Fang Holdings Limited
Q3 2015 Earnings Call Transcript

Published: 18 Nov 2015

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Q3 2015 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 conference is being recorded today, Wednesday 18th of November, 2015. I would now like to hand the conference over to your speaker today, Dr. Hua Lei, thank you. Please go ahead.

[Hua Lei:]

Thank you, operator. Hello, everyone and welcome to SouFun’s third quarter 2015 earnings conference call. I am Hua Lei, Deputy CFO. Joining me today are SouFun’s Chairman and CEO, Mr. Vincent Mo; CFO, Ms. Guan Lanying. And especially I would like to welcome our new Deputy CFO, Mr. Kent Cangsang Huang who joined the company recently and will be in-charge of IR functions. Given the fast growing of the company my future priority will be investment and financing. Thanks everyone for your support to my work in the past year. It's my pleasure to work with you I'm still in SouFun and honored to be part of this promise and innovative transformation. Before we carry on, I would like to remind you that during the course of this conference call, we will make forward-looking statements, statements that are not historical factors, including statements about our beliefs and expectations. Forward-looking statements involve inherent risk and uncertainty. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. SouFun 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 10-K. Now let's look at the numbers. Revenue, SouFun reported total revenues of 248.5 million for quarter 3, representing an increase of 30.4% from 190.5 million for the corresponding period in 2014 primarily driven by growth in e-commerce services partially offset by the decline in marketing services and the listing services. Revenue from marketing services was 65.6 million for quarter 3, 2015, a decrease of 19% from 81.0 million for the corresponding period in 2014, primarily due to fewer customers in the market and fewer average amount per advertising contract. Revenue from e-commerce services was 142.6 million for quarter 3, 2015, a 111% increase from 67.6 million for the same period in 2014, primarily due to the growth of the direct sales services for new home and the growth of the real estate brokerage services for secondary home, as well as rapid growth of the home decorating services. Revenue from listing services was 27.4 million for quarter 3, a decrease of 25.3% from 36.7 million for the corresponding period in 2014, primarily due to our reduction of unit price per paying subscriber. Revenue from Internet financial services was 6.4 million for quarter 3, an increase of 545.3% from 1 million for the corresponding period in 2014. SouFun began to offer Internet financial services in August 2014. We extracted revenue from financing services from other value-added services, to show this is a separate revenue source starting from the first quarter of 2015. Revenue from other value-added services was 6.5 million for quarter 3, an increase of 51.2% from 4.3 million for the corresponding period in 2014, primarily due to the rapid growth of our research related products. Cost of revenue was 188.5 million for quarter 3, an increase of 286% from 48.8 million for the corresponding period in 2014. The increase in cost of revenue was mainly attributable to increased staff. In addition, increased e-commerce costs including portion of proceeds remitted to real-estate brokers and subsidies to home buyers related to e-commerce services and increased decorating cost related to the home decorating services, also contributed to the increase in cost of revenues. Gross margin was 24.2% for quarter 3 compared to 74.4% for the corresponding period in 2014. Operating expenses was 91.8 million for quarter three, an increase of 29% from $71.2 million for the corresponding period in 2014. Selling expenses was $52.8 million for quarter three an increase of 28.8% from $41 million for the corresponding period in 2014, primarily due to increased expenses paid to our marketing agents for SouFun membership services and increased advertising and promotional expenses. G&A expenses were $39 million for quarter three, an increase of 29.1% from $30.3 million for the corresponding period in 2014, primarily due to increased staff costs and increased rental expenses. Operating loss was $31.8 million for quarter three compared operating income of $70.7 million for the corresponding periods in 2014. Income tax benefit was $29.2 million for quarter three compared to income tax expenses of $18.9 million for the corresponding period in 2014. The income tax benefit was primarily due to the reversal of withholding tax arising from undistributed earnings. Net Income attributable to SouFun's shareholders was $1.4 million for quarter three compared to net income $61 million for the corresponding period in 2014, $0.02 and nil per fully-diluted ordinary share and ADS, respectively, for the quarter three compared to $0.68 and $0.14 for the corresponding period in 2014. Adjusted EBITDA, defined as non-GAAP net income before income taxes, interest expenses, interest income, depreciation and amortization, was $24.3 million loss for quarter three compared to $78.3 million for the corresponding period in 2014. As of September 30, 2015, SouFun had cash, cash equivalents, and short-term investments of $622 million compared to $533.6 million as of June 30, 2015. Net cash used in operating activities was $83.2 million for quarter three compared to net cash generated from operating activities was $53.2 million for the same period in 2014. The decline in cash flows from operating activities was primarily due to a $59.6 million decrease of net income as compared to the third quarter of 2014, and a $72.6 million decrease in cash flows due to an increase of loans provided to home buyers under our internet financial services program. 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:]

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

[Hillman Chan:]

I have question regarding your land transactions. And I think most of the proceeds are from the placement that you do with IDG and Ruidong will go to Internet finance in the future. Could you just talk about your growth strategy for your Internet finance? And also, how we compare our Txdai platform to [indiscernible] and also [indiscernible] our competitive edges? And secondly, I want to know about the economics for the P2P product line, what drives the interest rate into the long term? Can we expect interest rate of all these products and P2P platform to converge somehow? And lastly, how do we manage the credit risk for these P2P products and what’s the default rate so far? Thank you.

