Leju Holdings Limited
Q2 2015 Earnings Call Transcript

Published: 25 Aug 2015

[Operator:]

Hello, and thank you for standing by for Leju's Second Quarter 2015 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. 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. Melody Liu, Leju's Investor Relations Director. Please go ahead.

[Melody Liu:]

Thank you. Hello, everyone, and welcome to Leju's second quarter 2015 earnings conference call. Today, we will update you regarding our financial results for the second quarter ended June 30, 2015. If you would like a copy of the earnings press release or would like to sign-up for our email 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 second quarter of 2015. 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, Mr. Geoffrey He. Please go ahead.

[Geoffrey He:]

Hello, everyone. Thanks for joining us on the call today. We are pleased to report that second quarter was another strong quarter of revenue growth for Leju highlighted by 72% year-on-year growth in our e-commerce business. During the second quarter, real estate market activities gradually recovered in the larger cities where we are focusing Leju’s operations. This benefitted all of our business lines, and we are encouraged by the progress we are seeing across each of our businesses. In the primary market, we have strengthened our leadership in providing real estate marketing services. We continue to enhance our media interest on mobile platforms including Weixin real-time news reporting, which we introduced this year. During the quarter, each of our top 100 facility reports attracted over 10,000 views. As part of our efforts to assist the consumers in their search for new homes and to provide a better home hunting experience and a target marketing services, in April we launched "91 Leju Card, which is aimed to provide the members with various services and discounts during the entire home search process. We have received a positive feedback for this product from both potential homebuyers and the developed clients. In July, we launched an upgraded service package based on our strategic cooperation with [indiscernible], which arranges one-on-one car services for homebuyer-type visits. With this service, potential homebuyers can simply scan a barcode provided on the webpage or via check messages from PCs, mobile devices, magazines, or even on outdoor billboard ads and make an appointment to enjoy free private car services from scheduled locations to the real estate project center. This product has greatly simplified information gathering and the site visit coordination process for buyers allowing them to see project information online wherever they might be located, and then conveniently schedule visits to offline showrooms for more information and follow up. This serves as a variable tool for developers to capture the initial interest generated from their advertising connected with their potential customers directly and improves their sales conversions. We believe this is a great representation of the value added that online to offline services can bring to business. We are very excited about our innovation mobile to offline that we call it M2O of [indiscernible] products, and we are working closely with our clients who are refining and integrating these within their marketing campaigns. The one-on-one call services launch comes as we celebrate the second anniversary of our Weixin Home Promotion in the summer, the period where homebuyers often encounter uncomfortably hot weather and heavy rains. We believe our new solutions raises the bar for the convenience, improves the connectivity between the online and the offline home purchasing activities, and sets a new standard in the industry. Since March, we have worked more closely with our secondary brokerage partners supporting primarily e-commerce products. During the second quarter, we partnered with secondary brokerage agents on more than 200 development projects. Within the secondary listing services, we are also solidifying our footprint in the key cities we entered one year ago. In 10 cities where we operate, each agent has subscribed to more than one verified listing package on average, which demonstrates the effectiveness of our verified listing model. In the home-furnishing sector, we continued to roll out our Qianggongzhang platform and have expanded into 57 cities with more than 14,000 contractors. Recently, we have also launched our platform for closed loop services transactions, which allows the consumers and the contractors to shop for beauty and decoration products online as part of the home renovation process. We are confident about the long-term market opportunities and we will continue to invest in this area throughout the rest of the year. Overall, we believe our clear strategies across the three business lines will help the company achieve immediate and long-term success as a leading O2O service platform. I will now turn the call over to our CFO, Ms. Min Chen, who will review our financial highlights for the second quarter.

