Leju Holdings Limited
Q4 2017 Earnings Call Transcript

Published: 19 Mar 2018

[Operator:]

Hello, and thank you for standing by for Leju's Fourth Quarter 2017 Earnings Conference Call. At this time, all participants are in listen-only-mode. After management's prepared remarks, there will be a Q&A session. [Operator Instructions] 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. Michelle Yuan, Leju's Deputy CFO. Thank you.

[Michelle Yuan:]

Hello, everyone. And welcome to Leju's fourth quarter 2017 earnings conference call. Today, we’ll update you regarding our financial results for the fourth quarter ended December 31, 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 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 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 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 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 to everyone for joining us on today’s call. In the fourth quarter of last year, the overall operating environment did not showed significant improvement under the continued tightening policies imposed by the government. Throughout the full-year of 2017, a series of real estate regulatory measures such as price ceilings and restrictive policies on home purchases and mortgages were carried out in major cities in which we operate. Marketing demand from developers was significantly subdued, and our e-commerce business, which is based on discount coupons, was severely and negatively impacted. However, our online advertising sector benefited from the development of our targeted advertising products and achieved a stable performance. During this quarter we formulated our new strategy of New Media, New Ecosystem, and New E-commerce, aiming to further enhance our media influence and content productivity, and to provide accurate and targeted advertising services by leveraging our Big Data capability. At the end of 2017, we officially launched the Leju Finance, a professional - vertical media platform in China. Leju Finance serves as a B2B platform which provides users interactive service and information on developers financial and operating performances. We expect this platform will make incremental revenue contribution to our online advertising segment this year and by offering leading developers a suite of brand promotional services. Meanwhile, apart from our project-based e-commerce model, we now have launched our new e-commerce business which offers developer branded coupons which can be redeemed for purchases of projects to be launched in the near future. Looking forward to 2018, we see that while the restrictive measures will persist, our new suite of services will become incremental revenue drivers for our top-line growth. On the other hand, we will also further optimize our presence in management across all business lines and continue to streamlining our cost structure to improve our bottom line. 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 morning and good evening, everyone. For the fourth quarter of 2017, we recorded total revenues of $106.4 million, a 1% increase from the same quarter of 2016. Our e-commerce services revenues were $71.2 million relatively flat compared to the same quarter of 2016. It contributed 67% of our total revenues this quarter. Our online advertising services revenues for this quarter increased by 16% to $32.7 million as a result of an increase in property developers online advertising demand. It contributed 31% of our revenues this quarter. Our listing services revenues for the fourth quarter of 2017 decreased by 58% to $2.4 million for the same period last year as a result of a decrease in secondary real estate brokers demand. Our total sales for this quarter increased by 40% to $19.6 million from the same period last year due to increased call of advertising resources purchased, partially offset by decreased staffing costs of the editorial department as a result of headcount change. Our selling, general and administrative expenses decreased by 15% to $112.3 million from the same quarter last year. The decrease was primarily due to a decrease in marketing expenses related to our e-commerce business and decreased salary as a result of headcount change. Non-GAAP loss from operations was $21.7 million for the fourth quarter of 2017 compared to non-GAAP loss from operations of $33.7 million for the same quarter of 2016. Non-GAAP net loss attributable to Leju’s shareholders was $19.2 million for the fourth quarter of 2017 compared to non-GAAP net income attributable to Leju’s shareholders of $23.9 million for the same quarter of 2016. For the full year 2017, we recorded $362.5 million in total revenues, a 35% decrease from the same quarter last year of 2016. Our e-commerce revenues decreased by 44% to $234.8 million from the same period of last year as a result of a decrease in both the number of discount coupons redeemed and average price per discount coupon. It contributed 65% of total revenues for 2017. Our online advertising revenues decreased by contributing 31% of our total revenues, decreased by 4%. In 2017 compared to $113.2 million for 2016 due to a decrease in developer online advertising demand. While our listing revenues decreased by 36% to $14.5 million, as a result of a decrease in secondary real estate brokers' demand. Non-GAAP loss from operations was $125.9 million for the full year 2017 compared to non-GAAP income from operations of $9 million for 2016. Non-GAAP net loss attributable to Leju’s shareholders was $105 million for 2017 compared to non-GAAP net income attributable for Leju’s shareholders of $10.1 million for 2016. As of December 31, 2017, our cash and cash equivalents balance was $151 million. Our net cash flows used in operations for the fourth quarter of 2017 were $57.6 million mainly attributable to non-GAAP net loss of $19.4 million an increase of $7.4 million in accounts receivable, and decrease in other current liabilities of $24.9 million and the decrease in advance from customers and deferred revenues of $4.7 million. Looking ahead, we estimate that our first quarter 2018 total revenues will be approximately between $75 million to $77 million, which represents an increase of approximately 10% to 13% from the same quarter of last year. Please note that this forecast reflects our current and preliminary view which is subject to change. This concludes our prepared remarks. We're now ready to take questions. Operator, please go ahead.

