Fang Holdings Limited
Q4 2015 Earnings Call Transcript

Published: 25 Feb 2016

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Q4 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]. Please not this call is being recorded today on 25th of February, 2016. I would now like to turn the call over to your speaker today, Mr. Kent Huang. Please go ahead sir.

[Kent Huang:]

Thank you, operator. Hello, everyone and welcome to Fang’s fourth quarter and fiscal year 2015 earnings conference call. I am Kent Huang, Fang’s CFO. Joining today with me is 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 will make forward-looking statements, statements that are not historical facts, 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 [ph] assumes no obligation to update the forward-looking statements in this conference call and elsewhere. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC, including our Form 20-F. Now let's look at the numbers. Fourth quarter 2015 results, revenue, Fang reported total revenues of $300.7 million for the three months ended December 31, 2015, representing an increase of 34.8% from $223 million for the corresponding period in 2014, primarily driven by the growth in e-commerce services, partially offset by the decline in marketing services and listing services. Revenue from marketing services was $83.0 million for the three months ended December 31, 2015, a decrease of 10.0% from $92.2million 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 $174 million for the three months ended December 31, 2015, a 76.1% increase from $98.7 million for the same period of time in 2014, primarily due to the growth of the direct sales services for new home, the growth of the real estate brokerage services for secondary home and the growth of the rental, as well as rapid growth of the home decorating services. Revenue from listing services was $22.3 million for the three months ended December 31, 2015, a decrease of 11.5% from $25.2 million for the corresponding period in 2014, primarily due to our reduction of unit price per paying subscriber. Revenue from financial services was $15.6 million for the three months ended December 31, 2015, an increase of 590.6% from $2.7 million for the corresponding period in 2014. Fang began to offer 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 $5.9 million for the three months ended December 31, 2015, an increase of 28.7% from $4.6 million for the corresponding period in 2014, primarily due to the rapid growth of our research related products. Cost of Revenue. Cost of revenue was $218.4 million in the three months ended December 31, 2015, an increase of 411% from $42.7 million for the corresponding period in 2014. The increase in cost of revenue was mainly attributable to increased staff. In addition, increased e-commerce cost included potion 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 27.4% in the three months ended December 31, compared with 2015, 2014 over the same period of time was 80.8%. Operating Expenses. Operating expenses were $114.9 million for the three months ended December 31, 2015, an increase of 57.8% from $72.8 million compared to the fourth quarter of 2014. Selling expenses were $81.3 million for the three months ended December 31, 2015, an increase of 70.9% from $47.6 million for the corresponding period in 2014, primarily due to increased expenses paid to our advertising and promotional expenses and depreciation expense. General and administrative expenses were $33.6 million for the three months ended December 31, 2015, an increase of 33.2% from $25.2 million for the corresponding period in 2014, primarily due to the increased operating lease and increased professional service fee. Operating Income/Loss. Operating loss was $32.6 million for the three months ended December 31, 2015, compared to operating income of $107.6 million for the corresponding period in 2014. Income Tax Expenses was $7.5 million for the three months ended December 31, 2015, compared to income tax expenses of $23.6 million for the corresponding period in 2014. Net Income/Loss and EPS. Net Loss was $38.8 million for the three months ended December 31, 2015, compared to net income $82.5 million for the corresponding period in 2014. A $0.44 and $0.09 loss per fully-diluted ordinary share and ADS, respectively, for the three months ended December 31, 2015, compared to $0.94 and $0.19 for the corresponding period in 2014. Adjusted EBITDA. Adjusted EBITDA, defined as non-GAAP net income before income taxes, interest expenses, interest income, depreciation and amortization, was $25.0 million loss for the three months ended December 31, 2015, compared to $112.2 million income for the corresponding period in 2014. As of December 31, 2015, Fang had cash, cash equivalents, and short-term investments of $880.5 million, compared to $622 million as of September 30, 2015. Net cash used in operating activities was $31.6 million for the quarter ended December 31, 2015, compared to net cash generated in operating activities of $5 million for the same period of time in 2014. The decline in cash flows from operating activities was primarily due to a $37.1 million decrease in cash flows due to the increase of loans receivables provided to home buyers under our financial services program and 21.1 million increase in cash flow due to increase of customers' refundable fees, which was partially offset by the increase in defer revenue of 35.0 million in the first quarter of 2014. For the Fiscal Year 2015 Results. Revenue, Fang reported total revenues of $883.5 million for 2015, representing an increase of 25.7% from $702.9 million for 2014, primarily driven by the growth in e-commerce services and financial services. Revenue from e-commerce services was $474.8 million for 2015, a 94.3% increase from $244.3 million for 2014. The growth was primarily driven by the fast growth of our new e-commerce business. Revenue from financial services was $29.6 million for 2015, an increase of 814.2% from $3.2 million for 2014, primarily due to the rapid growth of our financial services and research related products. Revenue from other value-added services was $21.4 million for 2015, an increase of 40.9% from $15.2 million for 2014, primarily due to the rapid growth of our research related products. Cost of Revenue was $555.4 million for 2015, an increase of 281.1% from $145.7 million in 2014. The increase in cost of revenue was mainly driven by our new e-commerce model, increased staff costs, as well as the increase in VAT taxes and surcharges. Gross margin was 37.1% for 2015, compared to 79.3% for the corresponding period in 2014. Operating Expenses were $362 million for 2015, an increase of 45.7% from $248.4 million for 2014. Selling expenses were $236.6 million for 2015, an increase of 60% from $147.9 million for 2014, primarily due to the new e-commerce model, increased advertising and promotional expenses and staff cost. General and administrative expenses were $125.4 million for 2015, an increase of 24.7% from $100 million for 2014, primarily due to the increased staff costs. Operating Loss was $34.5 million for 2015, compared to operating income of $309.5 million for 2014. Income Tax Benefit was $5.9 million for 2015, a decrease of 107.2% compared to $81.6 million of income tax expenses for the corresponding period in 2014. The income tax benefit was primarily due to the reversal of withholding tax arising from the undistributed earnings. Net Loss attributable to Fang's shareholders was $15.2 million for 2015, a decrease of 106% from $253.2 million for the corresponding period in 2014. A fully diluted earnings per ADS was loss of $0.04 for 2015, a 133.1% decrease from income of $0.57 for 2014. Adjusted EBITDA, defined as non-GAAP net income before income taxes, interest expenses, interest income, depreciation and amortization, was $9.6 million loss for 2015, a decrease of 102.9% as compared to $333million income for 2015. Cash used in operating activities was $165.4 million for 2015; a 177% decrease from $214.4 million for 2014.The decline in cash flows from operating activities was primarily due to a $240.7 million decrease in cash flows due to the increase of loans receivables provided to home buyers under our financial services program in 2014. Business Outlook. Fang estimates its total revenue guidance for 2016 around $1,060.2 million [ph], representing a year-on-year increase of 20%. This forecast reflects Fang's current and preliminary view, which is subject to change. Adoption of Repurchases Program. The Company also announced that it has adopted a share repurchases program pursuant to which the Company may elect to repurchases, issued an outstanding American depository shares of the company within aggregate value of no more than 200 million within a period of 12 months. The resignation of Richard Jiangong Dai, the Company also likes to announce that Mr. Richard Jiangong Dai resigned from his position as a member of the Board of Director. He plans to focus on other professional commitments. Thank you for taking time to join us today. And we will now open the call for your questions. Operator, please go ahead.

