Q1 2014 Leju Holdings Ltd Earnings Conference Call

May 20, 2014 AM EDT
LEJU - Leju Holdings Ltd
Q1 2014 Leju Holdings Ltd Earnings Conference Call
May 20, 2014 / 11:00AM GMT 

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Corporate Participants
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   *  Melody Liu
      Leju Holdings Ltd - Director - IR
   *  Geoffrey He
      Leju Holdings Ltd - CEO
   *  Min Chen
      Leju Holdings Ltd - CFO
   *  Xin Zhou
      Leju Holdings Ltd - Executive Chairman

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Conference Call Participants
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   *  Jinsong Du
      Credit Suisse - Analyst
   *  Alex Yao
      JPMorgan - Analyst
   *  Sisi Lu
      China Renaissance - Analyst
   *  Jiong Shao
      Macquarie - Analyst
   *  Tian Hou
      TH Capital - Analyst
   *  Anthony Tong
      86Research - Analyst
   *  Gregory Zhao
      Barclays - Analyst

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Presentation
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Operator   [1]
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 Hello, and thank you for standing by for Leju's First Quarter 2014 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's prepared remarks there will be a Q&A session. Please note that today's conference call is being recorded. If you have objections, you may disconnect at this time.

 I would now like to turn the meeting over to your host for today's conference, Miss Melody Liu, Leju's Investor Relations Director.

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 Melody Liu,  Leju Holdings Ltd - Director - IR   [2]
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 Hello, everyone, and welcome to Leju's First Quarter 2014 Earnings Conference Call. Today we will update you regarding our financial results for the first quarter ended March 31, 2014. 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 first quarter of 2014. Ms Min Chen, our CFO, will then describe the financial results in more detail. We will then open the call to questions, at which time our Executive Chairman, Mr. Xin Zhou will be available.

 Before we continue, please allow me to read you the 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 [habit] filings with the SEC.

 You are encouraged to review the forward-looking statements section of our IPO Prospectus filed with the SEC for additional information concerning factors that will 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 measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the audited 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 CEO, Geoffrey He. Mr. He, please go ahead.

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 Geoffrey He,  Leju Holdings Ltd - CEO   [3]
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 Good morning, and good evening to everyone, and thank you for joining us on the call today. We are very excited to report strong results for our first quarter as a public company, as we leveraged our comprehensive O2O service platform, our product innovation, executing capabilities to increase our market penetration.

 In particular, we achieved a 238% year-on-year growth in our e-commerce revenues, which further solidifies our leading position in this business, while also delivering strong results in our online advertising and listing services. We continue to focus on executing our business strategies for improving our product, increasing our market penetration, and especially our strategic partnerships.

 In March, we successfully launched our mobile e-commerce 1.0 platform, based on the Weibo sales center and our own Fangniujia APPs. The platform connects home buyers and the sales agents directly with our developer clients on mobile devices with a comprehensive offering of interactive tools for both online and offline services.

 We also formed a new strategic partnership with Tencent in March through which we are now developing the Weixin sales center as another important part of our mobile strategy. We believe the combination of the Weibo, Weixin, and our own mobile APPs position Leju firmly at the forefront of the mobile real estate e-commerce industry, and will allow us to capitalize on the tremendous growth potential.

 On April 17, we celebrated a historic corporate milestone by completing our IPO, and becoming a publicly listed company on the New York Stock Exchange. We believe the real estate O2O services industry is still in an early stage with huge market potential, and we were encouraged by the positive feedback from many investors. We are confident that with our deep understanding of China's real estate services market, our well-thought out strategy, including our mobile strategy, and our ability to connect and to serve our customers, both online and offline, we will continue to lead the market with new product innovation, and set new service standards for this industry.

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

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 Min Chen,  Leju Holdings Ltd - CFO   [4]
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 Thank you, He zong. Good morning, and good evening, everyone. We're very pleased to report our first quarter results with a 97% increase in our total revenue compared to the first quarter of 2013. We also improved our profitability substantially in the first quarter of 2014. Our revenue and income growth were primarily driven by growing our market share, our scale, and operating efficiency.

