Q4 2016 Leju Holdings Ltd Earnings Call
Mar 13, 2017 AM EDT
LEJU - Leju Holdings Ltd
Q4 2016 Leju Holdings Ltd Earnings Call
Mar 13, 2017 / 11:00AM GMT
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Corporate Participants
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* Annie Huang
Leju Holdings Limited - IR
* Geoffrey He
Leju Holdings Limited - CEO
* Min Chen
Leju Holdings Limited - CFO
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Conference Call Participants
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* Ming Xu
UBS Investment Bank - Analyst
* Alex Yao
JP Morgan Chase & Co - Analyst
* Hillman Chan
Macquarie Research - Analyst
* Nora Zhang
BofA Merrill Lynch - Analyst
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Presentation
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Operator [1]
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Thank you for standing by, and welcome to the Fourth Quarter 2016 Leju Holdings Limited Earnings Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today, Monday, 13th of March 2017. I would now like to hand the conference over to your first speaker for today, Ms. Annie Huang. Please go ahead, Ms. Huang.
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Annie Huang, Leju Holdings Limited - IR [2]
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Hello, everyone, and welcome to Leju's Fourth Quarter and Full Year 2016 Earnings Conference Call. Today, we'll update you regarding our financial results for the fourth quarter and full year ended December 31, 2016. If you would like a copy of the earnings press release or 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 the fourth quarter and full year 2016; 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 be available.
Before we continue, please allow me to read you Leju's safe harbor statement. Some of the statements during this conference call are forward-looking statements made under the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC. You are encouraged to review the forward-looking statement section of our Annual Report filed with the SEC for additional information concerning factors that could cause those differences. Leju does not undertake any obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.
Our earnings press release and this call include discussions of unaudited GAAP financial information as well as some unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. Please note that unless otherwise stated, all figures mentioned during this conference call are in U.S. dollars.
I will now turn the call over to Leju's CEO, Geoffrey He. He zong, please go ahead.
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Geoffrey He, Leju Holdings Limited - CEO [3]
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Thanks, everyone, for joining us on the call today. The real estate market in the fourth quarter last year took a sharp turn from the previous quarter and proved to be a challenging period for our business. Tightening measures regulating both marketing and the sales activities were announced by over 20 local governments at the beginning of October and were strictly enforced throughout the fourth quarter. As a result, transaction volume and the demand for marketing activities from the developers were immediately and drastically reduced across all major cities, which had a significant and a negative impact on our revenues and profitability.
To adapt to the sudden market change, we accelerated our product innovation, expanded the scope of our customer services and enhanced our efforts to consolidate our market leadership position. In December, we launched our new suite of advertising products, driven by our proprietary database in cooperation with Tencent, Weibo and Focus Media. These new cross-platform advertising products focus on various stages of developers' marketing cycles and are designed to deliver more targeted and differentiated marketing impact.
We further integrated and expanded our membership, e-commerce and marketing platforms to streamline and improve homebuyers' experience throughout the house-hunting process. We also worked closely with the leading news feed applications and the mobile browsers such as Toutiao.com and UC Browser to expand our reach to more homebuyers and increase Leju's media influence in the market.
During 2016, we also invested in raising Leju's own brand awareness, promoting events of our products and sites as well as enhanced our market leadership through working with major developers to win strategic contracts.
In the secondary market, we continue to expand our business and gain market share in existing cities. We launched live broadcasting services for secondary agents so that homebuyers could tour the properties online, which increases user engagement, and ensure authentic housing information.
In the home furnishing market, our contractor platform continued its strong growth momentum, with GMV transacted growing 370% year-on-year as we roll out our service into 82 cities. In addition to attracting contractors, starting from February this year, we started to integrate our other service partners, such as suppliers, designers, third-party quality control companies and the insurance companies, into our home renovation application to address different needs around the home renovation process. We expect the market in 2017 to remain difficult in the short run. However, the supply and the demand dynamics in the real estate market remains favorable to our long-term growth. We will continue to execute our strategies, improve our products and services and hope to capture all opportunities for future growth once the market returns to normal.