[Hua Lei:]

Regarding to your first question, it's about our Internet financial services, which definitely is we think one of the most important business for this Company, so we actually want to inject our Internet financial service to Wanli in the future, because as you know its shares has to be have a higher valuation there, so it means we can reach cheap catalog from Asia to support our Internet financial services. Definitely also we’re going to welcome these different financial institutions, including commercial banks, insurance companies and others to leverage their fund to support our Internet financial services, so this is for your first question. For the second question which is related to the B2B platform, right?

[Hillman Chan:]

I want to understand economics for that and what determines the interest pay, should we expect all platforms, all P2P platforms that interest pay on them will somehow converge and that means we may now have [indiscernible] for that.

[Hua Lei:]

Yes, currently in our P2P platforms we are offering from 8% to 10% interest to the investors in our P2P platforms, currently every month we can raise nearly RMB200 million from our P2P platform to support our financial business [today] because our financial service mainly for the individual home buyers when they're buying the new home or for the regional provided to the home buyer in the service home market. So actually the risk is very low, we haven't seen any you know big [deform there] so the content flow actually is very good from our experience because with that in this business since last year August so it's already over one year so we haven't seen any [big dip] on that. So in general it's very good quality you know in our P2P platform.

[Hillman Chan:]

Okay, thank you, my last question if I may is that, regarding your subleasing business could you also talk about the scale for now and also the profitability that we should be looking at, that means a discount that we get on the longer term leasing contract and against the rent that we lease it to new tenants? Thank you.

[Hua Lei:]

Yes, for the sublease business actually in quarter 3 we collected over 12,000 you know properties from the landlords and we rent out over 9,000 properties, so it means you know the rent out ratio is like close to over 80% actually and most of the properties were rent out within two weeks in our sublease business actually we will require one month rent free from the landlords. So it means that if we can rent out you know the property within four weeks we'll have some profit in that. In most case we can rent out a lease in two weeks currently. Also because we will get a flat you know tenancy from the landlords. So normally we will increase the rental fee in the second year and the third year and so. So also we will you know get some profit from the interest in the rental fee. So [actually] this is our revenue and the profit in there and until now I would say because our scale still is not big enough so we haven't seen a significant revenue and profit from this business. But going forward we believe it is a very promising business for the company.

[Operator:]

And your next question comes from the line of Nathan Snyder from CLSA, please ask your question.

[Nathan Snyder:]

Thanks, I have a couple of questions on the transaction generally, the first question is how do you plan on moving capital between Wanli and the SFUN list co?

[Hua Lei:]

We think that Wanli and the SouFun both of them they are the listed companies in U.S., in China right. So they're separate companies but certainly Wanli and SouFun, SouFun the majority shareholder, we were to pot each other in our business and operations. For me, a company with -- if we want to move out the capital from Wanli to SouFun firstly we can do dividend out, this is a very clear way for everyone, especially we may joint venture if needed to support our e-commerce, our auto business in the future, as well as the transaction I mean is transparent and you know market price for both company, definitely we believe with the help and support from Asia markets we can grow and support our online business, our online marketing, online media business and our financial business better in the future.

[Nathan Snyder:]

That's very helpful, and the second question is, thinking about the net profit numbers that were released in the 6-K for Wanli, if we look at those numbers, which were 800 million about RMB1.04 billion and then RMB1.35 billion, for the next three years. Do you have any estimates in terms of how much of that growth is coming from the e-finance business, relative to the marketing and listings businesses?

[Hua Lei:]

I would say roughly one week a month, you note numbers. So we are little bit conservative in there. Actually, we just have a higher profit in this number and want to be conservative. Certainly, we believe because of the factoring of our Internet financial business, we will see more growth in the future come from our financial services definitely I am sure about that.

[Nathan Snyder:]

And then one other question on the business, and perhaps for Vincent if you’re willing to take it. How should we think about the impact of pricing increases relative to efficiency gains? So thinking about the per agent transaction increase on a monthly basis relative to some of the pricing increases, and then also the discounting in terms of home buys that we’ve been doing over the last couple of months.

[Vincent Mo:]

Okay, one second this is [indiscernible]…

[Operator:]

Ladies and gentlemen, your speakers currently experiencing some technical difficulties with their line, please stand by while we address the situation.

