Leju Holdings Ltd (LEJU) 2020 Q4 法說會逐字稿

Hello, and thank you for standing by for Leju's Fourth Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note that today's conference call is being recorded. If you have any objection, you may disconnect at this time.

I would now like to turn the meeting over to your host for today's conference, Ms. Michelle Yuan, Leju's Deputy CFO.

Hello, everyone, and welcome to Leju's Fourth Quarter 2020 Earnings Conference Call. Today, we'll update you regarding our financial results for the fourth quarter ended December 31, 2020. If you would 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 fourth quarter and full year 2020. Mr. Li-Lan Cheng, our acting 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 Statements 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 U.S. dollars.

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

Thanks, everyone, for joining us on today's call. China's new housing market experienced mild growth in transactions for the full year 2020, as a sharp decline at the beginning of the year due to the COVID-19 epidemic was followed by a substantial recovery later in the year. As developers increasingly recognize the importance of digital marketing, our online advertising services saw strong growth, while our e-commerce services turned in a steady performance. We continued to promote our digital marketing capabilities and develop innovative tools on our online transaction platform in the fourth quarter. Our content production systems are getting stronger as we continue to adopt AI technologies to generate real-time formatted content. And our multiple-channel networking operating or MCN model is become wider and deeper, generating more traffic and a better user service conversion rate. All of these factors will help drive the long-term growth of both our online advertising and e-commerce businesses.

In the fourth quarter, we held a series of successful online promotions, including our "Double 11" and "Double 12", two "Ten Billion Subsidy" promotions, our live broadcasting festival for primary and secondary brokers, and our annual gala award ceremony for China's property related industry. These promotions and activities further enhanced our brand recognition and boosted our media influence.

Meanwhile, thanks to our top-down approach, our industry coverage further improved. Among China's top 100 developers, we have reached strategic agreements with over 80 developers in the fourth quarter. In 2020, we held a total of 8 well-received promotional events, kicking off with our "Online Sales Office" during the Chinese Spring Festival. These activities helped take our advertising services to the next level and supported steady growth for our e-commerce services, significantly improving our industry coverage and overall service level.

In 2021, leveraging our strategic cooperation with Alibaba and E-House, we will seize new opportunities in digital marketing, roll out new advertising and e-commerce services and ramp up our business scale. We will continue to optimize our Amoeba operating system based management model, increase our efforts in attracting top talents, improve management and operational efficiency and increase profit margins to provide a solid foundation for our future growth.

Now I'll turn the call over to our acting CFO, Mr. Li-Lan Cheng, who will review our financial highlights for the quarter.

Thank you, Geoffrey. Good morning and good evening, everyone. For the fourth quarter of 2020, we recorded total revenues of $230.4 million, a 2% increase from the same quarter of 2019.

Our e-commerce services revenues for this quarter decreased by 8% to $170.1 million, as a result of a decrease in the number of discount coupons redeemed and a decrease in the average price per discount coupons redeemed. E-commerce services contributed 74% of our total revenues this quarter.

Our online advertising services revenues for this quarter increased by 43% to $60.1 million, as a result of an increase in property developers' demand for online advertising. Online advertising services contributed 26% of our total revenues this quarter.

Our listing services revenues for this quarter decreased by 19% to $0.2 million from the same quarter last year, as a result of a decrease in demand from secondary real estate brokers.

Our cost of sales for this quarter increased by 34% to $17.8 million from the same quarter last year, primarily due to increased cost of advertising resources purchased from media platforms related to our online advertising business.

Our selling, general and administrative expenses decreased by 1% to $202.6 million from the same quarter last year. The decrease was primarily due to decreased labor cost, partially offset by increased advertising expenses relating to promotion activities for the period of 2020.

Income from operations was $10.1 million for the fourth quarter of 2020, an increase of 12% from the same quarter of 2019. Net Income attributable to Leju shareholders was $6.1 million for the fourth quarter of 2020, an increase of 36% from the same quarter of 2019.

