Leju Holdings Limited
Q4 2016 Earnings Call Transcript

Published: 13 Mar 2017

[Operator:]

Thank you for standing by and welcome to the Fourth Quarter 2016 Leju Holdings Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. [Operator Instructions] I must advise you that this conference call is being recorded today, Monday, March 13, 2017. I would now like to hand the conference over to your first speaker for today Ms. Annie Huang. Please go ahead, Ms. Huang.

[Annie Huang:]

Hello, everyone, and welcome to Leju’s fourth quarter and full-year 2016 earnings conference call. Today, we will update you regarding our financial results for the fourth quarter and full-year ended December 31, 2016. If you 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 fourth quarter and full-year 2016. Ms. Min Chen, our CFO, who 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 statements 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 statement 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. [He Zheng] [ph] please go ahead.

[Yinyu He:]

Thanks, everyone, for joining us on the call today. The real estate market in the fourth quarter last year took a sharp turn from the previous quarter and proved to be a challenging period for our business. Tightening measures, regulating both marketing and the sales activities were announced by over 20 local governments at the beginning of October, and was strictly enforced throughout the fourth quarter. As a result, transaction volume and the demand for marketing activities from the developers were immediately and drastically reduced across all major cities, which had a significant and a negative impact on our revenues and profitability. To adapt to the sudden market change, we accelerated our product innovation, expanded the scope of our customer services, and enhanced our efforts to consolidate our market leadership position. In December, we launched a new suite of advertising products, driven by our primary database in cooperation with Tencent, Weibo and Focus Media. This new cross-platform advertising products focus on various stages of developers’ marketing cycles, and our design to deliver more targeted and differentiated marketing impact. We further integrated and expanded our membership, e-commerce and marketing platforms to streamline and improve homebuyers’ experience throughout the house-hunting process. We also worked closely with the leading news feed applications and mobile browsers such as [Totail.com] [ph] and the UC Browser to expand our reach to more homebuyers and increase [Leju’s media] [ph] interest in the market. During 2016, we also invested in raising Leju’s own brand awareness through promotion events of our products and sites as well enhanced our market leadership through working with major developers to win strategic contracts. In the secondary market, we continue to expand our business and gain market share in the existing cities. We launched a live broadcasting services for secondary agents so that homebuyers could tour the property online and which increases user engagement and ensure authentic housing information. In home furnishing market, our contractor platform continue its strong growth momentum with GMV transacted growing 370% year-on-year as we roll out our service into 82 cities. In addition to attracting contractors, starting from February this year we started to integrate our other service partners such as suppliers, designers, third-party quality control companies and then the insurance companies into our home renovation application to address different needs around the home renovation process. We expect the market in 2017 to remain difficult in the short run. However, the supply and demand dynamics in the real estate market remains favorable to our long-term growth. We will continue to execute our strategy, improve our products and services, and hope to capture all opportunities for future growth once the market returns to normal. 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 Zheng. Good morning and good evening, everyone. For the fourth quarter of 2016, we recorded total revenues of $104.9 million, which decreased 39% year-over-year as transaction volumes and advertising demand were sharply reduced in the fourth quarter due to previously mentioned aggressive timing measures placed in the fourth quarter by local governments across our major markets. Our e-commerce services revenue were $70.9 million, representing approximately 68% of our total revenues this quarter, a decrease of 45% year-over-year as both the number and average price per coupon redeemed decreased. During the quarter, we generated e-commerce revenues from 73 cities. Our online advertising services revenues for this quarter declined by 24% to $28.2 million as a result of a decrease in developers’ advertising demand. It contributed 27% of our total revenues this quarter. Our listing services revenues for the fourth quarter of 2016 decreased by 11% to $5.8 million from the same period in 2015, so lower revenue was due to a decrease in secondary home sales in our markets. Our selling, general and administrative expenses were $131.4 million, decreased by 9% from $144.2 million for the same quarter of 2015, primarily due to decreased marketing expenses related to the company’s e-commerce businesses. The fourth quarter non-GAAP loss from operations was $33.7 million, while non-GAAP net loss attributable to the Leju shareholders was approximately $22.9 million. For the full year of 2016, we recorded $559.5 million in total revenues, decreased by 3% from 2015. Our e-commerce revenues, which contributed 75% of our total revenues, were $419 million relatively flat compared to $420.6 million for 2015. Our online advertising revenues decreased by 12% from last year to $118 million, contributing approximately 21% of total revenues, while our listing services revenues increased by 7% to $22.5 million from last year, partially offset by the decrease in secondary home sales in the fourth quarter of 2016. Non-GAAP income from operations was $9.9 million, decreased by 87% from $68.9 million for 2015. Non-GAAP net income attributable to the Leju shareholders was $10.1 million, decreased by 82% year-over-year from 2015. As of December 31, 2016, our cash and cash equivalents balance was $274.3 million. Our net cash used in operating activities for the fourth quarter 2016 was $36.9 million. Looking ahead, we expect that the timing policy measures put in place last year would remain forth for the first part of the year and the impact on our business would continue in the short-term. Therefore, we estimate that our first quarter 2017 total revenues will be approximately $59 million to $64 million, which would represent a decrease of approximately 48% to 43% from $113 million in the first quarter of 2016. This forecast reflects the company’s current and preliminary view which is subject to change. This concludes our prepared remarks and we’re now ready for questions from the audience. Operator, please go ahead.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] We will move to our first question, comes from Ming Xu from UBS. Your line is open. Please go ahead.

