Fangdd Network Group Ltd.
Q4 2020 Earnings Call Transcript
Published:
- Operator:
- Ladies and gentlemen, thank you for standing by, and welcome to FangDD's Network Group Limited Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the managements' prepared remarks, we will have question-and-answer session. Please note that this event is being recorded. I'd now like to hand the conference over to your speaker host today, Mr. Warren Wen, Financial Controller of the Company. Please go ahead, Warren.
- Warren Wen:
- Thank you, operator, and hello, everyone, and thank you all for joining us on today's call. The Company has announced its fourth quarter and full year 2020 results today, and earnings release is now available on the Company's IR website.
- Zeng Xi:
- Warren Wen:
- Hello, everyone, and welcome to our fourth quarter 2020 earnings call. And Mr. Zeng would like to start off the call with a review of the real estate market in 2020. During 2020, real estate developers started to adopt digital marketing in their operations. However, developers faced increasing cost pressure as they rely more on the sales channel to achieve a higher turnover rate while sales channel commissions continued to increase rapidly. The COVID-19 pandemic in 2020 also further accelerated the digitalization of various industries as more consumers moved online in general, the reliance on online sales channels from homebuyers have resulted in the rapid development of digital real estate transaction services. However, as the real estate industry moves to focus on reducing inventory and the government's implementation of serious initiatives in 2020, such as the property price caps and the three red lines policy, developers have faced additional pressure on their profit margins. As a result, reducing costs and improving turnover efficiency have become core issues for developers. Based on the data from our Real Estate Digital Research Institute, the commission rate for ordinary residential property sales exceeded 3% in 2020. According to a report from CSC Financial, the average commission rate for the resale property has remained below 2% for the past two years. As a result, we believe that the increasing trend in commission rate for new construction property is neither long-term nor sustainable. Developers are always located at the first ring of the value chain for the real estate agent service sector, and the adoption of digital marketing solutions may reshape the role that platform plays as their sales channels going forward.
- Pan Jiaorong:
- A - Warren Wen:
- Okay. Thank you and CFO will now provide a closer look into the fourth quarter financial results. Before beginning, please note that all the numbers are in RMB terms unless otherwise indicated. And revenue in the fourth quarter of 2020 decreased to RMB622.4 million. The decrease was attributable to the Company's plan to reallocate resources between the revenue from commission, which had lower profit margins due to the intensified market competition and revenue from value-added services and new business initiatives, such as we launched SaaS solution for various platform participants, with which the Company attempted to diversify into future revenue stream and increase profit margins. And revenue in the fourth quarter of 2020 -- but of course, revenue in the fourth quarter 2020 decreased to RMB570.6 million, and the decrease is attributable to the decrease in the commission payable to the agents; and at the same time, because the Company -- because of the Company's plan to diversify the future income stream so that the Company provides various SaaS solutions and resulting in the relevant cost increases. And the gross profit in the fourth quarter of 2020 decreased to RMB51.8 million. Gross margin in the fourth quarter of 2020 decreased to 8.3%. Operating expenses in the fourth quarter of 2020, which included share-based compensation expenses of RMB24.3 million, decreased by 85.7 to RMB128.3 million from RMB199.7 million in the same period of 2019, which included share-based compensation expenses of RMB745.9 million. Sales and marketing expenses in the fourth quarter of 2020 increased to RMB32.2 million from RMB17.1 million in the same period of 2019. The increase was primarily due to the Company's increased spending on brand recognition and promoting and marketing activities related to its new SaaS solution offer to various platform participants in the fourth quarter of 2020. Product development expenses in the fourth quarter of 2020 were RMB17.9 million compared to RMB506.8 million in the same period of 2019. This decrease was primarily attributable to the decrease of the share-based compensation expenses in the fourth quarter of 2020 to RMB15.6 million from RMB435.1 million in the same period of 2019. To a lesser extent, the decrease was also due to the Company's decision to shift its focus to expanding the size of a product development team to optimizing operating efficiency as well as optimize its product development structure with a focus on the Company's SaaS solution, which lead to the decrease in your personnel-related expenses in the period. General and administrative expenses in the fourth quarter of 2020 were RMB25.2 million compared to RMB375.9 million in the same period of 2019. This decrease was mainly due to the decrease in share-based compensation expenses in the fourth quarter of 2020 to RMB8.7 million from RMB310.8 million in the same period of 2019. To a lesser extent, the decrease also resulted from the Company's effort in implementing cost control initiatives in response to the impact of COVID-19. Net loss in the fourth quarter of 2020 was RMB92.8 million compared to the net loss of RMB691 million in the same period of 2019. And non-GAAP net loss in the fourth quarter of 2020 was RMB68.5 million. Basic and diluted net loss per American depository shares ADS in the fourth quarter of 2020 were both 1.15. In comparison, the Company's basic and diluted net loss attributable to the ordinary share per ADS in the same period of 2019 were both RMB22, each ADS represent 25-plus A ordinary shares of the Company. Now, I will also briefly review our full year results. Revenue in 2020 is RMB2,451.3 million. Cost of revenue in 2020 is RMB2,036.8 million. Gross profit in 2020 is RMB414.5 million. Gross margin in 2020 is 16.9%. Operating expenses in 2020, including share-based compensation expenses of RMB102.8 million, decreased by 50.5% to RMB640.5 million from RMB1,293.8 million in 2019. Sales and marketing expenses in 2020 were RMB38 million compared to RMB48.4 million in 2019. Product development expenses in 2020 were RMB301.4 million compared to RMB725 million in 2019. General and administrative expenses in 2020 were RMB301.1 million compared to RMB520.4 million in 2019. And net loss in 2020 was RMB221.4 million compared to RMB510.4 million in 2019. Non-GAAP net loss in 2020 was RMB118.6 million. Basic and diluted net loss per ADS in 2019 were both RMB2.76. As of December 31, 2020, we had cash and cash equivalents, restricted cash and short investments of RMB945 million, short-term bank borrowings of RMB443.4 million as well as utilized banking facilities of RMB460.5 million. For the fourth quarter of 2020, net cash used in operating activity was RMB225.9 million. And that concludes our prepared remarks for today. And operator, we are now ready to take questions.
