Fang Holdings Limited
Q2 2016 Earnings Call Transcript

Published: 25 Aug 2016

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Second Quarter 2016 SouFun 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 call is being recorded today, August 25, 2016. I would now like to hand the conference over to your first speaker today, CFO, Kent Huang. Thank you. Please go ahead, sir.

[Kent Huang:]

Thank you, operator. Hello, everyone and welcome to Fang's second quarter 2016 earnings conference call. I am Kent Huang, Fang's CFO. Joining me today are Fang's Chairman and CEO, Mr. Vincent Mo. Before we carry on, 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 assume 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 SEC, including our Form 20-F. Now, let's look at the numbers, second quarter 2016 results. Revenue; Fang reported total revenue of $287 million for the three months ended June 30, 2016, representing an increase of 34.2% from $213.9 million for the corresponding periods in 2015, primarily driven by the growth in e-commerce services. Revenue from e-commerce services was $180.5 million for the three months ended June 30, 2016, a 77.4% increase from $106.8 million for the same period of time in 2015, primarily due to the rapid growth of brokerage services for the secondary home. Revenue for marketing services was $51.4 million for the three months ended June 30, 2016, a decrease of 50.2% from $50.6 million for the corresponding periods in last year. Revenue from listing services was $26.9 million for the three months ended June 30, 2016, a decrease of 22.3% from $34.6 million for the corresponding period in 2015. Revenue from internet financial services was $11.1 million for the three months ended June 30, 2016, an increase of 176.4% from $4 million for the corresponding period in 2015, primarily due to the rapid growth in our financial services through a secondary home brokerage services. Revenue from value-added services and other services was $8 million for the three months ended June 30, 2016, which is higher than the $7.8 million for the corresponding period in 2015. Cost of revenue was $231.1 million for the three months ended June 30, 2016, an increase of 115.9% from $107 million for the corresponding period in 2015. The increase in cost of revenue was mainly attributable to the cost of increased staff from brokerage services for the secondary home. Operating expenses were $88.6 million for the three months ended June 30, 2016, an increase of 4.8% from $84.5 million for the corresponding period in 2015. Selling expenses were $52.3 million for the three months ended June 30, 2016, a decrease of 4.7% from $54.8 million for the corresponding period in 2015. General and administrative expenses were $36.4 million for the three months ended June 30, 2016, an increase of 22.4% from $29.7 million for the corresponding period in 2015, primarily due to the increasing staff cost and operating lease. Operating loss was $32.8 million for the three months ended June 30, 2016 compared to operating income of $22.3 million for the corresponding period of last year. Income tax expenses was $8.7 million for the three months ended June 30, 2016 compared to income tax expenses of $10.2 million for the corresponding period last year. Net loss attributable to Fang's shareholders was $40.6 million for the three months ended June 30, 2016 compared to net income of $15.2 million for the corresponding period of last year. Loss per fully diluted ordinary shares and ADS were $0.43 and $0.09 respectively for the three months ended June 30, 2016 compared to earnings of $0.18 and $0.04 for the corresponding periods in 2015. Adjusted EBITDA was $24.3 million loss for the three months ended June 30, 2016 compared to income of $28.4 million for the corresponding period in last year. As of June 30, 2016, Fang had cash, cash equivalents and short-term investments of $759.5 million compared to $631.7 million as of June 30 last year. Net cash generated from operating activity was $36.5 million for the three months ended June 30, 2016 compared to cash flow generated from operating activities of $4.1 million for the same period of time last year, primarily due to the recovery of long principal which was $81.6 million for the three months ended June 30, 2016. First half 2016 results; Fang reported total revenue of $491.6 million for the first half of 2016, representing an increase of 44.6% from $340 million for the corresponding period of last year, primarily driven by the growth of e-commerce services. Revenue from e-commerce services was $320.4 million for the first half of 2016, a 102.3% increase from $158.4 million for the same period of time last year, primarily due to the rapid growth of brokerage services for secondary home. Revenue for marketing services was $81.8 million for the first half of this year, a decrease of 19.1% from $101.2 million for the corresponding period of last year, primarily due to the offset by our e-commerce services. Revenue from listing services was $51 million for the first half of 2016, a decrease of 12.5% from $58.3 million for the same period of time last year. Revenue from internet financial services was $21.7 million for the first half of this year, an increase of 187.5% from $2.6 million for the same period of time last year, primarily due to the rapid growth in our financial services to the secondary home brokerage services. Revenue from value-added services and other services was $15.6 million for the first half of 2016 which is higher than the $14.5 million for the same period of time last year. Cost of revenue was $441 million for the first half of 2016, an increase of 188.4% from $152.9 million for the corresponding period of last year. The increase in cost of revenue was mainly attributable to the cost of increased staff for brokerage services for secondary home. Operating expenses were $193.6 million for the first half of this year, an increase of 23.1% from $157.3 million for the corresponding period last year. Selling expenses were $113.9 million for the first half of this year, an increase of 10.3% from $133.2 million followed corresponding period of last year. General and administrative expenses were $79.7 million followed first half of 2016, an increase of 47.4% from $54.1 million on corresponding period of last year, primarily due to the increased debt costs. Operating loss were $142.8 million for the first half of this year, compared to operating income of $29.8 million for the same period of time last year. Income tax expenses were $13.9 million for the first half of this year, a 12.2% decrease compared to $15.8 million for the same period of time last year. Net loss attributable to Fang's shareholders was $154.3 million for the first half of this year compared to net income attributable to Fang's shareholders $22.2 million for the corresponding period of last year. Loss per fully diluted ordinary shares and ADS were $1.52 and $0.32 respectively for the first half of 2015 compared to earnings of $0.25 and $0.05 for the corresponding periods of last year. Net cash used in operating activity was $13.7 million for the first half of this year as compared to net cash used in operating activity of $50.7 million for the same period of time last year, primarily due to the recovery of long principal. Following iterated if total revenue guidance for 2016 of around $1,148.6 million, representing a year-on-year increase of 30%. We are confident that Fang is on the track to achieve the target. This forecast reflects Fang's current and preliminary review which is subject to change. Thank you for taking the time to join us today. And we will now open the call for your questions. Operator, please go ahead.