[Ming Xu:]

Hi, hello, [He Zheng] [ph] and any. Good evening. So I have two questions. So first question is He Zheng, you mentioned the new initiatives announced late last year about the part of innovation in your media, in your advertising business. So I just want to know is there any progress in this front? And also, what’s the feedback so far from the developers and also what kind of benefit, if you can give us any quantitative measures on these measures to help our advertising growth this year? This is a first question. And the second question is, we notice that year-to-date the property sales in lower-tier cities appear to be quite resilient. So I just want to know is this actually better than your company expectation and therefore any upside to the 2017 revenue outlook? Thanks.

[Yinyu He:]

Okay. Thank you. For your first question, yes, actually we launched our seven new products, which focus down our mobile, mobile marketing and based on our big data and also with very close relationship with our partnership with Tencent, Weibo and also Focus Media. Actually most of the developers, especially mainstream big developers, they welcome this our new products and they think, this is also the trend for them to market their products on the market, because the mobile marketing is more and more important. And the Leju is now the only company that can provide cross-platform mobile marketing solutions to them. They don’t need actually talk to different mobile platform operators, they can just go to us and get a one-stop solution and this is also based on Leju’s big data. As I said, we have a very accurate big data with every user seeing our big data database. They have more than 400 signals [ph] on that. So which allows us to do a more accurate and mobile marketing with our developers. So it is a very good feedback for them. And we also very pleased to see that our revenue composition, advertising revenue composition is gradually shifting to these new products. And we hope that because this represent the future development, we hope we will launch more mobile innovative product like that and I think in the future - in the very near future that our mobile marketing solutions I think will contribute most of our advertising revenue, because it’s a market trend. And to your second question, actually our business, especially the primary market business we cover almost of 300 cities around China. So for both first and second tier cities and the third tier cities we have actually, especially the major cities there we have business there. So from the contribution, still revenue contribution side, you can still see that the first and second tier contribute the most revenue than the third tier cities, because of the size and the trading volume of the city. So it’s not so big portion. In both cities, both higher and lower end cities we have the advantage, but this is around new policies. We actually get more a negative impact from the first and second tier cities.

[Ming Xu:]

Just a quick follow-up, so in your opinion so what do you see the impact of this current [if you say good] [ph] policies. So should we - I’m so sorry, so will we see any pickup or recovery in second half or we have to wait until maybe 2018 for a meaningful recovery in the property market?

[Yinyu He:]

I think first we understand the aim of the government in this round, because they want to cool down the market and avoid too quick rise of the price. So we understand the initiatives involved with the government. But this round, we also see some difference from the other round policy tightening, because this round that local governments impose the very strict restrictions on the marketing activities of the developers. They actually slow down the pace of issuing sales permits to new products and also impose price ceilings on the new projects. So you can see that our business, advertising and e-commerce were both negatively impacted. We think that the market needs some time, several months or a quarter to gradually go back and we expect that this situation will be better from the second quarter of this year.

[Ming Xu:]

Okay. Thank you. Thank you. Thank you for that, it’s very helpful.