[Vincent Mo:]

It was disconnected. Back to the questions, it looks like there were two questions there. And for the resell market, the pricing is something we are planning to adjust with the improvement of the market share and also the services. We’ve been very cautious in increasing our -- adjusting the price for the 0.5% commission, we will not adjust in the foreseeable future. But we may have value added services and we may charge those value added services like we did about a month ago for guarantee services we provided to home buyers. So, that’s for the resell market. So again, we’re not going to change this 0.5% commission, but we are going to have additional value added services and we are going to charge those value added services when the time is right. So, that’s for the pricing. And definitely, when we get into different to our transformation to the transaction platform and the efficiency of our agents is very-very important, and we have seen that for those more mature cities and we have seen for those more matured cities and more matured teams. We have seen improving efficiencies as they can have more transactions monthly. So that is for the retail market. And for the new home market, which is we’re using the home buyer or bonus to the property buyers. We just started about a month ago, and we believe that the commission for the new home transaction should be equivalent to those over recent market. So, by introducing incentives, home buyer bonuses to property buyers, we can have a much better -- we can be in a much better position to acquire property buyers to increase our market share in the market.

[Nathan Snyder:]

Can I ask one brief follow up question on that, which is you said that the efficiency has been rising in terms of mature cities. Do you have any numbers that you could provide perhaps in the mature cities where you’re seeing good market share? How many average transactions per month are being done by agents in the secondary business?

[Vincent Mo:]

I think so, but we don’t have that number right in front desk. I think why not you contact our Deputy CFO, and they’re going to provide you with those numbers we have.

[Operator:]

Your next question comes from the line of Jack Yang from T.H. Capital. Please ask your question.

[Jack Yang:]

I have a question about the competition in the new home sales markets. So since we’re seen new business model so what about the [take rate] now and can you give us more color on the metrics of new home sales in major cities for example how many units you would sell in the first tier and second or third tier cities, thank you.

[Hua Lei:]

Hi Jeff, your question is about the new home buyer sales right?

[Jack Yang:]

Yes.

[Hua Lei:]

Yes, for the new home buyer sales in quarter 3 we sold over 29,000 units which is -- in our own agent we sold over 21,000 units, so. As our agents number is somewhere 70% of total number which is higher than quarter 2 and also I think you know because from September we begun to offer SouFun home now in most of the cities which actually is giving more repaid to our home buyer, whether they do transaction with us and also in some projects we reduced our commission fee to gain more market share from the [indiscernible], actually we are seeing some decline our commission fee you know that sales business.

[Jack Yang:]

Okay, so I have a follow up about your Internet financial services, so how much of this associated with the secondary transaction because I know some products are related to give loans to the secondary home buyers.

[Hua Lei:]

Actually in terms of the total [lending] a month about 40% is from our service home transaction, 60% is from our new home transaction. New home transaction is mainly [indiscernible] in the second transaction mainly in the original, the duration is around two to three months.

[Operator:]

And your next question comes from the line of Gregory Zhao from Barclays, please ask your question.

[Gregory Zhao:]

Thanks for taking my question and congratulations on the healthy progress of the e-commerce business and acquisition of Wanli. So my first question is about Wanli. So we think we adopted a very negative structure to acquire the company and we think doesn't want to confirm how we get 100% approval from the government or from the security regulatory commission as given that structure actually is, I think is oversea listed companies controlling Asia listed company as well as controlling China advertising, Internet advertising business as well as timeline to complete the transactions. So this is my first question, thank you.

[Hua Lei:]

Hi Greg, yes, for your first question actually we are now in the process to gather [indiscernible] actually from the [regulating] bodies, actually I think it will take like around six months for us to get the approval if successful, actually I want to say you know SouFun's you know model or SouFun's acquisition which is not totally new I mean in China Asia markets if you look at a Hong Kong list company called [indiscernible], actually [indiscernible] part of its business to [indiscernible], actually [indiscernible] listed company. So Hong Kong you know this company is the majority shareholder of list in Asia, [certain] company. So actually I would say you know [this] actually you know is not [new] in China Asia markets so we are quite positive and confident to get approval from the [indiscernible].

[Gregory Zhao:]

Thank you, my second question is about our e-commerce services, [indiscernible] understanding the current industry, the competitive landscape in different tier cities like mainly for tier 1 and tier 2 cities such as our current market position, our ranking and our market share, for example in Beijing, Shanghai, Chengdu, Chongqing. And I have another follow up question thank you.

[Hua Lei:]

Greg you mean our new home or…?

[Gregory Zhao:]

For resale for the secondary market…

[Hua Lei:]

For the resale market actually currently you know our [several] home you know transaction business has already covered over 28 cities across China. We have seen you know in many big cities like Guangzhou, Chongqing, Yuhan, we are number one there and recently also we become number one in Nanjing and Suzhou and going forward we believe you know we'll be more number one in more, definitely we are gaining the market share in most of the cities. Although, we are non-active in tier one cities like, Beijing and Shanghai. But we are working always we believe definitely while we’ll have more market share in tier one cities as well in the future.

[Gregory Zhao:]

My last question is also about ecommerce, just wanted to understand our current efficiency of our sales team, for both the primary market and the secondary market. If that’s right, how many transactions we can deliver each month that would be very helpful? Thank you.