[Operator:]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator instructions] Your first question comes from the line of Hillman Chan of Macquarie. Please ask your question.

[Hillman Chan:]

Good evening, Vincent, Kent and Joyce. Congrats on the solid result. My first question is about the increase in commission in June for the secondary direct sales home. Management talked about the impact on benefit there and we have seen so far on the volume and also our market share being trending since increasing the commission rates. That's my first question and then I have another follow-up.

[Kent Huang:]

Well, yes. We officially actually increased the commission rate started from June 1 and in the meantime, we increased from 1% to 1.5%. And then in the first two months of this quarter, the transaction numbers is actually within our implementation and of course we try to find a balance between the sustainable commission level and the gross of our transaction numbers. Of course in the first months of increased commission, we see the transaction numbers actually down a little bit, but we think in terms of total revenue, the numbers is actually all the same because we actually increased the commission to 1.5%, which is a 50% increase of cost that then helped us a lot in terms of total revenue.

[Hillman Chan:]

Thank you. And my other question is more about the macro. So how do we see the outlook of the secondary home market into the third quarter and fourth quarter this year? And related to that, could we talk about the headcount plan particularly for the direct sales force please? Thank you.

[Kent Huang:]

Yes. For the overall market, we think the market is actually -- we need to put them into couple of parts -- pardon, couple of sections. For the secondary within the market is actually overall, I think it's growing. As we all know, the whole China real estate market is going into that direction. For the whole picture, the percentage of secondary transaction as a whole is actually going not only on the Tier 1 cities, but we also see the chain is coming, it's actually happening in Tier 2 cities and low-tier cities even. Overall, we're seeing, the Chinese is quite good. We see the industry is moving into that direction. But however, from time to time, especially for example in April and May, there is new policy coming out from Tier 1 cities from overheated market, especially in Tier 1. There are some short-term impact for sure, but we believe the market is actually healthier in secondary markets. That's the general market interest for the secondary market. And for the primary which is right now, of course we are facing some changes especially in low-tier cities, but in the Tier 1, everybody knows it's very good and for the main market, I think it's the Tier 2 and Tier 3 cities especially when a allowed inventory is actually in the Tier 2 and most of that is actually in Tier 3 cities. Our government is loading out some new policies to help, probably be able to taking out all those inventory in the second half of this year and then in the meantime of course, overheated market in Tier 1 cities is going to face some new policies, maybe. We are seeing some new policy coming out in some of our Tier 2 cities already. So overall, we think it is balanced, but of course there is changing opportunities at the meantime.

