OneConnect Financial Technology Co., Ltd. (OCFT), a leader in technology-as-a-service for the financial services industry, has reported its Q3 2024 financial results, spotlighting a resilient approach to growth despite a challenging revenue environment.
While revenue from continuing operations dropped by 48.3% year-over-year to RMB417 million, OneConnect demonstrated strong international expansion with a 23.4% increase in revenue from third-party overseas customers in the first nine months of 2024.
This strategic shift underscores the company’s focus on overseas market opportunities, alongside rigorous cost control efforts to support financial stability and profitability.
OneConnect’s Resilient Q3 2024 Strategy Amid Revenue Challenges
In a period marked by economic headwinds, OneConnect has responded with a strategic pivot toward international markets and cost management. The company’s Q3 2024 financial performance highlights its resilience, with a narrowed net loss and a notable revenue uptick from overseas customers.
The company’s intentional shift from domestic cloud services and its recent divestiture of the virtual bank business are positioning it for sustainable growth.
OneConnect’s Focus on Core Competencies and Global Expansion
OneConnect, part of the Ping An Group, has leveraged its tech-driven solutions to support financial services both in China and abroad. However, facing shifting market demand and increased competition, OneConnect is phasing out lower-margin domestic operations to concentrate on core strengths and growth in international markets.
This includes a strategic exit from its cloud services platform and the divestiture of its virtual bank business earlier this year, enabling the company to realign its resources toward profitable overseas expansion.
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Analyzing OneConnect’s Q3 2024 Financial Performance
Revenue Breakdown and Overseas Growth:
- Total Revenue: Q3 2024 revenue from continuing operations was RMB417 million, a 48.3% decrease from RMB807 million in Q3 2023, primarily due to the planned phase-out of cloud services in July 2024. This reduction reflects OneConnect’s focus on improving revenue quality and optimizing its portfolio.
- Revenue from Overseas Markets: Revenue from third-party overseas customers increased by 23.4% in the first three quarters of 2024. This growth reflects the success of OneConnect’s international diversification strategy, capitalizing on demand in regions with a strong appetite for digital financial services solutions. This expansion marks a critical step toward reducing reliance on domestic markets and enhancing global competitiveness.
Gross Profit and Margin Insights:
- Gross Profit: Gross profit from continuing operations reached RMB137 million in Q3 2024, down from RMB295 million the previous year, corresponding with the revenue decline.
- Gross Margin: Gross margin for continuing operations decreased to 32.7% from 36.6% in Q3 2023, and non-IFRS gross margin fell from 40.7% to 35.6%. The decrease is primarily due to lower economies of scale following the cloud services phase-out, yet it reflects OneConnect’s strategic decision to focus on higher-value services and international growth opportunities.
Operating Expenses and Cost Control:
- Total Operating Expenses: OneConnect significantly reduced operating expenses by 47.8% year-over-year to RMB190 million in Q3 2024, demonstrating stringent cost control and financial discipline.
- R&D Expenses: Research and development (R&D) expenses from continuing operations dropped 69.6% to RMB70 million, as the company streamlined its innovation efforts and aligned projects with its new international focus.
- Sales and Marketing Expenses: Sales and marketing expenses decreased by 30.3% to RMB46 million, primarily due to improvements in sales efficiency.
- General and Administrative (G&A) Expenses: While G&A expenses rose slightly to RMB75 million, increasing as a percentage of revenue to 17.9%, this reflects OneConnect’s continued investment in building robust infrastructure to support its international expansion
Net Loss and Operating Loss Improvements:
- Net Loss: The company reduced its net loss from continuing operations to RMB30 million in Q3 2024, down 41.9% from RMB51 million in Q3 2023, benefiting from strict cost management.
- Operating Loss: Operating loss also improved, reducing to RMB50 million in Q3 2024 from RMB56 million the previous year, reflecting OneConnect’s ability to align operations more closely with its core growth areas.
Key Drivers Behind OneConnect’s Strategic Transformation
With domestic demand softening, particularly in cloud services and digital banking, OneConnect’s overseas revenue growth stands out. The 23.4% increase in third-party overseas customer revenue highlights the success of OneConnect’s global expansion strategy.
The company is focusing on developing innovative solutions to meet the needs of international financial institutions, which are increasingly adopting digital services. By prioritizing international markets, OneConnect positions itself to gain long-term value from emerging regions while balancing the decline in China’s market demand.
The aggressive reduction in operating expenses aligns with OneConnect’s goal of achieving profitability in the medium term. The decrease in R&D and sales expenses, coupled with efficiency improvements, reflects a more disciplined approach to managing resources, which is essential for maintaining financial health while navigating a complex economic landscape.
This financial discipline also sets a stable foundation for investing in high-growth areas like AI and digital transformation.
OneConnect’s emphasis on AI technology is a strategic move to stay competitive in the global financial services industry. The use of AI in risk management and customer engagement tools supports OneConnect’s goal of delivering high-value, standardized products that meet international demand.
This innovation not only enhances OneConnect’s appeal to global customers but also aligns with industry trends toward digital transformation, especially as more financial institutions prioritize AI for operational efficiency and customer service improvements.
Growth Potential and Forward-Looking Statements
As OneConnect pivots to overseas expansion and phases out non-core domestic operations, its strategic vision remains centered on leveraging AI, building global partnerships, and enhancing operational efficiency.
For investors and stakeholders, this strategic shift is key to OneConnect’s long-term resilience, positioning it as a more agile and focused player in the digital financial services industry.
OneConnect has set a profitability goal in the mid-term, and its rigorous cost control measures, combined with strong growth in international markets, offer positive signals for future financial performance.
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