58.com Inc. Annual Report 2014

FY2014 Annual Report · 58.com Inc.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)
□

REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G)
OF THE SECURITIES EXCHANGE ACT OF 1934

(cid:3)

□

□

OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014.
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM

TO

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission ﬁle number: 001-36140

58.com Inc.

(Exact name of Registrant as speciﬁed in its charter)

N/A
(Translation of Registrant’s name into English)

Cayman Islands
(Jurisdiction of incorporation or organization)

Block E, The North American International Business Center
Yi 108 Beiyuan Road, Chaoyang District,
Beijing 100101
People’s Republic of China
(Address of principal executive offices)

Hao Zhou, Chief Financial Officer
Telephone: +(86 10) 5139 5858
Block E, The North American International Business Center
Yi 108 Beiyuan Road, Chaoyang District,
Beijing 100101
People’s Republic of China
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

American depositary shares, each representing two Class A
ordinary shares
Class A ordinary shares, par value US$0.00001 per share*

New York Stock Exchange

New York Stock Exchange*

*

Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as
of the close of the period covered by the annual report. 176,375,211 ordinary shares, par value US$0.00001
per share, being the sum of 101,574,732 Class A ordinary shares and 74,800,479 Class B ordinary shares as of
December 31, 2014.

Indicate by check mark if the registrant is a well-known seasoned issuer, as deﬁned in Rule 405 of the

Securities Act. Yes (cid:3) No (cid:4)

If this report is an annual or transition report, indicate by check mark if the registrant is not required to

ﬁle reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes (cid:4) No (cid:3)

Indicate by check mark whether the registrant: (1) has ﬁled all reports required to be ﬁled by Section 13

or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to ﬁle such reports), and (2) has been subject to such ﬁling requirements for
the past 90 days. Yes (cid:3) No (cid:4)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate

Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such ﬁles). Yes (cid:3) No (cid:4)

Indicate by check mark whether the registrant is a large accelerated ﬁler, an accelerated ﬁler, or a non-
accelerated ﬁler. See deﬁnition of ‘‘accelerated ﬁler and large accelerated ﬁler’’ in Rule 12b-2 of the Exchange
Act. (Check one):

Large accelerated ﬁler (cid:3)

Accelerated ﬁler □

Non-accelerated ﬁler □

Indicate by check mark which basis of accounting the registrant has used to prepare the ﬁnancial

statements included in this ﬁling:

U.S. GAAP (cid:3)

International Financial Reporting Standards as issued by
the International Accounting Standards Board □

Other □

If ‘‘Other’’ has been checked in response to the previous question, indicate by check mark which

ﬁnancial statement item the registrant has elected to follow. □ Item 17 □ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as deﬁned

in Rule 12b-2 of the Exchange Act). □ Yes (cid:3) No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE

PAST FIVE YEARS)

Indicate by check mark whether the registrant has ﬁled all documents and reports required to be ﬁled by

Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan conﬁrmed by a court. □ Yes □ No

TABLE OF CONTENTS

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . .

PART I

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS . . .

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE . . . . . . . . . . . . . . . . . .

ITEM 3.

KEY INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 4.

INFORMATION ON THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 4A. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS . . . . . . . . . . . .

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES . . . . . . . . . . . .

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS . . . . .

ITEM 8.

FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 9.

THE OFFER AND LISTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 10.

ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES . . . .

PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES . . . . . . . . .

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS

AND USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 15.

CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 16B. CODE OF ETHICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . . . . . . . .

ii

ii

1

1

1

1

37

62

62

81

89

93

94

96

106

107

109

109

109

109

111

111

111

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT

COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

112

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT . . . . . . . . . . . .

ITEM 16G. CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 16H. MINE SAFETY DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 17.

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 18.

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 19.

EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

112

112

112

112

113

113

113

113

i

INTRODUCTION

In this annual report, unless otherwise indicated or the context otherwise requires, references to:

•

•

•

•

•

•

‘‘ADSs’’ refers to our American depositary shares, each of which represents two Class A ordinary
shares of 58.com Inc.;

‘‘58.com,’’ ‘‘we,’’ ‘‘us,’’ ‘‘our company,’’ and ‘‘our’’ refer to 58.com Inc., its subsidiaries and its
consolidated variable interest entities;

‘‘China’’ or ‘‘PRC’’ refers to the People’s Republic of China, excluding, for purposes of this annual
report only, Taiwan, Hong Kong and Macau;

‘‘Renminbi’’ or ‘‘RMB’’ refers to the legal currency of China;

‘‘U.S. GAAP’’ refers to generally accepted accounting principles in the United States; and

‘‘US$,’’ ‘‘dollars’’ or ‘‘U.S. dollars’’ refers to the legal currency of the United States.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains forward-looking statements that relate to our current

expectations and views of future events. The forward-looking statements are contained principally in the items
entitled ‘‘Information on the Company,’’ ‘‘Risk Factors,’’ ‘‘Operating and Financial Review and Prospects,’’
‘‘Financial Information’’ and ‘‘Quantitative and Qualitative Disclosures About Market Risk.’’ Our
forward-looking statements relate to events that involve known and unknown risks, uncertainties and other
factors, including those listed under ‘‘Risk Factors,’’ which may cause our actual results, performance or
achievements to be materially different from any future results, performance or achievements expressed or
implied by the forward-looking statements. These statements are made under the ‘‘safe harbor’’ provisions of
the U.S. Private Securities Litigations Reform Act of 1995. You can identify some of these forward-looking
statements by words or phrases such as ‘‘may,’’ ‘‘will,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘aim,’’ ‘‘estimate,’’ ‘‘intend,’’
‘‘plan,’’ ‘‘believe,’’ ‘‘is/are likely to,’’ ‘‘potential,’’ ‘‘continue’’ or other similar expressions, although not all
forward-looking statement contain these words. Forward-looking statements include, but are not limited to,
statements relating to:

•

•

•

•

•

•

•

•

our goals and strategies;

our expansion plans;

our future business development, ﬁnancial condition and results of operations;

the expected growth of the online marketing services and mobile services industries;

our expectations regarding demand for, and market acceptance of, our services;

our expectations regarding keeping and strengthening our relationships with customers;

our plans to invest in research and development to enhance our solution and service offerings; and

general economic and business conditions in the regions where we provide our solutions and
services.

We would like to caution you not to place undue reliance on forward-looking statements and you should

read these statements in conjunction with the risk factors disclosed in ‘‘Item 3. Key Information — D. Risk
Factors.’’ Those risks are not exhaustive. We operate in an emerging and evolving environment. New risk
factors emerge from time to time and it is impossible for our management to predict all risk factors, nor can
we assess the impact of all factors on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in any forward-looking statement.
We do not undertake any obligation to update or revise the forward-looking statements except as required
under applicable law. You should read this annual report and the documents that we reference in this annual
report completely and with the understanding that our actual future results may be materially different from
what we expect.

ii

PART I

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

Selected Consolidated Financial Data

The following table presents the selected consolidated ﬁnancial information of our company. Our

summary data of consolidated statements of comprehensive income/(loss) and summary consolidated cash ﬂow
data presented below for the years ended December 31, 2012, 2013 and 2014 and our summary consolidated
balance sheet data as of December 31, 2013 and 2014 have been derived from our audited consolidated
ﬁnancial statements included elsewhere in this annual report. Our summary data of consolidated statements of
comprehensive income/(loss), and summary consolidated cash ﬂow data presented below for the years ended
December 31, 2010 and 2011 and our summary consolidated balance sheet data as of December 31, 2010,
2011 and 2012 have been derived from our audited consolidated ﬁnancial statements which are not included
in this annual report. Our audited consolidated ﬁnancial statements are prepared in accordance with
U.S. GAAP.

You should read the summary consolidated ﬁnancial information in conjunction with our consolidated

ﬁnancial statements and related notes and ‘‘Item 5. Operating and Financial Review and Prospects’’ included
elsewhere in this annual report. Our historical results are not necessarily indicative of our results expected for
future periods.

2010

For the Year Ended December 31,
2014
2013
2012
(in thousands of US$, except for share, per share and per ADS data)

2011

Summary Data of Consolidated
Statements of Comprehensive
Income/(Loss):

Revenues:

Membership . . . . . . . . . . . . . . . . . . .
Online marketing services . . . . . . . . . .
Other services . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . .
Cost of revenues(1) . . . . . . . . . . . . . . . . .
Gross proﬁt
. . . . . . . . . . . . . . . . . . . . .
Operating expenses(1):

Sales and marketing expenses . . . . . . . .
Research and development expenses . . .
General and administrative expenses . . .
Total operating expenses . . . . . . . . . . . . .
Income/(loss) from operations . . . . . . . . .
. . . . . . . . . . . . . . . . .
Net income/(loss)

Accretions to preference shares

3,447
6,597
658
10,702
2,330
8,372

16,783
2,247
3,170
22,200
(13,828)
(13,871)

19,654
15,500
6,380
41,534
6,301
35,233

100,134
7,784
10,721
118,639
(83,406)
(83,402)

47,919
28,509
10,694
87,122
10,406
76,716

76,422
18,464
13,088
107,974
(31,258)
(30,401)

85,725
58,457
1,565
145,747
8,471
137,276

84,534
25,138
12,983
122,655
14,621
19,557

redemption values . . . . . . . . . . . . . .

(860)

(6,547)

(10,233)

(9,134)

Deemed dividends to preference

shareholders . . . . . . . . . . . . . . . . . .

(664)

Income attributable to preference

shareholders . . . . . . . . . . . . . . . . . .

—

—

—

—

—

—

(1,230)

139,490
125,033
455
264,978
13,844
251,134

180,148
43,676
20,633
244,457
6,677
22,644

—

—

—

Net income/(loss) attributable to ordinary

shareholders

. . . . . . . . . . . . . . . . . . .

(15,395)

(89,949)

(40,634)

9,193

22,644

1

Net income/(loss)

. . . . . . . . . . . . . . . . .

Foreign currency translation adjustment,

net of nil tax . . . . . . . . . . . . . . . . .

Unrealized loss on available-for-sale

securities . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .

Comprehensive income/(loss)
Net income/(loss) per ordinary share

attributable to ordinary shareholders −
basic

. . . . . . . . . . . . . . . . . . . . . . . .

Net income/(loss) per ordinary share

attributable to ordinary shareholders −
diluted . . . . . . . . . . . . . . . . . . . . . . .
Net income/(loss) per ADS(2) attributable to
ordinary shareholders − basic . . . . . . . .
Net income/(loss) per ADS(2) attributable to
ordinary shareholders − diluted . . . . . . .

Weighted average number of ordinary

2010

For the Year Ended December 31,
2014
2013
2012
(in thousands of US$, except for share, per share and per ADS data)
(30,401)

(83,402)

19,557

2011

(13,871)

22,644

(38)

2

(48)

(570)

396

—
(13,909)

—
(83,400)

—
(30,449)

—
18,987

(1,111)
21,929

(0.30)

(2.03)

(0.92)

0.14

(0.30)

(0.61)

(0.61)

(2.03)

(4.07)

(4.07)

(0.92)

(1.84)

(1.84)

0.13

0.29

0.27

0.13

0.13

0.27

0.26

shares used in computing basic earnings
per share . . . . . . . . . . . . . . . . . . . . . . 50,589,146 44,245,388 44,245,388 63,717,007

168,589,273

Weighted average number of ordinary
shares used in computing diluted
earnings per share

. . . . . . . . . . . . . . . 50,589,146 44,245,388 44,245,388 69,159,524

174,024,997

Notes:
(1) Share-based compensation expenses were allocated in cost of revenues and operating expenses as

follows:

. . . . . . . . . . . . . . . .
Cost of revenues
Sales and marketing expenses . . . . . . . .
Research and development expenses . . .
General and administrative expenses . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Total

2010

112
47
429
1,194
1,782

(2) Each ADS represents two Class A ordinary shares.

2013

For the Year Ended December 31,
2012
2011
(in thousands of US$)
30
270
489
882
1,671

36
445
996
1,388
2,865

26
225
443
1,276
1,970

2014

18
1,395
2,403
2,357
6,173

Summary Data of Consolidated

Balance Sheets:

Cash, cash equivalents, term deposits

and short-term investments . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . .
Deferred revenues
. . . . . . . . . . . . . . .
Customer advances and deposits . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . .
Total mezzanine equity . . . . . . . . . . . .
Total shareholders’ equity/(deﬁcit) . . . . .

2010

2011

As of December 31,
2012
(in thousands of US$)

2013

2014

45,655
51,426
4,838
507
11,128
65,627
(25,329)

45,485
65,994
15,399
3,813
50,016
129,284
(113,306)

35,647
56,456
28,955
11,040
69,003
139,517
(152,064)

311,095
333,341
55,099
21,369
113,058
—
220,283

609,035
703,932
95,336
35,983
196,615
—
507,317

2

2010

Summary Data of Consolidated
Statements of Cash Flows:

Net cash provided by/(used in) operating

For the Year Ended December 31,
2011

2013

2012

2014

(in thousands of US$)

activities . . . . . . . . . . . . . . . . . . . . . .

(5,922)

(50,323)

(4,728)

66,304

98,585

Cash used in purchase of property and

equipment

. . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . .
Net cash provided by ﬁnancing activities . .

(2,522)
(2,522)
53,246

(5,655)
(10,455)
57,110

(5,227)
(27,153)
253

(4,177)
(230,046)
213,343

(32,476)
(305,272)
257,430

Exchange Rate Information

Substantially all of our operations are conducted in China and substantially all of our revenues are
denominated in Renminbi. This annual report contains translations of Renminbi amounts into U.S. dollars at
speciﬁc rates solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi
to U.S. dollars and from U.S. dollars to Renminbi in this annual report were made at a rate of RMB6.2046 to
US$1.00, the exchange rate set forth in the H.10 statistical release of the Board of Governors of Federal
Reserve Bank on December 31, 2014. We make no representation that any Renminbi or U.S. dollar amounts
could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular
rate, the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves
in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions
on foreign trade. On April 24, 2015, the certiﬁed exchange rate was RMB6.1930 to US$1.00.

The following table sets forth information concerning exchange rates between the Renminbi and the

U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not
necessarily the exchange rates that we used in this annual report or will use in the preparation of any other
periodic reports or any other information to be provided to you. The source of these rates is the Federal
Reserve Statistical Release.

Exchange rate

Period

Period-End

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December

2015

January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
April (through April 24, 2015)

6.6000
6.2939
6.2301
6.0537
6.2046
6.1124
6.1429
6.2046

6.2495
6.2695
6.1990
6.1930

Average(1)

Low
(RMB Per US$1.00)
6.8330
6.6364
6.3879
6.2438
6.2591
6.1385
6.1429
6.2256

6.7603
6.4475
6.2990
6.1412
6.1704
6.1251
6.1249
6.1886

6.2181
6.2518
6.2386
6.2000

6.2535
6.2695
6.2741
6.2152

High

6.6000
6.2939
6.2221
6.0537
6.0402
6.1107
6.1117
6.1490

6.1870
6.2399
6.1955
6.1927

Source: Federal Reserve Statistical Release
(1) Annual averages were calculated by using the average of the exchange rates on the last day of each

month during the relevant year. Monthly averages are calculated by using the average of the daily rates
during the relevant month.

3

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Risks Related to Our Business

We operate in a fast-evolving industry, which makes it difficult to evaluate our business and prospects.

We commenced operations in 2005 and many of the elements of our business are evolving and relatively

unproven. The markets for our technology and products and services are relatively new and rapidly
developing and are subject to signiﬁcant challenges. Our business plan relies heavily upon growing our user
base and exploring new market opportunities, and we may not succeed in any of these respects.

As the online marketing services and mobile services industries in China are relatively young and
untested, there are few proven methods of projecting user demand or available industry standards on which
we can rely. We cannot assure you that our attempts to expand our user base and products and services will
be successful, proﬁtable or widely accepted and therefore the future revenue and income potential of our
business are difficult to evaluate. You should consider our prospects in light of the risks and uncertainties
fast-growing companies with limited operating histories may encounter.

If we fail to continually anticipate user preferences and provide attractive services on our online
marketplace, we may not be able to grow and retain our user base.

Our success depends on our ability to grow and retain our user base. In order to attract and retain users
and compete against our direct competitors and other industry or content-speciﬁc vertical websites, we must
continue to innovate and introduce services that our users ﬁnd useful and attract them to use our online
marketplace more frequently and become our paying users. For example, we must continue to develop new
content categories on our online marketplace that appeal to our users. The popularity of online marketing
services and other internet services is difficult to predict, and we cannot be certain that the services we offer
will continue to be popular with our users or sufficiently successful to offset the costs incurred to offer these
services. Given that we operate in a rapidly evolving industry in China, we need to continually anticipate user
preferences and industry changes and respond to such changes in a timely and effective manner. If we fail to
anticipate and meet the needs of our users, the size of our user base may decrease. A decrease in our user
base would render our online marketplace less attractive to merchants and may reduce our membership and
online marketing revenues, which may have a material and adverse effect on our marketing business, ﬁnancial
condition and results of operations.

If we fail to retain existing or attract new local merchants to use our online marketplace and pay for
our membership and online marketing services, our business, ﬁnancial condition and prospects may be
materially and adversely affected.

The success of our business depends on our ability to attract and retain local merchants that provide

information on our online marketplace to consumers and pay for our membership and online marketing
services and to offer attractive products and services to our consumer users. If we are unable to grow and
maintain a healthy ecosystem of local merchants, our users may ﬁnd our online marketplace to be less useful
than expected and may not continue to use our online marketplace. This in turn may affect our ability to
attract new merchants and convince existing merchants to renew their paid memberships or increase their level
of spending on our services. Our membership contracts have terms ranging from one month to one year.
A signiﬁcant portion of our paying merchant members are small and medium-sized local merchants who fail
to renew their membership contracts upon expiration for a number of reasons. The competitive landscape of
such local merchants changes quickly and may have temporary recruiting or marketing needs from time to
time. In addition, our efforts to provide greater incentives for our existing paying merchant members to use
our online marketing services, including marketing activities to highlight the value of differentiated paying

4

merchant members-only services, may not be successful. Our customers may terminate their memberships or
other spending on our online marketing services because we no longer serve their needs or because their
demands can be better fulﬁlled by our competitors or other service providers. Decisions by our customers not
to renew their memberships or not to use our online marketing services could reduce our revenues, as well
as cause us to incur additional cost in attracting new paying merchant members and other customers.
A signiﬁcant increase in local merchant attrition or decrease in local merchant spending on our services would
have an adverse effect on our business, ﬁnancial condition and results of operations.

We incurred net loss and experienced negative cash ﬂow from operations in the past. We may not be
able to maintain proﬁtability or positive net cash ﬂow from operations.

We have incurred net losses historically and we may incur losses in the future as we grow our business.
In 2012, we incurred net loss of US$30.4 million. In addition, we had negative cash ﬂow from operations of
US$4.7 million in 2012. We generated net income of US$19.6 million and US$22.6 million, and had positive
cash ﬂow from operations of US$66.3 million and US$98.6 million in 2013 and 2014, respectively. Our
historical net loss and negative cash ﬂow from operations are primarily related to sales and marketing
expenses, research and development expenses, and other costs and expenses we incurred to build, operate and
expand our online marketplace, grow our user base and establish our market position. We expect that we will
continue to incur marketing and sales, research and development and other expenses to launch new services
and grow our user base, which may affect our proﬁtability and operating cash ﬂow in the future.

Our future proﬁtability may also be signiﬁcantly impacted by the success of our recent and new service
offerings, such as our mobile services and 58 Home services. As competition in these new services intensiﬁes
in China, we may choose to invest heavily to gain market share, which may adversely affect our proﬁtability.

In addition, our ability to achieve or maintain proﬁtability is affected by various factors that are beyond
our control. For example, our revenues and proﬁtability depend on the continuous development of the online
marketing industry in China and local merchants’ allocation of more of their budgets to online marketing
services companies. We cannot assure you that online marketing services companies will become more widely
accepted in China or that merchants will increase their spending on online marketing services websites.

If we are unsuccessful in addressing any of these risks and uncertainties, our business may be materially
and adversely affected and we may incur net loss in the future. If we are unable to maintain positive operating
cash ﬂows, we may need to seek debt or equity ﬁnancing or may cease to operate as a going concern. Further
equity ﬁnancings may dilute our existing shareholders.

We face intense competition, and if we do not compete successfully against existing and new
competitors, we may lose market share and suffer losses.

We face intense competition. Our competitors in the online marketing space include other smaller
multi-category online classiﬁeds companies as well as industry or content-speciﬁc vertical websites whose
information serve the same underlying industries as certain content categories of our online marketplace. We
may also face competition from major internet companies, who may enter the online classiﬁeds market in
China. We compete primarily on the basis of user traffic, effectiveness of services in reaching targeted users,
ability to demonstrate marketing results and customer service capabilities.

We believe that our competitiveness depends upon many factors both within and beyond our control,
including our ability to increase our brand recognition and continue to develop user loyalty, our ability to keep
up with the technological developments and users’ changing demands and our ability to raise sufficient capital
to sustain and expand our business. For example, we may have to increase our sales and marketing expenses
from time to time to promote our brand, especially when the competition is intense. Some of our current and
potential competitors may have greater ﬁnancial, marketing, user traffic and other resources than we have. In
addition, local content providers may be acquired by, receive investments from or enter into strategic
relationships with larger, well-established and well-ﬁnanced companies or investors. Certain of our competitors
may be able to devote greater resources to marketing and promotional campaigns and devote substantially
more resources to website and system development than us. Increased competition may reduce our market
share and require us to increase our marketing and promotion efforts, which could negatively affect our
operating margins or force us to incur losses. There can be no assurance that we will be able to compete

5

successfully against current and future competitors or maintain our leading position or level of user traffic in
the online marketing services market in China, and competitive pressures may have a material adverse effect
on our business, prospects, ﬁnancial condition and results of operations.

We may not be able to effectively manage our growth and expansion or implement our business
strategies, in which case our business and results of operations may be materially and adversely
affected.

We have experienced a period of rapid growth and expansion, which has placed, and continues to place,
signiﬁcant strain on our management and resources. We cannot assure you that this level of signiﬁcant growth
and expansion will be sustainable or achieved at all in the future. We believe that our continued growth and
expansion will depend on our ability to develop new sources of revenue, attract new users, paying merchant
members and customers, retain and expand paying merchant members and customers, encourage additional
spending by our customers, continue developing innovative technologies in response to user demand, increase
brand awareness through marketing and promotional activities, react to changes in user access to and use of
the internet, expand into new market segments, integrate new devices, platforms and operating systems and
take advantage of any growth in the relevant markets. We cannot assure you that we will achieve any of the
above.

To manage our growth and expansion, and to attain and maintain proﬁtability, we anticipate that we will
need to implement a variety of new and upgraded operational and ﬁnancial systems, procedures and controls,
including the improvement of our accounting and other internal management systems. We will also need to
further expand, train, manage and motivate our workforce and manage our relationships with our paying
merchant members and customers. All of these endeavors involve risks and will require substantial
management efforts and skills and signiﬁcant additional expenditures. Our further expansion may divert our
management, operational or technological resources from our existing business operations. In addition, our
expansion may require us to operate in new cities in China, including a number of small cities in China,
where we may have difficulty in adjusting to local market demands and regulatory requirements. We cannot
assure you that we will be able to effectively manage our growth and expansion or implement our future
business strategies effectively, and failure to do so may materially and adversely affect our business and
results of operations.

Any damage to our reputation and brand or failure to enhance our brand recognition may materially
and adversely affect our business, ﬁnancial condition and results of operations.

We believe that the market recognition and reputation of our brand have signiﬁcantly contributed to the

success of our business. Maintaining and enhancing our brand is critical to our success and ability to compete.
Many factors, some of which are beyond our control, may negatively impact our brand and reputation,
such as:

•

•

•

any failure to maintain a pleasant and reliable experience for users as their preferences evolve and as
we expand into new services;

any decrease in brand awareness among our existing and potential users; and

any negative publicity about us or online marketing services or mobile services in general, including
any actual or perceived security or product or service quality problems involving online marketing
services providers in China.

Although all of our paying merchant members and a portion of our registered users go through certain
veriﬁcation procedures, fraudulent transactions and sale of counterfeit or pirated, as well as faulty or defective,
items through our online marketplace have occurred in the past and may occur in the future. In the past, we
found several counterfeit products sold through our website primarily relating to our group buying business,
which we signiﬁcantly scaled back since mid-2012, and immediately stopped the sellers from selling such
counterfeit products. Although we do not believe that we are responsible for the sellers’ wrongdoings, several
Chinese media reported the incidents and accused us of failure to safeguard buyers’ rights on our website.
These incidents and any similar incidents or true or untrue claims of such incidents could harm our reputation,
impair our ability to attract and retain users and grow our base of paying customers. If we are unable to

6

maintain a good reputation, further enhance our brand recognition, continue to develop our user loyalty and
increase positive awareness of our website, our results of operations may be materially and adversely affected.

We have incurred signiﬁcant costs on a variety of marketing efforts, including signiﬁcant advertising
expenses, designed to attract users, and some marketing campaigns and methods may turn out to be
ineffective.

We have invested signiﬁcantly in marketing to promote public awareness of online marketing services,
enhance our brand recognition and drive user growth, including incurring US$25.1 million, US$22.7 million
and US$73.4 million in advertising expenses in 2012, 2013 and 2014, respectively. Such advertising expenses
represented 32.8%, 26.9% and 40.8% of our total sales and marketing expenses and 28.8%, 15.6% and 27.7%
of our revenues in the corresponding periods. Our marketing activities may not be well received by users and
may not attract the additional traffic that we anticipated. The evolving marketing approaches and tools require
us to enhance our marketing approaches and experiment with new marketing methods to keep pace with
industry developments and user preferences. Failure to reﬁne our existing marketing approaches or to
introduce new effective marketing approaches in a cost-effective manner could reduce our market share, cause
our revenues to decline and negatively impact our proﬁtability.

We derive a signiﬁcant portion of our revenues from ﬁve of China’s major cities and we face market
risk due to our concentration in these major urban areas.

We derive a signiﬁcant portion of our revenues from ﬁve of China’s major cities: Beijing, Shanghai,

Shenzhen, Guangzhou and Chengdu. We expect these ﬁve cities to continue to be important sources of
revenues in all of our content categories. If any of these major cities experience events which negatively
impact the internet industry, such as a serious economic downturn or contraction, a natural disaster, or slower
economic growth due to adverse governmental policies or otherwise, demand for our services could decline
signiﬁcantly and our revenues and proﬁtability could be materially reduced. Any of these cities may
experience decreases in demand for services related to speciﬁc content categories on our marketplace, such as
housing or automotive, due to local policies, regulations or economic conditions. In addition, if a competitor,
including a local competitor whose business focuses on one of these cities, were to gain signiﬁcant market
share in any of these cities, our revenues may be materially and adversely affected.

The markets for online marketing services and mobile services in China are constantly evolving and
may not grow as quickly as expected or at all.

Our business and prospects are affected by the development of emerging internet business models in
China, including those for online marketing services and mobile services. Our membership services and other
online marketing services have distinct business models which may differ from models for these businesses in
other markets, such as the United States, and that are in varying stages of development and monetization. Our
future success will depend on our ability to respond to rapidly changing technologies, adapt our products and
services to evolving industry standards and improve the performance and reliability of our products and
services. Our failure to adapt to such changes could harm our business. In addition, changes in user behavior
resulting from technological developments may also adversely affect us. We cannot assure you that the online
marketing services and mobile services industries in China will continue to grow as rapidly as they have in
the past or at all. With the development of technology, new internet services may emerge which are not a part
of our service offerings and which may render online marketing services or mobile services less attractive to
users. The growth and development of these industries are affected by numerous factors, such as the
macroeconomic environment, regulatory changes, technological innovations, development of internet and
internet-based services, users’ general online experience, cultural inﬂuences and changes in tastes and
preferences. If the online marketing services and mobile services industries in China do not grow as quickly
as expected or at all, or if we fail to beneﬁt from such growth by successfully implementing our business
strategies, our business and prospects may be adversely affected.

7

If we fail to keep up with the technological developments and users’ changing requirements or to
successfully capture and retain a signiﬁcant portion of the growing number of users that access online
marketing services, we may be unable to meet our revenue growth expectations and our results of
operation may be adversely affected.

The internet industries in China are subject to rapid and continuous changes in technology, user
preferences, the nature of services offered and business models. Our success will depend on our ability to
keep up with the changes in technology and user behavior resulting from technological developments. If we
do not adapt our services to such changes in an effective and timely manner, we may suffer from decreased
user traffic, which may result in a reduction of revenues from our membership services or a decrease in
spending on our other services.

Our online marketing services are now accessible to users from many internet-enabled devices, and we

offer versions of our services for mobile operating systems, including Android and iOS. An important element
of our strategy is to continue to develop our online marketplace and services for mobile devices to capture a
greater share of the growing number of users that access online marketing services and other internet services
through smartphones and other mobile devices. The lower resolution, functionality and memory associated
with some mobile devices make the use of services through such devices more difficult and the services we
develop for these devices may fail to prove compelling to users. Manufacturers or distributors may establish
unique technical standards for their devices, and our services may not work or be viewable on these devices
as a result. As new devices and new services are continually being released, it is difficult to predict the
problems we may encounter in developing our services for use on these devices and we may need to devote
signiﬁcant resources to the creation, support and maintenance of such services. Devices providing access to
our products and services are not manufactured and sold by us, and we cannot assure you that the companies
manufacturing or selling these devices would always ensure that their devices perform reliably and are
maximally compatible with our systems. Any faulty connection between these devices and our products and
services may result in consumer dissatisfaction with us, which could damage our brand and have a material
and adverse effect on our ﬁnancial results. Furthermore, new online marketing services may emerge which are
speciﬁcally created to function on mobile platforms, as compared to our online marketing services that were
originally designed to be accessed through personal computers, or PCs, and such new services may operate
more effectively through mobile devices than our own. If we are unable to attract and retain a substantial
number of mobile device users to our services, or if we are slower than our competitors in developing
attractive services that are adapted for such devices, we may fail to capture a signiﬁcant share of an
increasingly important portion of the market for our services or lose existing users, either of which may have
a material adverse effect on our business, ﬁnancial condition and results of operations.

Furthermore, changes in technologies may require substantial capital expenditures in development of new

features, applications and services as well as in modiﬁcation of existing features, applications, services or
infrastructure. We may not successfully execute our business strategies due to a variety of reasons such as
technical hurdles, misunderstandings or erroneous predictions of market demand or lack of necessary
resources. Failure in keeping up with technological developments may result in our online marketplace being
less attractive, and as a result we may be unable to meet our revenue growth expectations and our results of
operations may be adversely affected.

If internet search engines’ ranking methodologies are modiﬁed or our search result page rankings
decline for other reasons, our user traffic could decrease.

We depend in part on various internet companies to direct traffic to our website. Our ability to maintain

the number of visitors directed to our website is not entirely within our control. Our competitors’ search
engine optimization efforts may result in their websites receiving a higher search result page ranking than
ours, or internet companies could revise their methodologies in an attempt to improve their search results,
which could adversely affect the placement of our search result page ranking. If internet companies modify
their search algorithms in ways that are detrimental to our user growth or in ways that make it harder for our
users to ﬁnd our website, or if our competitors’ search engine optimization efforts are more successful than
ours, our overall growth in user traffic could slowdown or decrease, and we could lose existing users. Our

8

website has experienced ﬂuctuations in search result rankings in the past, and we anticipate similar
ﬂuctuations in the future. Any reduction in the number of users directed to our website would harm our
business and results of operations.

Our business depends substantially on the continuing efforts of our executive officers and key
employees, and our business may be severely disrupted if we lose their services.

We currently depend on the continued services and performance of the key members of our management

team, in particular Mr. Jinbo Yao, our chairman and chief executive officer. Mr. Yao is one of our founders
and his leadership has played an integral role in our growth. Our future success depends substantially on the
continued efforts of our executive officers and key employees. If one or more of our executive officers or key
employees were unable or unwilling to continue their service, we might not be able to replace them easily, in
a timely manner, or at all, and our business may be severely disrupted, our ﬁnancial conditions and results of
operations may be materially and adversely affected and we may incur additional expenses to recruit, train and
retain personnel. If any of our executive officers or key employees joins a competitor or forms a competing
company, we may lose users, know-how and key professionals and staff members. Each of our executive
officers and key employees has entered into an employment agreement and a conﬁdentiality and
non-competition agreement with us. However, if any dispute arises between our executive officers and key
employees, on one hand, and us on the other, we cannot assure you that we would be able to enforce these
non-compete provisions in China, where these executive officers reside, in light of uncertainties with the
PRC legal system. See ‘‘— Risks Related to Doing Business in China — Uncertainties in the interpretation
and enforcement of PRC laws and regulations could limit the legal protections available to you and us.’’

If we are unable to attract, train and retain qualiﬁed personnel, our business may be materially and
adversely affected.

Our future success depends, to a signiﬁcant extent, on our ability to attract, train and retain qualiﬁed
personnel, particularly management, technical and marketing personnel with expertise in the online marketing
industry. Our ﬁeld sales and customer service teams are also critical to maintaining the quality of our services
as they interact with local merchants on a daily basis. We must continue to attract qualiﬁed personnel at a
fast pace to keep up with our growing user base and the scale of our operations. Since our industry is
characterized by high demand and intense competition for talent, there can be no assurance that we will be
able to attract or retain qualiﬁed staff or other highly skilled employees that we will need to achieve our
strategic objectives. As we are still a relatively young company, our ability to train and integrate new
employees into our operations may not meet the growing demands of our business. If we are unable to attract,
train, and retain qualiﬁed personnel, our business may be materially and adversely affected.

Future strategic alliances or acquisitions may have a material and adverse effect on our business,
reputation and results of operations.

We may enter into strategic alliances with various third parties to further our business purposes from time
to time. For example, in June 2014, we entered into a strategic partnership with Tencent Holdings Limited, or
Tencent, a leading provider of comprehensive Internet services in China, pursuant to which Tencent invested
US$736.1 million in exchange for approximately 19.9% equity interest in our company on a fully-diluted
basis.

Strategic alliances with third parties could subject us to a number of risks, including risks associated with
sharing proprietary information, non-performance by the counter-party, and an increase in expenses incurred in
establishing new strategic alliances, any of which may materially and adversely affect our business. In
addition, to the extent the strategic partner suffers negative publicity or harm to their reputation from events
relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our
association with such third parties, and we may have little ability to control or monitor their actions.

In addition, after our IPO in October 2013, we have made several acquisitions and investments, among
which the major ones are the acquisition of a strategic stake in Ganji.com, for approximately 34 million new
ordinary shares (two Class A ordinary shares equivalent to one ADS) of our company and US$412.2 million
in cash in April 2015, acquisition of Anjuke.com Inc. for approximately ﬁve million new ordinary shares (two

9

Class A ordinary shares equivalent to one ADS) of our company and US$160.2 million in cash in March 2015
and investments in To8to for approximately US$33.7 million in March 2015, acquisition of Jiaxiao
Yidiantong, a website that provides driving test information and services for US$22.8 million in April 2015
and investment in Edaijia for US$20.0 million in October 2014. We may invest in or acquire additional assets,
products, technologies or businesses that are complementary to our existing business. Future investments,
acquisitions and the subsequent integration of new assets and businesses into our own would require
signiﬁcant attention from our management and could result in a diversion of resources from our existing
business, which in turn could have an adverse effect on our business operations. Invested or acquired assets or
businesses may not generate the ﬁnancial results we expect and may adversely affect our results of operations.
Furthermore, investments and acquisitions could result in the use of substantial amounts of cash, potentially
dilutive issuances of equity securities, the occurrence of signiﬁcant goodwill impairment charges, amortization
expenses for other intangible assets and exposure to potential unknown liabilities of the acquired businesses.
Moreover, the costs of identifying and consummating acquisitions may be signiﬁcant.

Furthermore, the legal requirements on acquisitions by us and our PRC subsidiaries are different from
acquisitions by our consolidated affiliated entities. Most importantly, if we or our PRC subsidiaries acquire
any domestic companies in China, such acquisition will be subject to PRC laws and regulations on foreign
investment. We and our PRC subsidiaries are restricted or prohibited from directly acquiring interests in
companies in certain industries under PRC laws and regulations. See ‘‘Item 4. Information on the
Company — B. Business Overview — Regulation — Regulations on Value-Added Telecommunication
Services.’’ Our consolidated affiliated entities are not subject to PRC laws and regulations on foreign
investment and may acquire PRC companies operating in industries where foreign investments are restricted
or prohibited. However, there are uncertainties with respect to the interpretation and application of PRC laws
and regulations regarding indirect foreign investments in such industries. See ‘‘— Risks Related to Our
Corporate Structure and Restrictions on Our Industry — Substantial uncertainties and restrictions exist with
respect to the interpretation and application of PRC laws and regulations relating to online commerce and the
distribution of internet content in China. If the PRC government ﬁnds that the structure we have adopted for
our business operations does not comply with PRC laws and regulations, we could be subject to severe
penalties, including the shutting down of our website.’’

The proper functioning of our marketplace, network infrastructure and information technology
systems is essential to our business, and any failure to maintain the satisfactory performance, security
and integrity of our systems will materially and adversely impair our ability to provide services and
affect our business, reputation, ﬁnancial condition and results of operations.

The proper functioning of our marketplace is essential to the conduct of our business. Speciﬁcally,

the satisfactory performance, reliability and availability of our website and mobile applications, our
transaction-processing systems and our network infrastructure are critical to our success and our ability to
attract and retain users and provide adequate services. Our revenues depend on the user traffic on our website
and the volume of activities that traffic creates.

In addition, our ability to provide consumers and local merchants with a high quality online experience
depends on the continuing operation and scalability of our network infrastructure and information technology
systems. The risks we face in this area include:

•

•

•

our systems are potentially vulnerable to damage or interruption as a result of earthquakes, ﬂoods,
ﬁres, extreme temperatures, power loss, telecommunications failures, technical error, computer
viruses, hacking and similar events;

we may encounter problems when upgrading our systems or services and undetected programming
errors could adversely affect the performance of the software we use to provide our services. The
development and implementation of software upgrades and other improvements to our internet
services is a complex process, and issues not identiﬁed during pre-launch testing of new services
may only become evident when such services are made available to our entire user base; and

we rely on servers, data centers and other network facilities provided by third parties, and the
limited availability of third-party providers with sufficient capacity to house additional network

10

facilities and broadband capacity in China may lead to higher costs or limit our ability to offer
certain services or expand our business. In particular, electricity, temperature control or other failures
at the data centers we use may adversely affect the operation of our servers or result in service
interruptions or data loss.

These and other events in the past occasionally led to and may in the future lead to interruptions,
decreases in connection speed, degradation of our services or the permanent loss of user data and uploaded
content. Any system interruptions caused by telecommunications failures, computer viruses, or hacking or
other attempts to harm our systems that result in the unavailability of our website and mobile applications or
reduced performance would reduce the attractiveness of the services offered on our online marketplace. If we
experience frequent or persistent service disruptions, whether caused by failures of our own systems or those
of third-party service providers, our reputation or relationships with our users may be damaged and our users
may switch to our competitors, which may have a material adverse effect on our business, ﬁnancial condition
and results of operations.

Our operations depend on the performance of the internet infrastructure and ﬁxed telecommunications
networks in China.

Almost all access to the internet in China is maintained through state-owned telecommunication operators

under the administrative control and regulatory supervision of the Ministry of Industry and Information
Technology, or the MIIT. Moreover, we primarily rely on a limited number of telecommunication service
providers to provide us with data communications capacity through local telecommunications lines and
internet data centers to host our servers. We have limited access to alternative networks or services in the
event of disruptions, failures or other problems with the PRC internet infrastructure or the ﬁxed
telecommunications networks provided by telecommunication service providers. With the expansion of our
business, we may be required to upgrade our technology and infrastructure to keep up with the increasing
traffic on our website. We cannot assure you that the internet infrastructure and the ﬁxed telecommunications
networks in China will be able to support the demands associated with the continued growth in internet usage.

In addition, we have no control over the costs of the services provided by telecommunication service

providers. If the prices we pay for telecommunications and internet services rise signiﬁcantly, our results of
operations may be materially and adversely affected. Furthermore, if internet access fees or other charges to
internet users increase, our user traffic may decline and our business may be harmed.

We may not be able to prevent others from unauthorized use of our intellectual property, which could
harm our business and competitive position.

We regard our trademarks, service marks, domain names, trade secrets, proprietary technologies and
similar intellectual property as critical to our success, and we rely on trademark law, trade secret protection
and conﬁdentiality and license agreements with our employees, partners and others to protect our proprietary
rights. As of March 31, 2015, we have registered 31 domain names that are material to our business, including
www.58.com, www.58.com.cn, anjuke.cn and anjuke.com, and 65 trademarks in China. As the registrant of the
trademarks, Beijing 58 has an exclusive right to use such trademarks in China for the goods or services under
the trademark categories that it has registered. Beijing 58 also enjoys the exclusive right to use the domain
names that it has registered. However, trademarks may also be invalidated, circumvented or challenged. For
example, under PRC law, certain graphics may not be registered as a trademark and if a registered trademark
is found to violate such prohibition, the relevant authority can invalidate the trademark; third parties may
challenge such registered trademarks and apply to the authority for invalidation. In addition, if a registered
trademark is identical or similar to a well-known trademark or prejudices the existing right obtained by others,
it may be invalidated by the relevant authority upon request by the right holder. Trade secrets are difficult to
protect, and our trade secrets may be leaked or otherwise become known or be independently discovered by
competitors. Conﬁdentiality agreements may be breached, and we may not have adequate remedies for any
breach.

It is often difficult to enforce intellectual property rights in China. Even where adequate laws exist in

China, it may not be possible to obtain prompt and equitable enforcement of such laws, or to obtain
enforcement of a court judgment or an arbitration award delivered in another jurisdiction, and accordingly, we

11

may not be able to effectively protect our intellectual property rights in China. Policing any unauthorized use
of our intellectual property is difficult and costly and the steps we have taken may be inadequate to prevent
the misappropriation of our technologies.

We may not be able to successfully halt the operations of websites that aggregate our data as well as
data from other companies, including social networks, or ‘‘copycat’’ websites that have
misappropriated our data in the past or may misappropriate our data in the future.

From time to time, third parties have misappropriated our data through website scraping, robots or other
means and aggregated this data on their websites. In addition, ‘‘copycat’’ websites have misappropriated data
on our website and attempted to imitate our brand or the functionality of our website. When we have become
aware of such websites, we have taken measures to halt such conduct. However, we may not be able to detect
all such websites in a timely manner and the measures we take may be insufficient to stop their conduct. In
those cases, our available remedies may not be adequate to protect us against such websites. Regardless of
whether we can successfully enforce our rights against these websites, any measures that we may take could
require us to expend signiﬁcant ﬁnancial or other resources.

We may be subject to intellectual property infringement claims or other allegations by third parties for
services we provide or for information or content displayed on, retrieved from or linked to our website,
or distributed to our users, which may materially and adversely affect our business, ﬁnancial condition
and prospects.

Internet, technology and media companies are frequently involved in litigation based on allegations of

infringement of intellectual property rights, unfair competition, invasion of privacy, defamation and other
violations of other parties’ rights. The validity, enforceability and scope of protection of intellectual property
rights in internet-related industries, particularly in China, are uncertain and still evolving. We face, from time
to time, and expect to face in the future, allegations that we have infringed the trademarks, copyrights, patents
and other intellectual property rights of third parties, including our competitors, or allegations that we are
involved in unfair competition against our competitors. As we face increasing competition and sometimes
have to take defensive measures in response to competitive pressure and as litigation become more common
in China in resolving commercial disputes, we face a higher risk of being the subject of intellectual property
infringement and unfair competition claims. Intellectual property and unfair competition claims and litigation
may be expensive and time-consuming to investigate and defend, and may divert resources and management
attention from the operation of our business. Such claims, even if they do not result in liability, may harm our
reputation. Any resulting liability or expenses, or changes required to be made to our website to reduce the
risk of future liability, may have a material adverse effect on our business, ﬁnancial condition and prospects.

We utilize software that selectively identiﬁes classiﬁed information listings on other websites in certain

content categories for which our certiﬁcation procedure is not required and replicates such listings on
www.58.com. These replicated listings are not given individualized registered user accounts and are not
counted as listings for purposes of calculating the listings per day posted by our users as disclosed in this
annual report. If an original poster wants to delete a replicated listing on our website, the poster can either use
our online self-help functions or contact our customer service online to delete the listing. We do not explicitly
indicate the replicated listings on our website, although we notify our users of the replicated nature of the
listings upon inquiry. We believe this is a widespread practice in our industry in China. However, the practice
may be deemed to be in violation of the PRC Anti-Unfair Competition Law. If other market participants bring
legal claims against us for conducting unfair competition, we may be held liable by the court and be required
to pay damages to the plaintiffs equal to the losses suffered by the market participants as a result of the unfair
competition practices or, if it is difficult to calculate the losses, equal to the aggregate proﬁts earned through
the unfair competition practices and the reasonable expenses incurred by the plaintiffs to investigate the unfair
competition practices. We have never generated revenue from replicated listings. In addition, if the replicated
listings are protected under copyright law, the practice of replicating listings may be deemed to be copyright
infringement. In such case, we may be required to cease the act of infringement, eliminate any inﬂuence
caused, apologize to and pay damages to the copyright owners and be subject to penalties including
conﬁscation of illegal gains and imposition of ﬁnes by the relevant governmental authorities. In addition, we
have from time to time been the subject of critical media coverage due to this practice, which could harm our
reputation and business.

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We may be held liable to third parties for information or content displayed on, retrieved from or linked
to our website, or distributed to website users, which could harm our reputation and business.

Our online marketing services enable users to exchange local business or service information, generate

content, market products and services, conduct business and engage in various other online activities. Claims
may be brought against us for defamation, libel, negligence, copyright, patent or trademark infringement, tort
(including personal injury), fraud, other unlawful activity or other theories and claims based on the nature and
content of information to which we link or that may be posted on our website, generated by our users, or
delivered or shared hypertext links to third-party websites, or video or image services, if appropriate licenses
and/or third-party consents have not been obtained. Third-parties may also seek to assert claims against us
alleging unfair competition or violations of privacy rights or failure to maintain the conﬁdentiality of user
data. Our defense of any such actions could be costly and involve signiﬁcant time and attention of our
management and other resources.

We are also regularly approached and asked to remove content uploaded by users on the grounds of

alleged copyright or personal rights infringement. In such cases, we investigate the claims and remove any
uploads that appear to infringe the rights of a third party after our reasonable investigation and determination.
Our corporate policy requires a user to enter into a user agreement in the registration process before posting
any content on our website. Pursuant to the user agreement, a user makes certain representations and
warranties relating to the user generated content on our website. See ‘‘Item 4. Information on the
Company — B. Business Overview — Content Management and Monitoring.’’ However, we have been and in
the future may be subject to intellectual property infringement claims or other allegations by third parties for
services provided or content displayed on our website. Although we believe that we will have recourse to
indemniﬁcation from alleged infringing users on the basis of the user agreement, such right to recourse is
subject to the enforcement mechanism of PRC legal system, which may not be effective. Our data security
team also screens our website to eliminate content that we believe may infringe copyrights. Although our
internal policy, terms of our user agreements and the screening system are designed to help limit the
occurrences and impact of infringing activities, they may not be effective in eliminating such occurrences or
dissemination of infringing materials on our website.

Pursuant to PRC national and Beijing local regulations and judicial interpretations, online service

providers that provide information storage space for users to upload works or link services may be held liable
for damages if such providers know or have reason to know that the works uploaded or linked infringe others’
copyrights. The Supreme People’s Court of China promulgated a judicial interpretation on infringement of the
right of dissemination through internet in December 2012. This judicial interpretation, like certain court
rulings and certain other judicial interpretations, provide that the courts will place the burden on internet
service providers to remove not only links or contents that have been speciﬁcally mentioned in the notices of
infringement from right holders, but also links or contents they should have known to contain infringing
content. The interpretation further provides that where an internet service provider has directly obtained
economic beneﬁts from any contents made available by an internet user, it has a higher duty of care with
respect to internet users’ infringement of third-party copyrights. This interpretation could subject us and other
online service providers to signiﬁcant administrative burdens and litigation risks.

Concerns about collection and use of personal data could damage our reputation and deter current
and potential users from using our services.

Concerns about our practices with regard to the collection, use or disclosure of personal information or

other privacy-related matters, even if unfounded, could damage our reputation and operating results. Pursuant
to the applicable PRC laws and regulations concerning the collection, use and sharing of personal data, our
PRC subsidiaries and consolidated affiliated entities are required to keep our users’ personal information
conﬁdential and are prohibited from disclosing such information to any third parties without the users’
consent. We apply strict management and protection to any information provided by users, and under our
privacy policy, without our users’ prior consent, we will not provide any of our users’ personal information to
any unrelated third party. In December 2012 and July 2013, new laws and regulations were issued by the
standing committee of the PRC National People’s Congress and the MIIT to enhance the legal protection of
information security and privacy on the internet. The laws and regulations also require internet operators to
take measures to ensure conﬁdentiality of information of users. While we strive to comply with our privacy

13

guidelines as well as all applicable data protection laws and regulations, any failure or perceived failure to
comply may result in proceedings or actions against us by government entities or others, and could damage
our reputation. User and regulatory attitudes towards privacy are evolving, and future regulatory or user
concerns about the extent to which personal information is shared with merchants or others may adversely
affect our ability to share certain data with merchants, which may limit certain methods of targeted marketing.
Concerns about the security of personal data could also lead to a decline in general internet usage, which
could lead to lower user traffic on our website. A signiﬁcant reduction in user traffic could lead to lower
revenues from paying users, which could have a material adverse effect on our business, ﬁnancial condition
and results of operations.

We could be liable for any breach of security relating to the third-party online payment platforms we
use, and concerns about the security of internet transactions could damage our reputation, deter
current and potential users from using our online marketplace and have other adverse consequences
to our business.

Users may conduct transactions on our online marketplace through third-party online payment platforms.

In these online payment transactions, secured transmission of conﬁdential information, such as customers’
credit card numbers and expiration dates, personal information and billing addresses, over public networks is
essential to maintain consumer conﬁdence. In addition, we expect that an increasing amount of our sales and
transactions conducted on our online marketplace will be conducted over the internet as a result of the
growing use of online payment platforms. As the prevalence of using online payment methods increases,
associated online crimes will likely increase as well. Our current security measures and those of the third-
party online payment platform service providers may not be adequate. We must be prepared to increase and
enhance our security measures and efforts so that our users have conﬁdence in the reliability of the online
payment platforms that we use, which will impose additional costs and expenses and may still not guarantee
complete safety. In addition, we do not have control over the security measures of our third-party online
payment platform service providers. Security breaches of the online payment platforms that we use could
expose us to litigation and possible liability for failing to secure conﬁdential user information and could,
among other things, damage our reputation.

A signiﬁcant barrier to ﬁnancial transactions or other electronic payment processing platforms over the

internet in general has been public concern over the security of online payments. If these concerns are not
adequately addressed, they may inhibit the growth of paid online services generally. If an internet or mobile
network security breach were to occur and get publicized, the perceived security of the online payment
platforms may be damaged, and users concerned about the security of their transactions may become reluctant
to purchase our services even if the publicized breach did not involve payment platforms or methods used
by us.

If any of the above were to occur and damage our reputation or the perceived security of the online

payment platforms that we use, we may lose users and user traffic, and users may be discouraged from
purchasing our services, which may have an adverse effect on our business. Any signiﬁcant reduction in user
traffic could lead to lower revenues from membership and online marketing services.

Spammers and malicious applications may make our services less user-friendly and discourage users
from using our website or services.

Spammers may use our website and services to send targeted and untargeted spam messages to users,

which may embarrass or annoy users and make usage of our website and services more time-consuming and
less user-friendly. As a result, our users may use our services less or stop using them altogether. As part of
fraudulent spamming activities, spammers typically create multiple user accounts, such as accounts being
set-up for the purposes of sending spam messages. Although we have technologies and employees that attempt
to identify and delete accounts created for spamming purposes, we are not able to eliminate all spam
messages from being sent on our website.

14

Our business, ﬁnancial condition and results of operations, as well as our ability to obtain ﬁnancing,
may be adversely affected by the downturn in the global or Chinese economy.

The online information services and mobile services industries may be affected by economic downturns.
Thus, our business and prospects may be affected by the macroeconomic environment in China. A prolonged
slowdown in the Chinese economy may lead to a reduced amount of activities on our marketplace, which
could materially and adversely affect our business, ﬁnancial condition and results of operations. In addition,
our products and services may be viewed as discretionary by our users, who may choose to discontinue or
reduce spending on such products and services during an economic downturn. In such an event, our ability to
retain existing paying merchant members and customers and recruiting new paying merchant members and
customers will be adversely affected, which would in turn negatively impact our business and results of
operations.

Moreover, a slowdown or disruption in the global or China’s economy may have a material and adverse
impact on ﬁnancings available to us. The weakness in the economy could erode investors’ conﬁdence, which
constitutes the basis of the credit market. The recent ﬁnancial turmoil affecting the ﬁnancial markets and
banking system may signiﬁcantly restrict our ability to obtain ﬁnancing in the capital markets or from
ﬁnancial institutions on commercially reasonable terms, or at all. Although we are uncertain about the extent
to which the recent global ﬁnancial and economic crisis and slowdown of China’s economy may impact our
business in the short-term and long-term, there is a risk that our business, results of operations and prospects
would be materially and adversely affected by any global economic downturn or disruption or slowdown of
China’s economy.

We may need additional capital, and the sale of additional ADSs or other equity securities could result
in additional dilution to our shareholders.

We believe that our current cash and cash equivalents and anticipated cash ﬂow from operations will be
sufficient to meet our anticipated cash needs for the foreseeable future. We may, however, require additional
cash resources due to changed business conditions or other future developments, including any investments or
acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we
may seek to sell additional equity or debt securities or obtain a credit facility. For example, in June 2014 and
April 2015, we issued 36,805,000 ordinary shares at the equivalent of US$20 per ordinary share and
15,384,616 ordinary shares at the equivalent of US$26 per ordinary share, respectively, to a holding vehicle of
Tencent Holdings Limited, or Tencent. The sale of additional equity securities could result in additional
dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations
and could result in operating and ﬁnancing covenants that would restrict our operations. It is uncertain
whether ﬁnancing will be available in amounts or on terms acceptable to us, if at all.

If we fail to implement and maintain an effective system of internal controls, we may be unable to
accurately or timely report our results of operations or prevent fraud, and investor conﬁdence and the
market price of our ADSs may be materially and adversely affected.

Our independent registered public accounting ﬁrm conducted an audit of the effectiveness of our internal
control over ﬁnancial reporting as of December 31, 2014. Our management also assessed the effectiveness of
our internal control over ﬁnancial reporting as of December 31, 2014. We and our independent registered
public accounting ﬁrm identiﬁed one ‘‘material weakness’’ in our internal control over ﬁnancial reporting, as
deﬁned in the standards established by the Public Company Accounting Oversight Board of the United States,
or PCAOB. The material weakness identiﬁed related to the lack of sufficient accounting personnel to perform
the reconciliation controls over advertising expenses related accounts.

Although we have taken measures and plan to continue to take measures to remedy these deﬁciencies,

the implementation of these measures may not fully address these deﬁciencies in our internal control over
ﬁnancial reporting, and we cannot conclude that they have been fully remedied. Our failure to correct these
control deﬁciencies or our failure to discover and address any other control deﬁciencies could result in
inaccuracies in our ﬁnancial statements and could also impair our ability to comply with applicable ﬁnancial
reporting requirements and related regulatory ﬁlings on a timely basis. As a result, our business, ﬁnancial

15

condition, results of operations and prospects, as well as the trading price of our ADSs, may be materially and
adversely affected. Moreover, ineffective internal control over ﬁnancial reporting signiﬁcantly hinders our
ability to prevent fraud.

In addition, after we become a public company, our reporting obligations may place a signiﬁcant strain
on our management, operational and ﬁnancial resources and systems for the foreseeable future. We may be
unable to timely complete our evaluation testing and any required remediation.

During the course of documenting and testing our internal control procedures, in order to satisfy the
requirements of Section 404, we may identify other weaknesses and deﬁciencies in our internal control over
ﬁnancial reporting. In addition, if we fail to maintain the adequacy of our internal control over ﬁnancial
reporting, as these standards are modiﬁed, supplemented or amended from time to time, we may not be able
to conclude on an ongoing basis that we have effective internal control over ﬁnancial reporting in accordance
with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer
material misstatements in our ﬁnancial statements and fail to meet our reporting obligations, which would
likely cause investors to lose conﬁdence in our reported ﬁnancial information. This could in turn limit our
access to capital markets, harm our results of operations, and lead to a decline in the trading price of our
ADSs. Additionally, ineffective internal control over ﬁnancial reporting could expose us to increased risk of
fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we
list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our ﬁnancial
statements from prior periods.

We have granted employee share options and other share-based awards in the past and will continue
to do so in the future. We recognize share-based compensation expenses in our consolidated statement
of comprehensive income/(loss) in accordance with U.S. GAAP. Any additional grant of employee
share options and other share-based awards in the future may have a material adverse effect on our
results of operation.

We adopted an employee stock option plan in 2010, or the 2010 Plan, and a share incentive plan in 2013,

or the 2013 Plan, for the purpose of granting share-based compensation awards to employees, directors and
consultants to incentivize their performance and align their interests with ours. Under the 2010 Plan, we are
permitted to issue options to purchase up to 20,173,225 ordinary shares. Under the 2013 Plan, we are
authorized to grant options, restricted shares, restricted share units or other awards to purchase up to
12,445,628 or more ordinary shares as of April 20, 2015, including the automatic increase of 2,645,628
ordinary shares pursuant to the terms of the 2013 Plan and a recent increase of 7,000,000 ordinary shares in
connection with our investment in Ganji. As of March 31, 2015, restricted share units and options to purchase
2,328,823 ordinary shares were issued and outstanding under the 2013 Plan, and 5,668,318 options to
purchase 5,668,318 ordinary shares were issued and outstanding under the 2010 Plan. 58 Daojia Inc., or
58 Daojia, a wholly owned subsidiary of ours, adopted a share incentive plan in 2015 and granted options and
restricted shares under that plan to certain of our employees. See ‘‘Item 6. Directors, Senior Management and
Employees — B. Compensation.’’ We may grant substantial additional share-based awards in connection with
our acquisition of or investment in Ganji and other companies. As a result of these grants and potential future
grants, we incurred in the past and expect to continue to incur in future periods signiﬁcant share-based
compensation expenses. The amount of share-based compensation expenses is based on the fair value of the
share-based awards. We account for compensation costs for all share-based awards using a fair-value based
method and recognize expenses in our consolidated statement of comprehensive income/(loss) in accordance
with U.S. GAAP. The expenses associated with share-based compensation will increase our net loss or
decrease our net income, perhaps materially, and the additional securities issued under share-based
compensation plans will dilute the ownership interests of our shareholders, including holders of our ADSs.
However, if we limit the scope of our share-based compensation plan, we may not be able to attract or retain
key personnel who are expected to be compensated by incentive shares or options.

We have limited business insurance coverage.

