at Ernst & Young Management Consulting Group. He had also held various marketing, engineering and managerial
positions at Octel Communication Inc. and NYNEX. Mr. Lin currently serves on the board of directors of numerous companies invested
by DCM, including Vipshop Holdings Limited, a NYSE-listed company, and Tuniu Corporation, a NASDAQ-listed company. Mr. Lin received
his bachelor’s degree in engineering from Dartmouth College and a master’s degree in business administration from Stanford
University.
Mr. Herman Yu
has served
as an independent director since the listing of our company. Mr. Yu currently serves as chief financial officer of Baidu (Nasdaq:
BIDU), and also serves as director at ZTO Express Inc. (NYSE: ZTO) and Ctrip.com International, Ltd.(Nasdaq: CTRP). Prior to joining
Baidu, Mr. Yu served as chief financial officer of Weibo Corp. (Nasdaq: WB) from 2015 to 2017. From 2004 to 2015, Mr. Yu worked
at SINA Corp., and served as its chief financial officer from 2007 to 2015. Mr. Yu began his career in Silicon Valley, where he
held various finance and accounting management positions at Adobe Systems Inc., Cadence Design Systems, Inc. and VeriFone Systems,
Inc. Mr. Yu, a certified public accountant in California, holds a B.A. in economics from the University of California and an M.A.
in accountancy from the University of Southern California.
Mr. Chi (Eric) Zhang
has served
as our director and a member of the nominating and corporate governance committee of our board of directors since November 2015.
Eric Zhang is a Managing Director at General Atlantic, which he joined in 2016. Mr. Zhang heads the Firm’s business in China.
He serves on the boards of Kaiyuan, Little Golden Star Kindergarten, and Ocean Link. Mr. Zhang also serves on the Investment Committee
of Ocean Voyage. Prior to joining General Atlantic, Mr. Zhang was a Global Partner and Managing Director at The Carlyle Group,
where he focused on investment opportunities in Asia from 2006 to 2016. He is currently an independent director on the board of
58.com and has previously served on the boards of China Reading, SouFun, Yashili, Plateno Group, Crystal Orange Hotel Group, Kaiyuan
Hotel Group, New Century Asset Management Co. Ltd. and AnNeng Logistics Group. He also served as a board member for both the general
partner and the management company of Carlyle Beijing Partner – RMB Fund. Before joining Carlyle in 2006, Mr. Zhang was
a Vice President of M&A at Credit Suisse, based in the firm’s Hong Kong office. Prior to that, he was a Vice President
in the Investment Banking Division at China International Capital Corporation Limited in Beijing. Eric received an M.A. in economics
from Shanghai University of Finance and Economics.
Mr. Xiaohua Chen
has
served as our chief strategic officer since August 2014 and the chief executive officer of 58 Home since May 2014. Mr. Chen served
as our senior vice president of product management and website operation from December 2007 to August 2014. From June to December
2007, Mr. Chen served as head of product department at ganji.com responsible for product management and customer experience. Prior
to joining ganji.com, he was the senior project manager and chief editor at Xiamen Haowei Network Technology Co., Ltd. Mr. Chen
is a co-founder of dunsh.org, a nonprofit search engine optimization website in China. While in college, Mr. Chen co-founded 0755.org.cn,
one of the earliest online classifieds providers in China. Mr. Chen received a bachelor’s degree in material formation from
Xiangtan University in 2004.
Mr. Hao Zhou
has served
as our chief financial officer since May 2011. Mr. Zhou also currently serves as director at Meitu, Inc., a global innovator in
mobile video and photography listed in HKSE. Prior to joining our company, Mr. Zhou was chief financial officer in CITIC Pharmaceutical
Co., Ltd. since September 2010. From May 2009 to September 2010, Mr. Zhou held two senior management positions at Wuxi PharmaTech
(Cayman) Inc., with the latest position as the chief financial officer. From 1998 to 2009, Mr. Zhou held various senior finance
managerial positions at General Electric Company and served as the senior finance manager of Greater China from 2007 to 2009. Mr.
Zhou received his bachelor’s degree from Shanghai International Studies University in 1998.
Mr. Hongyu Xing
has served as our chief technology officer since March 2016. He joined the company in February 2015 as a senior
vice president. Mr. Xing has more than 10 years of experience in the internet industry. Prior to joining us, Mr. Xing held
various positions at Tencent including general manager in charge of search products, network and media products and
microblogs from June 2005 to February 2015. Prior to that, Mr. Xing worked at IBM China’s Research Center from April
1999 to March 2000. Mr. Xing received a master’s degree in electronics engineering from Tsinghua University in
1999.
Mr. Jiandong Zhuang
currently serves as the executive vice president of Housing Business Group (HBG) and Automative Business Group (ABG). Prior to
that, Mr. Zhuang served as our senior vice president of sales since September 2007. From January 2005 to January 2007, Mr. Zhuang
founded and managed Beijing Yingpu Bailian Technology Trading Co., Ltd., a SMS website and wireless service operator. Prior to
founding his own company, Mr. Zhuang managed the China Unicom CDM operation and sales at Beijing Lianyin Investment Co., Ltd from
May 2003 to December 2004. Mr. Zhuang received a bachelor’s degree in chemistry from Capital Normal University in 1991.
Mr. Mingke He
currently
serves as our senior vice president of Human Resource Group (HRG), Listing Business Group (LBG) and Social Listing Group (SLG).
He joined the company in July 2015. Prior to joining us, Mr. He was the founder and chief executive officer of Yimian Data from
May 2014 to July 2015, senior vice president of QVOD Technologies from May 2013 to April 2014, vice president of SAIF Partners
(Softbank Asia Investment Fund) from July 2008 to May 2012. Mr. He received a master’s degree in business administration
from Stanford University in 2008, and a bachelor’s degree in automotive engineering and a master’s degree in management
science from Tsinghua University in 2001 and 2003, respectively.
In 2017, we paid an aggregate
of approximately RMB12.5 million in cash to our executive officers as of the date of this annual report, which excludes the compensation
58 Home paid to Mr. Xiaohua Chen as chief executive officer of 58 Home, and approximately US$40,000 cash compensation to our independent
directors as of the date of this annual report.
Employment Agreements and
Indemnification Agreements
We have entered into employment
agreements with each of our executive officers. We may terminate an executive officer’s employment for cause at any time
without advance notice or remuneration for certain acts of the officer, such as conviction or guilty plea to a felony or any crime
involving moral turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. We
may also terminate an executive officer’s employment without cause by giving one-month advance written notice. In such case
of termination by us, we will provide severance payments to the executive officer as expressly required by applicable law of the
jurisdiction where the executive officer is based. An executive officer may resign at any time by giving one-month advance written
notice.
Each executive officer has
agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence and not
to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable
law, any of our confidential information or trade secrets, any confidential information or trade secrets of our clients or prospective
clients, or the confidential or proprietary information of any third party received by us and for which we have confidential obligations.
The executive officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets which they conceive,
develop or reduce to practice during the executive officer’s employment with us and to assign all right, title and interest
in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these inventions, designs
and trade secrets.
In addition, each executive
officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and
typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) approach
our suppliers, clients, customers or contacts or other persons or entities introduced to the executive officer in his or her capacity
as a representative of us for the purpose of doing business with such persons or entities that will harm our business relationships
with these persons or entities; (ii) assume employment with or provide services to any of our competitors, or engage, whether as
principal, partner, licensor or otherwise, any of our competitors, without our express consent; or (iii) seek directly or indirectly,
to solicit the services of any of our employees who is employed by us on or after the date of the executive officer’s termination,
or in the year preceding such termination, without our express consent.
We have also entered into
indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify our
directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made
by reason of their being a director or officer of our company.
Share Incentive Plans
We have adopted two share
incentive plans, namely, the 2010 Plan and the 2013 Plan. The purpose of these two-share incentive plans is to attract, motivate
and retain the best available personnel by linking their personal interests to the success of our business. As of March 31, 2018,
options and restricted share units to purchase 1,654,780 ordinary shares were issued and outstanding under the 2010 Plan, and 7,730,854
ordinary shares were issued and outstanding under the 2013 Plan.
The 2010
Employee Stock Option Plan
The maximum number of shares
in respect of which share awards may be granted under the 2010 Plan is 20,173,225. The following paragraphs summarize the terms
of the 2010 Plan.
Plan Administration
.
The plan administrator is our board of directors, or one or more committees designated by our board of directors. The plan administrator
will determine the provisions and terms and conditions of each grant.
Award Agreement
.
Options granted under the plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each
grant.
Option Exercise Price
.
The exercise price subject to an option shall be determined by the plan administrator and set forth in the award agreement. The
exercise price may be amended or adjusted by the administrator for the benefit of any eligible person.
Eligibility
.
We may grant awards to our directors, officers, employees and consultants of our company or any of our subsidiaries.
Term of the Awards
.
The term of each option grant shall not exceed 10 years from the date of the grant.
Vesting Schedule
.
In general, the plan administrator determines the vesting schedule or conditions, which is set forth in the award agreement.
Transfer Restrictions
.
Awards for options may not be transferred in any manner by the award holders and may be exercised only by such holders, subject
to limited exceptions. However, the award holder shall be permitted to transfer options to a trust controlled by such award holder
during his or her lifetime for estate planning purposes.
Termination of Employment
or Service
. In the event that an award recipient ceases employment with us or ceases to provide services to us, any vested
options will generally terminate after a period of time following the termination of employment if the award recipient does not
exercise the options during this period.
Termination and Amendment
of the Plan
. Unless terminated earlier, the 2010 Plan will terminate automatically in 2020. Our board of directors has
the authority to amend or terminate the plan subject to shareholder approval with respect to certain amendments. However, no such
action may adversely affect in any material way any awards previously granted unless agreed by the recipient.
The 2013
Share Incentive Plan
We adopted the 2013 Plan in
September 2013. The maximum aggregate number of shares which may be issued pursuant to all awards under the 2013 Plan was 2,800,000
Class A ordinary shares as of the date of its adoption. The 2013 Plan contains an evergreen provision, pursuant to which the number
of shares reserved for future issuances under the 2013 Plan will be increased by a number equal to 1.5% of the total number of
outstanding shares on the last day of the immediately preceding calendar year, on the first day of each calendar year during the
term of the 2013 Plan beginning in 2015, or such lesser number of Class A ordinary shares as determined by our board of directors.
Taking into account the automatic increase of 4,409,477 ordinary shares at the beginning of 2018 pursuant to the evergreen provision
of the 2013 Plan, the maximum aggregate number of shares which may be issued pursuant to all awards under the 2013 Plan is 26,686,700
ordinary shares, consisting of 19,686,700 Class A ordinary shares and 7,000,000 Class B ordinary shares, as of the date of this
annual report.
The following paragraphs describe
the principal terms of the 2013 Plan.
Types of Awards
.
The 2013 Plan permits the awards of options, restricted shares, restricted share units or any other type of awards that the committee
or the board decides.
Plan Administration
.
Our board of directors, our compensation committee or a committee designated by our board will administer the 2013 Plan. The committee
or the full board of directors, as applicable, will determine the participants to receive awards, the type and number of awards
to be granted to each participant, and the terms and conditions of each award grant.
Award Agreement
.
Awards granted under the 2013 Plan are evidenced by an award agreement that sets forth terms, conditions and limitations for each
award, which may include the term of the award, the provisions applicable in the event of the grantee’s employment or service
terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.
Eligibility
.
We may grant awards to our employees, directors and consultants of our company; however, we may grant options that are intended
to qualify as incentive share options only to our employees and employees of our parent companies and subsidiaries.
Acceleration of Awards
upon Change in Control
. If a change in control of our company occurs, the plan administrator may, in its sole discretion,
provide for (i) all awards outstanding to terminate at a specific time in the future and give each participant the right to exercise
the vested portion of such awards during a specific period of time, or (ii) the purchase of any award for an amount of cash equal
to the amount that could have been attained upon the exercise of such award, or (iii) the replacement of such award with other
rights or property selected by the plan administrator in its sole discretion, or (iv) payment of award in cash based on the value
of ordinary shares on the date of the change-in-control transaction plus reasonable interest.
Vesting Schedule
.
In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.
Exercise of Options
.
The plan administrator determines the exercise price for each award, which is stated in the award agreement. The vested portion
of option will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. However,
the maximum exercisable term is the tenth anniversary after the date of a grant.
Transfer Restrictions
.
Awards may not be transferred in any manner by the recipient other than by will or the laws of descent and distribution, except
as otherwise provided by the plan administrator.
Termination of the 2013
Plan
. Unless terminated earlier, the 2013 Plan will terminate automatically in 2023. Our board of directors has the authority
to amend or terminate the plan subject to shareholder approval or home country practice.
The following table summarizes,
as of March 31, 2018, outstanding options and restricted share units held by our executive officers and directors under our 2010
Plan and 2013 Plan.
Name
|
|
Ordinary Shares
Underlying
Options Awarded
and Restricted
Share Units
|
|
|
Exercise
Price (US$/Share)
|
|
|
Date of Grant
|
|
Date of Expiration
|
Jinbo Yao
|
|
|
*
|
|
|
|
0
|
|
|
August 24, 2015
|
|
August 23, 2025
|
|
|
|
*
|
|
|
|
0
|
|
|
March 24, 2017
|
|
March 23, 2027
|
|
|
|
*
|
|
|
|
0
|
|
|
August 20, 2017
|
|
August 19, 2027
|
Xiaohua Chen
|
|
|
*
|
|
|
|
2.500
|
|
|
July 31, 2013
|
|
July 30, 2023
|
|
|
|
*
|
|
|
|
5.600
|
|
|
October 14, 2013
|
|
October 13, 2023
|
Hao Zhou
|
|
|
*
|
|
|
|
2.220
|
|
|
May 31, 2011
|
|
May 30, 2021
|
|
|
|
*
|
|
|
|
2.500
|
|
|
July 31, 2013
|
|
July 30, 2023
|
|
|
|
*
|
|
|
|
5.600
|
|
|
October 14, 2013
|
|
October 13, 2023
|
|
|
|
*
|
|
|
|
0
|
|
|
August 24, 2015
|
|
August 23, 2025
|
|
|
|
*
|
|
|
|
20.980
|
|
|
August 24, 2015
|
|
August 23, 2025
|
|
|
|
*
|
|
|
|
0
|
|
|
September 21, 2016
|
|
September 20, 2026
|
|
|
|
*
|
|
|
|
0
|
|
|
February 24, 2017
|
|
February 23, 2027
|
|
|
|
*
|
|
|
|
0
|
|
|
August 20, 2017
|
|
August 19, 2027
|
Jiandong Zhuang
|
|
|
*
|
|
|
|
0
|
|
|
April 13, 2015
|
|
April 13, 2025
|
|
|
|
*
|
|
|
|
0
|
|
|
August 24, 2015
|
|
August 23, 2025
|
|
|
|
*
|
|
|
|
0
|
|
|
September 21, 2016
|
|
September 20, 2026
|
|
|
|
*
|
|
|
|
0
|
|
|
February 24, 2017
|
|
February 23, 2027
|
|
|
|
*
|
|
|
|
0
|
|
|
March 24, 2017
|
|
March 23, 2027
|
|
|
|
*
|
|
|
|
0
|
|
|
August 20, 2017
|
|
August 19, 2027
|
Hongyu Xing
|
|
|
*
|
|
|
|
0
|
|
|
February 27, 2015
|
|
February 26, 2025
|
|
|
|
*
|
|
|
|
18.675
|
|
|
February 27, 2015
|
|
February 26, 2025
|
|
|
|
*
|
|
|
|
20.980
|
|
|
August 24, 2015
|
|
August 23, 2025
|
|
|
|
*
|
|
|
|
0
|
|
|
September 21, 2016
|
|
September 20, 2026
|
|
|
|
*
|
|
|
|
0
|
|
|
February 24, 2017
|
|
February 23, 2027
|
|
|
|
*
|
|
|
|
0
|
|
|
August 20, 2017
|
|
August 19, 2027
|
Mingke He
|
|
|
*
|
|
|
|
0
|
|
|
August 24, 2015
|
|
August 23, 2025
|
|
|
|
*
|
|
|
|
0
|
|
|
September 21, 2016
|
|
September 20, 2026
|
|
|
|
*
|
|
|
|
0
|
|
|
February 24, 2017
|
|
February 23, 2027
|
|
|
|
*
|
|
|
|
0
|
|
|
August 20, 2017
|
|
August 19, 2027
|
Herman Yu
|
|
|
*
|
|
|
|
8.500
|
|
|
October 30, 2013
|
|
October 29, 2023
|
|
*
|
Less than one percent of our total outstanding share capital.
|
As of March 31, 2018, other
employees as a group held options and restricted share units to purchase 5,193,044 ordinary shares of our company, with exercise
prices ranging from US$ nil to US$38.14 per ordinary share.
The 58
Home 2015 Plan
58 Home adopted the 58 Home
2015 Plan in February 2015. The 58 Home 2015 Plan permits the awards of options, restricted shares and restricted share units.
Unless terminated earlier, the 58 Home 2015 Plan will terminate automatically in 2025.
In February and April 2015,
58 Home granted options to purchase an aggregate of approximately 8.9 million ordinary shares of 58 Home to its employees and to
the employees of certain other subsidiaries and affiliated companies of our company. In February 2015, 58 Home granted 9.1 million
restricted shares to selected management members of 58 Home. In April 2015, 58 Home further granted approximately 1.9 million restricted
shares of 58 Home to an executive officer of our company. The foregoing disclosure of awards granted by 58 Home under its 2015
Plan only relates to the period prior to November 27, 2015 when 58 Home was deconsolidated from our consolidated results of operations.
The Zhuan
Zhuan 2017 Plan
In September 2017, Zhuan Zhuan Holding,
our subsidiary, adopted a share incentive plan, or the Zhuan Zhuan 2017 Plan. The Zhuan Zhuan 2017 Plan permits the
awards of options, restricted share units and restricted shares. Awards of share rights may be granted under Zhuan Zhuan 2017
Plan to employees and management of Zhuan Zhuan Holding and of any present or future parents or subsidiaries or variable interest
entities of Zhuan Zhuan Holding. The maximum term of any share right granted under the plan is ten years from the grant date.
The Zhuan Zhuan 2017 Plan will expire on September 30, 2027.
Our board of directors currently
consists of five directors. A director is not required to hold any shares in our company to qualify to serve as a director. A director
may vote with respect to any contract, proposed contract, or arrangement in which he or she is materially interested provided the
necessary disclosure of interests is made. A director may exercise all the powers of the company to borrow money, mortgage its
business, property and uncalled capital and issue debentures or other securities whenever money is borrowed or as security for
any obligation of the company or of any third party.
Committees of the Board
of Directors
We have three committees of
the board of directors: the audit committee, the compensation committee and the nominating and corporate governance committee.
We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.
Audit Committee
.
Our audit committee consists of Herman Yu, Frank Lin and Chi (Eric) Zhang, and is chaired by Herman Yu. Messrs. Yu, Lin and Zhang
satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange
and meet the independence standards under Rule 10A-3 under the Exchange Act. We have determined that Herman Yu qualifies as an
“audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and
the audits of the financial statements of our company. The audit committee is responsible for, among other things:
|
·
|
selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing
services permitted to be performed by the independent registered public accounting firm;
|
|
·
|
reviewing with the independent registered public accounting firm any audit problems or difficulties
and management’s response;
|
|
·
|
reviewing and approving all proposed related party transactions;
|
|
·
|
discussing the annual audited financial statements with management and the independent registered
public accounting firm;
|
|
·
|
reviewing and discussing our company’s earnings press releases;
|
|
·
|
reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted
in light of material control deficiencies;
|
|
·
|
meeting separately and periodically with management and the independent registered public accounting
firm; and
|
|
·
|
monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy
and effectiveness of our procedures to ensure proper compliance.
|
Compensation Committee
.
Our compensation committee consists of Chi (Eric) Zhang, Herman Yu and Frank Lin, and is chaired by Chi (Eric) Zhang. Messrs. Zhang,
Yu and Lin satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York
Stock Exchange. The compensation committee assists the board in reviewing and approving the compensation structure, including all
forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any
committee meeting during which his compensation is deliberated upon. The compensation committee is responsible for, among other
things:
|
·
|
reviewing and approving, or recommending to the board for its approval, the compensation for our chief
executive officer and other executive officers;
|
|
·
|
reviewing and recommending to the board for determination with respect to the compensation of our
non-employee directors;
|
|
·
|
reviewing periodically and approving any incentive compensation or equity plans, programs or similar
arrangements; and
|
|
·
|
selecting compensation consultant, legal counsel or other adviser only after taking into consideration
all factors relevant to that person’s independence from management.
|
Nominating and Corporate
Governance Committee.
Our nominating and corporate governance committee consists of Frank Lin, Herman Yu and Chi (Eric)
Zhang, and is chaired by Frank Lin. Messrs. Lin, Yu and Zhang satisfy the “independence” requirements of Section 303A
of the Corporate Governance Rules of the New York Stock Exchange. The nominating and corporate governance committee assists the
board in selecting individuals qualified to become our directors and in determining the composition of the board and its committees.
The nominating and corporate governance committee is responsible for, among other things:
|
·
|
recommending nominees to the board for election or re-election to the board, or for appointment to
fill any vacancy on the board;
|
|
·
|
reviewing annually with the board the current composition of the board with regards to characteristics
such as independence, skills, experience, expertise and diversity;
|
|
·
|
selecting and recommending to the board the names of directors to serve as members of the audit committee
and the compensation committee, as well as of the nominating and corporate governance committee itself;
|
|
·
|
developing and reviewing the corporate governance principles adopted by the board and advising the
board with respect to significant developments in the law and practice of corporate governance and our compliance with such laws
and practices; and
|
|
·
|
evaluating the performance and effectiveness of the board as a whole.
|
Duties of Directors
Under Cayman Islands law,
our directors have a duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a
duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in
comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and
articles of association. A shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.
Terms of Directors and
Officers
Our officers are elected by
and serve at the discretion of the board. Our directors are not subject to a term of office and hold office until such time as
they resign or are removed from office by an ordinary resolution of our shareholders. A director will vacate office automatically
if, among other things, the director (i) becomes bankrupt or suspends payments or compounds with his creditors; or (ii) dies or
becomes of unsound mind.
The following table sets forth
the numbers of our employees, categorized by function, as of December 31, 2015, 2016 and 2017, which exclude the employees of 58
Home:
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
Function
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, customer service and marketing
|
|
|
16,323
|
|
|
|
17,920
|
|
|
|
16,212
|
|
Research and development
|
|
|
2,744
|
|
|
|
3,332
|
|
|
|
3,011
|
|
Website operations
|
|
|
533
|
|
|
|
673
|
|
|
|
863
|
|
Management and administrative positions
|
|
|
1,105
|
|
|
|
1,207
|
|
|
|
1,261
|
|
Total
|
|
|
20,705
|
|
|
|
23,132
|
|
|
|
21,347
|
|
Our success depends on our
ability to attract, retain and motivate qualified personnel. We believe we offer our employees competitive compensation packages
and an environment that encourages initiative and meritocracy, and as a result, we have generally been able to attract and retain
qualified personnel and maintain a stable core management team. We design and implement in-house training programs tailored to
each job function and a set of responsibilities to enhance performance. Specific training is provided to new employees at orientation
to familiarize them with our working environment and operational procedures.
As required by PRC regulations,
we participate in various statutory employee benefit plans, including pension, unemployment insurance, childbirth insurance, work-related
injury insurance, medical insurance and housing insurance. We are required under PRC law to make contributions to employee benefit
plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified
by the local government from time to time.
Please refer to “Item
7. Major Shareholders and Related Party Transactions — A. Major Shareholders.”
|
ITEM 7.
|
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
The following table sets forth
information concerning the beneficial ownership of our ordinary shares as of the date of this annual report by:
|
·
|
each of our directors and executive officers; and
|
|
·
|
each person known to us to beneficially own more than 5% of our ordinary shares.
|
The calculations in the table
below are based on 294,743,133 ordinary shares outstanding as of March 31, 2018, comprising 246,702,873 Class A ordinary shares
and 48,040,260 Class B ordinary shares and excluding 1,811,190 Class A ordinary shares issued to our depositary and reserved for
future exercise of vested options and RSUs under our share incentive plans by our management and other employees, which are not
deemed as outstanding for the purpose of calculating the beneficial ownership in the following table.
Beneficial ownership is determined
in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including
through the exercise of any option, warrant, or other right or the conversion of any other security. These shares, however, are
not included in the computation of the percentage ownership of any other person.
|
|
Number
|
|
|
%
(1)
|
|
Directors and Executive Officers:**
|
|
|
|
|
|
|
|
|
Jinbo Yao
|
|
|
31,065,480
|
(2)
|
|
|
10.54
|
|
Xiaoguang Wu
(3)
|
|
|
—
|
|
|
|
—
|
|
Frank Lin
(4)
|
|
|
—
|
|
|
|
—
|
|
Herman Yu
(5)
|
|
|
*
|
|
|
|
*
|
|
Eric Zhang
(6)
|
|
|
—
|
|
|
|
—
|
|
Hao Zhou
|
|
|
*
|
|
|
|
*
|
|
Xiaohua Chen
(7)
|
|
|
*
|
|
|
|
*
|
|
Jiandong Zhuang
(8)
|
|
|
*
|
|
|
|
*
|
|
Hongyu Xing
|
|
|
*
|
|
|
|
*
|
|
Mingke He
|
|
|
—
|
|
|
|
—
|
|
All directors and executive officers as a group
|
|
|
32,921,410
|
|
|
|
11.10
|
|
|
|
|
|
|
|
|
|
|
Principal Shareholders:
|
|
|
|
|
|
|
|
|
Tencent Holdings Limited
|
|
|
67,285,898
|
(9)
|
|
|
22.83
|
|
Nihao China Corporation
|
|
|
29,418,640
|
(10)
|
|
|
9.98
|
|
FMR LLC
|
|
|
17,239,808
|
(11)
|
|
|
5.85
|
|
Notes:
|
*
|
Less than one percent of our total outstanding capital.
|
|
**
|
Except for Mr. Xiaoguang Wu, Mr. Frank Lin, Mr. Herman Yu and Mr. Eric Zhang, the business address
of our directors and executive officers is c/o Building 105, 10 Jiuxianqiao North Road Jia, Chaoyang District, Beijing 100015,
the People’s Republic of China.
|
|
(1)
|
The number of ordinary shares outstanding in calculating the percentages
for each listed person or group includes the ordinary shares underlying the options held by such person or group exercisable within
60 days of March 31, 2018. Percentage of beneficial ownership of each listed person or group is based on (i) 294,743,133 ordinary
shares outstanding as of March 31, 2018, and (ii) the number of ordinary shares underlying options exercisable by such person or
group within 60 days of March 31, 2018.
|
|
(2)
|
Consists of (i) 28,587,204 Class B ordinary shares and 415,718
ADSs (representing 831,436 Class A ordinary shares) held by Nihao China Corporation, a British Virgin Islands company
beneficially owned by Mr. Yao through a trust; and (ii) 1,572,960 Class B ordinary shares beneficially owned by certain of
our executive officers and employees who acquired the ownership of these shares pursuant to our employee stock option plan
and who authorize Mr. Yao to vote these shares on their behalf under power of attorney. Such individuals include all
executive officers and employees who became our ordinary shareholders through our employee stock option plan; and (iii)
73,880 vested restricted share units held by Mr. Yao.
|
|
(3)
|
The business address of Mr. Wu is 39/F, Tencent Building, Kejizhong
Avenue, High Tech Park, Nanshan District, Shenzhen, P. R. China.
|
|
(4)
|
The business address of Mr. Lin is Unit 1, Level 10, Tower W2, Oriental
Plaza, Dong Cheng District, Beijing 100738, P. R. China.
|
|
(5)
|
The business address of Mr. Yu is #8 Sina Plaza, Courtyard 10, the West,
Xibeiwang E. R., Haidian, Beijing 100093, P. R. China.
|
|
(6)
|
The business address of Mr. Zhang is Suite 2801, Two Pacific Place,
Hong Kong.
|
|
(7)
|
Mr. Chen has authorized Mr. Jinbo Yao under power of attorney to vote
the ordinary shares that Mr. Chen currently owns through Trumpway Limited, a British Virgin Islands company wholly owned by Mr.
Chen.
|
|
(8)
|
Mr. Zhuang has authorized Mr. Jinbo Yao under power of attorney to vote
the ordinary shares that Mr. Zhuang currently owns through Magic Mirror Holdings Limited, a British Virgin Islands company wholly
owned by Mr. Zhuang.
|
|
(9)
|
Consists of (i) 41,419,336 Class A ordinary shares and 14,722,000 Class
B ordinary shares directly held by Ohio River Investment Limited, (ii) 4,384,207 ADSs (representing 8,768,414 Class A ordinary
shares) directly held by THL E Limited and (iii) 1,188,074 ADSs, representing 2,376,148 Class A ordinary shares, directly held
by Huang River Investment Limited. Tencent Holdings Limited is reported as the beneficial owner of the aforementioned shares. The
business address of Ohio River Investment Limited and THL E Limited is c/o Tencent Holdings Limited, 29/F., Three Pacific Place,
No. 1 Queen’s Road East, Wanchai, Hong Kong, a as reported in a Schedule 13D/A filed on November 22, 2016.
|
|
(10)
|
Consists of 28,587,204 Class B ordinary shares and 415,718 ADSs (representing
831,436 Class A ordinary shares) held by Nihao China Corporation, a British Virgin Islands company beneficially owned by Mr. Yao
through a trust. Nihao China Corporation has pledged 9,080,004 Class B ordinary shares as security for a loan extended to Mr. Yao
by UBS AG, London Branch in December 2015, and pledged 12,400,000 Class B ordinary shares as security for a loan extended to us
by CMB Bank in April 2016.
|
|
(11)
|
Consists of 17,239,808 Class A ordinary shares beneficially owned by
FMR LLC, as reported on Schedule 13G filed by FMR LLC on February 13, 2018. The percentage of beneficial ownership was calculated
based on the total number of our ordinary shares outstanding as of March 31, 2018. The address of FMR LLC is 245 Summer Street,
Boston, Massachusetts 02210, U.S.A., as reported on the same Schedule 13G.
|
To our knowledge, as of March
31, 2018, a total of 206,183,691 Class A ordinary shares were held by two record holders in the United States, representing approximately
70.0% of our total outstanding shares on an as-converted basis. One of these holders is the depositary of our ADS program, which
held 206,183,690 Class A ordinary shares on record (including the 1,811,190 Class A ordinary shares issued to our depositary and
reserved for future exercise of vested options and RSUs under our share incentive plans by our management and other employees),
representing approximately 70.0% of our total outstanding shares on record as of March 31, 2018. None of our outstanding Class
B ordinary shares were held by record holders in the United States as of March 31, 2018. The number of beneficial owners of our
ADSs in the United States is likely to be much larger than the number of record holders of our ordinary shares in the United States.
Our ordinary shares are divided
into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are entitled to one vote per share,
while holders of Class B ordinary shares are entitled to ten votes per share. Holders of Class A and Class B ordinary shares vote
together as one class on all matters subject to a shareholders’ vote. Each Class B ordinary share is convertible into one
Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary
shares under any circumstance. All options, regardless of grant dates, will entitle holders to the equivalent number of Class A
ordinary shares once the vesting and exercising conditions on such share-based compensation awards are met. We are not aware of
any arrangement that may, at a subsequent date, result in a change of control of our company.
|
B.
|
Related Party Transactions
|
Contractual Arrangements
with Our Consolidated Variable Interest Entities
PRC law currently limits direct
foreign equity ownership of business entities providing value-added telecommunications services. As a result of these foreign ownership
restrictions requirements, we conduct substantially all of our businesses in China through a series of contractual arrangements
with our consolidated affiliated entities and their shareholders. For a description of these contractual arrangements, see “Item
4. Information on the Company — C. Organizational Structure — Our Contractual Arrangements.”
Registration Rights
Pre-IPO
Shareholders Agreement
Pursuant to our shareholders
agreement dated August 4, 2011 that we entered into with all our then shareholders in connection with our issuance of preference
shares prior to our initial public offering, we have granted certain registration rights to our shareholders. Set forth below is
a description of the registration rights granted under the agreement.
Demand Registration Rights
.
At any time beginning six months after the completion of our initial public offering on November 5, 2013, upon a written request
from the holders of at least 20% of the registrable securities held by holders of our ordinary shares converted from preference
shares, we must file a registration statement covering the offer and sale of the registrable securities held by the requesting
shareholders and other holders of registrable securities who choose to participate in the offering. Registrable securities include,
among others, our ordinary shares not previously sold to the public and ordinary shares issued upon conversion of the preference
shares.
However, we are not obligated
to proceed with a demand registration if we have, within the six-month period preceding the date of such request, already effected
a registration under the Securities Act pursuant to the exercise of the holders’ demand registration rights. We have the
right to defer filing of a registration statement for up to 90 days if our board of directors determines in good faith that the
filing of a registration statement would be materially detrimental to us, but we cannot exercise the deferral right more than once
in any 12-month period.
Form F-3 Registration Rights
.
When we are eligible for registration on Form F-3, upon a written request from our the holders of at least 20% of the registrable
securities held by holders of our ordinary shares converted from preference shares, we must file a registration statement on Form
F-3 covering the offer and sale of the registrable securities.
We are not obligated to effect
a Form F-3 registration, among other things, if we have already effected two registrations on Form F-3 in any 12-month period.
We have the right to defer filing of a registration statement for up to 90 days if our board of directors determines in good faith
that the filing of a registration statement would be materially detrimental to us, but we cannot exercise the deferral right more
than once in any 12-month period.
Piggyback Registration
Rights
. If we propose to file a registration statement for a public offering of our ordinary shares on a form that would be
suitable only for registrable securities, we must offer holders of registrable securities an opportunity to include in that registration
all or any part of their registrable securities. The underwriters of any underwritten offering have the right to limit the number
of shares with registration rights to be included in the registration statement, subject to certain limitations.
Expenses of Registration
.
We will pay all expenses relating to any demand, Form F-3, or piggyback registration.
Termination of Obligations
.
We shall have no obligation to effect any demand, Form F-3, or piggyback registration on the earlier of (a) the date that is five
years after the completion of our initial public offering on November 5, 2013, or (b) as to any holder of registrable securities,
the time when all registrable securities held by such holder may be sold in any three-month period without registration pursuant
to Rule 144 under the Securities Act.
Investor
Rights Agreement with Tencent
Pursuant to an investor rights
agreement dated June 30, 2014 that we entered into with Tencent, we have granted certain registration rights to Tencent. Set forth
below is a description of the registration rights granted under the agreement.
Demand Registration Rights
.
Upon a written request from Tencent, we must use all reasonable efforts to effect the registration under the Securities Act of
all registrable securities Tencent requests to be registered. Registrable securities include, subject to limitation, ordinary shares
of our company Tencent acquired in June 2014 and any other ordinary shares of our company owned or acquired by Tencent thereafter.
However, we are not obligated
to proceed with a demand registration if we have, within the six-month period preceding the date of such request, already effected
a registration under the Securities Act pursuant to the exercise of the holders’ demand registration rights. We have the
right to defer filing of a registration statement for up to 90 days if our board of directors determines in good faith that the
filing of a registration statement would be materially detrimental to us, but we cannot exercise the deferral right more than once
in any 12-month period.
