Fang Holdings Limited
Q3 2018 Earnings Call Transcript

Published: 30 Nov 2018

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter 2018 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 that the conference is recorded today. I’ll now hand the call over to your speaker, Ms. Jessie Yang. Thank you. Please go ahead.

[Jessie Yang:]

Thank you, operator. Hi everyone, and welcome to Fang’s third quarter 2018 earnings conference call. Joining us today to discuss Fang’s results are our Chairman and CEO, Mr. Vincent Mo; and our CFO, Dr. Hua Lei. After the prepared remarks, Mr. Mo and Dr. Lei 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 uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Fang assumes no obligations 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 third quarter financials after which Mr. Mo and Dr. Lei will start the Q&A session. Fang reported total revenues of $83.6 million in the third quarter of 2018, a decrease from 25.5% from $112.2 million in the corresponding period of 2017. This is mainly due to the decline in revenues from listing and e-commerce services. Revenue from marketing services was $35.7 million in the third quarter of 2018, which is a slight decrease of 4.1% from $37.3 million in the corresponding period of 2017. Revenue from listing services was $29.2 million in the third quarter of 2018, a decrease of 38% from $47.2 million in the third quarter of 2017. This is caused by the decreased number of paying members. Revenue from value-added services was $10.3 million in the third quarter of 2018; this is an increase of 33.3% from $7.7 million in the third quarter of 2017. This is driven by the increased demand for our database and research services. Revenue from financial services was $4.7 million in the third quarter of 2018. This is an increase of 34.6% from $3.5 million in the corresponding period of 2017. This is driven by increased demand for our financial products. Revenue from e-commerce services was $3.7 million in the third quarter of 2018, this is a decrease of 77.7% from $16.6 million in the third quarter of 2017. This is primarily due to Fang's transformation back to a technology-driven open platform model. Cost of revenue was $17.8 million in the third quarter of 2018. This is a decrease of 49.8% from $35.4 million in the corresponding period in 2017. This is due to the optimization in our cost structure. Operating expenses were $50.6 million in the third quarter of 2018, this is a decrease of 13.4% from $58.4 million in the same period of 2017. Selling expenses were $21 million in the third quarter of 2018, this is an increase of 24.3% from $16.9 million in the same period of 2017. This is mainly driven by an increase in advertising and promotional expenses. General and administrative expenses were $29.8 million in the third quarter of 2018, this is a decrease of 28.5% from $41.8 million in the same period of 2017. This is mainly due to effective cost control and a decrease in bad debt expenses. Operating income was $15.3 million in the third quarter of 2018, compared to $18.4 million in the same period in 2017. This was caused by the decline in revenue from listing services. Change in fair value of securities for the third quarter of 2018 was a loss of $11.8 million. This amount represents a change in fair value of securities in accordance with FASB ASU 2016-01, which became effective on January 1, 2018. Income tax expenses were $3.1 million in the third quarter of 2018; this was compared to income tax expenses of $4.1 million in the same period in 2017. Net income attributable to Fang's shareholders was $2.3 million in the third quarter of 2018; this was compared to a net income of $15.2 million in the same period of 2017. Earnings per fully-diluted ordinary share and ADS were $0.02 and $0.00 in the third quarter of 2018. This was compared to $0.16 and $0.03, respectively, in the same period in 2017. Adjusted EBITDA, defined as GAAP net income before share-based compensation, investment income, change in fair value of securities, income taxes, interest expenses, interest income and depreciation, was $25.7 million in the third quarter of 2018. This was compared to the $24.8 million in the same period of 2017. As of September 30, 2018, Fang had cash and cash equivalents, restricted cash, including current and non-current and short-term investments of $439.9 million, compared to $547.1 million as of December 31, 2017. Net cash generated from operating activities was $33.5 million in the third quarter of 2018; this was compared to $57.8 million in the same period of 2017. Based on current operations and market conditions, Fang's non-GAAP net income is expected to be profitable for the fiscal year ending December 31, 2018. These estimates represent management’s current and preliminary view, which are subject to change. Thank you so much for joining today. And we’re now open for 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 Monica Chen from Credit Suisse. Please ask your question.

[Monica Chen:]

Good evening, Mo, Hue Lei, and Jessie. Thank you for taking my questions. So, I have a two questions here. Number one, so I noticed our listing revenue declined year-over-year and it’s lower than we expected, mostly due to the decrease in paying members. Can management shed more colors on this business, do you think is it because of the competition among different platforms that caused the decrease in the paying members or do you believe it’s more on the macro head winds and the demands of such listing services is lower? That’s my first question. And my second question, as we noticed we have seen increase in spending on advertising and the promotions for this quarter. And now, I wonder what is our spending budget for next year and how we are going to see our profitability target for next year? Thank you.