[Hillman Chan:]

Right. And the headcount plan for the direct sales force, please?

[Kent Huang:]

Yes. For the headcounts, actually we think the number by the end of Q2 is roughly -- overall for the whole company, is roughly, probably 5,000 and then our secondary total headcounts, they are sort of lower than the end of Q1. But of course, I think that change is follow the market change because as we all know, market is kind of a little bit fluctuated in the early of this quarter, especially in Tier 1 cities. And then in the meantime, we have the target by every agent to meet every month. Naturally, we kind of just follow the market within those cities, but in the meantime, there are some good markets -- when the market is good, at all cost we are going to strengthen our position in those cities. In terms of overall headcount targets, I think we are going to stay with what we have by now and then optimize in every city and of course in the meantime it depends on the market of each city we have operation in.

[Hillman Chan:]

Okay. Thank you, Kent, very much for the color. It's very helpful.

[Kent Huang:]

Thank you.

[Operator:]

Your next question comes from the line of Alvin Jiang of Deutsche Bank. Please ask your question.

[Alvin Jiang:]

Hi, management. Thank you for taking my questions. I have two questions. The first question is on the ecommerce business. Could you give us more color on the breakdown of the secondary home market like in which kind of focus cities do you really reach the breakeven of profitable level and going forward, which kind of cities can have a better margin compared with others? And I have a follow-up. Thank you.

[Kent Huang:]

Yes. For the ecommerce, we see a year-over-year 77% growth and quarter-over-quarter is probably 5% increase. Out of that, majority is actually coming from secondary home and secondary actually is increased compared to Q1 in terms of revenue. Although our total transaction numbers decreased a bit, but because of we increase the commission rate to 1.5%, so we're not seeing the top line is actually growing and then the average commission right now for secondary is roughly in the range of 1%, which is within our expectation. And going forward, we think the balance between gross and profitability is the key for the company, but as you can see in this quarter, we strengthened our cost control and then we optimized -- we strengthened our control on the cost and the work [ph] stream. And I think it is going to -- I think a lot of that is going to kick in the following quarters. So in terms of secondary alone, we do believe this is a very good business and we are in the right direction. By now of course in terms of total headcounts as we just discussed, it depends on each city's situation. We are bound to adjust from time to time. Having said that, we think the gross is the priority for the company, not only for the secondary, but also for the primary also. So in the following quarters, we think we are affecting this ecommerce, continue to grow and be the main contributor for our total revenue growth.

[Alvin Jiang:]

Okay. I think that this is very helpful. And my second question is on the other part of our revenue is the marketing and the listing services. Could you give us more color on the competition landscape on this business and what's our outlook on this business going forward? Thank you.

[Kent Huang:]

Sure. For the marketing landscape, let's talk about marketing so that its first and the marketing, this quarter, we have $51 million revenue, which is actually higher than Q1 of course. In the meantime compared to the same period of time last year, it's a little bit decreased. But we feel this business line is stable at current level already and we are very happy to see that. In terms of marketing clients, number of clients, actually we are seeing the numbers. It's actually growing even compared to same period of time last year and then I think our target going forward is going to how do we increase the average price from each client and from each ad on our website. That's going to be our main focus in the following quarters. For the lifting business, we are happy to see a 12% growth compared to Q1 although compared to same period of time last year, there is a roughly 20% decrease, but what we are seeing these colors is we are seeing the demand from the market is actually pretty strong and then our deferred revenue increased roughly $20 million from these listing facilities which means our services were received in the market and then of course this deferred revenue is going to be recognized as revenue in the following quarter when we provide the services.

[Alvin Jiang:]

Thank you. Maybe some will clear on the financial service business?