[Yinyu He:]

Thank you.

[Operator:]

We will move to our next question, comes from Alex Yao from JPMorgan. Your line is open. Please go ahead.

[Alex Yao:]

Hi, good evening, everyone. Thank you for taking my questions. The first question is regarding the revenue growth recovery. Do we have to wait for the property market to recover or are there company-specific drivers that you guys can pull to drive company specific growth? A related question is, how tall should we think about the weakness from the perspective of structural change in the advertising allocation base versus the cyclical weakness in the property market. In such a macro environment, how is Leju positioning and performing relative to other internet peer platform such as a portal peer vertical names and also emerging mobile traffic platforms such as [Gingdu Totaltian] [ph]? Thank you.

[Yinyu He:]

Okay. Thank you. For your first question, I think current problem is not our business structure problem or it’s the product of the e-commerce. But the current challenge on the market is that, because the government tightens the monitoring the marketing activities of the developers. So we think it’s a market dynamic and this will be changed from time going on. So it’s not actually a problem for our revenue structure. The second one is that, given that revenue from the e-commerce, where you look at our previous report you can see it takes - it’s much larger than ex [ph] the advertising revenue. So e-commerce will remain our top revenue growth contributor and will be most important business for Leju. As to your second question, is that, yes, when we enter in the mobile internet industries we already recognize that no one single vertical portal, especially a low frequency vertical portal can survive on a market, because the users spend diversified time on different mobile platforms, when they interact with others, when they’re watching videos and playing games and whatever. So our strategy is try to corporate with other mobile platforms, with our unique contents information with them. So especially when we’re talking about the Gingdu Totaltian, you can see we are also very close partnership on the content. They need vertical contents, and we also need their audience to be targeted. So our strategy is try to integrate as more external resources, mobile resources as we can and to provide our offline service to them on their mobile platform. So that you can see we already have our unique position on a market that we can provide a cross-mobile-platform marketing solutions to the market. I think this is our strength. It’s also the features of our vertical, which is very low frequency.

[Alex Yao:]

Thank you very much. Very helpful.

[Yinyu He:]

Thank you.

[Operator:]

We move to our next question, come from Hillman Chan from Macquarie. Your line is open. Please go ahead.

[Hillman Chan:]

Hello, He Zheng, Min Chen and any. Thank you for taking my question. So my first question is about our e-commerce coupon business. I understand that this is focus for us in the primary market, but given that the profitability of the coupon model is facing some pressure, would we consider shifting more of these coupon e-commerce businesses to just online advertising when we are dealing with the developers? That’s my first question.

[Yinyu He:]

Okay. Actually, in December, we launched our 2017 strategy. We called it, one plus one plus seven. That means, actually including the previous e-commerce platform, we also introduced our membership platform. And this is the initial platform for potential buyers. If they want to buy houses, and they can register membership on our site. And we pre-charge them a membership fee, and help them to find house and get discount. If they finally get the discount and buy the house, we charge the membership fee. So you can see we - it’s already upgrade our e-commerce services, we call it membership service fee. The other one, the seven is advertising. So I think for one plus one plus seven all the developers may need this. One is for the membership and for the coupon business is help the developers who securing intention of the homebuyers. And for the marketing side, they need more awareness, more brand and even more effective more way to touch the potential homebuyers on the mobile side. So I think the one plus one, seven, the strategy is our 2017 strategy, and all developers need that. Actually, we received very positive feedback from them. And also, we have secured strategic partnership agreements with major - about 20 major developers so far. So this I think will lay down a very solid foundation for us in the development of this year.

[Hillman Chan:]

Thank you. And one more question on the Tangonjan, [ph] how should we think about the monetization timeline as we are expanding our scope of services and suppliers, insurance companies as it’s mentioned before?

