Fang Holdings Limited
Q4 2019 Earnings Call Transcript

Published: 24 Apr 2020

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the Fourth Quarter 2019 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 am must advise you that this conference is being recorded.I would now like to hand the conference over to your first speaker today, Ms. Jessie Yang. Thank you. Please go ahead.

[Jessie Yang:]

Thank you, operator. Hello, everyone, and welcome to Fang Holdings fourth quarter 2019 earnings conference call. Joining us today to discuss Fang's results are 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 important 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 fourth quarter 2019 financials, after which Mr. Liu and Mr. Li will answer your questions for the Q&A session.In fourth quarter 2019, Fang reported total revenues of $49.3 million, a decrease of 26.7% from $67.3 million in the corresponding period of 2018.Revenue from marketing services was $18.9 million in the fourth quarter, a decrease of 35% from $29.1 million in the corresponding period of 2018, mainly due to the decrease in aggregate market demand.Revenue from listing services was $12.7 million in the fourth quarter, a decrease of 25.3% from $16.9 million in the corresponding period of 2018, mainly due to the decrease in the number of paying customers.Revenue from leads generation services was $14.4 million in the fourth quarter, an increase of 16.2% from $12.4 million in the corresponding period of 2018.Revenue from financial services was $1.4 million in the fourth quarter, a decrease of 69.2% from $4.6 million in the corresponding period of 2018, mainly due to the decrease in average loan receivable balance.Cost of revenue was $4.1 million in the fourth quarter of 2019, a decrease of 41.6% from $7 million in the corresponding period of 2018, primarily due to the decline in sales and the optimization in cost structure.Operating expenses were $68.4 million in the fourth quarter, an increase of 74.3% from $39.2 million in the corresponding period of 2018.Selling expenses were $26.3 million in the fourth quarter of, an increase of 78.9% from $14.7 million in the corresponding period of 2018, mainly due to the increase in promotional expense.General and administrative expenses were $42.1 million in the fourth quarter, an increase of 71.6% from $24.5 million in the corresponding period of 2018, mainly due to the increase in staff related costs.Operating loss from continuing operations was $21 million in the fourth quarter, compared to operating income from continuing operations of $21.1 million in the corresponding period of 2018.Change in fair value of securities for the fourth quarter was a loss of $3.5 million, compared to a loss of $31.4 million in the corresponding period of 2018, mainly due to the fluctuation in market price of investments in equity securities.Income tax benefits were $3.4 million in the fourth quarter, compared to an expense of $23.7 million in the corresponding period of 2018.Net loss was $26.2 million in the fourth, compared to a net loss of $29.4 million in the corresponding period of 2018.In fiscal year 2019, Fang reported total revenues of $219.7 million, a decrease of 8.5% from $240 million in 2018.Revenue from marketing services was $94.6 million for 2019, a decrease of 3.8% from $98.4 million in 2018.Revenue from listing services was $63.5 million for 2019, a decrease of 22.4% from $81.7 million in 2018, mainly due to the decreased number of paying members in listing services.Revenue from leads generation services was $43.3 million in 2019, an increase of 103.3% from $21.3 million in 2018, driven by the increase in effectiveness of services and customer acceptance.Revenue from financial services was $9.6 million for 2019, a decrease of 47.1% from $18.1 million in 2018.Cost of revenue was $26.5 million in 2019, a decrease of 42.9% from $46.4 million in 2018, primarily due to cost savings from optimizing our core business.Operating expenses were $174.6 million in 2019, a decrease of 7.2% from $188.3 million in 2018. Selling expenses were $73.6 million in 2019, an increase of 24.6% from $59.1 million in 2018.General and administrative expenses were $101.1 million for 2019, a decrease of 21.8% from $129.2 million in 2018, mainly due to the decrease in bad debt.Operating income from continuing operations increased from $9.8 million in 2018 to $24.1 million in 2019.Change in fair value of securities for 2019 was a loss of $46.1 million, compared to a loss of $167.4 million in 2018, mainly due to the fluctuation in market price of investments in equity securities.Income tax benefits were $12.5 million for 2019, a decrease of 34.2% from $19 million in 2018, primarily due to the effect of change in fair value equities - equity securities and the reversal of previously recorded ASC 740 (FIN 48) income tax and interest liability. Net loss was $7.7 million for 2019, compared to a net loss of $114.9 million in 2018.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 for joining the call today. And we are now open for questions. Operator, please go ahead.

[Operator:]

[Operator Instructions] The first question comes from the line of Miranda Zhuang of BofA Bank of America. Please ask your question

[Miranda Zhuang:]

Thank you, management for taking my questions. And good evening. [Foreign Language] So I will translate my first question first question. So this question is related to the industry, the impact from the COVID-19. So can management talk about the impact of the COVID-19 to the spending on sales and marketing sentiment from the property developers and also the secondary home agents?And also when we enter into April, when you know, offline activities are recovering, do you see any decline in the users online activities, and as well as the developers and agents online activity?And then what’s your outlook for the property developers spending on advertising dollar budget for the full year? Thank you.