Insurance companies in China currently do not offer as extensive an array of insurance products as
insurance companies do in more developed economies. Except for the property insurance and third-party
liability insurance purchased by Wanglin, we do not have any business liability or disruption insurance to

16

cover our operations. We have determined that the costs of insuring for these risks and the difficulties
associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have
such insurance. Any uninsured occurrence of business disruption may result in our incurring substantial costs
and the diversion of resources, which could have an adverse effect on our results of operations and ﬁnancial
condition.

Failure to renew our current leases or locate desirable alternatives for our facilities could materially
and adversely affect our business.

In September 2014, we have entered into an agreement to purchase approximately 45,000 square
meters of office space in Chaoyang District, Beijing, which will be used for our company’s new corporate
headquarters. However, approximately 37% of the total new office space will not be ready for occupancy until
October 2015, and the remaining space will not be ready for occupancy until July 2016. As a result, all of our
offices and data centers are presently located on leased premises. At the end of each lease term, we may not
be able to negotiate an extension of the lease and may therefore be forced to move to a different location,
or the rent we pay may increase signiﬁcantly. This could disrupt our operations and adversely affect our
proﬁtability. We compete with other businesses for premises at certain locations or of desirable sizes and some
landlords may have entered into long-term leases with our competitors for such premises. As a result, we may
not be able to obtain new leases at desirable locations or renew our existing leases on acceptable terms or at
all, which could materially and adversely affect our business.

Risks Related to Our Corporate Structure and Restrictions on Our Industry

Substantial uncertainties and restrictions exist with respect to the interpretation and application of
PRC laws and regulations relating to online commerce and the distribution of internet content in
China. If the PRC government ﬁnds that the structure we have adopted for our business operations
does not comply with PRC laws and regulations, we could be subject to severe penalties, including the
shutting down of our website.

Foreign ownership of internet-based businesses is subject to signiﬁcant restrictions under current

PRC laws and regulations. The PRC government regulates internet access, the distribution of online
information and the conduct of online commerce through strict business licensing requirements and other
government regulations. These laws and regulations also include limitations on foreign ownership in PRC
companies that provide internet content distribution services. Speciﬁcally, foreign investors are not allowed to
own more than 50% of the equity interests in any entity conducting an internet content distribution business.
The Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added
Telecommunications Business, or the MIIT Circular, issued by the MIIT in July 2006, reiterated the
regulations on foreign investment in telecommunications businesses, which require foreign investors to set up
foreign-invested enterprises and obtain business operating licenses for internet content provision to conduct
any value-added telecommunications business in China. Under the MIIT Circular, a domestic company that
holds an internet content provision license, or ICP license, is prohibited from leasing, transferring or selling
the license to foreign investors in any form, and from providing any assistance, including providing resources,
sites or facilities, to foreign investors that conduct value-added telecommunications business illegally in China.
Furthermore, the relevant trademarks and domain names that are used in the value-added telecommunications
business must be owned by the local ICP license holder or its shareholders. Due to a lack of interpretation
from MIIT, it is unclear what impact the MIIT Circular will have on us or the other PRC internet companies
that have adopted the same or similar corporate and contractual structures as ours. Beijing 58 holds an ICP
license, and owns all domain names used in our value-added telecommunications businesses. Beijing 58 is
also the owner of all registered trademarks used in our value-added telecommunications businesses and is the
applicant of all the applications for trademark registration we have made.

We are a Cayman Islands company and our PRC subsidiary, Wanglin, is considered a foreign invested
enterprise. To comply with PRC laws and regulations, we conduct our operations in China through a series of
contractual arrangements entered into among Wanglin, Beijing 58 and Beijing 58’s shareholders. As a result of
these contractual arrangements, we exert control over our Beijing 58 and its subsidiaries and consolidate their
operating results in our ﬁnancial statements under U.S. GAAP. For a detailed description of these contractual
arrangements, see ‘‘Item 4. Information on the Company — A. History and Development of the Company.’’

17

In the opinion of our PRC counsel, Han Kun Law Offices, our current ownership structure, the ownership

structure of our PRC subsidiaries and our consolidated affiliated entities, the contractual arrangements among
Wanglin, Beijing 58 and its shareholders, and, except as otherwise disclosed in this annual report, our business
operations, are not in violation of any existing PRC laws, rules and regulations. There are, however,
substantial uncertainties regarding the interpretation and application of current or future PRC laws and
regulations. In particular, in January 2015, the Ministry of Commerce published a discussion draft of the
proposed Foreign Investment Law for public review and comments. Among other things, the draft Foreign
Investment Law expands the deﬁnition of foreign investment and introduces the principle of ‘‘actual control’’
in determining whether a company is considered a foreign-invested enterprise. Under the draft Foreign
Investment Law, variable interest entities would also be deemed as foreign-invested enterprises, if they are
ultimately ‘‘controlled’’ by foreign investors, and be subject to restrictions on foreign investments. However,
the draft law has not taken a position on what actions will be taken with respect to the existing companies
with the ‘‘variable interest entity’’ structure, whether or not these companies are controlled by Chinese parties.
It is uncertain when the draft would be signed into law and whether the ﬁnal version would have any
substantial changes from the draft. See ‘‘Item 4. Information on the Company — B. Business
Overview — Regulation — Regulations on PRC Foreign Investment’’ and ‘‘— Substantial uncertainties exist
with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment
Law and how it may impact the viability of our current corporate structure, corporate governance and business
operations.’’ Accordingly, we cannot assure you that PRC government authorities will not ultimately take a
view contrary to the opinion of our PRC legal counsel.

Accordingly, if our ownership structure, contractual arrangements and businesses of our company, our
PRC subsidiaries or our consolidated affiliated entities are found to be in violation of any existing or future
PRC laws or regulations, or we fail to obtain or maintain any of the required permits or approvals, the
relevant governmental authorities would have broad discretion in dealing with such violation, including
levying ﬁnes, conﬁscating our income or the income of our PRC subsidiaries or consolidated affiliated entities,
revoking the business licenses or operating licenses of our PRC subsidiaries or consolidated affiliated entities,
shutting down our servers or blocking our website, discontinuing or placing restrictions or onerous conditions
on our operations, requiring us to undergo a costly and disruptive restructuring, and taking other regulatory or
enforcement actions that could be harmful to our business. Any of these actions could cause signiﬁcant
disruption to our business operations and severely damage our reputation, which would in turn materially and
adversely affect our business, ﬁnancial condition and results of operations. If any of these occurrences results
in our inability to direct the activities of any of our consolidated affiliated entities that most signiﬁcantly
impact its economic performance, and/or our failure to receive the economic beneﬁts from any of our
consolidated affiliated entities, we may not be able to consolidate the entity in our consolidated ﬁnancial
statements in accordance with U.S. GAAP.

We rely on contractual arrangements with our consolidated affiliated entities and their shareholders
for the operation of our business, which may not be as effective as direct ownership. If we are unable
to maintain effective control, we would not be able to continue to consolidate the ﬁnancial results of
our consolidated affiliated entities with our ﬁnancial results. If our consolidated affiliated entities and
their shareholders fail to perform their obligations under these contractual arrangements, we may
have to resort to litigation or arbitration to enforce our rights, which may be time-consuming,
unpredictable, expensive and damaging to our operations and reputation.

Because of PRC restrictions and qualiﬁcation requirements on foreign ownership of value-added

telecommunications services in China, we depend on contractual arrangements with our consolidated affiliated
entities, in which we have no ownership interest, to conduct our business. These contractual arrangements are
intended to provide us with effective control over these entities and allow us to obtain economic beneﬁts from
them. Although we have been advised by our PRC counsel, Han Kun Law Offices, that these contractual
arrangements are valid, binding and enforceable under current PRC laws, these contractual arrangements may
not be as effective in providing control as direct ownership. For example, our consolidated affiliated entities
and their shareholders could breach their contractual arrangements with us by, among other things, failing to
conduct its operations, including maintaining our website and using the domain names and trademarks for
which it has exclusive right to use, in an acceptable manner or taking other actions that are detrimental to our
interests. If we were the controlling shareholder of our consolidated affiliated entities with direct ownership,

18

we would be able to exercise our rights as shareholders to effect changes to their board of directors, which in
turn could implement changes at the management and operational level. Furthermore, each of our consolidated
affiliated entities’ company chops are held by each company’s legal or accounting department. Our ability to
ensure the consolidated affiliated entities’ performance under the contractual agreements may be limited if we
were unable to secure control of the company chops in the event of a dispute with the entity’s management or
shareholders as many official documents require affixation of company chops to become fully effective. As a
result, if our consolidated affiliated entities or their shareholders fail to perform their obligations under these
contractual arrangements we may have to incur substantial costs to enforce such arrangements, and rely on
legal remedies under PRC law, including contract remedies, which may not be sufficient or effective. If we are
unable to maintain effective control, we would not be able to continue to consolidate the ﬁnancial results of
these entities with our ﬁnancial results.

These contractual arrangements are governed by PRC law and provide for dispute resolution through

arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC law and any
disputes would be resolved in accordance with PRC legal procedures. Under PRC law, if parties to a contract
have agreed to resolve disputes arising from the contract by arbitration, a PRC court will not accept a lawsuit
initiated at the court by any contract party, unless the agreement for arbitration is invalid. An arbitration award
issued by the arbitration commission chosen in accordance with the agreement is ﬁnal, binding and
enforceable against the parties. If any party fails to comply with the arbitration award, the other party has the
right to apply with a competent court for enforcement. However, the legal environment in China is not as
developed as other jurisdictions such as the United States. As a result, uncertainties in the PRC legal system
could limit our ability to enforce these contractual arrangements, which may make it difficult to exert effective
control over our consolidated affiliated entities, and our ability to conduct our business may be negatively
affected. In addition, a PRC court or arbitration tribunal may refuse to enforce the contractual arrangements on
the grounds that they are designed to circumvent PRC foreign investment restrictions and therefore are against
PRC public policy.

If we are unable to enforce these contractual arrangements, or if we suffer signiﬁcant delay or other

obstacles in the process of enforcing these contractual arrangements, our business and operations could be
severely disrupted, which could materially and adversely affect our results of operations and damage our
reputation. See ‘‘— Risks Related to Doing Business in China — Uncertainties in the interpretation and
enforcement of PRC laws and regulations could limit the legal protections available to you and us.’’

The shareholders of our consolidated affiliated entities have potential conﬂicts of interest with us,
which may adversely affect our business.

Mr. Jinbo Yao is the founder, chairman and chief executive officer of our company, having beneﬁcial
ownership of 14.02% of the total outstanding shares of our company as of April 20, 2015. See ‘‘Item 7. Major
Shareholders and Related Party Transactions.’’ He is also the sole director, an executive officer and a
shareholder of Beijing 58, our consolidated affiliated entity, holding 37.8% equity interest in the entity. In
addition, Mr. Yao is the sole director and a 16.7% shareholder of Beijing Wanglintong Information Technology
Co., Ltd., an entity that holds 13.4% equity interest in Beijing 58. Conﬂicts of interest between his duties to
our company, his duties to Beijing 58 and his interests as a major shareholder of Beijing 58 may arise. We
cannot assure you that he will act entirely in our interests when conﬂicts of interest arise or that conﬂicts of
interest will be resolved in our favor. Furthermore, in the context of Mr. Yao’s acting as the director and an
executive officer of Beijing 58, PRC law would not require him to consider our company’s best interests. We
rely on Mr. Yao to abide by the laws of China, which provide that directors and executive officers owe duty
of loyalty and duty of care to the company and require them to avoid conﬂicts of interest and not to take
advantage of their positions for personal gains, and the laws of Cayman Islands which provide that directors
owe a duty of care and duty of loyalty to the company. The respective legal framework of China and the
Cayman Islands does not provide guidance in the event of a conﬂict with another corporate governance
regime. If we cannot resolve any conﬂict of interest or dispute between us and directors or executive officers
of Beijing 58 should one arise, we would have to rely on legal proceedings, which could result in disruption
of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings. In
addition, Mr. Yao could violate his non-competition or employment agreements with us or his legal duties by
diverting business opportunities from us, resulting in our loss of corporate opportunities. If we are unable to

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resolve any such conﬂicts, or if we suffer signiﬁcant delays or other obstacles as a result of such conﬂicts, our
business and operations could be severely disrupted, which could materially and adversely affect our results of
operations and damage our reputation. See ‘‘— Risks Related to Doing Business in China — Uncertainties in
the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to
you and us.’’

We may lose the ability to use and enjoy assets held by our consolidated affiliated entities that are
material to the operation of our business if any of such entities goes bankrupt or becomes subject to a
dissolution or liquidation proceeding.

As part of our contractual arrangements with our consolidated affiliated entities, these entities hold certain
assets that are material to the operation of our business, including the ICP license, and the domain names and
trademarks for which Beijing 58 has exclusive right to use. If any of our consolidated affiliated entities goes
bankrupt and all or part of its assets become subject to liens or rights of third-party creditors, we may be
unable to continue some or all of our business activities, which could materially and adversely affect our
business, ﬁnancial condition and results of operations. Under the contractual arrangements, our consolidated
affiliated entities may not, in any manner, sell, transfer, mortgage or dispose of their assets or legal or
beneﬁcial interests in the business without our prior consent. If any of our consolidated affiliated entities
undergoes a voluntary or involuntary liquidation proceeding, the unrelated third-party creditors may claim
rights to some or all of these assets, thereby hindering our ability to operate our business, which could
materially and adversely affect our business, ﬁnancial condition and results of operations.

Our contractual arrangements with our consolidated affiliated entities may result in adverse tax
consequences to us.

Under PRC laws and regulations, arrangements and transactions among related parties may be subject to
audit or challenge by the PRC tax authorities within ten years after the taxable year when the transactions are
conducted. The PRC enterprise income tax law requires every enterprise in China to submit its annual
enterprise income tax return together with a report on transactions with its related parties to the relevant tax
authorities. The tax authorities may impose reasonable adjustments on taxation if they have identiﬁed any
related party transactions that are inconsistent with arm’s length principles. We may be subject to adverse tax
consequences if the PRC tax authorities were to determine that the contracts between Wanglin, our PRC
subsidiary, and Beijing 58, our consolidated affiliated entity, were not on an arm’s length basis and therefore
constitute a favorable transfer pricing arrangements. If this occurs, the PRC tax authorities could request that
Beijing 58 adjust its taxable income, if any, upward for PRC tax purposes. Such a pricing adjustment could
adversely affect us by increasing our consolidated affiliated entities’ tax expenses without reducing our tax
expenses, which could subject our consolidated affiliated entities to late payment fees and other penalties for
underpayment of taxes.

We may be adversely affected by the complexity, uncertainties and changes in China regulation of
internet business and companies.

The internet industry in China is highly regulated by the PRC government and numerous regulatory
authorities of the central PRC government are empowered to issue and implement regulations governing
various aspects of the internet industry including foreign ownership of and licensing and permit requirements
pertaining to companies in the internet industry. See ‘‘Item 4. Information on the Company — B. Business
Overview — Regulation.’’ These internet-related laws and regulations are relatively new and evolving, and
their interpretation and enforcement involve signiﬁcant uncertainty. As a result, in certain circumstances, it
may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws
and regulations. Our consolidated affiliated entities are required to obtain and maintain applicable licenses or
approvals from different regulatory authorities in order to provide their current services, including but not
limited to the ICP license with electronic bulletin boards service, the Surveying and Mapping Qualiﬁcation
Certiﬁcate for internet mapping and the Employment Agency License. For example, Shanghai Ruijia
Information Technology Co., Ltd., or Shanghai Ruijia, a consolidated affiliated entity of Anjuke, which we
recently acquired, may be required to add the provision of BBS services to its ICP license and it has yet to
complete its application for a Surveying and Mapping Qualiﬁcation Certiﬁcate.

20

Furthermore, our consolidated affiliated entities may be required to obtain additional licenses. If any of

them fails to obtain or maintain any of the required licenses or approvals, its continued business operations in
the internet industry may subject it to various penalties, such as conﬁscation of illegal net sales, ﬁnes and
the discontinuation or restriction of its operations. Any such disruption in the business operations of our
consolidated affiliated entities will materially and adversely affect our business, ﬁnancial condition and results
of operations.

Regulation and censorship of information distribution over the internet in China may adversely affect
our business, and we may be liable for information displayed on, retrieved from or linked to our
website.

The PRC government has adopted regulations governing internet access and the distribution of
information over the internet. Under these regulations, internet content providers and internet publishers
are prohibited from posting or displaying over the internet content that, among other things, violates PRC
laws and regulations, impairs the national dignity of China or the public interest, or is reactionary, obscene,
superstitious, fraudulent or defamatory. Failure to comply with these requirements may result in the
revocation of licenses to provide internet content and other licenses, the closure of the concerned websites
and reputational harm. A website operator may also be held liable for such censored information displayed
on or linked to its website. For a detailed discussion, see ‘‘Item 4. Information on the Company —
B. Business Overview — Regulation — Regulations on Value-Added Telecommunication Services’’ and
‘‘Item 4. Information on the Company — B. Business Overview — Regulation — Regulations on Information
Security and Censorship.’’ We have a team within our data security department which implements internal
procedures to review the content in our system for compliance with applicable laws and regulations, aided by
a program designed to periodically sweep our website and the data being conveyed in our system for sensitive
keywords or questionable materials. In spite of this screening system, we may have difficulty identifying and
removing all illegal content or transactions involving illegal sales of goods and services, which could expose
us to the penalties described above.

If the PRC government were to deem our membership services or online marketing services as a form
of online advertising, our business, results of operations and ﬁnancial condition may be materially and
adversely affected.

We do not believe our membership and online marketing services are deemed a form of online

advertising under PRC laws and regulations. However, there are uncertainties regarding the interpretation and
application of current or future PRC laws and regulations. If such services are deemed by the relevant
authorities as a form of online advertising, such services will be subject to PRC advertising laws and
regulations. Under PRC advertising laws and regulations, advertising operators, including advertising agencies,
and advertising distributors, are obligated to monitor the advertising content and examine the supporting
documents for advertisements provided by advertisers to ensure that the content is fair and accurate and in
compliance with applicable law. There are also speciﬁc restrictions, requirements or prohibitions regarding
advertisements that relate to certain products. Therefore, if our membership or online marketing services are
deemed a form of online advertising, we will be obligated to conduct the examination, review and monitoring
of advertising content on our online marketplace as required by PRC advertising laws and regulations, which
could be burdensome, and we may be required to edit or delete certain content on our online marketplace.
This risk could also apply to other content categories we may from time to time include on our website.

In addition, foreign investment in advertising services is subject to certain requirements, including the

need for foreign shareholders of PRC companies engaged in advertising services to meet certain qualiﬁcation
standards. Our PRC subsidiaries currently are not qualiﬁed to conduct advertising services and should any of
our services be deemed as online advertising under PRC law, such activities must be conducted through
Beijing 58, one of our consolidated affiliated entities, which is qualiﬁed to provide adverting services in
China. The need to track and potentially shift services, contracts and personnel between our subsidiaries and
our consolidated affiliated entities could add further burden and additional cost to our operations. Moreover, if
any of our membership or online marketing services are characterized as a form of online advertising, we may
be subject to an additional 3% surcharge with respect to the revenues we derive from such services,
potentially with retroactive effect, which could adversely affect our ﬁnancial condition and results of
operations.

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Risks Related to Doing Business in China

Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal
protections available to you and us.

The PRC legal system is based on written statutes. Unlike common law systems, it is a system in which

legal cases have limited value as precedents. In the late 1970s, the PRC government began to promulgate a
comprehensive system of laws and regulations governing economic matters in general. The overall effect of
legislation over the past three decades has signiﬁcantly increased the protections afforded to various forms of
foreign or private-sector investment in China. Our PRC subsidiaries, Wanglin and 58 Technology are
foreign-invested enterprises and are subject to laws and regulations applicable to foreign-invested enterprises
as well as various PRC laws and regulations generally applicable to companies in China. However, since
these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the
interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws,
regulations and rules involve uncertainties.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal

rights. However, since PRC administrative and court authorities have signiﬁcant discretion in interpreting
and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of
administrative and court proceedings and the level of legal protection we enjoy than in more developed legal
systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some
of which are not published in a timely manner or at all) that may have retroactive effect. As a result, we may
not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties,
including uncertainty over the scope and effect of our contractual, property (including intellectual property)
and procedural rights, and any failure to respond to changes in the regulatory environment in China could
materially and adversely affect our business and impede our ability to continue our operations.

Changes in China’s economic, political or social conditions or government policies could have a
material adverse effect on our business and operations.

Substantially all of our assets and almost all of our users are located in China. Accordingly, our business,

ﬁnancial condition, results of operations and prospects may be inﬂuenced to a signiﬁcant degree by political,
economic and social conditions in China generally and by continued economic growth in China as a whole.

China’s economy differs from the economies of most developed countries in many respects, including the

level of government involvement, level of development, growth rate, control of foreign exchange and
allocation of resources. Although the PRC government has implemented measures since the late 1970s
emphasizing the utilization of market forces for economic reform, the reduction of state ownership of
productive assets, and the establishment of improved corporate governance in business enterprises, a
substantial portion of productive assets in China is still owned by the PRC government. In addition, the
PRC government continues to play a signiﬁcant role in regulating industry development by imposing industrial
policies. The PRC government also exercises signiﬁcant control over the PRC economic growth through
allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary
policy, and providing preferential treatment to particular industries or companies.

While China’s economy has experienced signiﬁcant growth over the past decades, growth has been
uneven, both geographically and among various sectors of the economy, and may slow down in the future.
Some of the government measures may beneﬁt the overall Chinese economy, but may have a negative effect
on us. For example, our ﬁnancial condition and results of operations may be adversely affected by government
control over capital investments or changes in tax regulations. Any stimulus measures designed to boost the
Chinese economy may contribute to higher inﬂation, which could adversely affect our results of operations
and ﬁnancial condition. For example, certain operating costs and expenses, such as employee compensation
and office operating expenses, may increase as a result of higher inﬂation.

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Substantial uncertainties exist with respect to the enactment timetable, interpretation and
implementation of draft PRC Foreign Investment Law and how it may impact the viability of our
current corporate structure, corporate governance and business operations.

The Ministry of Commerce published a discussion draft of the proposed Foreign Investment Law in
January 2015 aiming to, upon its enactment, replace the trio of existing laws regulating foreign investment in
China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint
Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation
rules and ancillary regulations. The draft Foreign Investment Law embodies an expected PRC regulatory trend
to rationalize its foreign investment regulatory regime in line with prevailing international practice and the
legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. The
Ministry of Commerce solicited comments on this draft and substantial uncertainties exist with respect to its
enactment timetable, interpretation and implementation. The draft Foreign Investment Law, if enacted as
proposed, may materially impact the viability of our current corporate structure, corporate governance and
business operations in many aspects.

Among other things, the draft Foreign Investment Law expands the deﬁnition of foreign investment

and introduces the principle of ‘‘actual control’’ in determining whether a company is considered a
foreign-invested enterprise, or an FIE. The draft Foreign Investment Law speciﬁcally provides that entities
established in China but ‘‘controlled’’ by foreign investors will be treated as FIEs, whereas an entity set up
in a foreign jurisdiction would nonetheless be, upon market entry clearance by the Ministry of Commerce,
treated as a PRC domestic investor provided that the entity is ‘‘controlled’’ by PRC entities and/or citizens. In
this connection, ‘‘foreign investors’’ refers to the following subjects making investments within the PRC:
(i) natural persons without PRC nationality; (ii) enterprises incorporated under the laws of countries or regions
other than China; (iii) the governments of countries or regions other than the PRC and the departments or
agencies thereunder; and (iv) international organizations. Domestic enterprises under the control of the
subjects as mentioned in the preceding sentence are deemed foreign investors, and ‘‘control’’ is broadly
deﬁned in the draft law to cover the following summarized categories: (i) holding, directly or indirectly, not
less than 50% of shares, equities, share of voting rights or other similar rights of the subject entity;
(ii) holding, directly or indirectly, less than 50% of the voting rights of the subject entity but having the power
to secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the
voting power to exert material inﬂuence on the board, the shareholders’ meeting or other equivalent decision
making bodies; or (iii) having the power to exert decisive inﬂuence, via contractual or trust arrangements,
over the subject entity’s operations, ﬁnancial matters or other key aspects of business operations. Once an
entity is determined to be an FIE, it will be subject to the foreign investment restrictions or prohibitions set
forth in a ‘‘catalogue of special administrative measures,’’ which is classiﬁed into the ‘‘catalogue of
prohibitions’’ and ‘‘the catalogue of restrictions’’, to be separately issued by the State Council later. Foreign
investors are not allowed to invest in any sector set forth in the catalogue of prohibitions. However, unless the
underlying business of the FIE falls within the catalogue of restrictions, which calls for market entry clearance
by the Ministry of Commerce, prior approval from the government authorities as mandated by the existing
foreign investment legal regime would no longer be required for establishment of the FIE.

The ‘‘variable interest entity’’ structure, or VIE structure, has been adopted by many PRC-based

companies, including us, to obtain necessary licenses and permits in the industries that are currently subject to
foreign investment restrictions in China. See ‘‘— Risks Related to Our Corporate Structure and Restrictions on
Our Industry’’ and ‘‘Item 4. Information on the Company — C. Organizational Structure.’’ Under the draft
Foreign Investment Law, variable interest entities that are controlled via contractual arrangement would also
be deemed as FIEs, if they are ultimately ‘‘controlled’’ by foreign investors. Therefore, for any companies
with a VIE structure in an industry category that is included in the ‘‘negative list’’ as restricted industry, the
VIE structure may be deemed legitimate only if the ultimate controlling person(s) is/are of PRC nationality
(either PRC government authorities and its affiliates or PRC citizens). Conversely, if the actual controlling
person(s) is/are of foreign nationalities, then the variable interest entities will be treated as FIEs and any
operation in the industry category on the ‘‘negative list’’ without market entry clearance may be considered as
illegal.

23

It is uncertain whether we would be considered as ultimately controlled by Chinese parties. Besides, the

draft Foreign Investment Law has not taken a position on what actions shall be taken with respect to the
existing companies with a VIE structure, whether or not these companies are controlled by Chinese parties,
while the Ministry of Commerce solicited comments from the public on this point. Moreover, it is uncertain
whether the value-added telecommunications services, in which our variable interest entities operate, will be
subject to the foreign investment restrictions or prohibitions set forth in the ‘‘negative list’’ to be issued. If the
enacted version of the Foreign Investment Law and the ﬁnal ‘‘negative list’’ mandate further actions, such as
Ministry of Commerce market entry clearance, to be completed by companies with existing VIE structure like
us, we face uncertainties as to whether such clearance can be timely obtained, or at all.

The draft Foreign Investment Law, if enacted as proposed, may also materially impact our corporate

governance practice and increase our compliance costs. For instance, the draft Foreign Investment Law
imposes stringent ad hoc and periodic information reporting requirements on foreign investors and the
applicable FIEs. Aside from investment implementation report required at each investment and investment
amendment reports, which shall be submitted upon alteration of investment speciﬁcs, it is mandatory for
entities established by foreign investors to submit an annual report, and large foreign investors meeting certain
criteria are required to report on a quarterly basis. Any company found to be non-compliant with these
information reporting obligations may potentially be subject to ﬁnes and/or administrative or criminal
liabilities, and the persons directly responsible may be subject to criminal liabilities.

Under the EIT Law, we may be classiﬁed as a PRC ‘‘resident enterprise’’ for PRC enterprise income
tax purposes. Such classiﬁcation would likely result in unfavorable tax consequences to us and our
non-PRC shareholders and have a material adverse effect on our results of operations and the value of
your investment.

Under the PRC Enterprise Income Tax Law, or the EIT Law, that became effective on January 1, 2008,
an enterprise established outside the PRC with ‘‘de facto management bodies’’ within China is considered a
‘‘resident enterprise’’ for PRC enterprise income tax purposes and is generally subject to a uniform 25%
enterprise income tax rate on its worldwide income. Under the implementation rules to the EIT Law, a
‘‘de facto management body’’ is deﬁned as a body that has material and overall management and control over
the manufacturing and business operations, personnel and human resources, ﬁnances and properties of
an enterprise. In addition, a circular, known as SAT Circular 82, issued in April 2009 and amended in
January 2014 by the State Administration of Taxation, or the SAT, speciﬁes that certain offshore incorporated
enterprises controlled by PRC enterprises or PRC enterprise groups will be classiﬁed as PRC resident
enterprises if the following are located or resident in China: senior management personnel and departments
that are responsible for daily production, operation and management; ﬁnancial and personnel decision making
bodies; key properties, accounting books, company seal, and minutes of board meetings and shareholders’
meetings; and half or more of the senior management or directors having voting rights. Further to SAT
Circular 82, the SAT issued a bulletin, known as SAT Bulletin 45, which took effect in September 2011, to
provide more guidance on the implementation of SAT Circular 82 and clarify the reporting and ﬁling
obligations of such ‘‘Chinese-controlled offshore incorporated resident enterprises.’’ SAT Bulletin 45 provides
procedures and administrative details for the determination of resident status and administration on
post-determination matters. Although both SAT Circular 82 and SAT Bulletin 45 only apply to offshore
enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals
or foreign individuals, the determining criteria set forth in SAT Circular 82 and SAT Bulletin 45 may reﬂect
the SAT’s general position on how the ‘‘de facto management body’’ test should be applied in determining
the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises,
PRC enterprise groups or by PRC or foreign individuals.

We do not believe that 58.com Inc., CCNC BVI or CCIC HK meet all of the conditions above thus we
do not believe that 58.com Inc., or CCNC BVI or CCIC HK is, a PRC resident enterprise, though some of the
members of our management team as well as the management team of our offshore holding companies are
located in China. However, if the PRC tax authorities determine that 58.com Inc., CCNC BVI or CCIC HK is
a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax
consequences could follow. First, we or our offshore subsidiaries will be subject to the uniform 25% enterprise

24

income tax on our world-wide income, which could materially reduce our net income. In addition, we will
also be subject to PRC enterprise income tax reporting obligations.

Furthermore, although dividends paid by one PRC tax resident enterprise to an offshore incorporated

PRC resident enterprise controlled by PRC enterprises or PRC enterprise groups should qualify as
‘‘tax-exempt income’’ under the EIT Law and Bulletin 45, we cannot assure you that dividends paid by our
PRC subsidiaries to CCIC HK will not be subject to a 10% withholding tax, as the PRC foreign exchange
control authorities, which enforce the withholding tax on dividends, and the PRC tax authorities have not yet
issued guidance with respect to the processing of outbound remittances to entities that are treated as resident
enterprises for PRC enterprise income tax purposes but not controlled by PRC enterprises or PRC enterprise
groups.

Finally, dividends payable by us to our investors and gains on the sale of our shares may be become

subject to PRC withholding tax.

We may not be able to obtain certain beneﬁts under relevant tax treaty on dividends paid by our PRC
subsidiaries to us through CCIC HK.

We are a holding company incorporated under the laws of the Cayman Islands and as such rely on

dividends and other distributions on equity from our PRC subsidiaries to satisfy part of our liquidity
requirements. Pursuant to the EIT Law, a withholding tax rate of 10% currently applies to dividends paid by a
PRC ‘‘resident enterprise’’ to a foreign enterprise investor, unless any such foreign investor’s jurisdiction of
incorporation has a tax treaty with China that provides for preferential tax treatment. Pursuant to a Notice 112
issued by the SAT in January 2008 and the Arrangement between the Mainland China and the Hong Kong
Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion, or the
Double Taxation Arrangement (Hong Kong), such withholding tax rate may be lowered to 5% if the PRC
enterprise is at least 25% held by a Hong Kong enterprise at all times within the 12-month period
immediately prior to distribution of the dividends and is determined by the relevant PRC tax authority to have
satisﬁed other conditions and requirements under the Double Tax Avoidance Arrangement (Hong Kong) and
other applicable PRC laws. Pursuant to a SAT Circular 601 issued by the SAT in October 2009, non-resident
enterprises that cannot provide valid supporting documents as ‘‘beneﬁcial owners’’ may not be approved to
enjoy tax treaty beneﬁts, and ‘‘beneﬁcial owners’’ refers to individuals, enterprises or other organizations
which are normally engaged in substantive operations. These rules also set forth certain adverse factors on the
recognition of a ‘‘beneﬁcial owner’’. Speciﬁcally, they expressly exclude a ‘‘conduit company,’’ or any
company established for the purposes of avoiding or reducing tax obligations or transferring or accumulating
proﬁts and not engaged in actual operations such as manufacturing, sales or management, from being a
‘‘beneﬁcial owner.’’ Whether a non-resident company may obtain tax beneﬁts under the relevant tax treaty will
be subject to approval of the relevant PRC tax authority and will be determined by the PRC tax authority on a
case-by-case basis. In June 2012, the SAT further provides in an announcement that a comprehensive analysis
should be made when determining the beneﬁcial owner status based on various factors supported by
documents including the articles of association, ﬁnancial statements, records of cash movements, board
meeting minutes, board resolutions, staffing and materials, relevant expenditures, functions and risk
assumption as well as relevant contracts and other information. Our Hong Kong subsidiary has not applied for
the approval for a withholding tax rate of 5% from the local tax authority as our PRC subsidiaries have not
paid dividends due to their loss-making status in the past and will not be able to pay dividends in the future
until they have achieved accumulated proﬁts. We plan to have our Hong Kong subsidiary assume some
managerial and administrative functions, as well as conduct other business functions in the future. Once we
implement such a plan, we do not believe that our Hong Kong subsidiary will be considered a conduit
company as deﬁned under SAT Circular 601. However, our Hong Kong subsidiary as currently situated may
be considered a conduit company and we cannot assure you that the relevant PRC tax authority will agree
with our view when our Hong Kong subsidiary applies to obtain tax beneﬁts under the relevant tax treaty in
the future. As a result, although our PRC subsidiaries are currently wholly owned by our Hong Kong
subsidiary, we may not be able to enjoy the preferential withholding tax rate of 5% under the Double Taxation
Arrangement (Hong Kong) and therefore be subject to withholding tax at a rate of 10% with respect to
dividends to be paid by our PRC subsidiaries to CCIC HK.

25

Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative
impact on potential acquisitions we may pursue in the future.

In connection with the EIT Law, the Ministry of Finance and the SAT jointly issued a SAT Circular 59 in

April 2009, and the SAT issued a SAT Circular 698 in December 2009. Both SAT Circular 59 and Circular
698 became effective retroactively on January 1, 2008.

According to SAT Circular 698, where a non-resident enterprise transfers the equity interests of a PRC

‘‘resident enterprise’’ indirectly by disposition of the equity interests of an overseas holding company, the
non-resident enterprise, being the transferor, may be subject to PRC enterprise income tax, if the indirect
transfer is considered to be an abusive use of company structure without reasonable commercial purposes. As
a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at a rate of up to
10%. In addition, the PRC ‘‘resident enterprise’’ is supposed to provide necessary assistance to support the
enforcement of SAT Circular 698.

On February 3, 2015, the State Administration of Tax issued a Public Notice Regarding Certain

Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or Public
Notice 7. Public Notice 7 has introduced a new tax regime that is signiﬁcantly different from that under
Circular 698. Public Notice 7 extends its tax jurisdiction to not only indirect transfers set forth under Circular
698 but also transactions involving transfer of other taxable assets, through the offshore transfer of a foreign
intermediate holding company. In addition, Public Notice 7 provides clearer criteria than Circular 698 on how
to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and
the purchase and sale of equity through a public securities market. Public Notice 7 also brings challenges to
both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the
taxable assets. Where a non-resident enterprise conducts an ‘‘indirect transfer’’ by transferring the taxable
assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident
enterprise being the transferor, or the transferee, or the PRC entity which directly owned the taxable assets
may report to the relevant tax authority such indirect transfer. Using a ‘‘substance over form’’ principle, the
PRC tax authority may re-characterize such indirect transfer as a direct transfer of the equity interests in the
PRC tax resident enterprise and other properties in China. As a result, gains derived from such indirect
transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to
pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of up to 10% for the
transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject
to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay
the taxes.

We face uncertainties on the reporting and consequences on private equity ﬁnancing transactions, share

exchange or other transactions involving the transfer of shares in our company by investors that are non-PRC
resident enterprises, or sale or purchase of shares in other non-PRC resident companies or other taxable assets
by us. Our company and other non-resident enterprises in our group may be subject to ﬁling obligations or
being taxed if our company and other non-resident enterprises in our group are transferors in such
transactions, and may be subject to withholding obligations if our company and other non-resident enterprises
in our group are transferees in such transactions, under Circular 698 and Public Notice 7. For the transfer of
shares in our company by investors that are non-PRC resident enterprises, our PRC subsidiaries may be
requested to assist in the ﬁling under Circular 698 and Public Notice 7. As a result, we may be required to
expend valuable resources to comply with Circular 698 and Public Notice 7 or to request the relevant
transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our
company and other non-resident enterprises in our group should not be taxed under these circulars, which may
have a material adverse effect on our ﬁnancial condition and results of operations.

The PRC tax authorities have the discretion under Circular 698 and Public Notice 7 to make adjustments
to the taxable capital gains based on the difference between the fair value of the taxable assets transferred and
the cost of investment. If the PRC tax authorities make adjustments to the taxable income of the transactions
under Circular 698 and Public Notice 7, our income tax costs associated with such potential acquisitions will
be increased, which may have an adverse effect on our ﬁnancial condition and results of operations.

26

PRC regulations establish complex procedures for some acquisitions of PRC companies by foreign
investors, which could make it more difficult for us to pursue growth through acquisitions in China.

Six PRC regulatory agencies promulgated regulations effective on September 8, 2006 that are commonly

referred to as the M&A Rules. See ‘‘Item 4. Information on the Company — B. Business Overview —
Regulation.’’ The M&A Rules establish procedures and requirements that could make some acquisitions of
PRC companies by foreign investors more time-consuming and complex, including requirements in some
instances that the Ministry of Commerce be notiﬁed in advance of any change-of-control transaction in which
a foreign investor takes control of a PRC domestic enterprise. In addition, national security review rules
issued by the PRC governmental authorities in 2011 require acquisitions by foreign investors of domestic
companies engaged in military-related or certain other industries that are crucial to national security to be
subject to prior security review. Moreover, the Anti-Monopoly Law requires that the Ministry of Commerce
shall be notiﬁed in advance of any concentration of undertaking if certain thresholds are triggered. We may
expand our business in part by acquiring complementary businesses. Complying with the requirements of
the M&A Rules, security review rules and other PRC regulations to complete such transactions could be
time-consuming, and any required approval processes, including obtaining approval from the Ministry of
Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to
expand our business or maintain our market share.

PRC regulations relating to offshore investment activities by PRC residents may limit our PRC
subsidiaries’ ability to increase their registered capital or distribute proﬁts to us, limit our ability to
inject capital into our PRC subsidiaries, or otherwise expose us to liability and penalties under PRC
law.

The SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and
Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, in July 2014, to
replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents
Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular
75. SAFE Circular 37 requires PRC residents, including PRC individuals and entities, to register with SAFE
or its local branch in connection with their establishment or control of an offshore entity established for the
purpose of overseas investment or ﬁnancing. In addition, such PRC residents must update their SAFE
registrations when the offshore special purpose vehicle undergoes material events relating to any change of
basic information (including change of such PRC residents, name and operation term), increases or decreases
in investment amount, transfers or exchanges of shares, or mergers or divisions. On February 28, 2015, SAFE
promulgated the Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on
Direct Investment, or SAFE Notice 13, which will become effective on June 1, 2015. After SAFE Notice 13
becomes effective, instead of applying for approvals regarding foreign exchange registrations of foreign direct
investment and overseas direct investment from the SAFE as required under current laws, entities and
individuals will be required to apply for such foreign exchange registrations, including those required under
the SAFE Circular 37, from qualiﬁed banks. The qualiﬁed banks, under the supervision of the SAFE, will
directly examine the applications and conduct the registration. If a PRC resident fails to make the required
SAFE registration with the local SAFE branches, the PRC subsidiaries of such offshore company may be
prohibited from distributing their proﬁts and proceeds from any reduction in capital, share transfer or
liquidation to the offshore company, and the offshore company may be restricted in its ability to contribute
additional capital to its PRC subsidiaries. Moreover, failure to comply with SAFE registration and amendment
requirements described above could result in liability under PRC law for evasion of applicable foreign
exchange restrictions.

Furthermore, it is unclear how these regulations, and any future regulation concerning offshore or

cross-border transactions, will be interpreted, amended and implemented by the relevant government
authorities. We cannot predict how these regulations will affect our business operations or future strategy. For
example, we may be subject to a more stringent review and approval process with respect to our foreign
exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may
adversely affect our ﬁnancial condition and results of operations. In addition, if we decide to acquire a PRC
domestic company, either we or the owners of such company, as the case may be, may not be able to obtain

27

the necessary approvals or complete the necessary ﬁlings and registrations required by the foreign exchange
regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our
business and prospects.

Failure to comply with PRC regulations regarding the registration requirements for employee share
ownership plans or share option plans may subject the PRC plan participants or us to ﬁnes and other
legal or administrative sanctions.

In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange

Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed
Companies, or the Stock Option Rules, replacing the previous rules issued by SAFE in March 2007. Under
the Stock Option Rules and other relevant rules and regulations, PRC residents who participate in stock
incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branches
and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must
retain a qualiﬁed PRC agent, which could be a PRC subsidiary of the overseas publicly listed company or
another qualiﬁed institution selected by the PRC subsidiary, to conduct the SAFE registration and other
procedures with respect to the stock incentive plan on behalf of its participants. The participants must also
retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, the
purchase and sale of corresponding stocks or interests and fund transfers. In addition, the PRC agent is
required to amend the SAFE registration with respect to the stock incentive plan if there is any material
change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material
changes. See ‘‘Item 4. Information on the Company — B. Business Overview — Regulation — Regulations on
Employee Stock Option Plans.’’ We and our PRC employees who have been granted share options and
restricted shares are subject to these regulations. Failure of our PRC share option holders or restricted
shareholders to complete their SAFE registrations may subject these PRC residents to ﬁnes and legal sanctions
and may also limit our ability to contribute additional capital into our PRC subsidiaries, limited our PRC
subsidiaries’ ability to distribute dividends to us, or otherwise materially adversely affect our business.

PRC regulation of direct investment and loans by offshore holding companies to PRC entities and
governmental control of currency conversion may delay or limit us from using the proceeds of our
securities offering to make additional capital contributions or loans to our PRC subsidiaries.

Any capital contributions or loans that we, as an offshore entity, make to our PRC subsidiaries, including
from the proceeds of our securities offerings, are subject to PRC regulations. Under PRC laws and regulations,
we are permitted to utilize the proceeds from our securities offering to fund our PRC subsidiaries only through
loans or capital contributions, subject to applicable government registration and approval requirements. None
of our loans to a PRC subsidiary can exceed the difference between its total amount of investment and its
registered capital approved under relevant PRC laws, and the loans must be registered with the local branch of
SAFE. As of December 31, 2014, the difference between total amount of investment and registered capital is
US$50 million for Wanglin and US$113.3 million for 58 Technology, respectively. Our capital contributions to
our PRC subsidiaries must be approved by the Ministry of Commerce or its local counterpart. We cannot
assure you that we will be able to complete the necessary registration or obtain the necessary approval on a
timely basis, or at all. If we fail to complete the necessary registration or obtain the necessary approval, our
ability to make loans or equity contributions to our PRC subsidiaries may be negatively affected, which could
adversely affect our PRC subsidiaries’ liquidity and their ability to fund their working capital and expansion
projects and meet their obligations and commitments.

In August 2008, SAFE promulgated a SAFE Circular 142 regulating the conversion by a foreign-invested
enterprise of foreign currency registered capital into Renminbi by restricting how the converted Renminbi may
be used. SAFE Circular 142 provides that the Renminbi capital converted from foreign currency registered
capital of a foreign-invested enterprise may only be used for purposes within the business scope approved
by the applicable government authority and unless otherwise provided by law, such Renminbi capital may
not be used for equity investments in China. Furthermore, SAFE promulgated a SAFE Circular 45 in
November 2011, which, among other things, restricts a foreign-invested enterprise from using Renminbi
converted from its registered capital to provide entrusted loans or repay loans between non-ﬁnancial
enterprises. On March 30, 2015, the SAFE promulgated SAFE Circular 19, which will take effective and

28

replace SAFE Circular 142 from June 1, 2015. Although SAFE circular 19 allows for the use of Renminbi
converted from the foreign currency-denominated capital for equity investments in the PRC, the restrictions
will continue to apply as to foreign-invested enterprises’ use of the converted Renminbi for purposes beyond
the business scope, for entrusted loans for inter-company Renminbi loans. The business scopes of Wanglin and
58 Technology include research and development of online classiﬁed information technology and software
systems, transfer of proprietary technologies, information technology consulting, technical services, computer
technology training, marketing, sales and promotional services, enterprise management services, business
consultation and personnel management services. Each of Wanglin and 58 Technology may only use Renminbi
converted from foreign exchange capital contribution for activities within its approved business scope. In
addition, the use of such Renminbi capital may not be altered without SAFE approval, and such Renminbi
capital may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been
used. Violations of these circulars and rules could result in severe monetary or other penalties. If we convert
the net proceeds we receive from our securities offerings into Renminbi pursuant to the applicable laws and
regulations, our use of Renminbi funds for general corporate purposes will be within the business scope of our
PRC subsidiaries.

PRC regulation of loans by offshore holding companies to PRC entities and governmental control of
currency conversion may limit our ability to fund the operations of our consolidated affiliated entities.

Due to the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies,

any loans from our Cayman Islands holding company or other offshore entities to PRC domestic company
shall obtain certain approvals from local SAFE and complete record-ﬁlling procedures with local SAFE on an
item-by-item basis. Therefore, we are not likely to have our Cayman Islands holding company or other
offshore entities to use the proceeds from our securities offerings to extend loans to Beijing 58, our
consolidated affiliated entity, or its subsidiaries, each of which is a PRC domestic company. Meanwhile,
we are not likely to ﬁnance the activities of our consolidated affiliated entities by means of capital
contributions due to regulatory restrictions relating to foreign investment in PRC domestic enterprises engaged
in value-added telecommunications services. In addition, due to the restrictions on a foreign-invested
enterprise’s use of Renminbi converted from foreign-currency registered capital under PRC regulations,
including SAFE Circular 142 and SAFE Circular 45 and SAFE Circular 19, as described under the foregoing
risk factor, our PRC subsidiaries, Wanglin and 58 Technology, may be unable to use the Renminbi converted
from their registered capital to provide loans or ﬁnancial support to our consolidated affiliated entities. We
currently do not plan to use the proceeds from our securities offering to fund the operations of Beijing 58, our
consolidated affiliated entity, and its subsidiaries. Additionally, our PRC subsidiaries are not prohibited under
PRC laws and regulations from using their capital generated from their operating activities to provide
entrusted loans or other forms of ﬁnancial support to consolidated affiliated entities. We will assess the
working capital requirements of our consolidated affiliated entities on an ongoing basis and, if needed, may
have our PRC subsidiaries to use their capital from operating activities to provide ﬁnancial support to our
consolidated affiliated entities.

Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us,
which may restrict our ability to satisfy our liquidity requirements.

We are a holding company incorporated in the Cayman Islands. We may need dividends and other

distributions on equity from our PRC subsidiaries to satisfy our liquidity requirements. Current PRC
regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated proﬁts, if any,
determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries
are required to set aside at least 10% of their respective accumulated proﬁts each year, if any, to fund certain
reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC
subsidiaries may also allocate a portion of its after-tax proﬁts based on PRC accounting standards to employee
welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. As of this
annual report, our PRC subsidiaries have been in accumulated loss and did not pay dividends to us. Further,
if any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt
may restrict its ability to pay dividends or make other payments to us, which may restrict our ability to
satisfy our liquidity requirements. As of December 31, 2014, the registered capital of our PRC subsidiaries,

29

namely Wanglin and 58 Technology, was US$250 million and US$56.68 million, respectively. See
‘‘Item 4. Information on the Company — B. Business Overview — Regulation — Regulations on Foreign
Currency Exchange.’’

Discontinuation of any of the preferential tax treatments and government subsidies or imposition of
any additional taxes and surcharges could adversely affect our ﬁnancial condition and results of
operations.

The EIT Law and its implementing rules have adopted a uniform statutory enterprise income tax rate of

25% to all enterprises in China. The EIT Law and its implementing rules also permit qualiﬁed ‘‘high and new
technology enterprises,’’ or HNTEs, to enjoy a preferential enterprise income tax rate of 15% upon ﬁling with
relevant tax authorities. The qualiﬁcation as a HNTE generally has a valid term of three years and the renewal
of such qualiﬁcation is subject to review by the relevant authorities in China. Beijing 58, one of our
consolidated affiliated entities, obtained its HNTE certiﬁcate in May 2009 and renewed its HNTE certiﬁcate in
May 2012 with a valid period of three years. Wanglin, one of our PRC subsidiaries, obtained its HNTE
certiﬁcate in November 2012, which is valid for three years. Therefore, Beijing 58 and Wanglin are eligible to
enjoy a preferential tax rate of 15% until the end of 2014 when they have taxable income under the EIT Law,
as long as they maintain the HNTE qualiﬁcation and obtain approval from the relevant tax authority. Beijing
58 submitted its HNTE status renewal application in mid-April 2015 and Wanglin will submit its HNTE status
renewal application by the end of May 2015. Both companies are expected to complete the approval process
within three months thereafter. If Beijing 58 or Wanglin fails to maintain its HNTE qualiﬁcation or renew its
qualiﬁcation when its current term expires, its applicable enterprise income tax rate may increase to 25%,
which could have an adverse effect on our ﬁnancial condition and results of operations.

In addition, our PRC subsidiaries and consolidated affiliated entities have received various ﬁnancial
subsidies from PRC local government authorities. The ﬁnancial subsidies are discretionary incentives and
policies adopted by PRC local government authorities. Local governments may decide to change or
discontinue such ﬁnancial subsidies at any time. The discontinuation of such ﬁnancial subsidies or imposition
of any additional taxes could adversely affect our ﬁnancial condition and results of operations.

Fluctuations in exchange rates could have a material adverse effect on our results of operations and
the value of your investment.

Substantially all of our revenues and expenditures are denominated in Renminbi. As the functional
currency for our PRC subsidiaries and consolidated affiliated entities is Renminbi, ﬂuctuations in the exchange
rate may cause us to incur foreign exchange losses on any foreign currency holdings they may have. In
addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would affect our
ﬁnancial results in U.S. dollar terms without giving effect to any underlying change in our business or results
of operations. If we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for
dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the
Renminbi would have a negative effect on the U.S. dollar amount available to us.

The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other

things, changes in the PRC political and economic conditions and the PRC foreign exchange policies.
Renminbi appreciated against the U.S. dollar after the PRC government changed its decade-old policy of
pegging the value of Renminbi to the U.S. dollar in 2012. However, the People’s Bank of China regularly
intervenes in the foreign exchange market to limit ﬂuctuations in Renminbi exchange rates and achieve policy
goals. Since June 2010, the Renminbi has started to slowly appreciate against the U.S. dollar, though there
have been periods recently when the U.S. dollar has appreciated against the Renminbi. It is difficult to predict
how long the current situation may last and when and how the relationship between the Renminbi and the
U.S. dollar may change again.

There remains signiﬁcant international pressure on the PRC government to adopt a ﬂexible currency
policy. Any signiﬁcant appreciation or depreciation of the Renminbi may materially and adversely affect our
revenues, earnings and ﬁnancial position, and the value of, and any dividends payable on, our ADSs in
U.S. dollars. For example, to the extent that we need to convert U.S. dollars we receive from this initial
public offering into Renminbi to pay our operating expenses, appreciation of the Renminbi against the

30

U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion.
Conversely, a signiﬁcant depreciation of the Renminbi against the U.S. dollar may signiﬁcantly reduce the
U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our ADSs.

Very limited hedging options are available in China to reduce our exposure to exchange rate ﬂuctuations.

To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign
currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability
and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or
at all. In addition, our currency exchange losses may be magniﬁed by PRC exchange control regulations that
restrict our ability to convert Renminbi into foreign currency. As a result, ﬂuctuations in exchange rates may
have a material adverse effect on your investment.

Our failure to make adequate contributions to various employee beneﬁt plans as required by PRC
regulations may subject us to penalties.

Companies operating in China are required to participate in social insurance and housing fund plans.
We have not fully contributed to such plans as required by applicable PRC regulations. As of December 31,
2014, with regards to the outstanding contributions, including historical underpayments to such plans, we
made a provision of RMB41.1 million (US$6.6 million), which is reﬂected in our audited ﬁnancial statements
included in this annual report. While we believe this provision is adequate, our failure to make sufficient
payments to such plans does not fully comply with applicable PRC laws and regulations and we may be
required to make up the contributions for such plans as well as to pay late fees and ﬁnes.

Registered pubic accounting ﬁrms in China, including our independent registered public accounting
ﬁrm, are not inspected by the U.S. Public Company Accounting Oversight Board, which deprives us
and our investors of the beneﬁts of such inspection.

Auditors of companies whose shares are registered with the U.S. Securities and Exchange Commission,
or the SEC and traded publicly in the United States, including our independent registered public accounting
ﬁrm, must be registered with the U.S. Public Company Accounting Oversight Board, or PCAOB, and are
required by the laws of the United States to undergo regular inspections by the PCAOB to assess their
compliance with the laws of the United States and professional standards applicable to auditors. Our
independent registered public accounting ﬁrm is located in, and organized under the laws of the Peoples’
Republic of China, or the PRC, which is a jurisdiction where the PCAOB, notwithstanding the requirements
of U.S. law, is currently unable to conduct inspections without the approval of the Chinese authorities. In
May 2013, PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement
Cooperation with the China Securities Regulatory Commission, or the CSRC and the PRC Ministry of
Finance, which establishes a cooperative framework between the parties for the production and exchange of
audit documents relevant to investigations undertaken by PCAOB, the CSRC or the PRC Ministry of Finance
in the United States and the PRC, respectively. PCAOB continues to be in discussions with the CSRC and the
PRC Ministry of Finance to permit joint inspections in the PRC of audit ﬁrms that are registered with PCAOB
and audit Chinese companies that trade on U.S. exchanges.

This lack of PCAOB inspections in China prevents the PCAOB from fully evaluating audits and quality
control procedures of any auditors operating in China, including our independent registered public accounting
ﬁrm. As a result, we and investors in our common stock are deprived of the beneﬁts of such PCAOB
inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to
evaluate the effectiveness of our independent registered public accounting ﬁrm’s audit procedures or quality
control procedures as compared to auditors outside of China that are subject to PCAOB inspections, which
could cause investors and potential investors in our common stock to lose conﬁdence in our audit procedures
and reported ﬁnancial information and the quality of our ﬁnancial statements.

31

If additional remedial measures are imposed on the Big Four PRC-based accounting ﬁrms, including
our independent registered public accounting ﬁrm, in administrative proceedings brought by the SEC
alleging the ﬁrms’ failure to meet speciﬁc criteria set by the SEC, we could unable to timely ﬁle future
ﬁnancial statements in compliance with the requirements of the Securities Exchange Act of 1934, as
amended, or the Exchange Act.

In December 2012, the SEC instituted administrative proceedings against the Big Four PRC-based
accounting ﬁrms, including our independent registered public accounting ﬁrm, alleging that these ﬁrms had
violated U.S. securities laws and the SEC’s rules and regulations thereunder by failing to provide to the SEC
the ﬁrms’ audit work papers with respect to certain PRC-based companies that are publicly traded in the
United States. On January 22, 2014, an initial administrative law decision was issued, censuring that each of
the ﬁrms had violated the SEC’s rules of practice by failing to produce audit work papers to the SEC. The
initial decision censured each of the ﬁrms and barred them from practicing before the SEC for a period of
six months. The decision is not effective unless and until it is endorsed by the SEC. On February 12, 2014,
the four PRC-based accounting ﬁrms appealed to the SEC against this sanction. On February 6, 2015, the four
PRC-based accounting ﬁrms each agreed to a censure and to pay a ﬁne to the SEC to settle the dispute and
avoid suspension of their ability to practice before the SEC and audit U.S. listed companies. The settlement
required the ﬁrms to follow detailed procedures to seek to provide the SEC with access to Chinese ﬁrms’
audit documents via the CSRC. If future document productions fail to comply with the documentation
production procedures that are in the settlement agreement or if there is a failure of the process between the
SEC and the CSRC, the SEC retains authority to impose a variety of additional remedial measures on the
ﬁrms depending on the nature of the failure. If the accounting ﬁrms are subject to additional remedial
measures, our ability to ﬁle our ﬁnancial statements in compliance with SEC requirements could be impacted.
A determination that we have not timely ﬁled ﬁnancial statements in compliance with SEC requirements could
ultimately lead to the delisting of our common stock from NYSE or the termination of the registration of our
common stock under the Securities Exchange Act of 1934, or both, which would substantially reduce or
effectively terminate the trading of our common stock in the United States.

Risks Related to Our ADSs

The trading prices of our ADSs have ﬂuctuated and may be volatile.

The trading prices of our ADSs have ﬂuctuated since we ﬁrst listed our ADSs. Since our ADSs became

listed on the NYSE on October 31, 2013, the trading price of our ADSs has ranged from US$17.00 to
US$83.71 per ADS, and the last reported trading price on April 28, 2015 was US$77.70 per ADS. The prices
for our ADSs may continue to ﬂuctuate because of broad market and industry factors, like the performance
and ﬂuctuation of the market prices of other companies with business operations located mainly in China that
have listed their securities in the United States. In recent years, the widespread negative publicity of alleged
fraudulent accounting practices and poor corporate governance of certain U.S. public companies with
operations in China were believed to have negatively affected investors’ perception and sentiment towards
companies with connection with China, which signiﬁcantly and negatively affected the trading prices of some
companies’ securities listed in the United States. Any similar negative publicity or sentiment may affect the
performances of our ADSs. The securities of some PRC companies that have listed their securities on
U.S. stock markets have experienced signiﬁcant volatility. The trading performances of these PRC companies’
securities after their offerings may affect the attitudes of investors toward PRC companies listed in the
United States in general and consequently may impact the trading performance of our ADSs, regardless of our
actual operating performance.

In addition to market and industry factors, the price and trading volume for our ADSs may be highly

volatile for factors speciﬁc to our own operations, including the following:

•

•

•

•

the ﬁnancial projections that we may choose to provide to the public, any changes in those
projections or our failure for any reason to meet those projections;

variations in our net sales, earnings and cash ﬂow;

announcements of new investments, acquisitions, strategic partnerships, or joint ventures;

announcements of new services and expansions by us or our competitors;

32

•

•

•

•

•

•

•

changes in ﬁnancial estimates by securities analysts;

additions or departures of key personnel;

release of lock-up or other transfer restrictions on our outstanding equity securities or sales of
additional equity securities;

detrimental negative publicity about us, our competitors or our industry;

potential litigation or regulatory investigations or other proceedings involving us;

ﬂuctuations in market prices for our products; and

proceedings instituted recently by the SEC against ﬁve PRC-based accounting ﬁrms, including our
independent registered public accounting ﬁrm.

Any of these factors may result in large and sudden changes in the volume and price at which our ADSs

will trade.

