Why Qutoutiao Inc – ADR (NASDAQ: QTT) stock is under pressure

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Qutoutiao Inc – ADR (NASDAQ: QTT) stock lost over 5.4% (as of 9:52 am GMT-5; Source: Google finance) post weak third quarter of FY 19. QTT has reported the Non-GAAP net loss of RMB833.1 million (US$116.6 million), compared to non-GAAP net loss of RMB298.4 million in the third quarter of 2018 and non-GAAP net loss of RMB496.3 million in the second quarter of 2019. Non-GAAP net loss margin had increased to 59.2%, compared to 30.5% in the third quarter of 2018 and 35.8% in the second quarter of 2019. Non-GAAP net loss attributable to Qutoutiao Inc.’s ordinary shareholders increased to RMB836.6 million (US$117.0 million) in the third quarter of 2019, compared to RMB320.1 million in the third quarter of 2018. As of September 30, 2019, the Company had generated the cash, cash equivalents and short-term investments of RMB 2,120.1 million (US$296.6 million), compared to RMB2,287.6 million as of June 30, 2019.

QTT in the third quarter of FY 19 has reported the adjusted loss per ADS of 46 cents, beating the analysts’ estimates for the adjusted loss per ADS of 35 cents. The company had reported the adjusted revenue growth of 44 percent to $196.8 million in the third quarter of FY 19, beating the analysts’ estimates for revenue of $196.4 million. QTT has delivered 10.6% increase in the Gross profit to RMB910.8 million (US$127.4 million) in the third quarter of 2019. Gross margin fell to 64.7%, compared to 84.3% in the third quarter of 2018. The decrease of gross margin was mainly on the back of the growing revenue contribution from the new integrated and customized marketing solution services, which have a relatively low gross margin. The fall of gross margin was also due to the growth of the content procurement costs as well as the bandwidth and IT infrastructure costs.

Additionally, the company during the quarter has approved a share repurchase program to repurchase in the open market up to US$50 million worth of outstanding ADSs of the Company, every four of which represents one class A ordinary share, from time to time over the next one year. As of September 30, 2019, 4,665,700 ADSs, representing 1,166,425 ordinary shares, were repurchased for the total consideration of US$20.7 million.

The company expects the net revenues to be in the range of RMB 1.60 billion and RMB 1.62 billion in the fourth quarter of 2019.

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