 Our e-commerce services revenue accounted for about 53% of our total revenues, and continues to be our growth driver. The 238% year-on-year growth mentioned by He zong, was primarily driven by increases in discounts coupons redeemed as we expanded into more cities and increased our market share.

 During this quarter, we saw e-commerce revenue contributions from 49 cities, compared to only 17 cities in the first quarter of 2013.

 Our online advertising revenue maintained a healthy 13% growth, compared to the same period last year, and our revenues from our listing services achieved 24% growth as a result of expanding our operations into 20 cities.

 Non-GAAP income from operations was $8.4 million, compared to a non-GAAP loss from operations of $2.6 million in the same quarter of 2013.

 Non-GAAP net income attributable to Leju shareholders was $7.7 million, compared to a non-GAAP loss of $4.3 million for the same quarter of last year.

 As of March 31, 2014, our cash and cash equivalents balance was $99.3 million. Our net cash flow from operations was $6.7 million.

 We also received proceeds of approximately $120 million from our IPO in April, which we'll look to reinvest back into the business.

 Looking forward for the rest of the year, as He zong mentioned, we still see tremendous market opportunities in the e-commerce business as a result of its current low penetration, and new mobile products, especially during periods of more pronounced market turbulence, similar to the environment that we're currently in.

 Therefore, we expect to continue to invest in new products and in our marketing efforts to further solidify our leading position in this business, to further increase our market share, and to drive revenue growth.

 Putting this into context of numbers, we estimate that our fiscal 2014 total revenue will be between $500 million to $520 million, an increase of approximately 49% to 55% from 2013.

 Of course please note, this forecast reflects our current preliminary view, which is subject to change.

 That concludes our prepared remarks, and we can now open the call for questions. Operator?

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Questions and Answers
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Operator   [1]
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 Thank you. The question and answer for this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. We will now begin the question and answer session.

 (Operator Instructions)

 Our first question comes from Jinsong Du from Credit Suisse. Your line is open. Please go ahead.

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 Jinsong Du,  Credit Suisse - Analyst   [2]
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 Hi, thanks, management, thanks for taking my questions. I notice that your number of discounted coupon growth is actually lower than the actual revenue growth. If I think correctly that that means that your per coupon value to yourself has actually increased year-over-year, because what comes through that dynamics, especially with the current market condition, and what you think will be the trend for the value for coupon going forward? And also, if you could share more light on your assumptions behind your full-year results, for example, what's your assumptions for the overall housing market transaction volumes, year-on-year trends? And also, how much of the growth will be coming from, maybe, either directly or indirectly from the mobile platform? If you can give us some underlying assumptions for your full year targets. That would be great. Thank you.

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 Geoffrey He,  Leju Holdings Ltd - CEO   [3]
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 Thank you, Jinsong. I think for the coupon value, and actually we see a very steady growth, although not so big, I think in the face value of the coupons. But I think because -- compared to the same period of last year, because last year the revenue contributions only coming from the 17 cities, most of them actually are big cities, but now we actually have the revenues from 49 cities in the first quarter, which comprise a lot of small cities, as they are cities, I think, the face value of the coupons actually are a bit lower than the big cities. That is why you can see that the trading, actually, the gross [value] of the coupons is a bit lower than the revenue growth.

 But I don't think that that means that the value of the average coupon is going down. I think because -- actually, in the big cities, actually, we see, even in the second tier cities, we see the coupon value actually is going up, especially in this -- the today's market, the developers actually are more willing to giving a higher discount to the market.

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 Min Chen,  Leju Holdings Ltd - CFO   [4]
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 I think Jinsong that that proves your point. You're exactly right. Actually, on average, although we are seeing a lot more transaction -- we're seeing growth in number of coupons redeemed, but we're also seeing slight, but steady, increase in average coupon value. So that certainly helps our revenue growth.