If securities or industry analysts do not publish research or reports about our business, or if they
adversely change their recommendations regarding our ADSs, the market price for our ADSs and
trading volume could decline.

The trading market for our ADSs will be inﬂuenced by research or reports that industry or securities

analysts publish about our business. If one or more analysts who cover us downgrade our ADSs, or publish
unfavorable research about us, the market price for our ADSs would likely decline. If one or more of these
analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the ﬁnancial
markets, which, in turn, could cause the market price or trading volume for our ADSs to decline.

Our dual class share structure with different voting rights will limit your ability to inﬂuence corporate
matters and could discourage others from pursuing any change of control transactions that holders of
our Class A ordinary shares and ADSs may view as beneﬁcial.

Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of

Class A ordinary shares are entitled to one vote per share, while holders of Class B ordinary shares are
entitled to ten votes per share, with Class A and Class B ordinary shares voting together as one class on all
matters subject to a shareholders’ vote. As of April 20, 2015, holders of our Class B ordinary shares
collectively owned approximately 23.19% of our outstanding ordinary shares, representing 75.12% of our total
voting power. As of April 20, 2015, our founder, chairman and chief executive officer, Mr. Jinbo Yao and
Tencent beneﬁcially own an aggregate of 40.37% of our outstanding shares.

As a result of the dual class share structure and the concentration of ownership, holders of our Class B

ordinary shares have substantial inﬂuence over our business, including decisions regarding mergers,
consolidations and the sale of all or substantially all of our assets, election of directors and other signiﬁcant
corporate actions. They may take actions that are not in the best interest of us or our other shareholders. This
concentration of ownership may discourage, delay or prevent a change in control of our company, which
could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our
company and may reduce the price of our ADSs. This concentrated control will limit your ability to inﬂuence
corporate matters and could discourage others from pursuing any potential merger, takeover or other change of
control transactions that holders of Class A ordinary shares and ADSs may view as beneﬁcial. For more
information regarding our principal shareholders and their affiliated entities, see ‘‘Item 7. Major Shareholders
and Related Party Transactions.’’

The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market
price.

Sales of substantial amounts of our ADSs in the public market, or the perception that these sales could

occur, could adversely affect the market price of our ADSs and could materially impair our ability to raise
capital through equity offerings in the future. We cannot predict what effect, if any, market sales of securities
held by our signiﬁcant shareholders or any other shareholder or the availability of these securities for future
sale will have on the market price of our ADSs.

33

We may be classiﬁed as a passive foreign investment company for United States federal income tax
purposes, which could result in adverse United States federal income tax consequences to United
States investors in the ADSs or Class A ordinary shares.

Depending upon the value of our assets, which may be determined based, in part, on the market value of

our Class A ordinary shares and ADSs, and the nature of our assets and income over time, we could be
classiﬁed as a ‘‘passive foreign investment company,’’ or PFIC, for United States federal income tax purposes.
Under United States federal income tax law, we will be classiﬁed as a PFIC for any taxable year if either
(i) at least 75% of our gross income for the taxable year is passive income or (ii) at least 50% of the value of
our assets (based on the average quarterly value of our assets during the taxable year) is attributable to assets
that produce or are held for the production of passive income. Based on our income and assets and the value
of our ADSs and Class A ordinary shares, we do not believe that we were a PFIC for the taxable year ended
December 31, 2014 and, although no assurances can be made in this regard, we do not expect to be a PFIC
for the current taxable year or any subsequent taxable year. While we do not anticipate being a PFIC, changes
in the nature of our income or assets or the value of our assets may cause us to become a PFIC for the
current or any subsequent taxable year.

Although the law in this regard is not entirely clear, we treat Beijing 58 as being owned by us for
United States federal income tax purposes, because we control its management decisions and we are entitled
to substantially all of the economic beneﬁts associated with it, and, as a result, we consolidate its results of
operations in our consolidated U.S. GAAP ﬁnancial statements. If it were determined, however, that we are
not the owner of Beijing 58 for United States federal income tax purposes, we would likely be treated as a
PFIC for our taxable year ending December 31, 2015 and for subsequent taxable years. Because of the
uncertainties in the application of the relevant rules and because PFIC status is a factual determination made
annually after the close of each taxable year on the basis of the composition of our income and the value of
our active versus passive assets, there can be no assurance that we will not be a PFIC for our taxable year
ending December 31, 2015 or any future taxable year. Under circumstances where revenues from activities
that produce passive income signiﬁcantly increase relative to our revenues from activities that produce
non-passive income or where we determine not to deploy signiﬁcant amounts of cash for active purposes, our
risk of becoming classiﬁed as a PFIC may substantially increase.

If we were to be or become a PFIC, a U.S. Holder (as deﬁned in ‘‘Item 10. Additional Information —
E. Taxation — United States Federal Income Tax Considerations’’ and ‘‘Item 10. Additional Information —
E. Taxation — United States Federal Income Tax Considerations — General’’) may incur signiﬁcantly
increased United States federal income tax on gain recognized on the sale or other disposition of the ADSs or
Class A ordinary shares and on the receipt of distributions on the ADSs or Class A ordinary shares to the
extent such gain or distribution is treated as an ‘‘excess distribution’’ under the United States income tax rules.
Further, if we were a PFIC for any year during which a U.S. Holder held our ADSs or Class A ordinary
shares, we generally would continue to be treated as a PFIC with respect to such U.S. Holder for all
succeeding years during which such U.S. Holder held our ADSs or Class A ordinary shares. Each U.S. Holder
is urged to consult its tax advisor concerning the United States federal income tax consequences of
purchasing, holding and disposing of ADSs or Class A ordinary shares if we are or become treated as a PFIC.

The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may
not be able to exercise your right to vote your Class A ordinary shares.

As a holder of our ADSs, you will only be able to exercise the voting rights with respect to the
underlying Class A ordinary shares in accordance with the provisions of the deposit agreement. Under the
deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting
instructions, the depositary will vote the underlying Class A ordinary shares in accordance with these
instructions. You will not be able to directly exercise your right to vote with respect to the underlying shares
unless you withdraw the shares. Under our amended and restated memorandum and articles of association, the
minimum notice period required for convening a general meeting is ten clear days. When a general meeting is
convened, you may not receive sufficient advance notice to withdraw the shares underlying your ADSs to
allow you to vote with respect to any speciﬁc matter. If we ask for your instructions, the depositary will notify
you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that
you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares.

34

In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for
their manner of carrying out your voting instructions. This means that you may not be able to exercise your
right to vote and you may have no legal remedy if the shares underlying your ADSs are not voted as you
requested.

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such
we are exempt from certain provisions applicable to United States domestic public companies.

Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain
provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic
issuers, including:

•

•

•

•

the rules under the Exchange Act requiring the ﬁling with the Securities and Exchange Commission,
or the SEC, of quarterly reports on Form 10-Q or current reports on Form 8-K;

the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in
respect of a security registered under the Exchange Act;

the sections of the Exchange Act requiring insiders to ﬁle public reports of their share ownership and trading
activities and liability for insiders who proﬁt from trades made in a short period of time; and

the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

We are required to ﬁle an annual report on Form 20-F within four months of the end of each ﬁscal year.
In addition, we intend to publish our results on a quarterly basis as press releases, distributed pursuant to the
rules and regulations of the NYSE. Press releases relating to ﬁnancial results and material events will also be
furnished to the SEC on Form 6-K. However, the information we are required to ﬁle with or furnish to the
SEC are less extensive and less timely as compared to that required to be ﬁled with the SEC by United States
domestic issuers. As a Cayman Islands company listed on the NYSE, we are subject to the NYSE corporate
governance listing standards. Among other things, Section 303A.08 of the NYSE Listed Company Manual
requires shareholder approval of material revisions to equity-compensation plans and Section 312.03(c) of the
NYSE Listed Company Manual requires shareholder approval of new share issuances above the 20%
threshold speciﬁed therein. However, NYSE rules permit a foreign private issuer like us to follow the
corporate governance practices of its home country. We have elected to follow the Cayman Islands practices
with respect to the amendment of our 2013 share incentive plan to increase the total number of ordinary
shares that may be issued pursuant to awards granted under the plan. In addition, we have also elected to
follow the Cayman Islands practices with respect to the issuance of new ordinary shares above the 20%
threshold as speciﬁed in Section 312.03(c).

You may not receive dividends or other distributions on our ordinary shares and you may not receive
any value for them, if it is illegal or impractical to make them available to you.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the

custodian receives on Class A ordinary shares or other deposited securities underlying our ADSs, after
deducting its fees and expenses. You will receive these distributions in proportion to the number of Class A
ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is
unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be
unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under
the Securities Act but that are not properly registered or distributed under an applicable exemption from
registration. The depositary may also determine that it is not feasible to distribute certain property through the
mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases,
the depositary may determine not to distribute such property. We have no obligation to register under
U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions.
We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights
or anything else to holders of ADSs. This means that you may not receive distributions we make on our
ordinary shares or any value for them if it is illegal or impractical for us to make them available to you.
These restrictions may cause a material decline in the value of our ADSs.

35

You may not be able to participate in rights offerings and may experience dilution of your holdings.

We may, from time to time, distribute rights to our shareholders, including rights to acquire securities.

Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the
distribution and sale of rights and the securities to which these rights relate are either exempt from registration
under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the
Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third
parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration
under the Securities Act, and we are under no obligation to ﬁle a registration statement with respect to these
rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly,
holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their
holdings as a result.

You may be subject to limitations on transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books

at any time or from time to time when it deems expedient in connection with the performance of its duties.
The depositary may close its books from time to time for a number of reasons, including in connection with
corporate events such as a rights offering, during which time the depositary needs to maintain an exact
number of ADS holders on its books for a speciﬁed period. The depositary may also close its books in
emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register
transfers of our ADSs generally when our share register or the books of the depositary are closed, or at any
time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any
government or governmental body, or under any provision of the deposit agreement, or for any other reason.

We incur increased costs as a result of being a public company, particularly after we cease to qualify
as an ‘‘emerging growth company.’’

As a public company, we incur signiﬁcant legal, accounting and other expenses that we did not incur as a

private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC
and NYSE, impose various requirements on the corporate governance practices of public companies. As a
company with less than US$1.0 billion in revenues for our last ﬁscal year, we qualify as an ‘‘emerging growth
company’’ pursuant to the JOBS Act. An emerging growth company may take advantage of speciﬁed reduced
reporting and other requirements that are otherwise applicable generally to public companies. These provisions
include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of
2002 in the assessment of the emerging growth company’s internal control over ﬁnancial reporting and
permission to delay adopting new or revised accounting standards until such time as those standards apply to
private companies. However, we have elected to ‘‘opt out’’ of this provision and, as a result, we will comply
with new or revised accounting standards as required when they are adopted for public companies. This
decision to opt out of the extended transition period under the JOBS Act is irrevocable.

We expect these rules and regulations to increase our legal and ﬁnancial compliance costs and to make

some corporate activities more time-consuming and costly. After we are no longer an ‘‘emerging growth
company,’’ we expect to incur signiﬁcant expenses and devote substantial management effort toward ensuring
compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and
regulations of the SEC. For example, as a public company, we need to increase the number of independent
directors and adopt policies regarding internal controls and disclosure controls and procedures. We have
incurred additional costs in obtaining director and officer liability insurance. In addition, we also incur
additional costs associated with our public company reporting requirements. It may also be more difficult for
us to ﬁnd qualiﬁed persons to serve on our board of directors or as executive officers. We are currently
evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or
estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

In the past, shareholders of a public company often brought securities class action suits against the
company following periods of instability in the market price of that company’s securities. If we were involved
in a class action suit, it could divert a signiﬁcant amount of our management’s attention and other resources
from our business and operations, which could harm our results of operations and require us to incur
signiﬁcant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our
reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made
against us, we may be required to pay signiﬁcant damages, which could have a material adverse effect on our
ﬁnancial condition and results of operations.

36

ITEM 4.

INFORMATION ON THE COMPANY

A. History and Development of the Company

We began our operations in China in 2005 through Beijing 58, a PRC limited liability company, which

has become our consolidated affiliated entity through the contractual arrangements described below.

In August 2006, Mr. Jinbo Yao and several PRC angel investors, or, collectively, the Founding
Shareholders, SB Asia Investment Fund II L.P., or SAIF, and an employee of SAIF, established Chengshi
Wangxun (Beijing) Information Technology Co., Ltd., or Wangxun, a sino-foreign investment holding
company under the laws of the PRC.

CCNC BVI, a holding company established in the British Virgin Islands, was incorporated in

January 2010. Subsequently, CCNC BVI established CCIC HK, a Hong Kong limited liability company, as its
wholly owned subsidiary. CCIC HK then established Wanglin, as a wholly foreign-owned enterprise in China.
In January 2010, Wangxun terminated the contractual arrangements with Beijing 58 and its shareholders and
Wanglin entered into a series of contractual agreements with Beijing 58 and its shareholders, including the
exclusive business cooperation agreement, the equity pledge agreement, the exclusive option agreement and
the power of attorney, under which Wanglin exercises effective control over the operations of Beijing 58.

Our current holding company, 58.com Inc., was incorporated in May 2011 as a limited liability company
in the Cayman Islands. Through a share exchange in July 2011, the shareholders of CCNC BVI exchanged all
of their outstanding ordinary and preference shares of CCNC BVI for ordinary and preference shares of
58.com Inc. on a pro rata basis and no additional consideration was paid in connection with the share
exchange. As a result, CCNC BVI became a wholly owned subsidiary of 58.com Inc.

In March 2012, CCIC HK established 58 Tongcheng Information Technology Co., Ltd. or 58 Technology,

as a wholly foreign-owned enterprise in China, to operate our customer service operations in China.

On October 31, 2013, our ADSs commenced trading on the New York Stock Exchange under the symbol

‘‘WUBA.’’ We completed our initial public offering on November 5, 2013, and raised approximately
US$200.0 million in net proceeds after deducting underwriter commissions from the initial public offering of
12,650,000 ADSs, representing 25,300,000 Class A ordinary shares, at the price of US$17.0 per ADS.
Concurrently with our initial public offering, we also raised US$15.0 million from DCM Hybrid RMB Fund,
L.P., a fund affiliated with DCM V, L.P., our existing shareholder, by private placement of 1,764,706 Class A
ordinary shares at a price of US$8.5 per share. As a result of our initial public offering and the concurrent
private placement, we raised an aggregate of approximately US$215.0 million in net proceeds.

On April 2, 2014, we completed a follow-on public offering of ADSs by us and certain selling

shareholders. Through the follow-on offering we issued and sold 2,000,000 ADSs and the selling shareholders
sold an aggregate of 4,900,000 ADSs at the price of US$38.00 per ADS. The net proceeds received by us,
after deducting underwriting commissions, amounted to approximately US$73.0 million. We did not receive
any proceeds from the sale of the ADSs by the selling shareholders.

In June 2014, Tencent invested US$736.1 million in our company and acquired 36,805,000 Class A and

Class B ordinary shares, approximately 19.9% equity interest in 58.com Inc. on a fully-diluted basis at a
purchase price of US$20.0 per ordinary share, corresponding to US$40.0 per ADS. We applied part of the
proceeds from this transaction to repurchase 27,603,750 ordinary shares of our company from certain pre-IPO
shareholders.

In March 2015, we acquired Anjuke, a major online real estate listing platform in China, through the
purchase of 100% equity interest in Anjuke Inc., an exempted company incorporated under the laws of the
Cayman Islands, for a combination of share consideration and cash, including approximately ﬁve million
newly issued ordinary shares of our company and US$160.2 million in cash.

37

In April 2015, we acquired approximately 43.2% fully diluted equity stake in Falcon View Technology
Limited, or Ganji, the holding company of the PRC entities operating Ganji.com, a major online local services
marketplace platform in China, for a combination of share consideration and cash, including approximately
34 million newly issued ordinary shares of our company and US$412.2 million in cash.

Concurrent with our aforementioned acquisition of a strategic stake in Ganji and incremental to its then
existing share ownership of our company, Tencent purchased additional newly issued ordinary shares from us
for approximately US$400 million at a purchase price of US$26 per ordinary share, equivalent to US$52 per
ADS.

Our principal executive offices are located at Block E, The North American International Business Center,

Yi 108 Beiyuan Road, Chaoyang District, Beijing 100101, the People’s Republic of China. Our telephone
number at this address is +(86 10) 5139 5858. Our registered office in the Cayman Islands is located at the
offices of Codan Trust Company (Cayman) Limited, Cricket Square, PO Box 2681, Grand Cayman,
KY1-1111, Cayman Islands. Our agent for service of process in the United States is Law Debenture Corporate
Services Inc., located at 400 Madison Avenue, 4th Floor, New York, New York 10017.

B. Business Overview

We operate an online marketplace serving local merchants and consumers in China. Our online
marketplace enables local merchants and consumers to connect, share information and conduct business.

Our online marketplace contains local information in approximately 395 cities, across diverse content

categories, including housing, jobs, used goods, automotive, pets, tickets, yellow pages and other local
services. We conduct automatic and manual screening using proprietary technology and processes to ensure
relevance and accuracy of the information on our online marketplace. To further increase the quality of
information and enhance user experience, we leverage our years of experience and continue to develop
processes and features to certify local merchants, encourage user reviews, collect and respond to customer
feedback through our customer service team and provide designed templates to local merchants to make
listings more informative and effective. In January 2015, the aggregate monthly unique visitors of our PC and
mobile platforms approached 300 million for the ﬁrst time since our inception.

Our online marketplace also provides merchants with an affordable and effective marketing channel to

reach a broad and targeted local consumer base. Our sales and customer service team stay in regular contact
with our customers to help them use our online marketing services to achieve optimal marketing effectiveness.
Our well-recognized brand, ‘‘58.com,’’ further helps local merchants to attract consumers in China. As a
result, we had more than seven million active local merchants on our marketplace in 2014 and approximately
605,000 subscription based paying merchant members in the fourth quarter of 2014.

Our business model is highly compatible with mobile internet. Our listing-based content is easy to

display through mobile devices. Our location-based services and other mobile functionalities signiﬁcantly
increase user engagement. We have launched a separate merchant mobile application to increase
consumer-merchant communication and enhance the ability of merchants to manage content and attract
consumers. In 2014, 58.4% of our total page views were on mobile applications.

In the second half of 2014 we launched separate mobile applications for 58 Home services. These
applications directly match consumers and individual services providers for local services categories such as
house cleaning, moving and manicure services. Reservations, payment and reviews, among things, can be
done on the mobile applications. The new 58 Home services signiﬁcantly increase the efficiency of matching
local services supply and demand and help raise the quality of these services provided in China. Our platform
is still in an early stage and we plan to roll out 58 Home services to more cities and categories in 2015.

We generate revenues primarily from memberships and online marketing services. A membership is a

basic service package mainly consisting of merchant certiﬁcation, display of an online storefront on our
marketplace; preferential listing beneﬁts such as daily priority listings and higher quota for daily listings and
access to our dedicated customer service support team and online account management system. Our online
marketing services mainly include listing services, such as real-time bidding and priority listing, and
marketing services through collaboration with third-party internet companies in China. Merchants can use our
real-time bidding services to bid for the most prominent placement of their listings in speciﬁc categories and

38

locations on a daily or cost per click, or CPC, basis. Merchants can also purchase our priority listing services,
which place their listings below real-time bidding listings and above paying merchant members’ listings.

Our revenues were US$87.1 million, US$145.7 million and US$265.0 million in 2012, 2013 and 2014,
respectively. We incurred net loss of US$30.4 million in 2012, and we had a net income of US$19.6 million
and US$22.6 million in 2013 and 2014, respectively.

Our Users

Our users refer to all participants on our marketplace, including consumers and local merchants. Users
may browse and search information on our online marketplace without the need to register an account with
us. After completing a user registration process, a user can post information and use our communication tools
and other services.

Our paying merchant members refer to the registered accounts through which our users have purchased
our membership services. Users who have purchased our membership are entitled to additional services and
beneﬁts after paying membership fees to us. See also ‘‘— Service Offerings — Membership.’’ Our online
marketing customers refer to users who have purchased our various online marketing services to enhance their
marketing effectiveness. Our paying merchant members can also purchase online marketing services in
addition to membership subscriptions. Online marketing customers also include third-party internet companies
who collaborate with us on performance-based online marketing services for their own advertisers.

Content Categories

Our users post a massive amount of listings on our marketplace covering a wide range of services and
products. We organize the listings on our marketplace by content categories in an intuitive and easy-to-use
directory to facilitate the browsing and viewing of listings. Within each main content category, information is
further sorted into sub-categories with various search criteria and parameters to allow users to further reﬁne
their information search and increase the relevancy of their search results. Currently, listings on our online
marketplace cover the main content categories such as jobs, housing, used goods, automotive, yellow pages,
pets and tickets.

Key features of the main content categories are summarized as follows:

•

•

•

Jobs. This currently covers a wide range of job categories such as sales people, skilled workers,
food and beverage staff, delivery staff, and homecare and cleaning staff. Employers can search and
review resumes on our database. In addition, our content category contains other tools that enable
employers to manage, organize and streamline the recruitment and hiring process.

Housing. This is sorted into sub-groups of residential leasing and sub-leasing, secondary property
sale, office space leasing, retail space leasing and factory and other industrial real estate leasing. The
newly acquired Anjuke’s platforms also contain primary properties information other than secondary,
leasing and commercial real estate categories. We differentiate listings uploaded by individuals from
those by real estate agents. Our tools protect private contact information for individual users who
prefer being contacted by individuals instead of real estate agents. We further facilitate users’
decision making by providing property pricing index, generated from our listing database, for
different areas and property categories. Our PC and mobile applications enable real estate agents to
conveniently upload, manage their listings, communicate with consumers and monitor marketing
effectiveness.

Used goods. This covers a wide selection of used consumer products such as computers and
peripherals, mobile phones, digital cameras, furniture, household appliances and goods, office
furniture, books, artworks, sporting goods, musical instruments and other used goods. Users can also
ﬁnd barter trade deals from our used goods directory. In addition to information exchange, we also
facilitate online transactions, and partner with third-party payment providers to allow guaranteed
online payment.

39

•

•

•

•

Automotive. This includes listings of used cars, car leasing, driving school services, automotive
repair and maintenance services, and other car-related services. In addition to providing information,
we liaise with qualiﬁed third party vendors to facilitate the used cars transaction process by
providing services such as vehicle inspection, sales registration, and money-back quality guarantees.

Yellow pages. This business directory covers a variety of services, which include homecare and
relocation, renovation, wedding, business services, travel, education, food, beauty, entertainment and
franchise. In some relevant content categories, we facilitate commerce by providing online user
review, reservation, transaction and payment tools. These functionalities further enhance user
engagement and bring a higher level of convenience to users.

Pets. This includes listings for different types of pets for sale or adoption, such as dogs, cats, ﬁsh,
birds and other small house pets. Pet lovers can also ﬁnd various products and services related to pet
care such as pet hospitals, pet food and pet wear.

Tickets. This includes ticket information for events such as concerts, movies, operas and plays,
train and airplane tickets, as well as for amusement parks and other sightseeing and travel
destinations.

Our Website and Mobile Applications

Our www.58.com website is organized to ensure a smooth user experience. Users typically enter one of
the approximately 395 city websites by selecting the city of their interest. Users can further select a speciﬁc
neighborhood within the city, leading users to information that is only relevant to the selected neighborhood.
Within each city website, listings are grouped by content categories and subcategories. In each content
category, we provide customized parameters to allow users to further ﬁlter their search queries.

From the home page, once users select the location and category, users will access a listing page, where

numerous listings are being displayed. The listings on this page typically include brief information on
merchants and their services. When users click on an individual listing, a landing page will show more
detailed information about the merchant and the product and service the merchant provides. These
subcategories and additional parameters are regularly reviewed and optimized for each content category based
on user feedback we receive and user traffic data to ensure we continue to provide a superior user experience.

Our listing-based content is easily accessible through our different mobile applications. We mainly offer
three types of mobile applications, i.e., downloadable applications developed for Android and iOS platforms,
browser-adapted applications for users accessing our website through their smartphone browsers and a
tailor-made mobile application for merchants.

The main classiﬁeds mobile application content layout is intuitive and easy to use. Once users select a
location and a main content category, they are presented with the listings results. Users can further narrow the
search by selecting more detailed search parameters, customized for different content categories.

The unique mobile functions further enhance user experience on mobile phones. For example, a direct

dial feature on our mobile-enabled platform allows users to call the phone numbers displayed on a listing by
a single click. In addition, mobile users can send messages or use instant messaging software from our
mobile applications at any time. We designed additional features for users to upload photos from mobile
phones to update the listing content, which is immediately synchronized with web content. The multi-media
functionalities of mobile phones further enrich the listing content on our marketplace. Furthermore,
location-based functionalities of mobile phones enable us to provide information that is more geographically
relevant to users on a real-time basis. We also developed technologies to recommend content based on users’
past viewing history. Our mobile merchant application simpliﬁes the processes for merchant to manage their
listing, such as uploading, modifying, searching, prioritizing the listings and also purchasing online marketing
services to enhance the marketing effectiveness. The mobile application also allows merchants to communicate
in real-time with users and manage their customers’ relationship on our application. We also leverage big data
ability to better match consumers who look for local services information with those merchants who can
provide relevant services. We continuously work on developing additional features to better utilize mobile
device functionalities to enhance user experience.

40

The 58 Home services mobile applications, which we launched in second half of 2014, currently contain

content categories such as house cleaning services, moving services and manicure services. We focus on
services that generally require service providers to go to consumer’s home to render the services. Users can
easily book services through the application after identifying type of services needed, location and expected
timing. Users can use a system recommended service provider or select service providers through browsing
the services providers available and their rating and reviews from other consumers. When the services are
rendered, users can pay online or cash in person. They can also pay in lump sum to become members which
entitle them to better discounts for booking future services from the platform.

Apart from the user version of the 58 Home services application, we have also launched the merchant

version of the 58 Home services application. It enables the services providers to receive and act on the
incoming orders, communicate with the consumer users who booked with the systems, receive payments and
track service remuneration.

These mobile applications simplify the process for users to ﬁnd local services and enable them to make

more informed decisions about selecting services providers. They also enable the services providers who
were previously typically affiliated with offline service agencies to gain direct access to consumers and over
time create a reputation through continuingly providing high quality services and accumulating good reviews.
58 Home services, by connecting increasingly more consumers and service providers, aim to become a
more efficient platform in matching supply and demand for local services. Through making the booking,
communication, payment process more transparent and conducting regular trainings to the services providers,
58 Home expect to help raise the quality standards of the local services and increase the satisfaction rate of
consumers and service providers.

All users can use our marketplace to:

•

•

•

Browse and search. Users can browse and search our large database of listings to retrieve speciﬁc
listings relevant to their needs for free and without the need of registering an account with us. Users
are able to obtain search results based on keyword searches as well as an intelligent dictionary of
commercial products and associated terms.

Post listings. Users who register with us enjoy the basic services of listing information on our
online marketplace for free and other additional beneﬁts. A registered user can choose to go through
our certiﬁcation process by providing personal identiﬁcation information, mobile phone number and
email for an individual or business license and contact information for an enterprise. Listings by a
registered user that has passed the merchant certiﬁcation process will be identiﬁed with a trust rating
score on our online marketplace.

Communicate. Other than traditional phone communication, our www.58.com website and mobile
applications offer instant messaging tools enabling users to maintain a ‘‘friends list’’ and
communicate online. In addition to the instant messaging tools, our mobile site and mobile
applications contain a direct dial feature which allows users to call or send text messages to phone
numbers displayed on the listings by a simple click. Our instant messaging software and mobile
application are designed speciﬁcally for merchants. They have features such as instant notiﬁcation
when users visit their listings which ensures real-time interaction between merchants and consumers
and recommending users to merchants based on our system’s intelligent matching capability after
analyzing a merchant’s listing content and a user’s viewing history.

• Make reservation and purchase.

In addition to providing a local information directory, our online

marketplace also facilitates online reservations and transactions among consumers and local
merchants. For example, users can book wedding services, entertainment and relocation services,
buy pets, tickets and other services on our marketplace.

•

Review and report. Users can post reviews on listings on our marketplace which provides
transparency on merchant credibility. Consumers can also easily report fraud if they come across
suspicious content.

41

•

Conduct transaction in a safe environment. We have rolled out a consumer protection program,
which contains various measures to help improve information credibility and promote safer
transactions. For instance, we bring in merchants who provide quality guarantee deposits to settle
potential consumer disputes in our pets content category. In our automotive category, in addition to
providing vehicle information, we partner with third parties to provide a one-stop shop for used cars
sales.

Service Offerings

Membership

A membership is a basic service package mainly consisting of merchant certiﬁcation, display of an online

storefront on our marketplace, preferential listing beneﬁts such as daily priority listings and higher quota for
daily listings and access to our dedicated customer service support team and online account management
system. Merchants who subscribe to our membership can enjoy more services and obtain more effective
marketing than non-paying merchants on our marketplace.

We offer memberships of varying lengths across different content categories. Memberships in the yellow

pages and jobs categories are primarily 12-month packages. Memberships in the housing category are
primarily one- to three-month packages. We acquire a majority of paying merchant members through our ﬁeld
sales team. Our centralized and dedicated tele-customer service team supports our paying merchant members
during their membership to enhance the effectiveness of the paying merchant members’ marketing efforts and
improve the likelihood of membership renewals. A majority of our paying merchant members are small and
medium-sized local merchants. The competitive landscape of such merchants changes quickly and many only
have temporary recruiting or marketing needs from time to time.

The following table sets forth the number of paying merchant members for the periods indicated.

March 31,
2012

June 30,
2012

September 30,
2012

December 31,
2012

March 31,
2013

June 30,
2013

September 30,
2013

December 31,
2013

March 31,
2014

June 30,
2014

September 30,
2014

December 31,
2014

For the Three Months Ended

Paying Merchant
Members(1)
(in thousands) .

.

142.8

171.9

203.8

227.9

248.8

297.7

352.9

392.9

441.0

510.3

560.1

604.5

(1) We deﬁne paying merchant members as the registered accounts through which our users have purchased
our membership subscriptions. The number of paying merchant members in a given period represents the
paying merchant members whose membership subscriptions are in their service period at any point during
such given period.

Our membership services package includes the following services:

•

•

Certiﬁcation services. We require mandatory merchant certiﬁcation for local merchants who intend
to become our paying merchant members. We require membership applicants to provide us with
copies of their business licenses and we check the authenticity of details included in the business
licenses against those available in third-party databases, such as the publicly available database of
local administration of industry and commerce. We have also developed various other certiﬁcation
processes and requirements that are speciﬁc to different content categories based on our years of
experience. Each member that has passed the merchant certiﬁcation process will be identiﬁed as a
certiﬁed merchant on our marketplace. We had certiﬁed approximately 2.8 million local merchants
up to December 31, 2014. We may downgrade or upgrade a member’s trust rating based on the
member’s prior activities on our online marketplace, the screening results and user feedback
pursuant to our internal policy.

Online storefront. Paying merchant members can set up online storefronts by utilizing 370 standard
website templates that we have developed in-house and that can be customized for different service
sectors. A member may include a brief company proﬁle containing the member’s contact information
and a virtual showroom of the member’s products and services. The online storefront also includes
online reservation, transaction and payment functions.

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•

•

•

Preferential listing beneﬁts. Paying merchant members’ listings and online storefronts have priority
placement in the listings and search results over those of our non-member registered users. In
addition, paying merchant members can designate time intervals throughout a day to refresh their
listings up to a pre-set number of times a day without additional fees. Other beneﬁts include higher
daily quota to upload listings, higher discounts to purchase other online marketing services,
dedicated telephone numbers through which users can contact merchants for customer services and
statistical reports to track marketing effectiveness and participation opportunity in our marketing
events.

Customer service. We provide our paying merchant members with a dedicated and experienced
customer support team that attends to their inquiries, assist them with setting up their online
storefronts, and follow up with them to help optimize their listings and marketing effectiveness. In
addition to general customer service, we also provide industry speciﬁc online marketing know-how
to help merchants maximize their market effectiveness.

Account management system. We have developed a comprehensive account management system,
which serves as a one-stop shop for our paying merchant members. Our account management
system allows paying merchant members to conduct various activities, including managing listings,
tracking and evaluating the marketing effectiveness of listings, managing business operations, and
purchasing our online marketing services, via a user-friendly interface. Our account management
webpage is tailored in design and functions for the varying needs and requirements of our paying
merchant members in different sectors. We have also developed a mobile merchant application,
through which our paying merchant members are provided with access to the same information and
services on mobile devices as on PCs. In addition to enabling listings with increased relevance of
information through location-based services, the mobile application also allows merchants to
communicate in real-time with users.

Membership revenues from customers are mostly collected by our ﬁeld sales teams, while customers can

also opt to request and subscribe to memberships through our online interface.

Online Marketing Services

Our online marketing services primarily include listing services, such as real-time bidding and priority
listing, and marketing services through collaboration with third party internet companies in China. On average,
approximately 27.3% of our quarterly paying merchant members purchased our online marketing services
in 2014.

Merchants can use our real-time bidding services to bid for the most prominent placement of their
listings in speciﬁc categories and locations on a daily or CPC basis. We have developed a user-friendly
bidding system, through which merchants can create text- and graphic-based descriptions for their listings and
bid on the placements of their listings for the following day. We provide reference bidding prices which are
based on metrics, such as traffic, number of clicks generated by precedent placements and the previous day’s
prices. We launched our real-time bidding services in selected categories and locations in the ﬁrst quarter of
2013. We believe our real-time bidding services enable us to generate much higher revenues than we
otherwise could with the same amount of listing space by attracting more customers and increasing the
average spending per customer. Approximately 18.3% of our quarterly paying merchant members purchased
our real-time bidding services in 2014.

Merchants can also purchase our priority listing services, which place their listings below real-time
bidding listings and above paying merchant members’ listings. Merchants can purchase listing placements of
varying duration from several hours to several days to several weeks.

We collaborate with third-party internet companies by placing the marketing links of their marketing
customers on the relevant listing pages on our online marketplace. We generate revenues based on the number
of clicks or cost-per-thousand impressions at pre-determined prices.

43

We also provide other online marketing services, such as resume downloads, text- or graphic-based
displays and brand promotion services for varying time periods ranging from a day to several months based
on the duration of services or performance criteria, such as number of clicks, effective phone calls and new
user registrations.

All users are required to make payment in advance before purchasing our online marketing services.
They can purchase online marketing services through an easy-to-use interface on our online marketplace.
Paying merchant members can log into our account management webpage and purchase various online
marketing services to enhance the marketing effectiveness of their listings. Our account management system
enables paying merchant members to review and optimize the performance of their existing listings and to
generate new listings. Merchants can evaluate the marketing effectiveness of our services by tracking and
analyzing user traffic brought to their listings and comparing that to other listings in similar content
sub-categories and locations.

Our ﬁeld sales and customer service teams stay in regular contact with our customers and play an

essential role in promoting our online marketing services to our paying merchant members. Leveraging on our
expertise in online marketing services, we help paying merchant members to select the most suitable services
to maximize their marketing effectiveness.

Technology

We have made signiﬁcant investments in different technologies to ensure superior user experience and
information quality. As of December 31, 2014, we had a team of 1,354 highly skilled product development
personnel and engineers with expertise in a broad range of technical areas. We have built strong capabilities in
real-time search, anti-fraud protection, information quality assurance, large-scale systems, scalable
infrastructure, real-time bidding technology and mobile technologies.

Real-time Search

To accomplish the timely display of information, we have developed a proprietary search engine with

high levels of performance, reliability and scalability.

•

•

•

High performance levels. We have implemented an advanced search indexing system, through
which all new data are stored immediately after they are posted. Our new postings are typically
available for search within three seconds after they are posted.

Highly reliable. We have developed a load balancing mechanism in the search engine to ensure
that in the event of any server failure, our overall searching system will be unaffected.

Highly scalable. The search system is implemented on a distributed and clustered infrastructure
which enables the storage and processing of large datasets and facilitates deployment of resources on
a larger scale.

Anti-fraud Protection and Information Quality Assurance

We have built a framework in which we measure information quality and classify quality issues into

different levels such as fraud risk, authenticity, clarity and relevance. Based on the results of the initial
information quality measurement, we deploy information screening technologies according to the level of
quality issues we identify. To maximize the efficiency of our system, if we identify a listing as involving a
higher level of risk, we do not proceed further with the lower level of screening procedures. Our strong
anti-fraud capabilities include:

•

•

Content analysis technology. Our system screens every listing for fraud risk before a listing can be
displayed on our online marketplace by using various speciﬁc technologies such as watermark
identiﬁcation, information retrieval and machine learning technologies. Our system is designed to
sweep the data being transmitted on our marketplace on a real-time basis for sensitive keywords,
questionable content and unusual levels of activity.

User behavior analysis technology. Equipped with data mining technology to track and analyze a
wide range of anonymous user information, our system can detect and ﬂag potential irregularities
and initiate the relevant procedures to quickly identify and ﬁx any potential problems.

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• Manual review and feedback adopting system. We use a manual review process to screen

information that is ﬂagged by our system, requiring a more detailed follow-up. We have built a
mechanism through which our system can ‘‘learn’’ from the results if a listing is checked and
validated to be accurate through our manual review process, by incorporating the manual review
results in our system database. Thus we are able to continue to update our system and enhance the
system’s screening capability and efficiency.

Large-Scale Systems and Scalable Infrastructure

We have built a system infrastructure that is easily scalable, supports a massive number of software and

systems and has large data storage capacity. Our entire system is built on a distributed, load-balanced
computing infrastructure, which is both highly scalable and reliable. The infrastructure can be expanded easily
as data storage and user visits increase. We have designed a uniﬁed platform, which administrates all systems
and servers and can reconﬁgure or redeploy systems or servers automatically whenever needed.

Mobile Technologies

Page views from mobile applications represented 58.4% of total page views in 2014. We use native web

development capabilities to ensure our applications can be upgraded rapidly and third-party applications can
be integrated onto our mobile platform in a ﬂexible and efficient manner.

In addition, our mobile applications allow us to collect more detailed user behavior data, leverage our

data mining capabilities and introduce new user features, such as personalized content, to enhance user
experience.

Account Management System

We have developed a comprehensive account management system, which serves as a one-stop shop for

our paying merchant members. Our account management system allows paying merchant members to conduct
various activities, including managing listings, tracking and evaluating the marketing effectiveness of listings,
managing business operations, and purchasing our online marketing services, via a user-friendly online
interface.

•

•

•

•

Listing management. Paying merchant members can generate, upload and delete both text- and
graphic-based listings via an easy-to-navigate online interface. Our account management system
provides search functions with category-speciﬁc search criteria to help our paying merchant
members to access and utilize our listing database more effectively and efficiently. The system is
also equipped with additional analytic tools for listings in different content categories.

Tracking and evaluation of marketing effectiveness. Paying merchant members can log into our
account management webpage to review and optimize performance of their listings. The system
keeps track of traffic brought to their listings, and provides further detail on traffic by listing or by
time period. Our paying merchant members are therefore able to evaluate their marketing
effectiveness by analyzing traffic to their listings compared to that of other listings in similar content
sub-categories and locations.

Business operations management. Paying merchant members can manage part of their business
operations using our account management system.

Purchasing online marketing services. We have placed links to purchase our various online
marketing services on our account management webpage, as we believe these services can help our
customers achieve better marketing performance. Our paying merchant members can also participate
in biddings for priority listings through a simple interface that we provide.

Content Management and Monitoring

We have dedicated personnel reviewing content on our marketplace for compliance with applicable laws
and regulations, aided by a program designed to sweep our marketplace and the data being transmitted in our
system on a real-time basis for sensitive keywords, questionable content and unusual levels of activity.
Content that contains certain keywords is automatically ﬁltered by our program and cannot be successfully
posted on our online marketplace.

45

Apart from ensuring our content is compliant with applicable laws and regulations, we believe
information quality is critical to superior user experience. We utilize proprietary screening and monitoring
technologies together with manual screening to ensure the relevance, accuracy and credibility of the content
on our online marketplace. Consumers can also post reviews on merchant listings, which provide transparency
on merchant credibility. Consumers can also easily report fraud if they come across suspicious content.

We encourage merchants to further increase their credibility by going through our merchant certiﬁcation
procedure which is mandatory for our paying merchant members. We had certiﬁed approximately 2.8 million
local merchants up to December 31, 2014. The increased quality of our merchant network increases the
quality of information on our marketplace. We have rolled out a consumer protection program, which contains
various measures to help improve information credibility and promote safer online transactions.

Our corporate policy requires a user to enter into a user agreement in the registration process before
posting any content on our online marketplace. In the user agreement, the user makes certain representations
and warranties, including, among others, (1) all information submitted for registration purpose and all
user-generated content are true, (2) none of the user-generated content infringes on third-party rights or
properties, (3) the user-generated content is in compliance with relevant PRC laws and regulations, (4) the
user alone is responsible for any losses, injuries, liabilities or expenses arising from or caused by the
user-generated content, and (5) the user will not hold us liable for any losses arising from intellectual property
right infringement by using our online marketplace. However, we may be subject to intellectual property
infringement claims or other allegations by third parties for services provided or content displayed on our
online marketplace. Although we believe that we will have recourse to indemniﬁcation from alleged infringing
users on the basis of the user agreement, such right to recourse is subject to enforcement mechanisms of the
PRC legal system which may not be effective.

Sales and Customer Service

Sales

Our ﬁeld sales force provides us with direct access to local merchants and helps us better understand

local needs. They help to certify our paying merchant members in person, generate leads through our
customer relationship management system and organize focused workshops with merchants to enhance online
marketing capabilities and develop paying merchant members.

As of December 31, 2014, we established branches in 27 major cities and employed a sales team of
6,337 employees primarily through Beijing 58, our consolidated affiliated entity. In 2014, we focused on
increasing the efficiency of our sales team and our headcount level remained relatively stable. Our ﬁeld sales
team has contributed to the revenue growth of our membership services and online marketing services.

The compensation package for our sales team includes incentives based on the revenues they achieve. We
provide regular in-house and external education and training to our sales team to help them provide merchants
with comprehensive information about our services and the advantages of using our online marketplace.

The majority of our revenues are generated from our ﬁeld sales team. In cities other than the 27 cities

covered by our ﬁeld sales team, we also utilize sales agencies to grow our business. As of December 31,
2014, we had over 270 sales agencies, which were engaged by Wanglin, our PRC subsidiary.

Customer Service

General user service. We have dedicated teams who are committed to address general users’ queries

within 24 hours through online messages or emails. In addition, we closely monitor user feedback from
various other channels, such as popular social network services platforms and promptly elevate issues
internally and respond to valuable user feedback we collect.

Member service. For our paying merchant members, we have a dedicated customer service center in
Tianjin, China, staffed with over about 1,000 customer service personnel, who support our paying merchant
members through our paying merchant members-only toll-free phone number and other online communication
channels. Our dedicated customer service team is well trained on our membership services functionalities and
online marketing services offerings. They help paying merchant members to analyze the performance of their
listings, such as the unique visitors and page views of their online storefronts.

46

New Member Generation.

In some cases, we utilize our customer service team to develop new paying

merchant members through tele-sales activities. In the industries where local merchants are more familiar with
online marketing, we ﬁnd this to be more cost-effective to promote our online marketing services on the
phone, as opposed to having in-person demonstrations of our service offerings. We also use our tele-sales team
to cover remote areas where it is not economical to cover through our direct sales team or sales agent
network.

Marketing and Brand Promotion

We believe improvement in user experience, which drives word-of-mouth and repeat usage, is an

important and efficient form of marketing. In addition, we employ a variety of programs and marketing
activities to promote our brand and our services. Our online marketing activities consist of paid marketing
through internet navigation sites and various popular search engines in China and display advertisements. Our
offline marketing activities include traditional mainstream media such as television, billboard, direct mailing
advertisements, public relations activities, as well as sponsored events to increase our visibility and promote
our brand. We also conduct merchant related marketing events, such as seminars and workshops, where we
meet with local merchants to share insights in the industries, introduce and promote our various online
marketing services to deepen our relationship with the merchant network.

Intellectual Property

Our success and ability to compete depend, in part, upon our ability to establish and adequately protect

our intellectual property rights. In this regard, we rely primarily on a combination of patent, copyright,
software registration, trademark, trade secret and unfair competition laws and contractual rights, such as
conﬁdentiality and license agreements with our employees, partners and others. We hold ﬁve patents and have
applied for the registration of 78 other patents, which cover a variety of technologies, including those
relating to data processing, search, distribution and publishing. As of March 31, 2015, we have registered
102 computer software copyrights and 29 artwork copyrights in China. In addition, we have registered
31 domain names that are material to our business, including www.58.com, www.58.com.cn, www.anjuke.com
and www.anjuke.cn, and 65 trademarks, including

, in China.

and

,

Competition

Our competitors in the online marketing space include smaller or regional online classiﬁeds websites as

well as industry- or content-speciﬁc vertical websites, whose information serve the same underlying industries
as certain content categories of our online marketplace. We may also face competition from major internet
companies, who may enter the online classiﬁeds market in China. We compete primarily with our user traffic,
effectiveness of services in reaching targeted users, ability to demonstrate marketing results and customer
service capabilities. In some cases, we partner with other internet companies to provide better user experiences
and achieve win-win collaborations.

Regulation

This section sets forth a summary of the signiﬁcant regulations or requirements that affect our business

activities in China or our shareholders’ rights to receive dividends and other distributions from us.

Regulations on Value-Added Telecommunication Services

The PRC government extensively regulates the telecommunications industry, including the internet sector.

The PRC State Council, the MIIT, the Ministry of Commerce, the State Administration for Industry and
Commerce, or the SAIC, the State Administration of Press, Publication, Radio, Film and Television (formerly
the General Administration of Press and Publication) and other relevant government authorities have
promulgated an extensive regulatory scheme governing telecommunications, internet-related services and
e-commerce. However, the PRC telecommunications industry and internet-related industry are at an early
stage of development. New laws and regulations may be adopted from time to time that will require us to
obtain additional licenses and permits in addition to those that we currently have, and will require us to
address new issues that arise from time to time. As a result, substantial uncertainties exist regarding the
interpretation and implementation of current and any future Chinese laws and regulations applicable to the

47

telecommunications, internet-related services and e-commerce. See ‘‘Item 3. Key Information — D. Risk
Factors — Risks Related to Doing Business in China — Uncertainties in the interpretation and enforcement of
PRC laws and regulations could limit the legal protections available to you and us.’’

Licenses for Value-Added Telecommunication Services

The Catalogue for the Guidance of Foreign Investment Industries, or the Catalogue, as promulgated and

amended from time to time by the Ministry of Commerce and the National Development and Reform
Commission, is the principal guide to foreign investors’ investment activities in China. The most updated
version of the Catalogue, which was promulgated in 2015, divides the industries into three categories:
encouraged, restricted and prohibited. Industries not listed in the Catalogue are generally open to foreign
investment unless speciﬁcally restricted by other PRC laws and regulations. A wholly foreign-owned
enterprise is generally permitted for encouraged industries, while for restricted industries, such as value-added
telecommunications service industry, there are some limitations to the ownership and/or corporate structure of
the foreign-invested companies that operate in such industries. Industries in the prohibited category are not
open to foreign investors.

The Telecommunications Regulations issued by the PRC State Council in September 2000 are the
primary regulations governing telecommunication services. The Telecommunications Regulations set out the
general framework for the provision of telecommunication services by PRC companies. Under the
Telecommunications Regulations, it is a requirement that telecommunications service providers procure
operating licenses prior to their commencement of operations. The Telecommunications Regulations draw a
distinction between ‘‘basic telecommunications services’’ and ‘‘value-added telecommunications services.’’
Information services such as content service, entertainment and online games services are classiﬁed as
value-added telecommunications services.

Pursuant to the Administrative Measures for Telecommunications Business Operating Permit promulgated
by the MIIT in March 2009, there are two types of telecom operating licenses for operators in China, namely,
licenses for basic telecommunications services and licenses for value-added telecommunications services. The
operation scope of the license will detail the permitted activities of the enterprise to which it is granted. An
approved telecommunication services operator must conduct its business in accordance with the speciﬁcations
recorded on its value-added telecommunications services operating license.

Pursuant to the Administrative Measures on Internet Information Services, promulgated by the PRC State

Council in September 2000, commercial internet information services operators must obtain an ICP License,
from the relevant government authorities before engaging in any commercial internet information services
operations within China. Beijing 58, our consolidated affiliated entity, obtained an ICP License issued by
Beijing Administration of Telecommunication in May 2006, which was renewed in May 2011 and will expire
in May 2016.

The Internet Electronic Bulletin Service Administrative Measures promulgated by the MIIT in

November 2000, require internet information services operators to obtain speciﬁc approvals before providing
BBS services, which include electronic bulletin boards, electronic forums, message boards and chat rooms. In
July 2010, the requirement of BBS approval was terminated by a decision issued by the PRC State Council.
However, in practice the relevant authorities still require the relevant operating companies to obtain such
approval for the operation of BBS services. Beijing 58 obtained an approval for providing BBS services
issued by Beijing Administration of Telecommunication on May 23, 2006 and an ICP License with electronic
bulletin boards service in its service scope issued by Beijing Administration of Telecommunication on May 5,
2011. The consolidated affiliated entity of Anjuke, Shanghai Ruijia Information Technology Co., Ltd., or
Shanghai Ruijia, which we acquired recently, has not added electronic bulletin boards service in its service
scope in the ICP License.

Foreign Investment in Value-Added Telecommunications Services

Pursuant to the Provisions on Administration of Foreign-Invested Telecommunications Enterprises,
promulgated by the State Council in December 2001 and amended subsequently, the ultimate foreign equity
ownership in a value-added telecommunications services provider may not exceed 50%. Moreover, for a
foreign investor to acquire any equity interest in a value-added telecommunication business in China, it must

48

satisfy a number of stringent performance and operational experience requirements, including demonstrating
good track records and experience in operating value-added telecommunication business overseas. Foreign
investors that meet these requirements must obtain approvals from the MIIT and the Ministry of Commerce or
its authorized local counterparts, which retain considerable discretion in granting approvals. Pursuant to
publicly available information, the PRC government has issued telecommunications business operating
licenses to only a limited number of foreign-invested companies, all of which are Sino-foreign joint ventures
engaging in the value-added telecommunication business.

The MIIT Circular issued in July 2006, reiterated the regulations on foreign investment in
telecommunications businesses, which require foreign investors to set up foreign-invested enterprises
and obtain a business operating license for internet content provision to conduct any value-added
telecommunications business in China. Pursuant to the circular, a domestic company that holds an ICP license
is prohibited from leasing, transferring or selling the license to foreign investors in any form, and from
providing any assistance, including providing resources, sites or facilities, to foreign investors that conduct
value-added telecommunications business illegally in China. Furthermore, the relevant trademarks and domain
names that are used in the value-added telecommunications business must be owned by the local ICP license
holder or its shareholders. The MIIT Circular further requires each ICP license holder to have the necessary
facilities for its approved business operations and to maintain such facilities in the regions covered by its
license. In addition, all value-added telecommunications service providers are required to maintain network
and information security in accordance with the standards set forth under relevant PRC regulations.

In light of the aforesaid restrictions, we rely on Beijing 58, our consolidated affiliated entity, to
hold and maintain the licenses necessary to provide online marketing services and other value-added
telecommunications services in China. For a detailed discussion of our contractual arrangement, please refer
to ‘‘— C. Organizational Structure.’’ To comply with these PRC regulations, we operate our website and
value-added telecommunications services through Beijing 58. Beijing 58 holds an ICP license and owns
all domain names used in our value-added telecommunications businesses. Beijing 58, together with its
subsidiaries, is also the owner of all registered trademarks which are used in our value-added
telecommunications businesses and is the applicant of all registered trademark applications we are currently
making.

Regulations on Information Security and Censorship

The PRC government regulates and restricts internet content in China to protect state security and ensure
the legality of the internet content. The National People’s Congress, the PRC national legislative body, enacted
a law in December 2000, as subsequently amended, among other things, makes it unlawful to: (1) gain
improper entry into a computer or system of strategic importance; (2) disseminate politically disruptive
information; (3) leak state secrets; (4) spread false commercial information; or (5) infringe intellectual
property rights. Pursuant to the Administrative Measures on Internet Information Services and other applicable
laws, internet content providers and internet publishers are prohibited from posting or displaying over the
internet content which violates PRC laws and regulations, impairs the national dignity of China, or is
reactionary, obscene, superstitious, fraudulent or defamatory. Internet service providers are required to monitor
their websites, including electronic bulletin boards. They may not post or disseminate any content that falls
within these prohibited categories and must remove any such content from their websites. The PRC
government may shut down the websites of ICP license holders that violate any of the above-mentioned
content restrictions and revoke their ICP licenses. In addition, the MIIT has published regulations that subject
ICP operators to potential liability for content displayed on their websites and the actions of users and
others using their systems, including liability for violations of PRC laws and regulations prohibiting the
dissemination of content deemed to be socially destabilizing. The Ministry of Public Security has the authority
to order any local internet service provider to block any internet website at its sole discretion. From time to
time, the Ministry of Public Security has stopped the dissemination over the internet of information which it
believes to be socially destabilizing.

The Ministry of Public Security has promulgated measures in December 1997 that prohibit the use of the

internet in ways which, among other things, result in a leakage of State secrets or the distribution of socially
destabilizing content. Socially destabilizing content includes any content that incites deﬁance or violations of
PRC laws or regulations or subversion of the PRC government or its political system, spreads socially

49

disruptive rumors or involves cult activities, superstition, obscenities, pornography, gambling or violence.
Under PRC law, state secrets are deﬁned broadly to include information concerning PRC national defense,
state affairs and other matters as determined by the PRC authorities.

In December 2005, the Ministry of Public Security promulgated Provisions on Technological Measures

for Internet Security Protection. These measures and the Administrative Measures on Internet Information
Services require all ICP operators to keep records of certain information about their users (including user
registration information, log-in and log-out time, IP address, content and time of listings by users) for at least
60 days and submit the above information as required by laws and regulations. The ICP operators must
regularly update information security and censorship systems for their websites with local public security
authorities, and must also report any public dissemination of prohibited content. If an ICP operator violates
these measures, the PRC government may revoke its ICP license and shut down its websites. Pursuant to the
Decision on Strengthening Network Information Protection issued by the Standing Committee of the PRC
National People’s Congress in December 2012, ICP operators must request identity information from users
when ICP operators provide information publication services to the users. If ICP operators come across
prohibited information, they must immediately cease the transmission of such information, delete the
information, keep relevant records, and report to relevant government authorities. In July 2013, the MIIT
promulgated the Regulation on Protection of Personal Information of Telecommunication and Internet Users to
provide for more detailed rules in this respect.

In addition, the State Secrecy Bureau has issued provisions authorizing the blocking of access to any
website it deems to be leaking state secrets or failing to comply with the relevant legislation regarding the
protection of state secrets.

As Beijing 58 is an ICP operator, it is subject to the laws and regulations relating to information security.
To comply with these laws and regulations, it has completed the mandatory security ﬁling procedures with the
local public security authorities, regularly update their information security and content-ﬁltering systems with
newly issued content restrictions, and maintains records of users’ information as required by the relevant laws
and regulations. Beijing 58 has also taken measures to delete or remove links to content that to its knowledge
contains information violating PRC laws and regulations. The majority of the content posted on our online
marketplace is ﬁrst screened by our ﬁltering systems. Content containing prohibited words or images is then
manually screened by employees who are dedicated to screening and monitoring content published on our
online marketplace and removing prohibited content. We believe that with these measures in place, no
prohibited content under PRC information security laws and regulations should have been publicly
disseminated through our online marketplace in the past. However, there is signiﬁcant amount of content
posted on our online marketplace by our users on a daily basis. If any prohibited content is publicly
disseminated in the future and we become aware of it, we will report it to the relevant government authority.
We believe these measures taken by us are generally in compliance with the relevant laws and regulations.

If, despite the precautions, we fail to identify and prevent illegal or inappropriate content from being
displayed on or through our online marketplace, we may be subject to liability. In addition, these laws and
regulations are subject to interpretation by the relevant authorities, and it may not be possible to determine in
all cases the types of content that could result in liability. To the extent that PRC regulatory authorities ﬁnd
any content displayed on or through our online marketplace objectionable, they may require us to limit or
eliminate the dissemination or availability of such content or impose penalties, including the revocation of our
operating licenses or the suspension or shutdown of our online operations. In addition, the costs of compliance
with these regulations may increase as the volume of content and users on our online marketplace increases.

Regulations on Internet Privacy

The PRC Constitution states that PRC law protects the freedom and privacy of communications of

citizens and prohibits infringement of these rights. In recent years, PRC government authorities have
promulgated laws and regulations on internet use to protect personal information from any unauthorized
disclosure. The Decision on Strengthening Network Information Protection and the Regulation on Protection
of Personal Information of Telecommunication and Internet Users provide that information that identiﬁes a
citizen, the time or location for his use of telecommunication and internet services, or involves privacy of any
citizen such as his birth date, ID card number, and address is protected by law and must not be unlawfully

50

collected or provided to others. ICP operators collecting or using personal electronic information of citizens
must specify the purposes, manners and scopes of information collection and uses, obtain consent of the
relevant citizens, and keep the collected personal information conﬁdential. ICP operators are prohibited from
disclosing, tampering with, damaging, selling or illegally providing others with, collected personal
information. ICP operators are also prohibited from collection and use of personal information after a user has
stopped using the services. ICP operators are required to take technical and other measures to prevent the
collected personal information from any unauthorized disclosure, damage or loss as well as conducting a
self-examination of their protection of personal information at least once a year. The Administrative Measures
on Internet Information Services prohibit an ICP operator from insulting or slandering a third party or
infringing upon the lawful rights and interests of a third party. Pursuant to the Internet Electronic Bulletin
Service Administrative Measures, ICP operators that provide electronic messaging services must keep users’
personal information conﬁdential and must not disclose the personal information to any third party without the
users’ consent or unless required by law. The relevant telecommunications authorities are further authorized to
order ICP operators to rectify unauthorized disclosure. ICP operators are subject to legal liability, including
warnings, ﬁnes, conﬁscation of illegal gains, revocation of licenses or ﬁlings, closing of the relevant websites,
administrative punishment, criminal liabilities, or civil liabilities, if they violate relevant provisions on internet
privacy. The PRC government, however, has the power and authority to order ICP operators to turn over
personal information if an internet user posts any prohibited content or engages in illegal activities on the
internet.

Regulations on Internet Mapping Services

Pursuant to the PRC regulations applicable to internet mapping services issued by the National
Administration of Surveying, Mapping and Geo information (formerly known as the State Bureau of
Surveying and Mapping), maps transmitted through internet are internet maps. To provide internet mapping
services, the provider shall apply for a Surveying and Mapping Qualiﬁcation Certiﬁcate for internet mapping
with the competent surveying and mapping bureau. The PRC regulations also provide for certain conditions
and requirements for issuing the Surveying and Mapping Qualiﬁcation Certiﬁcate, such as the number of
technical personnel and map security veriﬁcation personnel, security facilities, and approval from relevant
provincial or municipal surveying and mapping bureau on security system, qualiﬁcation management and
ﬁling management. Internet maps must be approved by relevant government authority before they can be
publicized on internet. Further, the State Bureau of Surveying and Mapping and other seven PRC government
authorities jointly issued a notice in 2008, to investigate and punish the illegal and non-compliance activities
with respect to the internet mapping services or geography information services. We currently provide location
information in housing directory by using maps provided by a third party internet map operator, which may be
deemed as one type of internet mapping services. Our consolidated affiliated entity, Beijing 58, obtained a
Surveying and Mapping Qualiﬁcation Certiﬁcate for internet map search and location services in May 2012,
which was renewed in January 2015 and will expire in December 2019. The consolidated affiliated entity of
Anjuke, Shanghai Ruijia, which we acquired recently, is in the process of applying for the Surveying and
Mapping Qualiﬁcation Certiﬁcate.