[Hua Lei:]

Hi, Monica. This is Lei. First, let me answer your first question about the listing business. Certainly, we are not doing well in the listing business, so which has decreased compared to last year same period. For me, I think they are probably two reasons there; one is, we do see the competition in the markets and our competitors are doing better than us comparatively. So I think this is definitely one reason, because we are seeing our competitors are doing more marketing and the promotion expenses much more than us, that’s from the end of last year, even we’ve begun to catch up on third quarter, I think – we feel no need to do more, to put our listing business respect to the chart. So I think this is the first reason. Secondly, we have many new products. Since the beginning of this year, I think our clients, they need more time to get used to our new products and also you know our definitely our new products they are on the right direction in the long run. In the short periods, we still need to educate more in both our clients and our sales people to promote our new products. Certainly, we are still very confident in our listing business. We since as long as we are going to spend more in the advertising and the promotion also to create better content in our platform, we definitely, we can increase our traffic, which in turn we will increase our listing business. So, and this is for your first question. For your second question, definitely we worked more in advertising and promotion next year, And at this moment, I still cannot show you a very clear number about how much we are going to spend. By the way we are willing to share the number which the investor later. Thank you.

[Monica Chen:]

Thank you, management.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Miranda Zhuang from Merrill Lynch. Please ask your question.

[Miranda Zhuang:]

Good evening, Mo, Hue Lei, and Jessie. Thank you for taking my questions. My first question is about marketing business. It seems that the revenue this quarter turned out stronger than expected? Can management elaborate more on like what’s the reason behind? And then my second question is a broader question like what’s the management’s latest view for the property sector and the sector in next year? And what’s the implication for Fang’s marketing and listing business for next year? And can you elaborate more on your strategy in terms, for example, providing more services and products to the agents and then property developers and your strategy to expand the user base? Thank you very much.

[Hua Lei:]

Hi. This is Lei. For your first question about the marketing service business, yes, we delivered stronger results than expected. Actually, if you look at the quarter-over-quarter growth, these are very strong growth there. Although compared to last year in the same period, it was still 4% decrease, but if we considering the weighted tax [ph] impact, actually we have increased our marketing service year-over-year. I think there are two reasons under the growth of our marketing business. Firstly, since last year, we started to develop mainly new products in marketing service especially those lead products like -- and others. We are seeing our clients, mainly the developers, they are welcoming those new products, they like new products, so we’re going to put more capacity in to our new products, which drive our marketing business to grow and that’s for sure definitely. The second reason is, actually you know because we’re seeing in our market business was doing better when the market start to going down. As you know, during last two years actually the market was really hard. I mean, the property market, so which means the developers; they have less incentive to use those – advertising and promotion services. So when the market began to going down since quarter three or the end of – at the end of September we’re seeing those developers, they have more incentive to use some promotion service, definitely our marketing service is one of the top choices for that. So we’re expecting on quarter four and next year, our marketing business will keep the strong momentum. So this is my expectation for marketing business. For your same question about property sector, I think you know the future in the property sectors will depend on the economy situation largely I would say, because many people are arguing the comments, especially with the local comment to have more incentive to relax current situation – restriction on those properties. Actually it depends on the economy situation. If the economy is keep to and keep on coming down, probably I think as of possibility for the government to relax the cost [ph] base for our business including marketing and listing business, I think, as long as the market is stable I think our business will benefit from a stable market. We don’t like very hard or very bad market which is no good for our business and also not good for the industry I think. So this is my personal view on this part. So your third question is about the strategy, right? Can you repeat the third question?

[Miranda Zhuang:]

Yes. What’s the strategy for the marketing and listing business in terms of product, new product and then what’s the strategy to expand the user base?

[Hua Lei:]

Yes. our strategy actually is very clear. Since we shift back to open technology driven platform, we want to keep developing more and more new technology to implement our platform and also to empower our partners and our clients. So our strategy is very clear. For the marketing business, I think we are on the right direction, especially for our new product which definitely is welcome by our clients. So we will keep developing more new products and those -- these products. And also we’ll advocate our clients to use our new products. So I think definitely this is an action [ph]. For the listing business I think the key issue is the traffic probably, because we’re seeing our competitors, they are to embed in the traffic in the past. So I think we need to increase our traffic both by spending more on the promotion pricing and also by creating more about content in our platform. And also we want to work with our online both offline partners to build up more original [ph], the unique company in our platform which definitely will benefit our listing business as well. So generally, I think that is definitely the traffic. I think it’s a very key issue for the business. Thank you.

[Jessie Yang:]

Thank you.

[Operator:]

Thank you. [Operator Instructions] As there are no further questions at this time, I’ll now hand the conference over to today’s presenter. Please continue.

[Jessie Yang:]

Thank you everyone for joining and we’ll report to speaking with you for our next quarter conference call. Thank you.

[Hua Lei:]

Thank you.

[Operator:]

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