 And then in terms of the -- your second question about the assumptions, overall market assumptions of revenue assumptions, behind our overall forecast and guidance, I think at the current level we're, really, we're making that the key drivers for our guidance is really -- one is the pipeline of products that we're currently working on. And then, two, the number of cities that we currently cover in terms of the number of projects that are going to come up, that we expect to come up, over the course of the next year, over the course of the coming year, as well as the further penetration, further increase in penetration, that we expect to happen in this industry, especially given the current acceptance rate that we're seeing with developers, when we promote -- when we market our e-commerce program.

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 Geoffrey He,  Leju Holdings Ltd - CEO   [5]
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 Yes, especially, I think, today's situation proves our expectations that more and more developers actually are embracing this e-commerce model, and we see most big name developers, actually, they are very willing to use this model today. I don't know if I answered question, Jinsong?

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 Jinsong Du,  Credit Suisse - Analyst   [6]
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 Yes, that's right. Thanks a lot. I will go back to the queue. Thank you.

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 Geoffrey He,  Leju Holdings Ltd - CEO   [7]
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 Thank you. Operator?

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Operator   [8]
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 Our next question comes from the line of Alex Yao from JPMorgan. Your line is open. Please go ahead.

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 Alex Yao,  JPMorgan - Analyst   [9]
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 Hi, good morning, everyone. Thank you for taking my question, and the congratulations on a very solid quarter. My question is on the expense side. So your sales and marketing expense increased by 89% year-over-year in the quarter, which is a lower -- slower than the overall revenue growth and significantly lower than the e-commerce revenue growth. It seems to me that the expense ratio in relation to your e-commerce business went down in the quarter. Is that the case for the quarter? Can you help us to understand the trend a little bit more? And can you talk about what is the e-commerce expense ratio going forward to the rest of 2014? Thank you very much.

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 Geoffrey He,  Leju Holdings Ltd - CEO   [10]
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 I think, maybe, I'll see if [they'll procure] more details of -- but from business side, I think we see along with our scalability the scale of our business going up, I think that overall, I think [SG&A] - will be going down, I think exactly that will be the trend. And the second point is that, while we don't I think that will be very long from long-term trend because [around] which intensified competition market, our competition. I think we still have pressure, maybe, to increase our marketing expense, because we are going to get more projects to further increase our market share.

 So, you can see, it's kind of a dynamic situation. [On] one way we [wish] to enlarge scale, we have capability to actually reduce the [SG&A]. But on the other hand if we want to get more market share, we want to get more products, we need, actually, increase our input.

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 Min Chen,  Leju Holdings Ltd - CFO   [11]
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 Yes, Alex, I think He zong is exactly right. Just to add to, just add a little bit to that, I think we've always talked about our -- that there's -- the operating efficiency of our business model. So, obviously, with increased scale you can see that the efficiency is coming through, which is a positive point. But we're also seeing that with increased competition, especially given where we are today, which is with our mobile platform we see that we're at a point of vantage where we can grab a lot of market share. We expect to actually increase the investment into the e-commerce market, so that we can solidify our leading position in this segment.

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 Alex Yao,  JPMorgan - Analyst   [12]
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 Very helpful. Thank you very much.

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Operator   [13]
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 Our next question comes from the line of Sisi Lu from China Renaissance. Your line is open. Please go ahead.

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 Sisi Lu,  China Renaissance - Analyst   [14]
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 Hi, good evening, everyone. Thank you for taking my question. Actually my question is related to the listing business. We see that the listing business is growing much slower than the e-commerce business actually. So could you please could you share with us the dynamic behind the number, please? Thank you.

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 Min Chen,  Leju Holdings Ltd - CFO   [15]
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 Sure, Sisi, I will ask Chairman Zhou to answer your question. (Spoken in Chinese)

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 Xin Zhou,  Leju Holdings Ltd - Executive Chairman   [16]
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 Okay. (Spoken in Chinese, interpreted by Min Chen). First of all, in terms of the secondary housing listing market on the internet, the internet listing business , we think that the entire industry is at brink of a major industry shift. The reason being that starting from the second half of last year, many of the offline stores, secondary listing stores saw a huge decline in their revenues and profits, and therefore, they increased their internet and online investments. And we're also seeing one of the trends is that a lot of the offline agents have started boycotting the online operators of listing businesses. And this had already impacted some of the internet listing companies, and potentially could impact more.