Form F-3 Registration Rights
.
When we are eligible for registration on Form F-3, upon a written request from an investor party to the agreement, we must effect
such registration to permit or facilitate the sale and distribution of all or such portion of the investor’s registrable
securities as are specified in such request.
We are not obligated to effect
a Form F-3 registration, among other things, if we have already effected two registrations on Form F-3 in any 12-month period.
We have the right to defer filing of a registration statement for up to 90 days if our board of directors determines in good faith
that the filing of a registration statement would be materially detrimental to us, but we cannot exercise the deferral right more
than once in any 12-month period.
Piggyback Registration
Rights
. If we propose to file a registration statement for a public offering of our securities, we must offer Tencent an opportunity
to include in that registration all or any part of its registrable securities. The underwriters of any underwritten offering have
the right to limit the number of shares with registration rights to be included in the registration statement, subject to certain
limitations.
Expenses of Registration
.
We will pay all expenses relating to any demand, Form F-3, or piggyback registration.
Termination of Obligations
.
We shall have no obligation to effect any demand, Form F-3, or piggyback registration on the earlier of (a) the date that is five
years after the date of the agreement, or (b) as to any holder of registrable securities, the time when all registrable securities
held by such holder may be sold in any ninety-day period without registration pursuant to Rule 144 under the Securities Act.
Registration
Rights Agreement with Former Ganji Shareholders
Pursuant to a registration
rights agreement dated April 20, 2015 that we entered into with certain new shareholders in connection with our issuance of new
Class A ordinary shares as share portion of the purchase price for our acquisition of Ganji shares from the selling shareholders,
we have granted certain registration rights to such new shareholders. Set forth below is a description of the registration rights
granted under the agreement.
Demand Registration Rights
.
Upon a written request from the holders of at least a majority of the registrable securities held by holders of the registrable
securities, we must use all reasonable efforts to effect the registration under the Securities Act of all registrable securities
held by the requesting shareholders and other holders of registrable securities who choose to participate in the offering. Registrable
securities include, subject to limitation, new Class A ordinary shares as share portion of the purchase price for our acquisition
of Ganji.com shares from the selling shareholders.
However, we are not obligated
to proceed with a demand registration if we have, within the six-month period preceding the date of such request, already effected
a registration under the Securities Act pursuant to the exercise of the holders’ demand registration rights. We have the
right to defer filing of a registration statement for up to 90 days if our board of directors determines in good faith that the
filing of a registration statement would be materially detrimental to us, but we cannot exercise the deferral right more than once
in any 12-month period.
Form F-3 Registration Rights
.
When we are eligible for registration on Form F-3, upon a written request from an investor party to the agreement, we must effect
such registration to permit or facilitate the sale and distribution of all or such portion of the investor’s registrable
securities as are specified in such request, together with all or such portion of the registrable securities of any other investor
or investors joining such request.
We are not obligated to effect
a Form F-3 registration, among other things, if we have already effected two registrations on Form F-3 in any 12-month period.
We have the right to defer filing of a registration statement for up to 90 days if our board of directors determines in good faith
that the filing of a registration statement would be materially detrimental to us, but we cannot exercise the deferral right more
than once in any 12-month period.
Piggyback Registration
Rights
. If we propose to file a registration statement for a public offering of our ordinary shares on a form that would be
suitable only for registrable securities, we must offer holders of registrable securities an opportunity to include in that registration
all or any part of their registrable securities. The underwriters of any underwritten offering have the right to limit the number
of shares with registration rights to be included in the registration statement, subject to certain limitations.
Expenses of Registration
.
We will pay all expenses relating to any demand, Form F-3, or piggyback registration.
Termination of Obligations
.
We shall have no obligation to effect any demand, Form F-3, or piggyback registration on the earlier of (a) the date that is five
years after the date of the agreement, or (b) as to any holder of registrable securities, the time when all registrable securities
held by such holder may be sold in any ninety-day period without registration pursuant to Rule 144 under the Securities Act.
Spin-off of Guazi
On December 31, 2015, following
an independent third-party valuation assessment, we divested a controlling ownership stake in Guazi to Mr. Mark Haoyong Yang, co-chairman
of our board of directors at the time, in exchange for US$50 million in cash from Mr. Yang. We concurrently used the proceeds to
invest in a US$50 million non-interest bearing convertible note issued by Guazi. The note was convertible into preference shares
of Guazi to be issued in Guazi’s subsequent round of financing at the same price to be paid by other investors. Immediately
after the spinoff was closed on December 31, 2015, we had approximately a 45.6% stake in Guazi. Mr. Yang resigned from his position
as our co-chief executive officer and serves as chairman and chief executive officer of Guazi.
Convertible Notes of Guazi
In March 2016, Guazi closed
a US$204.5 million round of equity financing with participation from a number of globally recognized institutional investors and
we converted our US$50 million non-interest bearing convertible note into series B preference shares of Guazi.
Short-term Bank Borrowing
Secured by Ordinary Shares Held by Our Chief Executive Officer
In April 2016, we obtained
an interest-bearing loan of US$275.0 million denominated in U.S. dollars from CMB Bank. The loan was secured by 12.4 million Class
B ordinary shares personally owned by Mr. Jinbo Yao, the chief executive officer of our company. Based on the covenant of the loan
agreement, if the aggregate fair value of the pledged shares on any trading date was less than 120% of the outstanding amount of
the corresponding loan and accrued interest payable, we were required to pledge sufficient amount of cash or the chief executive
officer of the company can pledge additional number of shares to cover the shortfall in the fair value of the pledged shares. We
used the proceeds from this loan to prepay the principal and accrued interest of the amended loan from Tencent. As of the date
of this annual report, the loan has been fully repaid and the shares pledged to CMB Bank have been released in May 2017.
Investment in Zhuan Zhuan
In April 2017, we entered
into definitive agreements with Tencent, under which we agree to inject the Zhuan Zhuan app and certain used goods related listing
channels from the 58 and Ganji classified platforms into a separate group of entities, or the Zhuan Zhuan Entities, and Tencent
agrees to invest US$200.0 million in cash and additional business resources into the Zhuan Zhuan Entities for a minority equity
ownership. We will continue our direct traffic and other business support to the Zhuan Zhuan Entities. The transaction was closed
on April 28, 2017, and we currently own a majority of equity stake in the Zhuan Zhuan Entities.
Acquisition of the Remaining
Ganji Equity Interests from Tencent
See “Item 4. Information
on the Company—A. History and Development of the Company.”
Disposal of Finance Business
In September 2017, we entered into
a framework agreement with Mr. Jinbo Yao, the chief executive officer of our company, and other parties thereto, to dispose
our financial services and other finance related business, or the disposed business, to Mr. Jinbo Yao
,
who in return committed to provide capital contributions to the disposed business subsequent to the disposal
.
Pursuant to this framework agreement, we agreed to provide to the disposed business, among other things, some traffic support
and the right to use certain intellectual property rights. In return, we are entitled to profit participation rights in the
disposed business.
Employment Agreements and
Indemnification Agreements
See “Item 6. Directors,
Senior Management and Employees — B. Compensation — Employment Agreements and Indemnification Agreements.”
Stock Incentive Plans
See “Item 6. Directors,
Senior Management and Employees — B. Compensation — Share Incentive Plans.”
|
C.
|
Interests of Experts and Counsel
|
Not applicable.
|
ITEM 8.
|
FINANCIAL INFORMATION
|
|
A.
|
Consolidated Statements and Other Financial Information
|
Please refer to Item 18.
Legal Proceedings
From time to time, we have
become and may in the future become a party to various legal or administrative proceedings arising in the ordinary course of our
business. Internet companies are frequently involved in litigation based on allegations of infringement or other violations of
intellectual property rights and other allegations in connection with the content available on their platforms or services they
provide. We are currently not involved in any legal or administrative proceedings that would materially and adversely affect our
business.
Dividend Policy
We have not previously declared
or paid cash dividends and we have no plan to declare or pay any dividends in the near future on our shares or ADSs. We currently
intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
We are a holding company incorporated
in the Cayman Islands. We rely principally on dividends from our PRC subsidiaries for our cash requirements, including any payment
of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. See
“Item 4. Information on the Company — B. Business Overview — Regulation — Regulations on Foreign Currency
Exchange.”
Our board of directors has
discretion as to whether to distribute dividends, subject to applicable laws. Even if our board of directors decides to pay dividends,
the form, frequency and amount will depend on our future operations and earnings, capital requirements and surplus, general financial
condition, contractual restrictions and other factors that our board of directors may deem relevant. If we pay any dividends, we
will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including
the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.
We have not experienced any
significant changes since the date of our audited consolidated financial statements included in this annual report.
|
ITEM 9.
|
THE OFFER AND LISTING
|
|
A.
|
Offering and Listing Details
|
See “— C. Markets.”
Not applicable.
Our ADSs, each representing
two of our Class A ordinary shares, have been listed on the NYSE since October 31, 2013. Our ADSs trade under the symbol “WUBA.”
The following table provides the high and low trading prices for our ADSs on the NYSE since the date of our initial public offering.
The last reported trading
price for our ADSs on April 27, 2018 was US$84.11 per ADS.
|
|
Market Price
(US$)
|
|
|
|
High
|
|
|
Low
|
|
Annual High and Low
|
|
|
|
|
|
|
|
|
2013 (from October 31, 2013)
|
|
|
39.83
|
|
|
|
21.00
|
|
2014
|
|
|
58.89
|
|
|
|
31.60
|
|
2015
|
|
|
83.71
|
|
|
|
37.15
|
|
2016
|
|
|
65.33
|
|
|
|
27.72
|
|
2017
|
|
|
79.79
|
|
|
|
27.58
|
|
Quarterly Highs and Lows
|
|
|
|
|
|
|
|
|
First Quarter of 2016
|
|
|
65.33
|
|
|
|
42.57
|
|
Second Quarter of 2016
|
|
|
61.59
|
|
|
|
43.94
|
|
Third Quarter of 2016
|
|
|
55.28
|
|
|
|
43.98
|
|
Fourth Quarter of 2016
|
|
|
48.58
|
|
|
|
27.72
|
|
First Quarter of 2017
|
|
|
38.95
|
|
|
|
27.58
|
|
Second Quarter of 2017
|
|
|
47.38
|
|
|
|
34.84
|
|
Third Quarter of 2017
|
|
|
68.85
|
|
|
|
42.92
|
|
Fourth Quarter of 2017
|
|
|
79.79
|
|
|
|
61.52
|
|
First Quarter of 2018
|
|
|
87.65
|
|
|
|
67.09
|
|
Monthly Highs and Lows
|
|
|
|
|
|
|
|
|
October 2017
|
|
|
69.80
|
|
|
|
61.52
|
|
November 2017
|
|
|
79.79
|
|
|
|
66.33
|
|
December 2017
|
|
|
73.83
|
|
|
|
65.16
|
|
January 2018
|
|
|
87.65
|
|
|
|
72.87
|
|
February 2018
|
|
|
80.56
|
|
|
|
67.09
|
|
March 2018
|
|
|
85.99
|
|
|
|
71.14
|
|
April 2018 (through April 27, 2018)
|
|
|
85.50
|
|
|
|
74.50
|
|
Not applicable.
Not applicable.
Not applicable.
|
ITEM 10.
|
ADDITIONAL INFORMATION
|
Not applicable.
|
B.
|
Memorandum and Articles of Association
|
We are a Cayman Islands company
and our affairs are governed by our amended and restated memorandum and articles of association, as amended from time to time,
and the Companies Law of the Cayman Islands, which is referred to below as the Companies Law.
The following are summaries
of the material provisions of our amended and restated memorandum and articles of association and the Companies Law insofar as
they relate to the material terms of our ordinary shares. This summary is not complete, and you should read our third amended and
restated memorandum and articles of association, which has been filed as Exhibit 3.2 to our Form F-1 (File No. 333-191424) filed
with the SEC on September 27, 2013.
Registered Office and Objects
Our registered office in the
Cayman Islands is located at Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman
KY1-1111, Cayman Islands. As set forth in clause 3 of our amended and restated memorandum of association, the objects for which
our company are established are unrestricted.
Board of Directors
See “Item 6. Directors,
Senior Management and Employees — C. Board Practices — Committees of the Board of Directors” and “Item
6. Directors, Senior Management and Employees — C. Board Practices — Terms of Directors and Officers.”
Ordinary Shares
General
. Holders
of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. All of our
outstanding ordinary shares are fully paid and non-assessable. Certificates representing the ordinary shares are issued in registered
form. Our shareholders who are non-residents of the Cayman Islands may freely hold and transfer their ordinary shares.
Dividends
. The
holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. Our articles of association
provide that dividends may be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from
profits which our board of directors determine is no longer needed. Dividends may also be declared and paid out of share premium
account or any other fund or account which can be authorized for this purpose in accordance with the Companies Law. Holders of
Class A ordinary shares and Class B ordinary shares will be entitled to the same amount of dividends, if declared.
Voting Rights
.
In respect of all matters subject to a shareholders’ vote, each Class A ordinary share is entitled to one vote, and each
Class B ordinary share is entitled to ten votes, voting together as one class. Voting at any meeting of shareholders is by show
of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one or more shareholders who
together hold not less than 10% of the nominal value of the total issued voting shares of our company present in person or by proxy.
A quorum required for a meeting
of shareholders consists of one or more shareholders who hold at least one-third of all voting power of our share capital in issue
at the meeting present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative.
Shareholders’ meetings may be held annually. Each general meeting, other than an annual general meeting, shall be an extraordinary
general meeting. Extraordinary general meetings may be called by a majority of our board of directors or our chairman or upon a
requisition of shareholders holding at the date of deposit of the requisition not less than one-third of the aggregate voting power
of our company. Advance notice of at least ten clear days is required for the convening of our annual general meeting and other
general meetings.
An ordinary resolution to
be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary
shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast
attaching to the outstanding ordinary shares at a meeting. A special resolution will be required for important matters such as
a change of name or making changes to our memorandum and articles of association.
Conversion
.
Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary
shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by
a holder to any person or entity which is not an affiliate of such holder, such Class B ordinary shares shall be automatically
and immediately converted into the equivalent number of Class A ordinary shares. In addition, if at any time, Mr. Jinbo Yao and
his affiliates collectively own less than 5% of the total number of the issued and outstanding Class B ordinary shares, each issued
and outstanding Class B ordinary share will be automatically and immediately converted into one Class A ordinary share, and we
will not issue any Class B ordinary shares thereafter.
Transfer of Ordinary
Shares
. Subject to the restrictions set out below and the provisions above in respect to Class B ordinary shares, any of
our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form
or any other form approved by our board of directors.
Our board of directors may,
in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have
a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
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the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares
to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor
to make the transfer;
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the instrument of transfer is in respect of only one class of ordinary shares;
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the instrument of transfer is properly stamped, if required;
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in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share
is to be transferred does not exceed four; and
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a fee of such maximum sum as the NYSE may determine to be payable or such lesser sum as our directors
may from time to time require is paid to us in respect thereof.
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If our directors refuse to
register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to each
of the transferor and the transferee notice of such refusal.
The registration of transfers
may, after compliance with any notice required of the NYSE, be suspended and the register closed at such times and for such periods
as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended
nor the register closed for more than 30 days in any year as our board may determine.
Liquidation
.
On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of ordinary shares), assets
available for distribution among the holders of ordinary shares shall be distributed among the holders of the ordinary shares on
a pro rata basis. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will
be distributed so that the losses are borne by our shareholders proportionately. Any distribution of assets or capital to a holder
of a Class A ordinary share and a holder of a Class B ordinary share will be the same in any liquidation event.
Calls on Ordinary Shares
and Forfeiture of Ordinary Shares
. Our board of directors may from time to time make calls upon shareholders for any amounts
unpaid on their ordinary shares in a notice served to such shareholders at least 14 clear days prior to the specified time of payment.
The ordinary shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption of Ordinary
Shares
. The Companies Law and our articles of association permit us to purchase our own shares. In accordance with our
articles of association and provided the necessary shareholders or board approval have been obtained, we may issue shares on terms
that are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner,
including out of capital, as may be determined by our board of directors.
Variations of Rights
of Shares
. All or any of the special rights attached to any class of shares may, subject to the provisions of the Companies
Law, be varied with the written consent of the holders of a majority of the issued shares of that class or with the sanction of
a special resolution passed at a general meeting of the holders of the shares of that class. The rights conferred upon the holders
of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class,
be deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares.
Inspection of Books
and Records
. Holders of our ordinary shares have no general right under Cayman Islands law to inspect or obtain copies
of our list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements.
See “— H. Documents on Display.”
Issuance of Additional
Shares
. Our memorandum of association authorizes our board of directors to issue additional ordinary shares from time to
time as our board of directors shall determine, to the extent of available authorized but unissued shares.
Our memorandum of association
also authorizes our board of directors to establish from time to time one or more series of preference shares and to determine,
with respect to any series of preference shares, the terms and rights of that series, including:
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the designation of the series;
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the number of shares of the series;
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the dividend rights, dividend rates, conversion rights, voting rights; and
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the rights and terms of redemption and liquidation preferences.
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Our board of directors may
issue preference shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares may
dilute the voting power of holders of ordinary shares.
Anti-Takeover Provisions
.
Some provisions of our memorandum and articles of association may discourage, delay or prevent a change of control of our company
or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preference
shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares
without any further vote or action by our shareholders.
Exempted Company
.
We are an exempted company with limited liability under the Companies Law. The Companies Law distinguishes between ordinary resident
companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of
the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially
the same as for an ordinary company except that an exempted company:
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does not have to file an annual return of its shareholders with the Registrar of Companies;
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is not required to open its register of members for inspection;
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does not have to hold an annual general meeting;
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may issue negotiable or bearer shares or shares with no par value;
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may obtain an undertaking against the imposition of any future taxation (such undertakings are usually
given for 20 years in the first instance);
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may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
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may register as a limited duration company; and
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may register as a segregated portfolio company.
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“Limited liability”
means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company.
Limitations on the Right
to Own Shares
. There are no limitations on the right to own our ordinary shares.
We have not entered into any
material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on
the Company” or elsewhere in this annual report.
The Cayman Islands currently
has no exchange control restrictions. See also “Item 4. Information on the Company — B. Business Overview — Regulation
— Regulations on Foreign Currency Exchange” and “Item 4. Information on the Company — B. Business Overview
— Regulation — Regulations on Offshore Financing.”
The following summary of the
material Cayman Islands, People’s Republic of China and United States federal income tax consequences of an investment in
our ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report,
all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in
our ADSs or ordinary shares, such as the tax consequences under state, local and other tax laws.
Cayman Islands Taxation
The Cayman Islands currently
levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the
nature of inheritance tax or estate duty. There are no other taxes levied by the Government of the Cayman Islands that are likely
to be material to holders of ADSs or ordinary shares. The Cayman Islands is not party to any double tax treaties except for a double
tax treaty entered into with the United Kingdom in 2010. There are no exchange control regulations or currency restrictions in
the Cayman Islands.
Pursuant to Section 6 of the
Tax Concessions Law (1999 Revision) of the Cayman Islands, we have obtained an undertaking from the Governor-in-Council:
(i) that
no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall
apply to us or our operations; and
(ii) that
the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on our shares, debentures or
other obligations.
The undertaking for us is
for a period of 20 years from June 14, 2011.
People’s Republic
of China Taxation
Under the Enterprise Income
Tax Law, an enterprise established outside the PRC with “de facto management bodies” within China is considered a “resident
enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on
its worldwide income. Under the implementation rules to the Enterprise Income Tax Law, a “de facto management body”
is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel
and human resources, finances and properties of an enterprise. In addition, SAT Circular 82, issued by the State Administration
of Taxation in April 2009 and amended in January 2014, specifies that certain offshore incorporated enterprises controlled by PRC
enterprises or PRC enterprise groups will be classified as PRC resident enterprises if the following are located or resident in
China: senior management personnel and departments that are responsible for daily production, operation and management; financial
and personnel decision making bodies; key properties, accounting books, company seal, minutes of board meetings and shareholders’
meetings; and half or more of the senior management or directors having voting rights. Further to SAT Circular 82, the State Administration
of Taxation issued the SAT Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation of
SAT Circular 82. SAT Bulletin 45 provides for procedures and administration details of determination on resident status and administration
on post-determination matters. We do not believe that 58.com Inc., or China Classified Network Corporation or China Classified
Information Corporation Limited meet all of the conditions above or are PRC resident enterprises. If the PRC tax authorities determine
that our Cayman Islands holding company is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable
PRC tax consequences could follow. One example is that a 10% withholding tax would be imposed on dividends we pay to our non-PRC
enterprise shareholders and with respect to gains derived by our non-PRC enterprise shareholders from transferring our shares or
ADSs and potentially a 20% of withholding tax would be imposed on dividends we pay to our non-PRC individual shareholders and with
respect to gains derived by our non-PRC individual shareholders from transferring our shares or ADSs.
It is unclear whether, if
we are considered a PRC resident enterprise, holders of our shares or ADSs would be able to claim the benefit of income tax treaties
or agreements entered into between China and other countries or areas. See “Item 3. Key Information — D. Risk Factors
— Risk Factors Related to Doing Business in China — Under the Enterprise Income Tax Law, we may be classified as a
PRC ‘resident enterprise’ for PRC enterprise income tax purposes. Such classifications would likely result in unfavorable
tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value
of your investment.”
The Enterprise Income Tax
Law and the implementation rules provide that an income tax rate of 10% will normally be applicable to dividends payable to investors
that are “non-resident enterprises,” and gains derived by such investors, which (i) do not have an establishment or
place of business in China or (ii) have an establishment or place of business in China, but the relevant income is not effectively
connected with the establishment or place of business to the extent such dividends and gains are derived from sources within China.
The PRC State Council or an applicable tax treaty between the PRC and the jurisdictions in which the non-PRC investors reside may
reduce such income tax rate. Pursuant to an Arrangement Between the Mainland of China and the Hong Kong Special Administrative
Region for the Avoidance of Double Taxation on Income, or the Double Tax Avoidance Arrangement, and other applicable PRC laws,
if a Hong Kong resident enterprise is determined by the relevant PRC tax authority to have satisfied the relevant conditions and
requirements under the Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends the
Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5%. However, based on SAT Circular 81 issued
by the State Administration of Taxation in February 2009, if the relevant PRC tax authorities determine, in their discretion, that
a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, the PRC tax
authorities may adjust the preferential tax treatment. Pursuant to SAT Circular 9 issued by the State Administration of Taxation
in February 2018, which took effect on April 1, 2018 and superseded SAT Circular 601 issued by the State Administration of Taxation
in October 2009, companies not engaged in substantive business activities may not be recognized as beneficial owners and thus are
not entitled to the above-mentioned reduced income tax rate of 5% under the Double Tax Avoidance Arrangement. In August 2015, the
State Administration of Taxation promulgated the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax
Treaties, or SAT Circular 60, which became effective on November 1, 2015. SAT Circular 60 provides that non-resident enterprises
are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax rate. Instead,
non-resident enterprises and their withholding agents may, by self-assessment and upon their confirmation that the prescribed criteria
are met, directly apply the reduced withholding tax rate, and file the necessary forms and supporting documents when conducting
tax filings, which will be subject to post-filing examinations by the relevant tax authorities. None of our Hong Kong subsidiaries
have applied for the approval for a withholding tax rate of 5% from local tax authority prior to SAT Circular 60, nor have any
of our PRC subsidiaries applied the 5% tax rate directly to any dividend payment after the SAT Circular 60, as our PRC subsidiaries
have not paid dividends to us.
On February 3, 2015, the State
Administration of Taxation issued SAT Notice 7, which partially
replaced and supplemented
previous rules under SAT Circular 698
. On October 17, 2017, the SAT issued SAT Bulletin 37, which came into effect on December
1, 2017 and concurrently abolished SAT
Circular 698
. The SAT Bulletin 37 further clarifies
the practice and procedure of the withholding of non-resident enterprise income tax. By promulgating and implementing these circulars,
the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests or other taxable
assets in a PRC resident enterprise by a non-resident enterprise. Under SAT Notice 7 and SAT Bulletin 37, where a non-resident
enterprise transfers the equity interests or other taxable assets of a PRC “resident enterprise” indirectly by disposition
of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, or the transferee, or
the PRC entity which directly owned the taxable assets may report to the relevant tax authority this “indirect transfer.”
Using a “substance over form” principle, the PRC tax authority may re-characterize such indirect transfer as a direct
transfer of the equity interests in the PRC tax resident enterprise and other properties in China. As a result, gains derived from
such indirect transfer may be subject to PRC tax at a rate of up to 10%. We face uncertainties on the reporting and consequences
on private equity financing transactions, share exchange or other transactions involving the transfer of shares in our company
by investors that are non-PRC resident enterprises, or sale or purchase of shares in other non-PRC resident companies or other
taxable assets by us. We and our non-resident investors may be at risk of being required to file a return and being taxed under
SAT Notice 7 and SAT Bulletin 37, and we may be required to expend valuable resources to comply with SAT Notice 7 and SAT Bulletin
37 or to establish that we should not be taxed under these circulars.
United States Federal Income
Tax Considerations
The following is a summary
of United States federal income tax consequences of the ownership and disposition of our ADSs or Class A ordinary shares by a U.S.
Holder, as defined below, that holds our ADSs or Class A ordinary shares as “capital assets” (generally, property held
for investment) under the United States Internal Revenue Code of 1986, as amended, or the Code. This discussion is based on the
tax laws of the United States as in effect on the date of this annual report on Form 20-F and on U.S. Treasury regulations in effect
or, in some cases, proposed, as of the date of this annual report on Form 20-F, as well as judicial and administrative interpretations
thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively
and could affect the tax considerations described below. No ruling has been sought from the Internal Revenue Service, or IRS with
respect to any United States federal income tax consequences described below, and there can be no assurance that the IRS or a court
will not take a contrary position. This discussion does not address all aspects of United States federal income taxation that may
be important to particular investors in light of their individual investment circumstances, including investors subject to special
tax rules (such as, for example, certain financial institutions, insurance companies, regulated investment companies, real estate
investment trusts, broker-dealers, traders in securities that elect mark-to-market treatment, partnerships and their partners,
tax-exempt organizations (including private foundations), investors who are not U.S. Holders, investors that own (directly, indirectly,
or constructively) 10% or more of our stock (by vote or value), investors that hold their ADSs or Class A ordinary shares as part
of a straddle, hedge, conversion, constructive sale or other integrated transaction, or investors that have a functional currency
other than the United States dollar) all of whom may be subject to tax rules that differ significantly from those summarized below.
In addition, this summary does not discuss the Medicare tax on net investment income or any state, local, or estate or gift tax
considerations and, except for the limited instances where PRC tax law and potentially PRC taxes are discussed below, does not
discuss any non-United States tax considerations. U.S. Holders should consult their tax advisors regarding the United States federal,
state, local, and non-United States income and other tax considerations of an investment in our ADSs or Class A ordinary shares.
General
For purposes of this discussion,
a “U.S. Holder” is a beneficial owner of our ADSs or Class A ordinary shares that is, for United States federal income
tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated
as a corporation for United States federal income tax purposes) created in, or organized under the laws of, the United States or
any state thereof or the District of Columbia, (iii) an estate the income of which is includible in gross income for United States
federal income tax purposes regardless of its source, or (iv) a trust (A) the administration of which is subject to the primary
supervision of a United States court and which has one or more United States persons who have the authority to control all substantial
decisions of the trust or (B) that has otherwise elected to be treated as a United States person under the Code.
If a partnership (or other
entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of our ADSs or Class A ordinary
shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities
of the partnership. Partnerships and partners of a partnership holding our ADSs or Class A ordinary shares are urged to consult
their tax advisors regarding an investment in our ADSs or Class A ordinary shares.
The discussion below assumes
that the representations contained in the deposit agreement are true and that the obligations in the deposit agreement and any
related agreement have been and will be complied with in accordance with their terms. U.S. Holders who hold ADSs will be treated
as the beneficial owner for United States federal income tax purposes of the underlying shares represented by the ADSs.
Passive
Foreign Investment Company Considerations
A non-United States corporation,
such as our company, will be a “passive foreign investment company,” or PFIC, for United States federal income tax
purposes for any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of “passive”
income or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year produce
or are held for the production of passive income (the “asset test”). Passive income generally includes dividends, interest,
royalties, rents, annuities, net gains from the sale or exchange of property producing such income and net foreign currency gains.
For this purpose, cash and assets readily convertible into cash are categorized as passive assets and the company’s unbooked
goodwill is taken into account for determining the value of its assets. We will be treated as owning a proportionate share of the
assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, more than
25% (by value) of the stock.
Although the law in this regard
is not entirely clear, we treat Beijing 58 and other consolidated affiliated entities as being owned by us for United States federal
income tax purposes, because we control their management decisions and are entitled to substantially all of their economic benefits,
and, as a result, we consolidate their results of operations in our consolidated U.S. GAAP financial statements. If it were determined,
however, that we are not the owner of Beijing 58 and other consolidated affiliated entities for United States federal income tax
purposes, we would likely be treated as a PFIC for our current taxable year and any subsequent taxable year.
Assuming that we are the owner
of Beijing 58 and other consolidated affiliated entities for United States federal income tax purposes, we believe that we primarily
operate as an active provider of online marketing services. Based on our current income and assets and projections as to the value
of our assets based, in part, on the market value of our ADSs and outstanding Class A ordinary shares, we do not believe that we
were a PFIC for our taxable year ended December 31, 2017 and, although no assurances can be made in this regard, we do not expect
to be a PFIC for the current taxable year or any subsequent taxable year. While we do not anticipate becoming a PFIC, because our
value of the assets for purposes of the asset test may be determined by reference to the market price of our ADSs or ordinary shares,
fluctuations in the market price of our ADSs or Class A ordinary shares may cause us to become a PFIC for the current or subsequent
taxable years. Under circumstances where revenues from activities that produce passive income significantly increase relative to
our revenues from activities that produce non-passive income, or where we determine not to deploy significant amounts of cash for
active purposes, our risk of becoming classified as a PFIC may substantially increase.
Furthermore, because there
are uncertainties in the application of the relevant rules, it is possible that the IRS may challenge our classification of certain
income and assets as non-passive or our valuation of our tangible and intangible assets, each of which may result in our becoming
a PFIC for the current or subsequent taxable years. Because PFIC status is a fact-intensive determination made on an annual basis
and will depend upon the composition of our assets and income and the value of our tangible and intangible assets from time to
time, no assurance can be given that we will not become a PFIC in a subsequent taxable year. In particular, if we are a PFIC for
any year during which a U.S. Holder holds our ADSs or Class A ordinary shares, we generally will continue to be treated as a PFIC
with respect to such U.S. Holder for all succeeding years during which such U.S. Holder holds our ADSs or Class A ordinary shares
unless we cease to be a PFIC and the U.S. Holder makes a “deemed sale” election with respect to the ADSs or Class A
ordinary shares.
If we are a PFIC for any taxable
year during which a U.S. Holder holds our ADSs or Class A ordinary shares, unless the U.S. Holder makes a mark-to-market election
(as described below), the U.S. Holder will generally be subject to special tax rules that have a penalizing effect, regardless
of whether we remain a PFIC, on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution
paid during a taxable year to a U.S. Holder that is greater than 125% of the average annual distributions paid in the three preceding
taxable years or, if shorter, the U.S. Holder’s holding period for the ADSs or Class A ordinary shares), and (ii) any gain
realized on the sale or other disposition, including, under certain circumstances, a pledge, of ADSs or Class A ordinary shares.
Under the PFIC rules:
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the excess distribution and/or gain will be allocated ratably over the U.S. Holder’s holding
period for the ADSs or Class A ordinary shares;
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the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s
holding period prior to the first taxable year in which we are a PFIC, or pre-PFIC year, will be taxable as ordinary income; and
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the amount allocated to each prior taxable year, other than the current taxable year or a pre-PFIC
year, will be subject to tax at the highest tax rate in effect applicable to the individuals or corporations, as appropriate, for
that year and will be increased by an additional tax equal to interest on the resulting tax deemed deferred with respect to each
such other taxable year.
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If we are a PFIC for any taxable
year during which a U.S. Holder holds our ADSs or Class A ordinary shares and any of our non-United States subsidiaries is also
a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC and
would be subject to the rules described above on certain distributions by a lower-tier PFIC and a disposition of shares of a lower-tier
PFIC even though such U.S. Holder would not receive the proceeds of those distributions or dispositions. U.S. Holders should consult
their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
If we are a PFIC for any taxable
year during which a U.S. Holder holds our ADSs or Class A ordinary shares, our ADSs or Class A ordinary shares generally will continue
to be treated as shares in a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or Class A ordinary shares,
unless we cease to be a PFIC and such U.S. Holder makes a “deemed sale” election with respect to their ADSs or Class
A ordinary shares. If a U.S. Holder makes a deemed sale election, such U.S. Holder will be deemed to have sold their ADSs or Class
A ordinary shares at fair market value as of the last day of the last year during which we were a PFIC. Any gain from such deemed
sale would be taxed as an excess distribution as described above. U.S. Holders should consult their tax advisors regarding our
possible status as a PFIC as well as the benefit of making a deemed sale election.
As an alternative to the foregoing
rules, if we are a PFIC, a U.S. Holder of “marketable stock” may make a mark-to-market election with respect to our
ADSs, but not our Class A ordinary shares, provided that the ADSs continue to be listed on the NYSE and continue to be regularly
traded. The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other
than de minimis quantities on at least 15 days during each calendar quarter, or “regularly traded” on a qualified exchange
or other market, as defined in applicable Treasury regulations. We anticipate that our ADSs should qualify as being regularly traded,
but no assurances may be given in this regard. If a U.S. Holder makes this election, the holder will generally (i) include as ordinary
income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable
year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis
of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but such deduction will only be allowed
to the extent of the net amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s
adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a
U.S. Holder makes a mark-to-market election and we cease to be a PFIC, the holder will not be required to take into account the
mark-to-market gain or loss described above during any period that we are not a PFIC. If a U.S. Holder makes a mark-to-market election,
any gain such U.S. Holder recognizes upon the sale or other disposition of our ADSs in a year when we are a PFIC will be treated
as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent
of the net amount previously included in income as a result of the mark-to-market election. In the case of a U.S. Holder who has
held ADSs or Class A ordinary shares during any taxable year in respect of which we were classified as a PFIC and continues to
hold such ADSs or Class A ordinary shares (or any portion thereof) and has not previously determined to make a mark-to-market election,
and who is now considering making a mark-to-market election, special tax rules may apply relating to purging the PFIC taint of
such ADSs or Class A ordinary shares.
Because, as a technical matter,
a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to
the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an
equity interest in a PFIC for United States federal income tax purposes.
We do not intend to provide
information necessary for U.S. Holders to make qualified electing fund elections, which, if available, would result in tax treatment
different from the general tax treatment for PFICs described above.
If a U.S. Holder owns our
ADSs or Class A ordinary shares during any taxable year that we are a PFIC, the holder must file an annual report, Form 8621 with
the U.S. Internal Revenue Service. U.S. Holders should consult their tax advisors concerning the United States federal income tax
consequences of purchasing, holding, and disposing ADSs or Class A ordinary shares if we are or become a PFIC, including the possibility
of making a mark-to-market election and the unavailability of the qualified electing fund election.