Regulations on Employment Agency Services

In accordance with the Employment Promotion Law promulgated by the Ministry of Human Resources
and Social Security and the Regulations on Employment Service and Employment Administration promulgated
by the Ministry of Human Resources and Social Security, both with effect from January 1, 2008, an
employment agency, which provides intermediary and other services for recruitment by employers and job
seeking by employees, must obtain an Employment Agency License from the relevant labor authority and be
subject to annual inspection by such authority. An employment agency may engage in collecting and
publishing job seeking and recruitment information and providing internet employment information services
in accordance with relevant laws and regulations. An employment agency is prohibited from providing
services for individuals without legal identity certiﬁcations or enterprises without legal licenses. A wholly
foreign-owned enterprise (other than owned by Hong Kong and Macau service providers) is prohibited from
conducting employment agency business. Our jobs and resumes directory provides an online marketplace for
job seekers and employers to post resumes and job opportunities. Our consolidated affiliated entity, Beijing 58,
obtained an Employment Agency License in March 2012, which will expire in March 2016.

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Regulations on E-commerce

The PRC e-commerce industry is at an early stage of development and there are few PRC laws or
regulations speciﬁcally regulating e-commerce business. In December 2007, the Standing Committee of
Beijing Municipal People’s Congress adopted the Beijing Municipal Regulations on Promotion of
Informatization, which provide that any individual or enterprise that conducts business operations through the
internet must obtain a business license and/or other necessary licenses prior to operation. The operator of an
online marketplace is responsible for checking such individuals’ or enterprises’ licenses. In July 2008, the
Beijing AIC promulgated certain rules for implementing the above-mentioned regulation. Pursuant to these
rules, any individual or enterprise failing to obtain a business license may be prohibited from doing business
on an e-commerce marketplace operating in Beijing, and violation of these rules may lead to penalties on
either the individual/enterprise or the operator of the e-commerce marketplace. On January 26, 2014, the
SAIC adopted the Administrative Measures for Online Trading, or the Online Trading Measures, which
became effective on March 15, 2014 and repealed the Interim Measures for the Administration of Online
Products Sales and Relevant Services previously issued by the SAIC in May 2010. Pursuant to the Online
Trading Measures, enterprises or other operators that engage in online product sales and other services and
have been registered with the SAIC or its local branch must make available to the public the information
stated in their business licenses or the link to their business licenses online on their websites; individuals that
engage in online product sales and other services must submit actual identiﬁcation information such as name
and address to the operator of the e-commerce marketplace. The Online Trading Measures, however, allow
individuals to engage in online product sales and other services without obtaining a business license. Under
the Online Trading Measures, a consumer is entitled to return the products (other than customized products,
fresh and perishable goods, audio or visual products, computer software and other digital products downloaded
online or unpackaged by consumers, and newspapers and journals that have been delivered) within seven days
from the date after receipt of the products without giving any reason. The online sellers must, within seven
days upon receipt of the returned products, refund the prices paid by consumers for relevant products. In
addition, sellers are prohibited from using contract terms or other means setting out provisions that are unfair
or unreasonable to consumers such as those excluding or restricting consumers’ rights, reducing or exempting
operators’ responsibilities, and increasing the consumers’ responsibilities, and are prohibited from forcing
consumers to enter into transactions by using contract terms and technical means.

Beijing 58 has obtained a business license from a branch of the Beijing AIC with a term from
December 2005 to December 2025. Based our verbal consultation with the Beijing AIC, we believe that,
except for merchants who conduct transactions on our online marketplace, our other users who list
information on our marketplace and conduct the product sales and other services offline are not subject to
the provisions regarding online marketplace. As for merchants who conduct transactions on our online
marketplace, we check their business licenses before allowing them to post listings on our marketplace to
ensure compliance with license requirements under PRC laws and regulations. However, uncertainties exist in
terms of the implementation of these national and Beijing local rules due to the lack of practical guidance. We
cannot predict with certainty to what extent these rules will affect our business operations or future strategies.

Regulations on Software Products

The Administrative Measures on Software Products, issued by the MIIT in October 2000 and

subsequently amended, provide a registration and ﬁling system with respect to software products made in or
imported into China. These software products may be registered with the relevant local authorities in charge
of software industry administration. Registered software products may enjoy preferential treatment status
granted by relevant software industry regulations. Software products can be registered for ﬁve years, and the
registration is renewable upon expiration.

In order to further implement the Computer Software Protection Regulations promulgated by the State
Council in December 2001, the State Copyright Bureau issued the Computer Software Copyright Registration
Procedures in February 2002, which apply to software copyright registration, license contract registration and
transfer contract registration. As of March 31, 2015, we have registered 102 computer software copyrights in
China.

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Regulations on Trademarks

Trademarks are protected by the PRC Trademark Law adopted in 1982 and subsequently amended as
well as the Implementation Regulation of the PRC Trademark Law adopted by the State Council in 2002. The
Trademark Office under the SAIC handles trademark registrations. Trademarks can be registered for a term of
ten years and can be extended for another ten years if requested upon expiry of the ﬁrst or any renewed
ten-year term. The PRC Trademark Law has adopted a ‘‘ﬁrst-to-ﬁle’’ principle with respect to trademark
registration. Where a trademark for which a registration application has been made is identical or similar to
another trademark which has already been registered or been subject to a preliminary examination and
approval for use on the same type of or similar commodities or services, the application for such trademark
registration may be rejected. Any person applying for the registration of a trademark may not prejudice the
existing right ﬁrst obtained by others, nor may any person register in advance a trademark that has already
been used by another party and has already gained a ‘‘sufficient degree of reputation’’ through such another
party’s use. Trademark license agreements must be ﬁled with the Trademark Office or its regional offices. As
of March 31, 2015, we have registered 65 trademarks in China.

Regulations on Patent

The PRC Patent Law provides for patentable inventions, utility models and designs, which must meet
three conditions: novelty, inventiveness and practical applicability. The State Intellectual Property Office is
responsible for examining and approving patent applications. A patent is valid for a term of twenty years in
the case of an invention and a term of ten years in the case of utility models and designs. As of March 31,
2015, we hold ﬁve patents and have applied for the registration of 78 other patents, all of which are in the
process of examination by the State Intellectual Property Office.

Tort Liability Law

In accordance with the Tort Liability Law, internet users and internet service providers bear tortious
liabilities in the event they infringe other persons’ rights and interests through the internet. Where an internet
user conducts tortious acts through internet services, the infringed person has the right to request the internet
service provider to take necessary actions such as deleting contents, screening and delinking. The internet
service provider, failing to take necessary actions after being informed, will be subject to joint and several
liabilities with the internet user with regard to the additional damages incurred. If an internet service provider
knows an internet user is infringing other persons’ rights and interests through its internet service but fails to
take necessary action, it shall be jointly and severally liable with the internet user. We have internal policy
designed to reduce the likelihood that user content may be used without proper licenses or third-party
consents. When we are approached and requested to remove content uploaded by users on the grounds of
infringement, we investigate the claims and remove any uploads that appear to infringe the rights of a third
party after our reasonable investigation and determination. However, such policy may not be effective in
preventing the unauthorized listing of copyrighted materials or materials infringing other rights of third
parties. See ‘‘Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — We
may be held liable to third parties for information or content displayed on, retrieved from or linked to our
website, or distributed to website users, which could harm our reputation and business.’’

Regulations on Foreign Currency Exchange

Pursuant to the Foreign Exchange Administration Regulations, as amended in August 2008, the Renminbi
is freely convertible for current account items, including the distribution of dividends, interest payments, trade
and service-related foreign exchange transactions, but not for capital account items, such as direct investments,
loans, repatriation of investments and investments in securities outside of China, unless SAFE’s prior approval
is obtained and prior registration with SAFE is made. In May, 2013 SAFE promulgated SAFE Circular 21
which provides for and simpliﬁes the operational steps and regulations on foreign exchange matters related to
direct investment by foreign investors, including foreign exchange registration, account opening and use,
receipt and payment of funds, and settlement and sales of foreign exchange. On February 28, 2015, SAFE
promulgated the Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on
Direct Investment, or the SAFE Notice 13, which will become effective on June 1, 2015. After SAFE
Notice 13 becomes effective, instead of applying for approvals regarding foreign exchange registrations of
foreign direct investment and overseas direct investment from the SAFE as required under current laws,

53

entities and individuals will be required to apply for such foreign exchange registrations from qualiﬁed banks.
The qualiﬁed banks, under the supervision of the SAFE, will directly examine the applications and conduct
the registration. We generally follow the regulations and apply to obtain the approval of SAFE and other
relevant PRC government authorities. However, we may not be able to obtain these government registrations
or approvals on a timely basis, if at all. If we fail to receive such registrations or approvals, our ability to
provide loans or capital contributions to our PRC subsidiaries and our consolidated affiliated entities may be
negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

In August 2008, SAFE promulgated a SAFE Circular 142 regulating the conversion, by a

foreign-invested enterprise, of foreign currency into Renminbi by restricting how the converted Renminbi
may be used. The SAFE Circular 142 requires that the registered capital of a foreign-invested enterprise
settled in Renminbi converted from foreign currencies may only be used for purposes within the business
scope approved by the applicable government authority and may not be used for equity investments within
China. In addition, SAFE strengthened its oversight of the ﬂow and use of the registered capital of a
foreign-invested enterprise settled in Renminbi converted from foreign currencies. The use of such Renminbi
capital may not be changed without SAFE’s approval, and may not in any case be used to repay Renminbi
loans if the proceeds of such loans have not been used. On July 4, 2014, the SAFE promulgated the SAFE
Circular 36 regarding the pilot administration on the settlement of the foreign currency-denominated capital of
foreign-invested enterprises in certain designated areas from August 4, 2014. SAFE Circular 36 allows
enterprises established within those designated areas to use the Renminibi converted from their foreign
currency-denominated capital for equity investments in the PRC. On March 30, 2015, the SAFE promulgated
SAFE Circular 19, which will take effective and replace SAFE Circular 142 and SAFE Circular 36 from
June 1, 2015. Although SAFE Circular 19 allows for the use of Renminbi converted from the foreign
currency-denominated capital for equity investments in the PRC, the restrictions will continue to apply as to
foreign-invested enterprises’ use of the converted Renminbi for purposes beyond the business scope, for
entrusted loans or for inter-company Renminbi loans. Violations of these circulars and rules will result in
severe penalties, such as heavy ﬁnes. These circulars may signiﬁcantly limit our ability to use Renminbi
converted from net proceeds of our securities offerings to provide ﬁnancial support to our consolidated
variable interest entitles in China through our PRC subsidiaries.

The principal regulations governing distribution of dividends of foreign-invested enterprises include
the Foreign-Invested Enterprise Law, as amended in October 2000, and the Implementation Rules of the
Foreign-invested Enterprise Law, as amended in April 2001 and in February 2014. Pursuant to these laws and
regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated proﬁts, if
any, determined in accordance with PRC accounting standards and regulations. In addition, foreign-invested
enterprises in China are required to allocate at least 10% of their respective accumulated proﬁts each year, if
any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the
enterprises. In addition, these companies may allocate a portion of their after-tax proﬁts based on PRC
accounting standards to employee welfare and bonus funds at their discretion. These reserves are not
distributable as cash dividends.

Regulations on Offshore Financing

Pursuant to a SAFE Circular 37 issued by SAFE in July 2014, prior registration with the local SAFE

branch is required for PRC residents, including PRC individuals and PRC entities, to establish or control an
offshore company for the purposes of overseas investment or ﬁnancing with legitimate assets or equity
interests in an onshore enterprise or offshore assets or interests located in China. The PRC residents are also
required to amend the registration or ﬁling with the local SAFE branch any material change in the offshore
company, such as any change of basic information (including change of such PRC residents, name and
operation term), increase or decreases in investment amount, transfers or exchanges of shares, or merger or
divisions. On February 28, 2015, SAFE promulgated the Notice on Further Simplifying and Improving
Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which will become
effective on June 1, 2015. After SAFE Notice 13 becomes effective, instead of applying for approvals
regarding foreign exchange registrations of foreign direct investment and overseas direct investment from the
SAFE as required under current laws, entities and individuals will be required to apply for such foreign

54

exchange registrations, including those required under the SAFE Circular 37, from qualiﬁed banks. The
qualiﬁed banks, under the supervision of the SAFE, will directly examine the applications and conduct the
registration.

Failure to comply with the registration procedures set forth in the SAFE Circular 37, or making

misrepresentation on or failure to disclose controllers of foreign-invested enterprise that is established through
round-trip investment, may result in restrictions being imposed on the foreign exchange activities of the
relevant onshore company, including the increase of its registered capital, the payment of dividends and other
distributions to its offshore parent or affiliate and the capital inﬂow from the offshore entities, and may also
subject relevant PRC residents to penalties under PRC foreign exchange administration regulations. PRC
residents who directly or indirectly hold any shares in our company from time to time are required to register
with SAFE in connection with their investments in us. We have requested PRC residents holding direct or
indirect interest in our company to our knowledge to make the necessary applications, ﬁlings and amendments
as required under the SAFE Circular 37 and other related rules. To our knowledge, all of our shareholders
who are PRC citizens and hold interest in us, have registered with the local SAFE branch as required under
the SAFE Circular 37 and are in the process of amending certain applicable registrations with the local SAFE
pursuant to the SAFE Circular 37. See ‘‘Item 3. Key Information — D. Risk Factors — Risks Related to
Doing Business in China — PRC regulations relating to offshore investment activities by PRC residents may
limit our PRC subsidiaries’ ability to increase their registered capital or distribute proﬁts to us, limit our
ability to inject capital into our PRC subsidiaries, or otherwise expose us to liability and penalties under PRC
law.’’

Regulations on Employee Stock Option Plans

In February 2012, SAFE promulgated the Stock Option Rules, replacing the previous rules issued by
SAFE in March 2007. Under the Stock Option Rules and other relevant rules and regulations, PRC residents
who participate in stock incentive plan in an overseas publicly-listed company are required to register with
SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who
are PRC residents must retain a qualiﬁed PRC agent, which could be a PRC subsidiary of the overseas
publicly listed company or another qualiﬁed institution selected by the PRC subsidiary, to conduct the SAFE
registration and other procedures with respect to the stock incentive plan on behalf of its participants. The
participants must also retain an overseas entrusted institution to handle matters in connection with their
exercise of stock options, the purchase and sale of corresponding stocks or interests and fund transfers. In
addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if
there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or
other material changes. The PRC agents must, on behalf of the PRC residents who have the right to exercise
the employee share options, apply to SAFE or its local branches for an annual quota for the payment of
foreign currencies in connection with the PRC residents’ exercise of the employee share options. The foreign
exchange proceeds received by the PRC residents from the sale of shares under the stock incentive plans
granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in
China opened by the PRC agents before distribution to such PRC residents.

We adopted an employee stock option plan in 2010 and a share incentive plan in 2013. Pursuant to these

two plans, we may issue options, restricted shares, restricted share units or other type of awards to our
qualiﬁed employees and directors and consultants on a regular basis. We have advised our employees and
directors participating in the employee stock option plan to handle foreign exchange matters in accordance
with the Stock Option Rules. However, we cannot assure you that our PRC individual beneﬁciary owners and
the share options holders can successfully register with SAFE in full compliance with the Stock Option Rules.
The failure of our PRC individual beneﬁciary owners and the share options holders to complete their
registration pursuant to the Stock Option Rules and other foreign exchange requirements may subject these
PRC individuals to ﬁnes and legal sanctions, and may also limit our ability to contribute additional capital to
our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to us or otherwise materially
adversely affect our business. See ‘‘Item 3. Key Information — D. Risk Factors — Risks Related to Doing
Business in China — Failure to comply with PRC regulations regarding the registration requirements for
employee share ownership plans or share option plans may subject the PRC plan participants or us to ﬁnes
and other legal or administrative sanctions.’’

55

In addition, the State Administration for Taxation has issued circulars concerning employee share options,

under which our employees working in China who exercise share options will be subject to PRC individual
income tax. Our PRC subsidiaries have obligations to ﬁle documents related to employee share options with
relevant tax authorities and to withhold individual income taxes of those employees who exercise their share
options. If our employees fail to pay or if we fail to withhold their income taxes as required by relevant laws
and regulations, we may face sanctions imposed by the PRC tax authorities or other PRC government
authorities.

PRC Enterprise Income Tax Law and Individual Income Tax Law

Under the EIT Law, enterprises are classiﬁed as resident enterprises and non-resident enterprises. PRC

resident enterprises typically pay an enterprise income tax at the rate of 25%. An enterprise established
outside of the PRC with its ‘‘de facto management bodies’’ located within China is considered a ‘‘resident
enterprise,’’ meaning that it can be treated in a manner similar to a PRC domestic enterprise for enterprise
income tax purposes. The implementation rules of the EIT Law deﬁne ‘‘de facto management body’’ as a
managing body that in practice exercises ‘‘substantial and overall management and control over the production
and operations, personnel, accounting, and properties’’ of the enterprise.

The SAT Circular 82 issued by the SAT in April 2009 and amended in January 2014 provides certain

speciﬁc criteria for determining whether the ‘‘de facto management body’’ of a PRC-controlled offshore
incorporated enterprise is located in China. Pursuant to the SAT Circular 82, a PRC-controlled offshore
incorporated enterprise has its ‘‘de facto management body’’ in China only if all of the following conditions
are met: (a) the senior management and core management departments in charge of its daily operations
function have their presence mainly in China; (b) its ﬁnancial and human resources decisions are subject to
determination or approval by persons or bodies in China; (c) its major assets, accounting books, company
seals, and minutes and ﬁles of its board and shareholders’ meetings are located or kept in China; and (d) more
than half of the enterprise’s directors or senior management with voting rights habitually reside in China. The
SAT Bulletin 45, with effect from September 2011, provides more guidance on the implementation of the SAT
Circular 82 and provides for procedures and administration details of determination on resident status and
administration on post-determination matters. Although the SAT Circular 82 and the SAT Bulletin 45 only
apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by
PRC individuals or foreign individuals, the determining criteria set forth there may reﬂect the SAT’s general
position on how the ‘‘de facto management body’’ test should be applied in determining the tax resident status
of offshore enterprises, regardless of whether they are controlled by PRC enterprises or PRC enterprise groups
or by PRC or foreign individuals.

Due to the lack of applicable legal precedents, it remains unclear how the PRC tax authorities will
determine the PRC tax resident treatment of a foreign company controlled by individuals like us. We do not
believe 58.com Inc., CCNC BVI or CCIC HK meet all the criteria provided by the implementation rules, thus
we do not believe 58.com Inc., CCNC BVI or CCIC HK is a PRC ‘‘resident enterprise.’’ If the PRC tax
authorities determine that 58.com Inc., CCNC BVI or CCIC HK is a ‘‘resident enterprise’’ for PRC enterprise
income tax purposes, a number of unfavorable PRC tax consequences could follow. See ‘‘Item 3. Key
Information — D. Risk Factors — Risks Related to Doing Business in China — Under the EIT Law, we may
be classiﬁed as a PRC ‘resident enterprise’ for PRC enterprise income tax purposes. Such classiﬁcation would
likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse
effect on our results of operations and the value of your investment.’’

The EIT Law and its implementation rules permit certain ‘‘high and new technology enterprises

strongly supported by the state’’ that hold independent ownership of core intellectual property and
simultaneously meet a list of other criteria, ﬁnancial or non-ﬁnancial, as stipulated in the implementation rules
and other regulations, to enjoy a reduced 15% enterprise income tax rate subject to certain new qualiﬁcation
criteria. The SAT, the Ministry of Science and Technology and the Ministry of Finance jointly issued the
Administrative Rules for the Certiﬁcation of High and New Technology Enterprises delineating the speciﬁc
criteria and procedures for the ‘‘high and new technology enterprises’’ certiﬁcation in April 2008. Enterprises
recognized as ‘‘high and new technology enterprises’’ will enjoy a reduced 15% enterprise income tax rate
after they go through tax reduction application formalities with relevant tax authorities. Beijing 58, our
consolidated affiliated entity, renewed its ‘‘high and new technology enterprise’’ certiﬁcate in May 2012,

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which will be valid until May 2015. Wanglin, one of our PRC subsidiaries, obtained a ‘‘high and new
technology enterprise’’ in November 2012, which will be valid until November 2015. Beijing 58 submitted its
HNTE status renewal application in mid-April 2015 and Wanglin will submit its HNTE status renewal
application by the end of May 2015. Both companies are expected to complete the approval process within
three months thereafter. Both Beijing 58 and Wanglin will be eligible for a preferential tax rate of 15% when
they have taxable income under the EIT Law, as long as they maintain their ‘‘high and new technology
enterprise’’ status.

In addition, qualiﬁed software enterprises are exempt from the enterprise income tax for two years

beginning from their ﬁrst proﬁtable year and are entitled to a 50% tax reduction for the subsequent
three years. The software enterprise qualiﬁcation is subject to an annual assessment. Wanglin was determined
as a software enterprise in July 2014. In April 2015, Wanglin submitted its application for preferential tax
treatment for software enterprise and was informed by the tax authority that it was granted a two-year EIT
exemption and a 50% reduction on its taxable income for the subsequent three years effective retroactively
from January 1, 2014.

Regulation on PRC Business Tax and VAT

Prior to January 1, 2012, pursuant to Provisional Regulation of China on Business Tax and its
implementing rules, any entity or individual rendering services in the territory of PRC is generally subject
to a business tax at the rate of 5% on the revenues generated from provision of such services. Our PRC
subsidiaries and consolidated affiliated entities were subject to business tax at the rate of 5% for the
membership and online marketing services. Since January 1, 2012, the PRC Ministry of Finance and the State
Administration of Taxation have been implementing the VAT Pilot Program, which imposes VAT in lieu of
business tax for certain industries in Shanghai, and since September 1, 2012, such Pilot Program has been
expanded to other regions. VAT is or will be applicable at a rate of 6% in lieu of business tax for the
membership and online marketing services rendered by our PRC subsidiaries and consolidated affiliated
entities after the Pilot Program is being implemented in their respective region. VAT payable on goods sold or
taxable services provided by a general VAT taxpayer for a taxable period is the net balance of the output VAT
for the period after crediting the input VAT for the period. Most of the Company’s entities were subject to the
VAT Pilot Program as of December 31, 2014. With the adoption of the Pilot Program, our revenues are
subject to VAT payable on goods sold or taxable labor services provided by a general VAT taxpayer for a
taxable period. VAT payable is the net balance of the output VAT for the period after deducting the input VAT
for the period. Hence, the amount of VAT payable does not result directly from output VAT generated from
goods sold or taxable labor services provided. As such, the Group has adopted the net presentation of VAT.

Employment Laws

In accordance with the PRC National Labor Law, which became effective in January 1995, and the PRC

Labor Contract Law, which became effective in January 2008, as amended subsequently, employers must
execute written labor contracts with full-time employees in order to establish an employment relationship. All
employers must compensate their employees equal to at least the local minimum wage standards. All
employers are required to establish a system for labor safety and sanitation, strictly abide by state rules and
standards and provide employees with appropriate workplace safety training. In addition, employers in China
are obliged to pay contributions to the social insurance plan and the housing fund plan for employees.

We have entered into employment agreements with all of our full-time employees. We have not fully
contributed to the social insurance plan and the housing fund plan as required by applicable PRC regulations.
As of December 31, 2014, with regards to the outstanding contributions to such plans, we made provisions of
approximately RMB41.1 million (US$6.6 million). While we believe we have made adequate provision of
such outstanding amounts of contributions to such plans in our audited ﬁnancial statements, our failure to
make sufficient payments to such plans does not fully comply with applicable PRC laws and regulations and
we may be required to make up the contributions for such plans as well as to pay late fees and ﬁnes. See
‘‘Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Our failure to
make adequate contributions to various employee beneﬁt plans as required by PRC regulations may subject us
to penalties.’’

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Regulations on PRC Foreign Investment

The Ministry of Commerce, published a discussion draft of the proposed Foreign Investment Law in
January 2015 aiming to, upon its enactment, replace the trio of existing laws regulating foreign investment in
China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint
Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation
rules and ancillary regulations. The draft Foreign Investment Law embodies an expected PRC regulatory trend
to rationalize its foreign investment regulatory regime in line with prevailing international practice and the
legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. The
Ministry of Commerce is currently soliciting comments on this draft and substantial uncertainties exist with
respect to its enactment timetable, interpretation and implementation. The draft Foreign Investment Law, if
enacted as proposed, may materially impact the viability of our current corporate structure, corporate
governance and business operations in many aspects.

Among other things, the draft Foreign Investment Law expands the deﬁnition of foreign investment
and introduces the principle of ‘‘actual control’’ in determining whether a company should be treated as a
foreign-invested enterprise, or an FIE. According to the deﬁnition set forth in the draft Foreign Investment
Law, FIEs shall refer to enterprises established in China pursuant to PRC laws that are solely or partially
invested by foreign investors. The draft Foreign Investment Law speciﬁcally provides that entities established
in China (without direct foreign share ownership) but ‘‘controlled’’ by foreign investors, via contracts or trust,
for example, will be treated as FIEs. Once an entity falls within the deﬁnition of FIE, it may be subject to
foreign investment restrictions or prohibitions set forth in a ‘‘negative list’’ to be separately issued by the State
Council later. If the underlying business of an FIE is subject to foreign investment restrictions, it needs to go
through a market entry clearance process carried out by the Ministry of Commerce before the FIE can be
established. If the underlying business of the FIE is subject to foreign investment prohibitions, it may not
enter such business in China. However, an FIE, during the market entry clearance process, may apply in
writing to be treated as a PRC domestic enterprise if its foreign investor(s) is/are ‘‘controlled’’ by PRC
government authorities and its affiliates and/or PRC citizens. In this connection, ‘‘control’’ is broadly deﬁned
in the draft law to cover the following summarized categories: (i) holding 50% of more of the voting rights of
the subject entity; (ii) holding less than 50% of the voting rights of the subject entity but having the power to
secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the voting
power to exert material inﬂuence on the board, the shareholders’ meeting or other equivalent decision making
bodies; or (iii) having the power to exert decisive inﬂuence, via contractual or trust arrangements, over the
subject entity’s operations, ﬁnancial matters or other key aspects of business operations.

The draft also emphasizes the security review requirements, whereby all foreign investments concerning

national security must be reviewed and approved in accordance with the security review procedure. In
addition, the draft imposes stringent ad hoc and periodic information reporting requirements on foreign
investors and applicable FIEs. In addition to investment implementation reports and investment amendment
reports, which are required for each investment and alteration of investment speciﬁcs, an annual report is
mandatory, and large foreign investors meeting certain criteria are required to report on a quarterly basis. Any
company found to be non-compliant with these information reporting obligations may potentially be subject to
ﬁnes and/or administrative or criminal liabilities, and the persons directly responsible may be subject to
criminal liabilities.

The draft is now open for public review and comments. It is still uncertain when the draft would be

signed into law and whether the ﬁnal version would have any substantial changes from the draft. When the
Foreign Investment Law becomes effective, the trio of existing laws regulating foreign investment in China,
namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture
Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and
ancillary regulations, will be abolished.

58

C. Organizational Structure

The following diagram illustrates our corporate structure, including our principal subsidiaries and

consolidated affiliated entities as of the date of this annual report:

58. com Inc.
(Cayman Islands) 

100% 

Anjuke Inc.
(Cayman Islands)

100% 

100% 

China Classified Network Corporation
(“CCNC BVI”)
(BVI)  

100% 

58.com Holdings  Inc.
(BVI) 

100% 

China Classified Information Corporation Limited
(“CCIC HK”)
(Hong Kong) 

Anjuke Hong Kong
Limited
(Hong Kong) 

89.8% 

58 Daojia Inc.
(BVI)

100% 

58 Daojia
Holdings Limited
(Hong Kong)   

Outside PRC 

100% 

100% 

100% 

Inside PRC 

Beijing Chengshi Wanglin
Information Technology
Co., Ltd. (“Wanglin”)

58 Tongcheng Information
Technology Co., Ltd.
(“58 Technology”) 

Ruiting Network
Technology (Shanghai)
Co., Ltd.   

Shareholders(1)

Beijing 58 Information
Technology Co., Ltd.
(“Beijing 58”)

Xiamen 58 Tongcheng
Information Technology
Co., Ltd. 

100% 

100% 

Beijing
Tongchengtong
Information
Technology Co., Ltd.(2)

100% 

58 Co., Ltd. 

100% 

Shanghai Ruijia
Information Technology
Co., Ltd.  

Direct ownership 

General arrangements 

100% 

Tianjin 58 Daojia Life Services
Co., Ltd.  

Note:
(1)

(2)
*

Jinbo Yao, Lianqing Zhang, Jianbo Su, Beijing Wanglintong Information Technology Co., Ltd., hold
37.8%, 39.8%, 9.0% and 13.4% equity interests in Beijing 58, respectively. Among the shareholders of
Beijing 58, Jinbo Yao and Jianbo Su are shareholders of our company. Lianqing Zhang is not affiliated to
us. Jinbo Yao is the sole director and holds a 16.7% equity interest in Beijing Wanglintong which is
jointly owned by Jinbo Yao, Xiaohua Chen, holding 15.92% equity interest, Jiandong Zhuang, holding
15.8% equity interest, and ﬁve other individuals who are employees or ex-employees of our company.
Beijing Wanglintong, a PRC domestic company, does not have any business operations or assets other
than its equity interest in Beijing 58. The registered business scope of Beijing Wanglintong includes
technology promotional services, software development and computer technology training.
Inactive.
Beijing Tongchengtong Information Technology Co., Ltd. owns 2.7% of the equity interest in Chengshi
Wangxun (Beijing) Information Technology Co., Ltd., which is inactive currently.

59

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior to 2012, we conducted substantially all of our business operations through Beijing 58. Since 2012,

we have started to conduct our business operations that are not subject to PRC legal restrictions on foreign
ownership through our wholly owned subsidiaries, Wanglin and 58 Technology, to address risks related to the
contractual arrangements discussed above and under ‘‘Item 3. Key Information — D. Risk Factors — Risks
Related to Our Corporate Structure and Restrictions on Our Industry.’’ Currently, we primarily use Wanglin
and 58 Technology, rather than Beijing 58, to provide services to our customers, and we have transferred a
signiﬁcant portion of our personnel, including substantially all of our administrative and product development
personnel, from Beijing 58 to Wanglin and 58 Technology. As of December 31, 2014, a majority of our assets
were held by Wanglin and 58 Technology. Wanglin and 58 Technology collectively generated a majority of
our revenues in 2014 and we currently expect that they will continue to generate a majority of our revenues
going forward. We further expect Beijing 58’s business to be limited primarily to services that are legally
required to be conducted through a PRC domestic entity.

Contractual Arrangements with Beijing 58

We have entered into contractual arrangements with Beijing 58 and its shareholders described below, through

which we exercise effective control over the operations of Beijing 58 and receive substantially all its economic
beneﬁts and residual returns. Through the amended and restated exclusive business cooperation agreement
between Beijing 58 and Wanglin, Wanglin agrees to provide certain technical and business support and related
consulting services to Beijing 58 in exchange for service fees. In addition, pursuant to the amended and restated
exclusive option agreement, Beijing 58 is prohibited from declaring and paying any dividends without Wanglin’s
prior consent and Wanglin enjoys an irrevocable and exclusive option to purchase Beijing 58 shareholders’ equity
interests, to the extent permitted by applicable PRC laws, at a nominal price from Beijing Wanglintong
Information Technology Co., Ltd., or a speciﬁed price equal to the loan provided by Wanglin to the individual
shareholders. If the lowest price permitted under PRC law is higher than the above price, the lowest price
permitted under PRC law shall apply. Through the arrangements, we can obtain all of Beijing 58’s income and all
of its residual interests, such as undistributed earnings, either through dividend distribution or purchase of Beijing
58’s equity interests from its existing shareholders. On the other hand, we are not legally entitled to residual
interest as a shareholder upon Beijing 58’s liquidation, and are not legally responsible for Beijing 58’s debts or
other liabilities. As a result of the contractual arrangements, we consolidate Beijing 58’s ﬁnancial results in our
consolidated ﬁnancial statements in accordance with U.S. GAAP.

Exclusive Business Cooperation Agreement. Under the exclusive business cooperation agreement
between Beijing 58 and Wanglin, as amended and restated, Wanglin has the exclusive right to provide, among
other things, technical support and business support and related consulting services to Beijing 58 and Beijing
58 agrees to accept all the consultation and services provided by Wanglin. Without Wanglin’s prior written
consent, Beijing 58 is prohibited from engaging any third party to provide any of the services under this
agreement. In addition, Wanglin exclusively owns all intellectual property rights arising out of or created
during the performance of this agreement. Beijing 58 agrees to pay a quarterly service fee to Wanglin at an
amount determined solely by Wanglin after taking into account factors including the complexity and difficulty
of the services provided, the time consumed, the seniority of the Wanglin employees providing services to
Beijing 58, the value of services provided, the market price of comparable services and the operating
conditions of Beijing 58. This agreement will remain effective unless Wanglin terminates the agreement in
writing or a competent governmental authority rejects the renewal applications by either Beijing 58 or
Wanglin to renew its respective business license upon expiration. Beijing 58 is not permitted to terminate this
agreement in any event unless required by applicable laws. In 2014, Wanglin provided technical support
services to Beijing 58 and its subsidiaries and collected service fee payment of approximately US$0.4 million
as of the date of this annual report.

Powers of Attorney. Pursuant to the powers of attorney, the shareholders of Beijing 58 each irrevocably

appointed Wanglin as the attorney-in-fact to act on their behalf on all matters pertaining to Beijing 58 and to
exercise all of their rights as a shareholder of Beijing 58, including but not limited to attend shareholders’
meetings, vote on their behalf on all matters of Beijing 58 requiring shareholders’ approval under PRC laws
and regulations and the articles of association of Beijing 58, designate and appoint directors and senior
management members. Wanglin may authorize or assign its rights under this appointment to any other person

60

or entity at its sole discretion without prior notice to the shareholders of Beijing 58. Each power of attorney
will remain in force until the shareholder ceases to hold any equity interest in Beijing 58.

Equity Interest Pledge Agreements. Under the equity interest pledge agreements between Wanglin,
Beijing 58 and the shareholders of Beijing 58, as amended and restated, the shareholders pledged all of their
equity interests in Beijing 58 to Wanglin to guarantee Beijing 58’s and Beijing 58’s shareholders’ performance
of their obligations under the contractual arrangements including, but not limited to, the payments due to
Wanglin for services provided. If Beijing 58 or any of Beijing 58’s shareholders breaches its contractual
obligations under the contractual arrangements, Wanglin, as the pledgee, will be entitled to certain rights and
entitlements, including receiving proceeds from the auction or sale of whole or part of the pledged equity
interests of Beijing 58 in accordance with legal procedures. Wanglin has the right to receive dividends
generated by the pledged equity interests during the term of the pledge. If any event of default as provided in
the contractual arrangements occurs, Wanglin, as the pledgee, will be entitled to dispose of the pledged equity
interests in accordance with PRC laws and regulations. The pledge will become effective on the date when the
pledge of equity interests contemplated in these agreements are registered with the relevant local
administration for industry and commerce and will remain binding until Beijing 58 and its shareholders
discharges all their obligations under the contractual arrangements. We registered these equity interest pledge
agreements with Chaoyang Branch of Beijing Administration for Industry and Commerce in July 2013.

Exclusive Option Agreements. Under the exclusive option agreements between Wanglin, as amended

and restated, each of the shareholders of Beijing 58 and Beijing 58, each of the shareholders irrevocably
granted Wanglin or its designated representative(s) an exclusive option to purchase, to the extent permitted
under PRC law, all or part of his, her or its equity interests in Beijing 58. In addition, Wanglin has the option
to acquire all the equity interests of Beijing 58 for either a nominal price from Beijing Wanglintong
Information Technology Co., Ltd., or a speciﬁed price equal to the loan provided by Wanglin to the individual
shareholders. If the lowest price permitted under PRC law is higher than the above price, the lowest price
permitted under PRC law shall apply. Wanglin or its designated representative(s) have sole discretion as to
when to exercise such options, either in part or in full. Without Wanglin’s prior written consent, Beijing 58’s
shareholders shall not transfer, donate, pledge, or otherwise dispose any equity interests in Beijing 58. These
agreements will remain effective until all equity interests held in Beijing 58 by the Beijing 58’s shareholders
are transferred or assigned to Wanglin or Wanglin’s designated representatives. At the moment, we cannot
exercise the exclusive option to purchase the current shareholders’ equity interests in Beijing 58 due to the
PRC regulatory restrictions on foreign ownership in the value-added telecommunications services. We intend
to exercise such option once China opens up these industries to foreign investment.

Loan Agreements. Pursuant to the loan agreements between Wanglin and each individual shareholder of

Beijing 58, Wanglin provided interest-free loans with an aggregate amount of approximately RMB7.8 million
(US$1.3 million) to the individual shareholders of Wanglin for the sole purpose of funding the capital increase
of Beijing 58. The loans can be repaid by transferring the individual shareholders’ equity interest in Beijing 58
to Wanglin or its designated person pursuant to Exclusive Option Agreements. The term of each loan
agreement is ten years from the date of the agreement expiring on December 1, 2021 and can be extended
with the written consent of both parties before expiration.

In the opinion of our PRC counsel, Han Kun Law Offices, these contractual arrangements are valid,
binding and enforceable under current PRC laws. However, these contractual arrangements may not be as
effective in providing control as direct ownership. There are substantial uncertainties regarding the
interpretation and application of current or future PRC laws and regulations. For a description of the risks
related to our corporate structure, please see ‘‘Item 3. Key Information — D. Risk Factors — Risks Related to
Our Corporate Structure and Restrictions on Our Industry.’’

D. Property, Plants and Equipment

In September 2014, we entered into an agreement with Beijing Electronics Zone Investment and

Development Co., Ltd., or BEZ, to purchase approximately 45,000 square meters of office space in Chaoyang
District, Beijing, for RMB1,033.0 million (approximately US$166.5 million). The location will be used for our
new corporate headquarters to accommodate our business expansion and increase in headcount. The ﬁrst building,

61

which accounts for approximately 37% of the total new office space, is expected to be ready for occupancy in
October 2015. The remaining new office space is expected to be ready for occupancy in July 2016.

Our principal headquarter offices located on leased premises at Block E, The North American

International Business Center comprise 7,939 square meters in Beijing, China and we have an additional 9,872
square meters leased office spaces in other locations in Beijing, China. We also maintain leased offices in 33
additional cities in China totaling 75,424 square meters. We lease our premises from unrelated third parties
under non-cancelable operating lease agreements. The leases typically have terms of one to ﬁve years, some
of which are due to expire during 2015 or 2016.

Our servers are primarily hosted at internet data centers owned by major domestic internet data center
providers. The hosting services agreements typically have one-year terms and are renewed automatically upon
expiration. We believe that we will be able to obtain adequate facilities, principally through leasing, to
accommodate our future expansion plans.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis of our ﬁnancial condition and results of operations should be read

in conjunction with our consolidated ﬁnancial statements and the related notes included elsewhere in this
annual report on Form 20-F. This discussion and analysis may contain forward-looking statements based upon
current expectations that involve risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of various factors, including those set forth under
‘‘Item 3. Key Information — D. Risk Factors’’ or in other parts of this annual report on Form 20-F.

A. Operating Results

Overview

We operate an online marketplace serving local merchants and consumers in China. Our online
marketplace enables local merchants and consumers to connect, share information and conduct business.

We generate revenues primarily from memberships and online marketing services. Our average quarterly
paying merchant members increased from approximately 187,000 in 2012 to approximately 323,000 in 2013
and further to approximately 529,000 in 2014. The average paying merchant members reached approximately
605,000 in the fourth quarter of 2014. Merchants that purchase memberships also comprise our target
customer base for our online marketing services, which are typically not included in the basic membership.

Our revenues have experienced signiﬁcant growth. Our revenues increased from US$87.1 million in 2012

to US$145.7 million in 2013 and further to US$265.0 million in 2014. The increase was primarily due to an
increase in the number of our paying merchant members, which was driven by our deeper penetration into the
existing and additional locations and increased monetization of major content categories. Meanwhile, our
online marketing services revenues grow rapidly during these periods. In the three years ended December 31,
2014, our gross proﬁt increased signiﬁcantly while our gross margin improved in each period, primarily due to
economies of scale as we expanded our business.

We have invested heavily in brand promotion and expansion of our ﬁeld sales team, particularly in 2011

and 2014. Sales and marketing expenses, as a percentage of our revenues, have decreased signiﬁcantly in
2013 and 2014. We have also invested in building a sizable and capable product development and engineering
team. We believe our prior investments will contribute to value creation and signiﬁcant operating leverage in
the long term. In 2015, we expect to increase advertising expenses particularly to promote our mobile services
and grow 58 Home services. We will continue to increase the size of our ﬁeld sales and customer services
teams who are helping to increasing our paying merchant members and better upsell online marketing
services. We expect to continue to increase our investment in research and development for innovations and
enhancement of our user experience of the platforms. We incurred net loss of US$30.4 million in 2012, we
had a net income of US$19.6 million and US$22.6 million in 2013 and 2014, respectively.

62

How We Generate Revenues

While many of our users browse and post information on our online marketplace for free, we generate

revenues from the following services:

Membership

A membership is a basic service package mainly consisting of merchant certiﬁcation, display of an online

storefront on our marketplace; preferential listing beneﬁts such as daily priority listings and higher quota for
daily listings and access to our dedicated customer service support team and online account management
system. Merchants who subscribe to our membership can enjoy more services and achieve more effective
marketing than non-paying merchants on our marketplace.

We offer memberships of varying lengths across different content categories. Memberships in the yellow

pages and jobs categories are primarily 12-month packages. Memberships in the housing category are
primarily one- to three-month packages. We acquire a majority of paying merchant members through our ﬁeld
sales team. Our centralized and dedicated tele-customer service team supports our paying merchant members
during their membership to enhance the effectiveness of the member’s marketing efforts and improve the
likelihood of membership renewal. A majority of our paying merchant members are small and medium-sized
local merchants. The competitive landscape of such merchants changes quickly and many only have
temporary recruiting or marketing needs from time to time. We believe our ﬁeld sales and customer service
teams have been effective in increasing the number of our paying merchant members, retaining high quality
existing paying merchant members and increasing spending by our existing paying merchant members, all of
which are important to the growth of our revenues.

Most paying merchant members pay their membership fees in advance. Such advance payments are made

to our ﬁeld sales team or through our membership subscription webpage and are recorded as customer
advances and deposits. Once a member completes the purchase of membership, we deduct such amount from
the customer advances and deposits account and record it as deferred revenues. The amounts of revenues are
recognized ratably over the contract period for the membership services.

Online Marketing Services

Our online marketing services primarily include listing services, such as real-time bidding and priority

listing, and marketing services through collaboration with third-party internet companies in China.

Merchants can use our real-time bidding services to bid for the most prominent placement of their
listings in speciﬁc categories and locations on a daily or CPC basis. We have developed a user-friendly
bidding system, through which merchants can generate text- and graphic-based descriptions for their listings
and bid on placements of their listings for the following day or on a CPC basis. We provide reference bidding
prices based on certain metrics, such as traffic, number of clicks generated by precedent placements and the
previous day’s prices.

Merchants can also purchase our priority listing services, which place their listings below real-time
bidding listings and above paying merchant members’ listings. Merchants can purchase listing placements of
varying duration from several hours to several days to several weeks.

We collaborate with third-party internet companies by placing the marketing links of their marketing
customers on the relevant listing pages on our online marketplace. We generate revenues based on the number
of clicks or cost-per-thousand impressions at pre-determined prices.

We also provide other online marketing services, such as resume downloads, text- or graphic-based
displays and brand promotion services for varying time periods ranging from a day to several months based
on the duration of services or performance criteria, such as number of clicks, effective phone calls and new
user registrations.

Merchants are required to make payments in advance before purchasing online marketing services.

Advance payments made by merchants are recorded as customer advances and deposits. Once a merchant
completes the purchase of services, the amount is recorded as deferred revenues. Revenues from time-based
services are recognized ratably over the service period. Revenues from performance-based services are
recognized when the agreed performance criteria are achieved.

63

Other Services

Revenues from other services are mainly related to group buying services. We began offering group

buying services in June 2010 and have signiﬁcantly scaled back these services since mid-2012.

Taxation

Cayman Islands

We are incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, we are not
subject to tax on income or capital gains. Additionally, upon payments of dividends to our shareholders, no
Cayman Islands withholding tax will be imposed.

British Virgin Islands

We are exempted from income tax in the British Virgin Islands on our foreign-derived income. There are

no withholding taxes in the British Virgin Islands.

Hong Kong

The operations in Hong Kong have incurred net accumulated operating losses for income tax purpose.

The corporate income tax rate in Hong Kong is 16.5%.

PRC

Pursuant to the EIT Law, which became effective on January 1, 2008, foreign-invested enterprises and
domestic companies are subject to enterprise income tax at a uniform rate of 25%. In addition, HNTEs will
enjoy a preferential enterprise income tax rate of 15% under the EIT Law. Beijing 58, our consolidated
affiliated entity, and Wanglin, one of our PRC subsidiaries, qualiﬁed as HNTE under the EIT Law, are eligible
for a preferential enterprise income tax rate of 15% for the period from 2012 to 2014, so long as they obtain
approval from relevant tax authority if they are proﬁtable during the period. Beijing 58 submitted its HNTE
status renewal applications in mid-April 2015. Wanglin will submit its HNTE status renewal application by
the end of May 2015. Both companies are expected to complete the approval process within three months
thereafter.

As we had net operating losses or net operating loss carryforward for the years ended December 31,

2012 and 2013, we had not incurred any PRC income taxes for those periods. For the year ended
December 31, 2014, Wanglin had taxable income and accrued approximately US$6.2 million income tax
expense. Wanglin was determined as a software enterprise in July 2014. In April 2015, Wanglin submitted its
application for preferential tax treatment for software enterprise and was informed by the tax authority that it
was granted a two-year EIT exemption and a 50% reduction on its taxable income for the subsequent
three years effective retroactively from January 1, 2014. Wanglin paid approximately US$1.2 million income
tax in 2014 and will apply for refund in 2015.

Prior to January 1, 2012, pursuant to Provisional Regulation of China on Business Tax and its
implementing rules, any entity or individual rendering services in the territory of PRC is generally subject
to a business tax at the rate of 5% on the revenues generated from provision of such services. Our PRC
subsidiaries and consolidated affiliated entities were subject to business tax at the rate of 5% for the
membership and online marketing services. Effective January 1, 2012, the PRC Ministry of Finance and the
State Administration of Taxation launched a Business Tax to Value-Added Tax Transformation Pilot Program,
or the VAT Pilot Program, which imposes VAT in lieu of business tax for certain ‘‘modern service industries’’
in certain regions. According to the implementation circulars released by the Ministry of Finance and the State
Administration of Taxation on the VAT Pilot Program, the ‘‘modern service industries’’ include research,
development and technology services, information technology services, cultural innovation services, logistics
support, lease of corporeal properties, attestation and consulting services. Our subsidiaries in different regions
were affected at different times as the VAT Pilot Program was rolled out. Most of our entities were subject to
the VAT Pilot Program as of December 31, 2014, or speciﬁcally, VAT at rate of 6% in lieu of business tax.
With the adoption of the VAT Pilot Program, our revenues are subject to VAT. VAT payable on goods sold or
taxable services provided by a general VAT taxpayer for a taxable period is the net balance of the output VAT
for the period after crediting the input VAT for the period. Hence, the amount of VAT payable does not result
directly from output VAT generated from goods sold or taxable services provided. Therefore, we have adopted
the net presentation of VAT.

64

Critical Accounting Policies

We prepare our ﬁnancial statements in conformity with U.S. GAAP, which requires us to make

judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based on the
most recently available information, our own historical experience and various other assumptions that we
believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the
ﬁnancial reporting process, actual results could differ from our expectations as a result of changes in our
estimates.

An accounting policy is considered critical if it requires an accounting estimate to be made based on

assumptions about matters that are highly uncertain at the time such estimate is made, and if different
accounting estimates that reasonably could have been used, or changes in the accounting estimates that are
reasonably likely to occur periodically, could materially impact the consolidated ﬁnancial statements. The
selection of critical accounting policies, the judgments and other uncertainties affecting application of those
policies, and the sensitivity of reported results to changes in conditions and assumptions are factors that
should be considered when reviewing our consolidated ﬁnancial statements. We believe that the following
accounting policies involve a higher degree of judgment and complexity in their application and require us to
make signiﬁcant accounting estimates. The following descriptions of critical accounting policies, judgments
and estimates should be read in conjunction with our consolidated ﬁnancial statements and other disclosures
included in this annual report.

Revenue Recognition

We generate revenues primarily from membership and online marketing services. Revenue is recognized

when persuasive evidence of an arrangement exists, the price is ﬁxed or determinable, service is performed
and collectability of the related fee is reasonably assured.

We have adopted the gross presentation for business tax and related surcharges pursuant to ASC 605-45,
‘‘Revenue Recognition: Principal Agent Considerations’’. The amount of business tax and related surcharges
included in revenues and cost of revenues were US$4.4 million, US$1.7 million and US$1.6 million for
the years ended December 31, 2012, 2013 and 2014, respectively. Effective January 1, 2012, the PRC
Ministry of Finance and the State Administration of Taxation launched the Value Added Tax (‘‘VAT’’) Pilot
Program for certain industries in certain regions. According to the implementation circulars released by the
Ministry of Finance and the State Administration of Taxation on the Pilot Program, the ‘‘Modern Service
Industries’’ includes research, development and technological services, information technology services,
cultural innovation services, logistics support, lease of corporeal properties, attestation and consulting services.
Subsidiaries in different regions were affected at different times as the program was rolled out. Most of the
Company’s entities were subject to the VAT Pilot Program as of December 31, 2014. With the adoption of the
Pilot Program, our revenues are subject to VAT payable on goods sold or taxable labor services provided by a
general VAT taxpayer for a taxable period. VAT payable is the net balance of the output VAT for the period
after crediting the input VAT for the period. Hence, the amount of VAT payable does not result directly from
output VAT generated from goods sold or taxable labor services provided. As such, we have adopted the net
presentation of VAT.

Membership. A membership is a basic services package mainly consisting of the following services:

customer certiﬁcation, display of an online storefront on our marketplace, preferential listing beneﬁts such as
limited daily priority listings and higher quota for free daily listings and access to our dedicated customer
service support team and online account management system. Membership revenues are recognized ratably
over the contract period when membership services are provided.

Online marketing services. Our online marketing services include time-based services and performance-

based services. Revenues from time-based services are recognized ratably over the service period. Revenues
from performance-based services are recognized when the agreed performance criteria are achieved. For
service arrangements that include multiple deliverables, revenues are allocated to each unit of accounting
based on relative selling price of each unit of accounting according to the selling price hierarchy established
by ASU No. 2009-13. We use (a) vendor-speciﬁc objective evidence of selling price, if it exists, (b) otherwise,

65

third-party evidence of selling price. If neither (a) nor (b) exists, we will use (c) the management’s best
estimate of the selling price for that deliverable. Selling price is generally determined by vendor speciﬁc
objective evidence.

Income taxes

Current income taxes are provided on the basis of net income for ﬁnancial reporting purposes, adjusted
for income and expense items which are not assessable or deductible for income tax purposes, in accordance
with the regulations of the relevant tax jurisdictions. Deferred income taxes are provided using the liability
method. Under this method, deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory rates applicable to future years to differences between the ﬁnancial
statement carrying amounts and the tax bases of existing assets and liabilities. The tax base of an asset or
liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a
change in tax rates is recognized in the statement of comprehensive loss in the period of change. A valuation
allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that
some portion of, or all of the deferred tax assets will not be realized.

The guidance prescribes a more likely than not threshold for ﬁnancial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. Guidance was also provided on
derecognition of income tax assets and liabilities, classiﬁcation of current and deferred income tax assets and
liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in
interim periods, and income tax disclosures. Signiﬁcant judgment is required in evaluating our uncertain tax
positions and determining its provision for income taxes. We recognize interests and penalties, if any, under
accrued expenses and other current liabilities on our balance sheet and under other expenses in our statement
of comprehensive income/(loss). We did not have any interest or penalties associated with tax positions as of
December 31, 2012, 2013 and 2014. As of December 31, 2012, 2013 and 2014, we did not have any
signiﬁcant unrecognized uncertain tax positions.

In order to assess uncertain tax positions, we apply a more likely than not threshold and a two-step
approach for the tax position measurement and ﬁnancial statement recognition. Under the two-step approach,
the ﬁrst step is to evaluate the tax position for recognition by determining if the weight of available evidence
indicates that it is more likely than not that the position will be sustained, including resolution of related
appeals or litigation processes, if any. The second step is to measure the tax beneﬁt as the largest amount that
is more than 50% likely of being realized upon settlement.

Share-Based Compensation

All share-based awards to employees and directors, including share options, ordinary shares awards and
restricted share units (‘‘RSUs’’), are measured at the grant date based on the fair value of the awards. Share-
based compensation, net of forfeitures, is recognized as expense on a straight-line basis over the requisite
service period, which is the vesting period.

Share options

We used the Binominal option pricing model to determine the fair value of share options. account for

share-based compensation expenses using an estimated forfeiture rate at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share-based compensation
expenses were recorded net of estimated forfeitures such that expense was recorded only for those share-based
awards that are expected to vest. Historically, our share-based compensation expenses were relatively low.

We adopted an employee stock option plan, or the 2010 Plan, in March 2010. The maximum number of

shares in respect of which share awards may be granted under the 2010 Plan is 20,173,225. The 2010 Plan
will terminate automatically 10 years after its adoption, unless terminated earlier by our shareholders’
approval.

We adopted a share incentive plan, or the 2013 Plan, in September 2013. The maximum aggregate
number of shares which may be issued pursuant to all awards under the 2013 Plan, is 2,800,000 shares as of
the date of its adoption. The number of shares reserved for future issuances under the 2013 Plan will be
increased by a number equal to 1.5% of the total number of outstanding shares on the last day of the

66

immediately preceding calendar year, on the ﬁrst day of each calendar year during the term of the 2013 Plan
beginning in 2015, or such lesser number of ordinary shares as determined by our board of directors. In
addition, in April, in connection with our acquisition of a strategic stake in Ganji, we further increased such
number of maximum aggregate number of shares which may be issued by an additional 7,000,000 ordinary
shares, reserved for future grants.

58 Daojia adopted its 2015 Share Incentive Plan, or the Daojia 2015 Plan, in February 2015. The

maximum aggregate number of shares which may be issued pursuant to all awards under the Daojia 2015 Plan
is 20,000,000 ordinary shares of 58 Daojia.

A summary of our share option activities under our 2010 Plan and 2013 Plan is presented below (share
and per share information is presented to give retroactive effect to the share splits that we have conducted so
far).

Number of
Options
Granted

479,000
342,000
35,500
264,000
192,000
1,187,000
1,900,000
30,000
646,000
70,000
138,200
109,200
217,000
257,200

Exercise
Price
US$
2.300
2.300
2.300
2.300
2.300
2.300
2.500
2.500
5.600
8.500
15.950
18.460
20.000
17.770

Fair Value of
the Options
as of the
Grant Date
US$
1.310
1.320
1.320
1.330
1.340
1.340
3.500
3.500
3.770
4.580
12.060
10.250
12.440
10.740

Fair Value of
the Underlying
Ordinary Shares
as of the
Grant Date
US$
2.379
2.379
2.379
2.484
2.484
2.484
5.286
5.286
6.720
8.500
21.000
19.260
22.950
19.840

Intrinsic Value
as of the
Grant Date
US$
0.079
0.079
0.079
0.184
0.184
0.184
2.786
2.786
1.120
—
5.05
0.8
2.95
2.07

March 31, 2012 . . . . . . . . . . . .
May 31, 2012 . . . . . . . . . . . . .
August 31, 2012 . . . . . . . . . . .
November 30, 2012 . . . . . . . . .
December 31, 2012 . . . . . . . . .
January 1, 2013 . . . . . . . . . . . .
July 31, 2013 . . . . . . . . . . . . .
September 17, 2013 . . . . . . . . .
October 14, 2013 . . . . . . . . . . .
October 30, 2013 . . . . . . . . . . .
February 27, 2014 . . . . . . . . . .
May 14, 2014 . . . . . . . . . . . . .
June 25, 2014 . . . . . . . . . . . . .
November 3, 2014 . . . . . . . . . .

In February 2015, our board of directors approved to grant options to purchase an aggregate of
201,600 Class A ordinary shares to certain of our employees, with the exercise price of such options being
US$18.68 per share.

In February and April 2015, 58 Daojia granted options to purchase an aggregate of 10,651,000 ordinary

shares of 58 Daojia and 9,100,000 restricted shares of 58 Daojia to its employees and the employees of
certain other subsidiaries and affiliated companies of our company.

In April 2015, our Compensation Committee approved the grant of options to purchase 7,000 of our

Class A ordinary shares to certain employees of our company under the 2013 Plan.

67

We estimated the fair value of share options using the binominal option-pricing model with the assistance
from an independent valuation ﬁrm. The fair value of each option grant is estimated on the date of grant with
the following assumptions.

.

.

.

.

Expected volatility(1)
Risk-free interest rate
(per annum)(2) .
.
.
Exercise multiple(3)
.
.
Expected dividend yield(4) .
Expected term (in years)(5).
Expected forfeiture rate
.

(post-vesting)(6)

.
.

.
.

.

.

.

.

March 31,
2012
63.3% 63.1%

May 31,
2012

November 30,
2012
54.8%

December 31,
2012 And
January 1,
2013
59.1%

July 31, and
September 17,
2013
55.6%

October 14, and
October 30,
2013
54.1%

February 27,
2014
53.3%

May 14,
2014
52.8%

June 25,
2014
52.5%

November 3,
2014
50.8%

2.713% 3.204%

2

2

0.00% 0.00%

10

10

2.032%
2
0.00%
10

2.032%
2
0.00%
10

2.877%
2
0.00%
10

3.100%
2
0.00%
10

3.730%
2
0.00%
10

3.170%
2
0.00%
10

3.200%
2
0.00%
10

3.010%
2
0.00%
10

3.5%

3.5%

3.2%

3.2%

3.3%

1.0%

0.4%

0.4%

0.4%

0.3%

.

.
.
.
.

.

Notes:
(1) We estimated expected volatility based on the annualized standard deviation of the daily return embedded
in historical share prices of comparable companies with a time horizon close to the expected expiry of
the term.

