Qudian Inc. (NYSE:QD) is a leading provider of online small consumer credit products in China. Today, the stock is moving much higher on the back of strong earnings news. We like that this company is data-centric. Qudian uses big data-enabled technologies, such as artificial intelligence and machine learning, to transform the consumer finance experience in china.

This is a massive market. With the mission to use technology to make personalized credit accessible, Qudian targets hundreds of millions of young, mobile-active consumers in China who need access to small credit for their discretionary spending or budget auto financing solutions, but are underserved by traditional financial institutions due to lack of traditional credit data. This niche market has led to a successful quarter for the company. Let us discuss.

In Q4 Qudian produced a record number of transactions valued at $3.9 billion during the fourth quarter of 2017, up 69.7% from fourth quarter of 2016. The number of active borrowers reached 6.9 million during the fourth quarter of 2017, up 52.5% from 4.5 million during the fourth quarter of 2016.

Transactions continue to grow. The number of transactions processed on average per hour reached 40,935, with 11,515 credit drawdowns and 29,420 repayments per hour on average. Further, average credit size per transaction was approximately $148 USD for cash credit and $215 for merchandise credit.

Finally, the number of registered users reached 62.4 million as of December 31, 2017, with 26.2 million users who have been approved for credit, up from 33.9 million registered users and 11.2 million approved users as of December 31, 2016. What about the financials?

Total revenue for the fourth quarter of 2017 increased by 108.4% to $229.2 million primarily due to the increase in financing income as a result of the substantial increase in the volume of on-balance sheet transactions. Financing income totaled $163.1 million for the fourth quarter of 2017, increasing 73.4% from last year. Loan facilitation income and others increased to $23.0 million, up 587.2% from last year, as a result of the substantial increase in the volume of off-balance sheet transactions.

Sales commission fees increased $38.6 million up 212.2% from RMB80.5 million for the fourth quarter of 2016. The increase in sales commissions was mainly a result of an increase in merchandise credit utilized by borrowers to purchase merchandise via Qudian’s marketplace.

Now, with such a rise in revenues it was not unsurprising to see that total operating cost and expenses increased by 164.3% $144.9 million. Cost of revenues increased by 173.4% to $46.9 million due to higher interest expenses on borrowings because of increased use of funds provided by institutional funding partners. Sales and marketing expenses increased by 38.9% $14.5 million. The increase was primarily due to higher expenses associated with the  establishment of a nationwide network of showrooms for Dabai Auto as well as higher borrower engagement fees in the fourth quarter of 2017, compared with the fourth quarter of 2016. General and administrative expenses decreased by 25.1% attributable to the decrease in salaries and benefits expense, which was partly offset by the increase in administrative fees payable to trust companies as a result of increased use of trust funding in the fourth quarter of 2017. Finally, the company put $5.7 million into research and development expenses, a 36% increase to further enhance its data analytics and risk management capabilities.

As for earnings, the company saw $0.26 in per share income, a solid result.

So what do we think? Well we are impressed with the company achieving 108.4% and 80.1% growth year-over-year in revenue and net income, respectively, in the fourth quarter of 2017. The company’s success in 2017 was driven by the technology and cost efficiency that made small consumption credit accessible and affordable to hundreds of millions of creditworthy but underserved consumers in China. The niche market is working. We remain bullish.

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