Dividends
Any cash distributions (including
the amount of any PRC tax withheld) paid on our ADSs or Class A ordinary shares out of our current or accumulated earnings and
profits, as determined under United States federal income tax principles, will generally be includible in the gross income of a
U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of Class A ordinary
shares, or by the depositary bank, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis
of United States federal income tax principles, any distribution paid will generally be reported as a “dividend” for
United States federal income tax purposes.
Individuals and other non-corporate
recipients of dividend income generally will be subject to tax on dividend income from a “qualified foreign corporation”
on dividends paid on our ADSs at a lower applicable capital gains rate rather than the marginal tax rates generally applicable
to ordinary income provided that a certain holding period and other requirements are met. We generally will be considered to be
a qualified foreign corporation (i) with respect to any dividend we pay on our ADSs or Class A ordinary shares that are readily
tradable on an established securities market in the United States, or if we are eligible for the benefits of a comprehensive tax
treaty with the United States that the Secretary of Treasury of the United States determines is satisfactory for this purpose and
includes an exchange of information program and (ii) we are neither a passive foreign investment company nor treated as such with
respect to a U.S. Holder (as discussed above) for the taxable year in which the dividend was paid and the preceding taxable year.
Because (1) U.S. Treasury guidance indicates that ADSs representing ordinary shares, such as ours, listed on the NYSE are considered
to be readily tradable on an established securities market in the United States and (2) we believe that we were not a PFIC for
United States federal income tax purposes for our taxable year ended December 31, 2017 and we do not expect to be a PFIC in subsequent
years; we believe that we are a qualified foreign corporation with respect to dividends paid on the ADSs, but not with respect
to dividends paid on our ordinary shares. In the event we are deemed to be a resident enterprise under the PRC Enterprise Income
Tax Law, we may be eligible for the benefits of the United States-PRC income tax treaty (which the U.S. Treasury Department has
determined is satisfactory for this purpose) and we would be treated as a qualified foreign corporation with respect to dividends
paid on our Class A ordinary shares or ADSs. U.S. Holders should consult their tax advisors regarding the availability of the reduced
tax rate on dividends in their particular circumstances. Dividends received on our ADSs or Class A ordinary shares will not be
eligible for the dividends received deduction allowed to corporations.
For United States foreign
tax credit purposes, dividends paid on our ADSs or Class A ordinary shares generally will be treated as income from foreign sources
and generally will constitute passive category income. In the event that we are deemed to be a PRC resident enterprise under the
PRC Enterprise Income Tax Law, a U.S. Holder may be subject to PRC withholding taxes on dividends paid, if any, on our ADSs or
Class A ordinary shares. A U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreign tax credit
in respect of any non-refundable foreign withholding taxes imposed on dividends received on our ADSs or Class A ordinary shares.
A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction for United
States federal income tax purposes in respect of such withholding, but only for a year in which such holder elects to do so for
all creditable foreign income taxes. The rules governing the foreign tax credit are complex. U.S. Holders are urged to consult
their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Sale
or Other Disposition of ADSs or Class A Ordinary Shares
A U.S. Holder will generally
recognize capital gain or loss, if any, upon the sale or other disposition of ADSs or Class A ordinary shares in an amount equal
to the difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or Class
A ordinary shares. The gain or loss will generally be capital gain or loss. Any capital gain or loss will be long-term if the ADSs
or ordinary shares have been held for more than one year. An individual U.S. Holder or other non-corporate U.S. Holder who has
held the ADSs or ordinary shares for more than one year will generally be eligible for reduced tax rates. The deductibility of
capital losses is subject to limitations. Any such gain or loss recognized by a U.S. Holder will generally be treated as U.S. source
income or loss for foreign tax credit purposes, which will generally limit the availability of foreign tax credits. However, in
the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law and gain from the disposition
of the ADSs or Class A ordinary shares is subject to tax in China, such gain may be treated as PRC source gain for foreign tax
credit purposes under the United States-PRC income tax treaty. U.S. Holders should consult their tax advisors regarding the tax
consequences if a foreign tax is imposed on a disposition of our ADSs or Class A ordinary shares, including the availability of
the foreign tax credit under their particular circumstances.
|
F.
|
Dividends and Paying Agents
|
Not applicable.
Not applicable.
We previously filed with the
SEC our registration statement on Form F-1 (Registration No. 333-191424), as amended, including the prospectus contained therein,
to register our ordinary shares in relation to our initial public offering and our registration statement on Form F-1 (File Number:
333-194610), as amended, including the prospectus contained therein, to register our ordinary shares in relation to a follow-on
public offering. We have also filed with the SEC a related registration statement on Form F-6 (Registration No. 333-191776) to
register the ADSs.
We are subject to the periodic
reporting and other informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under the
Exchange Act, we are required to file reports and other information with the SEC, including filing annually a Form 20-F within
four months after the end of each fiscal year, which is December 31. Copies of reports and other information, when so filed, may
be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the Securities
and Exchange Commission at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information regarding the
Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov
that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings
with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing
the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt
from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
We will furnish Citibank,
N.A., the depositary of our ADSs, with our annual reports, which will include a review of operations and annual audited consolidated
financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and
communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications
available to holders of ADSs and, upon our written request, will mail to all record holders of ADSs the information contained in
any notice of a shareholders’ meeting received by the depositary from us.
|
I.
|
Subsidiary Information
|
Not applicable.
|
ITEM 11.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Foreign Exchange Risk
Our operating transactions
and assets and liabilities are mainly denominated in Renminbi. The Renminbi is not freely convertible into foreign currencies for
capital account transactions. The value of the Renminbi against the U.S. dollar and other currencies is affected by changes in
China’s political and economic conditions and by China’s foreign exchange policies, among other things. In July 2005,
the PRC government changed its decades-old policy of pegging the value of the Renminbi to the U.S. dollar and the Renminbi appreciated
more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted
and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the Renminbi has
fluctuated against the U.S. dollar, at times significantly and unpredictably, and in recent years the Renminbi has depreciated
significantly against the U.S. dollar. It is difficult to predict how market forces or PRC or U.S. government policy may impact
the exchange rate between the Renminbi and the U.S. dollar in the future. The net foreign exchange loss recognized in 2017 was
insignificant. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency
exchange risk.
Interest Rate Risk
Our exposure to interest rate
risk primarily relates to excess cash invested in fixed rate term deposits and variable rate short-term financial products with
original maturities of less than a year. Investments in both fixed rate and variable rate interest-earning instruments carry a
degree of interest rate risk. Fixed rate instruments may have their fair market value adversely impacted due to a rise in interest
rates, while variable rate instruments may produce less income than expected if interest rates fall. Due in part to these factors,
our future interest income and investment income may fall short of expectations due to changes in market interest rates. We have
not been exposed to, nor do we anticipate being exposed to, material risks due to changes in market interest rates and therefore
have not used any derivative financial instruments to manage our interest risk exposure. See “Item 5 — Operating and
Financial Review and Prospects — Liquidity and Capital Resources.”
|
ITEM 12.
|
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|
Not applicable.
Not applicable.
Not applicable.
|
D.
|
American Depositary Shares
|
Fees and Charges Our ADS
Holders May Have to Pay
Holders of our ADSs will be
required to pay the following service fees to the depositary bank:
Service
|
|
Fees
|
·
Issuance of ADSs
|
|
Up to U.S. 5¢ per ADS issued
|
·
Cancellation of ADSs
|
|
Up to U.S. 5¢ per ADS canceled
|
·
Distribution of cash dividends or other cash distributions
|
|
Up to U.S. 5¢ per ADS held
|
·
Distribution of ADSs pursuant to stock dividends, free stock distributions or exercise of rights.
|
|
Up to U.S. 5¢ per ADS held
|
·
Distribution of securities other than ADSs or rights to purchase additional ADSs
|
|
Up to U.S. 5¢ per ADS held
|
·
Depositary Services
|
|
Up to U.S. 5¢ per ADS held on the applicable record date(s) established by the depositary bank
|
Holders of our ADSs will also
be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges such
as:
|
·
|
fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent
for the ordinary shares in the Cayman Islands (i.e., upon deposit and withdrawal of ordinary shares);
|
|
·
|
expenses incurred for converting foreign currency into U.S. dollars;
|
|
·
|
expenses for cable, telex and fax transmissions and for delivery of securities;
|
|
·
|
taxes and duties upon the transfer of securities (i.e., when ordinary shares are deposited or withdrawn
from deposit); and
|
|
·
|
fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.
|
Depositary fees payable upon
the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of their clients) receiving
the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary
bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions
of cash or securities to ADS holders and the depositary services fee are charged by the depositary bank to the holders of record
of ADSs as of the applicable ADS record date.
The depositary fees payable
for cash distributions are generally deducted from the cash being distributed. In the case of distributions other than cash (i.e.,
stock dividend, rights), the depositary bank charges the applicable fee to the ADS record date holders concurrent with the distribution.
In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the
depositary bank sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts
(via DTC), the depositary bank generally collects its fees through the systems provided by DTC (whose nominee is the registered
holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians
who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to
the depositary banks.
In the event of refusal to
pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service until
payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder.
The fees and charges holders
of our ADSs may be required to pay may vary over time and may be changed by us and by the depositary bank. Holders of our ADSs
will receive prior notice of such changes.
Fees and Other Payments
Made by the Depositary to Us
The depositary bank may reimburse
us for certain expenses incurred by us in respect of the ADR program established pursuant to the deposit agreement, by making available
a portion of the depositary fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we and the
depositary bank may agree from time to time. We received a reimbursement of US$1.6 million from the depositary in 2017.
PART
II
|
ITEM 13.
|
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|
None.
|
ITEM 14.
|
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|
None.
|
ITEM 15.
|
CONTROLS AND PROCEDURES
|
Disclosure Controls and
Procedures
Our management, under the
supervision and with the participation of our chief executive officer and chief financial officer, has performed an evaluation
of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934, as amended) as of December 31, 2017, the end of the period covered by this annual report.
Based upon that evaluation,
our management has concluded that, as of December 31, 2017, our disclosure controls and procedures were effective in ensuring that
the information required to be disclosed by us in the reports that we file and furnish under the Exchange Act was recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules and form, and that the information required
to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management,
including our chief executive officers and chief financial officer, to allow timely decisions regarding required disclosure.
Management’s Annual
Report on Internal Control over Financial Reporting
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f)
under the Exchange Act, for our company. Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance
with generally accepted accounting principles, including those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets, (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in
accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only
in accordance with authorizations of a company’s management and directors, and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of a company’s assets that could have a material
effect on the consolidated financial statements.
Because of its inherent limitations,
a system of internal control over financial reporting can provide only reasonable assurance with respect to consolidated financial
statement preparation and presentation and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree
of compliance with the policies or procedures may deteriorate.
As required by Section 404
of the Sarbanes-Oxley Act of 2002 and related rules promulgated by the SEC, our management, including our chief executive officer
and chief financial officer, assessed the effectiveness of internal control over financial reporting as of December 31, 2017 using
the criteria set forth in the report “Internal Control — Integrated Framework (2013)” published by the Committee
of Sponsoring Organizations of the Treadway Commission (known as COSO).
Our management has concluded
that we maintained effective internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control — Integrated Framework (2013) issued by COSO.
The effectiveness of our internal
control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers Zhong Tian LLP, an independent
registered public accounting firm, as stated in their report which is included in Item 18 of this annual report.
Changes in Internal Control
over Financial Reporting
There were no changes in our
internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected,
or are reasonably likely to materially affect, our internal controls over financial reporting.
|
ITEM 16A.
|
AUDIT COMMITTEE FINANCIAL EXPERT
|
Our board of directors has
determined that Herman Yu qualifies as an audit committee financial expert and that Herman Yu qualifies as an independent director
(under the standards set forth under Section 303A of the Corporate Governance Rules of the New York Stock Exchange and Rule 10A-3
under the Exchange Act).
Our board of directors adopted
a code of business conduct and ethics that applies to our directors, officers, employees and advisors, which became effective in
November 2013. We have posted a copy of our code of business conduct and ethics on our website at www.58.com.
|
ITEM 16C.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
The following table sets forth
the aggregate fees by the categories specified below in connection with certain professional services rendered by PricewaterhouseCoopers
Zhong Tian LLP, our independent registered public accounting firm for the years ended December 31, 2016 and 2017. We did not pay
any other fees to our auditors during the periods indicated below.
|
|
2016
|
|
|
2017
|
|
|
|
(in thousands of RMB)
|
|
Audit fees
(1)
|
|
|
19,000
|
|
|
|
16,000
|
|
|
(1)
|
“Audit fees” represent the aggregate fees for professional services rendered by our principal
auditors for the audit of our annual consolidated financial statements, review of quarterly financial information and audit services
that are normally provided by the principal accountant in connection with regulatory filings or engagements.
|
The policy of our audit committee
is to pre-approve all audit and non-audit services to be provided by PricewaterhouseCoopers Zhong Tian LLP, including audit services,
audit-related services, tax services and other services as described above, other than those for de minimis services which are
approved by the audit committee prior to the completion of the audit.
|
ITEM 16D.
|
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
Not applicable.
|
ITEM 16E.
|
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|
Not applicable.
|
ITEM 16F.
|
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
|
Not applicable.
|
ITEM 16G.
|
CORPORATE GOVERNANCE
|
As a Cayman Islands company
listed on the NYSE, we are subject to the NYSE corporate governance listing standards. Among other things, Section 303A.08 of the
NYSE Listed Company Manual requires shareholder approval of material revisions to equity-compensation plans and Section 312.03(c)
of the NYSE Listed Company Manual requires shareholder approval of new share issuances above the 20% threshold specified therein.
However, NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain
corporate governance practices in the Cayman Islands, which is our home country, differ significantly from the NYSE corporate governance
listing standards. We have elected to follow the Cayman Islands practices with respect to the amendment of our 2013 Plan to increase
the total number of ordinary shares that may be issued pursuant to awards granted under the plan by 7,000,000 Class B ordinary
shares in April 2015. In addition, we have also elected to follow the Cayman Islands practices with respect to the issuance of
new ordinary shares above the 20% threshold to Tencent and former shareholders of Ganji in April 2015 and the issuance of new ordinary
shares above the 20% threshold to certain private equity funds and issuance of a convertible promissory note to Tencent in July
2015, as specified in Section 312.03(c). We have followed the home country practice and obtained the board approval but not shareholder
approval for amending our 2013 Plan and the share issuances as described above.
Other than the matters described
above, there are no significant differences between our corporate governance practices and those followed by U.S. domestic companies
under the NYSE Listed Company Manual.
|
ITEM 16H.
|
MINE SAFETY DISCLOSURE
|
Not applicable.
PART
III
|
ITEM 17.
|
FINANCIAL STATEMENTS
|
We have elected to provide
financial statements pursuant to Item 18.
|
ITEM 18.
|
FINANCIAL STATEMENTS
|
The consolidated financial
statements of 58.com Inc. are included at the end of this annual report.
Exhibit
Number
|
|
Description of Document
|
|
|
|
1.1
|
|
Third Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated herein by reference to Exhibit 3.2 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
|
|
|
|
2.1
|
|
Registrant’s Specimen American Depositary Receipt (incorporated herein by reference to Exhibit 4.3 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
|
|
|
|
2.2
|
|
Registrant’s Specimen Certificate for Class A Ordinary Shares (incorporated herein by reference to Exhibit 4.2 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
|
|
|
|
2.3
|
|
Deposit Agreement dated October 31, 2013, among the Registrant, the depositary and holders of the American Depositary Receipts (incorporated herein by reference to Exhibit 4.3 to the registration statement on Form S-8 (File No. 333-194873), initially filed with the Security and Exchange Commission on March 28, 2014).
|
|
|
|
2.4
|
|
Amended and Restated Shareholders’ Agreement dated as of August 4, 2011 among the Registrant, its ordinary shareholders and preference shareholders (incorporated herein by reference to Exhibit 4.5 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
|
|
|
|
4.1
|
|
2010 Employee Stock Option Plan (incorporated herein by reference to Exhibit 10.1 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
|
|
|
|
4.2
|
|
2013 Share Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
|
|
|
|
4.3
|
|
Form of Indemnification Agreement with the Registrant’s directors and executive officers (incorporated herein by reference to Exhibit 10.3 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
|
|
|
|
4.4
|
|
Form of Employment Agreement between the Registrant and an executive officer of the Registrant (incorporated herein by reference to Exhibit 10.4 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
|
Exhibit
Number
|
|
Description of Document
|
4.5
|
|
English translation of the Amended and Restated Exclusive Business Cooperation Agreement between Beijing Chengshi Wanglin Information Technology Co., Ltd. and Beijing 58 Information Technology Co., Ltd. dated October 10, 2011 (incorporated herein by reference to Exhibit 10.5 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
|
|
|
|
4.6
|
|
English translation of the Equity Interest Pledge Agreements, as amended and restated, among Beijing Chengshi Wanglin Information Technology Co., Ltd., Beijing 58 Information Technology Co., Ltd. and each of the shareholders of Beijing 58 Information Technology Co., Ltd. dated June 28, 2013 (incorporated herein by reference to Exhibit 10.6 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
|
|
|
|
4.7
|
|
English translation of the Exclusive Option Agreements, as amended and restated, among Beijing Chengshi Wanglin Information Technology Co., Ltd., Beijing 58 Information Technology Co., Ltd. and each of the shareholders of Beijing 58 Information Technology Co., Ltd. dated June 28, 2013 (incorporated herein by reference to Exhibit 10.7 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
|
|
|
|
4.8
|
|
English translation of Power of Attorney issued by each of the shareholders of Beijing 58 Information Technology Co., Ltd. dated June 28, 2013 (incorporated herein by reference to Exhibit 10.8 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
|
|
|
|
4.9
|
|
English translation of Loan Agreements between Beijing Chengshi Wanglin Information Technology Co., Ltd. and each of the individual shareholders of Beijing 58 Information Technology Co., Ltd. (incorporated herein by reference to Exhibit 10.9 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
|
|
|
|
4.10
|
|
Investor Rights Agreement, dated June 30, 2014, between the Registrant, Ohio River Investment Limited, Nihao China Corporation and Jinbo Yao (incorporated herein by reference to Exhibit 4.14 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on April 29, 2015).
|
|
|
|
4.11
|
|
English Summary of Cooperation Agreement, dated September 25, 2014, by and between Beijing Electronics Zone Investment and Development Co., Ltd. and Beijing Chengshi Wanglin Information Technology Co., Ltd. (incorporated herein by reference to Exhibit 4.13 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 13, 2016).
|
|
|
|
4.12
|
|
Share Purchase Agreement, dated February 28, 2015, by and among the Registrant, Anjuke Inc. and the other parties named therein (incorporated herein by reference to Exhibit 4.14 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 13, 2016).
|
|
|
|
4.13
|
|
Share Purchase Agreement, dated April 17, 2015, by and among the Registrant and certain selling shareholders of Falcon View Technology (incorporated herein by reference to Exhibit 4.15 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 13, 2016).
|
|
|
|
4.14
|
|
Registration Rights Agreement, dated April 20, 2015, by and among the Registrant and parties set forth in Schedule 1 thereto (incorporated herein by reference to Exhibit 4.16 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 13, 2016).
|
|
|
|
4.15
|
|
Investment Agreement, dated April 17, 2015, between the Registrant and Ohio River Investment Limited (incorporated herein by reference to Exhibit 99.1 of the Schedule 13D/A (File No. 005-87683) filed with the Securities and Exchange Commission on April 20, 2015).
|
|
|
|
4.16
|
|
Xiaoxiang International Technology Venture Capital LP Subscription Agreement, dated July 29, 2015, between Dream Wizard Inc. and Xiaoxiang International Technology Venture Capital LP (incorporated herein by reference to Exhibit 4.18 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 13, 2016).
|
Exhibit
Number
|
|
Description of Document
|
4.17
|
|
Goliath Internet Opportunities, L.P. Subscription Agreement, dated July 31, 2015, between Dream Wizard Inc. and Goliath Internet Opportunities, L.P. (incorporated herein by reference to Exhibit 4.19 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 13, 2016).
|
|
|
|
4.18
|
|
Zero2IPO Partners I, L.P. Subscription Agreement, dated August 3, 2015, between Dream Wizard Inc. and Zero2IPO Partners I, L.P. (incorporated herein by reference to Exhibit 4.20 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 13, 2016).
|
|
|
|
4.19
|
|
Bridge Loan Agreement, dated July 31, 2015, between the Registrant and Ohio River Investment Limited (incorporated herein by reference to Exhibit 1 of the Schedule 13D/A (File No. 005-87683) filed with the Securities and Exchange Commission on August 5, 2015).
|
|
|
|
4.20
|
|
Convertible Promissory Note, dated July 31, 2015, issued to Ohio River Investment Limited by the Registrant (incorporated herein by reference to Exhibit 2 of the Schedule 13D/A (File No. 005-87683) filed with the Securities and Exchange Commission on August 5, 2015).
|
|
|
|
4.21
|
|
Amendment to Bridge Loan Agreement, dated December 11, 2015, between the Registrant and Ohio River Investment Limited (incorporated herein by reference to Exhibit 1 of the Schedule 13D/A (File No. 005-87683) filed with the Securities and Exchange Commission on December 15, 2015).
|
|
|
|
4.22
|
|
Convertible Promissory Note, dated December 11, 2015, issued to Ohio River Investment Limited by the Registrant (incorporated herein by reference to Exhibit 2 of the Schedule 13D/A (File No. 005-87683) filed with the Securities and Exchange Commission on December 15, 2015).
|
|
|
|
4.23
|
|
Series A Preferred Shares Subscription Agreement, dated October 12, 2015, by and among the Registrant, 58 Daojia Inc. and other parties named therein (incorporated herein by reference to Exhibit 4.25 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 13, 2016).
|
|
|
|
4.24
|
|
English translation of the Exclusive Business Cooperation Agreement between Beijing 58 Daojia Information Technology Co., Ltd. and Tianjin 58 Daojia Home Services Co., Ltd. dated August 5, 2015 (incorporated herein by reference to Exhibit 4.26 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 13, 2016).
|
|
|
|
4.25
|
|
English translation of the Amended and Restated Equity Interest Pledge Agreements among Beijing 58 Daojia Information Technology Co., Ltd., Tianjin 58 Daojia Home Services Co., Ltd. and each of the shareholders of Tianjin 58 Daojia Home Services Co., Ltd. dated August 5, 2015 and July 4, 2016 (incorporated herein by reference to Exhibit 4.25 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 1, 2017).
|
|
|
|
4.26
|
|
English translation of the Amended and Restated Exclusive Option Agreements among Beijing 58 Daojia Information Technology Co., Ltd., Tianjin 58 Daojia Home Services Co., Ltd. and each of the shareholders of Tianjin 58 Daojia Home Services Co., Ltd. dated August 5, 2015 and July 4, 2016 (incorporated herein by reference to Exhibit 4.26 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 1, 2017).
|
|
|
|
4.27
|
|
English translation of the Amended and Restated Power of Attorney issued by each of the shareholders of Tianjin 58 Daojia Home Services Co., Ltd. dated August 5, 2015 and July 4, 2016 (incorporated herein by reference to Exhibit 4.27 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 1, 2017).
|
|
|
|
4.28
|
|
English translation of the Amended and Restated Loan Agreements between Beijing 58 Daojia Information Technology Co., Ltd. and each of the shareholders of Tianjin 58 Daojia Home Services Co., Ltd. dated August 5, 2015 and July 4, 2016 (incorporated herein by reference to Exhibit 4.28 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 1, 2017).
|
Exhibit
Number
|
|
Description of Document
|
4.29*
|
|
English translation of the Exclusive Business Cooperation Agreement between Tianjin Zhuanzhuan World Technology Co., Ltd. and Beijing Zhuanzhuan Spirit Technology Co., Ltd. dated June 22, 2017.
|
|
|
|
4.30*
|
|
English translation of the Equity Interest Pledge Agreements among Tianjin Zhuanzhuan World Technology Co., Ltd., Beijing Zhuanzhuan Spirit Technology Co., Ltd. and each of the shareholders of Beijing Zhuanzhuan Spirit Technology Co., Ltd. dated February 11, 2018.
|
|
|
|
4.31*
|
|
English translation of the Exclusive Option Agreements among Tianjin Zhuanzhuan World Technology Co., Ltd., Beijing Zhuanzhuan Spirit Technology Co., Ltd. and each of the shareholders of Beijing Zhuanzhuan Spirit Technology Co., Ltd. dated February 11, 2018.
|
|
|
|
4.32*
|
|
English translation of Power of Attorney issued by each of the shareholders of Beijing Zhuanzhuan Spirit Technology Co., Ltd. dated February 11, 2018.
|
|
|
|
4.33
|
|
English translation of Offshore Credit Agreement between China Merchants Bank., Ltd. and the Registrant dated March 30, 2016 (incorporated herein by reference to Exhibit 4.34 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 1, 2017).
|
|
|
|
4.34
|
|
Share Subscription Agreement, dated April 18, 2017, by and among the Registrant, Magic Heart Inc., Zhuan Spirit Holdings Limited and Tencent Mobility Limited (incorporated herein by reference to Exhibit 4.35 of the Registrant’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on May 1, 2017).
|
|
|
|
8.1*
|
|
Principal subsidiaries of the Registrant
|
|
|
|
11.1
|
|
Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the registration statement on Form F-1 (File No. 333-191424), as amended, initially filed with the Security and Exchange Commission on September 27, 2013).
|
|
|
|
12.1*
|
|
Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
12.2*
|
|
Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
13.1**
|
|
Certification by Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
13.2**
|
|
Certification by Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
15.1*
|
|
Consent of PricewaterhouseCoopers Zhong Tian LLP, Independent Registered Public Accounting Firm
|
|
|
|
15.2*
|
|
Consent of Han Kun Law Offices
|
|
|
|
99.1***
|
|
Consolidated Financial Statements of 58 Daojia Inc. as
of December 31, 2015 and for the period of November 27 to December 31, 2015, Consolidated Financial Statements of 58
Daojia Inc. as of and for the year ended December 31, 2016 and Consolidated Financial Statements of 58 Daojia
Inc. as of and for the year ended December 31, 2017
|
|
|
|
101.INS*
|
|
XBRL Instance Document
|
|
|
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
Exhibit
Number
|
|
Description of Document
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Labels Linkbase Document
|
|
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
***
|
To be filed by amendment within six months of December 31, 2017
|
SIGNATURES
The registrant hereby certifies
that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.
|
58.com Inc.
|
|
|
|
|
|
By:
|
/s/ Jinbo Yao
|
|
|
Name:
|
Jinbo Yao
|
|
|
Title:
|
Chairman and Chief Executive Officer
|
Date: April 30, 2018
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
Report of Independent
Registered Public Accounting Firm
To
the Board of Director and Shareholders of 58.com Inc.
Opinions
on the Financial Statements and Internal Control over Financial Reporting
We
have audited the accompanying consolidated balance sheets of 58.com Inc. and its subsidiaries (the “Company”) as of
December 31, 2017 and December 31, 2016, and the related consolidated statements of comprehensive income/(loss), changes in shareholders’
equity and cash flows for each of the three years in the period ended December 31, 2017, including the related notes (collectively
referred to as the “consolidated financial statements”). We also have audited the Company’s internal control
over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis
for Opinions
The
Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in
Management's Annual Report on Internal Control over Financial Reporting appearing under Item 15 of Form 20-F. Our responsibility
is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our
audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of
the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
Definition
and Limitations of Internal Control over Financial Reporting
A
company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers Zhong Tian LLP
Beijing,
the People’s Republic of China
April
30, 2018
We
have served as the Company’s auditor since 2011, which includes periods before the Company became subject to SEC reporting
requirements.
58.com Inc.
CONSOLIDATED BALANCE
SHEETS
As of December 31,
2016 and 2017
(in thousands, except
share data and per share data, unless otherwise noted)
|
|
As of December 31
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
Note 2(c)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
1,200,457
|
|
|
|
1,524,982
|
|
|
|
233,385
|
|
Restricted cash-current
|
|
|
1,151,940
|
|
|
|
93,350
|
|
|
|
14,286
|
|
Term deposits
|
|
|
26,361
|
|
|
|
—
|
|
|
|
—
|
|
Short-term investments
|
|
|
833,480
|
|
|
|
3,437,707
|
|
|
|
526,110
|
|
Accounts receivable (net of allowance for doubtful accounts of RMB51,719 and RMB62,736 as of December 31, 2016 and 2017, respectively)
|
|
|
424,892
|
|
|
|
667,750
|
|
|
|
102,193
|
|
Prepayments and other current assets
|
|
|
426,056
|
|
|
|
657,272
|
|
|
|
100,590
|
|
Total current assets
|
|
|
4,063,186
|
|
|
|
6,381,061
|
|
|
|
976,564
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
1,480,921
|
|
|
|
1,351,681
|
|
|
|
206,863
|
|
Intangible assets, net
|
|
|
1,532,228
|
|
|
|
1,309,566
|
|
|
|
200,417
|
|
Land use rights, net
|
|
|
3,766
|
|
|
|
3,688
|
|
|
|
564
|
|
Goodwill
|
|
|
15,903,677
|
|
|
|
15,864,655
|
|
|
|
2,427,941
|
|
Restricted cash-non current
|
|
|
—
|
|
|
|
792,000
|
|
|
|
121,208
|
|
Long-term investments
|
|
|
2,118,461
|
|
|
|
1,808,601
|
|
|
|
276,790
|
|
Long-term prepayments and other non-current assets
|
|
|
223,767
|
|
|
|
755,260
|
|
|
|
115,586
|
|
Total non-current assets
|
|
|
21,262,820
|
|
|
|
21,885,451
|
|
|
|
3,349,369
|
|
Total assets
|
|
|
25,326,006
|
|
|
|
28,266,512
|
|
|
|
4,325,933
|
|
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term loans
|
|
|
1,842,720
|
|
|
|
75,000
|
|
|
|
11,478
|
|
Accounts payable (including accounts payable of the consolidated variable interest entities (“VIEs”) without recourse to the Company of RMB199,618 and RMB171,306 as of December 31, 2016 and 2017, respectively)
|
|
|
611,947
|
|
|
|
624,300
|
|
|
|
95,543
|
|
Deferred revenues (including deferred revenues of the consolidated VIEs without recourse to the Company of RMB859,956 and RMB872,148 as of December 31, 2016 and 2017, respectively)
|
|
|
1,845,846
|
|
|
|
2,123,755
|
|
|
|
325,021
|
|
Customer advances (including customer advances of the consolidated VIEs without recourse to the Company of RMB296,595 and RMB288,953 as of December 31, 2016 and 2017, respectively)
|
|
|
1,236,076
|
|
|
|
1,365,437
|
|
|
|
208,968
|
|
Taxes payable (including taxes payable of the consolidated VIEs without recourse to the Company of RMB14,740 and RMB53,629 as of December 31, 2016 and 2017, respectively)
|
|
|
62,084
|
|
|
|
186,491
|
|
|
|
28,541
|
|
Salary and welfare payable (including salary and welfare payable of the consolidated VIEs without recourse to the Company of RMB254,958 and RMB233,692 as of December 31, 2016 and 2017, respectively)
|
|
|
553,506
|
|
|
|
536,831
|
|
|
|
82,157
|
|
Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of the consolidated VIEs without recourse to the Company of RMB205,441 and RMB190,498 as of December 31, 2016 and 2017, respectively)
|
|
|
727,904
|
|
|
|
689,134
|
|
|
|
105,466
|
|
Total current liabilities
|
|
|
6,880,083
|
|
|
|
5,600,948
|
|
|
|
857,174
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term loans
|
|
|
150,000
|
|
|
|
777,427
|
|
|
|
118,978
|
|
Deferred tax liabilities (including deferred tax liabilities of the consolidated VIEs without recourse to the Company of RMB329,611 and RMB282,603 as of December 31, 2016 and 2017, respectively)
|
|
|
373,810
|
|
|
|
319,219
|
|
|
|
48,854
|
|
Other non-current liabilities (including other non-current liabilities of the consolidated VIEs without recourse to the Company of RMB nil as of both December 31, 2016 and 2017)
|
|
|
69,937
|
|
|
|
17,376
|
|
|
|
2,659
|
|
Total non-current liabilities
|
|
|
593,747
|
|
|
|
1,114,022
|
|
|
|
170,491
|
|
Total liabilities
|
|
|
7,473,830
|
|
|
|
6,714,970
|
|
|
|
1,027,665
|
|
Commitments and contingencies (Note 27)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine classified noncontrolling interests
|
|
|
86,457
|
|
|
|
1,736,405
|
|
|
|
265,741
|
|
Total mezzanine equity
|
|
|
86,457
|
|
|
|
1,736,405
|
|
|
|
265,741
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
58.com Inc. shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares (US$0.00001 par value, 5,000,000,000 (including 4,800,000,000 Class A and 200,000,000 Class B) shares authorized as of both December 31, 2016 and 2017; 289,670,997 (including 240,930,737 Class A and 48,740,260 Class B) and 293,965,131 (including 245,924,871 Class A and 48,040,260 Class B) shares issued and outstanding as of December 31, 2016 and 2017, respectively)
|
|
|
18
|
|
|
|
18
|
|
|
|
3
|
|
Additional paid-in capital
|
|
|
20,907,599
|
|
|
|
21,338,787
|
|
|
|
3,265,708
|
|
Accumulated deficit
|
|
|
(3,070,735
|
)
|
|
|
(1,689,683
|
)
|
|
|
(258,590
|
)
|
Accumulated other comprehensive loss
|
|
|
(138,597
|
)
|
|
|
(55,671
|
)
|
|
|
(8,520
|
)
|
Total 58.com Inc. shareholders’ equity
|
|
|
17,698,285
|
|
|
|
19,593,451
|
|
|
|
2,998,601
|
|
Noncontrolling interests
|
|
|
67,434
|
|
|
|
221,686
|
|
|
|
33,926
|
|
Total shareholders’ equity
|
|
|
17,765,719
|
|
|
|
19,815,137
|
|
|
|
3,032,527
|
|
Total liabilities, mezzanine equity and shareholders’ equity
|
|
|
25,326,006
|
|
|
|
28,266,512
|
|
|
|
4,325,933
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
58.com Inc.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME/(LOSS)
For the Years Ended
December 31, 2015, 2016 and 2017
(in thousands, except
share, per share and per ADS data, unless otherwise noted)
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
Note 2(c)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership
|
|
|
1,859,987
|
|
|
|
2,951,135
|
|
|
|
3,789,524
|
|
|
|
579,952
|
|
Online marketing services
|
|
|
2,414,906
|
|
|
|
4,363,777
|
|
|
|
5,978,491
|
|
|
|
914,954
|
|
E-commerce services
|
|
|
144,930
|
|
|
|
166,753
|
|
|
|
73,941
|
|
|
|
11,316
|
|
Other services
|
|
|
58,275
|
|
|
|
110,462
|
|
|
|
226,824
|
|
|
|
34,713
|
|
Total revenues
|
|
|
4,478,098
|
|
|
|
7,592,127
|
|
|
|
10,068,780
|
|
|
|
1,540,935
|
|
Cost of revenues
(1)
|
|
|
(322,016
|
)
|
|
|
(707,237
|
)
|
|
|
(925,497
|
)
|
|
|
(141,639
|
)
|
Gross profit
|
|
|
4,156,082
|
|
|
|
6,884,890
|
|
|
|
9,143,283
|
|
|
|
1,399,296
|
|
Operating expenses
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
(4,316,217
|
)
|
|
|
(4,941,380
|
)
|
|
|
(5,212,360
|
)
|
|
|
(797,704
|
)
|
Research and development expenses
|
|
|
(760,796
|
)
|
|
|
(1,107,897
|
)
|
|
|
(1,368,441
|
)
|
|
|
(209,427
|
)
|
General and administrative expenses
|
|
|
(659,284
|
)
|
|
|
(601,906
|
)
|
|
|
(766,017
|
)
|
|
|
(117,232
|
)
|
Total operating expenses
|
|
|
(5,736,297
|
)
|
|
|
(6,651,183
|
)
|
|
|
(7,346,818
|
)
|
|
|
(1,124,363
|
)
|
Income/(loss) from operations
|
|
|
(1,580,215
|
)
|
|
|
233,707
|
|
|
|
1,796,465
|
|
|
|
274,933
|
|
Other income/(expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
26,098
|
|
|
|
24,755
|
|
|
|
49,781
|
|
|
|
7,619
|
|
Interest expense
|
|
|
(52,146
|
)
|
|
|
(73,395
|
)
|
|
|
(51,404
|
)
|
|
|
(7,867
|
)
|
Investment income/(loss), net
|
|
|
(172,728
|
)
|
|
|
(145,411
|
)
|
|
|
342,241
|
|
|
|
52,377
|
|
Share of results of equity investees
|
|
|
(717,616
|
)
|
|
|
(926,740
|
)
|
|
|
(687,400
|
)
|
|
|
(105,200
|
)
|
Gain on deconsolidation and disposal of businesses
|
|
|
765,072
|
|
|
|
79,581
|
|
|
|
—
|
|
|
|
—
|
|
Foreign currency exchange (loss)/ gain, net
|
|
|
(11,196
|
)
|
|
|
(3,727
|
)
|
|
|
793
|
|
|
|
121
|
|
Others, net
|
|
|
45,362
|
|
|
|
(12,713
|
)
|
|
|
85,455
|
|
|
|
13,078
|
|
Income/(loss) before tax
|
|
|
(1,697,369
|
)
|
|
|
(823,943
|
)
|
|
|
1,535,931
|
|
|
|
235,061
|
|
Income tax benefits/(expenses)
|
|
|
48,786
|
|
|
|
50,980
|
|
|
|
(146,689
|
)
|
|
|
(22,449
|
)
|
Net income/(loss)
|
|
|
(1,648,583
|
)
|
|
|
(772,963
|
)
|
|
|
1,389,242
|
|
|
|
212,612
|
|
Add: Net loss/ (income) attributable to noncontrolling interests
|
|
|
80,705
|
|
|
|
4,916
|
|
|
|
(4,667
|
)
|
|
|
(714
|
)
|
Less: Deemed dividend to mezzanine classified noncontrolling interests
|
|
|
(5,762
|
)
|
|
|
(15,717
|
)
|
|
|
(99,507
|
)
|
|
|
(15,228
|
)
|
Net income/(loss) attributable to 58.com Inc.