[Hua Lei:]

For our direct sales in the new home market the efficiency rate is two units to three units still within this range. But after we launched SouFun home buyer strategy since September, actually we’re seeing more -- I mean the efficiency is actually is increasing, and our agents are able to sale more units than before. Also for our secondary business, we’re seeing our efficiency rate decline a little bit comparing to quarter two and this year. In quarterly sale, our efficiency rate is around 10.8% to 10.9%, because aggressive expanding our business, we do see some decline in our efficiency rate. Currently, I’d say it’s little bit below the 0.8% unit pricing from us.

[Gregory Zhao:]

So, what’s the industry average numbers like our competitors can deliver 0.5% or 0.4%?

[Hua Lei:]

Industrial averagely is like 0.3% to 0.5% some good agents doing 0.4% to 0.5% unit prices per month. So in away, our efficiency rate is a little bit lower than last quarter, still we actually stubborn [ph] our competitors in the market.

[Operator:]

And we have a question from the line of Cheng Yang from CICC. Please ask your question.

[Cheng Yang:]

I have two, the first question is actually a follow up question on your existing home direct sale. What does SouFun could break even on this business, hinges upon two things; first, how much agency efficiency could get from current levels; and what kind of take rate could be ultimately achieved. So, for efficiency gain and the take rate hike, which one do we think is more achievable? And could you share with us some tangible plans you are doing and/or you have in mind that could put SouFun closer to a breakeven point? And that was my first question, and I have a follow up. Thanks.

[Hua Lei:]

Actually you are correct. We have two way to as a little to breakeven on net profit in its business. The first one, the first definitely is the take rate or it means our commission fee plans and our value added services fee as more than just management in the call, probably we’ll keep our commission fees still at still competitive. And we are going to put and charge different value added services on top of the commission fee as we just did last month. Going forward, probably our take rate, actual take rate, will be from 1% to 1.5% in the future. Also in the meantime, we want to and we are increasing our efficiency rate. Currently still is below 1%. We believe with better management and with stronger system and more transparent initiative base, we are able to increase our efficiency rate from 1.5 units to 2 units per month, which seems achievable for us, I think. Thank you.

[Cheng Yang:]

Just one quick follow up. When we’re talking about possible 0.1 to 0.15 high in the take rate are we going to do it explicitly? Meaning, are we going to announce officially announce another maybe 0.1 value added service fee or we just going to do it more implicitly? And also, could you share with us for this potential take rate high, are we going to see next year or it’s more of a long term goal? Thank you.

[Hua Lei:]

I will say, we are working only is actually, we are offering a new service called [indiscernible] the home buyer actually because for the home buyer if they want to apply you know the mortgage from the commercial banks they need to get a valuation report by offering new service we are charging from RMB1,000 to RMB3,000 per report. This is kind of [indiscernible] we're going to start it so then you're going to see more and more you know such kind of you know service from us, so I would say it's not a long term goal, we're working on it [everything]. Thank you.

[Cheng Yang:]

Okay, that was very helpful, I just have one small question, on your GMV numbers, I noticed that this quarter we didn't breakdown the GMV for the secondary home. Could you just share with us what percentage of the secondary home GMV were actually coming from the direct sales business? Thank you.

[Hua Lei:]

I think the direct sales GMV is you mean for the new home or for secondary home.

[Cheng Yang:]

Sorry, for the secondary home. Because last quarter we actually break down secondary home into direct sale and rental but this quarter we just put one number in the announcement, could you breakdown for us if possible, thank you.

[Hua Lei:]

The sales in the secondary home is over I would say 30, let me check it, yes, the secondary home is 51% of our total GMV.

[Cheng Yang:]

I think Vincent just said 90% will roughly be this direct sale and about less than 10% would be actually rental business.

[Hua Lei:]

Yes, if we include a new home that is over 90%, I dropped it which is for the total home transaction.

[Vincent Mo:]

Yes, for the total GMV about 51% comes from the resale market transactions and within the secondary home about 90% comes from the transaction, resale transaction and about 10% comes from the rental sector.

[Cheng Yang:]

Perfect that's very clear, thank you, I jump back to the queue, thank you.

[Operator:]

And we have a question from the line of Ravi Sarathy from Citi, please ask your question.

[Ravi Sarathy:]

Thank you, Vincent and team congratulations on the strategic progress in the quarter. I have two questions, the first question is focusing again around the e-commerce business, but from a slightly different perspective. I was wondering if you could give us a breakdown actually you saw from total headcount and how much of that to the e-com business right now and how you expect that to evolve roughly over the coming quarters if you can give us some rough color around that. And my second question is really focusing on the old core business you know the marketing services business. Clearly marketing services has faced some challenges for a number of reasons in the market. I was wondering if you could give us some color around you know the secular break opportunity for the market that you see over the medium and longer terms regardless of property cycle but also what you expect to see happen to those marketing services revenues you know over the coming year or two if possible. Just any rough ideas in terms of the key the key variables driving that. Thank you.

[Hua Lei:]

Ravi, this is Lei. Actually I want to answer your first question related to headcount for our e-commerce you know business. If we include you know our ad sales, our resale transaction business and the rental and the home decorating totally you know our e-commerce sector has over 35,000 people in quarter three. So I would say over 70% of you know those 35,000 people they're you know our salespeople, agent people in that. What's your second question, it was…?

