Leju Holdings Limited
Q2 2016 Earnings Call Transcript

Published: 25 Aug 2016

[Operator:]

Hello and thank you for standing by for Leju’s Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a Q&A session. Please note that today’s conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today’s conference, Ms. Annie Huang, Leju’s Investor Relations Manager. Please go ahead.

[Annie Huang:]

Hello, everyone, and welcome to Leju’s second quarter 2016 earnings conference call. Today, we will update you regarding our financial results for the second quarter ended June 30, 2016. If you would like a copy of the earnings press release or would like to sign-up for our e-mail distribution list, please go to our IR website at ir.leju.com. Leading the call today is Mr. Geoffrey He, our CEO, who will review operational highlights for the second quarter of 2016. Ms. Min Chen, our CFO, will then discuss the financial results in more detail. We will then open the call to questions, at which time our Executive Chairman, Mr. Xin Zhou, will be available. Before we continue, please allow me to read you Leju’s Safe Harbor statement. Some of the statements during this conference call are Forward-Looking Statements made under the Safe Harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC. You are encouraged to review the forward-looking statement section of our Annual Report filed with the SEC for additional information concerning factors that could cause those differences. Leju does not undertake any obligation to publicly update any forward-looking statements whether as a result of new information, future events, or otherwise except as required by applicable law. Our earnings press release and this call include discussions of unaudited GAAP financial information, as well as some unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. Please note that unless otherwise stated, all figures mentioned during this conference call are in U.S. dollars. I will now turn the call over to Leju’s CEO, Geoffrey He. Please go ahead.

[Geoffrey He:]

Hello everyone, thank you for joining us. We consistently focused on providing comprehensive and effective marketing solutions to developers and consumers over the last few years, aimed at various market conditions. We have been able to gain a leading position in the media marketing and the E-commerce platforms through continued the product innovations, strong execution, and expanded partnerships and investing to new lines of business to ensure our long-term growth. During the second quarter of this year, we maintained [indiscernible] revenue present and the profitability. In the primary market services, we widened our leadership in the industry as marketing platform, through our continued efforts in product innovation. Many of our products, we first launched in industry and now becoming standard for the developers, including [we’re now in] (Ph) private car service, virtual reality showroom experience and the aerial viewing tours recorded by drones, all aimed to serve home buyers through various stage of home hunting product and achieve better marketing results for our developer clients. Meanwhile, we increased our media influence and brand awareness on the mobile site through expanded partnerships with leading mobile browsers, including UC and Cheetah, which enable us to disseminate our content to a broader user base. In the secondary market, our listing services continued a steady growth this quarter. We continue to see progress in attracting subscribing agents as we expanded our listing services to 60 cities. We will remain focused on an online information platform, which we believe will have us achieve stability and sustainable profitability in the years ahead. In home furnishing business, our home furnishing advertising business widened its leadership in the industry and we were the first in the industry to launch mobile live video to connect brands of all categories in home furnishing with home owners. Meanwhile, our contractor platform continued its rapid development through strong efforts in marketing and raising awareness of the platform among the consumers. By mid August, we achieved [indiscernible] of over RMB500 million on our platform with close to 50,000 qualified contractors providing customized services directly to home owners in 63 cities. We will continue to expand this business in more cities and launch new products and services around the process chain. Looking to the quarters ahead, we expect market competition to remain intense and our overall real estate market environment to face some uncertainties across different tiers of cities, but we believe that our clear strategy across all business lines will help us to sustain our business fundamentals, strengthen our industry leadership and lay a solid foundation for our future growth. In the meantime, we will also continue to invest in the home furnishing contractor business to maintain our first mover advantage. Now I will turn the call to our CFO Ms. Min Chen who will review our financial highlights for the quarter.