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 Xin Zhou,  Leju Holdings Ltd - Executive Chairman   [17]
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 (Spoken in Chinese, interpreted by Min Chen). We've told the market that our listing revenue from 2013 was primarily from one city in Beijing and we completed our layout for the national network in about 20 cities late last year, and are just starting the network coming to shape beginning of this year. So, we actually think that Leju is a very -- is currently given the potential industry shift, we're at a very good position, at a very nimble position, to face this change.

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 Xin Zhou,  Leju Holdings Ltd - Executive Chairman   [18]
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 (Spoken in Chinese, interpreted by Min Chen). Our successful model in Beijing last year was predicated upon the verified listing of truehousing information. Given what we're facing in the industry right now, we see a huge potential for us to use this model and fill the gap that industry is lacking, and as a result, increase our market share in this industry significantly.

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 Xin Zhou,  Leju Holdings Ltd - Executive Chairman   [19]
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 (Spoken in Chinese, interpreted by Min Chen). This is also a perfect opportunity to launch our mobile strategy in the secondary listing industry as well. As you know, in late March we installed our mobile app, Fangniujia onto about 200,000 of agent's smartphones. We see a lot of opportunity for us to grab market share in this industry, and we actually see this, the secondary listing market, as a primary focus for us in 2014.

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 Min Chen,  Leju Holdings Ltd - CFO   [20]
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 (Spoken in Chinese).

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 Sisi Lu,  China Renaissance - Analyst   [21]
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 Thank you.

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Operator   [22]
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 Our next question comes from the line of Jiong Shao from Macquarie. Your line is open. Please go ahead.

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 Jiong Shao,  Macquarie - Analyst   [23]
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 Hi, thank you for taking my questions. Firstly, of course, congrats for your first earnings call and your very strong results for Q1. I have a clarification first. You talk about the e-commerce cities went from 17 a year ago to now 49 cities in Q1. Could you please share with us your penetration rate in tier one, two or lower tier cities? That would be great. My question is on the Weixin side. Now, it's been I think a bit over a month since you announced a strategic partnership with Tencent, and you already launched the Weibo product. Is anything you can tell us more about the potential sort of features in your Weixin platform? Is that from looking a [few] perspective? Is that going to be somewhat similar to Weibo? Are there other features that's not in your Weibo platform, but it will be part of the Weixin platform? Thank you that's my question for this round.

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 Geoffrey He,  Leju Holdings Ltd - CEO   [24]
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 Okay, for the first question for the penetration rate in terms of the number of the houses sold in the city, the number that we watched, the market for the first tier cities, that's about Leju's penetration rate is about 14%, which is actually 5% more compared to the same period of last year. and our definition for the first tier city is Beijing, Shanghai, Guangzhou, and Shenzhen, four cities. And for the second tier cities, the penetration rate about 5%, which is 1% higher than the previous first quarter of 2013. And for the third tier cities, our penetration rate is also about 5%, which is 2% higher than the same period of last year.

 So that's for the first question. And for the second question is actually a lot of people are very interested to know the progress of our operation with Tencent on Weixin, and more particularly, I think a lot of our clients and the developers, they are also very eager to see this product. [What] I think I can share is that we are still in a very positive, and very actually active testing period of the product, with Tencent and Weixin team. And we are going to launch this product very soon, I think, maybe in one month time, around that.

 And the features, I think, are the first priority for us is that we provide a lot of common features that can [suit well] for the developer's interest. And for the second priority is that we will add a lot of Weixin unique features, which actually can make the [platform more outstanding compared to the Weibo. Actually we are also thinking about some unique features on the Weibo platform.

 So both products, actually, Weibo and the Weixin they have some unique features. That's our solution for that.