- Operator:
- Ladies and gentlemen, we will now begin the question-and-answer session. Kindly note, when asking a question, please state your question in Chinese first then we receive your question in English for the convenience of everyone on the call. We have a question coming from the line of Lisa Thompson from Zacks Investment. Please go ahead.
- Lisa Thompson:
- Good morning. Sorry, I can't ask my question in Chinese, sir. I would like to know given your change in strategy for this year, what do you expect gross margins to be going forward? And also, what are your plans for spending on operating expenses?
- Warren Wen:
- Let me translate your question first. Pardon me, do you -- are you asking the operating expenses in the coming year or the medium-term or long term?
- Lisa Thompson:
- This year.
- Warren Wen:
- This year, you mean 2021?
- Lisa Thompson:
- Yes.
- Pan Jiaorong:
- Warren Wen:
- So to answer your first question, we will have two model coexists for the year 2021. The first one is the new property sales commission revenue. Property will remain a gross profit margin at a similar level with 2020 at 15% to 20%. And at the same time, we have newly launched a SaaS solution offering to our developer base, which is a SaaS model with monthly or annually subscription fee income with gross profit margin at 60% to 80% in the years to come.
- Pan Jiaorong:
- Warren Wen:
- For the product development expenses, we believe because our product development team is pretty much mature up to now, and we believe the increase in percentage in comparison with 2020 well within 10% to 20%. And regarding the sales and marketing expenses, because we have established a strong presence on the off-line service to our agent base and the developer and our off-line service team are pretty much mature and we believe that team could be reused again and again in the future so that we believe the percentage in the increased -- percentage of as an increase in the sales and marketing expenses probably will remain stable. That is the increase will be minimum. And do I answer your question, madam?
- Lisa Thompson:
- Does that add then to around the same amount as you spent in 2020 to be RMB640 million?
- Warren Wen:
- RMB 640 million, you mean -- what do you mean by.
- Lisa Thompson:
- Total operating expenses.
- Warren Wen:
- Total operating expenses.
- Zeng Xi:
- Warren Wen:
- Okay. So Co-CEO anticipated there will be a minimum increase of this overall operating expenses by like 10% -- within 10%.
- Lisa Thompson:
- Okay. And as far as gross margins is expected to increase from this 8% going forward?
- Warren Wen:
- Pan Jiaorong:
- Warren Wen:
- The answer is really yes because we have launched the SaaS Solution offering to our developer base with a much higher gross profit margin, as said before. And as far as the penetration rate and the percentage of this type of revenue increases for the years to come and we believe the overall gross profit margin will increase in the following quarter and years.
- Pan Jiaorong:
- Warren Wen:
- And also to our traditional commission -- based commissioning revenue, we believe with continue invest service to our developed per base and our agent base. We also believe the gross profit margin as a percentage will continue to increase in the years to come.
- Lisa Thompson:
- Okay. Great. One last question. Just for us U.S. folks, could you just describe the state of the Chinese real estate market now? Is it 100% back to normal or are you still recovering from shutdowns?
- Warren Wen:
- Pan Jiaorong:
- Warren Wen:
- Okay. I'm happy to say that basically, the Chinese real estate market is basically back to normal. And we anticipated in the future few years and the transaction volume of the entire country probably remain a very as high as possible, like RMB15 trillion for new construction property and RMB6 trillion for second-hand property -- resale property.
- Pan Jiaorong:
- Warren Wen:
- And another point we have noticed is the local government, the Chinese government is controlling the selling prices of the new construction property price and also the resale property price, and so that developer's profit margin is dropping significantly and so that the developers is taking whatever effort to build up their own sales team so that to reduce the cost from selling the property so that this is one of the opportunity that we have seen for our future development, in particular, our digitalization for the sales channel. Is there any other questions?
- Operator:
- Sir, we do not have any questions at this moment. Back to you. We do not have any further questions at this moment. Back to you, sir.
- Warren Wen:
- Okay. That will conclude today's earnings release conference call. Thank you, operator.
- Operator:
- Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect now.
- Warren Wen:
- Thank you.