2011 Corporate Presentation
ChinaNet-Online
Holdings, Inc.
NASDAQ: CNET
This information is published solely for informational purposes and is not to be construed as a
solicitation or an offer to buy any security or related financial instrument. This presentation may include
“forward-
looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Exchange Act of 1934 and are intended to be covered by the safe harbor provisions for forward looking statements.
This
information is supplied from sources we believe to be reliable but we can not guarantee accuracy. This
document and the information contained herein is confidential.
The agents and the agents’ counsel assume no responsibility or liability of any nature whatsoever for
the accuracy, adequacy or completeness of the publicly available information or as to whether
all information
concerning the Company required to be disclosed by the Company has been generally disclosed. The agents’
counsel and the Company's counsel are acting as counsel to the agents and the Company, respectively, and not as
legal
counsel to the subscriber. The agents have not engaged in any independent investigation or verification with
respect to any of the information
concerning the Company. Prospective purchasers are responsible for their own
due diligence investigation
in respect of any investment in the Company.
SAFE HARBOR STATEMENT
2
ZW Financial Highlights
(1) Weighted share count will differ quarterly
due to GAAP Treasury Method for 4.8 M
warrants outstanding with an average strike
price of $3.13
(2) Adjusted net income 2009 excludes $4.4M
non cash charge associated with changes in
fair value of warrants in accordance US GAAP
(3) 1H 2010 adjusted net income excludes
$1.9M non cash gains associated with fair
value of warrants
Ticker Symbol
NASDAQ: CNET
Fiscal Year
December 31
Stock Price (3/05/11)
$4.22
Shares Outstanding- common shares (2/23/11)(1)
17.1 M
Market Capitalization (2/23/11)
$72.2 M
Management Ownership
44.0%
Revenue 2009 (audited)
$37.7 M
Adjusted Net Income 2009 (2) (audited)
$8.4 M
As of Sep 30th, 2010 – REVENUE
$31.2 M 14%
As of Sep 30th, 2010 – Adjusted NET INCOME (3)
$10.0 M 122%
As of Sep 30th, 2010 – Adjusted EPS (diluted)
$0.48 60%
2010 Revenue Guidance
$41.0 M-43.0 M 8.8%-14.1%
2010 Net Income Guidance
$14.1M 67.9%
3
ChinaNet (ZW Online)
28.com portal connects SME franchisors with new franchisees
Internet advertising & marketing with other value-added
communication channels
Brand management & sales channel solutions
Cloud-based management tools (introduced in 2011)
The largest B2B fully integrated internet service provider for SME’s
to expand their sales networks in China, including services of:
4
Key Summary
Strong Growth
ChinaNet (ZW) Overview
CAGR:
89.6%
CAGR:
1300.0%
#1 B2B website for advertising SME needs for sales channel
expansion in China
A leading market consolidator with first mover advantage &
top-tier household brand
Fully integrated multichannel advertising provider, one-stop
service
Recurring & High margin revenue
Comprehensive sales networks
New mobile platform has launched to capture mobile
advertising market
CAGR:
65.5%
USD (‘000)
5
ZW Employee Profile
Total Employees: ~ 250;
95% with a Bachelor’s degree or above;
Over 20% with a Master’s degree or above.
6
ZW Sales Network
Beijing
Headquarters
Wuhan
Shanghai
Guangzhou
Fujian
Zhejiang
Customers in
20 provinces
7
ZW 2010 Q3 Financial Summary
Three Months ended Sept 30 (mill’s)
10 Q3
09 Q3
% Change
Net Sales
$8.9
$8.1
+9.5%
Gross Profit
$5.8
$4.1
+41.2%
Gross Margin
65.0%
50.4%
+30.0%
Adj. Net Income(1)
$3.9
$1.9
+100.1%
Adj. Diluted EPS(1)
$0.19
$0.11
+68.2%
Weighted Shares Outstanding
20.9
15.1
+32.6%
Cash Flows from Operations
$5.1
$2.0
+149.7%
Non-GAAP net income and EPS excludes non-cash gain of 1.9 million related to changes in fair value of warrants for the
three month period
ended Sep 30th, 2010 and non-cash loss of $1.3 million
for the three month ended Sep 30th, 2009.
8
ZW 2010 Q3 vs. 2009 Q3
9
Chinese SME Market
10
Approximately 3,000 franchise enterprises and 260,000 chain stores in China in 2007, and
are expected to grow to 4,800 and 450,000, respectively by 2012.
