Leju Holdings Limited
Q3 2017 Earnings Call Transcript

Published: 28 Nov 2017

[Operator:]

Hello, and thank you for standing by for Leju's Third Quarter 2017 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 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 Director. Please go ahead.

[Annie Huang:]

Hello, everyone. And welcome to Leju's third quarter 2017 earnings conference call. Today, we’ll update you regarding our financial results for the third quarter ended September 30, 2017. 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 Web site at ir.leju.com. Leading the call today is Mr. Geoffrey He, our CEO, who will review operational highlights for the third quarter 2017. Mr. Li-Lan Cheng, our acting CFO, will then discuss the financial results in more detail. We will then open the call to questions. Before we continue, please allow me to read you Leju’s Safe Harbor statements. 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 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 reports 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 includes 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-dong, please go ahead.

[Geoffrey He:]

Thanks everyone for joining us on the call today. During this quarter, market conditions did not show significant improvement in many cities we operate. Strictly imposed and extended carbon measures continued to the stressed market sentiments and to pose challenges for our business. As a result, our operations and results were negatively impacted, particularly our e-commerce and secondary home listing services. However, despite reducing demand for marketing activities from developers, we were encouraged to see a sequential increase in our online advertising revenue as our new suite of big data based targeted advertising products gained popularity among our developer clients. During this quarter, we continued our investment in product innovation, content optimization and expanded partnerships, which help to enhance our media influence and brand recognition. We also integrated our marketing, advertising and ecommerce platforms to provide more streamlined services for home buyer and the developers. During this quarter, we introduced our new marketing product [Leju Er Shou Fang], which allow home buyers to select newness and confirm the purchase through mobile devices, simplifying the property transaction process. In the home furnishing market, we formed a strategic partnership with [indiscernible], a leading home furnishing material and service provider. Through this partnership, we begin to offer cost competitive well stop home furnishing solutions to consumers, including design, material purchase and renovation construction. We believe that strong executing of our strategist while solidifying our market leading position in the primary target have laid a solid foundation for future growth when the market recovers. Looking ahead, we still further streamlined our cost structure to better adapt to the unfavorable market conditions, which may persist in the near term. Now, I will turn the call over to our Acting-CFO, Mr. Li-Lan Cheng, who will review our financial highlights for the quarter.

[Li-Lan Cheng:]

Thank you, Geoffrey. Good evening, everyone. For the third quarter of 2017, we have total revenues of about $95.2 million, a 48% decrease from the same quarter of 2016 as a result of restrictions placed by local government. Our ecommerce services revenues decreased by 57% year-over-year to $61.8 million due to decreases in both the number of discount coupons redeemed and the average price per discount coupon. They contributed approximately 65% of our revenue during this quarter. Our online advertising services revenues for this quarter declined by 11% to $30 million, as a result of a decrease in property developers' online advertising demand. It contributed 31% of our total revenue for this quarter. Our listing service revenues for the third quarter of 2017 decreased by 42% to $3.4 million from the same quarter last quarter as a result of decrease in secondary home sales. Our cost of sales for this quarter increased by 39% to $21.1 million from the same quarter last year due to increased cost of advertising resources purchased. Our selling, general and administrative expenses decreased by 27% to $103.5 million from the same quarter last year. The decrease was primarily due to increased marketing expenses and commission expenses related to our ecommerce business. Non-GAAP loss from operations was $24.9 million for the third quarter of 2017 compared to non-GAAP income from operations of $33.6 million for the same quarter of 2016. Non-GAAP net loss attributable to Leju shareholders was $19.2 million for the third quarter of 2017 compared to non-GAAP net income attributable to Leju shareholders of $23.1 million for the same quarter of 2016. For the first nine months of 2017, we recorded $256.2 million in total revenue, a 44% decrease from the same quarter last year. Our e-commerce revenues decreased by 53% to $163.6 million from the same period last year as a result of decrease in both the number of discount coupons redeemed and average price per discount coupon. It contributed 64% of total revenues for the first nine months of 2017. Our online advertising revenues, contributing 31% of total revenues, decreased by 10% from the same period of last year to $80.5 million due to a decrease in developers' online advertising demand, while our listing revenues decreased by 28% to $12 million as a result of a decrease in secondary home sales for the first nine months of 2017. Non-GAAP loss from operations was $104.1 million for the first nine months of 2017 compared to non-GAAP income from operations of $42.7 million for the same period last year. Non-GAAP net loss attributable to Leju shareholders was $85.7 million for the first nine months of 2017 compared to non-GAAP net income attributable Leju’s shareholders of $33 million for the same quarter last year. As of September 30, 2017, our cash and cash equivalents balance was $209 million. Our net cash flow provided by operations for the third quarter of 2017 were $18.2 million, mainly attributable to an increase in other current liabilities of $30.5 million and an increase in advances from customers and deferred revenue of $8.6 million, partially offset by non-GAAP net loss of $19.5 million. Looking ahead, we estimate that our fourth quarter 2017 total revenues will be approximately between $90 million to $100 million, which represents a decrease of approximately 5% to 14% from the same quarter of last year. Please note down this forecast reflects our current and preliminary review, which is subject to change. This concludes our prepared remarks. We’re now ready to take your questions. Operator, please go ahead.

