Why 58.com Inc. Shares Dropped Today

By Markets Fool.com

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What happened

Shares of 58.comInc.(NYSE: WUBA) were sliding today after the Chinese e-commerce company reported underwhelming guidance in its third-quarter earnings report. As of 12:52 p.m. EST, the stock was down 14.7%.

So what

58.com said revenue grew 43.9% to $306.5 million, in line with guidance of $304 million-$311 million but shy of estimates at $308.3 million. On the bottom line, results surpassed expectations as the company posted adjusted breakeven earnings results, better than the consensus of a minus $0.08-per-share loss and an improvement from a minus $0.62-per-share loss.

Gross margin in the quarter narrowed from 93.2% to 91.4%, and membership revenues for local e-commerce marketplace increased 33% to $117.7 million. CEO Michael Yao said, "Key operational metrics, traffic, revenue, and continued to grow on year-over-year basis."

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Now what

For the current quarter, 58.com sees revenue growth slowing to just about 24%-28%, projecting a range of $301 million-$309 million. Analysts had been expecting $349.7 million.

Management did not elaborate on that guidance, but slowing membership growth may be at least one culprit as the company needs to attract new members in order to maintain its strong growth. The company did not offer bottom-line guidance, but its breakeven performance in the third quarter was encouraging so it could beat analyst estimates of a minus $0.04-per-share loss in the current quarter.

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