 Looking forward, I think, especially we get a feedback from the developers. They actually welcome the Weibo products and they are also seek the Weixin products if we can provide them both. They think will be more competitive. The feedback from them is very positive.

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 Jiong Shao,  Macquarie - Analyst   [25]
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 Okay. Thank you, He zong. Could I follow up on your comments on Weixin platform? Now, because Weixin is a social platform, and the [weibo] is sort of social media, because Tencent is also a shareholder of yours, is Tencent making part of its social graph available for you so you can tap into that sort of resources deeper when you come out with your Weixin product?

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 Geoffrey He,  Leju Holdings Ltd - CEO   [26]
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 I think, currently, our cooperation is based on the public accounts. And after we launch the public accounts product, and after some ground operation, I think we'll still have the chance to talk about deeper cooperation with them. But at the first stages that we have the product on the public accounts.

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 Jiong Shao,  Macquarie - Analyst   [27]
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 Okay. Thank you. I go back to the queue. Thank you.

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 Geoffrey He,  Leju Holdings Ltd - CEO   [28]
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 Okay.

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Operator   [29]
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 Our next question comes from the line of Tian Hou from TH Capital. Your line is open. Please go ahead.

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 Tian Hou,  TH Capital - Analyst   [30]
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 Hi, I have one question. I think the question is a really weird question, but I hope I can get some answer from you guys. As I look at the, how to say, your financials in comparison with your peers, like SouFun, and I feel like there is a disconnection, because when you go IPO, it's much more in a similar format of SouFun. However, if I look at your operating margin, or your bottom line, it seems like there's a big difference. So I wonder where the difference come from. Why such a similar business has similar financials? So.

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 Geoffrey He,  Leju Holdings Ltd - CEO   [31]
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 I think first a very big reason is that when you compare ourrevenue breakdown, Soufun has a very, very strong listing revenue, which comprise maybe 40% of the total revenue. But this sector, we are still growing and emerging, which means our future growth opportunities. So that is a very big reason when you compare the bottom lines.

 And the second of what I should mention is that actually, we already have a very solid plan to develop our listing business. I think in the future, I think, that that will be another driver. But currently already see that we did quite pretty well on the new home market.

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 Tian Hou,  TH Capital - Analyst   [32]
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 Okay, so if that's the case, can I assume as you increase your scaleand also as you finish your ramping up of expansion, your margins should be on the upward trend? Is that a right assumption?

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 Min Chen,  Leju Holdings Ltd - CFO   [33]
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 I think we want to maintain a stable margin. Tian, I think He zong is exactly right. Even when we were, even what information we disclose in our IPO prospectus, I think if you look at the revenue composition, it's still slightly different from the revenue composition of SouFun, primarily because we see a higher growth opportunity in the e-commerce segment. And we think that the current products that we have, the closed loop portfolio of PC side and our mobile devices, as well as our Fangniujia app form closed loop e-commerce offering for our developer clients, and that would allow us to further capture the e-commerce growth, probably, one of the fastest growth segments of the online services.

 So, as we've told investors in the past, looking forward in the foreseeable future, we still think that the e-commerce segment will be our primary growth driver in terms of revenue. So we want to make sure that we have a very firm leading position in that industry.

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 Tian Hou,  TH Capital - Analyst   [34]
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 So one follow up question, if I may, is that we saw a lot of data from you guys and from other guys in the market, and the data shows a slowdown in both transaction volumes and the price. So as e-commerce, my understanding is, it is closely correlated to what the volume of the transaction. So if the volume of transaction is going down, what's the growth driver for your e-commerce? Is that the regional or geographic location expansion? Or what is the driver?

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 Geoffrey He,  Leju Holdings Ltd - CEO   [35]
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 I think of two points. The first point is that, obviously, we will have the e-commerce business into more cities. Geographic expansion is very natural. And the second one is that as we see more and more developers actually embracing this model, and as I said before, that the penetration rate of the total e-commerce market is really low. Last year it was only about 3%. So we still see a very big space to grow to capture the market share. So in these big cities, or even the second cities, we have a very, actually, a very, very good opportunity, especially our mobile e-commerce product that we can have more products to actually to offset the negative impact of the transaction volume slowing down. That's the two points. You get what I mean?