[Min Chen:]

Thank you, He. Good morning and good evening, everyone. For the second quarter of 2015, we recorded total revenues of 157.8 million representing an increase of 34% over the same quarter last year. Our e-commerce services revenues were 117.4 million this quarter accounting for 74% of our total revenues and representing 72% year-over-year growth. The growth was driven by the increases in both the number of discount coupons redeemed and the average price of each coupon redeemed. In the second quarter, we experienced softer online advertising demand and recorded revenues of 35.2 million, a decrease of 21% from 44.8 million from the second quarter of 2014. On the secondary listing business, driven by increases in transaction levels, our revenues from this business line was 5.2 million, an increase of 23% from the same quarter last year of 4.2 million. During this quarter, we continued to see intense competition and recorded increased marketing expenditures to solidify our market positions by allocating more resources to our e-commerce services. Overall, SG&A expenses rose 44% to 127 million from 88 million a year ago. In the second quarter of 2015, non-GAAP income from operations was 21 million representing a 13% year-over-year decrease from the same period last year. Non-GAAP net income attributable to Leju shareholders was 17.1 million representing a 16% year-over-year decrease from the same period last year. I will also go over quickly the first half results for 2015. For the first half of 2015, we recorded 251.2 million in total revenues representing a 28% increase from the first half of 2014. Our e-commerce revenues grew 56% from the same period of last year to 184.4 million, contributing 73% of the total revenues for the first half. Our online advertising revenue decreased 17% from the same period last year to 57.8 million contributing 23% of our total revenues while our listing revenues increased 7% to 9 million driven by the growth in the secondary home sales in the second quarter of 2015. Non-GAAP income from operations for the first half was 20.7 million, representing a 36% year-over-year decrease from the same period last year. Non-GAAP net income attributable to Leju shareholders was 18.1 million for the first half, representing a 36% year-over-year decrease from the same period last year. As of June 30, 2015, our cash and cash equivalents balance was 263.3 million. Our net cash flow from operations for the second quarter of 2015 was 9.3 million. For the full year 2015 financial outlook, at this moment, we are maintaining our previous guidance of total revenues of 600 million to 620 million, which represents an increase from full year 2014 of 21% to 25%. We’re now ready to take your questions. Operator, please go ahead.

[Operator:]

[Operator Instructions]. Your first question comes from the line of Jinsong Du from Credit Suisse. Your line is now open. Please go ahead.

[Jinsong Du:]

Hi. Thank you for taking the questions. Just only one question I’d like to ask about the market impact to Leju’s second half results, because I think people are – investors in general are very concerned about the current economic situation as well as the stock market volatility’s impact on Leju’s business. Have you seen any impact – first of all, have you seen any impacts so far in July and August? And secondly, how would that affect the general markets in the rest of the year, and especially your e-commerce revenue and relatively margins and earnings?

[Geoffrey He:]

Okay, thanks, Jinsong. I think on the operational level, we actually didn’t see a very big impact on the trading volume, especially when we’re looking at the e-commerce trading volume of assets. We just see that there’s a little bit slowdown in July and early August, but in these two weeks, the market is still picking up as we see that September and October is coming, which is usually the best setting season for the whole real estate market. So currently, we actually do not see very significant impact. While we can see that certain concerns on that, we didn’t watch that from our trading volume. I think we have already made a lot of preparations to encounter or to face the challenge if the market goes to that. I think we – on the e-commerce model actually, we are still making more efforts to expand our market share and try to cover almost all important projects on the market. So I think currently, we don’t have any very big concern on the overall market.

[Jinsong Du:]

But this current overall marketing environment as well as the competitive landscape, if there’s no impact so far on the revenue side, does that have any impact on margins and related things?

[Geoffrey He:]

At least up to now, I think everything is usual. Especially these two months, I think that we do offline operations, online operations all the same, and there are no very obvious signals that the market will be very, very weakened down. And maybe you know that today’s news is that China Central Government interest rate cut and I think this will also help improve actually the real estate market.

[Jinsong Du:]

Yes, in that case, given your performance in this, why didn’t you raise your full year guidance for the revenue then?

[Geoffrey He:]

I think it’s just – because when we’re looking at the market and since we think that the market is still on the right way, but we think maybe there will be some uncertainties from the cautious level. I think it’s not the right time for us to raise the guidance.

[Jinsong Du:]

All right, thanks. I’ll go back to the queue. Thank you.

[Operator:]

Your next question is coming from the line of Hillman Chan from Macquarie. Your line is now open. Please go ahead.

