Uxin Ltd (UXIN) 2018 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Uxin's Fourth Quarter and Full Year 2018 Earnings Conference Call. (Operator Instructions)

Today's conference call is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the call over to Nancy Song, Investor Relations Director of Uxin. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to Uxin's Fourth Quarter and Full Year 2018 Conference call. Today, DK, our Founder and CEO; and Zhen Zeng, our CFO, will discuss our financial results. Following the prepared remarks, DK and Zhen will address any questions.

Before we start, I would like to remind you that our statements today will contain forward-looking statements that we make under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

These statements are made -- are based on management's current knowledge and assumptions about future events that involve risks and uncertainties, which could cause actual results to differ materially from our expectations. Uxin does not undertake any obligations to update any forward-looking statement, except as required under applicable laws.

For more information about the potential risks and uncertainties, please refer to the company's filings with the SEC.

With that, I will now turn the call over to our CEO DK please.

Thank you, Nancy. Hello, everyone. Thank you for joining our fourth quarter and full year 2018 earnings conference call. We are pleased to report that we ended the year with another set of strong results.

Total revenues in the fourth quarter increased by 62% to RMB 1.1 billion, exceeding the high end of our guidance. Thanks to our larger business scale and prudent control of cost and operating expenses, we continued to gain operating leverage during the fourth quarter. As a result, non-GAAP net loss narrowed to RMB 242 million, declining by over 50% both year-over-year and quarter-over-quarter.

It's also very encouraging to see that, our gross profit now covers all of our sales and the marketing expenses, taking us one step closer to profitability.

In the fourth quarter, our 2C business continued to drive overall growth. We facilitated over 160,000 used car transactions on our 2C platform, almost doubling the number in the same period last year. Total 2C revenues, including revenues from both transaction facilitation and loan facilitation increased by 118% year-over-year to RMB 937 million, which contributed 82% of our total revenues.

We are particularly excited to share that our cross-regional transactions experienced a remarkable growth during the quarter. The transaction volume in this category exceeded 10,000 used cars in December alone, and over 22,000 for the quarter, compared to only a few hundred in Q4 2017. This reflects the game-changing impact that our business model has had on China's used car supply chain, as well as growing consumer recognition of Uxin brand and its services. Uxin's leadership in facilitating cross-regional transactions in China is unmatched. It plays a key role in bridging used car demand and supply between different tiers of cities across the country.

By leveraging Uxin's unique offerings of standardized inspections, offline fulfillment, title transfer, as well as all-around aftersales warranty services, we can efficiently provide consumers in lower-tier cities with an unmatched purchasing experience and enable them to purchase large-ticket items online without the need for in-person checking.

Due to the significant volume -- Due to the significant value we provide to our users, we have also made significant progress on monetization. Our 2C transaction facilitation take rate increased to 2.4% in the fourth quarter, compared to only 1.2% in Q4 last year.

The significant increase was mainly driven by the higher volume of cross-regional transactions, which had a take rate of 5.3% during the quarter, as well as greater pricing power generated from our optimized services. This translated into a 263% year-over-year increase in our 2C transaction facilitation revenues in fourth quarter, representing 33% of our 2C revenues, up from 23% in Q3 and 20% in the same quarter last year. With strong momentum in cross-regional transaction growth, we believe that the revenue contribution from 2C transaction facilitation will continue to increase.

Turning to our 2C loan facilitation business, revenue increased by 81% year-over-year to RMB 620 million during the quarter. Along with the growth in 2C transaction volume, we achieved solid growth in the number of loans facilitated, with attach rate increasing to 47% and an average service fee rate of 7%. More importantly, our enhanced risk management capabilities throughout the entire financing life cycle enabled us to further lower our M3+ delinquency rate to 1.41% as of Q4 2018 from 1.43% as of Q3 2018.

Through 2019, we will continue to increase our focus on the 2C business, especially the cross-regional transactions, where we see great growth potential. To further strengthen our leadership on this front, we will continue to focus our efforts in 4 key areas.

First, we will penetrate lower-tier cities, where we see rapidly growing demand for used cars. To better address consumer needs, we will expand our current network by adopting a franchise model to complement our self-operated services centers. With this initiative, we aim to cover 1,500 county-level cities across China in 2019, enabling consumers in these cities to buy their first dream car through our platform.

