Leju Holdings Ltd (LEJU) 2020 Q3 法說會逐字稿

Hello, and thank you for standing by for Leju Third Quarter 2020 Earnings Conference Call. (Operator Instructions)

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. Michelle Yuan, Leju's Deputy CFO. Thank you. Please go ahead, ma'am.

Hello, everyone, and welcome to Leju's Third Quarter 2020 Earnings Conference Call. Today, we will update you regarding our financial results for the third quarter ended September 30, 2020. If you would like a copy of the earnings press release, or you would like to sign up for our email 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 third quarter 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 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 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. We maintained strong momentum for our business development in the third quarter and realized healthy growth in our both advertising and e-commerce business. We continue to promote our digital marketing capabilities in the third quarter and our online marketing promotions were well received throughout the industry.

Also, we saw that the innovations we've implemented in our online advertising business have been a strong match for the new wave of online marketing needs we've seen emerge recently. In addition, we further developed the innovative tools on our online transaction platform, which also benefits the long-term growth of our e-commerce business.

Following upon our 618 Festival in June. During the third quarter, we once again successfully held our Suning and Leju 818 summer storm sale. These 2 activities deepened our partnership with Suning and involved more than 100 brands and over 500 real estate projects. In September, our affiliate company, E-House and Alibaba, jointly launched a Tmall Housing Platform and the Real Estate Transaction Corporation mechanism, which is called "ETC".

As part of this, together with the Tmall Housing, Suning E-buy and E-House, we jointly launched the "Double 11 - Tmall Housing 10 Billion Subsidy" promotion during the Double 11 period. These activities have received a strong industry recognition, especially our "Double 11" promotion, which involved 302 brands and over 2,000 real estate products. The "Double 11" promotion played a positive role in promoting incremental revenues for our online advertising business for the fourth quarter and encourage developers to provide discounts to further feedback our e-commerce business.

The success of these activities further highlights our multiple channel digital marketing capabilities, takes the development of our online advertising and e-commerce business to the next level, and further solidifies our position in the real estate marketing industry as a leader in providing comprehensive solutions throughout the value chain.

In the fourth quarter, we will hold our series of influential annual events marking Double 12. We look forward to building on the momentum of Double 11 further enhancing our influence in the industry, increasing product innovation and significantly improving our client coverage and the service level as we end the year on a strong note and begin to prepare for the 2021. I will now turn the call 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 third quarter of 2020, we recorded total revenues of $209.4 million, a 13% increase from the same period of 2019. Our e-commerce services revenues for this quarter increased by 12% to $172.4 million as a result of an increase in the number of discount coupons redeemed. E-commerce services contributed to 82.3% of our total revenues this quarter.

Our online advertising services revenues for this quarter increased by 17% to $36.7 million, as a result of an increase in property developers' demand for online advertising. Online Advertising services contributed 17.5% of our total revenues this quarter. Our Listing services revenues for this quarter decreased by 45% to $0.3 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 12% to $14.8 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 increased by 16% to $181.8 million from the same quarter last year. This increase was primarily due to increased marketing expenses related to our e-commerce business.

Income from operations was $12.9 million for the third quarter of 2020 compared to $15.8 million for the same quarter of 2019. Net income attributable to Leju shareholders was $11.7 million for the third quarter of 2020, an increase of 5% from the same quarter of 2019. The non-GAAP income from operations was $16.6 million for the third quarter of 2020 compared to $19.5 million for the same quarter of 2019.

Non-GAAP net income attributable to Leju shareholders was $14.7 million for the third quarter of 2020, an increase of 4% from the same quarter of 2019.

For the first 9 months of 2020, we recorded $489.1 million in total revenue, a 5% increase from the same period of last year. Our e-commerce revenues increased by 4% to $377.8 million for the first 9 months of 2020, 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 77.2% of total revenues for the first 9 months of 2020. Our online advertising revenues contributing 22.6% of total revenues, increased by 9% to $110.7 million for the first 9 months of 2020 due to an increase in property developers' demand for online advertising while our Listing revenues decreased by 54% to $0.6 million as a result of a decrease in secondary real estate brokers' demand for the first 9 months of 2020.

Income from operations was $14 million for the first 9 months of 2020, an increase of 61% from the same period of 2019. Net income attributable to Leju shareholders was $13.2 million for the first 9 months of 2020, an increase of 88% from the same period of 2019.

Non-GAAP income from operations was $24.8 million for the first 9 months of 2020, an increase of 25% from the same period of 2019. Non-GAAP net income attributable to Leju shareholders was $21.9 million for the first 9 months of 2020, an increase of 38% from the same period of 2019.

As of September 30, 2020, our cash and cash equivalents and restricted cash were $273.8 million. Our net cash flow used in operating activities for the third quarter of 2020 was $4.4 million, primarily comprised of a decrease in amounts due to related parties of $30.7 million, an increase in amounts due from related parties of $16.3 million and an increase in accounts receivable of $15.3 million, partially offset by non-GAAP net income of $14.9 million, an increase in other current liabilities and accrued expenses of $23.1 million, an increase in income tax payable and other tax payable of $7.7 million and a decrease in customer deposits of $12 million.

Looking ahead, we estimate that our fourth quarter 2020 total revenues will be approximately between $230 million and $250 million, which represents an increase of approximately 1% to 10% from the same quarter of last year. Please note that 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) We have the first question from the line of Marco Rodriguez from Stonegate Capital.