[Min Chen:]

Thank you He, good morning and good evening, everyone. For the second quarter of 2016, we recorded total revenues of $158.3 million relatively flat compared to the same quarter of 2015. Our E-commerce services revenues was $118.2 million compared to $117.4 for the same period last year, representing approximately 75% of our total revenue for the quarter. Our E-commerce business continue to see increases in average price per coupon redeemed, but during the quarter the price increases were partially offset by the decrease in number of coupons redeemed as a result of developers changing their launch schedules. During the quarter, we generated E-commerce revenues from 57 cities. Our online advertising services revenues for this quarter declined by 2% to $34.4 million as a result of changes in property developer’s online advertising demand, it contributed approximately 22% of our total revenue this quarter. Our listing services revenues for the second quarter of 2016 increased by 9% to $5.7 million from the same period last year. The higher revenue was driven primarily by growth in secondary home sales. Our selling, general and administrative expenses increased by 5% to $134.3 million from the same quarter last year, the increase in overall SG&A was primarily due to increased marketing expenses spent on the promotion of our listing business and home furnishing business, which we have discussed before, as well as the marketing expenses related to our E-commerce business. The second quarter non-GAAP income from operations was approximately $15.5 million for this quarter, while non-GAAP net income attributable to Leju shareholders was approximately 15.2 million. For the first half of 2015, we recorded revenues of $271.3 million, representing 8% increased from the same period last year. Our E-commerce revenue grew 11% from the same period of last year to $204.3 million contributing 75% of total revenues. Our online advertising revenues decreased 3% from the same period of last year to $56.2 million contributing 21% of total revenues. Well on listing revenues, listing services revenues increased 19% to $10.8 million driven by the growth in secondary home sales for the first half of 2016. Non-GAAP income from operations was $9.2 million, representing 56% year-over-year decrease from the same period last year. Non-GAAP net income attributable to Leju shareholders was 9.9 million, representing a 45% year-over-year decrease from the same period last year. As of June 30, 2016, our cash and cash equivalents balance was $272.2 million or net cash flows on the operations for the second quarter of 2016 was $23.5 million. At this moment, we are maintaining our previous guidance of total revenues of $660 million to $690 million for the full-year of 2016, which represents an increase from full-year 2015 of 15% to 20%. Please note, this forecast reflects our current and preliminary view, which is subject to change. This concludes our prepared remarks. We are now ready to take your questions. Operator, please go ahead.

[Operator:]

Thank you [Operator Instructions]. We will now take our first question from Hillman Chan of Macquarie. Please go ahead.

[Hillman Chan:]

Good evening, Geoffrey, Min and Anni. My first question is about the home furnishing business. So just now you mentioned [indiscernible] RMB500 million in the quarter. Could we also have a sense on the revenue and how should we think about the expense investment as well going to second half and also the direct revenue outlook going forward? Thank you. That’s my first question.

[Geoffrey He:]

Okay. Thank you for your question. And to the top priority for our home furnishing business I think now is how to attract as many as possible to consumers and contractors to make their deals on our platforms, so that’s our top priority. The second one is, so now the platform has many deals on that so we can have enough advertising and business. We have already started to try to sale the ad on that platform and gained some revenue, but which is not so significant compare to our total advertising revenues but that is a start, we have already started that trial.

[Hillman Chan:]

Okay. And my second question is wanted to have a sense of your assessment, of the property market and also the competition for our E-commerce business going into second half? Thank you.

[Geoffrey He:]

Okay. I think for the competition, frankly speaking I think this year - because many developers recognized the value of this, we call it formal E-commerce provider the value of the former E-commerce provider. So actually the market I think is more concentric to those big E-commerce platforms rather than more E-commerce platform. So the competition actually is coming from our similar sized competitors or some folks down their offline resources the E-commerce providers. So the competition I think is not like last year, it's a chaos, but this year it should be better I think the environment. And the second one is that actually the E-commerce business is highly related to the market, the total trading volume of the primary sector. We actually face some problems when the market is going too hot, when the market is going too hot the developers will not have discount to provide it to consumers. So without the discount, our coupon business will be the negatively impacted. So the competition as you have commented on two ways, one way is the total or the whole in competition landscape is better than last year, the second one is it's highly related to the market condition of the trading volume of the houses. I’m not sure if I answered the question.

[Hillman Chan:]

Yes.

[Operator:]

We will now take our next question from Ming Xu from UBS. Your line is open. Please go ahead.