Now I will turn the call to our CFO, Ms. Min Chen, who will review our financial highlights for the quarter.
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Min Chen, Leju Holdings Limited - CFO [4]
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Thank you, He zong. Good morning and good evening, everyone. For the fourth quarter of 2016, we recorded total revenues of $104.9 million, which decreased 39% year-over-year as transaction volumes and advertising demand were sharply reduced in the fourth quarter due to previously mentioned aggressive tightening measures placed in the fourth quarter by local governments across our major markets.
Our e-commerce services revenue were $70.9 million, representing approximately 68% of our total revenues this quarter, a decrease of 45% year-over-year as both the number and average price per coupon redeemed decreased. During the quarter, we generated e-commerce revenues from 73 cities.
Our online advertising services revenues for this quarter declined by 24% to $28.2 million as a result of a decrease in developers' advertising demand. It contributed 27% of our total revenues this quarter.
Our listing services revenues for the fourth quarter of 2016 decreased by 11% to $5.8 million from the same period in 2015. The lower revenue was due to a decrease in secondary home sales in our markets.
Our selling, general and administrative expenses were $131.4 million, decreased by 9% from $144.2 million for the same quarter of 2015, primarily due to decreased marketing expenses related to the company's e-commerce businesses.
The fourth quarter non-GAAP loss from operations was $33.7 million while non-GAAP net loss attributable to Leju's shareholders was approximately $22.9 million.
For the full year of 2016, we recorded $559.5 million in total revenues, decreased by 3% from 2015. Our e-commerce revenues, which contributed 75% of our total revenues, were $419 million, relatively flat compared to $420.6 million for 2015. Our online advertising revenues decreased by 12% from last year to $118 million, contributing approximately 21% of total revenues; while our listing services revenues increased by 7% to $22.5 million from last year, partially offset by the decrease in secondary home sales in the fourth quarter of 2016.
Non-GAAP income from operations was $9 million, decreased by 87% from $68.9 million for 2015. Non-GAAP net income attributable to Leju's shareholders was $10.1 million, decreased by 82% year-over-year from 2015. As of December 31, 2016, our cash and cash equivalents balance was $274.3 million. Our net cash used in operating activities for the fourth quarter 2016 was $36.9 million.
Looking ahead, we expect that the tightening policy measures put in place last year would remain in force for the first part of the year and the impact on our business would continue in the short term. Therefore, we estimate that our first quarter 2017 total revenues will be approximately $59 million to $64 million, which would represent a decrease of approximately 48% to 43% from $113 million in the first quarter of 2016. This forecast reflects the company's current and preliminary view, which is subject to change.
This concludes our prepared remarks, and we're now ready for questions from the audience. 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 move to our first question coming from Ming Xu from UBS. Your line is open. Please go ahead.
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Ming Xu, UBS Investment Bank - Analyst [2]
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So I have two questions. So first question is, Hezong, you mentioned the new initiatives announced late last year about the product innovation in your media, in your advertising business. So I just want to know, is there any progress in this front? And also, what's the feedback, so far, from the developers? And also, what kind of benefit, if you can give us any quantitative measures on these measures to help our advertising growth this year? This is the first question.
And the second question is we noticed that year-to-date, the property sales in lower-tier cities appears to be quite resilient. So I just want to know, is this actually better than your company's expectation and, therefore, any upside to the 2017 revenue outlook?
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Geoffrey He, Leju Holdings Limited - CEO [3]
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Okay, thank you. For your first question, yes, actually we launched our seven new products, which focused on our mobile marketing and are based on our big data and also with very close relationship with our partnership with Tencent, Weibo and also Focus Media.