Non-GAAP income from operations was $13.4 million for the fourth quarter of 2020, a decrease of 4% from the same quarter of 2019. Non-GAAP net income attributable to Leju shareholders was $8.8 million for the fourth quarter of 2020, relatively flat compared to the same quarter of 2019.

For the full year 2020, we recorded $719.5 million in total revenues, a 4% increase from last year. Our e-commerce revenues were $547.9 million for the full year 2020, a slightly increase from 2019 as a result of an increase in the number of discount coupons redeemed, partially offset by a decrease in the average price per discount coupon redeemed.

E-commerce services contributed 76% of total revenues for the full year 2020. Our online advertising revenues, contributing 24% of our total revenues, increased by 19% to $170.8 million for the full year 2020, due to an increase in property developers' demand for online advertising, while our listing revenues decreased by 48% to $0.8 million, as a result of a decrease in demand from secondary real estate brokers for the full year 2020.

Income from operations was $24.1 million for 2020, an increase of 36% from 2019. Net income attributable to Leju shareholders was $19.3 million for 2020, an increase of 68% from 2019. Non-GAAP income from operations was $38.3 million for 2020, an increase of 13% from 2019. Non-GAAP net income attributable to Leju shareholders was $30.7 million for 2020, an increase of 25% from 2019.

As of December 31, 2020, our cash and cash equivalents and restricted cash balance was $285.7 million. Our net cash flows provided by operating activities for the fourth quarter 2020 were $11.8 million, mainly attributable to non-GAAP net income of $9.9 million, a decrease in amounts due from related parties of $8.6 million, a decrease in deferred tax assets of $11.1 million, partially offset by a decrease in amounts due to related parties of $16.3 million.

Looking ahead, we estimate that our 2021 total revenues will be approximately between $755 million to $790 million, which represents an increase of approximately 5% to 10% from last year. Please note that this forecast reflects our current and preliminary view, which is subject to change.

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

(Operator Instructions) First question comes from the line of Marco Rodriguez of Stonegate Capital Market.

I was wondering if maybe you could talk a little bit more about and provide an update on the Alibaba, E-House, the Tmall and ETC platform kind of maybe talk about how that has been progressing versus your expectations. And I know you mentioned in your prepared remarks some opportunities that you were looking at in terms of optimizing performance, improving management and operational efficiency, if you can kind of provide a little additional color on what those might look like in the coming year, that would be helpful.

Thanks for your questions. For the strategic operation between E-House and Alibaba, is they are trying to build a new space on the very popular e-commerce platform in China in the real estate industry. And I think this is both for the primary and the secondary house market.

For us, I think because the cooperation is not only on the advertising side or the trading side, because of the new platform, we see new opportunities for developers to use this new platform to facilitate their digital marketing infrastructure. And based on the new digital infrastructure, developers can do more digital marketing.

And so we see actually there are 2 levels of new opportunities. The first opportunity is how to help developers to build up their digital infrastructure on the new platform of Tmall Haofang. And the second is that after they have the new infrastructure on the Tmall Haofang, how to operate them, I think it's the operating system include how to advertise their products, how to upload their house on that platform, how to attract potential buyers and even how to close the transaction online. So these 2 levels, we see potential opportunities for Leju.

I think Leju is a very strong service provider to Tmall Haofang and this is also very beneficial to Leju to enlarge its business scope.

Understood. And I believe we spoke about this last quarter, where the online advertising platform that has been created here and you're starting to see some benefits from is obviously attracting developers and with the coronaviruses last year, it made it more important for the developers to use an online platform given some of the lockdowns and what have you. Can you maybe talk about your current expectations? And I know the last time you mentioned this in your last call, earnings call, that there would possibly be some cannibalization of the e-commerce revenues just given the fact that developers typically choose 1 channel versus the other.

I think for the business model of Tmall Haofang, I think it is still early for us to talk about it because basically, it's the cooperation between our parent company and Alibaba. But for Leju, we think that we already realized some benefits from the initial cooperation from the advertising side. And the second step, we think that we can also clearly see, after advertising, there will be some benefits from the trading side. It is a new platform, as I said, and this platform is different from previous other content-driven platform or a video-driven platform. It is a trading platform. So we think they will create a lot of new models for developers. And also for developers, they have their own digital infrastructure on this platform. I think they are more active to attract users and to close the transaction on that platform.