(2) We estimated risk-free interest rate based on the yield to maturity of US$ denominated Chinese

Government bonds with a maturity similar to the expected expiry of the term.

(3) The exercise multiple is estimated as the ratio of fair value of underlying shares over the exercise price
as at the time the option is exercised, based on a consideration of research study regarding exercise
pattern based on historical statistical data.

(4) Expected dividend yield: We have never declared or paid any cash dividends on our capital stock, and we

do not anticipate any dividend payments on our ordinary shares in the foreseeable future.

(5) Expected term (in years): Expected term is the contract life of the option.
(6) Expected forfeiture rate (post-vesting): Estimated based on historical employee turnover rate after each

option grant.

Determining the fair value of our ordinary shares required us to make complex and subjective judgments,

assumptions and estimates, which involved inherent uncertainty. Had our management used different
assumptions and estimates, the resulting fair value of our ordinary shares and the resulting share-based
compensation expenses could have been different.

Restricted share units

Restricted share units (RSUs) issued to our employees are measured based on the grant date fair value of
the award and recognized as compensation expense based on the straight-line vesting method, net of estimated
forfeitures, over the requisite service period, with a corresponding impact reﬂected in additional paid-in
capital. The fair value of RSUs was based on the fair value of our underlying ordinary shares on the grant
date.

The following table sets forth certain information regarding the RSUs granted to our employees in 2014

with share and per share information.

Number of
RSUs
Granted

February 27, 2014 . . . . . . . . .
May 14, 2014 . . . . . . . . . . . .
June 25, 2014 . . . . . . . . . . . .
November 3, 2014 . . . . . . . . .

59,400
113,800
383,000
392,400

Fair Value per
Ordinary Share
as of the
Grant Date
US$
21.000
19.260
22.950
19.840

Type/Methodology
of Valuation
US$
Contemporaneous/Stock Price(1)
Contemporaneous/Stock Price(1)
Contemporaneous/Stock Price(1)
Contemporaneous/Stock Price

Note:
(1) The fair values of restricted share units are based on stock price of our company on grant dates.

68

In February 2015, our board of directors approved to grant 392,308 restricted share units to employees of

our company under the 2013 Plan.

In April 2015, our Compensation Committee approved the grant of 432,000 restricted share units to

management and other employees of our company under the 2013 Plan.

Fair Value of Our Ordinary Shares

Prior to our initial public offering, we were a private company with no quoted market prices for our
ordinary shares. We therefore needed to make estimates of the fair value of our ordinary shares at various
dates for the purpose of determining the fair value of our ordinary shares at the date of the grant of a share-
based compensation award to our employees as one of the inputs into determining the grant date fair value of
the award.

The following table sets forth the fair value of our ordinary shares estimated at different times prior to

our initial public offering with the assistance from an independent valuation ﬁrm.

Equity
Value
(US$’000)
Date
361,104
April 30, 2012 . . . . . . . . . . . . . . . . . .
375,532
December 31, 2012 and January 1, 2013 .
728,321
July 31 and September 17, 2013 . . . . . .
October 14, 2013 . . . . . . . . . . . . . . . . .
885,777
October 30, 2013 . . . . . . . . . . . . . . . . . 1,120,402

Fair Value
Per Share
(US$)
2.379
2.484
5.286
6.720
8.500

DLOM
20%
20%
9%
4%

—

Discount
Rate
21.0%
22.0%
19.0%
N/A
N/A

Type of
Valuation
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous

We applied the income approach/discounted cash ﬂow, or DCF, analysis based on our projected cash ﬂow
using management’s best estimate as of the valuation date. The determination of the fair value of our ordinary
shares requires complex and subjective judgments to be made regarding our projected ﬁnancial and operating
results, our unique business risks, the liquidity of our shares and our operating history and prospects at the
time of valuation.

The major assumptions used in calculating the fair value of ordinary shares include:

• Weighted average cost of capital, or WACC: WACCs of 21.0%, 22.0% and 19.0% were used for

dates as of April 2012, December 2012 and July 2013, respectively. The WACCs were determined
based on a consideration of the factors including risk-free rate, comparative industry risk, equity risk
membership, company size and nonsystematic risk factors.

•

•

•

In deriving the WACCs, which are used as the discount rates under the

Comparable companies:
income approach, four publicly traded companies in China online marketing industry and two
publicly traded companies in the U.S. online marketing industry were selected for reference as our
guideline companies.

Discount for lack of marketability, or DLOM: DLOM was quantiﬁed by the Black-Scholes option
pricing model. Under this option-pricing method, the cost of the put option, which can hedge the
price change before the privately held shares can be sold, was considered as a basis to determine the
DLOM. This option pricing method is one of the methods commonly used in estimating DLOM as
it can take into consideration factors like timing of a liquidity event, such as an IPO, and estimated
volatility of our shares. The farther the valuation date is from an expected liquidity event, the higher
the put option value and thus the higher the implied DLOM. The lower DLOM is used for the
valuation, the higher is the determined fair value of the ordinary shares. DLOM remained in the
range of 4.0% to 21.0% in the period from 2012 to 2013.

The income approach involves applying appropriate discount rates to estimated cash ﬂows that are
based on earnings forecasts. Our revenues and earnings growth rates, as well as major milestones
that we have achieved, contributed signiﬁcantly to the increase in the fair value of our ordinary
shares from April 2012 to October 2013. However, these fair values are inherently uncertain and
highly subjective. The assumptions used in deriving the fair values are consistent with our business
plan. These assumptions include: no material changes in the existing political, legal and economic

69

•

•

conditions in China; our ability to retain competent management, key personnel and staff to support
our ongoing operations; and no material deviation in market conditions from economic forecasts.
These assumptions are inherently uncertain. The risk associated with achieving our forecasts were
assessed in selecting the appropriate discount rates, which ranged from 19.0% to 22.0%.

Option-pricing method was used to allocate enterprise value to preference and ordinary shares,
taking into account the guidance prescribed by the AICPA Audit and Accounting Practice Aid,
‘‘Valuation of Privately-Held Company Equity Securities Issued as Compensation,’’ or the Practice
Aid. The method treats ordinary share and preference share as call options on the enterprise’s value,
with exercise prices based on the liquidation preference of the preference share.

The option-pricing method involves making estimates of the anticipated timing of a potential
liquidity event, such as a sale of our company or an initial public offering, and estimates of the
volatility of our equity securities. The anticipated timing is based on the plans of our board of
directors and management. Estimating the volatility of the share price of a privately held company is
complex because there is no readily available market for the shares. We estimated the volatility of
our shares to range from 54.1% to 69.5% based on the historical volatilities of comparable publicly
traded companies engaged in similar lines of business. Had we used different estimates of volatility,
the allocations between preference and ordinary shares would have been different.

Recent Accounting Pronouncements

In April 2014, the FASB issued ASU 2014-08, ‘‘Reporting Discontinued Operations and Disclosures of

Disposals of Components of an Entity’’. This update changed the threshold for reporting discontinued
operations and added new disclosures for disposals. Under the updated guidance, a discontinued operation is
deﬁned as a component or group of components that is disposed of or is classiﬁed as held for sale and
represents a strategic shift that has (or will have) a major effect on an entity’s operations and ﬁnancial results.
This ASU is effective prospectively for ﬁscal years, and interim periods within those years, beginning after
December 15, 2014. The adoption of this ASU will not have a material impact on our consolidated ﬁnancial
statements.

In May 2014, the FASB and IASB issued their converged standard on revenue recognition. The objective
of the revenue standard ASU 2014-09, ‘‘Revenue from Contracts with Customers (Topic 606)’’ is to provide a
single, comprehensive revenue recognition model for all contracts with customers to improve comparability
within industries, across industries, and across capital markets. The revenue standard contains principles that
an entity will apply to determine the measurement of revenue and timing of when it is recognized. The
underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to
customers at an amount that the entity expects to be entitled to in exchange for those goods or services. For
public companies, the revenue standard is effective for the ﬁrst interim period within annual reporting periods
beginning after December 15, 2016 and early adoption is not permitted. We are in the process of evaluating
the impact of the standard on our consolidated ﬁnancial statements.

In August 2014, FASB issued ASU No. 2014-15, ‘‘Presentation of Financial Statements — Going
Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern.’’ The new standard addresses management’s responsibility to evaluate whether there is substantial
doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.
Management’s evaluation should be based on relevant conditions and events that are known and reasonably
knowable at the date that the ﬁnancial statements are issued. The new standard will be effective for the ﬁrst
interim period within annual reporting periods beginning after December 15, 2016. Early adoption is
permitted. The adoption of this ASU will not have a material impact on our consolidated ﬁnancial statements.

In February 2015, and FASB issued ASU 2015-02, which provides guidance for reporting entities that are

required to evaluate whether they should consolidate certain legal entities. In accordance with ASU 2015-02,
all legal entities are subject to reevaluation under the revised consolidation model. ASU 2015-02 is effective
for public business entities for annual periods, and interim periods within those annual periods, beginning after
December 15, 2015. Early adoption is permitted. We are still assessing the potential impact of ASU 2015-02
on our consolidated ﬁnancial statements.

70

Results of Operations

The following table sets forth our consolidated results of operations for the periods indicated. Our

business has experienced rapid growth since inception. We expect our growth to continue as we grow our user
base and explore new market opportunities. However, due to our limited operating history, our historical
growth rate may not be indicative of our future performance. Therefore, we believe that period-to-period
comparison of our results of operation should not be relied upon as indicative of future performance.

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross proﬁt

Operating expenses(1):

2012

2014

For the Year Ended December 31,
2013
(in thousands of US$)
145,747
8,471
137,276

264,978
13,844
251,134

87,122
10,406
76,716

Sales and marketing expenses . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income/(loss) from operations . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income/(loss) before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Income taxes beneﬁts/(expenses)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income/(loss)

76,422
18,464
13,088
107,974
(31,258)
857
(30,401)
—
(30,401)

84,534
25,138
12,983
122,655
14,621
4,936
19,557
—
19,557

180,148
43,676
20,633
244,457
6,677
22,153
28,830
(6,186)
22,644

Note:
(1) Share-based compensation expenses were allocated in cost of revenues and operating expenses as

follows:

Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing expenses . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . .
General and administrative expenses
. . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

2012

For the Year Ended December 31,
2014
2013
(in thousands of US$)
36
445
996
1,388
2,865

18
1,395
2,403
2,357
6,173

30
270
489
882
1,671

The following table sets forth the results of operations for the periods indicated, as percentages of

revenues.

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross proﬁt

Operating expenses:

2012

For the Year Ended December 31,
2013
2014
(% of revenues)
100.0%
5.8
94.2

100.0%
11.9
88.1

100.0%
5.2
94.8

Sales and marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
General and administrative expenses
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

87.7
21.2
15.0
123.9

58.0
17.2
8.9
84.1

68.0
16.5
7.8
92.3

71

Income/(loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income/(loss) before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes beneﬁts/(expenses) . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Comparison of the Years Ended December 31, 2012, 2013 and 2014

Revenues

2012

For the Year Ended December 31,
2013
2014
(% of revenues)
10.1
3.4
13.5
—
13.5

2.5
8.4
10.9
(2.3)
8.6

(35.8)
1.0
(34.8)
—
(34.8)

The following table sets forth the principal components of our revenues, both as absolute amounts and

as percentages of total revenues, for the periods indicated.

2012

For the Year Ended December 31,
2013

2014

% of
revenues

US$

% of
revenues

US$

% of
revenues

(in thousands of US$, except for % data)

55.0
32.7
12.3
100.0

85,725
58,457
1,565
145,747

58.8
40.1
1.1
100.0

139,490
125,033
455
264,978

52.6
47.2
0.2
100.0

US$

47,919
28,509
10,694
87,122

Membership . . . . . . . . . . . . .
Online marketing services . . . .
Other services . . . . . . . . . . . .
Total revenues . . . . . . . . . . . .

Membership

Membership revenues were US$47.9 million, US$85.7 million and US$139.5 million, representing
55.0%, 58.8% and 52.6% of revenues in 2012, 2013 and 2014, respectively. The increase in our membership
revenues was primarily attributable to the increase in the number of our paying merchant members, as a result
of our stronger focus on acquiring and serving paying merchant members. Our average quarterly paying
merchant members in 2012, 2013 and 2014, were approximately 187,000, 323,000 and 529,000, respectively.
We expect our membership revenues will continue to grow as we continue to expand our paying merchant
member base in the existing and new cities. Our direct sales teams, who cover 27 cities, and our sales agency
teams, who cover another approximately 270 cities, will continue to attract new paying merchant members.
Our dedicated customer service team will continue to contribute to membership revenues by retaining existing
merchants through helping them to optimize their marketing effectiveness.

Furthermore, paying merchant members also purchase our online marketing services that are not included

in the basic membership, to enhance their marketing effectiveness especially after they have experienced the
beneﬁts of our membership. These revenues will be recorded under online marketing services revenues. We
believe that the continued increase in the number of our paying merchant members and their spending will
contribute to the growth of our online marketing services revenue, which in turn will drive our overall
revenue growth.

2014 compared to 2013. Our membership revenues increased from US$85.7 million in 2013 to
US$139.5 million in 2014, representing an increase of 62.7%. The increase in membership revenues was
primarily due to the increase in the number of our average quarterly paying merchant members from
approximately 323,000 in 2013 to approximately 529,000 in 2014. We experienced signiﬁcant growth across
multiple content categories, particularly in our housing and jobs categories, in 2014. We did not experience
signiﬁcant price increases for the membership packages during the same periods.

2013 compared to 2012. Our membership revenues increased from US$47.9 million in 2012 to

US$85.7 million in 2013, representing an increase of 78.9%. The increase in membership revenues was
primarily due to the increase in the number of our average quarterly paying merchant members from
approximately 187,000 in 2012 to approximately 323,000 in 2013. We experienced signiﬁcant growth across

72

multiple content categories, particularly in our housing and jobs categories, in 2013. We did not experience
signiﬁcant price increases for the membership packages during the same periods.

Online Marketing Services

Revenues from online marketing services were US$28.5 million, US$58.5 million and US$125.0 million,

representing 32.7%, 40.1% and 47.2% of our revenues in 2012, 2013 and 2014, respectively. We continue to
enhance our ability to more efficiently monetize our substantial traffic. For instance, in the second half of
2012, we developed a real-time bidding system, which allows users to make daily bids for prominent places
on our marketplace. This enables us to generate signiﬁcantly higher revenues from the same amount of
listings. These services have continued to attract more merchants and increase average spend per merchant.
We expect our online marketing services revenues will continue to grow as we further develop our online
marketing services, accumulate operational experience and increase our customer engagement.

2014 compared to 2013. Our online marketing services revenues increased from US$58.5 million in
2013 to US$125.0 million in 2014, representing an increase of 113.9%. The increase was mostly driven by the
increases in paying customers for online marketing customer services. While the subscription-based payment
merchant members increased, our customer services teams continued to successfully upsell online marketing
services to more members.

2013 compared to 2012. Our online marketing services revenues increased from US$28.5 million in

2012 to US$58.5 million in 2013, representing an increase of 105.0%. The increase was primarily driven by
the launch of our real time bidding services. We began trial launch of our real-time bidding services for
certain content categories in the third quarter of 2012 and did the nationwide launch in the ﬁrst quarter of
2013. Our real-time bidding services have since gained popularity which contributed to the fast growth of our
online marketing services revenues in 2013.

Other Services

Revenues from other services were US$10.7 million, US$1.6 million and US$0.5 million, representing
approximately 12.3%, 1.1% and 0.2% of our revenues in 2012, 2013 and 2014, respectively. Revenues from
other services mainly relate to group buying services. The group buying revenues were US$10.7 million,
US$1.6 million and US$0.4 million in 2012, 2013 and 2014, respectively. We began offering group buying
services in June 2010 and signiﬁcantly scaled back these services since mid-2012. We also generated revenues
from traditional offline advertising services in 2010 and prior years which were phased out in 2011.

Cost of Revenues

Cost of revenues consists primarily of business taxes and surcharges, bandwidth costs, rental costs,
equipment depreciation associated with website operation, salaries, beneﬁts and share-based compensation for
our personnel responsible for website maintenance and operation. We expect that our cost of revenues will
increase in absolute amounts as we further grow our user base and expand our revenue-generating services.
Our cost of revenues includes share-based compensation charges. See ‘‘— Critical Accounting Policies —
Share-Based Compensation’’ for more information.

2014 compared to 2013. Our cost of revenues was US$13.8 million in 2014, an increase of 63.4% from
US$8.5 million in 2013. The year-over-year increase in cost of revenues was primarily driven by the increase
in bandwidth fees, short message service (SMS) costs and depreciation expenses.

2013 compared to 2012. Our cost of revenues was US$8.5 million in 2013, a decrease of 18.6% from

US$10.4 million in 2012. The decline in cost of revenues was primarily attributable to the decrease in
business tax. Effective on January 1, 2012, the PRC Ministry of Finance and the State Administration of
Taxation launched the VAT Pilot Program for certain industries in certain regions. Subsidiaries in different
regions were affected at different times as the program was rolled out. Most of our entities were subject to the
VAT as of December 31, 2013. Business tax is included in cost of revenues and revenues while VAT is
deducted from revenues.

Gross Proﬁt

We expect our gross proﬁt to increase as our revenues expand. The following table sets forth our gross

proﬁt and gross margin for the periods indicated.

73

Gross proﬁt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the Year Ended December 31,
2012
2014
2013
(in thousands of US$, except for % data)
137,276

76,716

251,134

88.1%

94.2%

94.8%

2014 compared to 2013. Our gross proﬁt increased from US$137.3 million in 2013 to US$251.1 million

in 2014, representing an increase of 82.9%. Gross margin increased from 94.2% to 94.8% during the same
period. The increase in gross proﬁt was primarily attributable to the signiﬁcant increase in membership
revenues as well as online marketing services revenues during the same period.

2013 compared to 2012. Our gross proﬁt increased from US$76.7 million in 2012 to US$137.3 million

in 2013, representing an increase of 78.9%. Gross margin increased from 88.1% to 94.2% during the same
period. The increase in gross proﬁt was primarily attributable to the signiﬁcant increase in membership
revenues as well as online marketing services revenues during the same period. The increase in our gross
margin was primarily attributable to the reduction of the PRC business tax in both our revenues and the cost
of revenues. As the VAT pilot program rolled out in more cities, most of our revenues in 2013 were subject to
VAT, rather than business tax. Please refer to ‘‘— Critical Accounting Policies — Revenue Recognition’’ for
more details. Our improved economies of scale as we continued to grow our businesses also contributed, to a
lesser extent, to the growing gross margin.

Operating Expenses

Our operating expenses consist of sales and marketing expenses, research and development expenses and

general and administrative expenses. The following table sets forth our operating expenses, both as absolute
amounts and as percentages of our revenues, for the periods indicated.

2012

For the Year Ended December 31,
2013

2014

US$

% of
revenues

US$

% of
revenues

US$

% of
revenues

(in thousands of US$, except for % data)

76,422
Sales and marketing expenses . . . . . . .
18,464
. .
Research and development expenses
General and administrative expenses
13,088
. .
. . . . . . . . . . 107,974
Total operating expenses

87.7
21.2
15.0
123.9

84,534
25,138
12,983
122,655

58.0
17.2
8.9
84.1

180,148
43,676
20,633
244,457

68.0
16.5
7.8
92.3

Our sales and marketing expenses, research and development expenses and general and administrative

expenses include share-based compensation charges. See ‘‘— Critical Accounting Policies — Share-Based
Compensation’’ for more information.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of brand advertising, PC and mobile traffic acquisition

expenses, salaries, beneﬁts, commissions and share-based compensation for our sales, customers services and
marketing personnel, promotion expenses and other operating expenses that are associated with sales and
marketing activities. Because the online marketing industry in which we operate was still at a nascent stage of
development, we invested aggressively in promoting public awareness of our online marketplace. We engaged
third parties to promote our brand image through various advertising channels, including advertising on
internet search engines, websites and other traditional off-line media. Since 2013, mobile internet users are
growing very rapidly in China when a lot of users are switching from features phones to smart phones with
much better mobile internet user experience. Therefore, we increased our advertising expenses in mobile
internet signiﬁcantly in 2014. For the personnel related expenses, we established the centralized customer
services centers in 2012. We kept the ﬁeld sales headcount relatively ﬂat in 2012 and 2013 where we focused
on strengthening the internal systems and management ability which boosted sales efficiency during
those years. In 2014, while we increased our PC and mobile traffic acquisition, we continued to increase the
size of our ﬁeld sales and customer services so we have more paying members to beneﬁt from the increasing
traffic. We expect our sales and marketing expenses will increase going forward as we continue to see

74

opportunity in attracting more users, particularly on mobile internet and merchants through our advertising
campaign and bigger and more efficient sales and customer services teams.

The following table sets forth our advertising expenses, sales and marketing expenses excluding

advertising expenses and total sales and marketing expenses, both as absolute amounts and as percentages of
our revenues, for the periods indicated.

Advertising expenses . . . . . . . . . . . . .
Sales and marketing expenses excluding
advertising expenses . . . . . . . . . . . .
Total sales and marketing expenses . . .

2012

For the Year Ended December 31,
2013

2014

US$

% of
revenues

US$

% of
revenues

US$

% of
revenues

(in thousands of US$, except for % data)

25,063

28.8

22,703

15.6

73,435

27.7

51,359
76,422

58.9
87.7

61,831
84,534

42.4
58.0

106,713
180,148

40.3
68.0

2014 compared to 2013. Our sales and marketing expenses increased from US$84.5 million in 2013 to

US$180.1 million in 2014, representing an increase of 113.1%, but our advertising expenses increased
signiﬁcantly from US$22.7 million in 2013 to US$73.4 million in 2014. The increase in advertising expenses
was primarily due to expenses associated with the marketing of our mobile platforms and the acquisition of
PC Traffic. Our monthly unique visitors approached 300 million for the ﬁrst time since our inception in
January 2015. The increase in other sales and marketing expenses excluding advertising expenses was
primarily driven by increased salaries, beneﬁts and commissions for our sales, customer service and marketing
teams as a result of higher compensation levels and an approximately 22.0% increase in monthly average
headcount of sales and marketing personnel. It was also driven by the increased marketing and promotional
activities.

2013 compared to 2012. Our sales and marketing expenses increased from US$76.4 million in 2012 to

US$84.5 million in 2013, representing an increase of 10.6%, but our advertising expenses decreased from
US$25.1 million in 2012 to US$22.7 million in 2013, representing a decrease of 9.4%. The decrease in
advertising expenses was primarily due to optimization of our advertising strategies. The increase in other
sales and marketing expenses excluding advertising expenses was primarily driven by increased salaries,
beneﬁts and commissions for our sales and customer services teams.

Research and Development Expenses

Research and development expenses mainly consist of salaries, beneﬁts and share-based compensation for

product development and engineering personnel and other operating expenses such as rental and depreciation
of equipment that are associated with product development and engineering activities. We expect our research
and development expenses to increase on an absolute basis as we intend to hire additional research and
development personnel to develop new features, applications and services for our online marketplace and
further improve our technologies and infrastructure.

2014 compared to 2013. Research and development expenses increased from US$25.1 million in 2013
to US$43.7 million in 2014, representing an increase of 73.7%. The increase was primarily due to increased
salaries, employee beneﬁts and rental expenses as a result of an approximately 50.1% increase in monthly
average headcount of research and development personnel for the development of new features and services.

2013 compared to 2012. Research and development expenses increased from US$18.5 million in 2012
to US$25.1 million in 2013, representing an increase of 36.1%. The increase was primarily due to increased
salaries and employee beneﬁts as a result of hiring additional research and development personnel for the
development of new features and services.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, beneﬁts and share-based compensation

for our general and administrative personnel, general office expenses and fees and expenses for third-party
professional services. We expect our general and administrative expenses to increase in the future on an

75

absolute basis as our business grows and we incur increased costs related to complying with our reporting
obligations after we become a public company under U.S. securities laws.

2014 compared to 2013. Our general and administrative expenses increased from US$13.0 million in

2013 to US$20.6 million in 2014, representing an increase of 58.9%. Such increase was primarily due to
increase in personnel related expenses, including share-based compensation expenses as a result of an
approximately 13.3% increase in monthly average headcount of administrative personnel and professional fees
associated with being a public company.

2013 compared to 2012. Our general and administrative expenses decreased from US$13.1 million in

2012 to US$13.0 million in 2013, representing a slight decrease of 0.8%. Such decrease was primarily due to
a decrease in bad debt provision related to group buying business, offset by an increase in personnel related
expenses, including share-based compensation expenses.

Seasonality

Our results of operations are subject to seasonal ﬂuctuations. For example, our revenues are typically
lower during the holidays in China, particularly during the Chinese New Year period, which occurs in the ﬁrst
quarter of the year, because many businesses are either closed or substantially reduce their activities during
the Chinese New Year holiday. Also, certain business activities, such as recruitment, tend to slow down
towards the year end, which might impact our revenues in the fourth quarter of the year. While this
seasonality of our business has not been apparent historically due to the rapid growth in revenues that we
experienced in recent years, we may experience reductions in growth on a successive quarter basis due to
these seasonal factors or due to other factors.

Our results of operations for the ﬁrst quarter of 2015 may be affected by similar trends and key factors
that affected our previous ﬁrst quarters in the past. For the ﬁrst quarter of 2015, we have experienced similar
seasonal impact on our estimated revenue for the quarter, and we have also incurred increased sales and
marketing expenses due to marketing campaigns conducted during this period.

Inﬂation

Since our inception, inﬂation in China has not materially impacted our results of operations.

According to the National Bureau of Statistics of China, the annual average percent changes in the consumer
price index in China for 2012, 2013 and 2014 were increases of 2.6%, 2.6% and 2.0%, respectively. The
year-over-year percent changes in the consumer price index for February 2013, 2014 and 2015 were increases
of 3.2%, 2.0% and 1.4%, respectively. Although we have not been materially affected by inﬂation in the past,
we can provide no assurance that we will not be affected in the future by higher rates of inﬂation in China.
For example, certain operating costs and expenses, such as employee compensation and office operating
expenses may increase as a result of higher inﬂation. Additionally, because a substantial portion of our assets
consists of cash and cash equivalents, term deposits and short-term investments, high inﬂation could
signiﬁcantly reduce the value and purchasing power of these assets. We are not able to hedge our exposure to
higher inﬂation in China.

Impact of Foreign Currency Fluctuation

See ‘‘Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China —
Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value
of your investment.’’ and ‘‘Item 11. Quantitative and Qualitative Disclosures About Market Risk — Foreign
Exchange Risk.’’

Impact of Governmental Policies

See ‘‘Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China’’ and

‘‘Item 4. Information on the Company — B. Business Overview — Regulation.’’

B. Liquidity and Capital Resources

Cash Flows and Working Capital

Prior to the completion of our initial public offering on November 5, 2013, our primary sources of

liquidity had been private sales of ordinary shares and preference shares. We incurred net losses of

76

approximately US$30.4 million in 2012, and had net cash used in operating activities of US$4.7 million in
2012. The net cash outﬂow from operating activities in 2012 was primarily due to our advertising campaigns
for business expansion in that year. We had a net income of approximately US$19.6 million and
US$22.6 million in 2013 and 2014, respectively, and net cash provided by operating activities of
US$66.3 million and US$98.6 million in 2013 and 2014, respectively.

On November 5, 2013, we completed our initial public offering in which we issued and sold 12,650,000

ADSs representing 25,300,000 Class A ordinary shares resulting in net proceeds to us of approximately
US$200.0 million after deducting underwriting commissions. Concurrently with our initial public offering, we
also raised US$15.0 million from DCM Hybrid RMB Fund, L.P., a fund affiliated with DCM V.L.P., our
existing shareholder, by private placement of 1,764,706 Class A ordinary shares at a price of US$8.50 per
share. As a result of our initial public offering and the concurrent private placement, we raised an aggregate of
approximately US$215.0 million in net proceeds.

On April 2, 2014, we completed a follow-on public offering of ADSs by us and certain selling

shareholders. Through the follow-on offering we issued and sold 2,000,000 ADSs and the selling shareholders
sold an aggregate of 4,900,000 ADSs at the price of US$38.00 per ADS. The net proceeds received by us,
after deducting underwriting commissions, amounted to approximately US$73.0 million. We did not receive
any proceeds from the sale of the ADSs by the selling shareholders.

In June 2014, Tencent invested US$736.1 million in our company. We applied US$552.1 million of such

proceeds to repurchase our ordinary shares from certain pre-IPO shareholders. See ‘‘Item 4. Information on
the Company.’’

As of December 31, 2014, we had cash and cash equivalents, term deposits and short-term investments

totaling US$609.0 million, including US$111.4 million in cash and cash equivalents, which primarily
consisted of cash, demand deposits and highly liquid investments placed with banks or other ﬁnancial
institutions that have original maturities of three months or less, US$216.1 million in short-term investments,
representing US$207.2 million investment funds placed with banks with terms shorter than three months and
US$8.9 million in available-for-sale securities in a public company, and US$281.5 million in term deposits,
placed with banks with terms longer than three months but shorter than or equal to one year. Our total current
assets were adequate to cover the remaining current liabilities as of December 31, 2014. We believe that our
available cash and cash equivalents, term deposits, short-term investments and cash generated from operations
will be sufficient to meet our working capital requirements and capital expenditures in the ordinary course of
business for the next twelve months. We also believe that if necessary, we can obtain sufficient funding
through external borrowing to ﬁnance future capital commitments or operating expenses in the foreseeable
future.

Although we consolidate the results of Beijing 58, our consolidated affiliated entity, and its subsidiaries,
our access to cash balances or future earnings of these entities is only through our contractual arrangements
with Beijing 58 and its shareholders. See ‘‘Item 4. Information on the Company — C. Organizational
Structure — Contractual Arrangements with Beijing 58.’’

Cash Flow

The following table sets forth a summary of our cash ﬂows for the periods indicated.

2012

For the Year Ended December 31,
2013
2014
(in thousands of US$)

Net cash provided by/(used in):

Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . .
. . . . . . . . . . .
Net increase/(decrease) in cash and cash equivalents

(4,728)
(27,153)
253
(14)
(31,642)

66,304
(230,046)
213,343
224
49,825

98,585
(305,272)
257,430
139
50,882

77

Operating Activities

Net cash provided by or used in operating activities primarily consisted of our net income or loss
adjusted for certain non-cash items, including depreciation and amortization, share-based compensation,
impairment and disposal of property and equipment and foreign exchange income/(loss) and further adjusted
by changes in operating assets and liabilities, such as accounts receivable, accounts payable, deferred
revenues, customer advances and deposits and accrued expenses and other liabilities.

Net cash provided by operating activities was US$98.6 million in 2014. Our net cash provided by
operating activities in 2014 reﬂected a net income of US$22.6 million, adjusted for non-cash items of
US$12.2 million and changes in operating assets and liabilities of US$63.8 million. Non-cash reconciling
items mainly included depreciation and amortization expenses of US$5.6 million and share-based
compensation expenses of US$6.2 million. Changes in operating assets and liabilities mainly represented
an increase in deferred revenues of US$40.2 million, increase in customer advances and deposits of
US$14.6 million, increase in salary and welfare payable of US$10.8 million, an increase in accounts payable
of US$6.0 million and an increase in accrued expenses and other current liabilities of US$5.0 million,
partially offset by a decrease in prepayments and other current assets of US$16.0 million. Deferred revenues
and customer advances and deposits increased as the collection of our membership services and online
marketing services grew rapidly.

Net cash provided by operating activities was US$66.3 million in 2013. Our net cash provided by
operating activities in 2013 reﬂected a net income of US$19.6 million, adjusted for non-cash items of
US$7.0 million and changes in operating assets and liabilities of US$39.7 million. Non-cash reconciling items
mainly included depreciation and amortization expenses of US$4.7 million and share-based compensation
expenses of US$2.9 million. Changes in operating assets and liabilities mainly represented an increase in
deferred revenues of US$26.1 million, increase in customer advances and deposits of US$10.3 million,
decrease in amounts due from related parties of US$2.0 million, an increase in accrued expenses and other
current liabilities of US$3.4 million, partially offset by a decrease in accounts payable of US$2.6 million and
increase in accounts receivable of US$1.1 million. Deferred revenues and customer advances and deposits
increased as the collection of our membership services and online marketing services grew rapidly.

Net cash used in operating activities was US$4.7 million in 2012. Our net cash used in operating
activities in 2012 reﬂected a net loss of US$30.4 million, adjusted for non-cash items of US$6.7 million and
changes in operating assets and liabilities of US$19.0 million. Non-cash reconciling items mainly included
depreciation and amortization of US$3.9 million and share-based compensation expenses of US$1.7 million.
Changes in operating assets and liabilities mainly represent an increase in customer advances and deposits of
US$7.2 million and an increase in deferred revenues of US$13.6 million, offset by a decrease in account
payable of US$9.1 million. Customer advances and deposits and deferred revenues increased as the collection
of our membership services and online marketing services grew rapidly. The decrease in accounts payable was
primarily attributable to the scaling-back of group buying services in 2012. Other factors impacting operating
cash ﬂow included an increase in salary and welfare payable due to increased headcount.

Investing Activities

Net cash used in investing activities primarily consists of capital expenditures, mainly for purchases of

servers and other equipment and investment in short-term ﬁnancial instruments and term deposits to optimize
the interest income for our excess cash from operating activities. We expect that our capital expenditures will
increase as we purchase additional equipment and servers and expand our technology infrastructure to support
the growth of our business.

Our net cash used in investing activities were US$27.2 million, US$230.0 million and US$305.3 million
in 2012, 2013 and 2014, respectively. Our cash used in investing activities in 2012, 2013 and 2014 included
US$212.8 million, US$397.3 million and US$652.9 million that we used to purchase short-term ﬁnancial
instruments, which was partially offset by US$190.9 million, US$323.6 million and US$535.3 million of
proceeds from maturity of short-term investments, respectively. We purchased term deposits of
US$382.6 million, offset by US$250.9 million of proceeds from maturity of term deposits in 2014 with
maturity between three months and one year. We used US$5.2 million, US$4.2 million and US$15.7 million

78

to purchase property and equipment in 2012, 2013 and 2014, respectively. In addition, in 2014 we prepaid
US$16.8 million to BEZ for the purchase of new office spaces, which are expected to be ready for use in late
2015 and mid-2016.

Financing Activities

Net cash provided by ﬁnancing activities primarily consists of net proceeds from the issuance of ordinary

and preference shares, net of the repurchase of ordinary shares from certain shareholders.

Our net cash provided by ﬁnancing activities in 2014 was US$257.4 million, primarily attributable to the

net proceeds from our follow-on public offering and the investment by Tencent. Our net cash provided by
ﬁnancing activities in 2013 was US$213.3 million, primarily attributable to the net proceeds from our initial
public offering. In 2012, our net cash provided by ﬁnancing activities was US$0.3 million, primarily
attributable to the proceeds from exercises of stock option.

Holding Company Structure

We are a holding company with no material operations of our own. We conduct our operations primarily
through our wholly owned subsidiaries and consolidated affiliated entities in China. As a result, our ability to
pay dividends to our shareholders depends upon dividends paid by our PRC subsidiaries. If our PRC
subsidiaries or any newly formed PRC subsidiaries incur debt on their own behalf in the future, the
instruments governing their debt may restrict their ability to pay dividends to us. In addition, our PRC
subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in
accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and our
consolidated variable interest entities in China is required to set aside at least 10% of its after-tax proﬁts each
year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital.
In addition, each of our subsidiaries and consolidated affiliated entities in China may allocate a portion of its
after-tax proﬁts based on PRC accounting standards to staff welfare and bonus funds at its discretion. These
reserve funds and staff welfare and bonus funds are not distributable as cash dividends. As our PRC
subsidiaries and consolidated affiliated entities have incurred accumulated losses, they have not started to
contribute to the staff welfare and bonus funds. Our PRC subsidiaries have never paid dividends and will not
be able to pay dividends until they generate accumulated proﬁts and meet the requirements for statutory
reserve funds.

Capital Expenditures

We had capital expenditures of US$5.2 million, US$4.2 million and US$32.5 million in 2012, 2013 and
2014, respectively, representing 6.0%, 2.9% and 12.3% of our total revenues for such years, respectively. Our
capital expenditures were primarily for the purchase of servers, other equipment and office buildings. In 2014,
we prepaid US$16.8 million to BEZ for the purchase of new office spaces. Our capital expenditures have been
primarily funded by net cash provided by ﬁnancing activities and net cash provided by operating activities.

C. Research and Development

As of December 31, 2014, we had 1,354 product development and engineering professionals who focus

on developing products to deliver and enhance user experience. We have developed a robust technology
platform capable of efficiently processing large amounts of data, screening the relevance and credibility of
information, and delivering a superior search indexing function. Our system is built on a distributed, load
balanced computing infrastructure, which is highly scalable and reliable. This allows us to expand processing
capacity and add new features and functionalities efficiently without incurring signiﬁcant additional costs.

Our success and ability to compete depend, in part, upon our ability to establish and adequately protect

our intellectual property rights. In this regard, we rely primarily on a combination of patent, copyright,
software registration, trademark, trade secret and unfair competition laws and contractual rights, such as
conﬁdentiality and license agreements with our employees, partners and others. As of March 31, 2015, we
hold ﬁve patents and have applied for the registration of 78 other patents, which cover a variety of
technologies, including those relating to data processing, search, distribution and publishing. As of March 31,
2015, we have registered 102 computer software copyrights and 29 artwork copyrights in China. In addition,

79

we have registered 31 domain names that are material to our business, including www.58.com,
www.58.com.cn, www.anjuke.com and www.anjuke.cn and 65 trademarks, including

,

and

, in China.

D. Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties,

demands, commitments or events for the period from January 1, 2014 to December 31, 2014 that are
reasonably likely to have a material adverse effect on our net revenues, income, proﬁtability, liquidity or
capital resources, or that would cause the disclosed ﬁnancial information to be not necessarily indicative of
future operating results or ﬁnancial conditions.

E. Off-Balance Sheet Arrangements

We have not entered into any ﬁnancial guarantees or other commitments to guarantee the payment

obligations of any third parties. We have not entered into any derivative contracts that are indexed to our
shares and classiﬁed as shareholder’s equity or that are not reﬂected in our consolidated ﬁnancial statements.
Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated
entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest
in any unconsolidated entity that provides ﬁnancing, liquidity, market risk or credit support to us or engages in
leasing, hedging or product development services with us.

F. Tabular Disclosure of Contractual Obligations

We lease our facilities and offices under non-cancelable operating lease agreements. Certain of these

arrangements have renewal or expansion options and adjustments-for-market provisions, such as free or
escalating base monthly rental payments.

We use third-party services for server custody and bandwidth. The contracts are typically 12 months in
duration. We typically contract these services according to the traffic level of our online marketplace and the
respective server storage and bandwidth required to support the traffic.

The following table sets forth our contractual obligations and commercial commitments as of

December 31, 2014:

Payment Due by Period

Operating lease commitment . . . . . . . . . . .
Server custody fee commitment . . . . . . . . .
Advertising commitment . . . . . . . . . . . . . .
Purchase of new office building . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

G. Safe Harbor

Total

22,939
1,360
45,697
151,943
221,939

Less than
1 year

10,982
1,360
45,659
151,943
209,944

3 − 5 years

1 − 3 years
(in thousands of US$)
11,584
—
38
—
11,622

373
—
—
—
373

More than
5 years

—
—
—
—
—

This annual report on Form 20-F contains forward-looking statements. These statements are made under

the ‘‘safe harbor’’ provisions of Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements can be identiﬁed by terminology such as ‘‘will,’’ ‘‘expects,’’ ‘‘anticipates,’’
‘‘future,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘conﬁdent’’ and similar statements. Among other
things, the sections titled ‘‘Item 3. Key Information — D. Risk Factors,’’ ‘‘Item 4. Information on the
Company,’’ and ‘‘Item 5. Operating and Financial Review and Prospects’’ in this annual report on Form 20-F,
as well as our strategic and operational plans, contain forward-looking statements. We may also make written
or oral forward-looking statements in our ﬁlings with the SEC, in our annual report to shareholders, in press
releases and other written materials and in oral statements made by our officers, directors or employees to
third parties. Statements that are not historical facts, including statements about our beliefs and expectations,
are forward-looking statements and are subject to change, and such change may be material and may have a
material and adverse effect on our ﬁnancial condition and results of operations for one or more prior periods.

80

Forward-looking statements involve inherent risks and uncertainties. A number of important factors could
cause actual results to differ materially from those contained, either expressly or impliedly, in any of the
forward-looking statements in this annual report on Form 20-F. Potential risks and uncertainties include, but
are not limited to, our goals and strategies, our future business development, ﬁnancial condition and results of
operations, ability to retain and grow our user base and network of local merchants for our online
marketplace, the growth of, and trends in, the markets for our services in China, the demand for and market
acceptance of our brand and services, competition in our industry in China, our ability to maintain the
network infrastructure necessary to operate our website and mobile applications, relevant government policies
and regulations relating to the corporate structure, business and industry, and our ability to protect its users’
information and adequately address privacy concerns. All information provided in this annual report on
Form 20-F and in the exhibits is as of the date of this annual report on Form 20-F, and we do not undertake
any obligation to update any such information, except as required under applicable law.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The following table sets forth information regarding our executive officers and directors as of the date of

this annual report.

Directors and Executive Officers

Age

Position/Title

Jinbo Yao
Xiaoguang Wu
Wensheng Cai
Dong Yang
Frank Lin
Julian Cheng
Herman Yu
Richard Weidong Ji
Hao Zhou
Xiaohua Chen

Jiandong Zhuang
Chuan Zhang
Dong Duan

38
39
45
43
50
41
44
47
38
33

46
39
49

Chairman and Chief Executive Officer
Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Chief Financial Officer
Chief Strategic Officer; Chief Executive Officer of
58 Home Business Units
Executive Vice President of Housing Business Group (HBG)
Executive Vice President of Listing Business Group (LBG)
Senior Vice President of Human Resources and Administration

Mr. Jinbo Yao is our founder and has served as chairman of our board of directors and chief executive
officer of our company since our inception. Mr. Yao is a pioneer in the PRC internet industry. Before founding
our company, in 2000, Mr. Yao founded domain.cn, a domain name transaction and value-added service
website in China. After domain.cn was acquired by net.cn in September 2000, Mr. Yao served various
managerial roles at net.cn including vice president of sales until 2005. Mr. Yao currently serves on the board
of directors of Xueda Education Group, a company he co-founded and listed on the NYSE and Noah
Holdings Limited, a company listed on the NYSE. Mr. Yao received bachelor’s degrees in computer science
and chemistry from Ocean University of China (formerly known as Ocean University of Qingdao) in 1999.

Mr. Xiaoguang Wu has served as our director since August 2014. Mr. Wu also serves on the board

of directors of Okay Buy (China) Holding Inc., Nanjing Wangdian Technology Co., Ltd. and Yixun.com.
Mr. Wu has served as a senior executive vice president at Tencent. Mr. Wu joined Tencent in 1999 to lead
development and product planning for Tencent’s core product QQ instant messaging. He served successively
as project manager for QQ’s research and development team, general manager for IM Products, and general
manager for internet business division. Mr. Wu was promoted to senior vice president of Internet Services
Division and chief executive officer of Tencent E-Commerce Holdings Limited. Mr. Wu received his
bachelor’s degree in weather dynamics from Nanjing University in 1996 and an EMBA degree from China
Europe International Business School (CEIBS) in 2008.

Mr. Wensheng Cai has served as our director since March 2010. Mr. Cai has been chief executive officer
of 4399 Network Inc., an online game publisher, since 2008. He has served as a director and the chairman of

81

4399 Network Inc. since 2002. Mr. Cai is also chairman of the board of directors of Xiamen Meitu Mobile
Technology Co., Ltd., a mobile application company in China.

Mr. Dong Yang has served as our director since August 2006. Mr. Yang is a general partner of SAIF
Partners, a private equity ﬁrm. Prior to becoming a general partner in 2004, he served as a director at SAIF
Partners from 2001 to 2004. From 2000 to 2001, he was an investment officer and director at Softbank China
Venture Capital. Mr. Yang currently serves on the board of directors of several companies, including Perfect
World Co., Ltd., a NASDAQ-listed company. Mr. Yang received his bachelor’s degree in computer science
from Tsinghua University in 1995, and his master’s degree in accounting from University of Southern
California in 1997. Mr. Yang is a Chartered Financial Analyst.

Mr. Frank Lin has served as our director since March 2010. Mr. Lin is a general partner of DCM, a
technology venture capital ﬁrm. Prior to joining DCM in 2006, Mr. Lin was chief operating officer of SINA
Corporation, a NASDAQ-listed company. He co-founded sina.com’s precursor company, SinaNet, in 1995 and
later guided the company through its listing on NASDAQ. Prior to founding SinaNet, Mr. Lin was a
consultant at Ernst & Young Management Consulting Group. He had also held various marketing, engineering
and managerial positions at Octel Communication Inc. and NYNEX. Mr. Lin currently serves on the board of
directors of numerous companies invested by DCM, including Vipshop Holdings Limited, a NYSE-listed
company. Mr. Lin received his bachelor’s degree in engineering from Dartmouth College and a master’s
degree in business administration from Stanford University.

Mr. Julian Cheng has served as our director since December 2010. Mr. Cheng is a managing director in
the China group at Warburg Pincus Asia LLC, which he joined in 2000. Prior to joining Warburg Pincus Asia
LLC, Mr. Cheng worked for the capital markets and investment banking divisions of Salomon Smith Barney
and Bankers Trust in Hong Kong. Mr. Cheng is a director of Koudai, Liepin and Uxin. He is a former invetor
and director of RDA Microelectronics. He also serves on the Asia Council of St. Pau’s School. Mr. Cheng
holds a bachelor’s degree from Harvard University.

Mr. Herman Yu has served as our independent director and chair of the audit committee of our board of

directors since October 2013. Mr. Yu joined Weibo as its chief ﬁnancial officer in March 2015. Prior to joining
Weibo, Mr. Yu served as chief ﬁnancial officer of SINA Corporation (SINA), which is listed on NASDAQ,
since August 2007. Prior to that, Mr. Yu served as SINA’s acting chief ﬁnancial officer from May 2006 to
August 2007 and vice president and corporate controller from September 2004 to May 2006. Prior to joining
SINA, Mr. Yu worked at Adobe Systems from January 1999 to September 2004, initially as chief auditor and
then as corporate marketing controller. Mr. Yu also held various ﬁnance and accounting management positions
at Cadence Design Systems, Inc. and VeriFone, Inc. Mr. Yu began his career with Arthur Andersen and is a
California Certiﬁed Public Accountant. Mr. Yu holds a Masters of Accountancy from the University of
Southern California and a bachelor’s degree in economics from the University of California, Santa Cruz.

Dr. Richard Weidong Ji has served as our independent director since October 2013. Dr. Ji is the
co-founder and managing partner of All-Stars Investment Limited, which focuses on investing in the
‘‘all-star’’ companies in China’s internet and consumer markets, such as Xiaomi, Didi Dache (or Didi Taxi),
Meilishuo, and Alibaba, as a value-added strategic investor. He was the managing director and head of
Asia-Paciﬁc internet/media investment research at Morgan Stanley. He is highly ranked on the Institutional
Investor and Greenwich Associates polls and was awarded ‘‘The Best Investment Bank Analyst for New
Economy’’ by iResearch. He was rated as ‘‘the No. 1 stock picker in software and services’’ in pan-Asia by
Financial Times and was also voted as the First Team (Asia) by Asiamoney. He has participated in the IPOs
of over a dozen companies, including Tencent, Alibaba.com (B2B), Dangdang, Perfect World, Shanda,
RenRen, Xueersi (TAL Group), YY.com, MakeMyTrip (India) and Phoenix New Media (ifeng.com).
Dr. Ji received his ddoctorate degree in ssciences from Harvard University and his MBA degree from Wharton
Business School, University of Pennsylvania, where he was on the Director’s List for academic excellence.
Dr. Ji received his bachelor’s degree from Fudan University.

Mr. Hao Zhou has served as our chief ﬁnancial officer since May 2011. Prior to joining our company,

Mr. Zhou was chief ﬁnancial officer in CITIC Pharmaceutical Co., Ltd. since September 2010. From
May 2009 to September 2010, Mr. Zhou held two senior management positions at Wuxi PharmaTech
(Cayman) Inc., a NYSE-listed company, with the latest position as the chief ﬁnancial officer. From 1998 to

82

2009, Mr. Zhou held various senior ﬁnance managerial positions at General Electric Company and served as
the senior ﬁnance manager of Greater China from 2007 to 2009. Mr. Zhou received his bachelor’s degree
from Shanghai International Studies University in 1998.

Mr. Xiaohua Chen has served as the chief executive officer of 58 Home business unit and chief strategic

officer of 58.com since August 2014. Mr. Chen served as our senior vice president of product management
and website operation from December 2007 to August 2014. From June to December 2007, Mr. Chen served
as head of product department at ganji.com responsible for product management and customer experience.
Prior to joining ganji.com, he was the senior project manager and chief editor at Xiamen Haowei Network
Technology Co., Ltd. Mr. Chen is a co-founder of dunsh.org, a nonproﬁt search engine optimization website
in China. While in college, Mr. Chen co-founded 0755.org.cn, one of the earliest online classiﬁeds providers
in China. Mr. Chen received a bachelor’s degree in material formation from Xiangtan University in 2004.

Mr. Jiandong Zhuang has served as the Executive Vice President of Housing Business Group (HBG)
since March 2015. He served as our senior vice president of sales since September 2007. From January 2005
to January 2007, Mr. Zhuang founded and managed Beijing Yingpu Bailian Technology Trading Co., Ltd., a
SMS website and wireless service operator. Prior to founding his own company, Mr. Zhuang managed the
China Unicom CDM operation and sales at Beijing Lianyin Investment Co., Ltd from May 2003 to
December 2004. Mr. Zhuang received a bachelor’s degree in chemistry from Capital Normal University
in 1991.

Mr. Chuan Zhang has served as executive vice president of Listing Business Group (LBG) since

March 2015. He served as senior vice president of product management since August 2014. Mr. Zhang served
as our vice president of product management from September 2011 to August 2014. From July 2006 to
September 2011 Mr. Zhang served as head of Baidu Union product department at Baidu Inc. responsible for
Baidu Union product development and operation. Mr. Zhang served as the senior product manager at the
mobile department of UFIDA Software Co. Ltd. from May 2005 to July 2006. Prior to joining UFIDA,
Mr. Zhang was a product development manager at the Planning Board for the Center of Information at the
Ministry of Education. Mr. Zhang received a bachelor’s degree in mathematics from Beijing Normal
University in 1997 and an MBA degree from Tsinghua University In 2003.

Mr. Dong Duan has served as our senior vice president of human resource and administration since
April 2011. Prior to joining us, Mr. Duan served as the senior vice president of e-commerce, advertising,
human resource and administration at Beijing RedBaby Information Technology Co., Ltd. from June 2009 to
March 2011. From November 2002 to May 2009, Mr. Duan was the senior human resource director at SINA
Corporation, a NASDAQ-listed company, and was a human resource consultant at Shimao Group and
SeaRainbow Holding Corp. From November 1994 to March 2000, Mr. Duan served as the human resource
director at Carrefour China. Mr. Duan received a bachelor’s degree in economics from Shaanxi Institute of
Finance and Economics in 1983 and an MBA degree from Renmin University of China in 2003.

B. Compensation

We paid an aggregate of approximately RMB9.0 million (US$1.5 million) in cash to our executive

officers in 2014, and we paid US$82,500 cash compensation to our independent directors.

Employment Agreements and Indemniﬁcation Agreements

We have entered into employment agreements with each of our executive officers. We may terminate an
executive officer’s employment for cause at any time without advance notice or remuneration for certain acts
of the officer, such as conviction or guilty plea to a felony or any crime involving moral turpitude, negligent
or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. We may also terminate
an executive officer’s employment without cause by giving one-month advance written notice. In such case of
termination by us, we will provide severance payments to the executive officer as expressly required by
applicable law of the jurisdiction where the executive officer is based. An executive officer may resign at any
time by giving one-month advance written notice.

Each executive officer has agreed to hold, both during and after the termination or expiry of his or her
employment agreement, in strict conﬁdence and not to use, except as required in the performance of his or her
duties in connection with the employment or pursuant to applicable law, any of our conﬁdential information or

83

trade secrets, any conﬁdential information or trade secrets of our clients or prospective clients, or the
conﬁdential or proprietary information of any third party received by us and for which we have conﬁdential
obligations. The executive officers have also agreed to disclose in conﬁdence to us all inventions, designs and
trade secrets which they conceive, develop or reduce to practice during the executive officer’s employment
with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents,
copyrights and other legal rights for these inventions, designs and trade secrets.

In addition, each executive officer has agreed to be bound by non-competition and non-solicitation
restrictions during the term of his or her employment and typically for one year following the last date of
employment. Speciﬁcally, each executive officer has agreed not to (i) approach our suppliers, clients,
customers or contacts or other persons or entities introduced to the executive officer in his or her capacity as a
representative of us for the purpose of doing business with such persons or entities that will harm our business
relationships with these persons or entities; (ii) assume employment with or provide services to any of our
competitors, or engage, whether as principal, partner, licensor or otherwise, any of our competitors, without
our express consent; or (iii) seek directly or indirectly, to solicit the services of any of our employees who is
employed by us on or after the date of the executive officer’s termination, or in the year preceding such
termination, without our express consent.

We have also entered into indemniﬁcation agreements with each of our directors and executive officers.
Under these agreements, we agree to indemnify our directors and executive officers against certain liabilities
and expenses incurred by such persons in connection with claims made by reason of their being a director or
officer of our company.

Share Incentive Plans

We have adopted two share incentive plans, namely, the 2010 Employee Stock Option Plan and the 2013
Share Incentive Plan. The purpose of these two share incentive plans is to attract, motivate and retain the best
available personnel by linking their personal interests to the success of our business. As of March 31, 2015,
options and restricted share units to purchase 2,328,823 ordinary shares were issued and outstanding under the
2013 Plan, and 5,668,318 ordinary shares were issued and outstanding under the 2010 Plan.

The 2010 Employee Stock Option Plan

The maximum number of shares in respect of which share awards may be granted under the 2010
Employee Stock Option Plan, or the 2010 Plan, is 20,173,225. The following paragraphs summarize the terms
of the 2010 Plan.

Plan Administration. The plan administrator is our board of directors, or one or more committees
designated by our board of directors. The plan administrator will determine the provisions and terms and
conditions of each grant.

Award Agreement. Options granted under the plan are evidenced by an award agreement that sets forth

the terms, conditions and limitations for each grant.

Option Exercise Price. The exercise price subject to an option shall be determined by the plan
administrator and set forth in the award agreement. The exercise price may be amended or adjusted by the
administrator for the beneﬁt of any eligible person.

Eligibility. We may grant awards to our directors, officers, employees and consultants of our company

or any of our subsidiaries.

Term of the Awards. The term of each option grant shall not exceed 10 years from the date of the

grant.

Vesting Schedule.

In general, the plan administrator determines the vesting schedule or conditions,

which is set forth in the award agreement.

Transfer Restrictions. Awards for options may not be transferred in any manner by the award holders

and may be exercised only by such holders, subject to limited exceptions. However, the award holder shall be
permitted to transfer options to a trust controlled by such award holder during his or her lifetime for estate
planning purposes.

84

Termination of Employment or Service.

In the event that an award recipient ceases employment with

us or ceases to provide services to us, any vested options will generally terminate after a period of time
following the termination of employment if the award recipient does not exercise the options during this
period.

Termination and Amendment of the Plan. Unless terminated earlier, the 2010 Plan will terminate
automatically in 2020. Our board of directors has the authority to amend or terminate the plan subject to
shareholder approval with respect to certain amendments. However, no such action may adversely affect in
any material way any awards previously granted unless agreed by the recipient.

The 2013 Share Incentive Plan

We adopted the 2013 Share Incentive Plan, or the 2013 Plan, in September 2013. The maximum
aggregate number of shares which may be issued pursuant to all awards under the 2013 Plan is 2,800,000
Class A ordinary shares as of the date of its adoption. The number of shares reserved for future issuances
under the 2013 Plan will be increased by a number equal to 1.5% of the total number of outstanding shares
on the last day of the immediately preceding calendar year, on the ﬁrst day of each calendar year during the
term of the 2013 Plan beginning in 2015, or such lesser number of Class A ordinary shares as determined by
our board of directors. As a result, at the beginning of 2015, the maximum aggregate number of shares which
may be issued pursuant to all awards under the 2013 Plan increased by 2,645,628 Class A ordinary shares to
5,445,628 Class A ordinary shares. In addition, in connection with our acquisition of a strategic stake in Ganji,
our board of directors further increased the maximum aggregate number of shares which may be issued
pursuant to all awards under the 2013 Plan by an additional 7,000,000 ordinary shares, reserved for future
grants.

The following paragraphs describe the principal terms of the 2013 Plan.

Types of Awards. The 2013 Plan permits the awards of options, restricted shares, restricted share units

or any other type of awards that the committee or the board decides.

Plan Administration. Our board of directors, our compensation committee or a committee designated
by our board will administer the 2013 Plan. The committee or the full board of directors, as applicable, will
determine the participants to receive awards, the type and number of awards to be granted to each participant,
and the terms and conditions of each award grant.

Award Agreement. Awards granted under the 2013 Plan are evidenced by an award agreement that sets

forth terms, conditions and limitations for each award, which may include the term of the award, the
provisions applicable in the event of the grantee’s employment or service terminates, and our authority to
unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.

Eligibility. We may grant awards to our employees, directors and consultants of our company. However,

we may grant options that are intended to qualify as incentive share options only to our employees and
employees of our parent companies and subsidiaries.

Acceleration of Awards upon Change in Control.

If a change in control of our company occurs, the
plan administrator may, in its sole discretion, provide for (i) all awards outstanding to terminate at a speciﬁc
time in the future and give each participant the right to exercise the vested portion of such awards during a
speciﬁc period of time, or (ii) the purchase of any award for an amount of cash equal to the amount that
could have been attained upon the exercise of such award, or (iii) the replacement of such award with other
rights or property selected by the plan administrator in its sole discretion, or (iv) payment of award in cash
based on the value of ordinary shares on the date of the change-in-control transaction plus reasonable interest.

Vesting Schedule.

In general, the plan administrator determines the vesting schedule, which is speciﬁed

in the relevant award agreement.

Exercise of Options. The plan administrator determines the exercise price for each award, which is

stated in the award agreement. The vested portion of option will expire if not exercised prior to the time as
the plan administrator determines at the time of its grant. However, the maximum exercisable term is the tenth
anniversary after the date of a grant.

85

Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than by will

or the laws of descent and distribution, except as otherwise provided by the plan administrator.

Termination of the 2013 Plan. Unless terminated earlier, the 2013 Plan will terminate automatically in
2023. Our board of directors has the authority to amend or terminate the plan subject to shareholder approval
or home country practice.

The Daojia 2015 Share Incentive Plan

58 Daojia adopted its 2015 Share Incentive Plan, or the Daojia 2015 Plan, in February 2015. The

maximum aggregate number of shares which may be issued pursuant to all awards under the Daojia 2015 Plan
is 20,000,000 ordinary shares of 58 Daojia. The Daojia 2015 Plan permits the awards of options, restricted
shares and restricted share units. Unless terminated earlier, the Daojia 2015 Plan will terminate automatically
in 2025.