SMEs in China are responsible for:
Approximately 60% of industrial output and 75% of urban employment
99% of Chinese enterprises are SMEs which contribute 60% of the country's GDP
SMEs are driven by:
Former state-owned employees
Educated young professionals
Committed and experienced entrepreneurs
Series of laws and regulations in China to protect and promote SMEs
SMEs benefit from the central government’s desire to increase consumer demand to create a balanced economy
The Chinese SME market has sustainable growth characteristics
The majority of SMEs are small, less-developed brands
Low start-up costs (typically between $1,000 and $15,000)
Sales and distribution networks are undeveloped and open to new participants
Market Data on Entrepreneurship
Data Source:Babson College 2009 Global Entrepreneurship Monitor Report
11
Internet Advertising & Marketing
12
#1 market leading B2B website for advertising franchises and other forms of
business ventures in China
#1 market leader in this vertical internet advertising segmentation in China
#1 host of over 1200 franchises mini-sites
Most comprehensive business categories:
8+ major business segments with 50+ business categories in total
28.com (A Premier Internet Property)
ZW Internet Clients
13
Clients are SME franchisors and businesses seeking to expand their footprint; also
benefit from additional advertising and business management tools
Total clients:
Basic Clients: 600 (USD$180 - $230/month)
Receive:
Simple profile page to advertise the business
Active Clients: 900 (USD$3,050 - $3,800/month)
Receive:
Designed profile pages with messaging page + Mini-sites with online consultant + SEM + SEO + IIM + other additional
marketing channels (TV, Mobile, Printing etc, need to pay extra)
Branded Clients: 32 (USD$27,500 – $33,550/month)
Receive:
Above + Brand management solutions + Sales channel rapid expansion solutions
Customer Retention Rate > 60%
Sample Clients
14
KENJMI Leather Goods
Liqing DaBieShan Goose
Hotpot Restaurant
FengBoZhuang Restaurant
Toe Dance Slipper
Retail Store
SUPWAVE
Car Care
SUPWAVE Car Care
Founded: Beijing 2007
www.supwave.com
Client Case Study – Active Client
Years of operation
3
Franchise Positioning
SOP for car wash and cleaning services
Target Market
Middle Class Car owners
Product Price Range
Touch up Paint - more than $16.50
Car Wash - $6.80
Initial investment amount for
franchise (USD)
$7,600-$30,300
# of Employees
80
# of senior management
personnel
3
Years of owner’s management
experience
10
2010 Sales Revenue (USD)
$2,727,000
2010 Net Profit (USD)
$455,000
15
Business Performance
Company-owned stores
4
Annual average revenue per
company-owned store (USD)
$120,000-$150,000
Annual profit per company-owned
store (before tax) (USD)
$45,000-$76,000
Franchise stores
200
Annual revenue per franchised store
$90,000-$150,000
Annual gross profit per franchised
store
$38,000-$69,000
(USD)
Product Sales
Revenue
Franchise
Revenue
Dealers
Revenue
Total
Revenue
Total
Marketing Exp
2010
$1,090,000
$1,640,000
NA
$2,730,000
$273,000
% to total revenue
39.9%
60.1%
0%
100%
10%
16
Client
Online AD
TV
Other
Revenue/month ($USD)
# of months of
client
AD
NEWS
AD
AD
Min
Max
Avg
*
$5,500
$11,000
$7,600
24
Business with ChinaNet (ZW Online)
Client for 24 months
March 2009
After
cooperating
with ZWOnline
Growth
rate
Monthly franchise
Revenue($USD)
$160,000
$230,000
140%
# of franchised stores
70
200
567%
Monthly avg. of
in-person inquiry
9
23
44%
Monthly avg. of new
contract-signing
5
12
140%
Monthly IP
visits
60000
Avg. leads per
month
750
% of clicks that
leave a message
1.3%
% of new
signings from
ZW Online
20%
17
Internet Advertising & Marketing:
Added Services
Offers additional exposure for clients through:
Print Advertising – Newspapers and Magazines
Radio
TV
Partner with CCTV and 12 other major provincial TV broadcasting stations throughout China
An integrated production chain with content and delivery that complements customer
offerings
TV production team with 10 years of experience
18
Added Service: TV Advertising
Gold List
Online Business
Opportunities
Venture Express
Start
Programs
produced
by
China Net
TV
National
satellite TV
stations where
China Net
reaches
610 million
people
19
Cloud-based Management Tools
20
Clients in need of simple, effective software to manage and grow their
business, ChinaNet offers clients Cloud Platform Management Tools:
POS
Inventory Management
Increases customer loyalty and enables franchisors to better service
franchisees
Provides a significant value add while generating incremental recurring
revenues
Multichannel A&M Platform
Internet
Cloud-based
Management
Tools
Mobile
Magazine
&
Newspaper
TV
Kiosk
A fully integrated multichannel platform for clients to
grow and manage their businesses
21
Financial Summary as of 09/30/2010
Nine Months ended Sept. 30 (mill’s)
Sep 30, 10
Sep 30th, 09
% Change
Net Sales
$31.2
$27.3
+14.2%
Gross Profit
$15.4
$11.4
+35.1%
Gross Margin
49.3%
41.7%
+18.2%
Adj. Net Income(1)
$10.0
$4.5
+121.7%
Adj. Diluted EPS(1)
$0.48
$0.30
+60.0%
Weighted Shares Outstanding
20.9
14.5
+44.2%
Cash Flows from Operations
$11.2
$4.7
+138.3%
(1) GAAP net income and GAAP EPS (Diluted) include a $1.9 million non-cash gain related to changes in fair value of warrants for nine month
ended September 30th, 2010 of $1.9 million and $1.3 million loss for nine month ended September
30th, 2009.
