Fang Holdings Limited
Q2 2020 Earnings Call Transcript

Published: 14 Aug 2020

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2020 Fang Holdings Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today. I would now hand the conference over to your first speaker, Ms. Jessie Yang. Ma’am, please go ahead.

[Jessie Yang:]

Thank you, operator. Hello, everyone and welcome to Fang Holdings second quarter 2020 earnings conference call. Joining us today to discuss Fang’s results is our CEO, Mr. Jian Liu and Acting CFO, Mr. Zijin Li. After the prepared remarks, our management will answer your questions. Before we get started, I would like to remind you that during the course of this conference call, we may make forward-looking statements, statements that are not historical facts, including statements about our beliefs and expectations. Forward-looking statements involve inherent risks and uncertainty. A number of factors could cause actual results to differ materially from those contained in any forward-looking statements. Fang assumes no obligation to update the forward-looking statements in this conference call and elsewhere. Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC, including our Form 20-F. Now, I would like to walk you through our second quarter 2020 financials, after which Mr. Liu will answer your questions for the Q&A session. Second quarter 2020, Fang reported total revenues of $66.8 million in the second quarter of 2020, a decrease of 1.5% from $67.8 million in the corresponding period of 2019, mainly due to the decrease in revenues from listing services. Revenue from marketing services was $32.1 million in the second quarter of 2020, a decrease of 1.2% from $32.5 million in the corresponding period of 2019. Revenue from listing services was $14.2 million in the second quarter of 2020, a decrease of 26% from $19.2 million in the corresponding period of 2019, mainly due to the decrease in the number of paying customers. Revenue from leads generation services was $17.3 million in the second quarter of 2020, an increase of 60.2% from $10.8 million in the corresponding period of 2019 mainly due to an increased acceptance and popularity of our leads generation services. Revenue from financial services was $1.6 million in the second quarter of 2020, a decrease of 44.8% from $2.9 million in the corresponding period of 2019, mainly due to the decrease in average loan receivable balance. Cost of revenue was $3.6 million in the second quarter of 2020, a decrease of 56.3% from $8.3 million in the corresponding period of 2019, primarily due to the decline in sales and optimization in cost structure. Operating expenses were $56.2 million in the second quarter of 2020, an increase of 81.3% from $31 million in the corresponding period of 2019 mainly due to the increase in staff related costs. Selling expenses were $14.9 million in the second quarter of 2020, a decrease of 7.5% from $16.1 million in the corresponding period of 2019 mainly due to the decrease in staff related costs. General and administrative expenses were $41.3 million in the second quarter of 2020, an increase of 177.2% from $14.9 million in the corresponding period of 2019 mainly due to the increase in staff related costs. Operating income from continuing operations was $6.4 million in the second quarter of 2020, a decrease of 78.7% from $30.1 million in the corresponding period of 2019, mainly due to the increase in operating expenses. Change in fair value of securities for the second quarter of 2020 was a loss of $0.7 million compared to a loss of $48.5 million in the corresponding period of 2019, mainly due to the fluctuation in market price of investments in equity securities. Income tax benefits were $16.7 million in the second quarter of 2020, a decrease of 17.2% compared to income tax benefits of $20.1 million in the corresponding period of 2019 primarily due to the effect of change in fair value of equity securities. Net income was $21.5 million in the second quarter of 2020, an increase of 321.5% from $5.1 million in the corresponding period of 2019. In the first half of 2020, Fang reported total revenues of $103 million, which remained relatively stable compared with $102.8 million in the corresponding period of 2019. Revenue from marketing services was $47.2 million in the first half of 2020, an increase of 3.3% from $45.7 million in the corresponding period of 2019, mainly due to the growth of the company’s new initiative such as live broadcastings, etcetera. Revenue from listing services was $24.4 million in the first half of 2020, a decrease of 22.3% from $31.4 million in the corresponding period of 2019. This is mainly due to the decrease in the number of paying customers. Revenue from leads generation services was $24.8 million in the first half of 2020, an increase of 67.6% from $14.8 million in the corresponding period of 2019. Revenue from financial services was $3.3 million in the first half of 2020, a decrease of 48.4% from $6.4 million in the corresponding period of 2019 mainly due to the decrease in average loan receivable balances. Cost of revenue was $9 million in the first half year of 2020, a decrease of 46.1% from $16.7 million in the corresponding period of 2019 primarily due to the cost savings from optimizing Fang’s core business. Operating expenses were $88.3 million in the first half year of 2020, an increase of 26.5% from $69.8 million in the corresponding period of 2019, mainly due to the increase in staff-related costs. Selling expenses were $28.5 million in the first half of 2020, a decrease of 12.3% from $32.5 million in the corresponding period of 2019 mainly due to the decrease in staff related costs. General and administrative expenses were $59.8 million in the first half of 2020, an increase of 60.3% from $37.3 million in the corresponding period of 2019, mainly due to the increase in staff-related costs. Operating income from continuing operations was $6.9 million in the first half of 2020, a decrease of 62.3% from $18.3 million in the corresponding period of 2019, mainly due to the increase in operating expenses. Change in fair value of securities for the first half of 2020 was a loss of $43.3 million compared to a loss of $16.5 million in the corresponding period of 2019 mainly due to the fluctuation in market price of investments in equity securities. Income tax benefits were $19.5 million in the first half year of 2020, an increase of 116.7% from $9 million in the corresponding period of 2019. Net loss was $19.4 million in the first half of 2020 compared to a net income of $18.5 million in the corresponding period of 2019. Based on current operations and market conditions, Fang’s management predicts a positive net income for the year of 2020, which represents management’s current and preliminary view and is subject to change. Thank you again for joining the call today. We are now open for questions. Operator, please go ahead.