[Kent Huang:]

Yes. For financial services, right now we have $11 million for this quarter. This is a very important part of our total revenue and it is actually the very important component of our secondary brokerage services. We always want to provide a whole suite of services to our clients. But in the meantime, we want to point out is based on the accounts for roughly 5% of our total revenue. In other words it's on the early stage, so there is a lot of potential. In the meantime, we want to make sure we have the same -- we got all the approval and everything, we got all the necessary license and everything is under control and this is actually one of this business has been grown in the past two years and as a matter of fact, these financial services increased quite a lot, it's roughly [ph] 76% compared to same period of time last year.

[Alvin Jiang:]

Okay, got it. Thank you.

[Operator:]

Your next question comes from the line of Tian Hou of T.H. Capital. Please ask your question.

[Tian Hou:]

Yes. [Indiscernible]. A question related to the increase of the commission rate for the secondary home sales, secondary apartment sales. In the past, you have low commission of 0.5%. So with that you're able to quickly deploy your trip to many cities in China. So I wonder since you increased that rate to the market, and what is your competitive advantage today versus past? That's number one. Number two, so by now, what's the market share in the major cities are -- like Shandong [ph] and some second Tier cities or so? That's my question.

[Kent Huang:]

Yes. Well, one thing I want to point out here is yes, right now we are charging 1.5%. I believe it's actually the lowest one on all major competitors or which we think we are providing the best cost-effective services to our potential clients and that's our target. In the meantime will want to provide most comprehensive services to meet their demand. Of course we started out from the 0.5% a year ago, and then of course we -- the growth of our business; right now we are providing more and more services to our clients. In terms of market shares, right now within our 28 cities, we still have a handful of cities ranking number one, and then with very nice market shares in those cities including like [indiscernible] and other cities. And of course, in the meantime in the Tier 1 cities, we are right now roughly in the range of number three and number four. In that range, of course we are seeing the numbers, they're actually recovering especially after June rise. In the July and early of this month, we see the numbers coming back. We believe right now we are actually looking at balance between the gross and the services quality -- I would say that. Because it takes some time. Probably a quarter, probably a couple of months and then we are still very confident that we'll be able to achieve that balance.

[Tian Hou:]

That's very helpful. Thank you, that's all my questions.

[Operator:]

Your next question comes from the line of Ming Xu of UBS. Please ask your question.

[Ming Xu:]

Good evening, Kent. Congratulations on your strong results. I have two questions. The first is regarding the secondary housing agency business. I'm just wondering with the raised commission rate to 1.5%, what is your current breakeven efficiency now and efficiency level and where are we now and when should we expect to reach that level? This is my first question.

[Kent Huang:]

Sure. Right now after the raise, we see our productivity kind of decreased a bit, but in the meantime, we are charging much more higher commission, 50% gross compared to 1%, which gave us more room to breakeven. Right now, I think if you're looking at productivity, there are two things we are working on right now. One thing is of course the cost control; actually as you can see, our total cost is actually proportional-wise, lower than Q1 and then we think that's very important to us because we'd be able to cut in back the total cost for each agent almost per capita level for this quarter and then this is the direction for us. So going forward, we have strengthened our optimization so we believe this cost control is going to decrease to certain level. And then in the meantime, we think right now the breakeven productivity is in the range of roughly 0.5% to 0.6% for the meantime as I just mentioned. I think it's really important to see this cost optimization.

[Ming Xu:]

You mean that 0.5% to 0.6% is breakeven-able?

[Kent Huang:]

Right. On current level.

[Ming Xu:]

Okay and I'm just wondering, where are we now? Like in Q2 or in recent two months, what's our current level and when do we expect to reach that 0.5% to 0.6% level?

[Kent Huang:]

Yes. At least two quarters and these two months and especially from of the raise commission to 1.5%, the June number is actually roughly 8,000 units, so the productivity for those months is kind of low even the range of roughly 0.3 units. Of course it takes some time to adjust to this change. We think this number is coming back and that by metric [ph] sometimes, so -- but however, in the meantime, we believe the increase gave us a larger cushion, that's number one. And number two, again, the cost control is really important for us to breakeven for this business model.

[Ming Xu:]

Sure. My second question is on the listing business. First, I want to ask the impact of the recent regulation on the property agents. Could you share us, maybe help us analyze the impact on the agent's activities and also the impact of those policies on your listing business?