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 Tian Hou,  TH Capital - Analyst   [36]
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 In terms of expansion, so can I get a little more information. How many projects do you have under contract so far in how many cities? What's your expectation for the full year? How many total projects do you plan to get and in how many cities?

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 Min Chen,  Leju Holdings Ltd - CFO   [37]
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 As of the end of quarter -- first quarter, we have about 1,000 projects in 49 cities, as we mentioned. We are continuing seeing, actually, accelerating growth for -- in terms of getting e-commerce mandates. As He zong mentioned, he mentioned the market transaction volume and prices are coming down. But if you think of e-commerce as a marketing and promotional tool for developers to sell their primary houses, this is a perfect opportunity for us to capture that -- to market our services to developers, and capture that under-penetrated market.

 So for the remainder of the year, it's hard to say exactly how many projects we expect to get, but we definitely see very decent, or very meaningful growth in terms of both our number of projects and our overall market share.

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 Tian Hou,  TH Capital - Analyst   [38]
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 Yes. That's very helpful. Thank you.

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Operator   [39]
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 Our next question comes from the line of Anthony Tong from 86Research. Your line is open. Please go ahead.

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 Anthony Tong,  86Research - Analyst   [40]
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 Hi, thank you. Thank you taking my questions, and congratulations on the strong results. I have a follow up a question on the growth strategy of e-commerce, because you have mentioned that you have been penetrating more cities to drive growth. Specifically, you can provide a breakdown of e-commerce revenues from tier 1 cities like Beijing and Shanghai. How has this number has been trending in the past year? Thank you. And I have a follow up question.

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 Geoffrey He,  Leju Holdings Ltd - CEO   [41]
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 I think that for the revenue in terms of the city breakdown, I think that especially because it has a higher house price and a higher discount, and the coupon value is much higher than compared to the second tier, the third tier cities. I think the penetration rate in the first cities is still going up. So the first tier revenue contribution, we'll still make the most, I think leading our total growth.

 And the second is that the -- [what I should say] is a very big market for the second tier cities. The second tier it is because it has more cities, and actually, most branded developers are coming into this market. So that is why we can see among our revenue breakdown, income is really breakdown in terms of first tier, second tier, third tier city. The second tier cities already been the number one revenue contribution, and that takes more than half of our total revenue.

 So another thing is that we expand to more cities, we still think that the third tier cities has a quite big potential, because a lot of developers there are see, begin to know that model, and begin to use this model. So previously they don't actually they don't use very traditional model, marketing models. So it is, we ought to see a rise in the third tier cities.

 So you can see in all these 3 tier cities, we still have the chance to capture a huge potential of this market. And currently, I think, especially on this market situation, I think the chance is really good for us.

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 Anthony Tong,  86Research - Analyst   [42]
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 Okay. Thank you. And the follow up question, if I may, then could elaborate your strategy penetrates lower tier cities, and since your competitors are doing the same thing, are you willing to hire more salespeople penetrating those cities? Thank you.

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 Geoffrey He,  Leju Holdings Ltd - CEO   [43]
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 I think the competition is not based on how many salespeople you have, but what kind of services you can provide to the developers, and what they need, if you can meet their needs, meet their demands. Leju has a very good position to provide them a total solution, as I said, both online to offline, both from the customer side and to the business side. And then especially with our mobile strategies, actually, we -- that gives us a very special position on this market, because we can have clients using their mobile devices to get directly connected with the developers, and also we are using the mobile technologies to power the traditional agent channels. I think that these two, our mobile strategies will further help strengthen our position on the market.

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 Anthony Tong,  86Research - Analyst   [44]
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 Okay. Yes, that's helpful. Thank you. I'll go back to the queue.

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 Geoffrey He,  Leju Holdings Ltd - CEO   [45]
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 Thank you.

