Leju Holdings Limited
Q4 2015 Earnings Call Transcript

Published: 15 Mar 2016

[Operator:]

Hello and thank you for standing by for Leju’s Fourth Quarter and Full-Year 2015 Earnings Conference Call. [Operator Instructions]. I would now like to turn the meeting over to your host for today’s conference, Ms. Melody Liu, Leju’s Investor Relations Director.

[Melody Liu:]

Thank you. Hello, everyone, and welcome to Leju’s fourth quarter and full year 2015 earnings conference call. Today, we will update you our financial results for the fourth quarter and full year ended December 31, 2015. If you’d like a copy of the earnings press release or would like to sign-up for our email 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 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, Geoffrey He, please go ahead.

[Geoffrey He:]

Thank you everyone for joining us on the call today. We continue to operate in our changing market for online real estate marketing services in 2015 [Technical Difficulty] in varying models. However we stay committed to the media, marketing and e-commerce platform model where we focus on providing marketing and listing services through online and offline resources. Since we believe these services offer long term value to customers and could provide better probability to our company and shareholders. During 2015 we further extended our leadership in the primary housing market in online and mobile media marketing and e-commerce products. And also saw encouraging gross momentum for our secondary listing and home furnishing business. Throughout the year we upgraded our marketing platforms including media and information, membership, brokerage and [indiscernible] and e-commerce to improve marketing impact and you would experience for both [indiscernible] and home buyers. In addition to our strong media influence on traditional PC platform. Our in depth industry reports publish [indiscernible] generated great interest among readers and buyers with media reports generating over a million viewers. Our mobile platform consisting of our content, our mobile brewers, [indiscernible] has contributed about half of our total traffic. Our one on one private car services in cooperation with TT [ph] for site visit continue to be in high demand for both developers and home buyers and generated over 400,000 orders in the fourth quarter and growth compared to the third quarter. Since launching this product in July, we have served over 270,000 home buyers on site visits to close to 10,000 products. We are a brokerage connectivity platform, over 30,000 home transactions across the year were introduced by the secondary brokerage agents that we partnered with. In the secondary market we continue to attach brokerage agents to our platform in the 17 cities we now operate and increase our market share, more importantly more and more agents are staying on our platform to purchase mobile listing [ph] which greatly helps contribute to the growth and the profitability of our business. On home furnishing business our media advertising service retained market number this year in the industry and our contractor platform continue to experience through the year. We now have over 19,000 qualified contractors providing customized services directly to the home owners. In 2016 we expect the market competition to remain fierce but we believe that we have laid solid foundations for long term growth across all our business lines. We will compete more effectively with our integrated PC and mobile resources in primary and secondary housing market then also will increase our investment into the humble furnishing contractor business to maintain our first mover advantage. We will continue to invest in product innovation and work with our strategic partners to further improve efficiency and operating results. While we still expect the primary market to generate the majority of our revenues, we believe our strategy and expansion into secondary housing and home furnishing markets will contribute more to the overall growth of the company in the next five years. Now I will turn the call to our CFO, Ms. Min Chen who will review our financial highlights for the fourth quarter and full year 2015.

[Min Chen:]

Thank you, He. Good morning and good evening everyone. For the fourth quarter of 2015 we recorded a total revenues of 173.4 million representing a 1% year over year growth over the same quarter last year. Our e-commerce services revenues were 129.7 million contributing roughly 75% of our total revenues this quarter and representing a 4% year over year growth over the same quarter last year. The growth was primarily due to an increase in the average price per discount coupon redeemed partially offset by the decrease in the number of discount coupons redeemed. Our online advertising services revenues continue to be impacted during the quarter primarily as a result of decrease in property developers online advertising demand. Online advertising revenues for the fourth quarter declined by 15% year over year to 37.1 million and contributed roughly 21% of our total revenues for the quarter. Our listing services revenues were 6.6 million posting a 87% increase from 3.5 million for the same quarter of 2014 primarily due to growth in the number of paying agents. Fourth quarter non-GAAP income from operations was approximately 21.5 million representing a 41% decrease from the same period last year. Non-GAAP net income attributed of Leju's shareholders was approximately 18.1 million representing a 42% decrease compared to the same period last year. For the full year of 2015 we've recorded 575.8 million in total revenues representing a 16% increase from full year 2014. E-commerce services revenues grew 29% from full year 2014 to 420.6 million contributing around 73% of total revenues. Online advertising services revenues decreased 13% from full year of 2014 to 134.2 million contributing 23% of total revenues while our listings services revenue increased 47% to 21 million from 14.3% for the full year of 2014. Non-GAAP income from operations was 68.9 million representing a 36% year over year decrease compared to 2014. Non-GAAP net income attributable to Leju shareholders was 57.4 million representing a 37% year over year decrease from 2014. As of December 31, 2015 our cash and cash equivalents balance was approximately 260.3 million, our net cash flows from operations for the fourth quarter of 2015 was 16.9 million. Turning to our full year guidance, we estimate that our fiscal 2016 total revenues will be between 660 million to 690 million U.S. dollars which will be an increase of approximately 15% to 20% over that of 2015. Please note that this forecast was for current and preliminary view which is subject to change. This concludes our preferred remarks. We're now ready to take your questions. Operator?

