Q4 2017 Leju Holdings Ltd Earnings Call

Mar 19, 2018 AM UTC 查看原文
LEJU - Leju Holdings Ltd
Q4 2017 Leju Holdings Ltd Earnings Call
Mar 19, 2018 / 11:00AM GMT 

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Corporate Participants
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   *  Li-Lan Cheng
      Leju Holdings Limited - Acting CFO
   *  Michelle Yuan
      Deputy CFO
   *  Yinyu He
      Leju Holdings Limited - CEO

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Conference Call Participants
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   *  Binbin Ding
      JP Morgan Chase & Co, Research Division - Analyst
   *  Ming Xu
      UBS Investment Bank, Research Division - Director and Research Analyst
   *  Robert W. Cowell
      86Research Limited - Analyst
   *  Leif Chang
      Morgan Stanley - 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 Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions) Please note that today's conference call is being recorded. If you have any objections, you may disconnect at this time.

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

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 Michelle Yuan,  Deputy CFO   [2]
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 Hello, everyone, and welcome to Leju's Fourth Quarter 2017 Earnings Conference Call.

 Today, we'll update you regarding our financial results for the fourth quarter ended December 31, 2017.

 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 the 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 2017; Mr. Li-Lan Cheng, our Acting CFO, will then discuss the financial results in more detail. We will then open the call to questions.

 Before we continue, please allow me to review Leju's safe harbor statement. Some of the statements during this conference call are forward-looking statements made under safe harbor provisions of Section 21E of the Security 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're 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 statement 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-dong, please go ahead.

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 Yinyu He,  Leju Holdings Limited - CEO   [3]
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 Thanks for everyone for joining us on today's call. In the fourth quarter of last year, the overall operating environment did show significant improvement under the continued tightening policies imposed by the government. Throughout the whole year of 2017, a series of real estate regulatory measures such as price ceilings and the restrictive policies on home purchase and mortgages were carried out in major cities in which we operate.

 Marketing demand from developers was significantly subdued. And our e-commerce business, which is based on our discount coupons, was severely and negatively impacted. However, our online advertising sector benefited from the development of our targeted advertising products and achieved a stable performance.

 During this quarter, we formulated our new strategy of New Media, New Ecosystem and New E-commerce, aiming to further enhance our media influence and content productivity and provide accurate and targeted advertising services by leveraging our big data capability.

 At the end of 2017, we officially launched the Leju Finance, a professional real estate vertical media platform in China. "Leju Finance" serves as a B2B platform, which provides users interactive service and information on developers, featuring their financial and operating performances -- we expect this platform will make incremental revenue contribution to our online advertising segment this year by offering leading developers a suite of brand promotional services.

 Meanwhile, apart from our project-based e-commerce model, we now have launched a new e-commerce business, which offer developer-branded coupons which can be redeemed for purchases of projects to be launched in the near future.

 Looking forward to 2018, we believe that while the restrictive measures will persist, our new suite of services will become incremental revenue drivers to our top line growth.

 On the other hand, we will also further optimize our operations and management across all business lines and continue streamlining our cost structure to improve our bottom line.

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

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 Li-Lan Cheng,  Leju Holdings Limited - Acting CFO   [4]
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 Thank you, Geoffrey. Good morning, good evening, everyone. For the fourth quarter of 2017, we recorded total revenues of $106.4 million, a 1% increase from the same quarter 2016. Our e-commerce services revenues were $71.2 million, relatively flat compared to the same quarter 2016. It contributed 67% of our total revenues this quarter. Our online advertising services revenues for this quarter increased by 16% to $32.7 million as a result of an increase in property developers' online advertising demand. It contributed 31% of our total revenues this quarter. Our listing services revenues for the fourth quarter of 2017 decreased by 58% to $2.4 million from the same period last year as a result of a decrease in secondary real estate brokers' demand.

 Our cost of sales for this quarter increased by 40% to $19.6 million from the same period last year due to increased cost of advertising resources purchased, partially offset by decreased staffing cost of the editorial department as a result of headcount change.

 Our selling, general and administrative expenses decreased by 15% to $112.3 million from the same quarter last year. The decrease was primarily due to decreased marketing expenses related to our e-commerce business and decreased salary as a result of headcount change.

 Non-GAAP loss from operations was $21.7 million for the fourth quarter of 2017 compared to non-GAAP loss from operations of $33.7 million for the same quarter of 2016. Non-GAAP net loss attributable to Leju shareholders was $19.2 million for the fourth quarter of 2017 compared to non-GAAP net loss attributable to Leju shareholders of $22.9 million for the same quarter of 2016.