|
|
|
(1,573,640
|
)
|
|
|
(783,764
|
)
|
|
|
1,285,068
|
|
|
|
196,670
|
|
Net income/(loss)
|
|
|
(1,648,583
|
)
|
|
|
(772,963
|
)
|
|
|
1,389,242
|
|
|
|
212,612
|
|
Other comprehensive income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of nil tax
|
|
|
(69,708
|
)
|
|
|
(76,027
|
)
|
|
|
82,926
|
|
|
|
12,691
|
|
Unrealized gain/(loss) on available-for-sale securities
|
|
|
16,919
|
|
|
|
(13,104
|
)
|
|
|
—
|
|
|
|
—
|
|
Reclassification into investment loss, net of nil tax
|
|
|
—
|
|
|
|
2,989
|
|
|
|
—
|
|
|
|
—
|
|
Total comprehensive income/(loss)
|
|
|
(1,701,372
|
)
|
|
|
(859,105
|
)
|
|
|
1,472,168
|
|
|
|
225,303
|
|
Net earnings/(loss) per ordinary share attributable to ordinary shareholders - basic
|
|
|
(6.70
|
)
|
|
|
(2.73
|
)
|
|
|
4.41
|
|
|
|
0.67
|
|
Net earnings/(loss) per ordinary share attributable to ordinary shareholders - diluted
|
|
|
(6.70
|
)
|
|
|
(2.73
|
)
|
|
|
4.35
|
|
|
|
0.67
|
|
Net earnings/(loss) per ADS attributable to ordinary shareholders - basic (One ADS represents two ordinary shares)
|
|
|
(13.40
|
)
|
|
|
(5.46
|
)
|
|
|
8.82
|
|
|
|
1.35
|
|
Net earnings/(loss) per ADS attributable to ordinary shareholders - diluted (One ADS represents two ordinary shares)
|
|
|
(13.40
|
)
|
|
|
(5.46
|
)
|
|
|
8.70
|
|
|
|
1.33
|
|
Weighted average number of ordinary shares used in computing basic earnings/(loss) per share
|
|
|
234,811,986
|
|
|
|
286,975,068
|
|
|
|
291,475,725
|
|
|
|
291,475,725
|
|
Weighted average number of ordinary shares used in computing diluted earnings/(loss) per share
|
|
|
234,811,986
|
|
|
|
286,975,068
|
|
|
|
295,304,995
|
|
|
|
295,304,995
|
|
Note:
|
(1)
|
Share-based compensation expenses were allocated in cost
of revenues and operating expenses as follows:
|
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
Note 2(c)
|
|
Cost of revenues
|
|
|
760
|
|
|
|
490
|
|
|
|
3,278
|
|
|
|
502
|
|
Sales and marketing expenses
|
|
|
44,049
|
|
|
|
59,017
|
|
|
|
69,926
|
|
|
|
10,702
|
|
Research and development expenses
|
|
|
59,314
|
|
|
|
98,515
|
|
|
|
126,116
|
|
|
|
19,301
|
|
General and administrative expenses
|
|
|
72,482
|
|
|
|
108,553
|
|
|
|
151,249
|
|
|
|
23,147
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
58.com Inc.
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Years Ended
December 31, 2015, 2016 and 2017
(in thousands, except
share data and per share data, unless otherwise noted)
|
|
Ordinary
shares
|
|
|
Additional
paid-in
|
|
|
Accumulated
|
|
|
Accumulated
other
comprehensive
|
|
|
Noncontrolling
|
|
|
Total
shareholders’
|
|
|
|
Shares
*
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
income/(loss)
|
|
|
Interest
|
|
|
equity
|
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Balance
as of December 31, 2014
|
|
|
176,375,211
|
|
|
|
11
|
|
|
|
3,838,736
|
|
|
|
(734,810
|
)
|
|
|
334
|
|
|
|
—
|
|
|
|
3,104,271
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,567,878
|
)
|
|
|
—
|
|
|
|
(80,705
|
)
|
|
|
(1,648,583
|
)
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
174,749
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,856
|
|
|
|
176,605
|
|
Exercise of share options and
restricted share units
|
|
|
1,657,086
|
|
|
|
—
|
|
|
|
21,583
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,583
|
|
Foreign currency translation
adjustment, net of nil tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(69,708
|
)
|
|
|
—
|
|
|
|
(69,708
|
)
|
Unrealized gain on available-for-sale
securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,919
|
|
|
|
—
|
|
|
|
16,919
|
|
Issuance of ordinary shares to
Tencent
|
|
|
19,651,960
|
|
|
|
1
|
|
|
|
3,305,017
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,305,018
|
|
Equity consideration for acquisition
of Anjuke Inc. (“Anjuke”)
|
|
|
4,839,372
|
|
|
|
—
|
|
|
|
577,961
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
577,961
|
|
Equity consideration for equity
investment in Falcon View Technology (“Ganji”)
|
|
|
34,039,136
|
|
|
|
3
|
|
|
|
5,586,104
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,586,107
|
|
Equity consideration for step
acquisition of Ganji
|
|
|
46,505,912
|
|
|
|
3
|
|
|
|
7,107,130
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,107,133
|
|
Subsequent settlement of receivables
from option holders
|
|
|
—
|
|
|
|
—
|
|
|
|
873
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
873
|
|
Deconsolidation of 58 Daojia
Inc. (“58 Home”)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,838
|
)
|
|
|
(3,838
|
)
|
Deemed dividend to mezzanine
classified noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,762
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,762
|
)
|
Acquisition of noncontrolling
interests in subsidiaries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47,693
|
|
|
|
47,693
|
|
Compensation to noncontrolling
shareholders resulting from waiver of receivables from 58 Home
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
77,338
|
|
|
|
77,338
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,734
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
3,734
|
|
|
|
—
|
|
Balance
as of December 31, 2015
|
|
|
283,068,677
|
|
|
|
18
|
|
|
|
20,602,657
|
|
|
|
(2,302,688
|
)
|
|
|
(52,455
|
)
|
|
|
46,078
|
|
|
|
18,293,610
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(768,047
|
)
|
|
|
—
|
|
|
|
(4,916
|
)
|
|
|
(772,963
|
)
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
256,153
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,422
|
|
|
|
266,575
|
|
Exercise of share options and
restricted share units
|
|
|
6,602,320
|
|
|
|
—
|
|
|
|
20,942
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,942
|
|
Foreign currency translation
adjustment, net of nil tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(76,027
|
)
|
|
|
—
|
|
|
|
(76,027
|
)
|
Unrealized loss on available-for-sale
securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(13,104
|
)
|
|
|
—
|
|
|
|
(13,104
|
)
|
Reclassification into investment
loss, net of nil tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,989
|
|
|
|
—
|
|
|
|
2,989
|
|
Subsequent settlement of receivables
from option holders
|
|
|
—
|
|
|
|
—
|
|
|
|
20,115
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,115
|
|
Deemed dividend to mezzanine
classified noncontrolling interests shareholders
|
|
|
—
|
|
|
|
—
|
|
|
|
(15,717
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(15,717
|
)
|
Capital injection from noncontrolling
interest shareholder
|
|
|
—
|
|
|
|
—
|
|
|
|
198
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28,037
|
|
|
|
28,235
|
|
Disposal
of Mighty Talent Limited (“Mayi”)
|
|
|
—
|
|
|
|
—
|
|
|
|
23,251
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,187
|
)
|
|
|
11,064
|
|
Balance
as of December 31, 2016
|
|
|
289,670,997
|
|
|
|
18
|
|
|
|
20,907,599
|
|
|
|
(3,070,735
|
)
|
|
|
(138,597
|
)
|
|
|
67,434
|
|
|
|
17,765,719
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,384,575
|
|
|
|
—
|
|
|
|
4,667
|
|
|
|
1,389,242
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
339,835
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
339,835
|
|
Exercise of share options and
restricted share units
|
|
|
4,294,134
|
|
|
|
—
|
|
|
|
100,801
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100,801
|
|
Deemed dividend to mezzanine
classified noncontrolling interest shareholders
|
|
|
—
|
|
|
|
—
|
|
|
|
(99,507
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(99,507
|
)
|
Foreign currency translation
adjustment, net of nil tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
82,926
|
|
|
|
—
|
|
|
|
82,926
|
|
Contribution from noncontrolling
interest holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
164,589
|
|
|
|
164,589
|
|
Disposal of subsidiaries
|
|
|
—
|
|
|
|
—
|
|
|
|
87,781
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(15,004
|
)
|
|
|
72,777
|
|
Others
|
|
|
—
|
|
|
|
—
|
|
|
|
2,278
|
|
|
|
(3,523
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,245
|
)
|
Balance
as of December 31, 2017
|
|
|
293,965,131
|
|
|
|
18
|
|
|
|
21,338,787
|
|
|
|
(1,689,683
|
)
|
|
|
(55,671
|
)
|
|
|
221,686
|
|
|
|
19,815,137
|
|
* Ordinary shares include
Class A ordinary shares and Class B ordinary shares, please refer to Note 23.
The accompanying
notes are an integral part of these consolidated financial statements.
58.com Inc.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the Years Ended
December 31, 2015, 2016 and 2017
(in thousands, except
share data, unless otherwise noted)
|
|
For the Year Ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
Note 2(c)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
(1,648,583
|
)
|
|
|
(772,963
|
)
|
|
|
1,389,242
|
|
|
|
212,612
|
|
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expenses
|
|
|
176,605
|
|
|
|
266,575
|
|
|
|
350,569
|
|
|
|
53,652
|
|
Depreciation and amortization expenses
|
|
|
209,144
|
|
|
|
406,827
|
|
|
|
435,627
|
|
|
|
66,669
|
|
Investment (income)/loss
|
|
|
230,619
|
|
|
|
(149
|
)
|
|
|
(319,739
|
)
|
|
|
(48,933
|
)
|
Share of results of equity investees
|
|
|
717,616
|
|
|
|
926,740
|
|
|
|
687,400
|
|
|
|
105,200
|
|
Interest expense
|
|
|
52,146
|
|
|
|
73,395
|
|
|
|
51,404
|
|
|
|
7,867
|
|
Loss upon conversion of Guazi Convertible Note
|
|
|
—
|
|
|
|
84,177
|
|
|
|
—
|
|
|
|
—
|
|
Interest income from Guazi Convertible Note
|
|
|
—
|
|
|
|
(17,503
|
)
|
|
|
—
|
|
|
|
—
|
|
Allowance for doubtful accounts and other current assets write-off
|
|
|
12,026
|
|
|
|
56,617
|
|
|
|
16,762
|
|
|
|
2,565
|
|
Compensation to noncontrolling shareholders resulting from waiver of receivables from 58 Home
|
|
|
77,338
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Bargain purchase gain
|
|
|
(10,641
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain on deconsolidation and disposal of businesses
|
|
|
(765,072
|
)
|
|
|
(79,581
|
)
|
|
|
—
|
|
|
|
—
|
|
Impairment loss of long-term investments and other non-current assets
|
|
|
6,119
|
|
|
|
172,125
|
|
|
|
37,300
|
|
|
|
5,708
|
|
Loss/(income) on disposal of property and equipment
|
|
|
3,814
|
|
|
|
(463
|
)
|
|
|
968
|
|
|
|
148
|
|
Deferred income taxes
|
|
|
(34,759
|
)
|
|
|
(56,358
|
)
|
|
|
(65,839
|
)
|
|
|
(10,076
|
)
|
Foreign currency exchange loss/(income), net
|
|
|
11,196
|
|
|
|
3,727
|
|
|
|
(793
|
)
|
|
|
(121
|
)
|
Changes in operating assets and liabilities, net of acquisitions and disposals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Cash
|
|
|
—
|
|
|
|
—
|
|
|
|
(82,563
|
)
|
|
|
(12,636
|
)
|
Accounts receivable
|
|
|
(166,185
|
)
|
|
|
(87,769
|
)
|
|
|
(260,265
|
)
|
|
|
(39,831
|
)
|
Prepayments and other assets
|
|
|
(158,665
|
)
|
|
|
(9,451
|
)
|
|
|
(345,300
|
)
|
|
|
(52,845
|
)
|
Accounts payable
|
|
|
304,867
|
|
|
|
(38,522
|
)
|
|
|
40,503
|
|
|
|
6,199
|
|
Deferred revenues
|
|
|
363,153
|
|
|
|
420,938
|
|
|
|
285,352
|
|
|
|
43,670
|
|
Customer advances
|
|
|
484,002
|
|
|
|
233,411
|
|
|
|
129,362
|
|
|
|
19,798
|
|
Salary and welfare payable
|
|
|
167,677
|
|
|
|
41,086
|
|
|
|
(13,897
|
)
|
|
|
(2,127
|
)
|
Taxes payable
|
|
|
4,060
|
|
|
|
(4,078
|
)
|
|
|
122,653
|
|
|
|
18,771
|
|
Accrued expenses and other liabilities
|
|
|
162,061
|
|
|
|
269,068
|
|
|
|
238,571
|
|
|
|
36,510
|
|
Net cash provided by operating activities
|
|
|
198,538
|
|
|
|
1,887,849
|
|
|
|
2,697,317
|
|
|
|
412,800
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment and intangible assets
|
|
|
(1,261,025
|
)
|
|
|
(213,116
|
)
|
|
|
(121,278
|
)
|
|
|
(18,561
|
)
|
Cash received for disposal of property and equipment
|
|
|
1,423
|
|
|
|
364
|
|
|
|
499
|
|
|
|
76
|
|
Purchase of land use rights
|
|
|
(3,843
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Purchase of long-term investments
|
|
|
(502,764
|
)
|
|
|
(168,741
|
)
|
|
|
(467,385
|
)
|
|
|
(71,529
|
)
|
Changes in restricted cash
|
|
|
—
|
|
|
|
(1,148,498
|
)
|
|
|
348,726
|
|
|
|
53,369
|
|
Cash paid to term deposits and other advances
|
|
|
(122,274
|
)
|
|
|
(181,160
|
)
|
|
|
(15,824
|
)
|
|
|
(2,422
|
)
|
Proceeds from maturity of term deposits
|
|
|
2,003,584
|
|
|
|
10,530
|
|
|
|
61,228
|
|
|
|
9,370
|
|
Purchase of short-term investments
|
|
|
(2,951,880
|
)
|
|
|
(9,701,600
|
)
|
|
|
(18,527,200
|
)
|
|
|
(2,835,420
|
)
|
Proceeds from maturity of short-term investments
|
|
|
4,401,792
|
|
|
|
9,120,873
|
|
|
|
15,931,400
|
|
|
|
2,438,156
|
|
Cash received for disposal of long-term investments
|
|
|
—
|
|
|
|
—
|
|
|
|
353,485
|
|
|
|
54,098
|
|
Cash paid for acquisition of Anjuke, net of acquisition of cash
|
|
|
(766,455
|
)
|
|
|
(190,868
|
)
|
|
|
—
|
|
|
|
—
|
|
Cash paid for equity investment in Ganji
|
|
|
(1,776,677
|
)
|
|
|
(806,383
|
)
|
|
|
—
|
|
|
|
—
|
|
Cash paid for step-acquisition of Ganji, net of acquisition of cash
|
|
|
(1,501,830
|
)
|
|
|
(662,722
|
)
|
|
|
(91,867
|
)
|
|
|
(14,059
|
)
|
Cash paid for acquisitions of other subsidiaries, net of acquisition of cash
|
|
|
(266,175
|
)
|
|
|
(479
|
)
|
|
|
(3,100
|
)
|
|
|
(474
|
)
|
Net cash received/(paid) upon deconsolidation and disposal of businesses
|
|
|
289,562
|
|
|
|
(6,227
|
)
|
|
|
(330,248
|
)
|
|
|
(50,541
|
)
|
Purchase of convertible note issued by Guazi.com Inc. (“Guazi”)
|
|
|
(324,680
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net cash used in investing activities
|
|
|
(2,781,242
|
)
|
|
|
(3,948,027
|
)
|
|
|
(2,861,564
|
)
|
|
|
(437,937
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of share options
|
|
|
21,390
|
|
|
|
21,131
|
|
|
|
100,866
|
|
|
|
15,437
|
|
Proceeds from short-term loans
|
|
|
2,457,240
|
|
|
|
2,853,303
|
|
|
|
—
|
|
|
|
—
|
|
Repayment of short-term loans
|
|
|
—
|
|
|
|
(2,994,038
|
)
|
|
|
(1,804,498
|
)
|
|
|
(276,162
|
)
|
Proceeds from long-term loan
|
|
|
—
|
|
|
|
150,000
|
|
|
|
740,084
|
|
|
|
113,263
|
|
Proceeds from issuance of ordinary shares to Tencent
|
|
|
2,452,080
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Proceeds from issuance of preference shares of a subsidiary to Tencent
|
|
|
—
|
|
|
|
—
|
|
|
|
1,373,558
|
|
|
|
210,211
|
|
Contribution from noncontrolling interest holders
|
|
|
—
|
|
|
|
28,235
|
|
|
|
164,589
|
|
|
|
25,189
|
|
Other financing payment
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,523
|
)
|
|
|
(539
|
)
|
Net cash provided by financing activities
|
|
|
4,930,710
|
|
|
|
58,631
|
|
|
|
571,076
|
|
|
|
87,399
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
108,872
|
|
|
|
63,617
|
|
|
|
(82,304
|
)
|
|
|
(12,596
|
)
|
Net increase/(decrease) in cash and cash equivalents
|
|
|
2,456,878
|
|
|
|
(1,937,930
|
)
|
|
|
324,525
|
|
|
|
49,666
|
|
Cash and cash equivalents at the beginning of the year
|
|
|
681,509
|
|
|
|
3,138,387
|
|
|
|
1,200,457
|
|
|
|
183,719
|
|
Cash and cash equivalents at the end of the year
|
|
|
3,138,387
|
|
|
|
1,200,457
|
|
|
|
1,524,982
|
|
|
|
233,385
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax paid/(refund), net
|
|
|
(7,078
|
)
|
|
|
3,541
|
|
|
|
166,800
|
|
|
|
25,527
|
|
Interest expense paid
|
|
|
—
|
|
|
|
74,861
|
|
|
|
66,336
|
|
|
|
10,152
|
|
Supplemental disclosure of non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment in accounts payable
|
|
|
42,449
|
|
|
|
36,967
|
|
|
|
9,001
|
|
|
|
1,378
|
|
Deemed dividend to mezzanine classified noncontrolling interests
|
|
|
5,762
|
|
|
|
15,717
|
|
|
|
89,024
|
|
|
|
13,624
|
|
Equity consideration for acquisition of Anjuke
|
|
|
577,961
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Equity consideration for equity investment in Ganji
|
|
|
5,586,107
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Equity consideration for step acquisition of Ganji
|
|
|
7,107,133
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consideration payable for acquisition of Anjuke
|
|
|
188,068
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consideration payable for equity investment in Ganji
|
|
|
794,901
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consideration payable for step acquisition of Ganji
|
|
|
982,923
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Early repayment of convertible note by issuance of ordinary share to Tencent
|
|
|
852,938
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Non-cash consideration for investment in Tujia.com International (“Tujia”)
|
|
|
—
|
|
|
|
79,132
|
|
|
|
—
|
|
|
|
—
|
|
Non-cash consideration for disposal of Finance business
|
|
|
—
|
|
|
|
—
|
|
|
|
150,908
|
|
|
|
23,095
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
|
1.
|
Organization and principal activities
|
58.com Inc.
(the “Company”), through its consolidated subsidiaries, including wholly-foreign owned enterprises (“WFOEs”),
variable interest entities (“VIEs”) and VIEs’ subsidiaries (collectively, the “Group”), is primarily
engaged in the operation of various multi-category online classifieds platforms and vertical listing platforms that enable local
businesses and consumers to connect, share information and conduct business in the People's Republic of China (the “PRC”
or “China”).
In 2017, the
Company’s major consolidated subsidiaries, VIEs and VIEs’ subsidiaries are as follows:
Name
|
|
Date of
incorporation and
acquisition
|
|
Place of
incorporation
|
|
Percentage
of
direct or
indirect
economic
ownership
|
|
Wholly owned and majority owned subsidiaries of the Company:
|
|
|
|
|
|
|
|
|
China Classified Network Corporation (“CCNC BVI”)
|
|
January 5, 2010
|
|
British Virgin Islands
|
|
|
100
|
%
|
China Classified Information Corporation Limited (“CCIC HK”)
|
|
January 18, 2010
|
|
Hong Kong
|
|
|
100
|
%
|
Beijing Chengshi Wanglin Information Technology Co., Ltd. (“Wanglin”)
|
|
March 8, 2010
|
|
PRC
|
|
|
100
|
%
|
58 Tongcheng Information Technology Co., Ltd. ("58 Technology")
|
|
March 15, 2012
|
|
PRC
|
|
|
100
|
%
|
Anjuke Inc. (“Anjuke”)
|
|
March 2, 2015
|
|
Cayman
|
|
|
100
|
%
|
Ruiting Network Technology (Shanghai) Co., Ltd. (“Shanghai Ruiting”)
|
|
March 2, 2015
|
|
PRC
|
|
|
100
|
%
|
58.com Holdings Inc. (“58 Holdings”)
|
|
July 11, 2014
|
|
British Virgin Islands
|
|
|
100
|
%
|
Falcon View Technology (“Ganji”)
|
|
August 6, 2015
|
|
Cayman
|
|
|
100
|
%
|
Beijing Yangguang Gudi Science Development Co., Ltd. (“Yangguang Gudi”)
|
|
August 6, 2015
|
|
PRC
|
|
|
100
|
%
|
Zhuan Spirit Holdings Limited (“Zhuan Zhuan Holding”)
|
|
March 24, 2017
|
|
Cayman
|
|
|
73.1
|
%
|
Zhuan Vision Holdings Limited (“Zhuan Vision”)
|
|
April 20, 2017
|
|
Hong Kong
|
|
|
73.1
|
%
|
Tianjin Zhuanzhuan World Technology Co., Ltd (“Tianjin Zhuanzhuan”)
|
|
June 21, 2017
|
|
PRC
|
|
|
73.1
|
%
|
VIEs and VIEs’ subsidiaries:
|
|
|
|
|
|
|
|
|
Beijing 58 Information Technology Co., Ltd. (“Beijing 58”)
|
|
December 12, 2005
|
|
PRC
|
|
|
100
|
%
|
58 Co., Ltd.
|
|
July 28, 2011
|
|
PRC
|
|
|
100
|
%
|
Shanghai Ruijia Information Technology Co., Ltd.
|
|
March 2, 2015
|
|
PRC
|
|
|
100
|
%
|
Beijing 58 Auto Technology Co., Ltd. (“Beijing 58 Auto”, formerly known as Beijing Leftbrain Network Technology Co., Ltd.)
|
|
November 26, 2015
|
|
PRC
|
|
|
59.5
|
%
|
Beijing Shanjing Kechuang Network Technology Co., Ltd. (“Shanjing Kechuang”)
|
|
August 6, 2015
|
|
PRC
|
|
|
100
|
%
|
Beijing Zhuanzhuan Spirit Technology Co., Ltd. (“Beijing Zhuanzhuan”)
|
|
April 11, 2017
|
|
PRC
|
|
|
75
|
%
|
Note:
58
Daojia Inc. (“58 Home”) which was established on January 26, 2015, completed its Series A equity financing in November
2015. As certain approval rights were granted to a noncontrolling preference shareholder and such rights were considered as substantive
participating rights in accordance with ASC 810-10, accordingly, the Company deconsolidated 58 Home and its subsidiaries and VIE
upon completion of the transaction. See Note 5 for more information.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
|
a.
|
Contractual arrangements with the Group’s VIEs
|
In order
to comply with the PRC laws and regulations which prohibit or restrict foreign control of companies involved in provision of internet
content and other restricted businesses, the Group operates its platforms and other restricted businesses in the PRC through certain
PRC domestic companies, whose equity interests are held by certain management members of the Group (“Nominee Shareholders”).
The Group obtained control over these PRC domestic companies by entering into a series of Contractual Arrangements with these PRC
domestic companies and their respective Nominee Shareholders. These contractual agreements include loan agreements, exclusive purchase
option agreements, exclusive technology consulting and services agreements, intellectual property rights license agreement, equity
pledge agreements, powers of attorney, business cooperation agreements and business operation agreements. These contractual agreements
can be extended at the Group’s relevant PRC subsidiaries’ options prior to the expiration date. Management concluded
that these PRC domestic companies are VIEs of the Group, of which the Group is the ultimate primary beneficiary. As such, the Group
consolidated the financial results of these PRC domestic companies and their subsidiaries in the Group’s consolidated financial
statements. Refer to Note 2(a) to the consolidated financial statements for the principles of consolidation.
The following is a summary of the contractual agreements (collectively, “Contractual Agreements”)
that the Group, through its subsidiaries, entered into with the VIEs and their Nominee Shareholders:
|
(i)
|
Contractual Arrangements with Beijing 58
|
The Company’s
subsidiary Wanglin has entered into contractual arrangements with Beijing 58 and its shareholders described below, which are referred
to as the Beijing 58 Agreements. Through the Beijing 58 Agreements, the Company exercise control over the operations of Beijing
58 and receives substantially all its economic benefits and residual returns.
Through the amended
and restated exclusive business cooperation agreement between Beijing 58 and Wanglin, Wanglin agrees to provide certain technical
and business support and related consulting services to Beijing 58 in exchange for service fees. In addition, pursuant to the amended
and restated exclusive option agreement, Beijing 58 is prohibited from declaring and paying any dividends without Wanglin’s
prior consent and Wanglin enjoys an irrevocable and exclusive option to purchase Beijing 58 shareholders’ equity interests,
to the extent permitted by applicable PRC laws, at a nominal price from Beijing Wanglintong Information Technology Co., Ltd. (“Beijing
Wanglintong”), which is one of the shareholders of Beijing 58, or at a specified price equal to the loan provided by Wanglin
to the individual shareholders. If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted
under PRC law shall apply. Through the arrangements, the Company can obtain all of Beijing 58’s income and all of its residual
interests, such as undistributed earnings, either through dividend distribution or purchase of Beijing 58’s equity interests
from its existing shareholders. As a result of the contractual arrangements, the Company consolidates Beijing 58’s financial
results in the consolidated financial statements in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”).
Exclusive Business
Cooperation Agreement
Under the exclusive
business cooperation agreement between Beijing 58 and Wanglin, as amended and restated, Wanglin has the exclusive right to provide,
among other things, technical support and business support and related consulting services to Beijing 58 and Beijing 58 agrees
to accept all the consultation and services provided by Wanglin. Without Wanglin’s prior written consent, Beijing 58 is prohibited
from engaging any third party to provide any of the services under this agreement. In addition, Wanglin exclusively owns all intellectual
property rights arising out of or created during the performance of this agreement. Beijing 58 agrees to pay a quarterly service
fee to Wanglin at an amount determined solely by Wanglin after taking into account factors including the complexity and difficulty
of the services provided, the time consumed, the seniority of the Wanglin employees providing services to Beijing 58, the value
of services provided, the market price of comparable services and the operating conditions of Beijing 58. This agreement will remain
effective unless Wanglin terminates the agreement in writing or a competent governmental authority rejects the renewal applications
by either Beijing 58 or Wanglin to renew its respective business license upon expiration. Beijing 58 is not permitted to terminate
this agreement in any event unless required by applicable laws. In 2015, 2016 and 2017, Wanglin provided technical support services
to Beijing 58 and its subsidiaries and collected service fee payments of approximately RMB2.6 million, RMB41.3 million and RMB0.4
million, respectively.
Powers of Attorney
Pursuant to the powers
of attorney, the shareholders of Beijing 58 each irrevocably appointed Wanglin as the attorney-in-fact to act on their behalf on
all matters pertaining to Beijing 58 and to exercise all of their rights as a shareholder of Beijing 58, including but not limited
to attend shareholders’ meetings, vote on their behalf on all matters of Beijing 58 requiring shareholders’ approval
under PRC laws and regulations and the articles of association of Beijing 58, designate and appoint directors and senior management
members. Wanglin may authorize or assign its rights under this appointment to any other person or entity at its sole discretion
without prior notice to the shareholders of Beijing 58. Each power of attorney will remain in force until the shareholder ceases
to hold any equity interest in Beijing 58.
Equity Interest Pledge
Agreements
Under the equity interest
pledge agreements among Wanglin, Beijing 58 and the shareholders of Beijing 58, as amended and restated, the shareholders pledged
all of their equity interests in Beijing 58 to Wanglin to guarantee Beijing 58’s and Beijing 58’s shareholders’
performance of their obligations under the contractual arrangements including, but not limited to, the payments due to Wanglin
for services provided. If Beijing 58 or any of Beijing 58’s shareholders breaches its contractual obligations under the contractual
arrangements, Wanglin, as the pledgee, will be entitled to certain rights and entitlements, including receiving proceeds from the
auction or sale of whole or part of the pledged equity interests of Beijing 58 in accordance with legal procedures. Wanglin has
the right to receive dividends generated by the pledged equity interests during the term of the pledge. If any event of default
as provided in the contractual arrangements occurs, Wanglin, as the pledgee, will be entitled to dispose of the pledged equity
interests in accordance with PRC laws and regulations. The pledge will become effective on the date when the pledge of equity interests
contemplated in these agreements are registered with the relevant local administration for industry and commerce and will remain
binding until Beijing 58 and its shareholders discharge all their obligations under the contractual arrangements. These equity
interest pledge agreements were registered with Chaoyang Branch of Beijing Administration for Industry and Commerce in July 2013.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
Exclusive Option
Agreements
Under the exclusive
option agreements among Wanglin, as amended and restated, Beijing 58 and each of the shareholders of Beijing 58, each of the shareholders
irrevocably granted Wanglin or its designated representative(s) an exclusive option to purchase, to the extent permitted under
PRC law, all or part of his, her or its equity interests in Beijing 58. In addition, Wanglin has the option to acquire all the
equity interests of Beijing 58 for either a nominal price from Beijing Wanglintong, or at a specified price equal to the loan provided
by Wanglin to the individual shareholders. If the lowest price permitted under PRC law is higher than the above price, the lowest
price permitted under PRC law shall apply. Wanglin or its designated representative(s) have sole discretion as to when to exercise
such options, either in part or in full. Without Wanglin’s prior written consent, Beijing 58’s shareholders shall not
transfer, donate, pledge, or otherwise dispose any equity interests in Beijing 58. These agreements will remain effective until
all equity interests held in Beijing 58 by the Beijing 58’s shareholders are transferred or assigned to Wanglin or Wanglin’s
designated representatives. At the moment, the Company cannot exercise the exclusive option to purchase the current shareholders’
equity interests in Beijing 58 due to the PRC regulatory restrictions on foreign ownership in the value-added telecommunications
services. The Company intends to exercise such option once China opens up these industries to foreign investment.
Loan Agreements
Pursuant to the loan
agreements between Wanglin and each individual shareholder of Beijing 58, Wanglin provided interest-free loans with an aggregate
amount of approximately RMB7.8 million to the individual shareholders of Wanglin for the sole purpose of funding the capital increase
of Beijing 58. The loans can be repaid by transferring the individual shareholders’ equity interest in Beijing 58 to Wanglin
or its designated person pursuant to Exclusive Option Agreements. The term of each loan agreement is ten years from the date of
the agreement expiring on December 1, 2021 and can be extended with the written consent of both parties before expiration.
|
(ii)
|
Contractual Arrangements with Shanjing Kechuang
|
Ganji, through its PRC
subsidiary, Yangguang Gudi, has entered into contractual arrangements with Shanjing Kechuang and its shareholders described below,
which are referred to as the Shanjing Kechuang Agreements. Through the Shanjing Kechuang Agreements, Ganji exercises control over
the operations of Shanjing Kechuang and receives substantially all its economic benefits and residual returns. Through the exclusive
business cooperation agreement between Yangguang Gudi and Shanjing Kechuang, Yangguang Gudi agrees to provide certain technical
and business support and related consulting services to Shanjing Kechuang in exchange for service fees. In addition, pursuant to
the exclusive option agreements, Shanjing Kechuang is prohibited from declaring and paying any dividends without Yangguang Gudi’s
prior consent and Yangguang Gudi enjoys an irrevocable and exclusive option to purchase Shanjing Kechuang shareholders’ equity
interests, to the extent permitted by applicable PRC laws, at a specified price equal to the loan amount provided by Yangguang
Gudi to the shareholders. If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted
under PRC law shall apply. Through these arrangements, Ganji can obtain all of the income and the interests of Shanjing Kechuang,
such as undistributed earnings, either through dividend distributions or purchase of equity interests of Shanjing Kechuang from
its existing shareholders. As a result of the contractual arrangements, the Company, through Ganji, consolidates the financial
results of Shanjing Kechuang in its consolidated financial statements in accordance with U.S. GAAP.