[Hillman Chan:]

Thank you management for taking my questions. Just back to the selling expense as a percentage of your revenue, this line is definitely going up compared to a year ago partly to fend off [ph] competition. Going forward, we are definitely introducing all new products including 91 Leju Card and some mobile solutions [indiscernible], but these items are indeed cost items, a lot of them new revenue sources and are competitive. They are also strengthening their selling marketing expenses. So should we expect Leju’s margins profitability to trend further down going forward? Thank you.

[Geoffrey He:]

I think the matter for us is that we do not compete with our competitors only on prices, even on how much costs you pay to the offline activities. Our strategy is that we bring a lot of new innovative products that increase the attractiveness of our total solutions to the developers. Especially in branded developers when they choose Leju’s – when they choose the total solution rather than only the e-commerce model. So as you see that we launched the membership system and we launched [indiscernible] one-on-one call services, all these will help increase the attractiveness for developers to choose our total solutions. On the other hand, that will also help us to improve the efficiency, especially the offline activity efficiencies. So on the other way that will help us to raise the margin of each project. In the long term, I think when you’re looking at the market, you can see most of our competitors, especially offline competitors, they don’t have a lot of innovative ways. They are just actually doing almost the traditional ways just having all these agents together and are bringing the clients to the offline chat rooms and nothing else. So I think that Leju’s competiveness I think we can bring them both online and offline and also we can bring them mobile solutions that can connect online and offline resources together.

[Min Chen:]

Hillman, this is Min. Just one other thing to add is also included in I think especially the first half of 2015 included in SG&A line, there’s also compared to last year a significant increase in terms of the SG&A that we’re spending on both the secondary listing as well as the home furnishing businesses, because we’re expanding the covered cities that we’re entering into as well as launching new platforms. So not everything is attributed to e-commerce products. Definitely we’re seeing some – on a project level basis, I think we’re seeing some stabilization in terms of the project margins and as He mentioned, we’ve passed a lot of channels to try and increase the effectiveness of our promotions and marketing and we think the incremental marketing costs to be attributable to the e-commerce should not be that significant.

[Hillman Chan:]

Got it. Just one quick follow up. Regarding the new products that we have introduced to mobile solutions or something else, are we starting to price them separately out of the total advertising solutions. I think mobile has started contributing some revenue.

[Geoffrey He:]

Yes. I think because we were providing the total solutions for the developers and when a developer chooses us, they actually do not separate into the mobile side or the PC side. So it’s a bit hard for us to simply cut the revenue by mobile revenue or the PC revenue. It’s a total solution. But for us internally, I think we have some sense that what the companies [indiscernible] is to mobile, that’s definite.

[Hillman Chan:]

Okay. Just one last question from me. Could you give some color on, for example, the GMV or the revenue contribution of your home furnishing business and also the profitability of it if there’s any? Thank you.

[Geoffrey He:]

We are yet to combine the GMV of our home furnishing contracts into the revenue side, because in the second quarter and even up until now I think the major task for us is to fulfill the geographical expansion and having the contractors on to our platform, and we are trying some trading close loop intensities. So that’s a top priority for us now. We are yet to conclude some trading GMV into our revenue.

[Min Chen:]

This is in regards to the Qianggongzhang platform, Hillman. The traditional business both e-commerce and advertising side that we have, a small amount of revenue from the home furnishing business i.e. home furnishing suppliers posting ads on our Web site, et cetera, and that’s less than 10% of the advertising business. But the Qianggongzhang platform we’re currently in the marketing phase and building out phase to attract contractors onto our platform.

[Hillman Chan:]

Okay, got it. Thanks very much. That’s very helpful.

[Operator:]

Your next question is coming from the line of Yong Wang from JPMorgan. Your line is now open. Please go ahead.

[Yong Wang:]

Hi. Thank you for taking my questions and congratulations on a solid quarter. My first question is a follow up on the Qianggongzhang platform. I noticed that we had a joint promotion with Timor over home furnishing service in July, and just wondering how was the user feedback from the promotion if you can share? And going forward, what’s our strategy to further leverage the large chat platforms like Weixin and Weibo to drive user traffic to the platform? And secondly, just on the price per coupon redeemed in the quarter, the 63% year-on-year growth in the quarter, could you share with us the reasons behind the year-on-year hike? And is this mainly due to the mix shifted towards the [indiscernible] and how should we look at the channel into second half? Thanks.