Second, we will enhance our ability to display our used car inventory online in a standardized manner by leveraging our advanced inspection system.

This will enrich our inventory base with more marketable used cars, which will, in turn, help our dealer customers increase inventory turnover and operating efficiency. We believe this will strengthen our relationships with dealers, and build a solid foundation for them to also work with us on 2C side.

Third, we will further develop our big data capabilities and AI technology. We will continue optimizing our AI-driven pricing engine, which evaluates a car's condition and provides buyers and sellers with pricing insights. This cutting-edge technology help us -- helps consumers quickly find their car of choice from our massive online inventory. It also forecasts the residual value of used cars, which enables dealers to efficiently manage their operational risk.

Fourth, we will optimize overall servicing process to ensure a seamless one-stop purchasing experience that covers every step of the transaction, from online selection to offline end-to-end fulfillment, as well as aftersales services.

Moving on to our 2B business, transaction volume decreased by 37% to 72,000 used cars; and correspondingly, revenue decreased by 16% to RMB 145 million in the fourth quarter. The decline reflected our ongoing strategic shift to our 2C business. From a commercial perspective, we see much greater growth potential in the 2C business. That said, the 2B business will continue to serve as an important arm in -- of our group, as it enables us to maintain strong relationships with our dealer customer and enhance the stickiness of our platform, thus facilitating our 2C growth.

This is particularly the case on the B2B side, where our highly-efficient auction platform enables dealers to source used cars and optimize inventory turnover, thereby minimizing inventory risk. By delivering this type of value to dealers, we will encourage our dealer customers to expand collaboration on our 2C platform, especially in terms of cross-regional retail transactions.

On the C2B side, with our change of approach to connecting dealers with individuals who are selling their used cars, we now provide dealers with inventory leads on more favorable terms.

As we implement these strategies and continue to enhance our value proposition, we are confident that we will build on our position as China's largest used car e-commerce platform and continue to redefine the used car industry.

With that, I would like to turn the call over to our CFO, Zhen Zeng, to talk through our financials. Zhen, please.

Okay. Thanks, DK Hello, everyone. Thank you for joining us today. Now let me walk you through our financial details of the fourth quarter and full year 2018.

Note that all numbers are in RMB, unless otherwise stated. Also, please note that some numbers I refer to are non-GAAP. You can find a reconciliation of these numbers in our earnings release.

In the fourth quarter, total revenues increased by 62% to RMB 1,137 million from RMB 703 million in Q4 2017.

The increase was primarily due to the increases in 2C transaction volume, transaction facilitation take rate and amount of loans facilitated.

Drilling down to our 2C and 2B businesses:

2C transaction facilitation revenue was RMB 317 million, an increase of 263% year-over-year from RMB 87 million in Q4 2017, primarily due to a 94% increase in the 2C transaction volume. The year-over-year growth rate of our 2C transaction facilitation revenue has been accelerating throughout the year. Our 2C transaction facilitation take rate increased to 2.4% in Q4 2018 from 1.2% in Q4 2017.

2C loan facilitation revenue increased by 81% year-over-year to RMB 620 million, primarily driven by the increase in the transaction volume and amount of loans facilitated. Our service fee rate was 7.0% during the quarter. The attach rate of loan facilitation services slightly increased to 47% in the quarter, mainly driven by higher volume contribution from cross-regional transactions.

In terms of our 2B business,

Our 2B transaction facilitation revenue reached RMB 146 million, representing a decrease of 16% year-over-year, primarily due to the decline in transaction volume, which reflects our ongoing strategic shift to the 2C business. The decrease of 2B transaction volume was mainly because of our change of approach in serving customers with car-selling needs, as well as dealers' growing appetite for retail transactions through our 2C platform. Our take rate for 2B transaction facilitation was 4.3% in Q4 2018, up from 3.1% in Q4 2017.

Cost of revenues increased by 43% year-over-year to RMB 353 million in the Q4 2018, compared to RMB 247 million in the same period last year. The increase was primarily due to the increases in costs of fulfilment, title transfer and registration, which were correspondingly driven by the increase in the transaction volume, as well as the increase in salaries and benefits of employees engaged in car inspection, quality control, customer service and after-sales service.