Actually, most developers, especially mainstream, big developers, they welcome our new products. And they think this is also the trend for them to market their products on the market because the mobile marketing is more and more important, and Leju is now the only company that can provide cross-platform mobile marketing solutions to them. They don't need actually talk to different mobile platform operators, they can just go to us and get a one-stop solution. And this also based on Leju's big data.
As I said, we have very accurate big data with every users in our big data database, they have more than 400 signals on that, which allows us to do a more accurate and mobile marketing with our developers. So it is very good feedback for them.
And we're also very pleased to see that our advertising revenue composition is gradually shifting to these new products. And we hope that because this represents the future development, we hope we will launch more mobile innovative product like that. And I think in the future, in the very near future, mobile marketing solutions will contribute most of our advertising revenue because it's market trend.
And to your second question, actually, our business, especially the primary market business, we cover almost 300 cities around China. So for both first- and second-tier cities and third-tier cities we have actually -- especially the major cities there, we have business there. So from the contribution, still the revenue contribution side, you can still see that the first- and second-tier contribute the most revenue; and the third-tier cities, because of the size and the trading volume of the city, so it's not so big portion.
In both cities, both higher and lower inner cities, we have the advantage. But you know this round new policies, we actually gave more negative impact from the first- and second-tier cities.
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Ming Xu, UBS Investment Bank - Analyst [4]
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So just a quick follow-up. So in your opinion, so what do you see the impact of these current restriction policies, so will we see any pickup or recovery in second half? Or we have to wait until maybe 2018 for a meaningful recovery in the property market?
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Geoffrey He, Leju Holdings Limited - CEO [5]
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I think, first, we understand the aim of the government this round, because they want to cool down the market and avoid too-quick rise of the price, so we understand the initiative of the government. But this round, we also see some difference from the other round in policy tightening because this round, local governments imposed a very strict restrictions on the marketing activities of the developers. They actually slow down the pace of issuing sales permits to new products and also impose price ceilings on the new projects.
So you can see that our business, advertising and the e-commerce, were both negatively impacted. We think that the market needs some time, several months or a quarter, to gradually go back. And we expect that this situation will be better from the second quarter of this year.
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Ming Xu, UBS Investment Bank - Analyst [6]
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Thank you He zong, very helpful.
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Operator [7]
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We will move to our next questions coming from Alex Yao from JPMorgan. Your line is open. Please go ahead.
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Alex Yao, JP Morgan Chase & Co - Analyst [8]
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The first question is regarding the revenue growth recovery. Do we have to wait for the property market to recover? Or are there company-specific drivers that you guys can pull to drive company-specific growth? A related question is, how should we think about the revenue weakness from the perspective of structural change in the advertising allocation space versus the cyclical weakness in the property market? In such a macro environment, how is Leju positioning and performing relative to other Internet peer platforms, such as the portal peer vertical names and also emerging mobile traffic platforms such as Toutiao.com? Thank you.
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Geoffrey He, Leju Holdings Limited - CEO [9]
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Thank you. For your first question, I think a current problem is not our business structure problem or it's a problem of the e-commerce. But the current challenge of the market is that because the government tightens the monitoring the marketing activities of the developers. So we think it's a market dynamic, and this will be changed from time going on. So it's not actually a problem for our revenue structure.
The second one is that, given that revenue from the e-commerce -- where you look at our previous reports, you can see it takes -- it's much larger than advertising revenue. So e-commerce will remain to be our top revenue growth contributor and will be most important business for Leju.
As to your second question, yes, when we enter in the mobile internet industries, we already recognized that no one single vertical portal, especially a low-frequency vertical portal, can survive on the market because the users spend diversified time on different mobile platforms when they interact with others, when they're watching videos and playing games and whatever.
So our strategy is try to cooperate with other mobile platforms with our unique content information with them. So especially when we're talking about Toutiao.com, you can see we have also a very close partnership on the content. They need vertical content, and we also need their audience to be targeted. So our strategy is try to integrate as more external mobile resources as we can and to provide our offline service to them on their mobile platform.