[Kent Huang:]

Yes. The listing services is actually very important part of our total revenue and then we see these revenue, these sectors at stable light at current level and they're actually picking up starting from Q1 this year. We see actually in terms of number one is of course the top line revenue and number two is the paying subscribers. So right now these two have roughly over 200,000 paying subscribers for our services. We see the market is actually -- all cost with the new policy coming out, but in the meantime is we think that the market is very stable and it's a large market. We are dealing with at least more than 0.5 million agents throughout across China and then the target cost for now is to provide the quality and then the comprehensive services -- not only online, but also offline those services -- to them. We think that's pretty important right now. I think that's also the reason why we see the numbers or our paying subscriber numbers keep coming back and then we see our different revenue is growing roughly 12% quarter-over-quarter.

[Ming Xu:]

You mentioned that you actually streamlined your agent team in Q2. Basically you slightly cut some people from the secondary housing agent business and at the same time, you mentioned that the paying members remained at around 200,000 level. Can we understand that basically the paying members from outside so far actually increased and do you expect this trend to continue and maybe how much external agents you gained in Q2? Can you maybe share with us?

[Kent Huang:]

Yes. Well, at the turn of paying subscribers, agents are our clients for long, long time and then we are providing services to them and to meet their day-to-day demand. We think going forward, we are still going to provide very good quality, services to them. Of course in the meantime we are upgrading our ads and software so we'd be able to provide them a better platform to increase their productivity. That has been always our target and priority. In terms of paying subscribers for outside, their numbers also increased roughly 15% actually compared to Q1. Going forward, we believe the numbers is going to keep increasing. But of course, already our target is to be able to provide the fast services to meet their demand.

[Ming Xu:]

Just to also clarify, 15% or 50% Q-on-Q growth?

[Kent Huang:]

15.

[Ming Xu:]

15. Okay. Thank you.

[Operator:]

Your next question comes from the line of Amanda Chen of Morgan Stanley. Please ask your question.

[Amanda Chen:]

Hi. Good evening, management. Thank you for taking my question. I have two here. First one is regarding your breakeven target Q4 this year. Are we still looking at this target, or do we change it?

[Vincent Mo:]

Hi. This is Vincent. Yes, we are quite on target and I'm thinking hopefully we can have better results in quarter four this year. As you probably noticed from the numbers, we had a substantial loss in quarter one and quarter two, we had a very good improvement from both increasing top line and decreasing the cost expense. So we are actually in a kind of a transformation cycle, which means that we had a rapid and sometimes wider increase or gross in the first part of our transformation and now, I would say we are in our phase 2 transformation. We're getting into an optimizing phase, we are going to have a quality revenue and at some time, we're going to have control of the expenses so that we can have a much better team and refine the model. Going forward, out of this phase 2 transformation optimization and we're going to get in phase 3 transformation again and phase 3 will be another round of expansion. That is the way we are handling our transformation process. Back to the questions, with phase 1 is gone, phase 2 is right now and we expected that phase 2 isn't going to take for the rest of the year and in quarter four, we are quite confident that we are going to achieve our target of getting to breakeven. With that said, if necessary, if we find that the market growth needs our investment, we are going to do that and we will not hesitate to do that. That's the general plan for us.

[Amanda Chen:]

Got it. Thank you very much, Vincent. And as a second question is regarding your listing business. I think it's a quick follow-up on the previous question. For the quarter, we saw very strong result and this quarter, similar -- it looks like that, the growth slowed down a little bit. So in future, we saw that all by their listings; property listing business is growing very fast and it's gaining market share massively. And it seems now the demand is still there. So in this year or in next one to two years, will we continue provided this -- will this always feel a very important business for us? Will we shift to more resources to listing or reroute still for the standard transaction?

[Vincent Mo:]

Actually, we're going to focus on both. Listing is our traditional business and frankly, we have been increasing very healthily this year. Quarter two, we had a much better cash-in comparing to those recognized according to the U.S. GAAP. For the whole year, we're going to see from my operations of the business, cash-wise, we're having 100% growth in our listing business, but I think most of them are not recognized according to U.S. GAAP yet. That's with the listing -- we're going to emphasize on that going forward. That's for sure because that part is also a very profitable part of our business and at some time, we are going to focus both the listing and also the transaction business elsewhere. That's the strategy of the company.

[Amanda Chen:]

Got it. Very helpful. Thank you very much, Vincent.