So I think a lot of potential opportunities on the trading side. So basically, it's a bit too early to mention details about the business model. Sorry for that.

Understood, very helpful. No, that's okay, that's very helpful. And then two last quick questions for me. Maybe if you can update us on your thoughts for the Chinese real estate market, your sort of your expectations going into this fiscal year. And then if you can also kind of paint a picture as far as what sort of major activities and timing that you might have planned for the next, let's say, 6 months for your platforms. Thank you.

The first trend is that because of the restriction policies adopted by the government, that we think the competitive scope of the developers will significantly change in this year. I think more and more developers will face their marketing change because the off-line channel, they took up too many marketing dollars from developers and squeeze profits. So a lot of developers are thinking how to use digital marketing to change the situation. That's the first trend.

The second trend, I think a lot of big developers, they are going to actually organize their own digital marketing teams to try to compete with the off-line channel teams. So we think from these 2 trends, the demand for the digital marketing will be increased significantly this year.

For Leju, 3 important points. First one is we will continue to strengthen our media influence, which is actually the core of Leju. And the second one is we will invest more technologies or more capitals in the content production. This will help us to generate more leads to the sales. And the second one is we try to develop our new e-commerce models.

Previously, our e-commerce model is based on, as you see, is the coupon. I think based on the new platforms of Alibaba and E-House, I think we will create more e-commerce models.

Excellent. And any sort of major activities you might be planning for the next 6 months or so to drive revenues for you guys?

Actually, now we're actually doing the online housing fair. It is an ongoing event covering about 100 cities. And we already have more than 2,000 projects online. And we will also do our June 18 Festival, which was created last year. It is a traditional e-commerce festival, but we use it in the real estate industry. And this is also a very important point for us.

(Operator Instructions) We have our next question from the line of Samuel Lau of Blue Lotus.

(foreign language) I'll translate in English. My question would be in the balance sheet, I see the customer deposit number and the advance from customers number changed quite a bit. Could you help us understand from a business context how the numbers changed?

Okay. This is Li-Lan, I'll answer that question. Yes, these 2 names actually sound similar. So that's probably the confusing part. Customer deposit here in this item, customer means developers, that's our developer clients. And this is a deposit we paid to these developers, that's why it's on the asset side. So for some of our e-commerce projects, we actually pay an advanced deposit to win the project. And then once we finish, they pay us back. So it happens to a small minority of our projects, usually involves a large chunk of units. And we see when we view the project brings another economics to justify this kind of commitment.

Deposit from customers, here the customer means our home buyers. So it's a retail individual home buyers. So this represents amount they pay to participate in our e-commerce activities. They buy the discount coupon, but there may be a time gap between when they buy the coupon and when they convert it into a housing purchase contract before we can recognize the revenue. So that's the portion called deposit by customers. So these are 2 very different things, and they have different dynamics.

If I may ask on a subsequent one. Is there a reason for the change? Because it seems quite startling, quite a bigger change.

Well, the customer deposit, it's not surprising for that to fluctuate quite a lot because like I said, in any given year or quarter, it involves a relatively small number of projects. But the individual amount could be pretty big. So we're talking about on the order of tens of millions of RMB or even over RMB 100 million for a single project.

So when 1 project starts, if we decide to pay or when the amount gets returned, that can result in a fairly substantial fluctuation from quarter-to-quarter, whereas deposit from customers usually shouldn't fluctuate that much because there's always a time gap between them paying deposit and converting to purchase, unless there is a highly unusual case where a small number of large-scaled projects launch a very concentrated marketing campaign, and we may have a large number of customers concerting in buying or paying for coupons within a very short period of time. And if it so happens that a quarter ends before they convert, then you may see a fluctuation from quarter-to-quarter. But that's normal, that kind of fluctuation.

(Operator Instructions) No question as of the moment. And I'd like to hand the conference back to the management. Please go ahead.

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

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