So Leju, you can see we already have a unique position on the market that we can provide cross-profile, cross-mobile platform marketing solutions to the market. I think this is our strength. It's also the features of our vertical, which is very low frequency.
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Alex Yao, JP Morgan Chase & Co - Analyst [10]
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Thank you very much, very helpful.
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Operator [11]
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We move to our next questions coming from Hillman Chan from Macquarie. Your line is open. Please go ahead.
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Hillman Chan, Macquarie Research - Analyst [12]
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So my first question is about our e-commerce coupon business. I understand that this is a focus for us in the primary market. But given that the profitability of the coupon model is facing some pressure, would we consider shifting more of these coupon e-commerce businesses to just online advertising when we are dealing with the developers? That's my first question.
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Geoffrey He, Leju Holdings Limited - CEO [13]
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Okay. Actually, in December, we launched our 2017 strategy. We called it "one plus one plus seven". That means, actually, including the previous e-commerce platform, we also introduced our membership platform. And this is our initial platform for potential buyers, if they want to buy houses, they can register membership on our website, and we pre-charge them an amount of membership fee and help them to find the house and get the discount.
If they finally get the discount and buy the house, we charge the membership fee. So you can see, it's already an upgrade of our e-commerce services. We called it membership service fee. The other one, the seven is advertising. So I think for "one plus one plus seven", all the developers may need this. One is for the membership and for the coupon business is help the developers to secure intention of the homebuyers. And for the marketing side is they need more awareness, more branding and even more effective way to touch the potential homebuyers on the mobile side.
So I think the "one plus one, seven", the strategy is our 2017 strategy, and all developers need that. And actually, we received a very positive feedback from them. And also, we have secured strategic partnership agreements with about 20 major developers, so far. So this, I think, will lay down a very solid foundation for us in the development of this year.
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Hillman Chan, Macquarie Research - Analyst [14]
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Thank you. And one more question on the Qiang Gong Zhang. How should we think about the monetization pipeline as we are expanding our scope of services and our suppliers, insurance companies, as it's mentioned before?
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Geoffrey He, Leju Holdings Limited - CEO [15]
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Okay. We think Qiang Gong Zhang is a very strategic investment of Leju. And in the past two years, we actually spent all our efforts to build up this platform, to help more contractors to our platform and help the people to find a contractor on our platform. So we called it -- actually, it's a marketing platform, online marketing platform, just to help consumers to find proper contractor to do the home renovation.
From this year, we will further renovate our application. Apart from helping them find a good contractor, we will also focus on the digitalization of the renovation process, which means we provide the contractors intelligent measurement tools on the app. We help users to actually sign the contract, fulfill the payments through the app. We help them monitor the renovation sites via internet on the app, so we will encourage more and more home renovators, they use our apps. And I think if a platform with thousands of renovators on it, it's a high frequency app during that renovation process. And we will monetize from each prospect of this app. And I think we will -- we have a concrete revenue contribution model later on.
Currently, I think our revenue mainly from advertising, mainly from the membership of the contractors and also the service fee from the renovators, the home consumers, just the three major one. But later on, I think the revenue landscape will be a bit different.
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Hillman Chan, Macquarie Research - Analyst [16]
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Got it. And last question is about our headcount plan for different lines of businesses, if you could share.
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Geoffrey He, Leju Holdings Limited - CEO [17]
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The major headcount, I think we will keep stable. On the other hand, actually, we actually have some changes in different lines to adapt to new market changes. For primary sector, actually we -- because our resources is shifting from PC to mobile, so we have to use more new hands actually that can use the mobile technologies, and we have to say bye-bye to those traditional staff. So there's a little change in that. But overall, I think we're keeping the headcount stable.
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Hillman Chan, Macquarie Research - Analyst [18]
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Thank you He zong. Thank you for the color.
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Operator [19]
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(Operator Instructions) We will now move to our next questions coming from Nora Zhang from Bank of America. Your line is open. Please go ahead.