[Operator:]

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

[Hillman Chan:]

Thank you, management for taking my question. My first question is about the headcount plan for 2016. Could management share with us for like various segments within direct sales, including primary, secondary, rental, and operation? How do you want to like do with the headcount this year? That's my first question.

[Vincent Mo:]

So, you’re asking headcount plan for 2016 for this coming year?

[Hillman Chan:]

Yes. But do you have a sense on which part of business you are going to focus more resources on and which part you are going to trim a little bit?

[Vincent Mo:]

Right. At the end of last year our total headcount standing at roughly 40,000 people, so in the coming years in 2016 our focus obviously will be the secondary direct sales. So we – of course we are looking at the market conditions, but I think that’s the focus. We are going to add the people that’s needed today section, but for other business we are doing the optimization, so from time-to-time we are going to monitor the market condition and of course but secondary direct sales is to going to be our focus in this year.

[Hillman Chan:]

Okay. Thank you. And my second question is related to the user traffic to the website. I think the user traffic right now is flat or down slightly, partly due to the listing businesses slowing down and then customers are not coming to our website as much as before. What’s your thought on this one and is there any plan to boost -- better the user traffic?

[Vincent Mo:]

Yes. Well, actually, our traffic is kind of very stable in the past years, but actually it’s going up especially recently, especially in the second half of last year and early this year. So right now our traffic is in total is over 100 million MAU and this number is actually is increased a lot if you compared to same period of last year. Of course in the mean time we are going to invest in this and through all these kind of channels, but most important is of course is the content of websites we’re going to increase those traffic to our platform, not only our website but also our mobile and its including apps and webs, all these kind of applications.

[Hillman Chan:]

Okay. That’s all my questions. Thank you very much.

[Vincent Mo:]

Thank you.

[Operator:]

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

[Tian Hou:]

Good evening management. The question is really related, again, your secondary home business strategy, so I wonder what are the scenario for this part of the business to be breakeven. And such as you know by how many volumes you sell each month or quarter or how much commission you charge and you can reach a breakeven?

[Vincent Mo:]

This is Vincent Mo. I will pick up this question. Frankly, we don’t have that much detailed number in front of us, but it’s our judgment according to our situation now. And hopefully to the fourth quarter of this year we’re going to be breakeven for the whole company. So that is the last projection from our site.

