Q4 2015 Leju Holdings Ltd Earnings Call

Mar 15, 2016 AM EDT
LEJU - Leju Holdings Ltd
Q4 2015 Leju Holdings Ltd Earnings Call
Mar 15, 2016 / 11:00AM GMT 

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Corporate Participants
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   *  Melody Liu
      Leju Holdings Limited - IR Director
   *  Geoffrey He
      Leju Holdings Limited - CEO
   *  Min Chen
      Leju Holdings Limited - CFO

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Conference Call Participants
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   *  Jinsong Du
      Credit Suisse AG - Analyst
   *  Hillman Chan
      Macquarie Research - Analyst
   *  Tian Hou
      T.H. Capital, LLC - Analyst
   *  Ming Xu
      UBS Investment Bank - 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 Fourth Quarter and Full Year 2015 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. Melody Liu, Leju's Investor Relations Director.

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 Melody Liu,  Leju Holdings Limited - IR Director   [2]
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 Thank you. Hello, everyone, and welcome to Leju's Fourth Quarter and Full Year 2015 Earnings Conference Call. Today, we will update you on our financial results for the fourth quarter and full year ended December 31, 2015. 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 2015. Ms. Min Chen, our CFO, will then discuss the financial results in more detail. We will then open the call to questions, at which time, our Executive Chairman, Mr. Xin Zhou, will also be available.

 Before we continue, please allow me to review 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, Mr. Geoffrey He. He Zong, please go ahead.

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 Geoffrey He,  Leju Holdings Limited - CEO   [3]
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 Thank you, everyone, for joining us on the call today. We continue to operate in a changing market for online real estate marketing services in 2015 and the pretty intense competition from a number of companies using varying models. However, we stayed committed to the media, marketing and e-commerce platform model where we focus on providing marketing and the listing services through online and off-line resources, since we believe these services offer long-term value to customers and could provide better profitability to our company and the shareholders.

 During 2015, we further expanded our leadership in the primary housing market in online and mobile media marketing and e-commerce products, and also saw encouraging growth momentum for our secondary listings and home furnishing businesses.

 Throughout the year, we upgraded our marketing platforms, including media and information, membership, brokerage connectivity and e-commerce to improve their marketing impact and the user experience for both developers and home buyers. In addition to our strong media influence on traditional PC platform, our in-depth industry report published through Weixin or WeChat generated great interest among readers and buyers, with media reports generating over 1 million viewers. Our mobile platform, consisting of our content on mobile browsers, Weibo and Weixin, has contributed about half of our total traffic.

 Our one-on-one private car services in cooperation with Didi for site visits continued to be in high demand for both developers and home buyers and have generated over 134,000 orders in the fourth quarter and an eight-fold growth compared to the third quarter.

 Since launching this product in July, we have served over 270,000 home buyers on site visits to close to 10,000 projects. With our brokerage connectivity platform, over 30,000 home transactions across the year were introduced by the secondary brokerage agents that we partner with.

 In the secondary market, we continued to attract brokerage agents to our platform in the 17 cities we now operate in and increased our market share. More importantly, more and more agents are staying on our platform to purchase multiple listings, which greatly helps contribute to the growth and the profitability of our business.

 On the home furnishing business, our media advertising service retained the market number one share in the industry, and our contractor platform continued to expand through the year. We now have over 19,000 qualified contractors providing customized services directly to homeowners.

 In 2016, we expect the market competition to remain fierce, but we believe that we have laid solid foundations for long-term growth across all of our business lines. We will compete more effectively with our integrated PC and mobile resources in primary and the secondary housing markets. And also, we'll increase our investment into the home furnishing contractor business to maintain our first-mover advantage. We will continue to invest in product innovation and work with our strategic partners to further improve efficiency and the operating results.

 While we still expect the primary market to generate the majority of our revenues, we believe our strategy and expansion in the secondary housing and the home furnishing markets will contribute more to the overall growth of the company in the next few years.

 Now, I will turn the call to our CFO, Ms. Min Chen, who will review our financial highlights for the fourth quarter and the full year 2015.

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 Min Chen,  Leju Holdings Limited - CFO   [4]
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 Thank you, He Zong. Good morning and good morning, everyone.