Gross profit was RMB 783 million, and gross margin was 69% in the fourth quarter of 2018, compared to 65% in the same period last year.

Total operating expenses was RMB 1,049 million. Non-GAAP operating expenses, excluding share-based compensation, were RMB 977 million.

Sales and marketing expenses decreased by 1% year-over-year to RMB 689 million, compared to RMB 694 million in the same period last year. The well-managed sales and marketing expenses reflects our continuous efforts of increasing operating efficiency and focusing on conversion.

Sales and marketing expenses excluding share-based compensation expenses as a percentage of total revenues decreased to 61% during the quarter, from 99% in Q4 2017.

G&A expenses increased by 79% year-over-year to RMB 272 million in Q4 2018 from RMB 152 million in the same period last year. The increase was primarily attributable to the increase in salaries and benefits expenses, share-based compensation expenses and professional service fees.

G&A expenses excluding the impact of share-based compensation expenses was RMB 201 million, representing 18% of total revenues in the quarter, compared to 18% in Q4 2017.

R&D expenses increased by 23% year-over-year to RMB 97 million in Q4 2018 from RMB 78 million in the corresponding period last year. The increase was primarily due to the increase in salaries and benefits expenses.

R&D expenses excluding the impact of share-based compensation expenses were RMB 96 million, representing 8% of total revenues in the quarter, decreasing from 11% in Q4 2017.

We are confident that we are increasing operating leverage and prudent approach to expense management will continue to improve our profitability over time.

Gain from guarantee liability was RMB 8 million compared to a loss RMB 15 million in the prior year period. The gain was the result of a slight decrease in delinquency rate compared to that as of the third quarter of 2018.

Loss from operations in Q4 2018 was RMB 266 million, compared to a loss of RMB 483 million in the prior year period.

Non-GAAP loss from operations, which excludes share-based compensation expenses, was RMB 194 million, compared to RMB 455 million in the same period last year.

Non-GAAP loss from operations as a percentage of total revenues was 17% in Q4 2018, decreasing from 65% in Q4 2017.

The change in fair value of derivative liabilities was nil in Q4 2018, compared to a loss of RMB 385 million in the same period last year. We no longer see any impact of derivative liabilities, as the preferred shares were converted into ordinary shares at the time of IPO.

Net loss in Q4 2018 was RMB 315 million, compared to a net loss of RMB 902 million in the prior year period. The narrowed net loss was primarily due to greater operating leverage and the decrease in loss from fair value change of derivative liabilities.

Non-GAAP net loss, which excludes share-based compensation expenses, was RMB 242 million in the quarter, compared to a loss of RMB 489 million in the prior year period.

Non-GAAP adjusted net loss as a percentage of total revenues was 21% in Q4 2018, decreasing from 69% in Q4 2017.

Now turning to our cash position. As of December 31, 2018, Uxin had cash and cash equivalents of RMB 801 million, compared to RMB 677 million as of the end of Q3 2018 and RMB 292 million as of the end of Q4 2017.

The company had short-term time deposit and other investment products of RMB 596 million, compared to RMB 581 million as of the end of Q3 2018, and RMB 1 million as of the end of Q4 2017.

The company had restricted cash of RMB 2,013 million compared to RMB 1,838 million as of the end of Q3 2018, and RMB 1,617 million as of the end of Q4 2017.

That was our fourth quarter results. Now let me briefly walk you through some highlights of the full year results.

In the full year 2018, total revenues increased by 70% year-over-year to RMB 3,315 million compared to RMB 1,951 million in 2017.

Drilling down to our 2C and 2B business units.

2C transaction facilitation revenue increased by 180% year-over-year to RMB 645 million. Notably, our take rate for 2C transaction facilitation increased to 1.6% from 0.9% in the prior year.

2C loan facilitation revenue increased by 88% year-over-year to RMB 1,774 million. Our average service fee rate increased to 7.0% from 6.2% in the prior year.

In terms of our 2B business,

2B transaction facilitation revenue increased by 17% year-over-year to RMB 607 million. The take rate for 2B transaction facilitation increased to 4.0% from 3.0% in the prior year.