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Nora Zhang, BofA Merrill Lynch - Analyst [20]
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Actually, I have some housekeeping questions regarding the Qiang Gong Zhang platform. Could you share with us the GMV and number of contractors? And how much do we expect to invest in the home decoration platform in 2017?
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Geoffrey He, Leju Holdings Limited - CEO [21]
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Okay, okay. The GMV of the platform is about RMB256 million in the fourth quarter. And the full year, it's about RMB600 million. And for contractors, we already have over 50,000 contractors on our platform. The exact number is 53,250.
And as to the investment, I think we actually make up a perfect balance from the spending and from the growth and from the earnings. I think we will keep reasonable investment on this platform because we have our great aim to actually -- to digitalize or to further improve the renovation process of the products use Internet technologies.
So it's not a short-term aim. It's a long-term aim. So we -- especially for this year, we will make perfect balance of the investment. We want to see that our circle runs well. We also see that this circle generates the revenue as we expect. And also, if we think this app gives us the scalability of the revenue, we will increase the investment to cover more cities. So we will keep the balance of it.
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Nora Zhang, BofA Merrill Lynch - Analyst [22]
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Thank you for the color.
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Operator [23]
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We will now move to our next questions coming from Hillman Chan from Macquarie. Your line is open. Please go ahead.
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Hillman Chan, Macquarie Research - Analyst [24]
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Just some housekeeping questions. Could you give us the revenue mix by tier of cities for e-commerce and online advertising, please?
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Min Chen, Leju Holdings Limited - CFO [25]
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Yes, Hillman, it's Min. For the fourth quarter, the first-tier city e-commerce revenue contribution was about, let's see, 37% (corrected by company after the call).
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Hillman Chan, Macquarie Research - Analyst [26]
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20%?
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Min Chen, Leju Holdings Limited - CFO [27]
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37% (corrected by company after the call).
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Hillman Chan, Macquarie Research - Analyst [28]
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37% (corrected by company after the call).
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Min Chen, Leju Holdings Limited - CFO [29]
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And 57% (corrected by company after the call)came from second tier, and 6% (corrected by company after the call) is from third tier or lower. And then for advertising, the first-tier city contributed about 40%, and second tier was about 44%, and the remaining is from third tier and lower.
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Hillman Chan, Macquarie Research - Analyst [30]
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Got it. And for the ASP, the coupon ASP this quarter, there is a decline.
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Min Chen, Leju Holdings Limited - CFO [31]
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Yes.
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Hillman Chan, Macquarie Research - Analyst [32]
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Is it related to the change in the mix of tier?
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Min Chen, Leju Holdings Limited - CFO [33]
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Yes, yes. As you can see, three quarters of our revenue came from second-tier cities. And the coupon ASP from those second-tier cities is less than half of the first-tier cities.
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Hillman Chan, Macquarie Research - Analyst [34]
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Okay. And going forward for 2017, how should we think about the revenue mix by tier of cities?
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Geoffrey He, Leju Holdings Limited - CEO [35]
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I think that the first tier will remain the biggest contributor --
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Min Chen, Leju Holdings Limited - CFO [36]
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Right.
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Geoffrey He, Leju Holdings Limited - CEO [37]
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-- as the market -- we expect the market will go back, especially in Guangzhou and Shanghai. And for the second tier, I think it's very potential cities for us because in terms of the number of the cities, it's the biggest. And also, when you're looking at the market, especially the market policies, I think these are more attractive to us.
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Hillman Chan, Macquarie Research - Analyst [38]
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Thank you He zong and Chen zong.
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Operator [39]
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(Operator Instructions) There are no further questions at this time. Ms. Annie, please continue.
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Annie Huang, Leju Holdings Limited - IR [40]
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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.
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Geoffrey He, Leju Holdings Limited - CEO [41]
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Thank you.
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Operator [42]
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This concludes the conference for today. Thank you for participating. You may all disconnect.
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