 For the fourth quarter of 2015, we recorded total revenues of $173.4 million, representing a 1% year-over-year growth over the same quarter last year. Our e-commerce services revenues were $129.7 million, contributing roughly 75% of our total revenues this quarter and representing a 4% year-over-year growth over the same quarter last year. The growth was primarily due to an increase in the average price per discount coupon redeemed, partially offset by the decrease in the number of discount coupons redeemed.

 Our online advertising services revenues continued to be impacted during the quarter, primarily as the result of decrease in property developers' online advertising demand. Online advertising revenues for the fourth quarter declined by 15% year-over-year to $37.1 million and contributed roughly 21% of our total revenues for the quarter.

 Our listing services revenues were $6.6 million, posting an 87% increase from $3.5 million for the same quarter of 2014, primarily due to growth in the number of paying agents.

 Fourth quarter non-GAAP income from operations was approximately $21.5 million, representing a 41% decrease from the same period last year.

 Non-GAAP net income attributable to Leju shareholders was approximately $18.1 million, representing a 42% decrease compared to the same period last year.

 For the full year of 2015, we recorded $575.8 million in total revenues, representing a 16% increase from full year 2014.

 E-commerce services revenues grew 29% from full year 2014 to $420.6 million, contributing around 73% of total revenues. Online advertising services revenues decreased 13% from full year of 2014 to $134.2 million, contributing 23% of total revenues, while our listing services revenues increased 47% to $21 million from [14.3 million] for the full year of 2014.

 Non-GAAP income from operations was $68.9 million, representing a 36% year-over-year decrease compared to 2014. Non-GAAP net income attributable to Leju shareholders was $57.4 million, representing a 37% year-over-year decrease from 2014.

 As of December 31, 2015, our cash and cash equivalents balance was approximately $260.3 million. Our net cash flows from operations for the fourth quarter 2015 was $16.9 million.

 Turning to our full year guidance. We estimate that our fiscal 2016 total revenues will be between $660 million to $690 million, which would be an increase of approximately 15% to 20% over that of 2015. 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.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) We will now take our first question from Jinsong Du from Credit Suisse. Please go ahead. Your line is now open.

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 Jinsong Du,  Credit Suisse AG - Analyst   [2]
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 I'd like to ask about assumptions behind your 2016 guidance, if you could break down into different business segments. And also, would that assumption have an implied assumption for the overall market as well? Thank you.

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 Min Chen,  Leju Holdings Limited - CFO   [3]
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 Jinsong, our assumptions, as you know, there are three lines of revenue -- three lines of businesses contributing to revenue. Our assumption, similar to that of 2015, is that our e-commerce revenues, like He Zong said, would still contribute a majority of the revenues and will post -- we are expecting healthy growth in double digits. Our overall marketing services, the online advertising business, for now, we are expecting single-digit stable growth. And for secondary listings, given our current foundations set up in the cities that we operate, we are hoping that it will still post a similar type of growth for 2016.

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 Jinsong Du,  Credit Suisse AG - Analyst   [4]
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 Yes. But does it have an underlying assumption on the market growth, I know that as well, or whether it's underlying housing market growth or underlying growth for the overall e-commerce industry?

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 Geoffrey He,  Leju Holdings Limited - CEO   [5]
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 I think when we look at this month's market, and everybody knows that it's quite hot. But we are still quite cautious on the full year market because over -- a market with too much heat, I think, is not healthy for us. So -- or actually, our guidance reflects our normal, I think, expectation of the market, given that the government is still quite supportive to a healthy housing market. So our view is not actually not changed by the -- this sudden heat of the March house market.

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Operator   [6]
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 We will now take our next question. Our next question comes from Hillman Chan from Macquarie. Please go ahead. Your line is now open.

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 Hillman Chan,  Macquarie Research - Analyst   [7]
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 I have a question regarding the preference of the developers. As the Chinese property market has been very hot in the past few months, if the market remains as hot throughout the whole year, so how do we expect the preference of developers towards coupons, advertising, direct sales? And so that's my first question.

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 Geoffrey He,  Leju Holdings Limited - CEO   [8]
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 I think when we look at the national market, I think it consists of by first-tier, second-tier and the third-tier cities. And when we see the market is hot when, actually, we are talking about the first-tier cities. And then we think this kind of hot market cannot be sustained for very long because in these first-tier cities, there are not so many houses to be sold if this trend continues.