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Operator   [46]
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 Our next question comes from the line of Gregory Zhao from Barclays. Your line is open. Please go ahead.

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 Gregory Zhao,  Barclays - Analyst   [47]
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 Thanks for taking my question. Congratulations on the strong performance. I have two questions. The first question is also about the e-commerce business, and we've seen there's fierce competition in the e-commerce business. We see some traditional internet portals, like Sohu, and some local players like Fangduoduo, they're also getting into the market. So in longer term, do you expect some price war, and also hope management can share some color about the longer term competition landscape. This is my first question, thanks.

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 Geoffrey He,  Leju Holdings Ltd - CEO   [48]
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 It is true that the market competition is getting fierce. But the focus of the market competition is not on the price, but on the cost side. Because if you want to get the project, you need input more costs if you don't have enough resources, or if you don't have proven resources, especially online, offline services. So I think the competition in the future, now and in the future, will still be focused on what kind of service you provide to the developers. And actually, the competition is also on that if you have the capabilities to provide this online offline service to developers, what kind of costs you pay to these services.

 So, Leju, as you know, we formed the strategic partnership with SINA, with BAIDU, with Tencent, which allows us have a very cost friendly combination of our resources, online resource. And especially, we are using Fangniujia to empower the agents that will also raise the work efficiency, and that will reduce the offline costs.

 So I think the competition in the future is not on the price of the coupon, but on the cost, what kind of cost structure you will have.

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 Gregory Zhao,  Barclays - Analyst   [49]
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 Okay, thanks. My second question is about our online marketing services. I think compared with the peers, and compared to the internet portals, I think in Q1, after the report of Q1 result, I think generated the advertising revenue growth, and the property advertising growth is around 20% to 30% a year-over-year, but compared to them I think our growth is relatively soft, so can management give some reason behind because of the pricing decline and other reasons. Thanks.

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 Geoffrey He,  Leju Holdings Ltd - CEO   [50]
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 First, I don't agree with you on that our online marketing sector is a bit softer, because when you compare it to the growth rate, actually it is higher than the average of last year. For us, because we still concentrate on the growth of the e-commerce side. So, when you go to developer, first, we will say if we can have a chance to do the e-commerce projects, and then we will say if you can give us the marketing dollars.

 It's the strategy of that, and especially, as I said, and we're having more and more e-commerce projects from developers, we actually show our efficiency and show our effectiveness of our platform, which actually will be helpful for us to get more marketing dollars from the developers. So that is why I think in the first quarter you can see actually the growth rate of our marketing dollars sector is still -- is already is higher than last year's average.

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 Gregory Zhao,  Barclays - Analyst   [51]
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 Okay, thanks very much. Very helpful.

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 Geoffrey He,  Leju Holdings Ltd - CEO   [52]
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 Thank you.

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Operator   [53]
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 Our next question comes from the line of Alex Yao from JPMorgan. Your line is open. Please go ahead.

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 Alex Yao,  JPMorgan - Analyst   [54]
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 Hi, thank you for taking my follow up question. I want to follow up on one of the previous questions on listing service. So, Zhou zong, you mentioned you guys have already penetrated like 200,000 agents, which is approximately probably a quarter of total active agents in China. How do you offer value proposition to these agents? And then in terms of monetization, I understand in the past year, you guys primarily monetizes through the verification service, [inaudible. And then now you guys are ramping up the Fangniujia service. Is it going to be a different monetization model? If so, can you help us to understand a little bit more? Thank you.

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 Min Chen,  Leju Holdings Ltd - CFO   [55]
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 Alex, (spoken in Chinese).

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 Xin Zhou,  Leju Holdings Ltd - Executive Chairman   [56]
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 Okay. (Spoken in Chinese, interpreted by Min Chen). Alex in terms of the Fangniujiaapp, we rolled out to the 200,000 agents. What we really want to do is to, first, allow these agents to benefit from our app, Fangniujia app. In Chinese Fangniujia really means agent plus. What we want to do is to use our resources to help these agents to actually make money, to make revenues. So whether it's customer leads that we share with these agents, or even monetary awards that we give them for bringing us customers, we want to make sure that these agents really see a benefit of using Fangniujia app, and seeing the benefit of our platform, and have a willingness to stay on the platform to help to grow the business together with us.