 Full year -- for the full year 2017, we recorded $362.5 million in total revenues, a 35% decrease from the same -- from last year -- or from 2016. Our e-commerce revenues decreased by 44% to $234.8 million from the same period of last year as a result of a decrease in both the number of discount coupons redeemed and average price per discount coupon. It contributed 65% of total revenues for 2017. Our online advertising revenues contributing 31% of total revenues, decreased by 4% in 2017 compared to $113.2 million for 2016 due to a decrease in developers' online advertising demand, while our listing revenues decreased by 36% to $14.5 million as a result of a decrease in secondary real estate brokers' demand.

 Non-GAAP loss from operations was $125.9 million for the full year 2017 compared to non-GAAP income from operations of $9 million for 2016. Non-GAAP net loss attributable to Leju shareholders was $105 million for 2017 compared to non-GAAP net income attributable to Leju shareholders of $10.1 million for 2016.

 As of December 31, 2017, our cash and cash equivalents balance was $151 million. Our net cash flows used in operations for the fourth quarter of 2017 were $57.6 million, mainly attributable to non-GAAP net loss of $19.4 million, an increase of $7.4 million in accounts receivable, a decrease in other current liabilities of $24.9 million and a decrease in advance from customers and deferred revenue of $4.7 million.

 Looking ahead, we estimate that our first quarter 2018 total revenues will be approximately between $75 million to $77 million, which represents an increase of approximately 10% to 13% from the same quarter of last year. Please note that this forecast reflects our current and preliminary view, which is subject to change.

 This concludes our prepared remarks. We are 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) Our first question comes from the line of Binbin Ding from JPMorgan.

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 Binbin Ding,  JP Morgan Chase & Co, Research Division - Analyst   [2]
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 I have 2 questions here. My first question is on the overall real estate policy environment in the year of 2018 and also what's management view on the channel, the transaction volume in this market? And also, what's the implication for our own e-commerce transaction volume in the year of 2018? And my second question is on the advertising revenue growth, which recovered to 16% year-on-year for the first quarter. I'm just trying to get some color behind the growth. Is it more driven by our own initiatives? Or you've seen the overall recovery in the sector? And also, in terms of your new initiatives, Leju Finance, can you provide some more colors on the initiative? And what kind of financial contribution do you expect that can be generated from Leju Finance in the year of '18?

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 Yinyu He,  Leju Holdings Limited - CEO   [3]
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 Okay, thank you for the question. For the first question is that we think that overall government, overall government will not lose the restrictions on the price ceiling and a lot of policies, especially the first-tier and second-tier cities. However, we think that because of the market policies, a lot of consumer sentiment has been changed. And we already see some minor change in second-tier cities. Even if the price ceiling the government give is quite low than the current market level, however, the consumers, the demand is decreasing. So we think that, overall, the government will not lose any restriction on the policies, but the market will, I think, have some change especially in the second-tier cities. For the transaction volume, I think last year actually is the highest, historical high. I think, this year, we'll keep stable or even a little bit lower than last year. For our e-commerce model, as you know, that our e-commerce model is based on the discount because we sell discount coupons. So when developers feel a little bit hard to sell the houses and the chance comes to us. So last year, it's really, I think, challenging for us because even small developers in big cities they don't have any discount. But I think this situation will be gradually changed this year. That's for your first question.

 And then for your second question is that, yes, we actually achieved quite satisfactory growth on our advertising side. Last year, we actually released 7 new products based on online big data and we actually have a lot of alliance with big Internet portals like Tencent, like Baidu, like UC. I think the growth reflects the health and the growth of our new products, and I think it's quite healthy growth. On the other hand, I think we don't think that the entire market is growing. We just used our new innovative products to grab more market share from our competitors.

 Leju Finance is a very, I think it's a very new platform. It is a vertical media platform. And the aim to establish such a platform has two. One is because in the vertical industry of real estate and home furnishing markets, actually, previously, we only provide new feeds. But more and more industry players, they need in-depth analysis data, information about the companies, especially more and more real estate companies and the furnishing companies become listed companies. So we set up such a media company to -- a media platform to provide in-depth information, especially on the companies' side and for the industry. And the other hand is that because a lot of companies become listed companies, so we see market opportunities because more and more companies begin to pay attention to their brand building. So it is a branding advertising market, so we hope that Leju Finance will also get this market. That is why we say that we hope that Leju Finance will provide our new advertising resources this year. Is that good?

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 Binbin Ding,  JP Morgan Chase & Co, Research Division - Analyst   [4]
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 And I have a follow-up on your listing service as well. So your listing service, although it's still at a relatively smaller revenue size, but if you look at some of the other peer companies in the market, I think they are expanding more to the lower-tier cities and we see a very robust growth in the listing service. But for our revenue, given it's still in a declining rate, so what's your thinking behind your listing service? And will that begin to pick up in the new year?