The following table summarizes, as of April 20, 2015, outstanding options and restricted share units held

by our executive officers and directors under our 2010 Plan and 2013 Plan.

Name
Hao Zhou . . . . . . . . . . . . .

Xiaohua Chen . . . . . . . . . .

Dong Duan . . . . . . . . . . . .

Chuan Zhang . . . . . . . . . . .

Herman Yu . . . . . . . . . . . .
. . . . . .
Richard Weidong Ji

Ordinary shares
Underlying
Options Awarded
and Restricted
Share Units
*
*
*
*
*
*
*
*
*
*
*
*
*

Date of Grant
May 31, 2011
July 31, 2013
October 14, 2013
July 31, 2013
October 14, 2013
April 1, 2011
July 31, 2013

Exercise
Price
(US$/Share)
2.220
2.500
5.600
2.500
5.600
2.064
2.500
2.300 November 30, 2011
2.300
2.500
5.600
8.500
8.500

May 31, 2012
July 31, 2013
October 14, 2013
October 30, 2013
October 30, 2013

Date of Expiration
May 30, 2021
July 30, 2023
October 13, 2023
July 30, 2023
October 13, 2023
March 31, 2021
July 30, 2023
November 29, 2021
May 30, 2022
July 30, 2023
October 13, 2023
October 29, 2023
October 29, 2023

*

Less than one percent of our total outstanding share capital.

As of March 31, 2015, other employees as a group held options and restricted share units to purchase
5,538,803 ordinary shares of our company, with exercise prices ranging from nil to US$20.00 per ordinary
share.

In February and April 2015, 58 Daojia granted options to purchase an aggregate of 10,651,000 ordinary

shares of 58 Daojia and 9,100,000 restricted shares of 58 Daojia to its employees and the employees of
certain other subsidiaries and affiliated companies of our company, including 6,000,000 restricted shares of 58
Daojia granted to an executive officer of our company.

C. Board Practices

Our board of directors currently consists of eight directors. A director is not required to hold any shares
in our company to qualify to serve as a director. A director may vote with respect to any contract, proposed
contract, or arrangement in which he or she is materially interested. A director may exercise all the powers of
the company to borrow money, mortgage its business, property and uncalled capital and issue debentures or
other securities whenever money is borrowed or as security for any obligation of the company or of any third
party.

86

Committees of the Board of Directors

We have three committees of the board of directors: the audit committee, the compensation committee

and the nominating and corporate governance committee. We have adopted a charter for each of the three
committees. Each committee’s members and functions are described below.

Audit Committee. Our audit committee consists of Herman Yu, Dr. Richard Weidong Ji and Dong

Yang, and is chaired by Herman Yu. Herman Yu, Dr. Richard Weidong Ji and Dong Yang satisfy the
‘‘independence’’ requirements of Section 303A of the Corporate Governance Rules of the New York Stock
Exchange and meet the independence standards under Rule 10A-3 under the Exchange Act. We have
determined that Herman Yu qualiﬁes as an ‘‘audit committee ﬁnancial expert.’’ The audit committee oversees
our accounting and ﬁnancial reporting processes and the audits of the ﬁnancial statements of our company.
The audit committee is responsible for, among other things:

•

•

•

•

•

•

•

selecting the independent registered public accounting ﬁrm and pre-approving all auditing and
non-auditing services permitted to be performed by the independent registered public accounting
ﬁrm;

reviewing with the independent registered public accounting ﬁrm any audit problems or difficulties
and management’s response;

reviewing and approving all proposed related party transactions;

discussing the annual audited ﬁnancial statements with management and the independent registered
public accounting ﬁrm;

reviewing major issues as to the adequacy of our internal controls and any special audit steps
adopted in light of material control deﬁciencies;

meeting separately and periodically with management and the independent registered public
accounting ﬁrm; and

monitoring compliance with our code of business conduct and ethics, including reviewing the
adequacy and effectiveness of our procedures to ensure proper compliance.

Compensation Committee. Our compensation committee consists of Julian Cheng, Herman Yu and
Dr. Richard Weidong Ji, and is chaired by Julian Cheng. Julian Cheng, Herman Yu and Dr. Richard Weidong
Ji satisfy the ‘‘independence’’ requirements of Section 303A of the Corporate Governance Rules of the
New York Stock Exchange. The compensation committee assists the board in reviewing and approving the
compensation structure, including all forms of compensation, relating to our directors and executive officers.
Our chief executive officer may not be present at any committee meeting during which his compensation is
deliberated upon. The compensation committee is responsible for, among other things:

•

•

•

•

reviewing and approving, or recommending to the board for its approval, the compensation for our
chief executive officer and other executive officers;

reviewing and recommending to the board for determination with respect to the compensation of our
non-employee directors;

reviewing periodically and approving any incentive compensation or equity plans, programs or
similar arrangements; and

selecting compensation consultant, legal counsel or other adviser only after taking into consideration
all factors relevant to that person’s independence from management.

Nominating and Corporate Governance Committee. Our nominating and corporate governance

committee consists of Frank Lin, Herman Yu and Dr. Richard Weidong Ji, and is chaired by Frank Lin.
Herman Yu, Dr. Richard Weidong Ji and Frank Lin satisfy the ‘‘independence’’ requirements of Section 303A
of the Corporate Governance Rules of the New York Stock Exchange. The nominating and corporate
governance committee assists the board in selecting individuals qualiﬁed to become our directors and in
determining the composition of the board and its committees. The nominating and corporate governance
committee is responsible for, among other things:

87

•

•

•

•

•

recommending nominees to the board for election or re-election to the board, or for appointment to
ﬁll any vacancy on the board;

reviewing annually with the board the current composition of the board with regards to
characteristics such as independence, skills, experience, expertise and diversity;

selecting and recommending to the board the names of directors to serve as members of the audit
committee and the compensation committee, as well as of the nominating and corporate governance
committee itself;

developing and reviewing the corporate governance principles adopted by the board and advising the
board with respect to signiﬁcant developments in the law and practice of corporate governance and
our compliance with such laws and practices; and

evaluating the performance and effectiveness of the board as a whole.

Duties of Directors

Under Cayman Islands law, our directors have a duty of loyalty to act honestly in good faith with a view

to our best interests. Our directors also have a duty to exercise the skill they actually possess and such care
and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulﬁlling their
duty of care to us, our directors must ensure compliance with our memorandum and articles of association.
A shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.

Terms of Directors and Officers

Our officers are elected by and serve at the discretion of the board. Our directors are not subject to a

term of office and hold office until such time as they resign or are removed from office by an ordinary
resolution of our shareholders. A director will vacate office automatically if, among other things, the director
(1) becomes bankrupt or suspends payments or compounds with his creditors; or (2) dies or becomes of
unsound mind.

D. Employees

The following table sets forth the numbers of our employees, categorized by function, as of

December 31, 2012, 2013 and 2014:

Function
Sales, customer service and marketing . . . . . . . . . . . . . . .
among which, ﬁeld sales . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Research and development
Website operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management and administrative positions . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

2012

4,529
4,153
727
75
329
5,660

As of December 31,
2013

2014

4,542
3,967
697
83
331
5,653

7,485
6,337
1,354
93
467
9,399

Our success depends on our ability to attract, retain and motivate qualiﬁed personnel. We believe we
offer our employees competitive compensation packages and an environment that encourages initiative and
meritocracy, and as a result, we have generally been able to attract and retain qualiﬁed personnel and maintain
a stable core management team. We design and implement in-house training programs tailored to each job
function and a set of responsibilities to enhance performance. Speciﬁc training is provided to new employees
at orientation to familiarize them with our working environment and operational procedures.

As required by PRC regulations, we participate in various statutory employee beneﬁt plans, including
pension, unemployment insurance, childbirth insurance, work-related injury insurance, medical insurance and
housing insurance. We are required under PRC law to make contributions to employee beneﬁt plans at
speciﬁed percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum
amount speciﬁed by the local government from time to time.

E. Share Ownership

Please refer to ‘‘Item 7. Major Shareholders and Related Party Transactions — A. Major Shareholders.’’

88

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

The following table sets forth information concerning the beneﬁcial ownership of our ordinary shares as

of the date of this annual report by:

•

•

each of our directors and executive officers; and

each person known to us to beneﬁcially own more than 5% of our ordinary shares.

The calculations in the table below assume that there are 231,064,857 ordinary shares outstanding as of
April 20, 2015, comprising of 177,483,426 Class A ordinary shares and 53,581,431 Class B ordinary shares
excluding 716,208 Class A ordinary shares issued to our depositary and reserved for future exercise of vested
options and RSUs under our share incentive plans by our management and other employees, which are not
deemed as outstanding for the purpose of calculating the beneﬁcial ownership in the following table.

Beneﬁcial ownership is determined in accordance with the rules and regulations of the SEC. In

computing the number of shares beneﬁcially owned by a person and the percentage ownership of that person,
we have included shares that the person has the right to acquire within 60 days, including through the exercise
of any option, warrant, or other right or the conversion of any other security. These shares, however, are not
included in the computation of the percentage ownership of any other person.

Directors and Executive Officers:**
Jinbo Yao . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wensheng Cai(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dong Yang(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Frank Lin(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Julian Cheng(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Herman Yu(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard Weidong Ji(8)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Xiaoguang Wu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hao Zhou . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Xiaohua Chen(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jiandong Zhuang(10)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dong Duan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chuan Zhang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All directors and executive officers as a group . . . . . . . . . . . . . . . . . . . . . .

Number

%(1)

32,391,600(2)

—

*
—
—

—

*
*

*
*
*
*
*

14.02
—

*
—
—

—

*
*

*
*
*
*
*

34,072,988

14.69

Principal Shareholders:
Tencent Holdings Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nihao China Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

60,897,774(11)
29,418,640(12)

26.36
12.73

Less than one percent of our total outstanding capital.

Notes:
*
** Except for Mr. Wensheng Cai, Mr. Dong Yang, Mr. Frank Lin, Mr. Julian Cheng, Mr. Herman Yu and
Dr. Richard Weidong Ji, the business address of our directors and executive officers is c/o Block E, the
North American International Business Center, Yi 108 Beiyuan Road, Chaoyang District, Beijing 100101,
People’s Republic of China.

(1) The number of ordinary shares outstanding in calculating the percentages for each listed person or group
includes the ordinary shares underlying the options held by such person or group exercisable within
60 days of April 20, 2015. Percentage of beneﬁcial ownership of each listed person or group is based on
(1) 231,064,857 ordinary shares outstanding as of April 20, 2015, and (2) the number of ordinary shares
underlying options exercisable by such person or group within 60 days of April 20, 2015.

89

(2) Consists of 28,587,204 Class B ordinary shares and 415,718 ADSs (representing 831,436 Class A

ordinary shares) held by Nihao China Corporation, a British Virgin Islands company beneﬁcially owned
by Mr. Yao through a trust, and 2,972,960 Class B ordinary shares beneﬁcially owned by certain of our
executive officers and employees who acquired the ownership of these shares pursuant to our employee
stock option plan and who authorize Mr. Yao to vote these shares on their behalf under power of
attorney. Such individuals include all executive officers and employees who became our ordinary
shareholders through our employee stock option plan.

(3) The business address of Mr. Cai is No. 51, Yuan Dang Road, Xiamen, China.
(4) The business address of Mr. Yang is 18/F Tower C, Central International Trade Center, Chaoyang

District, Beijing, 100022, China.

(5) The business address of Mr. Lin is Unit 1, Level 10, Tower W2, Oriental Plaza, Dong Cheng District,

Beijing, China.

(6) The business address of Mr. Cheng is Suite 6703, Two IFC, 8 Finance Street, Central, Hong Kong.
(7) The business address of Mr. Yu is 20/F, Ideal Plaza, No. 58 Northwest 4th Ring Road, Haidian District,

Beijing 100080, P. R. China.

(8) The business address of Mr. Ji is Suite 2103 21/F, Two Exchange Square, 8 Connaught Place, Central,

Hong Kong.

(9) Mr. Chen has authorized Mr. Jinbo Yao under power of attorney to vote the ordinary shares that

Mr. Chen currently owns through Trumpway Limited, a British Virgin Islands company wholly owned by
Mr. Chen.

(10) Mr. Zhuang has authorized Mr. Jinbo Yao under power of attorney to vote the ordinary shares that

Mr. Zhuang currently owns through Magic Mirror Holdings Limited, a British Virgin Islands company
wholly owned by Mr. Zhuang.

(11) Consists of 37,467,616 Class A ordinary shares and 14,722,000 Class B ordinary shares directly held by

Ohio River Investment Limited and 4,354,079 ADSs (representing 8,708,158 Class A ordinary shares)
directly held by THL E Limited as reported in a Schedule 13D/A ﬁled on April 17, 2015. Tencent
Holdings Limited is reported as the beneﬁcial owner of the aforementioned shares. The business address
of Ohio River Investment Limited and THL E Limited is c/o Tencent Holdings Limited, 29/F., Three
Paciﬁc Place, No. 1 Queen’s Road East, Wanchai, Hong Kong.

(12) Consists of 28,587,204 Class B ordinary shares and 415,718 ADSs (representing 831,436 Class A

ordinary shares) held by Nihao China Corporation, a British Virgin Islands company beneﬁcially owned
by Mr. Yao through a trust.

To our knowledge, as of April 20, 2015, 84,817,971 of our Class A ordinary shares are held by four
record holders in the United States, including the depositary of our ADS program. The number of beneﬁcial
owners of our ADSs in the United States is likely to be much larger than the number of record holders of our
ordinary shares in the United States.

Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of

Class A ordinary shares are entitled to one vote per share, while holders of Class B ordinary shares are
entitled to ten votes per share. Holders of Class A and Class B ordinary shares vote together as one class on
all matters subject to a shareholders’ vote. Each Class B ordinary share is convertible into one Class A
ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into
Class B ordinary shares under any circumstance. All options, regardless of grant dates, will entitle holders to
the equivalent number of Class A ordinary shares once the vesting and exercising conditions on such share-
based compensation awards are met. We are not aware of any arrangement that may, at a subsequent date,
result in a change of control of our company.

B. Related Party Transactions

Contractual Arrangements with Our Consolidated Variable Interest Entities

PRC law currently limits direct foreign equity ownership of business entities providing value-added
telecommunications services. As a result of these foreign ownership restrictions requirements, we conduct
substantially all of our businesses in China through a series of contractual arrangements with Beijing 58 and
its shareholders. For a description of these contractual arrangements, see ‘‘Item 4. Information on the
Company — C. Organizational Structure — Contractual Arrangements with Beijing 58.’’

90

Registration Rights

Pursuant to our shareholders agreement dated August 4, 2011 that we entered into with all our then
shareholders in connection with our issuance of preference shares prior to our initial public offering, we have
granted certain registration rights to our shareholders. Set forth below is a description of the registration rights
granted under the agreement.

Demand Registration Rights. At any time beginning six months after the completion of our initial

public offering on November 5, 2013, upon a written request from the holders of at least 20% of the
registrable securities held by holders of our ordinary shares converted from preference shares, we must ﬁle a
registration statement covering the offer and sale of the registrable securities held by the requesting
shareholders and other holders of registrable securities who choose to participate in the offering. Registrable
securities include, among others, our ordinary shares not previously sold to the public and ordinary shares
issued upon conversion of the preference shares.

However, we are not obligated to proceed with a demand registration if we have, within the six-month
period preceding the date of such request, already effected a registration under the Securities Act pursuant to
the exercise of the holders’ demand registration rights. We have the right to defer ﬁling of a registration
statement for up to 90 days if our board of directors determines in good faith that the ﬁling of a registration
statement would be materially detrimental to us, but we cannot exercise the deferral right more than once in
any 12-month period.

Form F-3 Registration Rights. When we are eligible for registration on Form F-3, upon a written
request from our the holders of at least 20% of the registrable securities held by holders of our ordinary
shares converted from preference shares, we must ﬁle a registration statement on Form F-3 covering the offer
and sale of the registrable securities.

We are not obligated to effect a Form F-3 registration, among other things, if we have already effected

two registrations on Form F-3 in any 12-month period. We have the right to defer ﬁling of a registration
statement for up to 90 days if our board of directors determines in good faith that the ﬁling of a registration
statement would be materially detrimental to us, but we cannot exercise the deferral right more than once in
any 12-month period.

Piggyback Registration Rights.

If we propose to ﬁle a registration statement for a public offering of our

ordinary shares on a form that would be suitable only for registrable securities, we must offer holders of
registrable securities an opportunity to include in that registration all or any part of their registrable securities.
The underwriters of any underwritten offering have the right to limit the number of shares with registration
rights to be included in the registration statement, subject to certain limitations.

Expenses of Registration. We will pay all expenses relating to any demand, Form F-3, or piggyback

registration.

Termination of Obligations. We shall have no obligation to effect any demand, Form F-3, or piggyback
registration on the earlier of (a) the date that is ﬁve years after the completion of our initial public offering on
November 5, 2013, or (b) as to any holder of registrable securities, the time when all registrable securities
held by such holder may be sold in any three-month period without registration pursuant to Rule 144 under
the Securities Act.

Pursuant to an investor rights agreement dated June 30, 2014 that we entered into with Tencent, we have
granted certain registration rights to Tencent. Set forth below is a description of the registration rights granted
under the agreement.

Demand Registration Rights. Upon a written request from Tencent, we must use all reasonable efforts

to effect the registration under the Securities Act of all registrable securities Tencent requests to be registered .
Registrable securities include, subject to limitation, ordinary shares of our company Tencent acquired in June
2014 and any other ordinary shares of our company owned or acquired by Tencent thereafter.

However, we are not obligated to proceed with a demand registration if we have, within the six-month
period preceding the date of such request, already effected a registration under the Securities Act pursuant to
the exercise of the holders’ demand registration rights. We have the right to defer ﬁling of a registration

91

statement for up to 90 days if our board of directors determines in good faith that the ﬁling of a registration
statement would be materially detrimental to us, but we cannot exercise the deferral right more than once in
any 12-month period.

Form F-3 Registration Rights. When we are eligible for registration on Form F-3, upon a written

request from an investor party to the agreement, we must effect such registration to permit or facilitate the
sale and distribution of all or such portion of the investor’s registrable securities as are speciﬁed in such
request.

We are not obligated to effect a Form F-3 registration, among other things, if we have already effected

two registrations on Form F-3 in any 12-month period. We have the right to defer ﬁling of a registration
statement for up to 90 days if our board of directors determines in good faith that the ﬁling of a registration
statement would be materially detrimental to us, but we cannot exercise the deferral right more than once in
any 12-month period.

Piggyback Registration Rights.

If we propose to ﬁle a registration statement for a public offering of our
securities, we must offer Tencent an opportunity to include in that registration all or any part of its registrable
securities. The underwriters of any underwritten offering have the right to limit the number of shares with
registration rights to be included in the registration statement, subject to certain limitations.

Expenses of Registration. We will pay all expenses relating to any demand, Form F-3, or piggyback

registration.

Termination of Obligations.We shall have no obligation to effect any demand, Form F-3, or piggyback

registration on the earlier of (a) the date that is ﬁve years after the date of the agreement, or (b) as to any
holder of registrable securities, the time when all registrable securities held by such holder may be sold in any
ninety-day period without registration pursuant to Rule 144 under the Securities Act.

Pursuant to a registration rights agreement dated April 20, 2015 that we entered into with certain new
shareholders in connection with our issuance of new Class A ordinary shares as share portion of the purchase
price for our acquisition of Ganji shares from the selling shareholders, we have granted certain registration
rights to such new shareholders. Set forth below is a description of the registration rights granted under the
agreement.

Demand Registration Rights. Upon a written request from the holders of at least a majority of the
registrable securities held by holders of the registrable securities, we must use all reasonable efforts to effect
the registration under the Securities Act of all registrable securities held by the requesting shareholders and
other holders of registrable securities who choose to participate in the offering. Registrable securities include,
subject to limitation, new Class A ordinary shares as share portion of the purchase price for our acquisition of
Ganji.com shares from the selling shareholders.

However, we are not obligated to proceed with a demand registration if we have, within the six-month
period preceding the date of such request, already effected a registration under the Securities Act pursuant to
the exercise of the holders’ demand registration rights. We have the right to defer ﬁling of a registration
statement for up to 90 days if our board of directors determines in good faith that the ﬁling of a registration
statement would be materially detrimental to us, but we cannot exercise the deferral right more than once in
any 12-month period.

Form F-3 Registration Rights. When we are eligible for registration on Form F-3, upon a written

request from an investor party to the agreement, we must effect such registration to permit or facilitate the
sale and distribution of all or such portion of the investor’s registrable securities as are speciﬁed in such
request, together with all or such portion of the registrable securities of any other investor or investors joining
such request.

We are not obligated to effect a Form F-3 registration, among other things, if we have already effected

two registrations on Form F-3 in any 12-month period. We have the right to defer ﬁling of a registration
statement for up to 90 days if our board of directors determines in good faith that the ﬁling of a registration
statement would be materially detrimental to us, but we cannot exercise the deferral right more than once in
any 12-month period.

92

Piggyback Registration Rights.

If we propose to ﬁle a registration statement for a public offering of our

ordinary shares on a form that would be suitable only for registrable securities, we must offer holders of
registrable securities an opportunity to include in that registration all or any part of their registrable securities.
The underwriters of any underwritten offering have the right to limit the number of shares with registration
rights to be included in the registration statement, subject to certain limitations.

Expenses of Registration. We will pay all expenses relating to any demand, Form F-3, or piggyback

registration.

Termination of Obligations. We shall have no obligation to effect any demand, Form F-3, or piggyback

registration on the earlier of (a) the date that is ﬁve years after the date of the agreement, or (b) as to any
holder of registrable securities, the time when all registrable securities held by such holder may be sold in any
ninety-day period without registration pursuant to Rule 144 under the Securities Act.

Investment by Tencent and Share Repurchase from Certain Pre-IPO Shareholders

In June 2014, we entered into an investment agreement with Tencent, pursuant to which Tencent invested

US$736.1 million in exchange for approximately 19.9% equity interest in 58.com Inc. on a fully-diluted
basis. Tencent purchased 36,805,000 Class A and B ordinary shares of our company at a purchase price of
US$20 per ordinary share, corresponding to US$40 per ADS. We applied US$552.1 million of the proceeds
from this transaction to repurchase 27,603,750 Class B ordinary shares of our company from certain pre-IPO
shareholders. Participants in the share repurchase include DCM Affiliates Fund V, L.P., DCM V, L.P., SB Asia
Investment Fund II L.P., Dong Yang, and WP X Asia Online Investment Holdings Limited, from which we
purchased 186,720, 7,652,229, 8,537,341, 862,291 and 10,365,169 Class B ordinary shares, respectively.
Mr. Dong Yang is a director and a member of the audit committee of our board of directors.

Concurrent with our acquisition of a strategic stake in Ganji in April 2015 and incremental to its then

existing share ownership of our company, Tencent purchased an additional approximately US$400 million of
newly issued ordinary shares from us at a purchase price of US$26 per ordinary share, equivalent to US$52
per ADS.

We have not entered into any signiﬁcant transaction with Tencent outside of the ordinary course of

business.

Employment Agreements and Indemniﬁcation Agreements

See ‘‘Item 6. Directors, Senior Management and Employees — B. Compensation — Employment

Agreements and Indemniﬁcation Agreements.’’

Stock Incentive Plans

See ‘‘Item 6. Directors, Senior Management and Employees — B. Compensation — Share Incentive

Plans.’’

C. Interests of Experts and Counsel

Not applicable.

ITEM 8.

FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

Please refer to Item 18.

Legal Proceedings

From time to time, we have become and may in the future become a party to various legal or

administrative proceedings arising in the ordinary course of our business. Internet companies are frequently
involved in litigation based on allegations of infringement or other violations of intellectual property rights
and other allegations in connection with the content available on their websites or services they provide. We
are currently not involved in any legal or administrative proceedings that would materially and adversely
affect our business.

93

On October 19, 2013, Mr. Xuanfu Liu ﬁled a complaint with a local court in Hubei Province in China

against (1) Mr. Handong Cheng, legal representative of Business Opportunity Online (Beijing) Network
Technology Co., Ltd., or Shangji, a PRC company, (2) Shangji, and (3) Mr. Jinbo Yao, our chairman and chief
executive officer. Mr. Liu purported to be a 36% minority shareholder of Shangji. The complaint claimed that
Shangji had enjoyed a right to 17.5% of the equity interest in Beijing 58 held by Mr. Yao as Shangji’s
nominee prior to December 2009, and alleged that Mr. Cheng had entered into an agreement on behalf of
Shangji with Mr. Yao in December 2009 terminating Shangji’s right to the 17.5% equity interest in Beijing 58
without prior consultation with or notice to Mr. Liu. Mr. Liu sought the court’s ruling that the termination
agreement was invalid and that Mr. Liu be entitled to a 6.3% equity interest in Beijing 58, equivalent to what
he believed was his indirect pro rata share of Beijing 58. After contestation and appeal by Mr. Yao to the
appellate court in Hubei for lack of jurisdiction of the local court, the appellate court ruled in favor of Mr.
Yao and ruled that the case should be transferred to a local court in Beijing. After the case was transferred to
the local court in Beijing, Mr. Liu ﬁled a motion to withdraw the lawsuit, and the court granted the motion to
dismiss in December 2014. Mr. Liu since withdrew his complaint and has not yet initiated any new
proceeding relating to the same matter. However, there is uncertainty as to whether Mr. Liu will ﬁle a new
complaint.

We and Mr. Yao believe that Mr. Liu’s claim that the termination agreement is invalid and his claim to
be registered as a shareholder of Beijing 58 are baseless and without merit and intend to continue to contest
new claims, if any, vigorously. Our PRC counsel, Han Kun Law Offices, advises us that based on the evidence
presented in the aforementioned complaint, and applicable PRC law, including the PRC judicial interpretation,
there are meritorious defenses to Mr. Liu’s claims.

However, there is no assurance that there would be no new facts presented in the case if Mr. Liu ﬁles a

new complaint and if new facts were to be presented, how such facts could affect a court’s decision. If Mr.
Liu ﬁles a new complaint and prevails in such proceeding, there is no assurance that he would not ﬁle a new
complaint seeking additional remedies, including registering himself or Shangji as a shareholder of Beijing 58.

Dividend Policy

We have not previously declared or paid cash dividends and we have no plan to declare or pay any
dividends in the near future on our shares or ADSs. We currently intend to retain most, if not all, of our
available funds and any future earnings to operate and expand our business.

We are a holding company incorporated in the Cayman Islands. We rely principally on dividends from
our PRC subsidiaries for our cash requirements, including any payment of dividends to our shareholders. PRC
regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. See ‘‘Item 4. Information
on the Company — B. Business Overview — Regulation — Regulations on Foreign Currency Exchange.’’

Our board of directors has discretion as to whether to distribute dividends, subject to applicable laws.

Even if our board of directors decides to pay dividends, the form, frequency and amount will depend on our
future operations and earnings, capital requirements and surplus, general ﬁnancial condition, contractual
restrictions and other factors that our board of directors may deem relevant. If we pay any dividends, we will
pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit
agreement, including the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any,
will be paid in U.S. dollars.

B. Signiﬁcant Changes

We have not experienced any signiﬁcant changes since the date of our audited consolidated ﬁnancial

statements included in this annual report.

ITEM 9. THE OFFER AND LISTING

A. Offering and Listing Details

See ‘‘— C. Markets.’’

B. Plan of Distribution

Not applicable.

94

C. Markets

Our ADSs, each representing two of our Class A ordinary shares, have been listed on the NYSE since
October 31, 2013. Our ADSs trade under the symbol ‘‘WUBA.’’ The following table provides the high and
low trading prices for our ADSs on the NYSE since the date of our initial public offering.

The last reported trading price for our ADSs on April 28, 2015 was US$77.70 per ADS.

Market Price
(US$)

High

Low

Annual High and Low

Fiscal Year 2013 (from October 31, 2013)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

39.83
58.89

Quarterly Highs and Lows

Fourth Fiscal Quarter of 2013 (from October 31, 2013) . . . . . . . . . . . . . . . . . . .
First Fiscal Quarter of 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Fiscal Quarter of 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Fiscal Quarter of 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Fiscal Quarter of 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Fiscal Quarter of 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Fiscal Quarter of 2015 (through April 28, 2015) . . . . . . . . . . . . . . . . . . .

Monthly Highs and Lows

October 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 2015 (through April 28, 2015)

39.83
58.89
56.50
57.50
49.75
54.39
83.71

40.00
48.80
49.75
43.50
45.00
54.39
83.71

21.00
31.60

21.00
31.60
35.75
34.70
34.64
37.15
49.80

34.64
38.80
38.91
38.00
37.15
39.90
49.80

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

95

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

We are a Cayman Islands company and our affairs are governed by our amended and restated
memorandum and articles of association, as amended from time to time, and the Companies Law (2013
Revision) of the Cayman Islands, which is referred to below as the Companies Law.

The following are summaries of the material provisions of our amended and restated memorandum and

articles of association and the Companies Law insofar as they relate to the material terms of our ordinary
shares. This summary is not complete, and you should read our third amended and restated memorandum and
articles of association, which has been ﬁled as Exhibit 3.2 to our Form F-1 (File No. 333-191424) ﬁled with
the SEC on September 27, 2013.

Registered Office and Objects

Our registered office in the Cayman Islands is located at Codan Trust Company (Cayman) Limited,
Cricket Square, P.O. Box 2681, Grand Cayman KY1-1111. As set forth in clause 3 of our amended and
restated memorandum of association, the objects for which our company is established are unrestricted.

Board of Directors

See ‘‘Item 6. Directors, Senior Management and Employees — C. Board Practices — Committees of the

Board of Directors’’ and ‘‘Item 6. Directors, Senior Management and Employees — C. Board Practices —
Terms of Directors and Officers.’’

Ordinary Shares

General. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except

for voting and conversion rights. All of our outstanding ordinary shares are fully paid and non-assessable.
Certiﬁcates representing the ordinary shares are issued in registered form. Our shareholders who are
non-residents of the Cayman Islands may freely hold and transfer their ordinary shares.

Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our

board of directors. Our articles of association provide that dividends may be declared and paid out of our
proﬁts, realized or unrealized, or from any reserve set aside from proﬁts which our board of directors
determine is no longer needed. Dividends may also be declared and paid out of share premium account or any
other fund or account which can be authorized for this purpose in accordance with the Companies Law.
Holders of Class A ordinary shares and Class B ordinary shares will be entitled to the same amount of
dividends, if declared.

Voting Rights.

In respect of all matters subject to a shareholders’ vote, each Class A ordinary share is

entitled to one vote, and each Class B ordinary share is entitled to ten votes, voting together as one class.
Voting at any meeting of shareholders is by show of hands unless a poll is demanded. A poll may be
demanded by the chairman of such meeting or any one or more shareholders who together hold not less than
10% of the nominal value of the total issued voting shares of our company present in person or by proxy.
Each holder of our ordinary shares is entitled to have one vote for each ordinary share registered in his or her
name on our register of members.

A quorum required for a meeting of shareholders consists of one or more shareholders who hold at least
one-third of all voting power of our share capital in issue at the meeting present in person or by proxy or, if a
corporation or other non-natural person, by its duly authorized representative. Shareholders’ meetings may be
held annually. Each general meeting, other than an annual general meeting, shall be an extraordinary general
meeting. Extraordinary general meetings may be called by a majority of our board of directors or our
chairman or upon a requisition of shareholders holding at the date of deposit of the requisition not less than
one-third of the aggregate voting power of our company. Advance notice of at least ten clear days is required
for the convening of our annual general meeting and other general meetings.

96

An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a

simple majority of the votes attaching to the ordinary shares cast at a meeting, while a special resolution
requires the affirmative vote of no less than two-thirds of the votes cast attaching to the outstanding ordinary
shares at a meeting. A special resolution will be required for important matters such as a change of name or
making changes to our memorandum and articles of association.

Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time by

the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any
circumstances. Upon any transfer of Class B ordinary shares by a holder to any person or entity which is not
an affiliate of such holder, such Class B ordinary shares shall be automatically and immediately converted into
the equivalent number of Class A ordinary shares. In addition, if at any time, Mr. Jinbo Yao and his affiliates
collectively own less than 5% of the total number of the issued and outstanding Class B ordinary shares, each
issued and outstanding Class B ordinary share will be automatically and immediately converted into one
Class A ordinary share, and we will not issue any Class B ordinary shares thereafter.

Transfer of Ordinary Shares. Subject to the restrictions set out below and the provisions above in
respect of Class B ordinary shares, any of our shareholders may transfer all or any of his or her ordinary
shares by an instrument of transfer in the usual or common form or any other form approved by our board of
directors.

Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary

share which is not fully paid up or on which we have a lien. Our board of directors may also decline to
register any transfer of any ordinary share unless:

•

•

•

•

•

the instrument of transfer is lodged with us, accompanied by the certiﬁcate for the ordinary shares to
which it relates and such other evidence as our board of directors may reasonably require to show
the right of the transferor to make the transfer;

the instrument of transfer is in respect of only one class of ordinary shares;

the instrument of transfer is properly stamped, if required;

in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is
to be transferred does not exceed four; and

a fee of such maximum sum as the NYSE may determine to be payable or such lesser sum as our
directors may from time to time require is paid to us in respect thereof.

If our directors refuse to register a transfer they shall, within three months after the date on which the

instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.

The registration of transfers may, after compliance with any notice required of the NYSE, be suspended

and the register closed at such times and for such periods as our board of directors may from time to time
determine, provided, however, that the registration of transfers shall not be suspended nor the register closed
for more than 30 days in any year as our board may determine.

Liquidation. On a return of capital on winding up or otherwise (other than on conversion, redemption

or purchase of ordinary shares), assets available for distribution among the holders of ordinary shares shall be
distributed among the holders of the ordinary shares on a pro rata basis. If our assets available for distribution
are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by
our shareholders proportionately. Any distribution of assets or capital to a holder of a Class A ordinary share
and a holder of a Class B ordinary share will be the same in any liquidation event.

Calls on Ordinary Shares and Forfeiture of Ordinary Shares. Our board of directors may from time
to time make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served to
such shareholders at least 14 clear days prior to the speciﬁed time of payment. The ordinary shares that have
been called upon and remain unpaid are subject to forfeiture.

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Redemption of Ordinary Shares. The Companies Law and our articles of association permit us to

purchase our own shares. In accordance with our articles of association and provided the necessary
shareholders or board approval have been obtained, we may issue shares on terms that are subject to
redemption, at our option or at the option of the holders of these shares, on such terms and in such manner,
including out of capital, as may be determined by our board of directors.

Variations of Rights of Shares. All or any of the special rights attached to any class of shares may,

subject to the provisions of the Companies Law, be varied with the written consent of the holders of a
majority of the issued shares of that class or with the sanction of a special resolution passed at a general
meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any
class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be
deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of
shares.

Inspection of Books and Records. Holders of our ordinary shares have no general right under Cayman
Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will
provide our shareholders with annual audited ﬁnancial statements. See ‘‘— H. Documents on Display.’’

Issuance of Additional Shares. Our memorandum of association authorizes our board of directors to
issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of
available authorized but unissued shares.

Our memorandum of association also authorizes our board of directors to establish from time to time one
or more series of preference shares and to determine, with respect to any series of preference shares, the terms
and rights of that series, including:

•

•

•

•

the designation of the series;

the number of shares of the series;

the dividend rights, dividend rates, conversion rights, voting rights; and

the rights and terms of redemption and liquidation preferences.

Our board of directors may issue preference shares without action by our shareholders to the extent
authorized but unissued. Issuance of these shares may dilute the voting power of holders of ordinary shares.

Anti-Takeover Provisions. Some provisions of our memorandum and articles of association may
discourage, delay or prevent a change of control of our company or management that shareholders may
consider favorable, including provisions that authorize our board of directors to issue preference shares in one
or more series and to designate the price, rights, preferences, privileges and restrictions of such preference
shares without any further vote or action by our shareholders.

Exempted Company. We are an exempted company with limited liability under the Companies Law.

The Companies Law distinguishes between ordinary resident companies and exempted companies. Any
company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands
may apply to be registered as an exempted company. The requirements for an exempted company are
essentially the same as for an ordinary company except that an exempted company:

•

•

•

•

•

•

does not have to ﬁle an annual return of its shareholders with the Registrar of Companies;

is not required to open its register of members for inspection;

does not have to hold an annual general meeting;

may issue negotiable or bearer shares or shares with no par value;

may obtain an undertaking against the imposition of any future taxation (such undertakings are
usually given for 20 years in the ﬁrst instance);

may register by way of continuation in another jurisdiction and be deregistered in the
Cayman Islands;

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•

•

may register as a limited duration company; and

may register as a segregated portfolio company.

‘‘Limited liability’’ means that the liability of each shareholder is limited to the amount unpaid by the

shareholder on the shares of the company.

Limitations on the Right to Own Shares. There are no limitations on the right to own our ordinary

shares.

C. Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other

than those described in ‘‘Item 4. Information on the Company’’ or elsewhere in this annual report.

D. Exchange Controls

The Cayman Islands currently has no exchange control restrictions. See also ‘‘Item 4. Information on the

Company — B. Business Overview — Regulation — Regulations on Foreign Currency Exchange’’ and
‘‘Item 4. Information on the Company — B. Business Overview — Regulation — Regulations on Offshore
Financing.’’

E. Taxation

The following summary of the material Cayman Islands, People’s Republic of China and United States

federal income tax consequences of an investment in our ADSs or ordinary shares is based upon laws and
relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change.
This summary does not deal with all possible tax consequences relating to an investment in our ADSs or
Class A ordinary shares, such as the tax consequences under state, local and other tax laws.

Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon proﬁts, income,

gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other
taxes levied by the Government of the Cayman Islands that are likely to be material to holders of ADSs or
ordinary shares. The Cayman Islands is not party to any double tax treaties. There are no exchange control
regulations or currency restrictions in the Cayman Islands.

Pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, we have

obtained an undertaking from the Governor-in-Council:

(1)

(2)

that no law which is enacted in the Cayman Islands imposing any tax to be levied on proﬁts or
income or gains or appreciation shall apply to us or our operations; and

that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable
on our shares, debentures or other obligations.

The undertaking for us is for a period of twenty years from June 14, 2011.

People’s Republic of China Taxation

Under the EIT Law, an enterprise established outside the PRC with ‘‘de facto management bodies’’
within China is considered a ‘‘resident enterprise’’ for PRC enterprise income tax purposes and is generally
subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the implementation
rules to the EIT Law, a ‘‘de facto management body’’ is deﬁned as a body that has material and overall
management and control over the manufacturing and business operations, personnel and human resources,
ﬁnances and properties of an enterprise. In addition, the SAT Circular 82 issued by the SAT in April 2009 and
amended in January 2014 speciﬁes that certain offshore incorporated enterprises controlled by PRC enterprises
or PRC enterprise groups will be classiﬁed as PRC resident enterprises if the following are located or resident
in China: senior management personnel and departments that are responsible for daily production, operation
and management; ﬁnancial and personnel decision making bodies; key properties, accounting books, company
seal, minutes of board meetings and shareholders’ meetings; and half or more of the senior management or

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directors having voting rights. Further to SAT Circular 82, the SAT issued the SAT Bulletin 45, which took
effect in September 2011, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin
45 provides for procedures and administration details of determination on resident status and administration on
post-determination matters. We do not believe that 58.com Inc., or CCNC BVI or CCIC HK meet all of the
conditions above or are PRC resident enterprises. If the PRC tax authorities determine that our Cayman
Islands holding company is a PRC resident enterprise for PRC enterprise income tax purposes, a number of
unfavorable PRC tax consequences could follow. One example is that a 10% withholding tax would be
imposed on dividends we pay to our non-PRC enterprise shareholders and with respect to gains derived by
our non-PRC enterprise shareholders from transferring our shares or ADSs and potentially a 20% of
withholding tax would be imposed on dividends we pay to our non-PRC individual shareholders and with
respect to gains derived by our non-PRC individual shareholders from transferring our shares or ADSs.

It is unclear whether, if we are considered a PRC resident enterprise, holders of our shares or ADSs
would be able to claim the beneﬁt of income tax treaties or agreements entered into between China and other
countries or areas. See ‘‘Item 3. Key Information — D. Risk Factors — Risk Factors Related to Doing
Business in China — Under the EIT Law, we may be classiﬁed as a ‘resident enterprise’ for PRC enterprise
income tax purposes. Such classiﬁcation would likely result in unfavorable tax consequences to us and our
non-PRC Shareholders and have a material adverse effect on our results of operations and the value of your
investment’’.

The EIT Law and the implementation rules provide that an income tax rate of 10% will normally be
applicable to dividends payable to investors that are ‘‘non-resident enterprises,’’ and gains derived by such
investors, which (1) do not have an establishment or place of business in China or (2) have an establishment
or place of business in China, but the relevant income is not effectively connected with the establishment or
place of business to the extent such dividends and gains are derived from sources within China. The PRC
State Council or an applicable tax treaty between the PRC and the jurisdictions in which the non-PRC
investors reside may reduce such income tax rate. Pursuant to an Arrangement Between the Mainland of
China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation on Income, or
the Double Tax Avoidance Arrangement, and other applicable PRC laws, if a Hong Kong resident enterprise is
determined by the relevant PRC tax authority to have satisﬁed the relevant conditions and requirements under
the Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends
the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5%. However,
based on the SAT Circular 81 issued by the SAT in February 2009, if the relevant PRC tax authorities
determine, in their discretion, that a company beneﬁts from such reduced income tax rate due to a structure or
arrangement that is primarily tax-driven, the PRC tax authorities may adjust the preferential tax treatment.
Pursuant to SAT Circular 601 issued by the SAT in October 2009, conduit companies, which are established
for the purpose of evading or reducing tax, or transferring or accumulating proﬁts, may not be recognized as
beneﬁcial owners and thus are not entitled to the above-mentioned reduced income tax rate of 5% under the
Double Tax Avoidance Arrangement. Our Hong Kong subsidiary has not obtained the approval for a
withholding tax rate of 5% from the relevant tax authority and does not plan to obtain such approval in the
near future, because our PRC subsidiaries have not paid any dividends since establishment and do not plan to
pay dividends in the near future.

In January 2009, the SAT promulgated the Provisional Measures for the Administration of Withholding of

Enterprise Income Tax for Non-resident Enterprises, pursuant to which the entities that have the direct
obligation to make certain payments to a non-resident enterprise should be the relevant tax withholders for the
non-resident enterprise, and such payments include: income from equity investments (including dividends and
other return on investment), interest, rents, royalties and income from assignment of property as well as other
incomes subject to enterprise income tax received by non-resident enterprises in China. Further, the measures
provide that in case of an equity transfer between two non-resident enterprises which occurs outside China,
the non-resident enterprise which receives the equity transfer payment must, by itself or engage an agent to,
ﬁle tax declaration with the PRC tax authority located at place of the PRC company whose equity has been
transferred, and the PRC company whose equity has been transferred should assist the tax authorities to
collect taxes from the relevant non-resident enterprise.

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The SAT issued a SAT Circular 59 together with the Ministry of Finance in April 2009 and a SAT
Circular 698 in December 2009. Both Circular 59 and Circular 698 became effective retroactively as of
January 1, 2008. On February 3, 2015, the SAT issued SAT Notice 7. By promulgating and implementing
these circulars, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of
equity interests or other taxable assets in a PRC resident enterprise by a non-resident enterprise. Under SAT
Notice 7, where a non-resident enterprise transfers the equity interests or other taxable assets of a PRC
‘‘resident enterprise’’ indirectly by disposition of the equity interests of an overseas holding company, the
non-resident enterprise, being the transferor, or the transferee, or the PRC entity which directly owned the
taxable assets may report to the relevant tax authority this ‘‘indirect transfer’’. Using a ‘‘substance over form’’
principle, the PRC tax authority may re-characterize such indirect transfer as a direct transfer of the equity
interests in the PRC tax resident enterprise and other properties in China. As a result, gains derived from such
indirect transfer may be subject to PRC tax at a rate of up to 10%. We face uncertainties on the reporting and
consequences on private equity ﬁnancing transactions, share exchange or other transactions involving the
transfer of shares in our company by investors that are non-PRC resident enterprises, or sale or purchase of
shares in other non-PRC resident companies or other taxable assets by us. We and our non-resident investors
may be at risk of being required to ﬁle a return and being taxed under SAT Circular 698 and SAT Notice 7,
and we may be required to expend valuable resources to comply with SAT Circular 698 and SAT Notice 7 or
to establish that we should not be taxed under these circulars.

United States Federal Income Tax Considerations

The following is a discussion of the principal United States federal income tax consequences of the
ownership and disposition of our ADSs or Class A ordinary shares by a U.S. Holder, as deﬁned below, that
holds our ADSs or Class A ordinary shares as ‘‘capital assets’’ (generally, property held for investment) under
the United States Internal Revenue Code of 1986, as amended (the ‘‘Code’’). This discussion is based upon
existing United States federal income tax law, which is subject to differing interpretations or change, possibly
with retroactive effect. No ruling has been sought from the Internal Revenue Service (the ‘‘IRS’’) with respect
to any United States federal income tax consequences described below, and there can be no assurance that the
IRS or a court will not take a contrary position. This discussion does not address all aspects of United States
federal income taxation that may be important to particular investors in light of their individual investment
circumstances, including investors subject to special tax rules (such as, for example, certain ﬁnancial
institutions, insurance companies, regulated investment companies, real estate investment trusts,
broker-dealers, traders in securities that elect mark-to-market treatment, partnerships and their partners,
tax-exempt organizations (including private foundations), investors who are not U.S. Holders, investors that
own (directly, indirectly, or constructively) 10% or more of our voting stock, investors that hold their ADSs or
Class A ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated
transaction, or investors that have a functional currency other than the United States dollar) all of whom may
be subject to tax rules that differ signiﬁcantly from those summarized below. In addition, this discussion does
not address any state, local, or non-United States tax considerations. Each potential investor is urged to
consult its tax advisor regarding the United States federal, state, local and non-United States income and other
tax considerations of an investment in our ADSs or Class A ordinary shares.

General

For purposes of this discussion, a ‘‘U.S. Holder’’ is a beneﬁcial owner of our ADSs or Class A ordinary
shares that is, for United States federal income tax purposes, (i) an individual who is a citizen or resident of
the United States, (ii) a corporation (or other entity treated as a corporation for United States federal income
tax purposes) created in, or organized under the law of, the United States or any state thereof or the District
of Columbia, (iii) an estate the income of which is includible in gross income for United States federal
income tax purposes regardless of its source, or (iv) a trust (A) the administration of which is subject to the
primary supervision of a United States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust or (B) that has otherwise elected to be treated as a
United States person under the Code.

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If a partnership (or other entity treated as a partnership for United States federal income tax purposes) is

a beneﬁcial owner of our ADSs or Class A ordinary shares, the tax treatment of a partner in the partnership
will generally depend upon the status of the partner and the activities of the partnership. Partnerships and
partners of a partnership holding our ADSs or Class A ordinary shares are urged to consult their tax advisors
regarding an investment in our ADSs or Class A ordinary shares.

Based in part on certain representations from the depositary bank, a U.S. Holder of ADSs will be treated
as the beneﬁcial owner for United States federal income tax purposes of the underlying shares represented by
the ADSs.

Passive Foreign Investment Company Considerations

A non-United States corporation, such as our company, will be a ‘‘passive foreign investment company,’’

or PFIC, for United States federal income tax purposes for any taxable year, if either (i) 75% or more of its
gross income for such year consists of certain types of ‘‘passive’’ income or (ii) 50% or more of the value of
its assets (determined on the basis of a quarterly average) during such year produce or are held for the
production of passive income (the ‘‘asset test’’). Passive income generally includes dividends, interest,
royalties, rents, annuities, net gains from the sale or exchange of property producing such income and net
foreign currency gains. For this purpose, cash and assets readily convertible into cash are categorized as
passive assets and the company’s unbooked goodwill are taken into account for determining the value of its
assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share of
the income of any other corporation in which we own, directly or indirectly, more than 25% (by value) of the
stock.

Although the law in this regard is not entirely clear, we treat Beijing 58 as being owned by us for
United States federal income tax purposes, because we control its management decisions and are entitled to
substantially all of its economic beneﬁts, and, as a result, we consolidate its results of operations in our
consolidated U.S. GAAP ﬁnancial statements. If it were determined, however, that we are not the owner of
Beijing 58 for United States federal income tax purposes, we would likely be treated as a PFIC for our
current taxable year and any subsequent taxable year.

Assuming that we are the owner of Beijing 58 for United States federal income tax purposes, we believe
that we primarily operate as an active provider of online marketing services. Based on our current income and
assets and projections as to the value of our assets based, in part, on the market value of our ADSs and
outstanding Class A ordinary shares, we do not believe that we were a PFIC for our taxable year ended
December 31, 2014 and, although no assurances can be made in this regard, we do not expect to be a PFIC
for the current taxable year or any subsequent taxable year. While we do not anticipate becoming a PFIC,
because our value of the assets for purpose of the asset test may be determined by reference to the market
price of our ADSs or ordinary shares, ﬂuctuations in the market price of our ADSs or Class A ordinary shares
may cause us to become a PFIC for the current or subsequent taxable years. Under circumstances where
revenues from activities that produce passive income signiﬁcantly increase relative to our revenues from
activities that produce non-passive income, or where we determine not to deploy signiﬁcant amounts of cash
for active purposes, our risk of becoming classiﬁed as a PFIC may substantially increase.

Furthermore, because there are uncertainties in the application of the relevant rules, it is possible that the

IRS may challenge our classiﬁcation of certain income and assets as non-passive or our valuation of our
tangible and intangible assets, each of which may result in our becoming a PFIC for the current or subsequent
taxable years. Because PFIC status is a fact-intensive determination made on an annual basis and will depend
upon the composition of our assets and income and the value of our tangible and intangible assets from time
to time, no assurance can be given that we will not become a PFIC in a subsequent taxable year. In particular,
if we are a PFIC for any year during which a U.S. Holder holds our ADSs or Class A ordinary shares, we
generally will continue to be treated as a PFIC with respect to such U.S. Holder for all succeeding years
during which such U.S. Holder holds our ADSs or Class A ordinary shares unless we cease to be a PFIC and
the U.S. Holder makes a ‘‘deemed sale’’ election with respect to the ADSs or Class A ordinary shares.

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The discussion below under ‘‘Dividends’’ and ‘‘Sale or Other Disposition of ADSs or Class A Ordinary
Shares’’ assumes that we will not be a PFIC for U.S. federal income tax purposes. The United States federal
income tax rules that apply if we are a PFIC for the current or any subsequent taxable year are generally
discussed below under ‘‘Passive Foreign Investment Company Rules.’’

Dividends

Any cash distributions (including the amount of any PRC tax withheld) paid on our ADSs or Class A
ordinary shares out of our current or accumulated earnings and proﬁts, as determined under United States
federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend
income on the day actually or constructively received by the U.S. Holder, in the case of Class A ordinary
shares, or by the depositary bank, in the case of ADSs. Because we do not intend to determine our earnings
and proﬁts on the basis of United States federal income tax principles, any distribution paid will generally be
treated as a ‘‘dividend’’ for United States federal income tax purposes. A non-corporate recipient of dividend
income generally will be subject to tax on dividend income from a ‘‘qualiﬁed foreign corporation’’ at a lower
applicable capital gains rate rather than the marginal tax rates generally applicable to ordinary income
provided that certain holding period and other requirements are met. We generally will be considered to be a
qualiﬁed foreign corporation (i) with respect to any dividend we pay on our ADSs or Class A ordinary shares
that are readily tradable on an established securities market in the United States, or (ii) if we are eligible for
the beneﬁts of a comprehensive tax treaty with the United States that the Secretary of Treasury of the
United States determines is satisfactory for this purpose and includes an exchange of information program.
Because our ADSs (but not our Class A ordinary shares) are listed on the NYSE, we believe that the ADSs
are readily tradable on an established securities market in the United States and that we are a qualiﬁed foreign
corporation with respect to dividends paid on our ADSs, but not with respect to dividends paid on our Class A
ordinary shares. In the event we are deemed to be a resident enterprise under the PRC Enterprise Income Tax
Law, we may be eligible for the beneﬁts of the United States-PRC income tax treaty (which the U.S. Treasury
Department has determined is satisfactory for this purpose) and we would be treated as a qualiﬁed foreign
corporation with respect to dividends paid on our Class A ordinary shares or ADSs. U.S. Holders should
consult their tax advisors regarding the availability of the reduced tax rate on dividends in their particular
circumstances. Dividends received on our ADSs or Class A ordinary shares will not be eligible for the
dividends received deduction allowed to corporations.

For United States foreign tax credit purposes, dividends paid on our ADSs or Class A ordinary shares

generally will be treated as income from foreign sources and generally will constitute passive category
income. In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income
Tax Law, a U.S. Holder may be subject to PRC withholding taxes on dividends paid, if any, on our ADSs or
Class A ordinary shares. A U.S. Holder may be eligible, subject to a number of complex limitations, to claim
a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received on our ADSs
or Class A ordinary shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax
withheld may instead claim a deduction for United States federal income tax purposes in respect of such
withholding, but only for a year in which such holder elects to do so for all creditable foreign income taxes.
The rules governing the foreign tax credit are complex. U.S. Holders are urged to consult their tax advisors
regarding the availability of the foreign tax credit under their particular circumstances.

Sale or Other Disposition of ADSs or Class A Ordinary Shares

A U.S. Holder will generally recognize capital gain or loss, if any, upon the sale or other disposition of
ADSs or Class A ordinary shares in an amount equal to the difference between the amount realized upon the
disposition and the holder’s adjusted tax basis in such ADSs or Class A ordinary shares. Any capital gain or
loss will be long-term gain or loss if the ADSs or Class A ordinary shares have been held for more than one
year and will generally be United States source gain or loss for United States foreign tax credit purposes. In
the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law, and
gain from the disposition of the ADSs or Class A ordinary shares is subject to tax in China, such gain may be
treated as PRC source gain for foreign tax credit purposes under the United States-PRC income tax treaty. The
deductibility of a capital loss may be subject to limitations. U.S. Holders are urged to consult their tax
advisors regarding the tax consequences if a foreign tax is imposed on a disposition of our ADSs or Class A
ordinary shares, including the availability of the foreign tax credit under their particular circumstances.

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Passive Foreign Investment Company Rules

If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary

shares, unless the U.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will
generally be subject to special tax rules that have a penalizing effect, regardless of whether we remain a PFIC,
on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid
during a taxable year to a U.S. Holder that is greater than 125% of the average annual distributions paid in
the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ADSs or Class A
ordinary shares), and (ii) any gain realized on the sale or other disposition, including, under certain
circumstances, a pledge, of ADSs or Class A ordinary shares. Under the PFIC rules:

•

•

•

the excess distribution and/or gain will be allocated ratably over the U.S. Holder’s holding period
for the ADSs or Class A ordinary shares;

the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding
period prior to the ﬁrst taxable year in which we are a PFIC, or pre-PFIC year, will be taxable as
ordinary income; and

the amount allocated to each prior taxable year, other than the current taxable year or a pre-PFIC
year, will be subject to tax at the highest tax rate in effect applicable to the individuals or
corporations, as appropriate, for that year and will be increased by an additional tax equal to interest
on the resulting tax deemed deferred with respect to each such other taxable year.

If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary

shares and any of our non-United States subsidiaries is also a PFIC, such U.S. Holder would be treated as
owning a proportionate amount (by value) of the shares of the lower-tier PFIC and would be subject to the
rules described above on certain distributions by a lower-tier PFIC and a disposition of shares of a lower-tier
PFIC even though such U.S. Holder would not receive the proceeds of those distributions or dispositions.
U.S. Holders should consult their tax advisors regarding the application of the PFIC rules to any of our
subsidiaries.

As an alternative to the foregoing rules, if we are a PFIC, a U.S. Holder of ‘‘marketable stock’’ may
make a mark-to-market election with respect to our ADSs, but not our Class A ordinary shares, provided that
the ADSs continue to be listed on the NYSE and continue to be regularly traded. If a U.S. Holder makes this
election, the holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the
excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis
of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over
the fair market value of such ADSs held at the end of the taxable year, but such deduction will only be
allowed to the extent of the net amount previously included in income as a result of the mark-to-market
election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reﬂect any income or loss
resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election and we cease to
be a PFIC, the holder will not be required to take into account the mark-to-market gain or loss described
above during any period that we are not a PFIC. If a U.S. Holder makes a mark-to-market election, any gain
such U.S. Holder recognizes upon the sale or other disposition of our ADSs in a year when we are a PFIC
will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be
treated as ordinary loss to the extent of the net amount previously included in income as a result of the
mark-to-market election. In the case of a U.S. Holder who has held ADSs or Class A ordinary shares during
any taxable year in respect of which we were classiﬁed as a PFIC and continues to hold such ADSs or
Class A ordinary shares (or any portion thereof) and has not previously determined to make a mark-to-market
election, and who is now considering making a mark-to-market election, special tax rules may apply relating
to purging the PFIC taint of such ADSs or Class A ordinary shares.

Because, as a technical matter, a mark-to-market election cannot be made for any lower-tier PFICs that
we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s
indirect interest in any investments held by us that are treated as an equity interest in a PFIC for United States
federal income tax purposes.

104

We do not intend to provide information necessary for U.S. Holders to make qualiﬁed electing fund
elections, which, if available, would result in tax treatment different from the general tax treatment for PFICs
described above.

If a U.S. Holder owns our ADSs or Class A ordinary shares during any taxable year that we are a PFIC,

the holder must ﬁle an annual report with the U.S. Internal Revenue Service. Each U.S. Holder is urged to
consult its tax advisor concerning the United States federal income tax consequences of purchasing, holding,
and disposing ADSs or Class A ordinary shares if we are or become a PFIC, including the possibility of
making a mark-to-market election and the unavailability of the qualiﬁed electing fund election.

Medicare Tax

Recently enacted legislation generally imposes a 3.8% Medicare tax on a portion or all of the net
investment income of certain individuals with a modiﬁed adjusted gross income of over $200,000 (or
$250,000 in the case of joint ﬁlers or $125,000 in the case of married individuals ﬁling separately) and on the
undistributed net investment income of certain estates and trusts. For these purposes, ‘‘net investment income’’
generally includes interest, dividends (including dividends paid with respect to our ADSs or Class A ordinary
shares), annuities, royalties, rents, net gain attributable to the disposition of property not held in a trade or
business (including net gain from the sale, exchange or other taxable disposition of an ADS or Class A
ordinary share) and certain other income, reduced by any deductions properly allocable to such income or net
gain. U.S. holders are urged to consult their tax advisors regarding the applicability of the Medicare tax to
their income and gains in respect of their investment in the ADSs or Class A ordinary shares.

Information Reporting and Backup Withholding

Pursuant to the Hiring Incentives to Restore Employment Act enacted on March 18, 2010, in tax years

beginning after the date of enactment, an individual U.S. Holder and certain entities may be required to
submit to the IRS certain information with respect to his or her beneﬁcial ownership of the ADSs or Class A
ordinary shares, if such ADSs or Class A ordinary shares are not held on his or her behalf by a U.S. ﬁnancial
institution. This new law also imposes penalties if an individual U.S. Holder is required to submit such
information to the IRS and fails to do so.