Gross profit was RMB 2,176 million in the year 2018, and gross margin increased to 66% compared to 62% in the prior year.

Loss from operations in 2018 was RMB 2,566 million, compared to RMB 1,823 million in the prior year.

Non-GAAP loss from operations, which excludes share-based compensation expenses, was RMB 1,514 million, representing 46% of total revenues, decreasing from 85% in the prior year.

Net loss in the full year 2018 was RMB 1,538 million compared to net loss of RMB 2,748 million in the prior year.

Non-GAAP net loss, which excludes share-based compensation expenses and gain from the fair value change of derivative liabilities, was RMB 1,671 million in 2018, compared to RMB 1,696 million in the prior year.

Non-GAAP net loss as a percentage of total revenues was 50% in 2018, which decreased from 87% in the prior year.

2018 was a year of investment for Uxin, as we focused on building the resources and infrastructure that will enable the rapid expansion of our 2C business, particularly, cross-regional transactions. With these investments, we have also started to benefit from many opportunities to improve operational efficiency across our business.

This was particularly the case in the fourth quarter of 2018, where we realized a significant reduction in sales and marketing expenses as a percentage of revenues. Building on this solid foundation, we are confident that we will maintain strong gross momentum in 2019 and continue to improve our operating leverage.

Now turning to guidance. For the first quarter of 2019, we expect total revenues to be in the range of RMB 900 million to RMB 950 million.

This forecast reflects the company's current and preliminary views on the market and operational conditions, including seasonal factors, which are subject to change.

That concludes our prepared remarks.

Thank you, Mr. Zeng. Operator, we'd now like to open the call for questions.

(Operator Instructions) Our first question comes from the line of Eddy Wang from Morgan Stanley.

DK, Michael and Nancy, so I have one question regarding the cross-regional transaction. You mentioned that you will focus on the cross-regional transaction given the greater growth potential. So can you give us more details regarding the economics of the -- such transaction versus non cross-regional transactions, such as the take rate, you have mentioned that in fourth quarter, it already reached like 5.3%. And the loan attached rate as well as the GP margin difference. Also what's your target for the cross-regional transactions in 2019 in terms of the volume and the proportion of the overall B2C transactions?

(foreign language)

Okay. Thank you, Eddy. I would like to answer this question. So first of all, I would like to -- we'll review again our cross-regional in our last year and the Q4 results.

So first of all, we're very excited to say, we have already achieved 10,000 transaction volume of our cross-regional transaction in last December and 40,000 for full year 2018, compared to just a very few hundreds in 2017. And we are very confident that in 2019, we expect the cross-regional transactions will grow by 3 times, equal to around 160,000 used cars. And secondly, talking about take rate. Yes, currently from Q4, our cross-regional transaction take rate was 5.3%. And I think we will -- and because of this number, in last quarter, we increased our total 2C transaction take rate from 1.2% 2017 Q4 to 2.4% in Q4 last year.

And I think driven by volume and both of the numbers, I think because there are 3 main reasons. So first of all, we say the biggest pinpoint in China's used car market is the imbalance between demand and supply. So there is a lot of used cars supply in Tier 1 cities, such like in Beijing, Shanghai. That's the big cities where people are doing the trading business. They sell used cars and buy new cars. And on the other hand, in lower-tier cities, there are a lot of people who still don't have cars, but they want to buy the first one. But with the low income, the problem -- and I think the used car is the best choice for people who're buying the first traffic vehicle. So how to solve that cross-regional problem? So I think that the only way is using online transaction, yes, to cater to the low-tier cities and the customers there. We can enable them -- They can have a massive choice of used cars compared to today in the county-level cities, where people may only have 50 to 100 used cars selection. We increased it to hundreds of thousands selection.

And secondly, the very important -why we can increase our take rate? It's because there is a very big price difference for the same car between the -- in the big cities and the county-level cities. In the traditional supply chain, they'll need a lot of middlemen to transfer the used car from the Tier 1 cities to go to the low-tier cities. So every middlemen, they will ask 8% to 10% arbitrage. That makes people who live in the small cities the used car price 20% higher on average than the big cities. So today, we will launch the cross-regional transaction services. We will just cut off all the middlemen. We can enable people who live in the countryside cities to get the used cars at the same price like the people who live in the big cities. So that's very big, the value gain from our operation, enables us -- we can have a very good monetization on our take rate.