 And as to our business, I think, as I said, a too hot market is not good to us because a lot of projects may have not enough room to give out the special discount. But I think, currently, we don't see that it will be a very big trend, especially that -- like Shanghai and the Beijing development are also thinking about some new policies to cool down the market. So I think -- so currently, I think it's not a big problem for us. And when we're looking at the second-tier and the third-tier cities, especially the third-tier cities, they still need very strong marketing campaigns to help them to sell the houses. Is that good?

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Operator   [9]
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 We will now take our next question. Our next question comes from Tian Hou from T.H. Capital. Please go ahead. Your line is now open.

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 Tian Hou,  T.H. Capital, LLC - Analyst   [10]
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 A question related to your pre-announcement. In your pre-announcement, you particularly mentioned about the pressure from competition. So I wonder -- the competitors has been always there. So this time, the competition, in which way is it different than before?

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 Min Chen,  Leju Holdings Limited - CFO   [11]
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 Tian, I think all along, you're right, competition has always been there. We've been competing in a pretty fierce competitive market since the second half of 2014. I think over the past several quarters, the competition has diversified. We've also seen different business models emerging. In our pre-announcement as well as our release that we had just distributed, we -- the pressure really was from multiple competition, but also from various projects shifting away from the -- our pipeline or shifting over time from our pipeline, from our project pipeline. That's the main reason for our pre-announcement, which we explained in the current release.

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 Geoffrey He,  Leju Holdings Limited - CEO   [12]
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 And then when we're looking at competition, I think in 2015, actually, we faced some abnormal competition from some new startups. They are -- actually, they are getting projects not on the profit base. What they want is just, say, do the business, no matter how much they want to invest in these projects. So it's kind of -- we call it abnormal. I think this kind of abnormal competition cannot be sustained.

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Operator   [13]
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 (Operator Instructions) We will now take our next question from Ming Xu from UBS. Please go ahead. Your line is now open.

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 Ming Xu,  UBS Investment Bank - Analyst   [14]
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 So my question is regarding your website, leju.com, and the competition. So we noticed that you recently revamped your website and seemed to put a lot of resource on promoting the website. Could you talk about your strategy in terms of developing this website compared to your previous practice of relying more on SINA, Baidu traffic? And also, could you disclose or share with us some color on the traffic contribution from leju.com? What it is now and what it compares with like six months ago or what's your target by the end of this year?

 Also, we noticed, as the previous question just highlighted, we noticed some of your competitors are again, at the beginning of 2016, launched some high-profile marketing campaigns nationwide. So how will you just cope with this? And could you share with us some of your guidance on the promotional or advertising spending and the margin impact? Thanks.

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 Geoffrey He,  Leju Holdings Limited - CEO   [15]
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 Okay. For your first question, yes, we actually launched our new website, leju.com. But as you know, that Leju's previous website is based on SINA, it's house.sina.com.cn. Why we do that leju.com is just because I think it's the second-tier domain name previously house.sina.com is not friendly to the search engine. And obviously, we need more traffic, so that's why we actually did a new website, leju.com, which is the first-tier domain name.

 Currently, our strategy is that we will keep the domain name all together and we will keep running them. And yes, from December, we actually see the -- a quite sharp rise of the traffic of the leju.com, but it is still at kind of not so high level. So we are still watching that, and we will invest in resources to boost the traffic on leju.com. For the future, I think we have an option that we choose one domain name, but it's not decided yet. Now our strategy is to keep the two domain names operating together.

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 Min Chen,  Leju Holdings Limited - CFO   [16]
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 And Ming, to your second question about marketing and promotion spending. As you know, historically, a lot of our marketing expenses are actually those expenses that we incur to market our developer clients' projects. And in doing multiple projects, in the process of marketing their real estate projects, we also have the Leju brand co-marketed during those processes and during those offline events.

 But you're absolutely right, I think beginning from last quarter and this quarter, we are seeing some of our competitors spending a lot of expenses in marketing their own brand name. And we're internally studying whether this is something that we might do as well, not necessarily to that extent, but we will continue to market the Leju brands together with our off-line events when we're marketing our clients' projects. But we are open to spending some marketing dollars to promote the Leju brand name, especially with this new website that we're promoting.

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Operator   [17]
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 (Operator Instructions) We are now approaching the end of the -- okay, we actually have another question now. We will now take that question. The question comes from the line of Hillman Chan from Macquarie. Please go ahead. Your line is now open.