[Operator:]

Ladies and gentlemen, we will now begin the Question-and-Answer-Session [Operator Instructions]. Our first question comes from the line of Binbin Ding from JPMorgan. Please ask the question.

[Binbin Ding:]

Hi, good evening management. Thanks for taking my question. I have two questions here. My first question is on the overall real estate policy environment in year of 2018. And also what's management's view on the channel, the transaction volume in this market? And also what the implication for our own e-commerce transaction volume in the year of 2018? And my second question is on the advertising revenue growth. Which you recover to 16% year-on-year for the first quarter. And I'm just trying to get some color behind the growth. Is it more of driven by our own initiatives or you've seen the overall recovery in the sector. And also in terms of your new initiative Leju Finance. Can you provide some more colors on the initiatives and what kind of financial contribution do you expect that can be generated from Leju Finance in the year 2018. Thank you.

[Geoffrey He:]

Hey thank you for the question. For the first question is that we think that overall government we will not lose the restrictions on the pricing ceiling and a lot of receiving products over especially in the first tier and second tier cities. However, we think that because of the market policies, a lot of consumer sentiment has been changed. And we already see some minor change in second tier cities. Even if the price ceiling, the government gave is quite low than the current market level; however, the consumers, the demand is decreasing. So we think that overall the government will not lose any restriction on policies, but the market will I think have some change especially in the second tier cities. For the transaction volume, I think last year actually is the historical high. I think this year, we’ll keep stable or even a little bit lower than last year. For our ecommerce model as you know that our e-commerce model is based on the discount, because we sell discount coupons. So when developers feel a little bit hard to sell the houses and the chance comes to us. So last year, it’s really, I think challenging for us, because even small developers in big cities they don’t have any discount. But I think this situation will be gradually changed this year. Just for your first question. And for the second question is that, yes, we actually achieved quite satisfactory growth on hiding side. Last year, we actually released the seven new products based on Big Data. And we actually have a lot of alliance with big internet portals like Tencent, like Baidu, like UC. I think this, the growth reflects - the growth of our new product and I think it’s quite healthy growth. On the other hand, I think, we don’t think that the entire market is growing. We just use our new innovative products to got more market share from our competitors. Leju Finance is a very new platform, it is a vertical media platform. And the aim to establish such a platform has two. One is because in the vertical industry of real estate and home furnishing market. Actually previously, we want to provide new speeds. But more and more industry players, they need in-depth analysis data, information about the companies, especially more and more real estate companies and the furnishing companies become listed companies. So we set up such a media company to a media platform to provide in-depth information especially on the company side and for the industry. And the other hand is that because a lot of companies become listed companies, so we see market opportunity, because more and more companies begin to pay attention to their brand building. So it is a branding entire market, so we hope that Leju Finance will also get this market that is why we say that we hope that Leju Finance will provide our new advertising resources this year.

[Binbin Ding:]

Thank you, thank you. And I have a follow-up on your listing service as well. So listing service although is due at a relatively smaller revenue size, but if you look at some of the other peer competence in the market, I think they’re expanding more to the low tier cities and see very robust growth in the listing service, but for our revenue given its still in a declining rate, so what is the thinking behind listing service and will that begin to pick up in the New Year? Thank you.