[Geoffrey He:]

I think you noticed that at Qianggongzhang, we did some promotions on Timor and actually we received a very positive feedback from the users. I can show you some data that – maybe you also can see at our H5 [ph] promotion is that we actually encouraged 2,200 contracts in the 30 days promotion on the Timor. So we received very positive feedback from that. And I think we will continue to do a lot of promotions going forward, the end users that quite like that model because they save money and they also feel our platform helps them to save a lot of trouble. That’s the thing for Qianggongzhang. As to the trend of our primary factor e-commerce model…

[Min Chen:]

Yong, I’ll take that question. I think for the ASP on the e-commerce coupons redeemed, the majority of the growth is coming from the ASP increases and that – you correctly pointed out, it’s actually from a distribution of the first, second and third tier cities. If you compare it to the second quarter of last year, we actually saw more contributions from first tier cities in terms of e-commerce revenue contribution. This quarter, first tier cities contributed about 50% of the overall e-commerce revenue, which means that the larger unit prices in these first tier cities will naturally mean our coupon prices are higher. And then the second tier cities were actually quite stable at around 40% and the remaining e-commerce revenue came from the third tier cities. So, the ASP increases were priced in this again.

[Yong Wang:]

Got it. And how should we look at the trend into second half?

[Min Chen:]

For e-commerce?

[Yong Wang:]

Yes, just the price per coupon redeemed.

[Min Chen:]

I think it should be somewhat stable, because as we’ve mentioned actually from the beginning of the year, we think that the real estate market when there is a recovery, the recovery will first be witnessed in the first and second tier cities. That’s what we’ve seen for the first half of this year. And with the general real estate market outlook, we think we will still see probably more prominent recoveries in terms of both volume and price in first and second tier cities. So I think what we are seeing in the first half should more likely than not continue into the second half.

[Yong Wang:]

Got it. Thanks very much.

[Operator:]

Your next question is coming from the line of Cheng Yang from CICC. Your line is open. Please go ahead.

[Cheng Yang:]

Thanks for taking my questions. Congratulations on the strong e-commerce growth, but however advertising obviously took a big hit in the second quarter and seem to fix [ph] headwinds on two different fronts. I mean, developers showed strong appetite for e-commerce versus traditional advertising and second, a couple of new players are sharing this pie as well, for example, [indiscernible] just launched its new home sale channel today, so commend you and talk about your outlook for this segment for the remainder of this year and 2016? And I have a follow up. Thanks.

[Geoffrey He:]

Okay. For your first question about the present trend, actually because we expand our market share on the e-commerce and especially when a project is incorporated with us on the e-commerce, during that time they will not place any dollars on to us. So when you see the downtrend of the advertising just simply because we have more e-commerce projects. At one time that [indiscernible] will choose only one way. So that’s a reason for us when you see advertising. But we think that the trend will go to a balance because we are still expanding the number of the projects either on the e-commerce or on the advertising model. That’s for your first second. As to your second question, I think it’s not a problem for us because on our channel platforms we incorporate almost all the big offline agents to help us to sell the prime sector coupons and the houses. So [indiscernible] is also a part of our e-commerce and that factors really have a very strong market sense. And as we said, we also launched our mobile – we call it mobile channel solution on the Weixin platform to help them to raise the efficiency how to help them to introduce the clients to the prime developer projects. So we don’t think it’s a very big problem for us. And when taking a look at the [indiscernible], I think their percent is still in Beijing now, especially on the prime sector and the other cities are still on the secondary sector.

[Cheng Yang:]

All right, fair enough. The second question, it looks like our efforts to grow listing business outside Beijing started to build. Can you give us a little bit more color what drove the growth, maybe a rough breakdown of total paying of group subscribers in terms of Beijing and non-Beijing cities, that would be very helpful?