[Operator:]

Thank you [Operator Instructions]. We can now take our first question from Binbin Ding from JP Morgan. Please go ahead.

[Binbin Ding:]

I have a question on advertising. I guess you may have already started to negotiate the budgeting with the developers for the next year. So I’m wondering if you can share some color and feedbacks on the advertisers for the time being. And will the general increase or reduce the budget on the entire online real-estate platform, the online real-estate vertical sector, as well as on Leju platform? And what is your overall view regarding the 2018 outlook for the advertising services? Thank you.

[Geoffrey He:]

Now, we begin to talk about next year’s plan with developers about their plans and also their budgets for the promotion of their projects next year. But it is still at very early stage and the most developers actually, they haven’t had very clear picture of their next year plan. So it is too early to conclude if they will increase or decrease their marketing budgets for the next year. So one signal that I can give you is that most developers, they turn cautious about next year’s market. So I think there is no obvious signal that they will -- shopper will further decrease their marketing budgets. There is no such signal. And for Leju’s operation actually in the past two years, actually we concentrate on our strengths to build up open advertising platform. So that developers when they want to promote their project they can use our platform to put at multiple mainstream online portals, including Leju’s portal. They can also put ads on like WeChat, like Baidu, multiple platforms. So that is open platform developed by Leju. So after the two year’s efforts, more and more developers, they begin to know the value, especially our mobile advertising, it is a data driven business. So I think we have already set up positive position for our future growth on advertising.

[Binbin Ding:]

And my second question is on the overall developments in the real-estate market in the past few months. So can you give us an update on market in terms of both policy and transaction volume side? And we talked to a few people in the market, I think, they generally seems to be more positive in terms of the recovery in the next year, especially in the tier 1, tier 2, tier 3 cities. So what is your view on that end? Will that bring any upside to our current forecast on the ecommerce or advertising side? Thank you.

[Geoffrey He:]

On the positive side that we didn't see any signal that the government will loosen its restrictions, especially in the first and second tier cities, but some changes happening that the focus of the government is more now, more on the price ceiling of one project. And in some cities, actually in this quarter, the local governments actually issuing more sales permits, but the price is still very restricted in price ceiling on these projects. I think in the coming future, I think the government will not lose any restrictions on the price permits. And we also see that the consumer sentiment, because of the policy restrictions has also been changing that more and more consumers in second, especially in third tier cities, they begin to think about whether it is a good time to buy the house especially at current point. So I think in next year, as the government is also promoting rental side, I think the market is not -- as I said just before, more and more developers think they will be very cautious on next year's market. But for Leju, as you know, if the market is too hot or it’s too cool is not so good for us. But when the market trend seem to appear that they need some promotion to sell their units, it will be good us. So we are looking whether it will happen in early next year.

[Operator:]

Thank you [Operator Instructions]. We have no further questions at this time. I would like to turn the call back over to you for any additional or closing remarks.

[Annie Huang:]

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

[Operator:]

This concludes today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.