[Ravi Sarathy:]

Yes, and how do you expect clearly you're expanding very-very quickly, how do you expect that 35,000 people to grow over the coming quarters, do we, should we still expect to see aggressive growth in terms of your expansion there.

[Hua Lei:]

Yes, as we mentioned before and also in the press release we were keeping expanding you know quickly because also you know 35,000 people you know is a big number for the company. But if we can add it to the traditional agent companies like HomeLink, HomeLink you know in Beijing, one city that have like over 20,000 people there and our 35,000 people are all across 28 cities in China. So definitely even our efficiency rate is much higher than those traditional insurance companies, we still need to have more people in most cities, I think. So, definitely we are keeping expanding our peoples in quarter four and in next year.

[Ravi Sarathy:]

And my other question was around the marketing services revenues, the old core business. What’s your expectation for resumption of growth from that segments, how much of the challenges that we’ve seen there to the market in terms of growth really comes from the cyclicality of the property space, the underlying property market, and how much secular growth do you think there is? So, do you expect to see a return to growth from the marketing services line in the medium and longer term?

[Vincent Mo:]

Ravi, this is Vincent. It’s my personal belief the marketing services should be very durable and sustainable, going forward. And there is a need and the permanent need in my thinking that the property market in-needs marketing services in the past now and into the future. So, I think that is definitely a durable business going forward. And although, currently, in the past couple of quarters, our marketing services has been slowing down, but it’s my belief it’s going to be stabilize and come up with a relatively low double-digit growth annually going forward. The current situation, the slowdown, I think its two reasons behind; one is the market itself, China’s property market has been under pressure across, especially those tier two, tier three, tier four cities, and tier one cities, are still in a very good position. That’s one of the reasons; and the second reason is really the new model like our ecommerce model across the new home sector, our transaction model has been becoming effective and highly recognized by developers. So, this new model is taking away some of the marketing service fee from the developers. So, that’s another reason. When this new home transaction model or ecoms model keep them going up, and I think buying by developers are going to be recognize, the marketing services are going to add enough value to the transaction elsewhere. So at that point, our marketing services will be back on track. So that’s my simple judgment.

[Operator:]

And we have a question from the line of Jonathan Seller from Citigroup. Please ask your question.

[Jonathan Seller:]

I just have a question, a general question, on the secondary market. What proportion of the units that you are selling there would you categorize as nearly new units? In other words, perhaps, things which have been put on the markets by developers, say 12 months previously? And what you’re now being sold into the secondary market?

[Vincent Mo:]

I am sorry, could you repeat the question?

[Jonathan Seller:]

Yes, it’s just a general question about the secondary market. I am just curious as to what proportion of the units that you’ve been involved in selling there, have been -- are basically nearly new properties, properties perhaps that were sold by developers 12-months previously and then have been put on the market? And also linked to that, how many of the units, which you deal with on the secondary market, are being sold? Are you handling multiple properties for one seller, please?

[Vincent Mo:]

Frankly, you have a very good question. But we need to dig into our data to find out those equivalents in new properties to be sold by us. We need to dig into our number to find those. In Chinese we call it sub-new [foreign language], sub new properties. We don’t have that number directly in front of us.

[Hua Lei:]

Just one comment from me is because in China generally the new properties they won’t get the fund [ph], I mean the properties certificate after one year. So in practice there are no many newly -- property for sale in the market because….

[Vincent Mo:]

Within 12 months…

[Hua Lei:]

Yes, it was in 12 months, because you cannot do the type of transfer in government….

[Vincent Mo:]

The second part of the question, whether there were property sellers sustaining multiple properties, we have seen those property sellers-owners, but frankly not at a very high percentage.

[Operator:]

And your next question comes from Hillman Chan from Macquarie, please ask your question.

[Hillman Chan:]

Hi, thanks for taking my question. I have a question regarding the internet finance product again. What's the percentage of their home -- direct cellphone transactions. And also using your own internet finance product and how do we go about lifting the bundle ways of that. Thank you.

[Hua Lei:]

Actually you're talking about the commercial rates you know from our [indiscernible] transaction to our internet financial services. Currently you know our [indiscernible] still is very low I would say for the new home it's lower than 3% actually. The market share you know average rate is around 10% if you look at you know what are units you know number, so certainly you know we're still you know [indiscernible] big room to grow our business this part of business so going forward you know in our financial activities we'll work more closely with our transaction team to increase our commercial rates.

[Hillman Chan:]

Okay, I just wanted to understand bit more [indiscernible] as to how lift it up more effectively, I mean how can we attract home buyers on our platforms to also use the product, the internet finance product of our from us [indiscernible] the other platforms, thank you.