[Geoffrey He:]

Yes, actually we are quite pleased to see the progress our secondary listings have for this year. As you know, we started the geographic expansion last year and it took one year for us to gain very strong percents on these local markets. And I think it’s a very good signal that that means that our verified listing model was well received in these cities outside Beijing. Currently, about half of our listing revenue is from Beijing and half from Beijing agents and others from the other cities.

[Cheng Yang:]

So if I remember correctly, last quarter the number of total paying agents was 34,000. So what would that number be in the second quarter? Thanks.

[Min Chen:]

For the second quarter, the number of paying agents actually remains quite stable. We continue to see a lot of these agents just price more verified listings from our Web site and so we’ve actually seen an increase of verified listing per paying agents. That number has been increasing.

[Cheng Yang:]

So basically agents are using more products and I think as He mentioned earlier, the agents are actually buying more than on package --

[Min Chen:]

Correct.

[Cheng Yang:]

Okay, that’s very helpful. I’ll jump back to the queue. Thanks.

[Min Chen:]

Thank you.

[Operator:]

Your next question is coming from the line of Gregory Zhao from Barclays. Your line is open. Please go ahead.

[Gregory Zhao:]

Hi, Geoffrey, Min Chen, Xin Zhou and Melody; congratulations on a strong quarter and thanks for taking my questions. My first question is about some update of the industry competitive landscapes, the first one is on the e-coupon, e-commerce side. We’re seeing companies like 58.com and [indiscernible] very aggressively expanding their investing in the e-commerce business and expanding their market share. So can you share some views about the competition in the e-coupon side? And in time we see some of the competitors like SouFun and Xunlei [ph] also launched Leju’s direct sales model and we’re seeing here two numbers showing some traction on the direct sales side, so can also share some color about the competition from the direct sales side? I have another two questions.

[Geoffrey He:]

Okay. First one is about the competition from [indiscernible] is on the market for several years and especially on the new home market. I think they said they will still invest a lot in the e-commerce, e-coupon model, but we actually did not see any big activities in the most cities we operate. What we know is that they’re setting, they call it precise data to developers on mostly service fee basis, so that’s a model we see. So we are still watching what’s the next step for this company. As to the direct sales model, I should say very frankly that we are very cautious of this model and we are watching the market feedback on this model. At least now we can see two problems. One problem is that when you can see the developers, they are paying about 1% to 2% to the channel, but the commissions they pay to their in-house sales is only one-tenth of the commissions they paid to the channels. That caused some, I should say, un-proper activities when doing the direct sales. We are cautious on this model and we also see a lot of branded developers. They also noticed this trend and they are turning to be cautious on this model. So as to the direct sales, I should say Leju will be very cautious on this model because we don’t see a very big profit increase that we can take from this model. On the other side is that we can see a lot of un-proper activities on this market.

[Gregory Zhao:]

Okay, thank you. And my second question following our parent company’s [indiscernible] proposal was in Sina [indiscernible] and I think at the same time Sina is also rooting out these verticalization strategies. So after the swap, will there be any changes of our partnership or corporation with Sina? And do you think we have further synergies from the corporation? I have another follow-up question.

[Geoffrey He:]

I think we still have very close corporation with Sina and nothing changed.

[Gregory Zhao:]

Okay. So my last question is actually about – a follow-up question about our full year guidance, so we’ll maintain our full year forecast. So I definitely want to know if there we have – is that due to the consideration like the recent RMB devaluation or mainly because of the industry competition or of the view of the overall China property market? Thanks.

[Geoffrey He:]

I think as you know that there are some uncertainties on the macroeconomic side and from being cautious. I think it’s good for us to maintain our guidance now. That’s our attitude.

[Min Chen:]

Greg, I think the three things that you mentioned that would have been considerations for us, we would probably rank them in exact reverse order. So the macro real estate conditions for 2015 and then our industry competitive landscape and lastly and obviously that’s something that we couldn’t have foreseen at the beginning of the year when we gave the guidance was RMB devaluation. I think really at the beginning of the year when we gave the guidance, we were really taking into consideration the full year’s real estate market outlook as well as the competition that we already started seeing at the end of last year, and that’s why we’re maintaining our guidance. We don’t want to be changing our guidance from quarter-to-quarter because that really gives us a view of the management not having a long enough vision of how the year should be shaping up.