[Ming Xu:]

Good evening He and Chen, Xin. So my first question is regarding the regulation, so we noticed that recently the government released a new regulation trying to regulate the property agents so including some tighter requirement on them to update the post. So, I just want to know from your perspective Geoffrey, so what is the impact on the agents industry and also the impact on your business asset listing platform. And also we hear that there are some downsizing layoff in the property agent teams in some of the larger Chinese cities, I just want to know whether this is in line with your observation and also the impact on your business? Thank you. This is my first question.

[Geoffrey He:]

Okay as to our listing business, it is true that the government released some restrictive policies on the agencies when they list some information and actually we see some influence to our business, because actually they have to reduce the listing numbers on our platform. But I think the influence is quite limited, because as we know that our business is verified listing. So most listings our platforms actually are verified, so the influence is quite limited. As to the second question, I think we see some signal that they are trying to do that but we have not yet to see the actual influence to our business. And total market, I think this year is still quite positive, it’s not so negative. So I’m not sure, if it’s a long-term trend. You may have some agents, they laid out people maybe its individual case, I think from current point of view.

[Operator:]

We will now take our next question from Tian Hou from T.H. Capital. Please go ahead.

[Tian Hou:]

I mean one question is, so the first half of the China property market actually saw some tremendous growth. So I wonder why Leju’s growth is not in line with the industry growth. And also how do you see the second half of the China property market, as well as Leju’s development in different line of the business?

[Geoffrey He:]

Okay. Yes. Leju’s new primary sector business is highly related to the trading volume of the market, it is true. But it’s not saying that when the market goes where extremely hot, we are the benefiter. Actually as I said that in the second quarter we faced some projects, because the hot market cannot provide enough discount to the developers, so they have to give up the E-commerce model, which is negative to us. So that’s the first one. Second one is some project actually postponed their deal confirmation process or prolonged that process in order to get higher selling price to the consumers, which also give us some negative inference. So as I said, our business is when the market goes too hot, it’s not good, too cold, it’s not good. When the markets is fluctuating, I think it will be better for us. Looking forward in the second half of this year, I think the market will a little bit cool down, because most big name developers actually they have achieved the annual growth already by 60% or 70%. So we are also watching, if they will still continue to setting their houses to setup a higher growth, if it is setup higher growth that means that we can still have quite good E-commerce business. But if this slowdown their setting process, which is not good to us. And as to the market, I think we will be a little cool down, because it will be not so great like the first half.

[Operator:]

We will now take our next question from Nora Zhang from Bank of America Merrill Lynch. Please go ahead.

[Nora Zhang:]

Good evening guys. Thank you for taking my questions. I have two questions.

[Geoffrey He:]

Excuse me.

[Min Chen:]

Nora, we cannot hear you.

[Nora Zhang:]

[Technical Difficulty].

[Geoffrey He:]

Nora, could you please speak a louder? We cannot get you.

[Nora Zhang:]

[Technical Difficulty].

[Min Chen:]

Sorry, Nora still cannot hear you.

[Operator:]

We will take our next question from Ming Xu from UBS. Please go ahead.

[Ming Xu:]

Thank you, So just want to follow-up on my previous questions, you mentioned that the impact of that policy could be the agents have to decrease their number of posts or number of advertising. But I think one of the requirement is that after the house has been sold the posts have to be updated within two days or five days if I remember correctly. So I mean doesn't that actually increase the frequency of posts in my opinion?

[Geoffrey He:]

I think because our verified listing model is sold by months so they get that space and they can update the information. So we are not actually give out some inference on that for frequency.

[Ming Xu:]

Okay. Got it. So I just have a very quick question on your financials. So we noticed that the accrued expenses increased another 5 million in Q2 after 5 million increase in Q1. So I’m just wondering what kind or what is the - could you may be share some color on that expenses and when that will be actually reflected in your P&L? Thanks.

[Min Chen:]

The accrued expenses Ming is a lot of the payroll and welfare expenses, so that we will digest over the course of the year.

[Ming Xu:]

Okay. Thank you.

[Operator:]

[Operator Instructions] We will now take our next question from Robert Cowell from 86Research. Please go ahead.