[Operator:]

[Operator Instructions]. We will now take our first question from Jinsong Du from Credit Suisse. Please go ahead. Your line is now open.

[Jinsong Du:]

I like ask about assumptions behind your assisting guidance if you could break down in different business segments and also will that assumption have an implied assumption for the overall market as well? Thank you.

[Min Chen:]

Our assumption as you know there are three lines of business is contributing revenue. Our assumption similar to that of 2015 is that our e-commerce [Technical Difficulty] single digit stable growth and for secondary listings given our current foundation setup in the cities that we operate we're hoping that it will still post a similar type of growth for 2016.

[Jinsong Du:]

Yes but does it have an underlying assumption for the market growth I know that as well or [indiscernible] housing market growth or underlying growth for the overall e-commerce industry?

[Geoffrey He:]

I think when we look at this month's market and everybody knows that it's quite hot but we’re still quite cautious on the full year market because over a market with too much heat I think it's not healthy for us. So actually our guidance reflects our normal I expectation of the market given that the government is still quite supportive to healthy housing market. So our view has not actually changed by this sudden heat of the March housing market.

[Operator:]

Our next question comes from Hillman Chan from Macquarie. Please go ahead. Your line is now open.

[Hillman Chan:]

I’ve a question regarding the preference of the developers as the Chinese and property market has been very hot in last two months, if the market remains as hot throughout the whole year so how do we expect the preference of developers to coupons, advertising, direct sales. So that's my first question.

[Geoffrey He:]

I think when we look at national market I think it consists of by first tier, two tier and the third tier cities and when we see the market is up, actually we’re talking about the first tier cities and we think this kind of hot market cannot be sustained for very long because I think this first tier cities there are not so many houses to be sold if this trend continues. And as to our business I think as I said our two hot market is not with us because a lot of projects may have not enough room to give up the special discount. But I think currently we don't see that it will be a very big trend especially that the like Shanghai and Beijing the government was also thinking about some new policies to cool down the markets. So currently I think it's not a big problem for us. And the way we looking at the second tier and the third tier cities especially the third tier cities this still need a very strong marketing campaigns to help them to sell the houses.

[Operator:]

Our next question comes from Tian Hou from T.H. Capital. Please go ahead. Your line is now open.

[Tian Hou:]

Questions related to your preannouncement, in your preannouncement you particularly mentioned about the pressure from the competition. So I wonder the competitor has been always there. So this time the competition in which way is it different than before?

[Min Chen:]

Tian, I think, you’re right, competition has always been there, we've been competing in a pretty fierce competitive market since the second half of 2014. I think over the past several quarters the competition has diversified. We've also seen different business models emerging in our preannouncement as well as our the lease that we have just distributed. The pressure really was from multiple competition but also from various projects shifting away our pipeline, or shifting overtime from our project pipeline that's the main reason for our preannouncements which we explained in the current release.

[Geoffrey He:]

And when we’re looking at competition I think in 2015 actually we faced some abnormal competition from some new stops, actually they are getting projects not on the profit base. What they want is just do the business but no matter how much they want to invest in these project. So we call it abnormal. I think this kind of abnormal completion cannot be sustained.

[Operator:]

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

[Ming Xu:]

So my question is regarding your website leju.com and competition. So we know this that you recently revamped your website and seem to put a lot of resources on promoting the website. Could you talk about your strategy in terms of developing this upside compared to your previous practice of rely more on seen by doing search [ph] traffic and also could you disclose or share with us some color on the traffic contribution from leju.com, what is now and what it compares with like six months ago or what's your target by the end of this year. Also we know this as previous question just highlighted we noticed some of our competitors are again at the beginning of 2016 launched some high profile marketing campaigns nationwide. So how will you just cope with this and could you share with us some of the guidance on promotional or advertising spending and the margin impact? Thanks.