[Vincent Mo:]

Thank you.

[Operator:]

Your next question comes from the line of Nora Zhang of Bank of America. Please ask your question.

[Nora Zhang:]

Good evening, management and thank you for taking my question. I have two questions. The first question is regarding the new home direct sales business. We noticed that the GMV growth has slowed down. Do you think the business model is reaching a bottleneck or the slowdown is more macro-related? And we understand that our ways to pay 40% rebate to the home buyers, what's our current rebate level? That's my first question.

[Vincent Mo:]

This is Vincent, again. Do you want to answer this question?

[Kent Huang:]

Oh, okay. Let me talk about something about Fang here and then we thinking comments on this business. And therefore primary new home direct sales, the GMV is actually increased 13% compared to Q1, the main thing I think is macro-related and in terms of number of deals and actually we finished out larger number and then the average price probably is kind of lower. As you know, a lot of things here is the mix between the different Tier cities. The number in Tier 1 cities is probably lower in this quarter, so that's the main reasons for the new home GMB. And then for your question about rebate, I think that's another direction for the company because right now, we are focusing on particular projects in each city. So for example, we are focusing in some selected projects, so we put our resources to focusing on those selected projects instead of cover all new projects in each city which gives us more leverage to dealing with developers and then in the meantime, we'll be able to provide more services and the better pricing to our customers. So the rebate numbers might be lower than the 40% in the past few quarters. But of course in the meantime, I think that's the balance. Right now, I think the number is lower than 40%.

[Vincent Mo:]

Add into Kent's comment, we also fine-tuning of a model in the new home direct sales. We are going to do the direct sales and we are also going to open our platform to our partners to walk together with us. It is the situation for us to adjust according to the market. As Kent just described because of the market in the Tier 1 cities that's just so good, so sometimes if the market is too good, we elevate and it may not be dug yet. That's the kind of situation.

[Nora Zhang:]

Got you. That's very helpful. My second question is regarding the listing business. We understand -- when you said that deferred revenue has been growing really fast since the third quarter in 2015. So I'm wondering, how many -- more money amortize membership fees we'll collect from agents? And also could you share with us how many agents or what percentage of your agent customers are already paying for mobile membership, mobile accounts?

[Kent Huang:]

Yes. Let me tell you this question first and then in terms of number of mobile, actually we're seeing the trend. A lot of the agents right now, they are using not only the PC suites, but also the meantime, they are using our mobile apps. We see the numbers increasing in the past couple of quarters, which we believe that the market demand is pretty strong and going forward within this percentage is going to increase for sure. Right now, roughly 36,000 paying subscribers are subscribed to automobile services and we think that trend is going to increase.

[Nora Zhang:]

Thank you. How about the number of numbers where amortized the listing revenue?

[Kent Huang:]

Actually right now, we are counting our revenue. It depends on the usage from use agents. The practice is right now, a lot of agents, they are going to pre-pay us quite a lot so they can buy the services for the coming months and then each month of cost, it depends on the usage, how many they'll be able to use within their months and how many services. For example, they can open up one or two PC, maybe another one or two on the mobile. That's pretty common. It all depends on what service suite we provide to the agents.

[Nora Zhang:]

Got it. Thank you Kent for the explanation. That's very helpful.

[Operator:]

Your next question comes from the line of Monica Chen of Credit Suisse. Please ask your question.

[Monica Chen:]

Hi, management. I'm asking a question on behalf of Evan Zhou. My first question is actually about your offline stores. I think in the last quarters, could you provide some color on the number of offline stores in our 27 cities covered and just wondering, do we have any updates on these number? Like have we expanded to have open more offline stores during this quarter? And how does that break down by different Tier service? Thank you.

[Kent Huang:]

Yes. Right now we have roughly 1,003 shops and service and centers together in our cities. In terms of three shops, we have roughly 600 -- between 600 and 700, and then others, we have another 350 roughly service and centers. The strategy here of cost again, it depends on the market. For the Tier 1 cities, we are focusing right now -- we are probably going to open up more street shops to provide better services and the customer experience. For example, Beijing and Shanghai, we want to provide more services close to our potential clients. That's our target. In the meantime, we want to make sure every new all paying street shops has the reasonable reasons behind that. In other words, we want to open up street shops in the area which we think our customers are located. That's one thing we are looking at. Fortunately, remember, we have a very strong website, so we have lot of traffic. We'll be able to do some analysis based on the traffic so we'd be able to selectively decide which area to enter in and to open up the street shops.