[Gregory Zhao:]

Okay, thanks Min Chen, very helpful.

[Operator:]

Your next question is coming from the line of Tian Hou from T.H. Capital. Your line is open. Please go ahead.

[Tian Hou:]

Hi, Min and Xin Zhou. Questions related to your marketing, so on your Web site you offered a new membership called [indiscernible], which you pay RMB 9 to get the membership. So I wonder if this is some kind of new marketing and if so, how is that going to – how did it impact you self marketing in the second quarter and how this is going to impact your self-marketing going forward? That’s the first question. I will have a follow up later.

[Geoffrey He:]

Okay, it’s a membership system for us, two ways – we have two aims to launch this membership system. First is that we can provide better services to those paid members although they pay only a little amount, only RMB 5.1. And the second one is that that’s also the way to clearly show these members are from Leju to the developers we incorporate. It’s a very effective way for us to face the competition from the offline channels, because before we launched this membership systems, a lot of people actually getting information gets services from Leju and when they go in offline to the showrooms, they will be grabbed by the other channels. So it’s a very effective way for us to demonstrate these members are from Leju.

[Tian Hou:]

But does it also mean you’re not going to collect the fees like your old membership program?

[Geoffrey He:]

Well, the membership fee is it’s a very little amount of money, so we don’t calculate that.

[Min Chen:]

We do collect a fee but it’s RMB 9 from each member, so it’s not significant in terms of the overall revenue that we collect.

[Tian Hou:]

Okay. So the second question is related to the outlook of the China real estate market and that you maintain the guidance of 2015, I wonder going forward let’s say we enter into 2016 and given the fact that the land supplies and the new home buildings and a lot of backlog are significantly lower than the year before and how do you see your e-commerce program next year?

[Geoffrey He:]

Naturally, I think the Chinese real estate market I think from the government level or from the investment level I think will still keep stable in this year and the next year. I think January will be – it’s a stable trend. And our business actually is based on the number of the projects, how many projects we incorporate. When you’re looking at the market share, we still think we have big room for us to further increase the market share because on the market, a lot of products – although most branded developers already chose the e-commerce, rather than from man-to-man [ph] or from project-to-project, we still have the space to increase our projects.

[Tian Hou:]

Okay. So the next question is related to your operating margin outlook and when you spring-off from E-House and Leju is positioned as light assets much more Internet company and you have lots of those Internet components and go into Leju this entity. However, if I look at your operating margin, which has lowered a lot from the time when you just go IPO. So how do you justify the fact that you’re positioned as an Internet company, however your margins does not really present us a picture as a light asset Internet company. How do you explain this?

[Geoffrey He:]

I think that’s the characteristics of the real estate market because we cannot sell houses simply online and nobody will buy the houses only online. They have to go offline. That means when we connect the online audience to the offline, because they are buying daily [ph], so we have to pay a lot of marketing costs to bring them there. When you’re looking at the new products we incorporate with [indiscernible] that’s also an effective way to connect our online audience. We have the private car pick up service, bring them to the showrooms to help them to buy the houses, that’s the cost offline.

[Tian Hou:]

Okay. Thank you. That’s all my questions.

[Geoffrey He:]

Thank you.

[Operator:]

Your next question is coming from the line of Nora Zhang from Merrill Lynch. Your line is open. Please go ahead.

[Nora Zhang:]

Good evening, management. Thank you for taking my questions. I have a question regarding the home furnishing contract or platform. You mentioned that the investment on this platform also contribute to part of the selling and marketing expenses. I wonder how much do you plan to invest in this platform and in the remaining years. Can you give us some color? Is there an upper limit to that investment?

[Min Chen:]

Nora, for the first part of the year the direct investment into that platform was roughly in the single digit millions in terms of U.S. dollars and then for the second half, as we expand our efforts into more cities that number we expect it to increase but not by a significant amount. So overall for the whole year, we’re probably thinking in the range of around $10 million for that initiative alone.

[Nora Zhang:]

Thanks. Just a quick follow up. So, so far how many staff have we added to this business line?