Exclusive Business
Cooperation Agreement
The terms and arrangements
of the exclusive business cooperation agreement between Yangguang Gudi and Shanjing Kechuang are substantially similar to those
under the Beijing 58 Agreements. In 2015, Yangguang Gudi provided technical support services to Shanjing Kechuang amounting to
US$2.0 million with no service fees collected. In 2016 and 2017, Yangguang Gudi did not collect any service fee payments from Shanjing
Kechuang because no services were provided in these two years.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
Powers of Attorney
Each shareholder of
Shanjing Kechuang has executed a power of attorney to irrevocably appoint Yangguang Gudi as the attorney-in-fact to act on the
shareholder’s behalf. The terms of the powers of attorney are substantially similar to those under the Beijing 58 Agreements.
Equity Interest Pledge
Agreements
Yangguang Gudi, Shanjing Kechuang and each of the shareholders of Shanjing Kechuang have entered into
equity interest pledge agreements with terms and arrangements that are substantially similar to those under the Beijing 58 Agreements.
These equity interest pledge agreements were registered with Shunyi Branch of Beijing Administration for Industry and Commerce
Bureau on March 18, 2016 for the three individual nominee shareholders and April 1, 2016 for 58 Co., Ltd., respectively.
Exclusive Option
Agreements
Yangguang Gudi, Shanjing
Kechuang and each of the shareholders of Shanjing Kechuang have entered into exclusive option agreements with terms and arrangements
that are substantially similar to those under the Beijing 58 Agreements. At the moment, Ganji cannot exercise the exclusive options
to purchase the current shareholders’ equity interests in Shanjing Kechuang due to the PRC regulatory restrictions on foreign
ownership in the value-added telecommunications services. Ganji may exercise the options if China opens up these industries to
foreign investment.
Loan Agreements
Yangguang Gudi and each
shareholder of Shanjing Kechuang have entered into loan agreements with an aggregate amount of interest-free loans of approximately
RMB38.7 million. The terms of the loan agreements are substantially similar to those under the Beijing 58 Agreements and each loan
agreement expires on August 6, 2025 and can be extended with the written consent of both parties before expiration.
|
(iii)
|
58 Home’s Contractual Arrangements with
Tianjin 58 Daojia Life Services Co., Ltd. (“Tianjin 58 Home”)
|
58 Home has through Beijing
58 Daojia Information Technology Co., Ltd. (“Beijing 58 Home”) entered into contractual arrangements with Tianjin 58
Home and its shareholders described below, which are referred to as the Tianjin 58 Home Agreements. Through the Tianjin 58 Home
Agreements, Beijing 58 Home exercises control over the operations of Tianjin 58 Home and receives substantially all its economic
benefits and residual returns. Through the exclusive business cooperation agreement between Beijing 58 Home and Tianjin 58 Home,
Beijing 58 Home agrees to provide certain technical and business support and related consulting services to Tianjin 58 Home in
exchange for service fees. In addition, pursuant to the exclusive option agreements, Tianjin 58 Home is prohibited from declaring
and paying any dividends without Beijing 58 Home’s prior consent and Beijing 58 Home enjoys an irrevocable and exclusive
option to purchase Tianjin 58 Home shareholders’ equity interests, to the extent permitted by applicable PRC laws, at a specified
price equal to the loan amount provided by Beijing 58 Home to the shareholders. If the lowest price permitted under PRC law is
higher than the above price, the lowest price permitted under PRC law shall apply. Through these arrangements, 58 Home can obtain
all of the income and the residual interests of Tianjin 58 Home, such as undistributed earnings, either through dividend distributions
or purchase of equity interests of Tianjin 58 Home from its existing shareholders. As a result of the contractual arrangements,
58 Home consolidates the financial results of Tianjin 58 Home in accordance with U.S. GAAP. In July 2016, one shareholder of Tianjin
58 Home transferred his equity interest in Tianjin 58 Home to 58 Co., Ltd. As a result, Beijing 58 Home amended and restated its
contractual arrangements with Tianjin 58 Home to reflect the change in shareholding of Tianjin 58 Home.
The Company had been
consolidating 58 Home for the period before November 27, 2015 and accounted for its equity investment in 58 Home’s ordinary
shares and preference shares as equity method investment and cost method investment, respectively since the date of the deconsolidation
(See Note 5). The following contractual arrangements within 58 Home have been effective regardless of the deconsolidation of 58
Home by the Company.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
Exclusive Business
Cooperation Agreement
The terms and arrangements
of the exclusive business cooperation agreement between Tianjin 58 Home and Beijing 58 Home under the Tianjin 58 Home Agreements
are substantially similar to those under the Beijing 58 Agreements, except that Tianjin 58 Home agrees to pay a monthly service
fee to Beijing 58 Home in an amount determined by both parties after taking into account factors similar to those provided under
the Beijing 58 Agreements. Beijing 58 Home did not collect any service fee payments from Tianjin 58 Home in 2015.
Powers of Attorney
Each shareholder of
Tianjin 58 Home has executed a power of attorney to irrevocably appoint Beijing 58 Home as the attorney-in-fact to act on the shareholder’s
behalf. The terms of the powers of attorney are substantially similar to those under the Beijing 58 Agreements.
Equity Interest Pledge
Agreements
Beijing 58 Home, Tianjin
58 Home and each of the shareholders of Tianjin 58 Home have entered into equity interest pledge agreements with terms and arrangements
that are substantially similar to those under the Beijing 58 Agreements. These equity interest pledge agreements are registered
with the Tianjin Binhai New Area Market and Quality Supervision and Administration Bureau on September 8, 2015.
Exclusive Option
Agreements
Beijing 58 Home, Tianjin
58 Home and each of the shareholders of Tianjin 58 Home have entered into exclusive option agreements with terms and arrangements
that are substantially similar to those under the Beijing 58 Agreements, except that the purchase price to be paid by Beijing 58
Home to each shareholder by exercising its option to purchase all the equity interests held by the shareholder in Tianjin 58 Home
equal to the loan amount provided by Beijing 58 Home to the shareholder. At the moment, 58 Home cannot exercise the exclusive options
to purchase the current shareholders’ equity interests in Tianjin 58 Home due to the PRC regulatory restrictions on foreign
ownership in the value-added telecommunications services. 58 Home may exercise the options if China opens up these industries to
foreign investment.
Loan Agreements
Beijing 58 Home and each shareholder of Tianjin 58 Home have entered into loan agreements with an aggregate
amount of interest-free loans of approximately RMB100.0 million. The terms of the loan agreements are substantially similar to
those under the Beijing 58 Agreements and each loan agreement expires on August 5, 2025 and can be extended with the written consent
of both parties before expiration.
58.com
Inc.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
|
(iv)
|
Contractual Arrangements with Beijing Zhuanzhuan
|
Zhuan Zhuan Holding, through its PRC subsidiary,
Tianjin Zhuanzhuan, has entered into contractual arrangements with Beijing Zhuanzhuan and its shareholders described below, which
was referred to as the Beijing Zhuanzhuan Agreements. Through the Beijing Zhuanzhuan Agreements, Tianjin Zhuanzhuan exercises control
over the operations of Beijing Zhuanzhuan and receives substantially all its economic benefits and residual returns. Through the
exclusive business cooperation agreement between Tianjin Zhuanzhuan and Beijing Zhuanzhuan, Tianjin Zhuanzhuan agrees to provide
certain technical and business support and related consulting services to Beijing Zhuanzhuan in exchange for service fees. In addition,
pursuant to the exclusive option agreements, Beijing Zhuanzhuan is prohibited from declaring and paying any dividends without Tianjin
Zhuanzhuan’s prior consent and Tianjin Zhuanzhuan enjoys an irrevocable and exclusive option to purchase Beijing Zhuanzhuan
shareholders’ equity interests, to the extent permitted by applicable PRC laws, at a purchase price of RMB10 Yuan. If the
lowest price permitted under PRC law is higher than the above price, the lowest price permitted under PRC law shall apply. Through
these arrangements, Zhuan Zhuan Holding can obtain all of the income and the residual interests of Beijing Zhuanzhuan, such as
undistributed earnings, either through dividend distributions or purchase of equity interests of Beijing Zhuanzhuan from its existing
shareholders. As a result of the contractual arrangements, the Group, through Zhuan Zhuan Holding, consolidate the financial results
of Beijing Zhuanzhuan in the Group’s consolidated financial statements in accordance with U.S. GAAP.
Exclusive
Business Cooperation Agreement
The terms and arrangements of the exclusive
business cooperation agreement between Tianjin Zhuanzhuan and Beijing Zhuanzhuan are substantially similar to those under the Beijing
58 Agreements.
Powers of
Attorney
Each shareholder of Beijing Zhuanzhuan has
executed a power of attorney to irrevocably appoint Tianjin Zhuanzhuan as the attorney-in-fact to act on the shareholder’s
behalf. The terms of the powers of attorney are substantially similar to those under the Beijing 58 Agreements.
Equity Interest
Pledge Agreements
Tianjin Zhuanzhuan, Beijing Zhuanzhuan and
each of the shareholders of Beijing Zhuanzhuan have entered into an equity interest pledge agreement with terms and arrangements
that are substantially similar to those under the Beijing 58 Agreements.
Exclusive
Option Agreements
Tianjin Zhuanzhuan,
Beijing Zhuanzhuan and each of the shareholders of Beijing Zhuanzhuan have entered into an exclusive option agreement with terms
and arrangements that are substantially similar to those under the Beijing 58 Agreements. At the moment, Tianjin Zhuanzhuan cannot
exercise the exclusive options to purchase the current shareholders’ equity interests in Beijing Zhuanzhuan due to the PRC
regulatory restrictions on foreign ownership in the value-added telecommunications services. Tianjin Zhuanzhuan may exercise the
options if China opens up these industries to foreign investment.
Risks in Relation
to the VIE Structure
As of December 31, 201
7,
the aggregate accumulated losses of VIEs and VIEs’ subsidiaries were approximately RMB1.2 billion, which has been included
in the consolidated financial statements.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
The following financial
statement amounts and balances of the Group's VIEs and VIEs’ subsidiaries were included in the accompanying consolidated
financial statements as of December 31, 2016 and 2017 and for the three years ended December 31, 2015, 2016
and 2017:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
Cash and cash equivalents
|
|
|
351,860
|
|
|
|
320,493
|
|
Short-term investments
|
|
|
425,000
|
|
|
|
1,679,516
|
|
Accounts receivable, net
|
|
|
211,907
|
|
|
|
409,759
|
|
Prepayments and other current assets
|
|
|
141,508
|
|
|
|
477,308
|
|
Property and equipment, net
|
|
|
121,207
|
|
|
|
111,962
|
|
Long-term investments
|
|
|
149,489
|
|
|
|
193,867
|
|
Intangible assets, net and goodwill
|
|
|
16,052,273
|
|
|
|
15,808,421
|
|
Long-term prepayments and other non-current assets
|
|
|
38,047
|
|
|
|
224,671
|
|
Total assets
|
|
|
17,491,291
|
|
|
|
19,225,997
|
|
Accounts payable
|
|
|
199,618
|
|
|
|
171,306
|
|
Deferred revenues
|
|
|
859,956
|
|
|
|
872,148
|
|
Customer advances
|
|
|
296,595
|
|
|
|
288,953
|
|
Taxes payable
|
|
|
14,740
|
|
|
|
53,629
|
|
Salary and welfare payable
|
|
|
254,958
|
|
|
|
233,692
|
|
Inter-company payable
|
|
|
1,330,757
|
|
|
|
2,147,933
|
|
Accrued expenses and other current liabilities
|
|
|
205,441
|
|
|
|
190,498
|
|
Deferred tax liabilities
|
|
|
329,611
|
|
|
|
282,603
|
|
Total liabilities
|
|
|
3,491,676
|
|
|
|
4,240,822
|
|
|
|
For the year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Revenue
|
|
|
1,669,685
|
|
|
|
2,459,689
|
|
|
|
4,086,645
|
|
Net income/(loss)
|
|
|
(853,773
|
)
|
|
|
(457,054
|
)
|
|
|
649,831
|
|
Net cash provided by operating activities
|
|
|
175,097
|
|
|
|
396,925
|
|
|
|
1,272,425
|
|
Net cash provided/(used in) by investing activities
|
|
|
212,875
|
|
|
|
(446,062
|
)
|
|
|
(1,449,482
|
)
|
Net cash provided by financing activities
|
|
|
—
|
|
|
|
28,235
|
|
|
|
3,485
|
|
Under the contractual
arrangements with each of the VIEs and through their respective equity interest in their subsidiaries, the Group has the power
to direct activities of the VIEs and the VIEs’ subsidiaries and direct the transfer of assets out of the VIEs and the VIEs’
subsidiaries. Therefore, the Group considers that there is no asset of the VIEs and the VIEs’ subsidiaries that can be used
only to settle their obligations. As the consolidated VIEs and VIEs’ subsidiaries are incorporated as limited liability companies
under the PRC Company Law, the creditors do not have recourse to the general credit of the Company for the liabilities of the consolidated
VIEs and the VIEs’ subsidiaries.
The Group believes that
the contractual arrangements among each of the VIEs, their respective shareholders and relevant WFOE are in compliance with PRC
law and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce
these contractual arrangements and if the shareholders of VIEs were to reduce their interest in the Company, their interests may
diverge from that of the Company and that may potentially increase the risk that they would seek to act contrary to the contractual
terms.
The Company’s
ability to control the VIEs also depends on the power of attorney and the WFOEs have to vote on all matters requiring shareholder
approval in the VIEs. As noted above, the Company believes this power of attorney is legally enforceable but may not be as effective
as direct equity ownership.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
It is possible that
the Group’s operation of certain of its businesses through the VIEs could be found by PRC authorities to be in violation
of PRC law and regulations prohibiting or restricting foreign ownership of companies that engage in such operations and businesses.
While the Group’s management considers the possibility of such a finding by PRC regulatory authorities under current PRC
law and regulations to be remote, on January 19, 2015, the Ministry of Commerce of the PRC, or (the “MOFCOM”) released
on its Website for public comment a proposed PRC law (the “Draft FIE Law”) that appears to include VIEs within the
scope of entities that could be considered to be foreign invested enterprises (or “FIEs”) that would be subject to
restrictions under existing PRC law and regulations on foreign investment in certain categories of industry. Specifically, the
Draft FIE Law introduces the concept of “actual control” for determining whether an entity is considered to be an FIE.
In addition to control through direct or indirect ownership or equity, the Draft FIE Law includes control through contractual arrangements
within the definition of “actual control.” If the Draft FIE Law is passed by the People’s Congress of the PRC
and goes into effect in its current form, these provisions regarding control through contractual arrangements could be construed
to apply to the Group’s VIE arrangements, and as a result the Group’s VIEs could become explicitly subject to the current
restrictions on foreign investment in certain categories of industries. The Draft FIE Law includes provisions that would exempt
from the definition of foreign invested enterprises entities where the ultimate controlling shareholders are either entities organized
under PRC law or individuals who are PRC citizens. The Draft FIE Law is silent as to what type of enforcement action might be taken
against existing VIEs that operate in restricted or prohibited industries and are not controlled by entities organized under PRC
law or individuals who are PRC citizens. If a finding were made by PRC authorities, under existing law and regulations or under
the Draft FIE Law if it becomes effective, that the Group’s operation of certain of its operations and businesses through
the VIEs is prohibited, the regulatory authorities with jurisdiction over the licensing and operation of such operations and businesses
would have broad discretion in dealing with such a violation, including levying fines, confiscating the Group’s income, revoking
the business or operating licenses of the affected businesses, requiring the Group to restructure its ownership structure or operations,
or requiring the Group to discontinue any or all portion of its operations. Any of these actions could cause significant disruption
to the Group’s business operations, and have a severe adverse impact on the Group’s cash flows, financial position
and operating performance.
In addition, if the
legal structure and contractual arrangements were found to be in violation of any other existing PRC laws and regulations, the
PRC government could:
|
•
|
revoke the Group’s business and operating licenses;
|
|
•
|
require the Group to discontinue or restrict operations;
|
|
•
|
restrict the Group’s right to collect revenues;
|
|
•
|
block the Group’s platforms;
|
|
•
|
require the Group to restructure the operations in such a way as to compel the Group to establish
a new enterprise, re-apply for the necessary licenses or relocate its businesses, staff and assets;
|
|
•
|
impose additional conditions or requirements with which
the Group may not be able to comply; or
|
|
•
|
take other regulatory or enforcement actions against the Group that could be harmful to the Group’s
business.
|
The imposition of any
of these penalties may result in a material and adverse effect on the Group’s ability to conduct the Group’s business.
In addition, if the imposition of any of these penalties causes the Group to lose the right to direct the activities of any of
the VIEs (through its equity interest in its subsidiaries) or the right to receive their economic benefits, the Group would no
longer be able to consolidate the relevant VIE and its subsidiaries, if any. In the opinion of management, the likelihood of loss
in respect of the Group's current ownership structure or the contractual arrangements with its VIEs is remote.
There is no VIE for
which the Company has variable interest but is not the primary beneficiary.
Currently there is no
contractual arrangement that could require the Company to provide additional financial support to VIEs. As the Company is conducting
its business mainly through VIEs, the Company may provide such support on a discretionary basis in the future, which could expose
the Company to a loss.
The Company’s
VIEs’ assets are comprised of recognized and unrecognized revenue-producing assets. The recognized revenue producing assets
mainly include purchased servers, which were in the line of “Property and equipment, net” in the table above. The unrecognized
revenue-producing assets mainly consist of the Internet Content Provider license (“ICP” license), trademarks, copyrights
and registered patents, which have no recorded value.
As of December
31, 2017, the VIEs hold the ICP license, which is necessary for the operation of the platforms and provision of value-added
telecommunications services in China, and have registered 1,282 trademarks, including
and
, and
66 computer software copyrights.
The VIEs also have 6 registered patents and applied for the registration of 244 other patents, which cover a variety of technologies,
including those relating to data processing, search, distribution and publishing.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
The VIE
s’ business operations
rely in part on the technologies covered by the registered patents to generate revenues. Such technologies include (1) the data
verification and processing technology used to verify and process local business user information; (2) the data researching technology
provided to end-users enable them to find the exact information they want in the shortest time; (3) the data publishing technology
provided to consumer users or business users to help them to publish their service information more efficiently.
The Group’s principal
sources of liquidity are cash and cash equivalents, short-term investments, and cash flows generated from its operations. Cash
equivalents mainly consist of time deposits with original maturities of three months or less, and highly liquid investments that
are readily convertible to known amounts of cash. Short-term investments comprise investment instruments issued by commercial banks
in China, with a variable interest rate indexed to performance of underlying assets and maturity dates within one year.
As of December
31, 2017, the Group had cash and cash equivalents and short-term investments of approximately RMB5.0 billion, and the Group’s
working capital was RMB780.1 million. Net cash provided by the Group’s operating activities were RMB198.5 million, RMB1.9
billion and RMB2.7 billion, respectively, for the years ended December 31, 2015, 2016 and 2017.
The Group regularly
monitors current and expected liquidity requirements to ensure that it maintains sufficient cash balances and adequate credit facilities
to meet its liquidity requirements in the short and long term. The Group has adopted Accounting Standards Update (“ASU”)
No.2014-15 “Presentation of Financial Statements – Going Concern” which addresses management’s responsibility
to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide
related footnote disclosures if the substantial doubt exists. Based on the Group’s operating plan without considering any
mitigating plan as discussed in ASU No. 2014-15, or any guarantee by related party, the management is of the opinion that, the
Group’s current cash and cash equivalents and anticipated cash flow from operations provide sufficient funds to meet the
working capital requirements to fund planned operations and other commitments for at least the next twelve months from the date
the consolidated financial statements for the year ended December 31, 2017 are issued. As a result, the consolidated financial
statements of the Group for the year ended December 31, 2017 have been prepared on a going concern basis.
|
2.
|
Principal accounting policies
|
|
(a)
|
Principles of consolidation
|
The consolidated financial
statements of the Group have been prepared in accordance with U.S. GAAP. The consolidated financial statements include the
financial statements of the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries for which the Company is the ultimate
primary beneficiary.
Subsidiaries are those
entities in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern
the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a
majority of votes at the meeting of directors.
A VIE is an entity in
which the Company or its subsidiary, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated
with, ownership of the entity, and therefore the Company or its subsidiary is the primary beneficiary of the entity.
All significant transactions
and balances among the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries have been eliminated upon consolidation.
The results of subsidiaries and VIEs acquired
or disposed of during the year are recorded in the consolidated statement of comprehensive income/(loss) from the effective
date of acquisition or up to the effective date of disposal, as appropriate.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
The Company deconsolidates
its subsidiaries in accordance with ASC 810-10-40-4 as of the date the Company ceased to have a controlling financial interest
in the subsidiaries.
The Company accounts
for the deconsolidation of its subsidiaries by recognizing a gain or loss in net income/(loss) attributable to the Company in accordance
with ASC 810-10-40-5. This gain or loss is measured at the date the subsidiaries are deconsolidated as the difference between (a)
the aggregate of the fair value of any consideration received, the fair value of any retained noncontrolling interest in the subsidiaries
being deconsolidated, and the carrying amount of any noncontrolling interest in the subsidiaries being deconsolidated, including
any accumulated other comprehensive income/(loss) attributable to the noncontrolling interest, and (b) the carrying amount of the
assets and liabilities of the subsidiaries being deconsolidated.
The preparation of the
Group’s consolidated financial statements in conformity with the U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Actual
results could differ materially from those estimates. Significant accounting estimates reflected in the Group’s consolidated
financial statements mainly include revenue recognition, the determination of the fair value of identifiable assets and liabilities
acquired through business combination, the determination of the fair value of long-term investments, the determination of the fair
value of mezzanine equity, the determination of fair value of noncontrolling interests, the valuation allowance of deferred tax
assets, the determination of uncertain tax position, the valuation and recognition of share-based compensation, impairment of long-lived
assets and the determination of the estimated useful lives of property and equipment and intangible assets.
|
(c)
|
Functional Currency and Foreign Currency Translation
|
The functional
currency of the Company and its subsidiaries incorporated outside of PRC is the United States dollar (“US$”), while
the functional currency of the PRC entities in the Group is Chinese Renminbi ("RMB") as determined based on ASC 830,
“Foreign Currency Matters”. Effective December 31, 2016, the Group changed its reporting currency from US$ to RMB.
Assets and liabilities are translated at the exchange rates on the balance sheet date, equity amounts are translated at historical
exchange rates, and revenues, expenses, gains and losses are translated using the average rate for the periods. Translation adjustments
arising from these are reported as foreign currency translation adjustments and are shown as a component of other comprehensive
income/(loss) in the consolidated statement of changes in shareholders’ equity. For the years ended December 31, 2015 and
2016, foreign currency translation losses, net of nil tax were RMB69.7 million and RMB76.0 million, respectively. For the year
ended December 31, 2017 foreign currency translation income, net of nil tax was RMB82.9 million.
Foreign currency transactions
denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into
the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are
included in the consolidated statements of comprehensive income/(loss). Total foreign currency exchange losses were RMB11.2 million
and RMB3.7 million for the years ended December 31, 2015 and 2016, respectively. Foreign currency exchange gain was RMB 0.8 million
for the year ended December 31, 2017.
Translations
of amounts from RMB into US$ for the convenience of the reader were calculated at the exchange rate of RMB6.5342 per US$1.00, the
middle rate on December 29, 2017, the last business day in fiscal year 2017, as published on the website of the State Administration
of Foreign Exchange of the PRC. No representation is made that the RMB amounts could have been, or could be converted into U.S.
dollars at such rate.
|
(d)
|
Cash and cash equivalents
|
Cash and cash equivalents
represent cash on hand, demand deposits and highly liquid investments placed with banks or other financial institutions, which
are unrestricted as to withdrawal or use, and which have original maturities of three months or less and are readily convertible
to known amounts of cash.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
The following table
sets forth a breakdown of the Group’s cash and cash equivalents by currency denomination, jurisdiction and geographical location
as of December 31, 2016 and 2017:
|
|
US$
in thousands
|
|
|
RMB
in thousands
|
|
|
RMB
in
thousands
|
|
|
|
USA
|
|
|
Hong
Kong
|
|
|
China
Non VIE
|
|
|
China
VIE
|
|
|
Total
|
|
|
USA
|
|
|
Hong
Kong
|
|
|
China
Non VIE
|
|
|
China
VIE
|
|
|
Total
|
|
|
Total
translated to
RMB
|
|
December 31, 2016
|
|
|
3
|
|
|
|
56,103
|
|
|
|
10,917
|
|
|
|
2
|
|
|
|
67,025
|
|
|
|
268
|
|
|
|
152
|
|
|
|
383,233
|
|
|
|
351,848
|
|
|
|
735,501
|
|
|
|
1,200,457
|
|
December 31, 2017
|
|
|
3
|
|
|
|
143,357
|
|
|
|
4,525
|
|
|
|
4
|
|
|
|
147,889
|
|
|
|
271
|
|
|
|
153
|
|
|
|
431,786
|
|
|
|
126,435
|
|
|
|
558,645
|
|
|
|
1,524,982
|
|
|
(e)
|
Restricted cash and restricted cash non-current
|
Cash that is legally
restricted from withdrawal and pledged as collateral with commercial banks for the Group’s bank loans is reported separately
on the face of the Group’s consolidated balance sheets, and is not included in the total cash and cash equivalents in the
consolidated statements of cash flows. Cash that is legally restricted from withdrawal was presented as restricted cash-current
amounted to RMB3.4 million and RMB86.0 million as of December 31, 2016 and 2017, respectively. Cash pledged with commercial banks
for the Group’s bank loans amounted to RMB1.1 billion was presented as restricted cash-current in the Group’s consolidated
balance sheets as of December 31, 2016. Cash pledged with commercial banks for the Group’s bank loans amounting to RMB7.4
million and RMB792.0 million was presented as restricted cash-current and restricted cash-noncurrent, respectively as of December
31, 2017.
Term deposits represent
time deposits placed with banks with original maturities of more than three months to up to one year. Interest earned is recorded
as interest income in the consolidated statements of comprehensive income /(loss) during the periods presented.
|
(g)
|
Short-term investments
|
Short-term investments
include investments in variable rate financial instruments which primarily consists of wealth management products with variable
interest rates or principal non-guaranteed which were purchased from commercial banks and other financial institutions and investment
in available-for-sale securities of a public traded company.
The Group carries these
investments at fair value. Changes in the fair value are reflected in the consolidated statements of comprehensive income/(loss)
as investment income/(loss), net. Fair value is estimated based on quoted prices of similar products provided by banks at the end
of each period. The Group classifies the valuation techniques that use these inputs as Level 2 of fair value measurements. Please
see Note 21 for additional information.
Variable-rate financial
instruments are recorded at fair values using the discounted cash flow method based on the judgment that expected return will be
obtained upon maturity. As of December 31, 2016 and 2017, the Group has short-term investments of RMB833.5 million and RMB3.4 billion,
respectively.
The available-for-sale
securities are reported at fair values with the unrealized gains or losses recorded as accumulated other comprehensive income or
loss in equity. The Group reviews its available-for-sale securities for other-than-temporary impairment (“OTTI”) based
on the specific identification method. If the cost of an investment exceeds the investment’s fair value, the Group considers
quantitative and qualitative evidence including general market conditions, expected future performance of the investees, the duration
and the extent to which the fair value of the investment is less than the cost, and the Group’s intent and ability to hold
the investment in determining whether to record an OTTI. The Group disposed all available-for-sale securities in 2016 and recognized
investment loss of RMB3.0 million upon disposal in its consolidated statement of comprehensive income/(loss) for the year ended
December 31, 2016. As of December 31, 2016 and 2017, the Group has no available-for-sale securities.
|
(h)
|
Accounts receivable, net
|
Accounts receivable,
net mainly represent amounts due from customers and online payment channels and are recorded net of allowance for doubtful account.
The carrying value of accounts receivable is reduced by an allowance that reflects the Group’s best estimate of the amounts
that will not be collected. The Group makes estimations for the collectability of accounts receivable considering many factors
including but not limited to reviewing accounts receivable balances, historical bad debt rates, accounts aging, repayment patterns,
customer credit worthiness, financial conditions of the customers and industry trend analysis, resulting in their inability to
make payments due to the Group. An accounts receivable is written off after all collection effort has ceased. The Group recognized
RMB13.7 million and RMB11.6 million allowance for doubtful accounts for the years ended December 31, 2016 and 2017, respectively.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
|
(i)
|
Property and equipment, net
|
Property and equipment
are stated at cost less accumulated depreciation and impairment. Property and equipment are depreciated over the estimated useful
lives on a straight-line basis. The estimated useful lives are as follows:
Buildings
|
30-50 years
|
Computers and equipment
|
3-5 years
|
Motor vehicles
|
4-5 years
|
Furniture and fixtures
|
5 years
|
Leasehold improvements
|
Over the shorter of lease terms or
the estimated useful lives of assets
|
Software
|
3-5 years
|
Expenditures for maintenance
and repairs are expensed as incurred. The gain or loss on the disposal of property and equipment is the difference between the
net sales proceeds and the carrying amount of the relevant assets and is recognized in the consolidated statements of comprehensive
income/(loss).
|
(j)
|
Intangible assets, net
|
Intangible assets acquired
through business acquisitions are recognized as assets separated from goodwill if they satisfy either the "contractual-legal"
or "separability" criterion. Intangible assets purchased are recognized and measured at fair value upon acquisition.
Intangible
assets with finite lives are carried at cost less accumulated amortization.
Separately identifiable intangible assets that
have determinable lives continue to be amortized over their estimated useful lives using the straight-line method as follows:
Customer relationships
|
2 - 3 years
|
Domain names and trademarks
|
9 - 10 years
|
Technology
|
4 - 5 years
|
Intangible
assets with infinite lives are evaluated to determine the fair value annually. An impairment loss is recognized if the carrying
amount exceeds the fair value.
Separately identifiable intangible assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination
of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual
disposition. Measurement of any impairment loss for identifiable intangible assets is based on the amount by which the carrying
amount of the assets exceeds the fair value of the asset.
Land use rights are
carried at cost less accumulated amortization. Amortization is provided to write off the cost of lease prepayments on a straight-line
basis over the period of the shorter of estimated useful lives which are generally 50 years or the terms of the land use rights
purchase agreements.
Goodwill represents
the excess of the purchase consideration over the fair value of the identifiable tangible and intangible assets acquired and liabilities
assumed of the acquired entity as a result of the Company's acquisitions of interests in its subsidiaries and VIEs. Goodwill is
not amortized but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate
that it might be impaired. The Company first assesses qualitative factors to determine whether it is necessary to perform the two-step
quantitative goodwill impairment test. In the qualitative assessment, the Company considers primary factors such as industry and
market considerations, overall financial performance of the reporting unit, and other specific information related to the operations.
Based on the qualitative assessment, if it is more likely than not that the fair value of each reporting unit is less than the
carrying amount, the quantitative impairment test is performed.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
In performing the two-step
quantitative impairment test, the first step is to compare the fair values of each reporting unit to its carrying amount, including
goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the
second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step is to compare
the implied fair value of goodwill to the carrying value of a reporting unit's goodwill. The implied fair value of goodwill is
determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined
in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over
the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed
for the purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities.
Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units,
assigning assets, liabilities and goodwill to reporting units, and determining the fair value of each reporting unit.
The Group performs impairment
tests in the fourth quarter of each year. No impairment loss was recognized for all periods presented.
|
(m)
|
Long-term investments
|
Long-term investments
represent the Group’s investments in privately held companies.
In accordance with ASC
323 “Investment-Equity Method and Joint Ventures”, the Group applies the equity method of accounting to equity investments,
in common stock or in-substance common stock, over which it has significant influence but does not own a majority equity interest
or otherwise control. Under the equity method, the Group initially records its investment at cost. The difference between the cost
of the equity investment and the amount of the underlying equity in the net assets of the equity investee is recognized as equity
method goodwill or as an intangible asset as appropriate, which is included in the equity method investment on the consolidated
balance sheets. The Group subsequently adjusts the carrying amount of the investment to recognize the Group's proportionate share
of each equity investee's net income or loss into consolidated statements of comprehensive income/(loss) after the date of acquisition.
The Group will discontinue applying equity method if an investment (and additional financial supports to the investee, if any)
has been reduced to zero.
An investment in in-substance
common stock is an investment that has risk and reward characteristics that are substantially similar to that entity’s common
stock. The Group considers subordination, risks and rewards of ownership and obligation to transfer value when determining whether
an investment in an entity is substantially similar to one in that entity’s common stock.
For long-term investments
in equity securities that are not accounted for using equity method of accounting, and that have no readily determinable fair value,
the cost method of accounting is used.
The Company assesses
its long-term investments accounted for under the cost method and equity method for other-than-temporary impairment by considering
factors including, but not limited to, stock prices of public companies in which the Company has an equity investment, current
economic and market conditions, operating performance of the companies, including current earnings trends and undiscounted cash
flows, and other company-specific information, such as recent financing rounds. The fair value determination, particularly for
investments in privately-held companies whose revenue model is still evolving, requires significant judgment to determine appropriate
estimates and assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the investments
and the determination of whether any identified impairment is other-than-temporary. If any impairment is considered other-than-temporary,
the Company will write down the asset to its fair value and take the corresponding charge to the consolidated statements of comprehensive
income/(loss).
Due to the investees’
operation metrics did not meet the expectations, the Company recorded RMB6.1 million, RMB142.1 million and RMB37.3 million impairments
for the cost method investments in investment income/(loss), net in its consolidated statements of comprehensive income/(loss)
for the years ended December 31, 2015, 2016 and 2017, respectively. No impairment was recorded for equity method investments for
the years ended December 31, 2015, 2016 and 2017.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
|
(n)
|
Impairment of other long-lived assets
|
The carrying amounts
of long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount
of assets to future undiscounted net cash flows expected to be generated by the assets. Such assets are considered to be impaired
if the sum of the expected undiscounted cash flow is less than the carrying amount of the assets. The impairment to be recognized
is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. Impairment charges of
other long-lived assets of RMB nil, RMB30.0 million and RMB nil were recognized for the years ended December 31, 2015, 2016
and 2017, respectively.
Accounting guidance
defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required
or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact
and it considers assumptions that market participants would use when pricing the asset or liability.
Accounting guidance
establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs
that may be used to measure fair value:
Level 1 — Observable
inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2 — Include
other inputs that are directly or indirectly observable in the marketplace
Level 3 — Unobservable
inputs which are supported by little or no market activity
The Group measures the
fair value of assets and liabilities by two main approaches: (1) market approach and (2) income approach. The market
approach uses prices and other relevant information generated from market transactions involving identical or comparable assets
or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement
is based on the value indicated by current market expectations about those future amounts.
The Group’s financial
instruments mainly include cash and cash equivalents, term deposits, short-term investments, accounts receivable, accounts payable,
deferred revenues, customer advances, and accrued liabilities and other current liabilities. The carrying value of the Company’s
short-term financial instruments approximates their fair value because of their short maturities. The Company measures certain
financial assets, including the investments under the cost method and equity method on other-than-temporary basis; intangible assets,
goodwill and fixed assets are marked to fair value when an impairment charge is recognized. Please see Note 21 for additional
information.
