Leju Holdings Ltd (LEJU) 2016 Q1 法說會逐字稿

Hello, and thank you for standing by for Leju's First Quarter 2016 earnings conference call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Please note that today's conference call is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the meeting over to your host for today's conference, Ms. Melody Liu, Leju's Investor Relations. Please go ahead.

Thank you. Hello, everyone, and welcome to Leju's first quarter 2016 earnings conference call. Today, we will update you on our financial results for the first quarter ended March 31, 2016. If you'd like a copy of the earnings press release or would like to sign-up for our e-mail distribution list, please go to our IR website at ir.leju.com.

Leading the call today is Mr. Geoffrey He, our CEO, who will review operational highlights for the first quarter 2016. Ms. Min Chen, our CFO, will then discuss the financial results in more detail. We will then open the call to questions.

Before we continue, please allow me to read you Leju's Safe Harbor Statement. Some of the statements during this conference call are forward-looking statements made under the Safe Harbor Provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations.

Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC. You are encouraged to review the forward-looking statement section of our Annual Report filed with the SEC for additional information concerning factors that could cause those differences. Leju does not undertake any obligation to publicly update any forward-looking statements whether as a result of new information, future events, or otherwise except as required by applicable law.

Our earnings press release and this call include discussions of unaudited GAAP financial information, as well as some unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. Please note that unless otherwise stated, all figures mentioned during this conference call are in US dollars.

I will now turn the call over to Leju's CEO, Mr. Geoffrey He. Please go ahead.

Thank you for joining us on the call today. We are pleased to report another quarter of steady growth as the real estate market in major Chinese cities remained active. Particularly our e-commerce services business continued to deliver healthy growth despite intensive competition. We also saw exciting progress in our secondary listing and home furnishing businesses.

In the primary marketing services, our strong execution and the continued efforts in product innovation widen our lead in the industry as a marketing platform across both media coverage and site visit aspects of the home hunting process.

In April, we were the first platform in the industry to launch a virtual reality showroom experience, and aerial viewing tours recorded by drones, which allowed the home buyers in 12 cities to experience 3-D virtual site visits from the comfort of their homes or conveniently on their mobile devices.

Our focus on leveraging the latest technology attracted many developer clients who recognized the value of our innovative marketing ability for their products. In addition, we launched an upgraded version of our mobile app to further enhance user experience. The new version of this app is one-stop-shop with many user-friendly and useful features, including comprehensive real-time news feed, exclusive free private car site visits, map search on properties and home promotional events.

As our mobile traffic has grown to over half of our total traffic, we believe our new and upgraded mobile infrastructure will allow us to better connect our online content with our offline services and help us capture the growth opportunity.

During the first quarter, we also deepened our cooperation with various strategic partners in product development and brand promotion. Our cooperation with leading mobile platforms, including Toutiao, one of the most popular news apps, enabled us to sell out our content to a broader base of users and strengthen our media influence on the mobile side.

We also refined our cooperation with Didi Chuxing to expand the private car site visit product to Didi stations at various product showrooms. This product brings broad brand recognition to both Didi and the developers, and further encourages the use of our private car product in general. By the end of the quarter, 240,000 orders have been placed to almost 13,000 projects since its official announce in July last year.

In the secondary market, our listing services continued strong growth this quarter. Our verified listing product has generated positive feedback and now has almost 39,000 paying agents in 17 cities where we directly operate. Furthermore, we launched 36 new cities websites for local agents to subscribe to our listing product and received great feedback. We will remain focused on being an online informational platform, which we believe will help us achieve scalability and sustainable profitability in the years ahead.

Turning now to our home furnishing market business. This quarter our home furnishing advertising business maintained solid leadership in the industry and we increased our investment in Qiang Gong Zhang, which is an efficient online platform that connects home furnishing contractors directly with consumers.

Since Chinese New Year, we have hosted numerous marketing events to identify and to bring qualified independent contractors to our platform, offering them an online venue to develop their own brands and expand their business. We also increased marketing spending to raise awareness of the platform among consumers, launching promotions combining direct material sourcing with contractor services to offer consumers dependable, high-quality and low cost home decorating contracts. We are able to achieve this by directly connecting homeowners with contractors and eliminating low value-added agents in the traditional value chain.

By the end of the first quarter, we had more than 29,000 qualified contractors providing customized services directly to homeowners in more than 60 cities on our contractor platform. We are pleased with the progress of Qiang Gong Zhang and will continue to expand this business in more cities and launch new product and services along the value chain.

Looking to the quarters ahead, we expect market competition to remain fierce and the overall real estate market environment to face some uncertainties across the different tiers of cities. However, we will remain focused on delivering the best-in-class marketing solutions to our primary and the secondary market clients through continuous product innovation and cooperating with strategic partners. We also expect to further invest in our contractor platform to grow this business in order to serve the growing population of homeowners and capture opportunities in this large, but under-served, home furnishing market.

Now I will turn the call over to our CFO, Ms. Min Chen, who will review our financial highlights for the quarter.