[Min Chen:]

Staff?

[Nora Zhang:]

Yes, how many employees? Is this a labor-intensive business?

[Geoffrey He:]

It’s not really labor intensive.

[Min Chen:]

Yes. Actually for the home furnishing business we only have altogether only about 500 employees and the reason that we only have about 500 is because we don’t see this platform as a labor-intensive effort. What we do is we have probably a few employees in each of the cities we expand into to be sort of a supervisor to cooperate with a local construction company who then recruits and works with individual contractors that come onto our platforms. So the contractors as well as local construction firms that we work with are not on our payroll. The only people that are on payroll are located in each city we have one or two sort of overall – sort of local manager and then some sales people. The headcount isn’t huge.

[Nora Zhang:]

Thank you. That’s very helpful.

[Operator:]

Your next question is coming from the line of Ming Xu from UBS. Your line is now open. Please go ahead.

[Ming Xu:]

Good evening, management. I have two questions, first is can you share with us the gross coupon rate and the revenue sharing with partners? And also how should we look at this trend into second half of the year? And the second question is we notice that Vanke is putting more of their resources on its in-house sales team and also notice that they claim – they will try to achieve 100% in-house sales in the Guangzhou area in the next three years. So could management comment on whether this is an industry trend, how will this change the game and how will this impact your coupon business? Thank you.

[Geoffrey He:]

Yes, I think ASP currently is about RMB 14,000. Actually that’s improved quite a bit from the first quarter. As to your second quarter, I think usually we don’t comment on the competitors move, but when we’re looking at this model, as I said it’s the direct sales model and the key of this model is how to identify this client is your client. It’s not from other channels. So as I said, we are very cautious of this model; no matter it’s from the in-house sales order or out-house sales, I think currently these direct sales models have a lot of un-proper activities. So we are very cautious on that.

[Ming Xu:]

But previously you mentioned as the direct sales model buys like [indiscernible], so you think that the direct sales side the developers themselves is also maybe not an optimal business model?

[Geoffrey He:]

As I said that a key of this model is how to identify this client is from your channel not from other channels. And the market situation is that developers are paying 1% to 2% to the channels if they can identify the clients around the channels. But they pay their in-house sales only one-tenth of the commissions they pay to the channels. So there’s a very big gap between that. So when you’re looking at these two commission rates, you can see that cost a lot of un-proper activities to identify the clients are from which channel.

[Ming Xu:]

Okay, thanks. Very helpful.

[Geoffrey He:]

Thank you.

[Operator:]

Your next question comes from the line of Jinsong Du from Credit Suisse. Your line is open. Please go ahead.

[Jinsong Du:]

Hi. Thanks for taking my follow-up questions. Just going back to the margin trend, could you elaborate – obviously [indiscernible] on a quarter-to-quarter basis margins have been improving. Do you see that as an ongoing trend in the second half? And also given your new businesses as well as the complication, do you see that it’s similar to upper limit to the margins that we can have? Thank you.

[Min Chen:]

Jinsong, it’s hard for us to quantify the upper limit on the margin. Obviously, we would do our best to reduce cost and provide a higher margin. I think our second quarter margin on a standalone basis not considering the first quarter, if you look at our historical trends when we had a pretty stable e-commerce business contributing to the overall revenues and then obviously the cost as well, second quarter is somewhat representative of sort of – it’s pretty stable for – representative for the third quarter at least. And then the fourth quarter last year we had a strong fourth quarter, but if second and third quarters for 2015 turns out to be strong, we actually usually expect the fourth quarter to taper off a little bit mainly just from the [indiscernible] developers kind of saving a little bit of the powder for the following year. So usually on a typical year we expect a very weak first quarter, second and third to be quite strong and then fourth quarter to taper off. And I think from a margin perspective, that’s probably something that we’re also budgeting our sales force.

[Jinsong Du:]

All right, thank you.

[Operator:]

We are now approaching to the end of the conference call. I will now turn the call back over to Leju’s Investor Relations Director, Ms. Melody Liu for her closing remarks.

[Melody Liu:]

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

[Operator:]

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.