[Jian Liu:]

Okay, Miranda. [Foreign Language] So I will now translate Mr. Liu’s response to Miranda’s question. So for the first question, it involves how the industry is doing and the effects from COVID-19 in both new home and secondary home market. And these two markets are quite different.In new homes we saw that during COVID-19 developers were - had a lot of online activity and online promotions. And Fang as well we began live streams at the end of January during the Chinese New Year.Developers have recognized the need for online promotions during this difficult time. They see now that based on their online activity during the epidemic new home activity now has rebounded faster offline compared to the secondary home market. And in April we expect to see a rebound for new home offline activity.In the market, we also see that major cities have consumers that have also suppressed demand for new homes, and we expect that suppressed demand to be released in April and May.In the secondary home market, we see that it's more dispersed and a lot of residential communities still do not have open entry and exit. So it affects home showings. And unlike new homes, where developers have direct control over their projects, whether they're open for viewing, secondary homes do not have this flexibility. We also see that for the secondary home agents have returned to their offices slower and as a result, this also affects secondary home activity.As for the spending plans of developers, we predict that there will be competition for marketing coming up in April and May. And however, a lot of the market and the economy in general will be affected by what's going on also in the rest of the world where countries have not fully recovered from the epidemic. So a lot of - part of our economic activity will be affected as well. Thank you.

[Miranda Zhuang:]

[Foreign Language] Thank you. So my second question is that we have seen that the company has launched a lot of online products, like live broadcasting and online, property show flats. So can imagination share of any color on the performance metrics of these online products?And also related to that, do you think this trend of now moving to online will continue after - even after the end of the COVID-19. Do you see - based on conversation with the property developers, do you see them willing or like to sustain or maintain the spending for this online - all these new online products on going forward? Thank you.

[Jian Liu:]

Okay. Miranda. [Foreign Language] So to answer the first question. First time – this is the first time that we have seen or experienced a pandemic in such a global scale, and this undoubtedly has changed many industries, as well as online platforms.Along with – well, along with 5G we see increased investment in the fundamental development of Internet related content. And this will include live broadcastings, live showings and live conferences on Fang's platforms. And these have all existed in the past, but due to COVID-19, we saw an increase in its development, and increase in demand.So for example in the last two months alone we saw 20,000 live broadcasts on Fang's platform. And in 2019 for the full year we had 10,000 live broadcasts. And during these live broadcasts we see not only potential customers, but also developer’s, agents and designers all attended. And from our first time attendants to these live streams. And the effects that we had were quite good. And we - our clients can obtain leads from these live events. So this is not just for show. We are the leaders in these online promotions and broadcast industry. We saw that attendance was very high. And we have a lot of examples of this.The second question is whether this trend will last? From our perspective, this trend will definitely continue and continue to evolve. For example, if you look beyond the real estate industry, for example, on Taobao, Douyin, Tiktok and Tencent live broadcasts, we see the whole market moving to online videos and live streams.And this is similar of the development of you know, 2G, 3G into 4G and now 5G. Our clients share similar sentiments. And we see that our large clients in the industry have turned to live streams as well. Thank you.

[Miranda Zhuang:]

[Foreign Language] Thank you. And my last question is about the competition landscape. Just want to get management's view of the competition landscape in this year, especially after the COVID-19 because we think the industry will be different from the past where the vertical competition is mainly driven by the traffic because it was more of a simple listing model.Going forward, we think the industry would be mainly focused on the online technology, using technology to better serve the agents and property developers. So wondering how do you see the landscape going forward? Thank you.

[Jian Liu:]

Okay. [Foreign Language] So to translate the answer. Regarding the competitive landscape in 2019 we started investing in products and technology, such as online live broadcasts and VR showings and since the epidemic came as a surprise, we were able to build in a very short time the live stream platform and integrate it seamlessly to the rest of our platform, due to our previous investments starting in 2019.We are able to accommodate tens of thousands of live broadcasts per day and close to 200 to 300,000 thousand agents, actively use the platform without issues. And we believe that this will become the mainstream and core products in our industry.And from COVID-19 we see that online technology and online products will be more and more helpful and more and more part of our client's daily business operations. And this will also drive us to increase our investments in technology and online platforms going forward. Thank you.

[Miranda Zhuang:]

[Foreign Language] Thank you so much.

[Jessie Yang:]

Thanks, Miranda.

[Operator:]

[Operator Instructions] There are no further questions at this time. I would like to hand the conference back to today’s 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 first quarter 2020 earnings call. Thanks.

[Operator:]

Ladies and gentlemen, this does conclude our conference for today. Thank you for participating. You may now all disconnect.