[Tian Hou:]

Vincent, another thing is as you are moving into transitional business and do you intend to enter a more cities, or you are settled at this point?

[Vincent Mo:]

Expansion is the main strategy of the company. And currently for the resale market we are in 28 cities and we’re number one in over 10 cities now, so after less than one year efforts. We’re definitely going to focus on the major cities for the time being, but expansion as I said is long-term strategy and when the time is ready we are going to expand definitely.

[Tian Hou:]

So, are you planning to raise your commission rate anytime soon?

[Vincent Mo:]

We are – actually till now originally we started with the aggregate commission. We started with 0.5 and then we adjusted up a little bit to 0.7. And actually we have – we’re going to test the new rate starting from, actually several days later March the 1st from 0.7% to 1% in aggregate commission. We are in buy-in-buy, we’re going to refine our pricing mechanism so that we can get to balance in a point.

[Tian Hou:]

Vincent, I have a last question. In Beijing, Shanghai, Lanzhou is quite strong, how close are you with Lanzhou?

[Vincent Mo:]

And the good thing that we are within a year, within 12 months, we are now number three, and a solid number three in both Beijing and Shanghai. I think it’s something I’m proud of. And I’m sure moving forward we’re going to have a bigger and bigger market share of both Beijing and Shanghai markets.

[Tian Hou:]

Okay. Thank you so much. That’s all my questions. Thank you, Vincent.

[Vincent Mo:]

Thank you.

[Operator:]

Thank you. Your next question comes from the line of Ravi Sarathy from Citibank. Please ask your question.

[Ravi Sarathy:]

Vincent and management, thank you very much for the chance to ask a question and congratulations on the strategic confirmation which you’re undergoing which is remarkable. My first question is, I was wondering if you could give us a little bit of commentary on your view of headcount in Greece and how many people you think you’ll add over the course of the next two, three quarters? My second question is around market share on the agency business and how do you feel the new business process around moving eyeball [ph] traffic to sale of properties will translate. And I’d love to hear any thoughts you have around that and maybe conversion rates. My third question is around the old card business. And what you have in terms of data for penetration rates of card related transactions totally in the market and what SouFun’s share of that is in the top tier cities? Thank you. Vincent, go ahead.

[Vincent Mo:]

Okay. I will try to answer the first and second and the Kent could you please prepare for the third one. Ravi, as you know, we added about 30,000 people last year. So, from little bit more than 10,000 to over 40,000 people by now. It was a big job for me. Actually I worked a very, very hard, because last year we try to manage this newly added 30,000 people. But good things of that with the people there and with our efforts we are getting a higher and higher market share, so that’s the happy thing we have seen. So going forward this year, we’re going to keep the momentum going on and we’re going to – definitely, to continue and deepen our transformation especially in the retail market. So, we are going to add people from now on. I think to the end of this year. How much people we’re going add? I think from 10,000 to 20,000 conservatively that’s something I’m very confident now. And we may add more with the business expanding. With respect to the second question about the market share, right?

[Ravi Sarathy:]

Market share.

[Vincent Mo:]

Right. Could you add something you have the numbers there.

[Kent Huang:]

Okay. The market share is we – our revenue, total revenue coming from Tier – revenue coming from different churn of cities and for Tier 1 is we are accounting for like 35% of total revenue is coming from the Tier 1 cities and Tier 2 cities where we are having probably 37%, because we have one thing here is about the market shares in e-commerce centers.

[Ravi Sarathy:]

Understood. Thank you.

[Kent Huang:]

Okay. Thanks.

[Ravi Sarathy:]

Just a quick follow up. I know that your strategy is fairly unique in that you're taking eyeball traffic from the number one property portal in China; and you're converting that eyeball traffic into potential sales for properties, either on the primary side or the secondary side. You also have a side strategy which is around e-commerce for everything which is property related. Can you give any more color around potential property related e-commerce, as well as potential e-finance which relates to e-commerce? So it could be peer-to-peer finance for properties. It could be loans for property related. I was wondering if you had any broad and generic color around your strategy in that area, Vincent?

[Vincent Mo:]

Yes. Well, there are – certainly there lot of other value added services we’ll be able to provide in these two services value chain including for example value property, valuation services, we’ll be able to provide on top of the financial services you just mentioned, and there other certain kind of services where we will able to looking at.

[Ravi Sarathy:]

It’s very helpful indeed. Thank you very much.

[Vincent Mo:]

Thank you.

[Operator:]

Thank you. Your next question comes from the line of Dick Wei from Credit Suisse. Please ask your question.

[Dick Wei:]

Thank you for taking my questions. I just want to, if you can, just talk about your full-year guidance of around 20% growth. How should I be looking at some of the revenue breakdown between different revenue lines? And so that's the first question. And second question is basically with this assumption what kind of GMV growth. Do we expect to see for the Company in 2016? Thank you.