[Yinyu He:]

Okay. We think Tangonjan is a very strategic investment of Leju. And in the past two years, we actually spent all our efforts to build up this platform to help more contractors to our platform and help the people to find the contractor on our platform. So we called it actually it’s a marketing platform - online marketing platform, just to help consumers to find proper contractor to do the home renovation. From this year, we will further renovate our application. We will - apart from helping them finding the - find the good contractor, we will also focus on digitalization of the renovation process, which means we provide the contractors intelligent measurement tools on the app. We help users to actually sign the contract, fulfill the payments through the app. We help them monitor the renovation site via internet on the app. So we will encourage more and more home renovators, they use our apps. And I think it’s a platform with thousands of renovators on it. It’s a high frequency app during that renovation process. And we will monetize from the each prospect of this app, and I think we have a concrete revenue contribution model later on. Currently, I think our revenue mainly from advertising, mainly from the membership of the contractors and also the service fee from the renovators, the home consumers, that’s the three major ones. But later on, I think the revenue landscape will be a bit different.

[Hillman Chan:]

Got it. And last question is about our headcount plan for different lines of businesses, if you could share. Thank you.

[Yinyu He:]

The major headcount I think we will keep stable. On the other hand actually - we actually have some changes in different lines to adapt a new market changes. For primary sector, actually we - because our resources is shifting from PC to mobile, so we have to use more new hands actually to - that can use the mobile technologies and we have to say bye, bye to those traditional hook [ph] of that. So there’s a little change in that, but overall I think we will keep the headcount stable.

[Hillman Chan:]

Got it. Thank you very much, He Zheng. Thank you for the color.

[Yinyu He:]

Thank you.

[Operator:]

[Operator Instructions] We will now move to our next question, come from Nora Zhang from Bank of America. Your line is open. Please go ahead.

[Nora Zhang:]

Good evening, management. Thank you for taking my question. Actually, I have some housekeeping question regarding the Qiang Gong Zhang platform. Could you share with us the GMV and number of contractors? And how much do we expect to invest in the home decoration platform in 2017?

[Yinyu He:]

I would say, okay, the GMV of the platform is about $256 million in the fourth quarter and the full year it’s about RMB600 million. And for contractors, we already have about over 50,000 contractors on our platform. The exact number is 53 to 50. And as to the investment, I think we actually make a perfect balance from the spending and from the growth and from the earnings. I think we will keep reasonable investment on this platform, because as we have a great aim to actually to digitalize or to further improve the renovation process of the products use internet technologies. So it’s not a short-term aim, it’s a long-term aim. So we - especially for this year, we will make perfect balance of the investment and we want to see that our circle runs well. We also see the zip-circle [ph] generates the revenue as we expect, and also if we think this app gives us the stability of the revenue, we will increase the investment to cover more cities. So we will keep the balance of it.

[Nora Zhang:]

Thank you for the color. That’s very helpful.

[Yinyu He:]

Thank you.

[Operator:]

Thank you. We will now move to our next question, comes from Hillman Chan from Macquarie. Your line is open. Please go ahead.

[Hillman Chan:]

Thank you, management, for taking my question again. Just some housekeeping questions, could you give us the revenue mix by tier of cities for e-commerce and online advertising fees?

[Min Chen:]

Yes. Hillman, it’s Min. For the fourth quarter the first tier city e-commerce revenue contribution was about, let’s see, 20%. And 73% came from second tier and 7% is from third tier or lower. And then for advertising, the first tier city contributed about 40% and second tier was about 44% and the remaining is from third tier and lower.

[Hillman Chan:]

Got it. And for the coupon ASP this quarter, that is declined. Is it related to change in the mix of tier?

[Min Chen:]

Yes, yes. As you can three quarters of our revenue came from second tier cities. And the coupon ASP from those second tier cities is less than half of the first tier cities.

[Hillman Chan:]

Okay. And going forward for 2017, how should we think about the revenue mix by tier cities?

[Yinyu He:]

I think that the first tier remained the biggest contributor as the market - we expect the market will go back, especially in Guangzhou and Shanghai. And for the second tier, I think it’s very potential cities for us, because it has in terms of number of the cities it’s the biggest. And also, when you’re looking at the market, especially the market policies, I think these are more attractive to us.

[Hillman Chan:]

Thank you, He Zheng and Min Chen. Thank you very much.

[Operator:]

Thank you. [Operator Instructions] There are no further questions at this time, Ms. Annie. Please continue.

[Annie Huang:]

This concludes today’s call. If you have any follow-up questions, please contact us at the numbers or e-mails provided on our earnings release and on our website. Thank you.

[Yinyu He:]

Thank you.

[Operator:]

This concludes the conference for today. Thank you for participating. You may all disconnect.