Thank you, He Zong. Good morning and good evening, everyone. For the first quarter of 2016, we reported total revenues of $113 million, representing an increase of 21% over the same quarter last year. Our e-commerce services revenues was $86.1 million, approximately 76% of our total revenue this quarter, posting a 28% growth from the same period last year. This increase was primarily driven by increases in both the number of coupons redeemed and in the average price per coupon redeemed.

During the quarter, we generated e-commerce revenues from 53 cities across China. Our online advertising services revenues for this quarter declined by 3% to $21.8 million as a result of a decrease in property developer's online advertising demand. Our advertising services contributed 19.3% of our total revenues this quarter.

Our listing services revenues for the quarter increased by 33% to $5.1 million from the same quarter last year. The higher revenue was driven by growth in secondary home sales. Our selling, general, and administrative expenses increased by 31% to $113.3 million from the same quarter last year, primarily due to increased marketing expenses related to the Company's e-commerce business as a result of our efforts to maintain our market share [in an increasingly competitive market] (corrected by company after the call) as well as the promotion of the Company's listing business and home furnishing businesses.

First quarter non-GAAP loss from operations was approximately $7.4 million for this quarter, while our non-GAAP loss attributable to Leju shareholders was approximately $5.3 million.

As of March 31, 2016, our cash and cash equivalents balance was approximately $258 million. For the first quarter in 2016, our next cash provided by operating activities was $1.3 million, mainly attributable to a decrease in unbilled accounts receivable of $6.3 million, a decrease in customer deposits of $9.4 million, an increase in other current liabilities of $6.5 million and a decrease in prepaid expenses and other current assets of $2.7 million. This was partially offset by non-GAAP net loss of $5.4 million, a decrease in income tax payable of $8.8 million and a decrease in accrued payable and welfare expenses of $9.5 million.

At this point, we're maintaining our previous guidance of total revenues of $660 million to $690 million for the full year of 2016, which represents an increase from the [full year] (corrected by company after the call) 2015 revenues of approximately 15% to 20%. Please note, this forecast reflects our current and preliminary view, which is subject to change.

This concludes our prepared remarks. We're now ready to take your questions. Operator, please go ahead.

(Operator Instructions) Hillman Chan of Macquarie.

My question is about the expiry of our cooperation with Baidu. So how should we think about the impact on revenue in the first quarter? And for the related cost saving from the expiry of the Baidu cooperation, how should we look at where these cost saving will go to in the future?

Actually, we closed our almost five year long-term partnership with Baidu, but as you know, that previous partnership was focused on PC resources. But now, actually, we already see most of the increase of the traffic coming from the mobile side. I have to say that the combination of the previous partnership - the determination of the cooperation PC resources, but we still continue, actually, cooperating with Baidu on the mobile side.

And for the cost saving from the Baidu side, we actually - we spent more on mobile side resources, including UC, including Toutiao, including other - as we know, the popular website apps. So we, actually, from Baidu - previously, actually, we put a lot of resources on Baidu, but now I think it's still positive for us because we [use our resource saving] (corrected by company after the call) to verify the sources of most type, which, actually, verified our traffic resources, which is very good.

And from the first quarter, I think we already see the affect, actually, is very positive because we gained more mobile resources and mobile traffic, and actually, the leads from the mobile side are more effective than PC.

Robert Cowell from 86Research.

You mentioned in your prepared remarks about the recent launch of VR and aerial, virtual reality and aerial site business for some new home projects. I am kind of interested in your take on how technology can be employed to improve the home buying experience and how quickly, maybe, VR or even video side business can be rolled out across the website?

Actually, we are still at the very initial stage [of employing these VR products, but especially on the mobile side, we are already receiving very positive feedback from both developers as well as our consumers, because our VR products can show people directly around] (corrected by company after the call) the rooms, about what the developers sell, and you can - especially when we put on the mobile phones, the consumers can very directly feel how the rooms look like.

So it's a very positive product, but the technology itself, I think, we are still at a very initial stage. We will spend more resources to further enhance the technology to bring people more vivid impressions of the new rooms. And we are still thinking about how to use these technologies in the secondary market and later on in the home furnishing market. So it's a start, it's a very good start for us.

Ming Xu of UBS.

So my first question is regarding the secondary home listing business. So we know that one of the largest agencies, Homelink, they recently announced that they will not post listings on the external platforms, such as Anjuke or your platform. And they will concentrate on their own Lian Jia platform and apps. So I think, as far as I understand it, this is still being rolling out in some Lian Jia, and they plan to roll out that (inaudible) in other cities.

What's your take on this measure, and how do you see the impact on your business, on the listing business, and do you think other large agencies will follow this practice?

First, Lian Jia is our very good partner for years. And I think they have their own strategy, but one thing cannot be changed is that currently their own website couldn't host so many leads, especially nationwide. So I am not sure what you said that they would stop doing that. From our side, we didn't see that signal. Actually, in some cities, we continue to cooperation and to some extent, we further enhanced our cooperation with them.