[Vincent Mo:]

Yes. We are looking at, right now we have guidance like 20% for the top line and this is obviously number we think is going to be very reasonable and to be conservative at this point of time. And then, as you might aware lot of the growth for Fang today is actually coming from e-commerce business. So we are looking at the growth from secondary and primary direct sales including the home decoration services as well. So coming into 2016 I think our key growth drivers is going to be the new e-commerce business, but at the mean time of course our marketing service, testing services and financial services is actually pretty stable. The one thing I want to point out is actually our financial services, which is already closed pretty quickly in the past couple quarters because we do have a value chain of transaction. So that’s one of the reason and one of benefit we enter into transaction models.

[Dick Wei:]

Okay. I see. And maybe, I guess Vincent earlier mentioned about maybe just like a ballpark figure that we could be seeing like roughly breakeven by Q4. I wonder if you just narrowed like roughly what kind of the commission rate that we expect to see, or what kind of the cost of goods sold or kind of cost of services that we need to incentivize our 40,000, 50,000 people team, just a rough kind of estimation will be helpful. Thank you.

[Vincent Mo:]

Dick and -- it is Vincent. The commission rate for the resale market, we are expecting that it will be at 1% traction and we are going to start it testing from this coming month, March and hopefully, we can fully in charge of this 1% commission from quarter two on. We don’t know what or when the adjusted rate further into the future but it’s my judgment that the balance commission rate, I think a reasonable market rate to protect both the seller and the buyer is probably around 1% to 2% from 1% to 1.5%. I think the commissions selling in this China market will probably be 1.5%. So, we are going to be in that range from 1% to 1.5% going forward. So, I think with that commission in mind, specifically for our resale market, I think we can profit from our operations. And for the whole company as I mentioned, hopefully by quarter four that we can make the whole company back to profit again.

[Dick Wei:]

Got it. Thanks a lot, Vincent. Thank you.

[Vincent Mo:]

Thanks.

[Operator:]

Thank you. Your next question comes from the line of Vivian Hao from JPMorgan. Please ask the question.

[Alan Hellawell:]

Hi, Vincent and Kent. This is Alan asking on behalf of Vivian. I have a question on our financial services. So just wondering could you give us an update on the adoption rate of our financial services in our e-commerce transactions and I remember last time you mentioned it’s about 5%? So could you share the latest number and our target by the year end? And also could you elaborate how we are going to streamline our internal incentive mechanism for our sales force to drive up the adoption rate going forward? Thanks.

[Vincent Mo:]

Yeah. So let me take the first question about the financial services. Yes, we did provide loan to new properties in resale and our conversion rate for secondary in the Q4 is 6.2%. So it’s a bit higher than what we have in the past because of our direct sales model generating a lot of demand. So on average, over 40% of the clients, especially in the secondary, they need the financial services from a market and of course, we will be able to provide this kind of financial services. So going forward, we think chances are we will be able to increase the conversion rate but in the meantime, risk control is obviously very important to a company too. So, we need to monitor all the collaterals including sellers and buyers, all its filings and credit checks and especially on the property to make sure the transaction goes through for the safety.

[Alan Hellawell:]

Okay. Thank you. Just wondering can you elaborate on how we are going to streamline the internal incentive mechanism to kind of improve the adoption rate?

[Vincent Mo:]

You mean adoption rate about the financial services?

[Alan Hellawell:]

For the financial services? Yes. And how we are going to incentive agents to promote such service to the customers?

[Vincent Mo:]

Yeah. I assume now the adoption rate is still low and our financial services will be mainly for our resale and our new home transactions. So to increase the adoption rate is important for our financial services. So, we have one existing incentive plan for the resale agent to provide leads in a going forward and even to find the measures of this contractor with the property buyers and sellers. We have the incentive plan there already and I think with the progresses, with the volume being bigger from our transactions and our financial services is very important to facilitate those transactions, so the incentive plan will be definitely useful and necessary for both the transaction people and the financial people to work together harmoniously inside this company.

[Alan Hellawell:]

Okay. Thank you, Vincent and Kent. Thanks very much.

[Vincent Mo:]

Thank you.

[Kent Huang:]

Thank you.

[Operator:]

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

[Ming Xu:]

Hello, Vincent and Kent. I have two questions. The first question is about the resale agency business. So first, could you maybe share with us your target, your volume target for this year and also the target efficiency maybe by the end of this year? I guess because you are quite aggressive in Beijing and Shanghai, so you maybe have different efficiency target for Beijing, Shanghai and also for the other cities. Could you also share a bit color on this? This is my first question.

[Vincent Mo:]

We do have an internal target for our resale group and currently, we believe we are mostly -- we are having from 10,000 to 15,000 units a month and hopefully to the end of the month, we can get to a 20,000 unit transaction per month. So overall, if we do very well, we are expecting to have in a 240,000 units done for the resale market. So that is something roughly the talk of the day. It’s not -- it depends on how many people give ad and how efficiency we can improve our online working system because we are doing the agents business. It’s a little bit different from the traditional agency business. We are going to rely on more of our technology platform to do that. So, we hope with the efficiency going up, with the business becoming more mature and we can have a more transaction volume there.