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 Yinyu He,  Leju Holdings Limited - CEO   [5]
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 Thank you for your question. I think for our listing business, because we are not market #1 currently, we are almost #3 and even in some cities we are #4, and the other, our city coverage is mainly in the first- and second-tier cities. So all these situations encourage us to have a very different development strategy from our peer competitors. I think we are now actually reshuffling the business model from a terminal model to be a, we call it a trusted -- trust agency model. Previously, on the website, people will usually find the house information and then connect to the agent. Now -- however, the house information currently is not so accurate and consumers also have a lot of trouble on that. More and more people are using the mobile phones rather than PCs, so we are reshuffling the models, try to have people to first find the trusted agencies first and then get the house information from the trusted agencies. It just started and we are looking to see if this can help us to improve our top line of the listing business.

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Operator   [6]
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 (Operator Instructions) Your next questions comes from the line of Ming Xu from UBS.

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 Ming Xu,  UBS Investment Bank, Research Division - Director and Research Analyst   [7]
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 So I have 2 questions. First one is regarding your home furnish business. Could you share with us some update and also if there's any monetization plan? The second question is more broader. So we recently noticed that like in the other vertical, the DongCheDi Under Jinri Toutiao is very aggressive and actually gaining traction against the traditional verticals. So do you think that in the property vertical area, that your peers versus traditional business model could be disrupted by this kind of new business model?

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 Yinyu He,  Leju Holdings Limited - CEO   [8]
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 Okay, for the first question, actually, our home furnishing sector have 2 business lines, one is entirely media advertising business. Currently, actually, we, on the media advertising business, I think we are currently market #1 and now comprise more than half of the market. And we are also doing some new media, the new media business in the home furnishing sector, and I think this will also create substantial revenue this year. For the second one is that we're having innovative product called Qiang Gong Zhang, which we actually have been invested for several years. This home furnishing sector, this year, we will also operate with our partner company, Shi Hui, to getting into the communities, off-line communities. We hope all these off-line communities can bring more off-line clients to our platform. Also on the Qiang Gong Zhang platform is not purely online platform. Now cooperating with Shi Hui, we also have off-line community support, so it will be online off-line circle to further push ahead this new business. For the second one, you also mentioned the Toutiao and DongCheDi on Toutiao. I think you will see the house and car is very similar business. But actually, our business is still a little bit different from the car business. First is the -- we have 2 lines. First line is the primary sector. The primary sector is actually the B2B2C business rather than a B2C sector. And for the secondary, it is the C2C business -- C2B2C business. So DongCheDiis more like our secondary sector rather than first tier -- the primary sector. For the developers in the primary sector, I think what they need is not only advertising, they also need online-off-line connection services. That is why -- that is the core actually of our e-commerce business, although we sell discount coupons for the developers, actually they see the value to connect the online and off-line together. So we don't think that a very simple advertising way can help overwhelm our new home business. For the secondary market, as I see, we're also testing some models. We think that the secondary housing market is facing some change and we also have some ideas on that. We'll look and see. Jinri Toutiao is also a very good partner for us because we also have a lot of traffic partner in Toutiao. So we will see this platform if we can further deepen the cooperation with them, it's good to us.

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Operator   [9]
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 (Operator Instructions) Your next question comes from the line of Robert Cowell from 86 Research.

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 Robert W. Cowell,  86Research Limited - Analyst   [10]
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 I'm interested in getting some more color on your plans for streamlining the cost structure? In kind of 2017, you had significant loss. So I'm interested in what you're thinking for when we're able to turn a profit, and how should we be looking at the different parts of the cost structure here.

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 Yinyu He,  Leju Holdings Limited - CEO   [11]
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 Yes. As you see that, in 2017, we still quite have a big loss. That's mainly because almost half of our e-commerce business, which contributed more than 70% of our total revenue. And the other side that because our current -- our previous cost structure is based on the e-commerce revenue side, so we are actually adjusting quarter-by-quarter in 2017 to adjust to the new market situation. Looking ahead to 2018, we see from the top line side I think our advertising revenue will keep stable and we also try to get some growth on that. And for the e-commerce side, I think the 2017 situation is the worst situation and we will -- we try to see this business is getting top from -- getting up from the top. And also, we also released new models. As I said, we begin to issue the coupon discount, the coupon based on the brand rather than projects. This is also a new product to faceing the new market. So we think from the top line side, we'll improve in 2018. From the cost structure side, as I said, we gradually improved our cost structure and also cut off our staff from quarter-to-quarter in 2017. I think the benefits from the bottom line side will appear in 2018. So overall, we think that, 2018, we will try to turn the business around.