[Operator:]

Yes, ma’am. [Operator Instructions] Your first question comes from the line of Miranda Zhuang from Bank of America. Miranda, your line is now open.

[Miranda Zhuang:]

Thank you, operator and good evening management. Thanks for taking my questions. I have several questions. I will ask one by one in Chinese first and then English.

[Zijin Li:]

Sorry about that. I will translate for our CEO, because our operator, Jessie Yang is kind of like offline. She will join back shortly. And the response to your question, the company will carefully assess the current macro environment right now and we will make a decision that this, how to say, with the coming – current situation better in the future. So we will see. Thank you.

[Miranda Zhuang:]

Thank you. My first question was about the spin-off, any update of the spin-off of the core business? And then my second question is was management’s observation of the recent trend in the budget allocation of property developers between various channels, including the marketing channels, these channels, e-commerce coupon channel and also the brokerage distribution channel and what’s the outlook for the second half? Thank you.

[Jessie Yang:]

So, I will translate the response. Based on our understanding, developers usually will balance their promotional channels in their budget as a whole. The cost of distribution channels is relatively high and they usually will control their budget in this area. In terms of advertising, it is a long-term promotional tool and they do place emphasis in a higher budget on advertising in their budget as a form of promotion. In terms of leads, which is a service we began 2 years ago and it is product that you can see – where you can see your potential clients relatively directly. And it is a popular product with developers and you can see from our growth in revenue in our financial statements. And in terms of e-commerce coupons, we see that today they are not used as widely in the market. So their numbers are actually lower. Thank you. Okay. So, Miranda I will translate your question. And if there is anything that needs to be added let me know. So the question was regarding whether in the budget for developers, the amount allotted for distribution channels should be relatively constant as a percentage. And whether the budget for online distributions and advertising is awfully fixed percentage and whether there may be some cannibalization between listings and leaks business, which explains the difference between OSHA explains the difference in lower listings revenue versus higher leads generation revenue. The response was that the developers have a total budget for their marketing efforts on this could vary based on their cost basis for different projects as well as different forms of marketing. In terms of channel distributions this percentage in the budget could depend on the project as some products sell well in certain cities, which means that they could have a lower percentage of the budget and in terms of leads and listings, having potential cannibalization. Both are combined is not does not make up for the highest costs for developers in marketing on the highest usually being their direct marking centers at the project locations themselves and we see a very fast growth in leads generation, because it’s relatively new comparatively speaking, it’s only been in existence as a service for 2 years, excuse me. And the leads are and listings are usually supporting products that support each other instead of substitutes. We see that in our client base, most developers will place orders for both products. And in terms of effect, advertising and listing helps with their brand and project recognition and it leads to new leads. So we see them as working together on behalf of our clients. And we also see that in the future, there is room for growth to increase the budget in this area in both advertising listing and leads generation combined. Thank you.

[Miranda Zhuang:]

Thank you. So my last question is about our leads generation services. So, first of all, if we look at the sales cost for the company actually declined year-over-year and we also tracked third-party data shows seem to suggest a material increase in the company’s overall traffic. However, our leads generation services revenue increased a lot in the quarter, which we seem to conclude that’s because the fees volume has been increasing materially, which is that a result of the increasing traffic to these conversion rates, because given that traffic seems may not be increasing materially while this volume increase a lot. So if that’s the case that our traffic to leads conversion has increased materially, then my question is what kind of initiatives has the company taken to increase this conversion? Thank you.

[Jessie Yang:]

So I will briefly translate the response. So, basically the development of leads generation similar to how initially online websites, were developed, where users will log on to website and leaves without necessarily the websites using their information that they left behind. In terms of our lead generation, we have made our content better in terms of meeting the specific demands of end users, whether that is in the form of IM messaging, calling for information, or signing up for real estate events. This combined makes our platform more efficient, more user-friendly and more useful for our end users. And this makes our products more efficient in terms of an increase in the targeted leads and an increase in – leading to an increase in leads generation revenue without an increase necessarily in traffic. So, our product has seen improved technology in terms of more defined user profiles and information that our developer clients find very useful. Thank you.

[Miranda Zhuang:]

Thank you.

[Operator:]

[Operator Instructions] Your next question comes from the line of Yu Liang Wong. Your line is now open.

[Yu Liang Wong:]

Hello, hi. Can I check on – can you tell us why your general admin expense has gone up by 177% in the second quarter? And maybe could you give some color on the income tax benefits that according to the company in the second quarter in the first half? Yes, thanks.

[Jessie Yang:]

Okay. So I will briefly translate the response from management. The increase in SG&A expense that you have seen this quarter is resulting from SFUN’s purchase in CIH shares. This is a one-time occurrence and will be seen only in this quarter only. The income tax benefits, is from the past tax withholdings in the past year that has been allocated to this quarter. Thank you – that were not used, allocated to this quarter.

[Yu Liang Wong:]

Sorry, can you repeat the purchase of what from – for the G&A?

[Jessie Yang:]

So the general question was regarding the purchase of CIH and price and whether the SG&A expenses is expected to continue And we encourage you to look at our financial disclosures in terms of our 20x as well as earnings releases and we are also happy to discuss further offline. Thank you.

[Operator:]

[Operator Instructions] There are no further questions in queue. Presenters, please continue.

[Jessie Yang:]

Thank you, operator and thank you everyone again for joining our call today. We look forward to speaking with you soon for our third quarter 2020 earnings call. Thank you.

[Operator:]

Thank you, presenters. Ladies and gentlemen, this concludes our conference for today. Thank you all for participating. Stay safe everyone. You may now disconnect.