In addition, dividend payments with respect to the ADSs or Class A ordinary shares and proceeds from

the sale, exchange or redemption of the ADSs or Class A ordinary shares may be subject to information
reporting to the IRS and United States backup withholding. Backup withholding will not apply, however, to a
U.S. Holder who furnishes a correct taxpayer identiﬁcation number and makes any other required certiﬁcation,
or who is otherwise exempt from backup withholding. U.S. Holders should consult their tax advisors
regarding the application of the United States information reporting and backup withholding rules. Backup
withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a
U.S. Holder’s United States federal income tax liability, and a U.S. Holder generally may obtain a refund of
any excess amounts withheld under the backup withholding rules by ﬁling the appropriate claim for refund
with the Internal Revenue Service and furnishing any required information.

F. Dividends and Paying Agents

Not applicable.

G. Statements by Experts

Not applicable.

H. Documents on Display

We previously ﬁled with the SEC our registration statement on Form F-1 (Registration No. 333-191424),
as amended, including the prospectus contained therein, to register our ordinary shares in relation to our initial
public offering and our registration statement on Form F-1 (File Number: 333-194610), as amended, including
the prospectus contained therein, to register our ordinary shares in relation to a follow-on public offering. We
have also ﬁled with the SEC a related registration statement on F-6 (Registration No. 333-191776) to register
the ADSs.

105

We are subject to the periodic reporting and other informational requirements of the Securities Exchange

Act of 1934, as amended, or the Exchange Act. Under the Exchange Act, we are required to ﬁle reports and
other information with the SEC, including ﬁling annually a Form 20-F within four months after the end of
each ﬁscal year, which is December 31. Copies of reports and other information, when so ﬁled, may be
inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained
by the Securities and Exchange Commission at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The
public may obtain information regarding the Washington, D.C. Public Reference Room by calling the
Commission at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports,
proxy and information statements, and other information regarding registrants that make electronic ﬁlings with
the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the
Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers,
directors and principal shareholders are exempt from the reporting and short-swing proﬁt recovery provisions
contained in Section 16 of the Exchange Act.

We will furnish Citibank, N.A., the depositary of our ADSs, with our annual reports, which will include

a review of operations and annual audited consolidated ﬁnancial statements prepared in conformity with
U.S. GAAP, and all notices of shareholders’ meetings and other reports and communications that are made
generally available to our shareholders. The depositary will make such notices, reports and communications
available to holders of ADSs and, upon our written request, will mail to all record holders of ADSs the
information contained in any notice of a shareholders’ meeting received by the depositary from us.

I. Subsidiary Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Risk

Our operating transactions and assets and liabilities are mainly denominated in Renminbi. The Renminbi

is not freely convertible into foreign currencies for capital account transactions. The value of the Renminbi
against the U.S. dollar and other currencies is affected by, among other things, changes in the PRC political
and economic conditions and the PRC foreign exchange policies. Renminbi appreciated against the U.S. dollar
after the RPC government changes its decade-old policy of pegging the value of Renminbi to the U.S. dollar
in 2005. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the
Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the PRC government has
allowed the Renminbi to appreciate slowly against the U.S. dollar again. It is difficult to predict how market
forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the
U.S. dollar in the future. The net foreign exchange loss recognized in 2014 was insigniﬁcant. To date, we
have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency
exchange risk.

Interest Rate Risk

Our exposure to interest rate risk primarily relates to excess cash invested in ﬁxed rate term deposits and

variable rate short-term ﬁnancial products with original maturities of less than a year. Investments in both
ﬁxed rate and variable rate interest-earning instruments carry a degree of interest rate risk. Fixed rate
instruments may have their fair market value adversely impacted due to a rise in interest rates, while variable
rate instruments may produce less income than expected if interest rates fall. Due in part to these factors, our
future interest income and investment income may fall short of expectations due to changes in market interest
rates. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in
market interest rates, and therefore have not used any derivative ﬁnancial instruments to manage our interest
risk exposure.

106

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A. Debt Securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other Securities

Not applicable.

D. American Depositary Shares

Fees and Charges Our ADS Holders May Have to Pay

Holders of our ADSs will be required to pay the following service fees to the depositary bank:

Service

•
•
•

•

•

•

Issuance of ADSs
Cancellation of ADSs
Distribution of cash dividends or other cash
distributions
Distribution of ADSs pursuant to stock
dividends, free stock distributions or
exercise of rights.
Distribution of securities other than ADSs
or rights to purchase additional ADSs
Depositary Services

Fees

Up to U.S. 5¢ per ADS issued
Up to U.S. 5¢ per ADS canceled
Up to U.S. 5¢ per ADS held

Up to U.S. 5¢ per ADS held

Up to U.S. 5¢ per ADS held

Up to U.S. 5¢ per ADS held on the applicable
record date(s) established by the depositary bank

Holders of our ADSs will also be responsible to pay certain fees and expenses incurred by the depositary

bank and certain taxes and governmental charges such as:

•

•

•

•

•

fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent
for the ordinary shares in the Cayman Islands (i.e., upon deposit and withdrawal of ordinary shares);

expenses incurred for converting foreign currency into U.S. dollars;

expenses for cable, telex and fax transmissions and for delivery of securities;

taxes and duties upon the transfer of securities (i.e., when ordinary shares are deposited or
withdrawn from deposit); and

fees and expenses incurred in connection with the delivery or servicing of ordinary shares on
deposit.

Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary

bank by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary bank and
by the brokers (on behalf of their clients) delivering the ADSs to the depositary bank for cancellation. The
brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of
cash or securities to ADS holders and the depositary services fee are charged by the depositary bank to the
holders of record of ADSs as of the applicable ADS record date.

The depositary fees payable for cash distributions are generally deducted from the cash being distributed.

In the case of distributions other than cash (i.e., stock dividend, rights), the depositary bank charges the
applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered
in the name of the investor (whether certiﬁcated or uncertiﬁcated in direct registration), the depositary bank
sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and
custodian accounts (via DTC), the depositary bank generally collects its fees through the systems provided by

107

DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians
holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in
DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary banks.

In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit

agreement, refuse the requested service until payment is received or may set off the amount of the depositary
fees from any distribution to be made to the ADS holder.

The fees and charges holders of our ADSs may be required to pay may vary over time and may be
changed by us and by the depositary bank. Holders of our ADSs will receive prior notice of such changes.

Fees and Other Payments Made by the Depositary to Us

The depositary bank may reimburse us for certain expenses incurred by us in respect of the ADR
program established pursuant to the deposit agreement, by making available a portion of the depositary fees
charged in respect of the ADR program or otherwise, upon such terms and conditions as the Company and the
depositary bank may agree from time to time. In 2014, received approximately US$1.0 million reimbursement
from the depository for our expenses incurred in connection with the establishment and maintenance of the
ADS program.

108

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

PART II

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE

OF PROCEEDS

Material Modiﬁcations to the Rights of Security Holders

See ‘‘Item 10. Additional Information — B. Memorandum and Articles of Association — Ordinary

Shares’’ for a description of the rights of securities holders, which remain unchanged.

Use of Proceeds

The following ‘‘Use of Proceeds’’ information relates to (1) the registration statement on Form F-1, as
amended (File Number: 333-191424), which became effective on October 30, 2013 and (2) the registration
statement on Form F-1, as amended (File Number: 333-194610), which became effective on March 27, 2014.

We received net proceeds of approximately US$200.0 million from our initial public offering and
approximately US$73.0 million from our follow-on offering. For the period from October 30, 2013, the date
that the F-1 Registration Statement was declared effective by the SEC, to December 31, 2014, the net
proceeds received from our initial public offering were mainly used as follows:

•

•

•

•

approximately US$16.8 million for the purchase of new office building;

approximately US$23.0 million for the purchases of long-term investment;

approximately US$31.2 million for the purchase of short-term investment; and

approximately US$131.6 million for the purchase of term deposits.

We still intend to use the remainder of the proceeds from our initial public offering and follow-on
offering, as disclosed in our registration statements on Form F-1, for (1) the acquisition of, or investment in,
technologies, solutions or businesses that complement our business although we are not currently negotiating
any acquisition transactions, and (2) general corporate purposes, which may include investment in our product
development, engineering capability, sales and marketing activities, technology infrastructure, capital
expenditures, improvement of corporate facilities and other general and administrative matters.

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our chief executive officer and chief

ﬁnancial officer, evaluated the effectiveness of our disclosure controls and procedures (as deﬁned in Rules
13a-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2014, the end of the
period covered by this annual report, and has concluded that, as of such date, our disclosure controls and
procedures were ineffective solely due to the material weakness that existed in our internal control over
ﬁnancial reporting described below in ‘‘Management’s Annual Report on Internal Control over Financial
Reporting’’.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over ﬁnancial

reporting, as such term is deﬁned in Rule 13a-15(f) under the Exchange Act, for our Company. Internal
control over ﬁnancial reporting is a process designed to provide reasonable assurance regarding the reliability
of ﬁnancial reporting and the preparation of consolidated ﬁnancial statements in accordance with generally
accepted accounting principles, including those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reﬂect the transactions and dispositions of a company’s
assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
consolidated ﬁnancial statements in accordance with generally accepted accounting principles, and that a

109

company’s receipts and expenditures are being made only in accordance with authorizations of a company’s
management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of a company’s assets that could have a material effect on the
consolidated ﬁnancial statements.

Because of its inherent limitations, a system of internal control over ﬁnancial reporting can provide only

reasonable assurance with respect to consolidated ﬁnancial statement preparation and presentation and may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules promulgated by the

Securities and Exchange Commission, our management, including our chief executive officer and chief
ﬁnancial officer, assessed the effectiveness of internal control over ﬁnancial reporting as of December 31, 2014
using the criteria set forth in the report ‘‘Internal Control — Integrated Framework (2013)’’ published by the
Committee of Sponsoring Organizations of the Treadway Commission (known as COSO).

A material weakness is a deﬁciency, or a combination of deﬁciencies, in internal control over ﬁnancial
reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or
interim ﬁnancial statements will not be prevented or detected on a timely basis.

The following material weakness in internal control over ﬁnancial reporting has been identiﬁed as of

December 31, 2014.

The material weakness is related to the lack of sufficient accounting personnel to perform the

reconciliation controls over advertising expenses related accounts.

Because of the material weakness described above, our management has concluded that we did not

maintain effective internal control over ﬁnancial reporting as of December 31, 2014, based on criteria
established in Internal Control — Integrated Framework (2013) issued by COSO.

PricewaterhouseCoopers Zhong Tian LLP, our independent registered public accounting ﬁrm, has audited

the effectiveness of our internal control over ﬁnancial reporting as of December 31, 2014 and has issued an
attestation report as set forth below.

Changes in Internal Control over Financial Reporting

During 2014, we implemented the following measures with respect to improving internal controls over

ﬁnancial reporting: (1) We have developed appropriate U.S. GAAP accounting policies and designed controls
over our signiﬁcant accounting processes, entity level controls and ﬁnancial reporting close process; (2) We
engaged an external consulting ﬁrm to assist us to assess Sarbanes-Oxley compliance readiness and improve
overall internal controls; (3) We added more staff to our ﬁnance team, most of whom with big 4 accounting
ﬁrm or U.S. listed company ﬁnance or accounting experience; (4) Headed by our internal control team, we
coordinated all business units to review and test our internal controls. Throughout the year, we made various
improvements on procedures and processes and implemented numerous mitigation controls; and (5) We also
provided out staff with regular internal and external U.S. GAAP/accounting related trainings opportunities.

The actions we have taken, as listed above, have helped strengthen our internal control over ﬁnancial
reporting. However, the advertising expenses in 2014 increased signiﬁcantly compared with prior year, but we
did not hire additional or re-allocate our existing resources on performing the related reconciliation control. As
such, management concluded that there was a material weakness at December 31, 2014 related to the lack of
sufficient accounting personnel to perform the reconciliation controls over advertising expenses related
accounts.

Other than as described above, there were no changes in our internal controls over ﬁnancial reporting that
occurred during the period covered by this annual report that have materially affected, or are reasonably likely
to materially affect, our internal controls over ﬁnancial reporting.

110

Management’s Plan for Remediation of Material Weakness

Management has been actively engaged in developing remediation plans to address the above material
weakness. To remediate our identiﬁed material weakness, we plan to (1) hire additional staff to perform the
account balance reconciliation for the advertising expenses related accounts; and (2) adding additional review
resource to review the account reconciliations and other controls for the advertising expense related accounts.
To further strengthen the controls over the advertising expenses related accounts, we plan to add additional
detective controls such as conﬁrming material advertising expense related account balance at quarter end with
third parties and adding additional review performed by a separate team in ﬁnance department for key
advertising expenses accounts.

We expect to fully implement the measures discussed above by the end of 2015 and will continue to

improve internal controls over ﬁnancial reporting.

Attestation Report of Independent Registered Public Accounting Firm

PricewaterhouseCoopers Zhong Tian LLP has audited the effectiveness of our internal control over
ﬁnancial reporting as of December 31, 2014, as stated in its report, which appears on page F-2 of this Form
20-F.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Herman Yu qualiﬁes as an audit committee ﬁnancial expert

and that Herman Yu qualiﬁes as an independent director (under the standards set forth under Section 303A of
the Corporate Governance Rules of the New York Stock Exchange and Rule 10A-3 under the Exchange Act).

ITEM 16B. CODE OF ETHICS

Our board of directors adopted a code of business conduct and ethics that applies to our directors,
officers, employees and advisors, which became effective in November 2013. We have posted a copy of our
code of business conduct and ethics on our website at www.58.com.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following tables sets forth the aggregate fees by the categories speciﬁed below in connection with
certain professional services rendered by PricewaterhouseCoopers Zhong Tian LLP, our independent registered
public accounting ﬁrm for the years ended December 31, 2012, 2013 and 2014. We did not pay any other fees
to our auditors during the periods indicated below.

Audit fees(1)
Tax fees(2)
Other fees(3)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2012
US$

508
—
—

2013
US$
(In thousands)
839
47
—

2014
US$

1,409
—
335

(1)

(2)

(3)

‘‘Audit fees’’ represent the aggregate fees for professional services rendered by our principal auditors for
the audit of our annual consolidated ﬁnancial statements.
‘‘Tax fees’’ represent the aggregate fees for professional services rendered by our principal auditors for
tax compliance, tax advice and tax planning.
‘‘Other fees’’ represent the aggregate fees for services rendered other than services reported under ‘‘Audit
fees’’, ‘‘Audit-related fees’’ and ‘‘Tax fees’’ provided by our principal auditors.

111

The policy of our audit committee is to pre-approve all audit and non-audit services to be provided by

PricewaterhouseCoopers Zhong Tian LLP, including audit services, audit-related services, tax services and
other services are described above, other than those for de minimus services which are approved by the audit
committee prior to the completion of the audit.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED

PURCHASERS

In June 2014, we repurchased an aggregate of 27,603,750 Class B ordinary shares of us from certain of

our pre-IPO shareholders at US$20 per ordinary share, for an aggregate purchase price of approximately
US$552.1 million. Participants in the share repurchase included DCM Affiliates Fund V, L.P., DCM V, L.P.,
SB Asia Investment Fund II L.P., Dong Yang, and WP X Asia Online Investment Holdings Limited, from
which we purchased 186,720, 7,652,229, 8,537,341, 862,291 and 10,365,169 Class B ordinary shares,
respectively.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G. CORPORATE GOVERNANCE

As a Cayman Islands company listed on the NYSE, we are subject to the NYSE corporate governance

listing standards. Among other things, Section 303A.08 of the NYSE Listed Company Manual requires
shareholder approval of material revisions to equity-compensation plans and Section 312.03(c) of the NYSE
Listed Company Manual requires shareholder approval of new share issuances above the 20% threshold
speciﬁed therein. However, NYSE rules permit a foreign private issuer like us to follow the corporate
governance practices of its home country. Certain corporate governance practices in the Cayman Islands,
which is our home country, may differ signiﬁcantly from the NYSE corporate governance listing standards.
We have elected to follow the Cayman Islands practices with respect to the amendment of our 2013 share
incentive plan to increase the total number of ordinary shares that may be issued pursuant to awards granted
under the plan. In addition, we have also elected to follow the Cayman Islands practices with respect to the
issuance of new ordinary shares above the 20% threshold as speciﬁed in Section 312.03(c).

Other than the two matters described above, there are no signiﬁcant differences between our corporate

governance practices and those followed by U.S. domestic companies under the NYSE Listed Company
Manual.

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

112

PART III

ITEM 17. FINANCIAL STATEMENTS

We have elected to provide ﬁnancial statements pursuant to Item 18.

ITEM 18. FINANCIAL STATEMENTS

The consolidated ﬁnancial statements of 58.com Inc. are included at the end of this annual report.

ITEM 19. EXHIBITS

Exhibit
Number

1.1

2.1

2.2

2.3

2.4

4.1

4.2

4.3

4.4

Description of Document

Third Amended and Restated Memorandum and Articles of Association of the Registrant
(incorporated herein by reference to Exhibit 3.2 to the registration statement on Form F-1
(File No. 333-191424), as amended, initially ﬁled with the Security and Exchange
Commission on September 27, 2013).

Registrant’s Specimen American Depositary Receipt (incorporated herein by reference to
Exhibit 4.3 to the registration statement on Form F-1 (File No. 333-191424), as amended,
initially ﬁled with the Security and Exchange Commission on September 27, 2013).

Registrant’s Specimen Certiﬁcate for Class A Ordinary Shares (incorporated herein by
reference to Exhibit 4.2 to the registration statement on Form F-1 (File No. 333-191424),
as amended, initially ﬁled with the Security and Exchange Commission on September 27,
2013).

Deposit Agreement dated October 31, 2013, among the Registrant, the depositary and
holders of the American Depositary Receipts (incorporated herein by reference to
Exhibit 4.3 to the registration statement on Form F-S-8 (File No. 333-194873), initially
ﬁled with the Security and Exchange Commission on March 28, 2014).

Amended and Restated Shareholders’ Agreement dated as of August 4, 2011 among the
Registrant, its ordinary shareholders and preference shareholders (incorporated herein by
reference to Exhibit 4.5 to the registration statement on Form F-1 (File No. 333-191424),
as amended, initially ﬁled with the Security and Exchange Commission on September 27,
2013).

Form of Underwriting Agreement among the Registrant, Morgan Stanley & Co.
International plc, Credit Suisse Securities (USA) LLC and Citigroup Global Markets Inc.
and each of the underwriters named therein (incorporated herein by reference to Exhibit 1.1
to the registration statement on Form F-1 (File No. 333-191424), as amended, initially ﬁled
with the Security and Exchange Commission on September 27, 2013).

Form of Underwriting Agreement among the Registrant, Morgan Stanley & Co.
International plc, Credit Suisse Securities (USA) LLC and Citigroup Global Markets Inc.
and each of the underwriters named therein (incorporated herein by reference to Exhibit 1.1
to the registration statement on Form F-1 (File No. 333-194610), as amended, initially ﬁled
with the Security and Exchange Commission on March 17, 2014).

2010 Employee Stock Option Plan (incorporated herein by reference to Exhibit 10.1 to the
registration statement on Form F-1 (File No. 333-191424), as amended, initially ﬁled with
the Security and Exchange Commission on September 27, 2013).

2013 Share Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the
registration statement on Form F-1 (File No. 333-191424), as amended, initially ﬁled with
the Security and Exchange Commission on September 27, 2013).

113

Exhibit
Number

4.5

4.6

4.7

4.8

4.9

4.10

4.11

4.12

4.13*

4.14*

4.15*

Description of Document

Form of Indemniﬁcation Agreement with the Registrant’s directors and executive officers
(incorporated herein by reference to Exhibit 10.3 to the registration statement on Form F-1
(File No. 333-191424), as amended, initially ﬁled with the Security and Exchange
Commission on September 27, 2013).

Form of Employment Agreement between the Registrant and an executive officer of the
Registrant (incorporated herein by reference to Exhibit 10.4 to the registration statement on
Form F-1 (File No. 333-191424), as amended, initially ﬁled with the Security and
Exchange Commission on September 27, 2013).

English translation of the Amended and Restated Exclusive Business Cooperation
Agreement between Beijing Chengshi Wanglin Information Technology Co., Ltd. and
Beijing 58 Information Technology Co., Ltd. dated October 10, 2011 (incorporated herein
by reference to Exhibit 10.5 to the registration statement on Form F-1 (File No.
333-191424), as amended, initially ﬁled with the Security and Exchange Commission on
September 27, 2013).

English translation of the Equity Interest Pledge Agreements, as amended and restated,
among Beijing Chengshi Wanglin Information Technology Co., Ltd., Beijing 58
Information Technology Co., Ltd. and each of the shareholders of Beijing 58 Information
Technology Co., Ltd. dated June 28, 2013 (incorporated herein by reference to Exhibit 10.6
to the registration statement on Form F-1 (File No. 333-191424), as amended, initially ﬁled
with the Security and Exchange Commission on September 27, 2013).

English translation of the Exclusive Option Agreements, as amended and restated, among
Beijing Chengshi Wanglin Information Technology Co., Ltd., Beijing 58 Information
Technology Co., Ltd. and each of the shareholders of Beijing 58 Information Technology
Co., Ltd. dated June 28, 2013 (incorporated herein by reference to Exhibit 10.7 to the
registration statement on Form F-1 (File No. 333-191424), as amended, initially ﬁled with
the Security and Exchange Commission on September 27, 2013).

English translation of Power of Attorney issued by each of the shareholders of Beijing 58
Information Technology Co., Ltd. dated June 28, 2013 (incorporated herein by reference to
Exhibit 10.8 to the registration statement on Form F-1 (File No. 333-191424), as amended,
initially ﬁled with the Security and Exchange Commission on September 27, 2013).

English translation of Loan Agreements between Beijing Chengshi Wanglin Information
Technology Co., Ltd. and each of the individual shareholders of Beijing 58 Information
Technology Co., Ltd. (incorporated herein by reference to Exhibit 10.9 to the registration
statement on Form F-1 (File No. 333-191424), as amended, initially ﬁled with the Security
and Exchange Commission on September 27, 2013).

Subscription Agreement dated as of October 17, 2013 between the Registrant and DCM
Hybrid RMB Fund (incorporated herein by reference to Exhibit 10.10 to the registration
statement on Form F-1 (File No. 333-191424), as amended, initially ﬁled with the Security
and Exchange Commission on September 27, 2013).

Investment Agreement, dated June 27, 2014, between the Registrant and Ohio River
Investment Limited

Investor Rights Agreement, dated June 30, 2014, between the Registrant, Ohio River
Investment Limited, Nihao China Corporation and Jinbo Yao

Form of Share Repurchase Agreement, dated June 27, 2014, between the Registrant and
each of DCM Affiliates Fund V, L.P., DCM V, L.P., SB Asia Investment Fund II L.P., Dong
Yang, and WP X Asia Online Investment Holdings Limited, respectively

114

Exhibit
Number

4.16*

8.1*

11.1

12.1*

12.2*

13.1**

13.2**

15.1*

Description of Document

English Summary of Cooperation Agreement, dated September 25, 2014, by and between
Beijing Electronics Zone Investment and Development Co., Ltd. and Beijing Chengshi
Wanglin Information Technology Co., Ltd.

Principal subsidiaries of the Registrant

Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to
Exhibit 99.1 to the registration statement on Form F-1 (File No. 333-191424), as amended,
initially ﬁled with the Security and Exchange Commission on September 27, 2013).

Certiﬁcation by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002

Certiﬁcation by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002

Certiﬁcation by Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002

Certiﬁcation by Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002

Consent of PricewaterhouseCoopers Zhong Tian LLP, Independent Registered Public
Accounting Firm

15.2*

Consent of Han Kun Law Offices

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Deﬁnition Linkbase Document

101.LAB*

XBRL Taxonomy Extension Labels Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith
*
** Furnished herewith

115

The registrant hereby certiﬁes that it meets all of the requirements for ﬁling its annual report on

Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

SIGNATURES

58.com Inc.

By: /s/ Jinbo Yao

Name: Jinbo Yao
Title: Chairman and Chief Executive Officer

Date: April 29, 2015

116

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheets as of December 31, 2013 and 2014 . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Comprehensive Income/(Loss) for the Years Ended December 31, 2012,
2013 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Changes in Shareholders’ Equity/(Deﬁcit) for the Years Ended

December 31, 2012, 2013 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2013 and 2014 . .

Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

F-2

F-3

F-4

F-5

F-6

F-7

F-1

To the Board of Director and Shareholders of 58.com Inc.:

Report of Independent Registered Public Accounting Firm

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of
comprehensive income/(loss), of changes in shareholders’ equity/(deﬁcit) and of cash ﬂows present fairly, in all
material respects, the ﬁnancial position of 58.com Inc. and its subsidiaries, variable interest entities (‘‘VIEs’’) and
VIEs’ subsidiaries (collectively, the ‘‘Group’’) at December 31, 2014 and December 31, 2013, and the results of
their operations and their cash ﬂows for each of the three years in the period ended December 31, 2014 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
Group did not maintain, in all material respects, effective internal control over ﬁnancial reporting as of
December 31, 2014, based on criteria established in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because a material weakness
in internal control over ﬁnancial reporting relating to the lack of sufficient accounting personnel to perform the
reconciliation controls over advertising expenses related accounts, existed as of that date. A material weakness is a
deﬁciency, or a combination of deﬁciencies, in internal control over ﬁnancial reporting, such that there is a
reasonable possibility that a material misstatement of the annual or interim ﬁnancial statements will not be
prevented or detected on a timely basis. The material weakness referred to above is described in Management’s
Annual Report On Internal Control over Financial Reporting appearing under Item 15 of this Annual Report on
Form 20-F. We considered this material weakness in determining the nature, timing, and extent of audit tests
applied in our audit of the 2014 consolidated ﬁnancial statements, and our opinion regarding the effectiveness of
the Group’s internal control over ﬁnancial reporting does not affect our opinion on those consolidated ﬁnancial
statements. The Group’s management is responsible for these ﬁnancial statements, for maintaining effective
internal control over ﬁnancial reporting and for its assessment of the effectiveness of internal control over ﬁnancial
reporting, included in management’s report referred to above. Our responsibility is to express opinions on these
ﬁnancial statements and on the Group’s internal control over ﬁnancial reporting based on our audits (which was
an integrated audit in 2014). We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the ﬁnancial statements are free of material misstatement and whether
effective internal control over ﬁnancial reporting was maintained in all material respects. Our audits of the
ﬁnancial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the
ﬁnancial statements, assessing the accounting principles used and signiﬁcant estimates made by management, and
evaluating the overall ﬁnancial statement presentation. Our audit of internal control over ﬁnancial reporting
included obtaining an understanding of internal control over ﬁnancial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over ﬁnancial reporting is a process designed to provide reasonable assurance
regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over ﬁnancial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reﬂect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of ﬁnancial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the ﬁnancial statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers Zhong Tian LLP
Beijing, the People’s Republic of China
April 29, 2015

F-2

58.com Inc.

CONSOLIDATED BALANCE SHEETS
As of December 31, 2013 and 2014
(U.S. dollars in thousands, except share data and per share data, unless otherwise noted)

ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments
Accounts receivable
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayments and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-current assets:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
Intangible assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable (including accounts payable of the consolidated variable interest
entities (‘‘VIEs’’) without recourse to the Company of US$1,123 and US$6,698
as of December 31, 2013 and 2014, respectively) . . . . . . . . . . . . . . . . . . . . . .

Deferred revenues (including deferred revenues of the consolidated VIEs without
recourse to the Company of US$42,942 and US$62,455 as of December 31,
2013 and 2014, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Customer advances and deposits (including customer advances and deposits of the

consolidated VIEs without recourse to the Company of US$5,670 and US$10,095
as of December 31, 2013 and 2014, respectively) . . . . . . . . . . . . . . . . . . . . . .

Taxes payable (including taxes payable of the consolidated VIEs without recourse

to the Company of US$1,751 and US$1,637 as of December 31, 2013 and 2014,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Salary and welfare payable (including salary and welfare payable of the

consolidated VIEs without recourse to the Company of US$8,471 and US$11,343
as of December 31, 2013 and 2014, respectively) . . . . . . . . . . . . . . . . . . . . . .

Accrued expenses and other current liabilities (including accrued expenses and
other current liabilities of the consolidated VIEs without recourse to the
Company of US$2,181 and US$6,681 as of December 31, 2013 and 2014,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shareholders’ equity:
Ordinary shares (US$0.00001 par value, 5,000,000,000 and 5,000,000,000

(including 4,800,000,000 Class A and 200,000,000 Class B) shares authorized,
158,876,693 (including 27,064,706 Class A and 131,811,987 Class B) and
176,375,211 (including 101,574,732 Class A and 74,800,479 Class B) shares
issued and outstanding as of December 31, 2013 and 2014, respectively) . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deﬁcit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of December 31
2014
2013

60,494
—
152,190
98,411
4,292
9,110
324,497

6,427
65
—
2,352
8,844
333,341

111,376
1,314
281,513
216,146
6,282
24,131
640,762

17,899
460
23,784
21,027
63,170
703,932

8,309

16,029

55,099

95,336

21,369

35,983

2,264

7,392

17,962

28,804

8,055
113,058
113,058

13,071
196,615
196,615

2
359,276
(138,419)
(576)
220,283
333,341

2
624,381
(115,775)
(1,291)
507,317
703,932

The accompanying notes are an integral part of these consolidated ﬁnancial statements.

F-3

58.com Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
For the Years Ended December 31, 2012, 2013 and 2014
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

For the Year Ended December 31,
2013

2014

2012

Revenues:
Membership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Online marketing services . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross proﬁt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating expenses(1):
Sales and marketing expenses . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income/(loss) from operations . . . . . . . . . . . . . . . . . . . . . . .

Other income/(expenses):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment income/(loss), net
. . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange gain/(loss), net . . . . . . . . . . . . . . . .
Others, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income/(loss) before tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income/(loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion to preference shares redemption values . . . . . . . . . . .
Income attributable to preference shareholders . . . . . . . . . . . . .
Net income/(loss) attributable to ordinary shareholders . . . . .
Net income/(loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment, net of nil tax . . . . . . . .
Unrealized loss on available-for-sale securities . . . . . . . . . . . . .
Comprehensive income/(loss) . . . . . . . . . . . . . . . . . . . . . . . .
Net income/(loss) per ordinary share attributable to ordinary

shareholders − basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income/(loss) per ordinary share attributable to ordinary

shareholders − diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income/(loss) per ADS-basic (1 ADS represents 2 Class A

ordinary shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income/(loss) per ADS-diluted (1 ADS represents 2 Class A

ordinary shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weighted average number of ordinary shares used in computing

47,919
28,509
10,694
87,122
10,406
76,716

76,422
18,464
13,088
107,974
(31,258)

233
(355)
(62)
1,041
(30,401)
—
(30,401)
(10,233)
—
(40,634)
(30,401)
(48)
—
(30,449)

(0.92)

(0.92)

(1.84)

(1.84)

85,725
58,457
1,565
145,747
8,471
137,276

84,534
25,138
12,983
122,655
14,621

603
2,728
548
1,057
19,557
—
19,557
(9,134)
(1,230)
9,193
19,557
(570)
—
18,987

0.14

0.13

0.29

0.27

139,490
125,033
455
264,978
13,844
251,134

180,148
43,676
20,633
244,457
6,677

8,527
10,245
(2,510)
5,891
28,830
(6,186)
22,644
—
—
22,644
22,644
396
(1,111)
21,929

0.13

0.13

0.27

0.26

basic earnings per share

. . . . . . . . . . . . . . . . . . . . . . . . . .

44,245,388

63,717,007

168,589,273

Weighted average number of ordinary shares used in computing

diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . .

44,245,388

69,159,524

174,024,997

Note:
(1) Share-based compensation expenses were allocated in cost of revenues and operating expenses as

follows:

Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing expenses . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Research and development expenses
. . . . . . . . . . . . . . . .
General and administrative expenses

30
270
489
882

36
445
996
1,388

18
1,395
2,403
2,357

The accompanying notes are an integral part of these consolidated ﬁnancial statements.

F-4

58.com Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY/(DEFICIT)
For the Years Ended December 31, 2012, 2013 and 2014
(U.S. dollars in thousands, except share data and per share data, unless otherwise noted)

Ordinary shares

Shares*

Amount

Additional
paid-in capital

Accumulated
deﬁcit

Accumulated
other
comprehensive
income/(loss)

Total
shareholders’
equity/(deﬁcit)

Balance as of December 31,

2011 . . . . . . . . . . . . . .
Share-based compensation . .
Exercise of share options . . .
Preference shares accretions
.
Net loss . . . . . . . . . . . . . .
Foreign currency translation

adjustment, net of nil tax . .

Balance as of December 31,

2012 . . . . . . . . . . . . . .
Share-based compensation . .
Exercise of share options . . .
.
Preference shares accretions
Net income . . . . . . . . . . . .
Foreign currency translation

adjustment, net of nil tax . .

Issuance of ordinary shares

upon initial public offering
(‘‘IPO’’), net of issuance
costs of US$4,575 . . . . . .

Conversion of preference

44,245,388
—
—
—
—

—

44,245,388
—
—
—
—

—

27,064,706

shares upon IPO . . . . . . . .

87,566,599

Balance as of December 31,

2013 . . . . . . . . . . . . . .
Share-based compensation . . .
Exercise of share options . . . .
Net income . . . . . . . . . . . .
Foreign currency translation

adjustment, net of nil tax . .

Unrealized loss on available-

for-sale securities . . . . . . .

Issuance of ordinary shares

upon follow-on offering, net
of issuance costs of
US$1,253 . . . . . . . . . . .

Issuance of ordinary shares to
Tencent, net of issuance
costs of US$104 . . . . . . .

158,876,693
—
4,297,268
—

—

—

4,000,000

36,805,000

Repurchase of ordinary shares
from pre-IPO shareholders
Balance as of December 31,

.

(27,603,750)

2014 . . . . . . . . . . . . . .

176,375,211

1
—
—
—
—

—

1
—
—
—
—

—

—

1

2
—
—
—

—

—

—

—

—

2

—
1,671
253
(1,924)
—

(113,349)
—
—
(8,309)
(30,401)

—

—

—
2,865
557
(3,217)
—

—

210,421

148,650

359,276
6,173
3,304
—

—

—

71,707

735,996

(552,075)

(152,059)
—
—
(5,917)
19,557

—

—

—

(138,419)
—
—
22,644

—

—

—

—

—

42
—
—
—
—

(48)

(6)
—
—
—
—

(113,306)
1,671
253
(10,233)
(30,401)

(48)

(152,064)
2,865
557
(9,134)
19,557

(570)

(570)

—

—

(576)
—
—
—

396

210,421

148,651

220,283
6,173
3,304
22,644

396

(1,111)

(1,111)

—

—

—

71,707

735,996

(552,075)

624,381

(115,775)

(1,291)

507,317

*

Ordinary shares include Class A ordinary shares and Class B ordinary shares, please refer to Note 14.

The accompanying notes are an integral part of these consolidated ﬁnancial statements.

F-5

58.com Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2012, 2013 and 2014
(U.S. dollars in thousands, except share data, unless otherwise noted)

Cash ﬂows from operating activities:
Net income/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(30,401)

19,557

22,644

For the Year Ended December 31,
2014
2013

2012

Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating

activities:

Share-based compensation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expenses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment (income)/loss
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange (gain)/loss, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayments and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenues
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer advances and deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salary and welfare payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by/(used in) operating activities . . . . . . . . . . . . . . . . . . . . .

Cash ﬂows from investing activities:
Purchase of property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received for disposal of property and equipment . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of long-term investments
Purchase of term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturity of term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturity of short-term investments . . . . . . . . . . . . . . . . . . . . . . .
Other cash proceeds related to investing activities. . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cash ﬂows from ﬁnancing activities:
Proceeds from exercise of share options . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of 25,300,000 Class A ordinary shares in IPO . . . . . . . . . . .
Proceeds from issuance of 1,764,706 Class A ordinary shares in the private placement

to DCM Hybrid RMB Fund concurrently with IPO . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of 4,000,000 Class A ordinary shares in follow-on offering . . .
Proceeds from issuance of ordinary shares to Tencent . . . . . . . . . . . . . . . . . . . . .
Payments for repurchase of ordinary share from pre-IPO shareholders . . . . . . . . . . .
Payment for issuance expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by ﬁnancing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . .
Net increase/(decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at the beginning of the year . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at the end of the year . . . . . . . . . . . . . . . . . . . . . .

1,671
3,879
1,000
67
62

(521)
924
(9,129)
13,555
7,227
4,194
780
1,964
(4,728)

(5,227)
(28)
—
—
—
—
(212,753)
190,855
—
(27,153)

253
—

—
—
—
—
—
253
(14)
(31,642)
42,311
10,669

2,865
4,657
—
—
(548)

(1,097)
(2,318)
(2,647)
26,145
10,329
5,549
387
3,425
66,304

(4,177)
—
—
—
(152,190)
—
(397,266)
323,587
—
(230,046)

557
199,954

15,000
—
—
—
(2,168)
213,343
224
49,825
10,669
60,494

6,173
5,607
(2,146)
40
2,510

(1,990)
(16,000)
6,021
40,229
14,615
10,785
5,128
4,969
98,585

(32,476)
—
44
(23,781)
(382,552)
250,907
(652,892)
535,322
156
(305,272)

3,286
—

—
72,960
736,100
(552,075)
(2,841)
257,430
139
50,882
60,494
111,376

Supplemental disclosure of cash ﬂow information:
Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

1,194

Supplemental disclosure of non-cash activities:
Property and equipment in accounts payable
. . . . . . . . . . . . . . . . . . . . . . . . . .
Accretions to preference shareholders redemption values . . . . . . . . . . . . . . . . . . .
Restricted cash relating to share-based compensation plan . . . . . . . . . . . . . . . . . .

394
10,233
—

28
9,134
—

1,813
—
1,314

The accompanying notes are an integral part of these consolidated ﬁnancial statements.

F-6

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

1. Organization and principal activities

58.com Inc. (the ‘‘Company’’), through its consolidated subsidiaries, variable interest entities (‘‘VIEs’’)

and VIEs’ subsidiaries (collectively, the ‘‘Group’’), is primarily engaged in the operation of an online
marketplace serving local merchants and consumers in the People’s Republic of China (the ‘‘PRC’’ or
‘‘China’’) through its website 58.com.

As of December 31, 2014, the Company’s major subsidiaries, VIEs and VIEs’ subsidiaries are as follows:

Date of
incorporation

Place of
incorporation

Percentage of
direct or
indirect
economic
ownership

Name
Wholly owned subsidiaries of the Company:
China Classiﬁed Network Corporation

British Virgin
Islands

(‘‘CCNC BVI’’) . . . . . . . . . . . . . . . . . . . .

January 5, 2010

China Classiﬁed Information Corporation

Limited (‘‘CCIC HK’’)

. . . . . . . . . . . . . . .

January 18, 2010 Hong Kong

Beijing Chengshi Wanglin Information
Technology Co., Ltd. (‘‘Wanglin’’ or
‘‘WFOE’’) . . . . . . . . . . . . . . . . . . . . . . . .
58 Tongcheng Information Technology Co., Ltd.

March 8, 2010

PRC

(‘‘58 Technology’’) . . . . . . . . . . . . . . . . . . March 15, 2012

PRC

VIEs and VIEs’ subsidiaries:
Beijing 58 Information Technology Co., Ltd.

(‘‘Beijing 58’’) . . . . . . . . . . . . . . . . . . . . . December 12, 2005 PRC
PRC

. . . . . . . . . . . . . . . . . . . . . . . .

July 28, 2011

58 Co., Ltd.
Tianjin 58 Daojia Life Services Co., Ltd.

(‘‘58 Home’’) . . . . . . . . . . . . . . . . . . . . . .

August 19, 2014

PRC

History of the Group and basis of presentation

100%

100%

100%

100%

100%
100%

100%

The Company (formerly known as ‘‘China Classiﬁed Network (Cayman) Corporation’’) was incorporated

as a limited liability company in the Cayman Islands in May 2011. Through a share exchange in July 2011,
all the shareholders of CCNC BVI exchanged all of their outstanding ordinary and preference shares of
CCNC BVI for ordinary and preference shares of the Company on a one-for-one basis. As a result,
CCNC BVI became a wholly owned subsidiary of the Company. Given there was no change in each
shareholder’s proportionate shareholdings and respective rights and obligations before and after the share
exchange, the transaction was accounted for in a manner similar to a pooling-of-interest with the assets and
liabilities stated at their historical amounts in the Company’s consolidated ﬁnancial statements.

The Group began its operations in China in December 2005 through Beijing 58, a PRC limited liability

company founded by Mr. Jinbo Yao, the CEO of the Group, and several angel investors (collectively, ‘‘the
Founding Shareholders’’). Other entities within the Group listed above were established by the shareholders of
the Company to facilitate the Group to conduct overseas ﬁnancing and in anticipation of the Company’s initial
public offering overseas.

Through a series of contemplated transactions in July 2006, Chengshi Wangxun (Beijing) Information
Technology Co., Ltd., or Wangxun, was established to control Beijing 58 through contractual arrangements
and to receive overseas ﬁnancing from SB Asia Investment Fund II L.P. (‘‘SAIF’’). Through another series of
contemplated transactions in 2010, CCNC BVI became the parent company of the Group and received
additional overseas ﬁnancing from DCM V.L.P. and DCM Affiliates Fund V.L.P. (collectively, the ‘‘DCM’’)
via (i) the establishment of CCNC BVI, (ii) the repurchase and issuance of shares by CCNC BVI to provide

F-7

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

1. Organization and principal activities − (continued)

shareholders with their prior proportionate equity interests in the Group, (iii) the establishment of subsidiaries
CCIC HK and Wanglin, (iv) a change in Beijing 58’s primary beneﬁciary from Wangxun to Wanglin, (v) the
issuance of preference shares to DCM. Throughout these reorganization transactions, the Group’s business
continued to be carried out by Beijing 58 without changes in senior management or changes in control of
Beijing 58. Accordingly, pursuant to the guidance in ASC 805, ‘‘Business Combinations’’, the new entities
that were established to consolidate Beijing 58 were identiﬁed as the acquirees for accounting purposes and
there was no change in ﬁnancial statements preparation basis as the result of these reorganization transactions.

On October 17, 2013, concurrently with and subject to the completion of the IPO, DCM Hybrid RMB

Fund, a fund affiliated with DCM V.L.P., the Group’s existing shareholder, agreed to purchase from the
Group US$15,000 Class A ordinary shares at a price per share equal to the IPO price adjusted to reﬂect the
ADS-to-ordinary share ratio, or an aggregate of 1,764,706 Class A ordinary shares at a price of US$8.50 per
Class A ordinary share.

The Company’s American Depository Share (‘‘ADS’’) commenced trading on October 31, 2013 on the
New York Stock Exchange (‘‘NYSE’’) and the underwriters subsequently exercised their options to purchase
additional ADSs on November 5, 2013. As a result of the IPO and the concurrent private placement, the
Company issued and sold a total of 27,064,706 Class A ordinary shares, including 12,650,000 ADSs issued
and sold during the IPO and 1,764,706 Class A ordinary shares purchased by DCM Hybrid RMB Fund at
US$15,000 in the concurrent private placement. Each ADS represents two Class A ordinary shares. The net
proceeds received by the Company from the IPO and the concurrent private placement, after deducting
underwriter commissions, amounted to approximately US$214,954. Upon the completion of the IPO, all of the
Company’s 87,566,599 outstanding preference shares and 44,245,388 outstanding ordinary shares were
converted into Class B ordinary shares immediately as of the same date at one-for-one basis. Please refer to
Note 14 for the dual class structure.

The Company and certain selling shareholders completed the follow-on public offering of ADSs on
April 2, 2014. As a result of these transactions, the Company issued and sold 2,000,000 ADSs and the selling
shareholders sold an aggregate of 4,900,000 ADSs at the price of US$38.00 per ADS. The net proceeds
received by the Company, after deducting underwriter commissions, amounted to approximately US$72,960.
The Company did not receive any proceeds from the sale of the ADSs by the selling shareholders.

On June 30, 2014, Tencent Holdings Limited (‘‘Tencent’’), a leading provider of comprehensive Internet
services in China purchased 36,805,000 ordinary shares from the Company at a purchase price of US$40.00
per ADS, or a total cash consideration of US$736,100. The Company used part of the proceeds from this
transaction to repurchase an aggregate of 27,603,750 ordinary shares from existing pre-IPO shareholders
including a director who is also an Audit Committee member of our company at the same price of US$40.00
per ADS.

Contractual arrangements with Beijing 58

To comply with PRC laws and regulations, the Group provides some of its services in China via

Beijing 58. Under various contractual agreements, the Group or its designee has the exclusive right to acquire
the ownership of Beijing 58 for a nominal consideration, or an adjusted price based on appraisal if required
by the PRC laws, when permitted by PRC laws and regulations at the request of the Group any time. All
voting rights of Beijing 58 are assigned to the Group and the Group has the right to appoint all directors and
senior management personnel of Beijing 58. In addition, all shareholders of Beijing 58 have pledged their
shares in Beijing 58 as collateral. As a result, the Company enjoys substantially all of the risks and rewards of
ownership of Beijing 58 and exercises controls over it, along with its subsidiaries. Therefore, the Company is
the ultimate primary beneﬁciary of Beijing 58 and has consolidated Beijing 58 and its subsidiaries.

F-8

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

58.com Inc.

1. Organization and principal activities − (continued)

The following is a summary of the Contractual Agreements:

Exclusive Business Cooperation Agreement

Under the amended-and-restated exclusive business cooperation agreement between the WFOE and
Beijing 58 dated October 10, 2011, the WFOE has the exclusive right to provide Beijing 58 the technical and
business support and consulting services related to Beijing 58’s business operations. The WFOE owns the
intellectual property rights developed by either the WFOE or Beijing 58 in the performance of this agreement.
Beijing 58 has agreed to pay a service fee to the WFOE based on services performed. The term of the
exclusive business cooperation agreement is 10 years and can be extended indeﬁnitely at the WFOE’s sole
discretion. The WFOE had collected approximately US$384 of service fee payment from a subsidiary of
Beijing 58 as of December 31, 2014.

Equity Interest Pledge Agreement

Under the amended-and-restated equity pledge agreements among Beijing 58, its shareholders and the
WFOE dated June 28, 2013, the shareholders have pledged their respective equity interests in Beijing 58 to
secure Beijing 58’s performance under the exclusive business cooperation agreement. The shareholders agree
that they shall not sell, mortgage or dispose any of Beijing 58’s equity interest without the prior written
consent of the WFOE. During the equity pledge period, the WFOE is entitled to all dividends and other
distributions made by Beijing 58. The equity pledge agreement will remain binding until Beijing 58 discharges
all its obligations under the exclusive business cooperation agreement at the expiration of the exclusive
business cooperation agreement.

Exclusive Option Agreement

Under the amended-and-restated exclusive option agreement among Beijing 58, its shareholders and the
WFOE dated June 28, 2013, the shareholders of Beijing 58 irrevocably granted the WFOE or its designated
person an irrevocable, unconditional and exclusive option to purchase, to the extent permitted by applicable
PRC laws, all of the equity interest in Beijing 58 from shareholders for a nominal consideration or a speciﬁed
price equal to the loan provided by Wanglin to the individual shareholders. If the lowest price permitted under
PRC law is higher than the above price, the lowest price permitted under PRC law shall apply. The term of
the exclusive option agreement is 10 years and can be extended indeﬁnitely at the WFOE’s sole discretion.

Power of Attorney

Pursuant to the amended-and-restated power of attorney signed among Beijing 58, its shareholders and

the WFOE dated June 28, 2013, the shareholders of Beijing 58 irrevocably appointed the WFOE as their
exclusive agent and attorney and vested the WFOE with full power to exercise all their rights as shareholders
of Beijing 58, including all voting rights. The power of attorney will remain in effect indeﬁnitely as long as
the shareholders remain as Beijing 58 shareholders.

Risks in Relation to the VIE Structure

As of December 31, 2014, the aggregate accumulated losses of VIEs and VIEs’ subsidiaries were

approximately US$77,493, which has been included in the consolidated ﬁnancial statements.

F-9

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

1. Organization and principal activities − (continued)

The following ﬁnancial statement amounts and balances of the Group’s VIEs and VIEs’ subsidiaries were

included in the accompanying consolidated ﬁnancial statements as of December 31, 2013 and 2014 and for
the three years ended December 31, 2012, 2013 and 2014:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable
Prepayments and other current assets . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer advances and deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salary and welfare payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-company payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of December 31,
2014
2013
US$
US$
16,296
4,741
65,053
14,762
2,978
1,622
8,180
5,839
7,043
2,362
784
—
1,961
674
102,295
30,000
6,698
1,123
62,455
42,942
10,095
5,670
1,637
1,751
11,343
8,471
78,992
40,565
6,681
2,181
177,901
102,703

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income/(loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in)/provided by operating activities . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . .
Net cash provided by ﬁnancing activities

For the year ended December 31,
2014
2013
US$
US$
101,819
72,427
(3,944)
8,473
68,132
4,116
(56,539)
(1,555)
—
—

2012
US$
68,867
10,032
(22,792)
(12,674)
34,111

Under the contractual arrangements with Beijing 58 and through its equity interest in its subsidiaries, the
Group has the power to direct activities of the VIEs and VIEs’ subsidiaries and direct the transfer of assets out
of the VIEs and VIEs’ subsidiaries. Therefore the Group considers that there is no asset of the VIEs and
VIEs’ subsidiaries that can be used only to settle their obligations. As the consolidated VIEs and VIEs’
subsidiaries are incorporated as limited liability companies under the PRC Company Law, the creditors do not
have recourse to the general credit of the Company for all the liabilities of the consolidated VIEs and VIEs’
subsidiaries.

The Group believes that the contractual arrangements among the WFOE, Beijing 58 and its shareholders

are in compliance with PRC law and are legally enforceable. The shareholders of Beijing 58 are also
shareholders or nominees of shareholders of the Company and therefore have no current interest in seeking to
act contrary to the contractual arrangements. However, uncertainties in the PRC legal system could limit the
Company’s ability to enforce these contractual arrangements and if the shareholders of Beijing 58 were to
reduce their interest in the Company, their interests may diverge from that of the Company and that may
potentially increase the risk that they would seek to act contrary to the contractual terms.

F-10

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

1. Organization and principal activities − (continued)

The Company’s ability to control Beijing 58 also depends on the power of attorney and the WFOE has to

vote on all matters requiring shareholder approval in Beijing 58. As noted above, the Company believes this
power of attorney is legally enforceable but may not be as effective as direct equity ownership.

It is possible that the Group’s operation of certain of its operations and businesses through VIEs could be

found by PRC authorities to be in violation of PRC law and regulations prohibiting or restricting foreign
ownership of companies that engage in such operations and businesses. While the Group’s management
considers the possibility of such a ﬁnding by PRC regulatory authorities under current law and regulations to
be remote, on January 19, 2015, the Ministry of Commerce of the PRC, or (the ‘‘MOFCOM’’) released on its
Website for public comment a proposed PRC law (the ‘‘Draft FIE Law’’) that appears to include VIEs within
the scope of entities that could be considered to be foreign invested enterprises (or ‘‘FIEs’’) that would be
subject to restrictions under existing PRC law on foreign investment in certain categories of industry.
Speciﬁcally, the Draft FIE Law introduces the concept of ‘‘actual control’’ for determining whether an entity
is considered to be an FIE. In addition to control through direct or indirect ownership or equity, the Draft FIE
Law includes control through contractual arrangements within the deﬁnition of ‘‘actual control.’’ If the Draft
FIE Law is passed by the People’s Congress of the PRC and goes into effect in its current form, these
provisions regarding control through contractual arrangements could be construed to reach the Group’s VIE
arrangements, and as a result the Group’s VIEs could become explicitly subject to the current restrictions on
foreign investment in certain categories of industry. The Draft FIE Law includes provisions that would exempt
from the deﬁnition of foreign invested enterprises entities where the ultimate controlling shareholders are
either entities organized under PRC law or individuals who are PRC citizens. The Draft FIE Law is silent as
to what type of enforcement action might be taken against existing VIEs that operate in restricted or
prohibited industries and are not controlled by entities organized under PRC law or individuals who are PRC
citizens. If a ﬁnding were made by PRC authorities, under existing law and regulations or under the Draft FIE
Law if it becomes effective, that the Group operates certain of its operations and businesses through VIEs,
regulatory authorities with jurisdiction over the licensing and operation of such operations and businesses
would have broad discretion in dealing with such a violation, including levying ﬁnes, conﬁscating the Group’s
income, revoking the business or operating licenses of the affected businesses, requiring the Group to
restructure its ownership structure or operations, or requiring the Group to discontinue all or any portion of its
operations. Any of these actions could cause signiﬁcant disruption to the Group’s business operations, and
have a severe adverse impact on the Group’s cash ﬂows, ﬁnancial position and operating performance.

In addition, if the legal structure and contractual arrangements were found to be in violation of any other

existing PRC laws and regulations, the PRC government could:

•

•

•

•

•

•

•

revoke the Group’s business and operating licenses;

require the Group to discontinue or restrict operations;

restrict the Group’s right to collect revenues;

block the Group’s websites;

require the Group to restructure the operations in such a way as to compel the Group to establish a
new enterprise, re-apply for the necessary licenses or relocate its businesses, staff and assets;

impose additional conditions or requirements with which the Group may not be able to comply; or

take other regulatory or enforcement actions against the Group that could be harmful to the Group’s
business.

The imposition of any of these penalties may result in a material and adverse effect on the Group’s
ability to conduct the Group’s business. In addition, if the imposition of any of these penalties causes the
Group to lose the right to direct the activities of Beijing 58 (through its equity interest in its subsidiaries) or

F-11

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

1. Organization and principal activities − (continued)

the right to receive their economic beneﬁts, the Group would no longer be able to consolidate Beijing 58 and
its subsidiaries. In the opinion of management, the likelihood of loss in respect of the Group’s current
ownership structure or the contractual arrangements with its VIEs is remote.

There is no VIE for which the Company has variable interest but is not the primary beneﬁciary.

Currently there is no contractual arrangement that could require the Company to provide additional

ﬁnancial support to Beijing 58. As the Company is conducting its business mainly through Beijing 58, the
Company may provide such support on a discretionary basis in the future, which could expose the Company
to a loss.

The Company’s VIEs’ assets are comprised of recognized and unrecognized revenue-producing assets.

The recognized revenue producing assets mainly include purchased servers, which were in the line of
‘‘Property and equipment, net’’ in the table above. The unrecognized revenue-producing assets mainly consist
of the Internet Content Provider license (‘‘ICP’’ license), trademarks, copyrights and registered patents, which
have no recorded value.

As of December 31, 2014, the VIEs hold the ICP license, which is necessary for the operation
of the website and provision of value-added telecommunications services in China, and have registered
42 trademarks, including
and applied for the registration of 7 other patents, which cover a variety of technologies, including those
relating to data processing, search, distribution and publishing.

and 22 copyrights. The VIEs also have one registered patents

and

The VIEs’ business operations rely in part on the technologies covered by the registered patents to
generate revenues. Such technologies include (1) the data veriﬁcation and processing technology used to
verify and process local merchant information; (2) the data researching technology provided to end-users
enable them to ﬁnd the exact information they want in the shortest time; (3) the data publishing technology
provided to end-users or merchants to help them to publish their service information more efficiently.

2. Principal accounting policies

(a) Principles of consolidation

The consolidated ﬁnancial statements of the Group have been prepared in accordance with accounting
principles generally accepted in the United States of America (‘‘U.S. GAAP’’). The consolidated ﬁnancial
statements include the ﬁnancial statements of the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries
for which the Company is the ultimate primary beneﬁciary.

Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half

of the voting power; or has the power to govern the ﬁnancial and operating policies, to appoint or remove the
majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.

A VIE is an entity in which the Company or its subsidiary, through contractual arrangements, bears the

risks of, and enjoys the rewards normally associated with, ownership of the entity, and therefore the Company
or its subsidiary is the primary beneﬁciary of the entity.

All signiﬁcant transactions and balances among the Company, its subsidiaries, the VIEs and VIEs’

subsidiaries have been eliminated upon consolidation.

(b) Use of estimates

The preparation of the Group’s consolidated ﬁnancial statements in conformity with the U.S. GAAP

requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities. Actual results could differ materially from those
estimates. Signiﬁcant accounting estimates reﬂected in the Group’s consolidated ﬁnancial statements mainly

F-12

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

2. Principal accounting policies − (continued)

include revenue recognition, the valuation allowance of deferred tax assets, the determination of uncertain tax
position, the valuation and recognition of share-based compensation, the accruals for employee beneﬁts and
the determination of the estimated useful lives of property and equipment.

(c) Functional currency and foreign currency translation

The Group uses United States dollar (‘‘US$’’) as its reporting currency. The functional currency of the

Company and its subsidiaries incorporated in the BVI and Hong Kong is US$, while the functional currency
of the other entities in the Group is Renminbi (‘‘RMB’’). In the consolidated ﬁnancial statements, the ﬁnancial
information of the Company’s PRC subsidiary, the VIEs and VIEs’ subsidiaries, which use RMB as their
functional currency, have been translated into US$. Assets and liabilities are translated at the exchange rates
on the balance sheet date; equity amounts are translated at historical exchange rates; and revenues, expenses,
gains, and losses are translated using the average rate for the year. Translation adjustments arising from these
are reported as foreign currency translation adjustments and are shown as a component of other
comprehensive income or loss in the consolidated statement of changes in shareholders’ equity/(deﬁcit).

Foreign currency transactions denominated in currencies other than the functional currency are translated

into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary
assets and liabilities denominated in foreign currencies are translated into the functional currency using the
applicable exchange rates at the balance sheet dates. The resulting exchange differences are included in the
consolidated statements of comprehensive income/(loss).

(d) Fair value of ﬁnancial instruments

Accounting guidance deﬁnes fair value as the price that would be received from selling an asset or paid

to transfer a liability in an orderly transaction between market participants at the measurement date. When
determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair
value, the Group considers the principal or most advantageous market in which it would transact and it
considers assumptions that market participants would use when pricing the asset or liability.

Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of

observable inputs and minimize the use of unobservable inputs when measuring fair value. A ﬁnancial
instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is
signiﬁcant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be
used to measure fair value:

Level 1 — Observable inputs that reﬂect quoted prices (unadjusted) for identical assets or liabilities in

active markets

Level 2 — Include other inputs that are directly or indirectly observable in the marketplace

Level 3 — Unobservable inputs which are supported by little or no market activity

The Group’s ﬁnancial instruments mainly include cash and cash equivalents, term deposits, short-term
investments, accounts receivable, accounts payable, deferred revenues, customer advances and deposits, and
accrued liabilities and other current liabilities, of which the carrying values approximate their fair value.
Please see Note 11 for additional information.

(e) Cash and cash equivalents

Cash and cash equivalents represent cash on hand, demand deposits and highly liquid investments placed

with banks or other ﬁnancial institutions, which are unrestricted as to withdrawal or use, and which have
original maturities of three months or less and are readily convertible to known amounts of cash.

