Is China Finance Online Co. (ADR) (NASDAQ: JRJC) About To Cost You?


China Finance Online Co. (ADR) (NASDAQ: JRJC) revealed in its 4Q2015 financial report that expenses relating to general and administrative costs rose a whopping 70.9% over the same quarter a year ago. Sales and marketing expenses during the quarter also jumped compared to the like quarter in the prior year. But should you be worried by China’s spending allocations considering that R&D budget contracted in the recent quarter relative to a year ago?

A look at the spending chart

China Finance Online Co. (ADR) (NASDAQ: JRJC) funneled $5.7 million to general and administrative costs during 4Q2015 up from $3.3 million a year earlier, suggesting a 70.9% YoY increase in expenses in that segment. General and administrative expenses did not only soar over the previous year, but also rose a whopping 77.5% over the previous quarter. But what exactly contributed the massive uptick in general and administrative expenses? China Finance Online said that the primary cause of the surge in the expenses was higher stock-based compensations.

Sales and marketing expenses rise slower

What might worry investors is that compensation expenses appear to be increasing faster than expenses related to sales and marketing that have direct impact on revenue growth. During 4Q2016, China Finance Online Co. (ADR) (NASDAQ: JRJC) turned $16.4 million to sales and marketing activities, indicating an increase of 69.2% over the spending in the same quarter a year earlier, but only 24.6% over the previous quarter. Higher sales bonus during 4Q2015 was responsible for the jump in sales and marketing spending.

Spending on research and development

China Finance Online Co. (ADR) (NASDAQ: JRJC) funneled $2.7 million to R&D activities during 4Q2015, a decrease of nearly 20% from the same quarter a year earlier and only an 8.4% increase over the previous quarter. R&D is crucial to China Finance Online’s continued growth and management recently acknowledged it, saying that the company will continue to invest in iTouGu. According to management, investing in iTouGu is part of China Finance Online’s long-term strategic growth and a way to become a one-stop solution for retail investors.

However, China Finance Online’s belief that R&D is crucial for its long-term growth doesn’t appear to be followed by strong action as R&D spending hasn’t ramped up to prove it.

What transpired in 4Q2015 at China Finance Online Co. (ADR) (NASDAQ: JRJC)?

China Finance Online Co. (ADR) (NASDAQ: JRJC) said its net sales during the quarter rose 79.1% to $33.6 million and EPS came in at $0.40, up from $0.14 a year earlier.


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