Customers pay in advance to purchase membership services and online marketing services. The cash proceeds
received from customers are initially recorded as customer advances and then transferred to deferred revenues when they are used
to purchase desired services.
The Group
generates revenues
primarily from membership and online marketing services. The Group sells its services through its direct sales teams, third party
sales agencies and online self-serve channels. Revenue is recognized when persuasive evidence of an arrangement exists, delivery
has occurred, the sales price is fixed or determinable, and collectability of the related fee is reasonably assured. The recognition
of revenues involves certain management judgments. The amount and timing of our revenues could be materially different for any
period if management made different judgments or utilized different estimates.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
Effective September
1, 2012, the PRC Ministry of Finance and the State Administration of Taxation launched the Value Added Tax Pilot Program (the “Pilot
Program”) for certain industries in certain regions for transition from the imposition of PRC business tax to the imposition
of value-added tax (“VAT”). On May 1, 2016, the transition was expanded to all industries in China. The Group’s
revenues have been subject to VAT since it adopted the Pilot Program. To record VAT payable, the Group adopted the net presentation
method, which presents the difference between the output VAT on goods sold or taxable labor services and the available input VAT
amount (at the rate applicable to the supplier). Revenues are recorded net of VAT and related surcharges.
A membership is a basic services package mainly consisting of the following services: customer certification,
display of an online storefront on
the Group’s
platforms, preferential listing benefits such as limited daily priority listings and higher limit for free daily listings, access
to the Group’s dedicated customer service support team and online account management system. Membership revenues are recognized
ratably over the contract period when membership services are provided.
|
(ii)
|
Online marketing services
|
The Group’s online
marketing services include time-based services and performance-based services. Revenues from time-based services are recognized
ratably over the service period. Revenues from performance-based services are recognized when the agreed performance criteria are
achieved. For service arrangements that include multiple deliverables, revenues are allocated to each unit of accounting based
on relative selling price of each unit of accounting according to the selling price hierarchy established by ASU No. 2009–13.
The Group uses (a) vendor-specific objective evidence of selling price, if it exists, (b) otherwise, third-party evidence of selling
price. If neither (a) nor (b) exists, the Group will use (c) the management’s best estimate of the selling price for that
deliverable. Selling price is generally determined by vendor specific objective evidence.
|
(iii)
|
E-commerce services
|
The Group’s
e-commerce services refer to services provided to the real estate developers such as sale of discount coupons with which home buyers
use to buy properties at a discounted price. It might also include tours to visit the properties, on site promotion activities
and other services relating to property purchases. The coupon purchased by prospective home buyers is refundable before a purchase
of the specified properties prior to the expiry date of the coupon. The Group recognizes revenues when home buyers apply the discount
coupon to pay for the purchase price of the specified properties from real estate developers. Cash received in advance of the purchase
of specified properties is recorded as customer advances.
Other services mainly
include various off-line services provided. For the year ended December 31, 2017, revenues from other services are primarily derived
from selling used goods on our used goods trading platform and providing offline recruiting services. The Group recognizes other
service revenue when the related service is rendered.
Cost of revenues
mainly consists of traffic acquisition cost paid to 58.com advertising union partner, costs of used goods sold on the used goods
trading platform or primary real estate ecommerce revenues and offline recruitment services revenues, as well as expenses associated
with the operation of platforms, such as data center bandwidth fees, depreciation and maintenance expenses for computers, servers
and other equipment, short message services (“SMS”) costs, salary, bonuses, benefits and share-based compensation expense
relating to web operation personnel.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
Advertising
costs are generally prepaid to the third parties for television, internet and outdoor advertising services. Advertising costs are
expensed as sales and marketing expenses when the services are received. For the years ended December 31, 2015, 2016 and 2017,
advertising expenses recognized in the consolidated statements of comprehensive income/(loss) were approximately RMB1.8 billion,
RMB2.0 billion and RMB2.1 billion, respectively. Out of the total advertising expenses, the advertising expenses charged by the
Group’s related party Tencent amounted to RMB152.1 million, RMB351.1 million and RMB422.3 million for the year ended December
31, 2015, 2016 and 2017, respectively.
|
(t)
|
Research and development expenses
|
Research and development expenses mainly consist of personnel, rent and depreciation expenses associated
with the development of and enhancement to the Group’s platforms and expenses associated with research and development. The
research and development expenses are expensed as incurred for all the periods presented.
Costs incurred for the
preliminary project stage of internal use software are expensed when incurred in research and development expenses. Costs incurred
during the application development stage are capitalized when certain criteria are met as stated in ASC 350-40. Costs incurred
during the post-implementation-operation stage are also expensed as incurred. As the period qualified for capitalization has historically
been very short and the development costs incurred during this period have been insignificant, development costs of internal use
software to date have been expensed when incurred.
Leases where substantially
all the rewards and risks of ownership of assets remain with the lessors are accounted for as operating leases. Payments made under
operating leases are charged to the consolidated statements of comprehensive income/(loss) on a straight-line basis over the terms
of underlying lease.
|
(v)
|
Share-based compensation
|
The Group has incentive
plans for the granting of share-based awards, including share options, restricted share units (“RSUs”) and restricted
shares (“RSs”), to its employees and directors. Share-based compensation expenses are recognized as costs and expenses
on a straight-line basis over the vesting period in the consolidated statements of comprehensive income based on the fair value
of the related share-based awards on their grant date, if no performance conditions are required. Under
ASC 718
, compensation
cost should be accrued if it is probable that the performance condition will be achieved and should not be accrued if it is not
probable that the performance condition will be achieved. As a result, the Group recognizes no compensation expense for share-based
awards with performance conditions unless the performance conditions become probable of being achieved.
The Group uses the binominal
option pricing model to determine the fair value of share options and account for share-based compensation expenses using an estimated
forfeiture rate at the time of grant and revising the rate, if necessary, in subsequent periods if actual forfeitures differ from
initial estimates. Share-based compensation expenses are recorded net of estimated forfeitures such that expenses are recorded
only for those share-based awards that are expected to vest.
See Note 24 for
further information regarding share-based compensation assumptions and expenses.
Current income taxes
are provided on the basis of net income for financial reporting purposes, adjusted for income and expense items which are not assessable
or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred income taxes
are provided using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities. The tax base of an asset or liability is the amount attributed to
that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in the statement
of comprehensive income/(loss) in the period of change. A valuation allowance is provided to reduce the amount of deferred tax
assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
Uncertain tax positions
The guidance prescribes
a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. Guidance was also provided on derecognition of income tax assets and liabilities, classification of current
and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting
for income taxes in interim periods, and income tax disclosures.
In order to
assess uncertain tax positions, the Group applies a more likely than not threshold and a two-step approach for the tax position
measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will
be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit
as the largest amount that is more than 50% likely of being realized upon settlement. Significant judgment is required in evaluating
the Group’s uncertain tax positions and determining its provision for income taxes. The Group recognizes interest and penalties,
if any, under accrued expenses and other current liabilities on its balance sheet and under other expenses in its statement of
comprehensive income/(loss). The Group did not have any significant interest or penalties associated with tax positions for the
year ended December 31, 2015, 2016 and 2017. The Group did not have any significant unrecognized uncertain tax positions
for the year ended December 31, 2015, 2016 and 2017.
Full-time employees
of the Group in mainland China are entitled to staff welfare benefits including pension, work-related injury benefits, maternity
insurance, medical insurance, unemployment benefit and housing fund plans through a PRC government-mandated defined contribution
plan. Chinese labor regulation requires that the Group makes contributions to the government for these benefits based on certain
percentage of the employees’ salaries, up to a maximum amount specified by the local government. Currently, the Group is
paying contributions to the social insurance plan for all full-time employees and to the housing fund plans for some employees,
but the amounts paid for these employees may not be sufficient as required by the PRC laws and regulations, for which the Group
have made provision based on its best estimate. The Group has no legal obligation for the benefits beyond the required contributions.
The Group recorded employee
benefit expenses of approximately RMB338.6 million, RMB477.0 million and RMB476.3 million for the years ended December 31,
2015, 2016 and 2017, respectively.
Grants from the government
are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply
with all attached conditions.
Government grants relating
to costs are deferred and recognized in the consolidated statements of comprehensive income/(loss) over the period necessary to
match them with the costs that they are intended to compensate.
Government grants relating
to the property, plant and equipment and other non-current assets are presented in the consolidated balance sheet by deducting
the grants in arriving at the assets carrying amount and are credited to consolidated statements of comprehensive income/(loss)
on a straight-line basis over the expected lives of the related assets.
For the years ended
December 31, 2015, 2016 and 2017, the Group recognized government grants of approximately RMB30.0 million, RMB72.3 million and
RMB81.4 million, respectively, in others, net in the consolidated statements of comprehensive income/(loss).
The Company accounts
for repurchased ordinary shares under the cost method and includes such treasury stock as a component of the common shareholders’
equity. Cancellation of treasury stock is recorded as a reduction of ordinary shares, additional paid-in capital and retained earnings,
as applicable. An excess of purchase price over par value is allocated to additional paid-in capital first with any remaining excess
charged entirely to retained earnings.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
|
(aa)
|
Business combination, noncontrolling interests and mezzanine
classified noncontrolling interests
|
The Company accounts
for its business combinations using the acquisition method of accounting in accordance with ASC 805 "Business Combinations".
The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities
incurred by the Company to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition
are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values
as of the acquisition date. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition
date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets
of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary
acquired, the difference will be recognized directly in the consolidated statements of comprehensive income/(loss). During the
measurement period, which can be up to one year from the acquisition date, the Company may record adjustments to the assets acquired
and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination
of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the
consolidated statements of operations.
In a business combination
achieved in stages, the Company re-measures the previously held equity interest in the acquiree immediately before obtaining control
at its acquisition-date fair value and the re-measurement gain or loss, if any, is recognized in the consolidated statements of
comprehensive income/(loss).
For the Company's majority-owned
subsidiaries and VIEs, a noncontrolling interest is recognized to reflect the portion of their equity which is not attributable,
directly or indirectly, to the Company. When the noncontrolling interest is contingently redeemable upon the occurrence of a conditional
event, which is not solely within the control of the Company, the noncontrolling interest is classified as mezzanine classified
noncontrolling interest. Consolidated net income/(loss) on the consolidated income statements includes the net income/(loss) attributable
to noncontrolling interests and mezzanine equity holders when applicable. The cumulative results of operations attributable to
noncontrolling interests are also recorded as noncontrolling interests in the Company's consolidated balance sheets. Cash flows
related to transactions with noncontrolling interests are presented under financing activities in the consolidated statements of
cash flows.
The Group’s PRC
subsidiaries, the VIEs and VIEs’ subsidiaries in China are required to make appropriations to certain non-distributable reserve funds.
In accordance with China’s
Company Laws, the Company’s PRC subsidiary, the VIEs and VIEs’ subsidiaries that are Chinese companies, must make
appropriations from their after-tax profit (as determined under the Accounting Standards for Business Enterprises as promulgated
by the Ministry of Finance of the People’s Republic of China (“PRC GAAP”)) to non-distributable reserve
funds including (i) statutory surplus fund and (ii) discretionary surplus fund. The appropriation to the statutory surplus
fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the
statutory surplus fund has reached 50% of the registered capital of the respective company. Appropriation to the discretionary
surplus fund is made at the discretion of the respective company.
Pursuant to the laws
applicable to China’s Foreign Investment Enterprises, the Company’s subsidiaries that are foreign investment enterprises
in China have to make appropriations from their after-tax profit (as determined under PRC GAAP) to reserve funds including
(i) general reserve fund, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. The appropriation
to the general reserve fund must be at least 10% of the after tax profits calculated in accordance with PRC GAAP. Appropriation
is not required if the reserve fund has reached 50% of the registered capital of the respective company. Appropriations to the
other two reserve funds are at the respective company’s discretion. The use of the general reserve fund, statutory surplus
fund and discretionary surplus fund are restricted to the offsetting of losses to increase the registered capital of the respective
company. These reserves are not allowed to be transferred out as cash dividends, loans or advances, nor can they be distributed
except under liquidation.
As of December 31, 2017,
the Group had statutory reserves amounted to RMB266.7 million.
Parties are considered
to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence
over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject
to common control or significant influence of the same party, such as a family member or relative, shareholder, or a related corporation.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
|
(ad)
|
Earnings/(loss) per share
|
Basic earnings/(loss)
per share is computed by dividing net income/(loss) attributable to 58.com Inc. by the weighted average number of ordinary shares
outstanding during the period using the two-class method. Under the two-class method, net income is allocated between ordinary
shares and other participating securities based on their participating rights. Net loss is not allocated to other participating
securities if based on their contractual terms they are not obligated to share in the losses. Diluted earnings/(loss) per share
is calculated by dividing net income/(loss) attributable to ordinary shareholders, as adjusted for the accretions and allocation
of net income related to the preference shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent
shares outstanding during the period. Ordinary equivalent shares consist of shares issuable upon the conversion of the preference
shares using the if-converted method, and shares issuable upon the exercise of share options using the treasury stock method. Ordinary
equivalent shares are not included in the denominator of the diluted earnings/(loss) per share calculation when inclusion of such
shares would be anti-dilutive.
|
(ae)
|
Comprehensive income/(loss)
|
Comprehensive income/(loss)
is defined as the change in equity of the Group during a period arising from transactions and other events and circumstances excluding
transactions resulting from investments by shareholders and distributions to shareholders. Comprehensive income or loss is reported
in the consolidated statements of comprehensive income/(loss). Accumulated other comprehensive income/(loss), as presented on the
accompanying consolidated balance sheets, consists of accumulated foreign currency translation adjustment and unrealized gain/(loss)
on available-for-sale securities.
Based on the criteria
established by ASC 280 “Segment Reporting”, the Group’s chief operating decision maker has been identified as
the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance
of the Group. The Group has internal reporting of revenue by products but has internal reporting of cost and expenses that do not
distinguish between segments, and costs and expenses of the Group is reported by nature as a whole. The Group does not distinguish
between markets or segments for the purpose of internal reporting. Hence, the Group has only one operating and reportable segment.
As the Group’s long-lived assets and revenue are substantially located in and derived from the PRC, no geographical segments
are presented.
|
(ag)
|
Recently issued accounting pronouncements
|
In May 2014, the
FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This guidance supersedes
current guidance on revenue recognition in Topic 605, “Revenue Recognition”. In addition, there are disclosure
requirements related to the nature, amount, timing, and uncertainty of revenue recognition. In August 2015, the FASB issued
ASU No. 2015-14 to defer the effective date of ASU No. 2014-09 for all entities by one year. For publicly-traded business
entities that follow U.S. GAAP, the deferral results in the new revenue standards’ being effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for
interim and annual periods beginning after December 15, 2016.
The Group will apply
the new revenue standard
under the modified retrospective
approach, effective
January 1, 2018. The cumulative effect of initially
applying the guidance will be recognized at the date of initial application. The Group is continuing to analyse each category
of its revenues in accordance with ASU No. 2014-09 to determine the impact on its consolidated financial statements. Based on
the current analysis, the Group does not expect the adoption of the new revenue standard to have a material
adjustment recorded on January 1, 2018. The Group currently expenses its sales commissions when they are incurred. Under ASU
No. 2014-09, the Group plans to adopt the practical expedient for “Contract Cost” to expense its sales
commissions when incurred for all contracts with the contract terms of less than one year. Accordingly, there will not be a
material impact on its accounting for sales commissions. Further, the new standard requires new disclosures about
arrangements with customers, including significant judgments the company has made when using the guidance.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
In January 2016, the
FASB issued ASU No.2016-01
(“ASU 2016-01”),
“Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities”, which amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments
and simplifies the impairment assessment and enhances the disclosure requirements of equity investments. This amendment requires
all equity investments to be measured at fair value, with changes in the fair value recognized through net income (other than
those accounted for under equity method of accounting or those that result in consolidation of the investee). The guidance
will be effective for the fiscal year beginning after December 15, 2017, including interim periods within that year. With respect
to the Group’s consolidated financial statements, the most significant influence relates to the accounting treatment for
its equity investments (except for those accounted for under equity method or those that result in the consolidation of the investee),
and further more impacts the disclosure and presentation of financial assets and liabilities. The Group will adopt ASU 2016-01
effective January 1, 2018. For equity investments measured at fair value, the Group will recognize the changes in fair value through
net income /(loss); and for equity investments that lacked readily determinable fair values, the Group will elect to use the measurement
alternative defined as cost, less impairments, adjusted by observable price changes. The Group anticipated that the adoption of
ASU 2016-01 will increase the volatility of its other income (expense), net, as a result of the remeasurement of its equity securities
upon the occurrence of observable price changes and impairments.
In February 2016, the
FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which amends the existing accounting standards for lease accounting.
For operating leases, ASU No.2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured
at the present value of the lease payments, in its balance sheet with terms of more than twelve months. Lessees are permitted to
make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. The
standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the
lease term, on a generally straight-line basis. In addition, this standard requires both lessees and lessors to disclose certain
key information about lease transactions. The amendments in this Update are effective for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. The Group is currently assessing the potential effects the adoption
of this update will have on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU 2016-09, “Compensation
—
Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” to simplify the accounting for
employee share-based payment transactions. This standard allows the company to make an entity-wide accounting policy election to
either estimate the number of awards that are expected to vest or account for forfeitures when they occur, and is effective for
fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Group
has
adopted the new standard effective January 1, 2017
and expected no impact on its consolidated financial statements due to
the Group elected to continue estimating the number of awards that are expected to vest.
In June 2016, the
FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326),” which requires entities to measure
all expected credit losses for financial assets held at the reporting date. This replaces the existing incurred loss model
and is applicable to the measurement of credit losses on financial assets measured at amortized cost. For available-for-sale debt
securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under other-than-temporary
impairment model.
For public business entities, the
amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those
fiscal years. The Group is currently evaluating the impact that the adoption of this update will have on its consolidated
financial statements and related disclosures.
In August
2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash
Payments,” which addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement
of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the
effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the
settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned
life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions;
and separately identifiable cash flows and application of the predominance principle. The amendments in this Update are effective
for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
Early adoption is permitted. The Group is currently evaluating the impact that the adoption of this update will have on its consolidated
financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230):
Restricted Cash.” The guidance requires that a statement of cash flows explain the change during the period in the total
of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts
generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling
the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update are
effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal
years. Early adoption is permitted, including adoption in an interim period. The standard requires application using a retrospective
transition method to each period presented. The Group does not expect the standard to have a material impact on its consolidated
financial statements.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805):
Clarifying the Definition of a Business,” which clarifies the definition of a business with the objective of adding guidance
to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses.
Public business entities should apply the amendments in this Update to annual periods beginning after December 15, 2017, including
interim periods within those periods. Early application of the amendments in this Update is allowed as follows: 1. For transactions
for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has
not been reported in financial statements that have been issued or made available for issuance; 2. For transactions in which a
subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the
amendments, only when the transaction has not been reported in financial statements that have been issued or made available for
issuance. The standard should be applied prospectively on or after the effective date. The Group will evaluate the impact of adopting
this standard prospectively upon any transactions of acquisitions or disposals of assets or businesses.
In January 2017, the
FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment.” The guidance removes Step 2 of the goodwill
impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which
a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should
be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019.
Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
The Group is currently evaluating the impact that the adoption of this update will have on its consolidated financial statements.
In May 2017, the FASB issue ASU No. 2017-09, “Compensation—Stock Compensation (Topic
718): Scope of Modification Accounting,” which provides guidance about which changes to the terms or conditions of a share-based
payment award require an entity to apply modification accounting in Topic 718. This standard is effective for all entities for
annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted,
including adoption in any interim period for public business entities for reporting periods for which financial statements
have not yet been issued. The Group is currently evaluating the impact that the adoption of this update will have on its consolidated
financial statements.
|
3.
|
Credit risks and concentration
|
The Group’s credit
risk arises from cash and cash equivalents, term deposits, short-term investments, as well as credit exposures to receivables due
from its customers, related parties and other parties.
The Group believes that
there is no significant credit risk associated with cash and cash equivalents and term deposits which were held by reputable financial
institutions in the jurisdictions where the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries are located.
The Group has no significant
concentrations of credit risk with respect to its customers, except for the accounts receivable from the internet search companies
as discussed below. The Group assesses the credit quality of and sets credit limits on its customers by taking into account their
financial position, the availability of guarantees from third parties, their credit history and other factors such as current market
conditions.
There was no customer
whose revenue represented over 10% of total revenues in 2015, 2016 and 2017.
There was no accounts
receivable from any customer over 10% of total accounts receivable as of December 31, 2016 and 2017.
|
(c)
|
Foreign currency risk
|
The Group’s operating
transactions are mainly denominated in RMB. RMB is not freely convertible into foreign currencies. The value of the RMB is subject
to changes by the central government policies and to international economic and political developments. In the PRC, certain foreign
exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the
People’s Bank of China (the “PBOC”). Remittances in currencies other than RMB by the Group in China must
be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation
in order to effect the remittance.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
|
4.
|
Business acquisitions and equity investment transactions
|
|
(a)
|
Acquisition of Anjuke Inc. (“Anjuke”)
|
On March 2, 2015, the
Group completed the acquisition of 100% equity interest of Anjuke, a major online real estate listing platform in China which allows
potential home buyers and renters to search for primary and secondary real estate. This transaction allows the Group to create
China’s largest secondary and rental real estate platform by combining the Group’s housing content category with Anjuke’s
platform. Total consideration for this acquisition consisted of approximately 4.8 million newly issued ordinary shares and approximately
0.2 million fully vested RSUs of the Company and RMB985.4 million (US$160.2 million) in cash.
The acquisition had
been accounted for as a business acquisition and the results of operations of Anjuke and its subsidiaries and affiliated companies
from the acquisition date have been included in the Group’s consolidated financial statements. The Group made estimates and
judgments in determining the fair value of acquired assets and liabilities, with the assistance of an independent valuation firm
and management’s experience with similar assets and liabilities. In performing the purchase price allocation, the Group considered
the analyses of historical financial performance and estimates of future performance of Anjuke.
The allocation of the
purchase price is as follows:
|
|
Amounts
|
|
|
Amortization
|
|
|
|
RMB
|
|
|
Years
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
39,651
|
|
|
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
Domain names and trademarks
|
|
|
168,279
|
|
|
|
10
|
|
Technology
|
|
|
59,681
|
|
|
|
5
|
|
Customer relationship
|
|
|
14,676
|
|
|
|
2
|
|
Goodwill
|
|
|
1,341,760
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(60,659
|
)
|
|
|
|
|
Total
|
|
|
1,563,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price comprised of
|
|
|
|
|
|
|
|
|
-Cash consideration
|
|
|
985,427
|
|
|
|
|
|
-Equity consideration
|
|
|
577,961
|
|
|
|
|
|
Total
|
|
|
1,563,388
|
|
|
|
|
|
The total cash consideration
of RMB985.4 million (US$160.2 million) less cash acquired of RMB40.5 million (US$6.6 million) and cash consideration payable of
RMB188.1 million (US$29.0 million) resulted in a net cash outlay of RMB766.5 million (US$124.6 million) at the acquisition date.
The excess of purchase price over net tangible assets and identifiable intangible assets acquired were recorded as goodwill. Goodwill
primarily represents the expected synergies from combining the Group’s housing content category with Anjuke’s platform.
The goodwill is not expected to be deductible for tax purposes. No subsequent purchase price adjustment has been made.
All the cash consideration
payable has been settled as of December 31, 2016.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
|
(b)
|
Investment
and consolidation of Falcon View Technology (“Ganji”)
|
|
(i)
|
Equity investment in Ganji
|
On April 20, 2015, the Group
acquired from Ganji’s shareholders certain number of ordinary and preference shares of Ganji which accounted for less than
50% equity stake in Ganji, the holding company of the PRC entities operating Ganji.com, a major online local services platform
in China for consideration consisting approximately 34.0 million newly issued ordinary shares of the Company and RMB2.5 billion
(US$412.2 million) in cash. The RMB2.5 billion (US$412.2 million) of total cash consideration less consideration payable of RMB794.9
million (US$122.4 million) resulted in a net cash outlay of RMB1.8 billion (US$289.8 million) upon the completion of the equity
investment. (the “Transaction (i)”)
The investment in the ordinary
shares of Ganji was accounted for as equity method investment based on the equity interest of 31.6% attributable to the acquired
ordinary shares of Ganji in accordance with ASC 323. During the period from April 20, 2015 to August 6, 2015, the Group recognized
its proportionate share of Ganji’s net loss, which amounted to RMB657.4 million (US$103.6 million), into the consolidated
statements of comprehensive income/(loss).
The investment in the preference
shares of Ganji was accounted for as cost method investment in accordance with ASC 325-20 because the preference shares of Ganji
acquired by the Group were not in-substance common stocks and there was no readily determinable fair value of the Ganji shares.
In accordance with Rule
4-08(g) of Regulation S-X, the Company summarized condensed financial information of Ganji for the period in which it was accounted
for by equity method.
|
|
For the period from April 20
to August 6, 2015
|
|
|
|
RMB
|
|
Operating result data:
|
|
|
|
|
Revenues
|
|
|
325,525
|
|
Gross profit
|
|
|
295,029
|
|
Loss from operations
|
|
|
(2,101,364
|
)
|
Net loss
|
|
|
(2,082,803
|
)
|
Net loss attributable to Ganji’s shareholders
|
|
|
(2,080,336
|
)
|
|
|
|
|
|
|
|
As of August 6, 2015
|
|
|
|
RMB
|
|
Balance sheets data:
|
|
|
|
|
Current assets
|
|
|
1,043,498
|
|
Non-current assets
|
|
|
1,618,241
|
|
Current liabilities
|
|
|
1,012,294
|
|
Non-current liabilities
|
|
|
392,849
|
|
Mezzanine equity
|
|
|
30,135
|
|
Total shareholders’ equity
|
|
|
1,226,461
|
|
|
(ii)
|
Investment in private equity funds which invested in Ganji
|
On July 31, 2015, the Company
issued a convertible note to Tencent for a cash consideration of RMB2.4 billion (US$400.0 million). Subsequently,
the Company committed the whole RMB2.4 billion (US$400.0 million) proceeds from this transaction, together with additional cash
of RMB40.8 million (US$6.7 million) from the Company and approximately 46.5 million newly issued ordinary shares of the Company
to several private equity funds (the “Equity Funds”) of which approximately 46.5 million newly issued ordinary shares
and RMB1.7 billion (US$272.4 million) cash were contributed to the funds in August, 2015. These funds are dedicated to investing
in businesses in China and separately managed by different investment entities, as general partners, and they are unaffiliated
with each other and unaffiliated with the Company. These funds, together with Tencent, acquired all the remaining equity interests
in Ganji on August 6, 2015 (the “Transaction (ii)”). The Company also transferred an aggregate of approximately
4.4 million fully vested restricted share units of the Company and approximately RMB311.8 million (US$51.0 million) in cash to
former Ganji employees as part of the total consideration of step acquisition of Ganji.
Upon the completion of
the transactions on August 6, 2015, Ganji was directly owned by the Company as a result of the Transaction (i) and by the Equity
Funds and Tencent as a result of the Transaction (ii).
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
The Company decided
to early adopt ASU No. 2015-2, which is a new consolidation standard, to account for the investment in the Equity Funds and hence
Ganji. Although the Company is a limited partner of the Equity Funds, the Company has a substantive kick-out right and holds the
majority shareholding in the Equity Funds, and there are no other limited partners holding substantive participating right to the
Equity Funds. Therefore the Company considered that it has a controlling financial interest over the Equity funds under the voting
interest model, and as a result has consolidated Ganji since August 6, 2015. The financial results of Ganji were no longer reflected
in the financial statement line item of “share of results of equity investees”. The Company accounted for the Transaction
(ii) as step acquisition of Ganji on August 6, 2015. The Group believes the investment in the Equity Funds which acquired Ganji
will allow the Group to leverage the Ganji platform and create business synergy for the Group’s online local services platform.
Because of the step acquisition,
the Company became the beneficial owner of an aggregate of 99.6% equity interest in Ganji. The remaining 0.4% interest in Ganji
was owned by Tencent. In relation to this noncontrolling interest in Ganji, a put option agreement was entered into between the
Company and Tencent in 2015, where the Company has also granted to Tencent a right to sell all of Tencent’s interest in Ganji
(the “Put Option”).
The Company determined
that the Put Option over Tencent’s noncontrolling interest in Ganji was considered on a combined basis and was accounted
for as mezzanine classified noncontrolling interest as a whole as the noncontrolling interest can be redeemed by Tencent through
exercising the Put Option. The carrying amount of the mezzanine classified noncontrolling interest initially recognized on August
6, 2015 was accreted using effective interest method to the accreted value pursuant to the Put Option agreement.
On the acquisition date
of Ganji, the mezzanine classified noncontrolling interest is recognized and measured at fair value by the Company in accordance
with ASC 805-20-30-1 and ASC 480-10-S99-3A and the Company’s previously held interest in Ganji (i.e. the less than 50% investment
as a result of Transaction (i)) was remeasured to fair value on the same date in accordance with ASC 805-10-25-10.
By applying a market
approach and an income approach,
t
he fair value of the mezzanine classified noncontrolling
interest and the fair value of the previously held equity interest in Ganji were estimated to be RMB86.5 million (US$14.1 million)
and RMB7.2 billion (US$1.2 billion), respectively. These fair value measurements of the noncontrolling interest and the previously
held equity interest are based on significant inputs not observable in the market, and thus represent Level 3 measurements. The
Group recognized a loss of RMB224.3 million (US$35.2 million) as a result of the remeasurement of the previously held equity interest
in Ganji upon completion of the step acquisition in Ganji.
The fair value estimates
for the noncontrolling interest and the previously held equity interest are based on (1) an assumed discount rate of 15.6%, (2)
an assumed terminal growth rate of 3.0%, (3) assumed financial multiples of reporting entities deemed to be similar to Ganji, and
(4) assumed adjustments because of the lack of control or lack of marketability, as relevant, that market participants would consider
when estimating the fair value of the noncontrolling interest and the previously held equity interest in Ganji.
The Group made estimates
and judgments in determining the fair value of acquired assets and liabilities, with the assistance of an independent valuation
firm and management’s experience with similar assets and liabilities. The allocation of the purchase price is as follows:
|
|
Amounts
|
|
|
Amortization
|
|
|
|
RMB
|
|
|
Years
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
78,605
|
|
|
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
Domain names and trademarks
|
|
|
1,435,918
|
|
|
|
9.4
|
|
Technology
|
|
|
148,670
|
|
|
|
4.4
|
|
Mezzanine classified noncontrolling interest
|
|
|
(86,507
|
)
|
|
|
|
|
Goodwill
|
|
|
15,974,683
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(396,147
|
)
|
|
|
|
|
Total
|
|
|
17,155,222
|
|
|
|
|
|
Total purchase price comprised of
|
|
|
|
|
|
|
|
|
-Cash consideration
|
|
|
2,799,890
|
|
|
|
|
|
-Equity consideration
|
|
|
7,107,133
|
|
|
|
|
|
-Fair value of previously held equity interests
|
|
|
7,248,199
|
|
|
|
|
|
Total
|
|
|
17,155,222
|
|
|
|
|
|
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
The total cash consideration
of
RMB2.8 billion (US$457.6 million)less cash acquired of RMB377.0 million (US$61.6 million) and consideration payable of RMB982.9
million (US$151.4 million) resulted in a net cash outlay of RMB1.5 billion (US$244.6 million) at the acquisition date. The excess
of purchase price over the fair value of assets acquired and liabilities assumed of the business acquired was recorded as goodwill.
The goodwill primarily represents the expected synergies from combining the Group’s 58.com platform with Ganji’s platform
and fully integrating each service category. The goodwill is not expected to be deductible for tax purposes. No subsequent purchase
price adjustment has been made.
In September 2017,
Tencent exercised the Put Option and sold the 0.4% interest in Ganji to the Company at the accreted value of RMB91.9 million (US$14.1
million). As a result, Ganji became a wholly owned subsidiary of the Company since then.
The Group also completed other acquisitions that will be accounted for as business acquisitions from 2015
to 2017. In the year ended December 31, 2015, 2016 and 2017, the Group paid RMB266.2 million, RMB0.5 million and RMB3.1 million,
respectively, for these acquisitions.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
|
(d)
|
Unaudited pro forma total revenue and net loss of the
Group reflecting acquisitions made in 2015
|
The total revenue and net
loss arising from acquisitions made in 2015 that are included in the Group’s consolidated statement of comprehensive income/(loss)
for the year ended December 31, 2015 were RMB1.2 billion and RMB500.5 million, respectively.
The following summary of unaudited pro forma results of operations of the Group for the years ended December
31, 2014 and 2015 is presented using the assumption that the all the acquisitions made in 2015 were completed as of January 1,
2014. These pro forma results of the Group have been prepared for comparative purposes only and do not purport to be indicative
of the results of operations which would have resulted had the acquisitions occurred as of January 1, 2014, nor is it indicative
of future operating results.
The pro forma adjustments
are based upon available information and certain assumptions that management believes are reasonable.
|
|
For the year ended December 31,
|
|
|
|
2014
(unaudited)
|
|
|
2015
(unaudited)
|
|
|
|
RMB
|
|
|
RMB
|
|
Pro forma total revenues
|
|
|
2,854,782
|
|
|
|
5,221,763
|
|
Pro forma net loss
|
|
|
(595,009
|
)
|
|
|
(3,441,828
|
)
|
There was no major acquisition in 2016 and 2017, therefore, no pro forma information was disclosed for
the year ended December 31, 2016 and 2017, respectively.
|
5.
|
Deconsolidation of 58 Home
|
58 Home has been the
holding company of the 58 Home business and a majority owned entity of the Company since its establishment in late 2014. The Company
owned 80 million ordinary shares issued by 58 Home (“58 Home Ordinary Shares”).
In February 2015, 58
Home adopted its 2015 Share Incentive Plan (“58 Home 2015 Plan”). In February 2015, 58 Home granted 9.1 million restricted
shares to the selected management members of 58 Home. In April 2015, 58 Home further granted approximately 1.9 million restricted
shares to a senior management member of the Company. All of these restricted shares were fully vested on the respective grant dates.
Share-based compensation expense amounted to RMB12.2 million was recognized for the period from respective grant dates to November
27, 2015 with respect to the grant of the restricted shares. These holders of restricted shares are referred to as “noncontrolling
interests” of 58 Home. Other share-based awards granted by 58 Home to its employees were discussed in Note 24.
On October 12, 2015,
a share subscription agreement (the “58 Home Share Subscription Agreement”) was entered into among 58 Home and certain
investors whereby 58 Home agreed to issue to the investors 40.8 million Series A convertible preference shares (“58 Home
Series A Preference Shares”), at a price of US$7.3529 per share, amounting to an aggregate purchase price of RMB1.9 billion
(US$300.0 million). Investors of the 58 Home Series A Preference Shares included the Company who paid RMB63.9 million (US$10.0
million) for approximately 1.4 million 58 Home Series A Preference Shares and other new investors who paid RMB1.9 billion (US$290.0
million) aggregately to subscribe the remaining approximately 39.4 million 58 Home Series A Preference Shares.