F-13

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

2. Principal accounting policies − (continued)

The following table sets forth a breakdown of the Group’s cash and cash equivalents by currency

denomination, jurisdiction and geographical location as of December 31, 2013 and 2014:

US$ in thousands

RMB in thousands

December 31, 2013 .
December 31, 2014 .

.
.

USA
362
3

Hong Kong
30,251
43,066

China
Non VIE
13,532
108

China
VIE
2
2

Total
44,147
43,179

USA
60,000
434

Hong Kong
3,095
7

China
Non VIE
7,258
317,156

China
VIE
28,896
99,706

Total
99,249
417,303

(f) Term deposits

Term deposits represent time deposits placed with banks with original maturities of more than

three months to up to one year. Interest earned is recorded as interest income in the consolidated statements of
comprehensive income /(loss) during the periods presented.

US$ in
thousands
Total
translated
to USD
60,494
111,376

(g) Short-term investments

Short-term investments include investments in ﬁnancial instruments with a variable interest rate indexed

to performance of underlying assets and investment in available-for-sale securities of a public traded company.

The Group carries these investments at fair value. Changes in the fair value are reﬂected in the

consolidated statements of comprehensive income/(loss) as investment income/(loss), net. Fair value is
estimated based on quoted prices of similar products provided by banks at the end of each period. The Group
classiﬁes the valuation techniques that use these inputs as Level 2 of fair value measurements. Please see
Note 11 for additional information.

The available-for-sale securities are reported at fair values with the unrealized gains or losses recorded as
accumulated other comprehensive income or loss in equity. The Group reviews its available-for-sale securities
for other-than-temporary impairment (‘‘OTTI’’) based on the speciﬁc identiﬁcation method. If the cost of an
investment exceeds the investment’s fair value, the Group considers quantitative and qualitative evidence
including general market conditions, expected future performance of the investees, the duration and the extent
to which the fair value of the investment is less than the cost, and the Group’s intent and ability to hold the
investment in determining whether to record an OTTI.

(h) Accounts receivable

The carrying value of accounts receivable is reduced by an allowance that reﬂects the Group’s best
estimate of the amounts that will not be collected. The Group makes estimations for the collectability of
accounts receivable considering many factors including but not limited to reviewing accounts receivable
balances, historical bad debt rates, repayment patterns, customer credit worthiness, ﬁnancial conditions of the
customers and industry trend analysis, resulting in their inability to make payments due to the Group. The
Group also makes a speciﬁc allowance if there is evidence showing that the receivable is likely to be not
recoverable. There was no allowance made historically.

F-14

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

58.com Inc.

2. Principal accounting policies − (continued)

(i) Property and equipment

Property and equipment are stated at cost less accumulated depreciation and impairment. Property and
equipment are depreciated over the estimated useful lives on a straight-line basis. The estimated useful lives
are as follows:

Computers and equipment

Motor vehicles

Furniture and ﬁxtures

Leasehold improvements

3 − 5 years

4 − 5 years

5 years

Over the shorter of lease terms or the
estimated useful lives of assets

Expenditures for maintenance and repairs are expensed as incurred. The gain or loss on the disposal of

property and equipment is the difference between the net sales proceeds and the carrying amount of the
relevant assets and is recognized in the consolidated statements of comprehensive income/(loss).

(j) Long-term investments

Long-term investments represent the Group’s investments in privately held companies.

In accordance with ASC 323 ‘‘Investment-Equity Method and Joint Ventures’’, the Group applies the
equity method of accounting to equity investments, in common stock or in-substance common stock, over
which it has signiﬁcant inﬂuence but does not own a majority equity interest or otherwise control. Under the
equity method, the Group initially records its investment at cost. The difference between the cost of the equity
investment and the amount of the underlying equity in the net assets of the equity investee is recognized as
equity method goodwill or as an intangible asset as appropriate, which is included in the equity method
investment on the consolidated balance sheets. The Group subsequently adjusts the carrying amount of the
investment to recognize the Group’s proportionate share of each equity investee’s net income or loss into
consolidated statements of comprehensive income/(loss) after the date of acquisition. The Group will
discontinue applying equity method if an investment (and additional ﬁnancial supports to the investee, if any)
has been reduced to zero.

An investment in in-substance common stock is an investment that has risk and reward characteristics

that are substantially similar to that entity’s common stock. The Group considers subordination, risks and
rewards of ownership and obligation to transfer value when determining whether an investment in an entity is
substantially similar to an investment in that entity’s common stock.

For long-term investments over which the Group does not have signiﬁcant inﬂuence, the cost method

accounting is used. For long-term investments in shares that are not ordinary shares or in-substance ordinary
shares and that do not have readily determinable fair value, the cost method accounting is used.

The Group continually reviews its long-term investments accounted for under the cost and equity

methods to determine whether a decline in fair value to below the carrying value is other than temporary. The
primary factors the Group considers in its determination are the length of time that the fair value of the
investment is below the Group’s carrying value; the ﬁnancial condition, operating performance and the
prospects of the equity investee; and other company speciﬁc information such as recent ﬁnancing rounds. If
the decline in fair value is deemed to be other than temporary, the carrying value of the equity investee is
written down to fair value.

(k) Impairment of long-lived assets

The carrying amounts of long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is evaluated by a comparison of the carrying amount of assets to future undiscounted net

F-15

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

2. Principal accounting policies − (continued)

cash ﬂows expected to be generated by the assets. Such assets are considered to be impaired if the sum of
the expected undiscounted cash ﬂow is less than the carrying amount of the assets. The impairment to be
recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of
the assets. No impairment of long-lived assets was recognized for years ended December 31, 2012, 2013
and 2014.

(l) Customer advances and deposits

Customers pay in advance to purchase membership services, online marketing services and other services.
The cash proceeds received from customers are initially recorded as customer advances and deposits and then
transferred to deferred revenues when they are used to purchase desired services.

(m) Revenue recognition

The Group generates revenues primarily from membership and online marketing services. Revenue is

recognized when persuasive evidence of an arrangement exists, the price is ﬁxed or determinable, service is
performed and collectability of the related fee is reasonably assured.

The Group has adopted the gross presentation for business tax and related surcharges pursuant to

ASC 605-45, ‘‘Revenue Recognition: Principal Agent Considerations’’. The amount of business tax and related
surcharges included in revenues and cost of revenues were US$4,380, US$1,742 and US$1,632 for the years
ended December 31, 2012, 2013 and 2014, respectively. Effective January 1, 2012, the PRC Ministry of
Finance and the State Administration of Taxation launched the Value Added Tax (‘‘VAT’’) Pilot Program for
certain industries in certain regions. According to the implementation circulars released by the Ministry of
Finance and the State Administration of Taxation on the Pilot Program, the ‘‘Modern Service Industries’’
includes research, development and technological services, information technology services, cultural
innovation services, logistics support, lease of corporeal properties, attestation and consulting services.
Subsidiaries in different regions were affected at different times as the program was rolled out. Most of the
Company’s entities were subject to the VAT Pilot Program as of December 31, 2013 and 2014. With the
adoption of the Pilot Program, the Group’s revenues are subject to VAT payable on goods sold or taxable
labor services provided by a general VAT taxpayer for a taxable period. VAT payable is the net balance of the
output VAT for the period after deducting the input VAT for the period. Hence, the amount of VAT payable
does not result directly from output VAT generated from goods sold or taxable labor services provided. As
such, the Group has adopted the net presentation of VAT.

(i) Membership

A membership is a basic services package mainly consisting of the following services: customer
certiﬁcation, display of an online storefront on the Group’s marketplace, preferential listing beneﬁts such as
limited daily priority listings and higher quota for free daily listings and access to the Group’s dedicated
customer service support team and online account management system. Membership revenues are recognized
ratably over the contract period when membership services are provided.

(ii) Online marketing services

The Group’s online marketing services include time-based services and performance-based services.

Revenues from time-based services are recognized ratably over the service period. Revenues from
performance-based services are recognized when the agreed performance criteria are achieved. For service
arrangements that include multiple deliverables, revenues are allocated to each unit of accounting based on
relative selling price of each unit of accounting according to the selling price hierarchy established by
ASU No. 2009–13. The Group uses (a) vendor-speciﬁc objective evidence of selling price, if it exists,
(b) otherwise, third-party evidence of selling price. If neither (a) nor (b) exists, the Group will use (c) the
management’s best estimate of the selling price for that deliverable. Selling price is generally determined by
vendor speciﬁc objective evidence.

F-16

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

58.com Inc.

2. Principal accounting policies − (continued)

(iii) Other services

Other services include (1) group buying services, which the Group started in 2010 but signiﬁcantly scaled

back since mid-2012, and (2) various other services. The Group recognises other service revenue when the
related service is rendered. For group buying, the Group recognises revenue on a net basis, i.e. based on the
difference between the amounts collected from customers and amounts paid to third party merchants, at the
time when the customers redeem the coupon and when the Group has no further obligations.

(n) Cost of revenues

Costs of revenues mainly consist of costs associated with the production and operation of websites,
which include fees paid to third parties for internet connection, content and services, payroll-related expenses,
equipment depreciation associated with the website production and operation, and business taxes, etc.

(o) Advertising expenses

Advertising costs are generally prepaid to the third parties for television, internet and outdoor advertising
services. Advertising costs are expensed as sales and marketing expenses when the services are received. For
the years ended December 31, 2012, 2013 and 2014, advertising expenses recognized in the consolidated
statements of comprehensive income/(loss) were US$25,063, US$22,703 and US$73,435, respectively.

(p) Research and development expenses

Research and development expenses mainly consist of personnel, rent and depreciation expenses
associated with the development of and enhancement to the Group’s websites and expenses associated with
research and development. The research and development expenses are expensed as incurred for all the
periods presented.

Costs incurred for the preliminary project stage of internal use software are expensed when

incurred in research and development expenses. Costs incurred during the application development stage
are capitalized when certain criteria are met as stated in ASC 350-40. Costs incurred during the
post-implementation-operation stage are also expensed as incurred. As the period qualiﬁed for capitalization
has historically been very short and the development costs incurred during this period have been insigniﬁcant,
development costs of internal use software to date have been expensed when incurred.

(q) Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessors are

accounted for as operating leases. Payments made under operating leases are charged to the consolidated
statements of comprehensive income/(loss) on a straight-line basis over the terms of underlying lease.

(r) Share-based compensation

All share-based awards to employees and directors, including share options, restricted share units
(‘‘RSUs’’) and ordinary shares awards are measured at the grant date based on the fair value of the awards.
Share-based compensation, net of forfeitures, is recognized as expense on a straight-line basis over the
requisite service period, which is the vesting period.

The Group uses the binominal option pricing model to determine the fair value of share options and
account for share-based compensation expenses using an estimated forfeiture rate at the time of grant and
revising the rate, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share-
based compensation expenses are recorded net of estimated forfeitures such that expenses are recorded only
for those share-based awards that are expected to vest.

See Note 15 for further information regarding share-based compensation assumptions and expenses.

F-17

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

58.com Inc.

2. Principal accounting policies − (continued)

(s) Income taxes

Current income taxes are provided on the basis of net income for ﬁnancial reporting purposes, adjusted
for income and expense items which are not assessable or deductible for income tax purposes, in accordance
with the regulations of the relevant tax jurisdictions. Deferred income taxes are provided using the liability
method. Under this method, deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory rates applicable to future years to differences between the ﬁnancial
statement carrying amounts and the tax bases of existing assets and liabilities. The tax base of an asset or
liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a
change in tax rates is recognized in the statement of comprehensive income/(loss) in the period of change.
A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely
than not that some portion of, or all of the deferred tax assets will not be realized.

Uncertain tax positions

The guidance prescribes a more likely than not threshold for ﬁnancial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. Guidance was also provided on
derecognition of income tax assets and liabilities, classiﬁcation of current and deferred income tax assets and
liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in
interim periods, and income tax disclosures. Signiﬁcant judgment is required in evaluating the Group’s
uncertain tax positions and determining its provision for income taxes. The Group recognizes interest and
penalties, if any, under accrued expenses and other current liabilities on its balance sheet and under other
expenses in its statement of comprehensive income/(loss). The Group did not have any interest or penalties
associated with tax positions as of December 31, 2012, 2013 and 2014. As of December 31, 2012, 2013 and
2014, the Group did not have any signiﬁcant unrecognized uncertain tax positions.

In order to assess uncertain tax positions, the Group applies a more likely than not threshold and a
two-step approach for the tax position measurement and ﬁnancial statement recognition. Under the two-step
approach, the ﬁrst step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be sustained, including resolution of
related appeals or litigation processes, if any. The second step is to measure the tax beneﬁt as the largest
amount that is more than 50% likely of being realized upon settlement.

(t) Employee beneﬁts

Full-time employees of the Group in mainland China are entitled to staff welfare beneﬁts including
pension, work-related injury beneﬁts, maternity insurance, medical insurance, unemployment beneﬁt and
housing fund plans through a PRC government-mandated deﬁned contribution plan. Chinese labor regulation
requires that the Group makes contributions to the government for these beneﬁts based on certain percentage
of the employees’ salaries, up to a maximum amount speciﬁed by the local government. Currently, the Group
is paying contributions to the social insurance plan for all full-time employees and to the housing fund plans
for some employees, but the amounts paid for these employees may not be sufficient as required by the PRC
laws and regulations, for which the Group have made provision based on its best estimate. The Group has no
legal obligation for the beneﬁts beyond the required contributions.

The Group recorded employee beneﬁt expenses of US$8,871, US$9,385 and US$14,499 for the years

ended December 31, 2012, 2013 and 2014, respectively.

F-18

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

58.com Inc.

2. Principal accounting policies − (continued)

(u) Government grant

A government grant is recognized as other income when the grant is received and the requirements

associated with receipt of the grant have been complied with.

For the years ended December 31, 2012, 2013 and 2014, the Group received government grants of

US$1,150, US$982 and US$5,696, respectively, which were included in others, net under other
income/(expenses) in the consolidated statements of comprehensive income/(loss).

(v) Ordinary shares

The Company accounts for repurchased ordinary shares under the cost method and includes such treasury

stock as a component of the common shareholders’ equity. Cancellation of treasury stock is recorded as a
reduction of ordinary shares, additional paid-in capital and retained earnings, as applicable. An excess of
purchase price over par value is allocated to additional paid-in capital ﬁrst with any remaining excess charged
entirely to retained earnings.

(w) Statutory reserves

The Group’s PRC subsidiaries, the VIEs and VIEs’ subsidiaries in China are required to make

appropriations to certain non-distributable reserve funds.

In accordance with China’s Company Laws, the Company’s PRC subsidiary, the VIEs and VIEs’
subsidiaries that are Chinese companies, must make appropriations from their after-tax proﬁt (as determined
under the Accounting Standards for Business Enterprises as promulgated by the Ministry of Finance of the
People’s Republic of China (‘‘PRC GAAP’’)) to non-distributable reserve funds including (i) statutory surplus
fund and (ii) discretionary surplus fund. The appropriation to the statutory surplus fund must be at least 10%
of the after-tax proﬁts calculated in accordance with PRC GAAP. Appropriation is not required if the statutory
surplus fund has reached 50% of the registered capital of the respective company. Appropriation to the
discretionary surplus fund is made at the discretion of the respective company.

Pursuant to the laws applicable to China’s Foreign Investment Enterprises, the Company’s subsidiaries
that are foreign investment enterprises in China have to make appropriations from their after-tax proﬁt (as
determined under PRC GAAP) to reserve funds including (i) general reserve fund, (ii) enterprise expansion
fund and (iii) staff bonus and welfare fund. The appropriation to the general reserve fund must be at least 10%
of the after tax proﬁts calculated in accordance with PRC GAAP. Appropriation is not required if the reserve
fund has reached 50% of the registered capital of the respective company. Appropriations to the other two
reserve funds are at the respective company’s discretion. The use of the general reserve fund, statutory surplus
fund and discretionary surplus fund are restricted to the offsetting of losses to increase the registered capital of
the respective company. These reserves are not allowed to be transferred out as cash dividends, loans or
advances, nor can they be distributed except under liquidation.

The Group has made no appropriations to statutory surplus fund and other reserve funds for the years
ended December 31, 2012, 2013 and 2014 as the Company’s subsidiaries, the VIEs and VIEs’ subsidiaries in
China were in accumulated loss positions.

(x) Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other
party or exercise signiﬁcant inﬂuence over the other party in making ﬁnancial and operating decisions. Parties
are also considered to be related if they are subject to common control or signiﬁcant inﬂuence of the same
party, such as a family member or relative, shareholder, or a related corporation.

F-19

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

58.com Inc.

2. Principal accounting policies − (continued)

(y) Earnings/(loss) per share

Basic earnings/(loss) per share is computed by dividing net income/(loss) attributable to ordinary
shareholders, considering the accretions to redemption value of the preference shares (see Note 16), by the
weighted average number of ordinary shares outstanding during the period using the two-class method. Under
the two-class method, net income is allocated between ordinary shares and other participating securities based
on their participating rights. Net loss is not allocated to other participating securities if based on their
contractual terms they are not obligated to share in the losses. Diluted earnings (loss) per share is calculated
by dividing net income/(loss) attributable to ordinary shareholders, as adjusted for the accretions and
allocation of net income related to the preference shares, if any, by the weighted average number of ordinary
and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares consist of
shares issuable upon the conversion of the preference shares using the if-converted method, and shares
issuable upon the exercise of share options using the treasury stock method. Ordinary equivalent shares are
not included in the denominator of the diluted earnings per share calculation when inclusion of such shares
would be anti-dilutive.

(z) Comprehensive income/(loss)

Comprehensive income/(loss) is deﬁned as the change in equity of the Group during a period arising
from transactions and other events and circumstances excluding transactions resulting from investments by
shareholders and distributions to shareholders. Comprehensive income or loss is reported in the consolidated
statements of comprehensive income/(loss). Accumulated other comprehensive income/(loss), as presented on
the accompanying consolidated balance sheets, consists of accumulated foreign currency translation adjustment
and unrealized gain/(loss) on available-for-sale securities.

(aa) Segment reporting

Based on the criteria established by ASC 280 ‘‘Segment Reporting’’, the Group’s chief operating decision

maker has been identiﬁed as the Chief Executive Officer, who reviews consolidated results when making
decisions about allocating resources and assessing performance of the Group. The Group has internal reporting
of revenue, cost and expenses that does not distinguish between segments, and reports costs and expenses by
nature as a whole. The Group does not distinguish between markets or segments for the purpose of internal
reporting. Hence, the Group has only one operating segment. As the Group’s long-lived assets and revenue are
substantially located in and derived from the PRC, no geographical segments are presented.

(ab) Recently issued accounting pronouncements

In April 2014, the FASB issued ASU 2014-08, ‘‘Reporting Discontinued Operations and Disclosures of

Disposals of Components of an Entity’’. This update changed the threshold for reporting discontinued
operations and added new disclosures for disposals. Under the updated guidance, a discontinued operation is
deﬁned as a component or group of components that is disposed of or is classiﬁed as held for sale and
represents a strategic shift that has (or will have) a major effect on an entity’s operations and ﬁnancial results.
This ASU is effective prospectively for ﬁscal years, and interim periods within those years, beginning after
December 15, 2014. The adoption of this ASU will not have a material impact on the Group’s consolidated
ﬁnancial statements.

In May 2014, the FASB and IASB issued their converged standard on revenue recognition. The objective
of the revenue standard ASU 2014-09, ‘‘Revenue from Contracts with Customers (Topic 606)’’ is to provide a
single, comprehensive revenue recognition model for all contracts with customers to improve comparability
within industries, across industries, and across capital markets. The revenue standard contains principles that
an entity will apply to determine the measurement of revenue and timing of when it is recognized. The
underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to

F-20

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

2. Principal accounting policies − (continued)

customers at an amount that the entity expects to be entitled to in exchange for those goods or services. For
public companies, the revenue standard is effective for the ﬁrst interim period within annual reporting periods
beginning after December 15, 2016 and early adoption is not permitted. The Group is in the process of
evaluating the impact of the standard on its consolidated ﬁnancial statements.

In August 2014, FASB issued ASU No. 2014-15, ‘‘Presentation of Financial Statements — Going Concern
(Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.’’ The
new standard addresses management’s responsibility to evaluate whether there is substantial doubt about an
entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s
evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date
that the ﬁnancial statements are issued. The new standard will be effective for the ﬁrst interim period within
annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The adoption of this
ASU will not have a material impact on the Group’s consolidated ﬁnancial statements.

In February 2015, the FASB issued ASU 2015-02, which provides guidance for reporting entities that are

required to evaluate whether they should consolidate certain legal entities. In accordance with ASU 2015-02,
all legal entities are subject to reevaluation under the revised consolidation model. ASU 2015-02 is effective
for public business entities for annual periods, and interim periods within those annual periods, beginning
after December 15, 2015. Early adoption is permitted. The Group is still assessing the potential impact of
ASU 2015-02 on its consolidated ﬁnancial statements.

3. Credit risks and concentration

(a) Credit risk

The Group’s credit risk arises from cash and cash equivalents, term deposits as well as credit exposures

to receivables due from its customers, related parties and other parties.

The Group believes that there is no signiﬁcant credit risk associated with cash and cash equivalents and
term deposits which were held by reputable ﬁnancial institutions in the jurisdictions where the Company, its
subsidiaries, the VIEs and VIEs’ subsidiaries are located.

The Group has no signiﬁcant concentrations of credit risk with respect to its customers, except for the

accounts receivable from the internet search companies as discussed below. The Group assesses the credit
quality of and sets credit limits on its customers by taking into account their ﬁnancial position, the availability
of guarantees from third parties, their credit history and other factors such as current market conditions.

(b) Major customers

There was no customer whose revenue represented over 10% of total revenues in 2012, 2013 or 2014.

The accounts receivable from one internet search company represented approximately 42% and 45% of
total accounts receivable as of December 31, 2013 and 2014, respectively. No other customer has receivables
representing over 10% of total accounts receivable.

(c) Foreign currency risk

The Group’s operating transactions are mainly denominated in RMB. RMB is not freely convertible into

foreign currencies. The value of the RMB is subject to changes by the central government policies and to
international economic and political developments. In the PRC, certain foreign exchange transactions are
required by law to be transacted only by authorized ﬁnancial institutions at exchange rates set by the People’s
Bank of China (the ‘‘PBOC’’). Remittances in currencies other than RMB by the Group in China must be
processed through the PBOC or other China foreign exchange regulatory bodies which require certain
supporting documentation in order to effect the remittance.

F-21

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

58.com Inc.

4. Short-term investments

Short-term investments consisted of the following:

Variable-rate ﬁnancial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

As of December 31,
2014
2013
US$
US$
207,257
98,411
8,889
—
216,146
98,411

The Group purchased stock of a US listed company in private placement in December 2014 at a cost of

US$10,000 and accounted for it as available-for-sale securities. For the year ended December 31, 2014,
approximately US$1,111 was recognized as unrealized loss on available-for-sale securities in accumulated
other comprehensive loss.

5. Prepayments and other current assets

The following is a summary of prepayments and other current assets:

Prepaid advertising fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid rental
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental and other deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Input VAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee advances
Interest receivable
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayment for purchase of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayment for office expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

As of December 31,
2014
2013
US$
US$
6,898
2,789
4,863
2,285
2,211
929
2,090
1,106
3,785
519
2,574
481
282
404
940
162
488
435
24,131
9,110

The prepaid advertising fees represent prepayments to third parties for advertising services, mainly

through television, internet and outdoor media. The advertising expenses are recognized in sales and
marketing expenses subsequently, when the services are received.

6. Property and equipment, net

The following is a summary of property and equipment, net:

Computers and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Motor vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and ﬁxtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of December 31,
2014
2013
US$
US$
24,335
11,137
1,098
647
2,233
1,641
5,928
3,614
33,594
17,039
(15,695)
(10,612)
17,899
6,427

F-22

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

6. Property and equipment, net − (continued)

Depreciation and amortization expenses for the years ended December 31, 2012, 2013 and 2014 were

US$3,879, US$4,657 and US$5,607, respectively.

7. Long-term investments

The following is a summary of long-term investments:

As of December 31,
2014
2013
US$
US$

Cost method investments:

Investee A(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others(b)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cost method investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
—
—

20,000
3,784
23,784

(a)

(b)

In 2014, the Group purchased ordinary shares of investee A for cash consideration of US$20,000.
Investee A is mainly engaged in the provision of temporary driving services. The investment is accounted
for under cost method as the Group is unable to exercise signiﬁcant inﬂuence on investee A and the
shares do not have readily determinable fair value.
In 2014, the Group invested in preference share of investee B and in-substance preference share of
investee C at a total cash consideration of US$3,784. The investees are mainly engaged in the provision
of second-hand automobile sales agency service and driver training service ordering through the internet
and mobile internet. The Group accounted for both investments under cost method investment because
the shares invested do not have readily determinable fair value.

8. Long-term prepayments

The following is a summary of long-term prepayments:

Long-term prepaid rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental deposits
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term prepaid advertising fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayment for purchase of office buildings . . . . . . . . . . . . . . . . . . . . . .
Prepayment for acquisition of a recruiting business . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

As of December 31,
2014
2013
US$
US$
2,097
1,619
1,436
326
—
369
16,883
—
611
—
—
38
21,027
2,352

The prepayment for purchase of office building represented cash payment made to a third party developer

in 2014 to purchase office buildings. The buildings will be used as new corporate headquarters upon
completion.

F-23

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

58.com Inc.

9. Accounts payable

The following is a summary of accounts payable:

Payable to group buying merchants . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable for advertisement fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable related to purchases of property and equipment . . . . . . . . . . . . . .
Rebate payable to sales agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

10. Accrued expenses and other current liabilities

The following is a summary of accrued expenses and other current liabilities:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued professional fees
Accrued telecom and bandwidth fees . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued office expenses
Payable related to expired group buying coupons
. . . . . . . . . . . . . . . . . .
Payable to 58 home service providers . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits from sales agents and others . . . . . . . . . . . . . . . . . . . . . . . . . .
Government subsidy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to employees related to share-based compensation plan . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

As of December 31,
2014
2013
US$
US$
3,228
4,010
8,978
3,057
1,813
28
1,691
1,205
319
9
16,029
8,309

As of December 31,
2014
2013
US$
US$
1,079
2,104
1,654
887
3,916
1,673
585
721
1,812
—
2,179
1,279
456
753
651
—
739
638
13,071
8,055

11. Fair value measurements
Measured on recurring basis

The Group measured its ﬁnancial assets including cash and cash equivalents, term deposits and short-
term investments at fair value on a recurring basis as of December 31, 2013 and 2014. The following table
sets forth the ﬁnancial instruments, measured at fair value at recurring basis, by level within the fair value
hierarchy:

Financial instruments

Fair value hierarchy

As of December 31,
2014
2013
US$
US$

Cash and cash equivalents . . . . . . . . . Quoted Prices in Active Market

for Identical Assets (Level 1)

60,494

111,376

Term deposits

. . . . . . . . . . . . . . . . . Quoted Prices in Active Market

for Identical Assets (Level 1)

152,190

281,513

Short-term investments:

Variable-rate ﬁnancial instruments . .

Signiﬁcant other observable
inputs (Level 2)

Available-for-sale securities

. . . . . . Quoted Prices in Active Market

for Identical Assets (Level 1)

Total: . . . . . . . . . . . . . . . . . . . . . . .

98,411

207,257

—
311,095

8,889
609,035

F-24

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

11. Fair value measurements − (continued)

For other ﬁnancial assets and liabilities with carrying values that approximate fair value, if measured at

fair value in the ﬁnancial statements, these ﬁnancial instruments would be classiﬁed as Level 3 in the fair
value hierarchy.

Measured on nonrecurring basis

The Group’s non-ﬁnancial assets, such as property and equipment, intangible assets, and cost method
investments, would be measured at fair value only if they were determined to be impaired. No impairment of
these assets was recognized for the years ended December 31, 2012, 2013 and 2014.

12. Income taxes

The Company is registered in the Cayman Islands. The Company generated substantially all of its

income/(loss) from its PRC operations for the years ended December 31, 2012, 2013 and 2014.

Cayman Islands (‘‘Cayman’’)

Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital
gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will
be imposed.

British Virgin Islands (‘‘BVI’’)

The Group is exempted from income tax in the BVI on its foreign-derived income. There are no

withholding taxes in the BVI.

Hong Kong

Entities incorporated in Hong Kong are subject to Hong Kong proﬁt tax at a rate of 16.5% since

January 1, 2010. The operations in Hong Kong have incurred net accumulated operating losses for income tax
purposes.

PRC

On March 16, 2007, the National People’s Congress of PRC enacted an Enterprise Income Tax Law
(‘‘EIT Law’’), under which FIEs and domestic companies would be subject to EIT at a uniform rate of 25%.
The EIT law became effective on January 1, 2008.

The EIT Law and its implementing rules also permit qualiﬁed ‘‘High and New Technology Enterprises’’
(‘‘HNTE’’) to enjoy a preferential enterprise income tax rate of 15% upon ﬁling with relevant tax authorities.
The qualiﬁcation as a HNTE generally has a valid term of three years and the renewal of such qualiﬁcation is
subject to review by the relevant authorities in China. Wanglin obtained its HNTE certiﬁcate in 2012 and
completed the HNTE ﬁling with tax authorities in 2013. As a result, Wanglin has been qualiﬁed as a HNTE
under the EIT Law, and is entitled to a preferential tax rate of 15% from 2012 to 2014 provided that it
continues to be qualiﬁed as HNTE during such period.

According to a policy promulgated by the State Tax Bureau of the PRC and effective from 2008

onwards, enterprises engaging in research and development activities are entitled to claim 150% of the
research and development expenses so incurred in a year as tax deductible expenses in determining its tax
assessable proﬁts for that year (‘‘Super Deduction’’). Wanglin had claimed such Super Deduction in
ascertaining its tax assessable proﬁts for the years ended December 31, 2012, 2013 and 2014, respectively.
Beijing 58 and 58 Technology had claimed Super Deduction in ascertaining its tax assessable proﬁts for the
year ended December 31, 2014.

The EIT Law also provides that an enterprise established under the laws of a foreign country or region

but whose ‘‘de facto management body’’ is located in the PRC be treated as a resident enterprise for PRC tax
purposes and consequently be subject to the PRC income tax at the rate of 25% for its global income. The

F-25

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

12. Income taxes − (continued)

Implementing Rules of the EIT Law merely deﬁne the location of the ‘‘de facto management body’’ as ‘‘the
place where the exercising, in substance, of the overall management and control of the production and
business operation, personnel, accounting, properties, etc., of a non-PRC company is located.’’ Based on a
review of surrounding facts and circumstances, the Company does not believe that it is likely that its
operations outside of the PRC should be considered a resident enterprise for PRC tax purposes.

The EIT Law also imposes a withholding income tax of 10% on dividends distributed by an FIE to its

immediate holding company outside of China, if such immediate holding company is considered as a
non-resident enterprise without any establishment or place within China or if the received dividends have no
connection with the establishment or place of such immediate holding company within China, unless such
immediate holding company’s jurisdiction of incorporation has a tax treaty with China that provides for a
different withholding arrangement. The Cayman Islands, where the Company was incorporated, does not have
such tax treaty with China. According to the arrangement between Mainland China and Hong Kong Special
Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion in
August 2006, dividends paid by an FIE in China to its immediate holding company in Hong Kong will be
subject to withholding tax at a rate of no more than 5% (if the foreign investor owns directly at least 25% of
the shares of the FIE). As of December 31, 2014, all of the Group’s entities in PRC were still in accumulated
loss positions. As such, no withholding tax has been provided.

The provisions for income tax expenses are summarized as follows:

Current tax expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax beneﬁt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the Year ended December 31,
2014
2013
2012
8,147
4,148
2,592
(1,961)
(4,148)
(2,592)
6,186
—
—

The following table sets forth reconciliation between the statutory EIT rate and the effective tax rate:

For the Year ended December 31,
2014
2012
2013
25.0%
25.0%
25.0%
20.7%
(23.3)% (21.3)%
(9.9)%
(3.7)%
(14.3)%
—
21.5%
0%

(1.7)%
—

0%

Statutory income tax rates . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . .
Permanent book-tax differences
. . . . . . . . . . . . . . . . . . . . . .
Effect of preferential tax rate of HNTE . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-26

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

58.com Inc.

12. Income taxes − (continued)

Deferred tax assets

The following table sets forth the signiﬁcant components of the aggregate deferred tax assets and

liabilities:

Current
Deferred tax assets:
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll and other expenses
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current deferred tax assets, net

Non-current
Deferred tax assets:
Net operating loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising expenses in excess of deduction limit
. . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-current deferred tax assets, net
. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets, net

As of December 31,
2014
2013
US$
US$

3,908
(3,908)
—

7,069
(7,069)
—

4,723
18,673
153
(23,549)
—
—

4,611
21,650
45
(26,306)
—
—

As of December 31, 2014, the Group had net operating loss carryforward of US$18,446 which will
expire during the period between December 31, 2015 and December 31, 2019. There is no expiration for the
advertising expenses that were in excess of annual deduction limit and carried forward.

A valuation allowance is provided against deferred tax assets when the Group determines that it is more

likely than not that the deferred tax assets will not be utilized in the future. In making such determination, the
Group evaluates a variety of factors including the Group’s operating history, accumulated deﬁcit, existence of
taxable temporary differences and reversal periods.

The Group has incurred net accumulated operating losses for income tax purposes since its inception.

The Group believes that it is more likely than not that these net accumulated operating losses and other
deferred tax assets will not be utilized in the future. Therefore, the Group has provided full valuation
allowances for the deferred tax assets as of December 31, 2012, 2013 and 2014.

Movement of valuation allowance

Balance at beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current period reversal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at the end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the years ended December 31,
2014
2013
2012
US$
US$
US$
27,457
30,580
22,948
12,304
7,632
1,740
(6,386)
(4,863)
—
33,375
27,457
30,580

The current period reversal of valuation allowance is primarily attributed to the utilization of net

operating losses and deductible advertising expenses carried forward from prior years.

As of December 31, 2014, the tax years ended December 31, 2010 through 2014 of the Company’s PRC

subsidiaries and the affiliated PRC entities are subjected to examination by the PRC tax authorities.

F-27

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

58.com Inc.

13. Preference shares

The Group did not authorize or issue any preference shares before 2010. Immediately prior to the IPO,

the Group’s preference shares comprised the following:

Series

Date of Issuance

A . . . . . . . . . .
A-1 . . . . . . . . .
B . . . . . . . . . .
B . . . . . . . . . .
B-1 . . . . . . . . .

March 2010
March 2010
December 2010
March 2011
August and
September 2011

Issue
Price Per
Share
US$
0.37
0.53
1.79
2.03

Redemption
Price Per
Share
US$
0.18
0.53
1.79
2.03

Shares

Authorized

Issued and
Outstanding

27,028,572
19,047,620
26,247,412
26,247,412

27,028,572
19,047,620
25,210,084
1,037,328

Carrying
Amount
US$
9,866
13,293
56,910
2,430

3.608

3.608

15,243,000

15,242,995

66,152

All of the preference shares were automatically converted to ordinary shares upon the Group’s IPO.

Prior to their automatic conversion to ordinary share upon the Group’s IPO, the preference shares were
entitled to certain preferences with respect to conversion, redemption, dividends and liquidation. The holders
of Preference Shares were entitled to vote together with the holders of ordinary shares, and not as a separate
class, on all matters put before the shareholders of the Group, on an as-if-converted basis.

The Group determined that conversion and redemption features embedded in the preference shares were
not required to be bifurcated and accounted for as a derivative. The Group also determined that there was no
beneﬁcial conversion feature attributable to any of the preference shares because the initial effective
conversion prices of these preference shares were higher than the fair value of the Group’s ordinary shares
determined by the Group with the assistance from an independent valuation ﬁrm.

14. Ordinary shares

The Company was incorporated in the Cayman Islands in May 2011. The Company is authorized to issue

a maximum of 5,000,000,000 shares with a par value of US$0.00001 per share, comprised of 4,912,433,396
ordinary shares and 87,566,604 Preference Shares.

On August 30, 2013, the Group’s Board of Directors approved that the Group redesign the share capital
and adopt a dual class ordinary share structure immediately upon the completion of IPO. Upon completion of
the Group’s IPO on November 5, 2013 (see Note 1), the Company’s shares were divided into Class A ordinary
shares and Class B ordinary shares, at par value of US$0.00001. Holders of Class A ordinary shares and
Class B ordinary shares have the same rights except for voting and conversion rights. Holders of Class A
ordinary shares are entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten
votes per share, voting together as one class on all matters subject to a shareholders’ vote. All of the
outstanding ordinary shares prior to this offering were redesignated as Class B ordinary shares and all of the
outstanding preference shares were automatically re-designated or converted into Class B ordinary shares on a
one-for-one basis immediately upon the completion of the IPO.

As a result of the Group’s follow-on offering on April 1, 2014 (see Note 1), the Company issued and

sold 2,000,000 ADSs and the selling shareholders sold an aggregate of 4,000,000 ADSs and 900,000
additional ADSs for the overallotment at the price of US$38.00 per ADS.

On June 30, 2014, Tencent purchased 36,805,000 ordinary shares from the Company at a purchase price
of US$40.00 per ADS. The Group used part of the proceeds from this transaction to repurchase an aggregate
of 27,603,750 ordinary shares from existing pre-IPO shareholders at the price of US$40.00 per ADS.

F-28

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

14. Ordinary shares − (continued)

As of December 31, 2014, 4,800,000,000 Class A ordinary shares and 200,000,000 Class B ordinary

shares had been authorized, 176,375,211 ordinary shares had been issued and outstanding, of which
101,574,732 were Class A ordinary shares and 74,800,479 were Class B ordinary shares.

15. Share-based compensation

In March 2010, the Group authorized an employment-related stock incentive plan (the ‘‘2010 Plan’’). The

2010 Plan will terminate automatically 10 years after its adoption, unless terminated earlier at the Group’s
shareholders’ approval. According to the resolutions of the Board of Directors of the Group in April and
November 2011, the number of ordinary shares available for issuance under the 2010 Plan was increased to
18,093,225. The majority of options granted under 2010 Plan were to be vested over three or four years, one
fourth (1⁄4) of which shall vest and become exercisable upon the ﬁrst anniversary of the date of grant and the
remaining shall vest monthly thereafter in 24 or 36 equal monthly installments.

The Group adopted a share incentive plan (the ‘‘2013 Plan’’) on September 26, 2013. The 2013 Plan will

terminate automatically 10 years after its adoption, unless terminated earlier at the Group’s shareholders’
approval. The maximum aggregate number of shares which may be issued pursuant to all awards under the
2013 Plan is 2,800,000 shares as of the date of its adoption. The number of shares reserved for future
issuances under the 2013 Plan will be increased by a number equal to 1.5% of the total number of outstanding
shares on the last day of the immediately preceding calendar year, on the ﬁrst day of each calendar year
during the term of the 2013 Plan beginning in 2015, or such lesser number of ordinary shares as determined
by the Board of Directors. The majority of options granted under the 2013 Plan were to be vested over three
or four years, one fourth (1⁄4) of which shall vest and become exercisable upon the ﬁrst anniversary of the date
of grant and the remaining shall vest every six months thereafter in equal installments.

As of December 31, 2014, the Group has reserved 1,024,091 ordinary shares available to be granted as

share-based awards.

A summary of the Group’s share option activities for the years ended December 31, 2012, 2013 and 2014

is presented below:

Number of
Options

6,857,467
1,312,500
(730,939)
(473,551)
6,965,477
3,833,000
(520,030)
(431,774)
9,846,673
721,600
(388,260)
(3,391,943)
6,788,070
3,334,708

Weighted
Average
Exercise
Price
US$
1.18
2.30
1.50
0.56
1.40
3.07
2.21
1.16
2.02
18.20
4.08
0.98
4.14
2.20

Weighted
Average
Remaining
Contractual
Life
In years
9.09

8.36

8.14

7.75
7.02

Aggregate
Intrinsic
Value
US$
7,225

911
7,504

7,778
168,870

67,128
112,925
61,941

Outstanding as of December 31, 2011 . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding as of December 31, 2012 . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding as of December 31, 2013 . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding as of December 31, 2014 . . . . . . . . . . .
Exercisable as of December 31, 2014 . . . . . . . . . . . . .

F-29

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

15. Share-based compensation − (continued)

The weighted average grant date fair value of options granted for the years ended December 31, 2012,

2013 and 2014 was US$1.32, US$2.90 and US$11.43 per share, respectively.

During 2012 and 2013, some employees voluntarily left the Group and exercised their vested share
options in exchange for future entitlement of the Group’s shares issuable after completion of the Group’s IPO
and upon the request of these former employees. The proceeds from the exercise of these options cannot be
refunded to the former employees in any event, including the Group failed to complete an IPO. Accordingly,
these share options are considered to be exercised and contingently issuable upon the completion of the
Group’s IPO. And the proceeds received have been included in additional paid-in capital of the Group and
disclosed in the consolidated statement of changes in shareholders’ equity/(deﬁcit) for the years ended
December 31, 2012 and 2013, respectively. The Group completed its IPO on November 5, 2013 and the
905,325 contingently issuable shares have been issued to the former employees after the 180-day lock-up
period.

There was no RSUs granted before 2014. The following table sets forth the summary of RSUs activities

for the year ended December 31, 2014:

Unvested as of December 31, 2013 . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested as of December 31, 2014 . . . . . . . . . . . . . . . . . . . .

Weighted
Average
Remaining
Contractual
Life
In years
—

9.62

Number of
RSUs

—
948,600
(54,000)
—
894,600

Weighted
Average
Grant Date
Fair Value
US$

21.10

Valuation Assumptions: The Group estimated the fair value of share options using the Binominal
option-pricing model with the assistance from an independent valuation ﬁrm. The fair value of each option
grant was estimated on the date of grant with the following assumptions:

Expected volatility . . . . . . .
Risk-free interest rate

(per annum) . . . . . . . . . .
Exercise multiple . . . . . . . .
Expected dividend yield . . .
Expected term (in years) . . .
Expected forfeiture rate

(post-vesting) . . . . . . . . .

Fair value of the underlying
shares on the date of
option grants (US$) . . . . .

2012
54.80% − 63.30%

2013
54.10% − 59.10%

2014
50.80% − 53.30%

2.03% − 3.20%
2
0.00%
10

2.03% − 3.10%
2
0.00%
10

3.01% − 3.73%
2
0.00%
10

3.20% − 3.50%

1.00% − 3.30%

0.30% − 0.40%

2.38 − 2.48

2.48 − 8.50

19.26 − 22.95

The Group estimated the risk free rate based on the yield to maturity of US treasury bonds denominated
in US$ at the option valuation date. The exercise multiple is estimated as the ratio of fair value of underlying
shares over the exercise price as at the time the option is exercised, based on a consideration of research study
regarding exercise pattern based on historical statistical data. Expected term is the contract life of the option.
The expected volatility at the date of grant date and each option valuation date was estimated based on the

F-30

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

15. Share-based compensation − (continued)

historical stock prices of comparable companies. The Group has never declared or paid any cash dividends on
its capital stock, and the Group does not anticipate any dividend payments on its ordinary shares in the
foreseeable future.

Share-based compensation expenses for the share-based awards which are based on service conditions are

recognized using the straight-line attribution approach.

For the years ended December 31, 2012, 2013 and 2014, the Group recognized share-based compensation

expenses of US$1,671, US$2,865 and US$6,173, respectively for share options and RSUs granted.

As of December 31, 2014, there was US$31,254 of total unrecognized compensation expenses, adjusted

for estimated forfeitures, related to non-vested share-based compensation arrangement under the 2010 and
2013 Plan. The expense is expected to be recognized over a weighted average period of 3.31 years. Total
unrecognized compensation expenses may be adjusted for future changes in estimated forfeitures.

16. Income/(loss) per share

The following table sets forth the computation of basic and diluted net income/(loss) per share for the

periods indicated:

Numerator:
. . . . . . . . . . . . . . . . . . . . . . . .
Net income/(loss).
Series A-1 Preference Shares accretions
. . . . . . . . .
Series B Preference Shares accretions . . . . . . . . . . .
Series B-1 Preference Shares accretions
. . . . . . . . .
Income allocation to participating preference shares. .
Numerator for basic and diluted net (loss)/income
per share . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Denominator:
Weighted average number of ordinary shares used in
computing net income/(loss) per share − basic . . .
Weighted average number of ordinary shares used in
computing net income/(loss) per share − diluted . .

Net income/(loss) per ordinary share attributable to

ordinary shareholders − basic . . . . . . . . . . . . . . .

Net income/(loss) per ordinary share attributable to

ordinary shareholders − diluted . . . . . . . . . . . . . .

Net income/(loss) per ADS-basic

(1 ADS represents 2 Class A ordinary shares) . . . .

Net income/(loss) per ADS-diluted

(1 ADS represents 2 Class A ordinary shares) . . . .

2012

As of December 31,
2013

2014

(30,401)
(962)
(4,298)
(4,973)
—

19,557
(858)
(3,831)
(4,445)
(1,230)

(40,634)

9,193

22,644
—
—
—
—

22,644

44,245,388

63,717,007

168,589,273

44,245,388

69,159,524

174,024,997

(0.92)

(0.92)

(1.84)

(1.84)

0.14

0.13

0.29

0.27

0.13

0.13

0.27

0.26

Basic net income/(loss) per share is computed using the weighted average number of the ordinary shares

outstanding during the period. Diluted net income/(loss) per share is computed using the weighted average
number of ordinary shares and dilutive ordinary share equivalents outstanding during the period. Class A and
Class B ordinary shares are considered the same for the purposes of EPS calculation as they have identical
earnings rights and preferences. For the year ended December31, 2012, options to purchase ordinary shares
that were anti-dilutive and excluded from the calculation of diluted net loss per share totaled 7,601,619 on a
weighted average basis. For the year ended December 31, 2012, the Series A, Series A-1, Series B and
Series B-1 Preference Shares of 87,566,599, on a weighted average basis, were also anti-dilutive and excluded

F-31

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

16. Income/(loss) per share − (continued)

from the calculation of diluted net loss per share. For the year ended December 31, 2013 and 2014, options to
purchase ordinary shares included in the calculation of diluted net income per share totaled 4,742,442 and
5,435,724, respectively.

For the years ended December 31, 2012 and 2013, certain employees left the Group and exercised their

vested share options. Due to certain legal restrictions in China, upon the Group’s initial public offering, the
Group issued 905,325 contingently issuable shares related to the exercise. The contingently issuable shares
have been issued to these ex-employees after the expiration of the 180-day lock-up period upon the
completion of the initial public offering without any further consideration paid. For the year ended
December 31, 2012, the contingently issuable shares were anti-dilutive and excluded from the calculation of
diluted net loss per share. For the year ended December 31, 2013, the contingently issuable shares included in
the calculation of diluted net income per share were 700,075.

The proceeds from the above option exercises were US$253 and US$557 in 2012 and 2013, respectively,

which were recorded in additional paid-in capital. The contingently issuable shares are not included in the
computation of basic net income/(loss) per share as the holders do not participate in any voting and dividend
rights until the shares are actually issued, but is included in the dilutive ordinary equivalent shares using
if-converted method as the conditions for issuance have been satisﬁed.

17. Commitments and contingencies

(a) Commitments

The Group leases its facilities and offices under non-cancelable operating lease agreements. The rental
expenses were US$5,009, US$5,253 and US$8,511 during the years ended December 31, 2012, 2013, and
2014, respectively, and were charged to the statement of comprehensive income/(loss) when incurred.

Certain of these arrangements have renewal or expansion options and adjustments for market provisions,

such as free or escalating base monthly rental payments. The Group recognizes rental expense under such
arrangements on the straight-line basis over the initial term of the lease. The difference between the
straight-line expense and the cash paid for rent was recorded as prepaid rent.

The Group used third party services for server custody and bandwidth. The contracts are typically
12 months in duration. The Group typically contracts these services according to the traffic level of its online
marketplace and the respective server storage and bandwidth required to support the traffic.

The Group engaged third parties for promoting its brand image through various advertising channels,
including advertising on internet search engines, websites and other traditional off-line media. The amount of
advertising commitments relates to the committed advertising services that have not been delivered and paid.

As of December 31, 2014, future minimum commitments under non-cancelable agreements were as follows:

Operating lease commitments
. . . . . .
Purchase of new office building . . . . .
Server custody and bandwidth fee

commitments . . . . . . . . . . . . . . . .
Advertising commitments . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Total

2015
US$
10,982
151,943

1,360
45,659
209,944

2016
US$
6,469
—

—
38
6,507

2017
US$
3,228
—

—
—
3,228

2018
US$
1,887
—

—
—
1,887

2019
US$
373
—

—
—
373

Total
US$
22,939
151,943

1,360
45,697
221,939

F-32

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

17. Commitments and contingencies − (continued)

Other than those shown above, the Group did not have any signiﬁcant capital and other commitments,

long-term obligations, or guarantees as of December 31, 2014.

(b) Contingencies

From time to time, the Group is involved in claims and legal proceedings that arise in the ordinary
course of business. Based on currently available information, management does not believe that the ultimate
outcome of these unresolved matters, individually and in the aggregate, is likely to have a material adverse
effect on the Group’s ﬁnancial position, results of operations or cash ﬂows. However, litigation is subject to
inherent uncertainties and the Group’s view of these matters may change in the future. When an unfavorable
outcome to occur, there exists the possibility of a material adverse impact on the Group’s ﬁnancial position
and results of operations for the periods in which the unfavorable outcome occurs, and potentially in future
periods.

18. Subsequent events

In February 2015, the Group granted options to purchase up to 201,600 Class A ordinary shares with
exercise price of US$18.68 per share and 392,308 restricted share units to its employees under the 2013 Share
Incentive Plan.

In February and April 2015, 58 Daojia Inc., or 58 Daojia, a subsidiary of the Group, adopted a share

incentive plan and granted option to purchase an aggregate of 10,651,000 ordinary shares of 58 Daojia and
9,100,000 restricted shares of 58 Daojia to its employees and the employees of certain other subsidiaries and
affiliated companies of the Group.

In February 2015, the Group entered into a Share Purchase Agreement to acquire all of the equity of a

company with a total cash consideration of approximately US$22,793. The acquiree is engaged in the
provision of online and offline driving training, driving examination preparation and driving practice services.
The acquisition was completed in April 2015.

In February 2015, the Group entered into a Share Purchase Agreement to acquire all of the equity of

Anjuke Inc. (‘‘Anjuke’’), a major online real estate listing platform in China. The deal will be settled by
issuance of approximately 5,087,585 new ordinary shares of the Company and US$160,171 in cash. This
transaction allows the Group and Anjuke to create a more efficient secondary and rental real estate platform
by combining the Group’s housing content category with Anjuke’s platform and also to expand into the
primary housing services. The acquisition was closed on March 2, 2015.

The above two 100% equity interest acquisitions are accounted for as a business combination. The Group

will make estimates and judgments in determining the fair value of acquired assets and liabilities, based on
management’s experiences with similar assets and liabilities with the assistance from an independent valuation
ﬁrm. Through April 29, 2015, the date on which the ﬁnancial statements were issued, the valuation reports for
these two acquisitions are not ﬁnished and the initial accounting for the business combination were
incomplete.

In March 2015, the Group acquired a minority stake in To8to, a major online interior decoration service platform

in China at a total cash consideration of approximately US$33,722. The deal was closed in March 2015.

In April 2015, the Group acquired a non-controlling strategic stake in Falcon View Technology Limited

(‘‘Ganji’’), one of China’s leading online local services marketplaces, for a combination of share consideration
and cash, including 34,039,136 newly issued ordinary shares of the Company and US$412,237 in cash.
Concurrently, Tencent purchased 15,384,616 newly issued ordinary shares from the Company at a purchase
price of US$26.00 per share, or a total cash consideration of approximately US$400,000. Both of the
transactions were closed in April 2015.

F-33

58.com Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share, per share and per ADS data, unless otherwise noted)

18. Subsequent events − (continued)

Wanglin, which has been qualiﬁed as a HNTE under the EIT Law, and is entitled to a preferential tax
rate of 15% in 2014, obtained its qualiﬁcation of ‘‘software enterprises’’ in July 2014. In April 2015, Wanglin
submitted the application for preferential tax treatment for ‘‘software enterprises’’ and was granted by local tax
authority a two-year EIT exemption and followed by a three year 50% EIT reduction on its taxable income,
effective retroactively from January 1, 2014. Wanglin had paid approximately US$1,194 income tax in 2014
and will apply for refund in 2015.

In April 2015, the Compensation Committee of the Group approved the grant of options to purchase an

aggregate of 7,000 Class A ordinary shares of the Company and 432,000 restricted share units to management
and employees of the Group under the 2013 Plan.

In April 2015, the Board of Directors of the Group approved the increase of the option pool size of 2013

Plan by 7,000,000 ordinary shares, which are reserved for future share-based awards to management and
employees.

19. Restricted net assets

PRC laws and regulations permit payments of dividends by the Company’s subsidiaries, the VIEs and

VIEs’ subsidiaries incorporated in the PRC only out of their retained earnings, if any, as determined in
accordance with PRC accounting standards and regulations. In addition, the Company’s subsidiaries, the VIEs
and VIEs’ subsidiaries incorporated in the PRC are required to annually appropriate 10% of their net after-tax
income to the statutory general reserve fund prior to payment of any dividends, unless such reserve funds
have reached 50% of their respective registered capital. As a result of these and other restrictions under PRC
laws and regulations, the Company’s subsidiaries, the VIEs and VIEs’ subsidiaries incorporated in the PRC are
restricted in their ability to transfer a portion of their net assets to the Company either in the form of
dividends, loans or advances, which restricted portion amounted to US$171,566 as of December 31, 2014.
Even though the Company currently does not require any such dividends, loans or advances from the PRC
entities for working capital and other funding purposes, the Company may in the future require additional
cash resources from them due to changes in business conditions, to fund future acquisitions and development,
or merely to declare and pay dividends or distributions to its shareholders. Except for the above, there is no
other restriction on the use of proceeds generated by the Company’s subsidiaries, the VIEs and VIEs’
subsidiaries to satisfy any obligations of the Company.

The Group performed a test on the restricted net assets of its consolidated subsidiaries, the VIEs and

VIEs’ subsidiaries (the ‘‘restricted net assets’’) in accordance with Securities and Exchange Commission
Regulation S-X Rule 4-08 (e) (3), ‘‘General Notes to Financial Statements’’ and concluded that it was
applicable for the Group needs to disclose the condensed ﬁnancial statements for the parent company for
the years ended December 31, 2013 and 2014. For the purposes of presenting parent only ﬁnancial
information, the Company records its investments in its subsidiaries and VIEs under the equity method of
accounting. Such investments are presented on the separate condensed balance sheets of the Company as
‘‘Investments in subsidiaries and VIEs’’.

The subsidiaries did not pay any dividends to the Company for the years presented. Certain information

and footnote disclosures generally included in ﬁnancial statements prepared in accordance with US GAAP
have been condensed and omitted. The footnote disclosures represent supplemental information relating to the
operations of the Company, as such, these statements should be read in conjunction with the notes to the
consolidated ﬁnancial statements of the Group.

As of December 31, 2013 and 2014, the Company had no signiﬁcant capital and other commitments,

long-term obligations, or guarantee.

The Company’s accounting policies are the same as the Group’s policies with the exception of the

accounting for the investments in subsidiaries and VIEs.

F-34

Condensed ﬁnancial information of Parent Company

BALANCE SHEETS
As of December 31, 2013 and 2014
(U.S. dollars in thousands, except share data and per share data, unless otherwise noted)

ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayments and other current assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-current assets:
Receivable from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries and VIEs
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accrued expenses and other current liabilities
. . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commitments and contingencies
Shareholders’ equity:
Ordinary shares (US$0.00001 par value, 5,000,000,000 and 5,000,000,000

(including 4,800,000,000 Class A and 200,000,000 Class B) shares
authorized, 158,876,693 (including 27,064,706 Class A and 131,811,987
Class B) and 176,375,211 (including 101,574,732 Class A and 74,800,479
Class B) shares issued and outstanding as of December 31, 2013 and 2014,
respectively)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
Accumulated deﬁcit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . .

As of December 31,
2014

2013

40,835
152,190
—
456
193,481

—
27,031
27,031
220,512

42,959
281,513
8,889
2,530
335,891

23,000
149,070
172,070
507,961

229
229
229

644
644
644

2
359,276
(138,419)
(576)
220,283
220,512

2
624,381
(115,775)
(1,291)
507,317
507,961

F-35

Condensed ﬁnancial information of Parent Company

STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
For the Years Ended December 31, 2012, 2013 and 2014
(U.S. dollars in thousands, unless otherwise noted)

For the Year Ended December 31,
2013

2014

2012

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross proﬁt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
—
—

Operating (income)/expenses:
Sales and marketing expenses . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . .
Share of (income)/loss of subsidiaries and VIEs . . . . . . . . . . . .
Total operating (income)/expenses . . . . . . . . . . . . . . . . . . . .
Income/(loss) from operations . . . . . . . . . . . . . . . . . . . . . . .

Other income/(expenses):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange gain/(loss), net . . . . . . . . . . . . . . . .
Income/(loss) before tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax beneﬁts/(expenses) . . . . . . . . . . . . . . . . . . . . . . . .
Net income/(loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretions to preference shareholders redemption values . . . . . .
Income attributable to preference shareholders . . . . . . . . . . . . .
Net income/(loss) attributable to ordinary shareholders . . . . .
Net income/(loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment, net of nil tax . . . . . . . .
Unrealized loss on available-for-sale securities . . . . . . . . . . . . .
Comprehensive income/(loss) . . . . . . . . . . . . . . . . . . . . . . . .

—
—
553
29,914
30,467
(30,467)

66
—
(30,401)
—
(30,401)
(10,233)
—
(40,634)
(30,401)
(48)
—
(30,449)

—
—
—

—
—
1,151
(19,790)
(18,639)
18,639

517
401
19,557
—
19,557
(9,134)
(1,230)
9,193
19,557
(570)
—
18,987

—
—
—

—
—
2,856
(19,539)
(16,683)
16,683

8,390
(2,429)
22,644
—
22,644
—
—
22,644
22,644
396
(1,111)
21,929

F-36

Condensed ﬁnancial information of Parent Company

STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2012, 2013 and 2014
(U.S. dollars in thousands, unless otherwise noted)

Cash ﬂows from operating activities
. . . . . . . . . . . . . . . . . .
Cash ﬂows from investing activities . . . . . . . . . . . . . . . . . . .
Cash ﬂows from ﬁnancing activities . . . . . . . . . . . . . . . . . . .
Effects of exchange rate changes on cash and cash

equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase/(decrease) in cash and cash equivalents . . . . . . .
Cash and cash equivalents at the beginning of the year . . . . .
Cash and cash equivalents at the end of the year . . . . . . . . .

For the Year Ended December 31,
2013

2012
(25,790)
—
253

—
(25,537)
26,500
963

(56)
(173,415)
213,343

—
39,872
963
40,835

2014
(16,861)
(239,591)
258,576

—
2,124
40,835
42,959

Non-cash supplemental ﬁnancing activities
Accretions to preference shareholders redemption values . . . . . .

10,233

9,134

—

F-37