I want to -- I'd like to tell you the -- why we think we should like to do the cross-regional transaction for retail.

When we founded Uxin, everyone, you know -- because I only buy used cars. I never buy new ones. But at the beginning, when I bought the used car, when I founded Uxin. I was searching the car across the country. And in the past 5 years, I changed 3 cars, and every of these cars, even I live in Beijing, I searched it across the country, and I bought them from other cities. So I believe, cross-county selection provide a very significant value to the customers, because used car is a very unique product. Only when you can provide the massive selection, you can optimize the value to them. So that is, I think, the fundamental reason why the cross-regional business can have a very strong result in both our business and also in our financial. I think the -- in the further year, in 2019, we will all in this business. We're focused doing the foremost and important things.

First of all, we're expanding our sales network. Today, we cover 900 regions. And our aim is -- at the end of the year, we want to coverage 1,500 county-level cities, and enable 800 million people who live in the lower-tier cities to buy at the fair price the used cars. And secondly, we want to enhance our inspection and digital display technology, such like VR, such like the video. And we want, provide an experience that people view the used car online have almost the same experience that's like people view the real car. And the third one is we enhance our logistics system. Comparing the 2 numbers: in the January 2018, we only had 10,000 routes as transportation routes, but at the end of 2018, we have already increased that number to 60,000 routes. Yes, and at the end of this year, we want to increase the routes going to 90,000. So that, we will coverage every corner in China; we can deliver a car to there. And also we decreased the delivery time from average of 5.7 days in January 2018 to now, 4.1 days. Yes, so we want people who buy a car from our platform to get the car ASAP. Yes, and the last one is we will enhance our exchange, warranty and the services network. Because the used car is a very complex product. People not only buy it, people need to use it for a long time. We want to make used car as simple as possible to the customers. So we will expand our aftersales network to provide the best user experience to the customer, and set out the word of mouth for the Uxin brand and the Uxin product. So that's some summary of our strategy and goals for the cross-regional transactions.

So Eddy, Michael here. So I give you some more color on the numbers. So last year, we finished around 40,000 transactions for cross-regional services. And in this year, we aim to have a 4 times increase, and the -- for the full year, the cross-regional will have 20% of the total 2C transaction volume, more than 20%. So for your question on the loan, and I think, today, our cross-regional transactions have the higher conversion rate for the loan facilitated. And today, we maintain 80% of the conversion rate.

Our next question comes from the line of Ronald Keung from Goldman Sachs.

DK, Michael and Nancy, I have 2 questions. And firstly, can you give us an update on your Taobao partnership, as we see the volumes are very strong in the fourth quarter. Actually revenues reaccelerated. Seems like the new partnership, with traffic, is really helping. So are there any updates on any further new initiatives between the 2 parties? Any promotion base, or should we expect, for example June 18 to be -- about to be so another big festive for that, that we should focus on? And this brings me to the second question, which is about your first quarter revenue guidance, because this implies around 39% to 46% revenue growth, which is quite some slowdown versus the strong 62% revenue growth in the fourth quarter. So could you explain -- is there -- are there any seasonal factors, and with the partnerships, should we expect in the rest of the year, particularly during the promotion, the Alibaba promotion, which are generally in the second and fourth quarter, should we expect a different growth rate for the remaining part of the year? Would you like me to translate the questions?

Yes, please. Yes, Please translate that question.

(foreign language)

Okay, thank you, Ronald. I think I'm going to answer the first question, the corporation with Taobao. And Zhen, you can answer the question about the Q1 guidance.

Okay. I will.

Right, and we have been growing traction from Taobao users for our used car offerings since December. When we started our partnership, for December alone, we completed over 3,000 transactions through Taobao, thanks to our partnership and promotion of Double 12, the shopping festival. Today, I think that we are still at an earlier stage of our corporation. Driving search traffic is our primary focus for this moment. Our tech team is working with Taobao to optimize the keywords and the search results, as well as a standardized layout of used cars on Taobao to be in line with what's shown on Uxin's own platform by adding the video inspection report and VR function, among other measures. And I think that going forward, we intend to expand our collaboration into recommendation traffic. By leveraging our used car transaction-related data and capability of user profile, we will be able to help Taobao proactively recommend a used car of choice to its users.