[Ming Xu:]

So can I confirm the 240,000 unit target that compares to around 60,000 in 2015?

[Vincent Mo:]

Yeah. That’s our wish.

[Ming Xu:]

Okay.

[Vincent Mo:]

We are going to work towards that target.

[Ming Xu:]

Okay. Got it. Okay. And also on the resale side, we know that Homelink recently was being kind of investigated by the Shanghai government. I think Shanghai is very important market for you and we share quite big ambitions in this market. So how that will help you to further gain market share in this market?

[Vincent Mo:]

We are number three in Shanghai and we are number three in Beijing too. So, Beijing, Shanghai market is very important to us and as I mentioned, we are a newcomer to this business. We are an Internet company using Internet as a tool to efficiently do this traditional business, so that’s a longer term goal of the company. What we do really, we want to, as a public company, we are going to make sure everything’s right, everything’s legal, everything’s transparent and we are going to have the information transparent to both sellers and buyers and we are going to make sure the listings are correct and they are true listings. So, I think with all of these good services and also the tools technology platforms there, I think we can do a much reliable, credible and a successful transaction in the market. So, we believe that this new model and eventually is going to be adopted by the market.

[Ming Xu:]

Thanks, Vincent. My last question is about the Wendy transactions. So could you maybe update on this one, the latest progress? And particularly, I think over the last week there was a regulation by the Chinese government about the online publication rules, which bans the following companies all joint ventures from publishing online. Will this particular regulation affect the Wendy deal? Thanks.

[Vincent Mo:]

I wish we could answer you this question. Our lawyers banned us from commenting on this transaction and when it’s ready we will definitely let you know.

[Ming Xu:]

Okay. Thanks

[Vincent Mo:]

Sorry

[Operator:]

Thank you. The next question comes from the line of Nora Zhang from Merrill Lynch. Please ask your question.

[Nora Zhang:]

Hi. Good evening, Vincent and Kent. Thank you for taking my questions. I have two questions. The first one is about the home furnishing business. I noticed that the GMV this quarter was quite flat with 3Q but the business was really growing fast than past quarters. Can you give us more color and the outlook of the business and the long-term profitability of the home furnishing business? And my second question is about the resale on the secondary transaction business. You just mentioned that you are going to raise commissions since March because we noticed that the business was growing very fast in the past two quarters. Did you expect how much is transaction volume to voluntary slowdown due to higher commission rates? That’s my two questions.

[Vincent Mo:]

Let me answer your second question first. I know the answer. Because as you know, the market rate is around 2%. Even if we are only up to 1%, it is still way below the market practice and especially with our many services, supporting services and I believe that more and more buyers and sellers are going to come to us for their transactions. So, I believe this will not be going to affect our growth rates. And the first question is…

[Kent Huang:]

Furnishing.

[Vincent Mo:]

…furnishing business. We are adjusting a little bit about the furnishing model. We are adjusting from a very heavy; we are going to take our risk vulnerability. We are going to take title business to more a kind of over -- we are just going to take the value added service part into our business. So it is an adjustment in our home furnishing sector but we are going to make sure the inspection people stay from us and we are going to make sure the household, they are happy with the decorating profits. But at the same time, we are going to do more rely on our technology platform and make this platform more open platform. We are going to partnership with those decorating workers together to do it. So that’s the -- we are adjusting little bit on this part. But this home furnishing sector, this industry is something huge. It’s always my belief that this sector has a huge potential. For the moment, for the time being, for SouFun resale market for the resale [Indiscernible] market and the new transaction market is as per the core thing of this company. And also with the increase of the volume and the resale market our home furnishing can come up inorder to support or to follow the after the transaction services. So that’s the kind of situation for the home furnishing part.

[Nora Zhang:]

Okay. Thank you. That’s very helpful.

[Vincent Mo:]

Thanks.

[Operator:]

Thank you. The next question comes from the line of Robert Cowell from 86 Research. Please ask your question.

[Robert Cowell:]

Hi, Vince and Kent, thank you for taking my question. I want to ask about the new home agency business. Can you please provide some color on the red-envelope promotion that you have been conducting both in the fourth quarter and continuing into the first? And then what kind of feedback are you getting from developers on this new home agency business, and what’s the trend and the subsidies you are providing to home buyers, and then when you are looking at next year where do you see the margins for the new home agency business? Thank you.

[Vincent Mo:]

You are talking about the home buyer, right.