[Geoffrey He:]

Thank you for question. I think for our listing business, because we are not market number one, currently we are almost number three, even in some cities we are number four. And our city coverage is mainly in the first and second tier cities. So all these situations encourage us to have a different development strategy from our peer competitor. I think, we are now actually restructuring the business model from traditional model to be - we call it a trust agency model. Previously on the website, people will use it to find house information and then connect to the agent. Now however, the house information currently is not though accurate and consumers also have a lot of trouble on that. More and more people are using the mobile phones rather than PCs. So we are restructuring the models, try to have people to first find trusted agencies first and then get the house information from the trusted agencies. They just started and we are looking to see if this can help us to improve our top-line of listing business.

[Binbin Ding:]

Okay. Thank you for the color. Thank you very much.

[Geoffrey He:]

Thank you.

[Operator:]

[Operator Instructions] Your next question is comes from the line of Ming Xu from UBS. Please ask your question.

[Ming Xu:]

Good evening, management. So I have two questions. First one is regarding your home furnished business. Could you share with us some update and also if there is any monetization plan. The second question is more, broader, so we recently noted that like in the order vertical, the [indiscernible] Under Jinri Toutiao is very aggressive and actually gaining traction against the traditional verticals. So do you think that in the property vertical area that you and your peers’ traditional business model could be disrupted by these kind of a new business model? Thank you.

[Geoffrey He:]

Okay. For the first question actually our home furnishing sector have two business lines. One is the media and advertising business. Currently actually, on the media advertising business I think we are currently are market number one and occupied more than half of the market and we are also doing some new media business in the home furnishing sector and I think this will also create substantial revenue this year. For the second one is that we’re having innovative platform called Qiang Gong Zhang, which we actually have been invested for several years. This home furnishing sector, this year we will also operate with our partner company [indiscernible] to get into the communities, offline communities. We hope all these offline communities can bring more offline clients to our platform. Also on the Qiang Gong Zhang platform is not purely online platform. Now cooperating with [Hue] (Ph), we also have offline community support. So it will be an online, offline circle to further push ahead this new business. For the second, you also mentioned Toutiao [indiscernible] Toutiao. I think you will see the house and car is very similar business, but actually our business is still a little bit different from the car business. For instance that we have two lines, first line is the primary sector, the primary sector is actually the B2B2C business rather than B2C sector. And for the secondary, it is the C2C business. C2B2C business. So [indiscernible] is more like our secondary sector rather than first tier primary sector. For the developers in the primary sector, I think what they need is not only an advertising, they also need online, offline connection services. That is the core actually of our e-commerce business. Although we sell discount coupons for the developers to actually see the value to connect the online and offline together. So we do think that a very single, tiny way can help overwhelm our new home business. For the secondary market as I see we also are testing some models. We think that the secondary housing market is facing some change. And we also have some ideas on that if you look and see. Jinri Toutiao, is also a very good partner for us, because we also have a lot of traffic partner in the Toutiao. So we will see this platform if we can further deepen the cooperation with them. It’s good to us.

[Ming Xu:]

Thank you.

[Geoffrey He:]

Thank you.

[Operator:]

[Operator Instructions]. Your next question comes from the line of Robert Cowell from 86 Research. Please ask the question.

[Robert Cowell:]

Hi, management. Thanks for taking my question and also congratulations on kind of the better than expected 4Q results. I'm interested in getting some more color on your plans for streamlining the cost structure in kind of 2017 you had a significant loss. So I'm interested in what's your thinking for when we're able to turn to profit and how should we do looking at the different parts of the cost structure here. Thank you.

[Geoffrey He:]

Yes. As you see that in 2017, we suffered a quite a big loss. That’s mainly because almost half of our ecommerce business, which contributed more than 70% of our total revenue. And the other side is that because our previous cost structure is based on the ecommerce revenue side. So we are actually adjusting quarter-by-quarter in 2017 to adjust to the new market situation. Looking ahead to 2018, we see from the top-line side, I think our advertising revenue will keep stable and we also try to get some growth on that. And for the ecommerce side, I think 2017 situation is the worst situation and we will, we try to see this business is getting up from the top. And also, we also released new models. As I said, we begin to issue the coupon discount, the coupon space on the brand rather than projects. This is also a new product to chasing the new market. So we think from the top-line side, we’ll improve in 2018. From the cost structure side, as I said, we gradually improved our cost structure and also cut off our staff from quarter-to-quarter in 2017. I think the benefits from the bottom-line side will appear in 2018. So overall, we think that 2018, we will try to turn the business around.