Before closing of the transaction, in November 2015, pursuant to the 58 Home Share Subscription Agreement,
the Company unilaterally contributed
RMB640.7 million
as additional paid-in capital to 58 Home by waiving RMB640.7 million receivable from 58 Home. Because the noncontrolling ordinary
shareholders of 58 Home are employees of the Group, the unilateral capital contribution by the Company resulted in the increase
in the noncontrolling interests of 58 Home by RMB77.3 million and the corresponding amount was recognized as employee compensation
expense in the Group’s consolidated statements of comprehensive income/(loss).
Pursuant to the Amended
and Restated Memorandum of Association of 58 Home adopted on October 26, 2015, certain approval rights were granted to a noncontrolling
preference shareholder of 58 Home in relation to (i) annual budget and (ii) employment of certain key management members of 58
Home. These approval rights granted to the noncontrolling preference shareholder of 58 Home were considered as substantive participating
rights in accordance with ASC 810-10. As a result, the Group has deconsolidated 58 Home since the completion of the transaction
on November 27, 2015.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
On the date of deconsolidation,
the Group derecognized the assets and liabilities, including allocated goodwill attributable to 58 Home, which amounted to RMB1.3
billion, derecognized noncontrolling interests of 58 Home and recognized the investment in 58 Home Series A Preference Shares at
fair value of RMB63.9 million (US$10.0 million), the investment in 58 Home Ordinary Shares at fair value of RMB1.6 billion, and
a gain on deconsolidation of 58 Home of RMB292.8 million.
Subsequent to the completion of the transaction, the Group continued to
retain
equity interest in 58 Home through its ownership of 80 million 58 Home Ordinary Shares, representing 87.9% ordinary share equity
interest in 58 Home, and of approximately 1.4 million 58 Home Series A Preference Shares. The Company’s investment in 58
Home Ordinary Shares was accounted for as equity method investment in accordance with ASC 323. The Company has shared 87.9% of
net loss of 58 Home for the period from November 27, 2015 to December 31, 2015 and recorded an investment loss of RMB59.9 million.
On the other hand, the Company’s investment in the 58 Home Series A Preference Shares was accounted for as cost method investment
in accordance with ASC 325-20 because the preference shares were not considered as in-substance common stock and the shares do
not have readily determinable fair value or quoted market price.
In accordance with Rule
4-08(g) of Regulation S-X, the Company summarized the condensed financial information of 58 Home for the period in which it was
accounted for by equity method.
|
|
For the year ended
December 31, 2016
|
|
|
For the year ended
December 31, 2017
|
|
|
|
RMB
|
|
|
RMB
|
|
Operating result data:
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
114,484
|
|
|
|
484,952
|
|
Gross profit
|
|
|
90,527
|
|
|
|
306,207
|
|
Loss from operations
|
|
|
(975,358
|
)
|
|
|
(764,049
|
)
|
Net loss
|
|
|
(1,015,209
|
)
|
|
|
(769,839
|
)
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
Balance sheets data:
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
1,286,858
|
|
|
|
878,370
|
|
Non-current assets
|
|
|
118,233
|
|
|
|
1,276,431
|
|
Current liabilities
|
|
|
376,174
|
|
|
|
729,551
|
|
Non-current liabilities
|
|
|
—
|
|
|
|
31,899
|
|
Mezzanine equity
|
|
|
2,081,100
|
|
|
|
1,960,260
|
|
Total shareholders’ deficit
|
|
|
(1,052,183
|
)
|
|
|
(566,909
|
)
|
Intangible assets amounted
to RMB304.5 million and the related deferred tax liability amounted to RMB76.1 million were recognized on the date of the deconsolidation
as a result of attributing the basis difference between the Company’s initial cost of investment in 58 Home and the Company’s
share of the carrying value of the net assets of 58 Home. During the years ended December 31, 2016 and 2017, the basis difference
arising from the abovementioned asset and liability aggregately resulted in net increase of RMB24.4 million and RMB24.4 million,
respectively in the Company’s share of 58 Home’s losses in the consolidated statement of comprehensive income/(loss).
|
6.
|
Disposal of Guazi and conversion of Guazi Convertible
Note
|
As part of the acquired
Ganji business, Guazi is engaged in the business of operating an online C2C platform for trading used cars and providing relevant
services.
On December 31, 2015,
the following transactions were completed pursuant to a share purchase agreement, dated November 25, 2015, by and among the Company,
the entities of Guazi and Mr. Haoyong Yang, former co-chairman of the Company’s board of directors (the “Guazi Purchaser”):
|
·
|
The Company transferred 54.4% ownership interest in Guazi
to the Guazi Purchaser in return for cash proceeds of RMB324.7 million (US$50.0 million).
|
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
|
·
|
The Company concurrently used the proceeds of RMB324.7
million (US$50.0 million) to invest in a RMB324.7 million (US$50.0 million) non-interest bearing Guazi Convertible Note. The Guazi
Convertible Note is convertible into preference shares of Guazi to be issued in Guazi’s subsequent round of financing at
the same price paid by other investors.
|
|
·
|
The Company retained 45.6% ownership interest in Guazi
by purchasing 38.8 million Series A convertible and redeemable preference shares of Guazi (the “Series A Guazi Shares”)
at the par value of the shares.
|
The negotiation and execution
of the transactions mentioned above were not dependent with the acquisition of Ganji.
As a result of the Company’s
loss of control over Guazi on December 31, 2015, the Company derecognized the assets and liabilities, including allocated goodwill
attributable to Guazi, which amounted to RMB180.4 million (US$27.8 million), and recognized the investment in Series A Guazi Shares
at fair value of RMB348.6 million (US$53.7 million), the investment in Guazi Convertible Note at fair value of RMB307.2 million
(US$47.3 million), a gain on disposal of Guazi of RMB472.2 million (US$73.2 million) on December 31, 2015.
The Series A Guazi Shares
and the Guazi Convertible Note were considered as the consideration received by the Company in return for the disposal of Guazi.
The Company assessed the fair values of the Series A Guazi Shares and Guazi Convertible Note on the disposal date with the assistance
of a third-party independent valuation specialist. The fair values were based on significant inputs not observable in the market,
and thus represented Level 3 measurements.
Subsequently, the investment
in Series A Guazi Shares was accounted for under cost method in accordance with ASC 325-20 as the shares held by the Company were
not considered in-substance common stock and the shares do not have readily determinable fair value. The Company also determined
that the host contract of Series A Guazi Shares is equity in nature and there was no embedded derivative that needs to be separately
accounted for in accordance with ASC 815-15-25-1.
The Company accounted
for its investment in Guazi Convertible Note under ASC 310 which was carried at amortized cost using effective interest rate method
and presented it as a long term prepayment for additional shares of Guazi upon note conversion.
In March 2016, the Company
converted the entire amount of Guazi Convertible Note into 62.5 million Guazi Series B1 Shares based on a conversion price of US$0.80
per share. Upon the conversion, the Company recognized a loss of RMB84.2 million (US$12.9 million) in “others, net”
in its consolidated statement of comprehensive income/(loss), which resulted from different liquidation preferences and participating
rights among the sub classes of Guazi Series B preference shares, although the conversion price was the same as the issuance price
paid by other Series B preference share investors of Guazi. The different liquidation preferences and participating rights among
the sub classes of Guazi Series B preference shares were resulted from negotiation between the Company and various investors during
Guazi Series B round of financing which commenced and completed in the first quarter of 2016.
The Guazi Series B1 Shares was measured at fair value of RMB239.5 million (US$37.1 million) on the date
of conversion with the assistance of a third-party independent valuation specialist.
The
fair value was based on significant inputs not observable in the market, and thus represented Level 3 measurements. As of December
31, 2017, the investment in Guazi Series B1 Shares was accounted for under cost method as the shares invested by the Group were
not considered as in-substance common stock and the shares did not have readily determinable fair value or quoted market price.
|
7.
|
Disposal of Mayi and concurrent investment in Tujia
|
On June 20, 2016, the
Company disposed its entire interest in Mayi, a majority-owned subsidiary which is engaged in online marketplace business for people
to list and reserve short-term accommodations in Mainland China to Tujia, a competitor in the short-term accommodation business
in Mainland China. The disposal of interest included an aggregate number of 16 million ordinary shares and approximately 1.7 million
Series A preference shares of Mayi (the “Disposal Transaction”). In return, approximately 3.9 million Tujia Ordinary
Shares were issued to the Company.
In addition to the Disposal
Transaction, on June 20, 2016, the Company made additional investment in Tujia including the purchase of approximately 5.2 million
Tujia Ordinary Shares and 2.3 million Tujia Series D Preference Shares by (i) paying RMB65.9 million (US$10.0 million) in cash,
and (ii) providing future services with fair value of approximately RMB79.1 million (US$12.0 million) (the “Investment Transaction”).
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
Upon completion of
the above transactions, the Company derecognized the assets and liabilities, including allocated goodwill attributable to Mayi,
amounted to RMB78.3 million (US$11.9 million). As a result of the disposal of Mayi, the Company recognized a gain on disposal
of Mayi of approximately RMB79.6 million (US$12.1 million) and obtained less than 5% ownership in Tujia through its investment
in an aggregate number of approximately 9.2 million Tujia Ordinary Shares and 2.3 million Tujia Series D Preference Shares. The
Company's investment in Tujia Ordinary Shares was accounted for as cost method as the Company does not have ability to exercise
significant influence over operating and financial policies of Tujia through the investment in Tujia Ordinary Shares and the shares
do not have readily determinable fair value or quoted market price. The Company's investment in Tujia Series D Preference Shares
was also accounted for as cost method because the Tujia Series D Preference Shares were not considered as in-substance common
stock and the shares do not have readily determinable fair value or quoted market price.
|
8.
|
Preferred share financing of Zhuan Zhuan
|
Zhuan Sprit
Holding Limited (“Zhuan Zhuan Holding”) is a subsidiary of the Group incorporated in the Cayman Islands. Zhuan Zhuan
Holding and its subsidiaries and consolidated VIEs are principally engaged in operating an online used goods trading platform in
the PRC. On April 28, 2017 (the “Zhuan Zhuan Financing Closing Date”), the Group completed a Series A preferred share
financing for Zhuan Zhuan Holding by issuing Series A preferred shares of Zhuan Zhuan Holding to Tencent for a combination of cash
consideration amounted to US$200.0 million and additional business resources to be provided by Tencent. The Group is considered
as the primary beneficiary of Zhuan Zhuan Holding subsequent to the financing in accordance with ASC 810-10-25-44.
Pursuant to
the share subscription agreement entered into between Zhuan Zhuan Holding and Tencent, Tencent has the right to require Zhuan Zhuan
Holding to redeem the preferred shares that it held at its original issuance price plus 8% simple interest per annum if Zhuan Zhuan
Holding does not complete a qualified IPO.
Accordingly,
the Group accounted for Tencent’s noncontrolling interest in Zhuan Zhuan Holding as a mezzanine classified noncontrolling
interest because the noncontrolling interest can be contingently redeemed by Tencent at a pre-determined value upon the resolution
of the contingent event. The carrying amount of the mezzanine classified noncontrolling interest initially recognized was subsequently
accreted using effective interest method to the accreted value pursuant to the share subscription agreement in accordance with
ASR 268.
The Group accounted for the issuance of Series A preferred shares of Zhuan Zhuan Holding in exchange for
the business resources from Tencent as stock-based compensation with non-employee in accordance with ASC 505-50. As Tencent’s
business resources are required to be provided over a period of time but the Series A preferred shares of Zhuan Zhuan Holding granted
to Tencent were fully vested and nonforfeitable on the Zhuan Zhuan Financing Closing Date, the Group recognized the prepaid expense
and the corresponding portion of mezzanine classified non-controlling interest based on the fair value of the business resources
on the date that the Group and Tencent entered into the share subscription agreement. The prepaid expense was subsequently amortized
over the business resources providing period on a straight-line basis from the later of the date when Tencent started to provide
the business resources and the Zhuan Zhuan Financing Closing Date to reflect the same manner as if the Group paid cash to a vendor
in exchange for these business resources over the contractual period of time.
9.
|
Disposal of finance business
|
In the second half of 2017, the Group entered into a series of definitive agreements relating to the disposal
of the finance business and the related legal entities (the “Finance Business”) to a newly established investment holding
entity majority-owned by Mr. Jinbo Yao (the “Acquirer Entity”), the chief executive officer and also a principal shareholder
of the Company, who in return committed to provide RMB150 million as capital contributions to the Finance Business within nine
months subsequent to the disposal, of which RMB 70 million was contributed to the Finance Business in 2017. Pursuant to the definitive
agreements, upon the completion of the disposal of the Finance Business, the Group holds neither legal ownership nor effective
control of the Finance Business, and received a profit sharing right, with fair value of
approximately
RMB151 million based on discounted cash flow model, for a portion of the future pre-tax profit of the Finance Business when the
Finance Business has a positive pre-tax income on a cumulative basis. As part of the disposal, in addition to the profit sharing
right, (i) the Group’s original capital contribution for the Finance Business of approximately RMB286 million will be repaid
to the Group from the Acquirer Entity in installments, including interest at a rate to be determined based on the market interest
rate, over 3 years subsequent to the disposal date; and (ii) repayments from borrowers for automobile financing receivables that
were outstanding as of the disposal date, amounting to RMB132 million, will be repaid to the Group no later than 3 years after
the disposal date. The transaction was completed in October 2017.
Upon the completion of the transaction in October 2017, the
legal entities of the Finance Business were assessed as VIEs and Mr. Yao is considered as the primary beneficiary of the Finance
Business because Mr. Yao holds a majority equity stake in the Acquirer Entity, and hence obtains majority voting rights in the
Finance Business through his equity stake, possesses the power to direct the activities of the Finance Business that would most
significantly impact its economic performance, and also exposes to benefits and losses of the Finance Business. Accordingly, the
Finance Business was deconsolidated from the Group. As a result of the disposal, the Group recognized a gain amounted to RMB87.8
million in the consolidated statements of changes in equity as the difference between the net carrying amount of the derecognized
assets and liabilities of the Finance Business and the profit sharing right and the other receivables due from the Acquirer Entity.
Although the disposal of the Finance Business is not considered as a common control transaction because Mr. Yao has a controlling
interest in the Acquirer Entity but not in Group, given he is a principal shareholder of the Group, the Group recorded the gain
in equity account as additional paid-in capital by Mr. Yao. The profit sharing right is treated as contingent consideration received
upon disposal of the business and is recorded as a long-term asset carried at amortized cost less impairment.
Separately, the Group has also entered
into an arrangement to provide certain future services to the Finance Business in exchange for further profit sharing rights. The
future services will be provided on an undiscounted basis. The Group will record revenue for these services upon meeting all of
the revenue recognition criteria. There was no revenue recognized under this arrangement for the year ended December 31, 2017.
The total profit sharing rights obtained by the Group, entitle
the Group to a certain percentage of the future pre-tax profit of the Finance Business when the Finance Business has a positive
pre-tax income on a cumulative basis. Moreover, the total profit sharing rights do not have an expiration date and the Group would
be able to convert its profit sharing right with respect to Finance Business into the same percentage of Finance Business’s
equity interest, subject to applicable regulatory approvals.
|
10.
|
Accounts receivable, net
|
Accounts
receivable, net, consists of the following:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
Accounts receivable
|
|
|
476,611
|
|
|
|
730,486
|
|
Allowance for doubtful accounts
|
|
|
(51,719
|
)
|
|
|
(62,736
|
)
|
Accounts receivable, net
|
|
|
424,892
|
|
|
|
667,750
|
|
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
Movement
of allowance for doubtful accounts is as follows:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
Balance at beginning of year
|
|
|
38,214
|
|
|
|
51,719
|
|
Provisions
|
|
|
14,694
|
|
|
|
16,450
|
|
Reversals
|
|
|
(957
|
)
|
|
|
(4,896
|
)
|
Write-offs
|
|
|
(232
|
)
|
|
|
(537
|
)
|
Balance at end of year
|
|
|
51,719
|
|
|
|
62,736
|
|
|
11.
|
Prepayments and other current assets
|
The following is a summary
of prepayments and other current assets:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
Prepaid advertising fees
|
|
|
105,252
|
|
|
|
213,230
|
|
Employee advances
|
|
|
84,589
|
|
|
|
90,167
|
|
Input VAT
|
|
|
72,337
|
|
|
|
64,755
|
|
Rental and other deposits
|
|
|
52,062
|
|
|
|
73,110
|
|
Prepaid rental
|
|
|
32,751
|
|
|
|
22,795
|
|
Prepayment for service fees
|
|
|
16,577
|
|
|
|
26,039
|
|
Other consideration receivables for disposal of Finance Business (due from a related party (Note 9))
|
|
|
—
|
|
|
|
58,164
|
|
Prepayment for film investment
|
|
|
14,500
|
|
|
|
37,081
|
|
Interest receivable
|
|
|
2,961
|
|
|
|
15,468
|
|
Others
|
|
|
45,027
|
|
|
|
56,463
|
|
Total
|
|
|
426,056
|
|
|
|
657,272
|
|
The prepaid advertising
fees represent prepayments to third parties for advertising services, mainly through television, internet and outdoor media. The
advertising expenses are recognized in sales and marketing expenses subsequently, when the services are received.
|
12.
|
Property and equipment, net
|
The following is a summary
of property and equipment, net:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
Buildings
|
|
|
1,172,236
|
|
|
|
1,172,239
|
|
Computers and equipment
|
|
|
463,461
|
|
|
|
466,595
|
|
Leasehold improvements
|
|
|
138,463
|
|
|
|
142,827
|
|
Software
|
|
|
39,909
|
|
|
|
38,235
|
|
Furniture and fixtures
|
|
|
19,008
|
|
|
|
20,254
|
|
Motor vehicles
|
|
|
7,173
|
|
|
|
6,356
|
|
Total
|
|
|
1,840,250
|
|
|
|
1,846,506
|
|
Less: Accumulated depreciation
|
|
|
(359,329
|
)
|
|
|
(494,825
|
)
|
Net book value
|
|
|
1,480,921
|
|
|
|
1,351,681
|
|
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
Depreciation expenses
for the years ended December 31, 2015, 2016 and 2017 were RMB91.5 million, RMB175.6 million and RMB211.2 million, respectively.
|
13.
|
Intangible assets, net
|
The following is a summary
of intangible assets, net:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
Cost
|
|
|
|
|
|
|
|
|
Domain names and trademarks
|
|
|
1,642,844
|
|
|
|
1,643,080
|
|
Technology
|
|
|
215,065
|
|
|
|
215,065
|
|
Customer relationship
|
|
|
25,616
|
|
|
|
26,586
|
|
Total
|
|
|
1,883,525
|
|
|
|
1,884,731
|
|
Accumulated amortization
|
|
|
|
|
|
|
|
|
Domain names and trademarks
|
|
|
(259,971
|
)
|
|
|
(432,630
|
)
|
Technology
|
|
|
(72,566
|
)
|
|
|
(119,274
|
)
|
Customer relationship
|
|
|
(18,760
|
)
|
|
|
(23,261
|
)
|
Total
|
|
|
(351,297
|
)
|
|
|
(575,165
|
)
|
Net book value
|
|
|
1,532,228
|
|
|
|
1,309,566
|
|
Amortization expenses
for the years ended December, 2015, 2016 and 2017 were RMB117.6 million, RMB231.1 million and RMB224.4 million, respectively. During
the corresponding periods, no impairment was recognized in the consolidated statements of comprehensive income/(loss).
The estimated aggregate
amortization expenses for each of the five succeeding fiscal years and thereafter are as follows:
|
|
Amounts
|
|
|
|
RMB
|
|
For the year ended December 31, 2017
|
|
|
|
|
2018
|
|
|
222,095
|
|
2019
|
|
|
219,012
|
|
2020
|
|
|
174,351
|
|
2021
|
|
|
171,977
|
|
2022
|
|
|
171,977
|
|
Thereafter
|
|
|
350,154
|
|
Total
|
|
|
1,309,566
|
|
The changes in the carrying
amount of goodwill for the years ended December 31, 2016 and 2017 were as follows:
|
|
Amounts
|
|
|
|
RMB
|
|
Balance as of December 31, 2015
|
|
|
15,982,000
|
|
Deconsolidation and disposal of subsidiaries
|
|
|
(78,323
|
)
|
Balance as of December 31, 2016
|
|
|
15,903,677
|
|
Deconsolidation and disposal of subsidiaries
|
|
|
(39,022
|
)
|
Balance as of December 31, 2017
|
|
|
15,864,655
|
|
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
In the annual impairment
assessment of goodwill, the Company concluded that there was no impairment charge for the year ended December 31, 2017.
|
15.
|
Long-term investments
|
The following is a summary
of long-term investments:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
Cost method investments:
|
|
|
|
|
|
|
|
|
Investment in Guazi Shares (a)
|
|
|
629,508
|
|
|
|
555,324
|
|
Investee B (b)
|
|
|
286,672
|
|
|
|
270,510
|
|
Investee C
|
|
|
233,931
|
|
|
|
220,348
|
|
Investee D
|
|
|
138,740
|
|
|
|
130,684
|
|
Investee E (c)
|
|
|
—
|
|
|
|
284,524
|
|
Investment in 58 Home Series A Preference Shares (d)
|
|
|
69,370
|
|
|
|
65,342
|
|
Others (f)
|
|
|
157,578
|
|
|
|
190,297
|
|
Total cost method investments
|
|
|
1,515,799
|
|
|
|
1,717,029
|
|
Equity method investments:
|
|
|
|
|
|
|
|
|
Investment in investee F (e)
|
|
|
—
|
|
|
|
75,022
|
|
Investment in 58 Home Ordinary Shares (d)
|
|
|
594,593
|
|
|
|
8,186
|
|
Others
|
|
|
8,069
|
|
|
|
8,364
|
|
Total equity method investments
|
|
|
602,662
|
|
|
|
91,572
|
|
Total long-term investments
|
|
|
2,118,461
|
|
|
|
1,808,601
|
|
(a) As
a result of the disposal of Guazi in 2015, the Group retained certain interests in Guazi by investing in (i) 38.8 million Guazi
Series A Shares and (ii) a RMB324.7 million (US$50.0 million) non-interest bearing Guazi Convertible Note.
The investment in Guazi
Series A Shares was measured at fair value of RMB348.6 million (US$53.7 million) on the date of disposal and was subsequently accounted
for under cost method as the shares invested by the Group were not considered as in-substance common stock and the shares do not
have readily determinable fair value or quoted market price.
The investment in Guazi
Convertible Note was carried at amortized cost using effective interest rate method under ASC 310. In March, 2016, the Company
converted the entire amount of Guazi Convertible Note into 62.5 million Guazi Series B1 Shares based on a conversion price of US$0.80
per share. Upon the conversion, the Company recognized a loss of RMB84.2 million (US$12.9 million) which resulted from different
liquidation preferences and participating rights among the sub classes of Guazi Series B preference shares, although the conversion
price was the same as the issuance price paid by other Series B preference shares investors of Guazi.
The investment in
Guazi Series B1 Shares was measured at fair value of RMB239.5 million (US$37.1 million) on the date of conversion and was subsequently
accounted for under cost method as the shares invested by the Group were not considered as in-substance common stock and the shares
do not have readily determinable fair value or quoted market price.
(b) The
investment in Tujia Ordinary Shares and Tujia Series D Preference Shares was measured at fair value of RMB286.7 million (US$41.3
million) on the date of investment and was subsequently accounted for under cost method. For the details, please refer to Note
7.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
(c) In
2017, the Group acquired shares of investee E for cash consideration of RMB284.5 million (US$43.5 million). Investee E is mainly
engaged in the business of property management. The investment is accounted for under cost method as the shares invested by the
Group were not considered as in substance common stock and the shares do not have readily determinable fair value.
(d)
A
s
a result of the deconsolidation of 58 Home on November 27, 2015, the Group continues to retain equity interest in 58 Home through
its ownership of 80.0 million 58 Home Ordinary Shares and of approximately 1.4 million 58 Home Series A Preference Shares. The
Company’s investment in 58 Home Ordinary Shares was accounted for as equity method investment in accordance with ASC 323.
For the year ended December 31, 2017, the Group recorded an investment loss of RMB586.4 million in share of results of equity
investees in the consolidated statements of comprehensive income/(loss). The Company’s investment in 58 Home Series A Preference
Shares was accounted for as cost method investment as 58 Home Series A Preference Shares were not considered as in-substance common
stock and the shares do not have readily determinable fair value or quoted market price.
(e) In
2017, the Group invested in common shares of investee F for cash consideration of RMB 99.0 million. Investee F is mainly
engaged in consumer finance business . The investment is accounted for under equity method as the Group can exert
significant influence on the investee. For the year ended December 31, 2017, the Group recorded loss of RMB24.0
million in share of results of equity investees in the consolidated statements of comprehensive income/(loss).
(f)
As of December 31, 2017, “Others” under cost method investment increased RMB32.7 million compared to December 31,
2016, which was mainly due to (i) in 2017, the Group acquired shares of other companies for an aggregate cash consideration of
RMB70.8 million, which are accounted for under cost method as the shares invested by the Group were not considered as in-substance
common stock and the shares do not have readily determinable fair value; (ii) during 2017, other cost method investment amounted
to RMB37.3 million was fully impaired because the operation metrics were not performing to the expectations.
The Company continually
reviews its long-term investments to determine whether a decline in fair value below the carrying value is other than temporary.
The primary factors the Company considers in its determination are the length of time that the fair value of the investment is
below the Company's carrying value; the financial condition, operating performance and the prospects of the equity investee; and
other company specific information such as recent financing rounds. If the decline in fair value is deemed to be other than temporary,
the carrying value of the equity investee is written down to fair value. An impairment charge in connection with cost method investments
of RMB6.1 million, RMB142.1 million and RMB37.3 million was fully recorded in investment income/(loss), net in the consolidated
statements of comprehensive income/(loss) for the years ended 2015, 2016 and 2017, respectively, because the operation metrics
were not performing to the expectations. No impairment charge related to equity method investments was recorded for the years ended
2015, 2016 and 2017, respectively.
|
16.
|
Long-term prepayments and other non-current assets
|
The following is a summary
of long-term prepayments and other non-current assets:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
Long-term receivable
|
|
|
145,507
|
|
|
|
—
|
|
Long-term prepaid advertising fee
|
|
|
—
|
|
|
|
188,205
|
|
Prepayment for acquisition and investments
|
|
|
—
|
|
|
|
10,000
|
|
Rental deposits
|
|
|
28,119
|
|
|
|
27,559
|
|
Prepayment for purchase of property and equipment
|
|
|
1,734
|
|
|
|
1,553
|
|
Profit sharing right asset and other consideration receivables for disposal of Finance Business (due from a related party
(Note 9))
|
|
|
—
|
|
|
|
510,908
|
|
Others
|
|
|
48,407
|
|
|
|
17,035
|
|
Total
|
|
|
223,767
|
|
|
|
755,260
|
|
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
The long-term receivable
for the years ended December 31, 2016 and 2017 were RMB145.5 million and RMB nil, respectively.
In April 2016, the Company
obtained an interest-bearing loan of RMB1.8 billion (US$275.0 million) in U.S. dollar from CMB Bank, which was secured by 12.4
million Class B ordinary shares personally owned by Mr. Jinbo Yao, the chief executive officer of the Group. Based on the covenant
of the loan agreement, if the aggregate fair value of the pledged shares on any trading date was less than 120% of the outstanding
amount of the corresponding loan and accrued interest payable, the Company is required to pledge sufficient amount of cash or the
chief executive officer of the Group can pledge additional number of shares to cover the shortfall in the fair value of the pledged
shares. The Company used the proceeds from this loan to early repay the Amended Convertible Note borrowed from Tencent. In 2016,
the Company repaid RMB1.1 billion (US$167.5 million) principal and RMB42.1 million (US$6.3 million) accrued interest payable of
the loan borrowed from CMB Bank. On April 21, 2017, the remaining balance of the loan amounted to RMB740.1 million (US$107.5 million)
was fully repaid and the shares pledged to CMB Bank have been released in May 2017.
In September and December 2016, the Company obtained interest-bearing loans amounted to RMB1.1 billion
(US$157.5 million) from CMB Bank, which will be due in September and December 2017, respectively. The bank borrowings were secured
by one-year term deposits amounted to RMB1.1 billion (US$165.6 million), which was classified as restricted cash in the Company’s
consolidated balance sheets. In September and December 2017, the Company repaid RMB459.4 million (US$70.0 million) and RMB577.0
million (US$87.5 million) of the loans, hence the loans were fully repaid and related restricted cash was released as of December
31, 2017.
In
December 2016, the Company obtained a three-year interest bearing bank loan of RMB150.0 million from Shanghai Pudong Development
Bank Co., Ltd., which was secured by an office building of the Company as collateral. Pursuant to the loan repayment schedule,
the principal amount will be paid in four equal installments from June 2018 to November 2019.
As of December 31, 2017, RMB75.0
million of the remaining balance of the loan, which is expected to be repaid in less than one year in June and December 2018, was
recorded in short-term loans in the Group’s consolidated balance sheet.
The following is a summary
of accounts payable:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
Payable for advertisement fees
|
|
|
458,265
|
|
|
|
447,116
|
|
Rebate payable to sales agents
|
|
|
92,234
|
|
|
|
135,028
|
|
Payable related to purchases of property and equipment
|
|
|
36,967
|
|
|
|
9,001
|
|
Others
|
|
|
24,481
|
|
|
|
33,155
|
|
Total
|
|
|
611,947
|
|
|
|
624,300
|
|
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
|
19.
|
Accrued expenses and other current liabilities
|
The following is a summary
of accrued expenses and other current liabilities:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
Acquisition consideration payable
|
|
|
307,818
|
|
|
|
102,603
|
|
Accrued office expenses
|
|
|
117,841
|
|
|
|
192,149
|
|
Deposits from sales agents and others
|
|
|
76,437
|
|
|
|
110,783
|
|
Accrued professional fees
|
|
|
28,396
|
|
|
|
65,331
|
|
Accrued telecom and bandwidth fees
|
|
|
66,519
|
|
|
|
59,292
|
|
Payable to employees related to share-based awards
|
|
|
2,177
|
|
|
|
58,664
|
|
Other payable to platform users and business users
|
|
|
90,292
|
|
|
|
55,749
|
|
Government subsidy
|
|
|
16,478
|
|
|
|
2,600
|
|
Others
|
|
|
21,946
|
|
|
|
41,963
|
|
Total
|
|
|
727,904
|
|
|
|
689,134
|
|
Acquisition consideration
payable consists of consideration payable related to acquisitions of Anjuke, Ganji and other acquisitions. Please refer to Note
4 for details.
In December 2016, the
Company obtained a three-year interest bearing bank loan of RMB150.0 million from Shanghai Pudong Development Bank Co., Ltd., which
was secured by an office building of the Company as collateral. Pursuant to the loan repayment schedule, the principal amount will
be paid in four equal installments from June 2018 to November 2019. As of December 31, 2017, the non-current portion of the remaining
balance amounted to RMB75.0 million was recorded in the long-term loans in the Group’s consolidated balance sheet.
In April 2017,
the Company obtained a two-year interest-bearing U.S. dollar denominated loan of US$107.5 million from CMB Bank, which will
be wholly due in April 2019. The new bank borrowing was secured by a two-year term deposit amounted to RMB792.0 million,
which represents the loan-to-value ratio of no more than 94% and was classified as non-current restricted cash in the
Company’s consolidated balance sheets. The Company would provide more term deposits or equivalent cash to CMB Bank as a
security when the loan-to-value ratio exceeds 98% due
to
U.S. dollar’s appreciation against RMB. As of December 31, 2017, long-term bank loans from CMB Bank amounted to
RMB702.4 million (US$107.5 million) was recorded in the long-term loans in the Group’s consolidated balance
sheet.
As of December 31, 2017,
long-term bank loans amounted to RMB777.4 million in total.
|
21.
|
Fair value measurements
|
Measured on recurring
basis
The
Group measured its financial assets including cash equivalents, term deposits and short-term investments at fair value on a recurring
basis as of December 31, 2016 and 2017.
The following table sets forth the financial instruments, measured at fair value
at recurring basis, by level within the fair value hierarchy:
|
|
|
|
As of December 31,
|
|
Financial instruments
|
|
Fair value hierarchy
|
|
2016
|
|
|
2017
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
Significant other observable inputs (Level 2)
|
|
|
15,955
|
|
|
|
56,137
|
|
|
|
|
|
|
|
|
|
|
|
|
Term deposits
|
|
Significant other observable inputs (Level 2)
|
|
|
26,361
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
- Variable-rate financial instruments
|
|
Significant other observable inputs (Level 2)
|
|
|
833,480
|
|
|
|
3,437,707
|
|
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
Cash equivalents,
term deposits and variable-rate financial instruments
The Group measures cash
equivalents, term deposits and variable-rate financial instruments at fair value based on the pervasive interest rates in the market,
which are also the interest rates as stated in the contracts with the banks. The Group classifies the valuation techniques that
use the pervasive interest rates input as Level 2 of fair value measurements. Generally there are no quoted prices in active markets
for identical time deposits at the reporting date. In order to determine the fair value, the Group must use the discounted cash
flow method and observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices
for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
Short-term investments:
Variable-rate financial instruments
The Group measures variable-rate
financial instruments at fair value. As the variable-rate financial instruments represent investments in wealth management products
with variable interest rates or principal non-guaranteed which were purchased from commercial banks and other financial institutions.
The fair values are based on cash flow discounted using the judgment that expected return will be obtained upon maturity. The Group
classifies the valuation techniques as Level 2 of fair value measurement.
The following are other
financial instruments not measured at fair value in the balance sheets but for which the fair value is estimated for disclosure
purposes.
Short-term receivables
and payables
Accounts receivable
and prepaid expenses and other current assets are financial assets with carrying values that approximate fair value due to their
short term nature. Accounts payable and accrued expenses and other current liabilities are financial liabilities with carrying
values that approximate fair value due to their short term nature. The Group estimates fair values of short-term receivables and
payables and classifies the valuation technique as Level 3 of fair value measurement, as it uses estimated cash flow input which
is unobservable in the market.
Non-current assets
and non-current liabilities
Non-current assets of
receivables for rental deposits is a financial asset with carrying value that approximate fair value due to the impact of discounting
is immaterial. Accrued expenses and other liabilities, non-current portion is a financial liability with carrying value that approximate
fair value due to the impact of discounting is immaterial. The Group estimated fair values of non-current assets and non-current
liabilities using the discounted cash flow method. The Group classifies the valuation technique as Level 3 of fair value measurement,
as it uses estimated cash flow input which is unobservable in the market.
Measured on non-recurring
basis
The Group’s non-financial
assets, such as long-term investments, intangible assets and goodwill would be measured at fair value only if they were determined
to be impaired.
Intangible assets
and Goodwill
The inputs used to measure
the estimated fair value of goodwill are classified as Level 3 fair value measurement due to the significance of unobservable inputs
used such as historical financial information and assumptions about future growth rates and discount rates, which require significant
judgment and company-specific information.
Long-term investments
As
of December 31, 2016 and 2017, the Group had RMB2.1 billion and RMB1.8 billion, respectively, long-term investments in equity
securities of privately-held companies. Such investments are reviewed periodically for impairment using fair value measurement
which requires significant unobservable inputs (Level 3). Impairment charges of
RMB6.1 million, RMB142.1 million and RMB37.3
million
were recorded in the consolidated statements of comprehensive
income/(loss) for the year ended December 31, 2015, 2016 and 2017, respectively.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
The Company is registered
in the Cayman Islands. The Company generated substantially all of its income/(loss) from its PRC operations for the years ended
December 31, 2015, 2016 and 2017.