[Robert Cowell:]

Yes, Red…

[Vincent Mo:]

Currently the new home market you know to me is a very standardised market. And the products, I mean the apartments for fair [ph] the information is very transparent. And its reliable, it belongs to the developer. It’s much simplier comparing to the resale market. So it’s always my belief that the commissioning in the new market should not be higher than the resale market. So that’s why you know we are using this kind of a home [Indiscernible] to make sure the buyer, that probably buyers they can benefit from this buy and this buy end model we are adopting. And by the front [ph] in this new market developers they are much stronger than in the retail market. You know the developers they have a much big power in pricing and they are also mostly involved with the transaction. So to us after one year had passed in the market, I think we are quite sure that we are going to continue our home buy [ph] and so that while with new model selling new homes directly selling new homes can be adopted by more and more developers and also this model is going to be like to buy us by probably buyers I swear. Going forward, I think you know this new home transaction market needs a new model [ph] that is our model and as long as the model is going to be adopted by more and more developers and home buyers and our market this year will increase. So that is really the logic behind my pushing forward of our new home transaction business.

[Robert Cowell:]

Great. And any comment on the margin of that business either in the fourth quarter or going forward where do you think the margins can be?

[Vincent Mo:]

We are having margins, positive margin for the new home transaction business with our solid relationship with developers and also our highly recognized brand among the proud new buyers. And definitely with our tropic [ph] everyday now we have over 5 million to 6 million of liquidators [ph]. So but I would expect that with the adoption rate going up the margin will become higher and higher, so that’s the -- that’s my expectation. But at this -- this is changing you know adoption. It is changing in a margin rate, so the only thing I’m sure is that with more developers and probably buyers adopting our new home direct to sale model and the margin we’ve increased.

[Kent Huang:]

Yes one thing I would add is the model is basically models during the first year and out in the market be familiar with mechanism of our red pocket [ph] system. In the meantime, our in-house agents being able to increase our efficiency with all demands and people and buyers more familiar with these red pockets. But at the end of the day, this red pocket is benefit to all home buyers. So I think that would increase the -- our agents efficiency and through that we will be able to increase our margin.

[Robert Cowell:]

Thank you, both.

[Operator:]

Thank you. Your next question next comes from [Indiscernible] from Morgan Stanley. Please ask your question.

[Unidentified Analyst:]

Hi, Vincent and Kent thank you for taking my question. I have two here. So first one is regarding your breakeven target. At the end of the year, so Vincent you just mentioned that you were breakeven in Q4, so can you give us more colors on the margin of different business lines, especially the e-commerce under the financing new margin when you are break even? Thank you.

[Vincent Mo:]

You know our marketing so with this list and so with this and as far as financial services they are profitable. They have a very healthy margin. And we’re still using money for our retail market and on furnishing that -- business as well. So, by quarter four, I think we are going to have a very -- we are continuing to have you know very healthy margin for the media business listing services and the financial services as well. And the margin for the -- and we hope that we can see some positive sign or positive margin from the resale market. If that’s the case we are going to be you know the whole company will become very profitable again. But I think the whole company as we said the whole company we are targeting to be profitable for quarter four, but for the resale part we are still we are probably still going to have -- in the margin for quarter four. But the lateral margin we are becoming smaller and smaller.

[Unidentified Analyst:]

Got it. Thank you. Very helpful. A quick follow up, I think in 2016 the competition may be will become more intensive than before as one of your biggest competitors maybe [Indiscernible] and maybe increase your investment. But in the meantime, you will increase your commission rate. Do you worry that maybe this strategy will make you lose some market share in especially Shanghai and Beijing and other major cities? So, I think my question is how do you look at the competitive landscape in 2016 and if your strategies will help you to increase your market share?

[Kent Huang:]

I think the market – our market share is still low and there is a big potential there for us to increase our market share. I would not expect that going to be very difficult for us based on what we have now is the very strong app, WAP and the PC website. And also with sales team, agent team online, offline more experienced and adopting of our new model, more mature. So I believe the market share – the increase of market share will not be a problem and especially we’re still charging a lower commission even if we will raise up to 1% its still low comparing to our other competitors. Of course we are watching out carefully all the competition from traditional agency company and from other online companies as well. And we are improving our technology platform, our tools, our internal tools as well, including our service quality plus our value added services from financial services and decorating services as well. So I believe that our market share will continue its momentum of growth.

[Unidentified Analyst:]

Got it. Thank you. Very helpful. The final question is a follow-up regarding the red packet promotion campaign. So can you give us more details to quantify how much we have spent on this promotion campaign so far? And what's the budget for 2016? Thank you.

[Vincent Mo:]

I think last year in 2015 we had about 200 million in total RMB, so called for the home, right?

[Kent Huang:]

Yes.

[Vincent Mo:]

And for this year, we don’t have very exact numbers there. For this year I think we’re sure we’re going to dive in a much bigger number than that amount. And of course this will be based on our transaction volume and our market share with our transaction volume increasing, and definitely we will continue our home buyer plan.

[Unidentified Analyst:]

Got it. Thank you, very helpful. Thank you.