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 Xin Zhou,  Leju Holdings Ltd - Executive Chairman   [57]
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 (Spoken in Chinese, interpreted by Min Chen). The verified housing model that you mentioned that we've used in our listing business last year in Beijing is something that was very successful in Beijing, and we're rolling out to multiple different cities to make sure that that's also replicated. But the reason it's successful, the reason that it works, is because it's different from the traditional terminal or bidding model, whereby the agents can receive similar returns, or even a higher return without the additional pressure or stress of having to compete in a vicious environment.

 So we see the benefit and the success of this model, and we'll continue to use the verified housing model in the cities that we've entered into.

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 Xin Zhou,  Leju Holdings Ltd - Executive Chairman   [58]
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 (Spoken in Chinese, interpreted by Min Chen). As to your question about the monetization model of the Fangniujia, the way that we see the secondary housing market we think that internet -- the trend is moving towards the internet and also the -- keeping the -- or attracting the brokers is also key to this trend. So, our Fangniujia right now is to providing benefits to these agents, so that we can keep them on our platform, and then we'll develop the monetization model through our Fangniujia app in the near future.

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 Alex Yao,  JPMorgan - Analyst   [59]
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 Alright. Got it. Very helpful. Thank you.

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 Min Chen,  Leju Holdings Ltd - CFO   [60]
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 Thanks.

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Operator   [61]
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 Our next question comes from the line of Jiong Shao from Macquarie. Your line is open. Please go ahead.

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 Jiong Shao,  Macquarie - Analyst   [62]
------------------------------
 Thanks for taking my follow ups. He zong, when you talked about for your e-commerce business, tier 2 cities already contribute over 50% of the e-commerce revenue. Could you please share with us sort of the revenue, maybe just the e-commerce revenue mix for tier 1, 2, 3? I think that would be helpful. And my question, follow up question, is on the seasonality of your business. So for your e-commerce business from Q1, Q2, Q3, Q4, is there any kind of a seasonal pattern you think we should be aware of? And also is any seasonal pattern for your advertising business?

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 Geoffrey He,  Leju Holdings Ltd - CEO   [63]
------------------------------
 Okay. For the revenue breakdown, in terms of the tier of the cities. The first tier is about 42% of it, 42%. The second tier is about 51%, and the third tier is about 7%. That's the breakdown.

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 Min Chen,  Leju Holdings Ltd - CFO   [64]
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 And Jiong, I'll quickly answer your seasonality question, and then I'm afraid that's going to have to be our last question, because our parent company is announcing results at 8 o'clock tonight. In terms of seasonality, as you all know, the real estate industry has seasonality throughout the 4 quarters, and we think that from an e-commerce business perspective, we expected to roughly follow the real estate industry seasonality, which is roughly probably 35%, 40% for the first half, and the rest will concentrate in the second half.

 In terms of the online advertising business, there's also some similar seasonality, but probably less pronounced. As you can imagine, the advertising, advertising will be a little bit pre-leading the actual sale of the project. So that seasonality trend won't be as prominent.

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 Jiong Shao,  Macquarie - Analyst   [65]
------------------------------
 Okay. That's very helpful. Thank you He zong. Thank you, Min.

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 Min Chen,  Leju Holdings Ltd - CFO   [66]
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 Thank you.

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Operator   [67]
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 We're now approaching the end of the conference call. I will now turn the call over to Leju's Investor Relations Director, Ms Melody Liu for her closing remarks.

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 Melody Liu,  Leju Holdings Ltd - Director - IR   [68]
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 This concludes this call. If you have any further questions, please contact us at the numbers or emails provided on our earnings release or on our IR website. Thank you. Operator.

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 Geoffrey He,  Leju Holdings Ltd - CEO   [69]
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 Thank you.

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Operator   [70]
------------------------------
 Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.




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