[Hua Lei:]

I would say firstly we want to keep you know our interest rates you know at a little bit, very competitive I would say rate in the market, comparing to ours lenders, currently we are charging you know 10% to 12% annually in our new home down payment loan which actually is much lower than the market rate. Also, you know we are giving out more incentive to ourselves, if they can achieve higher commercial rate, then certainly also, we'll also have some you know penalty or punishment if you know one of the agents they [indiscernible] to a good commercial rate.

[Operator:]

We have a question from the line of Evan Zhou from Credit Suisse, please ask your question.

[Evan Zhou:]

Hello, good evening. Quick follow up on the future corporate structure of our company after the [indiscernible], I think assuming the deal went through smoothly we'll be having a like [indiscernible] like more profit for business in Asia company and they will be having like a more forward looking growth in the, mainly [indiscernible] in the parent company, as a company and both these companies will have like a little different shareholder structure. So I was wondering like maybe [indiscernible] how do you plan to kind of spend your time between these two second business option if [indiscernible] completed. And how do you see if there's any potential conflict of interest between the different set of shareholders from the profitable Asia companies versus the [indiscernible] U.S. listed company, how do you tend to kind of align these [indiscernible]. That's my question, thank you.

[Vincent Mo:]

Thank you for the question, it is a challenging question for me myself how I'm going to break down my time or divide my time among different things within the SouFun umbrella. But first of all, you know the holding company, the SouFun our company is going to have a 70% of the Asia company. 70% is a high percentage, we want to make sure that these two companies can work together in a very good way with a very good synergy so that it's you know they can benefit from each other, so that's for sure. But secondarily you know they are two companies and each of them you know the SouFun NYC and SouFun or the future Asia company they're going to have their own corporate governance, they're going to have their own management team, I think definitely we need to abide by the rules of both stock markets. So that is for sure and within the regulations as permitted by both stock exchanges we're going to work together closely and to make sure the synergy can be effective and we can make the best use of each other to improve the businesses of both companies.

[Operator:]

And next question from the line of Nora Zhang from Merrill Lynch. Please ask your question.

[Nora Zhang:]

I have a question regarding the secondary house transaction business. Just now you mentioned that you achieved number one market share in several second tier cities. I just want to have an idea of what is the number one market share is? Are we talking about above 20%, 30%, or just mid-teens? Because we know that we does have achieved above 50% market share in Beijing. So just want to get an idea of how SouFun is able to achieve in lower tier cities? Thank you.

[Hua Lei:]

Actually, if you look our market share in Guangzhou, we have like over 15% market share in Wuhan and Chongqing [ph], we have around 10% market share in there and also I said in [indiscernible] our market share is closer to 10% as well. As we mentioned, Homelink [indiscernible], there we have very high percent market share. In Beijing probably close to 50%. But this is very special for Homelink in Shanghai market I mean there probably just cannot get such high market share in there. So for SouFun, we think definitely we are able to increase our market share quickly as long as we wait and expand our people and to provide better management system and quality to our agents in the future. Thank you.

[Nora Zhang:]

And can I have a quick follow up, just now you mentioned now you have a higher market share in city, and you also see transaction efficiency increase. Can you just explain what’s the reason behind, and what kind of market share does SouFun try to achieve in lower tier cities?

[Hua Lei:]

Actually in those cities with good market share for us, definitely we’re seeing the efficiency rate is higher than in other cities definitely and our target, for me personally I believe our targeting net leases over 20% market share, which should be at least 20% on quarter four for us. And how to achieve this market share, we think while we’re I there, in those cities, firstly I think the 0.5% commission fee and they are very attractive in tier two cities, because in those cities the market they are more balanced to market in there. It means the balance probably they also have some pricing power there comparing to the tier one cities like Beijing, because in Beijing, it’s a seller market very clearly. Also our teams in those good cities there are very good teams there. The execution is very good because now we think our business model actually is kind of very mature. So the most important thing for the Company is the execution as well as we can execute correctly, we believe we can increase our market share quickly. Thank you.

[Vincent Mo:]

Other than Dr. Lei just mentioned, I think one of the advantages we have is our, we call it platforms, including our apps, our WAP, and our PC-end, the Web sites. The Web sites is something we have and we are making the best use of them, so that we can access to the property buyers much easier and with a high efficiency and we can increase our conversion rate from those visiting our Web site and we can make them a big chunk of them, become our transaction clients. So that’s one thing. Other than that, actually, we have been doing all the transactions, relying our transaction platform, which is the technology platform which is going to support the transactions. And whether it’s our agents or our clients, property buyers and sellers, they’re going to use our transaction platform to complete the transactions. We are now one third done on the road. And going forward, with the improvement of our transaction technology platform and with our better and more visitors to our Web site platforms, and we are sure the efficiency will be much better than we had before and we’re having now.

[Operator:]

And we have a question from the line of Mr. Robert Cowell from 86 Research. Please ask your question.

[Robert Cowell:]

I wanted to ask about the online platforms you just mentioned. Can you quantify any metrics for the usage of your online platforms and then maybe a split of your traffic between PC and mobile as well? Thank you.