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 Li-Lan Cheng,  Leju Holdings Limited - Acting CFO   [12]
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 This is Li-Lan. I'll just add to what Geoffrey just said. Yes, 2017 -- what happened for 2017 was that we had a cost structure here more suitable for a business that was 50% bigger than it actually was, and the policy change that happened in the fourth quarter of 2016 caught all market off-guard. And we have been -- for the most of the year, 2017, we tried very hard to bring our cost structure in line with the business reality. And that worked. We've come long way in that direction, we're still doing more. But more or less, as we stand here in early 2018, all we can see is we are aligning our overall operation and cost structure towards what we think can be realistically achieved on the revenue side. So it doesn't depend on a robust recovery or huge growth in revenue, but we have made a lot of adjustments to make the cost structure more or less in line with our scale of business that we can realistically hope for, for this year. So we're hopeful that we can, if not turning profit -- profitable very soon, at least to bring the overall P&L situation in a much more manageable level.

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Operator   [13]
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 (Operator Instructions) Your next questions comes from the line of Leif Chang from Morgan Stanley.

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 Leif Chang,  Morgan Stanley - Analyst   [14]
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 I have 2 questions today. Number one is do you think developers, your customers, will increase their advertising budget in a tougher market? And my number two question is about we are seeing the leading developers is outperforming industry in terms of sales growth since 2016, i.e., the market is consolidating. So what is the implication to Leju's business in your view?

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 Yinyu He,  Leju Holdings Limited - CEO   [15]
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 Sorry, I didn't get your first...

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 Li-Lan Cheng,  Leju Holdings Limited - Acting CFO   [16]
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 Yes, I got it. The first question is, if we understand you correctly, are you asking whether developers will increase their advertising marketing spend in a tougher market?

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 Leif Chang,  Morgan Stanley - Analyst   [17]
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 Yes, yes, in 2018, whether they will increase their advertising budget.

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 Li-Lan Cheng,  Leju Holdings Limited - Acting CFO   [18]
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 Maybe I'll... not necessarily in advertising. But as Geoffrey mentioned earlier in one of his earlier -- answer in earlier questions, we've seen this cycle played out several times in the last 10 years. We have government policies clamping down on a very hot market in all sorts of restrictive measures and then so transaction volume will first fall. And in this case, you have added pressure of price limits, so people are buying new homes at below market price and that hurt our business obviously. But then as market transaction level falls, developers find it harder to push their product, their housing unit. And then developers will inevitably make more effort, a stronger effort to sell. That may -- traditionally, that meant just more advertising spending. Now it may or may not lead directly into more advertising spending, but we are hopeful that developers will still make harder efforts and that may mean discounts, more off-line marketing activities. So that will probably help our e-commerce business. Whether it's direct increase in advertising, we don't know. And sorry, your second question we also didn't get because the line was a little bit cut off, about market consolidation?

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 Leif Chang,  Morgan Stanley - Analyst   [19]
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 Yes. I mean, your customer, I think they are facing the market consolidation. So what is the implication to Leju's business?

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 Yinyu He,  Leju Holdings Limited - CEO   [20]
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 I think the first is that Leju has -- because the biggest shareholder is E-House and we have very good relationship with big clients, especially the top 100 developers. So the market consolidation will help us to get more business opportunities because usually these big companies will choose to cooperate with the big players like us. So it is good news for us actually, first of all. The second one is that the consolidated market or the consolidation is just means in the market, the number of companies has decreased, but it doesn't mean that the number of the projects will decrease. So if the projects -- the number of the projects is still increasing or they still have the marketing demand, so for us, because of our relationship with big clients, so it is good for us.

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 Li-Lan Cheng,  Leju Holdings Limited - Acting CFO   [21]
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 And the other thing is also as more and more of our clients are big and brand name developers, we're seeing higher demand for brand name-related marketing and advertising rather than all project-specific marketing and advertising.

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Operator   [22]
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 (Operator Instructions) We have the follow-up questions from the line of Leif Chang from Morgan Stanley.

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 Leif Chang,  Morgan Stanley - Analyst   [23]
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 Just a very quick follow-up. Do you have maybe any number regarding to how much of your advertising revenue is coming from the developers, say, maybe from top 10 developers or top 20 or even like top 50 developers?

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 Yinyu He,  Leju Holdings Limited - CEO   [24]
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 I think currently, we don't have very specific data dividing into top 10 because the listing is also changing from quarter-to-quarter. But overall, I think the clients, the revenue -- advertising revenue from the clients actually for Leju is quite diversified. But I think my rough idea is that most of our advertising revenue are coming from top 100 developers.

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Operator   [25]
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 Thank you. There are no further questions at this time. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.




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