The second one is that our strategy to maintain our position on the online information market, I think, this position will not be changed because Chinese secondary market, the system, is very different from the States because we have for one buyers or one sellers, they can actually hire most - a lot of agents to help them to sell their houses. So, this market (inaudible) side with it; the best way for all those agents to find clients is online. So I don't think China only needs one online website, especially for Leju, we are a third party information platform, which is more wider, and I think more acceptable to the home consumers. So I think, especially Lian Jia in Shanghai, further, actually, enhanced our confidence to building very fair and very efficient online information platform.

(Operator Instructions) Nora Zhang of Merrill Lynch.

I have two questions. The first one is regarding the [coupon] business. We'll see the property policy tightening taking place in some other cities, tier 1, tier 2 cities. Could you give us some color on the impact on the [coupon] business in the coming quarters?

And my second question is about the Qiang Gong Zhang platform. Could you give us some color on the expected investment in 2016 in this platform and the position potential?

For your first question, it is true that our government is targeting policies in first tier cities, but cities are very different. Beijing, Shanghai and Shenzhen the government, actually, adopted very different policies. For Shanghai, the government actually released a lot of solid policies. In Beijing market, actually, the policy didn't change. And the Shenzhen market, actually, it's kind of sentiment policy rather than very [restic] policy.

I think the market, actually, the effects from these policies are very different. From our side, actually we see that trading volume of these three cities are very different. For Shanghai, actually, we see the volume is going down. For Shenzhen, I think the volume decreased rate is less than Shanghai, but in Beijing is - I don't see - it's very stable. So it's very different. But on the other hand, we see that the market in the second tier cities actually quite positive, especially in some capital cities. So for the home market, actually, it's quite mixed from our [coupon] business.

For your second question is that for Qiang Gong Zhang platform; I think for this year, our focus is how to generate enough independent contractors to come into our platform and help more consumers to have their home furnishing contracts run through our platform. So, it is still at development stage. And I think revenue is not so important currently for us, but the popularity between the contractor and the end users are very important, especially, how many deals can be concluded through our platforms is very important.

We are already received quite positive signals from this platform. We see more and more contractors. Currently, actually, we have already more than 20,000 contractors on our platform and they are actively using this platform. And we will still launch a lot of innovative products a lot of innovative products like Qiang Gong Zhang, just like that you decorate first and then pay later; new products through our cooperation with some financial institutions. So we will further invest in this market and I think our model is quite innovative to, actually, to change the current value chain of the home realty market.

(Operator Instructions) Ming Xu of UBS.

I have another two questions. The first is on your traffic and margins. So I understand you spent some marketing expense in promoting your own leju.com website in Q1. So could you give out some color on the traffic contribution from leju.com compared to the other sources, like SINA House and others? Could you break down that by both mobile contribution and also PC contribution?

And also, going forward, for the rest of the year, so how do you see the margin trend? Do you still need to spend a lot in promoting the website and spend on other the courses? And I have another follow-up question on the property market.

For the first question, actually, we spend a lot of marketing dollars in promoting the mobile side of leju.com rather than the pc.com. Actually, we see that the mobile traffic from leju.com is increasing very fast. And currently our mobile traffic accounts for almost 60% to 70% -- around that of our total traffic. And we didn't actually abandon the house.sina website. We still keep it running. So on the PC side, we have two websites; one is house.sina.com and the other is leju.com. Of course, the service on these two websites are the same. That's the first one.

And later on, I think we will continue our cooperation, especially product cooperation and news cooperation with other mobile app operators like UC, like Toutiao and even more operators. This is also a very attractive way for us to attract users, especially compared to those paid traffic. I think they are more effective.

This year we will increase resources to promote our real estate brand and also we will increase our investment in the Qiang Gong Zhang platform. I think these two products will be our major investment on the market recognition and branding.

Just a quick follow-up. So you mentioned that mobile accounts for 60% to 70% of total traffic. So, may I ask, out of the total mobile traffic, how much of that comes from leju.com?

Close to 90%.

So the second question is regarding the property market outlook. You mentioned in your prepared remarks that you expect some uncertainty in the property market in the next few quarters. So could you elaborate on that, specifically I think you just described the market in the tier 1 cities, so what about the trend in the tier 2 cities and tier 3 cities and the impact on your business?

Where we mentioned uncertainty, I think this is mainly from the second tier cities, because I think the first tier cities, the policy is quite certain, actually; all the policies that go in already do, so the uncertainty is coming from second tier cities because there a lot of capital cities, the market is quite active.

So we are not sure that what kind of policies the government should give. But overall, we don't think it's very pessimistic because the overall Chinese economy requires a healthy real estate market. From the business level, I think any policy change; it could give us some impact. But we are not sure what kind of policies.

(Operator Instructions) There are no further questions at this time, Ms. Liu.

This concludes today's call. If you have any follow-up questions, please contact us at the numbers or e-mail provided on our earnings release and on our website. Thank you.

That does conclude our conference for today. Thank you for your participation. You may now disconnect.