[Vincent Mo:]

Thank you.

[Operator:]

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

[Alvin Jiang:]

Hi, Vincent Mo and Kent. Thank you for taking my question. I've a few questions. Actually, we have seen the China property market is quite hot in the recent months, especially in Tier 1 cities. Do you see any positive impact to your business and share more color on your third quarter operations? Thank you.

[Kent Huang:]

Vincent, you go ahead.

[Vincent Mo:]

Yes. We did see some news came out from the government. They are pushing out new policies to support especially to the primary new home business and sectors industry. So we think that’s good news to the general speaking to the whole market. And Tier 1 cities historically speaking is very good market. And then government is pushing up I think the focus on to Tier 2 and Tier 3, so we see some opportunities in those markets too. So general speaking I think overall the primary market is going to be outfit in these coming years. But of course we’ll need to monitor market closely especially those detailed policies in each local application of central government policies. But anyway, so we think there’s a good sign for the home market but of course in the mean times we need to take a close look at the market and be prepared when the market is good.

[Alvin Jiang:]

Thank you. Quick follow-up is [Indiscernible] 20% year-on-year growth already incorporate business policy?

[Vincent Mo:]

I’m sorry, can you repeat that question again.

[Alvin Jiang:]

My question is for your full year guidance, 20% year on year growth. Does its already incorporate the new and the benefit from the new policies on government?

[Vincent Mo:]

I would say, yes, up to today, but I believe with the changing of the market [audio gap]

[Alvin Jiang:]

Got it. Thank you.

[Vincent Mo:]

Thanks.

[Operator:]

Excuse me. Shall we move to the next question?

[Vincent Mo:]

Yes. Please.

[Operator:]

Sure, sir. We have the next question from the line of Jinsong Du from Credit Suisse. Please ask your question.

[Jinsong Du:]

Hi. Thanks. I just wanted to follow-up on the impact from the policies you just talked about, obviously given your full-year guidance on revenue for 2016. So, what was your assumptions for the growth in the new housing market and primary market? So if you have that assumption. That's number one. And number two, I'd like to follow-up on the competitive landscape as well. I'm sure you read the news that just the past couple of days the City of Shanghai seems to have penalized Homelink early in Jan for doing something that's not entirely according to the regulatory, when they were selling the second homes in Shanghai. So do you see that as an opportunity for you to gain market share in Shanghai, or just because since that governments are taking a close scrutiny on the code of practice of other agencies, you may actually hold back the expansion a little bit. So could you comment on both the policy front, which are linked to your outlook for the whole housing market, and also the competitive landscape?

[Kent Huang:]

And to answer the first question about the policy right and our guidance.

[Jinsong Du:]

Guidance.

[Kent Huang:]

Because it’s similar to the question we talked about right. I think everybody know since that government is trying to make sure China’s general economy not slowing down too fast. In real estate market, real estate industry is a key industry in China which linked to a dozen other major industries elsewhere. So government has been promoting this industry aggressively, frankly than anytime before in my experience in this industry. Especially those cities the third tier and the fourth tier cities like this awarded [Indiscernible], that’s the – that is the policy, it’s not about the market itself, its more kind of a policy already. So frankly, I think this is a good thing for us, for everybody in this industry. But I’m not that kind of rely on this, so far we’re not going to that much rely on this. It’s really to us if the market is not that good, we’re probably will be much better because we have the competitive advantage there. So to us whether the market is very good or is very –as long as not too extreme, it its very, very too hot like if government buys everything from the market will be very bad you know if that’s the case. And if the market are not extreme, if the market is dying without transaction we will also be worried about. So as long as the market is there and the market is – whether it’s little bit tougher or better we shall be fine. And we’re going to penetrate with our new model into the traditional market, so that’s my belief relating to the governmental policies. And you question relates to the competition and the market, the competitors, it’s always my belief that we’re doing everything for consumers. In our market its home buyers and home sellers and we want to make sure everything transparent and we want to make sure the buyers and sellers they know everything before they buy, before they sign the contract, so it’s our way of doing our new online agency business. This is a change to traditional business especially traditional Chinese agency business. As you probably know China’s traditional agency business, it’s not that transparent in the past, and our goal is really trying to make this industry more transparent and to increase efficiency of agents, so that the transaction can made easier not that complicated. So I believe with this in mind and with our technology platform improving and we’re able to have a much better market share.

[Jinsong Du:]

All right. Thank you.

[Kent Huang:]

Thanks.

[Operator:]

Thank you. Your next question comes from George Wang from Goldman Sachs. Please ask your question.