[Geoffrey He:]

For your first question, yes, we actually launched our new website leju.com but as you know that Leju's previous website is based on [indiscernible] why we do leju.com is just because I think it's the second tier domain name [indiscernible] it's not friendly to the search engine and obviously we need more traffic. So that's why we actually did a new website leju.com which is the first tier domain name. Currently, our strategy is there we will keep this domain name together and we will keep running them and yes from December we actually see quite sharp rise of the traffic of the leju.com but it is still at not so high level so we are still watching that and we'll invest some resources to push the traffic on leju.com. For the future I think we have an option that we choose one domain name but it's not a fact yet. Now our strategy is keep the two domain names operating together.

[Min Chen:]

And Min, to your second question about marketing and promotion spending, as you know historically a lot of our marketing expenses are actually those expenses that we incurred through market, our developers project and in doing multiple projects in the process marketing there are real estate projects we also have the Leju brand co-marketed during those types of seasons, during those offline events but you're absolutely right. I think beginning from last quarter and this quarter we are seeing some of our competitors spending a lot of expenses in marketing their own brand name and we’re internally studying whether this is something that we might do as well not necessarily to that extent but we will continue to market the Leju brands together with our offline events when we're marketing our clients projects but we are open to spending some marketing dollars to promote the Leju brand name especially with this new website that we're promoting.

[Operator:]

[Operator Instructions]. We have another question now, we will now take that question. The question comes from the line of Hillman Chan from Macquarie. Please go ahead. Your line is now open.

[Hillman Chan:]

Just wanted to ask about the customer deposits, I notice the amount ran up pretty fast in fourth quarter just wanted to know if that’s going to be in practice that we have with the developers regarding the e-commerce projects that we have.

[Min Chen:]

I think you noticed that we've only started doing that very recently in the fourth quarter and that was really in response to some of them the market competition that we are facing many of our competitors are using the customer deposits are using the customer deposit as a way to win projects and we did increase, in response to that we did increase our deposit amount in the fourth quarter substantially compared to previous quarters. However, whether that will be an ongoing practice I think we will still be a case by case situation. All of the projects that we approved to have the deposit given to the developer clients in the few quarters has been specifically proved by the senior management. So going forward this is not going to be a sort of course of business practice but we will evaluate the specific project that we're going after and the amount that we need to deposit with the developer to make a decision.

[Geoffrey He:]

And this will be decided only project by project and actually choose very few developers, very projects that we trust them.

[Hillman Chan:]

Okay. And one last question for me. How should we think of the competition from direct sales because like direct sales commission to develop in some sense it's just one way off, in sales and distribution, so they put it together with the sales and marketing expenses so that also eat into appetizing budget as well. So how do we see competition from - [indiscernible] around for quite some quarters.

[Geoffrey He:]

Actually there are points, it's not a sustainable model especially this kind of - when we call it a business model it should be in-line with the movement of the markets but it's obvious to the movement of the markets especially in this month we can see in the first tier cities most developers actually cancelled their direct sales operation because they are not willing to give up they call it channel fees. So we don't think it's a sustainable model, we did see some competition when the market was at the bottom level. Some developers the think that this way will be most effective way to prove that money is effective but actually I said that the most practice shows that the clients they call [indiscernible] most are from original clients of the developers and proper practice. It's not in-line with the market trend and I think, we just think it's a short term competition to us.

[Operator:]

We have now another question, it comes from Ming Xu from UBS. Please go ahead. Your line is now open.

[Ming Xu:]

I’ve another question on the government policies, so we know that the government has announced certain, many policies on the destocking of property sector particularly in the lower tier cities. But we also know that so far it seems that the property boom mostly happen in the tier 1, tier 2 cities but in lower tier cities the property sales remain tough and inventory were high. So I'm wondering in your view so do you think this policy where help in sales lower tier 2 cities and in this [indiscernible] companies like Leju actually benefit from helping the developers to sell their inventories? Thanks.

[Geoffrey He:]

Yes if the developers in the second, third tier they want to move their inventory I think Leju will be the first choice for them to help them and eventually we don’t think that the problem in the third tier cities is mainly house market problem because the big inventory in these cities actually should be consumed by the incoming inhabitants so I don't think it's a very simple problem for these cities. So just give us a chance that the developers use more innovative promotion campaigns to attract more attentions from home buyers. So that's why we think that we will be benefited from the second tier cities that move up the inventory campaign. So I think for the first tier because we already have very strong leadership there I think as a market number one we still given that the market is good I think we will be benefited, it's not going crazy.

[Operator:]

We are now approaching 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, operator and thank you everyone. This concludes today's call. If you’ve any follow-up questions please contact us at the numbers or emails provided on our earnings release and on our website. Thanks.

[Operator:]

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