[Robert Cowell:]

Hi Geoffrey and Min thanks for taking my question. When I am looking at your guidance I’m noticing a reacceleration in the second half of the year. I wanted to ask about this home promotion on mobile event that you all held in July and may be if that's in anyway related to the guidance may be just color or metrics on that promotion. Thank you.

[Geoffrey He:]

Yes, it's a promotional campaign to attract developers to get some more [indiscernible] and also it's a very effective way to support our E-commerce project. So it's a consumer oriented campaign, promotional campaign, but it's business, it's based on our clients.

[Min Chen:]

Robert it's also one of our ways of showing developers our influence to the consumers. How much impact, how much reach we have to the home buyer community, so that's one of the reasons why we launched this annual campaign every year. But more to your point about the second half deceleration, I think one indicator that we are maintaining our guidance is also looking at how much coupons we have sold, how many coupons we have sold that have not yet been converted to revenue. As you know we recognize revenue only when the coupons are redeemed when a home buyer buys an apartment, but we have a relatively strong pipeline in terms of coupons sold that have not been converted.

[Robert Cowell:]

Thank you. If I can get one follow-up, I’m wondering if there are any costs associated, incremental costs associated with this mobile promotional event and if that has any impact on the cost structure in second half.

[Geoffrey He:]

Well, remain the mobile.

[Min Chen:]

The cost related to that we actually incur on our book is actually very minimal. A lot of the gifts and the prices et cetera that we give out during the promotion of primarily showed by the developers, who participate in the campaign. So the expenses caused to us is basically, the initial development cost of launching that promotion on our channels and on our mobile apps, other than that there isn’t much more than sort of maintaining the app.

[Geoffrey He:]

Actually during that the mobile campaign actually, we launched a lot of innovative products like I said that our 3D product, our virtual reality products and also our live broadcast products. So we actually displayed a lot of our innovative products to the consumers. On the other way actually, it is a very faster way for us to encourage developers to invest in our mobile advertising business.

[Operator:]

[Operator Instructions]. We will now take our next question from Nora Zhang from Bank of America Merrill Lynch. Please go ahead.

[Nora Zhang:]

Hi. Good evening, management. Thank you for taking my questions. I have a question regarding margins. Just now Geoffrey mentioned that our competition landscape for the coupon business has been better than last year. But our operating margin is about 3% points lower than second quarter last year. So my question is, is it rights to say that our margins for our business including the coupon advertising is actually improving. And lower margin is clearly due to the drag from our investment in home furnishing business. And as a percentage of revenue, how much do we expect to invest in the home furnishing business for the full-year? And I have a housekeeping question regarding the advertising business. I wonder what percentage is our revenue on mobiles of the advertising business and also our number of accounts of the listing business? Thank you.

[Geoffrey He:]

I should explain that, when I said that competition landscape is better than last year. I mean that the player on the market is less than last year. it doesn’t mean that it is related to the margin, when the developers actually choose a partner actually they now want more services both online and offline. So what I mean is that there are less players on this market, but most players are actually big sized and developers still ask you for more services. Of course, because still our stability, I think we have a strategy on how to balance the profitability of each product. So I think it's not related actually. The second one is that in the first half of the year, we did that invest in our Qiang Gong Zhang platform, which we already see a very clear business model and we will further expand our national coverage of this platform and also we will increase our investment in this new platform, which is very exciting business for us.

[Min Chen:]

Nora to your question about the mobile traffic, I think for the second quarter of this year mobile traffic has already exceeded well over half, I think it's about 60% of our overall traffic to our site.

[Geoffrey He:]

For the total I think it's approximately may be 70% like that. And our advertising business actually for the primary sector our mobile advertising revenue already exceed the PC advertising revenue in the second quarter.

[Operator:]

We are now approaching the end of the conference call. I will now turn the call back over to Leju's Investor Relations manager Ms. Annie Huang for any closing remarks.

[Annie Huang:]

This concludes today's call. If you have any follow-up question please contact us at numbers or emails provided on our earnings release on our website. Thank you.

[Operator:]

That concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.