[George Wang:]

Hi. Good evening, Vincent, Kent and [Indiscernible]. Thank you very much for taking my question. My question is related to your – again the transaction retail business, because it seems that you are streamlining some of your transaction business such as rental and home decoration. If I guess secondary transaction will be a key focus going forward. And just on the big picture, you mentioned that you are now already number three in both Shanghai and Beijing which is a very good progress. I believe this is achieved primarily by sales force expansion in the near-term. However, if we think really about the long-term, what do you think are your advantages besides online traffic and also just lower price compared to the traditional agencies? And also in likewise, what do you reckon as your biggest disadvantage compared to them and how do you plan to narrow the gap on that front? And in the meantime, what price you need to pay to achieve that and I have a follow up? Thanks.

[Vincent Mo:]

Well, I think, first of all, we are and we continue to be an Internet company and our people, they are more kind of Internet people. So by saying that, we are going to rely on our websites, our apps, web, pc to attract buyers and sellers. So that’s our advantage comparing to any other potential competitor or existing competitors. Other than that inside this company, as I said, we are implementing a various structure and a disciplined way of doing transacting business for the longer run and make sure that whatever we do is correct, is transparent. So it’s trustworthy to buy, both buyers and sellers. So that’s second. Really other than those two things, I think we don’t have other thing which is superior to our competitors. The website and technology platform, those are good things for us, the tradition of the company to do things for consumers, buyers, sellers and to look into the future in the longer run. So those are the good things about the company, about our strategy.

[George Wang:]

And do you think there are any disadvantages or we are currently at disadvantage compared to the traditional guys and how do you see that?

[Vincent Mo:]

Yeah. We do. One of our advantage is that because we are a very new into this industry, our experiences is not that as strong, I think at this point in providing all stages. So it is although, we are using multinational ways to do it, but still we are accumulating more experiences for going forward. I think fundamentally, all of this said, we are good people. So, I think with that in mind and we can do things good for the consumers and we can improve this traditional business.

[George Wang:]

Got it. And Vincent, you also talked about a lot of improving efficiency using Internet and technology. So do you believe that in the long run eventually, you will have an efficiency advantage over the, say the traditional competitors and if so, how much of an advantage that will be because if you do have like an advantage in efficiency then you can always keep a lower price and then allow these theories to kind of work? But if you do think that eventually, you will still have an efficiency advantage where will that come from? Can you elaborate a little bit more on that?

[Vincent Mo:]

Well, the answer is definitely, we have efficiency advantage, not in the future. Now, we are having the efficiency advantage already. This is my understanding of the industry and usually for the traditional agency business, the agents they can have a transaction for three months. Every quarter then they have a transaction and for us, we can -- every month now we have about 0.7 transactions, 0.8 transaction now for our experienced agents. So our target is really step one, every month, each of our agents is going to have one transaction and the best scenario in our plan going forward is that we want to make sure every agent, they can have three transactions a month, which is about nine times more efficient than the current traditional way of doing this business. So, we got to -- we need to increase the efficiency definitely. Without that, I don’t think we can change this market. We can improve the market efficiency. So, it is my belief that you know going forward, the efficiency will be much higher than the current status and with that in mind [Indiscernible] properties and that’s why we can charge a low interest rate. You know in China you know my understanding, my judgement you might think is really is you know 1% to 1.5% transaction commission is a rational one, is a sustainable one. We don’t need the U.S. Commission rate like 5% to 6%. So that’s my -- that’s really my thinking.

[George Wang:]

Okay. That’s very great, so basically you are saying now we are at 0.7 to 0.8 per agent per month. Now our target is about 3 transactions per agent per month in the long run. And is that correct? And if so, maybe elaborate a little bit more about the role map of how do we get there and when will we get there?

[Vincent Mo:]

I think we -- the traffic, the traffic the [Indiscernible] is very important. So that’s something we are proud of. You know we see traffic keep on increasing you know recently. So that is good. You know think about of that. Everyday we have over 5 million unique visitors. You know it depends on how much we can transfer; we can convert them into real transactions. One percent, you know its big enough and everyday think about that. So we don’t really need it that much of hike of volume rate. So that is one, and secondarily in the profit in the transaction profits we need to do similar to what the banks has been doing. You know we need to set up accounts for the buyer and sellers; they go through the profits through the accounts, through the transaction platforms. That is going to be more reliable to us and for which is going to make sense more transparent and this is going to increase efficiency elsewhere. So those -- and the third thing is really we can you know our people will be getting more experienced and they can, they will be more knowledgeable, so they will become expert sellers. So together, I think we can reach our goal of three transactions per agent into the future, but I don’t know how long this make take, we are going to try very hard to make sure we can get there as faster as we could.

[George Wang:]

Okay. Great. That’s very helpful. Thank you very much, Vincent.

[Vincent Mo:]

Thank you.

[Operator:]

Thank you sir. There are no further questions at this time. I would like to hand over the call back to you speakers. Please go ahead, sir.

[Vincent Mo:]

Thank you so much for coming and join us with us for this conference call. We are looking forward to updating you in the coming quarter’s conference call. That’s all. Thank you.

[Operator:]

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

[Vincent Mo:]

Thank you.