[Vincent Mo:]

Yes, we have more quantitative numbers here. We have two platforms, one platform is our traditional you know websites including our APP, apps, and the WAPs and the PC and [indiscernible]. Those platforms, those Internet platforms are targeting at the consumer side so we rely on those platforms to attract visitors which mostly they are buyers and with listing property owners as well, so that's one of the platforms, the other platform is the transaction, technology platform which is for our agents to use so all our agents they have to use our transaction technology platform to finish or to complete the transactions, so those are the two platforms and Lei Hua you may give us some numbers about mobile and traditional PC and,…

[Hua Lei:]

Sure, yes. Regarding to the traffic you know for our platform, actually you know if you look at our MUV the monthly you know unique [credit] actually as of end of September which is 102 million which actually is a record high. For the mobile which is for 60% of our total traffic there, and if you look at the source of the traffic actually you know so final we have like over 50% of organic traffic and we have like around 30% of you know traffic from search engines and others 20%. So actually our [indiscernible] after we launched our [indiscernible] business service including [our sales] in the new home and also selling home transaction, rental transaction actually no service to home buyer to see service. While saying you know our traffic actually is increasing is a very good sign for our platform, thank you.

[Robert Cowell:]

If I could get one more follow up. Of the home buyer traffic, looking at secondary homes what portion of that traffic goes to your in-house sales team as opposed to third party agents that are [listing] properties on your website or approximately?

[Vincent Mo:]

I think as a chunk it goes to you know the visitors, they go to both, go to our direct to sales team, they also go to our third party clients, you know partners so I think that's the situation but eventually so who is going to close the deal, close the transaction for the visitor or for the potential property buyers or sellers, that's another question. Currently to us, to the direct to sales side our in-house sales side, the conversion rate is very, still very low. It's less than 0.1% you know that's the conversion rate you know from our traffic from the visitors. So this is one-to-one, one way it's good because if we have a big room to increase our conversion rate to add more in-house sales or transactions, on the other hand it is a challenge you know. So how can we increase the conversion rate? So that's something we have been working on.

[Operator:]

And we have a question from the line of Anne Shih from Brean Capital, please ask your question.

[Anne Shih:]

Hi, thanks for taking my question. My first question relates to the capital raises of one billion and four hundred to eight hundred million through Wanli. Could you just describe in more details the plans for the use of proceeds and the timing here. Are there specifically on headcount geographic expansion, product development group loans. And just given the significant ramp in '15 and plans for '16 could you provide any color on when you think the company will have largely established the e-commerce or direct sales infrastructure with upfront investments slowing down? That's my first question.

[Hua Lei:]

Well, first question regarding to the our financing through Wanli you know transaction actually you know we think we will use the new money or the new fund you know to support you know our financial services, firstly, because our finance service is growing very fast and although we'll [also invest] in different financial institutions to gather support, but still we need to inject our own [pricing point] to grow this business so I think the financial service probably will be one of the big yields for our new money, Wanli transaction also our online media services and our research Big Data services. Also we think they have some very good potential for those businesses with the money from Wanli, which we also can grow this business there’s still not room for us to grow this business. Thank you.

[Anne Shih:]

So is there any sense of timing here how the 1 billion will be spent and where it will be focused?

[Hua Lei:]

I think because we expect this transaction will be approved by CFSC around six months. So probably we were saying around 30% to 50% of this money next year to supporting our business.

[Anne Shih:]

I am actually referring to the 1 billion from the recent private placement, just wondering if there is any…..

[Hua Lei:]

….for the IDG and the Carlyle, right….

[Anne Shih:]

Yes, for headcount, yes….

[Hua Lei:]

IDG and the Carlyle, because we adjust rates around $650 million from IDG and Carlyle recently, but we don’t send away -- we are going to burn those money immediately; although, we have some loss in the profit in this quarter, because we are going to increase our take rate in sale home transaction. Also, we are going to improve our efficiency rate. So, we believe we can currently control our loss in first quarter and in next year; those money, that maybe characterize cash and reserve for SouFun, if needed, we are going to spend those money?

[Vincent Mo:]

Adding on Dr. Lei’s comments, I see now we have been growing aggressively into the new home resell, home furnishing and rental, home elsewhere, with the transaction platforms. So we are in 28 cities for the resell market and we are in 11 cities with our rental transactions business. We are in about 19 cities with our home furnishing ecommerce business. So going forward, in the coming months and actually in the coming 12 or even 18 months is, the company we are continue its aggressive expansion into more cities in China. So, to make sure that we can go with the planned strategies we have in place, and we need to have the money there to be ready if we needed, and we’re going to spend the money, to support the growth of the Company. So that is roughly the macro they were planning. How much money we’re going to spend in the coming quarter, this quarter? Based on our current situation, I think the money we have now is more than what we need in the foreseeable future. But with the money there, it’s really gave us confidence and we are fully prepared to grab more market shares, and to be in more cities in China.

[Anne Shih:]

And my second question is related to the listing business. There has just been some volatility in this segment over the last several quarters. How should we think about the drivers, or growth, for the segment going forward? Thank you.