Cayman Islands (“Cayman”)
Under the current laws
of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to
the shareholders, no Cayman Islands withholding tax will be imposed.
British Virgin Islands
(“BVI”)
The Group is exempted
from income tax in the BVI on its foreign-derived income. There are no withholding taxes in the BVI.
Hong Kong
Entities incorporated
in Hong Kong are subject to Hong Kong profit tax at a rate of 16.5% since January 1, 2010. The operations in Hong Kong have
incurred net accumulated operating losses for income tax purposes.
PRC
On March 16, 2007,
the National People’s Congress of PRC enacted an Enterprise Income Tax Law (“EIT Law”), under which FIEs
and domestic companies would be subject to EIT at a uniform rate of 25%. The EIT law became effective on January 1, 2008.
The EIT Law and its
implementing rules also permit qualified “High and New Technology Enterprises” (“HNTE”) to enjoy a preferential
enterprise income tax rate of 15% upon filing with relevant tax authorities. The qualification as a HNTE generally has a valid
term of three years and the renewal of such qualification is subject to review by the relevant authorities in China. Beijing 58
obtained HNTE certificate in 2009 and renewed the certificate in 2012 and again in 2015. Beijing 58 Auto obtained HNTE certificate
in 2013 and renewed the certificate in 2016.Wanglin obtained HNTE certificate in 2012 and renewed the certificate in 2015. Shanghai
Ruiting obtained HNTE certificate in 2010 and renewed the certificate in 2013 and again in 2016. Beijing 58, Beijing 58 Auto, Wanglin
and Shanghai Ruiting are eligible to enjoy a preferential tax rate of 15% when they have taxable income under the EIT Law, as long
as they maintain this qualification and obtain approval from the relevant tax authority.
In addition, qualified software
enterprises are exempt from the enterprise income tax for two years beginning from their first profitable year and are entitled
to a 50% tax reduction for the subsequent three years. The software enterprise qualification is subject to an annual assessment.
Wanglin was determined as a software enterprise in July 2014. In April 2015, Wanglin was granted a two-year EIT exemption and a
50% reduction on its taxable income for the subsequent three years effective retroactively from January 1, 2014. As a qualified
software enterprise, Wanglin is entitled to two-year tax holiday in 2014 and 2015 and a three-year 50% deduction on EIT rate in
the subsequent years from 2016 to 2018. Wanglin prepaid income tax of approximately RMB7.3 million in 2014 and received tax refund
from local tax bureau in the second half of 2015. 58 Technology was determined as a software enterprise in December 2014. In March
2016, the local tax authority granted 58 Technology a two-year exemption followed by a three-year 50% reduction on its taxable
income under the Enterprise Income Tax Law, effective retroactively from January 1, 2015. As a qualified software enterprise, 58
Technology is entitled to two-year tax holiday in 2015 and 2016 and a three-year 50% deduction on EIT rate in the subsequent years
from 2017 to 2019.
According to a policy
promulgated by the State Tax Bureau of the PRC and effective from 2008 onwards, enterprises engaging in research and development
activities are entitled to claim 150% of the research and development expenses so incurred in a year as tax deductible expenses
in determining its tax assessable profits for that year (“Super Deduction”). Wanglin, Beijing 58 and 58 Technology
had claimed such Super Deduction in ascertaining its tax assessable profits for the years ended December 31, 2015, 2016 and 2017,
respectively. In 2016 and 2017, the Group’s acquired subsidiaries Shanghai Ruiting also claimed Super Deduction in ascertaining
their respective tax assessable profits.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
The EIT Law also provides
that an enterprise established under the laws of a foreign country or region but whose “de facto management body” is
located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at
the rate of 25% for its global income. The Implementing Rules of the EIT Law merely define the location of the “de facto
management body” as “the place where the exercising, in substance, of the overall management and control of the production
and business operation, personnel, accounting, properties, etc., of a non-PRC company is located.” Based on a review of surrounding
facts and circumstances, the Company does not believe that it is likely that its operations outside of the PRC should be considered
a resident enterprise for PRC tax purposes.
The EIT Law also imposes
a withholding income tax of 10% on dividends distributed by an FIE to its immediate holding company outside of China, if such immediate
holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends
have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding
company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.
The Cayman Islands, where the Company was incorporated, does not have such tax treaty with China. According to the arrangement
between Mainland China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal
Evasion in August 2006, dividends paid by an FIE in China to its immediate holding company in Hong Kong will be subject to
withholding tax at a rate of no more than 5% (if the foreign investor owns directly at least 25% of the shares of the FIE).
The Group’s subsidiaries and VIEs had neither declared any dividend to their respective parent companies nor planned to declare
or pay any dividends to the parent companies out of the accumulated undistributed earnings as of December 31, 2017.
The provisions for income
tax expenses are summarized as follows:
|
|
For the Year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Current tax benefit/(expenses)
|
|
|
14,027
|
|
|
|
(5,378
|
)
|
|
|
(212,528
|
)
|
Deferred tax benefit
|
|
|
34,759
|
|
|
|
56,358
|
|
|
|
65,839
|
|
Income tax benefit/(expenses)
|
|
|
48,786
|
|
|
|
50,980
|
|
|
|
(146,689
|
)
|
The following table
sets forth reconciliation between the statutory EIT rate and the Group’s effective tax rate:
|
|
For the Year ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
Statutory income tax rates:
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
Change in valuation allowance
|
|
|
(14.0
|
)%
|
|
|
(7.3
|
)%
|
|
|
(7.5
|
)%
|
Permanent book-tax differences
|
|
|
(15.4
|
)%
|
|
|
(42.9
|
)%
|
|
|
9.4
|
%
|
Reversal of deferred tax liabilities
|
|
|
2.1
|
%
|
|
|
6.9
|
%
|
|
|
(3.6
|
)%
|
Effect of preferential tax treatment
|
|
|
5.2
|
%
|
|
|
24.5
|
%
|
|
|
(13.7
|
)%
|
Effective tax rate
|
|
|
2.9
|
%
|
|
|
6.2
|
%
|
|
|
9.6
|
%
|
Deferred tax
assets and liabilities
The following table
sets forth the significant components of the aggregate deferred tax assets and liabilities:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Provision for doubtful receivables
|
|
|
16,451
|
|
|
|
10,997
|
|
Net operating loss carry forwards
|
|
|
201,258
|
|
|
|
130,212
|
|
Advertising expenses in excess of deduction limit
|
|
|
241,333
|
|
|
|
214,238
|
|
Total deferred tax assets
|
|
|
459,042
|
|
|
|
355,447
|
|
Less: Valuation allowance
|
|
|
(458,433
|
)
|
|
|
(343,590
|
)
|
Total deferred tax assets, net
|
|
|
609
|
|
|
|
11,857
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Acquired intangible assets
|
|
|
373,810
|
|
|
|
319,219
|
|
Total deferred tax liabilities
|
|
|
373,810
|
|
|
|
319,219
|
|
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
In November 2015, the
FASB issued
ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
, which simplifies
the presentation of deferred income taxes by requiring deferred tax assets and liabilities to be classified as noncurrent on the
balance sheet. The Group adopted this guidance during the first quarter of 2017 and retrospectively adjusted prior periods. Accordingly,
the consolidated balance sheets as of December 31, 2017 and 2016 reflect the new classification. As a result of adoption of this
guidance, current deferred tax assets of RMB0.6 million in the consolidated balance sheet as of December 31, 2016 was reclassified
to non-current.
Deferred tax assets
of RMB11.9 million and RMB0.6 million were included in the long-term prepayments and other non-current assets of the Group’s
consolidated balance sheets as of December 31, 2017 and 2016.
Deferred tax liabilities
of RMB319.2 million and RMB373.8 million as of December 31, 2017 and 2016 were mainly related to the intangible assets acquired
during business acquisition in 2016 as set out in Note 4.
As of December 31,
2017, the Group had net operating loss carry forwards of approximately RMB1.2 billion, which will expire during the period between
December 31, 2018 and December 31, 2022. There is no expiration for the advertising expenses that were in excess
of annual deduction limit and carried forward.
A valuation allowance
is provided against deferred tax assets when the Group determines that it is more likely than not that some portion of or all of
the deferred tax assets will not be utilized in the future. In making such determination, the Group evaluates a variety of factors
including the Group’s operating history, accumulated deficit, existence of taxable temporary differences and reversal periods.
The Group has incurred
net accumulated operating losses for income tax purposes since its inception. The Group believes that it is more likely than not
that most of these net accumulated operating losses and other deferred tax assets will not be utilized in the future except for
RMB11.9 million deferred tax assets recognized as of December 31, 2017. Therefore, the Group had valuation allowances of RMB556.0
million, RMB458.4 million and RMB343.6 million for the deferred tax assets as of December 31, 2015, 2016 and 2017, respectively.
Movement of valuation
allowance
|
|
For the years ended December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Balance at beginning of the period
|
|
|
230,577
|
|
|
|
555,965
|
|
|
|
458,433
|
|
Provision
|
|
|
436,262
|
|
|
|
129,575
|
|
|
|
81,904
|
|
Current period reversal
|
|
|
(110,874
|
)
|
|
|
(227,107
|
)
|
|
|
(196,747
|
)
|
Balance at the end of the period
|
|
|
555,965
|
|
|
|
458,433
|
|
|
|
343,590
|
|
The current period reversal
of valuation allowance is primarily attributed to the utilization of net operating losses and deductible advertising expenses carried
forward from prior years of certain entities that started to make profits in 2017.
As of December 31, 2017,
the tax years ended December 31, 2013 through 2017 of the Company’s PRC subsidiaries and the affiliated PRC entities are
subjected to examination by the PRC tax authorities.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
The Company was incorporated
in the Cayman Islands in May 2011. The Company is authorized to issue a maximum of 5,000,000,000 shares with a par value of US$0.00001
per share, comprised of 4,912,433,396 ordinary shares and 87,566,604 Preference Shares.
On August 30, 2013,
the Group's Board of Directors approved that the Group redesigned the share capital and adopted a dual class ordinary share structure
immediately upon the completion of IPO. Upon completion of the Group’s IPO on November 5, 2013, the Company’s shares
were divided into Class A ordinary shares and Class B ordinary shares, at par value of US$0.00001. Holders of Class A ordinary
shares and Class B ordinary shares have the same rights except for voting and conversion rights. Holders of Class A ordinary shares
are entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share, voting together
as one class on all matters subject to a shareholders' vote. All of the outstanding ordinary shares prior to this offering were
redesignated as Class B ordinary shares and all of the outstanding preference shares were automatically re-designated or converted
into Class B ordinary shares on a one-for-one basis immediately upon the completion of the IPO.
As a result of the Group’s
follow-on offering on April 1, 2014, the Company issued and sold 2,000,000 ADSs and the selling shareholders sold an aggregate
of 4,000,000 ADSs and 900,000 additional ADSs for the overallotment at the price of US$38.00 per ADS.
On June 30, 2014, Tencent
purchased 36,805,000 ordinary shares from the Company at a purchase price of US$40.00 per ADS. The Group used part of the proceeds
from this transaction to repurchase an aggregate of 27,603,750 ordinary shares from existing pre-IPO shareholders at the price
of US$40.00 per ADS.
On March 2, 2015, the
Group completed the acquisition of 100% equity interest of Anjuke. Total consideration for this acquisition consisted of 4,839,372
newly issued ordinary shares and 248,216 fully vested RSUs of the Company and RMB985.4 million (US$160.2 million) in cash (See
Note 4(a)).
On April 17, 2015, the
Company entered into an investment agreement with a subsidiary of Tencent, pursuant to which Tencent purchased 15,384,616 newly
issued ordinary shares of the Company for an aggregate cash consideration of RMB2.5 billion (US$400.0 million).
On April 20, 2015, the
Company applied the whole RMB2.5 billion (US$400.0 million) proceeds from Tencent, together with additional cash from the Company
of RMB75.0 million (US$12.2 million) and 34,039,136 newly issued ordinary shares of the Company, to acquire less than 50% equity
interest in Ganji as mentioned in the “Transaction (i)” (See Note 4(b)(i)).
On August 6, 2015, the
Company committed cash of RMB2.5 billion (US$406.7 million) and 46,505,912 newly issued ordinary shares of the Company, to several
private equity funds of which 46,505,912 ordinary shares and RMB1.7 billion (US$272.4 million) cash were contributed to the funds
in August 2015. These funds acquired the remaining equity interest in Ganji with Tencent (See Note 4(b)(ii)).
On December 11, 2015,
the Company issued 4,267,344 Class A ordinary shares to Tencent to early repay RMB806.0 million (US$125.0 million) principal amount
and settle the accrued interest payable of RMB47.0 million (US$7.3 million) of the Original Convertible Note.
As of December 31, 2016,
4,800,000,000 Class A ordinary shares and 200,000,000 Class B ordinary shares were authorized, 289,670,997 ordinary shares were
issued and outstanding, of which 240,930,737 were Class A ordinary shares and 48,740,260 were Class B ordinary shares.
As of December 31, 2017,
4,800,000,000 Class A ordinary shares and 200,000,000 Class B ordinary shares were authorized, 293,965,131 ordinary shares were
issued and outstanding, of which 245,924,871 were Class A ordinary shares and 48,040,260 were Class B ordinary shares.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
|
24.
|
Share-based compensation
|
58.com Share-based
Awards
In March 2010, the Group authorized an employment-
related stock incentive plan (the "2010 Plan"). The 2010 Plan will terminate automatically 10 years after its adoption,
unless terminated earlier at the Group's shareholders' approval. According to the resolutions of the Board of Directors of the
Group in April, November 2011 and January 2013, the number of ordinary shares available for issuance under the 2010 Plan was increased
to 20,173,225. The majority of options granted under 2010 plan were to be vested over three or four years, one fourth (1/4) of
which shall vest and become exercisable upon the first anniversary of the date of grant and the remaining shall vest monthly thereafter
in 24 or 36 equal monthly installments.
The Group adopted a share incentive plan (the “2013 Plan”) on September 26, 2013. The 2013 Plan will terminate
automatically 10 years after its adoption, unless terminated earlier at the Group's shareholders' approval. The maximum aggregate
number of shares which may be issued pursuant to all awards under the 2013 Plan is 2,800,000 shares as of the date of its adoption.
The number of shares reserved for future issuances under the 2013 Plan will be increased by a number equal to 1.5% of the total
number of outstanding shares on the last day of the immediately preceding calendar year, on the first day of each calendar year
during the term of the 2013 Plan beginning in 2015, or such lesser number of ordinary shares as determined by the Board of Directors.
According to the resolutions of the Board of Directors of the Group in April and December 2015, 2016 and 2017, the number of ordinary
shares available for issuance under the 2013 Plan was increased to 22,277,223. The options and RSUs granted under the 2013 Plan
were to be vested over three to five years, the majority of which shall have one fourth (1/4) vested and exercisable upon the first
anniversary of the date of grant and the remaining shall vest every six months thereafter in equal installments.
As of December 31, 2017,
the Group has reserved 5,249,518 ordinary shares available to be granted as share-based awards.
A summary of the Group’s
share option activities under the 2010 and 2013 Plan for the years ended December 31, 2015, 2016 and 2017 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
|
|
|
|
|
US$
|
|
|
In years
|
|
|
US$
|
|
Outstanding
as of December 31, 2014
|
|
|
6,788,070
|
|
|
|
4.14
|
|
|
|
7.75
|
|
|
|
112,925
|
|
Granted
|
|
|
1,638,600
|
|
|
|
20.72
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(279,626
|
)
|
|
|
7.22
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,118,334
|
)
|
|
|
3.10
|
|
|
|
|
|
|
|
27,785
|
|
Outstanding
as of December 31, 2015
|
|
|
7,028,710
|
|
|
|
8.05
|
|
|
|
7.43
|
|
|
|
175,250
|
|
Granted
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(646,030
|
)
|
|
|
17.08
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(934,880
|
)
|
|
|
3.38
|
|
|
|
|
|
|
|
19,356
|
|
Outstanding
as of December 31, 2016
|
|
|
5,447,800
|
|
|
|
7.78
|
|
|
|
6.39
|
|
|
|
43,531
|
|
Granted
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
and expired
|
|
|
(99,344
|
)
|
|
|
15.36
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,403,566
|
)
|
|
|
6.29
|
|
|
|
|
|
|
|
45,141
|
|
Outstanding
as of December 31, 2017
|
|
|
2,944,890
|
|
|
|
8.74
|
|
|
|
5.31
|
|
|
|
79,662
|
|
Exercisable as of December 31,
2017
|
|
|
2,239,934
|
|
|
|
5.01
|
|
|
|
4.60
|
|
|
|
68,927
|
|
Fully vested and expected to
vest as of December 31, 2017
|
|
|
11,698,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
The weighted average
grant date fair value of options granted for the year ended December 31, 2015 was US$12.05 per share.
The following table
sets forth the summary of RSUs activities for the years ended December 31, 2015, 2016 and 2017:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
Number of
|
|
|
Contractual
|
|
|
Grant Date
|
|
|
|
RSUs
|
|
|
Life
|
|
|
Fair Value
|
|
|
|
|
|
|
In years
|
|
|
US$
|
|
Unvested as of December 31, 2014
|
|
|
894,600
|
|
|
|
9.62
|
|
|
|
|
|
Granted
|
|
|
10,369,278
|
|
|
|
|
|
|
|
25.69
|
|
Forfeited
|
|
|
(527,274
|
)
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(4,963,116
|
)
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2015
|
|
|
5,773,488
|
|
|
|
9.51
|
|
|
|
|
|
Granted
|
|
|
3,597,722
|
|
|
|
|
|
|
|
24.63
|
|
Forfeited
|
|
|
(1,077,996
|
)
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(1,243,076
|
)
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2016
|
|
|
7,050,138
|
|
|
|
9.09
|
|
|
|
|
|
Granted
|
|
|
4,381,182
|
|
|
|
|
|
|
|
23.53
|
|
Forfeited
|
|
|
(2,104,716
|
)
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(1,890,568
|
)
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2017
|
|
|
7,436,036
|
|
|
|
8.85
|
|
|
|
|
|
Fully vested and expected to vest as of December 31, 2017
|
|
|
15,532,796
|
|
|
|
|
|
|
|
|
|
Note:
(1)
In
March 2015, in connection with the acquisition of Anjuke, the Company issued 248,216 fully vested RSUs of the Company to former
Anjuke’s employees as part of the share consideration. In August 2015, in connection with our strategic investment in Ganji,
the Company issued 4,449,002 fully vested RSUs of the Company to former Ganji’s employees as part of the share consideration.
As of December 31,
2017, there were a total of RMB1.1 billion unrecognized compensation expenses, adjusted for estimated forfeitures, related to non-vested
share-based compensation arrangement under the 2010 and 2013 Plan. The expense is expected to be recognized over a weighted average
period of 3.22 years. Total unrecognized compensation expenses may be adjusted for future changes in estimated forfeitures.
The Group estimated
the fair value of share options using the Binominal option-pricing model with the assistance from an independent valuation firm.
The fair value of each option grant under the 2013 Plan was estimated on the date of grant with the following assumptions:
|
|
2015
|
|
Expected volatility
|
|
|
48.50%-49.00%
|
|
Risk-free interest rate (per annum)
|
|
|
2.67%-2.76%
|
|
Exercise multiple
|
|
|
2-2.8
|
|
Expected dividend yield
|
|
|
0.00%
|
|
Expected term (in years)
|
|
|
10
|
|
Expected forfeiture rate (post-vesting)
|
|
|
0.17%-0.25%
|
|
Fair value of the underlying shares on the date of option grants (US$)
|
|
|
10.93-24.85
|
|
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
The Group estimated
the risk free rate based on the yield to maturity of US treasury bonds denominated in US$ at the option valuation date. The exercise
multiple is estimated as the ratio of fair value of underlying shares over the exercise price as at the time the option is exercised,
based on a consideration of research study regarding exercise pattern based on historical statistical data. Expected term is the
contract life of the option. The expected volatility at the date of grant date and each option valuation date was estimated based
on the historical stock prices of comparable companies. The Group has never declared or paid any cash dividends on its capital
stock, and the Group does not anticipate any dividend payments on its ordinary shares in the foreseeable future. Share-based compensation
expenses for the share-based awards which are based on service conditions are recognized using the straight-line attribution approach.
58 Home Share-based
Awards
In February 2015, 58
Home, a subsidiary of the Group, adopted its 2015 Share Incentive Plan, or the 58 Home 2015 Plan. The maximum aggregate number
of shares which may be issued pursuant to all awards under the 58 Home 2015 Plan is 20,000,000 ordinary shares of 58 Home. The
58 Home 2015 Plan permits the awards of options, restricted shares and restricted share units. Unless terminated earlier, the 58
Home 2015 Plan will terminate automatically in 2025. In connection with the Series A round of equity financing closed on November
27, 2015, the maximum aggregate number of shares which may be issued under the 58 Home 2015 Plan was increased by 2,000,000 ordinary
shares of 58 Home.
A summary of the 58
Home’s share option activities for the years ended December 31, 2015 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
|
|
|
|
|
US$
|
|
|
In years
|
|
|
US$
|
|
Outstanding as of December 31, 2014
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
8,921,000
|
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(979,000
|
)
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2015
|
|
|
7,942,000
|
|
|
|
0.11
|
|
|
|
8.99
|
|
|
|
22,780
|
|
In February 2015, 58
Home granted 9,100,000 RSs to selected management members of 58 Home. In April 2015, 58 Home further granted 1,880,000 RSs to a
senior management member of the Company under the 58 Home 2015 Plan. All of these RSs were fully vested on the respective grant
dates. Share-based compensation expense amounted to RMB12.2 million was recognized during the year ended December 31, 2015 with
respect to the grant of the RSs. These holders of RSs are referred to as “noncontrolling interests” of 58 Home. Please
see Note 5 for details.
The weighted average
grant date fair value of options granted under 58 Home share-based awards for the year ended December 31, 2015 was US$0.15
per share.
The Group estimated
the fair value of share options using the Binominal option-pricing model with the assistance from an independent valuation firm.
The fair value of each option grant under the 58 Home 2015 Plan was estimated on the date of grant with the following assumptions:
|
|
2015
|
|
Expected volatility
|
|
|
59.40%-60.00%
|
|
Risk-free interest rate (per annum)
|
|
|
2.46%-2.63%
|
|
Exercise multiple
|
|
|
2-2.8
|
|
Expected dividend yield
|
|
|
0.00%
|
|
Expected term (in years)
|
|
|
10
|
|
Expected forfeiture rate (post-vesting)
|
|
|
0.25%
|
|
Fair value of the underlying shares on the date of option grants (US$)
|
|
|
0.10-0.27
|
|
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
The estimation methodology
of each assumption was consistent with 58.com Share-based Awards as stated above.
Zhuan Zhuan Share-based
Awards
In September 2017, Zhuan
Zhuan Holding, a subsidiary of the Group, adopted a share incentive plan, or the Zhuan Zhuan 2017 Plan. The Zhuan Zhuan 2017 Plan
permits the awards of options, restricted share units and restricted shares. Awards of share rights may be granted under Zhuan
Zhuan 2017 Plan to employees and management of Zhuan Zhuan Holding and of any present or future parents or subsidiaries or variable
interest entities of Zhuan Zhuan Holding. The maximum term of any share right granted under the plan is ten years from the grant
date. The Zhuan Zhuan 2017 Plan will expire on September 30, 2027.
Share Option awards
of Zhuan Zhuan
As of December 31, 2017,
Zhuan Zhuan Holding had granted options for the purchase of certain ordinary shares to its employees and management. The options
granted to the employees were to be vested over four years, one fourth (1/4) of which shall vest upon the first anniversary of
the commencement date and the remaining shall vest every six months thereafter in equal installments. The options granted to management
were to be vested over six years, 12.5% of which shall vest upon the second anniversary of the commencement date, 25% each shall
vest on the third, fourth and fifth anniversary, respectively and the remaining 12.5% shall vest on the sixth anniversary.
For the options awarded
to the employees, the vested options will not be exercisable prior to Zhuan Zhuan Holding’s completion of a qualified IPO,
therefore the completion of a qualified IPO is considered to be a performance condition and no compensation expense should be recognized
until it becomes probable that the performance condition can be achieved. The options granted to management are exercisable once
vested. As a result, the Group had only recognized the compensation expense for the options granted to the management for the years
ended December 31, 2017 and recognized no compensation expenses for the options granted to employees.
Restricted Share
Units (“RSUs”) awards of Zhuan Zhuan
As of December
31, 2017, Zhuan Zhuan Holding had granted certain RSUs to the employees, for which one fourth (1/4) will become vested upon the
first anniversary of the commencement date, and the remaining shall vest every six months thereafter in equal installments. The
granted RSUs cannot be settled prior to Zhuan Zhuan Holding’s completion of a qualified IPO. The employees can keep holding
the vested RSUs until Zhuan Zhuan Holding completes a qualified IPO or request Zhuan Zhuan Holding to redeem the vested RSUs upon
the termination of their employment before they are able to be settled.
Therefore, the award
is akin to a tandem award with two components: (i) a cash settled feature at the redemption value; (ii) an equity settled feature
as a call option on the vested RSUs. The Group recognized component (i) of this award over the requisite service period as a liability
and did not recognize the compensation for component (ii) considering it is subject to the performance condition.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
Restricted Share
(“RS”) Awards of Zhuan Zhuan
As of December 31, 2017, Zhuan Zhuan Holding had granted certain
restricted shares
to management of Zhuan Zhuan Holding.
The granted restricted shares are to be vested and settled over four years in equal installments. The management has the right
to request Zhuan Zhuan Holding to redeem the vested RSs or to keep holding these vested RSs upon the termination of the employment,
therefore this award is akin to a tandem award with two components: (i) a cash settled feature at the redemption value; (ii) an
equity settled feature as a call option on the vested RSs. The Group recognized component (i) of this award over the requisite
service period as liabilities and component (ii) as equities.
The Group estimated the fair value of its share-based awards using the Binominal option-pricing model
with the assistance from an independent valuation firm.
The
fair value of the share-based awards granted under the Zhuan Zhuan 2017 Plan was estimated on the date of grant with the following
assumptions:
|
|
2017
|
|
Expected volatility
|
|
|
60.00%
|
|
Risk-free interest rate (per annum)
|
|
|
3.19%
|
|
Exercise multiple
|
|
|
2.0-2.8
|
|
Expected dividend yield
|
|
|
0.00%
|
|
Expected term (in years)
|
|
|
10
|
|
Expected forfeiture rate (post-vesting)
|
|
|
0.0%-0.1%
|
|
Fair value of the underlying shares on the date of option grants (US$)
|
|
|
0.261-0.9
|
|
The estimation methodology
of each assumption was consistent with 58.com Share-based Awards as stated above.
During the year ended December 31, 2017, the Group recognized RMB15.7 million share-based compensation
expenses for Zhuan Zhuan 2017 Plan.
As of December 31,
2017, there were a total of RMB217.0 million unrecognized compensation expenses, adjusted for estimated forfeitures, related to
non-vested share-based compensation arrangement and arrangements that are subject to performance condition. The expense is expected
to be recognized over a weighted average period of 3.74 years. Total unrecognized compensation expenses may be adjusted for
future changes in estimated forfeitures and probability of achieving the performance condition.
The Group recognized share-based
compensation expenses under 58.com Share-based Awards, 58 Home Share-based Awards and Zhuan Zhuan Holding Share-based awards in
total of RMB176.6 million, RMB266.6 million and RMB350.6 million for the years ended December 31, 2015, 2016 and 2017, respectively.
|
25.
|
Contribution from noncontrolling interest holders
|
In 2017, the contribution from noncontrolling interest holders
primarily comprised the cash of approximately RMB149.6 million received by the Group from a third-party private equity fund for
the Group’s equity interest in certain non-listed companies, which were accounted for as cost method investments. As the
Group is not legally obliged to repay any portion of the cash contributed by the private equity fund before disposing of the targeted
investees and the disposal is solely at the Group’s discretion, the cash received is not accounted for as a liability but
a form of the equity of the Group. Moreover, because the private equity fund neither have a legal claim on the Group’s net
assets nor voting rights as shareholders of the Company and it only has financial interests in certain targeted investees that
the Group’s subsidiaries subsequently invested in 2017, the equity received is therefore accounted for as a noncontrolling
interest, which was initially recognized at fair value of the cash received and will not be subject to re-measurement.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
|
26.
|
Earnings/(loss) per share
|
The following table
sets forth the computation of basic and diluted net earnings/(loss) per share for the periods indicated:
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
(1,648,583
|
)
|
|
|
(772,963
|
)
|
|
|
1,389,242
|
|
Add: Net loss/(income) attributable to noncontrolling interests
|
|
|
80,705
|
|
|
|
4,916
|
|
|
|
(4,667
|
)
|
Less: Deemed dividend to mezzanine classified noncontrolling interests
|
|
|
(5,762
|
)
|
|
|
(15,717
|
)
|
|
|
(99,507
|
)
|
Numerator for basic and diluted net earnings/(loss) per share
|
|
|
(1,573,640
|
)
|
|
|
(783,764
|
)
|
|
|
1,285,068
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares used in computing net earnings/(loss) per share—basic
|
|
|
234,811,986
|
|
|
|
286,975,068
|
|
|
|
291,475,725
|
|
Weighted average number of ordinary shares used in computing net earnings/(loss) per share—diluted
|
|
|
234,811,986
|
|
|
|
286,975,068
|
|
|
|
295,304,995
|
|
Net earnings/(loss) per ordinary share attributable to ordinary shareholders - basic
|
|
|
(6.70
|
)
|
|
|
(2.73
|
)
|
|
|
4.41
|
|
Net earnings/(loss) per ordinary share attributable to ordinary shareholders - diluted
|
|
|
(6.70
|
)
|
|
|
(2.73
|
)
|
|
|
4.35
|
|
Net earnings/(loss) per ADS attributable to ordinary shareholders-basic (1 ADS represents 2 ordinary shares)
|
|
|
(13.40
|
)
|
|
|
(5.46
|
)
|
|
|
8.82
|
|
Net earnings/(loss) per ADS attributable to ordinary shareholders -diluted (1 ADS represents 2 ordinary shares)
|
|
|
(13.40
|
)
|
|
|
(5.46
|
)
|
|
|
8.70
|
|
Basic net earnings/(loss)
per share is computed using the weighted average number of the ordinary shares outstanding during the period. Diluted net earnings/(loss)
per share is computed using the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding
during the period. Class A and Class B ordinary shares are considered the same for the purposes of EPS calculation as they have
identical earnings rights and preferences. For the years ended December 31, 2015 and 2016, options to purchase ordinary shares
that were anti-dilutive and excluded from the calculation of diluted net loss per share totaled 7,851,775 and 5,517,699, respectively,
on a weighted average basis. For the year ended December 31, 2017, options to purchase ordinary shares included in the calculation
of diluted net income per share totaled 3,829,270.
|
27.
|
Commitments and contingencies
|
The Group leases its
facilities and offices under non-cancelable operating lease agreements. The rental expenses were RMB186.7 million, RMB222.2 million
and RMB175.0 million during the years ended December 31, 2015, 2016, and 2017, respectively, and were charged to the statement
of comprehensive income/(loss) when incurred.
Certain of these arrangements
have renewal or expansion options and adjustments for market provisions, such as free or escalating base monthly rental payments.
The Group recognizes rental expense under such arrangements on the straight-line basis over the initial term of the lease. The
difference between the straight-line expense and the cash paid for rent was recorded as prepaid rent.
The Group used third
party services for server custody and bandwidth. The contracts are typically 12 months in duration. The Group typically contracts
these services according to the traffic level of its online marketplace and the respective server storage and bandwidth required
to support the traffic.
The Group engaged third parties for promoting its brand image through various advertising channels, including
advertising on internet search engines, platforms and other traditional off-line media. The amount of advertising commitment
s
relates to the committed advertising services that have not been delivered and paid.
58.com Inc.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands,
except share, per share and per ADS data, unless otherwise noted)
As of December 31,
2017, future minimum commitments under non-cancelable agreements were as follows:
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Operating lease commitments
|
|
|
182,456
|
|
|
|
106,676
|
|
|
|
73,075
|
|
|
|
54,717
|
|
|
|
15,126
|
|
|
|
42,638
|
|
|
|
474,688
|
|
Server custody and bandwidth fee commitments
|
|
|
50,330
|
|
|
|
29,258
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79,588
|
|
Advertising commitments
|
|
|
5,686
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,686
|
|
Bank loans and accrued interest payable
|
|
|
101,866
|
|
|
|
786,851
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
888,717
|
|
Total
|
|
|
340,338
|
|
|
|
922,785
|
|
|
|
73,075
|
|
|
|
54,717
|
|
|
|
15,126
|
|
|
|
42,638
|
|
|
|
1,448,679
|
|
Other than those shown
above, the Group did not have any significant capital and other commitments, long-term obligations, or guarantees as of December 31,
2017.
From time to time, the
Group is involved in claims and legal proceedings that arise in the ordinary course of business. Based on currently available information,
management does not believe that the ultimate outcome of these unresolved matters, individually and in the aggregate, is likely
to have a material adverse effect on the Group’s financial position, results of operations or cash flows. However, litigation
is subject to inherent uncertainties and the Group’s view of these matters may change in the future. When an unfavorable
outcome to occur, there exists the possibility of a material adverse impact on the Group’s financial position and results
of operations for the periods in which the unfavorable outcome occurs, and potentially in future periods.
In February 2018, the Group granted 104,236 RSUs to
its employees under the 2013 Share Incentive Plan.
|
29.
|
Restricted net assets
|
PRC laws and regulations permit payments of dividends by the Company's subsidiaries, the VIEs and VIEs’
subsidiaries incorporated in the PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting
standards and regulations. In addition, the Company's subsidiaries, the VIEs and VIEs’ subsidiaries incorporated in the PRC
are required to annually appropriate 10% of their net after-tax income to the statutory general reserve fund prior to payment of
any dividends, unless such reserve funds have reached 50% of their respective registered capital. As a result of these and other
restrictions under PRC laws and regulations, the Company's subsidiaries, the VIEs and VIEs’ subsidiaries incorporated in
the PRC are restricted in their ability to transfer a portion of their net assets to the Company either in the form of dividends,
loans or advances, which restricted portion amounted to
RMB1.6
billion and RMB1.8 billion as of December 31, 2016 and 2017, respectively. Even though the Company currently does not require
any such dividends, loans or advances from the PRC entities for working capital and other funding purposes, the Company may in
the future require additional cash resources from them due to changes in business conditions, to fund future acquisitions and development,
or merely to declare and pay dividends or distributions to its shareholders. Except for the above, there is no other restriction
on the use of proceeds generated by the Company's subsidiaries, the VIEs and VIEs’ subsidiaries to satisfy any obligations
of the Company.
The Group performed
a test on the restricted net assets of its consolidated subsidiaries, the VIEs and VIEs’ subsidiaries (the "restricted
net assets") in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 (e) (3), "General
Notes to Financial Statements" and concluded that the restricted net assets did not exceed 25% of the consolidated net assets
of the Group as of December 31, 2017.
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