In long term, when our corporation proves to work well for the meaningful transaction volume created, we will further expand our partnership by tapping into the data corporation, such as risk profiling. And we believe, this partnership with strength our leadership in China's used car market and help Taobao expand their -- its product and service offerings. So we are now -- have a very good cooperation with Taobao. And almost every 2 weeks, we will launch new products in the Taobao platform, and they cover a lot of areas, including the payment, the online exhibition of the used cars. We also optimized the customer experience when the car being shipped, by sharing all the transparent information to the customers.

And also we are facilitating with Taobao together to enhance the guarantee and the service, the aftersales service to the customers.

Okay. Starting to your second question for your Q1 -- for the Q1 guidance.

And yes, as you said, we set our Q1 '19 total revenue in a range of RMB 900 million to RMB 950 million, up to 39% to 46%. Well, for the full year, we expect the total revenue to outpace this growth rate. Our current first quarter 2019 guidance factors in the seasonality. The Spring Festival in this year came in early February, compared to the mid-February of last year, which makes the peak season period in the Q1 shorter, and -- than the last year, and the low-season period longer, much longer. And we have factored in such impact and provide a relatively conservative guidance for this '19, Q1. But for the whole year of 2019, we are confident that we can achieve a much faster year-over-year growth.

Next question comes from the line of Nick Lai from JP Morgan.

DK, and I am -- again, it's Nick from JP Morgan. So one similar question on SG&A. I think that was, again, a great achievement in the fourth quarter. We noticed that SG&A expenses actually dropped 6% Q-on-Q in 4Q. At the same time, our revenue in the fourth quarter actually grew substantially by over 30% from -- to last year. So maybe, first of all, can you share with us what kind of strategy did we implemented in the fourth quarter? And then into 2019, can we extrapolate that? And how should think about SG&A in 2019?

(foreign language)

Okay. Sure. Yes, it's Michael here. So for your question, I think mainly what we're talking about is marketing, because our R&D and G&A is quite stable in this year. So as long as our revenues increase, and [we can] have the operating leverage on the G&A and R&D. And for the sales and marketing, and we made a strong progress optimizing sales and marketing expenses and we are seeing increasing leverage in related expenses. In the Q4, sales and marketing expenses as a percentage of revenue declined to 61% compared to 87% in the Q3 and 99% in the same period last year, as you mentioned. And in the full year of 2018, sales and marketing expenses as a percentage of revenue declined to 81% compared to 113% in the prior year. This is a clear demonstration of our growing brand awareness and increase in conversion efficiency, which reflects more accurate consumer targeting and improvement in the productivity of our sales consultants. So going forward, we expect the absolute dollar amount of our branding expenses to remain stable, while we continue to improve the efficiency of our user acquisition and our sales consultant. We will maintain our prudent approach to expense management and continue to improve our margin profile.

So additionally, in the 2019, we will adopt a franchise model to complement our self-operated service center, as DK just mentioned. So we believe, this will reduce our own investments in the sales as well as improve our operating efficiency.

I'll take the next question from the line of Monica Chen from Crédit Suisse.

I have 2 questions here. Number one, can management provide more color about the franchise model, as you just mentioned? And we just launched in recent month in order to cover more lower-tier cities to extend our network, so can you provide more details, like how many agents we're already are working with? What's the pipeline for the new sign-up? What kind of service we're providing to them, helping them to get more transactions? And what's the, like, revenue-sharing with them like? So that's my first question.

My second question is on the 2B business side. So we noticed, we have some changes in the 2B business, and we tend to shift our focus on the 2C business. But can management, maybe, give us more color on how should we think about the 2B business? And can you tell us the value we are providing to the dealers? Have we observed the total B2B market, maybe, slowing down given the 2C market's growing faster? And also we noticed that actually the take rate for the 2B business actually improved to 4.3% versus the 3.1% in same quarter last year? What's likely the trend going forward?