[Vincent Mo:]

I will take this one. The listing services for this resell market is definitely a durable business. And not only our direct to sales transaction, our direct to sales business needs these listing services the industry, or the market, although our third party partners, including our competitors they also need this service in the market. So going forward, this listing business is going to grow. And in the markets as a whole and also for us elsewhere, you have noticed that in the past four quarters, our listing revenue has been fluctuating in a large scale. There is the reason behind it. The reason -- the simple reason is that because we are running two business platforms; one of our own director transaction platform; and the other one is open platform, to all -- to the home market to all other third parties. So, because of our own direct to sales, some of the third parties, our formal clients, they have been adjusting their buying positive toward us but mostly after six months, most of them come back to us so in the past four months we have been adjusting a policy which is you know cutting our price so that we became very attractive to the home market. So after today [we have seen] our prices half done comparing the price we had about a year ago but our subscription clients, the number of subscription clients is the same you know, it's not decreasing [really]. So that's something we are allowed to have so that into the future we still have the same or even more clients sticking to us. So we can adjust the price accordingly into the future but at this moment we will not have a price adjustment in the coming months or by the end of the year. We may do some adjustment beginning next year.

[Operator:]

And we have a question from the line of Ming Xu from UBS, please ask you question.

[Ming Xu:]

Thanks Mo, and Lei, Guan. So I have three questions, first is regarding the Wanli deal, so to be specific on the regulatory procedures or risks, so is this deal involve any teardown of your VIE structure or is it basically will be conducted on the -- through the -- through your onshore entities. And also if the Wanli company do they need to get another ICP license to do the online advertising business and if so how are they going to do this because they will be, I think they will be treated as a foreign controlled company and that could be a risk. And also regarding this deal, we know that in Asia this kind of backdoor lifting deal there's a lot of -- usually there's [ratchet term] so will there be one here and does it have to be approved by the -- by SouFun's the U.S. listed companies shareholders or Board. Thanks, this is my first question.

[Vincent Mo:]

Yes I think we just defined the framework agreement with Wanli so that SouFun can have 70% of Wanli's share, a very -- [a big] of majority control of the Asia company, so with some preliminary terms are determined there, as you know in all of this must be approved by China's regulated authorities including the -- its security regulation authority also China's Internet regulating authorities. We are sure that the transaction we are planning to do is in line with China's regulations. Of course going forward definitely we need to work through all the regulation authorities so that we can get approved one after another, so that's the current plan going forward with the Wanli deal, [Lei Hua] you want to add something on?

[Hua Lei:]

For the question about the [value] structure actually you know we don't have [value] structure in Wanli's transaction, as you know, Asia does not allow the value structure so.

[Vincent Mo:]

We're using the onshore company to be shareholders of Wanli.

[Hua Lei:]

But that's no [substantial] normal pass to get a new entity in Wanli in the future.

[Ming Xu:]

And my second question is regarding your headcount, so you just mentioned you have 35,000 people in the e-commerce business. So could you break that down by the major segments like rental, direct sales, primary home direct sales and also existing home sales, particularly for the rental business as we know you recently lay off some people because of the faking orders and so how do you expect the growth of that rental business in the next few quarters, will it slow down significantly or will it resume growth going forward, thanks.

[Vincent Mo:]

I would say roughly you know about half of those people they are in -- [staying in several home transaction] apartments.

[Ming Xu:]

You mean half of that 35,000?

[Vincent Mo:]

Nearly, yes.

[Ming Xu:]

Okay, and what about rental.

[Vincent Mo:]

Rental I would say, the number is similar to last quarter if I remember correctly.

[Ming Xu:]

Okay, and your future plan for that or you expand aggressively.

[Vincent Mo:]

Yes, I think we're still in you know keeping expanding our rental business in the future.

[Ming Xu:]

Okay, so my final final question, very small question. So basically I noticed that you mentioned in your filing in your press release that you recently bought a new office headquartered in Beijing. So could you give us more information on that? And also I think one of the -- if you compare your online agency business model with the traditional agency model, one of the cost advantage is that you don’t really need that much fixed asset, or physical offices. But with this new office, does it hurt that value proposition? Or what’s your comment on that? Thanks.

[Vincent Mo:]

Currently, we have about 6,000 people in Beijing. And it’s projected we are planning to have double that inner resource in Beijing. With Beijing as the headquarter of the whole nation, with our aggressive expansion across new resell rental home furnishing and all of the sectors, we’re expecting -- we’re going to have more people in the headquarters to support the global -- actually the whole country’s expansion. Other than that, Beijing alone the market is very big and our competitors spots is now about eight times more than what we have with our transaction agents. So, we’re expecting to grow aggressively in Beijing, as well. So we need facilities to support both of our headquarters demand and also our Beijing markets demand.

[Operator:]

There are no further questions at this time. Please continue sir.

[Hua Lei:]

Okay, thank you, operator and thank you everyone for joining us today. So there is no more questions from the company.

[Vincent Mo:]

Okay, thank you everybody. And have a good morning or good night. Thank you. Bye-bye.

[Operator:]

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