[Monica Chen:]

Okay. And how do you see the competition for other offline players like Homelink? They also opened a lot of street shops and other peers?

[Vincent Mo:]

We don't compete with our competitors with the number of shops. The strategy for the company is we're going to rely more online to do our brokerage business -- our online brokerage business. We do have by the 1,000 shops and office centers across 28 cities. Those shops are really a supplementary I think to our operations of the online brokerage. We're not going to stop opening shops. We're going to open shops that's necessary, but fundamentally, we're going to rely on mostly online and our apps, our WAPs, then the PC to do our brokerage business.

[Monica Chen:]

Okay, thank you. And also, I have a quick question about the Wanli deal. We noticed it's lost out there with the announcement that they still has been temporarily discharged and the way are preparing for materials and were to fall next time to same [ph]. So can the management provide some more color on this field progress?

[Kent Huang:]

We're still in the process of working together with Wanli's side preparing the necessary information and they were still in the process. That's the kind of situation.

[Monica Chen:]

Do we have a timeline like when will we prepare through summits for our next time?

[Kent Huang:]

I wish I could. The regulator, I think, they will have a say on all of this. I wish I could submit tomorrow.

[Monica Chen:]

Okay. Thank you. It's very helpful. Thank you.

[Kent Huang:]

Thank you.

[Operator:]

Your next question comes from the line of Wendy Huang of Macquarie. Please ask your question.

[Wendy Huang:]

Thank you. I just have one single question about GMV data you disclosed in the press release. It shows that your home GMV increased by 14% sequentially, about the same with home GMV declined by 20% sequentially. During that new change to your commission rate in the month of June, can you share actually the GMV momentum for the second home business in each month in the second quarter? Also, you seem suggesting that the GMV -- just a temporary decline that when you just actually be right upto that rate. So if that's okay, have you seen the month of July, generally -- actually already going back to the May level? Thank you.

[Kent Huang:]

For the secondary, yes, in terms of GMV I think the reasons, main reasons, we just discussed in the April and May, for these two months we see the declines in Tier 1 cities and which is actually important because in terms of ASP, average selling price, Tier 1 cities is much higher than Tier 2 and 3 cities. So I think that's the reason from -- I mean, from the market is a natural reasons and that will cause in July we increase our commission level to 1.5%. So that is another reason for that but overall, we see those numbers -- it's actually stable in the Tier 2 and Tier 3 cities and of course some impact, I think majority is just because of the market is from -- in Tier 1 cities. So going forward, again we think probably it's going to take couple of months to recover to a balanced level. By the meantime, we think 1.5% increase is necessary for us to provide better services.

[Wendy Huang:]

So do you expect to be signaling home GMV in Q3 to the [indiscernible] or maybe recover increase actually in Q3? What kind of GMV actually implied in the official guidance that you've provided?

[Kent Huang:]

GMV is actually -- it's another massive activity looking on our transactions plus when we charge 1% -- when we charge 1.5% GMV won't change but however, my meaning is, yes, the numbers is kind of a reflection of our total transaction numbers in different Tier cities. And Tier 1 cities is our focus for sure, and the Tier 2 and Tier 3 cities I think is kind of staple from now and then in the Q3 within the numbers coming back and then -- but however, of course this is going to take some time but in terms of revenue-wise we think the increase is going to -- the commission increase is going to increase our top line with the chain of increasing transaction numbers.

[Vincent Mo:]

Yes, with the numbers we have for July and part-August, the numbers are quite on-track with the volume. And as I talked about a little bit earlier, that our transformation is getting into its phase 2 and we are optimizing the way we handle the business. So with all of this, I think we can build and operate much of our sale in a better sustainable growth path with our secondary home business.

[Wendy Huang:]

Thank you.

[Operator:]

There are no further questions at this time. I would now like to hand the conference back to today's presenter. Please continue.

[Kent Huang:]

Thank you for taking time to join us today and we are looking forward to updating you in the next conference call. Thank you very much.

[Operator:]

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