(foreign language)

Okay. Monica, this is DK. Let me take the 2 questions. So first, talking about our franchise model. We launched franchise model in the Q4 last year. At the end of Q4, we have had 200 franchisors joined to our sales network. And at the end of this February, we have already got 600 franchisors joined to our network. And it's almost a speed of 200 franchisors joining every month. And now from our business side, we have over 1,000, independent franchisor who are still on our waiting list to wait for us to open the new stores for them. And we have a goal that at the end of the year, we want to cover 1,500 county-level cities, especially by using our franchise model to cover all this. And that almost means, this year, we will open 2,500 -- more than 2,500, franchise stores that are using our new model. And let me say, for the revenue spread, we base it on the franchisors' KPIs. And we will share 3% to 4% to them. And we're doing very detailed calculation. That is because the franchisors invest in everything, including the rental, the store, and the (foreign language)?

The renovation.

The renovation of the store. And they pay all the salary of their staff. So we calculate the cost. So the cost for the franchise model we're using is almost equal in the executive level to the cost of we using our own staff. That, by the way, the franchising model has done a very good performance, yes, today. I think, first of all, they are very self -- (foreign language) self-motivated. When we are going to cover all the county-level cities, that means in this level, the shop will be very small and the staff will not -- [there will not be] a lot of people -- Normally 2 or 3 persons. I think, if we want manage 2,000 stores across the country, that will definitely be a very big challenge for management and also giving incentive to these people. So the franchising model provides very good self-motivation, that we want to say. And also it saves the cost and gives us a very asset-light approach to just expand our network to all these customers. So that's the answer for the franchising model related questions.

And the second question you are talking about the B2B strategy. Yes, first of all, year-over-year, the B2B revenue -- the 2B revenue and the transaction have declined. But I want to mention that it's on our plan. It's our strategy, because we found that the 2C business is very, very big and with very great potential, the golden miner. So we just move all our resource into the 2C business. And that's also we're showing in the results. We have very significant achievement in our 2C.

And for the 2B business, I wanted to explain for the short term, medium term and the long term.

For the short-term decline, especially in the Q4 and the last Q3, it's mainly due to that we changed our C2B business model. And last year, not -- in the 2017, we counted all our C2B business into transaction volume, but since we mentioned, as we were stating in the last Q2, yes, we changed the approach. So in Q3 and Q4, we didn't count every C2B transaction into our 2B transaction. So that caused mainly the decline. So that's the short term, the driving reason.

And for the medium term, we say our cross-regional 2C business model is more attractive to our dealer, because traditionally, if they sell the cars going through our B2B, actually dealers cannot get a very significant profit. They are now using the cross-regional retail model, where they can achieve the better profit because we're helping them to find the end users, not just the wholesalers. So we say the trend is more and more dealers moving their transaction decision from the B2B to our cross-regional model. And secondly is that, as we all know, we have 7 cities [where we] open B2B auction in China. But the recent news is more and more cities, such like Xi An, suchlike Wuhan, such like Jinan -- these cities are growing their local supply. So more and more people will not go very far, such like from Shandong to Beijing, to take their inventory. They have another choice taking inventory from Jinan. But in last year, we didn't expand our B2B business. So that's, I think, for the medium-term, a reason why we -- our 2B business will have a little bit decline, because we didn't invest into this business more. But as for the volume, I think, we will gradually stabilize at certain level, at the current level. And we're happy to stay at the current take rate, which is also good, yes.

And for the long-term, I think, the 2B business is very important. If we say in the auction companies in the United States, or some other places such as Europe and Japan. Their main source of their cars is coming from the very big suppliers. Yes, that's like fleet companies, that's like rental companies, yes. But today, in China, the used car suppliers are very fragmented. It all comes from dealers. So I think we will keep our 2B business as very important part of our -- the group business, one part of our group business. But I think we are watching the opportunities. Once the market has the big suppliers, yes, I think we will -- at that time, keep our competitive advantage of the B2B business, and we will enhance our investment of 2B business. Yes. Thank you.

Thank you for the questions. I'll like to hand the call back to Nancy for closing remarks.

Thank you all for joining to this call and for your continued support for Uxin. We look forward to speaking to you again in the future. Thank you.

Thank you, everyone.

Thank you, ladies and gentlemen. That does conclude the conference for today. You may now disconnect your lines.