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 Hillman Chan,  Macquarie Research - Analyst   [18]
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 It's Hillman again. I just want to ask about the customer deposits. I noticed the amount went up pretty fast in fourth quarter. I just wanted to see whether that's going to be a practice that we have with the developers regarding the e-commerce projects that we have.

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 Min Chen,  Leju Holdings Limited - CFO   [19]
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 Thank you, Hillman. I think you noticed that we've only started doing that very recently in the fourth quarter, and that was really in response to some of the market competition that we're facing. Many of our competitors are using the customer deposit as a way to win projects. And we did increase our -- in response to that, we did increase our deposit amount in the fourth quarter substantially compared to previous quarters. However, whether that will be an ongoing practice, I think, will still be a case-by-case situation. All of the projects that we approved to have the deposit given to the developer clients in the past few quarters have been specifically approved by the senior management. So going forward, this is not going to be a sort of course of business practice, but we will evaluate the specific project that we're going after and the amount that we need to deposit with the developer to make a decision.

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 Geoffrey He,  Leju Holdings Limited - CEO   [20]
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 Yes, and this will be decided only project by project. And currently, actually, we choose very few developers. There are very few projects that we trust them.

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 Hillman Chan,  Macquarie Research - Analyst   [21]
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 Okay, got it. And one last question from me. How should we think about the competition from direct sales because, like direct sales commission to developers? In some sense, it's just one way of sales and distribution, so they put it together with the sales and marketing expenses, so that also eat into the advertising budget as well. So how do we see competition from there? I think they have been around for quite some quarters.

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 Geoffrey He,  Leju Holdings Limited - CEO   [22]
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 Actually, I said several times, the direct sales is not a sustainable model, especially this kind of -- when we call it a business model, it should be in line with the movement of the markets, but it's opposite to the movement of the markets, especially investments where you can see in the first-tier cities, most developers actually canceled their direct sales operation because they are not willing to give up these, say, call it channel fees.

 So it's -- we don't think it's a sustainable model. We did see some competition when the market was at the bottom level. Some developers, they think that this way will be the most effective way to prove their money is effective. But actually, as I said, that the most practice shows that the clients, they call it (inaudible) actually, and most are from original clients of the developers. So improper practice, it's not in line with the market trend. I think it's just -- we just think it's a short-term competition to us.

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Operator   [23]
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 We have now another question. It comes from Ming Xu from UBS. Please go ahead. Your line is now open.

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 Ming Xu,  UBS Investment Bank - Analyst   [24]
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 I have another question on the government policies. So we know that the government has announced a certain -- a lot of many policies on the destocking of property sector, particularly in the lower-tier cities. But we also know that, so far, it seems that the property boom mostly happen in the Tier 1, Tier 2 cities. But in low-tier cities, the property sales remain tough and the inventory remain high. So I'm wondering, in your view, so do you think this policy will help the sales in lower-tier cities? And in this, will companies like Leju actually benefit from helping the developers to sell their inventories? Thanks.

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 Geoffrey He,  Leju Holdings Limited - CEO   [25]
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 Yes. If developers in the second and third tiers, if they want to move their inventory, I think Leju will be the first choice for them to help them. And actually, we don't think that the problem in the third-tier cities is mainly a house market problem because the big inventory in these cities actually should be consumed by the incoming inhabitants. So I don't think that's a very simple problem for these cities. So this give us a chance that the developers' needs, use more innovative promotion campaigns that can -- to attract more intention -- attention from the homebuyers. So that's why we think that we will benefiting from these second tier and the third cities. They have to move up their inventory campaign. So that I think -- for the first tier, because we already have a very strong leadership there, I think as a market number one, we're still -- given that the market is good, I think it would be benefit so long it's not going crazy. Is that clear? Hello?

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 Min Chen,  Leju Holdings Limited - CFO   [26]
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 Operator?

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Operator   [27]
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 Yes. We are now approaching the end of the conference call. I will now turn the call back over to Leju's Investor Relations Director, Ms. Melody Liu, for her closing remarks.

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 Melody Liu,  Leju Holdings Limited - IR Director   [28]
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 Thank you, operator, and thanks, everyone. 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. Thanks.

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Operator   [29]
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 Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.




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