[Li-Lan Cheng:]

Hi this is Li-lan. I’ll just add to what Geoffrey just said. Yes, 2017, what happened in 2017 was that we had a cost structure here more suitable for business that was 50% than it actually was. And the policy change that happened in the fourth quarter of 2016 caught all market off-guard. And we have been, for the most of the year 2017, we tried very hard to bring our cost structure in line with the business reality. And that work, we come long way in that direction. We’re still doing more, but more or less as we stand here in early 2018, all we can see is we are aligning our overall operation and cost structure towards what we think can be realistically achieved on the revenue side. So it doesn’t depend on a robust recovery or huge growth in revenue, but we have made a lot of adjustments to make the cost structure more or less in line with our scale of business that we can realistically can hope for, for this year. So we’re hopeful that we can - if not turning profitable very soon, at least to bring the overall P&L situation in much more manageable level.

[Robert Cowell:]

Thank you Geoff and good to hear.

[Operator:]

[Operator Instructions]. Your next question is comes from the line of [indiscernible] from Morgan Stanley. Please ask your question.

[Unidentified Analyst:]

Hi. Thanks for taking my questions. I have two questions today. Number one is, do you think developers; your customers will increase their advertising budget in a tougher market? And my number two question is about, we are seeing the leading developers is outperforming industry in terms of sales growth since 2016, i.e., the market is consolidating. So what is the implication to Leju’s business in your view? Thank you.

[Geoffrey He:]

Sorry. I didn’t get your first…

[Li-Lan Cheng:]

Yes. I got it. The first question is, if we understand you correctly, are you asking whether developers will increase their advertising marketing spend in a tougher market.

[Unidentified Analyst:]

Yeah, yeah, in 2016 whether they will increase their advertising budget.

[Li-Lan Cheng:]

Not necessarily in advertising, but as Geoffrey mentioned earlier in one of his earlier answering earlier questions. We’ve seen this title played out several times in the last 10 years. We have government policies cleansing down on a very hot market in all sorts of restricted measures. And then so transaction volume will first of all and in this case, you have added pressure of price limits, so people are buying new homes at the low market price. And that hurt our business obviously. But then as market transaction level falls, developers find it harder to push their product, their housing unit. And then developers will invariably make more efforts, stronger efforts to sell. Traditionally that meant just more advertising spending. Now it may or may not spends like as they are getting to more advertising spending, but we are hopeful that developers will still make harder efforts and that may mean discounts more offline marketing activities. So that will probably help our e-Commerce business, whether there was increase advertising, we don’t know. I’m sorry, your second question, we also didn't get, because the line was a little bit cut off. It's about the market consolidation?

[Unidentified Analyst:]

Yes. I mean, your customers, I think they are facing the market consolidation. So what is the implication to Leju’s business?

[Geoffrey He:]

I think first is that Leju - because the biggest shareholder is E-House and we have very good relationship with big clients, especially the Top 100 developers. So the market consolidation will help us to get more business opportunities, because usually these big companies will choose to corporate with big players like us. So it is good news for us actually, first one. The second one is that the consolidated market or the consolidation just means the number of companies have decreased, but it doesn’t mean that number of the projects will decrease. So if the number of the projects still increase or they still have the marketing demand, so for us, because of our good relations with big clients. So it is good for us.

[Li-Lan Cheng:]

The other thing is also as more and more of our clients are big and brand name developers, we're seeing a higher demand for brand name-related marketing and advertising rather than all project-specific marketing and advertising.

[Unidentified Analyst:]

Great. Thank you.

[Operator:]

[Operator Instructions] We have the follow-up questions from the line of [indiscernible] from Morgan Stanley. Please ask your question.

[Unidentified Analyst:]

Hi, management, just a very quick follow-up. Do you have maybe any number guiding to how much of your advertising revenue is coming from the developers, say, maybe from top 25 or top 20 or even like top 50 developers? Thank you.

[Geoffrey He:]

I think currently, we don't have very fixed data dividing into top 10, because the listing is also changing from quarter to quarter. So overall I think the advertising revenue from the clients actually for Leju is quite diversified. But I think my rough idea is that most of our advertising revenue are coming from top 100 developers.

[Unidentified Analyst:]

Okay. Thank you.

[Operator:]

Thank you. There are no further questions at this time. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.