22
Balance Sheet as of 09/30/2010
23
$ millions except for ratios
Sep 30, 2010
Dec 31, 2009
Cash and Equivalents
$22.2
13.9
Accounts Receivable
$4.5
$3.2
Accounts Receivable DSO
40
20
Working Capital
$29.3
$19.4
Current Ratio
7.0
4.9
Competitive Advantages
First Mover Advantage: Premier vertical internet advertising website in China
focusing on franchise or dealerships business opportunities
Over 4 years of operations as multichannel ad portal across Internet, TV, Mobile
and Kiosk.
Accumulated database of over 1M potential entrepreneurs
Company maintains a >30% market share position
24
Proprietary Technology
Real-time and Interactive SEO and SEM Tools
Information & Content Management Tools
Internet Usage Monitoring & Analysis Platform
Advanced Campaign Tracking & Monitoring Platform
PFP Monitoring Engine Platform v1.0
Management Tools (POS, Inventory Management, etc.) based on cloud
computing framework
AD effectiveness Monitoring & Analysis Platform v1.0
Message for Business Monitoring & Analysis Platform v1.0
Real-time AD kiosk content management system with one-to-many focused
content delivery function
25
George K. Chu, COO
Mr. George Chu is responsible for the overall operations of 28.com. He is experienced in management and operational excellence. BBA of
Accounting & MIS from Simon Fraser University BC, Canada,
DLP & Executive Education from Harvard Business School and Executive MBA,
Peking University.
Management Team
Handong Cheng, Chairman & CEO
Mr. Cheng is Co-founder of ChinaNet and oversees daily operations. A pioneer in online media and marketing services, Mr. Cheng was
awarded “Network Creative person of China” in 2006. BA of Law from
Wuhan University. Executive MBA, Peking University. Mr. Cheng has
extensive franchisor experience, and has founded numerous franchises including a chain of car washes as well as the largest office building
window cleaning chain in China.
Zhige Zhang, CFO
Mr. Zhang is Co-founder of ChinaNet. He previously served as the Secretary of the President of KONKA Group Worldwide as well as the
General Manager and Director of KONKA Group Beijing. Prior to KONKA he served
as manager of PRECOM and has experience in software
development and internet ad technology. BA from Guilin University of Electronic Technology in 1997.
26
ZW Growth Strategy
A market leader in the fast growing franchise industry in China
Expanding to top 10% of non-franchised SMEs in China, 4 millions enterprises
Launching of Liansuo.com and Chuanye.com
Monetizing the customer base - offering an integrated solution across four major cloud-based
platforms generated recurring revenue
Acquiring branded customers and international business
Buy vs. Build M&A – leverage strong balance sheet to target technology and/or sales channel
opportunities to add enhanced services
Adding key hires to support expansion and new business units
27
ZW Business Expansion Model
Qualified
Franchise or
Merchant
Needs
SMEs
Potential
Entrepreneurs
Full Service Platform
Precise
Matching
Entrepreneurial
Wants
28
Expand to more than 12
major cities in 3-5 years
ZW Future Sales Network
29
ZW Key Investment Highlights
28.Com is a premier Internet property in the China SME community and the largest
merchant marketplace for franchise opportunity seekers in China
A proprietary, integrated business service model which generates high-margin,
recurring revenues from a growing client base
Strong balance sheet and cash flow to fund growth
Innovative cloud technology will expand service offering and enhance customer
retention
Experienced management with industry expertise and significant ownership position
30
THANK YOU
ChinaNet Management Team