I was wondering if you could talk a little bit more about the 2 new platforms or relationships you have here, the Tmall housing platform as well as the Alibaba Suning partnership that you have. Can you just provide a little bit more detail in terms of how those platforms performed versus your expectations? And then if you could also, if possible, discuss the impact you saw from revenues for those 2 new relationships?

First, the relationship between Leju and Tmall or Alibaba is based on our partnership from our affiliate company E-House and Alibaba. And actually, the aim of the partnership is to build up an online to off-line system -- new trading system that is why we actually launched the ETC, we call it, it's a real estate transaction cooperation mechanism to involve all parties during the real estate transactions.

I think the first step for us from the partnership is Double 11 activities. As you know, Tmall is a quite sophisticated e-commerce platform. But usually, it's for the fast consumer products while the real estate projects, it's quite a big commodity, and we try to test the consumer habits on that. From the effects of the Double 11 activities, actually, we received very positive feedback from the consumers first side. There are a lot of people, actually, they are quite interested in the commodities, which is the houses we put on the Tmall shops.

Second one is that they are a lot of people asking questions about houses they look for at Tmall stores and also they raised a lot of questions previously, we cannot get from our platforms.

The third one is that we try to connect the online users, which are interested in certain projects to off-line showing rooms. We are trying the mechanism how to introduce these online people -- consumers to the off-line trading to help them get involved in that off-line trading activities. I think that's the first step. We do receive very positive feedback from consumers.

On the other hand is we received very strong positive feedback from our clients, which is the developers. They are very interested in the huge audience of the Alibaba, and they are trying to test if they -- from these huge traffic, they can find out quite intensive house [potential buyers] , which can be involved in the further transactions. So from both sides, laid very solid foundation to the success of our Double 11 activities. I think this is only the first step.

From Double 11, we are continuing to do the Double 12 activities, and we are actually doing a new mechanism to see if the Tmall platform can both supply advertising platform and the transaction platforms. We will try to develop some innovative transaction tools or transactional systems based on the Tmall to further push ahead the digitalization of the real estate industry.

From the revenue side, I think it does a great job, and I think it will contribute to our fourth quarter online advertising revenue significantly.

That was very helpful. And do you have any data that relates to the traffic that you're driving with the Tmall platform?

I think we have released a post about our Double 11 activities, but we combined the 4 platforms, actually the Tmall and the Suning and the Leju and the E-House. We all together. Sorry, give me 1 minute, I will give you the number. We had actually received the unique visitors from activities, that's [43.5 million] (corrected by company after the call) unique visitors and the total page view traffic is about 289 million.

Excellent. And can you maybe compare and contrast the Double 12 promotions that you'll be launching here in Q4? How do those sort of compare to the Double 11?

I think a lot of developers, previous -- because the double 11 coverage is very wide and some developers, actually, they are still interested in continuing to do the Double 12. And some developers actually because they already see strong traffic, but they need actual transactions. So I think the scale of the Double 12 may be a little bit smaller than the Double 11.

However, the influential -- because we -- during the period of Double 12, we also do a lot of influential activities, which concludes our Leju financial forums and also a lot of live broadcasting activities. So the influence of the Double 12 should be greater than the Double 11.

Got it. And last quick question, if I might. Could you maybe just update us on what you're seeing in terms of just real estate activity and as that also relates to any sort of increases in regulations?

I think the regulation, I think the market of the real estate in the next 1 year, I think keeping stable will be the mainstream. There will be no big ups and downs, I think in the next year. However, we already see that the differences between different developers, that 3 lines, the new regulators released 3 headlines set for the developers.

So some aggressive developers will be cautious. They will decrease their investment in buying land. So the turnover of their real estate transactions will go down. However, some healthy developers they will receive a good opportunity to buy more land at reasonable prices. So the structure of the real estate industry is changing.

For us, I think from this year, I think Leju is aggressively pushing ahead the digitalization of their promotion from offline to online. So a lot of developers already realized the value, how to increase their inputs of their online promotions. And also they received great pressure from the off-line costs, mainly the distributional costs from one of our competitors. So I think the digitalization is a very good opportunity in the next year for online developers.

We have the next question from the line of Eric Wen from Blue Lotus.

Congratulations on the strong guidance. I have 2 questions. First question is, can you comment on the breakdown of your guidance, including advertising and e-commerce that contribute to your guidance?

Our guidance?

Fourth quarter.

Yes. And my second question is that your competitor has reported very strong numbers of third-party agents revenue growth. I wonder if you can elaborate on your competitive strategy in Fang You and how it will enhance its competitive in the coming year?

For your first question, I think the breakdown will be likely around [20%] (corrected by company after the call), will be from the online advertising, and [80%] (corrected by company after the call) will be the e-commerce. That's around that from our revenue guidance. For the second one is that Fang You actually is not affiliated with Leju So I'm not proper to answer this question.

However, I add one note to that is that I think the off-line business, especially that -- the distribution business is reaching a point that press a great pressure on the developers cost structure. Most developers, actually, they are talking about their distributional costs, which takes most of their profits. So they are also thinking about that. While they also asking us is that is there really any -- online can provide real buyers to them so that they can recognize as their online buyers. So I think this is a great task also a great opportunity for us.

From practice side, I think we do believe that almost everybody going to the offline showrooms must have online experience before. So our task is how to catch these online people and get them recognized by the off-line sales of the developers. So that I think the cost structure of developers can be reasonably changed.

(Operator Instructions)

As there are no further questions, I would like to hand the call back to your presenters for any closing remarks.

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 does conclude the conference for today. Thank you for participating. You may all disconnect now. Thank you.